[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]



 
                  FULL COMMITTEE HEARING ON U.S. TRADE

                      POLICY AND SMALL BUSINESS
=======================================================================

                      COMMITTEE ON SMALL BUSINESS
                 UNITED STATES HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 13, 2007

                               __________

                          Serial Number 110-29

                               __________

         Printed for the use of the Committee on Small Business


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



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                   HOUSE COMMITTEE ON SMALL BUSINESS

                NYDIA M. VELAZQUEZ, New York, Chairwoman


WILLIAM JEFFERSON, Louisiana         STEVE CHABOT, Ohio, Ranking Member
HEATH SHULER, North Carolina         ROSCOE BARTLETT, Maryland
CHARLIE GONZALEZ, Texas              SAM GRAVES, Missouri
RICK LARSEN, Washington              TODD AKIN, Missouri
RAUL GRIJALVA, Arizona               BILL SHUSTER, Pennsylvania
MICHAEL MICHAUD, Maine               MARILYN MUSGRAVE, Colorado
MELISSA BEAN, Illinois               STEVE KING, Iowa
HENRY CUELLAR, Texas                 JEFF FORTENBERRY, Nebraska
DAN LIPINSKI, Illinois               LYNN WESTMORELAND, Georgia
GWEN MOORE, Wisconsin                LOUIE GOHMERT, Texas
JASON ALTMIRE, Pennsylvania          DEAN HELLER, Nevada
BRUCE BRALEY, Iowa                   DAVID DAVIS, Tennessee
YVETTE CLARKE, New York              MARY FALLIN, Oklahoma
BRAD ELLSWORTH, Indiana              VERN BUCHANAN, Florida
HANK JOHNSON, Georgia                JIM JORDAN, Ohio
JOE SESTAK, Pennsylvania

                  Michael Day, Majority Staff Director

                 Adam Minehardt, Deputy Staff Director

                      Tim Slattery, Chief Counsel

               Kevin Fitzpatrick, Minority Staff Director

                                 ______

                         STANDING SUBCOMMITTEES

                    Subcommittee on Finance and Tax

                   MELISSA BEAN, Illinois, Chairwoman


RAUL GRIJALVA, Arizona               DEAN HELLER, Nevada, Ranking
MICHAEL MICHAUD, Maine               BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana              STEVE KING, Iowa
HANK JOHNSON, Georgia                VERN BUCHANAN, Florida
JOE SESTAK, Pennsylvania             JIM JORDAN, Ohio

                                 ______

               Subcommittee on Contracting and Technology

                      BRUCE BRALEY, IOWA, Chairman


WILLIAM JEFFERSON, Louisiana         DAVID DAVIS, Tennessee, Ranking
HENRY CUELLAR, Texas                 ROSCOE BARTLETT, Maryland
GWEN MOORE, Wisconsin                SAM GRAVES, Missouri
YVETTE CLARKE, New York              TODD AKIN, Missouri
JOE SESTAK, Pennsylvania             MARY FALLIN, Oklahoma

        .........................................................

                                  (ii)




           Subcommittee on Regulations, Health Care and Trade

                   CHARLES GONZALEZ, Texas, Chairman


WILLIAM JEFFERSON, Louisiana         LYNN WESTMORELAND, Georgia, 
RICK LARSEN, Washington              Ranking
DAN LIPINSKI, Illinois               BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois               STEVE KING, Iowa
GWEN MOORE, Wisconsin                MARILYN MUSGRAVE, Colorado
JASON ALTMIRE, Pennsylvania          MARY FALLIN, Oklahoma
JOE SESTAK, Pennsylvania             VERN BUCHANAN, Florida
                                     JIM JORDAN, Ohio

                                 ______

            Subcommittee on Urban and Rural Entrepreneurship

                 HEATH SHULER, North Carolina, Chairman


RICK LARSEN, Washington              JEFF FORTENBERRY, Nebraska, 
MICHAEL MICHAUD, Maine               Ranking
GWEN MOORE, Wisconsin                ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York              MARILYN MUSGRAVE, Colorado
BRAD ELLSWORTH, Indiana              DEAN HELLER, Nevada
HANK JOHNSON, Georgia                DAVID DAVIS, Tennessee

                                 ______

              Subcommittee on Investigations and Oversight

                 JASON ALTMIRE, PENNSYLVANIA, Chairman


CHARLIE GONZALEZ, Texas              LOUIE GOHMERT, Texas, Ranking
RAUL GRIJALVA, Arizona               LYNN WESTMORELAND, Georgia

                                 (iii)




                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page

Velazquez, Hon. Nydia M..........................................     Chabot, Hon. Steve...............................................     2

                               WITNESSES


PANEL I
Moore, Tiffany M., Office of the U.S. Trade Representative.......     4
Hernandez, Israel, International Trade Administration, U.S. 
  Department of Commerce.........................................     6
Miller, W. Kirk, Foreign Agricultural Service, U.S. Department of 
  Agriculture....................................................     8
Ginsburg, Richard, U.S. Small Business Administration............    10

PANEL I
Chandler, Sage, Consumer Electronics Association.................    32
Seilkop, Ken, National Tooling and Machining Association.........    35
Caspers, Jon, National Pork Producers Council....................    37
Brainard, Dr. Lael, The Brookings Institution....................    39
Griswold, Daniel T., Center for Trade Policy Studies, Cato 
  Institute......................................................    41

                                APPENDIX


Prepared Statements:
Velazquez, Hon. Nydia M..........................................    53
Chabot, Hon. Steve...............................................    55
Moore, Tiffany M., Office of the U.S. Trade Representative.......    56
Hernandez, Israel, International Trade Administration, U.S. 
  Department of Commerce.........................................    64
Miller, W. Kirk, Foreign Agricultural Service, U.S. Department of 
  Agriculture....................................................    71
Ginsburg, Richard, U.S. Small Business Administration............    77
Chandler, Sage, Consumer Electronics Association.................    82
Seilkop, Ken, National Tooling and Machining Association.........    86
Caspers, Jon, National Pork Producers Council (and Attachments)..    93
Brainard, Dr. Lael, The Brookings Institution....................   114
Griswold, Daniel T., Center for Trade Policy Studies, Cato 
  Institute......................................................   121

                                  (v)




                        FULL COMITTEE HEARING ON



                         U.S. TRADE POLICY AND



                             SMALL BUSINESS

                              ----------                              


                        WEDNESDAY, JUNE 13, 2007

                     U.S. House of Representatives,
                               Committee on Small Business,
                                                    Washington, DC.
    The Committee met, pursuant to call, at 10:00 a.m., in Room 
2360 Rayburn House Office Building, Hon. Nydia Velazquez 
[Chairwoman of the Committee] presiding.
    Present: Representatives Velazquez, Gonzalez, Larsen, 
Michaud, Cuellar, Moore, Clarke, Ellsworth, Chabot, Akin, 
Davis, and Jordan.

           OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ

    ChairwomanVelazquez. I'm pleased to call the Committee's 
first hearing this session on U.S. trade policies to order.
    The country is currently facing many decisions concerning 
how we engage in global trade. New international commitments 
are being considered, such as free trade agreements with 
countries in Latin America and Asia, as well as with World 
Trade Organization members.
    Congress is also considering reauthorizing the President's 
trade promotion authority which expires this month. Further, 
new resources are being proposed to help Americans adapt to 
global market integration through the reauthorization of the 
Trade Adjustment Assistance Act.
    Designing this nation's trade strategy should incorporate a 
key source of competition and innovation in international 
markets and small businesses. U.S. businesses have experienced 
mixed results as our economy has become integrated with those 
of foreign countries. Benefits from these changes include 
increased availability of foreign goods and vast new markets 
for businesses to access. Since 2002, however, the nation's 
annual trade deficit has been rising to unprecedented levels, 
growing over 15 percent per year. This imbalance is largely 
attributed to a flood of imports which has resulted in many 
U.S. industries losing their position as global leaders.
    Small businesses can help reverse some of the unfortunate 
trends caused by global integration and increase its benefits. 
Small businesses represent 97 percent of all export enterprises 
and dominate many industries that sell goods abroad. 
Entrepreneurs are also successful in meeting the challenges of 
a free market. Highly innovative, and flexible, they are 
capable of adjusting to the dynamic needs of consumers.
    However, these firms face barriers in maintaining a 
significant share of domestic and global markets. They are hit 
with higher costs for overseas transactions and domestic 
production. As a result, small business companies generate less 
than one third of export revenues and confront stiff 
competition from low-cost producers.
    Given their contributions, it is critical that small 
businesses are considered in this nation's trade strategy and 
that obstacles to their competitiveness are removed. The first 
step is to incorporate their interests in the negotiation and 
implementation of trade policies. It is not enough for trade 
commitments to open markets. They must also be accessible for 
all U.S. businesses.
    Prioritizing small businesses in regional and world trade 
agreements requires mandated market access to the sectors in 
which entrepreneurs participate. It also involves providing 
trade facilitation measures and ensuring information is 
available to cost effectively market and transfer goods abroad.
    As unfair trade practices continue, such as intellectual 
property violations, and import dumping, U.S. enforcement must 
be strengthened, harmonizing rules and fairly enforcing them 
helps level playing fields for small firms. Addressing unfair 
trade balances such as the U.S.-China deficit which increased 
by 12 percent since March ensures small businesses remain 
competitive, both globally and at home.
    A comprehensive trade strategy must ensure that as we open 
our doors to foreign competition our firms remain strong. U.S. 
trade policies should create a modern framework that ensures 
businesses can access markets freely. Domestic assistance 
programs such as those administered by the federal agencies 
here today are key components of this framework. Related 
assistance such as that contained in the National Export 
Strategy and the Trade Adjustment Assistance Program will 
ensure small businesses can take advantage of new markets.
    Small firms play a crucial role in promoting the global 
competitiveness of our country's industry. Including them in 
the process of developing U.S. trade strategy will support the 
growth of this nation's economy as well as reduce the trade 
deficit. Effective policies and enforcement will ensure this 
nation remains the global leader. By doing so, we will make 
sure the benefits of trade are more widely distributed to not 
only businesses, but also to more of our nation's communities.
    I now recognize Ranking Member Chabot for his opening 
remarks.

                OPENING STATEMENT OF MR. CHABOT

    Mr.Chabot. Thank you, Madam Chairwoman, and thank you for 
holding this important hearing on the impact of United States 
trade practices on small businesses. I'd like to welcome our 
distinguished panel of witnesses, especially Ken Seilkop, who 
is a constituent of mine, and a small business owner back in 
the greater Cincinnati area. One of the responsibilities of 
this Committee is to examine efforts to increase small business 
access to global markets, including initiatives to reduce 
excessively burdensome administration and legal requirements, 
promote free markets, support market-oriented reforms and 
determine how current programs are working or whether change is 
needed.
    Our economy is robust and the most dynamic in the world, 
partly because we are so engaged in global trading. Exports 
generate economic activity that boosts our entire domestic 
economy. And exports create jobs, good paying jobs, and across 
a very diverse portfolio of sectors which increase prosperity 
throughout our states and communities, supplement the revenue 
base and fund critical local improvements.
    Exporting is big business for small firms. In Ohio, for 
example, trade supports 1.2 million jobs or 18.3 percent of all 
Ohio jobs, many of which are export driven. Trade, 
particularly, benefits Ohio's small and medium size companies. 
In 2004, 88 percent of all Ohio exporters were small or medium 
size firms. In addition, U.S. small businesses need imports of 
raw materials, capital goods and industrial products used to 
manufacture goods here in the United States to remain 
competitive.
    This year, Congress may consider four pending free trade 
agreements or FTAs and we have the opportunity to work in a 
bipartisan way to accomplish renewed trade promotion authority 
which will be essential to complete Doha Round. These efforts 
will help to reduce trade barriers and to ensure open markets 
to American products for all businesses, but especially for 
small companies that need the stability of negotiated 
agreements to create new trade in agriculture, manufacturing, 
and services. And I hope that the Office of the United States 
Trade Representative focus on WTO enforcement cases including 
on intellectual property and subsidies will help large and 
small businesses here at home to compete fairly.
    The federal government assists small exporters through a 
number of programs, but studies indicate that few exporting 
manufacturers rely on government programs for export sales 
assistance. A recent National Federation of Independent 
Business poll showed that just 9 percent relied on the 
Department of Commerce's International Trade Administration for 
help, and only 4 percent contacted the Small Business 
Administration. Our barriers for small and medium size 
businesses that trade remain.
    The potential for small firms who export and import is 
almost limitless. I strongly support free trade agreements and 
believe we must do all that we can to help America's small 
businesses, the generators of jobs and the engine of our 
economy to remain competitive and to grow through trade. 
However, in our very tight budget environment, I'm somewhat 
skeptical about funding increases for federal programs, so I 
look forward to hearing from our panel of expert witnesses 
about new and innovative ways we can expand trade relations and 
keep our small businesses competitive.
    Madam Chair, I yield back the balance of my time.
    ChairwomanVelazquez. Thank you, Mr. Chabot. And now we have 
our first panel and I welcome you for being here this morning 
and I thank the other witnesses who will participate in the 
second panel, some of them who traveled from long distance to 
be here this morning.
    Our witness is Ms. Tiffany Moore. Ms. Moore is the 
Assistant U.S. Trade Representative for Intergovernmental 
Affairs and Public Liaison at the Office of the U.S. Trade 
Representative. She leads domestic average efforts to state and 
local governments, the business and agriculture communities, 
labor, environmental, and consumer goods.
    Ms. Moore, you have five minutes to make your presentation.

       STATEMENT OF TIFFANY M. MOORE, ASSISTANT USTR FOR 
  INTERGOVERNMENTAL AFFAIRS AND PUBLIC LIAISON, OFFICE OF THE 
                   U.S. TRADE REPRESENTATIVE

    Ms.Moore. Thank you very much, Madam Chairwoman and I 
appreciate the opportunity to participate in today's hearing.
    Office of the USTR or the Office of the U.S. Trade 
Representative is responsible for developing and coordinating 
international--
    ChairwomanVelazquez. Ms. Moore, can you bring the 
microphone closer to you?
    Ms.Moore. Is that better. Thank you. The Office of the U.S. 
Trade Representative is responsible for developing and 
coordinating U.S. international trade policy. Our work aims at 
increasing exports by expanding market access for American 
goods and services abroad and securing a level playing field 
for American workers, farmers, and businesses of all sizes in 
overseas markets.
    Simply put, USTR negotiates, implements, and enforces trade 
agreements and works with our partner agencies, many at the 
table here today, to help small businesses walk through those 
markets. Small business is truly the backbone of the U.S. 
export portfolio. American small businesses benefit when we 
expand U.S. access to consumers and households abroad who want 
to buy and enjoy U.S. products. In fact, 97 percent of all U.S. 
exporters are small businesses accounting for more than a 
quarter of U.S. goods exports. Even the smallest of U.S. 
businesses are big players in global markets. According to the 
Department of Commerce, more than two thirds of U.S. exporters 
had fewer than 20 employees.
    Under the leadership of Ambassador Susan C. Schwab, the 
Office of the U.S. Trade Representative is committed to 
reducing trade barriers so that American small businesses can 
succeed in the world market. The Department of Commerce and 
USDA work to make sure that small business is trade ready.
    Our trade agenda is uniquely attune to helping small 
businesses by lowering the cost of selling to customers 
overseas, minimizing risks in foreign markets, insisting on 
intellectual property rights protection and enforcement, and 
protection for U.S. investors and small business owners by 
promoting the rule of law.
    Small and medium size businesses have great potential for 
exporting their sales overseas, but the costs of doing business 
overseas if often too high for small firms. As a 2004 Small 
Business Administration report found, for those companies who 
wished to take advantage of the international market place, the 
large, fixed costs associated with exporting are so high that 
they serve as an impediment and in fact, serve as a barrier to 
exporting.
    Small businesses need markets to be open and easy to 
navigate which is why the U.S. has concluded free and fair 
trade agreements around the world. Where large companies can 
take on the financial burden, manage their risk, and employ the 
necessary human capital to create new export opportunities 
abroad, small business owners frequently do not have these 
resources.
    The U.S. trade agenda is crafted to meet this challenge by 
further honing American competitiveness by ensuring access to 
foreign markets for our goods and services, ensuring our 
manufacturers have access to the world's inputs and that our 
consumers have access to the best available products. USTR has 
pursued this agenda on three mutually conducive tracks 
including global negotiations within the World Trade 
Organization, regional and bilateral free trade negotiations 
with numerous partners, and stewardship of the multi-lateral 
trading system through establishment and enforcement of an 
agreed-upon set of rules.
    Impediments to small business are addressed further in my 
written testimony, however, I would note that our multi-lateral 
negotiations and free trade agreements address the needs of 
small business by opening markets, eliminating non-tariff 
barriers such as licensing and Customs procedures, reducing 
transaction costs, increasing transparency, and enforcing 
intellectual property rights.
    To be clear, trade agreements are our single best tool for 
creating a level playing field for U.S. small business by 
addressing all of these barriers. Within the negotiations at 
the World Trade Organization and the Doha Round, breaking down 
barriers in a multi-lateral setting among 150 member countries 
will create the greatest benefit in easing the cost of doing 
businesses for small businesses that sell abroad and use inputs 
from partners around the world. Within our bilateral and 
regional trade agreements, free trade agreements concluded by 
the United States represent the gold standard across the globe 
as our free trade agreements level the playing field for 
American exporters.
    This approach has netted agreements close to home in Latin 
America and Chile and with our six CAFTA DR countries and now 
with Peru, Colombia, and Panama, awaiting congressional 
approval of implementing legislation.
    It has enhanced our trading terms in Asia through 
agreements with Singapore and Australia and prospectively with 
a recently concluded FTA with Korea, our seventh largest goods 
trading partner.
    Additionally, it's clear that the export that this market 
opening efforts of FTR are bearing fruit. Exports to our FTA 
partners are growing twice as fast as our exports to non-FTA 
countries. Additionally, FTA has implemented between 2001 and 
2006, negative $13 billion U.S. trade surplus with trade 
agreement partners last year; and lastly, jobs that are 
supported by trade and goods exports by 13 to 18 percent higher 
than those not supported by exports.
    On the issue of enforcement, the U.S. trade agenda 
recognizes the pressure created from a growing and increasingly 
competitive global economy and enforcement has been and 
continues to be a critical piece of the U.S. trade agenda. I 
know there is a lot of mention and concern about our developing 
relationship with China. We have also devoted considerable 
attention to enforcement with regard to China and now that 
China has completed its transition as a member of the WTO, we 
have moved into a mature relationship.
    In the last year, we've brought several cases against 
China; last year, unfair Chinese charges on U.S. auto parts 
exports. In February of this year, we brought a case against 
China subsidy programs. These subsidy programs unfairly impact 
U.S. manufacturers, especially small businesses and their 
workers. Most recently, USTR requested two sets of dispute 
settlement consultations with China on deficiencies and 
intellectual property rights and enforcement and market access 
barriers that trade in books, music, videos, and movies.
    I would also note that the United States was the first 
country to initiate a WTO disputes settlement against China and 
for all of these high profile disputes of the WTO against 
China, there are numerous enforcement priorities that are being 
achieved through quiet and on-going bilateral mechanisms such 
as joint commerce and Joint Committee on Commerce and Trade and 
the Strategic Economic Dialogue.
    We have a unique and historic opportunity for the trade 
agenda still ahead and we look forward to working with the 
Congress in that endeavor. With pending FTAs, with Peru, 
Colombia, Panama, and Korea, and also the bipartisan deal which 
opens the door for an extensive trade promotion authority, it's 
important that we work together with the Congress.
    To conclude, trade is good business for America's small 
businesses and producers and we are committed to leveling the 
playing field. Thank you.
    [The prepared statement of Ms. Moore may be found in the 
Appendix on page 56.]

    ChairwomanVelazquez. Thank you, Ms. Moore.
    Our next witness is Mr. Israel Hernandez. Mr. Hernandez is 
the Assistant Secretary for Trade Promotion and Director 
General of the U.S. and Foreign Commercial Service in the 
International Trade Administration of the Department of 
Commerce. He overseas the global operation of more than 1,700 
employees, both American and in countries staffed operating in 
47 states and 80 countries.
    Welcome.

 STATEMENT OF ISRAEL HERNANDEZ, ASSISTANT SECRETARY FOR TRADE 
    PROMOTION AND DIRECTOR GENERAL OF THE U.S. AND FOREIGN 
    COMMERCIAL SERVICE, INTERNATIONAL TRADE ADMINISTRATION, 
                     DEPARTMENT OF COMMERCE

    Mr.Hernandez. Madam Chairwoman, Members of the Committee, 
thank you for the opportunity today to discuss International 
Trade Administration's efforts to strengthen and support 
American small business and I would ask that my written 
testimony be submitted for the record.
    American small and medium size companies are at the heart 
of our programs in the International Trade Administration and 
in the U.S. and foreign commercial service, particularly the 
one which I cam privileged to lead. In my 20 months on the job, 
I have met with hundreds, if not thousands, of small companies 
in our domestic and overseas offices that you just mentioned 
and our call centers that we have here in Washington, our web 
reporter which reaches thousands and gets over a million hits, 
our partnerships at the state and local level and the private 
partnerships and our inter-agency collaboration are all 
directed to help small and medium size companies succeed in 
overseas markets, and given the competitive pressures in 
today's global economy, I believe our mission has never been 
more important.
    U.S. exports are at an all-time high. We have never 
exported more than we do today. In 2006, exports grew faster 
than imports and accounted for a growing share of the U.S. 
economy. Export growth is most impressive in major emerging 
markets such as China, India, and Brazil, and the markets of 
our new FTA trading partners.
    Small businesses alone account for the 7 percent increase 
in the number of exporters in 2002. We have 14,000 new small 
and medium size companies that export, that never exported 
before. A major reason for this good news is that there has 
never been a better time to export. A growing consumer class 
that is developing around the world, new trade agreements, 
technology, and new business services are making exporting 
viable for small companies.
    Free trade agreements are particularly important because it 
democratizes international trade. It allows small companies to 
now enter the playing field like large companies and they 
benefit from reduced tariffs, enhanced rule of law, and 
transparency to cut regulatory red tape. Technology, and 
specifically, e-commerce is a powerful factor that helps small 
companies reach out into the world with over one billion 
potential customers on line today.
    And improvements in the global services from companies like 
FedEx and UPS are also making trade easier. The commercial 
service is doing its part to help American companies take 
advantage of all these trends and I want to briefly touch on a 
few highlights. Last year, the U.S. and foreign commercial 
service helped 12,000 export successes worth $32 billion. Our 
export specialists in Harlem, in our office in Kenya, were 
instrumental in helping a company, Leviathan, sell four large 
trucks in Djibouti valued at $250,000 and for them, it was a 
big sale.
    In our fiscal year 2006, our advocacy center successfully 
completed a record $39 billion of U.S. contents in support of 
U.S. bids on major projects. The first half of this year in 
fiscal year 2007, the United States Department of Commerce has 
conducted 11 trade missions with hundreds of U.S. companies 
including small and medium size that attended these trade 
missions.
    In addition, we have supported 15 certified trade missions 
by cities and mayors, by governors and states, in groups like 
the National Association of Women Business Owners. But despite 
the good news, tens of thousands of small and medium size 
companies throughout the United States that could potentially 
export their product or services are not. The challenge for 
everyone in this room is to raise the awareness on Main Street 
USA and how do we convince a company who never before has 
strategically thought about exporting to get into the game and 
to understand what resources are available to them.
    Many companies have never thought about strategically 
exporting and still many today hold outdated notions that there 
are risks and difficulties to exporting much like years before 
but the climate has changed. Many are also not aware of healthy 
economic growth in regions all around the world, and many, 
simply put, have no idea where to start or how to start.
    Our plan for addressing this challenge is outlined in the 
National Export Strategy. The goal is to deepen and to broaden 
our strategic partnerships with state and local governments, US 
trade associations and corporations that provide export-related 
services like FedEx and UPS and strategic partners like eBay 
and Google, PNC Bank, and Imaging Bank where we're reaching 
thousands more companies than we would otherwise.
    We also have a plan called a 50-50 plan where we reached 
out to all 50 Mayors, all 50 Governors, the Mayors of the 50 
largest cities and over 50 trade associations, encouraging them 
to work with us to lead trade missions or to conduct trade 
seminars. In May of this year, we came here to Capitol Hill and 
we invited all Members of Congress and staff to join us for a 
forum and to host it so that we can have trade seminars in your 
Districts and we have over 80 attend this conference here on 
Capitol Hill.
    We are doing this because we know that small businesses are 
the backbone of our nation's prosperity and as businesses grow, 
they also create more jobs. We have, and we will continue to 
work to get more companies to enter into the global marketplace 
and the commercial service is the premiere front-line trade 
agencies that help companies enter foreign markets and 
understand opportunities that are out there for them. We take 
our mission very seriously. We're very passionate and we have 
an unwavering commitment in fulfilling this challenge.
    Madam Chairwoman, this concludes my prepared statement and 
I'll be pleased to answer any questions following the testimony 
of my colleagues.
    [The prepared statement of Mr. Hernandez may be found in 
the Appendix on page 64.]

    ChairwomanVelazquez. Thank you, Mr. Hernandez.
    Our next witness is Mr. Kirk Miller. Mr. Miller, is the 
General Sales Manager in the Foreign Agricultural Service of 
the U.S. Department of Agriculture. He oversees the Foreign 
Agriculture Service Export Promotion, Marketing and Trade 
Analysis, Export Credit Programs and USDA Food Aid activities.
    Welcome, sir.

   STATEMENT OF W. KIRK MILLER, ASSOCIATE ADMINISTRATOR AND 
   GENERAL SALES MANAGER, FOREIGN AGRICULTURAL SERVICE, U.S. 
                   DEPARTMENT OF AGRICULTURE

    Mr.Miller. Good morning, Madam Chairwoman, and Members of 
the Committee. I appreciate the opportunity to discuss the U.S. 
Department of Agriculture's export assistance efforts for small 
business. The Department, through the Foreign Agricultural 
Service, works diligently to help small-scale U.S. producers, 
processors and exporters compete in agricultural trade.
    In addition to our Washington-based staff, the Agency 
maintains a network of more than 70 offices overseas that 
provide critical market and policy intelligence, respond 
quickly in cases of market disruption and represent all of our 
interests in consultations with foreign governments. Trade 
continues to be critically important to the long-term economic 
health and prosperity of the American food and agricultural 
sector. Roughly 20 percent of U.S. agricultural production is 
exported. And with productivity increasing faster than domestic 
demand, 95 percent of the world's consumers living outside the 
United States, it's clear that access to export markets is 
essential for the continued vitality of this important sector.
    The latest USDA export forecast of $77.5 billion for Fiscal 
Year 2007 means that the U.S. food and agricultural community 
is on track for its fourth consecutive year of record exports. 
USDA estimates that U.S. world market share is almost one fifth 
of world agricultural trade. This is particularly impressive 
when you consider that the size of the world agricultural trade 
pie has doubled since 1990. U.S. agricultural trade benefits 
the entire U.S. economy. In 2005, which is the last year for 
which we have official data, each farm export dollar stimulated 
another $1.64 in business activity. So the 2005 export figure 
of $62.9 billion produced an additional $103.2 billion in 
economic activities.
    Agricultural exports also supported 806,000 full-time jobs, 
including 455,000 in the nonfarm sector. Our core objective in 
FAS continues to be the expansion and maintenance of overseas 
opportunities for U.S. agriculture. To do this, FAS focuses its 
activities in three areas. First, we work to expand market 
access through the negotiation of new bilateral, regional, and 
multi-lateral trade agreements that lower tariffs and reduce 
trade impediments. FAS provides the critical analysis, policy 
advice and a voice at the negotiating table to help ensure U.S. 
agriculture achieve substantial benefits in trade negotiations.
    Our activities to maintain existing market access continue 
to grow in importance. We monitor foreign compliance with trade 
agreements and coordinate with other trade and regulatory 
agencies to develop strategies to avoid or reverse trade 
disruptive actions. That may involve using the extensive 
expertise of other parts of the U.S. Department of Agriculture, 
or other U.S. non-government agencies, many of which are at the 
table here today, to resolve complex technical issues that 
restrict trade. It may be something simpler like educating U.S. 
exporters about a country's new labeling requirements.
    Our third area of emphasis is trade development. The 
congressionally authorized market access program plays an 
instrumental role in our effort to assist American producers 
and processors in competing internationally. All companies 
receive funding from FAS on a cost-share basis through non-
profit trade organizations and four state regional trade groups 
comprised of State Departments of Agriculture.
    Each partnerships combine the resources of the private 
sector and the State Departments of Agriculture with program 
and financial of USDA to expand exports of U.S. agriculture 
products and to educate companies in export marketing. This 
program has helped small businesses succeed in the export 
arena. Total export sales for small companies participating in 
the map branded program grew from $218 million in 2001 to $492 
million in 2005.
    The small number or, excuse me, the number of small 
companies reporting that their export sales had grown more than 
20 percent doubled during the 2001 to 2005 time period, going 
from 134 to 322. We have first-hand knowledge of how the map 
program has helped small businesses. As a matter of fact, 
Aladdin Bakers, Inc., based in Brooklyn, New York, in the 
Chairwoman's District, successfully leveraged support from a 
state regional trade group and the map branded program to 
develop its export markets.
    Before participating in the program, the company had 
minimal sales in Canada. Now according to Paul Kasdindorf, the 
firm's vice-president of sales and marketing, we estimate in 
the next year will have a million dollars in sales to Quebec 
alone. The company has also started to exporting to other 
countries, including the Dominican Republic.
    Another way that we help small businesses, including--
excuse me--another way we help small businesses is by 
sponsoring their participation in trade missions. Since 2003, 
FAS has sponsored 11 trade and investment missions. Within the 
past 12 months, I personally have led two of them; one to 
Georgia last year, and just last month one to Azerbaijan. The 
mission to Georgia had six companies that were looking at 
business opportunities, but were concerned about risk, but as a 
result of the trip, two companies have announced business 
deals. Nine U.S. companies joined me in Azerbaijan last month. 
They met with the Azeri government officials and prospective 
business partners and exhibited their products at a trade show 
in Baku, Azerbaijan.
    Madam Chairwoman, in just the next 60 minutes, about $7.8 
million in U.S. agricultural products--grains, oil seeds, 
cotton, beef, poultry, vegetables, snack foods, you name it, 
will be consigned for export to foreign markets. That's what 
this nation's producers and processors export on average every 
hour, 24 hours a day, 365 days a year to more than 180 
countries around the world. A growing proportion of that is 
coming from our nation's small businesses.
    As small businesses look to the growing export market in 
addition to the maturer domestic market, we must make sure that 
the opportunities to take advantage of these markets are there.
     Madam Chairwoman, that concludes my testimony. Thank you.
    [The prepared statement of W. Kirk Miller may be found in 
the Appendix on page 71.]

    ChairwomanVelazquez. Thank you, Mr. Miller.
    Our next witness, Mr. Richard Ginsburg. Mr. Ginsburg is the 
Acting Assistant Administrator for International Trade of the 
U.S. Small Business Administration. He administers the Agency's 
international finance programs and outreach assistance centers 
across the country.
    Mr. Ginsburg, you will have five minutes and without 
objection, your entire testimony will be entered into the 
record as well as the other witnesses.

 STATEMENT OF RICHARD GINSBURG, ACTING ASSISTANT ADMINISTRATOR 
  FOR INTERNATIONAL TRADE, U.S. SMALL BUSINESS ADMINISTRATION

    Mr.Ginsburg. Thank you. Chairwoman Velazquez, Ranking 
Member Chabot, and Members of the Committee, thank you for 
inviting me to testify about SBA's Office of International 
Trade and the work we are doing to promote, assist, and train 
small businesses as they grow into the international 
marketplace. It is a pleasure to appear before you today to 
speak about what I believe is one of the most exciting programs 
in SBA, and one of the most promising areas for U.S. small 
businesses, international trade.
    International trade is rapidly increasing in importance for 
the U.S. economy. In 2006, the U.S. experienced a record level 
of exports--$1.5 trillion. Millions of jobs are associated with 
international trade. Small business is a big part of this, 
accounting for $375 billion of exports, more than $1 billion a 
day.
    International trade, exports plus imports, is now so 
important to the U.S. economy that it is equivalent to 28 
percent of GDP, the highest level in modern history. Last year, 
exports grew four times faster than the economy as a whole, 
continuing a trend that began earlier in the decade. This means 
that as America's economy pie grows, the international trade 
share is getting larger. The bottom line is this--exporting is 
the new growth market for small businesses.
    As an international office in a domestic agency, the Office 
of International Trade is able to work with the rapidly growing 
number of U.S. small business exporters and support the 
government's international commercial policy objectives. OIT's 
policies benefit domestic business concerns, international 
trade and economic policy and even the nation's diplomatic 
interests. As the international office of the Government's 
Small Business Agency, OIT is often expected to go beyond 
direct assistance to individual small businesses and 
participate in government-wide activities that contribute to 
U.S. international, commercial trade and economic policies.
    With small business accounting for almost 30 percent of 
total U.S. exports, SBA's perspective is increasingly 
recognized as crucial to U.S. international trade, economic and 
diplomatic concerns. In addition to providing assistance to 
small businesses, SBA often complements the roles of other 
agencies, such as the Departments of Commerce and State. 
Ultimately, however, all U.S. international affairs efforts, 
whether carried out on a small scale in OIT or on a larger 
scale in the State Department, serve just one domestic 
beneficiary--the citizens of the United States.
    SBA is also an original member of the Inter-agency Trade 
Promotion Coordinating Committee, as well as a member of the 
President's Export Council. The purpose of the TPCC is to 
coordinate the export promotion and financing activities of the 
U.S. government and develop a government-wide strategic plan 
for carrying out such programs. Small businesses are typically 
at a competitive disadvantage, with large or multi-national 
companies when it comes to trading internationally.
    They do not have foreign affiliates, dedicated 
international departments, legal staffs, or economies of scale. 
Therefore, SBA and Commerce's International Trade 
Administration both focus on a system small and medium-sized 
businesses to reach export markets. Technical assistance with 
respect to participating and international market is a key 
component of our service delivery. This includes one-on-one 
counseling by U.S. Export Assistance Center personnel, export 
technical assistance partnership training, as well as 
informational and training material via the web.
    Through its trade finance programs, SBA helps exporters 
carry out their export transactions. Under the Export Working 
Capital Program, which finances the short-term export working 
capital needs of small businesses, loans could be made for 
single transactions or multiple deals under revolving line of 
credit. SBA can guarantee up to 90 percent of an EWCP loan. We 
also oversee the International Trade Loan Program for long-term 
financing, and export express which reduces paperwork and 
streamlines the application and review process for EWPC loans 
of up to $250,000.
    In 2004, SBA and the Export-Import Bank entered into a 
memorandum of understanding to establish a co-guarantee program 
for export work in capital loans, extended by financial 
institutions to small businesses engaged in exporting. By 
complementing each other, both agencies have achieved improved 
efficiencies, better customer service, and increased 
productivity benefiting small biosciences. We work closely with 
the USTR to provide a small business perspective for bilateral 
and multilateral trade negotiations and represent U.S. small 
business concerns at the Asia-Pacific Economic Cooperations 
Annual SME Ministers meeting, and its staff level SME working 
group.
    OIT works closely with the State Department and others to 
advance the summit of the Americas process. OIT is also 
committed to developing relationships that can help promote and 
facilitate small business trade. The goal of these efforts its 
to bring U.S. small businesses together with potential partners 
in the international marketplace. For example, OIT manages 
strategic alliances with foreign governments small business 
agencies, such as those of Mexico, Brazil, Chile, China, and 
Korea. The focus of these relationships is creating and 
facilitating opportunity for small business trade.
    Since I know my time is limited, I would just mention that 
the written statement, which I submitted to the Committee, 
highlights a number of the OIT accomplishments for Fiscal Year 
2006. On the service delivery side of our operations, we expect 
to see an increased demand for U.S. exports and for small 
business demand for SBA's export programs. Our goals are to 
respond to this trend by approving our export finance products.
    We will continue helping represent the United States at 
multilateral international organizations concerned with small 
business international trade. We also anticipate taking a more 
prominent role in the industry trade advisory committee, 
including Commerce's Small Business Advisory Committee.
    Specifically, SBA, through the Office of International 
Trade will continue its mission to encourage, support, and 
manifest both the increasing number of small businesses going 
global, and their successful export transactions through SBA's 
credit and technical assistance programs. Thank you for the 
opportunity to testify before the committee today, and I do 
look forward to answering any questions that you may have.
    [The prepared statement of Mr. Ginsburg may be found in the 
Appendix on page 77.]

    ChairwomanVelazquez. Thank you, Mr. Ginsburg.
    Ms. Moore, I would like to address my first question to 
you, not my colleague here. In my opening statement, I make 
reference to the fact that 97 percent of all exporters are 
small businesses. And yet, they generate less than one-third of 
export revenues. I would like to ask you, I know there are 22 
Assistant U.S. Trade Representatives, but none are dedicated to 
small business concerns. Can you explain that?
    Ms.Moore. Thank you for the opportunity to answer. I think 
that the issues of small business are very cross-cutting within 
USTR, and so there are several different offices that are able 
to facilitate in reducing those trade barriers. We have an 
industry office that works on tariff barriers, of course, and 
then we have intellectual property rights. So while we are able 
to harness all of their expertise to make sure that we are 
looking out for small business, given its cross-cutting nature, 
we like the opportunity to pull folks from all around the 
building.
    With regard to our negotiations and free trade agreements, 
I think I've mentioned--I may have mentioned in my testimony 
how larger companies are able to kind of finagle their way 
around regulations or have a human capital to try to get into 
new markets. The opportunities in our free trade agreements 
allow is for us to create a level playing field when it comes 
transparency, opening new markets, which are a specific 
assistance to small businesses that may not have those 
resources.
    So we believe at USTR that we have the capacity to make 
sure that we addressing small businesses, and we also take 
every opportunity to talk with small businesses. We work very 
closely with the Department of Commerce, within their 
International Trade Advisory Committees, specifically ITAC 11, 
to make sure that we are getting input on our trade agreements 
for small business.
    ChairwomanVelazquez. Okay, I hear you. So you don't feel 
that given the important role that small businesses can play in 
our economy by exporting our goods, you don't feel that the 
there should be a person, at the USTR official to be the voice 
of small businesses?
    Ms.Moore. I believe given the importance of small 
businesses to our export portfolio that it should take the 
resources of everyone at USTR to pitch in and support.
    ChairwomanVelazquez. Can you explain why USTR previously 
employed a staff member to identify small business trade 
position. Is this position currently filled?
    Ms.Moore. It's not currently fulfilled. The person that had 
that position--
    ChairwomanVelazquez. When will it be?
    Ms.Moore. Actually, we're working with our colleagues at 
the Department of Commerce and also SBA to see if we could find 
someone and use the talent within the Foreign Commercial 
Service to see if we can get someone within their core to 
specifically address the issues since they've actually been in 
country--
    ChairwomanVelazquez. Are you going to do that before we 
finalize trade agreements that are pending?
    Ms.Moore. I'm hoping very much that we can find someone as 
soon as possible.
    ChairwomanVelazquez. Mr. Ginsburg, the SBA has established 
agreements with small business officials in other countries. In 
what specific ways has the Agency followed up with these 
agreements? I could give you one example. The agreement with 
India's Ministry of Small-Scale Industry.
    Mr.Ginsburg. Yes, ma'am. The strategic alliances that SBA 
engages with foreign countries, small business agencies, is 
two-fold. They first come to us because they want to use our 
best practices to otherwise make attempts to stimulate the 
development and growth of their own SME sector. We agree in 
principle to that concept because the sooner foreign country's 
small businesses become acclimated to doing business 
successfully, the sooner they become trading partners of U.S. 
small companies.
    With respect to India, the agreement that we have done is 
that we are currently collaborating and bringing small business 
together through the embassy that we work with here, their 
ministry, and with our agency in bringing some people together 
to discuss trade opportunities.
    ChairwomanVelazquez. Okay, my question is in what specific 
ways has the agency followed up with these agreements?
    Mr.Ginsburg. Well, with all of our agreements we follow up 
by working with the foreign representatives in the commercial 
service offices of the embassies. We have our partners on 
foreign soil. We are developing--we have done video 
conferencing together. We have brought small businesses 
together in different forums, some in concert with the 
Department of Commerce.
    ChairwomanVelazquez. I would ask you to provide the 
Committee with details of this effort and updates on any new 
agreements.
    Mr.Ginsburg. We can do that.
    ChairwomanVelazquez. Ms. Moore, given the limited resources 
of small businesses, it is clear that they have more 
difficulties engaging in international transactions than their 
corporate counterparts. Beyond the general harmonization of 
Customs requirements, what specific provisions are included in 
trade agreements to ensure small businesses can access newly 
opened markets.
    Ms.Moore. Thank you for the opportunity to answer. 
Specifically, first and foremost our free trade agreements and 
multi-lateral negotiations reduce tariffs, which actually work 
as an added--pardon me--as an added tax on small businesses and 
U.S. products. Again, non-tariff barriers, such as inconsistent 
Customs procedures, lack of transparency, and burdensome 
paperwork, we work very hard within our free trade agreement to 
reduce that.
    Also, transaction costs. There are always a number of 
issues and paperwork again that limit the opportunity for small 
businesses to understand all that is involved in getting into 
an export market. Also, we make sure that we create greater 
transparency, in fact, to try to navigate into a new market, a 
lot of the regulations are not accessible through the website. 
There isn't a one place to go when trying to enter these 
markets. So what we do within our FTA is to make sure that we 
have greater transparency.
    Another important thing that we do within our free trade 
agreements is increasing the respect for the rule of law, and 
making sure that U.S. small business owners have investment 
protection so that if they choose to take on the risk of 
investing or exporting their products that they have some 
protections. Also, I think one of the most important things for 
small businesses is making sure that their intellectual 
property rights are enforced and protected within these new 
markets.
    ChairwomanVelazquez. A major export barrier for small firms 
is the physical presence requirement, and this is the mandate 
that companies maintain an office within a country in order to 
sell to their market. For example, the pending trade agreement 
with Malaysia requires engineering service firms to be located 
for at least half of a year in the country in order to be 
licensed for projects. So this is a big burden for small 
companies. Can you talk to us if there is a way to assist these 
small exposure. Would the USTR commit to negotiating these 
provisions out of future free trade agreements?
    Ms.Moore. Thank you for the opportunity to speak on the 
negotiations between the U.S. and Malaysia. Unfortunately, 
given time restrictions and the expiration of trade promotion 
authority, we stopped negotiations with Malaysia. Those were 
on-going and so the latest information probably on Malaysia was 
the negotiations that we weren't able--
    ChairwomanVelazquez. Ma'am, I used example of the pending 
free trade agreement with Malaysia, but this is true with other 
trade agreements. So my question is a general question 
regarding the negotiation of free trade agreements and a 
commitment that this provision of requiring the small companies 
to at least have an office in those foreign countries for at 
least six months will be our future trade negotiations.
    Ms.Moore. We look forward to working with the Congress to 
look into that issue with any extension of trade promotion 
authority to make sure that those issues are addressed.
    ChairwomanVelazquez. And let me ask you, don't you think 
that such a concern like that in terms of the regulatory 
complexities of these free trade agreements could have been 
prevented if you have a USTR representing small businesses in 
your shop?
    Ms.Moore. I think we have the adequate resources to make 
sure that we're addressing a number of issues. Again, I meet 
regularly with our small business ITAC and they raised 
important issues that we need to incorporate in our 
negotiations. They have the privilege of being able to look at 
the U.S. text, the actual foreign FTA text and give us guidance 
and advice on changes that are necessary.
    ChairwomanVelazquez. Now I thank you. I recognize Ranking 
Member, Mr. Chabot.

    Mr.Chabot. Thank you very much, Madam Chair, and I'll begin 
with you, Ms. Moore, so if I can. Congress has the opportunity 
to renew trade promotion authority this year. How optimistic 
are you that Congress is going to be able to accomplish that 
and how important is it that we do that?
    Ms.Moore. Thank you for the opportunity to answer. Trade 
promotion authority is something that's extremely important, 
especially within our negotiation portfolio. I would note that 
we have been able to negotiate free trade agreements since 2001 
and the FTA partners that we have had since 2001, we actually 
have a $13 billion trade surplus, so if we're looking at 
opportunities to address perhaps trade deficits, our FTAs are 
one of the ways that we can address that.
    Without trade promotion authority we are unable to begin or 
continue negotiations, an extension of trade promotion 
authority will be extremely important if we find a way for it 
on Doha. It's the best way to bring benefits to small 
businesses if we're able to negotiate tariff reductions with 
all 150 members of the World Trade Organization. If we sought 
to start new negotiations with the countries, we would not be 
able to unless there's an extension of trade promotion 
authority and I would note that most Presidents have had some 
form of trade promotion authority since 1974 and every 
President and every Administration seeks and wants trade 
promotion authority.
    Mr.Chabot. Thank you, and let me follow up with one other 
question with you, if I can. In his testimony, in his written 
testimony that I've already had an opportunity to review, one 
of the witnesses on the next panel who I mentioned before, Mr. 
Seilkop from my area in Cincinnati, Ohio, he addresses the 
challenges of competing against Chinese manufacturers and we've 
had an opportunity to speak, he and I, about this issue, both 
in my office and back at his business back home and about this 
many times.
    And I think his view is shared by many other small 
manufacturers and other folks around the country. Could you 
tell us what USTR is doing or will do in the future to 
vigorously monitor China to ensure that it abides by its trade 
agreements and WTO obligations?
    Ms.Moore. Yes, thank you for the opportunity to answer. As 
many know, China acceded to the World Trade Organization in 
2001. After five years in the WTO, the United States conducted 
a top to bottom review of China's commitments that they made 
during the accession to see where they were. In the areas where 
there were progress, we encouraged more progress. In the areas 
where there weren't, we were not afraid to use the dispute 
settlement process within the World Trade Organization and I 
think you'll find in the last year, in the areas where 
negotiations and bilateral discussions were not fruitful, we 
have been very vigorous in taking several cases to the WTO and 
I would add the United States was the first country to actually 
take a case against China.
    We have several in the area of subsidies, which I think is 
probably what is of concern to small businesses. We have begun 
dispute settlement consultations with the Chinese, specifically 
on import substitution subsidies and export subsidies. In one 
case, in one facet, just bringing the case against China, have 
them eliminate one of the nine subsidies that we have 
understood and the WTO sees as inconsistent and not WTO 
compliant. So we will continue to go after these subsidies and 
we will continue to go after China.
    Mr.Chabot. Thank you. Mr. Hernandez, if I could turn to you 
in the time I have remaining. In your experience, what elements 
of trade policy have the greatest positive impact and what's 
the best way to eliminate trade barriers?
    And secondly, you mention that free trade agreements are 
particularly important for small businesses. Could you 
elaborate on why they're so critical to small businesses?
    Mr.Hernandez. Yes, thank you so much for the opportunity to 
speak on that. I think when you speak about an opportunity for 
a small company to enter into a new market, there's a lot of 
concerns for small companies, first of all, if they do decide 
to enter into a new market, one of the great advantages we in 
the federal government have provided is with a free trade 
agreement no longer due to rules changed, where they have to 
figure out year by year what is it that they have to try to 
understand when they enter a new market. We democratize 
international trade. We provide a framework. So that means 
there is a greater understanding about a rule of law, a greater 
understanding about transparency. A greater understanding about 
how to enter this market.
    So whether you're large or small and we see the newest 
growth is with small companies, we see them with a great 
product going to these countries, at least we in the commercial 
service arm them and educate them about these opportunities, 
but also in many ways, what is it that they have to do? How is 
it that they have to manage going into a new market? Because 
there's a lot of things that they are going to have to worry 
about, first of all. There is a language issue. There are 
standards issues. There are compliance issues that they need to 
fully understand. And we in the commercial service not only 
hold trade seminars throughout the United States, but if they 
ever make their way into country and have a problem, they can 
contact us at the embassy about how to enter these markets. And 
if what we're seeing is that there is a great interest for 
small companies to enter these, but what they want is a level 
playing field and an understanding, a clarity about how to do 
business.
    And so we in the commercial service are helping them and 
arming them with this type of information, but we have seen 
dramatic growth in all the free trade agreement countries that 
we have signed thus far. When you look at the free trade 
agreements that have signed thus far, and you look at the 13, 
they make up 7 percent. These countries make up seven percent 
of the world's GDP, but it is 40 percent of our exports go to 
those countries. That means that countries, these companies now 
have a better understanding about how to do business. They're 
more secure to enter these countries. They have a better 
understanding about how to do business and that is what we're 
trying to achieve. How do we find a way to educate more 
companies about these opportunities and free trade agreements 
provide them an opportunity to enter new markets like never 
before.
    Mr.Chabot. Madam Chair, I yield back the balance of my 
time.
    ChairwomanVelazquez. And now I recognize Mr. Michaud.

    Mr.Michaud. Thank you very much, Madam Chair. One good 
thing about being in session until about 2 o'clock this morning 
gave me time to read all the testimony for today. And in 
reading the testimony and hearing the speakers and seeing 
what's actually done out there, is kind of like an oxymoron as 
far as enforcing the agreements. They talk about helping small 
businesses. They talk about lifting millions of people, when 
you look at the Doha Round. And actually, the U.S. Trade 
Representative actually mentions the State of Maine in the 
testimony about exporting.
    Yes, it might be true that we do have some who do export, 
but the bottom line is we have lost over 23 percent of our 
manufacturing base in Maine because of trade policies. They 
qualified for trade adjustment assistance, but also we were 
able to qualify for the national emergency grant, Madam 
Chairwoman, and the national emergency grant whereas actually 
the Commissioner of the Department of Labor was asked by the 
U.S. Department of Labor to stop applying for national 
emergency grants because we were receiving too many because of 
the devastation of what is happening with the economy in Maine.
    Madam Chairwoman, you had mentioned about small business 
and it's very important that we do look at small business. 
However, I can tell you talking with a lot of small businesses, 
the USTR has turned away many small businesses' complaints 
because they do not have the staff, and there's been regular 
complaints with USTR. I think we have to staff up the Small 
Business Division of the USTR to devote primarily for small 
businesses.
    The other issue that I'm concerned about and I'll get to 
some of my questions, that this issue since they have mentioned 
Maine so much, actually, we had the Maine legislature 
unanimously, Republicans and Democrats, have been opposed to 
fast track and other issues dealing with what USTR is doing on 
trade because they have seen first hand what's going on.
    The enforcement agreement, they don't enforce. We 
definitely, when you look at the Jordan Agreement, that's not 
enforceable. U.S. Chamber of Commerce came out strongly for the 
so-called deal because they know it's not going to be enforced. 
When I look at small business, Madam Chairwoman, I hope that we 
can have another hearing like this with several small 
businesses and I do not look for the U.S. Chamber of Commerce. 
I was thinking if we could have like the United States Business 
and Industry Council which is truly small manufacturing here in 
this country.
    The United States Chamber of Commerce, there are multi-
national corporations on their boards that has operations over 
India and China. They really don't care about small businesses, 
so I think we've got to have a true representation of what's 
happening out there in the small business--
    ChairwomanVelazquez. If the gentleman would yield for a 
second?
    I will invite you, if you can, to stay for the second panel 
where we're going to have small business representatives here.
    Mr.Michaud. Yes, no, I do plan on staying as much as I can 
for the second panel. My question to the U.S. Trade 
Representative is I don't normally believe in outsourcing, but 
I have several questions.
    The first one since, there's a lot of discussion, we're 
dealing with small businesses, would you mind outsourcing the 
negotiation of trade deals to an organization such as the 
United States Small Business Industry Council and you can look 
at what they've agreed to and either agree or disagree. That's 
my first question.
    My question is what should the trade deficit be as a 
percentage of our GDP? If you look at all the economists and 
they say that we cannot sustain the type of trade deficit that 
we are currently seeing.
    My third question is you had mentioned the so-called trade 
deal. Mr. Engel, Mr. Levin, said that trade deal applies only 
to Peru and Panama. It does not apply to Korea. It does not 
apply to Colombia. It does not apply to fast track.
    My question is - is that your understanding as well?
    The fourth question is under the Peru and Panama trade 
deal, the labor environmental standards is supposed to be part 
of the core text, so it's enforceable. So how is USTR coming 
along as far as having that as part of the core text agreement.
    And my last question you had mentioned about the Doha 
Round, that's it's very important that we do it because that it 
potentially will help lift millions out of poverty world-wide. 
We heard that same discussion with NAFTA, that we have to pass 
NAFTA because it will help raise the standard of living for 
workers in Mexico and hence that will help with the illegal 
immigration problem which immigration is going to be a big 
issue here in this Congress. And if we're not going to take 
care of the crux of the problem and the crux of the problem is 
workers from Mexico coming over to the United States so they 
can get a job to provide for their family, if that problem is 
not going to take care, be taken care of, then we can put up 
all the walls that want to have all the Border Patrol Agents 
that we want, but people will still try to come to the United 
States because they want to provide a living for their 
families.
    ChairwomanVelazquez. I will call to your attention time has 
expired. So I will give you another extra one and a half 
minutes to ask your--direct your question to--
    Mr.Michaud. I'm all done, so I'd like Ms. Moore to respond. 
If not verbally, if in writing.
    Ms.Moore. Congressman, thanks so much for the opportunity 
to answer your questions. Your fist question was about 
participation of a specific group and the negotiations of our 
free trade agreements. I would note that we have a very robust 
advisory committee system with over 700 advisors that include 
industry, labor, environment, small business, and different 
other sectors that eagerly and aggressively participate and are 
able to review our FTA text. So we welcome all the advice. And 
this is just the formal advice and consultations that we do 
with all stakeholders.
    Mr.Michaud. So in other words, you do not want to give up 
your authority to actually negotiate?
    Ms.Moore. To give up the Executive Branch's?
    Mr.Michaud. Yes.
    Ms.Moore. I would probably suggest that the system in 
place, working with the Congress--
    Mr.Michaud. Well, I guess the answer probably is no. And 
the reason why you don't want to answer no is because my next 
question is why should Congress give up our authority under 
fast track? Can you answer the next question?
    What is the ideal trade deficit?
    ChairwomanVelazquez. Sorry for the gentleman, the time has 
expired.
    Mr.Michaud. Madam Chairwoman, if she could respond?
    ChairwomanVelazquez. In writing?
    Mr.Michaud. Yes.
    ChairwomanVelazquez. Without objection.
    Mr.Michaud. Thank you.
    Ms.Moore. I look forward to it. Thank you, Congressman.
    ChairwomanVelazquez. Now I recognize Mr. Davis.
    Mr.Davis. Thank you, Madam Chairman. My first question I'd 
like to ask Mr. Ginsburg, and Mr. Ginsburg, if you could, could 
you tell me about the Office of International Trade and how it 
relates to small business firms?
    Mr.Ginsburg. Well, considering small businesses represent 
97 percent of all exporters in this country, we pay a lot of 
attention through our field network of senior international 
trade and finance specialists. We handle all the policy 
decisions within the Office of Capital Access, which is the 
finance division of SBA because we have both technical 
assistance as well as financial assistance programs.
    And we're out there speaking at seminars. We certainly 
partner with our TPCC partners and our stakeholders and our 
state partners in sharing the information to do trade promotion 
to get more small businesses into the international 
marketplace.
    Mr.Davis. If you were a small business owner, how would you 
recommend them to do business through this agency?
    Mr.Ginsburg. We have representatives around the country. 
We're a very decentralized agency. We have 70 district offices. 
We have 16 representatives in U.S. export assistance centers 
around the office. We have 1100 small business development 
centers and we have 389 SCORE chapters all very well versed in 
international trade and trade promotion.
    Mr.Davis. Are you starting to see an increase in small 
businesses in relation to working overseas?
    Mr.Ginsburg. We do. And we also see a slight increase in 
small businesses that are now doing trade in a second or a 
third country. Seventy-five percent of small businesses are 
typically just dealing in one country, so we need to increase 
the number of their foreign markets.
    Mr.Davis. Thank you for your answer.
    Mr. Miller, if you could, could you talk to me a little bit 
about agriculture since agriculture is so important to small 
business and domestic producers and how they remain 
competitive. Can you talk to me about USDA's rural business 
opportunity grants and how they're available to small farmers?
    Mr.Miller. Mr. Davis, I really am not briefed on those 
rural development grants. We'll have to provide that for the 
record. I really don't know the answer to your question.
    Mr.Davis. Does anyone else have that information on the 
panel?
    Okay, that would be--
    Mr.Miller. I have no one with me that has that information.
    Mr.Davis. That would be good if you could get that to us, 
that would be good.
    And Ms. Moore, if you could talk a little bit about the 
U.S. Export-Import Bank and where we're at percentage-wise 
right now what its mandates are.
    Ms.Moore. Congressman, thanks very much for the question. I 
probably would need to get some information from the Ex-Im Bank 
on their portfolio and what they're currently doing. I know 
that the head of the Ex-Im Bank had a presentation in Atlanta 
as part of the America's Competitiveness Forum and he spoke to 
some of those issues and I can definitely follow up with your 
office to make sure that you have more information.
    Mr.Davis. Could you just give me a brief overview? Do you 
know enough about the program to just give me a brief overview?
    Ms.Moore. I would probably defer to the Ex-Im Bank. They're 
a core business and I'd hate to speak on--
    Mr.Davis. Thank you. I yield back.
    ChairwomanVelazquez. Mr. Gonzalez?
    Mr.Gonzalez. Thank you very much, Madam Chair. I guess a 
couple of observations and I'll get into a couple of questions 
in the short period of time that we have, but regarding fast 
track and I understand it's going to be a huge issue. It 
expires June 30th and something, but the benefits of it are 
truly in the eye of the beholder. What you are appearing before 
a committee that concerns itself with the small business 
interests of America. It is institutionalized. It is our role 
to look out for their best interests.
    Some of us believe that fast track will diminish our 
ability to function in that representative capacity in this 
institution called the House of Representatives. That's the 
philosophical difference that may or may not translate into 
reality, but it's ever present for some of us on this side of 
the aisle.
    The other thing is this Committee truly exists because we 
believe that small businesses face unique challenges and that 
one size does not fit all. The big size doesn't fit small 
businesses. Again, is this philosophical? Does it go into 
policy? I'd like to think it's going to be reflected in the 
policies and the bills that will be marked up out of this 
particular Committee that its chief concern is small 
businesses.
    So I'm going to direct my first two questions to Ms. Moore 
and Mr. Hernandez, because in your testimony, to be quite 
honest, and I think Madam Chairwoman Velazquez touched on it, I 
believe that you have kind of a generic approach, that is, if 
you help big business, it will benefit small business. If we 
don't have tariffs, that should help all businesses. And you 
know, there is some logic to all that. If we have transparency, 
that will help all businesses.
    Big businesses can pretty much fend for themselves. And you 
can make it easier for them as you should. But I don't think 
that it solves or addresses the unique challenges and problems 
that are inherent in small business operations.
    Ms. Moore, is there some benefit to have someone that would 
be specifically assigned to address small business 
consideration in your trade negotiations?
    Ms.Moore. Thank you, Congressman, for the opportunity to 
answer. I believe the issues of small business are cross-
cutting and I think it takes the resources of all of those at 
USTR to make sure that we are addressing the needs of small 
business. As you mentioned, larger companies and multi-
nationals, although they benefit from FTAs, given the resources 
they have, the FTAs are, you know, helpful to them, but they're 
even of more importance to small businesses.
    I was looking for some information and I look forward to 
following up with your office, but if you look at the increase 
in exports, say from the CAFTA countries where we've 
implementation, you see exports rising by small and medium size 
businesses, so those are the types of rewards I think that the 
FTAs offer with reward to increasing small business exports.
    Mr.Gonzalez. But I think if you look further, they may be 
increasing in numbers, but really not the size of the pie. You 
have maybe more small business being involved, but truly as far 
as the financial benefits are still being, I think, more 
appreciably experienced by the bigger businesses. I think that 
the facts and the figures will support that particular 
assertion.
    But getting back to the fundamental question, wouldn't you 
be best served if you were sincerely concerned about the unique 
challenges faced by small businesses attempting to export their 
products to have someone assigned with that particular task 
within your organization, just as Congress has a committee 
dedicated to small business issues? Because we all acknowledge 
how instrumental they are to our economy.
    Ms.Moore. Well, I would offer that it takes a lot of 
resources in the federal government to make sure that small 
businesses have access to markets. As I mentioned in my 
testimony, USTR, we open markets and we work with our 
colleagues at USDA, SBA, and the Department of Commerce to make 
sure that those companies are trade ready to go into those new 
markets. So while we consider it something that we do at USTR 
to make sure that we're looking at the needs of small business, 
it takes all of us here at this table to make sure that they're 
trade ready and they have the resources.
    Mr.Gonzalez. And I understand what you're saying--and 
again, I think your approach is wrong to be honest with you. I 
think you just figure it's going to be addressed naturally 
because you have the interest. I believe that when you have a 
specific assignment, and that individual's whole purpose within 
your organization is to look at the impact of these negotiated 
treaties, which cause us a lot of heartburn many times because 
we don't think they work in the best interest of small 
business, are all of American consumers.
    I just think you need to really re-examine that. The other 
thing I want to touch on, and Mr. Hernandez, I was hoping to 
get to you, but I was trying to confirm--because in the back of 
my mind, we always say every President has had fast track 
authority. Was it renewed or was it lapsed in the Clinton years 
and was never renewed by the Republican majority?
    See, I think that is factual. So we're going to have this 
debate, but my understanding is that the Republican- controlled 
Congress did not confer fast track authority. that's what we 
used to call it, to President Clinton, for whatever reasons. 
Clearly, they didn't need any democratic opposition or help to 
make it happen.
    My time is up, Madame Chair. Thank you very much.
     ChairwomanVelazquez. Time is expired.
    Ms.Moore. I just want to make one point, Congressman. We 
look forward to as we've touched on a little bit earlier, we 
did have someone from SBA within USTR detailed and we're 
working with SBA and the Department of Commerce to see if we 
could leverage the expertise of the foreign commercial service 
to have someone who has actually been in those markets to 
assist us with the net portfolio. So we do look at trying to 
leverage resources within the government to make sure that we 
are addressing all of those needs.
    Mr.Gonzalez. Thank you very much.
    ChairwomanVelazquez. Before I recognize Mr. Ellsworth, I 
would like to ask Ms. Moore isn't it true that the Small 
Business Exporters Association has been advocating for USTR 
Rep. representing small businesses?
    Ms.Moore. We've actually have had a number of proposals 
from small business organizations.
    ChairwomanVelazquez. So this is one of the associations 
that represents small business exporters. They know what is 
needed to make sure that we only--that we do not only have open 
markets, but how can they benefit? How can they enter those 
open markets by having someone sitting at the table when you 
are negotiating those trade agreements that truly represent 
their concerns. Now I recognize Mr. Ellsworth.
    Mr.Ellsworth. Thank you, Madam Chair. I'm going to start 
with Mr. Hernandez, and if anybody else wants to jump in, feel 
free. Just looking for your opinion on a small business 
friendly, I prefer fair trade to free trade. I'm not sure free 
is always fair. Musts that we must have, if you were designing 
the program on a fair trade program that was small business 
friendly what would be some have-to bullet point things that we 
would have to in that agreement? You get the magic wand and 
design it.
    Mr.Hernandez. Congressman, first of all, it's good to see 
you again. Thank you for the question. Is that with respect to 
a free trade agreement? I'm sorry. If you could just clarify 
further.
    Mr.Ellsworth. Yes, free trade. I always use the fair trade 
because I always want it to be fair. If you were designing 
that, what's a small business friendly free trade agreement 
look like?
    Mr.Hernandez. With respect to free trade agreements and 
with respect to my responsibilities within the federal 
government, my real focus is small and medium-sized companies 
and how is it that they enter foreign markets. But how to 
design a template, I will defer to the agency that really 
focuses on creating and drafting a free trade agreement. What I 
can tell you what we do in the Department of Commerce is that 
we fundamentally, our whole purpose and our essence is how do 
we find opportunities for small and medium-sized companies. And 
the fact is that everywhere I go outside of the United States 
where 95 percent of the people live, where 70 percent of the 
consumer purchasing power, it's outside of the United States.
    The question is--the question I get asked is where are the 
American companies? Because wherever I go whether it is Chile, 
Panama, whether it's Vietnam, whether it is China, and you go 
to the smaller cities, you find a lot of competitors from 
European markets, from all over the world. The fact is that 
strategically, American companies, when they think about 
growing, whether they're in your State of Indiana and they want 
to grow their company and they want to go south, they can all 
the way down to Florida. If they want to grow, they can go all 
the way to California. They have the blessing of a domestic 
market that can provide growth.
    But strategically, moving forward, if you look in the 
Yellow Pages in Canada, if you're a company in Indiana, you're 
competitor is already in Canada. So how do we convince small 
companies that there are opportunities. Because if you exist in 
the most and dynamic market in the world, which is here in the 
United States, and you're growing, there's an amazing 
opportunity for you in some other country and we have to 
educate these companies about what they are. We have to find a 
way to find a new class of exporters and tell them look, you're 
growing domestically, there's great opportunities 
internationally. Reductions have gone down, there is a better 
way of doing business. You can use e-commerce, you can use fast 
delivery express service. Plus, if you ever run into a problem 
or a challenge in country, we in the commercial service are 
located at 80 embassies around the world.
    So the fact is that a small company has more opportunities 
than ever in history today. There is huge growth going on. 
Outside of the Panama Canal that is being built, outside of the 
free trade agreements today, three years with our free trade 
agreement with Chile, we're going to expert and do more trade 
with Chile than we do with Spain. And look at the size and 
population--that's dramatic.
    The provinces in China--they're going to grow at ten 
percent a year for the next ten years. They are a growing 
consumer class. Somebody is going to service and provide a 
product that they need. Why not America? So the whole point is 
we need to find ways to constantly educate American companies 
about the opportunities, because it is outside the United 
States and they can grow their business and they can add jobs 
and they can benefit to their community, because there has 
never been a better time to export than today.
    Mr.Ellsworth. Thank you, Mr. Hernandez. I appreciate your 
passion, and Mr. Moore I will then turn to you in helping 
answer that. Besides obviously advertising to our American 
companies the opportunities out there, what other bullet 
point--paint the picture of a good free trade agreement that 
benefits small business here. How do we help these small 
companies?
    Ms.Moore. Well, I think the elements of a free trade 
agreement that helps small businesses is one that eliminates 
duties on goods. Tariffs work as taxes on small business and 
their products that opens trade to agricultural products. Most 
companies are closed to--not most, but a number, are closed to 
U.S. agricultural products. Make sure that we could protect 
investments, protecting intellectual property rights, create a 
procedure for dispute settlements to make sure there is an 
opportunity to resolve these trade disputes. Also, providing 
safeguard measures for specific, sensitive, or different 
industries that require it. Also, to make sure that within that 
we're respecting worker rights and environmental rights.
    Mr.Ellsworth. Thank you very much. Thank you, Madam Chair.
    ChairwomanVelazquez. Thank you. Ms. Clarke?
    Ms.Clarke. Thank you very much, Madam Chairwoman and 
Ranking Member Chabot. This is a very wonderful hearing today, 
because I think we're getting a true sense of the level of 
commitment that our federal government has to working with 
small business. Quite frankly, I think we're dealing with some 
really fundamental issues in the American psyche that has to do 
with can we trust our government to do what is in our best 
interest.
    On the ground, I have to say that we're failing. While we 
sit here and are very competent and composed about our 
enthusiasm for what the future brings on a global scale, in 
many communities throughout the United States, there is not 
that enthusiasms. I think we have an obligation to transmit 
that enthusiasm to the local communities where our 
entrepreneurs spring from. But to sit here today and say that 
the free trade agreements that we have negotiated have created 
a competitive edge for small business does not transmit to 
local communities such as mine in Brooklyn and many across the 
nation.
    Let me just say this. I think that we've danced around this 
issue about how we can best help small business. It's very 
clear that the representatives here are giving you a lens to 
what we know is real. What we know is real within our 
communities, and what is real to them is that they don't feel 
that their U.S. Trade Office is really focused on their needs. 
When we talk about using a matrix of expertise, when we can 
simply create a department that specifically focuses on those 
needs, that sends the appropriate signal.
    We can then go back to our communities and say you know 
what? They mean business, because they have dedicated 
themselves. They have allocated resources. They have more 
personnel to focus on this like a laser.
    So Ms. Moore, I clearly understand where you are coming 
from - an intellectual, academic standpoint. But we're dealing 
with trustworthiness, and there's a lack of trust in many of 
our communities today, and I hope that you will take that into 
consideration.
    I would like to ask a question, because I hear the 
enthusiasm about trade agreements that we are having around the 
world and the opportunities that they bring for small business. 
I'm excited about it, too. I would be even more excited about 
it if we could look at our own hemisphere and provide the same 
type of enthusiasm for entering markets in our own hemisphere 
that we do in other areas.
    The reason I bring this up is because I'm a Jam-American. 
My parents are from the Caribbean. I noticed that we have not 
given as much emphasis to the opportunities that exist in that 
region that we give to many other areas of the world. When we 
look at homeland security, when we look at some of the issues 
that are now bearing on us in the 21st century, I would like to 
ask just a couple of questions about whether first of all, in 
this age, Caribbean governments and societies are more 
conscious of trade and investments that are environmentally and 
socially responsible. They are urging free trade agreements 
that shift towards sustainable development. You know, the 
CARICOM Prime Ministers will be meeting with President Bush 
next week. What approaches do you suggest in order to attract 
foreign investments and also protect biodiversity, workers, and 
women's rights and benefit small businesses and create jobs?
    Ms. Moore, Mr. Hernandez?
    Ms.Moore. Congresswoman, thanks for the opportunity to 
answer. Actually, Secretary Hernandez and I were just in 
Atlanta for the America's Competitiveness Forum, and one of the 
panels that I had the pleasure to sit on was on regional 
business opportunities in CARICOM and the Caribbean. One of the 
things that I think is wonderful that the CARICOM countries are 
doing is moving towards a single-market economy, because in 
fact the barriers to trade--they have more barriers to trade 
between them than necessarily to the U.S. market.
    So we look forward to the conference on the Caribbean June 
19th. I think that we're trying to figure out ways to update a 
trade and invest--to strengthen the relationship, the trade 
relationship. We signed a trade and investment framework 
agreement in 1991. But you know, we definitely want to take the 
opportunity to incorporate some of the advances to increase 
investment. I had the opportunity to talk with some of the 
ministers and what they are doing to try to revitalize their 
economies there, you know, as far as education opportunities, 
services. They are really aggressively pushing.
    Ms.Clarke. They are, but let's be clear that when we don't 
have a global view to how we actually set up trade agreements, 
unintended consequences happen. Due to free trade agreements 
that we have done in the past, we shut down part of economies 
in that region. So, you know, I think that was the opportunity 
to engage, to make sure that U.S. small businesses had an 
opportunity to go in there and to help lift those economies. We 
shut down many of those nations in very simple agreements that 
we made without even a view to our neighbors in the Western 
hemisphere. So I can appreciate the rhetoric, but I think that 
it is important that if we're talking about a global economy, 
that we really--and I know that these nations have been 
reaching out. They have been crying out for our attention--that 
we really focus ourselves in a way in which we make sure that 
we don't have these types of adverse impacts. Because you know 
what? Ultimately, we're building neighborhoods that can be very 
detrimental to our safety. I think we need to put all of that 
into context. Thank you very much, Madam Chair. My name has 
expired.
    ChairwomanVelazquez. Time has expired. I know recognize Ms. 
Moore.
    Ms.Moore. I really look forward to working with you and the 
Congress in that endeavor.
    Ms.Moore of Wisconsin. Thank you, Madam. This is a very 
important hearing. I've been going nuts listening to people 
call you Ms. Moore. It's been very, very distracting. When you 
called on me, Madam Chair, I didn't really know how to respond.
    I want to start out with Mr. Hernandez. In your role with 
the Department of Commerce, I didn't have the opportunity to 
read your testimony, but I do know that the mission of the 
Commerce Department really is to enforce trade laws. I am 
curious. When I look at the $800 billion trade deficit--this is 
a little bit beyond my public high school math--those zeros are 
just staggering. When I look at the trade deficit and I compare 
that with your testimony about the expanded trade relationship 
that we have with China and other places, when I look at your 
mission and your responsibility to enforce our laws against 
anti-dumping laws, in particular, those laws which would 
prevent really a lot of imports of very cheap material.
    In your testimony, your pride in the expanded trade that we 
have had with China, for example, I am curious as to what the 
relationship, the nexus might be between a huge trade deficit 
of $800 billion, these expanded trade relationships, and the 
fact that this Administration has had very, very few--provided 
very few complaints to the WTO about unfair trade issues. It 
seems to me, it would appear, and I'm going to allow you to 
respond to it, that there are very few complaints that are 
tendered against unfair trade practices. So is it your opinion 
that--there were like ten trade agreements, the Clinton 
Administration, ten a year. The Bush administration only has 
about two. So are there fewer trade infractions today than 
there have been in the past?
    Mr.Hernandez. With respect to WTO questions and cases, I'm 
going to defer to USTR. But I will say that there are four 
units within the International Trade Administration. One of 
them is Import Administration, that they enforce U.S. unfair 
trade laws. They enforce them to make sure that we develop and 
implement policies to counter foreign unfair trade practices. 
But with respect to the United States Foreign Commercial 
Service, which is the bureau that I run, our focus is about 
making sure that small and medium-size companies and all 
American companies have an opportunity to enter into these 
markets.
    So when you say, you know, USTR will create and navigate 
the law--I mean, a bill and the legislation when the President 
signs it, we helped implement it in the Department of Commerce. 
But we in the Commercial Foreign Service, our role is to 
educate companies. And how do we find a way to reach more 
American companies to export?
    The facts that we can deal with is the fact that more--we 
have more exports than ever before. Exports right now are 
sizzling, so when you talk about growth, the fact is that more 
American companies are growing. More American companies are 
exporting, and we have to make sure that we have the right 
structure within the commercial service to make sure that we 
can educate them and have resources for not only in the United 
States--
    Ms.Moore of Wisconsin. All right. That didn't answer my 
question and my time is waning. As it relates to helping small 
business, I'm very proud of the fact that 97 percent of all 
exporters here in the United States are small businesses. But 
yet we still see this trade deficit of $800 billion because 
they only generated 30 percent of the revenues from these 
activities.
    Are we still--and so, of course, large corporations still 
have a significant advantage in the globalized economic 
environment. And so I am wondering, do you think that you have 
adequate resources through maybe Ms. Moore, maybe, you can 
answer this? Do you think that just your one department that is 
devoted to helping small businesses is adequate or do you think 
that there is not enough articulation among the various 
agencies, which may be indicated by Mr. Hernandez's previous 
sort of non-answer to my question.
    Mr.Hernandez. I would like to answer your question as well.
    Ms.Moore of Wisconsin. Okay.
    Mr.Hernandez. I'll give time to Ms. Moore.
    Ms.Moore of Wisconsin. All right. I've got to hear from Ms. 
Moore. You know that, Ms. Moore to Ms. Moore.
    Ms.Moore. Yes, Congresswoman Moore. To answer your first 
question on cases brought by the WTO, USTR is very focused on 
results. We only want to bring cases that we can actually win. 
So that's why we made sure that the cases that we have brought 
are sound and clearly go after WTO and consistent practices.
    With regard, I guess, if you look at the arsenal of tools 
that we have, the last one would be dispute settlement. For 
instance, with the subsidies case, we filed in late April, if 
we do not settle in the consultation phase, it's going to take 
at least two to two and a half years to get a final ruling. So 
if we're looking at helping small businesses and getting 
something, having them benefit by some of these negotiations, 
we want to do it sooner rather than later instead of waiting, 
you know, the time it is going to take within the WTO. But we 
will do that.
    I would note that in some cases it is bilateral 
consultations and bilateral discussions that we've been able to 
see some real benefit. For example, not in the case of a small 
business, but through consultations with the Chinese, we were 
able to create some better enforcement and protection of 
intellectual property rights and piracy through making sure 
that operating system software was pre-installed in Chinese 
computers. So that's just one example of how bilateral 
conversations netted an immediate results instead of the 
dispute settlement process that takes several years.
    But we will continue to go after those who have unfair 
trade practices, but our first choice is to work through 
bilateral consultation so that we can get the most expedient 
result as possible.
    ChairwomanVelazquez. Time is expired.
    Mr.Hernandez. Am I allowed to respond or no?
    ChairwomanVelazquez. You are allowed to respond.
    Mr.Hernandez. So I don't want you to think that I am not 
answering your question. So the first part of your question 
dealt with WTO, which I think Ms. Moore has addressed that 
issue. The second question you talked about was the trade 
deficit. Obviously, that is a concern for everyone. That is a 
concern. But what you're also seeing is you have a country in 
the United States, a growing consumer. We are the best 
consumers in the world. We buy everything. Try to go one 
weekend without buying something. The fact is we are buying the 
world's products.
    What we want in turn is for other countries to buy our 
products, and what we're seeing is that for the first time 
exports have outpaced imports. Now more people, there is a 
growing consumer class going on around the world. We want them 
to buy American and we want them to buy more. So the point is 
more Americans can save, or more other people around the world 
can buy. We want more people to buy.
    What you're seeing is a trend in a right direction which is 
our exports are going up, and the majority of that is also more 
small and medium-sized companies entering into the market. So 
the point is we have a growing economy in the United States. We 
have a consumer that is buying a lot, and what we want is more 
people outside of the United States to buy. In many ways, that 
will help address a trade deficit. Because the fact is, and 
this is where I am going to very optimistic about American 
small business, is we have an amazing dynamic small business 
community that has really created products and high-value 
products and services that are sought after all the world. We 
just have to make sure that we find a market for them and 
that's what we would like to do with a commercial service. 
That's my response. Thank you.
    Mr.Larsen. Thank you, Madam Chair. I just came from a 
hearing in Armed Services Committee on China, from a little 
different angle than Ms. Moore has covered it, but an important 
angle nonetheless. And my questions are, in particular, about 
China.
    And, you know, there are a lot of--you have heard them, a 
lot of concerns here in Congress about the U.S. economic 
relationship with China and China's economic relationship with 
the U.S. and who has the best advantage in that. And as a 
result of that, there is a lot of discussion in Congress about 
taking certain actions through legislation, which I think from 
certain perspectives I can have a full appreciation of from 
another perspective, that is a perspective of my district.
    I think it would--some of the actions being discussed would 
be detrimental, frankly, to my district. But there has to be a 
balanced approach to how we deal with this.
    One of the issues that I have been trying to struggle with, 
though, is how to encourage small and medium-sized enterprise 
business export to China. And so a group of us are putting 
together a package of bills, one of which would look at that 
issue. And we are going to be rolling out these bills, and the 
one I want to talk about in particular about is U.S.-China 
Market Engagement and Export Promotion Act, which is 
specifically designed to try to get the executive agencies to 
do a better job of getting small and medium-sized enterprise 
products and services into China.
    But as we move through that, we are still crafting the 
legislation, getting some final things in place, and I think 
for Mr. Hernandez I would like to ask you, you know, just from 
your perspective, with regards to China, what do you all think 
the major challenges are for small and medium-sized businesses 
to get their products and services into China? What do they 
lack, and what do you all lack?
    Mr.Hernandez. Yes, sir. That is actually--thank you for the 
opportunity to address that. Actually, it is a very great 
question. I think that with media and communications today--
    Mr.Larsen. Most of the questions asked by members of 
Congress are great questions.
    [Laughter.]
    Mr.Hernandez. Okay. Well, this is another good question.
    [Laughter.]
    And I will tell you why it is a really great question for 
me, because when I visit with small and medium-sized companies, 
they think because they have read all--whether what is on the 
cover of Business Week or Fortune, or they see a story, that 
they now want to export and they want to go to China.
    But, in fact, what we really need to understand, and what 
we have seen from the experience of working with small 
companies, that it really takes 12 to 18 months to educate a 
company about--we have to work with their line of credit, we 
have to understand what their product is, we have to understand 
their temperament, and we have to understand the workforce. 
What is it--do they have the patience? Are they ready either to 
begin exporting?
    Our export assistance centers throughout the United States 
work with companies to make sure that we address all of those 
notes. You can't just say, ``I want to export today,'' and then 
go out there. The burden with anyone who goes and does that is 
that they fall into a lot of challenges, and they might 
identify the wrong partner to do business with in China, in 
which case they are now obligated and they are stuck.
    They have never properly found a way to--how do they 
protect their property? How do they have a better understanding 
about a culture? Because it is not so much just, you know, an 
agreement or an understanding. It is you are dealing with a 
completely different culture, a different way of doing things. 
And so if you are not--if you don't have a full understanding, 
then you are going to put yourself in a very difficult 
situation.
    Now, for us, we have a strong commitment to help companies 
enter into China. For us, it is the largest office within the 
commercial service. We have over 120 staff in country in China 
to help American companies. We also have joined in partnership 
to create American trading centers in 14 cities throughout all 
the provinces. So if an American company wants to enter these 
markets, they have someone they can contact, and talk to about 
what the challenges are, because with great opportunity--and 
there is great opportunity cost in China, there is also amazing 
challenges.
    And so China should not be the first country that you look 
to when you export, because you need to go maybe to Canada or 
Mexico or somewhere where we have a better--we figure out and 
test your product and figure out, can you do business there? 
China is very complicated. It is a little--like a little drop 
in a huge ocean.
    The fact is, China will always--will be there. You don't 
have to enter that as your first market. And, in fact, that is 
the burden and challenge that we have is everybody feels with 
the pace that they have to be in China right now, or they have 
to be in India right now.
    Mr.Larsen. Just quickly, is there a difference in the 
challenge facing a small or medium-sized enterprise getting 
into, say, China, versus a larger business who is not yet 
exporting there?
    Mr.Hernandez. You have to be in somewhat a developed and 
mature company and have a very good understanding and have the 
flexibility to know that as far as payment, as far as the legal 
issues identifying a partner, a broker, it takes a long time. 
It could take, you know, months. And if they can't withstand 
that, we really have to make sure they have the right 
temperament.
    But you are right. I mean, the great thing for a large 
corporation is they have a department to help them with these 
issues. We are the department for small companies. So in many 
ways what we do is we had a trade seminar exclusively on China 
in Ohio last year. We had 1,000 companies registered, because 
they are hungry for information about how is it they do 
business.
    But we went and we went section by section about how is it 
that you are structured, how are your finances, did you know 
about how to protect your property. We have a checklist of top 
10 things you should do to protect your property before you 
even call anyone in China. It is called Stop Fakes, and it is 
on our website. And it is amazing, because we get more hits on 
that than anything else.
    The point is: we know that people are hungry for 
information--small and medium-sized companies--so we are doing 
more trade seminars. We have reached out to associations, to 
people here on House and Senate, to educate more companies.
    ChairwomanVelazquez. Time is expired.
    Mr.Larsen. Thank you. Thank you.
    ChairwomanVelazquez. We finished this round of questions. 
If there is any member who wishes to ask any questions to the 
witnesses before we excuse this panel?
    [No response.]
    Well, I do have another question. Mr. Hernandez?
    Mr.Hernandez. Yes, ma'am.
    ChairwomanVelazquez. I just can't help myself.
    Mr.Hernandez. Go ahead.
    ChairwomanVelazquez. I am stunned--
    Mr.Hernandez. Yes, ma'am.
    ChairwomanVelazquez. --you know, when I listen to your 
flowering rhetoric regarding the important role that small 
business exporters play, and how can we make sure that they 
take advantage of all these open markets?
    Mr.Hernandez. Yes, ma'am.
    ChairwomanVelazquez. So let me ask each one of you, you are 
going to leave a staff person here to listen to the second 
panel witnesses?
    Mr.Hernandez. Yes.
    ChairwomanVelazquez. Okay. Because in the second panel we 
are going to have some businesses who are saying that small 
businesses depend upon access to technology to support 
innovation and maintain their global competitiveness. Mr. 
Hernandez, do you agree with that assessment?
    Mr.Hernandez. I do feel that technology is going to be 
essential for a company to find opportunities, because an 
online service will allow them to reach more people than they 
would otherwise.
    ChairwomanVelazquez. Yes. So is that the reason why the 
U.S. Department of Commerce repeatedly proposed to drastically 
cut the Manufacturing Extension Partnership Program?
    Mr.Hernandez. Ma'am, actually, that does not fall in my 
purview, but I can find that information and get back to you on 
that particular issue.
    ChairwomanVelazquez. But do you think that is reasonable--
    Mr.Hernandez. I need to understand--
    ChairwomanVelazquez. --on the one hand?
    Mr.Hernandez. Yes. I just need to understand what the 
language is, and why is it that it was presented. And I am more 
than happy to bring that information back.
    ChairwomanVelazquez. Well, I can tell you that for the last 
few years the administration proposed to cut a manufacturing 
extension partnership program, the very program that helped 
small businesses and small business exporters. And then, you 
make reference to the U.S. export assistance centers.
    Mr.Hernandez. Yes.
    ChairwomanVelazquez. That is within your purview.
    Mr.Hernandez. Yes.
    ChairwomanVelazquez. You know what--
    Mr.Hernandez. Yes.
    ChairwomanVelazquez. --those centers are. And so those 
centers are important, because they provide assistance to small 
business exporters.
    Mr.Hernandez. Yes.
    ChairwomanVelazquez. So why is it that they have been flat 
funded for the last few years?
    Mr.Hernandez. Why has the commercial service ben flat 
funded? I think that we in the commercial service are no 
different than other agencies where we have tried to be very 
resourceful with a budget that we have. I mean, the fact is--
    ChairwomanVelazquez. This is how you are going to close the 
gap that exists in terms of the trade deficit?
    Mr.Hernandez. Ma'am, I think to close the trade deficit is 
not what I can do, but what American companies have the ability 
to do.
    ChairwomanVelazquez. Sure. If services and assistance and 
technical assistance and financing is provided by those very 
centers that are supposed to be here to assist those small 
business exporters. And also, in terms of the Small Business 
Administration, only 16 staff are assigned to those U.S. export 
assistance centers. Do you intend to increase the number of 
staff?
    Mr.Ginsburg. We are evaluating the human capital resources 
that we have, and the administration will, you know, evaluate 
just exactly where we should put good people to take care of 
both domestic and international business.
    ChairwomanVelazquez. Does any other member wish to make a 
question?
    [No response.]
    With that, I excuse the panel.
    Mr.Ginsburg. Thank you.
    ChairwomanVelazquez. I welcome the second panel to take 
their seats. It is almost noon, so good afternoon. I welcome 
all the witnesses, and I hope that you can help us by shedding 
some light into the impact of U.S. trade policies on small 
businesses.
    Our first witness is Ms. Sage Chandler. Ms. Chandler is the 
Senior Director of International Trade for the Consumer 
Electronics Association. She is responsible for trade policy 
legislation and negotiation matters affecting the 2,100 member 
companies of Consumer Electronics Association.
    Ms. Chandler, your entire testimony will be entered into 
the record, as well as the other witnesses. You have five 
minutes to present your testimony.


 STATEMENT OF SAGE CHANDLER, SENIOR DIRECTOR OF INTERNATIONAL 
            TRADE, CONSUMER ELECTRONICS ASSOCIATION

    Ms.Chandler. Thank you, Madam Chair. The Consumer 
Electronics Association, or CEA, is the principal U.S. trade 
association for the consumer electronics industry. Our 2,100 
members include manufacturers of audio, video, and IT products, 
which are enjoyed in the home and automobile, and oftentimes 
the office. Our industry drives the American economy and 
accounts for world leadership and innovation.
    Although we represent virtually every large consumer 
electronics manufacturer, 80 percent of our members are small 
businesses. In fact, small companies are located in each state 
represented on this Committee.
    International trade is the life blood of our industry. Last 
year, U.S. exports of consumer electronics products totaled 
nearly $4 billion, helping to support nearly two million 
American jobs. Many of our members are competing well abroad, 
but we need to do better. Ninety-five percent of world 
consumers who could be buying our products live outside of our 
borders.
    To access those opportunities and remain competitive, fair 
and open trade in markets abroad is crucial to our small and 
medium-sized businesses. Our industry is highly competitive and 
globally integrated. Two-thirds of CEA members conduct 
international business of some sort, primarily in Asia, Europe, 
and Latin America. However, large investments are needed to 
manufacture our products. Even then, many of those goods have 
very narrow margins, so companies must feel secure entering new 
markets protected by trade negotiations and trade policies.
    Therefore, we urge Congress and the United States 
Government to make the following actions. First, aggressively 
pursue bilateral free trade agreements. In the absence of an 
agreement in the DOHA round of the World Trade Organization, 
FTAs offer the next-best way to open foreign markets to small 
companies. They create sales opportunities, reduce costs, and 
diminish uncertainty. Through FTAs we can implement 
intellectual property rights standards, establish investment 
protections, and provide increased transparency for U.S. 
exporters.
    Second, reauthorize trade promotion authority. TPA expires 
later this month, and without it our trading partners will be 
reluctant to negotiate trade agreements with the United States. 
Our hands may be tied, and the U.S. will fall behind the many 
other countries who are currently negotiating free trade 
agreements at an unprecedented pace.
    Third, work to eliminate non-tariff trade barriers abroad. 
Examples of NTBs include cumbersome customs regulations, 
corrupt government practices, and recently divergent or non-
harmonized approaches to environmental standards. These non-
tariff barriers hinder trade and burden small companies with 
unnecessary compliance costs.
    Fourth, in addition to pursuing new trade agreements, the 
U.S. must maintain and enforce agreements that are already in 
place. For example, we must take an aggressive stance to 
protect products which are already covered by the World Trade 
Organization's Information Technology Agreement. The ITA covers 
and eliminates duties on over 97 percent of trade and world 
information technology products.
    However, the EU is currently claiming that the ITA does not 
cover the next generation of covered products. Therefore, it is 
crucial for the U.S. Government to uphold the ITA and make a 
case for its maintenance to allow for future innovation.
    Fifth, promote a swift and effective temporary visa 
program. While safeguarding national security is paramount, 
many small businesses rely on tradeshows like CEA's annual 
event, the Consumer Electronics Show. CES is the nation's 
largest trade show and is an effective way for small companies 
to contact international buyers without breaking the bank on 
foreign travel.
    To remain successful, we need as many foreign buyers to 
attend CES as possible. This year, we had over 25,000 
international attendees, but thousands more were discouraged 
from attending due to restrictive U.S. visa policies. This 
leaves our small entrepreneurs at a disadvantage in their 
efforts to reach international buyers. In fact, CEA recently 
situated shows in Dubai and in China, so that we can help our 
members reach international markets.
    Finally, it is essential that traffic moves across the 
borders quickly and efficiently. While trade among NAFTA 
countries has increased significantly in the decade since it 
was signed, the infrastructure and customs facilities have not 
been able to stay ahead of the increased commerce. For 
instance, during the peak season in 2006, there were two- to 
three-mile backups of trucks trying to cross into the United 
States, with some waits of up to 10 hours.
    As long as there is a shortage of trucks and drivers along 
the southern border, there will be congestion. Therefore, we 
urge swift implementation of a Department of Transportation 
pilot program, which will allow a limited number of Mexican 
motor carriers to operate in the United States beyond 
commercial zones along the U.S.-Mexican border.
    In summary, small businesses in the consumer electronics 
industry benefit whenever the United States implements policies 
that ease the process of getting products from port to shelf to 
consumer. If Congress and the United States Government are 
successful in advancing free trade, then we win, and so does 
the American economy.
    The Consumer Electronics Association and its members pledge 
to work with the members of Congress to address these concerns 
to ensure that the consumer electronics industry is well 
situated to advance trade in a progressively competitive global 
environment.
    Thank you again to appear today, and I will be happy to 
answer any questions from the Committee.
    [The prepared statement of Ms. Chandler may be found in the 
Appendix on page 82.]

    ChairwomanVelazquez. Thank you, Ms. Chandler.
    Our next witness is Mr. Ken Seilkop. He is a constituent of 
Congressman Chabot, and he is the President and Owner of 
Seilkop Industries, Inc. Seilkop Industries has been in the 
Seilkop family since 1946. Ken is the second generation owner, 
and the third generation is in place.
    Welcome, sir.

STATEMENT OF KEN SEILKOP, A.G. TOOL & DIE, MIAMITOWN, OHIO, ON 
    BEHALF OF THE NATIONAL TOOLING AND MACHINING ASSOCIATION

    Mr.Seilkop. Thank you. Chairwoman Velazquez, and members of 
the Committee, thank you for the opportunity to discuss the 
impact of currency manipulation and its effects on the 
precision machining industry under current U.S. trade policies.
    My company is comprised of four divisions, including A.G. 
Tool & Die in Miamitown, Ohio. These four facilities have been 
in the Seilkop family since 1946. We employ approximately 95 
people in the greater Cincinnati area. Both my wife and son 
work with me.
    A.G. Tool & Die specializes in the design and build of a 
wide range of precision dies, fixtures, and tools for the 
automotive, appliance, defense, and aerospace industries. I am 
testifying as a second generation small business owner on 
behalf of the National Tooling and Machining Association. NTMA 
represents nearly 1,700 custom precision manufacturers and 
55,000 employees across the nation.
    Our members are small to medium-sized shops employing an 
average of 27 people. Every product that is manufactured is 
formed by a tool, a die, or a mold made by our industry. The 
future of the U.S. machining and tooling industry is being 
severely threatened by low price tools, dies, and precision 
machine parts imported primarily from China. The effect of 
China's economic growth and principally its unfair trade 
practices has been costly to the manufacturing, and in 
particular our industry.
    Since 2001, nearly a third of all U.S. tooling and 
machining companies have been forced to shut their doors due to 
price constraints driven by the large influx of low-priced 
Asian imports into our markets. Our industry cannot compete 
when the playing field is rigged, and that is what China has 
been doing--rigging its currency at a level that economists 
agree is about 40 percent. This practice undercuts our numbers 
by artificially lowering the cost of Chinese goods, making it 
impossible for NTMA member companies to compete against their 
foreign counterparts.
    This form of protectionism by China is reaping huge 
rewards. Its export-based economy is growing three or four 
times faster than the rest of the world, with factories being 
built at a record pace. It promotes investment in China over 
capacity and a dangerous accumulation of foreign exchange 
reserves in China. Furthermore, China is violating its 
International Monetary Fund and World Trade Organization 
obligations. It is time for the administration to hold them 
accountable and move aggressively on currency manipulation.
    Our customers are spending less in the U.S. and continue to 
look to foreign plants and overseas suppliers every day. Every 
day my Chinese competitors beat my best quoted prices by 40 to 
60 percent. I would like to share an example from a Dayton, 
Ohio-based manufacturing company that makes plastic injection 
molds for the industrial Fortune 500 customers.
    Last month he quoted his lowest possible cost for a mold at 
$60,000. In the end, the contract was awarded to a Chinese 
manufacturer for $25,000 including shipping. The estimated cost 
of the materials alone on that mold were $18,000. There are no 
techniques or groundbreaking processes that could garner the 
cost savings needed to overcome such a large price 
differential.
    While companies like this have a decent chance of competing 
with companies anywhere in the world, we can't compete with the 
government of China or other countries that manipulate their 
currency. At A.G. Tool & Die we continue to invest hundreds of 
thousands of dollars in technology to try and keep up, but this 
is tough to justify when our customers keep demanding lower and 
lower prices.
    American tooling and machining shops must also compete 
against Chinese companies that have cheap labor costs, do not 
pay or pay very little health insurance, legacy costs, and do 
not have to meet our strict environmental and safety standards.
    As I talked to precision tooling and machine shop owners 
across the nation, the plea is, ``Level the playing field. We 
are not afraid of competition, but make it fair competition.'' 
I enjoyed the comment by the Congressman of ``fair trade, not 
free trade.''
    Congress can enact legislation right now that is beneficial 
to U.S. manufacturers that could help to level the playing 
field. NTMA urges this Committee and the entire Congress to 
pursue every avenue possible to combat the damage of currency 
manipulation. Prolonged inaction will only lead to more 
manufacturing job losses and further erosion of our domestic 
manufacturing base. With little to show after years of pressure 
by the administration on China to revalue its currency, the 
NTMA urges you to pass the Fair Currency Act, H.R. 782, 
introduced by Representatives Tim Ryan of Ohio and Duncan 
Hunter of California.
    This bipartisan legislation with over 100 co-sponsors gives 
the U.S. Government new tools to address currency manipulation 
and would brand such manipulation as an illegal subsidy under 
WTO rules. It would ensure that countervailing duty laws can be 
applied to non-market economies. It applies to any country that 
is manipulating its currency. Passage of the Fair Currency Act 
is a crucial first step.
    It is obvious that China's economic strategy over the past 
decade has been to keep the value of its currency low, boost 
its exports, and hold down imports. The U.S. needs a 
coordinated, comprehensive national policy and strategy for 
manufacturing. Such a strategy must include addressing currency 
manipulation, vigorously enforcing our trade laws and 
agreements, making permanent the R&D tax credit, reforming 
health care to reduce its costs to small business, and amending 
our Tax Code.
    Since China continues to enjoy the benefits of membership 
in the international economic community, it is only fair that 
it abide by the rules. The time for change is now, before our 
industry and the rest of U.S. manufacturing is put at further 
risk.
    We look forward to working with this Committee and the 
members of the 110th Congress. Thank you again for giving me 
the opportunity to present our views on this important matter, 
and I will be pleased to answer questions.
    [The prepared statement of Mr. Seilkop may be found in the 
Appendix on page 86.]

    ChairwomanVelazquez. Thank you, Mr. Seilkop.
    Our next witness is Jon Caspers. Mr. Caspers is an owner of 
a nursery-to-finish operation that markets 13,000 hogs 
annually. He is also past President of the National Pork 
Producers Council.
    Welcome, sir.

    STATEMENT OF JON CASPERS, SWALEDALE, IOWA, ON BEHALF OF 
                NATIONAL PORK PRODUCERS COUNCIL

    Mr.Caspers. Thank you, Madam Chairman, and members of the 
Committee. I am Jon Caspers, past President of the National 
Pork Producers Council, and a pork producer from Swaledale, 
Iowa. I operate a nursery-to-finish operation marketing 13,000 
hogs per year, and under anyone's definition I am a small 
producer.
    I strongly believe that the future of the U.S. pork 
industry and the future livelihood of my family's operation 
depend in large part on further trade agreements and continued 
trade expansion under TPA. Trade agreements have fueled the 
export growth in the U.S. pork industry. Total U.S. exports of 
pork and pork products have increase by more than 400 percent 
in volume and value since the implementation of the North 
American Free Trade Agreement in '94, and the Uruguay Round 
agreement in '95.
    Due to tariff reductions and improved market access under 
NAFTA, Mexico was the number one volume market and number two 
value market for U.S. pork exports in 2006. Thanks to a 
bilateral agreement with Japan on pork that became part of the 
Uruguay Round, U.S. pork exports to Japan have soared. In 2006, 
U.S. pork exports to Japan reached just over $1 billion, and 
Japan remains the top value foreign market for U.S. pork.
    U.S. pork exports to Korea have increased over 2,000 
percent as a result of concessions made by Korea in the WTO 
Uruguay Round in '95. More recently, U.S. exports of pork have 
expanded because of bilateral deals with Russia, Taiwan, China, 
and the U.S.-Australian FTA.
    Increasing U.S. pork exports means increasing U.S. jobs. In 
2006, the United States exported 15 percent of domestic pork 
production. By percentage, then, international trade attributed 
approximately 82,500 U.S. jobs in the pork industry alone. A 
majority of these jobs are located in rural America. In my home 
State of Iowa, about 62,500 jobs are involved in various 
aspects of the pork industry, ranging from input suppliers to 
producers to processors and handlers, as well as main street 
businesses that benefit from purchases by people in these 
industries.
    According to Iowa State economists Daniel Otto and John 
Lawrence an estimated $2.2 billion of personal income and $3.8 
billion of gross state product are supported by the hog 
industry based on 2005 levels of production in Iowa. Based on 
the export share of 15 percent of U.S. production, a comparable 
share of economic impacts, or 9,375 jobs, and $333 million of 
personal income in Iowa, result from the exporting of pork 
products to foreign markets.
    U.S. pork and export growth directly impacts the Iowa pork 
industry and Iowa's overall economy. In addition to my home 
State, the Iowa State economists have examined the impact of 
pork exports on a number of states and congressional districts 
outside of Iowa. In the attached appendix to my written 
comments, I have included pork export district information 
generated by Iowa State for eight of the districts represented 
on the Small Business Committee.
    As the export growth rates generated by the Uruguay Round 
and NAFTA begin to diminish because the agreements are now 
fully phased in, the creation of new export opportunities 
becomes increasingly important. The United States currently has 
four pending free trade agreements--the U.S.-Korea FTA and the 
Colombia, Peru, and Panama Trade Promotion Agreements. Each of 
these agreements were negotiated under trade promotion 
authority and will significantly benefit U.S. pork producers.
    Pork exports positively impact the price of live hogs for 
all producers in the United States. Regardless of whether the 
pork from a particular hog is exported, the price impact of 
exports lifts the U.S. price for live hogs, so that all 
producers benefit. When fully implemented, the trade agreements 
with Korea, Colombia, Peru, and Panama, will eliminate tariffs 
and barriers to trade that currently limit U.S. pork products, 
contributing to the bottom line of producers nationwide.
    According to Iowa State University economist Dermott Hayes, 
these four pending FTAs, when implemented, will bring 
unprecedented economic benefits. The Korea agreement alone will 
be the single most important trade agreement ever for U.S. pork 
producers. The U.S. Republic of Korea FTA, when fully 
implemented, will cause U.S. hog prices to be $10 higher than 
they would--than would otherwise have been the case. And, 
likewise, once fully implemented, the Colombia, Peru, and the 
Panama FTAs will respectively cause U.S. hog prices to be 
$1.63, 83 cents, and 20 cents higher, respectively, than would 
otherwise have been the case.
    Any agricultural economist knows that our sector will tell 
you that pork exports have disproportionately contributed to 
the profitability of U.S. pork producers in recent years, and 
expanding market access through implementation of these 
agreements will further increase producer profitability and 
stimulate job growth.
    In addition to the four pending FTAs, a successful WTO DOHA 
development round will increase pork exports and strengthen our 
producers. A large DOHA outcome, particularly with the EU and 
Japan, is needed to make the DOHA successful for producers. 
Currently, the United States supplies less than 1 percent of EU 
pork consumption. And while Japan is the biggest value market 
in the world for U.S. pork, there is still enormous potential 
growth.
    In conclusion, trade agreements significantly benefit all 
U.S. producers. Fifteen percent of all U.S. pork production is 
exported abroad, and the impact of exports on the livelihood of 
small and medium-sized independent producers is substantial.
    Thank you for the opportunity to present. I look forward to 
your questions.
    [The prepared statement of Mr. Caspers may be found in the 
Appendix on page 93.]

    ChairwomanVelazquez. Thank you, Mr. Caspers.
    Our next witness is Dr. Lael Brainard. Dr. Brainard is Vice 
President and Founding Director of The Brookings Institution's 
Global Economy and Development Program. She has served as 
Deputy National Economic Advisor and Chair of the Deputy 
Secretary's Committee on International Economics during the 
Clinton administration.
    Dr. Brainard, you are welcome.

 STATEMENT OF DR. LAEL BRAINARD, VICE PRESIDENT AND DIRECTOR, 
     GLOBAL ECONOMY AND DEVELOPMENT PROGRAM, THE BROOKINGS 
                          INSTITUTION

    Ms.Brainard. Madam Chairwoman, Ranking Member Chabot, 
members of the Committee, thank you for the opportunity to 
testify on this important topic.
    I want to make three observations. First, I wanted to talk 
a little bit about what is happening to our economy. My sense 
is that our economy is undergoing a very profound 
transformation. The individual elements feel somewhat familiar, 
but together the combined contours are unprecedented in scale, 
speed, and scope.
    China is pursuing a growth strategy that is export led and 
foreign direct investment fed at a scale we really haven't seen 
before. Its booming economy is swelling the coiffeurs of some 
resource producers, but also posing enormous challenges in 
manufacturing. India's concurrent economic emergency has also 
added to the complexity of the challenge. While India's growth 
strategy has differed in important ways, its success in 
exporting higher skilled knowledge services, such as software 
programming, has led to a stunning expansion of the scope of 
globalization.
    Many American businesses, large and small, are thriving on 
the new opportunities created by this breathtaking growth of 
more than 9 percent in two of the world's most populous 
markets. But other American businesses are confronting foreign 
competition at an intensity and a scale they have never 
experienced before. Some of them are faced with the choice of 
moving over or moving up the value chain, concentrating on 
highly specialized activities in this market, or diversifying 
their geographic base.
    I think the current episode of global integration dwarfs 
previous episodes. If you look at it just from a pure numbers 
point of view, an economy of--an integrated world economy with 
a labor force of about 1.7 billion is being abruptly confronted 
with absorbing a labor force of 1.2 billion with wages that are 
up to 90 percent lower. It is a 70 percent expansion of the 
global labor force in a very short period of time. It is three 
times bigger than the globalization challenge associated with 
the sequential advances of Japan, South Korea, and the other 
Asian tigers.
    So what is the role of business? And how is small business 
being affected by this globalization wave? As the most dynamic 
stratum of the economy, small business is on the front lines of 
this new wave. As a microcosm of the overall economy, there is 
enormous diversity in this group, and I think we see it. It is 
a very nice cross-section that we have at this table.
    Many small businesses are encountering unprecedented 
opportunities. Others, frankly, are struggling. I think in the 
old models, product life cycle models, the notion was that many 
businesses would stay here until they saturated their market 
and then move abroad. A lot of small businesses or 
entrepreneurial people are going abroad early in their growth, 
often following their customers.
    Because they are so often on the front lines of 
globalization, I think small businesses have a disproportionate 
stake in the policies shaping globalization. But as this 
Committee has pointed out today, they face much higher 
transactions costs relative to their size, both as they venture 
into new markets and as they seek to influence that policy 
environment.
    If you think about it, it is true that transparent, 
predictable customs procedures and trade rules make it a heck 
of a lot easier for small businesses, but only if those 
policies are, first of all, accessible in the priority-setting 
stage, in the negotiating stage, and then, of course, on 
enforcement. So those trade rules are necessary but by no means 
sufficient.
    And on the flip side, when an unanticipated surge of 
foreign competition causes injury, small businesses may have 
much less internal wherewithal to cushion the blow for their 
employees. They have to rely more on government programs, but 
it is very costly to access those programs. Eligibility 
criteria are stiff, it is time-consuming, and, as we know, the 
value threshold on safeguards is often hard to meet.
    The vibrancy, I think, of our small business sector under 
any circumstances will remain a very key comparative advantage 
for the United States. This sector is the envy of the world, 
and so even as we think about what policies we can put in place 
to help them access international markets, I think it is 
important to make sure that the foundations remain strong at 
home.
    Let me quickly just talk about the three pillars of the 
national competitiveness strategy that are important for 
business in general, but small business in particular. Those 
are investments in innovation, in education, in infrastructure, 
and the Chairwoman mentioned earlier before the Manufacturing 
Extension Program, which is one of those programs that is 
highly valued by small businesses in the realm of innovation 
policy.
    On international rules, a second area, it is absolutely 
true that small business depends more than any other segment on 
a level playing field. But if you think about the China example 
that we were referencing earlier, it is astonishing to me that 
USTR waited five years before reviewing China's trade policy.
    Enforcement should have started day one. When China entered 
the WTO, it was a mature exporter, even if it was not a mature 
importer. And Mr. Hernandez talked about democratizing 
international trade through bilateral trade agreements. That is 
only true if all interests have an equal say at the table.
    And, finally, I think on this issue of bilateral free trade 
agreements they aren't the best way of moving forward for small 
business. It is very difficult for small business to be able to 
study the minutia of each particular trade agreement. Much 
better to have broad-based trade agreements, but this 
administration has presided over the death of the FTA, the 
death of the APEC trade agenda where they have ceded the ground 
to China, and DOHA is on life support. So a much more efficient 
result for small businesses would have been a much broader 
trade agreement.
    Thank you.
    [The prepared statement of Ms. Brainard may be found in the 
Appendix on page 114.]

    ChairwomanVelazquez. Thank you, Dr. Brainard.
    Our next witness is Daniel Griswold. Mr. Griswold is the 
Director of the Center for Trade Policy Studies at the Cato 
Institute. Since joining Cato in 1997, he has authored or co-
authored major studies on globalization, the World Trade 
Organization, the U.S. trade deficit, trade and democracy, 
immigration, and other subjects.
    Welcome.

  STATEMENT OF DANIEL T. GRISWOLD, DIRECTOR, CENTER FOR TRADE 
                 POLICY STUDIES, CATO INSTITUTE

    Mr.Griswold. Chairwoman Velazquez, and Ranking Member 
Chabot, thank you very much for allowing the Cato Institute to 
testify at today's hearing. America's growing engagement in the 
global economy is not just a Fortune 500 phenomenon. 
Increasingly, small and medium-sized U.S. companies are 
entering global markets, not just to sell but to buy and 
invest.
    Expanding trade and globalization are not a threat to 
American small companies, but an opportunity. And let me 
briefly outline five ways.
    First, globalization is a reality for American companies of 
all sizes. Americans have never spent or earned a higher share 
of our income in the global economy than we do today. Both 
exports and imports as a share of our GDP have never been 
higher. Small businesses that shun global markets are missing 
out on the great growth opportunity of our time.
    Second, U.S. small businesses have benefited as exporters 
into growing global markets, including China. Last year, U.S. 
exports of goods to the rest of the world topped $1 trillion 
for the first time. Export of services reached $422 billion, 
another record. The Internet global logistics and an 
increasingly complex global supply chain have created 
opportunities for U.S. small businesses that simply did not 
exist before.
    China is no exception. Since 2000, U.S. exports to China 
have grown from $16 billion to $55 billion. That is a 23 
percent annual compound growth rate, fives times faster than 
our exports have grown to the rest of the world. When you add 
service exports and sales through affiliates, American 
companies are selling more than $100 billion worth of goods to 
the Chinese market each year.
    And more than one-third of U.S. exports to China are 
produced by small and medium-sized enterprises, and the number 
of SMEs that are selling into China's market has increased 
five-fold since 1992. given China's spectacular double-digit 
growth, those opportunities will only continue to grow.
    Third, U.S. small businesses benefit from import 
competition. Trade provides more affordable imported energy, 
lumber, iron ore, steel, rubber, computer chips, bearings, and 
other components used by U.S. companies, small and large, to 
make their products--their final products are more globally 
competitive prices.
    Imports allow smaller U.S. firms to acquire the capital 
equipment they need, including computers, to increase their 
competitiveness. Import competition, thus, promotes innovation, 
efficiencies, and ultimately the productivity gains that mean 
higher profits and higher real wages.
    Fourth, U.S. small firms benefit from access to global 
capital. Foreign producers who sell in the U.S. market can use 
their earnings to invest in our domestic economy. And inflow of 
foreign capital, which is really the flip side of the trade 
deficit we have been talking about, reduces long-term U.S. 
interest rates by almost a full percentage point. Lower rates 
mean lower borrowing costs for U.S. small businesses, allowing 
them to expand their productive capacity.
    Fifth, U.S. small manufacturing firms can thrive in a more 
open economy. Tens of thousands of U.S. manufacturing companies 
are producing a higher volume of goods and services today than 
ever before. Since the early 1990s, the total volume of output 
of U.S. manufacturers has risen by 50 percent into record 
territory. Manufacturing profits last year in the United States 
reached a collective $400 billion. That is an 18 percent return 
on investment. It is a myth that our manufacturing base is 
shrinking.
    To capitalize on all of these opportunities, America's 
small companies need a trade agenda that expands their freedom 
to sell, invest, and buy, in a growing global economy. That 
agenda should include bilateral, regional, and multilateral 
trade agreements that reduce trade barriers with our major 
trading partners. And those agreements--this is especially 
important to small business--they establish predictable and 
enforceable rules that increase the transparency when smaller 
U.S. companies venture abroad.
    And absent trade agreements, Congress should enact 
unilateral trade liberalization here in the United States. What 
U.S. small businesses do not need are higher trade barriers to 
our domestic market. Punitive tariffs against a country such as 
China would threaten to drive up costs for U.S. small 
businesses and jeopardize export opportunities in growing 
markets abroad.
    Anti-dumping orders and other tariffs against such imports 
as steel or agricultural commodities drive up costs for 
domestic producers, many of them small businesses. Nor do U.S. 
small businesses need a larger share of federal subsidies for 
international trade. While small and medium-sized companies may 
qualify for such programs as the Export-Import Bank or the 
Market Access Program, they account for a small dollar share of 
total federal support.
    U.S. companies do not need federal subsidies to compete 
effectively in foreign markets. Our research at Cato has shown 
that U.S. exporters have outperformed their counterparts in 
Great Britain, Germany, France, Canada, and Japan, even though 
the share of U.S. exports receiving government support is 
relatively low.
    Federal export subsidies do not promote more exports 
overall, but only reshuffle the export pie in favor of larger 
U.S. companies at the expense of smaller exporters.
    ChairwomanVelazquez. Mr. Griswold, your time expired. Can 
you summarize, please?
    Mr.Griswold. One sentence in conclusion. In conclusion, if 
Congress and the administration want to increase opportunities 
for U.S. small businesses to compete and thrive in a global 
economy, they should work together to reduce barriers to 
international trade and investment wherever they exist.
    Thank you.
    [The prepared statement of Mr. Griswold may be found in the 
Appendix on page 121.]

    ChairwomanVelazquez. Thank you.
    I would like to address my first question to basically all 
the members of the panel, and this is talk about negotiation 
and trade agreements. We all know that the negotiation process 
is a critical component of the nation's trade strategy. By 
setting priorities, implementation procedures, and industry 
rules, this process determines who benefits from trade 
agreements.
    So I would like to ask each one of you if you can recommend 
any provision that should be included in negotiation standards 
that you think will increase small business benefits from trade 
agreements. Ms. Chandler?
    Ms.Chandler. Thank you. Well, the trade agreements that are 
currently being negotiated and that have been negotiated start 
to address a number of non-tariff trade barriers and tariff 
barriers that are helpful to any company that is looking to get 
into a foreign market.
    Certainly, there are other provisions that could be 
negotiated and could help small and medium-sized companies as 
well as large companies. Some issues that we have been looking 
at recently for our membership include environmental standard 
harmonization, looking at the way standards are harmonized, as 
well as the use of fair use provisions in free trade 
agreements.
    Intellectual property rights is a very, very important 
component to our members, both for copyright piracy, but there 
is also an IPR issue of fair use. A number of our members rely 
heavily on consumers' lawful use, sort of Section 107 of U.S. 
copyright law, to access domestic markets. And now increasingly 
with innovation and export to foreign markets, it is going to 
be an important component of innovation abroad.
    The U.S.-Chile Free Trade Agreement is the only free trade 
agreement that has looked at fair use in some way in free trade 
agreement. It addresses knowingly circumvent language. We would 
advocate that other free trade agreements adopt a template that 
brings that language into future negotiations. That will allow 
companies like Google who cache images, Tivo, Sling Box, Sling 
Media, who take time and play shift content, to operate 
overseas.
    Thank you.
    ChairwomanVelazquez. Thank you.
    Mr. Seilkop?
    Mr.Seilkop. I think the biggest thing that I would ask is 
we just enforce the trade agreements that are in place, which I 
don't see happening. And, again, I embrace the Congressman who 
talked about fair trade. As I said, we are not against--we 
don't want tariffs and barriers. We just want to be able to 
compete on a level playing field, so anything that can be put 
into trade agreements that helps us in that area would be 
appreciated.
    ChairwomanVelazquez. thank you.
    Mr. Caspers?
    Mr.Caspers. Yes, thank you. Regarding the negotiated 
process, I think certainly a number of the agreements we have 
today, as I mentioned in my testimony, have achieved much 
greater access in the markets across the world. A lot of the 
reasons the reduction in tariffs in those markets, and under a 
reasonable timeframe, I think a lot of the agreements that are 
pending achieve that as far as pork is concerned.
    One issue that is a primary concern to us is our SPS 
issues, making sure that we have true access. The acceptance of 
the U.S. meat inspection system as an equivalent is certainly 
important. We have seen other agreements where that wasn't the 
case, that we, in reality, did not have access. But the current 
agreements that are pending in all cases they have agreed to 
accept the U.S. meat inspection system as equivalent to their 
own system. So that will give us good access.
    Certainly, transparency and how all the rules and 
regulations of trade are applied is an important and consistent 
application of those regulations. And, lastly, I guess I would 
say that, you know, some kind of a timely mechanism for dispute 
settlement is certainly important.
    ChairwomanVelazquez. Thank you.
    Dr. Brainard?
    Ms.Brainard. It is an important question. My hunch is that 
there is probably not one particular provision, that there is a 
diversity of interest among the small business community. But 
they are going to weight priorities quite differently I think 
than their large corporate counterparts, who I believe do tend 
to get better representation because of their resources in the 
policymaking process and the negotiating formulation process.
    And so rather than focusing on one provision, I think as 
this Committee has done in their earlier questioning is to ask 
whether there are things that Congress could ask for, either in 
trade promotion authority, in the budget, that would ensure 
that there is special access mandated for a small business to 
be represented either as a share of each industry represented 
or as sort of special access point within USTR and within 
Commerce.
    ChairwomanVelazquez. Do you think it was a fair question to 
ask to Ms. Moore when I questioned her regarding the lack of 
out of the 22 USTR representatives that none really is there to 
represent small businesses, or a special one just to represent 
small businesses?
    Ms.Brainard. I mean, I think if you look at the kind of 
increase of the ouster positions, over the years they have been 
put in place where an industry segment or a set of concerns 
have been seen to not receive the kind of attention that they 
deserve in the economy. So I think it is one possible answer.
    I think her answer, which is that it is a cross-cutting 
issue, is certainly true. The question is, okay, then, create 
an institutional mechanism to make sure that cross-cut happens 
for every trade negotiating priority setting.
    ChairwomanVelazquez. thank you.
    Mr.Griswold. My answer would be to just echo what--a couple 
of things Mr. Caspers said. One, I think small businesses have 
the same interest as large businesses in market access, not 
just abroad but here at home. So I think speedily implementing 
commitments to market access. What are we at now? Eighteen 
years for phase-in on some of these things? I think that is 
getting--bordering on ridiculous, so I would condense the 
phase-in period.
    Secondly, I think non-tariff trade barriers are important. 
It is one thing to face a tariff. It is another to face these 
maddening regulatory barriers, which big business can handle 
more easily. They have got lawyers. They have got 
representatives on the ground. You are talking about SPS and 
other non-tariff barriers, so I think negotiating transparency 
is very important for small business.
    ChairwomanVelazquez. Thank you.
    Dr. Brainard, many U.S. companies have established export 
facilities abroad, particularly in China. U.S. corporations 
produce goods in these factories and many times export them 
back to the U.S. In your opinion, do trade agreements which not 
only open markets but also permit businesses to locate in 
partnered countries encourage the offshoring of U.S. 
industries?
    Ms.Brainard. I don't think they necessarily encourage the 
offshoring. I think China is a special case, because there have 
been all kinds of provisions that are kind of hidden in all 
kinds of different ways--tax provisions, special preferences, 
and then actual requirements that multi-nationals who want to 
locate there and sell into the market have been traditionally 
required to actually export as a share of their production.
    Now, the WTO rules should, to a great degree, level the 
playing field. But as we know on some of the tax incentives, 
they were violating I think the rules, and so, you know, it 
took USTR a long time to take a case on that. But I think they 
will prevail on it. So I don't think that they necessarily do, 
but a lot of countries--and China is I think a very striking 
example--do put in place rules that create incentives like that 
for multi-nationals.
    ChairwomanVelazquez. Thank you.
    Mr. Seilkop, during the Clinton administration, they filed 
over 10 enforcement cases per year with the WTO to fight unfair 
trade practices, yet the Bush administration has only filed 
three per year. And I know that you talked about the 
manipulation of the currency, the Chinese manipulation of the 
currency.
    So what we have here is a lack of strong enforcement of 
international agreed-upon trade regulations. Can you talk to us 
a little bit about what does that mean for businesses like the 
one that you have?
    Mr.Seilkop. I pretty much I think stated it in my testimony 
is that it just creates a totally unfair, unlevel playing field 
for small manufacturers, particularly in the tooling and 
machining field. My customers, in creating tooling and special 
machining, things like that, we make tooling that is actually 
used to produce other products, so these products are then 
possibly exported.
    For me to create tooling to export to the foreign market is 
not a good case in point. There is already an overcapacity of 
what we produce in the Far East. They have created a lot of 
capacity to produce this. That is why they are exporting it 
back here in this country. What I have actually been encouraged 
to do is shut down my operation in the United States, buy a 
company in China, build tooling in China, and export it back to 
the United States. And something seems just really wrong with 
that for me.
    ChairwomanVelazquez. Thank you, Mr. Seilkop.
    And now I recognize Mr. Chabot.
    Mr.Chabot. Thank you very much, Madam Chair. And just one 
comment quickly, and I don't want to get into too much of a 
spat here of the Clinton versus the Bush administration on this 
issue, or a whole range of issues that we could probably debate 
until the cows come home.
    But it is my understanding, just relative to raw numbers, 
that in the Bush administration that they have been focusing on 
cases that they believe that they can win, and they are 
exercising their discretion to some degree and focusing on--
there have been settlements, and they are negotiating cases 
where they think that they can actually get the job done short 
of going to court.
    It is kind of a quality versus quantity issue. But in any 
event, I am sure the truth is somewhere in between all of that, 
and I would be certainly happy to follow up with you on that 
particular issue.
    But let me go to Mr. Seilkop, if I can. You expressed your 
support for H.R. 782, legislation that would define currency 
manipulation as a subsidy under U.S. trade law and make it 
easier for the U.S. to impose new tariffs on Chinese goods 
under the countervailing duty law. And as you probably know, I 
am a co-sponsor of that legislation. I agree with you on that.
    Could you elaborate on why this is an important step that 
we should take again?
    Mr.Seilkop. Well, it is our opinion from the National 
Tooling and Machining Association that the Chinese 
manufacturers, because of the currency 40 percent difference, 
have a tremendous advantage in exporting tools to the United 
States, and it is a tremendous barrier on importing product 
into China. It kind of works both ways, and it creates a 
tremendous amount of cash being transferred to the Chinese 
economy.
    As I stated in my example, the gentleman in Dayton who 
happens to be a personal friend of mine, you know, he quoted 
60,000. The order was let for 25,000; 18,000 of that was 
material. There is just not enough labor content in there. 
There has to be some subsidies going on somewhere or some 
inequities, because the technology is the same.
    We in the United States use exactly the same technology to 
produce tooling/precision machining that they do in China. The 
same machine tools are used here that are used there. There is 
a difference in labor, but the labor content, you have to 
realize, as manufacturing has gotten more technical, the labor 
content continues to shrink. So the labor content of what we do 
just keeps getting smaller and smaller, which really makes that 
dynamic get bigger and bigger. It just emphasizes the fact that 
this currency thing is playing a bigger part.
    Mr.Chabot. Okay. Thank you. And you still have your opening 
statement there, I assume, in front of you there. Could you 
refer to right towards the end of the statement, the very end, 
you stated five recommendations that you would make that you 
thought would be particularly helpful. And I was just wondering 
if you could go over those one more time, if they are easily 
available.
    Mr.Seilkop. Yes. The strategy must include addressing 
currency manipulation, enforcing our trade laws, as I already 
mentioned, making permanent the R&D tax credit. That is another 
area that U.S. manufacturing, and particularly the Precision 
Tooling and Machining Association, we really need that tax 
credit to be made permanent. I think it expires the end of 
2007. Again, it just kind of gets moved up year by year, and 
that is what really helps small manufacturers to find newer, 
faster, better ways to machine products.
    And then, the health insurance--of course, we have been 
talking about this thing--the access of small companies to 
health insurance, we want to offer our employees good health 
insurance. But access is really tough for small companies, and 
there is no way for us to pool together like the big companies 
do.
    So there has got to be something done to help us pool 
together. And then, of course, the unfunded mandates that we 
get, you know, OSHA, EPA, and all those things that the 
offshore competition isn't forced to deal with.
    Mr.Chabot. Thank you very much. I appreciate that.
    And then, finally, Mr. Griswold, if I could go to you for 
just one more question. As you probably know--well, Mr. Kirk 
Miller from the U.S. Department of Agriculture testified a 
little bit earlier, and one of the things he mentioned--and I 
agree with much of what he said--he did mention one program, 
however, the Market Access Program.
    And as you probably know, you know, there are a number of 
us that have not been fans of the Market Access Program, not 
because we don't think that what they do ought to be done. And, 
essentially, what they do is help to pay for advertising for 
trade associations to advertise their products overseas, which 
ought to occur. That was reformed. Prior to that, companies 
could get the funding to advertise their products overseas, and 
it was reformed, and then it was trade associations now that 
get the money to advertise overseas.
    And, again, I want to be clear. Trade associations and 
companies should advertise overseas. We want them to sell their 
products overseas. The question is: should it be the taxpayer 
that pays for that advertising? Which is what the Market Access 
Program does. Or should the folks who directly benefit do it 
themselves?
    I would come down into the category that the taxpayer ought 
not to do that, and I have offered an amendment quite a few 
times over the years. We have never prevailed on that 
amendment. We usually get about 100 votes out of 435. It is 
usually split between Republicans and Democrats to some degree, 
but I was just curious if you might want to comment on that 
from Cato's point of view.
    Mr.Griswold. Mr. Congressman, I think you are on solid 
ground in your critique of the Market Access Program. We have 
examined that at Cato, along with other export promotion 
programs, and we found that, one, they do not promote overall 
U.S. exports. They tend to just reshuffle the pie and focus 
U.S. exports in a particular area.
    These programs tend to be very much biased towards bigger 
businesses that are doing that kind of advertising abroad. 
McDonald's and others have benefited from the Market Access 
Program. I have nothing against McDonald's, but they shouldn't 
be relying on the U.S. taxpayer to underwrite their advertising 
budget.
    So I think you are on solid ground. U.S. companies have all 
the resources they need to advertise abroad. As we heard 
earlier today, U.S. exports are sizzling, including 
manufacturing exports, and they don't need the federal taxpayer 
to underwrite that success. So your amendments are on solid 
ground. They would not hurt U.S. exporters one bit. In fact, I 
think they would help small U.S. businesses to get a little 
bigger share of that growing export pie, if Congress wasn't 
distorting the overall picture.
    Mr.Chabot. Thank you very much. And if I could just 
conclude by my--one of the--my recollection of one of the more 
egregious examples of how the dollars can be sort of wasteful 
was the infamous California grapes situation where you remember 
the I Heard it Through the Grapevine, had the dancing grapes 
and stuff, and they were trying to sell them over in Japan, I 
believe it was.
    Well, the people over there--they weren't sure what they 
were. They weren't familiar with the song, and they thought 
they were prunes or potatoes that were dancing. They couldn't 
figure out why they were dancing. And, apparently, small 
children were being scared by these commercials, and it was 
just sort of American tax dollars that were wasted. And so it 
is a great story, and so I thought the folks would appreciate 
that out there.
    So, Madam Chairwoman, I yield back the balance of my time. 
And, unfortunately, I am going to have to head over to the 
Judiciary Committee to offer that amendment. They just sent me 
an e-mail.
    I want to thank all the witnesses for coming and their 
testimony. I thought it was very helpful, and especially, 
obviously, the gentleman from my district, Mr. Seilkop, and his 
bride, who also happens to be here with him today.
    Thank you.
    ChairwomanVelazquez. Thank you, Mr. Chabot.
    Mr. Gonzalez.
    Mr.Gonzalez. Thanks very much, Madam Chairwoman. I guess I 
want to start with some basics, because I don't even think we 
start with the same basic principles. I am going to assume that 
the following is accurate.
    If the world was just a big store, the United States would 
comprise 20 percent of the consumers frequenting that store. 
That is our purchasing power. That is our performance in these 
markets. So you would think we, in our country, have the 
citizens and the ability of those citizens to purchase just 
about everything under the sun that we could produce in our own 
country. But that is not happening.
    And I know, Mr. Griswold, you said that manufacturing is 
not diminishing. It is actually increasing. So this American 
consumer goes to the store and would like to buy an American-
made garment. Not going to be there. How about an American-made 
pair of shoes? Not going to be there. How about an electronic 
device, a television? I can't remember the last time Zenith or 
Emerson or whoever it was built something in the United States. 
That is not going to happen either.
    You can buy a car manufactured in the United States, more 
likely than not by an international owner of that particular 
manufacturing plant, but that is okay. Tool die and 
manufacturing, I think we have a witness here who is telling us 
that is a real difficult thing to do. It is ironic that Mr.--is 
it Seilkop?
    Mr.Seilkop. Yes.
    Mr.Gonzalez. Seilkop. Produces machinery that then produces 
products. But the individual that he is selling to may not even 
purchase that domestically, but, rather, internationally 
imported, and then whatever they may produce they may not even 
have a market. So, I mean, it is almost ridiculous when you 
think in terms.
    So why is it that we don't have that manufacturing 
capacity? And a lot of it, look, we have to just face the 
reality that sooner or later other countries are going to 
develop and have the ability to manufacture certain goods. I 
mean, I would like to know, Mr. Griswold, what is American 
business' stock and trade when it comes to exports?
    Mr.Griswold. Congressman, thank you for the question. The 
U.S. economy is changing. First, 80 percent of Americans and 
probably 80 percent of your constituents work in the services 
sector. And you can earn a good middle class job in the service 
sector--teachers, accountants, financial analysts--all these 
other things. Your constituents--most of your constituents are 
middle class service producers.
    When you look at manufacturing, the overall output of U.S. 
factories, the real value continues to grow. It is up 50 
percent from the early 1990s, double what it was in the 1980s. 
We are trading up. Yes, we are producing fewer shoes in Maine 
and other states like that, fewer T-shirts. Those tend to be 
low-tech, labor-intensive goods that have been moving offshore 
for decades.
    What we are producing more of, Mr. Congressman, are things 
like pharmaceuticals, chemicals. We are also exporting a lot of 
agricultural products, soybeans and that sort of thing, 
aircraft, sophisticated semi-conductors, sophisticated medical 
machinery. These are things that have a lot of brain power in 
them, a lot of capital machinery behind them. So we are trading 
up in manufacturing.
    Our manufacturing base is expanding. If you look at value 
added, it is about the same share of the economy that it has 
been for years and years.
    Mr.Gonzalez. But what you have described is big business.
    Mr.Griswold. That--
    Mr.Gonzalez. And let us find a component there somewhere 
for small business, and that is what we are discussing here. 
How can we fit that small business component in this big 
picture that you just outlined, because if there is increasing 
manufacturing capacity and we are actually increasing rather 
than decreasing, you have just described the arena pretty much 
occupied by big business.
    What advice would you give Mr. Seilkop regarding his 
enterprise? Short of moving to China. But if that is your 
advice, to move to China, open your shop up, you ought to be 
real honest about that advice and say, ``Do that.''
    Mr.Griswold. It depends on the business that you are in, 
and maybe ultimately that would be the decision he would have 
to make. I am just saying if you are interested in the U.S. 
maintaining and expanding a manufacturing base, we are 
expanding our manufacturing base. Yes, perhaps more of it is 
big business.
    They are the ones that have the capital, the R&D 
departments that can move up the value chain, but there are 
also a lot of small Mom & Pop medal fabricating plants and that 
sort of thing. And by the way, they have an interest in being 
able to buy affordable steel and other inputs at global prices, 
so when we put steel tariffs on imports we are jeopardizing 
jobs and a lot of U.S. manufacturers that use steel in their 
components. So--
    Mr.Gonzalez. Mr. Seilkop had a real good point, though, 
that we impose many more conditions that drive the cost up of 
manufacturing a product. And rightfully so, I mean, we don't 
want Third World conditions in our factories and such. I mean, 
that makes a lot of sense. Hopefully, we have progressed it a 
little bit further down the road.
    Does he have a point that maybe we ought to be considering 
some of that? And how do we implement that to protect the small 
business individual and his investment? In other words, if you 
have a cheaply produced product from China that is not subject 
to the same regulatory scheme that we have in the United 
States, and for good purpose and for good reason--that works to 
the benefit of the manufacturer and the consumer--how do we 
adjust that?
    And the second part of it is Mr. Seilkop has also pointed 
out the disadvantage of the Chinese currency pegged to the--
artificially pegged to the American dollar. What about those 
two components?
    Mr.Griswold. Well, first, I would always advocate Congress 
to lower taxes on business and streamline regulations. Let us 
do it for the benefit of U.S. businesses and our economy. U.S. 
companies can compete. Countries will have different regulatory 
systems based on their level of development. China will have 
one, we will have another one, Europe has got yet another 
regulatory system.
    We need to find what we can specialize in, just my point 
being the overall U.S. manufacturing sector is doing relatively 
well--record profits, 18 percent return on investment. Some 
manufacturers are losing out, moving offshore, others are 
expanding. That is just my basic point there.
    The currency--I wrote a study last summer. You can find it 
at freetrade.org. But the bottom line is I think China does 
need to move towards a more flexible currency. They are moving 
in that direction. If the purpose of China's currency has been 
to discourage U.S. exports to China, it has been a spectacular 
failure. As I testified earlier, our exports have been going up 
23 percent a year. Manufacturing exports to China are going up.
    Mr.Gonzalez. But the converse of that is simply it has made 
Chinese exports much more affordable and attractive, and we are 
a consumer nation, and we can't--
    ChairwomanVelazquez. Would you gentleman yield?
    Mr.Gonzalez. Of course.
    ChairwomanVelazquez. If we are doing so well, how can you 
explain the huge trade deficit?
    Mr.Griswold. I would say two responses, to not be too 
concerned about the trade deficit. One, imports are good. You 
know, your constituents are buying those Chinese goods every 
day. They are making the lives of your constituents better 
every day at home and the office, especially low-income 
constituents who spend a disproportionate amount of goods of 
their income on the kinds of products made in China--affordable 
shoes, affordable shirts. Those are good things for your 
constituents.
    Secondly, the flip side of the trade deficit is capital, an 
inflow of foreign capital. The Chinese are saving a lot. We 
don't save very much here in the United States, including the 
Federal Government, which eats into the savings with its 
deficit. So those Chinese savings come here to the United 
States and help reduce interest rates, which is promoting 
investment, keeping mortgages down.
    I would like to see China's currency be more flexible. I 
would like to see Americans, starting with the Federal 
Government, save more. But absent that, I think we should 
appreciate the tremendously mutually beneficial trade 
relationship we have with China.
    Mr.Gonzalez. May I reclaim my time? And I will finish up, 
Mr. Griswold, and I really appreciate--I know I am ignoring 
everybody else, but obviously I have some issues regarding Mr. 
Griswold's testimony. Would you support the Ryan legislation on 
Chinese currency?
    Mr.Griswold. I don't believe so. I think anything that 
results in higher tariffs against Chinese goods may benefit a 
certain small segment of the U.S. economy, but at the overall 
expense of your constituents, American consumers, our overall 
trade relationship with China. I don't want to jeopardize our 
tremendously growing exports to China, and I don't want to 
deprive Americans of access to those goods from China that are 
making our lives better every day.
    Mr.Gonzalez. And you pinpointed something--the increase in 
manufacturing capacity. And I would imagine that maybe chip 
manufacturing and processors and such, like Intel, how would 
you explain Intel setting up shop in China as being beneficial 
for the economic interest of the United States?
    Mr.Griswold. I would defer to my friend down at the other 
end who knows all about this industry. But my understanding is 
chips are not homogenous. We specialize in the higher end 
specialized processing chips here. We tend to offload the lower 
tech memory chips and other things to China. I think U.S. 
businesses should be free to arrange their supply chains in a 
way that maximizes the value for their shareholders, increases 
opportunities for their workers, but ultimately serves their 
customers.
    Mr.Gonzalez. And the Chinese will be quite satisfied for an 
indefinite period of time producing that particular chip, and 
maybe not benefiting by the technology or maybe higher end 
chips down the line, which would be in direct competition with 
Intel's operation in the United States.
    I am not saying it is an easy call, but I am talking about 
Intel. And the same considerations they may have, I have got 
Mr. Seilkop here who is telling us, ``I don't really want to 
move my operation to China.''
    And thank you for that, Mr. Seilkop. And I yield back.
    ChairwomanVelazquez. Time is expired.
    Dr. Brainard, I would like to ask you--a trade deficit, as 
a measurement, does it question the competitiveness of a 
country?
    Ms.Brainard. A trade deficit, sort of at a point in time, 
doesn't tell you. It is not sort of a sufficient piece of 
information in the sense that if we are growing much faster 
than our other competitors, and our investment opportunities 
here, the money that we are absorbing from abroad is being put 
in the highest productivity uses, it might be okay for a period 
of time.
    Our trade deficit today is not okay, and it is not okay 
because it has been sustained over a very long period of time, 
because we are borrowing seven percent of our income every year 
from foreigners, and a disproportionate amount from China. And 
so I think over a very sustained period of time it should lead 
us to be very concerned.
    The other thing that I think you always want to look at is, 
so where is the capital going that is coming into the country? 
And if it is being absorbed by Treasury bills to feed the 
deficit, because we have got unaffordable tax cuts that we are 
using--that we are doing at the same time we are prosecuting a 
rather expensive war, that should trouble us because you are 
not going to see a turnaround in terms of productive 
investments that are going to then be available to service that 
debt.
    And, of course, the biggest concern is that the markets get 
nervous. And at that juncture, you could have a very strong 
shift in interest rates, which would curtail growth here. So it 
is just an unnecessary risk that the administration should have 
taken policy to avoid several years ago.
    ChairwomanVelazquez. Thank you.
    And with that, I would like to thank all the witnesses for 
the testimonies today. And members will have five legislative 
days to submit statements and other materials for the hearing 
record.
    The hearing is adjourned, and I thank you.
    [Whereupon, at 12:52 p.m., the Committee was adjourned.]
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