    [House Hearing, 111 Congress]
    [From the U.S. Government Publishing Office]

      STIMULATING THE ECONOMY THROUGH TRADE: EXAMINING THE ROLE OF EXPORT
                                   PROMOTION

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

                                    HEARING

                                   BEFORE THE

                        SUBCOMMITTEE ON COMMERCE, TRADE,
                            AND CONSUMER PROTECTION

                                     OF THE

                        COMMITTEE ON ENERGY AND COMMERCE
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED ELEVENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 MARCH 17, 2009

                                   __________

                               Serial No. 111-15

          Printed for the use of the Committee on Energy and Commerce

                            energycommerce.house.gov

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                        COMMITTEE ON ENERGY AND COMMERCE

                     HENRY A. WAXMAN, California, Chairman

    JOHN D. DINGELL, Michigan            JOE BARTON, Texas
      Chairman Emeritus                    Ranking Member
    EDWARD J. MARKEY, Massachusetts      RALPH M. HALL, Texas
    RICK BOUCHER, Virginia               FRED UPTON, Michigan
    FRANK PALLONE, Jr., New Jersey       CLIFF STEARNS, Florida
    BART GORDON, Tennessee               NATHAN DEAL, Georgia
    BOBBY L. RUSH, Illinois              ED WHITFIELD, Kentucky
    ANNA G. ESHOO, California            JOHN SHIMKUS, Illinois
    BART STUPAK, Michigan                JOHN B. SHADEGG, Arizona
    ELIOT L. ENGEL, New York             ROY BLUNT, Missouri
    GENE GREEN, Texas                    STEVE BUYER, Indiana
    DIANA DeGETTE, Colorado              GEORGE RADANOVICH, California
      Vice Chairman                      JOSEPH R. PITTS, Pennsylvania
    LOIS CAPPS, California               MARY BONO MACK, California
    MICHAEL F. DOYLE, Pennsylvania       GREG WALDEN, Oregon
    JANE HARMAN, California              LEE TERRY, Nebraska
    TOM ALLEN, Maine                     MIKE ROGERS, Michigan
    JAN SCHAKOWSKY, Illinois             SUE WILKINS MYRICK, North Carolina
    HILDA L. SOLIS, California           JOHN SULLIVAN, Oklahoma
    CHARLES A. GONZALEZ, Texas           TIM MURPHY, Pennsylvania
    JAY INSLEE, Washington               MICHAEL C. BURGESS, Texas
    TAMMY BALDWIN, Wisconsin             MARSHA BLACKBURN, Tennessee
    MIKE ROSS, Arkansas                  PHIL GINGREY, Georgia
    ANTHONY D. WEINER, New York          STEVE SCALISE, Louisiana
    JIM MATHESON, Utah                   PARKER GRIFFITH, Alabama
    G.K. BUTTERFIELD, North Carolina     ROBERT E. LATTA, Ohio
    CHARLIE MELANCON, Louisiana
    JOHN BARROW, Georgia
    BARON P. HILL, Indiana
    DORIS O. MATSUI, California
    DONNA CHRISTENSEN, Virgin Islands
    KATHY CASTOR, Florida
    JOHN P. SARBANES, Maryland
    CHRISTOPHER MURPHY, Connecticut
    ZACHARY T. SPACE, Ohio
    JERRY McNERNEY, California
    BETTY SUTTON, Ohio
    BRUCE BRALEY, Iowa
    PETER WELCH, Vermont

                                      (ii)
            Subcommittee on Commerce, Trade, and Consumer Protection

                       BOBBY L. RUSH, Illinois, Chairman
    JAN SCHAKOWSKY, Illinois             CLIFF STEARNS, Florida
        Vice Chair                            Ranking Member
    JOHN SARBANES, Maryland              RALPH M. HALL, Texas
    BETTY SUTTON, Ohio                   DENNIS HASTERT, Illinois
    FRANK PALLONE, New Jersey            ED WHITFIELD, Kentucky
    BART GORDON, Tennessee               CHARLES W. ``CHIP'' PICKERING,
    BART STUPAK, Michigan                    Mississippi
    GENE GREEN, Texas                    GEORGE RADANOVICH, California
    CHARLES A. GONZALEZ, Texas           JOSEPH R. PITTS, Pennsylvania
    ANTHONY D. WEINER, New York          MARY BONO MACK, California
    JIM MATHESON, Utah                   LEE TERRY, Nebraska
    G.K. BUTTERFIELD, North Carolina     MIKE ROGERS, Michigan
    JOHN BARROW, Georgia                 SUE WILKINS MYRICK, North Carolina
    DORIS O. MATSUI, California          MICHAEL C. BURGESS, Texas
    KATHY CASTOR, Florida
    ZACHARY T. SPACE, Ohio
    BRUCE BRALEY, Iowa
    DIANA DeGETTE, Colorado
    JOHN D. DINGELL, Michigan (ex
        officio)

                                 C O N T E N T S

                                  ----------
                                                                       Page
    Hon. Bobby L. Rush, a Representative in Congress from the State
      of Illinois, opening statement.................................     1
        Prepared statement...........................................     3
    Hon. George Radanovich, a Representative in Congress from the
      State of California, opening statement.........................     6
    Hon. Doris O. Matsui, a Representative in Congress from the State
      of California, opening statement...............................     7
    Hon. Phil Gingrey, a Representative in Congress from the State of
      Georgia, opening statement.....................................     8
    Hon. Betty Sutton, a Representative in Congress from the State of
      Ohio, opening statement........................................     9
    Hon. G.K. Butterfield, a Representative in Congress from the
      State of North Carolina, opening statement.....................     9
    Hon. John D. Dingell, a Representative in Congress from the State
      of Michigan, prepared statement................................    86
    Hon. Steve Scalise, a Representative in Congress from the State
      of Louisiana, prepared statement...............................    87

                                   Witnesses

    Michelle O'Neill, Acting Under Secretary for International Trade,
      International Trade Administration, Department of Commerce.....    11
        Prepared statement...........................................    14
        Answers to submitted questions \1\
    Suzanne Hale, Acting Administrator, Foreign Agriculture Service,
      Department of Agriculture......................................    20
        Prepared statement...........................................    22
    Loren Yager, Director, International Affairs and Trade,
      Government Accountability Office...............................    31
        Prepared statement...........................................    33
    Franklin J. Vargo, Vice President, International Economic
      Affairs, National Association of Manufacturers.................    42
        Prepared statement...........................................    45
    Liz Reilly, Director, Traderoots, United States Chamber of
      Commerce.......................................................    58
        Prepared statement...........................................    60

                               Submitted Material

    Report by World Bank entitled, ``Export Promotion Agencies: What
      Works and Does Not,'' September 30, 2006, submitted by Franklin
      Vargo..........................................................    89
    Statement of Dennis Slater, President, Association of Equipment
      Manufacturers, submitted by Mr. Rush...........................    96

    ----------
    \1\ Ms. O'Neill did not respond to submitted questions for the
      record.

      STIMULATING THE ECONOMY THROUGH TRADE: EXAMINING THE ROLE OF EXPORT
                                   PROMOTION

                                  ----------

                            TUESDAY, MARCH 17, 2009

                      House of Representatives,
               Subcommittee on Commerce, Trade,
                               and Consumer Protection,
                              Committee on Energy and Commerce,
                                                        Washington, DC.
        The subcommittee met, pursuant to call, at 10:05 a.m., in
    Room 2322 of the Rayburn House Office Building, Hon. Bobby L.
    Rush (chairman) presiding.
        Members present: Representatives Rush, Green, Braley,
    Butterfield, Matsui, Sutton, Stupak, Space, Radanovich,
    Gingrey, Sullivan, and Scalise.
        Staff present: Angelle B. Kwemo, Counsel; Michelle Ash,
    Chief Counsel; Zahara Goldman, Professional Staff; Valerie
    Baron, Legislative Clerk; Jennifer Berenholz, Deputy Clerk;
    Brian McCullough, Minority Senior Professional Staff; Will
    Carty, Minority Professional Staff; and Sam Costello, Minority
    Legislative Analyst.

                OPENING STATEMENT OF HON. BOBBY L. RUSH

        Mr. Rush. The subcommittee will come to order. This is a
    hearing conducted by the Subcommittee on Commerce, Trade, and
    Consumer Protection. The subject of this hearing is Stimulating
    the Economy through Trade: Examining the Role of Export
    Promotion. The chairman recognizes himself for 5 minutes for
    the purposes of opening statement. I want to thank the members
    of the subcommittee for participating in our first trade
    hearing of the 111th Congress. Today the Obama Administration
    and Congress are revisiting our trade policies. It is essential
    that as American companies and workers are faced with
    unprecedented challenges that we recognize the importance of
    international trade as an essential component of our policy
    response to the global financial crisis.
        Today's hearing will explore international trade as a tool
    to stimulate our economy and examine the role of exports in the
    growth of the U.S. economy. I also want to review the impact of
    government-sponsored export promotion programs and the
    effectiveness of assistance available to help U.S. businesses
    expand their market for U.S. products and services. In the
    past, Congress has addressed concerns about several important
    aspects of export promotions, specifically as it relates to
    interagency coordination, common goals, small business
    assistance and enforcement of trade agreements. Some progress
    has been made since then, however, today's economic environment
    demands more progress.
        In my home State of Illinois, Caterpillar, Inc. has
    recently laid off 16 percent of its workforce despite the fact
    that its world-class equipment is needed and necessary to
    support massive infrastructure projects from China to Africa.
    Sixty percent of its market is overseas with untapped potential
    in emerging and new markets. In the U.S., exports support 6
    million jobs in the manufacturing industry, and 1 million jobs
    in the agricultural industry. More than one in every five
    American factory workers owes his or her job to exports. These
    jobs pay 13 to 18 percent more, on average, than non-export-
    related employment.
        Furthermore, in the recent months of stagnating domestic
    demand, most growth in manufacturing production was attributed
    to exports. The U.S. is the world's largest manufacturing
    country but, despite extensive engagement with the global
    economy, the U.S. has the smallest percentage of its Gross
    Domestic Product derived from exports in comparison to any
    other G-7 country. U.S. export promotions spending lags behind
    that of Spain, the UK, Italy, France, Korea, Canada and Japan.
    American exports in January, 2009, were down compared to
    January of last year. In addition, exports accounted for only
    13.1 percent of the U.S. economy. This certainly is not
    sufficient, especially now that the American consumer is
    spending less. We need to move to trade and exports to sustain
    economic growth. We cannot afford to be idle as our export
    numbers decrease.
        I strongly believe that if we are serious about lowering
    our trade deficit and creating more jobs for Americans, export
    promotion must be a national priority. I commend U.S.
    businesses for their innovation, their strength and vision in
    this very competitive and perilous time. I also salute non-
    profit groups for their dedication and creativity in assisting
    U.S. businesses as they embark in new ventures. I also
    recognize the importance of public-private partnerships in
    fostering the spirit of American business globally. Today is
    the first of a series of hearings on trade-related matters. I
    thank all the members and witnesses for their participation. If
    it my desire that we all continue to work together on trade
    issues in a bipartisan fashion with the goal of helping to
    bolster America's economy.
        [The prepared statement of Mr. Rush follows:]

        [GRAPHIC] [TIFF OMITTED] T7103A.001

        [GRAPHIC] [TIFF OMITTED] T7103A.002

        [GRAPHIC] [TIFF OMITTED] T7103A.003

        Mr. Rush. With that, I yield back the balance of my time,
    and I recognize now the ranking member of this subcommittee
    from California, Mr. Radanovich.

              OPENING STATEMENT OF HON. GEORGE RADANOVICH

        Mr. Radanovich. Thank you, Mr. Chairman. Good morning,
    everybody. I do appreciate, Mr. Chairman, you calling this
    hearing to examine our trade promotion efforts. The global
    economy is suffering right now, and consumer spending and
    business investments have slowed worldwide exacerbating a
    clouded outlook for recovery. In such trying times, there is a
    temptation for countries to retreat into misguided
    protectionist trade policies and in order to find a path toward
    a more stable economy we must treat trade as an opportunity,
    not a threat. One simple approach is to continue to ensure free
    trade agreements remain a priority. Last year, we ran a $21
    billion surplus in manufacturing with our FTA partner
    countries.
        America has also seen similar beneficial increases in
    surpluses with countries with which we have implemented trade
    agreements under the trade promotion authority. Trade
    agreements are growing in importance as international commerce
    becomes a more essential part of our economy and more Americans
    depend on trade for their livelihood. Particularly relevant
    today effective and efficient international trade can serve as
    an important buffer for the economy when domestic growth slows.
    In fact, despite the declines in the last part of 2008, export
    growth surpassed the growth in GDP. We exported over 1 trillion
    in goods and services last year and had a surplus in services
    trade of approximately $144 billion. The salient point here is
    America produces and exports world class goods and services and
    we have the potential to export much more if we are given the
    opportunity access additional markets.
        After all, 96 percent of the world's consumers live outside
    of the United States. Often, the biggest barrier to improving
    trade is facilitating the connection between willing buyers and
    sellers. This is where the promotion of U.S. goods and services
    can be used to improve the prospects of our businesses, many of
    whom have little or no experience exporting their own goods. We
    have a number of federal agencies that assist our small and
    medium size businesses through the export process. Their
    services range from educating businesses on the basics of
    export trade through export assistance centers to more advanced
    services that introduce suppliers and buyers and provide market
    access guidance.
        With these programs in place, we need to focus on improving
    the visibility of existing services and enhancing their
    effectiveness. My home State of California is a leading
    exporter in many areas ranging from high tech to something more
    important to my constituents, which is agriculture.
    Agricultural issues are different than those faced by
    manufacturers. And I commend you, Mr. Chairman, for inviting
    the Foreign Agriculture Service to discuss their role in
    promoting our agricultural exports. Welcome, Ms. Hale.
        Agriculture is a difficult business. Farmers are routinely
    subject to many factors beyond their control including the
    vagaries of weather, pest and disease control, international
    competitors, which are heavily subsidized, and foreign
    standards often subject to whimsical change. It is critical to
    note that specialty crop farmers and their association spend
    millions of their own money to promote their own products
    abroad. For instance, farmers with the California Apple
    Commission spent $1.2 million just last year alone to market
    their own products abroad. When farmers decide to seek
    assistance through federal programs, they must still spend
    funds up front and wait for reimbursement from FAS, which is
    not guaranteed since their export strategy must be approved.
        While I encourage and I support the efforts of increased
    exports, I am equally concerned that we not lose our export
    partners that we already have. Going backwards by adding new
    barriers to trade is not helpful to anybody and reminds one of
    the primary concerns raised by fruit, nut, and vegetable
    growers in my district. In one example, Mexico has claimed the
    presence of pests in our own stone fruit for more than a
    decade. As a result, a plan negotiated by the Animal and Plant
    Health Inspection Service or APHIS which most fresh stone fruit
    growers must follow if they wish to ship to Mexico includes a
    dual regulation with the USDA inspectors and Mexican
    inspectors.
        The growers must pay for the dual regulation unless they
    are approved to receive assistance from the government under
    one of the existing technical assistance programs that would
    help offset the cost of the Mexican inspectors. In addition, it
    is critical that our government continue to work to remove the
    non-tariff barriers thrown up to keep out our U.S. products.
    Some countries such as Taiwan have erected certain barriers
    based on questionable scientific evidence. The normally free
    flow of trade has ceased causing the good folks in my own
    region and others throughout the nation enormous frustration.
    This must not be tolerated, and I encourage our federal trade
    officials to work to remedy such problems.
        I want to thank you, Mr. Chairman, for listening to my
    concerns. In a perfect world, we would not have to worry about
    any trade barriers. My hope is that our officials will remain
    as vigilant in their negotiations with our trade partners to
    reduce such non-tariff trade barriers as they are in promoting
    our products. Thank you, Mr. Chairman. I yield back.
        Mr. Rush. The chair thanks the ranking member. The chair
    now recognizes the gentlelady from California, my friend, Ms.
    Matsui, for 5 minutes for the purpose of opening statements.
    Two minutes. I am sorry. Two minutes.

               OPENING STATEMENT OF HON. DORIS O. MATSUI

        Ms. Matsui. Thank you, Mr. Chairman, and thank you for
    calling today's hearing to examine the role of export promotion
    in today's economy, and I want to thank all the witnesses who
    are here today for sharing your expertise with us. In today's
    economic recession, many families in my home district of
    Sacramento are struggling to make ends meet. I have heard
    countless stories of people struggling to keep their homes,
    their jobs, and their way of life. Small businesses are also
    hurting as they try to make payroll, retain their employees,
    and expand their business. I am pleased that President Obama
    has announced a new proposal to immediately help small
    businesses obtain much needed capital or credit to keep their
    businesses afloat.
        However, we should also be exploring other avenues for
    small businesses to grow, and that is why I am glad we are here
    today. This Congress needs to insure that companies have the
    tools to find new export opportunities for their products or
    services in existing foreign markets. Sacramento area small and
    medium-sized businesses export their products and ideas in
    health care, education, clean energy and agriculture around the
    world. In fact, the Sacramento region exported more than $3
    billion in goods last year while the port of Sacramento handled
    280,000 tons of exports last year. Yet, like in most
    communities our small businesses have not reached their export
    potential.
        If we can provide a small business with a foreign market to
    increase their sales by as little as 5 percent it can mean the
    difference between closing their doors and staying open another
    year. The federal government in partnership with the private
    sector can do more. This is a time in which effective
    partnership is vital. I thank you, Mr. Chairman, for holding
    this important hearing, and I yield back the balance of my
    time.
        Mr. Rush. The chair thanks the gentlelady. The chair now
    recognizes the gentleman from Georgia, my friend, Dr. Gingrey,
    for 2 minutes for the purposes of opening statements.

                 OPENING STATEMENT OF HON. PHIL GINGREY

        Mr. Gingrey. Mr. Chairman, I want to thank you for calling
    this hearing today on an economic issue that could not be more
    timely in the face of our current economic struggles. The
    promotion of exports of American products is absolutely
    critical to our economic growth now more than ever. Put simply,
    the relationship between American exports and job growth is
    incredibly important as we see unemployment numbers continue to
    rise. In President Obama's inaugural address, he stressed the
    need to ensure that the federal government works efficiently,
    and I agree with him on that goal, particularly in this very
    important area. The over arching role that the federal
    government will play in export promotion will need to be
    reassessed. Currently there are a number of different federal
    agencies that are working in the realm of export promotion, yet
    there is a need to grow our export numbers in order to remain
    competitive in a global market place.
        Furthermore, Mr. Chairman, the most direct way that the
    federal government can impact U.S. exports is through existing
    and new free trade agreements. First, and let me be perfectly
    clear, free trade needs to be fair trade enabling domestic
    companies to benefit by the removal of foreign tariff barriers.
    This will increase the number of American exports and help us
    grow jobs right here at home. I am encourage that majority
    leader Steny Hoyer last week said that the House will
    potentially revisit the Colombia free trade agreement that was
    awarded during the 110th Congress. This free trade agreement
    was signed over 2 years ago. Mr. Chairman, another interesting
    component of this hearing that has a tremendous impact on U.S.
    exports falls squarely within the agricultural industry.
        In my home State of Georgia agricultural exports account
    for approximately $1.5 billion annually is a tremendous boost
    to the state's economy and it is imperative that the federal
    government remove technical barriers with trading partners so
    that Georgia farmers, as well as farmers across the country,
    California, as Mr. Radanovich said, will be competitive
    globally. Mr. Chairman, I again thank you for holding this
    important hearing on the promotion of international exports and
    trade. I look forward to hearing from the panel this morning,
    and I yield back.
        Mr. Rush. The chair thanks the gentleman. The chair now
    recognizes the gentlelady from Ohio, Ms. Sutton, for 2 minutes
    for the purpose of opening statement.

                 OPENING STATEMENT OF HON. BETTY SUTTON

        Ms. Sutton. Thank you, Chairman Rush, for holding today's
    hearing on trade and promoting exports. We all know that trade
    can benefit American businesses and workers. In fact, Ohio is
    the seventh largest exporting state in the nation, and it is
    the only state that has increased exports every year since
    1998. However, there are real problems with our current trade
    policies that are no longer theoretical arguments. While I
    don't believe that trade in and of itself is what is costing us
    jobs, I do believe that our trade system and bad trade policies
    and bad trade deals can cost us jobs and have cost us jobs. And
    I also believe it doesn't have to be that way. You know,
    between 1994 and 2002 an estimated 525,094 U.S. workers were
    certified as eligible for the NAFTA transitional adjustment
    assistance.
        Since 2000, over 1,087 factories, companies or operations
    in Ohio have shut down or had massive layoffs costing Ohio over
    200,000 manufacturing jobs. Promoting our exports is only
    useful if production continues to take place in the United
    States. We must never lose sight that without our workers the
    U.S. would not have products to export. Often when we speak up
    to address the flaws and the unfair trade practices that
    currently exist with so-called free trade and other trade
    arrangements, name calling ensues, and we are attacked with
    distractive tactics such as being labeled as protectionist or
    saying we are simply against trade. Well, that isn't accurate
    and it really doesn't serve our purpose well. We do not live in
    a perfect world, and we are certainly not operating under a
    perfect free market global system.
        And while the trade deficit has narrowed during the current
    recession, China now accounts for more than 60 percent of the
    U.S. trade deficit in manufactured goods. We must have trade
    policies that no longer leave American workers and businesses
    at an unfair disadvantage. We cannot sit quietly aside while
    others engage in unfair trade practices. And while we should
    help promote our exports, it is also imperative to promote
    domestic production as well. I look forward to this hearing and
    this panel and working on this very important issue.
        Mr. Rush. The chair thanks the gentlelady. Now the chair is
    privileged to recognize the gentleman from North Carolina, my
    friend, George Butterfield.

               OPENING STATEMENT OF HON. G.K. BUTTERFIELD

        Mr. Butterfield. Thank you very much, Chairman Rush, and I
    thank the five witnesses for coming out today to be a part of
    this very important hearing. Mr. Chairman, you told us that we
    were going to get into some real deep issues, very important
    issues, on this committee, and today is an example of heading
    in that direction, and so thank you very much for your
    leadership. I think about the world so often, and the world has
    just drastically changed since I was a youngster many years
    ago. I go around to different high schools and middle schools
    in my district and talk about how the world has just literally
    transformed itself over the last 40 years. We are living in a
    global economy, and we cannot deny that, and that is a good
    thing. We can only benefit from increased export promotion. We
    are the world's largest exporter.
        In just 5 years exports have increased from 9\1/2\ percent
    to almost 12 percent of GDP. This growth has sustained nearly 6
    million jobs in manufacturing and 1 million in agriculture jobs
    like those in my district. We have reaped the benefit of double
    digit increases in exports every year for the past 5 years but
    more can be done and more must be done considering the state of
    our economy. And despite double digit gains, we could be
    exporting much, much more. Here is a statistic that might shock
    some of you. Companies that export represent less than 1
    percent, 1 percent of the U.S. business community. That means
    out of all the businesses that are located in this country, 99
    percent do not export, and 60 percent of these companies that
    do export only trade in one foreign market and one only.
        This untapped potential could yield immeasurable benefits
    to the U.S. economy and could mean tens of thousands of jobs. I
    am confident that further exploring opportunities to increase
    exports would drastically change places like Rocky Mountain,
    North Carolina in my district where the unemployment rate is
    now nearly 14 percent. A plant just the other day, Cummings,
    laid off 390 employees, so that illustrates, Mr. Chairman, the
    importance of this hearing today. And I thank you for bringing
    us together. I yield back.
        Mr. Rush. The chair thanks the gentleman. The chair now is
    privileged to recognize the gentleman from Michigan, my friend,
    Mr. Stupak, for 2 minutes for the purpose of giving the opening
    statement.
        Mr. Stupak. Mr. Chairman, I will waive and use the extra
    time for questions, please.
        Mr. Rush. The chair thanks the gentleman. Now it is my
    privilege to welcome this panel of experts to this hearing. I
    will introduce them starting from my left and the audience's
    right. At the conclusion of my introduction, I will swear them
    in because that is the new custom of this committee, swearing
    in before they provide their testimony. Beginning on my left we
    have with us today, Ms. Michelle O'Neill. Ms. O'Neill is the
    Acting Under Secretary for International Trade and
    International Trade Administration for the Department of
    Commerce. We have Ms. Suzanne Hale. Ms. Hale is the Acting
    Administrator for the Foreign Agriculture Service in the
    Department of Agriculture.
        Next, we have Dr. Loren Yager. Dr. Yager is the Director of
    International Affairs and Trade at the Government
    Accountability Office, GAO. Next to Mr. Yager is Mr. Franklin
    J. Vargo. Mr. Vargo is the Vice President of International
    Economic Affairs for the National Association of Manufacturers.
    And then we have with us Ms. Liz Reilly. Ms. Reilly is Director
    of Trade Roots, which is a part of the U.S. Chamber of
    Commerce. I want to welcome all the witnesses, and we certainly
    sincerely are grateful to you for taking the time off from your
    busy schedule to appear before this subcommittee today.
        As I said before, it is a new practice of this subcommittee
    to swear in the witnesses, so I will ask that you please stand
    and raise your right hand.
        [Witnesses sworn.]
        Mr. Rush. We will ask that you limit your opening
    statements to 5 minutes. We will begin with Ms. O'Neill. Ms.
    O'Neill, again, welcome, and please give us your opening
    statement.

       TESTIMONY OF MICHELLE O'NEILL, ACTING UNDER SECRETARY FOR
       INTERNATIONAL TRADE, INTERNATIONAL TRADE ADMINISTRATION,
      DEPARTMENT OF COMMERCE; SUZANNE HALE, ACTING ADMINISTRATOR,
     FOREIGN AGRICULTURE SERVICE, DEPARTMENT OF AGRICULTURE; LOREN
     YAGER, DIRECTOR, INTERNATIONAL AFFAIRS AND TRADE, GOVERNMENT
       ACCOUNTABILITY OFFICE; FRANKLIN J. VARGO, VICE PRESIDENT,
        INTERNATIONAL ECONOMIC AFFAIRS, NATIONAL ASSOCIATION OF
      MANUFACTURERS; AND LIZ REILLY, DIRECTOR, TRADEROOTS, UNITED
                       STATES CHAMBER OF COMMERCE

                     TESTIMONY OF MICHELLE O'NEILL

        Ms. O'Neill. Chairman Rush, Ranking Member Radanovich, and
    members of the committee, thank you for the opportunity to
    speak before you today about how export promotion strengthens
    and supports America's economy. As we have undoubtedly heard
    from the statements today, exporting is important to our
    economy. Last year alone it accounted for 13 percent of our
    gross domestic product and millions of jobs. I welcome the
    subcommittee's interest in this topic and look forward to
    outlining the International Trade Administration's efforts to
    promote U.S. exports.
        The International Trade Administration is dedicated to
    helping U.S. companies, especially small businesses, compete
    and win in the global economy. We have trade professionals
    based in Washington, in 109 U.S. communities, and in 77
    countries that provide trade promotion support to U.S.
    companies. We guide companies through every step of the export
    process from shipping and logistics to understanding foreign
    regulations to finding solutions when they encounter trade
    barriers. We provide a wide range of services including trade
    counseling, advocacy, and market research. In 2008 we supported
    more than 12,000 expert successes totaling $67 billion in
    nearly 200 markets around the world.
        We know that 97 percent of exporters are small and medium
    size businesses but they only account for 29 percent of the
    value of U.S. exports. We also know that of the 27 million
    businesses in the United States less than 1 percent export, and
    of the companies that do export 58 percent export to only one
    market. For this reason, our efforts are focused on getting
    more companies to export for the first time and for those
    companies that are already exporting to expand to additional
    markets. To highlight the kind of work we do, let me use some
    recent examples. Last year our commercial specialist in the
    Dominican Republic learned that a Dominican distributor was
    looking for a company that provides fuel additives for cars.
    After reaching out to our entire domestic network our Chicago
    office identified a small Chicago-based business that employs
    150 workers, the Gold Eagle company. A commercial specialist in
    the Dominican Republic arranged a meeting with a Dominican
    company which resulted in Gold Eagle's first sale to the
    Dominican Republic valued at $50,000.
        Often times a company gets an inquiry for the first time
    through their web site from a foreign buyer and doesn't know
    what to do. Other times a company is considering expanding its
    sales beyond the U.S. market and isn't sure how to proceed. In
    both cases, the first stop for them could be one of our 300
    trade specialists located in a nearby export assistance center
    or our Trade Information Center. The Trade Information Center
    provides a single point of contact for all federal government
    export assistance programs. Through its 1-800 USA trade number,
    the Trade Information Center provides assistance ranging from
    helping fill out a certificate of origin finding out about
    export finance options or connecting with the company's local
    commerce export assistance center.
        Last year, the Trade Information Center responded to 36,000
    inquiries, most of which were from small businesses. We also
    hold seminars around the country to educate U.S. businesses on
    a whole range of topics including the nuts and bolts of
    exporting, how to protect your intellectual property rights
    abroad, and how to fill out export documentation. Through our
    strategic partners program, we are leveraging the client
    networks of trade associations, companies, universities and
    state and local governments to help small companies understand
    the benefits of exporting. Let me give you two recent examples
    of how we work with our partners. In the fall of 2008 one of
    our strategic partners, FedEx, led a Commerce Department
    certified trade mission to India to introduce 12 companies to
    business opportunities there.
        Of these companies, two had never exported before and the
    other 10 had never exported to India. Our offices in India
    arranged over 300 appointments for the companies with potential
    buyers, agents, distributors, and Indian government decision
    makers. In another example, in September, 2007, the State of
    North Dakota's trade office in coordination with our offices in
    the former Soviet Union and in North Dakota brought over 100
    foreign buyers to the big iron farm machinery show in West
    Fargo. In the 6 months following the trade show, U.S. companies
    exhibiting at the show sold approximately $14 million in U.S.
    farm machinery to visiting foreign buyers. In 2008 the state
    trade office was awarded a market development cooperator
    program grant for the state to establish an office in the
    Ukraine. Since then, we have worked together on trade missions
    to Taiwan, Ukraine, Russia, Kazakhstan, Australia, and South
    Korea.
        At times, U.S. companies will look to us to help them when
    a foreign government tenders through U.S. government advocacy.
    Our advocacy center insures that U.S. companies can compete
    fairly against foreign competitors that are receiving high
    level advocacy support from their governments. Other times the
    U.S. company may need assistance to overcome a problem they are
    facing in a foreign market. These problems could range from
    regulatory trade barriers to unfair trade practices. This is
    where our Trade Compliance Center comes in. The Trade
    Compliance Center staff works with foreign governments to find
    a solution so that the U.S. company has the best possible
    chance to sell its products and services in that market. For
    example, a 2000 amendment to the Kazak Customs Code required
    importers to provide additional documentation that is not
    normally required before releasing their goods. After direct
    discussions the Customs Department authorized the release of
    some $70 million worth of U.S. goods.
        The Kazak government amended the code and deleted the
    section that required importers to provide the additional
    documentation to clear customs. In closing, the down turn of
    the world economy has affected all of our industries and their
    exports. In these times, our export promotion work is even more
    important than ever for small businesses and to the long-term
    competitiveness of the United States. The International Trade
    Administration remains committed to job creation through
    exporting. Thank you.
        [The prepared statement of Ms. O'Neill follows:]

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        Mr. Rush. Thank you very much. Now we will have opening
    statement from Ms. Suzanne Hale. Ms. Hale, thank you so very
    much and the chair recognizes you for 5 minutes for the purpose
    of an opening statement.

                       TESTIMONY OF SUZANNE HALE

        Ms. Hale. Chairman Rush, members of the committee, thank
    you for this opportunity to discuss how USDA's Foreign
    Agriculture Service supports agricultural exports. Exports are
    crucial to American agriculture. During these difficult times,
    agricultural trade is also important because it supports so
    many jobs off the farm. Twenty-five years ago, the value of
    U.S. agricultural exports was about $35 billion a year. Last
    year, U.S. farm exports had tripled to a record $115 billion.
    Even with the recent economic downturn fiscal year 2009
    agricultural exports are forecast to reach 95.5 billion, the
    second highest level ever. About 1/3 of U.S. agricultural
    production is exported. Every dollar of farm exports creates
    another $1.40 in supporting activities to process, package,
    finance, and ship products.
        U.S. agricultural exports mean U.S. jobs. USDA's economic
    research service calculates that in 2007 agricultural exports
    generated 808,000 full-time American jobs. Our mission at FAS
    is to link U.S. agriculture to the world. The agency maintains
    a small Washington based staff and 97 offices around the globe.
    Our overseas network act as our eyes and ears as we work to
    reduce trade barriers and approve market access. For example,
    our Cairo office was instrumental in opening the Egyptian
    market to U.S. cattle, and our staff in the Philippines
    recently resolved concerns over import quotas that would have
    severely limited our pork and poultry exports. Because of the
    current economic crisis, credit is tight in many key markets.
    Our export credit guarantee program, known as GSM-102,
    facilitates commercial sales of U.S. agricultural exports by
    providing credit guarantees.
        In fiscal year 2009, FAS expects to provide $5.5 billion in
    such guarantees. Over the past 2 years the program has
    facilitated $2 billion in feed grain exports directly
    benefitting states such as Illinois, Iowa, Nebraska, and
    Minnesota. Wheat, poultry, and cotton sales have similarly
    benefitted from the program. FAS administers several market
    development programs including the market access or MAP
    program. Under the MAP program, non-profit commodity and trade
    associations pool their resources into technical expertise with
    USDA's to develop markets overseas. In 2008, FAS approved $200
    million in MAP funds to promote a wide variety of products
    including soybeans in Romania, beef in Taiwan, grapes in
    Australia, and pomegranates in Korea.
        Investments in MAP programs produce results. For example,
    the Northwest Cherry Growers analysis shows that cherry exports
    support an average of 31,000 jobs a year. Cherry exports
    supported by $4.3 million in MAP funding over the past 5 years
    also generated an estimated $131 million in federal and state
    taxes. Now that is a good return. The Foreign Market
    Development program develops, maintains and expands long-term
    export markets for U.S. agricultural products. For example, the
    U.S. Grains Council is undertaking a 5-year effort to help
    rebuild Iraq's poultry industry, an effort which has led to
    nearly $4 million in sales of U.S. feed ingredients.
        USDA's technical assistance for specialty crops program
    funds projects to remove the kind of technical barriers that
    were mentioned earlier. For example, the California Table Grape
    Commission used the program to fund fumigation research. This
    research helped increase grape sales to Australia from $16
    million in 2007 to $52 million in 2008. The program has also
    been used to gain access for California nectarines in Japan and
    to harmonize organic standards with Canada. Emerging markets
    offer great potential for U.S. agricultural exports. A recent
    project funded under the emerging markets program provided
    minority producers of fruits and vegetables in Florida with
    training and other support that enabled them to make their
    first international sales.
        The firms in that program now report $25 million a year in
    exports. Our quality samples program enables U.S. agricultural
    trade organizations to provide small samples of agricultural
    products to potential importers in emerging markets. For
    example, exports of dried cranberries to Mexico increased 17
    percent to $15 million after samples were redistributed to
    Mexican bakers. FAS also links U.S. agriculture to the world by
    sponsoring trade and investment missions. In March, 2008, 17
    U.S. agri-businesses met with more than 125 African
    counterparts through a trade and investment mission to western
    central Africa. The mission facilitated $6.6 million in sales.
        At FAS we take pride in our efforts to improve the
    competitive position of U.S. agriculture in the global
    marketplace. Agricultural trade means jobs, both on and off the
    farm. Agricultural trade remains a bright spot in the U.S.
    economy consistently producing a trade surplus. I look forward
    to answering any questions you may have. Thank you.
        [The prepared statement of Ms. Hale follows:]

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        Mr. Rush. Thank you very much. Our next witness is Dr.
    Loren Yager. Dr. Yager, we welcome you to this subcommittee
    hearing, and we would ask that you limit your remarks, your
    opening remarks, to 5 minutes, if you will.

                        TESTIMONY OF LOREN YAGER

        Mr. Yager. Thank you, Chairman Rush, Ranking Member
    Radanovich, members of the subcommittee. Thank you for the
    opportunity to appear today to provide GAO's perspective on the
    role of exports in the U.S. economy. As Congress responds to
    the economic downturn it must consider the full range of tools
    available for further growth and create new jobs for U.S.
    workers. Some of these tools are related to promoting exports,
    which can have broad benefits to the U.S. economy. Trade
    enables the United States to achieve a higher standard of
    living through producing and exporting goods that are produced
    here most efficiently, and importing goods and services that
    are produced more efficiently elsewhere.
        U.S. exports of manufactured goods grew by approximately 50
    percent from 2004 to 2008 to a level of $1.1 trillion. These
    exports have come from every state. For example, in 2008
    Illinois exported 49 billion worth of manufactured goods.
    Similarly, California exported 127 billion of manufactured
    goods with an additional 8 billion in agricultural products.
    Because of the importance of trade to the U.S. economy,
    Congress has expressed longstanding concerns as to whether U.S.
    agencies are doing everything possible to promote U.S. exports.
    I will briefly mention three policy areas in my statement
    today. First, coordinating export promotion programs. Second,
    effectively meeting the needs of small businesses, and, third,
    monitoring and enforcing trade agreements.
        The first longstanding congressional concern I will discuss
    is the lack of effective coordination and follow up of trade
    promotion activities. Other witnesses have described the trade
    promotion coordinating committee and provided details on
    specific functions of the Commerce and Agriculture departments.
    In terms of coordination and follow up, we have reviewed the
    TPCC several times since its inception, and I testified in 2006
    that the TPCC had improved on their follow up of key measures.
    For example, in the 2008 national export strategy there is
    information regarding the status of priority initiatives
    identified in the prior year's annual report.
        However, despite the importance of agency coordination the
    strategy still does not link the agency's individual goals to
    an overall government export promotion strategy. Promoting
    exports by small businesses has also been a long-term interest
    of the Congress as reinforced by the importance of small
    business in many of the opening statements. While many small
    businesses export it is widely recognized that they face a
    number of challenges in exporting, and Congress had required
    that agencies focus a significant share of their efforts to
    small and medium size businesses. In 2006, I testified about
    the lack of systematic measures for small business
    participation in government export promotion programs.
        More recently, we had a similar finding with regard to the
    export-import bank where a number of congressionally required
    measures lacked targets and lacked time frames. The third and
    possibly most important priority for the United States is
    ensuring that U.S. trading partners comply with trade
    agreements. Monitoring and enforcing these trade agreements,
    which number in the hundreds and cover the vast majority of
    U.S. exports. It is a key responsibility for numerous U.S.
    agencies. Congress has expressed longstanding concerns
    regarding a number of these issues of which I will mention two.
    The first is China's compliance with its commitments. Congress
    has been keenly interested in the extent to which China is
    complying with its obligations. As a result, we have conducted
    a number of studies examining U.S. government efforts to
    oversee China's compliance, and we have made recommendations to
    U.S. agencies to improve communication to key stakeholders such
    as the U.S. Congress.
        A second point is the sufficiency of agency's human
    capital. Effective monitoring and enforcement requires staff
    with expertise in trade policy, the foreign country, and the
    particular industry. However, we found that trade agencies have
    not always been able to get the right people in the right
    places. We recommended that key trade agencies develop better
    planning and training to equip staff to handle increasingly
    complex barriers to U.S. exports. Let me also mention that
    while in China last week, I heard a number of examples where
    having specialized U.S. government personnel in the embassy and
    in the consulates can assist U.S. firms. For example, in China
    patent and trademark office staff who are of particular
    interest to this subcommittee have been actively assisting U.S.
    firms better protect intellectual property, which, as you know,
    has been a big concern for U.S. firms, particularly in China.
    Chairman Rush, Ranking Member Radanovich, this concludes my
    remarks. I would be happy to answer any questions you have.
        [The prepared statement of Mr. Yager follows:]

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        Mr. Rush. The chair thanks the gentleman. The next witness
    is Mr. Franklin J. Vargo. We welcome you, Mr. Vargo. We ask
    that you limit your opening statement to 5 minutes.

                     TESTIMONY OF FRANKLIN J. VARGO

        Mr. Vargo. Thank you, Mr. Chairman, members of the
    subcommittee. I am delighted to be here representing the
    National Association of Manufacturers. You know, 2/3 of
    everything America exports are manufactured goods so the NAM
    really cares about this. Exports, unfortunately, are like
    Rodney Dangerfield. They just don't get any respect. People
    don't see exports. They see imports and all the big box stores.
    Nobody sees exports. A lot of Americans don't even think we
    export anything even though we are one of the world's largest
    exporters, and we are the largest manufacturer in the world. We
    manufacture 1 out of every $5 of everything made in the entire
    world. A lot of people find that astonishing but it is
    nevertheless true. Now our exports of manufactured goods have
    amassed a trillion dollars and in recent years has been growing
    about 15 percent a year, as you noted, Mr. Chairman, one of the
    strongest parts of our economy. People think, wow, that is
    really good.
        I look at exports and say, you know, we are not an export
    powerhouse. In fact, we are missing the boat on exports. Why do
    I say this? Because the NAM has started benchmarking our
    industry against industries around the world, and we have
    looked at the 15 major manufacturing economies in the world
    that account for 80 percent of all the manufactured goods. When
    we look at our imports proportioned to the size of our
    manufacturing industry, it is not really out of line with the
    aggregate. When we look at our exports, we are dead last,
    number 15 out of the 15 countries.
        The world average, all the countries in the world, when we
    look at the World Bank data and trade data, the average is
    twice what we export, twice. We are exporting half as much of
    our manufacturing output as the average country in the world.
    Now if we were exporting at the average, we would have another
    trillion dollars of exports. We wouldn't have a trade deficit.
    Why are we exporting so little? And I should note that before I
    came to the NAM, I had a lengthy career with the Department of
    Commerce in export promotion trade policy. And it has been a
    long-time observation that one of the most fundamental reasons
    we export as little as we do is we grew up as a continental
    economy surrounded by an ocean on both sides, natural
    resources, and large domestic market driven countries didn't
    grow up that way. Japanese countries didn't grow up that way.
    They knew they had to export in order to grow and survive.
        We have to change the mentality of American companies. They
    are in a globalized world and they freely need to do more. The
    second reason is that the dollar is the world's reserve
    currency and in my view at least for too many years that has
    led to an evaluation of the dollar against other currencies
    that are too high to reflect the competitiveness of our
    exports. Additionally, we face a lot of trade barriers around
    the world. We need to get those trade barriers down somehow,
    and that is why the NAM has favored bilateral free trade
    agreements, and without wanting to get into a debate over free
    trade agreements, I just want to note the fact that last year
    we had a manufactured goods trade surplus of $21 billion with
    our free trade partners as a group, 6 billion of which was with
    GAFTA, which used to be in deficit before the agreement went
    into effect. With countries with which we don't have trade
    agreements, we have $477 billion deficit with about 277 of that
    being with China with whom we have no trade agreement.
        But having access to markets, being competitive, wanting to
    export is not enough. You got to market. Just like an
    individual company a country has to market its exports, and
    here I think we really do a very inadequate job. I look at
    Commerce is doing well with what it has got but I look at the
    resources. Last year, Commerce had about $330 million for
    export promotion. The Department of Agriculture had twice that
    amount, 600 and some million or clearly our national priority
    goes on promoting agricultural exports and not manufactured
    goods. And I don't want to stop promoting agricultural goods,
    you know. As Ms. Hale noted, 1/3 of our agricultural production
    is exported. That is great, and we need that, and I would like
    to see it go even higher but only 1/5 of our manufacturing
    export production is exported, and if we could get that up to
    1/3 by my back of the envelope calculation, we would pick up
    another 1.3 million jobs in America's factories, maybe a
    million and a half.
        Now promotion programs work. The figures I have seen, and I
    believe they are reliable, at least 100 to 1. For every dollar
    you put in to export promotion you get at least $100 in
    additional exports and that is a stream that goes into the
    future. Now if you and I could put that into our personal
    portfolios, we would all jump at it, so why doesn't the U.S.
    government? Because they don't know. So that is why this
    hearing is so important. I would like to ask that the World
    Bank document, export promotion agencies, what works and what
    does not, which says every dollar of export promotion produces
    $300 of exports, I would like to ask this be put in the record
    of this hearing.
        Mr. Rush. By unanimous consent, the document will be placed
    in the record.
        [The information appears at the conclusion of the hearing.]
        Mr. Vargo. OK. Thank you, sir. I don't want to take
    anything away from the Agriculture Department. I admire their
    programs. I wish the Commerce Department could do more. I know
    that proportional to the amount of agricultural and
    manufactured exports because manufactured exports are 10 times
    as large as agriculture. If Commerce really had the same
    proportional budget, it would have a $6.4 billion export
    promotion budget, not 300 million. Now I know the department
    has a huge deficit and we have a huge stimulus program so here
    comes the NAM and says, you know, could we have another 6
    billion for export promotion, but the fact of the matter is
    these programs pay for themselves. They will generate a flow of
    tax revenue that will more than pay for it.
        So again I am thrilled that this subcommittee is holding
    this hearing and look forward to working with you, Mr.
    Chairman, the members, your staff because we have to make the
    priority of exports more visible. We are either going to pay
    our way in the world or borrow our way, and we have already
    seen, we have got a $5-1/2 trillion accumulated trade deficit
    already, thank you very much, so I would like us to exporting
    more and paying our way in the world. We can do it but so many
    small companies just don't have the time to fly over to Europe
    or fly over to China, and what do they do when they get there?
    You know, they need more help. The help they get is good, but
    it is much, much too small. Thank you, sir.
        [The prepared statement of Mr. Vargo follows:]

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        Mr. Rush. Thank you so very much. And now the chair
    recognizes Ms. Liz Reilly. Ms. Reilly, we recognize you for the
    purposes of an opening statement. Would you please limit your
    statement to 5 minutes, and thank you for your attendance here
    today.

                        TESTIMONY OF LIZ REILLY

        Ms. Reilly. Thank you. Thank you, Chairman Rush, Ranking
    Member Radanovich, and other members of the committee. I
    greatly appreciate the invitation to speak to this subcommittee
    on this wonderful Irish day. The U.S. Chamber of Commerce is
    the world's largest business federation representing 3 million
    businesses and organizations. TradeRoots is the only sustained
    national trade education program dedicated to raising public
    awareness around the importance of international trade to local
    communities. Our partners include local chambers of commerce,
    trade associations, economic development groups, and federal
    agencies. Last year we hosted and visited over 300
    congressional districts where we talk about business and the
    importance of exporting and the resources that are available to
    do it.
        Ninety-five percent of the world's population lives outside
    the United States. In these challenging economic times America
    must find a way to sell our things to these potential
    customers. Fifty-seven million Americans are employed by firms
    that engage in international trade. That is 1 in 5 factory jobs
    that depend on exports as well as 1 in 3 acres of American
    farms that are planted specifically for export. In 2008, the
    U.S. set a new record and exported nearly $2 trillion of goods.
    That is over 13 percent of our GDP but it should be more. Most
    Americans, however, tend to regard international trade as the
    domain of large multi-nationals when in fact 97 percent of all
    exporters are SMEs. That is close to 240,000 companies and our
    overseas sales represent nearly a third of all U.S. merchandise
    exports.
        America's small business people are the most innovative and
    hard working entrepreneurs in the world. We have told many of
    their success stories as part of our Faces of Trade series
    where we celebrate companies that are exporting made in USA
    products around the world. If more U.S. businesses were able to
    seize export opportunities, the gains could be immense. The
    World Bank site that Mr. Vargo just cited says that $1 spent in
    export promotion brought a 40-fold increase in exports, and 40
    to 1 is not a bad return on investment. To address this need,
    the U.S. Chamber proposes a doubling of federal expenditures on
    export promotion to small business. From Seattle to Savannah,
    many U.S. companies are just not aware of the government
    services that are available to help them break into these new
    markets. I have talked to so many who have never heard of the
    U.S. department export assistance centers or the foreign ag
    service or that Ex-I Bank exists, let alone gives out loans.
        And I don't think this is the fault of American business
    owners. Rather, I think it reflects the inadequate resources
    dedicated by the federal government to promote these services
    adequately. Some companies have had challenging experiences
    with the commercial service offices overseas. Quality Float
    Works in Schaumberg, Illinois, was telling me that they
    normally fare very well until recently when the officers in
    Dubai were so understaffed that they were unable to assist in
    setting up business meetings. Other companies such as Askinosie
    Chocolate in Springfield, Missouri, have worked with their
    USEACs but they cannot afford a fee. With over 15 percent of
    Askinosie's gross revenue coming from overseas markets, finding
    a new one is imperative for their growth.
        Additional funding for the Department of Commerce should
    eliminate or lower these Gold Key Service costs for small
    businesses. Closely affiliated with the USEACs are 60 district
    export councils that combine the energies of more than 1,500
    exporters. We recommend selecting an ex officio DEC member to
    participate on the President's export council in order to
    represent small business. Another exporter, York Wire and Cable
    of York, Pennsylvania, was recently telling me about the
    positive impact of Market Access Grants at the state level.
    Export-ready companies in good standing are eligible for $5,000
    to explore new markets through trade shows, trade missions, and
    internationalizing their web sites. A similar grant system
    should be created at the federal level for companies around the
    country. Market Development Cooperator Program Grants, MDCP,
    are another effective tool for export promotion. TradeRoots was
    actually founded based on an MDCP Grant to educate small
    businesses on exporting and as a result of our grant we reached
    more than 3,800 SMEs and helped generate more than $9 million
    in U.S. exports.
        We support continuing and expanding MDCP Grant funding. An
    additional way to promote U.S. exports would be for Congress to
    pass the pending trade agreements with Colombia, Panama, and
    South Korea. These accords would provide an estimated 42
    billion over 5 years for American workers and farmers. More
    than 25,000 SMEs are already exporting to these countries and
    this number could rise sharply with their implementation. A
    final priority should be to ensure adequate funding for
    programs dubbed trade capacity building. The United States
    spends more than 1.3 billion annually, which is important to
    maintain.
        In closing, investing in export potential of America's
    small and medium-sized businesses is crucial to stimulating our
    economy. I greatly appreciate the opportunity to testify today.
    The U.S. Chamber of Commerce stands ready to work with you on
    these and other important challenges in the year ahead. Thank
    you very much.
        [The prepared statement of Ms. Reilly follows:]

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        Mr. Rush. The chair thanks you so very much for your
    testimony, Ms. Reilly, and the chair thanks all the witnesses
    for their opening statements. The chair now recognizes himself
    for 5 minutes for the purpose of asking questions of this
    outstanding panel. I will begin with Mr. Vargo. Mr. Vargo, you
    mentioned in your testimony the importance of penetrating new
    and promising markets. In my home State of Illinois, Canada is
    the first trading partner, followed by Mexico and then China.
    There is an old adage that says never put all your eggs in the
    same basket. In the trade context, it means it would be wise to
    diversify our export clientele and not put all our exports in
    the NAFTA basket.
        Mr. Vargo, I have two questions. Have you identified a
    region of great opportunities for U.S. businesses, and have you
    also identified a specific part or section that needs to be
    expanded in that particular market? How do you go about making
    such an assessment, and what specific change do you think the
    government needs to undertake to increase exports to these
    countries? That is about five questions rather than one.
        Mr. Vargo. Thank you, Mr. Chairman. You are right. For your
    state and most others, NAFTA is the largest export market.
    Europe generally is number two. In our eyes, the most rapidly
    growing area, it is taking some economic hits right now, is
    Asia, China and other parts of Asia, but over the longer term
    there is going to be an enormous amount of growth there, and we
    need to do more. Asia, it is culturally different from the
    United States. For most people, they don't know what to do when
    they get there. We need a lot more assistance.
        I would also point to Europe. Why Europe? Because the
    European Union is a fairly easy market to sell to, and a lot of
    our companies, especially smaller companies, sell there already
    but they only sell to one or three markets in the European
    Union. Now if they can sell to Britain or Germany, they can
    sell to France, Italy, other countries, but they don't, and we
    don't have enough export promotion resources to make it easy
    for them to find customers and distributors in those markets,
    so I would pick those two markets. And what should we do? In
    China, I think, and some other Asian countries, I think
    American companies need more depth of assistance than they are
    getting. We had one of the commerce departments set up American
    trade centers in all major cities in China, physical facility
    with display space, temporary office space for companies. They
    can't do it. They don't have the resources.
        In Europe some of the most effective components of sales
    for American exports are what are called the FSMs, the foreign
    service nationals, who work for the commercial service. They
    know the local markets. Again, Congress doesn't have the money
    to hire enough. So I think it is doable, but it comes down to
    resources and the national priority. And, frankly, I just don't
    see a national priority for export expansion yet.
        Mr. Rush. I want to ask Ms. O'Neill and Ms. Hale in the
    time I have left, which is about 1 minute and 15 seconds, what
    are your respective agencies doing to identify emerging markets
    and what are emerging markets as far as you are concerned? How
    would you define emerging markets?
        Ms. O'Neill. Thank you for the question, and I think Frank
    went to a good bit of where we would say the largest
    opportunity for exports, and that is in Asia. I think we would
    probably define an emerging market as one where we haven't had
    big U.S. expert penetration yet, but that there are also
    perhaps not the same legal and regulatory infrastructure in the
    market and where services on the ground are particularly needed
    to help U.S. companies navigate and identify opportunities in
    those markets. But I would say our attention has shifted to
    Asia, India, where it is more difficult for companies to do
    business.
        Ms. Hale. I think one of the key things in identifying
    emerging markets is a market where incomes are increasing. We
    find that as incomes increase people eat more meat. They eat
    more vegetable oil. There is a growing middle class. People go
    out and eat fast foods and enjoy American potato products. And
    so we are seeing a lot of growth in Southeast Asia, also in
    Central America, and it is very often related to growth in
    income.
        Mr. Rush. Now the chair recognizes the ranking member, Mr.
    Radanovich, for the purposes of questioning for 5 minutes.
        Mr. Radanovich. Thank you, Mr. Chairman, and again
    appreciate the panel members for your opening statements and
    for being here today. I wanted to first ask Ms. Hale,
    Ambassador, regarding the FAS and your recent reorganization,
    can you explain to me how this reorganization has led you to
    perform more efficiently for agriculture?
        Ms. O'Neill. I think one of the key things is that we are
    better staffed now to address the kinds of technical trade
    barriers that you mentioned before. We have an Office of
    Science and Technical Affairs that works with our sister
    agencies at USDA like the Animal and Plant Health Inspection
    Service, the Food Safety and Inspection Service, to overcome
    and remove some of these technical barriers to trade. We also
    have an office that is doing more strategic planning on a
    country basis. We are better staffed to look at individual
    markets and bring together all of the department's resources in
    an integrated strategic plan, the kind that Dr. Yager was
    talking about.
        And then we also have all of our trade assistants programs
    in one area so we have good coordination between our credit
    programs and our other marketing programs like the MAP program.
        Mr. Radanovich. Thank you very much. Can you tell me within
    your reorganization and such, is there an increased effort on
    the part of governmental staff in export promotion to kind of
    replace some of the work that maybe commodity and crop
    associations currently undertake?
        Ms. O'Neill. No, sir. We are partners. Everything we do, we
    do with industry and industry contributes very significant
    amounts of money for our programs. They are putting more into
    the programs than what we are putting in to them, and we rely
    on their technical expertise. They know--they are the experts
    in how to run feed trials to show people how to use soybean
    meal to improve their productivity. They do things that our
    staff could just never do on our own, and so that partnership
    has been very important over the years.
        Mr. Radanovich. Very good. Thank you very much. One more
    question, and that is can you give me an idea on the Uruguay
    Round, what might have been new export markets that have been
    opened up as a result of that?
        Ms. O'Neill. From the--goodness, that is a way back. We are
    talking about----
        Mr. Radanovich. It is a little way back.
        Ms. O'Neill. Yes. I think one of the most important
    accomplishments in the Uruguay Round was the TBT agreement, the
    Technical Barriers to Trade agreement. That isn't addressed to
    a specific market, but what that agreement did was to make
    international standards the norm for addressing technical
    issues. So we have the OIE is the Animal Health Organization.
    KODAC sets food safety standards. There is an SPS agreement
    that sets plant health standards. And what the TPT agreement
    and the Uruguay Round did was make those international
    standards WTO standards, and so we can use the World Trade
    Organization's dispute resolution mechanism to resolve cases
    when we have technical barriers to trade, and that is a big
    improvement.
        Mr. Radanovich. Very good. Thank you very much, Ambassador.
    Dr. Yager, welcome to the committee. I notice that the TPCC
    consists of about 20 different agencies. Can you give me a
    sense as to whether or not it is an advantage to have 20
    different agencies sharing the same goals or, you know, maybe
    just having one single effort? Can you give me an idea what the
    advantages or disadvantages might be?
        Mr. Yager. Well, the TPCC was created, I guess, in the
    early 1990's, and there were some questions from the Congress
    at that time as to whether all the different agencies that had
    a small piece of export promotion were actually working towards
    the same goals, and so it has existed for about 15 years. We do
    think there is a big advantage in having an organization that
    brings together the export promotion efforts of the different
    agencies. There may be a large number of agencies, but
    realistically there is only a few that do the broad percentage
    of the export promotion efforts, so after you get through
    commerce, agriculture, and the Export-Import Bank, which is
    also a fairly large lender and provider of credit to U.S. firms
    many of the other agencies are much smaller in terms of their
    funding and the kinds of contributions they make to export
    promotion.
        We do believe that getting together and having a single
    report which they put out every year and trying to follow up on
    that to show, for example, if they target big emerging markets
    in one year, we think it is very valuable for them to come back
    the next year and say we were successful, here are some
    measures for how much we were able to accomplish in big
    emerging markets, for example. We think that kind of follow-up
    is very important, so we do think it is a good idea to have the
    trade promotion coordinating council.
        Mr. Radanovich. Very good. Thank you, Doctor, and thank you
    for the time, Mr. Chairman. I am assuming there will be a
    second round of questions?
        Mr. Rush. Yes, the chair does intend to engage in a second
    round of questioning. Our next member recognized will be Ms.
    Matsui of California for 5 minutes.
        Ms. Matsui. Thank you, Mr. Chairman. As you know,
    California is home to one of the world's largest trade markets,
    and there are a number of small and medium businesses in
    California who export their brands and services. But a lot of
    them have not reached their export potential, as we know, and
    there are a variety of services available, both by the
    government and by business associations but a lot of the
    businesses are not aware of this. Ms. O'Neill, I would like to
    ask about the budget situation in the U.S. Commercial Service.
    When my office called a local U.S. Commercial Service Expert
    Assistance Center in my congressional district, I learned there
    was only one staff person there responsible for 22 California
    counties.
        Now our counties are pretty large in California, and this
    one person coordinates all the outreach, the trade missions and
    consultations with individual companies. Now over the last 5
    years, the U.S. Commercial Service budget has remained
    relatively stagnant. It looks like it will increase this year
    maybe less than 1 percent. Is the Department of Commerce asking
    for more resources?
        Ms. O'Neill. Thank you, and you are right. Our largest
    presence in the states is in California and I will certainly
    take back your concern about our staffing level in your
    district. We look forward to working with the new team as
    Governor Locke is hopefully confirmed soon. There have been a
    lot of interesting ideas here today, and I certainly look
    forward to working with Governor Locke and his team to explore
    what might be possible in the export promotion front.
        Ms. Matsui. Mr. Vargo, do you see a similar situation in
    other export assistance offices around the country?
        Mr. Vargo. Regrettably, yes. If there is one thing that we
    could do up front, it would be to significantly increase the
    staff of our district export offices so they can get around
    more and work with companies. As I have noted, the typical
    small business owner is worried about his line of finance from
    his bank, keep holding on to his or her as customers. They just
    don't have time to wander through the Internet or fly over to
    China or France or somewhere. We have got to have the
    commercial specialists go out and reach them, make it easy for
    them. If they make it easy for them, they will do it. Believe
    me, they will do it. We have got lots of examples. The
    resources just aren't there.
        Ms. Matsui. But can you tell me how you compare America's
    export promotion policies to those in Canada and Europe, Japan,
    and China?
        Mr. Vargo. Well, they take their export promotion much more
    seriously than we do. They realize that this is where their
    future is. This is where their growth has to be. And we haven't
    gotten the joke yet frankly. We are missing the boat. I am
    under oath so I won't say that I know for 100 percent this is
    positive. I hear that Canada has more commercial officers
    around the world than the United States does, and if that is
    true, that is ridiculous. Now I do know that the Australian
    trade minister recently looked at the Market Development
    Cooperator Program that principally the Agricultural Department
    uses and the Commerce too a little bit, and threw another $100
    million into it for Australia because they see this as a way to
    expand their exports, so other countries are really pushing
    hard, and we are missing out.
        Ms. Matsui. I am concerned because I feel that trade is
    very important and we have a huge trade deficit. As you say,
    all of you say, that it would be important to get the export
    business moving along, and it seems to me that within the last
    several years we haven't been doing that. We have been reducing
    our resources to do that. And my sense is that had we gone
    ahead and really funded or beefed up the resources, we might
    have been able to encourage others to actually get out there. I
    am wondering whether any of you can answer this question. Has
    there been a change in the type of assistance given?
        I think in Mr. Vargo's testimony he was saying that it
    goes--there is not as much outreach and that the businesses
    aren't getting as much assistance in the foreign offices as
    they might be because they aren't staffed, and there might be
    more trade favors and things of that nature more than anything
    else. Can you comment on that and what direction you think we
    should be going?
        Mr. Vargo. May I comment?
        Ms. Matsui. Yes.
        Mr. Vargo. Because our government witnesses may feel a
    little constrained. The budget situation I believe is so severe
    that offices are being closed in Europe, for example, to be
    able to move commercial officers to China and other parts of
    Asia. The worse thing is, I am not sure that they actually have
    enough funding to fill those new positions, so we may find they
    are cutting some positions and not filling others. And even if
    they are moving them, you know, that still leaves Europe our
    second largest market with inadequate resources. Could I put in
    one plug though for Mr. Chairman and members of the committee?
    When Governor Locke is confirmed as Secretary of Commerce,
    please bring him up here. Share with him your views on expert
    promotion. Governor Engler, our president, is going to go over
    and see Secretary Locke as soon as he is confirmed on this. I
    would like to have him hear from the subcommittee as well.
        Ms. Matsui. Thank you. That is it.
        Mr. Rush. The chair thanks the gentlelady. Your time is up.
    Now the chair recognizes Mr. Scalise from Louisiana for 5
    minutes.
        Mr. Scalise. Thank you, Mr. Chairman. In Louisiana our port
    systems actually have been doing very well. The increase from
    2007 to 2008 was about 38 percent, so we have been promoting
    more exports--different exports, I am sorry, but we have also
    been starting to prepare for the widening of the Panama Canal
    coming up in the next few years, which gives us a lot of
    opportunities to increase both imports and exports. I want to
    get each of your takes if I could go down the table starting
    with Ms. O'Neill on what things are being done to prepare for
    the opportunities that would exist once the Panama Canal is
    widened.
        Ms. O'Neill. As with all our free trade agreements, we work
    very closely with USTR and the negotiators to identify exactly
    where the market access opportunities are and develop
    promotional materials around those opportunities. You have hit
    the nail on the head. The Panama Canal activity is going to be
    a key interest for a number of our companies, and we look
    forward to getting the word out on the opportunities there.
    Even independent of the agreement, we continue to work with our
    officers on the ground in Panama and with U.S. industry to make
    sure that we are well positioned to take advantage of those
    opportunities.
        Mr. Scalise. Thank you. Ms. Hale.
        Ms. Hale. A lot of our corn and soybeans that are exported
    to Asia go through the Panama Canal, and the constraint now is
    the size of the canal. The ships that go through there are
    called Panamax because it is the maximum size that can go
    through the Panama Canal. And so with a larger canal if we can
    increase the size of our ships, it would make our shipping more
    efficient, keep our shipping costs down and make us more
    competitive in Asia.
        Mr. Yager. One of the things that we are aware of in doing
    the work on imports and trade is that the ports on the West
    Coast, particularly the container ports of Los Angeles and Long
    Beach in fact are dominant in terms of shipping many of the
    goods and services. I think the opening of the Panama Canal
    offers an opportunity to have some of that trade diverted to
    other ports on the eastern side of the continent which I think
    would reduce some of the congestion. One of the challenges that
    we have in the United States is port infrastructure, as you
    probably know, and I think you have been doing some things in
    New Orleans but some of the ports on the West Coast are
    challenged due to the volume of trade, particularly container
    shipping that is coming in, so I think that will open up some
    options for eastern ports such as your own.
        Mr. Scalise. Mr. Vargo.
        Mr. Vargo. Well, certainly the widening of the Panama Canal
    I think will be good for the Louisiana ports and others but in
    addition the project is one of the world's largest construction
    projects and we want the American equipment, American
    technology used there so the sooner we have that trade
    agreement and get preferential access to that huge construction
    project the better off we are. And I was very encouraged that
    President Obama's trade policy statements that he expected that
    this agreement could move relatively quickly. We export about 5
    billion a year to Panama already. I would like to see that
    grow. In a good period downhill with the wind behind its back,
    Panama will export as much to us in a year as China does every
    6 hours so there is certainly no threat there.
        Ms. Reilly. Thank you, and I would just have to echo
    basically what the whole panel has said that the need to widen
    the Panama Canal is very important to U.S. business, obviously,
    to first get goods moving quicker, reduce congestion, but as
    well as the project and expanding it itself, that will allow--
    the free trade agreement will allow U.S. companies access to
    bid on the expansion project.
        Mr. Scalise. Thank you. Ms. Hale, last year we had a 40
    percent increase in agriculture exports. What was that
    attributable to? Was there one thing or series of things?
        Ms. Hale. That is on a value basis and so part of the
    increase was because of higher prices but we are also seeing
    just across the board increase in demand. In CAFTA we have seen
    a 30 percent increase in agriculture exports to Central America
    with growing middle class. In places like China we are seeing
    big increases in exports of products like soybeans which are
    used for vegetable oil there, crushed there and used for
    vegetable oil and then animal feed because consumption of
    livestock products are increasing. So there isn't one reason.
    It is a different reason in each market but we are continuing
    to see good demand for U.S. agricultural products.
        Mr. Scalise. Thanks. And then one final question in my last
    few seconds for Ms. O'Neill. It does seem like we got a surplus
    on exports of copyrighted material, music, movies. Considering
    the problems with copyright infringements in other countries on
    those types of products, what is being done on our side to try
    to protect the intellectual property from copyright of
    violations so that we can even increase more of that margin?
        Ms. O'Neill. Just a great example of public-private
    partnership, we have worked closely with the Chamber and other
    multipliers to develop a program that we call Stop Fakes. It is
    a combination of technical assistance to companies that is
    helping them understand how to protect their intellectual
    property before they go into foreign markets, what resources
    are available to them once there are challenges once they face
    a problem in a market. And then we are also redoubling our
    efforts overseas to work with foreign governments to improve
    their enforcement of their intellectual property rights and
    make sure that U.S. products and services are protected
    overseas.
        Mr. Scalise. Thank you. Thank you, Mr. Chairman.
        Mr. Yager. Mr. Scalise, if I could just briefly answer
    that. I was in China last week actually looking at the issue of
    intellectual property protection, and one of the things I can
    point out is that U.S. agencies in some cases who have not had
    a presence abroad before such as a patent and trademark officer
    now also putting some of their specialists into key places like
    southern China where a lot of the world's manufacturing takes
    place, so there is now a PTO representative in southern China
    that helps U.S. firms understand the legal system, communicate
    with the Chinese government, and simply just be there to help
    U.S. firms think about how to protect intellectual properties
    so that they can----
        Mr. Scalise. Is the government cooperating, the Chinese
    government cooperating?
        Mr. Yager. Yes, they are working more closely with the
    Chinese government on that. It is a long-term effort though. It
    doesn't happen overnight, but we think that that specialized
    personnel does offer some advantages and can get some results
    for U.S. firms.
        Mr. Scalise. Thank you.
        Mr. Rush. The gentleman's time is up. The chair now
    recognizes the gentlelady from Ohio, Ms. Sutton, for 5 minutes.
        Ms. Sutton. I thank the gentleman and I thank you all for
    your testimony. We are talking about exports now and I
    appreciate that, but I do think that it is somewhat a mistake
    to try and isolate exports out of our international trading
    system and just talk about it in a vacuum so bear with me and
    if you don't have the responses today, that is OK, because I am
    going to talk a little bit more about the interconnectiveness
    of our system.
        I am going to begin by an article that I would like to have
    permission to enter into the record from bloomberg.com.
        Mr. Rush. By unanimous consent, so ordered.
        Ms. Sutton. Thank you, Mr. Chairman. This article was dated
    December 14, and it came in the wake of the passage of the Peru
    free trade agreement, and I know, Ms. Reilly, you talked about
    your hope and the hope of your association that we might pass
    the Colombia free trade agreement so it is relevant as we
    consider that possibility. Now we heard that this trade
    agreement was, quite frankly, just a small piece of trade, you
    know, in the scheme of things and not that big of a deal, and
    we heard how it was going to open up our markets, and I am all
    for exporting American goods, but I am not for exporting
    American jobs, and so I was struck right after this Peru free
    trade agreement was passed that Peruvian President Alan Garcia
    urged American companies to invest in his country and said
    specifically come and open your factories in our country so we
    can sell your own products back to the U.S., Garcia told
    business executives today.
        Of course, where you have oil, mining, agriculture,
    fishing, and manufacturing firms, he urged them to flock to his
    nation of 29 million people which has a per capita income of
    less than $3,000 a year. So the point is not all jobs are
    created equal. We talk about jobs a lot of times in these
    discussions about trade but obviously we weren't just talking
    about exporting to this market. We are also talking about
    trying to export jobs or at least we are not trying to export
    jobs but there is certainly a reference to that. And I would
    just like to hear from Mr. Vargo and Ms. Reilly, if I could,
    about what you think about this.
        Mr. Vargo. I noted that article also, and certainly
    everybody wants more foreign investment in their country. We
    want it too. When we look at the record though, and I will be
    happy to send you data that the Bureau of Economic Analysis
    from the Commerce Department does, we have not seen this large
    sucking sound and out flow of manufacturing investment to
    countries with which we have free trade agreements. About 75
    percent or so of the foreign direct investment from
    manufacturing goes to the industrial countries, principally
    Europe. It does go to Canada, Japan, and about 90 percent of
    the output there is for local consumption, so one can read many
    different things into this, and I would be pleased to meet with
    you and exchange views on the data, but I would like to make
    sure that the data are available.
        But when we look at, again, the record with our free trade
    partners, we see that they have never been a large percentage
    of our trade deficit, 10 percent, 5 percent, something like
    that, and now they are as a group in surplus, so certainly it
    is very good to be concerned and again we can have a variety of
    views but when I look at the data, and I used to run the
    research office in the Commerce Department so I never met a
    number I didn't like, I draw different conclusions. But it is
    good to be vigilant and it is good to ensure that our trade
    agreements do what we expect them to do, and we have seen our
    exports increase more rapidly to every country with which we
    have entered into a trade agreement than before.
        On Colombia, for example, 2/3 of our imports from Colombia
    are oil and other mineral fuels, and we would like to have
    secure sources of energy close to our borders. I thank you for
    the question.
        Ms. Sutton. And I look forward to following up because I
    agree that numbers and data can say many things.
        Mr. Vargo. Right. Thank you.
        Ms. Reilly. And I would also say that I also saw that
    article and know what you are referring to. Regarding Peru
    specifically, our position is a little bit differently where we
    look at the thousands of small companies that are already
    exporting to Peru and the added tariff that was being put on
    those goods which was an average of about 15 percent, so we
    just look at those numbers and think about the potential of
    once that agreement goes into place all the added value that is
    going to come back to those companies here in the U.S. and be a
    benefit on the bottom line.
        Personally, I work with companies all around the country
    and I have not yet heard of any that are planning on relocating
    to opening to Peru in regards to this agreement.
        Ms. Sutton. I appreciate that, Ms. Reilly, and actually
    that was just sort of an example to open up the discussion. It
    really wasn't about Peru per se. And I look forward to having
    more conversation as this hearing goes on. Thank you.
        Mr. Rush. Thank you very much. The chair now recognizes Mr.
    Stupak for 7 minutes for questioning.
        Mr. Stupak. Thank you, Mr. Chairman. Instead of talking
    about trade promotion, I want to talk about trade enforcement.
    In fact, Mr. Vargo, on page 5 of your testimony you say top
    trade priority for the United States is opening foreign markets
    for U.S. goods and services by insuring that the U.S. trading
    partners comply with existing trade agreements. I think it was
    Dr. Yager or Mr. Vargo.
        Mr. Yager. I believe it is in my statement.
        Mr. Stupak. Mr. Yager. So let me ask you this. On trade
    agreements as a general rule can countries refuse to allow
    products into their country if it is not safe or may jeopardize
    the health of the people?
        Mr. Yager. I think the guidelines that are written in the
    trade agreements is that they have to be legitimate concerns.
    They have to be technical concerns that also do not
    discriminate against foreign products, and so if there is----
        Mr. Stupak. Sure. Well, let us just take China since that
    is our base trade agreement, like melamine, toys, heparin, the
    drug for blood anticoagulant. It is all right for the U.S. then
    to refuse products from China if we can prove that there is
    concern about the health and safety of the American people.
        Mr. Yager. Well, I think there are a number of steps. I
    think you have also addressed some of these in prior statements
    about the ability of the United States to, in fact, put
    inspectors abroad, for instance, the Food and Drug
    Administration to make sure that plants in China do get
    inspected on a regular basis, so I think there are a variety of
    ways that the United States can try to assure that the goods
    that are coming in from----
        Mr. Stupak. Sure, but as a general rule a country can
    resist a product if it threatens the health and safety of its
    people.
        Mr. Yager. The United States can prevent products from
    coming in if the kinds of efforts that take place are not
    discriminatory.
        Mr. Stupak. Sure. So I was reading today in the Congress
    Daily in the hill briefs that are on page 6 of today's Congress
    Daily where President Obama has put a halt to the program which
    allowed up to 500 Mexican trucks to move across our border
    without the strict mileage limitations because of the concerns
    for the health and safety of those vehicles and drivers on our
    highways, and the Mexican economy department has said that it
    will--it violates the North America Free Trade Agreement and it
    is going to retaliate with cancellation of truck access by U.S.
    trucks. Now how does that jive with what we just said about it
    is supposed to be fair and open if we have legitimate concern
    about these trucks, Mexican trucks, that haven't passed muster
    since we passed NAFTA, which I believe was about 1994 or '93,
    August of '93, if I remember correctly. And after 16 years we
    still don't feel these products are safe. So it would be in our
    general rule, it would be illegal for Mexico to retaliate,
    would it not?
        Mr. Yager. I don't know that case specifically, but I do
    know prior that the Mexican government did, I think, win the
    panel ruling that allowed them to gain access to U.S.--to
    further U.S. markets through their trucking, so I would have to
    look and do some more research on that, Mr. Stupak.
        Mr. Stupak. Let me ask you this then. Dumping, illegal
    dumping where you undercut the price and put your surplus in
    another country, that has always been considered illegal under
    all trade agreements, right? Can you explain to me how back a
    year or so ago underneath new page in which China and Indonesia
    and Korea were dumping treated paper--excuse me, glossy paper,
    high gloss paper, in this country illegally. The Commerce
    Department said it was illegal, and we put tariffs in. They
    appealed to the ITC. The ITC ruling basically said, well, true,
    particularly with the case of China, they are dumping but it
    has a small effect on the U.S. economy, therefore, the tariffs
    were taken off. Is that now the standard for illegal dumping?
    Illegal dumping is legal as long as it doesn't have a major
    impact on one's economy?
        Mr. Vargo. Could I answer that?
        Mr. Stupak. Sure.
        Mr. Vargo. Actually the Nupage case wasn't dumping. It was
    subsidies, and the NAM was instrumental in getting the Commerce
    Department to agree that our countervailing duty statutes would
    be applied against subsidies so we----
        Mr. Stupak. Because of illegal dumping. China was dumping
    here for less than the cost.
        Mr. Vargo. But the way the U.S. law is set up, and it has
    been set up a long time ago, in order for there to be dumping
    or countervailing duties applied two things have to happen. The
    Commerce Department has to find that they are selling in the
    U.S. at less than they are selling at the local market or the
    selling at less than the cost of production. That is what
    Commerce does.
        Mr. Stupak. And they found they were selling at less than
    cost production?
        Mr. Vargo. They absolutely did. That is true. The
    International Trade Commission then as part of the law, which
    Congress passed a long time ago, said it has to find injury.
    Was that industry injured, and in this case the ITC found no,
    so it is not a change in practice. We can question the decision
    but anyway they followed the practice. There has been no change
    in practice, but let me just for the record say the NAM
    strongly supports the application of U.S. dumping laws and
    countervailing duties.
        Mr. Stupak. For most of us dumping is dumping whether it
    costs one job or in this case in the paper industry 550 jobs.
    People lost their good paying jobs because of this illegal
    dumping, so the wrinkle of this so-called economic injury if
    you read the opinion of the ITC if the injury was greater, more
    economic injury to the U.S. than it would have been illegal.
    Most Americans are under the impression illegal dumping is
    illegal.
        Mr. Vargo. But by U.S. law in order to be illegal it has to
    have caused injury.
        Mr. Stupak. So if 550 people lost their job, it is not
    injury?
        Mr. Vargo. I am not arguing, sir, on that case. I am just
    telling what the law says.
        Mr. Stupak. So when did Congress pass that crazy law?
        Mr. Vargo. 1970s.
        Mr. Stupak. 1970s before we had the big explosion in trade.
    Ms. Reilly, let me ask you this. You indicated that we should
    pass the Korea free trade agreement, and coming from Michigan,
    the auto state, in our automobile trade with Korea, 87 percent
    of the deficit, trade deficit, between U.S. and Korea, and U.S.
    Korea trade deficit is $107 billion we are in the hole, in 2006
    South Korea sold over 700,000 vehicles here in the U.S. but the
    U.S. was only allowed to get in 4,556 vehicles, so Korea,
    according to our research uses tariffs, prohibitive and
    discriminatory taxes, and regulations designed to keep our
    imports out so how is this fair and free trade, why should we
    pass Korea trade agreement when we can only get 4,500 of our
    cars into Korea but yet they are allowed 700,000 in our
    country?
        Ms. Reilly. I appreciate your concern on that, and I cannot
    speak to the specifics of the autos issue within that agreement
    but from a broader standpoint the reason that we believe that
    we should pass the Korean agreement is because Korea is our
    seventh largest trading partner in the world.
        Mr. Stupak. Even though they use tariffs, prohibitive,
    discriminatory taxes and regulations to keep our products out,
    we still should trade with them because they are seventh
    largest?
        Ms. Reilly. They are seventh largest for those goods as
    well as our sixth largest for agricultural goods so they are a
    tremendous potential customer for our companies.
        Mr. Stupak. So when does wrong become right? We have the
    health and safety of the American people. We have
    discriminatory tariffs, regulations, taxes, illegal dumping,
    but we all say that is OK. That is not fair and free trade to a
    lot of us up here----
        Ms. Reilly. I don't think we are saying that that is OK,
    and I think that there is a lot of things that go into free
    trade agreements, and I am not privy to those discussions and
    those negotiations, but all of those things ultimately come
    out. That is where they talk about the importance of labor and
    environmental protection in these countries, as well as patent
    protection, and IPR protections for different products within
    these countries. There are a lot that go into them, and while
    they do have certain flaws, we believe as a whole they are
    beneficial for----
        Mr. Stupak. Do you think we should continue trading if
    these issues remain unresolved?
        Mr. Rush. The gentleman's time is up. We will have a second
    round. The chair now recognizes the gentleman, Mr. Braley, for
    5 minutes.
        Mr. Braley. Thank you, Mr. Chairman, for holding this
    important hearing. I want to follow up on Mr. Stupak's
    questions because I think it is a very important conversation
    to have. A lot of us up on this panel believe strongly in the
    concept of free trade when it is married with the concept with
    fair trade, but a lot of us see gross inequities in our current
    trading system that imposes an unfair burden not just on U.S.
    workers but on U.S. companies competing in a global market
    place. I want to follow up on Mr. Stupak's point about the
    Mexican trucking agreement, which many of us in Congress fought
    to terminate despite strong objections from the Bush
    Administration.
        And I sat in on the hearing in the Transportation
    Subcommittee on Highways and Transit when we discussed that
    agreement at length. And on paper it looked like it created an
    equitable system because Mexico was required to comply with the
    same requirements that U.S. trucking companies are required to
    comply with to operate in this country. And, in fact, anyone
    like myself who used to be a commercial truck operator was
    provided a little green handbook that the Federal Motor Vehicle
    Safety Commission gives to every licensed truck driver to
    understand the rules of the road and also the rules of
    responsibility that go with operating a commercial vehicle. And
    one of those includes maintaining a driver's file so that
    anyone who causes damage whether commercially or personally
    while operating that truck has a source of accountability and
    that accountability is verifiable in this country.
        And one of the concerns many of us had about that Mexican
    trucking program is there was absolutely no corresponding
    transparency on the other side of the border to assure the
    safety of American citizens from the owners of these Mexican
    trucks, and nobody from the Bush Administration could identify
    a similar source of verifiable information when these trucks
    crossed our border, so it was not a fair competition. And the
    same point that Mr. Stupak was raising is another concern. If
    you go back and read the Soviet Constitution, you would swear
    that the Soviet Union was a bastion of civil liberties and was
    doing everything to promote freedom and liberty within its
    country.
        It is one thing to have words on paper. It is another to
    have a commitment to enforce them. And for many of us the
    problem we have with the trading agreements that we have right
    now is that on paper they look good, but our trading partners
    do not have the same level of commitment to enforcing their
    domestic laws on the other side, and we don't feel that there
    is accountability in the ITC to enforce a fair and reciprocal
    responsibility, so I would be interested in hearing from this
    panel what changes you think could be made to the current
    framework we operate in in a global economy that accomplishes
    this dual goal of both a free trading system and a fair trading
    system and brings people together around a trade model that can
    accommodate all of the interests that have been discussed.
        Mr. Vargo. Congressman, if I could provide a response or at
    least some comments to that. I am not a trucking expert but
    certainly the general rule is that we are able to keep anything
    unsafe out of our country, and again I have not examined this
    closely but it is my general understanding that the record so
    far, the Mexican trucks has not shown they were unsafe, but I
    don't want to engage in a debate and that the principle I think
    is a good one. And the principal should apply to other
    countries. To give you one egregious example that the NAM has
    been involved in and that is the situation of American poultry
    being kept under the European market. Why is the NAM concerned
    about poultry? Well, it is a processed food. It is manufactured
    and under our statistical system we have poultry producers in
    the NAM but it is a more important principle.
        Here is an area where because American chickens are dunked
    in a very mild chemical to make sure there is no salmonella the
    European Union says, oh, we don't do that, we won't take your
    poultry, even though the European commissioner said, you know,
    there is no scientific basis for this. Everybody knows that and
    we are going to stop this practice, but there was a public
    outrage so the commission said I am sorry, even though there is
    no scientific basis, we have no basis at all for keeping your
    poultry out, we are going to do it anyway. Well, that should
    not be. Now the U.S. trade representative is preparing a trade
    case against the Europeans and we need to pursue that
    aggressively. What do we need to do? We need more resources.
        Certainly there are lots of instances where countries are
    not doing everything they should, particularly in China. We
    have talked about Chinese counterfeiting. When I talk to our
    companies most of them say the situation is getting worse, and
    when you take action on them. I would differ if the feeling
    were generally all our trading partners are cheating on us.
    From talking with our members companies generally we don't see
    that. There are specific instances, and when there are
    instances, I think we need to move quickly.
        Mr. Yager. Mr. Braley, if I could just point out the last
    section of my written statement, we made 2 comments about
    monitoring and enforcing trade agreements. The first had to do
    with better communication. For example, we did a report last
    year which took a look at the United States trade
    representative's report on China's implementation of its W2
    obligations, and we found it was quite difficult for
    stakeholders to go through that report and really understand
    the state of play within China so we recommended that there be
    better communication, for example, from the key agencies to
    stakeholders such as the Congress and they have a better
    understanding of how things are going and ask more questions
    and get more involved in the process of monitoring and
    enforcement.
        The other point that I made in the statement had to do with
    getting the right people in the right places because many of
    the barriers that we do talk about are quite technical and so
    the knowledge, for example, of the Chinese legal system is
    important. We need to have the right people over there that can
    help address those, ask the right questions, and put the kind
    of pressure on the authorities and in some cases provide
    technical assistance to them because there are also companies
    within China that would also benefit from stronger intellectual
    property protection and stronger safety rules, and we need to
    link up with those like-minded companies in order to be
    successful so we made some recommendations also on human
    capital planning to get the right people in the right places.
        Mr. Braley. Thank you.
        Mr. Rush. The gentleman's time is up. The chair will ask
    the panel if they would indulge us for one additional round of
    questioning. We will limit the questions to 2 minutes so as not
    to infringe too much on your valuable time. The chair
    recognizes himself for 2 minutes. I would like to really point
    my questions to Ms. O'Neill and Ms. Hale. Recently, Time
    magazine published an article written by a gentleman, Alex
    Kerr, stating that among the 10 elements that will shape the
    world tomorrow Africa as a business designation ranks number
    six. It was the only continent mentioned. What are your
    respective agencies doing to identify opportunities for U.S.
    companies to export to areas in Africa and to Latin America and
    how are these efforts different from your past approach to
    these meetings, and how would the new--China has paid some
    special attention to Africa. It is Africa's third largest
    trading partner after the U.S. and France, and how should this
    competition influence U.S. trade policy what we send to Africa?
    So that is my three questions all within one general question.
    Would you care to respond?
        Ms. O'Neill. Sure. Thank you very much. Since the Congress'
    passage of the Africa Growth and Opportunity Act in 2000, we
    have been proud, the Commerce Department, to be one of the co-
    hosts of an annual forum. The next one is in August, 2009 in
    Kenya, and we have been actively participating and this look at
    how to provide technical assistance, better legal and
    regulatory infrastructure, how to--I participated on a panel on
    expanding opportunities in telecom and information technologies
    recently focused on Africa. We also have 5 offices, Kenya,
    Tanzania, Ghana, South Africa, and Nigeria. For the countries
    where we don't have a physical presence, we work closely with
    the State Department. We have a partnership post Memorandum of
    Understanding that allows us to work with state econ officers
    in those markets where there is demand for U.S. exports, U.S.
    support, commercial support.
        We have a web site, export.gov/africa. We are partnering
    looking closely at the multi-lateral development bank projects,
    and also providing training, trade promotion coordinating
    committee training for the state officers on the ground.
        Ms. Hale. We are doing some capacity building projects. For
    example, we will bring government officials to the United
    States so they can see how we regulate biotechnology. That is
    very important to us because so much of our agriculture
    production for corn and soybean products are biotechnology. We
    also have a lot of food assistance programs in Africa. The
    McGovern-Dole program is providing food for school lunches.
    Also, I mentioned the trade mission that we have. We also have
    scientific exchanges. I think it is important that we are
    building relationships at all levels among scientists, among
    businesses, among government regulators that will support long-
    term trade relationships.
        Mr. Rush. The chair now recognizes the ranking member, Mr.
    Radanovich.
        Mr. Radanovich. Thank you, Mr. Chairman. My first question
    goes to Mr. Vargo. Welcome to the subcommittee. I want to know
    how much additional trade revenue you think could be brought in
    from the passage of pending free trade agreements. There are
    three so far that are pending, Korea, Panama, and Colombia.
        Mr. Vargo. Well, the average tariff on our manufactured
    goods in those countries ranges somewhere between 8 and 15
    percent. And if we could get that down, we would generally, I
    think, pick up 10, perhaps 20 percent more exports in those
    countries. We export, if I recall, about 5 billion to Panama
    now, maybe 11 billion to Colombia, something like 30 billion to
    Korea so we want that business and we want the agreements to be
    good. And tariffs are not the only part of the agreement. Non-
    tariff areas are important and other provisions of the
    agreements are important.
        And I look at Colombia right now and I recognize that the
    Congress and the Administration want to do something more on
    the violence in Colombia, particularly that which affects
    members of union, but from my point of view this is costing us
    exports and jobs every day of delay because the Congress has
    already voted----
        Mr. Radanovich. Mr. Vargo, I ask you to sum up real quick
    because I want to try to get one more question.
        Mr. Vargo. I am done, sir.
        Mr. Radanovich. All right. Thank you very much. Ms. Hale,
    during the last round, you were very good in answering my
    Uruguay Round question, but I forgot to ask the second part,
    and that was as far as specialty crop exports, they were in
    surplus then, they are not now. Can you explain why perhaps and
    give me an idea of what it would take in order to bring an
    increase in exports of specialty crops?
        Ms. Hale. There are two important reasons why our specialty
    crop exports have been increasing. One is that people see them
    as very healthful and in countries like Europe and Japan
    people, U.S. nuts and fruits are in very, very high demand. We
    are exporting 80 percent of our almonds, for example. Our
    walnut exports are a billion dollars a year. And the industry
    has done a good job of promoting the health benefits. Another
    reason is that middle income people are growing, and for a
    middle income family in China an orange is a treat, a
    California orange.
        They will buy the orange, split it up. The whole family,
    everybody, will take a piece of it and it is a special treat.
    And we are seeing more consumers around the world that are able
    to afford American fruits and American nuts. And the industry
    has just done a good job promoting them. An example is the
    emerging markets program. We just did a promotion for using
    American fruits and nuts in moon cakes. It is a billion dollar
    business in China, and American dried fruits and nuts would be
    a good contribution to Chinese moon cakes. So that kind of
    technical support in our marketing program has been very
    important as well, so the consumers are there and I think we
    got good marketing programs to take advantage of the changes in
    the marketplace.
        Mr. Radanovich. Thank you very much. I yield back, Mr.
    Chairman.
        Mr. Rush. The chair now recognizes Ms. Sutton.
        Ms. Sutton. Thank you, Mr. Chairman, and I will just ask a
    couple of questions and then allow you to respond. Ms. Reilly,
    in the last line of questioning you answered the question I
    offered with a statement that included a reference to when you
    were evaluating the Peru free trade agreement you just looked
    at the benefit on the bottom line. And that is an interesting
    remark to me, and I would just like to understand better what
    your association's assessment mechanism is on whether or not
    trade is working if it really just encompasses the benefit on
    the bottom line, so if you could just think about that for a
    moment.
        Mr. Vargo, following up on some of Mr. Stupak's questions,
    you know, I heard you referencing that your association is
    obviously against illegal dumping and certainly for the
    imposition of tariffs where appropriate to level the field. One
    of the things that is happening now is that in this economic
    global downturn that we are experiencing steel production in
    this country has been ramped down because as one would when the
    market is down, one would cut back on production. China is
    taking advantage in my view, and certainly the data I will be
    happy to provide to show you, and is ramping up production and
    exporting steel into this country in this moment of global
    interconnectiveness and downturn. What should we do about that?
        And then, finally, the very last question I want to ask
    about is the drywall that we bring into this country from
    China, and some of you have referenced that we don't have to
    accept unsafe products into this country if we know that they
    are unsafe. We know that some of the drywall imported from
    China leaches formaldehyde. We know this. It has been declared
    not only unsafe for, you know, some of our other trading
    partners but China itself will not allow it to be used in their
    own country and yet we have it being imported into this
    country, and I would just like to know about your thoughts on
    all of these things because again these go to the issues that I
    am talking about about the comprehensive nature of our system
    and how it is working and what we need to do to fix it.
        Ms. Reilly. Well, first, to answer your question regarding
    how do we assess the bottom line is we look at it, and we look
    at the free trade agreements that have been implemented thus
    far and the companies that were already having duty free access
    to U.S. markets, selling their things here with no taxes or
    tariffs on it, and us selling our goods abroad with an average
    tariff or tax of about 15 percent. We look at that, and we look
    at those numbers. When we look at Ohio specifically and how
    trade has worked, I look at agreements like the U.S.-Chile
    agreement where 47 percent of exports have increased to Chile
    from Ohio. For NAFTA agreements it has gone up 138 percent.
        Even the agreement with Jordan, and I don't know what Ohio
    is selling to Jordan, but it has gone up over 1000 percent, so
    those are the numbers that we look at regarding that.
        Ms. Sutton. I guess I was just asking about whether you
    look at anything besides numbers, and I appreciate that. Thank
    you.
        Mr. Vargo. On steel and China, the NAM is a broad
    association. We have members of industry associations like
    American Iron and Steel Association and many others. Our view
    is, as I said, we support the strong and effective use of U.S.
    import law. We also believe it is very important that the
    United States, everybody else, adhere as closely as possible to
    the rules-based global trading system. I am very pleased that
    President Obama stressed that several times in his trade
    agenda. It is important that we have a stand still on countries
    and not start putting on more trade barriers because that is a
    road downward that will really hurt us as well as everybody
    else.
        In the case of steel and China, absolutely, the steel
    industry should be able to avail itself of U.S. trade laws. I
    know the Congress department already does special monitoring of
    Chinese steel, and there are additional tools that could be
    available but I will let our steel industry speak for itself.
    On drywall as an illustration of unsafe products coming into
    the United States, this is very troublesome, and clearly we
    need to address this more carefully than we have with having
    tighter inspection or certification of products that are coming
    into the United States.
        Again, you know, that is going to take resources. It is
    going to take some more general agreement. I think we ought to
    look at what other countries do because some other countries I
    think have tougher requirements for getting into their country
    than we do, and it might be useful for this subcommittee to ask
    the GAO to look into that and see what other countries are
    doing that maybe we ought consider doing legally. I am not
    proposing we do anything funny here, but I think some other
    countries just do a more careful job of insuring the safety of
    what is coming into their country.
        Mr. Rush. The gentlelady's time is up. The chair now
    recognizes the gentleman from Michigan for 2 minutes.
        Mr. Stupak. Thank you, Mr. Chairman. If we are looking at
    the bottom line numbers, look at the bottom line numbers. Just
    take January alone. Our trade deficit is $39 billion. From 2001
    to 2008 the trade deficit cumulative is $3.83 trillion. Every
    one of these trade deficits means loss in U.S. jobs. While
    Michigan is a manufacturing state, we are a great state for
    exporting agricultural products. In fact, we are one of the
    leading states for doing that, but it doesn't offset the loss
    of jobs we have from manufacturing because it is a higher value
    product as opposed to agricultural products.
        So, again, I don't mind promoting trade but we have to do
    enforcement. Mr. Vargo, you indicated in my first line of
    questioning, talked about inspections and certifications. And
    where I sit as chairman of Oversight and Investigations and do
    the melamine, the heparin, and the toy investigations and the
    illegal products coming into this country, I have been toying
    with the idea and would like your comments on it because you
    mentioned China's steel. In the early part of this decade, the
    early 2000's, we were doing the standup for steel because China
    was illegally dumping steel in this country. That did have an
    impact and President Bush did put some tariffs in which were
    modified, but we did have them.
        But our concern right now if you go back to safety is
    whether it is drywall from China or whether it is steel or
    cement it is an inferior product. The custom border patrol has
    indicated that they have a right to inspect the product coming
    in and they find it to be not of sufficient strength, and,
    therefore, they will tag it as being inferior but yet the
    importer, the U.S. customer, still comes, grabs that steel,
    takes that tag off, and sells it in the U.S. economy. And we
    have seen schools collapse in California because of inferior
    steel from China.
        So we are toying with the idea to introduce legislation
    that will give the custom border control--not only continue
    their inspection but reject it right there, not even allow the
    U.S. customer to pick up that steel. Just send it right back.
    Do you have any problems with that?
        Mr. Vargo. Well, you know, I try to stick to a policy of
    speaking on things that I know something about. There I don't.
    We do have a working group within the NAM looking at unsafe
    products coming into the United States so with your permission,
    I am going to take that point to our working group and we will
    get an answer to you in writing.
        Mr. Stupak. Please do, because once these inferior products
    get into the mainstream of Congress, there is no way to recall
    them. Once they are in the building, they will rip them out.
        Mr. Vargo. Understand. If I could just comment very quickly
    on the overall trade deficit. You know, we had over a $450
    billion trade deficit in manufacturers last year, but I just
    want to point out again that with our free trade partners we
    had a surplus. All of our deficit was with countries that have
    not lowered their trade barriers to us. I don't want to get
    into a squabble----
        Mr. Stupak. Sure. Most of those countries like China have a
    VAT. As their products come in, they put a value at a tax on it
    which is illegal, and we are not doing anything to enforce it.
        Mr. Vargo. Well, under world trade rules it is not illegal
    and we don't have a VAT. Maybe we should.
        Mr. Stupak. Maybe we should have a VAT.
        Mr. Vargo. But if I could just make 1 point.
        Mr. Stupak. Sure.
        Mr. Vargo. We seem to be drifting more towards talking
    about trade agreements, et cetera. Please don't forget the
    central point here which is we under export. We don't have
    enough export promotion so whatever other problems we deal
    with, I hope that this subcommittee will really press. We need
    to increase our exports.
        Mr. Stupak. But from where I sit as chairman of Oversight
    and Investigations, I see trade agreements jeopardizing the
    health and safety of the American people because it is both
    ways, the products we receive, and we are not doing a good job
    here in this country.
        Mr. Vargo. Well, you might want to have a separate hearing
    on this, but on export promotion whatever disagreements we have
    help us promote exports. Thank you.
        Mr. Rush. The gentleman's time is up, and the chair really
    wants to emphasize that is why we have two committees, the
    Oversight and Investigations Committee, which the chairman does
    an exceedingly good job. He has been keeping the American
    people safe for as long as he has been chair of that committee,
    and I really want to commend him, but we will be--this
    committee is dedicated to promoting trade, international trade,
    as a response to our economic problems that we are facing as a
    nation. And so that is the purpose of this hearing, and that
    will be the purpose of the attention of this committee. I
    really want to thank all of the members of the panel. You have
    really been a tremendous asset to us here on the committee.
    Your testimony has been most forthright and informative to us,
    and we certainly want to let you know that we appreciate you
    taking your time from your busy schedule to be with us today.
    And we thank you for enlightening us with your testimony. The
    chair now calls this committee to close. The committee right
    now is adjourned.
        Right before we adjourn, the chair asks for unanimous
    consent to enter the statement of Mr. Dennis Slater. He is the
    President of the Association of Equipment Manufacturers, and
    without any dissent with unanimous consent to enter Mr.
    Slater's statement into the record.
        [The information appears at the conclusion of the hearing.]
        Mr. Rush. The subcommittee now stands adjourned.
        [Whereupon, at 12:04 p.m., the subcommittee was adjourned.]
        [Material submitted for inclusion in the record follows:]

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