[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
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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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