[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]
FULL COMMITTEE HEARING ON
SMALL BUSINESS EXPORTS IN
THE CURRENT ECONOMIC CLIMATE
=======================================================================
COMMITTEE ON SMALL BUSINESS
UNITED STATES HOUSE OF REPRESENTATIVES
ONE HUNDRED TENTH CONGRESS
SECOND SESSION
__________
JUNE 19, 2008
__________
Serial Number 110-101
__________
Printed for the use of the Committee on Small Business
Available via the World Wide Web: http://www.access.gpo.gov/congress/
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA M. VELAZQUEZ, New York, Chairwoman
HEATH SHULER, North Carolina STEVE CHABOT, Ohio, Ranking Member
CHARLIE GONZALEZ, Texas ROSCOE BARTLETT, Maryland
RICK LARSEN, Washington SAM GRAVES, Missouri
RAUL GRIJALVA, Arizona TODD AKIN, Missouri
MICHAEL MICHAUD, Maine BILL SHUSTER, Pennsylvania
MELISSA BEAN, Illinois MARILYN MUSGRAVE, Colorado
HENRY CUELLAR, Texas STEVE KING, Iowa
DAN LIPINSKI, Illinois JEFF FORTENBERRY, Nebraska
GWEN MOORE, Wisconsin LYNN WESTMORELAND, Georgia
JASON ALTMIRE, Pennsylvania LOUIE GOHMERT, Texas
BRUCE BRALEY, Iowa DAVID DAVIS, Tennessee
YVETTE CLARKE, New York MARY FALLIN, Oklahoma
BRAD ELLSWORTH, Indiana VERN BUCHANAN, Florida
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania
BRIAN HIGGINS, New York
MAZIE HIRONO, Hawaii
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 VERN BUCHANAN, Florida, Ranking
MICHAEL MICHAUD, Maine BILL SHUSTER, Pennsylvania
BRAD ELLSWORTH, Indiana STEVE KING, Iowa
HANK JOHNSON, Georgia
JOE SESTAK, Pennsylvania
______
Subcommittee on Contracting and Technology
BRUCE BRALEY, IOWA, Chairman
HENRY CUELLAR, Texas DAVID DAVIS, Tennessee, Ranking
GWEN MOORE, Wisconsin ROSCOE BARTLETT, Maryland
YVETTE CLARKE, New York SAM GRAVES, Missouri
JOE SESTAK, Pennsylvania TODD AKIN, Missouri
MARY FALLIN, Oklahoma
.........................................................
(ii)
?
Subcommittee on Regulations, Health Care and Trade
CHARLES GONZALEZ, Texas, Chairman
RICK LARSEN, Washington LYNN WESTMORELAND, Georgia,
DAN LIPINSKI, Illinois Ranking
MELISSA BEAN, Illinois BILL SHUSTER, Pennsylvania
GWEN MOORE, Wisconsin STEVE KING, Iowa
JASON ALTMIRE, Pennsylvania MARILYN MUSGRAVE, Colorado
JOE SESTAK, Pennsylvania MARY FALLIN, Oklahoma
VERN BUCHANAN, Florida
______
Subcommittee on Rural and Urban 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 DAVID DAVIS, Tennessee
HANK JOHNSON, Georgia
______
Subcommittee on Investigations and Oversight
JASON ALTMIRE, PENNSYLVANIA, Chairman
CHARLIE GONZALEZ, Texas MARY FALLIN, Oklahoma, Ranking
RAUL GRIJALVA, Arizona LYNN WESTMORELAND, Georgia
(iii)
C O N T E N T S
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OPENING STATEMENTS
Page
Velazquez, Hon. Nydia M.......................................... 1
Chabot, Hon. Steve............................................... 2
WITNESSES
Johnson, Mr. Cass, President, National Council of Textile
Organizations.................................................. 4
French, Mr. Jameson, President, Northland Forest Products,
Kingston, NH, On behalf of the Hardwood Federation............. 6
Wetherington, Mr. Chuck, President and Owner, BTE Technologies,
Hanover, MD, On behalf of the National Association of
Manufacturers.................................................. 8
Griswold, Mr. Daniel T., Director of the Center for Trade Policy
Studies, The Cato Institute.................................... 10
Chatterji, Dr. Aaron K., Assistant Professor, The Fuqua School of
Business, Duke University, Durham, NC.......................... 12
APPENDIX
Prepared Statements:
Velazquez, Hon. Nydia M.......................................... 29
Chabot, Hon. Steve............................................... 31
Johnson, Mr. Cass, President, National Council of Textile
Organizations.................................................. 32
French, Mr. Jameson, President, Northland Forest Products,
Kingston, NH, On behalf of the Hardwood Federation............. 38
Wetherington, Mr. Chuck, President and Owner, BTE Technologies,
Hanover, MD, On behalf of the National Association of
Manufacturers.................................................. 46
Griswold, Mr. Daniel T., Director of the Center for Trade Policy
Studies, The Cato Institute.................................... 56
Chatterji, Dr. Aaron K., Assistant Professor, The Fuqua School of
Business, Duke University, Durham, NC.......................... 61
(v)
FULL COMMITTEE HEARING ON SMALL
BUSINESS EXPORTS IN THE CURRENT
ECONOMIC CLIMATE
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Thursday, June 19, 2008
U.S. House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 10:06 a.m., in Room
1539, Longworth House Office Building, Hon. Nydia M. Velazquez
[Chair of the Committee] Presiding.
Present: Representatives Velazquez, Shuler, Larsen,
Ellsworth, Chabot, Akin and Davis.
OPENING STATEMENT OF CHAIRWOMAN VELAZQUEZ
Chairwoman Velazquez. Good morning. I call this hearing of
the House Small Business Committee to order.
It is no secret that the Nation's economy is struggling.
Just last month, the unemployment rate reached 5.5 percent,
hitting its highest point in 4 years; and with the rising costs
of basic commodities, few Americans remain untouched by the
increasingly fragile economy. During past downturns, America's
small businesses have helped jump-start the economy through
trade, but, unfortunately, that has not been the case today. In
this hearing, we will review the current economic climate and
explore the barriers hindering this vital sector. History has
shown trade to be the silver lining in a weak economy.
In the early 1990s, for example, the country was reeling
from a demoralizing recession. In fact, the situation was not
at all that different from the one we face today. But rather
than allowing the era's weak economy to hold them back,
American businesses looked to opportunities abroad. As a
result, U.S. trade led the way into the booms of the late '90s,
when American exports skyrocketed from $535 million to just
over $1 billion.
But today American exports are declining rather than
rising, and the rate of decline has been extreme. In the 2
months between February and March of this year, U.S. exports
dropped $2.5 billion. These figures are simply unbelievable.
To say that export numbers are declining would be an
understatement. Export numbers, are not falling, they are
plummeting. We now know that commerce is falling sharply for
businesses in the areas of capital goods, industrial supplies,
and advanced technology. Last month alone, these industries
witnessed a $100 million drop-off in exports.
And these kind of declines are not industry isolated,
either. Trade with NAFTA countries, the bread and butter for
small business exporters, has also dropped off considerably. In
fact, commerce has slowed to virtually every foreign port.
These declines are also manifesting themselves
domestically, where trade with our major partners in our top 10
ports is down $100 million. Still, it seems the worst is yet to
come. Export orders, a leading indicator of future trade, show
no light at the end of the tunnel. Instead, recently they have
dropped 6.5 percent for the service industry and slowed for
manufacturers.
Members of this Committee are well aware of the integral
role that small exporters can play in reversing these trends.
Ninety-seven percent of America's small firms are exporters;
and, in fact, one-third of all U.S. exports come from
entrepreneurs. That means that any dent in American exports
become a crater in the small business community.
Why then are exports declining in traditionally
entrepreneur-driven industries? A number of factors have come
into play, creating what now looks to be a perfect storm. At
the heart of that storm are shrinking market stakes. On that
front, the U.S. now stands in third place behind Germany and
China. It should also be noted that 90 percent of small
businesses export to only one country, a fact that has made
them far more susceptible to economic volatility and market
shifts. But perhaps most troubling is the damage that we have
done to ourselves. Sadly, the current administration has failed
its own small exporters by underfunding trade-friendly
initiatives. In this morning's hearing we will further examine
these barriers.
Trade may be on the decline and the economy may be
suffering, but just as we used trade to turn the economy around
in the '90s, it can serve as a catalyst today. And what better
place to begin than with our entrepreneurs? After all, small
firms are the backbone of American business. They have steered
us out of past recessions, and they can lead the way again
today.
I want to thank all the witnesses in advance for their
testimony. The Committee is pleased they could join us this
morning and looks forward to their insights on these issues.
With that, I now yield to Ranking Member Chabot for his
opening statement.
OPENING STATEMENT OF MR. CHABOT
Mr. Chabot. Thank you, Madam Chairwoman, for holding this
important hearing on small business exports.
I would like to welcome our distinguished panel of
witnesses and thank them for taking time out of their busy
schedules to provide this Committee with their testimony. And
we wish you all a good morning and welcome here to the
Committee.
One of the most important functions of this Committee is to
look for solutions to help entrepreneurs gain access to global
markets. Not only do we look for new and innovative ways to
help small businesses conduct international trade, but we must
also conduct the requisite oversight to ensure our current
programs are effectively keeping up with the changing times.
Last year, this Committee worked in unison in order to put
together a piece of legislation, H.R. 2992, the SBA Trade
Programs Act of 2007, that passed the House with broad
bipartisan support. This legislation brings changes in the
SBA's operation of its programs to enhance small business
participation in the global economy. H.R. 2992 represents the
Small Business Committee's continued commitment to promotion of
international trade by America's small businesses.
The Small Business Administration has a number of general
entrepreneurial assistance programs that provide technical
advice to small business owners. However, international trade
is an area that is fraught with regulatory hurdles, requiring
specialized knowledge that may not be available from the SBA's
entrepreneurial partners.
It is not surprising to find that the SBA created other
programs to meet the needs of small business exporters that
rely on personnel with specialized knowledge about the
international trade regulatory regime. These programs, as well
as the SBA efforts to coordinate with other agencies such as
the Department of Commerce, have enhanced the worldwide profile
of many U.S. exporters.
There are about a quarter of a million small businesses in
the United States that export. There is no doubt that small
businesses are playing a vital role in reducing America's trade
deficit. Continuation of this success, and even greater
emphasis on small business exporting, will undoubtedly benefit
the American economy.
Additionally, this Congress has the opportunity to pass
legislation enacting free trade agreements with several of our
allied nations, including Colombia, Panama, and South Korea. I
remain hopeful that Congress will work together to pass
legislation that will implement these pending trade pacts.
These agreements should be supported by Congress.
The administration, particularly former U.S. Trade
Representative Rob Portman and the current USTR, Susan Schwab,
have worked hard over the years to make sure the trade pacts
addressed concerns about labor, environmental violations, and
intellectual property theft in certain regions of the world.
These pacts can also be useful in spurring negotiations for
larger trade discussions, such as the Doha trade negotiations.
Non-free trade countries may feel compelled to work with other
nations to ensure that they are not isolated from the rest of
the world.
In the U.S., free trade agreements have enabled local
businesses to expand their market base, as well as provided
consumers with greater access to different products at more
competitive prices. In Ohio, my State, trade has enabled
businesses to grow. More than 11,000 companies export goods
from my home State to places all across the globe. Eighty-nine
percent of those companies can be defined as small- and medium-
sized businesses, ones that traditionally and rightly have been
called the backbone of the American economy. In addition, one-
fifth of all manufacturing workers in Ohio depend on exports
for their jobs.
It appears clear to me that exporting is a critical part of
building the American economy, especially for small businesses.
We have an excellent panel with us today to help us identify
some of the obstacles that remain in encouraging trade among
small- and medium-sized businesses, and I think that we all
look forward to hearing their testimony this morning and asking
questions.
So thank you for holding this hearing, Madam Chairwoman. I
yield back my time.
Chairwoman Velazquez. Thank you, Mr. Chabot.
Now I have the pleasure of introducing Mr. Cass Johnson.
Mr. Johnson is the President of the National Council of Textile
Organizations. NCTO represents the entire domestic textile
industry, including producers, manufacturers, and suppliers of
these products.
You will have 5 minutes to make your presentation.
STATEMENT OF MR. CASS JOHNSON, PRESIDENT, NATIONAL COUNCIL OF
TEXTILE ORGANIZATIONS
Mr. Johnson. Thank you very much, Chairwoman Velazquez and
Ranking Member Chabot and distinguished members of the
Committee. We look forward to testifying today and outlining
the U.S. textile's industry's perspective on the state of small
business exports.
As a sector, the textile industry is one of the Nation's
most successful exporters. At $16 billion last year, we export
one out of every three products we make. However, almost three-
quarters of our exports go to the Western Hemisphere. Only one-
quarter go to the rest of the world; and that includes the
rapidly developing, rapidly growing economies in Asia,
particularly China and India. In fact, we send China, a country
with a population of 1.4 billion and which consumes more
textile apparel products by far than any other country in the
world, only $500 million a year in exports.
And China, in fact, looks great compared to India-- 1.1
billion population, one of the largest textile apparel
consumers in the world--where we send only $55 million a year
in textile exports. We send more to the United Arab Emirates
each year than we do to India.
Why is this happening? In the macro sense we see, in
addition to high duties, we see three major barriers. These are
the VAT, currency manipulation, and government subsidies. Of
these three, probably the least understood is the VAT, or
value-added tax.
The VAT is a tax that averages 15 percent that is levied on
exports from the United States to countries with a VAT system,
and that is most countries in the world. The problem with the
VAT is that U.S. exports are essentially taxed twice. They are
taxed at home, companies pay corporate income taxes, and then
they are taxed when they go overseas. They get an average 15
percent tax in addition to the duty.
When goods are exported from VAT countries, they get no
taxes. These countries rebate the 15 percent tax, and then they
are not charged any U.S. corporate income tax. So you have a
situation where our goods being exported are taxed twice, and
goods coming from VAT countries have all taxes rebated from
them. So it is a basic inequity.
It has been estimated that the VAT tax costs U.S.
manufacturers $341 billion every year. That is a huge stealth
tax that holds back exporting in the United States.
There is an answer to this. It is the Border Tax Equity
Act, H.R. 2600, by Congressman Michaud, a member of this
Committee. We request that you look carefully at this Act. It
is a three-pronged approach to remove the VAT disadvantage from
U.S. exporters.
The second barrier is currency manipulation, an issue that
we have all heard about. One thing we haven't necessarily heard
about is the tax this puts on exports. We all know that China
can--we import a lot more from China because of manipulation of
currency. The flip side of that equation is we can't export
nearly as much to China because of the currency manipulation.
It places the same 25 to 40 percent tax on exports as the
advantage it gives to imports from China.
There is an answer to this problem. It is H.R. 2942, the
Currency Reform for Fair Trade Act, co-sponsored by Tim Ryan
and which has been supported by many members of this Committee.
If Congress would pass this Act, it would send a strong signal,
the most powerful we can imagine, that China needs to float its
currency.
The third major problem are subsidies, particularly in
China, India, and Vietnam. In a recent textile case, the
government found that China offered its textile industry 24
different subsidies in order to export products cheaper to the
United States, and they assigned countervailing duties of 27 to
359 percent. Most medium-sized--small- and medium-sized
companies cannot afford to file CBD cases. They start at a
million dollars apiece. The government needs to do more, and we
suggest that Congress needs to send a strong signal that the
government needs to do more.
NCTO sent to USTR a list of 63 subsidies that China offers
it its textile industry. We sent that over a year ago. We are
still waiting for a response. We know many of these subsidies
are WTO illegal and should be the genesis of a case against
China, but we have been told by USTR that they simply do not
have the resources right now to go after these 63 subsidies.
We believe that Congress should change USTR's focus for the
next 5 years from negotiating new agreements to reviewing and
enforcing existing agreements. USTR's resources should be
reoriented towards verifying China and others live up to the
agreements they have signed; and, if they are not, they should
file cases against them at the WTO.
With these steps, we believe we can usher in a new
renaissance for the U.S. manufacturing sector and its workers,
and we thank the Committee very much for looking at this very
important issue.
[The prepared statement of Mr. Johnson may be found in the
Appendix on page 32.]
Chairwoman Velazquez. Thank you, Mr. Johnson.
Our next witness is Mr. Jameson French. Mr. French is the
President of Northland Forest Products, which is a family run
business selling hardwood products located in Kingston, New
Hampshire. He also serves as Chair of the Board of Directors
for the Hardwood Federation, which is an industry trade
association that represents over 14,000 businesses, 30 trade
associations, and over one million hardwood families. Welcome.
STATEMENT OF MR. JAMESON FRENCH, PRESIDENT, NORTHLAND FOREST
PRODUCTS, KINGSTON, NEW HAMPSHIRE, ON BEHALF OF THE HARDWOOD
FEDERATION
Mr. French. Thank you. Thank you very much, Madam Chairman
and the Committee. I appreciate the opportunity to be here
today. And thanks for the introduction. It saves me a few
seconds of my time.
I would note that I am proud to be a fourth-generation
member of the hardwood lumber industry. And we have a fifth
generation coming along, but they are wondering whether it is
going to be worth it because of the difficulties that our
industry is facing, particularly--in all parts of the country,
but in New England, where we saw the demise of the textile and
shoe and the computer hardware businesses. And we wonder
whether the forest products industry will be the next one to
fall.
As you noted, the Hardwood Federation, 14,000 businesses
around the country, small family businesses, key strong parts
of the world's economy in many of the Eastern States. We
actually have members in all 50 States, but the bulk of the
forest resource, of course, is east of the Mississippi. We are
a major exporter. About almost $3 billion worth of hardwood
forest products are sent around the world, hardwood lumber,
plywood, flooring, pallets, kitchen cabinets, all these types
of products.
These are tough times for our industry, as you can imagine,
with the housing crisis and all of the domestic economy
recession. It has been a great challenge. And the export side
of the business has been one of the most important sort of
lifelines for people in a very difficult domestic economy.
You will see in my written testimony the key products that
we export and the countries that we send them around the world.
Of course, Asia has become very significant. Europe has the
highest values.
Our industry represents a lot of very independent people in
rural parts of this country. And we tend to be libertarian, and
we tend to be very free trade people. But we are really
concerned about the lack of a level playing field, and we want
fair trade and a chance to compete in the global marketplaces.
There are three specific areas of concern, all of which are
in my written testimony: the increase in fees from APHIS, the
freight and shipping charges, and the foreign procurement
policies, which particularly in Europe and Japan may require
some documentation and some issues that involve legality and
sustainability that may be very difficult for our members to
comply with.
I won't spend much time at all on the fee issue. It is a
relatively small thing. It doesn't sound like a lot, but you
can imagine if you aren't making any money, to have a doubling
of your export certificate fees could make a big difference.
The shipping problem is a huge one. The sudden rate
increases that have occurred, doubling some of our container
charges around the world in the last 6 months, has killed many
of us. It is a huge problem if you have advance contracts, say,
to China where you have sold many loads forward at a fixed
price, and suddenly the rate goes up by 50 percent or more, and
there is no containers.
And we are very concerned that the business practices of
many of these foreign-owned shipping lines are dubious; and we
would urge this Committee to investigate this area. Because we
feel we have been unfairly penalized as to our low-value
products, that they have substituted the higher-value products
and left us hanging dry. It has been a big problem.
The procurement issue is quite complicated and hard to
explain in a short bit of time, but I want you to know that we
take this issue very, very seriously.
We have a wonderful, sustainable resource in this country.
The eastern hardwood forest is the woodbasket of the world, and
we are very concerned about illegal logging in foreign
countries like Indonesia and Russia, and we are very
appreciative of the support that has happened with this
amendment to the Lacey Act, which we strongly supported with
the environmental organizations. But there are some concerns
that the European countries and others are going to force us to
have more documentation about the sustainable or certification
of our forest resource. This is very difficult for people, with
90 percent of all the land that's owned in this country in the
forest is by small private landowners.
In my little State of New Hampshire, we have 22,000 people
that own 25 acres or more. So it is very difficult for the
chain of custody and the procurement policy to certify these
kinds of lands, and it is a very diverse and fragmented
industry. And the paperwork and the necessary costs to ensure
legality and sustainability would be a great challenge.
We have a great story to tell. The U.S. Forest Service
tells us we have 50 percent more growing than is being cut in
the last 50 years, that we have independent studies showing our
risk assessment is very low and that legality is very high. So
we would really love to have some support around this issue to
make sure that we do not face unfair and uncompetitive
disadvantages abroad around this thing.
So we thank you for your interest. We want fair, level
playing field trade. We are very grateful for the support of
the American Hardwood Export Council funding for the FAS market
promotion fund. This is an area that has been very well
supported and funded, and we are grateful for that.
We thank you for your time. Thank you.
Chairwoman Velazquez. Thank you, Mr. French.
[The prepared statement of Mr. French may be found in the
Appendix on page 38.]
Chairwoman Velazquez. Thank you, Mr. French.
Our next witness is Mr. Chuck Wetherington. Mr.
Wetherington is the President and owner of BTE Technologies,
located in Hanover, Maryland, which produces work simulation
and physical therapy equipment. He is also a board member of
the National Association of Manufacturers, representing small-
and medium-sized manufacturers. Welcome.
STATEMENT OF MR. CHUCK WETHERINGTON, PRESIDENT AND OWNER, BTE
TECHNOLOGIES, HANOVER, MARYLAND, ON BEHALF OF THE NATIONAL
ASSOCIATION OF MANUFACTURERS
Mr. Wetherington. Thank you. Good morning, Madam Chairman
and members of the Committee.
I am Chuck Wetherington, as you said, President and an
owner of BTE Technologies, a small company headquartered in
Hanover, Maryland. We have offices in Denver, Colorado, as
well.
I have prepared a statement for the record and will make my
remarks brief at this time.
At BTE, we have 78 employees and produce a range of medical
devices focused on physical therapy, industrial rehabilitation,
and sports medicine. In 2001, we made a decision to place
greater focus on exports. We have the good fortune of being in
a product space where U.S.-flagged goods are held in very high
esteem in the world marketplace.
I am happy to say that since 2002 our exports have grown
tenfold, from 3 percent of our revenues to now 35 percent. We
currently export to 28 countries in the world.
Exports, obviously, have been a key part of our company's
strategy and success. So how important is small business to
U.S. exports? Of U.S. companies that export, over 97 percent of
them are small- and mid-sized businesses. Yet those companies
only represent 30 percent of the total dollar value of all U.S.
exports. This is because two-thirds of all smaller exporters
sell to just one country, and two-thirds have fewer than five
export sales per year. We have a lot of room to grow, and with
the right conditions U.S. small companies can flourish in the
global marketplace.
Today, I would like to mention four things that are
critical for U.S. companies, especially small companies, to be
able to successfully export.
First, we need currencies that reflect market values. When
the dollar is excessively strong against other currencies, U.S.
goods become expensive in global markets and exports decline.
When the dollar has adjusted to a more realistic value, exports
grow. Of course, this sounds like common sense, but it is a
fact that is too often overlooked.
We have just seen this play itself out in the past decade.
As the dollar came off its 2002 high, our exports have grown
dramatically. NAM hears every day from companies who say the
value of the dollar has allowed them to be internationally
competitive again. Many companies, particularly small- and mid-
size, say the primary reason they are doing well is their
export performance, which has offset softening domestic demand.
Second, we need free trade agreements that open markets for
U.S. goods. I recognize that there are concerns about our free
trade agreements, but I must say, from the perspective of a
small business trying to export, they have been very important
to us. The United States is already open to the world. Much of
the rest of the world has a higher tariff and non-tariff
barriers to U.S. exports. We need these agreements to open
foreign markets for our goods.
Third, it is very important that we see the removal of
standards and regulatory barriers, one of those non-tariff
barriers I spoke of, for the sale of U.S. goods in foreign
markets. This is one of the big hurdles we face at BTE.
A good example is the medical device directive in the
European Union. One would think that the EU would be about the
easiest place after Canada and Mexico for the U.S. company to
export, and in many ways it is. But this directive has made it
very expensive and very difficult and time-consuming for us to
be certified. We are seeing signs that others are starting to
follow the EU's lead.
The government could help by working to develop some level
of standardization. This might include negotiating global
standards, or at least reaching agreements for reciprocity
between certifying agencies. Multiple standards greatly
increase the costs of production and the costs of bringing new
products to market, and this would be especially helpful for
small companies.
The fourth priority is the U.S. Government export
assistance. At BTE, we have found a range of services provided
by the U.S. Commercial Service to be instrumental in our
success. We worked with the Baltimore Export Assistance Center
to help us find distributors overseas, conduct background
checks on potential customers and agents and do country
analysis, identifying markets for our products.
I have to add at this point that this has also been a
marvelous place for us to see State associations working with
Federal associations through the Maryland Department of
Business and Economic Development. Working hand in hand with
Commercial Services, we have been able to get the best possible
solutions for our needs.
For small companies, these services are essential to
success in exporting. Most of us don't have the resources to
have large export divisions or offices overseas to ferret out
new business. One problem is the increasing shifting of costs
of these promotion programs back to the U.S. businesses. This
is in contrast to the support that other governments provide to
their exporters.
Some of these countries pay up to 70 percent for their
companies to attend trade shows. In BTE's experience, we have
spent over $100,000 in just the last 4 years just to attend
MEDICA, the annual trade show that covers our field.
The Australian Government, for example, recently announced
that grants for economic export development would be boosted to
$200 million. By contrast, the comparable U.S. program is
funded at $2 million, although we have significantly more small
companies that could benefit.
Another important export service is export financing. My
company has taken advantage of small business services at EX-IM
Bank, and it has made a significant difference in the number of
our recent sales. I strongly encourage you to continue support
for these import financing opportunities for small companies.
In conclusion, I would like to thank you and the members of
the Subcommittee for this opportunity to testify on such an
important issue. We are in a globalized world, and our small
businesses need to be in a position to avail ourselves of
global opportunities in order to improve the standard of living
of all Americans. Certainly a determined export promotion
effort, focusing on increased participation of America's small-
and mid-sized companies in world markets should be an important
endeavor. My prepared statement contains more specific
suggestions.
Thank you, Madam Chairman.
[The prepared statement of Mr. Wetherington may be found in
the Appendix on page 46.]
Chairwoman Velazquez. Thank you, Mr. Wetherington.
Our next witness is Mr. Daniel T. Griswold. He is the
Director of the Center for Trade Policy Studies for the Cato
Institute. He has authored or co-authored studies in
globalization, trade, and immigration.
STATEMENT OF MR. DANIEL T. GRISWOLD, DIRECTOR OF THE CENTER FOR
TRADE POLICY STUDIES, THE CATO INSTITUTE
Mr. Griswold. Chairwoman Velazquez, Ranking Member Chabot,
thank you for inviting to testify here today.
Globalization is a fact of life in 21st century America,
and our nation's small businesses should be allowed to take
full advantage of the opportunities. Since 1990, exports have
grown sharply as a share of the U.S. economy. Three-quarters of
the world's spending power and 96 percent of the world's people
live outside the United States. This represents a huge
potential market for American business.
Our growing engagement in the global economy is one of the
bright spots of the U.S. economy today, and we definitely need
bright spots. Exports and earnings on foreign investment are
booming. Exports of goods and services jumped by 12.6 percent
last year from the year before, and earnings on U.S. investment
abroad jumped 20 percent. That expanding opportunity to serve
foreign markets has allowed U.S. companies, including small
businesses, to better weather the current economic slowdown.
One of the most important and fastest-growing markets for
U.S. companies, including small businesses, is China. Last
year, Americans exported $65 billion worth of goods to China.
China is our number three export market behind only our NAFTA
partners Canada and Mexico. Since China's entry into the WTO in
2001, U.S. goods exports to China have grown at a compound rate
of 22 percent. That is three times faster than our exports to
the rest of the world, despite complaints about their currency.
Small- and medium-sized U.S. businesses are basking in this
export success. Nearly 20,000 small- and medium-sized U.S.
companies account for 35 percent of U.S. merchandise exports to
China. If Congress enacts legislation that ignites a trade war
with China, small businesses will be among the first
casualties.
Far from a time out, Congress should work with this
administration and the next to approve comprehensive trade
agreements to abolish barriers and promote two-way foreign
investment. Such agreements benefit U.S. small businesses in
three particular ways.
First, trade agreements help to reduce red tape and
increase transparency. Small businesses often lack the
resources and the foreign partners abroad to navigate through
the opaque legal systems and customs duties of foreign
countries. Numerous fees and other non-tariff barriers can be
deal-breakers for small companies. Trade agreements streamline
rules, reduce non-tariff barriers, and provide arbitration
procedures.
Second, trade agreements open up opportunities for U.S.
small businesses to compete for procurement contracts with
foreign governments. And this is a huge market. Trade
agreements guarantee U.S. companies a fair shake at the
important government procurement market. They also lower
thresholds so businesses, small businesses, can submit bids.
Third, trade agreements lower tariffs and other barriers to
trade that are more difficult for small businesses to work
around. You know, large multinationals can circumvent tariffs
by locating production in affiliates abroad. Small U.S.
companies don't have that option. Many of them export from a
single domestic location here in the United States. The
reduction and elimination of tariffs allows them to export from
their domestic facilities without facing barriers that could be
discriminatory and prohibitive.
The 110th Congress has the opportunity right now to enact
three trade agreements with Colombia, Panama, and South Korea
that will help small U.S. companies boost their exports. All
three of these agreements would reduce barriers and eliminate
tariffs while guaranteeing fair treatment for U.S. companies
that invest abroad. They would streamline those customs
procedures, enhance transparency, and open up government
procurement for small U.S. businesses; and these agreements
would allow thousands of U.S. small companies to export to
these markets for the first time.
For example, nearly 8,000 small- and medium-sized U.S.
companies already export to Colombia, accounting for more than
one-third of our exports to that country. The Colombia
agreement would eliminate the large majority of tariffs on
those product. Their goods already enter the United States duty
free because of the Andean Trade Preference Act. This would
give us the level playing field that we all say we want.
According to the U.S. International Trade Commission, the
agreement would boost U.S. exports to Colombia by more than a
billion dollars, with small businesses ready to claim a big
slice of that expanding pie.
U.S. companies do not need Federal subsidies to compete
effectively in global markets. We have a lot of advantages in
this country. Those markets are currently awash in private
capital, ready to finance new trade and investment
opportunities. Congress and the administration, if they want to
increase opportunities for U.S. small business, they need to
work together to reduce barriers to international trade and
investment, whether abroad or here in the United States.
Thank you very much.
[The prepared statement of Mr. Griswold may be found in the
Appendix on page 56.]
Chairwoman Velazquez. Thank you, Mr. Griswold.
And our next witness is Dr. Aaron K. Chatterji. Dr.
Chatterji is an Assistant Professor at the Fuqua School of
Business at Duke University and a Fellow at the Center for
American Progress. His research focuses on innovation policy,
entrepreneurship and small business issues, and corporate
social responsibility. Welcome.
STATEMENT OF DR. AARON K. CHATTERJI, ASSISTANT PROFESSOR, THE
FUQUA SCHOOL OF BUSINESS, DUKE UNIVERSITY, DURHAM, NORTH
CAROLINA
Dr. Chatterji. Thank you very much.
Madam Chairwoman, members of the Committee, thank you for
inviting me to testify on this important economic policy issue,
one that, with the exception of the good work of this
Committee, often does not receive the attention that it
deserves.
In my view, American small businesses are not just the
backbone of our economy. They are also the linchpin of our
society. In the places I have lived across this country--
upstate New York, where I was born and raised; northern
California, where I did my graduate studies; and now the
research triangle in North Carolina--I have seen that small
businesses are one of the most are important variables
affecting the overall economic health in a region. I have also
observed that many immigrants to this country, like my parents,
have started small businesses as a way to provide for their
children. Finally, I have studied how global economic forces
have changed the competitive landscape, yes, providing new
threats to small businesses but also new opportunities.
However, in the current policy debates, American small
businesses are often an afterthought. Some recommendations seem
to be driven by the assumption that what is good for the
Fortune 100 is obviously just going to trickle down to small
businesses. I think the real story is a little bit more
complicated than that, frankly.
I think Federal, State, and local governments have numerous
tools at their disposal to help small businesses, especially in
the current economic environment. At the end of the day, it
will be the widely admired entrepreneurial initiative for the
American people and their entrepreneurs that drives success,
but the government can actually help to harness that initiative
rather than hinder it. I think this is the difficult challenge
of public policy that we face today.
In that spirit, let me offer a few thoughts on some of the
issues being discussed today, in particular the export outlook
for American small business.
While there are many reasons to be concerned about the
future of the American economy--rising energy costs, the
turmoil in the mortgage markets, and the increase in the
unemployment rates--until recently American exports were one
bright spot. They increased 16.6 percent from last year,
although the chairwoman's new data suggests this year might not
look as good. When we look beyond the data, we might be
concerned that the majority of American businesses, namely
small businesses, are not benefiting as much as they could be
from what was a favorable climate for exports until recently.
According to the Small Business Export Association, 240,000
of our small businesses are exporting, accounting for $450
billion in value. That sounds like a big number, but these
businesses only represent a small fraction of small businesses,
less than 1 percent in most cases. Furthermore, over 60
percent, as mentioned in the chairwoman's opening statement,
are only exporting to one country, which makes it much more
volatile if local conditions in that country decline.
Also, as prefaced by the other remarks, most of these
exports are also regionalized in the NAFTA countries,
particularly Canada and Mexico. We have a lot of opportunities
in China and India that are not being exploited.
When you had look at the ratio of exports coming from small
businesses, it amount to about 29 percent of total value. I
think that is an important number we need to keep in mind. It
is not necessarily the number of small businesses exporting, it
is the percentage of value that matters a lot as well. That
percentage of 29 percent has stayed pretty constant over the
last few years. I think there is a lot of room for growth.
On the other hand, during the same time we have seen
double-digit increases in the overall value of exports, 1.4
trillion to 1.6 trillion last year, an increase of 12 percent.
That is on top of another increase of 12 percent the year
before. So as exports have been going up, small business's
share has stayed pretty much the same.
I think that is where the focus of this Committee can lie.
So while we hear some encouraging statistics here about the
percentage of exports for small business, I encourage you to
focus on percentage of total value.
I also think we need to look at those industries which are
dominated by small businesses for special study. Ninety-four
percent of machinery manufacturers are small businesses.
Ninety-three percent of computer producers are small
businesses. We have some disturbing data showing that exports
in some of these industries are actually going down in 2008, in
addition to lumber and textiles. These are the industries we
need to be focusing on, where the majority are small
businesses.
Now, I should caution you that there are several caveats
and exceptions embedded in these data. But taken together with
the current economic climate, they indicate, in my view, that
we should consider policies to aid U.S. small businesses in
accessing foreign markets. They clearly need the help, and
there is potential for growth. So let me briefly conclude by
describing a few of the challenges faced by small business and
where I see some potential policy responses.
The first challenge is a general lack of awareness on the
part of small business about the opportunities to do business
abroad. You think about a multi-tasking entrepreneur who barely
has time to run their own business and manage family affairs,
much less think about entering a foreign market. We need more
information for these small business owners and particularly
the information about these tremendous opportunities abroad in
China and India.
Large markets here like China and India have increasingly
large aircraft markets, for example; and the U.S. machine tool
industry could supply these markets. The fact of the matter is
small businesses in developing countries are not
technologically sophisticated enough to source the large
businesses in their domestic regions. This is a huge
opportunity for U.S. domestic producers if they can seize it.
Trade promotion at all levels of government needs to be
consolidated and better coordinated and provide practical and
clear information about foreign markets and foreign cultures as
well. Let's not make missteps by not understanding foreign
cultures when we are doing this.
Many people have said this, but I want to add one more
thing. Entrepreneurship is a very social process. Most
entrepreneurs founded firms based upon people they knew,
raising money from friends and family. We need to leverage
their social networks to get the word out about how to access
foreign markets. Immigrant entrepreneurs have already
established strong ties with their home countries that we can
use to access foreign markets. These things need to be
considered, the social network aspect of entrepreneurship, when
we think about policy.
Finally, I think, while advances in technology have made
communication easier, nothing replaces face-to-face contacts.
It is just simply so expensive for small businesses to do the
due diligence required to appraise foreign partners. The Gold
Key Program by the U.S. Export Assistance Program is one good
one; and, as the ranking member mentioned, I think it is a good
idea to continuously evaluate these programs and see whether
they continue to improve.
Finally, I will make a personal appeal, but it actually has
broader implications. I think we need better data on small
business. So much of the data here today that I was looking at
in preparing for this testimony does not include very critical
parts of the story. Service exports in particular might be as
large as 40 percent of the overall picture, and are not
included in the data. So I would like to see more of that data
collected, and maybe this Committee can help on that account as
well.
In conclusion, I think we all agree U.S. small businesses
are a critical part of the economy. The question is how to
harness that entrepreneurial initiative going forward. I think
some of the policies suggested here today are a step in that
direction.
I want to thank you for your time, and I look forward to
your questions.
[The prepared statement of Dr. Chatterji may be found in
the Appendix on page 61.]
Chairwoman Velazquez. Thank you, Dr. Chatterji.
I would like to address my first question to Mr. Johnson.
In your testimony, you note that many countries pegged
their own currency to ours, which effectively neutralizes any
price advantage from a devalued dollar. Do you believe the U.S.
should prompt these countries to cease manipulating their
currency, or are there other alternatives you would recommend
to promote U.S. exports?
Mr. Johnson. Well, I think this is probably the largest
export barrier to goods coming from Asia. The problem is not
just China. It is a mercantilist export regime that have been
set up for decades in the Far East by countries--not only
China--Taiwan, Korea, Japan, Indonesia, India, Pakistan. Many
of the export powerhouses have manipulated and controlled their
currencies in order to get an export advantage; and until we
get that under control, we are simply not going to be able to
export and take advantage of these rapidly growing markets like
we should.
I think Alan Greenspan and Federal Chairman Bernanke have
both said this is an export subsidy. H.R. 2442, the Ryan-Hunter
Act, will allow injured U.S. companies to file countervailing
duty cases against countries that manipulate their currency. It
is an export subsidy. We should have the tools to defend
ourselves from it. I think if we get those tools it will
encourage those countries, because the U.S. market is still the
biggest market in the world, to allow their currencies to float
and to allow free markets to finally prevail.
Chairwoman Velazquez. You don't think we have tools at our
disposal at this time that the U.S. Government can use to
pressure those countries in terms of the manipulation of their
currency?
Mr. Johnson. Absolutely not. I mean, the U.S. Government
can and should file a WTO case, because this is an illegal
subsidy. The Bush administration has refused.
Chairwoman Velazquez. How many has this administration
filed?
Mr. Johnson. I think it has been filed three times by
Members of Congress as well. And after the first filing, we
would be at the decision point at the WTO right now if that
case had gone through, because I think it has been 3 years.
So--
Chairwoman Velazquez. Thank you, Mr. Johnson.
I am going to recognize Mr. Chabot, and then when we finish
with our members here, I will come back and make a question to
the other witnesses.
Mr. Chabot. Thank you very much, Madam Chair.
Just following up on the same general area--and I will
begin with you also, Mr. Johnson--what can we do, especially
with respect to China and India, to help our corporations be
more successful in exporting there? And other than the currency
manipulation, because we have discussed that at some length.
Mr. Johnson. Well, I would add that looking at the VAT
issue--and that is a very big issue to look at, but it has a
very big impact. I mean, it is double taxation of U.S. exports.
And how we get around that, there is one piece of legislation
that I think people should seriously review, because it
proposes some ways to do that.
The other issue that we point out is this problem of
government subsidies. And I note with interest that Mr.
Griswold in his testimony writes that--I thought I had it right
here--writes, says, big headline, no export subsidies, no trade
barriers. And he is talking about should the United States
offer subsidies to its companies to allow them to export more
and should the United States impose countervailing duties?
Well, I think where the argument fails is that he is not
saying we should go after China. China has more export
subsidies than any other country in the world. We have
identified 63 just for the textile industry. And yet there is
no suggestion on the other side of the table that these are
harmful or prevent U.S. exporters from participating in these
export markets.
We have a five-to-one trade disadvantage with China. China
exports over $300 billion to us; we export 50, $60 billion to
them. That is the most rapidly growing, largest, fastest-
growing economy in the world. We should be exporting double or
triple that much, but we can't when the Government of China
layers subsidy after subsidy after subsidy onto its domestic
manufacturers and makes it almost impossible for us to compete,
particularly on the manufactured goods side.
So I think USTR needs to beef up its resources. The United
States needs to look into these sector-specific subsidies, file
WTO cases. Under the WTO, if a sector is benefiting from
subsidies and damaging another sector overseas, a WTO case can
be brought that that sector should remove the subsidies.
Mr. Chabot. Okay. Let me go to my next question.
Mr. Griswold, let me go to you. Do you want to respond?
Mr. Griswold. Yes. I have no doubt that China, as well as a
lot of other governments around the world, as well as our own
government, subsidizes domestic production; and I would like
governments everywhere to stop doing that. I think the free
enterprise system, the free market should determine trade
flows. But just because other countries engage in self-damaging
practices doesn't mean we should follow suit.
Let me talk a little bit about the currency. I think this
excuse is rapidly dissipating. You know, the Chinese currency
has appreciated by 20 percent within the last 2 years. That
appreciation has been accelerating.
I think the textile industry appears to be an outlier among
U.S. industry. As I pointed out, U.S. goods exports to China,
manufactured goods, agricultural goods have been growing at a
compound rate of 22 percent since China joined the WTO. That is
three times faster than our exports to the rest of the world.
So, clearly, a lot of U.S. companies of all sizes are enjoying
a lot of success exporting to China.
I don't think we should step in and mess up that very
beneficial relationship. I think legislation like the Ryan-
Hunter bill would just raise barriers to trade and jeopardize
those export gains that small businesses have made to China and
elsewhere.
Mr. Chabot. Okay. Thank you.
Mr. French, you had mentioned that one of the things that
you are dealing with that is causing real problems in your
industry is the high cost of energy, which is obviously
affecting people at the gas pump, and diesel has gone out of
sight, et cetera. And I think you mentioned that some of the
containers in 6 months it will double. And what does one do
about that? Would you talk about that briefly, how that does
affect your industry?
Mr. French. It has been a huge impact. Of course, the
lower-value products are more dramatically impacted by the
percentage increase. So think of a relatively--and one of the
issues with China that we have is a lot of the products that
are going over there are the lower value end of the lumber
products, because the Chinese want to buy the cheapest wood
they possibly can to make into the cheapest furniture. That, of
course, is putting the American furniture industry out of
business.
But what has happened with these freight increases is that
they have come very, very rapidly. And, yes, of course we know
fuel prices have gone up, but they haven't gone up 100 percent
in 6 months. And the global trade patterns, we have a
relatively low-priced product. The fees have been relatively
low over time. And several years ago, of course, they loved us.
The freight lines wanted this bulk cargo because all of the
imported goods were coming in from Asia, and there were lots of
empty containers here, and they were delighted to take grain or
wastepaper or logs or lumber back to Asia.
Those trade patterns have changed. There is less goods
coming in because of the recession in the U.S. economy. And the
shipping companies pretty arbitrarily suddenly decided, well,
we don't want any of these low-market products. We have guys
that are small family businesses, they don't have the
sophistication of negotiating big deals with freight companies.
They may be only shipping five or six or ten loads a month. And
suddenly they have contracts that are forward at fixed prices,
and they have a 500 or a 700 or a thousand dollar increase in a
container with a value of only $20,000 on the container. That
may be their entire profit. So it has been very arbitrary and
random, and you know, no notice. It has been a huge impact on
my own business.
Mr. Chabot. Let me ask you this. In relation to energy--and
I would like to ask the whole panel this question--obviously,
you know, many of us believe that we need a comprehensive
energy policy that we really follow through on that deals with
alternative sources of energy and all the rest. But it has been
Congress' policy not to allow us to go after the oil that is in
ANWR and the Outer Continental Shelf for quite a few years now.
Many of us have voted consistently for it. We haven't had the
opportunity to vote in this Congress yet on that issue. I hope
we do in the future. But do any of you all think that it is a
good idea for small businesses or medium or large businesses in
this country to keep ANWR and the Outer Continental Shelf off
limits?
Chairwoman Velazquez. Would the gentleman yield before--
Mr. Chabot. Well, let me see if there is a show of hands.
Mr. French. I would be happy to respond. I think it is a
very short-term solution, and it is not necessarily good
environmental policy.
Mr. Chabot. To keep it off limits, you mean?
Mr. French. We need to invest in alternative energy. And as
wood energy looks at cellulosic ethanol, biomass and other
types of things, it may be a savior for the hardwood lumber
industry for some serious Federal investment in alternative
energy, particularly utilization of wood.
Mr. Chabot. Again, could I see by a show of hands if
anybody here thinks that we ought to continue to keep ANWR and
the Outer Continental Shelf off limits? Does anybody think we
should?
Mr. French. Okay. I do.
Mr. Chabot. You do. Two of you.
Mr. French. I think we need to be very guarded, whatever we
do. And we made a commitment on ANWR. And it is a short-term,
band-aid solution. It's not a long-term solution to our energy
problems.
Mr. Chabot. I can tell you that the two of you are not
representative of the business folks, especially small business
folks that have talked to me.
Mr. French. I am not speaking for my industry now. I am
speaking as an individual--
Mr. Chabot. For yourself. Okay.
Mr. French. --from the State of New Hampshire.
Mr. Chabot. I would be happy to yield to the gentlelady.
Chairwoman Velazquez. Let me just say I want the record to
reflect it seems that ANWR is the answer for everything now,
and next the gentleman will say that because we have not
drilled in ANWR is the reason the Mets fired Mr. Willie
Randolph.
Thank you for yielding.
Mr. Chabot. One never knows. I haven't been able to make
that point in the past, but I appreciate the gentlelady making
that.
Chairwoman Velazquez. And I am a Mets fan.
Mr. Chabot. I am a Cincinnati Reds fan. I have some more
questions, but I will yield back to allow some other panel
members to ask their questions.
Chairwoman Velazquez. Sure. Mr. Larsen.
Mr. Larsen. Thank you, Madam Chair, for calling this
hearing; and I appreciate the testimony.
Just a quick commercial for H.R. 3273, which is the Small
and Medium-Sized Export Act of 2008 that several of us have
introduced to increase our government's capacity to help small-
and medium-sized exports to China. As I tell folks, whether you
love China or hate China, you will love this bill, because this
is designed to get our stuff into that market, not the other
way around. So people can have any view they want on currency
or subsidies from China and still support H.R. 3273. So I throw
that in.
I am also pleased to hear that this hearing is more than
just about currency manipulation versus free trade agreements,
because it is hardly the debate we ought to be having. And but
what I didn't hear more of is the idea of a competitiveness
policy and what elements that would take. And, Dr. Chatterji, I
would ask if you would have some thoughts on what it would take
to maintain a foundation of competitiveness in this country.
Because I think what some folks do in Congress or push in
Congress on trade--and I generally have been supportive of
trade agreements--have been a trade policy, but it is nowhere
near a policy to keep us competitive.
Can you chat a little bit about that, Dr. Chatterji?
Dr. Chatterji. Thank you.
I think it is an excellent question and a point well taken
that we have these conversations in isolation when we should
probably be thinking about a competitiveness policy that
includes trade, that includes workforce development, and also
includes immigration, quite frankly, one of the most
contentious issues, and particularly high-skilled immigration.
Around the world, several countries have programs based on
a points basis so they can bring in high-skilled immigrants for
specific jobs. That has been discussed. Bringing in people with
specific skills is clearly important.
Also, the people we have here on H-1B visas. Why shouldn't
we be stapling a visa to their diplomas when they do a Ph.D. in
an advanced engineering subject?
Currently, more than 50 percent of engineering graduates,
Ph.D. students, are from foreign countries. And increasingly I
have seen at Duke University, in contrast in a generation ago,
when my parents came here, the Indian students now are saying
we are going to go back to India. We can have a better life in
Bangalore than we can here in Durham. To me, that is sort of a
tragedy of our immigration system today. They find it to be
better going back to India than staying here, when they could
be producing and contributing to our economy.
In addition, we can't forget about investing in the folks
who are already here; and science and math education has got to
be part of that. American students are lagging behind in those
areas.
I think there is a lot of scare tactics talking about
engineering graduates from China and India. Yeah, there is
about a million a year in each place, but it is very variable
in terms of the skills they actually have.
That being said, it is better to sort of be on our guard,
even if the threat is not as large. I think we have to take
this more seriously, especially among minority students, who
are lagging behind in these areas.
Now, what is that going to take? It is going to take a
strong commitment not just in sort of secondary education but
all the way back to primary education. I don't think American
students are challenged enough in the math and sciences at an
early age, and it is going to take sort of a reformulation of
the way we think about education. That would be the second part
of it. So high-skilled immigration is one area, education and
workforce development would be the other.
The last one is retraining programs. I think we talk a lot
about it, but I am not sure if we are evaluating it the way we
should. When someone loses their job in the textile industry,
for example, in our State of North Carolina, you know, can they
be retrained to do something in that industry or in another
industry? What kind of guidance are they being given?
You know, we have a good experience in some aspects in
North Carolina taking low-end textiles and actually moving up
to the higher end; and we have been quite successful in that.
How can we retrain folks who used to work at the old textile
mill to work in the new one? That is a key issue. I don't think
enough attention is being put into those. And your point is
well taken, if we can think about those components along with
trade policy we might end up with something better.
Mr. Larsen. Mr. French, a question for you. Have you
approached or talked to anybody at the Federal Maritime
Commission regarding the ocean freight charges issue?
Mr. French. We haven't as a federation at the moment.
Mr. Larsen. Are you planning on that?
Mr. French. I think it is something we need to do.
Mr. Larsen. We have them before the Coast Guard Committee
at 2 o'clock, if you are around this afternoon. I am sure they
would love to hear from you. I am sure they wouldn't love to
hear from you, but we can probably help them hear from you.
Just a last general question for the members, if anyone
else wants to weigh in on my first question that Dr. Chatterji
responded to. Mr. Griswold?
Mr. Griswold. Congressman, I do think that is a very good
point, that free trade, as important as it is, is not a magic
bullet and it is not the single answer. We need to have as good
a domestic business climate as possible; and that includes
reasonable regulations, reasonable taxation.
And I just want to echo what my friend to my left here says
about a skilled workforce, and I do think Congress should
reexamine the H-1B program. This is important to small
business. It just isn't a Fortune 500 issue. This is important
to small business.
There was a study at Duke University a year or two ago that
found that a quarter of U.S. high-tech and engineering start-up
companies had a foreign-born person as a co-founder. If you
want to encourage not just small business entrepreneurism
generally but the high-tech, innovative kind, we need to reform
our visa programs; and these companies often have connections
abroad that encourage some of our highest-value exports to the
rest of the world. So it is a package. You make a very good
point.
Mr. Larsen. Thank you.
Let's go to Mr. Wetherington and Mr. Johnson.
Mr. Wetherington. Yes, I am a supporter of assistance to
help with exports to China. I think it is a marvelous program.
I have been a beneficiary, as I said, of those programs in a
number of countries.
At the risk of throwing another log on the fire, though,
the one fear that I do have that keeps me up at night, having a
high-technology product, is that of intellectual property.
Fortunately, my sales to China now are below the radar screen.
My fear is that, with success, I would get to a point where it
would become a point of interest; and it is very, very
difficult for a small company to be able to deal with that and
stay innovative enough to be ahead of the copying.
Mr. Larsen. Thanks.
Mr. Johnson?
Mr. Johnson. Our members, the concerns they most raise are
the price of energy, health care, and also taxation. If you are
going to have a competitiveness policy, I suggest looking at
those.
But I don't think you can ignore in a competitiveness
policy the fact that the biggest exporters in the world have
erected large industrial policies that make their goods--make
it difficult for us to compete against their goods. And you can
either raise barriers to those goods, you can subsidize the
United States industry, which I don't think our country wants
to do, or you can go after those subsidies. And until you start
going after those subsidies, which are very often WTO illegal,
and can be gone after, you are going to have our companies
competing against State governments. And we can compete against
the Chinese textile mills, but what we cannot compete against
is the Government of China, and that is what is being set up
for us.
The textile industry in China has now been gifted with its
11th 5-year plan for the textile industry by the Chinese
Government. There are no plans for the textile industry in the
United States, and we don't want them. But we do want a fair
playing field, where the U.S. Government starts going after
these 63 subsidies the Chinese Government is offering its
domestic manufacturers.
Mr. Larsen. I am sorry. I am out of time. So out of respect
for the chairwoman I want to thank the chairwoman.
Folks, where I come from, Washington State, you know, we
actually have a trade surplus with China. So it kind of depends
where you sit sometimes in this country as well about how you
approach these things.
Chairwoman Velazquez. Mr. French.
Mr. Larsen. Thank you.
Mr. French. Thank you.
I would just like to add a little bit on the complexity of
the wood industry's relationship with China. Because, of
course, they are a very, very important and large customer, but
they are also a huge competitor, because of all of the products
that they are making, some from our wood and some from other
woods around the world.
Of course, some of that is illegally felled from places
like Papua, New Guinea, and Indonesia and the Russian far east;
and they have all of the subsidies that have been talked about
in their factories. They have these products that are coming in
from these dubious sources, and then they are selling their
manufactured products to our potential customers in other parts
of the world. So the stair part that might have used to have
been made in the U.S. that was going to be shipped to Europe at
a very high value ends up being made in China from perhaps
illegally felled Russian logs, you know, in a factory of
dubious environmental regulations, and shipped to Europe. And
it puts us out of business in that marketplace. So it is very
complicated.
Thank you, Madam Chairman.
Mr. Larsen. Thank you, Madam Chair.
Chairwoman Velazquez. Mr. Shuler.
Mr. Shuler. Thank you, Madam Chair.
Dr. Chatterji, you know, what provisions have we--you know,
looking at future trade policies and agreements, what
agreements should we be having to ensure that small businesses
take advantage of the overseas markets?
Dr. Chatterji. It is a difficult policy question. I think
that there is two things.
One is, despite all the fluctuations with currency, I don't
think we can ever count on U.S. goods being the low-cost
product in the market. I think we need to continue to focus on
adding value to the products we provide. I think that is the
only way.
Even China, if you look at a recent article today in the
New York Times, it talked about how they are becoming a little
too expensive for some folks and people are moving to Vietnam.
And that process will continue to happen over time. U.S. cannot
be sort of the low-cost provider. We have to add value. The
question is how to do that.
I think you have to have an active Small Business
Administration, an active trade procurement policy. You have to
promote these things, to work with small business to identify
new markets.
I think the gap right now is these industrial behemoths in
China and India who need to be sourced. They need parts. They
need supplies. They need people. American small businesses have
an opportunity to source them.
Investor services is one area I have been reading a lot
about. We have an opportunity to provide all these new
companies with the type of value-added services that companies
in their countries don't yet provide.
So I think it is a question of matching what we do well,
which is going to be the high-value-added services, to what the
developing country firms need; and I think that is going to
take an active partnership between government and business.
There really aren't any easy answers, but I don't think we can
rely on currency fluctuations alone to guarantee our
competitiveness.
Mr. Shuler. Thank you.
Mr. French, what has been your experience with the rates
and availability of equipment in your dealings related to
shipping products and exports?
Mr. French. As I mentioned, the rates have been very much
increasing rapidly. I think one of the other areas is this lack
of availability of equipment; and if you can imagine the
sensitivity of some of the products we do ship, like logs from
your area in North Carolina, it basically killed the business
if the freight line said, well, sorry, we don't have any space
for 6 weeks or 8 weeks and your product can't make it to the
marketplace. So it has been the erratic and unstable ability to
ship the product.
And you can imagine using wood. We don't have any
alternatives besides the ocean carriers. So it has been an
enormous--and, of course, the huge increase in diesel prices
and the costs of inland transportation has clobbered people. It
has been, again, the rapidness of it.
And the fact that we are a relatively low-value product has
made us less desirable for people. Of course, if they are only
going to take a certain number of runs in their trucks, they
are going to get the highest-value cargo.
So it is a low-margin industry, and we are more
dramatically hit by all of these costs, whether it be insurance
costs, freight costs, trucking costs. All of these things have
a much higher impact perhaps than on the more value-added
manufacturing. And we need to continue to promote our value-
added manufacturing. It is one of the things we have to do to
survive.
Mr. Shuler. Madam Chair, just for the record--I would be
happy to yield.
Chairwoman Velazquez. If you would yield, Mr. French, I
want you to know that, last month, the Committee held a hearing
on freight and railroad costs for small businesses.
I yield back. Thank you for yielding.
Mr. Shuler. Thank you, Madam Chair.
Just for the record, we talk about subsidies that China
continues to give. I mean, we have seen through this
administration and still a continuation, the more money we
borrow from China, the more opportunities they are going to be
able to have to subsidize their companies. And so we have
continued to see that over and over and over again. So we
certainly have to put a stop to that in the future; and I am
looking forward to that in the very near future, that we put a
stop on borrowing the money from China and other countries that
continue to take our textile businesses and our manufacturing
businesses out of North Carolina. We lost over 300,000 jobs in
North Carolina alone in the textile industries--300,000.
And, last comment, we got 10,000 permits on Federal lands
to drill. Have at it. We don't need ANWR. Ten thousand permits.
Ten thousand permits.
Mr. Chabot. Would the gentleman yield?
Mr. Shuler. Absolutely, since this is an energy hearing.
Mr. Chabot. Does the gentleman know on which of those
10,000 they have actually identified that there is oil there?
Mr. Shuler. On 250,000 acres. We just had the hearing in
Natural Resources: 250,000 acres, 10,000 permits, no
encumbrance from any type of environmental issues. They have
been sitting there for 5 years unwilling to--and on top of
that, we export our own petroleum, some 5.8 billion barrels a
day.
Mr. Chabot. But what I am saying, I don't know if the
gentleman--maybe I didn't speak clearly enough, but when you
say 250,000 acres, that is the total of all the permits. That
is the acreage that is there. Correct?
Mr. Shuler. That is the acreage that is there that has been
identified from the oil industry that there is available.
Mr. Chabot. That there might be oil on--
Mr. Shuler. That there are available oils.
Mr. Chabot. But they haven't determined on which of those
places there is oil--
Mr. Shuler. Yes.
Mr. Chabot. --until they drill or until they identify it.
Mr. Shuler. Well, there is geologists that obviously--that
is why they have deemed it to be oil. Oil in North Carolina--
Mr. Chabot. If the gentleman will continue to yield,
because I have seen this talking point out this past week, and
I saw Rahm Emanuel talking about 68 million acres or whatever
he is talking about that they can already drill so they don't
need to go in ANWR. But, oftentimes, oil hasn't been
identified. That is just speculative as to where it might be.
So it doesn't mean there is oil in all those particular
locations. So it is somewhat misleading when Rahm throws out a
number like 68 million and acts like, well, we don't need to go
in ANWR or the Outer Continental Shelf because we have got all
those places they are not drilling now.
Mr. Shuler. Madam Chair, reclaiming my time, reclaiming my
time, thank you for holding this Small Business hearing; and we
will get to energy policy.
Chairwoman Velazquez. If the gentleman would yield for a
second?
Mr. Shuler. I would be happy to.
Chairwoman Velazquez. But I would like to ask a question to
the ranking member. If we go into ANWR, will that bring us
relief, immediate relief, that we need?
Mr. Chabot. Will the gentlelady yield?
Chairwoman Velazquez. Yes. I am asking you a question.
Mr. Chabot. I thank the gentlelady for yielding, because
the point that I have heard about we don't--even if we drill in
ANWR now we won't see that oil for another 5 years or 10 years,
that is why we should have done this 5 or 10 years ago; and I
voted 11 times in the last 14 years to do that. Now, so, no, we
are not going to have that oil for a couple years.
However, much of the price, for example, $58 a barrel to
$140 a barrel in the last year or so, is speculation as to what
we think oil is going to be available in the future. So if we
passed--and I would urge the Speaker to do that, to allow
Congress to have a vote and we passed going into ANWR, I think
you would see an immediate impact in the price out there
because it would say that we are finally serious. And
apparently we weren't very serious at 2.30 a gallon. We sure as
heck ought to be serious at $4 a gallon.
Chairwoman Velazquez. Reclaiming my time, let me just say
there has been legislative initiatives that passed through the
House, are sitting at the President's desk, and others that
have been signed into law and have not been implemented. H.R.
6, for example.
Mr. Chabot. Does that allow us to drill in ANWR?
Chairwoman Velazquez. I am sorry? We are not talking about
ANWR. We are talking about price gouging. We are talking about
providing relief to small businesses to be able to purchase
technology that will bring their electricity consumption down.
That is the type of legislation that has been signed into law
and that the administration refuses.
Yield back.
Mr. Shuler. Madam Chair, this is, of course, my first term
in Congress. Could you just tell me which party was in total
control of the White House, the Senate, and the House?
Chairwoman Velazquez. I am sorry, I wasn't listening.
Mr. Shuler. This is my first term. Can you tell me which
party was controlling the White House and the Congress for the
last 12 years?
Chairwoman Velazquez. For the last 12 years, the Congress
was controlled by the Republicans, and for the last 8 years the
White House.
Mr. Shuler. I yield back.
Chairwoman Velazquez. Well, I guess that we have to go back
to trade.
Mr. Chabot. It is our side's turn for questioning, right?
Chairwoman Velazquez. Yes, it is your side for questioning.
Mr. Akin?
Mr. Akin. Are we going to talk about the Small Business
hearing or you want to talk about energy? I am all ready to go
on energy. Let's talk about the fact that the Republicans
passed a bill year after year to develop American energy, and
it was killed by the Democrats in the Senate. When you add up
all the votes on American energy, you find out the bottom line
is that Republicans 90 percent of the time supported American
energy, and Democrats 90 percent of the time have voted against
all different kinds of things, from ANWR to nuclear to
recycling nuclear to coal shale.
Chairwoman Velazquez. Would the gentleman yield?
Mr. Akin. Yes, I will be happy to. We will have a little
discussion here.
Chairwoman Velazquez. Last thing I know is that the Senate
was controlled by the Republicans 2 years ago. So how did they
the Democrats kill the bill?
Mr. Akin. Certainly you know, but maybe other people in the
room don't, and that is because all you have to have--you have
to have 60 votes to pass a bill. The Democrats killed that
energy bill in 2001. The Democrat Senators killed it in 2002.
They killed it in 2003. They killed it in 2004. We aren't
picking winners and losers. But it had the whole thing in
there. Finally, a watered-down version in 2005.
Chairwoman Velazquez. There was a lot of subsidies for oil
companies.
Mr. Akin. It wasn't subsidies for oil companies. People
jump in with this deal about, oh, the obscene profits of the
oil companies. The only reason they are making obscene profits
is because we don't have enough supply. If there is more
supply, they couldn't charge those high prices. So what we need
to be doing is developing American energy in a whole lot of
different forms.
But I didn't really have a question for our witness, Madam
Chair. I just thought we could talk about that a little bit if
you want.
Chairwoman Velazquez. Enough said?
Okay. Mr. Davis?
Mr. Davis. Thank you, Madam Chairwoman; and I do appreciate
the panelists being here.
And, as you can see, energy is on a lot of people's minds
here in Congress; and I think it is on a lot of people's minds
across America. It is definitely on people's minds back in east
Tennessee. Just a month ago, I met with Earl Humphreys, who
owns Lawn Boyz Lawn Care Center; and he is talking about having
to close his business because of the high cost of energy.
Since you are here to testify, and could you tell me what
energy costs actually does to each one of your industries? And
what would happen if we could actually become an energy policy
that would bring it down from $4 a gallon maybe to $2 a gallon,
where it was when the Democrat majority took over last year?
Mr. Johnson. I can just say that energy prices have a huge
impact on the textile industry. We are a very large consumer of
energy because of the weaving, and particularly the dyeing and
printing of textile materials require enormous amounts of
energy.
So when they go up and, you know, they don't go up
overseas, and one of the--I don't want to keep bringing China
in, but they are our biggest competitor. When China starts
increasing its subsidies for energy, as I think has been well
documented by the steel industry, that China is now subsidizing
the electrical costs for its manufacturing sector by hundreds
of millions of dollars a year, we become less competitive.
But I would like to mention--I don't know about the bill
and about the small business energy upgrades--we have a very
large mill in Trion, Georgia, one of the most impressive mills
in the United States, one of the largest mills, and it makes
apparel yarns and fabrics, goods for the U.S. military, and
they cannot afford to upgrade to get more energy efficiency out
of their furnaces. And they know how to do it. They know they
need to do it. They don't have the money to do it.
So if there is some assistance that you can give to smaller
companies so that they could get the energy efficiencies that
are available out there, I think that would be very, very
important. They mentioned that to me specifically, is if you
can find a way to help me increase my energy efficiencies, this
plant may stand a good chance of surviving.
Mr. Davis. That is very good. Thank you.
Mr. French?
Mr. French. Of course, it is a huge, huge problem for
industry, our industry, loggers, everything else. But we need
to recognize that the Europeans have paid double the prices we
have paid for a long time. I think the shock is the rapid
increase and the fact that, quite honestly, we have been living
with very low energy costs in this country for a long time. And
I would really urge and I think a lot of small businesses would
benefit from government support in grants in terms of
conservation, in terms of alternative energy issues, investment
in alternative energies.
We have got to solve this. We have got to reduce our
dependency on the fossil fuel economy, and we need to get other
products and other energy sources into the marketplace as
quickly as we possibly can. And I think you have got an
industry on the wood industry side that is very eager to work
with the government in looking at these alternative fuels and
things like geothermal, solar, wind, all these alternative
energies, and getting government support for small businesses
to use those alternatives.
At the moment, the payback is pretty long. But if we had
some tax and other incentives to invest in these things in our
plants and put in wood boilers and put in windmills and other
things, and we got some support in the short term, in the long-
term we would be dealing with climate change, we would be
dealing with energy efficiency, and we would be making these
businesses more profitable.
So I think there is a lot of positive things that can come
out of this, and I hope that the Congress will look at these
things and think about it.
Mr. Davis. I certainly agree with what you just said. I do
think we have to have all of the above. I think we need green
energy. I certainly support it as a conservative in Congress.
My main question was, gas prices have gone from $2 to $4 a
gallon. What has it done? What impact has it had on the
Hardwood Federation.
Mr. French. It has had a huge negative impact, particularly
the internal costs of fuel and the diesel increase in such a
rapid way.
Mr. Davis. Has it cost jobs in your industry?
Mr. French. It has cost jobs in our industry, yes.
Mr. Davis. We need an energy policy. That was my point. And
I yield back.
Chairwoman Velazquez. Okay. Time has expired.
Mr. Johnson and Mr. French, as part of the H.R. 6 bill that
we passed, the energy bill, we included in that package
legislation that we reported out of this Committee, and it was
a well-thought-out package that includes financial relief for
small businesses to purchase technologies that would allow for
them to bring those prices down.
And this is the time to implement it. It was signed into
law. So what we need is to get the Small Business
Administration, the White House to implement the program.
Mr. Griswold, you mentioned that currency manipulation is a
regular practice among countries and, further, that China has
increased the value of the yuan over the last couple of years.
But American manufacturers still contend that the yuan is
undervalued by as much as 40 percent. Clearly, there is market
intervention.
Our responsibility is to work to help our businesses be
competitive. What is your suggestion to upset this
disadvantage?
And, Mr. Johnson, you know, they all mentioned the
disadvantage that their industries are facing due to not only
currency manipulation but the tax imposed to the products. So
what do you offer? How can we provide a level playing field?
Mr. Griswold. Madam Chairwoman, thank you.
I don't think I used the phrase "currency manipulation."
You know, half the countries in the world have a fixed currency
or some kind of a hard peg. So it isn't that unusual. And the
U.S. and the other Western countries had fixed currencies for
several decades after World War II.
I do think freely floating exchange rates are the ideal. I
think Milton Friedman was right. They work the best.
But China is making progress. You know, they are in many
ways still a developing and underdeveloped economy. They have a
poorly developed financial system. I don't think a freely
floating exchange rate is probably the right idea for them
right now. But let's give them credit. They are moving rapidly
in the right direction.
A 20 percent appreciation is significant, this at a time
when the U.S. dollar has been depreciating. I would say let's
not put too much stock in exchange rates. Let's not worship at
the altar of a depreciated currency.
This is where trade and energy come together. One reason
why the price of oil has gone up so much in the last few years
is the depreciating dollar. When dollars are worth less, oil
producers are going to demand more dollars. This feeds through
to the costs.
Over half of what we import to the United States are
imported by businesses. They are raw materials, wood, energy.
They are intermediate products, parts that go into final
products. They are capital equipment. And small businesses are
importing those things.
So a depreciated currency that we have, our U.S. currency
has depreciated significantly, that is a two-edged sword. It
helps us export, but it is also feeding into raising the costs
that these gentlemen's industries are paying.
So I don't think that we can wave a billy club over China's
head and tell them they need to appreciate their currency
another 20 percent. It is not going to make a dramatic
difference. Our exports to China are booming despite their
currency policies.
Chairwoman Velazquez. Mr. French and Mr. Johnson, you know,
we have some trade agreements pending: Korea, Panama and
Colombia. If there is a provision that you feel that should be
made part of that agreement that will provide a level playing
field for small businesses, and particularly for the industries
that you represent, what will that be?
Mr. Johnson. Well, I mean, I will go back to the issue of
currency manipulation. Korea was one of the originators of the
export scheme to devalue your currency so you could export
more. And USTR had guidance in Trade Promotion Authority saying
that it needed to address currency manipulation practices. And
there was nothing in that agreement that says Korea cannot do
whatever it wants with its currency, regardless of the damage
it can do to U.S. business. So I think that tends to undermine
even the possibility of benefits from an agreement.
Mr. French. I don't have anything specific. Korea is the
only one of those countries that is a reasonably significant
market for lumber products, and we haven't had too many
difficulties there. But I will ask our people here to see if
there is anything specific and get back to you.
Chairwoman Velazquez. Thank you.
Well, gentlemen, thank you all for being here today.
I ask unanimous consent that members will have 5 days to
submit a statement and supportive materials for the record.
Without objection, so ordered.
This hearing is now adjourned. Thank you.
[Whereupon, at 11:26 a.m., the Committee was adjourned.]
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