[Senate Hearing 108-487]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-487



                     SMALL BUSINESS MANUFACTURING 
                           IN A GLOBAL MARKET

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

                             FIELD HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP

                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER, 9, 2003

                               __________

      Printed for the use of the Committee on Small Business and 
                            Entrepreneurship


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            COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                     OLYMPIA J. SNOWE, Maine, Chair
CHRISTOPHER S. BOND, Missouri        JOHN F. KERRY, Massachusetts
CONRAD BURNS, Montana                CARL LEVIN, Michigan
ROBERT F. BENNETT, Utah              TOM HARKIN, Iowa
MICHAEL ENZI, Wyoming                JOSEPH I. LIEBERMAN, Connecticut
PETER G. FITZGERALD, Illinois        MARY LANDRIEU, Louisiana
MIKE CRAPO, Idaho                    JOHN EDWARDS, North Carolina
GEORGE ALLEN, Virginia               MARIA CANTWELL, Washington
JOHN ENSIGN, Nevada                  EVAN BAYH, Indiana
NORMAN COLEMAN, Minnesota            MARK PRYOR, Arkansas

            Mark E. Warren, Staff Director and Chief Counsel
    Patricia R. Forbes, Democratic Staff Director and Chief Counsel


                            C O N T E N T S

                              ----------                              

                           Opening Statements

                                                                   Page

Snowe, The Honorable Olympia J., Chair, Committee on Small 
  Business and Entrepreneurship, and a United States Senator from 
  Maine..........................................................     1
Michaud, The Honorable Michael, a Representative in Congress from 
  Maine..........................................................     5

                           Witness Testimony

Aldonas, Grant D., Under Secretary for International Trade 
  Administration, U.S. Department of Commerce, Washington, D.C...     6
Olson, Pamela, Assistant Secretary (Tax Policy), U.S. Department 
  of the Treasury, Washington, D.C...............................    25
Pulkkinen, Bruce, President and CEO, Windham Millwork, Inc., 
  Board 
  Member of the Maine MEP, Florida MEP, Arizona MEP, and New 
  Mexico MEP, and National Board Member of the National 
  Association of Manufacturing...................................    51
Labrie, Thom, President, Former Auburn Machinery, Inc., Lewiston, 
  Maine..........................................................    59
Bonney, LoLisa, CFO and General Manager, Winderosa Gaskets, 
  Dixfield, Maine................................................    65
Rodrigue, Rodney P., President and CEO, Maine Manufacturing 
  Extension Partnership..........................................    71
Cousineau, Randy, Owner and President, Cousineau, Inc., North 
  Anson, Maine...................................................    96
Cairns, Allen, Managing Partner, Creative Mold Company, Auburn, 
  Maine..........................................................   100
Wentworth, John, President, Moosehead Manufacturing, Monson, 
  Maine..........................................................   110
Featherman, Bernard, Chairman, Biddeford-Saco Chamber of Commerce 
  and Industry President of Southland Steel Corporation, 
  Biddeford-Saco, Maine..........................................   116

          Alphabetical Listing and Appendix Material Submitted

Aldonas, Grant D.:
    Prepared statement...........................................    12
Bonney, LoLisa:
    Prepared statement...........................................    68
Cairns, Allen:
    Prepared statement...........................................   102
Cousineau, Randy:
    Prepared statement...........................................    98
Featherman, Bernard:
    Prepared statement...........................................   119
    Letter.......................................................   123
Labrie, Thom:
    Prepared statement...........................................    62
Michaud, The Honorable Michael:
    Prepared statement...........................................   136
Olson, Pamela:
    Prepared statement...........................................    29
Pulkkinen, Bruce:
    Prepared statement...........................................    55
Rodrigue, Rodney P.:
    Prepared statement...........................................    74
Snowe, The Honorable Olympia J.:
    Prepared statement...........................................   137
Wentworth, John:
    Prepared statement...........................................   113

                        Comments for the Record

Barreto, The Honorable Hector V., Administrator, U.S. Small 
  Business 
  Administration, Washington, D.C................................   144
Lumbert, Charles C., President and Managing Partner, Moose River 
  Lumber Company, Inc., Jackman, Maine, letter...................   149
Merkle, Donald R., Chief Financial Officer, Hubbardton Forge, 
  Castleton, Vermont, letter and attachments.....................   151
Small Business Legislative Council, Washington, D.C., letter.....   156

 
            SMALL BUSINESS MANUFACTURING IN A GLOBAL MARKET

                              ----------                              


                       THURSDAY, OCTOBER 9, 2003

                              United States Senate,
          Committee on Small Business and Entrepreneurship,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 9:30 a.m., in the 
Council Chamber Room of the Lewiston City Hall, Lewiston, 
Maine, the Honorable Olympia J. Snowe, Chair of the Committee, 
presiding.
    Present: Senator Snowe.

  OPENING STATEMENT OF THE HONORABLE OLYMPIA J. SNOWE, CHAIR, 
SENATE COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP, AND A 
                UNITED STATES SENATOR FROM MAINE

    Chair Snowe. The hearing will come to order. I want to 
welcome everybody, first and foremost, and thank all of you for 
being here today. I am sorry some of you have to stand in the 
room, but we've been advised that, due to fire code, we cannot 
have any more chairs in the room. There is an overflow room as 
well that monitors this by closed circuit TV. So, I appreciate 
it.
    I know there is a lot of interest in this subject and, so, 
we will begin. And hopefully, we can accommodate as many 
witnesses. We have two panels here this morning and will 
proceed as we can.
    I want to welcome Congressman Michaud, who is here for a 
short duration. I know he has a long history in representing 
the Second Congressional District on this issue and the impact 
of lost manufacturing jobs. I am also particularly aware of the 
Second Congressional District's concerns, having represented it 
myself for 16 years before being elected to the Senate. So I 
want to welcome you. And, because you are a Member of the Small 
Business Committee in the House of Representatives, this is a 
joint venture here today. I thank you. I want to welcome all of 
you to today's field hearing, ``Small Business Manufacturing in 
a Global Market.''
    Let me begin by saying that this is my first field hearing 
as Chair of the Small Business Committee. I chose this subject 
because I believe it is having a serious effect, certainly on 
my State and, also, across the country. It is also a pleasure 
for me to be here in Lewiston-Auburn, where my hometown roots 
run so deep. Today, I couldn't help but think how appropriate 
it would be that my first field hearing would be in a place 
where it all started for me. I also thought that it was 
entirely fitting that a hearing, focusing on the importance and 
resurgence of manufacturing, be held in a place that was 
literally built by manufacturing and the hard-working people 
who made Lewiston-Auburn's legendary industrial base possible. 
Of course, it is also an area that is all too familiar with the 
tremendous losses experienced by the manufacturing sector. So 
it is altogether appropriate that we are here; and I thank the 
City of Lewiston for hosting this hearing here today in their 
City Council Chambers.
    I also want to thank the witnesses who have so generously 
taken the time to be here today and to offer their testimony on 
one of the most pressing issues facing our State and our 
country. We are extremely fortunate to have key members of the 
President's Administration with us: the Honorable Grant 
Aldonas, the United States Commerce Under Secretary for 
International Trade, and the Honorable Pamela Olson, United 
States Department of the Treasury, Assistant Secretary for Tax 
Policy. Your presence here today attests to the President's 
understanding of manufacturing's importance to our economy and 
his commitment to aiding its recovery. As many of you know, the 
Small Business Administrator was supposed to be here today, 
Hector Barreto, but he was called away on a family emergency. 
However, he has submitted testimony that will be available 
through the Committee as well. Finally, among our panelists are 
Maine small business representatives, who are exceptional 
advocates for the manufacturing sector of our economy and have 
taken valuable time away from their businesses to make 
invaluable contributions to this hearing. I want to thank each 
and every one of you, and I am looking forward to hearing your 
testimony here shortly.
    Let me open by saying that it would be impossible to 
overstate the role of small business manufacturers within the 
overall manufacturing industry and our Nation's economy. With 
small business manufacturers constituting over 98 percent of 
our Nation's manufacturing enterprises, employing 12 million 
people, and supplying more than 50 percent of the manufacturing 
value added in this country, it is a sector we cannot afford to 
ignore. Yet we know that no industry has witnessed a more 
profound erosion of jobs than U.S. manufacturing. That is why I 
have chosen to focus my first field hearing on strengthening 
this vital sector that has also been a traditional source of 
quality, decent wages and critical benefits.
    The damage manufacturing has sustained is nothing short of 
stunning. From July 2000 through June 2003, almost 2.7 million 
U.S. manufacturing jobs have been eliminated. Incredibly, New 
England lost more than 214,000 manufacturing jobs in the last 
10 years, with 78 percent of those losses occurring in the last 
2\1/2\ years. Here in Maine, we have been shedding 
manufacturing jobs at an alarming rate over this past decade 
and all the moreso, in the past 2 years. From January 1993 
through June 2003, we lost more than 18,900 manufacturing jobs, 
and, astoundingly, 17,300 of those occurred between July 2000 
and June 2003. So we are far from heading in the right 
direction.
    There should be no doubt of the need to bolster our 
manufacturing industry, especially with unemployment levels 
reaching a high of 6.4 percent in the United States. The bottom 
line is, if we are to ensure the road to recovery is robust, we 
have a special obligation to provide the tools for growth in 
manufacturing. It is not only critical for the preservation of 
the sector, but also to preserve other sectors of the economy. 
In fact, it has been reported that for every dollar in 
manufacturing product, an additional $1.26 is created in other 
industry sectors, such as supplies of raw materials, marketing 
and retail industries. That's more than a 100 percent return on 
the initial investment. We should be so lucky to do that with 
our mutual funds.
    Looking even more broadly, a healthy manufacturing sector 
is essential to our Nation's security and its status as a world 
power. We must end this trend of becoming increasingly 
dependent upon other countries for the products we use and rely 
upon.
    Now is the crucial time for everyone--industry 
representatives, Congress, the President, Republicans and 
Democrats alike--to work together toward the common goal of 
revitalizing our manufacturing industry.
    Cheap imports from China constantly threaten the 
realization of our goal. In fact, China's trade surplus with 
the United States rose 25 percent during the first half of 
2003. Although China is advantaged by low labor costs, U.S. 
manufacturers have consistently reassured us that they can 
compete with China, if only there was a level playing field.
    The Chairman of the House Small Business Committee, Mr. 
Manzullo, and I have requested General Accounting Office study 
to examine the effects of China's manipulation of currency. We 
expect that study to be out next March or April--with certain 
encouragement to be done sooner. Then I will hold hearings at 
the Small Business Committee in Washington to evaluate those 
effects and what impact they are having. I think we know what 
the effect is on our industry.
    I also urged the President in July--and, also, Treasury 
Secretary Snow in August, before his trip to Asia--to confront 
China concerning its unfair trade practices including its 
artificial manipulation of the yuan. I am pleased the 
Administration has increased its pressure on China. I am also 
optimistic, with the creation of the U.S./China Security and 
Economic Commission, that we will be able to focus on this 
issue as well. I have submitted testimony, along with those 
across the industry and in Congress, in hopes to have this 
commission aggressively address the China currency issue.
    I am pleased that the President has created a position for 
manufacturers in the Commerce Department, an Assistant 
Secretary for Manufacturing, as a point person within the 
Administration on manufacturing issues.
    Another matter that will have an enormous impact on 
domestic manufacturers is the replacement of the 
extraterritorial income tax and foreign sales corporation 
provisions that are in current tax laws to specifically provide 
U.S. companies that export a tax incentive to export their 
goods. The intent of those laws was to make U.S. exports more 
competitive overseas by reducing their maximum tax rate and 
corporate tax rate. However, these same tax incentives were 
targeted by the World Trade Organization as being non-compliant 
and as providing an export subsidy. Consequently, they must be 
repealed or else the United States could face $4 billion in 
sanctions. At the same time, such a repeal would add about $50 
billion in manufacturers' tax burden over the next 10 years.
    Last week in the Senate Finance Committee, of which I am a 
Member--we had to address this problem to remedy it, by 
creating a lower tax rate for all manufacturers so that they 
wouldn't face the effects of the repeal of the export tax that 
was available under the foreign sales corporation. I, and some 
other Members of the Committee, made sure that we included 
Subchapter S corporations, proprietorships and partnerships so 
that small business, per se, would not be excluded from this 
preferential rate. I am pleased that the Committee accepted 
several of my initiatives, and increased the phase-out for 
small business expensing from $400,000 to $800,000. I also 
worked with the Finance Committee to ensure that the tax break 
for manufacturers included softwood lumber producers. The 
softwood lumber industry here in Maine--like paper and steel--
has faced unfair trade practices from countries that subsidize 
their products and dump them on U.S. markets, in violation, of 
course, of our trade laws. The Administration has taken a firm 
stance on enforcing trade laws. In particular, I want to thank 
the Under Secretary for his untiring work on behalf of the 
softwood lumber industry, and throughout the country, and in 
his negotiations for a fair market with Canada. The Finance 
Committee will work with this Administration on increasing our 
efforts to ensure that our trading partners comply with 
international trade agreements.
    Of course, it's the Small Business Committee that has 
oversight jurisdiction over the Small Business Administration, 
and we just passed Senate legislation to reauthorize the SBA 
for the coming 3 years. Reflecting my concerns for Small 
Business manufacturers, that bill contains numerous provisions 
that will benefit manufacturers, including an increase in the 
7(a) loan size from $2 million to $2.6 million for small 
businesses involved in exporting products; changes allowing 
small businesses to now participate in the 7(a) and the 504 
loan programs simultaneously; and an increase of maximum 
guarantees for manufacturing loans from $2 million to $4 
million. Provisions like these in the SBA Reauthorization bill 
should directly benefit small business manufacturers. Now, I 
will be engaged in the process of working out the differences 
with this legislation and the House legislation so that we can 
move this bill as quickly as possible before the end of this 
congressional session. It is also essential that the SBA is 
properly equipped to become more actively involved in small 
business importing and exporting programs and trade issues that 
directly affect small business manufacturers. That is why I 
intend to offer legislation, with respect to these issues and 
to increase the SBA's participation in trade negotiations. It 
will also improve access to capital for businesses that export, 
as well as for businesses that are adversely affected by unfair 
imports. Finally, the legislation will call for an increased 
SBA role with the U.S. Export Assistance Centers that are 
dispersed around the country and their participation in 
developing trade policy and negotiating trade agreements. So 
that's my vision, and that's what I hope to accomplish here 
today.
    But, more importantly, I hope to focus more attention on 
small business manufacturers' concerns, and to hear from you 
firsthand, specifically, what we can do in Congress, with the 
President and the Administration to assist you. I want to learn 
what we can do in the short-term, as well as the long-term, to 
remedy many of the difficulties that you're currently facing as 
a result of this declining economy, imports, unfair trade and a 
host of issues that have made your responsibilities as small 
business manufacturers to keep your doors open all the more 
difficult.
    So, as Chair of the Committee, I welcome you, I thank you 
for taking the time to be here today to express your views, 
because I certainly want to hear them. I should also say that 
we have the transcript being taken for this hearing today. 
Everybody will have a chance to submit their testimony for the 
record. We will be keeping this record open for the next 
several weeks so that people have the opportunity to follow up 
on anything that might be said here today, or to offer other 
testimony or information that they want to submit for the 
record. So, with that, I welcome each and every one of you.
    Congressman Michaud, would you care to say anything?

STATEMENT OF THE HONORABLE MICHAEL H. MICHAUD, A REPRESENTATIVE 
                     IN CONGRESS FROM MAINE

    Representative Michaud. Just briefly, Senator Snowe.
    I do want to thank Senator Snowe for allowing me to 
participate briefly this morning. I am glad my schedule was 
rearranged and that I was invited by the good Senator. She is 
definitely enthusiastic about this issue and really cares about 
this issue and what effect it has, not only in the State of 
Maine, but all across this country.
    Manufacturing definitely has been on the decline and I have 
been lobbying the Administration to create an Assistant 
Secretary of Commerce for Manufacturing and I am pleased that 
the effort finally paid off and that the President is moving 
forward with our suggestion to create such a position.
    But also I am very pleased to say that I joined the House 
Manufacturing Caucus in order to delve into specific issues 
surrounding manufacturing and to work on addressing this 
spiraling program.
    In addition to my membership of the Housing Manufacturing 
Caucus, I am a Member of the House Small Business Committee. 
This affords me the chance to hear the concerns of 
manufacturers and businesses of all sizes.
    This is an important issue not only for the State of Maine 
but all around the country. I want to thank Senator Snowe for 
her leadership in this area, and I am looking forward to 
working with her in a bipartisan manner on and through this 
issue. Because it is not a Democratic issue or a Republican 
issue--it's an issue that affects people, jobs and the economy. 
I think we've all seen too much.
    What has happened in the State of Maine, particularly since 
the beginning of this year, with the closing of large- or 
medium-sized businesses, can create a sometimes devastating 
economic ripple effect for small businesses in the area. They 
are losing manufacturing jobs left and right. We must to do 
something in a bipartisan manner to accept responsibility for 
many of the policies that currently hurt manufacturers, such as 
unfair trade agreements and spiraling health care costs.
    So, once again, thank you very much, Senator Snowe, for 
allowing me to be here.
    Chair Snowe. No. I thank you, Congressman Michaud. I 
appreciate those words and I think all of you know that Mike 
obviously comes from Millinocket. Having worked at the mills 
for more than 30 years, he has witnessed firsthand the 
devastation of the closure of those mills. Fortunately, one of 
them is open and hopefully, the second will open with a new 
buyer. But clearly, it's been devastating for those communities 
in the region and also for the State. So I appreciate your 
being here today.
    I would like to introduce the first panel. It consists of 
two high-ranking members of the President's Administration, 
each of whom are committed deeply to aiding small business 
manufacturers throughout Maine and the Nation.
    Testifying first is Under Secretary for International 
Trade, Grant Aldonas. He is head of the International Trade 
Administration. Mr. Aldonas is the Commerce Department's main 
advisor on international trade and has been acting as the 
Administration's point person on manufacturing. The priorities 
of his office include expanding export opportunities for 
American businesses, enforcing trade agreements, and ensuring 
compliance with U.S. trade laws that curtail unfair trade 
practices by foreign companies, such as prohibiting dumping of 
foreign-made goods and the elimination of foreign manufacturing 
subsidies.
    His office is known for placing special emphasis on working 
with small- and medium-sized businesses to ensure fair 
competition with foreign imports. As I said earlier, Grant has 
also been the President's point person for manufacturing, and I 
truly appreciate all that you have done on our behalf.
    Testifying next is Pamela Olson, the Department of the 
Treasury's Assistant Secretary for Tax Policy. Mrs. Olson has 
responsibility for policy analysis relating to all aspects of 
domestic and international issues of Federal taxation. Her 
office also negotiates tax treaties for the United States. Mrs. 
Olson, and the Administration as a whole, remain committed to 
reforming and updating the tax system to ensure that it does 
not impede the success of American manufacturers.
    So on behalf of the Committee, the State, and the small 
business manufacturers who are represented here today, and for 
all, we appreciate your presence here today. If you traveled to 
Maine, we hope you enjoy Maine and take some time to spend your 
money to help our economy, too.
    Okay. We'll begin with you, Mr. Secretary.

 STATEMENT OF THE HONORABLE GRANT E. ALDONAS, UNDER SECRETARY 
  FOR INTERNATIONAL TRADE ADMINISTRATION, U.S. DEPARTMENT OF 
                   COMMERCE, WASHINGTON, D.C.

    Mr. Aldonas. Thank you, Madam Chair. First of all, I want 
to thank you for the invitation and for your continuing 
interest in the success of our small business manufacturing 
sector. It's obviously been at the top of my list, and the 
Administration's list, for some time.
    It's great to be in Maine. So far, all I have contributed 
to the economy was sticking 50 cents in the meter outside in 
front of the building, so I hope I get a chance to do that. I 
had the great fortune when I was a young of getting a 
scholarship to go to an Upward Bound program in Hurricane 
Island. And fell in love with the State of Maine and the people 
here. When I was going through the history of manufacturing, as 
we've been looking at the manufacturing sector hard over the 
past 6 months, it's striking how much of our history as a 
Nation in manufacturing starts here in Maine and elsewhere in 
New England. The sort of productivity gains--we have a saying, 
``it all starts with Yankee ingenuity.''
    At some point, way back in our past, and grappling at some 
of the issues that we faced then and still face today, the 
themes that you see are themes that we have seen throughout our 
history, frankly. In terms of trying to make sure that markets 
were open, trade was free. It wasn't burdened by government 
intervention, things of that nature. And I am very pleased that 
we have this kind of leadership coming from the State of Maine. 
It reflects well on the people here.
    I am also pleased because, later today, I get to do one of 
my favorite parts of my job, which is hand out an Export 
Achievement Certificate to the Strainrite Companies--which is a 
wonderful example of a small manufacturer in Maine succeeding 
through exporting, frankly, by finding a market niche. Now, 15 
percent of its sales are overseas. They sell their products all 
around the world. They, in fact, have become one of the world's 
most significant manufacturers of vessel housings, filtering 
operations and containers for hazardous waste. It's a success 
story. It's the kind of thing that, at the Commerce Department, 
we take great pride in. I know both of you do as well. It's 
important that we reinforce those efforts as we go through this 
process because there is a lot of value to be added there.
    I was also struck by the news article in the Sun Journal 
this morning about Cianbro and the oil rigs that they had been 
producing for Brazil. Because, again, it's an example of, 
increasingly, where our business is in the United States. They 
are going to press for markets worldwide. We are going to have 
to work as hard as the next guy, and sometimes harder because 
we've got the most open and competitive market in the world, to 
make sure that we are out there finding new markets and finding 
new sales techniques.
    The Cianbro sales are a marvelous example of taking what 
was a company that was dedicated to the manufacture of pulp and 
paper and turning it into something very different. But $100 
million in revenues as a result of the effort they made to make 
good with the Brazilians. But let me turn to the substance of 
our conversation today.
    The first thing I want to do is assure you both of the 
Administration's cooperation in your efforts to ensure that we 
are building the best economic environment we can for small- 
and medium-sized manufacturers. That was the motivation behind 
the President's announcement in March, of the manufacturing 
agenda of which our initiative has been a part.
    The Secretary of Commerce directed me to, essentially, go 
and have a conversation with our manufacturers across the 
country, find out what their challenges were, come back with a 
report and recommendations in terms of how to grapple with 
those challenges. What we've done since that time is hold 
roundtables across the country in 23 cities with manufacturers, 
both large and small, representing virtually every industry in 
the United States. I am happy to report on some of those 
findings today, but the most important thing I want to convey--
and I really appreciate the Congressman's point about 
bipartisanship because what this is going to require is really 
tackling what I have come to describe as a crisis of neglect, 
particularly for our small- or medium-sized businesses. What 
you find is, unlike the folks that we have on the panel today, 
at all levels of Government and in every branch, and here I 
include the courts--what you really have are, not through any 
meanness of spirit, but decisions that are made with a sense 
that the individual decision is not that high relative to the 
benefits that we see.
    What we have had a tendency to forget is the multiple 
burdens that we create as every level of government and every 
branch of government imposes additional costs on our small 
businesses. Just to put this in perspective, as I am sure we 
will hear on the panel that comes next, the most striking thing 
about going across the country and talking with small 
manufacturers is just how good they are, and how hard they work 
at getting their own costs down so they can compete in a 
environment where there is a constant pressure on their pricing 
power.
    What I would like to see, frankly, is that as a government, 
both inside the Administration and in Congress, that we are 
doing the same things with the sorts of costs that we impose on 
business. That we are matching their level of effort in terms 
of driving those costs down. The reason I say that is that when 
we went across the country, what you really heard--let me try 
and group the issues in two different ways.
    One, the first problem that you heard, and although it 
wasn't with the intensity as the second problem, it certainly 
was the weight of most of what we heard about from small 
manufacturers, and that's what I have come to call ``keeping 
our own side of the street clean.'' As a practical matter, 
whether it's rising energy costs, rising health care costs--of 
which I know, Senator Snowe, you offered an awful lot 
leadership over a very long time--pension costs, the costs of 
personal injury suits.
    I was struck 2 weeks ago, as I was trying to go through a 
part of the report on tort reform, that a decision was made in 
Federal District Court in New York saying that Boeing could be 
sued, because the events of September 11 were somehow 
foreseeable, as a manufacturer of aircraft. That's absurd, 
frankly. For the 35,000 small suppliers that provide their 
goods and services to Boeing, it's catastrophic. It not only 
affects that group of 35,000 suppliers, it affects small 
businesses at large. Because when decisions like that are made 
in the courts, it raises insurance costs for everybody and the 
insurance costs are most dramatic for small- and medium-sized 
businesses, who end up paying--big companies do as well. The 
big companies can deal with it, seeing those sharply rising 
costs is much harder in terms of the small- and medium-sized 
businesses. So there is fair domestic agenda that we have to 
tackle.
    Now, probably the first thing out of the box, and to really 
reinforce the point that we had made to the manufacturers, was 
we weren't going to wait for a report when we knew there was 
some obvious answers.
    So one of the reasons the President has come forward--and I 
really appreciate the support, Congressman, in terms of trying 
to provide a focal point inside the Administration for 
manufacturing--is really to combat this crisis of neglect. 
Trying to provide a focus so that there is a constant advocate 
for small- and medium-sized manufacturers inside the 
Administration and inside our Federal Government that is 
constantly raising the issue of the costs of the decision we 
make--whether it's in Congress, whether it's in the 
Administrative agencies, or in the courts--so that we recognize 
the impact we're having on competitiveness.
    I am certain that as Pam starts to talk about the tax side, 
one of the things you are going to hear is that, in an economy 
as integrated into the global economy as ours is, there is no 
domestic economic policy choice that does not have an 
implication for our competitiveness. That's why we have to 
focus so hard on it, and need to focus inside the Federal 
Government, frankly, to bring those costs to light. Now the 
second thing, which I have to tell you generated a lot more 
heat, was the issue of leveling the playing field. Where, 
again, I know that both of you have been consistent advocates 
in terms of what we face.
    There are three issues, one of which is surprising to me. 
This didn't come out of the conversations with the 
manufacturers so much as it came out working hard on the 
numbers, on what we see in the economy.
    The first thing is the lack of economic growth abroad. We 
have a tendency to look at unfair trade practices, we have a 
tendency to look at the exchange rate side--which are crucial 
problems, I'll get to those in a minute. What was fascinating 
to me is that when we see the rising trade deficit particularly 
over the last, say, 4 to 5 years, sort of from the Asian 
financial crisis in 1997 forward, the most significant thing is 
the drop in our exports. What's important to realize is that 97 
percent of all our exporters are small- and medium-sized 
manufacturers. This is a huge hit on the guys that are behind 
us, that will be testifying later. It's a huge hit on the folks 
who they supply, even if they don't export directly like 
Boeing--things like that. It is directly attributable to the 
lack of growth in both Europe and Japan. So one of the things 
that you'll see is Administration, Secretary Snow, the 
President, certainly Secretary Evans, being a strong advocate 
with our friends and our trading partners in Europe, Japan and 
elsewhere in Asia. That we really have to get off our duffs and 
get their economies moving as well, because growth can kill a 
lot of what ails both the manufacturing sector in the United 
States as well as the manufacturing sector abroad.
    But turning to the two main issues, obviously, on exchange 
rates, it's the Treasury's province. There are serious 
problems. I know they will be coming out with a report next 
week about currency, as they are required to do on a regular 
basis. The main thing to keep in mind--and here I am going to 
pause for a second on China--is that we often looked at the 
exchange rate as the signal in the marketplace--but what it 
really reveals is our structure underneath the exchange rate 
from the Chinese economy for example. One of the things that I 
think is probably important to understand is the Administration 
has been the most vigorous that I have ever seen, in 25 years 
of dealing with these issues, in terms of trying to tackle 
those underlying problems. Because that's the solution that has 
to be solved, frankly, before the Chinese will see that it's in 
their own interest to change the peg at the end of the day. One 
of the best things they could do is open up their financial 
services market. I know from your perspective on the Finance 
Committee center that one of the things that we are arguing for 
is not only on the manufacturing side, but trying open up 
services markets. I never want to forget that by opening up the 
services market, like capital markets in China, we would do a 
world of good for our manufacturers as well.
    The last thing is unfair trade practices. Plainly, when you 
look at China and other countries, and I don't mean to single 
out China, because it obviously is just one of a number of 
countries that we face. But one of the things that you have to 
face is the equity in the trading relationship. Is there an 
equivalent set of opportunities for our guys there? Are we 
facing what is undistorted trade coming into our market? And 
there, I think, you really have to go to the core of the 
Chinese system. As I have talked with manufacturers across the 
country, it's true we face significant tariff barriers going 
in. We face WTO non-compliance. We face what we think are 
subsidies in dumping coming into our country. Probably the most 
important thing is the fact that their companies don't face the 
capital market pressures that our small businesses do in the 
United States. They simply don't have to turn a profit. If 
there is a single thing that Secretary Evans and I will be 
doing in China in about a week is confronting them with what is 
the ultimate subsidy. As long as the spigot stays on from the 
state-owned banks to the state-owned enterprises, those goods 
will try and find a market. They will be dumped in the most 
open market in the world--and that's the United States, as a 
practical matter.
    What we are doing on both those fronts--I know Secretary 
Snow has already taken up the issue of exchange rates. We will 
be pressing that when we are in China in a week.
    On the trade side, what I have done is, as you know--I have 
been working pretty hard in terms of trying to make sure we are 
doing a credible job of enforcing the trade laws. We need to 
take that one step further. As far as I am concerned, one of 
the weaknesses of our current trade system is that we are 
obliged to wait, literally, until an industry is injured, 
before we get a petition--whether it's on dumping or 
countervailing duties. You've seen this in the lumber and the 
paper industry over time. What we really need to do is get out 
and investigate the issues, the allegations, as we find them--
before an industry has to be injured. Act aggressively on it 
with our trading partners and let them draw the conclusion as 
to whether or not they want to trade in our market, or whether 
we will use the leverage of our market to ensure that they're 
adhering to the rules, that they are playing fair, and that our 
guys aren't facing subsidized competition.
    Thank you very much.
    [The prepared statement of Mr. Aldonas follows:]

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    Chair Snowe. Thank you very much, Mr. Secretary.
    Secretary Olson.

 STATEMENT OF THE HONORABLE PAMELA OLSON, ASSISTANT SECRETARY 
[TAX POLICY], U.S. DEPARTMENT OF THE TREASURY, WASHINGTON, D.C.

    Ms. Olson. Thank you, Madam Chair, Congressman Michaud. I 
appreciate the opportunity to appear before you today to 
discuss current tax issues affecting small business 
manufacturing in a global market. I especially appreciate the 
opportunity to come outside the Washington Beltway. I am 
looking forward to hearing what the folks on the next panel 
have to say.
    In Washington, we tend to think of things in a macro sense. 
Which is a lot like sticking one foot in a bucket of ice water 
and another foot in a bucket of boiling hot water and saying, 
``On average, I am comfortable.'' When you look at things on a 
micro level, as this field hearing gives us the opportunity to 
do, you get a very different picture from the picture that you 
get when you look at things from a macro level.
    Small business, as you've noted, has been fundamental to 
the United States throughout our history, but only in recent 
decades has the global marketplace acquired the prominent role 
it now occupies in the U.S. economy. If we look back to 1960, 
which I would note is the time that our international tax rules 
were put in place, trade in goods to and from the U.S. 
represented just over 6 percent of Gross Domestic Product 
(GDP). Today, trade in goods to and from the U.S. represents 
over 20 percent of GDP, a three-fold increase, while trade in 
goods and services represents more than 25 percent of GDP 
today. While large multinational corporations still dominate 
U.S. trade, in this era of globalization international markets 
are increasingly important to small business as well. Even 
small manufacturers who are not themselves selling abroad, and 
many of them are today, are more frequently involved directly 
in the global marketplace by supplying their wares to large 
businesses who are competing on the international stage.
    U.S. tax policy, therefore, has important effects on both 
small business and the U.S. role in world markets. In both 
contexts, the basic role of tax policy is to raise needed 
government revenue in ways that pose as little burden as 
possible on taxpayers and that keep distortions to private 
economic decisions to a minimum, based on the belief that 
individuals and businesses know better than the government how 
to make the most out of the limited resources at their 
disposal. To foster the small business economy, this 
Administration is committed to easing unnecessary restrictions, 
reducing taxes and streamlining burdens. While it is important 
for us to work to level all playing fields, we can ensure that 
our own rules minimize the barriers to the free flow of trades, 
the free flow of capital that globalization necessitates. And 
that is something for which we have vigorously worked over the 
last 3 years.
    With these principles in mind, the Administration, with the 
help of Congress, has taken significant steps to ease the tax 
burden on small businesses across the board--particularly in 
manufacturing, especially those producing for the world market 
but, as well, those focused on the local economy.
    In the past 2 years, personal income tax rates have been 
cut by 3 to 5 percent, relief has been provided for the 
marriage penalty, the 10 percent tax bracket broadened, and the 
child credit expanded. Because most small businesses are flow-
through entities (S corporations, partnerships, or sole 
proprietorships) and pay taxes at the individual rates of their 
owners, these reductions in personal tax rates have also been, 
in effect, reductions in small business tax rates. These 
changes have benefited 23 million households who own interest 
in small businesses in America.
    Small business in all forms of organization can benefit 
from the expansion of small business expensing. The amount of 
investment that may be immediately deducted by small businesses 
was increased from $25,000 to $100,000. And the limit at which 
expensing phases out was lifted from $200,000 to $400,000, 
increasing the number of taxpayers who qualify for this 
important simplification, as well as reduction in taxes.
    Lowering the dividend and capital gains rates reduces the 
role of taxes when small businesses are choosing the type of 
entity in which to operate their business. The partial relief 
from the double taxation of dividends will make the use of C 
corporations more available to small business owners and reduce 
the tax cost to small businesses growing.
    Phasing out the estate tax allows innovative entrepreneurs 
to pass their life's work to their children, not to the 
government, and not to expend excessive resources on estate 
planning.
    Unfortunately, of course, all these initiatives are 
scheduled to expire later this decade. Making them permanent 
would be one of the best things that we could be doing for 
small business. It would eliminate one area of uncertainty as 
small business attempts to plan for the future and keep the tax 
burden as low as possible on this productive segment of our 
economy. Madam Chair, your proposal, which was incorporated in 
the Senate Finance Committee bill last week, that the deduction 
for small business expensing phase out at fifty-cents for each 
dollar of excess investment, rather than dollar for dollar as 
under current law, would also improve the provision by reducing 
the investment disincentive as the deduction phases out.
    Although these legislative actions have provided much 
needed tax relief to small businesses, the complexity of the 
tax laws continues to plague small business owners. Our tax 
laws have become devastatingly complex in recent years. Many 
small business owners are unprepared to deal with this 
complexity and do not have the resources to hire sophisticated 
tax counsel or accountants to advise them. Tax law compliance 
drains the time, energy, and financial resources of small 
business owners and diverts their attention from the more 
important goal of building a business.
    Recognizing the need for simplification, the Treasury 
Department has undertaken initiatives not needing legislative 
action to decrease burdens on small business. For example, last 
year, the IRS and Treasury issued a revenue procedure that 
permits small businesses with gross receipts of less than $10 
million to use the cash method of accounting. We expect that 
the revenue procedure will eliminate many disputes that have 
arisen concerning the use of the cash method by small business 
taxpayers, allowing those taxpayers to focus on growth, not tax 
compliance. Another step taken last year was to exempt 2.6 
million small corporations from some IRS filing requirements, 
reducing the burden on those businesses by 61 million hours 
annually. Treasury is continuing to work with the IRS to find 
ways to reduce the burden of recordkeeping, filing and 
complying with the tax laws.
    Looking ahead on the international side, many of areas of 
our tax law are in need of reform to ensure that our tax system 
does not impede the efficient, effective and successful 
operation of U.S. companies and the American workers they 
employ in today's global marketplace. The pending repeal of 
FSC/ETI, and its replacement with one of the measures currently 
under consideration in Congress, will bring the United States 
into compliance with the World Trade Organization's ruling on 
export subsidies and avoid the possible imposition of $4 
billion in tariffs. It will not, however, ensure that our 
businesses, including small businesses who export, remain 
internationally competitive or that our tax system fosters 
efficient business structures and operations.
    We must continue to work on legislation that will address a 
number of issues. Let me just run through these briefly. I have 
detailed them in my testimony.
    The first is the double tax on corporate income. This is a 
particularly adverse effect on manufacturers, because 
manufacturers tend to do business in C corporation form. The 
double tax on C corporations was a particularly adverse effect 
on the paper industry and they were one of the industries that 
pushed most hard for the elimination or relief from the double 
tax. I'd note that today companies in the U.S., businesses in 
the U.S., small and large, compete in a global marketplace for 
capital and prior to the tax act earlier this year, the U.S. 
was the only--one of only three major trading countries that 
had a complete double tax on corporate income without any 
relief.
    So the tax bill that was enacted earlier this year brought 
important relief to manufacturers and, in particular, to the 
paper industry, making the R&D credit permanent.
    The President's budget proposes doing so. Research is 
central to American businesses' ability to compete successfully 
in the global economy. It results in new processes and 
innovative products that open up new markets and create job 
opportunities. American businesses can continue to compete only 
if they stay at the forefront of technological innovation. The 
research credit encourages technological developments that are 
an essential component of economic growth and a high standard 
of living in the future. The credit should be made permanent to 
give businesses certainty that they need to plan.
    Depreciation: The current system of tax depreciation merits 
reevaluation. Inappropriate depreciation rules can hinder the 
competitiveness of our businesses by tilting investment away 
from profitable areas into less productive endeavors. This can 
pose a particular burden for large and small businesses in 
capital-intensive industries such as manufacturing.
    The corporate AMT: The corporate Alternative Minimum Tax 
(AMT) is known in some circles as the anti-manufacturing tax. 
It is an alternative tax system to the regular tax system. The 
AMT means that companies must keep a second, or sometimes 
third, set of books to compute their tax liability. The tax is 
pro-cyclical, meaning it hits you when you are down and takes a 
particular bite out of manufacturers because of its pro-
cyclical effect. And the adjustments it has for depreciation, 
which has a particular effect on manufacturers because they are 
more capital-intensive than other industries, and it limits on 
that operating losses. And again, the manufacturing trends tend 
to be cyclical, more than other industries, so it is more 
adversely affected by things that put limits on its ability to 
use, in that, operating losses such as the AMT.
    The accounting rules: Current law specifies detailed and 
complicated accounting rules. Complying with these rules can be 
difficult and costly, especially for small businesses. To 
relieve compliance burdens, and perhaps reduce taxes as well, 
consideration could be given to simplifying capitalization 
rules--which has a particular effect on manufacturers who are 
required to carry extra overhead in their inventory and the 
rules regarding long-term contracts. These changes would 
provide significant benefits to the manufacturers who must 
expend resources to comply with these rules.
    Finally, simplification. It has been observed that ``it is 
difficult to predict the future of an economy in which it takes 
more brains to figure out the tax on our income than it does to 
earn it.'' That is the situation we face. Our tax laws are 
extraordinarily complex. A recent IRS study of the burden and 
cost of complexity to individual taxpayers put the burden well 
in excess of three billion hours per year, and the cost well in 
excess of $60 billion per year. And that is just the individual 
side. On the business side the rules are even more complex and 
the burdens of compliance go even higher. While large 
businesses can grapple with them, many small- and medium-size 
businesses simply cannot. The challenge for businesses trying 
to comply with the law is enormous. It is time for us to 
undertake a serious effort to simplify our tax rules. We 
recognize that broad simplification of the tax system will be 
difficult to achieve, but we believe it important that we 
remain vigilant against further increases in complexity. As we 
have written regulations over the course of the last 3 years at 
the Treasury Department, we've made that a priority. A $1000 
tax break that costs a small business $3000 in accountants' 
fees is no favor to small business.
    In conclusion, I want to thank you again for the 
opportunity to appear before you today.
    [The prepared statement of Ms. Olson follows:]

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    Chair Snowe. Thank you, Secretary Olson.
    Let me just follow up with a few questions because 
obviously, we recognize that we have a serious problem. In 
fact, I'd say it was urgent and nothing short of a crisis as it 
affects the manufacturing sector of our economy.
    The question is, what can we do now? I know there are a lot 
of initiatives underway. Things are beginning to happen with 
the creation of an Assistant Secretary in the Commerce 
Department. There are reports coming out. There are statements 
being made, you know, to China about its currency and so on. 
But the question is, at what point will action be taken and 
what do we do in Congress to address these issues?
    I mean, obviously there has been an acceleration of loss in 
this segment of the economy and I think it's very troubling 
when you read reports about the fact it's not only the jobs 
that we are losing in the terms of the quantity, but it's also 
in the terms of the quality. The types of jobs we are losing 
overseas that may be irretrievable in terms of the skills that 
are lost, and that enhances the capabilities of our trading 
partners if we lose some of these capabilities.
    So it's the quantity, it's the quality, it's the type of 
capabilities that we are losing that the manufacturers in this 
country provide. It's really the mom and pop manufacturers. I 
mean, that's why I thought it was a good approach in the 
Finance Committee last week to replace the repeal of the extra-
territorial income tax with a manufacturers tax break, because 
it does help that industry that has a disproportionate number 
of exporters. And, also, because they are the ones that are 
being adversely affected by unfair trading.
    So where do we start? I mean, we've got the Assistant 
Secretary. We have reports coming out, we've engaged in, you 
know, 20 roundtables across the country. We obviously 
understand that there are some serious problems.
    We are going to hear from the second panel that maybe the 
top three problems are: China, China and China. It's a 
disproportional part of our problem, in the sense that the 
trade surplus from China in the first part of this year has 
already increased by 25 percent. Obviously, that is really 
affecting our abilities in more ways than one. And they still 
have a number of industries that are state-owned. They are 
manipulating their currency. They subsidize their industries, 
and obviously, with the low wages and everything else that they 
afford their industries, there is no way for our manufacturers 
to compete on a level playing field. So we'll start with the 
Commerce Department. What do you expect for action?
    Mr. Aldonas. Well, I was looking at the chart over here 
and, Senator Snowe--I mean, one of the things, when you look at 
that chart with respect to jobs lost in Maine, it tells you 
it's more than just a cyclical phenomena. It's not just the 
recession and then, now, a slow recovery. And that's really 
what you are pointing to in terms of the underlying things. And 
my point in raising that is that we are going to have to 
address some of the longer-term trends as well as some of the 
shorter-term things. So I sort of want to divide things up in 
those two categories.
    In the short-term, probably the most important thing we are 
seeing is an awful lot of pressure from imports because there 
is no growth abroad that is absorbing that. So that stuff is 
coming on the market and a lot of it's coming here. China today 
is actually the assembly point for most of what we used to see 
out of a number of different Asia countries, which accounts for 
a lot of the rise in their exports to us. But the fact is, that 
there are unique things about the Chinese system, as you 
pointed out, that have to be addressed. So most immediately, 
what we'll be raising with the Chinese, when Secretary Evans 
and I are there next week, is our interest in having positive 
economic relations, but why that has to be a two-way street and 
what that two-way street means. And ultimately, from my 
perspective, it does mean, either--you need to make a choice, 
frankly. Either you are going to ensure that you are playing in 
the market in a way that we expect to see you play in the 
market, or you are going to face the consequences.
    That is why, in this Administration, 50 percent of the 
dumping cases that we have taken up have been directed at 
China. And that will continue to be the case, in my view, as it 
will probably accelerate. Because my goal is to get beyond 
waiting for someone to file a petition and go after individual 
areas like machine tools, like textiles and apparel, a number 
of these things in the electronics area, and point out where we 
have the problems.
    Now, I have to say, the Chinese are very pragmatic. This is 
a situation different than I think we faced in the 1980s with 
Japan. They understand we are their market, and they are very 
concerned, ultimately, about making sure that people are 
employed. The good part of the news from China is that they 
raised 300 million people out of poverty. The bad news is they 
have 900 million to go. And what that means is they are going 
to very concerned with employment. We need to represent our 
interest and make the case to them that, if they want access to 
our market and they want to see those people employed, there is 
a model of openness and a market both on the dumping side as 
well as on trade agreements enforcement.
    Second thing, in terms of the longer-term trends, I have to 
say--and this is the way I want to come back to the point of 
bipartisanship. If you look at a lot of the costs that have 
been rising for small business, it's things we have been 
debating in this country for decades. Energy. There is an 
energy plan before Congress right now. It's one of the things 
that we have to grapple with. And we do have to get beyond what 
I think are static positions that have been developed over 
time, because you can't have a plastics industry in the United 
States with the rise in natural gas prices we have right now. 
And a lot of the manufacturing, in terms of trying, for 
example, to lift weight out of an automobile, means you are 
moving from steel into plastics. And you can draw your own 
conclusion about what that means for small businesses in the 
plastic molding business throughout the country. So energy 
prices make a real difference.
    It's the same thing on health care. As both of you know, in 
terms of where we are, given the inflation that we've seen in 
health care costs, it offsets virtually all the gains that 
small businesses try and make in raising their productivity. 
The hardest thing that I think I saw as I was going across the 
country was the effort that folks had invested in trying to 
strip out costs in their own manufacturing operations only to 
see them erased by what, in effect, was the doubling of health 
care costs in a very short period of time. Growth helps that, 
but growth isn't all of that. So we have to tackle those 
longer-term problems as well.
    Providing more focus to what we do in support of 
manufacturing is important as well. I know we've talked before 
about the things that we need to be promoting for exports for 
small- and medium-sized manufacturers. One of the things I 
intend to do is get us focused much more on what I call a 
global supply chain initiative, increasing what you are seeing 
for small manufacturers. The goal may not be to export to China 
or export to Japan. It may be to export to Toyota and let them 
take it global as a practical matter. It may be exporting to 
Wal-Mart and letting them take it global as opposed to them 
being the seventh largest trading partner of China if they were 
standing alone as a nation.
    So more of our focus inside the Commerce Department in 
terms of what we do on exports is to make sure we are 
identifying where our small business can compete, where they 
find their market niche, where they find the companies that are 
going to take them global as a practical matter.
    There is a number of other things that I know that you have 
been thinking about, certainly, in terms of the sorts of 
flexibility we need to see in a job market and in communities, 
investing communities as they make a transition--that, I think, 
we need to focus hard on. The effort on trade adjustment 
assistance you made as a part of the TPA battle was crucial. I 
think that's important. I think we need to go further and make 
sure they are integrated with the systems we otherwise have at 
the Department of Labor. And that's not done yet. So there are 
a number of things that I think we can be acting off, where 
Congress, in fact, has their hand on the lever.
    Chair Snowe. Secretary Olson, would you care to comment.
    Ms. Olson. One of the things that's obviously pressing 
that's on the tax side is the need to bring the tax laws in to 
compliance with the WTO decision on the FSC/ETI. And I think, 
as you rightly observed, the Committee mark-up last week--it's 
really important that we focus on what we can do for the 
manufacturing sector through the tax laws.
    It always seems like there are too many things on our plate 
for us to handle. One of the things that I have tried to make a 
priority at the Treasury Department is looking for ways to 
simplify the rules so that we can relieve some of the dead 
weight burden that we have on taxpayers in America, 
particularly small/medium-sized businesses in America.
    As I said, I really like coming outside the Beltway to 
listen to people. One of the things I learned last summer, and 
one of the discussions I had with a bunch of small businesses, 
was that--we have a number of provisions in the tax code that 
try to take small businesses out of the complexities of some of 
the rules. So, for example, we'll have something that doesn't 
kick in until you have $5 million in gross receipts or $10 
million in gross receipts or something like that that relieves 
some of that burden. But that, sometimes, some of those 
exceptions, which are good exceptions, and we definitely 
shouldn't do away with them. But we should think about whether 
we need to expand them, because what they do is they function 
as a ceiling on small businesses' willingness to grow.
    At one of these meetings we were talking about the 
percentage completion of contract method of accounting that 
contractors have to use and one of the folks in the audience 
commented that, when he gets to $10 million in receipts for the 
year, he stops taking on business. Because when he passes that, 
he's going to have to subject himself to using that method of 
accounting. And it is such a complicated method of accounting 
he just doesn't want to do it. So, the compliance costs that we 
have imposed on businesses with our complex tax rules are 
something that really deserves a very serious look.
    There are so many provisions in the Internal Revenue Code 
that put a particular burden on manufacturers: the depreciation 
rules, the AMT rules, even the structure of our R&E credit. The 
R&E credit is a very complicated set of rules and it causes 
enormous disputes between taxpayers and the IRS. So do 
accounting methods for that matter. But the things start with--
it's kind of a good idea. Like the notion behind the research 
credit is that it's supposed to reward incremental increases in 
research, which is, you know--sounds like a good idea except, 
when you go to try to put it in practice, what you find is that 
businesses have to go out and hire special accountants to do 
special kinds of computations and recordkeeping in order to 
determine whether or not they qualify for the credit. So going 
back and taking another look at some of these very complicated 
rules would be a good way for us to help small business in 
America and, particularly, manufacturers.
    Chair Snowe. Well, if you look at that chart, not only is 
it a staggering number of losses over the last decade, there 
are disproportionate numbers occurring in the last 2-2\1/2\ 
years. So that's what's so stunning. And that's certainly true, 
I think, of most of the manufacturing jobs that have been lost, 
including the 3 million jobs during the course of this 
recession and since then.
    And then we have a trade deficit that continues to rise 
even though we are no longer in a recession. You understand 
when that happens in a recession, but you don't understand why 
it's happening now.
    And with a loss of jobs, there isn't a day, I don't think, 
that I pick up the paper here in Maine without finding that 
another manufacturer is closing the doors. I am going to hear 
from the next panel--including one that has closed their doors. 
I mean, that's the problem.
    I would say to you and to the President's Administration, 
develop an interagency task force of some kind with other 
departments and coalesce around several top ideas that need to 
be driven now, because I think there is a matter of urgency 
here. We can talk about a number of issues, but I think we can 
identify some key issues that we can get done now. Some are 
longer-term, some are shorter, and I think that we can't afford 
just to wait for the long-term, as I see it.
    With China, their obligations are clear as part of the 
World Trade Organization. And they have been non-compliant. How 
long do we go on with this process of allowing non-compliance?
    Second, they understand that manipulation of currency is a 
violation of WTO. How long do we allow that to continue? There 
are subsidies. They still have state-owned enterprises. I was 
in China a couple of years ago, and it's staggering. They have 
intellectual property rights. You walk into a store, and what 
do they have? CDs and DVDs. And what have they done? They have 
stolen the ideas and the rights and the music of our 
industries. And they are doing it over and over again. So, they 
seize the property rights, then they develop the technology, 
and then they undercut our industries and they subsidize them. 
And what do we have? We are losing that technology and that 
base as well. So, we are going to lose that capability in 
America. We are close to it now in terms of where manufacturing 
is.
    So, how can we approach it between Congress and 
Administration, on the short-term, immediately? I know we are 
doing a lot of things and a lot of things are happening, but I 
don't know if anything is going to be concluded. I think, 
frankly, in the foreign sales corporations and extra-
territorial income tax--I think it's important to replace it 
with a lower rate for manufacturers, because it really does 
identify that segment of the economy that's disproportionately 
affected by the export tax incentive and it's 
disproportionately affected by unfair trade practices.
    So, couldn't we identify certain things that could happen 
now, maybe there is an inter-agency task force that can provide 
an agenda for action within these next 6 months and tell the 
Congress, this is what you've got to do? On a bipartisan basis, 
obviously, it can't happen otherwise. In the Senate you have to 
have 60 votes, the magic 60. Let's get this done. There are 
things that can be done now.
    I know Rod Rodrigue, Chief Executive Officer of the 
Manufacturing Extension Partnership, a great program with 
promise, is going to be testifying. As he said in his 
testimony, we spend more time arguing about keeping $100 
million for that program than we do about the $87 billion 
supplemental. We need to have support for those types of 
programs. We get the biggest bang for the buck on those 
programs. So, can we identify the top five issues? What would 
you say? How can we get some action?
    Mr. Aldonas. Well, I agree with what you are suggesting. 
That's precisely what the report is designed to do. It really 
does identify what are the single largest cost drivers on the 
domestic side and point out the sorts of things we need to 
tackle those. It also identifies the things that we have to be 
doing on the international side.
    The point I was trying to make earlier, Senator, is that 
there are things that are so obvious that we are already moving 
on them. Plainly, in terms of, for example, Chinese imports, 
we've already started the review within the Commerce Department 
to look at a range of practices that we don't have current 
petitions on from industries, but it is absolutely obvious that 
these things are having an impact on our industry. And so there 
is no reason for us to wait for a petition. We need to get out 
ahead of that prerequisite, as a practical matter. Of course, 
what people will tell you, looking at that, is we are not ahead 
of the curve right now.
    Second thing is, on the currency side. One thing that I do 
want to make sure, though, that the President gets credit for, 
is that he understands this issue. And he is the guy who will 
tell the Chinese. And will be, as of next week--where we have 
to be on this issue. And it's a fairly simple thing, as you 
both know. It's sort of like--either we're going to play fair 
or we are going to have to take action in response. That's 
really what it boils down to. And Congress, I think, has been 
enormously patient in the year that China has come into the 
WTO. We've encouraged them to move in the right direction, but 
our patience, I think, has worn thin. Just as yours has worn 
thin on things like intellectual property rights, which are key 
to our manufacturers.
    When we talk about how we are going to succeed in the 
future, it depends on technology. Well, guess what? That boils 
down to intellectual property rights, just as you were pointing 
out. And it does require a vigorous enforcement of the trade 
laws as well.
    Chair Snowe. Is that the message that Secretary Evans will 
be taking to China?
    Mr. Aldonas. Absolutely.
    Chair Snowe. I know that Secretary Snow is doing a great 
job as well, and they both have, as a team, in getting that 
message across and raising this issue of the manipulation and 
the pegging of the currency--both with China and Japan. I 
really appreciate that, because I do think that is a critical 
issue. But is that the message that Secretary Evans will be 
taking to China?
    Mr. Aldonas. Absolutely. And let me put it in context. We 
are essentially on the course of about 3 months of very close 
conversation with the Chinese over all these issues. It really 
started this summer with Secretary Snow's trip. The President 
will be meeting with the President at the APEC meeting. After 
that Bob Zelik, USDR, will be in China. Secretary Evans will be 
in China in October to advance U.S. interests and advocate for 
a level playing field in our economic relations with China. We 
will have another opportunity to raise outstanding issues 
during our annual Joint Commission on Commerce and Trade (JCCT) 
at the end of the year. And what we have identified is a very 
clear list of actions that we expect the Chinese to take as a 
part of--in this process. And failing that--that's the point 
where we need to reconsider what we are doing.
    And again, I think the Chinese have been very pragmatic 
about this. When they say they are defending their own national 
interest, our job, as far as I am concerned, is to make sure we 
are defending our national interest. And drawing the line in 
the sand and saying, frankly, this is what we have to see. 
Absent that, you understand we will use the tools available to 
us within the trading system to make sure that the playing 
field is level.
    Now, the optimum way to do this, obviously, is to see 
change on the Chinese side. I mean, that would be something 
that would be good for our growth and good for their growth. 
And that's the message that we really need to bring home to 
them. But, failing that, they don't leave us many options, to 
be honest.
    Representative Michaud. Thank you very much. Great 
presentation. Just a couple of quick questions. You just talked 
about, when you look at tax breaks, are you also looking at 
large corporation benefits--and if they do decide to take their 
paper machine and move it over to China, or whereever else, 
whether or not they will lose those particular benefits? 
There's the long-term problem and the short-term problem.
    And when we look at small businesses, those are the ones 
that will more likely stay in this country. The large 
corporations, they can afford to move overseas. So are you 
looking at what effect they have and, if they do move overseas, 
whether or not we can take those back or--and also, on the 
short-term.
    And I know there is also health care--a 55-cent tax credit 
for health care. Part of the problem within this rate is that 
you get affected, because of a shutdown. You are going to have 
to provide health care and, in a lot of cases, people cannot 
afford that other 35 percent. So, it's good to have that 
program there, particularly when you look at an area in Maine--
at one time earlier in the year--the unemployment rate is over 
30 percent. You just move 30 miles north of the plant that shut 
down. Thirty miles south, another Chapter 11. And it's real 
devastating. And I am just wondering if your Department is 
looking at, in the short-term, how can these programs move 
forward?
    The National Emergency Grant Program is great. The downside 
of it is, they are not processing those grants within the 30-
day time frame.
    Mr. Aldonas. Got it.
    Representative Michaud. And this has an adverse effect on 
small business. It actually really does. Using the region as an 
example, there is no health insurance coverage. These grants 
are 60 to 90 days of coming in late. And they did have an 
adverse effect on small businesses because, if someone with no 
health insurance coverage goes into the hospital, that's been 
shifted onto the small business--having a huge rippling effect.
    So, are you looking at, on the short-term what can be done, 
particularly in----
    Mr. Aldonas. Congressman, let me take the second one first. 
I want to draw a distinction, which was implicit in what you 
were saying, between the social safety net on the one hand and 
the costs I was talking about for manufacturers, the ongoing 
costs for manufacturers, because there is no doubt we have to 
grapple with the safety net side. And I am happy to raise the 
issues with respect to the NEG grants with the Department of 
Labor and make sure that we are turning this over as quickly as 
we can. But I want to underscore that the costs I was talking 
are the costs that we impose day-in and day-out on operating 
businesses, that drive them to the point where they are putting 
people into the social safety net. And, so, without disagreeing 
with the notion that we have to make sure the programs work 
when people do fall out of the job market and they do have that 
protection. At the same time, I think, that we have to focus 
hard on the costs that may drive companies into that position. 
And, so, when I talk about the rising health insurance costs, 
the one thing I want to make sure we are focusing on is a 
bipartisan solution that is making sure that our guys aren't 
bearing huge costs, or we are going to have to find an 
alternative in terms of how we go after this. And I know this 
is something which both of you know better than I do, in terms 
of the health care side, in terms of what the options are. But 
I want to be very conscious of trying to make sure we draw the 
dividing line about where the effort needs to be for the 
benefit of the manufacturers that are still operating.
    On a tax break side, I really defer to my colleague about 
the sorts of things the Treasury has underway. But one of the 
things that I want to do is reinforce for you--the fact that 
when I go out and talk with manufacturers, they understand that 
to succeed locally, lots of times, American manufacturers have 
to succeed globally. And they don't complain about the notion 
that companies are investing abroad, to manufacture abroad, 
when they are serving that market. I think the concern is 
always, when they create an export platform due to subsidies in 
China, and ship the stuff back and start dumping it back into 
our market. And what they understand is, is that the code, at 
least since 1962, have in fact penalized American manufacturing 
in its ability to be globally competitive.
    So, one of the things to be careful about is to understand 
there are already penalties in the code that we impose on our 
best competitors in manufacturing. And so, when we think 
about--what about these guys who are sort of escaping and 
taking jobs overseas?
    We've got a broad dividing line about the folks who have to 
go overseas to succeed, which means jobs stay here as well. And 
those who are, simply for tax reasons, going offshore to get 
the additional tax benefits--which is really the problem you 
are leading to. And those are incentives that are built in the 
code that, I think, fall under the rubric of things we need to 
clean up. Because we shouldn't be providing artificial 
incentives over there, nor should we be penalizing in terms of 
trying to succeed in their global manufacturing.
    Representative Michaud. [Off mic.] There are certain types 
of paper that are imported from around the world that puts 
companies in Maine at a disadvantage. I worked at Great 
Northern Paper Company for 29 years. We made directory paper, 
75 percent of the directory paper sold in the United States are 
imported, 50 percent of which is imported from Canada. When you 
look at the subsidy that the paper mills in Canada receive from 
the Canadian government, it puts U.S. firms at a competitive 
disadvantage. I know there is a process that companies can go 
through if they feel that they have been hurt by NAFTA. The 
problem actually is not in that process [inaudible] Department 
of Commerce. Are you looking at how the Department can assist 
businesses like Great Northern Paper Co., that have to spend 
over a million dollars for them to rectify their case in 
theory--they are not a large corporation, they have only two 
mills in Maine. Can you tell me if the Department is looking at 
how they can help businesses move forward without them having 
to go further into debt and ultimately close down?
    Mr. Aldonas. Yes. Congressman, I am glad you asked, because 
we are. We have regularly provided what's known as pre-petition 
counseling, particularly for small manufacturers. Because, as 
opposed to having to go and do what Pam described, which is 
hire a law firm in Washington to spend a million dollars to 
essentially get your case heard, you've got to be able to come 
to the Commerce Department to understand the particulars and 
what you would have to go through. My own instinct is we have 
to go farther than that. That is why I was saying, we need to 
get out in front of this. We don't need--if we hear that sort 
of complaint--and I have got to say, I haven't spent a lot of 
time with lumber over the years. I have a pretty good idea of 
what goes on in Canada. If that's the sort of thing, I know the 
people to call. And that's the sort of thing where I think we 
should take up for the company with the Canadians, regardless 
of whether they filed a petition. Right. I mean, this is one of 
the things where we don't have to wait for that sort of result.
    And if there is a concern, that's the sort of thing I do 
want to hear about. Because it may be that, as in many things, 
that by getting to the right person on the other side, we can 
help solve a problem in the short run, rather that having to 
force someone to go through the whole litigation process that 
the dumping laws would otherwise entail.
    Representative Michaud. Trade deficit that we already have, 
you look at the kind of budget system that we currently have. 
The U.S. Treasury is looking at almost $7 trillion worth of 
debt and that is a lot of United States debt. What's going to 
happen later on down the road when we continue to lose 
manufacturing at the rate that we are currently losing 
manufacturing.
    Ms. Olson. Well, I guess I would say that one of the things 
that I was going to mention, that your comment highlights, is 
the importance of some of our big trading partners doing more 
to encourage pro-growth policies. And that's one of the things 
that Secretary Snow and the President, in the trips that they 
have made abroad over the course of the last year, have 
emphasized.
    Japan has had a stagnant economy for well over a decade 
now. Germany, which has been the largest economy and the engine 
of growth over there, has been stagnant for some time. And so 
one of the things that they have been focusing on is 
encouraging those economies to adopt more pro-growth policies. 
The statistics that I have seen about what's happened with the 
trade imbalance suggest that a whole lot of the problem stems 
from the decline in exports on our part, as opposed to 
increases in imports. And that's because our big trading 
partners, like Germany and like Japan, have had stagnant 
economies and, therefore, they are not buying what they used to 
buy. I think there is a line in Grant's testimony, from former 
Secretary Summers, on us flying on a one-engine plane. Right? 
And the one engine that's driving the plane forward is the U.S. 
economy because nobody else is moving. So, it's really 
important, for purposes of our addressing our trade imbalance, 
as well as addressing the health of the U.S. economy and 
getting it growing again--which, in turn, will affect our 
budget deficit. That will get those economies growing again so 
that they become markets for us again.
    I think that the President's firmly of the view, and I know 
that Secretary Snow shares this view, that the best thing that 
we can do for our budget situation is to get the U.S. economy 
healthy and strong again. Outside of the manufacturing sector, 
I think, we are moving in that direction, but there is clearly 
a lot of room for improvement. And that's the best thing that 
we can do.
    Currently the size of the deficit is unwelcome. And we do 
need to be focusing hard on making sure that the economy is 
growing and that we are getting that back under control.
    Mr. Aldonas. Could I just add to that? One of the points 
that Pam made. I always like to try and find ways to put things 
in perspective.
    For example, on the manufacturing--we are very concerned 
about it, but one of the things we ought to also acknowledge is 
the strength of our manufacturing sector. Our manufacturing--we 
are still the largest producer of exported manufactured goods 
in the world. Our manufacturing sector, standing alone, would 
be the fourth or fifth largest economy in the world. Larger, in 
fact, than China's whole economy. So, I always like to find 
those things--well, the one about Japan and growth.
    The most amusing statistic I heard was that Japan's annual 
bar tab is larger than the economy of Vietnam. Right. And the 
reason I say that is because it drives home the point about how 
much they would add to solving our problems, internationally, 
including the problem with China, if they would get off their 
butts and grow. Right? And it's not as if their problems aren't 
known, just like we know what our problems are and have for 
some time.
    And I have to say that it's with a certain degree of 
frustration, because we become the dumping grounds for a lot of 
goods from China, as well as a lot of other places. Precisely 
because we are not seeing that growth in the rest of the world, 
as Larry Summers said. And we are flying on one engine. And so 
there has to be an effort on that side as well. I know that's 
what the President is going to be focused on when he goes to 
the G8 Summit in the coming year. It's all going to be about 
growth, because that is an answer to a lot of this as well. And 
I never--in focusing on China, I never want to let the other 
guys off the hook.
    Chair Snowe. No, I agree with that. I think that that is 
true. I mean there are a host of other countries, obviously, 
you know--the giants in the world economy, in essence, and, in 
terms of the numbers as well. And I know that Secretary Evans 
indicated in a speech last month that he intends to make sure 
that China honors its commitments. I was just wondering how we 
intend to go about doing that.
    Would this team be one, which I think is a great idea, to 
address China's unfair trade practices in the manipulation of 
its currency for example?
    Mr. Aldonas. Sure. In the sense that, with respect to any 
allegation on the currency side, what you are really talking 
about is the degree to which that action by the Chinese 
government, in effect, implies a subsidy to their 
manufacturers. And that's the core of what we do in this unfair 
investigation practices team.
    But I also want to say that, again, the peg only represents 
the fundamentals that are going on in their financial system, 
which is the ultimate subsidy. And that's the sort of thing 
that we intend to raise with the Chinese. We will be asking 
them as they go through a process in the World Trade 
Organization of having to identify all their subsidies. We are 
going to be asking them for the elimination of the list as well 
simply listing them over at the WTO. That'll be one of the 
things that we take up with the Chinese going forward. And it 
relates to the peg, as a practical matter, because if we can 
move them past the underlying problems, the peg largely becomes 
irrelevant at that point.
    Ms. Olson. Might I go back to the Congressman's first 
question about international tax? I think the international tax 
area is so complicated it's probably the best illustration in 
the world of the law of unintended consequences.
    If I might give you an example, the shipping industry is an 
area that we decided we were going to address back in the early 
1960s with the changes that we put in place for international 
tax rules. Back then the U.S. had a very vibrant shipping 
industry. We identified shipping income as mobile income and 
decided that, regardless where in the world a U.S. company 
earned its shipping income, we were going to tax it, currently 
at the maximum corporate rate. Since then our shipping industry 
has largely left. I think we still have a strong one in the 
Caribbean, but that's about it. Otherwise it has gravitated to 
other places in the world where it is not taxed on a global 
basis. Indeed, in many cases it's not taxed at all, because 
it's taxed purely on a territorial basis, and that means that 
the income that's earned on the high seas doesn't get taxed at 
all. So, we took a competitive industry and, by subjecting it 
to tax burdens that the same industry in other parts of the 
world weren't subject, we did away with our shipping industry.
    We've seen the same thing happen in the oil services 
industry, where much of the income is earned at high seas 
drilling for oil and so forth. And that industry as well has, 
to a large measure, dried up in the U.S. in terms of the 
international operations.
    So what we have is industries that have to earn a 35 
percent greater return in order to be competitive. And unless 
there are competitive advantages that allow them to more than 
make up for that, it becomes very difficult for them to 
compete. Now that has resulted over the course of the last 20 
years or so, in some companies being taken over by foreign 
companies, some companies moving--as you no doubt have seen the 
newspapers, over the course of the last couple of years in 
particular, moving their headquarters, on paper to places like 
Bermuda, with the argument that they can escape the U.S. tax 
net. That's a very troubling situation. It suggests that we 
need to address the underlying fundamentals.
    Now, there are some other things tangled up with that, 
where companies from other countries have learned to strip the 
U.S. tax base by loading a U.S. entity with debt and then 
taking interest deductions out of the country. So those are 
issues that we need to address. And what we need to do is make 
sure that we've got a level playing field as much as possible 
for U.S. companies so that they can compete abroad, because 
that means more jobs for American workers.
    I think it's really important to understand another related 
area is that under those international changes that were made 
in the early 1960s, we subjected marketing income to current 
tax in the U.S. that's earned abroad. Well, other companies 
that are located somewhere else may not pay tax on that income 
at all, or they'll pay tax only at the rate that is imposed in 
the country in which they are located. We tax it again, back 
here, on a current basis. And that marketing income is 
particularly of concern right now, because that marketing 
income is income that is earned in selling U.S.-made goods and 
services abroad. So what we are doing is--we're taxing them on 
a disproportionate--relative to what their competitors are--and 
in doing so we put some of our most competitive companies at a 
disadvantage on a global basis.
    Mr. Aldonas. If I could just follow-up on Pam's point about 
the shipping industry? It's an interesting illustration, 
because what you've got is something which is the classic 
services industry, but it drives a lot of demand for 
manufactured goods, particularly in places like Maine. If the 
customers leave, so does the manufacturing industry. When 
shipping industry leaves, you start to see a decline in 
shipbuilding and it has a big impact on a State like Maine, as 
a practical matter.
    More broadly, if you think about what happens with China, 
where they have their own shipping company, it ends up being 
much more lower cost for them to engage in trade, simply by 
virtue of the fact that they have a shipping industry in their 
country. The fact that we don't imposes a penalty on our 
exports. And, in fact, encourages something that has a dramatic 
singular impact on a State like Maine as well as a broader 
effect on all manufacturing in the United States. So, some of 
the things that you'd get cranked up about, whenever I hear 
about them from Pam, are things that may not be purely on the 
manufacturing side. It may be other things that have 
implications for manufacturing in the United States that we 
need to clean up as well.
    Chair Snowe. How is Treasury and the Administration going 
to approach the legislation that we passed last week in the 
Finance Committee?
    Ms. Olson. Well, the most important thing is for us to 
bring our laws into compliance with the WTO ruling. So we look 
forward to working with Congress to seeing that happen. And we, 
at the Treasury Department, have been working very closely with 
Committee staff to make sure that we have identified, as much 
as possible, the issues that might cause administrative 
concerns, implementation concerns, down the road, to make sure 
that we have those questions answered as much as possible. So 
that the legislation, if it's enacted into law, will provide 
the biggest benefit and greater certainty for both tax payers 
and for the IRS in administering it.
    Chair Snowe. Well, I hope that the underlying principle 
would be embraced, to gear things towards the manufacturers, 
because they are obviously going to be disproportionately 
affected by the repeal of the export tax incentive. And I hope 
that will continue to be the principle underlying the 
legislation. Hopefully, we can do it this year. I think it 
remains open to question exactly what the action will be in the 
House to resolve it before we ultimately adjourn this year. But 
I certainly would hope that we could, because the clock is 
ticking in terms of our compliance.
    There are other issues that are tax-related that could help 
manufacturers. You were referring to some of them on 
depreciation, for example, alternative minimum tax. I gather 
now that the exemption for small businesses is $7.5 million. I 
am thinking about increasing it to $10 million. Is there an 
agenda for manufacturers on tax-related issues? I think we need 
to have an overall agenda for manufacturers. It has to be 
inter-agency, because it would be a waste if one department is 
doing one thing, but another department is doing another. And, 
obviously, what happens in Treasury is, also, as important as 
what happens in Commerce in these issues.
    I am wondering if this agenda will be merged in some way so 
that we can look at the total picture of what the effect is on 
manufacturers and see what we can drive through Congress. 
That's going to be the key issue here. Maybe something can be 
done administratively and on the trade-related issues, 
initiating complaints and that sort of thing. But again, we've 
got to get to the forefront of the Congressional agenda. The 
train's been leaving the station. I know Secretary Evans, 
according to a conversation I had with him the other day, says 
that the focus is jobs, jobs. He has laid out, I think, some 
very important issues as well. So, I am just worried about 
time, the agenda, and how this is all going to work, because 
there are so many issues that we can talk about. The question 
is what can we get done that is critical, that is going to make 
a material difference to the manufacturing industry now, right 
now, in the economy, because manufacturing is obviously where 
the job losses are occurring and will continue to occur, from 
what I see.
    Mr. Aldonas. There's two guarantees that I can offer you.
    Chair Snowe. Okay.
    Mr. Aldonas. The first thing is that, whatever is in our 
report will not be limited to----
    Chair Snowe. When is that report coming out, by the way?
    Mr. Aldonas. Well, that comes to my second guarantee.
    Chair Snowe. Okay.
    Mr. Aldonas. The first guarantee is that it will not be 
limited to things that the Commerce Department can do. And I 
know for a fact that whatever I write about taxation, my 
colleague will be telling me whether it's right or wrong and 
how to reshape it. But, as a practical matter, this is the 
inter-agency process on taxes on manufacturing. And I have got 
a pretty comfortable idea where we need to go and the things 
that need to be identified on the tax agenda.
    Second thing is, I guarantee you, that when I leave Maine 
today, I'll be going back to my computer to finish drafting the 
report.
    Chair Snowe. Okay.
    Mr. Aldonas. Because it's on my shoulders. And what I am 
really hoping--I'll tell you where the draft is. We have laid 
out the analysis. We've got a good set of recommendations that 
really are across the waterfront that is in the inter-agency 
process.
    One, I expect that what we'll be doing is going back to 
what, I would hope, is an ultimate draft to OMB to get it out 
to inter-agency. Because it covers things from what we can do 
at the Commerce Department; where USDR has the lead on trade 
compliance with WTO actions; where Treasury has the lead on 
things like the exchange rates and on economic growth abroad, 
as well as on taxes; Department of Education, Department of 
Labor, Department of Energy, sort of across-the-board. Because 
it is just so abundantly clear, when you go to talk to 
manufacturers, just as you said and just as the Congressman 
said, that the time is now. There are things that we have to 
do. Number one, to make sure we have the answers right in terms 
of the problem, but also to convey to manufacturers that the 
government is moving on the things that will address their 
problems.
    Chair Snowe. I appreciate that. And I think it is going to 
be critical that we are all on the same page on those issues in 
Congress and with the relevant Committees and Chairmen so that 
this becomes an action-oriented process and a very efficient--
well, I know ``efficient'' and ``Congress'' is an oxymoron, it 
doesn't exist in Congress--but in any event, it just----
    Mr. Aldonas. It is a worthy goal. There is nothing wrong 
with that.
    Chair Snowe. Well, you have to drive that process. 
Otherwise, things get stalled, and you know where we are in the 
political scene, and it's going to be very, very important. 
These key issues are huge. I know you know it, and the 
Secretaries know it, and the President knows it. If we can all 
be working on the same page, Republicans, Democrats, Congress 
and the President, we've at least identified those issues that 
we can do this year. Otherwise, this problem is just going to 
continue to magnify. I am not sure I see a reverse here, at 
least in this part of the economy. It may change, but we can't 
predicate people's lives and livelihood on hope. We have to 
come up with some concrete action and I am sure you're getting 
the same message across the country.
    Mr. Aldonas. Although, you know what's interesting about it 
is, it's not with the focus that you bring to the issue of 
small manufacturers, which are consistently the most vibrant 
part of our economy. It's where the jobs are, it's where the 
jobs creation is, and it's where the innovation is.
    Chair Snowe. And we know how essential innovation is. 
According to this article in The New York Times, and, you know, 
again, I don't always believe everything I read but, no matter 
which numbers you take in terms of the jobs lost to overseas 
competitors, it is troubling--because, as you say, we are 
losing our innovation. And that becomes another major 
structural problem for our economy.
    Mr. Aldonas. It's the key to our future.
    Chair Snowe. It is the key to our future. And then 
companies find that they can save as much as 50 percent for 
each job shifted abroad. Then there are the other costs in this 
State and across the country--health care, workers' 
compensation in this State and I am sure it's true in other 
States, tax-related issues, and many others. We have another 
WTO related issue in the continued subsidy and dumping offset. 
And one of the bills that I have introduced to address that 
issue, would have the revenue go back to the affected 
communities.
    Mr. Aldonas. Well, it won't surprise you that I think it's 
a terrific idea. A: we have to come into WTO compliance. The 
WTO's rule that the current system is giving it back to the 
individual company is something that is inconsistent with the 
rules on dumping. But investing it in communities that are 
facing the pressure from trade and are making an effort towards 
the transition that makes them more competitive, and, 
therefore, allows them an economic future and a stake in an 
economic future in the United States is, I think, key. And, so, 
to the extent that those funds can be applied to those sorts of 
initiatives, it's all to the good, frankly. It's one of the 
parts of the program that, actually, at the Economic 
Development Administration of the Commerce Department, that I 
am most proud of. They actually provide a lot of value for the 
money that the public invests in EDA. And as I understand it, 
under the proposal that's the sort of direction you want to 
head with the dumping duties. And it would be really reaching 
out to the people most affected by trade.
    Chair Snowe. Secretary Olson.
    Ms. Olson. One of the things I was struck by when you were 
talking about finishing things more quickly on short-term 
agenda and the fact that we need to act now, is the fact that 
one of the things that we should be focusing on is how we speed 
up government. I am not going to touch Congress. I'll leave 
that to you to figure out. But, clearly, one of the things that 
I have seen over and over again in the course of the last 3 
years that I have been at the Treasury Department is that we 
don't move fast enough to address emerging issues. And so we 
could contribute a lot if we could find some ways for us to 
make the governmental processes move more swiftly.
    The other thing I wanted to assure is that the 
Administration is firmly committed to seeing that the benefits 
that are going to be lost in the repeal of FSC and ETI do, so 
much as possible, stay with the communities that have benefited 
from those provisions--so that they are not going to suffer 
from the repeal of the $50 billion.
    Chair Snowe. I appreciate that. I appreciate all of the 
comments and your efforts to be here today to express your 
views on behalf of Secretary Snow, Secretary Evans and the 
President. I know, based on all the statements that I have 
read, that they have been active on many of the issues that 
we've discussed here this morning--and are certainly moving in 
the right direction. I appreciate the fact that you are here 
today, and I am grateful for the opportunity for everybody to 
hear you.
    I hope that you will be able to listen to the testimony 
that is going to be given subsequent to yours, and also 
submitted to you as well for comments, because they do 
represent--the next panel represents--a broad array of 
manufacturers who are doing their level best in spite of all 
these exigencies and problems that have developed. In fact, one 
of the companies who is totally excluded from the Asian 
markets, Winderosa Gaskets, will testify that they can't 
compete in that market because of the inequities and the 
barriers and the non-tariff barriers. There are so many issues 
there. We need to tackle those issues. It's really a matter of 
urgency.
    Mr. Aldonas. I know you are trying to wrap up, but let me 
give you one more guarantee.
    Chair Snowe. Yes.
    Mr. Aldonas. One things Secretary Evans has asked me to do 
when we have the report out is to go back to the 23 cities that 
we visited to discuss the recommendations with manufacturers--
because this is not going to be a static process. This is 
something where we need their feedback, and we need to be 
shaping the agenda as we move along. And I'd be happy to add a 
24th city to the list for a return, to come back.
    Chair Snowe. Oh, we'll appreciate it. Wouldn't we? Yes.
    Mr. Aldonas. And meet with the same panelists.
    Chair Snowe. Absolutely. That would be terrific. We would 
welcome that. I appreciate it and I also thank you for all that 
you've done concerning the softwood lumber issue. I know you 
are in the process of reviewing the data for the rates again. 
Will you include the Maritime Provinces in the discussions?
    Mr. Aldonas. The Maritimes are covered under the dumping 
case and so we are sort of stuck with that part of it. They 
traditionally have been excluded on the CVD side, the 
Countervailing Duty side. As we have looked at the policy 
bulletin that would really--is the negotiation about how the 
Canadians should be changing their practices. The fact that 
there is essentially free trade between Maine and Maritimes 
means that there is very little that they need to do to qualify 
for the treatment and to be out from under the Countervailing 
Duty as far as the Countervailing Duty going forward. But we 
still have to grapple with the dumping side. That is something 
which I have been working on with my colleagues at the Commerce 
Department, because I understand sort of the unique trade that 
goes on between Maine and the Maritimes. And our goal is not to 
interfere with that when we are trying to grapple with the 
subsidies provided by Quebec and Ontario.
    Chair Snowe. Right. The minute they don't benefit from 
those types of subsidies they should not be under that 
umbrella.
    Mr. Aldonas. Exactly right.
    Chair Snowe. I know you know that, and I hope that we can 
continue to work on that issue. I should tell this audience 
that Secretary Aldonas has done a yeoman's effort on behalf of 
the softwood lumber industry, and we appreciate all that you 
do. We thank both of you.
    Thank you, Secretary Olson, for being here.
    [Recess.]
    Chair Snowe. All right, sorry for the delay. Thank you all. 
May the hearing come to order, please. Thank you.
    We have an excellent second panel here as well. I thank you 
all for being here today.
    The second panel consists of small business manufacturers 
and their representatives who are here today to express not 
only their individual concerns, but also those shared by small 
business manufacturers throughout the country.
    We have Bruce Pulkkinen, the President and CEO, of Windham 
Millwork. In addition to testifying in his capacity at Windham 
Millwork, Bruce is also testifying in his capacity as a board 
member of the National Association of Manufacturers. The 
National Association of Manufacturers represents 14,000 
manufacturing companies nationwide and is the voice of the 
industry on all issues facing manufacturers.
    Thom Labrie is the President of Auburn Enterprises, 
formerly Auburn Manufacturing Incorporated, which was located 
here in Lewiston, was dedicated to developing machinery for 
converting recoverable waste wood fiber into sellable product. 
The recent closure of Auburn Manufacturing was a true loss for 
Lewiston.
    LoLisa Bonney is the General Manager of Winderosa Gaskets, 
a precision gasket producer that exports to 38 foreign markets. 
It is located in Dixfield, Maine. Winderosa has been extremely 
successful and has recently received an Export Achievement 
Award from Commerce Secretary Don Evans.
    Rodney Rodrigue is the Executive Director of the Maine 
Manufacturing Extension Partnership and the President and CEO 
of MEP MSI. Rod has done such an excellent job with the Maine 
Manufacturing Extension Partnership that he started MEP MSI in 
order to help Manufacturing Extension Partnership Centers 
around the country operate more efficiently and effectively. I 
am sure they will under your leadership.
    Randy Cousineau is the owner and President of Cousineau 
Incorporated, located in North Anson. A family-owned company 
that produces lumber and wood chips. Randy's family has owned 
and run the business for more than 40 years, beginning with his 
father.
    Allen Cairns is the Managing Partner for Creative Mold 
Company, located here in Auburn. Creative Mold Company is a 
custom mold maker that manufacturers molds for a number of 
large and small companies in a wide range of industries.
    John Wentworth is the President of Moosehead Manufacturing. 
Moosehead has facilities in Monson and the Dover-Foxcroft area 
and is well known for manufacturing high quality furniture.
    We also have with us Bernard Featherman, who is here on 
behalf of the Biddeford/Saco Chamber of Commerce. He is also 
the President of Southland Steel Corporation and will be 
testifying as well.
    I welcome you all. And I thank you. All of your full 
statements will be included in the record. We hope you can 
confine those statements to 5 minutes each and then we will 
have a discussion, a big discussion.
    Okay. Bruce, we'll start with you.

  STATEMENT OF BRUCE PULKKINEN, PRESIDENT AND CEO OF WINDHAM 
  MILLWORK, INC., BOARD MEMBER OF THE MAINE MEP, FLORIDA MEP, 
 ARIZONA MEP, AND NEW MEXICO MEP, AND NATIONAL BOARD MEMBER OF 
           THE NATIONAL ASSOCIATION OF MANUFACTURING

    Mr. Pulkkinen. Thank you. I would like to begin by thanking 
Senator Snowe and the rest of her Committee for inviting me to 
participate today. More importantly, I thank her for holding 
these types of events so that the manufacturing community has 
the opportunity to express their concerns, and to thank her 
Committee for the positive changes they are attempting to make.
    I wear several hats today. My company, Windham Millwork, is 
a 47-year-old family manufacturing business started by my dad. 
We build beautiful products from wood, with our market being 
predominately architectural woodwork and cabinetry for the 
education, health care, and corporate construction markets. My 
second hat is that I sit on the Manufacturing Extension 
Partnership boards in several States. The reason I do that in 
several States is because I am truly committed to that effort 
that the Manufacturing Extension Partnership corporations do in 
the various States. Finally, I sit on the board of NAM as a 
small manufacturer and spend a good deal of time trying to 
influence policy changes that would benefit small- and medium-
sized manufacturers.
    Small businesses today face challenges that are, quite 
frankly, overwhelming. I would like to relate how some of those 
challenges have affected our company, discuss what we have been 
able to do to meet them, and what the new and improved 
manufacturing environment would look like if we could influence 
you, our bipartisan leadership, to create it.
    The challenges we see in our company are similar to those 
found by most of the NAM small- and medium-sized manufacturers.
    Challenge Number One: How can we grow and re-invest in our 
company when more than 50 percent of our profit flows out of 
the company in the form of taxation, Federal, State, and local 
taxes?
    Our most serious impediment to growth is the fact that 
growing in a small company really relates to cash flow. Other 
than from bank debt, the cash flow for small companies comes 
from profit. In our company, after we have rewarded our 
employees with year-end bonuses and have paid the 50 percent of 
our profit in taxes, we quite frankly are left with the bare 
minimum needed to maintain the status quo. We can reinvest in 
those things that are wearing out, but we really cannot expand 
and grow.
    The Jobs and Growth Tax Relief Reconciliation Act of 2003 
allowed us to better afford the purchase of a new high 
technology piece of equipment, due to the accelerated 
depreciation section of the act. However, and this is the key 
fact for me, in order to really generate small business 
expansion, you folks need to provide much more in terms of tax 
relief and credits. The first year write-off should be a 
minimum of $500,000--again, these are my opinions--so, a 
minimum of $500,000. One small piece of equipment for me is a 
quarter-of-a-million dollars to make that investment. So if I 
want to replace or to expand and put two pieces of equipment 
in, I'd like to be able to maximize my first year write-off.
    And years ago we had a thing known as an investment tax 
credit, direct tax credit for reinvesting in one's company. 
Those two key things for me are probably the most important 
things that I could see as a company that would allow me to 
expand and to grow--and not just have to sort of maintain the 
status quo.
    One only needs to look to our north to find a country that 
values its manufacturing base and does the things it needs to 
do to protect and help them to succeed.
    The first year accelerated depreciation and investment tax 
credit should also include investments made for training and 
for research and development. Was the Tax Act too little, too 
late for American manufacturers? It may be too little, but if 
folks in Washington can react quickly enough, I don't think it 
has to be too late.
    Challenge Number Two: How do we get better at what we do so 
that we can compete with foreign competitors on the current 
uneven playing field?
    It is painfully clear that countries like China do many 
things that created the unfair playing field we have now and, 
as a result, we're seeing unprecedented increases in our trade 
deficit with China. A lot has been said about this today, and I 
am going to skip a lot of what I might have said prior to 
hearing previous testimony, but there are two issues here. 
Level the playing the field if possible, but more importantly 
to me, it's to provide American manufacturers with the tools we 
need to compete.
    In terms of leveling the playing field, our leaders must 
play hardball under the WTO rules with China. And I am very 
happy to hear Chairwoman Snowe allude to that. I think it's 
time to play by the rules or they don't get to play in our 
field. The NAM has been working on this in several areas and it 
will take a strong will from those who negotiate for us in the 
WTO arena.
    Most importantly we need to slow and reverse the trade 
deficit with China. Today it just passed $100 billion. At its 
current pace will exceed $300 billion in 5 years. Our 
manufacturing base will be beyond the point of no return by 
then. I firmly believe that. I think our base will be gone in 
that 5-year period if we have not stemmed the tide of the 
deficit. I am afraid that we will be unsuccessful to some 
degree in controlling the playing field issue but, and this is 
the key again, to me, we can control what we do at home.
    I will switch hats for a minute to my company. Today's 
discussion is not about Canada, but it was competition from 
Canada that helped our company realize that we better get a 
whole lot better at what we do if we were to survive. With the 
strong U.S. dollar and the weak Canadian dollar a couple of 
years ago, we began to see much of the business begin to go to 
the Canadian woodworking firms.
    I began to explore what might be out there for outside 
services to help us improve our competitiveness. My familiarity 
with MEP and our State Governor's Training Initiative allowed 
me to partner with them to train nearly our entire staff in one 
way or another. We leveraged the training funds with our own 
funds in order to hire MEP and other consultants to help us get 
leaner, allowing us to do more with what we had today. With 
MEP's help we began a transition that is ongoing today and will 
continue as we move forward. To make a long story a little 
shorter, we were able to grow this year so that we will finish 
nearly 35 percent over last year--in the same plant, with the 
same people building the same products. Without being able to 
leverage the help we received from the State and MEP with our 
own funds, this process would have been impossible to begin, 
let alone finish.
    Every year, companies who have benefited from MEP services 
travel to Washington to support the program and, despite 
receiving bipartisan support, there is always a battle to 
maintain the program at the current level. This is a $104 
million expenditure that seems to take as much debate as we are 
seeing today on the $87 billion needed to rebuild Iraq. If we 
want some impact in this country, take a portion of that $87 
billion and invest it in American manufacturing through tax 
incentives, training help, and better access to research and 
technology. MEP dollars provide a tremendous return in terms of 
the Federal investment. The other tax incentives will do the 
same.
    And I am running out of time, so I am going to skip to the 
very end. I think that this is a case of preaching to the 
choir, but this fifth and final point that I want to make 
really encompasses all that I have said earlier. My father told 
me a very long time ago that what our company does is extremely 
important. He also said that if we employ good hardworking 
people and we produce the highest quality products at a fair 
value, we will be successful. He taught me that we were in an 
honorable profession and that manufacturing was the key to any 
country's success. The reason, he said, is that we take 
relatively inexpensive natural resources and we add value. It 
is the added value that drives the economy--not more lawyers, 
not more stockbrokers, and not more lawmakers. When we import 
products from outside our borders we are not really importing, 
we are really exporting the wealth in this country. And it does 
not come back. When we produce our own products we are creating 
wealth, and when we export them we are importing the wealth of 
our trading partners. This is a very clear concept. We need to 
make something to increase value, and we need to export to 
create wealth in this country.
    To begin to change the trade deficit and to begin to gain 
back manufacturing jobs it will take all of the changes in 
taxation, technology, and training our leaders have the courage 
to enact. The rest is up to us as manufacturers.
    Thank you.
    [The prepared statement of Mr. Pulkkinen follows:]

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    Chair Snowe. Oh, thank you Bruce.
    Thom.

STATEMENT OF THOM LABRIE, PRESIDENT OF FORMER AUBURN MACHINERY, 
                     INC., LEWISTON, MAINE

    Mr. Labrie. I want to thank you for the opportunity to 
speak here, but since I only have 300 seconds to try to put 
together a meaningful message, I'll get moving along.
    Auburn Machinery was started 27 years ago for the purpose 
of developing, manufacturing and distributing equipment to the 
sawmill and the woodworking industries. In order to remain 
viable, we aggressively developed new products continually and 
focused heavily on generating some new technologies to increase 
the products' revenue and value--adding job opportunities out 
of every tree harvested but, specifically, out of already 
harvested forest resources.
    Auburn was a small company, employed 20 people, paid above-
average wages, provided a comfortable and friendly small 
company working environment, provided flexible hours to meet 
employees' needs, provided excellent health insurance programs, 
contributed about 25 percent or more to the 401K and retirement 
plan, made financial contributions to our employees further 
education and really had little employee turnover in 27 years.
    Unfortunately, this year we had to close the company down. 
A lot of reasons for the company's demise, but some of the 
contributing factors were: the recession; the immediate and 
long-term fallout of 9/11; the war with Iraq; postponed 
equipment buying decisions by nervous owners and managers; the 
high cost of doing business in Maine. We know Maine is the 50th 
worst State to start up and run a business; and a problematic 
product liability system which affects equipment manufacturers 
right between the eyeballs. But when you get down to the main 
problem, Auburn Machinery is a classical example of the 
trickle-down effect of the de-industrialization of America.
    The closing down of wood processing operations all over the 
country leaving few potential customers for Auburn's products 
and services. And simultaneously, through plant closing, 
dumping thousands of machines onto the market, through plant 
liquidation sales, at $0.10 to $0.20 on the dollar.
    The other half of it is, really, competing against well-
funded, Chinese industries that use direct and indirect 
distributors to sell ``Cheap Chinese Copies'' (CCC) of our 
products, often, our own proprietary equipment.
    Now, most of the rest of what I had written has been 
covered already, so I did a quick little rewrite. And getting 
down to some of the needs, some of the changes that I think 
would help.
    First, looking at entrepreneurs in general. They need 
access to R&D funding, unquestionably, if we are going to drive 
industry forward. And we need better access to affordable 
investment capital. There needs to be access to funding to 
develop merchandising programs to bring new products to the 
marketplace.
    We need copy artist protection. Of the last trade shows we 
attended, the Chinese were all over our equipment. At the 
Atlanta IWF show in 2002, within 10 minutes of unloading our 
equipment, the Chinese were in our booth looking closely at our 
new products. At other shows, they distract us, they do all 
kinds of things to get their people access our equipment. And 
in one case in Las Vegas, they sent in American businesspeople 
to get all the information out of us to give it back to them. 
We decided then we had to cut back on trade shows to stop 
making it so easy for these copy artists to get hands-on access 
to our products. Trade shows more and more are working against 
new product developers in this country. So, this is a battle 
that needs to be dealt with to help entrepreneurs.
    We really need to enforce the existing anti-dumping rules 
and we need to force a level playing field related to safety, 
health and environmental issues from offshore competitors.
    On the Maine forest products industry side, this is where 
we have been involved traditionally, and are more involved 
today than ever. The industry in Maine, which is a critical 
natural resource base industry for this State, needs the 
resources to unite this sector into a single efficient entity. 
Right now it's a very, very fragmented industry, and I am using 
the word industry loosely. It needs the resources to develop 
cutting edge products and develop programs focused on value-
added products. There needs to be created an aggressive 
merchandising program to promote Maine-made wood products. It 
needs help to develop the ``wood is good'' message to educate 
students and consumers about the true story about the 
economical and environmental benefits of wood--the 
environmental value and benefits that wood provides as a 
manufacturing and building material.
    In the end, looking at small business, Auburn Machine was a 
20-employee company, but it provided the primary and secondary 
woodworking, the de-construction and the recycling industries 
with cutting edge technologies, in order to improve their 
viability and environmental performance. Auburn's proprietary 
equipment is today being used from Canada to Chile, and from 
California to around the globe to Siberia. Over the past few 
years, the company has won numerous awards for its innovative 
technologies and proprietary wood recovery equipment. I am 
making this point to show the potential broad-based effects of 
a small company in this country. It's propriety wood recovery 
and value-added technology is currently being used by the Army 
Corps of Engineers to reduce their volume of solid and 
hazardous waste materials by up to 90 percent in the disposal 
of military buildings on closed bases around this country--
potentially saving the Federal Government hundreds of millions 
of dollars in hazardous waste disposal fees and unknown levels 
of hazardous landfill liability for generations to come.
    Small companies create revolutionary changes. Consider the 
ramifications of the first automobiles and planes that were 
being developed in bicycle shops, and the computer being 
developed in a garage in California.
    In conclusion, what we get down to is this. We have to stop 
studying and reviewing the issues that were discussed here 
today. We know the reality. We've got to deal with it. We have 
to start enforcing fair playing rules and we have to do it now. 
The problem that we have is because of where we've allowed 
ourselves to go through the de-industrialization process. We 
have less leverage every single day to use a big stick. We've 
heard about the Chinese buying American debt. Imagine the 
leverage that that tool is on our economy as that situation 
grows.
    And in closing I will say, if I have one thing that I am 
the most concerned about its not the painful economic and 
social consequences of de-industrialization as much as it is 
the national security issue. No country can remain secure and 
sovereign and no economy can remain healthy and viable when 
they are forced to depend on foreigners, friends and foes 
alike, for food, clothing, parts for cars, boats, trucks, 
computers, and most other goods that keep our system functions 
and our defenses operational. We've put ourselves in an 
extremely dangerous situation, and the longer we dance with it, 
the worse it's going to get.
    Thank you.
    [The prepared statement of Mr. Labrie follows:]

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    Chair Snowe. Thank you. Thank you Thom. Well said. I am 
sorry that you had such an unfortunate experience.
    Mr. Labrie. It's the price of being in business.
    Chair Snowe. Yes. Well, we regret that. I understand what 
it took for you to run the business with forces beyond your 
control.
    LoLisa.

STATEMENT OF LOLISA BONNEY, CFO AND GENERAL MANAGER, WINDEROSA 
                    GASKETS, DIXFIELD, MAINE

    Ms. Bonney. I don't really think you need me here. Between 
these two and your first panel, I think, really, you have a 
really good perspective of the problems of small business. 
Thank you for you efforts and thank you for your interest in 
this. I am kind of looking at, in the last 20 years that I have 
been in small business--we are becoming like the spotted owl. 
And we don't want to become an endangered species. We need 
help.
    I am General Manager of Winderosa Gaskets of Peru, Maine. 
We manufacture small engine gaskets for snowmobiles, personal 
watercraft, dirt bikes, ATVs, and lawn and garden equipment. 
And we're in what you might call a remote corner of a remote 
State, but we call it the beautiful foothills of western 
mountains. I am responsible for distribution of all our 
products. I am not a professional speaker.
    Chair Snowe. Oh, you are doing just fine.
    Ms. Bonney. Running a business is challenging enough, 
particularly when you are in remote locations in Maine.
    The subject of foreign trade is near and dear to us, since 
about 45 percent of our total sales volume comes from exports, 
and that's a percentage that has held pretty constant for the 
past 4 or 5 years. The company was founded in 1982, and exports 
have been a significant part of our distribution since about 
1985.
    We distribute to nearly 40 countries all over Europe, 
Australia, New Zealand and New Guinea. One of our big growth 
markets is the fact that, with our dirt bike line--and lot of 
foreign countries, like in Europe, and a lot of these 
countries--like there are more cars per household than there 
are people. It's transportation. So that's a huge growth market 
for us. Our sales have grown since 1982 from about $50,000 to 
about $2 million, our annual sales today.
    Exporting has been such an essential component of our 
success that we have been privileged to have received several 
awards. We received the Small Business Exporters from the U.S. 
SBA in 2000, and just last month we received the U.S. 
Department of Commerce Export Achievement Award from Secretary 
Evans when he was visiting Maine last month.
    I think we've demonstrated the potential for international 
trade from such a small and relatively remote community as 
ours. But our success on the global stage may have started 
coincidentally, when two people from Sweden showed up at our 
door with white suits and wanting to buy our products and 
couldn't speak English--because they tracked us down. Today we 
are very strongly committed to that export trade. We do 
whatever is required to be successful with that concept. We 
participate in a variety of trade shows to attract 
international buyers here in the States--in places like 
Cincinnati, Indianapolis and Louisville. Actually, one of my 
partners is in Las Vegas right now working at a show. And 
abroad in places like Cologne, Germany. We also work very well 
with the Maine Trade Center in Portland and the Department of 
Commerce that is situated there. It's helped us a lot.
    Being an efficient exporter means that we must first be as 
efficient as possible in our own production operations. As soon 
as we moved to Peru about 7 years ago, from our Dixfield 
location where we worked for 15 years. When we got moved into 
our facility, one of the first things we did is--we got lined 
up with MEP and they worked with us on a continuous-flow 
manufacturing program and they helped us achieve our ISO 9001 
Certification. And that has been very beneficial too--not only 
running our company more efficiently, but getting more foreign 
sales that we're looking for.
    An essential part has been our commitment and growth of 
understanding of logistics management--a concept which is 
becoming increasingly important in domestic business as well. 
It is absolutely vital for international success. Many smaller 
firms consider the time and energy spent in logistics of 
efficient distribution may be an additional cost, but we 
believe it is critical to our profitability. Freight options 
from Peru are limited. Whoever Boise, which is now Meade, and 
International Paper has for trucking, that's who we get. When 
they change, we have to change contracts, you know. That's just 
where we are. But with where we are and our customers so far-
flung, we must really concentrate on the most cost-effective 
means of delivering our goods to where they need to be, when 
they need to be there.
    In addition to the products we develop for the after 
market, we are mindful of the fact that a good part of our 
gaskets are ultimately used on original equipment, so it's 
going right into the original equipment--like in Bombardier, 
Ski-Doo, and Sea-Doo. We sell original equipment to them, for 
example. So our role is that of a sub-tier supplier in 
sometimes sophisticated and geographically dispersed supply 
chains--makes it kind of difficult.
    Ultimately, our business succeeds relative to the success 
of the supply chains of which we are a part, so it is in our 
interests, as well as those of our customers, that we do 
whatever we can to ensure the supply chain functions smoothly--
and that, from the perspective of the end user, it is 
completely seamless and transparent.
    Doing international business from Peru, Maine does present 
some challenges and some expense that some competitors 
elsewhere around the world do not experience. We remain 
confident, though, that to the extent we are playing on a 
relatively level playing field, we can compete effectively. We 
have not been able to withstand specific challenges from less 
expensive offshore competitors over the years. Some years ago, 
the gasket market was flooded with products from Italy, which 
proved after time in the field to have been of poor quality, 
inferior materials, inadequately fabricated. It took years for 
the industry to comprehend the magnitude of this problem. And 
then it took additional time for those poor-quality goods to be 
removed from the marketplace and for machines in which they had 
been installed to be retrofitted.
    So a big measure of our confidence stems from our 
consistent history of being able to produce higher quality 
gaskets than those available from other sources. As of about 3 
years ago, we lost our market share in Singapore and Malaysia 
due to Chinese imports that we can't compete with.
    I see I am running out of time.
    One of our largest markets is Canada due to the snowmobile 
business that we do and we have been pretty successful up 
there. Some of our Canadian distributors' orders for the pre-
season were quite soft this year--to the extent that I had to 
lay off two people in July. And we just learned that, when some 
catalogues went out, that they have begun buying cheaper 
gaskets from a manufacturer in China. They've imported a line 
so that now we are facing it.
    We are clearly not afraid to compete on the global stage. 
It's where we belong. We have demonstrated that, on a 
reasonably level field, we can compete efficiently. And while 
we have not yet experienced the pressures of offshore 
competition that have impacted other U.S. manufacturers, we 
need to take action now to withstand threats to our market.
    We need to preserve the ability to deliver superior 
products, to be innovative and the cutting edge of the 
requirements of our specific markets.
    We need access to infrastructure in this country that is 
supportive of manufacturing in general and seamless functioning 
of complex supply chains. There seems to be a negative 
connotation when people talk about industrial backing or 
infrastructure for industry.
    You know, in the paper the other day, they were talking 
about the jobs they would be supplying for the stem research 
for the $90,000 pay. That's great for the people that have 
those educations. I have people working for me--they are the 
Beckys and the Kens and the Caras that are the single moms that 
couldn't make it cutting hair. You know, that's the type of 
people we are employing and giving good jobs and 80 percent of 
their health insurance. This is the kind of job people don't 
see. In school they are not teaching you to go into 
manufacturing. They are saying, you know, be on a computer, you 
need to be in high-tech, you need to be doing stem research. 
Well, what about building things? People don't build things 
anymore. They don't think that's a career. You know, it's 
scary. You are seeing an attitude change.
    We are grateful for all the opportunities afforded to us 
thus far in our growth, and we are committed to continue doing 
world-class business from Peru, Maine.
    We appreciate the attention that Senator Snowe and others 
are bringing to our situation. We're confident that if 
government and the private manufacturing sector work together 
to recognize and address the realities of foreign competition, 
we will continue to provide good quality jobs in an area where 
they are all too scarce. We don't want to become the spotted 
owl.
    Thank you for the opportunity to address your panel, and we 
are ready to provide any insight and answer any questions that 
you may have. Thank you.
    [The prepared statement of Ms. Bonney follows:]

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    Chair Snowe. Thank you, LoLisa, very much. We appreciate 
your testimony. Thank you.
    Rod.

   STATEMENT OF RODNEY P. RODRIGUE, PRESIDENT AND CEO, MAINE 
              MANUFACTURING EXTENSION PARTNERSHIP

    Mr. Rodrigue. Senator Snowe and members of your staff and 
distinguished members of the panel.
    My name is Rod Rodrigue and I am the President and Chief 
Executive Officer of the Maine Manufacturing Extension 
Partnership. I appreciate the opportunity to speak to your 
panel on a subject that you, Senator Snowe, have continually 
championed. My written statement provides a report on the 
overall role of U.S. manufacturing and the many challenges is 
faces today. I think we are all in agreement of that. I have 
also submitted a number of reports that detail many of the 
problems and, hopefully, solutions along with testimonies with 
several Maine manufacturers who have been impacted by the China 
trade. The substantial barriers to manufacturing growth and 
development are prevalent not only here in Maine but throughout 
the Nation. I am glad everyone used my chart, there, I think, 
the one----
    Chair Snowe. Is that your chart?
    Mr. Rodrigue.----[continuing.] from the country--you could 
actually superimpose it just over that and I think it almost 
mirrors that chart.
    I would like, however, to focus my brief oral testimony on 
outlining to you, Senator Snowe, real-time achievable solutions 
that can be quickly implemented. The timing issue that you 
mentioned is absolutely crucial. If these folks are extremely 
successful, who testified earlier, in the next year or 2 or 3, 
it will still be too late for a lot of our manufacturers. We 
are losing them daily and we need some real-time action, right 
now. So I applaud all the things they are doing, but we need 
some real-time, short-term solutions. These solutions are not 
simply ideas, but pilot programs that have been completed and 
have proven track records. Although these short-term solutions 
do not require major new Federal investments, they do require a 
solid commitment to preserve existing programs and a total 
dedication to refocus various programs into a single unified 
initiative to assisting the U.S. manufacturing community.
    We are very fortunate here in Maine, because we have the 
SBA with Mary MacAleney, SBDC (Small Business Development 
Centers), MTI (Maine Technology Institute) and so forth, and we 
all pull together. But, nationally, that's what has to happen.
    We also need to passionately embrace the realization that 
we are a Nation of producers, and that a robust manufacturing 
community is the fundamental key to full recovery and to 
strengthening our national defense and Homeland Security.
    We need to realize that we are facing an economic national 
crisis in the manufacturing community that is devastating to 
our very economic survival and to our very way of life.
    If we do not succeed in reversing this trend, I believe the 
following quote from ``Securing America's Future: The Case for 
a Strong Manufacturing Base''--it's a 2003 report prepared for 
the Council of Manufacturing--will come to pass. And I quote, 
``If the U.S. manufacturing base continues to shrink at its 
present rate and the critical mass is lost, the manufacturing 
innovation process will shift to other global centers. Once 
that happens, a decline in U.S. living standards in the future 
is virtually assured.''
    We must streamline transfer of technologies from the 
Federal laboratories and universities system to small 
manufacturing enterprises. Assessing which technologies are 
relevant to their business and producing second and third 
generation products is fundamental to maintaining manufacturing 
superiority. The Government Accounting Office report submitted 
with this testimony suggests that our Federal laboratory system 
is under-utilized in transferring technologies to small 
manufacturing enterprises, even though these labs are mandated 
to work directly with small manufacturing enterprises. Most of 
the services provided by the Federal laboratory system cannot 
be accessed by small manufacturers because they are 
unaffordable and mired in manufacturing bureaucracy and legal 
paperwork. The Maine MEP has had considerable success enabling 
small manufacturing enterprises to draw down existing 
technologies from the Federal laboratories on a real-time 
basis. These were done within 6 to 9 months and had tremendous 
economic impact. Some of the companies are alive today because 
of that transfer. We were, unfortunately, under budget 
constraints and could not continue.
    Attached to this testimony is a list of over 200 successful 
real-time technology transfer projects that utilize National 
Institute of Standards and Technology data, and laboratories 
and universities. This successful effort, we believe, could be 
used as a national model and could be rolled out immediately.
    We should strive to remove the barriers that limit small 
manufacturing enterprises access to Federal contracts and 
expand market opportunities.
    We support the Administration's action to appoint an Under 
Secretary of Commerce for Manufacturing with the mandate to 
reduce the bureaucratic burden of these businesses and to 
refocus government assistance from a variety of sources 
directly to the manufacturing community. This action should 
quickly be followed by implementing the recommendations of the 
2003 report on National Research Council titled, ``Equipping 
Tomorrow's Military Force.'' We want a piece of that $87 
billion to keep these small businesses alive, facilitate entry 
and strengthen small manufacturing enterprises into the defense 
and commercial supply chains. We need to build supply chains 
that are strong, flexible and robust in order to compete 
globally and protect small manufacturers from the predatory 
practices of foreign competition. Strength and flexibility in 
the supply chains can only come by engaging large numbers of 
small manufacturing and enterprises through teaming 
arrangements in response to procurement opportunities. These 
same teaming arrangements were used in World War II by Kaiser 
and Knudsen in building one ship a day when we had a national 
emergency. These same practices are relevant today and should 
be redeveloped.
    The whole program only talks about one thing and that is 
about cutting through the red tape and getting it done. In the 
future, supply chains will compete, not companies.
    Because of your support, Senator, we are about to launch an 
initiative with our New England Partners to enhance the 
Department of Defense and Original Equipment Manufacturers 
access to New England's small manufacturing enterprises and 
provide these suppliers with expanded access to defense and 
commercial procurement. That will start within a month and that 
was due to your initiative and vision over a year ago. And we 
thank you for that.
    In closing, we need to refocus the resources we have 
throughout the Federal Government into one single program in 
support of manufacturing. If we succeed, we will stabilize, 
reinvigorate and rejuvenate the manufacturing base. America's 
workers can compete. They respect free trade, but need fair 
trade. Senator Snowe, you have been a consistent champion for 
small manufacturers and for the MEP system and for that we 
remain extremely grateful. Much of what we have been able to 
accomplish so far, and what we are doing now, is directly 
attributable to you leadership and your vision. That vision and 
leadership has never been more needed than right now. The men 
and women who go to work everyday in our factories deserve the 
basic human dignity of being assured of their rightful place in 
building wealth for their families, for their State and for our 
Nation. And I thank you for having this session and thank you 
for inviting me.
    [The prepared statement of Mr. Rodrigue follows:]

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    Chair Snowe. Thank you, Rod. I appreciate it. Thank you for 
coming.
    Randy Cousineau.

STATEMENT OF RANDY COUSINEAU, OWNER AND PRESIDENT OF COUSINEAU, 
                    INC., NORTH ANSON, MAINE

    Mr. Cousineau. It looks like this chart--that we are here 
because we are losing jobs in Maine--and it looks like we've 
lost 18,000 jobs in the last 3 years, or 22 percent. That's 
about 22 percent. And somewhere in 11 to 12 years, we'll have 
no manufacturing jobs left. Zero. And I can't speak for other 
manufacturing things, but I can for lumber and dowels.
    We are 70 miles, where we are located from the Canadian 
border--two Canadian borders, actually, because the Jackman/
Armstrong and Coburn Gore--and they have different rules than 
we do. They have no workman's comp. They have no insurance. In 
our small company it costs us $40,000 per month to have those 
two things that we pay. They have power at three-and-a-half-
cents a kilowatt. Our power here in Maine is somewhere between 
8 and 14 cents a kilowatt. Our power bill, in our company, is 
$22,000 a month. If it was three-and-a-half cents, it would be 
$8,300.
    They have a help. If you take a log up there and you 
produce it into lumber, the government will help pay the labor 
force to produce lumber for manufacturing jobs. They also have 
a machinery--if you take a piece of machinery, if a company 
makes a piece of machinery and it doesn't work properly or it 
can be improved, you submit a form and the Canadian government 
will pay money or will pay the rest of the money to help make 
that machinery improve so it does a better job.
    There is no duty on our logs going into Canada, at all, or 
lumber coming back out of Canada. And we, the Maine people in 
sawmills, cannot work and buy logs for the same price as the 
Canadians do, because they have so many advantages, more than 
we do.
    Last Tuesday, our mill shut down at 2:30, because we ran 
out of logs. And I went over to pick my son up, Joey, in 
Kingfield and took him to the dentist. And it's 18 miles from 
Kingfield to Farmington on Route 27 going to Coburn. And I met 
six tractor trailers full of oak logs. And that's about 35,000 
wood feet and that would have lasted our crew, or our mill, for 
ten hours to saw. Obviously, it was on my mind, but that's not 
uncommon.
    Every time you travel that route or the Jackman route, 
you'll see hardwood logs going into Canada. So our Maine logs 
are going to Canada. We're not providing any jobs, or less 
jobs, because we have not the logs to produce the lumber.
    We are now, currently, down to 4 days a week because we are 
low on logs. We are getting them as far as Massachusetts. We're 
not the only mill. There are two other mills right next to us, 
or right within 50 miles, that are down to 4 days a week also. 
And it sounds like I am against Canadians. We've done a lot of 
business with Canada and with a name like Cousineau you can't 
be against Canadians. But we just need to get--either we need 
to do what they do or they need to do what we do.
    And then the other thing that won't be so easy to cure is 
the Asian market or Russia. We have a company in California, 
our biggest company in California, that was buying two loads of 
birch a year--a week--off of us last year, all through 2002 and 
half of 2003. And now they are getting the Russian birch, 
balsam birch, from Russia and they are bringing two loads a 
week in over there. And we are not shipping any.
    The Russians provide the timber for nothing for the 
sawmills to have jobs. They work at $4 a day, approximately $20 
a week. Our labor force, with benefits, is averaging $648 a 
week and, obviously, he can buy it for like half-price than 
what we can sell it to him for.
    Thank you.
    [The prepared statement of Mr. Cousineau follows:]

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    Chair Snowe. Thank you, Randy, very much, for telling your 
story. And I think that listening to all of you so far 
dramatically illustrates the challenges that you face on a 
daily basis as small businesses, just wanting to do your job 
and keep your people employed in doing what you set out to do 
when you started your business or to continue the business. 
That's why I appreciate your being here today and sharing your 
stories.
    Allen Cairns.

  STATEMENT OF ALLEN CAIRNS, MANAGING PARTNER, CREATIVE MOLD 
                     COMPANY, AUBURN, MAINE

    Mr. Cairns. Thank you, Senator Snowe, for the opportunity 
to speak today and thank you for your grasp of the situation 
and your enthusiasm for searching for solutions.
    Our firm, Creative Mold Company, manufactures custom-made 
molds, primarily for the footwear in military industries but, 
also, for automotive, medical and other industries. Basically, 
we make the molds for final finished products which are made 
out of rubber and plastic. We are, effectively, a domestic 
production company with domestic customers. Probably 90 percent 
of our production stays within the United States. So, for us, 
foreign trade is sending a completed mold to Vermont. We have 
several customers who work with us making military boots. We 
provide the molds for those companies. We are also working 
providing molds for a product that will be used by military 
personnel in the field--and for us that illustrates a very, 
very important point which is, if we lose domestic 
manufacturing capacity, we give up a great deal of domestic 
security by not being able to produce vital and needed goods at 
the time that we may need them. And so, for that reason, I 
think, we need to, as a country, make a decision that we have 
to have a vital domestic manufacturing capacity. Whether they 
are in all industries or certain industries is certainly open 
to question.
    There is not a lot that I can add that hasn't already been 
said today, but I'd like to put some of our comments or some of 
our observations, perhaps, in a larger perspective which, 
probably, if anything, illustrates why it's going to be 
difficult to solve the problem. Generally speaking, I think we 
all understand that we are in a capitalist society and, given 
that, to pursue a profit is important for us. All of us on this 
panel are owners of small businesses and maintaining those as 
vital entities means that we have to be profit-making 
enterprises. So the pursuit of profit is a natural and fully 
expected dynamic and really not a bad thing in and of itself. 
But what we find is the market has a life of its own and right 
now we are finding what the implications of the market are. 
When the dynamics are set in play for profit-making to be 
maximized, we have to look for the lowest cost commodities, 
lowest prices and so forth in terms of how we can manufacture.
    What we've seen over the last few years has been probably 
the final wringing out of the efficiencies in our country of a 
great deal of--certainly using machines and industrialization, 
but also computers, telecommunications and so forth. And all 
those capacities have been exported. They are no longer a 
competitive advantage of ours. They have been expropriated and 
used and thoroughly integrated. And, actually, there can be an 
argument that the newer the market, the more efficient they are 
going to be because they don't have the old baggage to 
overcome. So, effectively, we are reaching a diminishing effect 
of using computers and other technologies as competitive 
factors. And so given that, I think, what we are finding is 
labor becomes one of the last drivers of how a company may be 
profitable, and given that, you have to go where the labor is 
cheapest--and where the labor is cheapest is China, India, 
South Korea, Brazil and other countries as well.
    So, unfortunately, what we find is there are two 
fundamental paths or dynamics that we are going to look at or 
that we need to focus on. One is cheap labor and the second is 
the opening up of very large new markets. Many of those are 
more important for large manufacturers than they are for small 
manufacturers. And, unfortunately, what we may find out is, 
depending upon whose perspective you take, some of these 
dynamics are positive and some of these dynamics are extremely 
negative. And you have to look at it on a short-term basis and 
a longer-term basis.
    One of my concerns is what do we mean when we talk about a 
level playing field. That's a term that is bandied about and 
included in every conversation of international trade. I am not 
sure we all agree on what that means. A level playing field 
certainly means playing by the rules of the World Trade 
Organization and other requirements that our countries have 
agreed to and must follow. But when all those things are fully 
implemented and we have achieved a level playing field, how do 
we compete when the minimum monthly wage in Beijing is $51 U.S. 
per month, and Shanghai is $61, and Quang Shu, which is a major 
manufacturing area is $62 per month. The average monthly wages 
for low skilled employees in China are $100 per month U.S., 
factory supervisors are $187, clerical staff $185 to $200 U.S., 
junior executives with university degrees, $187 to $250, and 
mid- and high-level executive managers, $437 to $750 U.S.--
quite as dramatic.
    There is a definite, well-educated professional class of 
engineers, architects, accountants, and so forth, who will work 
for roughly 
1/5 what U.S. salary levels are. How do you compete against 
this when labor becomes an important aspect of the finished 
product, and in my business that is exactly what is happening? 
We can and have computer, numerical machines which can operate 
by themselves for hours at a time, cutting pieces of aluminum. 
But the flip side of it is--we still need to pay American 
workers living wages.
    So, to finalize in terms of my observations, we really need 
to look at the differences and the effects of large companies 
versus small companies, because I believe the dynamics are 
entirely different--as well as the long-term effects on this 
country versus the short-term effects. The short-term effects 
are the importation of lower-priced goods. The long-term 
effects are the transmission of our technology and 
manufacturing infrastructure to another country. We need to 
look at it from a point of view from consumers, point of view 
from shareholders of companies, and as employees--and then, 
finally, as citizens of the United States where our security 
interests may be at risk. And we all wear different hats at 
different times.
    [The prepared statement of Mr. Cairns follows:]

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    Chair Snowe. Thank you very much, Allen.
    John Wentworth.

       STATEMENT OF JOHN WENTWORTH, PRESIDENT, MOOSEHEAD 
                  MANUFACTURING, MONSON, MAINE

    Mr. Wentworth. Thank you very much, Senator Snowe.
    My name is John Wentworth and I am the President of 
Moosehead Manufacturing Company, a solid hardwood, residential, 
case goods manufacturer headquartered in Monson, Maine. My 
primary hat today is of President of Moosehead, but I left off 
my bio that I also sit on the Board of Directors of the Maine 
Wood Products Association, which represents 200 wood products 
manufacturers in the State of Maine, and the American Furniture 
Manufacturers Association, of which I don't dare guess how many 
today remain.
    I would like to thank you for this opportunity on behalf of 
the 200 working men and women who work at Moosehead on a daily 
basis.
    Moosehead is a nationally-recognized brand known for its 
high value and quality. We produce our products in two 
facilities, located in Monson and Dover-Foxcroft, and use 
select hardwood logs harvested primarily from our own neck of 
the woods. We take great pride in the fact that we use the 
entire log. Our plants and dry kilns are heated with the bark 
and sawdust produced in our own operations. No fossil fuels are 
used for heat or processing. Moosehead goes to great lengths to 
ensure that our facilities are safe and pleasant workplaces, 
with a safety record admired by many in the wood products 
industry. I am proud of the craftspeople at Moosehead.
    I was asked to share with the Committee some of the 
problems facing Moosehead Manufacturing and other small 
business manufacturers. While the challenges of running a 
natural resource-based manufacturing company may be numerous, 
there are three areas that I would like to highlight. They are: 
The costs, intended and unintended, of government rules and 
regulations; The cost of providing health care to our 
employees; and the effect of cheap imported furniture on the 
U.S. furniture industry.
    When it comes to regulations, small companies find it 
extremely difficult to allocate expensive human and financial 
resources on new rules and regulations. On top of complying 
with a myriad of existing regulations on the State and Federal 
level, including OSHA, EPA, and the Consumer Product Safety 
Commission, for example, the industry is facing new regulations 
on the emission standards on our wood-fired boilers. As 
previously mentioned, many wood product manufacturers operate 
wood-fired boilers that burn scrap wood left over from the 
production process to heat the facilities and prepare kiln-
dried hardwood lumber for the production operations. If 
unrealistic or excessive emission rules are imposed on our 
industry, the American Furniture Manufacturers Association 
(AFMA) estimates the cost would be between $500,000 and 
$1,000,000 per boiler--or we would be forced to pay to have 
these materials sent to a landfill and buy fuel oil for heat 
and processing--which, in my opinion, would have little 
environmental value.
    The second issue I would like to share is the out-of-
control cost of providing health care. The owners and managers 
of Moosehead Manufacturing Company believe that the health care 
insurance is the most important benefit we provide our people. 
We offer company-sponsored health insurance to our employees 
and their families for a very low weekly premium. Because we 
have a self-funded plan it is in our best interest to help our 
employees remain as healthy as possible. A company nurse, 
employee assistance personnel, wellness programs, exercise 
programs, smoking cessation aids, free health screening, and 
even premium reimbursements for healthy behavior and lifestyle 
changes are a part of our total health care program. Despite 
these efforts, costs continue to rise at an alarming rate. Many 
smaller companies cannot afford to offer this very important 
benefit. Senate Bill 545, which I believe you sponsored, 
Senator Snowe, is a big help for many of the smaller Maine wood 
products associates and hopefully this will pass quickly. As a 
side note, in 2002 and in 2003 Moosehead will spend half as 
much for health care as it does for all the wood it takes to 
build its furniture.
    These two issues that I just touched on very briefly are 
issues that Moosehead, along with all our domestic partners, 
have to deal with. Manufacturers in Vermont, manufacturers in 
North Carolina, manufacturers in Michigan, all have to deal 
with health care and all have to deal with regulations. 
Undoubtedly, though, the most significant factor affecting the 
industry is imports from foreign countries where you do not 
have to deal with the same regulations that we do. And this is 
where, in my opinion, the greatest danger arises.
    The combination of $2-a-day labor, lower environmental 
standards, and the manipulation of currency values has made 
China the dominant producer of wood furniture in the world. 
Approximately half of all the case goods sold in the United 
States today are imported. And 40 percent of those are of 
Chinese origin.
    I cannot stand, or in this case sit, before you today and 
say that all furniture manufacturers are in agreement on the 
nature of the problem or the appropriate solutions. Among the 
members of the American Furniture Manufacturers Association, 
there is great diversity in the opinion about sourcing 
overseas. Many companies have closed domestic furniture 
factories and are themselves buying product from the Pacific 
Rim countries. This is not something that they enjoy doing, but 
is something that simply is done to keep their companies viable 
and to preserve as much of their domestic operations as they 
can. There are no easy answers to this situation. It is one 
that has played out in other industries, such as textiles and 
shoes.
    I believe one thing we can all agree on--that foreign 
producers should adhere to the international laws and trading 
regulations. Below cost selling--i.e., dumping--does not 
represent free or fair trade. Moosehead is one of 31 companies 
that make up the American Furniture Manufacturers Committee for 
Legal Trade. We are petitioning the International Trade 
Commission and the U.S. Department of Commerce to determine if 
China is dumping bedroom furniture in the United States. We are 
not asking for tariffs or duties on fairly-traded products. 
However, a report by the AFMA indicates that residential wood 
furniture from China is being dumped into the United States.
    I would like to ask that the International Trade Commission 
and the International Trade Association be properly equipped, 
financially and otherwise, to administer and enforce the 
Nation's anti-dumping laws and provide relief to domestic 
industries that have been injured by unfair trading practices. 
I also await the Bush Administration's recommendations for 
strengthening domestic manufacturing.
    On behalf of Moosehead, the Maine Wood Products 
Association, and the American Manufacturers Association I thank 
you for the opportunity to address the Committee.
    [The prepared statement of Mr. Wentworth follows:]

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    Chair Snowe. Thank you, John. Has this petition been filed?
    Mr. Wentworth. It's in the process of being filed.
    Chair Snowe. Okay.
    Mr. Wentworth. And by the end of this month, it should be 
filed. It should be filed by the end of October.
    Chair Snowe. Okay. Thanks.
    Bernard Featherman.

   STATEMENT OF BERNARD FEATHERMAN, CHAIRMAN, BIDDEFORD-SACO 
 CHAMBER OF COMMERCE AND INDUSTRY, AND PRESIDENT OF SOUTHLAND 
            STEEL CORPORATION, BIDDEFORD-SACO, MAINE

    Mr. Featherman. Senator Snowe, distinguished presenters and 
guests.
    My name is Bernard Featherman. I am a past president of a 
family-owned, small business manufacturer of steel storage 
equipment products. As an entrepreneur, I was inducted as a 
lifetime member of the Institute of American Entrepreneurs in 
1990. I reside in Maine with my wife, Sandra. I am here today 
as the Chair of the Manufacturing and Industry Group of 
Biddeford-Saco Chamber of Commerce, representing our small 
manufacturers.
    Let me say Maine is noted for its pristine air, clean 
lakes, wonderful forestry and fine resorts. It has a low cost-
of-living, amply-priced housing, fine educational institutions, 
and the quality of life opportunities to induce entrepreneurs 
and small manufacturers to locate here.
    The question I am most asked is, ``How do you find 
business?'' Well, I am not quite sure how to respond. In one 
sense, good. Another, improving. Yet, with cautious optimism, 
we are not out of the woods, so to speak. Small manufacturers 
were down almost 40 percent or more in sales volume in 2001. 
The last 12 to 24 months saw a collapse of the price structures 
as a result of a customer-driven market, of which we still find 
today.
    Statistically, a non-profit small business advocacy group 
in Washington found Maine to be ranked 48th lowest amongst the 
States with the worst small business policy climate. Most small 
businesses in Maine find this to be true. Why is Maine so 
unfriendly to small businesses? Many existing businesses feel 
the need for a more business-friendly climate by our local 
politicians. It is troubling to hear the impressions stated by 
a majority of businessmen and women, both from small and large 
businesses in other fields locally, who have expressed similar 
feelings.
    Local municipalities and the State government in Maine 
impose a high tax burden on small businesses and entrepreneurs, 
such as personal income and tax rates, State and local sales 
taxes, gross receipts and excise taxes, high electric utility 
costs, and increased health care costs. Even unemployment taxes 
are out of whack. Perhaps this unfriendly business atmosphere 
is unwarranted, but the facts suggest otherwise.
    Unfair imports continue to erode our manufacturing base. It 
is estimated by year 2015 the total manufacturers in the U.S.A. 
will drop to 10 percent of all kinds of businesses.
    Here are some of the important concerns affecting small 
manufacturers in our area of Maine. And I'll go over them 
because of time: Federal Grants; Health Care Issues; Federal 
Liability Reform; Creative Financing and Capital Assistance; A 
National Energy Policy; An International Trade Policy; and IRS 
Tax Revisions.
    And I'll go through these as quickly as possible.
    The Federal Grants are needed to train the untrained in 
their workplace employment, and it has to be increased. Present 
employees need to be upgraded.
    We need continuing education in technical schools and 
colleges in order to upgrade our students into higher skilled 
jobs through training grants. We can retool older workers or 
upgrade them into higher paying jobs, or into their own 
entrepreneurial small businesses. New jobs can be created. We 
should encourage entrepreneurial education. As a side note, 
Maine graduates one of the highest percentage of high school 
students of any State, but over 60 percent of those who go on 
to college out-of-state do not return to Maine, because they 
have no decent paying jobs to come back to. Small manufacturing 
jobs may be the answer.
    On health care issues, the costs are affecting small 
manufacturers' survival. One solution is to have small 
manufacturers pool together co-op health plan buying groups. 
Federal laws could make it mandatory for States like Maine to 
open up its market to all insurance companies, rather than 
limiting only to a few. Cost continues to rise annually and 
some of my colleagues here have mentioned that it's gone up. 
It's gone up as high as 25 to 40 percent. Most small 
manufacturers net between 2 to 5 percent if they are lucky, and 
these costs wipe out most it, if not all of it.
    Federal liability reform is needed to protect small 
manufacturers against frivolous lawsuits by promoting 
legislation for liability reform. A cap of $250,000 should be 
set on punitive damages, that's non-economic damages, in civil 
cases against small manufacturers.
    Creative financing and capital assistance programs are 
needed for the exceptional cases involving small manufacturers. 
I have here something that Arundel Machine Tool Co. sent me 
just this past week.

    ``We need to get ISO certified by the first quarter of 2004 to 
allow our company to grow another $500,000 or more in sales. This would 
add another four to six employees; therefore, we'd take four to six 
people off the unemployment rolls. The cost to get ISO certified is 
high enough that we cannot afford to drop $15,000 right now simply due 
to cash flow reasons. What is offered by the State or local government 
to cover such things that, in turn, will end up helping the State in 
the long run? We'd have six more people paying income taxes, buying 
from more local businesses and so forth.''

    That's very typical and very good, I think, and really gets 
to the point.
    On the national energy problem--we have to set up a 
national energy policy so that States like Maine can be more 
competitive with lower utility costs. As my colleagues said, 
that is a very important point for small manufacturers. Again, 
maybe we could set up co-op buying groups as incentives to 
induce small manufacturers to invest in energy-saving equipment 
and, also, buy additional equipment.
    An international trade policy to permit American-made goods 
to compete with foreign-made goods imported to the United 
States from countries who are paying pennies a day to their 
work forces with no environmental policies in force. I think we 
have to do something about that. Far Eastern countries, 
especially China, which has been mentioned so many times, are 
driven by a low margin business approach to our U.S.A.-made 
products. We must do something about this.
    On IRS tax revisions, we need to encourage investments and 
jobs creation. We have between 70-80,000 self-employed people 
in Maine. Manufacturing jobs could be increased through 
entrepreneurship. Restructuring the Federal tax system.
    I have other things to say, but I think I have tried to get 
the points across within a limited time.
    As small businesses, most of us fill a narrow niche in 
order to survive and grow. We determine the products to make, 
the customers to sell. We generally are low labor-intensive 
operations, low volume. We reduce costs rather than price 
reduce. Our strength is in people power and above all, hard 
work. We in Maine are the essence of the American way of life. 
We dare to dream and innovate in our own way.
    I want to thank you again, Senator Snowe. I want you to 
know in the 1980s, I went to Washington to an oversight 
committee and presented testimony so that we could have a 
Senate small business committee. I am very pleased that it is 
in very capable hands.
    Thank you.
    [The prepared statement of Mr. Featherman follows:]

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    Chair Snowe. Thank you. Thank you for your vision.
    The fact is, small business plays a pivotal role in our 
manufacturing industry. Try to convey that to Congress. That is 
one of the issues I recently discusses here in Maine. I was in 
Bangor on Tuesday to celebrate the 50th anniversary of the 
Small Business Administration. During a roundtable, the 
question came up, why is it so hard, if small business plays 
such a role in our economy--it creates three-quarters of all 
the net new jobs in America--why isn't that conveyed in 
Congress? So often, the Small Business Administration is 
targeted either for extinction or for serious cutbacks. It is 
amazing, because as I have looked at these programs, now as the 
new Chair of the Small Business Committee, I am really 
astounded at the relationship that exists between the 
investments made in these programs and the exponential benefits 
that result from those investments in job creation. It's very 
impressive. We can maximize the investments that we make in 
small businesses through programs like the 7(a), and the 504 
Loan Program, which yields multiple benefits in job creation, 
because small businesses are the job creators. That's what is 
happening in America. It's true, obviously, here in Maine. We 
know that. But it's also true nationally. It amazes me that the 
contradictions exist, because a lot of people don't realize and 
appreciate how important these programs and the Small Business 
Administration is. It will grow even more crucial, and should 
be elevated and profiled, because everything revolves around 
small business one way or the other. That's why I appreciate 
the efforts that you all made to be here today.
    Speaking of job creators, I would like to say that Bernard 
Featherman's wife, Sandra Featherman, is President of the 
University of New England and has done a dynamite job in her 
leadership on behalf of that university. It's so important to 
Maine. She's done an outstanding job there.
    Mr. Featherman. Thank you very much, Senator.
    Chair Snowe. Give her my very best.
    I want to thank all of you for your testimony. It really 
illustrated a broad array of problems and that ultimately seem 
to come back to many of the same issues. And, I would like to 
know several things.
    First of all, which programs have you utilized in the past? 
Several of you mentioned the Maine Manufacturing Extension 
Partnership, which is chaired by Rod Rodrigue, who has done an 
excellent job, as I was saying earlier.
    Bruce, you mentioned the MEP and I attributed it to Rodney, 
when you said that there is so much of a fight over the $100-
million program, and yet it produces so much in the way of 
benefits. Do you benefit from the MEP? How many others have 
used the MEP? You did LoLisa, Thom. And so you obviously found 
it valuable. Did it help get you started, or with connections, 
did it provide you technical assistance?
    Mr. Labrie. I have all of the above to answer the question.
    Chair Snowe. All of the above. Okay.
    Ms. Bonney. Taking those grants----
    Mr. Labrie. As a matter of fact, I have an appointment to 
meet with some of those folks right after this meeting this 
morning to further our efforts and getting better at what we 
do.
    Chair Snowe. Oh great. That is extremely important. The 
MEP's value is something I have always believed in, but it's 
important to hear, firsthand, about the kind of benefits it 
provides for you to get started, or continue, or to expand and 
enhance.
    Do any of you use small business programs through the Small 
Business Administration?
    Mr. Featherman. We've used them.
    Chair Snowe. You've used them, Bernard.
    Mr. Featherman. We've used, also, International Trade, and 
we've gone to universities and gotten business plans, set up on 
how to export. And we set up a trading house in the early 
1990s. Which was very successful because of their help.
    Mr. Rodrigue. We take a lot of credit for all the work we 
do. As you know, in this kind of program you have to take all 
the credit you can. But a lot of the programs that we've 
completed, we worked closely with SBA, SBDC. They've given us 
leads. We've worked with them and brought them in, so that 
program is being used very heavily in Maine with small 
manufacturers.
    Chair Snowe. Well, what interests me here, is that although 
there are a vast number of SBA programs, even on the trade 
front, it is interesting that with the exception of Bernard, no 
one here has used those programs, I don't know, maybe they 
wouldn't have worked for you.
    I have discovered this, not only in this State, but around 
the country. We have to do a better job in conveying what these 
programs are all about and how useful they could ultimately be 
for many small business owners. So we're going to do a better 
job on that. The SBA Administrator was recently supposed to be 
in Maine, but couldn't attend. The deputy, who is attending in 
his stead, and I spoke about how we can elevate the SBA's 
profile. Not only the profile of the agency, but also of the 
programs that come within its jurisdiction that are really 
invaluable. To that point I see two persons in the background 
that are important to Maine small businesses. Jeff Butland, the 
Regional Director for the Small Business Administration, who is 
based in Boston, and previously served Maine as its former 
President of the Senate. And Mary MacAleney, SBA's District 
Director, located in Augusta.
    So, again, there are a lot of programs out there, ust put 
that in the back of your mind, because there may be something 
that we can do in that regard that could be a value to you and 
what you are trying to do within your own businesses.
    Bruce and, then, Thom.
    Mr. Pulkkinen. I would like to comment on that. I think 
that, and I am very much in touch with what's going on with MEP 
programs and NAM and Small Business, and I think it's the 
average manufacturer, unfortunately, does not know what some of 
those programs are that are out there. Including myself. The 
SBA programs, the ones that I am most familiar with, are help 
in guarantees for finance and things like that. And since our 
company has not had a need for that since the early 1990s, I 
have not been involved in that. But, I think, one of the 
important differences--that the MEP program, for example, is 
out in the street and is out going to the businesses. They are 
going in through the door of the business. And as a 
businessperson, you are sort of busy just trying to get 
everything done every day, and you don't have the time to lift 
your head up and see what's around.
    And that's the difference. It's a partnership between all 
of those organizations and somebody that's a lead person going 
in there, whether it's an MEP organization in some State or it 
might be the SBA organization in the State. But you need to get 
out and see the businesses.
    Chair Snowe. You know, that's exactly----
    Mr. Pulkkinen. It's the only way it works.
    Chair Snowe. That's an excellent observation--and that's 
something we realized, too. Obviously you've done that, Rod, 
and that's something that we certainly need to work on. I'll 
convey that to the Administrator because it's getting the word 
out. You're right. You don't have time to go searching for 
programs and you have to meet the commitments that already are 
a result of State and Federal regulation. You just don't have 
time. That's exactly correct. And we've got to change that. 
There are Small Business Development Centers and Women's 
Business Centers. There's technical assistance that they can 
provide you. For instance, loan guarantees for purchases of 
real estate, machinery, and a broad array of programs that 
might fit something that you are trying to do at that moment in 
time.
    Also, for technical assistance with trade, there are U.S. 
Exports Assistance Centers all over the country, like the 
regional one in Boston, that provide all kinds of technical 
assistance. Promoting our resources is something we need to do 
a better job with. I am going to convey that to the 
Administration, because this is what I have learned in 
traveling in Maine, and getting input from national small 
business owners, too. Many people are not aware of what's out 
there. Yes.
    Mr. Pulkkinen. Senator Snowe, I don't want to give you more 
business to work on, but you and your capable staff could look 
into the idea of setting up a resource booklet from the Senate 
Small Business Committee that could be distributed out. And 
those of us in industry, and many of the people that I 
represent, do not know where to go. And that would be wonderful 
if we could get a resource book on that, of all the departments 
that would help us.
    Chair Snowe. Right. I have a pamphlet, but I don't know if 
it's all-inclusive enough. It's on the table. But I agree with 
you.
    We have to bring the SBA to you. That's the bottom line. 
And that's the message I have heard almost universally. That's 
why I was interested in knowing.
    Yes, Thom.
    Could it have helped you in anyway?
    Mr. Labrie. Not really. What I did want to say was, is that 
Annie, Pete and Rod have been very supportive of some of the 
creative things that we've done in the past, but also, MTI has 
been an excellent program.
    Chair Snowe. The Institute. Okay.
    Mr. Labrie. Maine Technology Institute, with the State of 
Maine, been very, very helpful and really looking for new and 
innovative ideas of support, so worth putting them at the front 
end, also.
    Mr. Rodrigue. Senator.
    Chair Snowe. Yes, Rod.
    Mr. Rodrigue. The short-term issue for us, however, is 
daily. Even though we have these great programs, we are facing 
a very, very crucial, critical, acute problem over the next 18-
24 months.
    Chair Snowe. Absolutely.
    Mr. Rodrigue. One of the things that we have, I don't want 
to say----
    Chair Snowe. No. That's going to be my next question. Go 
ahead.
    Mr. Rodrigue. I don't want say it's a fundamental flaw in 
our approach, but to some degree it is. Everything that we've 
talked about is cutting the expenses for the manufacturers. 
Let's cut the taxes. Let's try to cut this. Business is built 
up two ways: revenue and expenses. We are really trying to make 
them leaner and faster and better and all the things that we 
do, and that's in many, many programs. We have to drive the 
revenue for the manufacturers. They are so busy getting their 
widgets out the door they can't go after new marketplaces. 
There are marketplaces out there.
    Chair Snowe. I agree.
    Mr. Rodrigue. If there isn't one mill in this State or in 
this country, if we could have doubled the sales of a very 
small manufacturer, and I don't mean big numbers, $500,000 a 
year-$1,000,000 a year, we would have a thousand manufacturers, 
and now they are gone. They are now extinct. This is an 
irreversible exit that is happening daily and we need to drive 
the upper side, the revenue side. We are the largest buyers of 
everything in the world, $355 billion in defense alone, and we 
have a hard time. If you can make a titanium ball valve today 
with all of the right qualities and so forth, it'll take you 2 
years to sell it to the Navy--and they'll buy it at twice the 
price from Sweden. That is some of the things that we really 
have to address and get these folks into the supply chains. And 
what we need to do that is raw political power.
    Chair Snowe. You mentioned the fact that the universities 
and Federal laboratories are mandated to work with and include 
small- and medium-sized enterprises, and that's not happening.
    Mr. Rodrigue. That's not happening.
    Chair Snowe. Now whose responsibility would that be?
    Mr. Rodrigue. Well, I think the bureaucracy that's set up, 
they will work with you, but it takes you a year-and-a-half to 
get----
    Chair Snowe. Okay. So which laboratories, you mean 
whichever department they are in?
    Mr. Rodrigue. For example, there are 714 labs in this 
country. I think the grand-daddy of them all is the National 
Institute of Standards and Technology. But at each one of the 
them, you have to go in, you have to apply, you have to do--
even if you have the money to pay for it, and in a lot of cases 
you don't.
    We did a pilot program and Maine was awarded the pilot. And 
it worked so well because we didn't have to go through all the 
bureaucracy, we just went in and found, and we did it--Kenway 
Corporation is in existence today, I think, because of what we 
did. Cyr Scientific has taken advantage of it. Embed Tech is 
still here today and, really, with brand new marketplace, we 
got them the technology. I don't like to use the word 
technology transfer, because it's an AE pipeline. We need 
technology extension, which is a 6-month pipeline. And I 
believe that the pilot program, and I have supplied your staff 
with it, should be done and put [inaudible] I think Dr. 
[inaudible] at National Institute of Standards and Technology 
could go ahead. I don't like to throw money at, just say, throw 
money at it. But I think if we refocus what we already have, 
Senator, I think we could be very successful.
    Chair Snowe. Well, I would agree, and we have to figure out 
what we need to do in order to accomplish that. I think that's 
exactly right. We must change the mindset of the Federal 
bureaucracy. We have found that with contracting and 
procurement, the barriers exist. Particularly harmed are small 
businesses. The Government's doors get slammed and we have to 
re-open them. The Administrator of the SBA and I are committed 
to doing that. But right now, focusing on these manufacturing 
issues is what's going to work best.
    And obviously, China is an issue. Most of you discussed 
China, right? Could I say all of you? Randy, you dealt with a 
China problem? Yes. All of you? Yes. All of you?
    Mr. Labrie. I have sold to China, but I have sold to 
Canada, and I have [inaudible] overnight they raised the tariff 
on the product I was making 50 percent. So I had to come in 3 
percent higher than their manufacturer for prices of the same 
goods. So what I did was--I went to my customers and wrote the 
duty drawback, so they could get their money back when they 
shipped the goods back to the United States. And I got them 
connected with American customers. So, that's one way we can do 
it. But I don't know how we can do it in China.
    Chair Snowe. So all of you faced problems with China?
    Mr. Labrie. Yes.
    Chair Snowe. And then obviously, Canada and some other 
countries. LoLisa, you were talking about----
    Ms. Bonney. Italy.
    Chair Snowe. Right. So how much in Eastern Europe? Was that 
your primary competitor? Or competitors?
    Mr. Labrie. No. But let me just make a point. Over the last 
few years we literally stopped exporting, because the export of 
our technology sped up the process of them copying our 
technology. If we sent it to Asia, it went to China. If we sent 
it to Europe, it went to Eastern Europe. So this has been part 
of the problem.
    Chair Snowe. Yes. Absolutely. And that's a huge part of the 
problem. And what you were talking about, LoLisa, was your 
gaskets. So one of your former customers in Canada is buying 
them from Malaysia, did you say?
    Ms. Bonney. China.
    Chair Snowe. China. And so what is the difference in price 
would you say?
    Ms. Bonney. Probably 30 percent.
    Chair Snowe. 30 percent.
    Ms. Bonney. But you are talking about inferior materials 
that they are bringing into the country. Words like asbestos, 
that shouldn't even be imported. They don't seem to control 
those imports. That's the trouble we had with Italy. They 
brought in a lot of stuff like that. And who's controlling 
that?
    Chair Snowe. Okay.
    Randy, I wanted to mention to you, and I was going to ask 
Grant while he's here. Grant, if there's a shortage of log 
supply, can't they invoke export controls on that?
    Mr. Cousineau. Yes.
    Chair Snowe. And I was going to ask Grant, too, since both 
of you are here.
    Is that something you thought about, Randy? I mean at all? 
Has anybody ever mentioned that to you?
    Mr. Cousineau. To do export----
    Chair Snowe. No. To impose export controls. If logs are in 
a short supply--are they in a short supply?
    Mr. Cousineau. Yes.
    Chair Snowe. Yes.
    Mr. Cousineau. And if they weren't going to Canada, there 
would be plenty of logs being cut in the State of Maine.
    Chair Snowe. Yes.
    Mr. Cousineau. But they are.
    Chair Snowe. So then, Grant, I was asking the Secretary--is 
it possible to invoke export controls in this instance?
    Mr. Aldonas. Getting back to your experience on the House 
side when you worked on a lot of export provisions, there is a 
provision in the Export Administration Act that allows for the 
control of logs that are in short supply, and you need to come 
in and make a case. Essentially that is within the Export 
Administration side of the Commerce Department.
    Chair Snowe. Has anybody made that case, Randy, that you 
know of?
    Mr. Cousineau. I don't believe it has. No.
    Chair Snowe. Well, let's explore that issue with you 
further. Okay. I'll have my staff be in touch and explore that 
issue with you further, but, obviously, it's indicative of the 
nature of the problems that you are dealing with in any event. 
Now, I would like to know, to wrap this up, if Congress and the 
President had five things or three things, the top three things 
that we could get done now, something that is critically 
important, what would it be? What do you think we ought to 
focus on?
    Thom.
    Mr. Labrie. I don't know if it necessarily fits the 
President or the Congress. But if you were to ask me what I 
think would be the best return of investment for helping 
Maine's industries or manufacturers, especially the natural 
resource-based industries--these industries are very strong in 
the manufacturing area, they are extremely weak in the 
merchandising area. If there is one place that money should be 
spent, it's to promote Maine-made products, just like they do 
with tourism. There is a tremendous return on investment on 
those dollars. It's an area where if the industry can bring 
orders and demand to the table for Maine-made products, we can 
create jobs.
    But when it comes to the industry developing new products 
and having to bring them to market, they have no clue in 
general how to do it and that's where it stops. So any kind of 
promotion generating demand for Maine-made products will get 
tremendous return on investment on those dollars.
    Chair Snowe. Okay. Thanks.
    Bruce.
    Mr. Pulkkinen. I think I'd go along with that whole-
heartedly. I think our company is very good at what we do. We 
are probably one of the best at what we do, and I am proud of 
what we do as a company. But for us, the resources to go out 
and develop new markets, even within the United States, or 
outside the United States, it's impossible for us to do. We 
don't have the funds available. We don't have the personnel 
available, at times, and so we're looking to groups, like Rod's 
group, to put us in touch with all the different folks that are 
out there. A little piece here, a little piece there, help with 
the marketing side here, help with getting into the government 
contracting side, or the supply chain side over here. A little 
piece of help inside our plant on how do we get a little better 
at what we're doing, whether it is packaging or what-have-you.
    It's being able to go to all those sources and get better 
at what we do so that we can find that market, identify that 
market and get out to that market. I have no doubt--I have a 
bank that's 100 percent behind me. Financing has not been my 
issue. It has been for many companies. It's really getting help 
to that marketplace. I know it helped the company tremendously 
over the next few years.
    Chair Snowe. And what would you want, since Secretary 
Aldonas is writing up the report as we speak, you know he's 
finishing it very quickly. And he's going to be making 
recommendations to the Secretary and the Secretary will be 
making recommendations to the President on what actions to be 
taken.
    Mr. Pulkkinen. Mine goes back a little bit to helping 
companies from a tax standpoint. If I can reinvest more of my 
dollars into the company, I would just as soon not take a 
dollar out of the company. If I could invest all those dollars 
into expansion and growth without losing so much on the side, 
if I got credit for reinvesting in my company.
    I think if all companies got credit for reinvesting, that 
would be the single most important thing that the Treasury 
side, or the President and Congress could do for me.
    Chair Snowe. Rod.
    Mr. Rodrigue. Oh, yes. We have three ways of creating 
wealth in this Nation. It's mining, manufacturing and 
agriculture. The mining and agriculture--when you get done 
cutting the head off the fish or cutting the piece of wood, you 
need to go to manufacturing. We spend $900 million a year on 
agriculture. We've been the breadbasket, and it's been very 
successful. We have a hard time with a great program like the 
MEP program and other programs. We have a trillion dollars 
worth of technology sitting on the shelf and we can't access 
it. Both of these come under the Department of Commerce. I know 
that their hearts are in the right place. I just want to make 
sure their minds will follow. So I am hoping that, as they hear 
this and see it, they'll see that it is imperative, because the 
Administration's policy is, basically, let's make ourselves 
safe.
    Great manufacturing will make this country safe and will 
stir and bring back the economy. So, I would hope that they 
would put together a strike team and build it from the ground 
up, not from the top down--and I think we could succeed.
    Chair Snowe. Yes. I would agree. And time is of the 
essence, obviously.
    LoLisa.
    Ms. Bonney. I would like to add to Rod that was a small 
business owner. We've got 13 people on hand. I get a little 
tired of hearing about how they are trying to cut these 
programs--SBA, SBDC, Rod's program, the MEP. I mean, don't you 
people realize that--I mean, why does it have to be, you know, 
continually----
    Chair Snowe. I know. I understand. I feel like that.
    Ms. Bonney. It's the same thing. His program is a great 
program. It's just kind of like, you know, beating a dead 
horse. Come on.
    Chair Snowe. Oh, no. Now you've got a feeling what Congress 
is like. Believe me, I know that what makes sense doesn't 
always make sense to them. These programs work, and they need 
to hear the real story. The problem among a lot of my 
colleagues is that they need to hear what we're talking about 
concerning jobs, and what works in these programs. And these 
programs do work! You are a prime indication. You are the 
personal testimony to that. I'll bring your message to 
Washington.
    I know that you are so busy doing your jobs. The fact that 
you even have to be here today is really regrettable. It is 
unfortunate that we are in a situation that you have to take 
time out of your businesses to be here. I just want you to know 
that Secretary Aldonas, Secretary Olson, and I all realize that 
you have taken valuable time away from your own businesses to 
be here today to share your thoughts. You have to continue to 
work to make things better for you, because it's going to make 
things better for America. That's the issue. That's the 
correlation here. That's what we've got to do to make it 
better.
    Can I ask another question? One other question? If for 
example, our Government addressed the China issues and its 
currency, to what degree do you think that would have an impact 
on your businesses' ability to compete? Would that help offset 
the other issues?
    The cost of health care, for instance, which I am working 
on with the associated health plans. I won't get into that now, 
but I'll tell you, I am trying to drive that train out of the 
station. Health care cost is a very important issue to small 
business owners. I am working on the health care issue as we 
speak. In fact, association health plan legislation has passed 
the House, and I am trying to get similar legislation through 
the Senate now. It's a very important legislation aimed at 
putting small businesses on the same playing field as large 
corporations and unions. The President has been championing 
this package, and it's a great idea. It offers the efficiencies 
and buying power that large companies and unions enjoy now. If 
you had access to national plans with affordable health 
insurance for your employees, I am sure it would make a 
difference.
    Let's just end the China question.
    Mr. Labrie. I think the health care issue is so important 
that that should be number one in my mind, because that affects 
all businesses, whether we're manufacturers or otherwise. And 
it is a very important issue.
    Chair Snowe. Yes, it is. Actually, it is the number one 
issue for small business owners, from what I have heard. It has 
risen to their primary concern, because it's impeding their 
abilities to offer that benefit to their employees.
    John.
    Mr. Wentworth. My take on the Chinese furniture issue is 
that, in the long term, it will not change the situation. What 
we are hoping for is enough time to give us the opportunity and 
resources to buy some new markets and new niches. And if I may 
use one quick example, we have a dealer here in Lewiston--we 
make the cocktail tables at approximately 45 inches long and 30 
inches wide out of solid maple. It's very nice. And we 
wholesale for $149. In speaking to him about declining sales, 
he showed me one he's imported from China made out of Chinese 
oak that he buys for $39.
    Chair Snowe. Unbelievable.
    Mr. Wentworth. Now at 15 to 20 percent tariff that 
doesn't--those discrepancies aren't going to be made up. So we 
have to have time to be able to find new markets for wood 
products, maybe make custom furniture, maybe make quick 
turnaround, do something different in our marketing approach.
    Chair Snowe. Do you work with Rod?
    Mr. Wentworth. We have in the past. We're using a private 
consultant at this time right now. We have used them in the 
past.
    Chair Snowe. Secretary Aldonas, Moosehead Furniture has an 
outstanding reputation. It is a good example of a company doing 
the best it can while dealing with all these external forces.
    Mr. Rodrigue. If I could add, it just comes back to the 
point that I was trying to make and that is when you do level 
the playing field, and even if we imposed upon them the cost of 
health insurance, the cost of a lot of the other impediments 
that we appear to have--to the extent that we can impose a 
labor cost on them--what are we going to do in a labor-
intensive business, number one. Number two, even in India, 
right now, accountants--IBM is moving over their programs and a 
lot of those types of professional jobs. It's not necessarily 
manufacturing which is being exposed to labor as a commodity 
and as a way of taking care of things, call centers and so 
forth. Could I?
    Chair Snowe. Yes. Rod--and then Thom.
    Mr. Rodrigue. I admire everything you are trying to do with 
China. I don't put too many bets on the fact that they are 
going to make the Chinese do what they want and that I think, 
if they end up doing it, they'll find ways around it. And I 
don't know. There's a long way for it to trickle down and the 
gaps are so wide. I think we can do things right here. I think 
we are going to have trade with China, no matter what any of us 
do. And I don't think it's going to level the playing field 
enough to help these manufacturers. My biggest fear is for us 
to focus on China and some of these issues, which I think we 
should be working on, but they are longer-term solutions.
    The short-term solutions are what we need to do. And I 
think the Administration has to face that. Otherwise, when you 
do fix the problem, and if you could magically fix it in 3 
years, you are going to lose half of your small manufacturing 
base while finding other market niches and get them into supply 
chains where they won't be subject to these predatory type of 
attacks on their particular businesses. Build a solid 
structure. If we could do that for 18 to 24 months, it gives 
them the respite they need then to move in and find their place 
in the market. So it's a salvage operation at this particular 
point.
    Chair Snowe. I just saw a statistic which may have been in 
one of your testimonies, that stated the employers with 500 or 
fewer employees are two-and-a-half-times more innovative than 
larger companies. So, you're really the niche laboratory for 
building things, for an agency or creating something for the 
Defense Department, for example. So when you talk about buying 
American, absolutely! That's what under-girds the Defense 
industrial base and supports innovation in this country. That's 
one of the issues right now in the Defense Authorization 
Conference Report.
    Yes, Thom.
    Mr. Labrie. On the currency issue, obviously, any help is 
help, but the question is what does the currency exchange end 
up being--with the bigger the gain, the better, obviously?
    On the previous question about if you could bring something 
to the President and Congress, whatever, as a small 
businessperson.
    The main, number one, is trying to protect American 
innovation from Chinese copy artists. I don't know how you do 
it. The tax system is never going to do it. And then, number 
two, beat it down to a level playing field as much as is 
reasonably possible. And if you do those two things, it's going 
to go a long way to helping the situation.
    Chair Snowe. Yes, intellectual property rights and piracy 
are two huge issues there, without question. They just run 
abandon on those issues. That has really been detrimental.
    Bruce, you have the final word.
    Mr. Pulkkinen. Final word. You said ``Buy American.'' If we 
can take Rod's ideas and get enough of us that manufacture in 
this country up to speed, and have the ability to supply not 
only our own markets, but the Federal market--if we can produce 
the products here in the U.S. that the U.S. Government needs to 
buy, we ought to be doing it here. Buy American.
    Chair Snowe. I appreciate it. Exactly. Absolutely. And what 
a better way to start than with the Federal Government--and 
now, in a $350 billion defense authorization report. That's, to 
me, absolutely pivotal.
    I want to thank all of you for participating in this 
hearing. Thank you, Secretary Aldonas and Secretary Olson for 
your efforts and your presence here today. I know that you, 
Grant, will be doing all you can.
    I encourage you to persist in your efforts on behalf of 
these individuals, and all those you have talked to across 
America, when it comes to the challenges facing small 
businesses and small business manufacturers. As Chair of the 
Senate Small Business Committee, I am certainly concerned about 
their need. This has been very helpful to me.
    I am grateful to have had the opportunity to listen to you 
today. Thank you for sharing your experiences, however 
difficult, with me and with the Administration officials. I 
assure you that the President, the Secretary of Commerce, 
Secretary Evans, Secretary Snow of the Treasury, and I, are all 
committed to doing everything we can to reverse this serious 
decline in the number of manufacturing jobs and the number of 
manufacturers. So, again, thank you very much.
    This hearing is adjourned.
    [Whereupon, the hearing adjourned.]

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