[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
IMPACT OF U.S. TRADE POLICIES ON SMALL BUSINESSES AND MANUFACTURING
=======================================================================
HEARING
before the
SUBCOMMITTEE ON AGRICULTURE, ENERGY AND TRADE
of the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
HEARING HELD
APRIL 2, 2012
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 112-062
Available via the GPO Website: www.fdsys.gov
_____
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
ROSCOE BARTLETT, Maryland
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
CHUCK FLEISCHMANN, Tennessee
JEFF LANDRY, Louisiana
JAIME HERRERA BEUTLER, Washington
ALLEN WEST, Florida
RENEE ELLMERS, North Carolina
JOE WALSH, Illinois
LOU BARLETTA, Pennsylvania
RICHARD HANNA, New York
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
MARK CRITZ, Pennsylvania
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
JUDY CHU, California
DAVID CICILLINE, Rhode Island
CEDRIC RICHMOND, Louisiana
GARY PETERS, Michigan
BILL OWENS, New York
BILL KEATING, Massachusetts
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, General Counsel
Michael Day, Minority Staff Director
C O N T E N T S
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Page
OPENING STATEMENTS
Hon. Scott Tipton................................................ 1
Hon. Mark Critz.................................................. 2
WITNESSES
Thomas Cummings, Regional Director, Northeast & Mid-Atlantic
Region, Export-Import Bank of the United States, New York, NY.. 7
Joseph Hanley, Director, Mid-Atlantic Region, U.S. Department of
Commerce's U.S. Export Assistance Centers, Philadelphia, PA.... 5
Peter O'Neill, Executive Director, Center for Trade Development,
Pennsylvania Department of Community & Economic Development,
Harrisburg, PA................................................. 9
Walt Robertson, President, Johnstown Wire Technologies,
Johnstown, PA.................................................. 23
Justin McElhattan, President & CEO, Industrial Scientific
Corporation, Oakdale, PA....................................... 25
David Groll, CEO, Circadiance LLC, Export, PA.................... 26
APPENDIX
Prepared Statements:
Thomas Cummings, Regional Director, Northeast & Mid-Atlantic
Region, Export-Import Bank of the United States, New York,
NY......................................................... 37
Joseph Hanley, Director, Mid-Atlantic Region, U.S. Department
of Commerce's U.S. Export Assistance Centers, Philadelphia,
PA......................................................... 42
Peter O'Neill, Executive Director, Center for Trade
Development, Pennsylvania Department of Community &
Economic Development, Harrisburg, PA....................... 47
Walt Robertson, President, Johnstown Wire Technologies,
Johnstown, PA.............................................. 54
Justin McElhattan, President & CEO, Industrial Scientific
Corporation, Oakdale, PA................................... 57
David Groll, CEO, Circadiance LLC, Export, PA................ 59
Questions for the Record:
None
Answers for the Record:
None
Additional Materials for the Record:
``Manufacturing Leads Pueblo's Recovery,'' Patrick Malone.... 63
IMPACT OF U.S. TRADE POLICIES ON SMALL BUSINESSES AND MANUFACTURING
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MONDAY, APRIL 2, 2012
House of Representatives,
Subcommittee on Agriculture, Energy and Trade,
Committee on Small Business,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:01 a.m.,
Technology Center, 2000 Technology Drive, Pittsburgh,
Pennsylvania, Hon. Scott Tipton [chairman of the Subcommittee]
presiding.
Present: Representatives Tipton and Critz
Chairman Tipton. Well, good morning. The hearing will come
to order.
First of all, I would like to thank Ranking Member Todd
Akin and Mark Critz for hosting today's hearing. I have to tell
you it's great to be here in Steeler Nation. I do have to note
as I came through the airport--this time yesterday I was in
Aspen and flew into the airport. And when I got there, I
couldn't help notice a Tim Tebow jersey, even though we will
not be able to get credit for him any more. I guess he is up in
New York.
It is a pleasure to be here. While Mark does not like me to
really remind him of last year's playoff game, I must commend
you and your mayor for following through on a friendly bet they
made with Denver's man. I hope that this friendly rivalry that
we have in terms of football will continue and obviously wish
both teams success, unless they are playing against each other.
And I think we all know which side we all fall down on at that
point.
I would also to thank all of our witnesses for taking time
on both of our panels here today. I note that you have full-
time jobs and are willing to take time away from that. I think
it is important. I want to let you know how much we appreciate
it, and we do look forward to your testimony.
Although Mark and I do come from different parts of the
country, I know he shares my passion for increasing U.S.
exports and ensuring fair trade practices for small businesses.
Today's hearing will provide an opportunity to examine the
impact of trade policies on small businesses and identify best
practices to increase U.S. exports.
There is strong bipartisan agreement in Washington on the
benefits of exporting. Exports are a major component of the
U.S. economy, and they help support millions of good-paying
local jobs. In 2011 U.S. exports totaled 2.1 trillion, nearly
14 percent of the nation's gross domestic product.
Although the benefits of exports are clear, only one
percent of small businesses in the U.S. currently export. Along
with limited personnel, small firm space and a number of tariff
and nontariff barriers limit their ability to reach new
markets. As a result, small businesses rely heavily on
negotiated trade agreements to be able to remove those trade
barriers and provide strong intellectual property protection
and to streamline the trade process. In 2010, 41 percent of
total U.S. exports were with countries with free trade
agreements.
While many firms benefit from increased international
trade, some businesses may suffer as a result. Moreover, many
small businesses become victims to unfair trade practices, such
as price dumping and intellectual property theft. These
predatory practices can be catastrophic for domestic small
businesses. The federal government needs to use every tool
available to combat these unfair trade practices to sure we do
have indeed a level playing field.
Last month Mark and I came together to be able to support
legislation H.R. 4105 to amend the Tariff Act of 1930 to apply
countervailing duties to nonmarket economies, such as China.
This legislation is now public law, and it sends a powerful
message to our competitors who are not complying with
international trade rules.
I have no doubt that U.S. small businesses can compete with
any company in the world if provided with a fair and equal
playing field. The multilateral and bilateral trade agreements,
combined with a strong framework to be able to reduce trade
barriers, increase transparency and strengthen trade
enforcement. However, we must hold these countries accountable
for unfair trade practices.
Again, I would like to thank all of our witnesses for
taking the time to be here this morning. We do look forward to
your testimony.
Now I would like to recognize the Ranking Member for his
opening statement.
Mr. Critz. To start off, I want to thank the Chairman at
this particular time for making this journey out to Pittsburgh.
Making football references and taking that a little bit
further, something you may not be aware of is when John Elway
was coming out of college, he had made the statement that if he
was drafted by the Steelers, that he would go play baseball--he
would not come to Pittsburgh to play football.
Now, a lot of younger folks look at John Elway and say,
``He is a great guy and we love him'' and all this kind of
stuff, but I still carry a little bit of animosity. So you are
welcome for those Super Bowl trophies that he brought to Denver
for not having in his plan to play football in this city. I
really appreciate you coming here, Mr. Chairman.
Now he is taking credit for the good weather outside.
And I am not sure if that is true because you said you were
skiing. Were you skiing yesterday?
Chairman Tipton. No. I did not get to ski yesterday.
Mr. Critz. Okay. We appreciate you being here because this
is an important issue and we will try with this hearing, to see
where we can do better, where we are doing well, and where we
can move this country forward.
Job creation is absolutely essential to move Western
Pennsylvania's economy forward. As we generate these new
employment opportunities, we must do so in a way that provides
a strong foundation for working Pennsylvanians. This means
adding occupations in sectors that have a real future in our
state and that pay well. And to do this, we need to look no
further than our state's manufacturing sector.
Pennsylvania manufacturers employ more than 500,000 people
and pay an average of more than 40 percent higher than jobs in
other fields. As a result, manufacturing is a key to our
economic recovery, and we must take steps to build on its
successes. With 95 percent of all consumers living outside the
U.S., trade is critical to manufacturers.
In fact, between 2003 and 2010, exports of manufactured
goods increased by a hundred percent to more than $30 billion.
In 2010, these exports supported more than 250,000 jobs in
showing the real impact that trade can have not only on the
industry itself, but also on our state's economy. But even with
these successes, it is clear that our manufacturers can sell
even more goods to foreign customers.
The reason is clear. Foreign companies cut corners in terms
of damaging the environment and not paying a living wage. We
cannot allow this to become a race to the bottom, and allow
these lower standards to dictate U.S. policy.
But adhering to these superior standards is not without
cost. It is 20 percent more expensive to do business in the
United States than it is in our nine largest trading partners.
So while we do right by protecting our workers and safeguarding
the environment, there is a real expense to doing so. Leveling
this playing field is a challenging goal. Typically our country
has tried to do so through free trade agreements, but more
often than not, such a course has left something to be desired.
While these FTAs benefit many U.S. companies, they often do so
at the expense of U.S. manufacturers.
To this very point, I opposed all of the recent agreements
and took to the House floor in opposition to the South Korean
Free Trade Agreement. This one agreement is estimated to
displace 109,000 jobs and increase our trade deficit with Korea
by $16.7 trillion.
On legislation this year, I also won approval of an
amendment to require all agencies implementing FTAs to analyze
and reduce their impact on small businesses, including
manufacturers. Opening borders is just not enough. We also have
to ensure that rules are not overly burdensome and stacked in
favor of international competitors.
To this latter point, we must take action to ensure these
FTAs are held to the same standards as the U.S. It makes little
sense to bring in new competitors and have a much lower cost of
doing business. America is not going to lower its labor and
environmental standards or permit human rights abuses, so we
need to hold our partners to similar principles. Not doing so
creates economic distortions as well as moral injustices.
In a similar vein, it is crucial to ensure that foreign
countries are not undervaluing their currencies. Doing so
distorts trade and puts U.S. companies at a major disadvantage
by artificially increasing the price of our exports while
decreasing the price of imports. It is a double-edged sword for
domestic manufacturing, and action is long overdue.
Aside from these multilateral matters, there are tools
right here in the U.S. that manufacturers can use to increase
their competitiveness abroad. This includes specialized
programs that assist companies in selling their products in
foreign markets. Individually, none of these programs are
sufficient to shift the balance of the U.S. trade deficit, but
when taken as a whole, these initiatives can play a useful role
in stimulating manufacturing exports.
Among the agencies providing services are the International
Trade Administration which, through its U.S. Export Assistance
Centers, can assist in identifying international customers,
create market entry strategies, and help with often complex
foreign rules and paperwork requirements.
Other agencies, including the SBA and the Ex-Im Bank,
provide specialized financing packages for U.S. exports. These
loans and lines of credit are often essential in completing a
foreign transaction.
Finally, it is worth noting that Pennsylvania's very own
and award-winning Center for Trade Development provides tools
for those looking to sell abroad. Taken together, these
programs provide the means for Pennsylvania's manufacturers to
win new foreign customers. With the U.S. economy continuing to
recover and many international markets in disarray, this is a
time of transition for the manufacturing industry. While the
debt problems in continental Europe continue to create
uncertainty, the growth of Asia and Pacific Rim economies
represent real opportunities for our manufacturers.
Regardless of these ups and downs, one thing is certain,
and that is that we need Pennsylvania's manufacturing sector to
be strong and ready to take advantage of any and all foreign
market opportunities. As the largest sector in terms of gross
state product, and the fourth largest source of jobs,
manufacturing is central to the future of the Keystone State.
Given this, it is clear that anything we can do to strengthen
the manufacturing sector's ability to compete globally will
come back to benefit our state many times over.
We want to thank all of the witnesses in advance, and I
look forward to their testimony. Thank you, Chairman Tipton,
and thanks again for bringing up the market economies
legislation that was passed earlier. Working together, we can
help solve U.S issues.
It is good to have a chairman like Chairman Tipton, because
we are always trying to figure out how we can do things that
help our nation.
And with that I yield back.
Chairman Tipton. Well, thank you.
I would like to be able to explain our lighting system. In
Congress, when they ring a bell, we just stream out and walk
over to vote as soon as the bell rings.
Mr. Critz. I salivate.
Chairman Tipton. We have a little variation on that. Just
to explain them to you, you will each have five minutes for
your testimony. The light will start out as green and then when
it turns yellow, you will have one minute remaining. Then when
it turns red, if you could, go ahead and wrap up your
statement. And we will certainly let you finish with that.
So with that, we would like to go ahead and begin with our
testimony here.
I would now like to yield back to the ranking member to
introduce our witnesses.
Mr. Critz. Thank you, Chairman.
I will go through all three of your bios and then, Mr.
Hanley, if you will start off with your testimony.
Joseph Hanley is the director of the Mid-Atlantic region
for the U.S. Department of Commerce, U.S. Export Assistance
Center, which covers New Jersey, Pennsylvania, Delaware,
Maryland, Virginia, West Virginia, North Carolina and South
Carolina. In this capacity, he oversees the provision of
assistance to businesses seeking to export their goods abroad.
Thank you for being here.
Thomas Cummings is the Northeast and Mid-Atlantic regional
director for the Ex-Im Bank of the United States. In this
capacity he is responsible for bank sales and marketing to
small businesses in a 16-state territory, which includes all of
Pennsylvania.
Since 1934 the Export-Import Bank of the United States has
been the official export credit agency of the United States
federal government, providing loans that help create and
sustain U.S. jobs by financing sales of U.S. exports to
international buyers.
Thank you for being here.
Peter O'Neill is the executive director of the Center for
Trade Development. The center directs Pennsylvania's Export
Assistance Program. It has won numerous awards and in 2010
assisted over 1350 companies through its overseas trade
representatives and its regional export network partners across
the state. The program directly generated $483 million of new
export sales from businesses, supporting more than 6,400 jobs.
Thank you very much for being here.
Mr. Hanley, if you would open up with your opening
statement.
STATEMENTS OF JOSEPH HANLEY, DIRECTOR, U.S. AND FOREIGN
COMMERCIAL SERVICE NETWORK; THOMAS P. CUMMINGS, REGIONAL
DIRECTOR, EXPORT-IMPORT BANK OF THE UNITED STATES; AND PETER C.
O'NEILL, EXECUTIVE DIRECTOR, CENTER FOR TRADE DEVELOPMENT,
PENNSYLVANIA
STATEMENT OF JOSEPH HANLEY
Mr. Hanley. Thank you, Chairman Tipton and Representative
Critz, for the opportunity to testify today on behalf of the
International Trade Administrations and U.S. & Foreign
Commercial Service, US&FCS, and supporting the National Export
Initiative by helping grow U.S. exports, assisting its small
business growth, and supporting American jobs.
Products and services carrying the ``Made in the USA''
designation are valued around the world for quality and
reliability. Jobs supported by exports increased to 9.7 million
in 2011, up 1.2 million since 2009.
In 2011 each billion dollars of U.S. exports supported just
over 5,000 jobs. Through February 2012, U.S. manufacturers
alone have added 429,000 U.S. jobs since 2010. Moreover, the
Department of Commerce estimates that exports contribute an
additional 18 percent to workers' earnings in the U.S.
manufacturing sector, and workers in export-intensive service
industries earn 15 to 20 percent more than comparable workers
in other industries.
As the key U.S. government export promotion agency, the
US&FCS delivers export promotion events and customized
exporting solutions to U.S. small- and medium-sized businesses
to help them compete and succeed in the global marketplace.
Domestically, we have 108 U.S. Export Assistance Centers,
and we have 112 offices located in the U.S. embassies and
consulates in more than 70 countries around the world to
provide export services, including market intelligence,
business matchmaking and trade counseling to U.S. businesses
looking to expand through exporting.
US&FCS's three centers in Pennsylvania--located in
Pittsburgh, Philadelphia and South Central Pennsylvania--have
delivered over 4,000 individual trade counseling sessions and
customized services to over 1,000 Pennsylvania businesses in
FY11 and FY12 to date, resulting in 257 Pennsylvania companies
reporting 688 export successes to 91 different countries valued
at over $500 million.
75 percent of Pennsylvania companies reporting these
successes were small or medium in size. 62 percent have less
than 100 employees. RPM Industries is a great example of the
way in which small companies can be successful exporters, and
of the value of federal export assistance.
Located in Washington, Pennsylvania, RPM Industries
manufactures prelubrication and fluid evacuation systems for
use in heavy-duty diesel and gasoline engines. To expand
business opportunities in Brazil, RPM turned to the US&FCS to
augment its export development strategy. RPM participated in
one of US&FCS's annual spring trade missions, Trade Winds,
which took place in the spring of 2010 in Brazil.
By the close of this year, RPM expects sales of nearly $1
million of its systems to Brazil and is working to expand into
other South American markets. Recent examples of our domestic
outreach to help US&FCS export abroad included a visit by our
colleague from the U.S. Embassy to the European Union in
Brussels, to conduct a three-city tour to update Pennsylvania
exporters on product standards in the European Union.
We partnered with local development district offices
throughout the tour to maximize our client outreach. As a
result, over 96 attendees, representing 56 Pennsylvania
companies, participated in these events. Indeed in the past 18
months, the Pittsburgh U.S. Export Assistance Center has
regularly worked with a broad range of federal, state, and
local government agencies, as well as the private sector, to
deliver or support over 60 outreach and educational events
across Western and Central Pennsylvania.
Efforts to enhance U.S. commercial competitiveness can be
thwarted by markets distorting unfair trade practices of
foreign governments and firms. To ensure that all industries
facing unfair competition are able to take advantage of
available trade law remedies, the International Trade
Administration's Import Administration has established the
Antidumping and Countervailing Duties Petition Counseling and
Analysis Unit.
The unit's main responsibility is to help U.S. industry
understand the unfair trade laws dealing with dumping and
unfair foreign government subsidies as well as the process for
filing a petition, requesting the initiation of an
investigation.
On February 28, 2012, the President signed Executive Order
13601, establishing the Interagency Trade Enforcement Center or
ITEC. The ITEC, led by the Office of the U.S. Trade
Representative and the Department of Commerce, will coordinate
the enforcement of U.S. trade rights under our International
Trade Agreements and the enforcement of domestic trade rights
by leveraging existing and additional resources more
efficiently across the administration.
Secretary of Commerce John Brice has also made supporting
business investment in the United States, which is key to
promoting economic and job growth, one of his priorities.
Select USA is the first federal government-wide initiative to
facilitate foreign business investment, attraction, retention,
and expansion in the United States.
Select USA services and supports state, regional, and local
economic development organizations. It also provides current
prospective business investors with a single point of contact
to agencies across the federal government. In the last three
decades, the worldwide stock of foreign direct investment has
grown from 700 million in 1980 to 19 trillion in 2010.
To increase the economic competitiveness of our U.S.
businesses, US&FCS is working diligently each day at home and
abroad to connect small- and medium-size enterprises with 95
percent of consumers living outside the United States. U.S.
businesses, particularly SMEs, have the full support and
assistance of the U.S. government to enter and expand their
business in foreign markets.
Thank you again for the opportunity to appear before you
today, and I look forward to answering your questions.
Mr. Critz. Mr. Cummings.
STATEMENT OF THOMAS P. CUMMINGS
Mr. Cummings. Good morning. Thank you, Mr. Chairman, for
the invitation to testify here in Pittsburgh today and speak
about the role of the Export-Import Bank of the United States,
Ex-Im Bank, or the Bank, in supporting small business exporters
and their important contribution to U.S. job creation.
I am happy to say that the bank has stepped up its
challenge by helping businesses, large and small, increase
their exports, thereby supporting U.S. jobs. During fiscal year
2011, the bank's overall financing has exceeded 32 billion for
the first time. The financing supported over 40.6 billion in
exports and more than 3600 companies and helped to support
nearly 290,000 U.S. export-related jobs.
I am proud to say that the bank set a record in fiscal year
2011 by financing more than 6 billion in financing to small
businesses. In fact, small business comprises 87 percent of the
transactions we did at the bank last year.
During the last four decades that I have been involved in
export finance, the need for Ex-Im Bank has never been greater
nor the challenges more daunting. As the official export credit
agency of the United States, Ex-Im's mandate is to enable U.S.
companies, both large and small, to turn export opportunities
into sales that help create and sustain U.S. jobs.
The bank achieves its mission by providing export financing
through loan guarantee and insurance programs when the private
sector is unwilling or unable to do so. Ex-Im Bank also tries
to level the playing fields by meeting and financing
competition that foreign export credit agencies provide to
their businesses.
Ex-Im Bank is careful not to compete with the commercial
sector in helping finance exports. Our activity typically
increases during economic downturns and provides an alternative
source of financing when commercial bank financing is not
available. Since 2008 the bank has operated at no cost to the
U.S. taxpayer because it is financially self-sustaining. Ex-Im
Bank more than covers its administrative costs and loan loss
reserve expenses through its fees.
Over the past five years, Ex-Im Bank has generated 1.9
billion in excess revenues for the U.S. Treasury. As a result
of our diligent credit review and management, the bank has a
loss ratio of less than 2 percent, which is well below that of
commercial banks with similar activities.
During the financial crisis, when private sector trade
credit and political risk insurers were withdrawing coverage
and reducing credit lines, Ex-Im Bank maintained a consistent
underwriting philosophy and did not withdraw coverage or reduce
lines. Notably, the bank even offered coverage to exporters on
buyers that the private sector had denied, all with excellent
results.
Ex-Im Bank offers three basic financial products: Loans,
guarantees, and credit insurance. Direct loans provide
financing to foreign buyers for their purchases of U.S. goods
and services. These loans can cover up to the lesser of 85
percent of the contract value or 100 percent of the U.S.
content.
Loan guarantees cover the repayment risks on the foreign
buyer's debt obligation incurred to purchase U.S. goods and
services. The coverage is 100 percent of the financed portion,
which can be up to 85 percent of the contract value or 100
percent of U.S. content, whichever is less.
Working capital guarantees provide a repayment guarantees
to a lender on secured short-term working capital loans
extended to qualified exporters. Under this program the bank is
actually guaranteeing the exporter performance risk. These
guarantees cover 90 percent of the loan value, and the lender
is at risk for 10 percent of the loan value.
In fiscal year 2011, Ex-Im Bank authorized approximately
2.1 billion in small business working capital guarantees
compared to 1.45 billion in fiscal year 2010.
Export credit insurance helps U.S. exporters sell their
goods by protecting them against the risk of nonpayment by
foreign debtors for political or commercial reasons. This
allows the exporter to extend credit directly to their
international customers and compete with the terms being
offered by exporters from other nations.
In fiscal year 2011, Ex-Im Bank authorized over 3.27
billion in export credit insurance to small businesses. Small
business transactions are in excess of 85 percent of the bank
transactions. During the year, the bank conducted 32 global
access forums to raise awareness of Ex-Im Bank's products to
small businesses. All of the bank's field offices are dedicated
solely to small business outreach and support.
Within the next three months, the bank will also be opening
four new field offices. They will be located in Atlanta,
Minneapolis, Detroit, and Seattle. This will be in addition to
the eight existing field offices.
Ex-Im Bank's small business authorization numbers are
showing rapid growth after reaching 3.8 billion in 2008, 4.3
billion in 2009, 5.1 billion in 2010, and just over 6 billion
in 2011. The bank knows it must do more, especially for more
small businesses.
So last year we introduced a new insurance product called
Export Express Insurance. The product is geared toward the
smallest of exporters. The market has reacted well to this new
product, and we have issued over 200 express insurance
policies; that is, 200 small businesses that can now sell
overseas without the fear of not getting repaid on competitive
open accounting foreign sales.
We are currently in the midst of launching a brand-new
product called Global Credit Express. This product is a working
capital loan facility from Ex-Im Bank for amounts up to a
maximum of $500,000 to small business exporters. This product
is designed to fill a void. Banks were unwilling to finance
small loans, so Ex-Im Bank decided to finance them directly.
Anticipated demand is huge.
Supply chain finance, the bank provision, competitively
priced working capital financing to businesses that supply
products or services to large U.S. exporters. The program works
to approve lenders with existing supply chain finance programs,
enabling the lender to purchase accounts receivable from small
business suppliers whose goods will be part of the export.
Mr. Critz. You can enter the rest of your remarks for the
record.
Mr. Cummings. Okay.
Mr. Critz. Do you want to go through your conclusion?
Mr. Cummings. That will be acceptable. The global
marketplace is truly brutal and competitive for businesses
large and small. Commercial bank lenders typically limit the
amount of exposure their customers can have in the various
regions around the globe.
Many banks are less willing to finance deals today than
they would have just a year or two ago. The need for Ex-Im Bank
products has never been greater. The export agencies above the
governments around the world are extremely aggressive in
supporting their exporters. U.S. exporters have a right to
demand the same level of support.
Thank you.
Mr. Critz. Mr. O'Neill. Would you also explain how is it
that you ended up in between the two title agencies.
STATEMENT OF PETER C. O'NEILL
Mr. O'Neill. First of all, welcome back. Welcome home,
Congressman and welcome to the Chairman. I have submitted
written testimony to you, and I thought I would take a couple
minutes to summarize some of that for you.
Pennsylvania has the largest state-sponsored trade program
in the country. And some often wonder why. Why Pennsylvania and
not other states? I do not think that we are geniuses at trade
development, but what we have is the fortune to have a
continuity of political support at the state and at the
governor level through several different party changes over the
last 25 years.
Export promotion has continued to be supported throughout
the last two and a half decades. That is a unique thing.
Unfortunately, not a lot of states can attest to that. Trade
budgets rise and fall with political shifts in priority and
budgetary issues, but we have been able to maintain fairly
stable budgetary support throughout the years. We have been
able to evolve and refine our program over time, to the point
where we have a very grounded program that really does address
some of the major obstacles for small- and mid-sized companies
to export.
You can distill these down to two or three points.
Companies do not have the time to develop and explore
international markets. They do not have the money to go explore
international markets. They may not have the managerial know-
how to understand the mechanics of exporting and they cannot
mitigate the risk and thus they do not do more and that is why
we have the one percent export rate.
That is why we have 15,000 exporters, many of which only
export to one or two markets. It is abysmal. We need to do
more, and this is an appropriate thing for government to do, to
help lift these companies into international markets by
providing programs that bridge those gaps, the money, the time,
the managerial know-how, and the mechanics of it.
If you think about it, we do not really get involved with
trade policy at the state level. It is not our job to do that.
If you are the defense bringing trade policy to level playing
fields and address unfair competition, then we are your offense
in terms of working with companies to get them into the market.
I also want to mention technology for a second. I know we
are talking about manufacturing today, but the merge of
technology and manufacturing is real. It is happening. And I
think it is going to be harder and harder to separate the two
because anybody who is competitive in the manufacturing
industry in the United States who is exporting today hopefully
has a layer of technology embedded in that manufacturing
process that makes them globally competitive. So I think we
need to talk about technology as well and the merging of
manufacturing in technology now and even increasingly in the
future.
Right now downstairs we have nine of Pennsylvania's
representatives meeting with companies one-on-one to talk about
what is stopping you from exporting more and how can those nine
representatives from Korea and Dubai and Brazil help them
demystify those markets and figure out how to enter those
markets in a cost-effective manner.
This is trade promotion at the grassroots level. There is
nothing particularly sexy about it, but we are able to move the
needle and help a lot of companies in the last 15 years really
demystify markets and be at a comfort level in exporting that
heretofore they had not been able to do.
I would also like to talk quickly about STEP. I know your
committee is responsible for helping the State Trade Export
Program. I cannot support it enough. It came at just the right
time for us. As robust a program as we have had, we have taken
our lumps when it has come to budget cuts over the years. This
year would have been a very difficult year for us. We would
have had to collapse 25 percent of our operation due to the
issues we have here in Pennsylvania with regard to budget.
It has plugged holes for us. It has been able to allow us
to launch 25 outbound international trade missions. It has
allowed us to give grants to companies to offset the cost of
international market exploration and it has allowed us to do
deep market research for companies that otherwise could not
afford to. It has been very, very important to us, and I
appreciate that. I hope you can continue to support that.
I know this is only funded for two years, but if
Pennsylvania's history is any indication here, and a lessen, it
is the continuity of the program over time to allow it to
evolve and refine that I think will bear fruit in the next five
to ten years.
As far as federal state cooperation is concerned, we work
very closely with our folks in Pittsburgh and in Philadelphia.
I think there is more we can do. I worry about lack of
flexibility and deployment of federal assets when it comes to
different states. Vermont is very different than Pennsylvania.
Is it possible beyond that, just simply the number of federal
people you deploy in each state--is it possible for the federal
folks in our state, for example, to adapt their program to be
more responsive to the local environment both in the
metropolitan regions as well as in the state as a whole.
I think we ought to talk about flexibility there that I do
not see right now, but we are happy to share and cooperate, as
we have been in the past. I think the future is bright. Thank
you.
Chairman Tipton. Thank you, Mr. O'Neill. And thank you all
of you for taking, again, the time to be able to testify here.
I will start out with a question. Mr. Hanley, I recently
held an information center with colleagues in my district. As
we were talking beforehand, they did an excellent job, and I
want to be able to communicate and if you would pass on as
well. We have been here in Pennsylvania. Our thanks for all of
their hard work on that.
My question is in regards to the role of the SBA and
Department of Commerce in promoting international trade. The
SBA has been expanding their International Trade office in
recent years, and it appears to be duplicative of the
Commercial Service. How does the SBA fit into your mission of
helping small businesses export?
Mr. Hanley. Well, thank you, Chairman Tipton. And it is
certainly a timely question with the advent of STEP. We are six
months into the STEP program. Before I address your question,
if I could just quickly mention for the record that we had a
typo in the first page of the written testimony that was
submitted, and an important one, quite frankly, I think.
We have helped companies export for the first time, or
increase their exports, 75 percent, not 55, for small- or
medium-sized businesses. So for an organization that prides
itself on the work we do for small- and medium-sized
businesses, to understate how many we have helped certainly hit
me right in the heart when I saw that. So I want to get that
corrected for the record.
As far as the STEP program is concerned, yes, the STEP
program has certainly changed the landscape, so to speak,
across the country, as Pete mentioned, and in states all around
the country, to help companies to export. We have been working
with SBA directly on the deployment of the STEP money. We have
gone to meetings with SBA on several occasions to provide our
input and our guidance, given 30 years of attention to export
promotions specifically.
In our worldwide network, we certainly have a lot to offer
in terms of how that money can be best utilized for SMEs. So we
have met with SBA in Washington, in fact, when Doverspike right
here served on the panel that reviewed STEP grant applicants
for disbursement of SBA STEP grant monies. At the same time, we
are working with the states directly.
In the first year, we sat down with all the states to help
them devise a plan to utilize that money. With our expertise,
both domestically and abroad, we have had a great opportunity
to advise the states and to work with the states to put that
money to work. Many of the states, unlike Pete's job here, do
not have as robust and as big a budget. So they turn to us to
execute around the STEP grant monies. So when the money is
dispersed to the states, we, in the best case have put together
a plan with those states on where we can receive their trade
missions.
Our message to the states throughout this process has been
given our capacity constraints around the world and to work
with us early and often in developing a plan and a proposal for
SBA so that we are in the best position to help them execute
around that STEP grant money. As I said, with 30 years of
experience focusing on only export promotion, we have the
expertise and the worldwide network to make things happen for
SMEs. So that is sort of the STEP grant side.
Just quickly if I can mention the finance side of it, SBA
has, as you know, for years provided international finance
tools, just like our friends at Ex-Im Bank, to help our small
businesses to export. SBA, in fact, is co-located with Export
Assistance Centers in 19 different locations, if I have my
number correct. That has changed up and down slightly. In that
fashion, as we are going out and working with small businesses
to advise them on developing new markets, invariably finance is
part of that discussion. Finance has to be a part of marketing.
So by having SBA located with us, we are able to give a
powerful one-two punch, bring in the SBA finance experts, and
deliver the finance programs alongside the marketing and new
market development programs that we offer.
Chairman Tipton. Just to kind of follow up just a little
bit on that, I am a small-business man. That is my real life.
Some of the duplicative services, do you see that some of the
SBA's actions being duplicative of the Commercial Service end
of it?
Mr. Hanley. I do believe that the district offices, the
Small Business District office and SBA, in general, has
responded to the President's call to support the National
Export Initiative, a government-wide approach to making exports
a priority in business development.
SBA's programs--while the SBA district office, in fact, has
begun to join us, Pete and I sat down the district office just
a couple of weeks ago to talk about STEP grant funding for next
year. I think their entry into this area is a new but welcome
one. At the same time, SBA's programs through the SBDCs--the
SBDCs have been tremendous partners of ours throughout the
years.
The SBDCs at the universities have that research capability
and are able to work with us to extend outreach into more
companies. So SBDCs have been a historical partner of ours. The
district offices, I think through the advent of STEP, have
begun to engage us.
The district offices obviously have a lot on their plate
beyond export promotion, and they are doing a lot of other
things. I do not even pretend to know all the things on their
plate. But I know they have a lot happening out at the district
offices beyond exports.
Then the last part of SBA that has historically worked with
us has been their SCORE program, which are retired executives
that volunteer. To the extent that we can secure retired
executives with international business experience, I think that
is a tremendous way to augment what is going on at the Export
Assistance Centers to bring that real-world business experience
into our SMEs.
Not all SCORE volunteers have international business
experience, so it is not effective in all cases. But to the
extent SCORE can be sort of developed into, also, a cadre of
international business executives retired, that would be a
welcome addition to SBA's program.
Chairman Tipton. Thank you.
Mr. O'Neill, the State of Pennsylvania, like many states,
has its own trade promotion office to be able to assist
exporters and importers. Your state also has offices in 10
international countries.
Do you believe the federal government is doing an effective
job of complementing the state's operations and mission?
Mr. O'Neill. That is a good question. Yes and no. I think
it is a bit of a challenge for a state like ours. Again, why
does Pennsylvania have such a robust program? Yes, I mentioned
the historical nature of it. Perhaps also there is some echo
effect of it being walloped during deindustrialization in the
1950s and 1960s and needing to address that in some way.
We took it upon ourselves, many years ago to build a
program that would be all our own. I think the issue here is
that the challenge is too large for any one organization to
address the lack of performance and the historical
underperformance of Pennsylvania or the country as an exporting
nation. We do not do a very good job. It is not in our blood.
It is certainly in the Germans', who have been traders for
thousands of years. It is only in the last 30 years that we
realized there is another market out there and that indeed that
market is much, much larger than our own. Companies are
beginning to get it, but at the rate that we are going, we are
barely scratching the surface.
With a large program like our own, we work with perhaps 10
percent of the exporting community in any given year. That is
not going to be enough. So between the federal and state assets
on the ground in Pennsylvania, it is helpful. And we do
coordinate. We rely on the feds in areas where we are not.
We are in 21 countries, covering about 40 markets that we
think are the most promising. But the rest of that world is
unknown to us, and we have to rely on the federal assets to
help us in those markets.
The international buyer programs, the gold key services
that are provided, the advocacy that is done, very often we
have a company with an issue that is really at the national
level. I have got to go to my federal partners to help with
that. So I would say there is duplication--it is not in the
sense that I have needs that cannot be filled even with as good
a program I have. I am glad they are there, that they can back
me up on issues and in markets where I am not.
So I would say it is a good partnership. It can be better.
I think with STEP it has created a dialogue now, not only in
Pennsylvania, but around the country, as: What are states going
to do? How are they either going to start a program, bolster a
program, or expand a program? How are they going to do it in
concert with the federal government? That is a dialogue that is
beginning, and it really needs to be encouraged.
Chairman Tipton. Thank you. I appreciate that.
I will just open this up for the whole panel. Considering
that only one percent of small businesses in the U.S. export,
what do we need to do to get more to be able to participate?
You just mentioned downstairs that you have people that are
sitting down and trying to find out why, what is inhibiting you
from being able to export. So I open it up. I would like to be
able to hear your thoughts.
Mr. Hanley. You are absolutely right. Those are paltry
numbers Pete mentioned and you mentioned. We do need more SMEs
to be involved in exporting. And what can we do. That is a
question we ask ourselves every day at the Export Assistance
Centers. Websites, our newsletter outreach, working with
partners to multiply and get the message out. It is a challenge
that we face.
First of all, I think the sheer numbers are incredible. I
think there are over 11,000 manufacturing exporters in
Pennsylvania. In order to make that change, this is really a
people-to-people business. Websites can help in your
efficiency, and indeed we are certainly hopeful that we could
develop more effective websites for more online service, so to
speak. But at the end of the day, just as business is people to
people, working with companies and helping them to export, to
develop those international business plans, to get them to move
off those one or two markets into four or five, it is people-
to-people work.
Having the people on the ground in the field to do the
outreach, to do the counseling, to develop the credibility with
the small business that, in fact, we can make a difference in
that small business' business plans takes looking them in the
eye, takes going out and meeting with them at their place of
business.
You cannot do it from behind a desk or behind the phone.
You cannot do it from Washington. You need that field base
here, and then you have to have the capacity abroad to deliver
those products and services that are going to make a difference
for the small business.
We could probably talk about this for a day. But at the end
of the day, if you do not have people out there working
directly with these small businesses, they are not going to get
to where they need to go.
Mr. O'Neill. It has always been my dream to have a map of
Pennsylvania with every exporter plotted on it so I know where
they all are, I know where the clusters are, just to plan my
day, to go make company calls, to do it most efficiently. I
cannot do that. The only people who have that information is
the U.S. Census Bureau, and that information is not available
to us. I don't think we are going to change that any time soon.
But there is an indication that all of the gold is right
there, and I can't tap it in order to plot those companies. So
what I have to do is go look for databases to buy or borrow or
beg for and plot them myself.
It is a shame, because if I had it, not only would I be
able to more effectively task the staff to get out and talk to
companies in a more efficient manner, but we would be able to
tell the story to people such as yourselves by looking at a
picture as opposed to giving a nine-page testimonial as to what
the potential is and what the challenge is. Because a picture
is worth a thousand words, as you know. That is a big issue for
us.
There's also issues with federal data sharing. The U.S.
Department of Commerce cannot readily hand over their database
of clients to us for us to process and work with as well. There
are issues there. And Joe probably understands the statutes
better than I do. We don't have any blanket agreements that we
are allowed to share information because of privacy issues.
Data management, we are working on that to be more
efficient data managers of the client information we have, who
is out, where do they want to go, where are they now, how can
we get them into the third and fourth and fifth market.
Then, finally, as Joe says, at the end of the day, we
cannot be as efficient as we possibly can be. This is human
capital. We have got to meet people face to face. They have got
to trust you. You have got to build a relationship with them,
and they have got to take your word that you have their best
interest at heart. As much as we don't want to hire any more
people, once you have done everything else to increase your
efficiency, you have got to put people on the ground, knock on
doors and say why aren't you exporting more.
Chairman Tipton. Mr. Cummings.
Mr. Cummings. I agree with my two colleagues. I think the
important thing is to be able to look people in the eye, tell
them what it is they have the ability to do.
The other part of it is we are also trying to eliminate
some of the risks of them doing business internationally,
whether it be through some of the commercial service programs.
For ourselves often it is through our credit risk insurance
program where a company doesn't have to be concerned that they
may not get paid on their overseas sales, because now they can
insure that receivable. That gives them a lot of confidence.
After the meetings many times, they know who they can
contact if they do have a question, if they do have a problem,
so the companies don't feel like they are going it alone. I
think that that's a very important thing, that they know they
are going in as a group rather than going it alone. It makes
all the difference in the world.
Chairman Tipton. Certainly I want to be respectful of your
time. Just give me ``You bet'' or ``No, it hasn't'' or ``Maybe
in between.''
Do you think the U.S. economy and small business exporters
in particular are better off with free trade agreements in
place or worse?
Mr. Cummings.
Mr. Cummings. I feel in general better off.
Mr. O'Neill. I have looked at some of the charts of trade
both pre and post-FTA. The needle doesn't move much. It is not
that it is a windfall for companies or a major threat. In
looking at charts pre and post, there isn't an immediate
change. It is a gradual uptick, but I think that is just global
trade taking on continuous momentum.
Chairman Tipton. Mr. Hanley.
Mr. Hanley. Yes. I feel overall FTAs bring about more
opportunities.
Chairman Tipton. Great. Thank you so much.
I would now like to yield Ranking Member Critz for his
questions.
Mr. Critz. Thank you, Mr. Chairman. I neglected to thank
the Pittsburgh Technology Council for hosting us and allowing
us to use their facility. Thank you very much for this
opportunity. I find it amazing that you have nine trade
representatives on the floor below us today doing exactly what
we're trying to do to the SMEs, so I think this is fortuitous.
Thank you to the Pittsburgh Technology Council for hosting us.
I think I have about 30 questions.
Chairman Tipton. I have a gavel.
Mr. Critz. And you are not afraid to use it.
In talking with Michael Day, who is on the Small Business
Committee staff, something came to light that I took notes on,
and have a prepared question.
You've been talking about face to face, and I understand.
That makes a lot of sense. I deal and we deal on our Committee
frequently with small businessmen who have no time to do
anything other than the job that they're doing, including many
times marketing their own company within their market, let
alone going after outside opportunities.
Well, in Commerce's recent budget submission, 15 additional
staff and nearly $20 million of funding was requested to build
the Export.gov version 2.0. Do you believe this money would be
better spent in face-to-face assistance like what you provide
at the local level here in Pennsylvania?
Anyone who wants to comment; probably Mr. Hanley would be
prudent.
Mr. Hanley. The effort here is not to take a website and
use it to replace face to face. The effort here is to, in fact,
allow our highly trained, highly skilled trade professionals
around the country and the world to focus on those higher
value-added business development work to be done with our small
businesses. So in that effect, if a company simply needs some
market research that is written by our colleagues, say, in
Brazil, rather than dialing up the Export Assistance Center and
asking us to go find that research and then send it to them,
that company would be able to easily access, get online and
pull down that research directly. Not to say that we are not
there to help them, not to say that we are here to say go to
the website.
An Export Assistance Center's culture, if you have worked
at them, as you know, is to provide that level of client
service. But to the extent somebody needs an HS code for their
product, to the extent they can go online and pull down that HS
code rather than calling up a trade specialist in an export
assistance center, again it frees up the time that our trade
specialists and our overseas staff are working to develop new
markets, new business lines and new business channels for those
companies.
So to the extent that that market research, some
transactional questions can be answered online where some self-
serve can take place, I think that is going to make us more
efficient. At the end of the day, our performance metrics won't
change and our metrics will be export successes and has that
client, in fact, concluded an export sale as a result of our
work. So that's the effort to bring up to current standards
what was probably state of the art ten years ago so these
companies can get online and register.
By the way, our vision here in the field is that when a
company gets online, registers and pulls down some research and
asks for some information, that that will go right to that
local export center who then can see that the client that they
are working with on perhaps new business development in Europe
is also pulling down research, for instance, on Mexico. So we
are better capable, better positioned to help them in the long
run.
So it is the chain of efficiency and better service we
believe, not an idea of replacing people on the ground with a
website.
Mr. Critz. Pete, how much do you use the website
Export.gov?
Mr. O'Neill. I don't use it myself personally.
Mr. Critz. I mean, does your staff?
Mr. O'Neill. I'd have to guess at that, but I would imagine
not a heck of a lot. There is kind of a triage system when we
meet a company and assess their capability to export and assess
their interest and figure out whether their interests align
with what the international markets are telling us, that our
staff both in Harrisburg and around the state will go to
Export.gov and other websites to see if we have a match, see if
what the company makes actually is relevant to the market that
we are targeting. So it does happen.
With that said, $20 million is a lot of money.
Mr. Critz. STEP I think got 30 million; right?
Mr. O'Neill. 30 million. 20 million is a lot of money. I
would hope three years from now we can sit down and show that
that 60 million has paid off in spades for you and all of us. I
think it will. It might take a little while.
If I had $20 million right now, I think we would go back
and put more people on the ground and sit down and talk with
the companies to bring these companies into markets as opposed
to the--the smaller the company, the less likely they are going
to go to that website, because, as you said, he doesn't have
the time for it. He does not have the staff to do it.
We built those kinds of websites ourselves, humble versions
of the website you speak of, Virtual Trade Adviser, which is a
quick snapshot for the company of where in the world should I
go. It was a quick snapshot. Cost us a hundred thousand
dollars. To get companies to go to that website, just to simply
go to it was like pulling teeth. The road is littered with
websites that are export diagnostic tests, see how ready you
are or here is the world, go ahead and explore it from the
comfort of your chair.
It's real difficult to get hundreds and hundreds and
hundreds of companies to use it. What I find is staff use it,
federal staff, state staff, and private consultants use them
and then package those and sell those to the company for a
price. That happens.
Mr. Critz. I understand. If we're talking about one percent
exporting, we need to be better. So I understand the
efficiencies. But, again, in dealing in foreign markets, is
that personal touch really that important; that we're going to
get more bang from our buck by going and investing in more
personal face-to-face kind of stuff than in becoming more high
tech?
Maybe the paper is better than the electronics. That is
what we are trying to figure out, too; how best to move
forward.
Pete and I were discussing earlier the lack of access to
information as to who is doing work where. We were talking
about how Census actually promotes its small business portion,
that it has all the data that we are talking about. So if we
are looking for who is trading or who is doing work with
Brazil, they can push that information out. So there has to be
more coordination there to make that data more available, more
accessible, so you can be more efficient as well.
Mr. Hanley. If I could just add?
Mr. Critz. Sure.
Mr. Hanley. Because this sort of dovetails with Chairman
Tipton's question about SBA and our website, and this is not
part of the new website development, but it is going on today
with Export.gov.
As U.S. companies get on Export.gov and register, there is
a process by which they take a look at those companies that
register. Those who are new to export, who have not been
involved in exporting yet, those are referred over to SBA. Then
those who are export ready or are exporting to one or two
markets, that's typically our sweet spot.
So many small businesses only export to one or two markets
and are best positioned to grow their exports. Those export
ready companies have been referred over to the Department of
Commerce. So in that fashion in Washington, we are seeing the
direction of new to export versus export ready companies so
that we can then place our assets around the world, a hundred
people, six locations in China, for example, to better support
those export ready companies.
So I just want to pull those two thoughts, two questions
together. Thank you.
Mr. Critz. Thank you.
Pete, you mentioned the Gold Key program. We have noted for
Pittsburgh-based companies, international sales account for
eight percent of their business. This international expansion
doesn't come easily. The Department of Commerce offers Golden
Key match-making services which link small manufacturers here
in the U.S. to foreign buyers broad. However, we continue to
hear that the cost of this program is prohibitive for many
small firms.
Mr. Hanley, how is your agency making this program more
affordable for small manufacturers under the national export
strategy, and what is your experience with Gold Key?
Mr. Hanley. Right now the Gold Key service costs $700, and
being someone who is out there working with clients, you get
all different reactions to that $700 I can assure you. The U.S.
Department of Commerce is mandated by the Office of Management
and Budget Circular 25 to fully recover costs on any fee-based
programs or services that we provide to individual businesses.
So we are always working with OMB to be in compliance with
their circular, with their requirement that we recover full
costs. So it is really OMB's direction that guides us towards
our fee-based structures.
Mr. O'Neill. As far as we are concerned with regard to Gold
Key services, it is nice to be able to say our mantra is give
everything away for free; give it away till the hurts. At some
point the company needs to buy in, because if you give
everything away for free, they don't necessarily take it
seriously or value it. We understand, and we are conscious of
that. But it becomes pretty clear very quickly whether you have
got a company that is very serious about a market or whether
they are fishing, and we can figure it out pretty quickly.
So we do try to give everything away for free including
what would be a Gold Key service that our state overseas
offices provide. Certainly in markets where we don't swim, we
are going to go to them for help.
I just think it is one more obstacle for a small company.
$700 may not sound like a lot, and I'm sure the value in many
posts is well worth it and beyond, but it is one more thing
that a company has to tally up when they are contemplating that
overseas trip.
Our STEP grant money is available for Gold Key on a
matching basis pay for Gold Key subscription services, and we
are happy to apply it. It has not been used much this year, but
we do make it available so that it does subsidize the cost of
the Gold Key so we can cut that $700 fee to $350 with our grant
courtesy of STEP.
Mr. Critz. Mr. Cummings, we left you alone pretty much the
whole time. I have one question for you.
Last year the average Ex-Im loan size in Pennsylvania was
more than $16.4 million, significantly higher than the average
SBA loan in the state, which was about $275,000, and far
exceeds the size of loans for which there is currently the
greatest demand. $16.4 million is a big loan for a small
business.
What mechanisms are in place to make sure these loans the
agency reports are going to small businesses, that they are
actually small businesses?
Mr. Cummings. We do follow all the guidelines to make sure
that what we classify as a small business is, in fact, a small
business by definition. But you do run into a lot of problems
when you do averages. As soon as you start talking averages,
when you do, for example, a transportation division of GE up in
Erie, and that falls in, those numbers are in the hundreds of
millions of dollars bring the averages way up.
In actual loans in last year, we only actually did 18
loans. Most of what we do are actually insurance and
guarantees. And most of the loans generally are larger dollar
transactions. But you will see next year a real drop right to
the floor in the size of the loans because under our new Export
Express product, we are actually going to be directly doing
loans directly to U.S. exporters in support of their exports.
The largest loan will be $500,000. We are starting at floor
zero and going up to $500,000. The reason we are doing this is
because we have identified a need in the market for very, very
small loans. The commercial banking sector said that they can't
make money on doing that size loan. So we decided to do them
ourselves.
We tried to make it such a simple loan, that they get a
referral in from a commercial bank just that they were doing
business with the bank. We do a simple credit score on the
company. As long as the credit score is acceptable, they are
going to get a loan from Ex-Im Bank with a maximum loan value
of $500,000. We are estimating, we are expecting most of them
to be in the $300,000 range. So if we do a fair amount of
loans, and I believe we will in your district, Congressman, you
are going to see those numbers really drop.
Mr. Critz. Those are small loans, but are they also what
would be classified as small business small loans?
Mr. Cummings. Correct. In order to qualify for this
program, a company has to be a small business. Generally we
don't even find that large businesses are looking for loans in
that range.
Mr. Critz. It is 11:00, and we have a second panel.
So my last question is: If you had one closing comment to
make, to say what we can do in our Subcommittee and our
Committee assignment regarding a program that is working,
something that you have seen that needs a little bit of a
tweak, if it is coordination, if it is helping make sure the
federal and state agencies are coordinating so we don't have
duplication or we are getting the best bang out of our buck; is
there one thing that you would like to mention?
I will go right to left. Mr. Hanley, starting with you.
There is one thing sticking in your craw that says boy, if
Congress would just do or not do this?
Mr. Hanley. When the President's National Export Initiative
was announced two and a half years ago, I watched that
announcement, and I said finally, wow, exactly what we do. It
now is being elevated to the level of importance it deserves to
help small businesses and help this country add jobs.
In that time, as you know, we have had some difficulties in
having the priorities of the President's National Export
Initiative supported in terms of budget. So we have an
opportunity, I think, this year, once again, to support the
President's National Export Initiative through his budget
request. That for me would be an important step in the right
direction.
Mr. Critz. Pete.
Mr. O'Neill. Better coordination of the federal government
in domestic trade programs. We have got a number of different
programs coming at us, and we try our best to incorporate those
into the state construct, but there are surprises that come our
way. Small business development centers just trained 18--we
have 18 SBDCs in the state, and now each one of those has an
international trade coordinator. I am not sure what they do or
what their mandate is, but we have them and we have to figure
out what we are going to do.
That was a surprise to us that that was coming down the
pike. We have got the MEP program that is now supporting the
export tech program, which is a multi-day export training
program going on, not in concert with us. We learn about these
things after the fact and we try to adapt where we can to be
good partners and players. But we are really not trainers. That
is not what we do.
I think better coordination. I know we have an export
promotion cabinet through the NEI. I think there has got to be
some kind of just take a moment and hear from the states'
perspective to make sure the states are in line and attuned to
what is coming at us from several different agencies all at
once.
If I can just cheat for a second, and say one more
opportunity.
We started in concert with the Pittsburgh Technology
Council this export tech program which is a $200,000 grant from
EDA, the idea being small technology firms need to go
international often well before a product or a service is even
fully realized. They need to go find venture capital abroad.
They need to find research partners abroad. We just proved this
last week when we took six biotechnology companies to Amsterdam
for our bio-Europe show.
Five of those six companies were not classified as
profitable, and you can understand why. Because they are
startups in many cases. But that doesn't mean they don't need
to get abroad for very good valid business development reasons,
and yet we could not get reimbursed from the STEP because they
weren't classified as profitable.
The STEP program has to allow us to work with nonprofitable
companies. It is not that they are basket cases, because we
don't want to work with companies that are not going to go
anywhere either, but a carve-out that would allow us to work
with small tech startups. Because these are the future. The
product life cycle, the way it is treated these days is
technology is turning the product life cycle on its head. It
doesn't work the way it used to.
These companies need to be abroad. They need our assistance
just like anybody else. We need to remove that profitability
clause or at least amend it in the STEP program, and that would
be a big help to us. It is not as if we are going to shift
everything in that direction, but it is an important component
of our overall economy, and I think it should be reflected in
the STEP grant.
Mr. Critz. Mr. Cummings.
Mr. Cummings. An agency like ourselves, we are a very small
agency, we operate very similar to a small business. We have
seen huge, astronomical growth over the last few years. I think
the only thing we need is to make sure that Congress is aware
that as we are growing, the need for resources will grow as
well.
Mr. Critz. Mr. Chairman, I wanted to leave enough time in
case you had any second round questions that you got a chance
to ask them.
Chairman Tipton. I appreciate that.
I appreciate all of you as we discussed beforehand
obviously being able to export. I think Pennsylvania is to be
applauded in terms of how aggressively you have moved into the
international marketplace, be able to reach out. I think it has
modeled certainly a number of our states because when you look
at the multiplier bringing in fresh dollars back into our
economy, that is obviously a very critical, critical component
for us and a great field for us to be able to cultivate as
Americans, and something we certainly ought to be able to grow.
I would like to thank all of you for taking the time to be
able to participate today and assisting small businesses with
those export opportunities. With limited time and personnel,
small firms do rely heavily on the states and the federal
government obviously for assistance, and we need to make sure
that these programs do work in unison to most efficiently
assist small business while they are trying to export.
I'm a small businessman, and I think you verbalized very
well that you are in the business of doing your business. So it
is a little bit of a daunting thing to try and figure out all
the different machinations to go through to try and generate
those overseas dollars. As you note, once that door is open,
you see the profitability. As we saw in terms of some testimony
as well, the actual income flowing in to the people who do the
work increases as we increase those exports.
So this is something that truly is important and that we
certainly need in these budgetary times, the country with $15.5
trillion in debt, to make sure that we are not only maximizing
our profit centers that government can help us with, and
exports are certainly one, but we are making sure that we are
using those dollars efficiently, not getting the overlaps and
make it streamlined. It is just business and something we need
to work on.
So we certainly look forward to working with you and my
colleagues to identify the best ways to increase the number of
small businesses who do export. I would like to thank you again
for taking the time out of your workday to join us and giving
me the privilege to come here to Pittsburgh and make it back
home with the Terrible Towel.
Thank you.
[Recess.]
Chairman Tipton. I see our second panel is already seated.
Gentlemen, you probably heard as we began the first panel this
morning, we have our witness lights. The Ranking Member is
here. I get interested in taking notes, and he pays attention
to the lights. You will have five minutes for your testimony.
When it gets down to one minute, the yellow light will come on,
and then when the red light comes on, if you could wrap up the
testimony. I will try and help a little better this time.
Thank you again for being here. With the introduction here,
I will yield to Ranking Member Critz for introductions.
Mr. Critz. Thank you, Mr. Chairman. Thank you, gentlemen,
for being here. I will do the same as I did in the first panel.
I will read each bio, then we'll go right to left with
statements.
Walt Robertson runs the Johnstown wire mill, which is
actually in my district up in Johnstown. I appreciate you being
here. Johnstown Wire Technologies was originally a division of
Bethlehem Steel and is the largest producer of value-added
carbon and alloy wire in North America. It focuses on high
margin segments where metallurgical quality is the
differentiating factor.
The company operates from a single 638,000 square foot
facility in Johnstown and employs 260 people, 210 of which are
represented by the United Steelworkers.
Thank you for being here.
Justin McElhatten is the president and CEO of Industrial
Scientific Corporation located in Oakdale. The company started
in 1976 as the research division of National Mine Service
Company. The division was formed to develop methane detectors
for underground mines. In 1985, NMS sold the division, and
Industrial Scientific Corporation began independent operations
that year.
ISC develops, manufactures and services fixed and portable
gas detection equipment. Key markets include utilities, oil and
gas, steel and coke and the military, and it is active
worldwide, either direct or through distributors. It has more
than 850 employees worldwide.
Thank you for being here.
David Groll is the founder and CEO of Circadiance.
Circadiance develops, manufactures and markets respiratory
products for people with sleep disordered breathing or who need
noninvasive ventilation.
Mr. Groll holds a Bachelor of Science degree in biomedical
engineering from the University of Texas at Austin and a
Master's degree in manufacturing assistance engineering from
the University of Pittsburgh.
Thank you very much for being here.
Walt, if you would start.
STATEMENTS OF WALTER ROBERTSON, JOHNSTOWN WIRE TECHNOLOGIES;
JUSTIN McELHATTEN, PRESIDENT, INDUSTRIAL SCIENTIFIC
CORPORATION; AND DAVID GROLL, CEO, CIRCADIANCE
STATEMENT OF WALTER ROBERTSON
Mr. Robertson. The headline in the American Metal Market
last Monday was China Downstreamed Steel Push is Called
Worrisome. Unfortunately my industry, wire and wire products,
has been living this reality for many years. By the way, wire
and wire products are everywhere, nails, staples, paper clips,
telephone pole hardware, nuts and bolts for cars and other
uses, concrete reinforcement, book binding wire, chain link
fence; and literally hundreds more items are made from wire.
Now, back to China, who has built the largest steel
industry and wire rod, the raw material for wire, has been
their main focus. China has 65 percent of the world's
production capacity for wire rod, while they have roughly 45 to
50 percent for other steel products. The key issue, however, is
China's border tax regime where they impose a 15 percent export
duty on wire rod and interestingly don't impose any export tax
on other steel products.
Now the bad news. The export duty has forced all of this
wire product production into their domestic market at below
world market pricing giving their wire and wire products
producers a significant cost advantage, and then on the export,
they get a 5 to 15 percent back rebate. A powerful combination.
The results are they've flooded the world with cheap and
dumped wire and wire products for the last 10 to 12 years. In
the last 10 years in the U.S., China has gone from virtually a
zero market share to supplying about 20 percent of our entire
industry. This border tax manipulation violates several WTO
rules, but they defend their actions using an environmental
defense, and the U.S.T.R. has been reluctant to challenge them
even though the U.S. and Europe recently won a similar case on
basic steel inputs at the WTO.
The results have been devastating as far as job loss and
shuttered businesses of all sizes, and the list of wire
products that aren't made in the U.S. anymore is long. However,
once you read a Chinese government five-year plan, it is clear
that their strategy is all about creating jobs in China. The
obvious problem in the U.S. is the commensurate loss of jobs
and, in this case, mostly small privately-owned companies, many
of whom are no longer in business.
The good news is that five years ago, our industry started
using U.S. trade laws to defend our markets against dumped wire
and wire products from China and other countries. Starting with
the garment hanger case, our industry won a series of
antidumping and countervailing duty cases. In fact, my company
is currently involved with five other companies in an AD and
CBD case against China and Mexico for galvanized wire.
I testified two weeks ago at the ITC in the final injury
determination hearing, and we believe that the ITC will uphold
the Commerce Department's duty determination that imposed
antidumping duties on China from 194 percent to 235 percent and
AD duties on Mexico from 21 to 38 percent.
These trade law remedies have provided much needed relief
for our industry, but there are two problems that make
addressing the numerous dumping issues we face quite difficult,
particularly if you're a small business.
First, unless the Commerce Department tracks your product
or products of interest in a separate category, it is difficult
to gather the needed information on imports to build the facts
for a case. This is particularly true for small companies and
even groups of small companies that tend to find niche products
or markets so they can compete successfully.
In our industry, there are literally, as I said, hundreds
of wire and wire product items produced. The solution is to
make industry-wide cases easier to develop and submit instead
of the cumbersome 201 and 301 trade remedies.
Secondly, bringing an AD or CBD case today costs the
petitioners in excess of $1 million. That's a challenge for
small businesses even when your confidence is high, because it
takes about 10 to 12 months for a case to go through the
system, and that means even for a successful case, the payback
is not timely. The cost is based on the legal complexity and
other demands inherent in the case, and it is very difficult to
do without legal counsel. I don't really know the solution to
that problem.
Another problem with successful trade suits is enforcement.
I'll spare you the details, but be assured that the
circumvention and fraud issues are numerous. In fact, in the
case of China, there's a clear pattern of fraud and
circumvention highlighted by websites that promote triangular
trade through other Asian/U.S. trade partners.
Our industry regularly meets with customs personnel, and we
have been at the forefront of promoting the enforcement act. Of
course, recent legislation just signed by the President
confirms Congressional support for applying AD and CBD cases to
nonmarket economies, and that is very timely and very
important.
China historically has given massive subsidies to their
manufacturers. Their major subsidy, however, is their
undervalued currency. The fact is that China has created the
greatest mercantile system since the 18th century through their
subsidies, border tax regime and many other distorted
practices. Their undervalued currency is the thread that weaves
the system together into a powerful economic machine.
Those of us outside the beltway are intrigued by the
political maneuvering of the currency bill, but we do
appreciate Senate Representative Critz' leadership on this
issue in the House. Please understand that many of us in
industry regard China as an important trading partner with
great potential as an export customer, but we just don't
understand why there is such a great reluctance to hold them
accountable for their actions that in almost every case are
counter to their WTO or GAT commitments. Thank you.
Mr. Critz. Mr. McElhatten.
STATEMENT OF JUSTIN McELHATTEN
Mr. McElhattan. Thanks for the opportunity to address you.
Industrial Scientific is a global manufacturer and technology
provider serving the needs of those people who work in those
dangerous workplaces in the world.
We manufacture gas detection equipment that monitor
atmospheres that can poison you. They can explode. They can
asphyxiate you. We do this in order to preserve human life. We
serve a variety of industries.
Our equipment is in use in some of the high profile
operations in the world, for example, CERN, the large hadron
collider, in Switzerland and France, and we're also on board
the International Space Station. We have four manufacturing
operations in four locations, Pittsburgh, Pennsylvania;
Shanghai, China; Arras, France; and Dortmund, Germany. We
employ 900 people across 22 countries, and we have had strong
growth over our 27 years so far.
A key factor in growing from 30 employees in 1985 to almost
400 employees in the U.S. and we created over 60 manufacturing-
based jobs here in the last year, has been expanding sales to
international customers. Over half of our production is sold
outside the U.S.
I want to speak about one very specific issue as it relates
to U.S. trade policy, and that is export controls. Some of our
products we manufacture, for example, the ones that monitor
gases, such as sulfur dioxide or chlorine, are considered dual
use, meaning these products can have commercial applications in
addition to military or proliferation applications. As such,
our products are subject to certain export controls that are
terribly costly, complex and burdensome in service to our
customers.
Further, the potential penalties for noncompliance are
incredibly harsh and potentially very costly to a growing
company. In order to ensure full compliance, we focus on a
variety of points in our business process. The first is
monitoring and control at all points of order entry globally at
an individual order level to ensure that we don't have denied
parties, that we verify the end use and we have other proper
verification. This many times creates potential opportunities
for delays of getting life preserving equipment to our
customers.
Secondly, we have to monitor and control our distribution
channels. We are selling into over a hundred countries and in
many cases intermediary distributors, and we have to monitor
those channels. In product development, monitoring and
controlling our own product classification as they relate to
export control. We have to do an export review assessment
required during the preliminary product development to
determine whether the new product will require license for
export. Then we have to do continuous follow-up assessments
prior to the launch to see if there's been any changes made in
the classification.
And then, finally, continuous training of employees related
to export compliance concerns, and there's also expenses
related to export compliance guidance and advice from legal
counsel, et cetera, et cetera. Additionally, we are limited as
a company in our ability to confer with non-U.S. based
consultants regarding technologies and, in some cases, to hire
non-U.S. citizens for certain positions due to concerns about
the de-export of technology. These limitations hinder
development efforts in a very competitive market.
My request is fairly simple. I would just ask first that
you recognize the tremendous burden that this system, the
export control system, places on a company's growth and
nimbleness as it seeks to serve its mission in preserving human
life in our case and, secondly, that you seek ways to simplify
the export control process for growing companies or just in
general.
In summary, the increasing emphasis being placed on export
enforcement and increased penalties can be counterproductive.
It is counterproductive to promoting exports. Consideration is
needed to develop ways for the government to partner with
industry to facilitate export compliance, to enhance legitimate
trade while preventing harmful exports.
Thank you for the opportunity to talk to you.
Mr. Critz. Mr. Groll.
STATEMENT OF DAVID GROLL
Mr. Groll. Chairman Tipton, Congressman Critz, good
morning. Thank you for the invitation to speak before you
today.
I would like to applaud this Committee's efforts regarding
free trade agreements with Colombia, Korea and Panama. I urge
continued efforts to reduce barriers to markets in Asia and
Latin America, in particular Brazil. Circadiance designs,
manufactures and sells face masks for the treatment of
obstructive sleep apnea, a condition that affects an estimated
30 million Americans and 100 million people worldwide. Although
we do sell in over 30 countries, less than ten percent of our
revenue is from sales outside of the U.S. This Committee's
efforts to remove trade barriers support our goal of growing
our export business faster than our overall business.
There are two main issues facing the medical device
industry, that while domestic policies, they affect our
competitiveness. Those two main issues are medical device levy
tax and competitive bidding. As an American medical device
manufacturer, I am staunchly opposed to the medical device levy
tax. This job killing provision was included in the Patient
Protection & Affordable Care Act signed into law in 2010.
According to the Act, a 2.3 percent excise tax will be imposed
on the total revenue on all U.S. manufacturers, medical device
manufacturers regardless of whether the company generates a
profit.
The tax will impact countless small manufacturing
businesses throughout the country. For instance, our company's
budget calls for us to spend ten percent of our revenue on
research and development. Should the medical device levy go
into effect beginning in 2013, as called for in the Affordable
Care Act, we will have no choice but to cut our research and
development spending by an offsetting amount. This will result
in a 23 percent reduction in our R & D spending.
Companies throughout our industry face the same challenge.
The result can be devastating for innovation, impeding job
creation and weakening the position of the United States as the
global leader in medical technology innovation. Should the
Affordable Care Act survive the Supreme Court challenge, I urge
you to support the efforts of Representative Erik Paulson to
have this provision of the Affordable Care Act repealed before
it becomes law at the end of this year.
Circadiance sells primarily to home medical equipment
providers who provide our products to their patients and bill
their insurance providers, including Medicare. The Medicare
Modernization Act of 2003 established requirements for a
competitive bidding program for certain home medical equipment
and supplies. Under the program the centers for Medicare and
Medicaid services award contracts to suppliers for the bid
items.
Competitive bidding was rolled out in nine metropolitan
areas in 2010 and is currently being extended to an additional
97 areas this year. Competitive bidding is deeply flawed. First
of all, it is anticompetitive as it reduces the number of
suppliers in the market forcing many of the small businesses to
close.
It reduces access to care, patient choice and quality of
care. It forces patients, most of whom are senior citizens or
disabled, to switch away from local providers they rely on and
trust. We have already seen the results of competitive bidding
in the initial nine competitive bidding areas. There has been a
drop in submitted claims in these areas reflecting more
restricted access to approved Medicare suppliers.
At the same time, there's been a rise in the same
beneficiary group in emergency room admissions reflecting
inevitable shifting of care from the low cost home-based model
to the much higher cost hospital-based model which is still
paid for by Medicare. Competitive bidding is causing the cost
of Medicare to go up in direct conflict with the goals of the
program.
I urge members of this Committee to support H.R. 1041, the
bipartisan bill, to repeal competitive bidding. In turn, I urge
the Committee members to support the alternative known as the
Market Pricing Program which, like competitive bidding, is
based on an auction process but addresses the flaws of the
competitive bidding program. The Market Pricing Program will
meet the goal of lowering prices for medical equipment, not
restricting access to the system for seniors and those with
disabilities.
Currently the Market Pricing Program is pending a score
from the Congressional Budget Office. I urge Committee members
to pressure the CBO to present this score as quickly as
possible so that the market pricing program has a chance to
replace the flawed competitive bidding system before the end of
the year.
The U.S. medical device industry is a net exporter. I urge
you to continue to provide access to international markets, to
seek a simple and fair tax code that treats all companies
equally and to support efforts to replace the flawed Medicare
competitive bidding program.
I have included additional comments which are in my written
testimony for the public and Committee record. Thank you for
the opportunity to speak today.
Chairman Tipton. Thank you, gentlemen. I certainly
appreciate you all taking the time again to be here. I will
start out with questioning here.
First of all, Mr. Groll, you caught my attention in regard
to the excise tax, medical device excise tax. When you're
talking about increasing or reducing your R & D, did you say 23
percent?
Mr. Groll. Yes.
Chairman Tipton. That's obviously how you make a better
product. Do you have any kind of forecast that should this
actually come into place, how is that going to impact your
sales? How is that going to impact jobs?
Mr. Groll. Well, in the short term, the sales are going to
be based on products in development right now. But beginning
next year, we will hire fewer engineers and spend less money on
research and development, and in the long term, that will
affect our ability to develop new products and grow our
business.
Chairman Tipton. Thank you. A week ago today, the Pueblo
Chieftain, the largest newspaper in southern Colorado, ran an
article stating that manufacturing is leading Pueblo's
recovery. This article actually pointed out that consumer
spending in the five-county region anchored by Pueblo outpaced
the rest of the state.
I'd like to submit this article for the record.
[The information follows on page 63.]
Chairman Tipton. I believe that we could all agree that
manufacturing is important for the future of our economic
prosperity. As a result, I wanted to just ask the panel: What
do you believe to be the single biggest obstacle facing the
manufacturing industry today when it comes to exporting?
Mr. Robertson. You're talking small business?
Chairman Tipton. Right.
Mr. Robertson. I think the fellows on the last panel said
it. From my perspective, it is credit risk and it is actually
currency risk. You make a transaction and six months later you
might ship a product. To take that currency risk could be a big
issue. I'm sure there are lots of other issues, but when you
have a product that is pretty set like ours is, it really gets
down to credit and currency risk.
Mr. Critz. Currency risk meaning?
Mr. Robertson. The U.S. dollar strengthens or weakens
relative to the other currency in the timeframe that you had
actually taken the order versus the time you ship the order.
You can be on the wrong side of that currency movement, and it
can be painful.
Chairman Tipton. Instability in the currency.
Mr. McElhattan. From my perspective, a couple of things.
Number one is just having the orientation around exporting,
being of the mindset that we see that as a significant
opportunity. From my very limited perspective within my
company, this was one of the areas, the export control, that
leans heavy against that.
If you're in that dual use category, you're taking a big
step when you sell to the other side for exporting. So I think
the attitude of the enforcement bodies, et cetera, around that
is going to influence it one way or another. We took advantage
of a lot of the programs early on as we began to export to find
partners. But I would agree. I think that the credit risk is
one of the significant ones as well.
Mr. Groll. I think the issues that were brought up by the
first panel, a lot of them are important, but for us, it was
pointed out: The time to work on it is critical. We're a small
company. We have 15 employees. Our major export markets are
Germany, Canada and Japan. Canada is easy. We can get in the
car and drive up there.
But it is expensive and very time consuming to figure out
who in Germany is the right partner for us to be working with.
It is going to take somebody getting on a plane and going over
there and identifying them and building those relationships
that will let us really start to penetrate that market.
Mr. Tipton. Thank you. I would like to open this up to all
of you.
Mr. Robertson, some of the comments that you made in
regards to dealing with China and other areas, could you
perhaps provide a cost estimate on how unfair trade practices
are affecting your business? What's the cost estimate? How is
that hurting your business?
Mr. Robertson. In our case, we buy from the steel mills and
convert the product into usable product for people that make
end products. And the problem is that so many of these
customers are no longer in business. I mean, that's really the
issue. I mean, it really is the fact that the market has
shrunken over the last 10 to 12 years due to what I believe is
really unfair competition from China.
Chairman Tipton. Do you have any idea in terms of--and it
may be proprietary; I don't know--but we could have had $100
million more in sales had we had a fair and level playing field
to be able to work out of?
Mr. Robertson. That would be a difficult number. It's a
huge number.
Chairman Tipton. It is a big number?
Mr. McElhatten.
Mr. McElhattan. I don't have a figure. We have tried to
fight against that by adding services. We invest in services
that we surround our products. I wouldn't be able to quantify
that.
Mr. Groll. It would be tough to quantify, but I know that
when we are out competing for business domestically, we are
fighting against products that are knock-off Chinese products
that are brought into the U.S., and they are inexpensive
compared to the domestically made products. We can fight
against that with having a better product, having superior
features, and we are able to protect that position in the U.S.
because our intellectual property position allows us to do
that.
I personally have a lot of experience in China. I lived
there for eight years. I ran factories there. We don't sell our
product in China because I'm sure that as soon as we do, it
will knocked off, and we'll have international competitors
where we will not be able to block them. They won't be able to
sell those products in the U.S., competitive product in the
U.S. or other countries where we have patent protection, but
I'm pretty sure that we would be creating a competitor if we
began selling in China.
Chairman Tipton. If the medical device excise tax goes in,
you have to any estimates in terms of how that will impact your
business dollar-wise?
Mr. Groll. Our plan at this point is to reduce our R & D
spending. That's the only place we can. We are a small growing
company. We are not making a profit right now. We are taking
all of our profits and putting them back into the business to
grow it primarily in the form of R & D.
Chairman Tipton. That will hurt your ability to be
competitive because it's all about innovation?
Mr. Groll. Our business is about innovation, developing new
better products and protecting them with patents. We are
finding that tax will be devastating to that. I don't want to
take the product into China because I think we would just be
creating our next competitor.
Chairman Tipton. According to the U.S. Treasury, China is
the number one foreign owner of U.S. debt securities totaling
over $1.1 trillion. Do you believe this limits our ability to
hold China accountable for their unfair trade practices?
Mr. Robertson. No. In fact, I think that's a bigger problem
for China than it is for us. They're the ones with the risk as
far as the currency risk. To me it shouldn't have any impact.
Mr. McElhattan. I agree. I think they are two different
issues.
Mr. Groll. I would agree as well. I think the two ecomonies
have become so intertwined, that both parties stands to gain
and lose during a change in relationship. It just has to be
managed.
Mr. Robertson. As I said in my testimony, I believe China
to be an important trading partner. We just need to hold them
accountable like we most of our other trading partners.
Chairman Tipton. In regards to market access and trade
disputes, we always hear about issues of large profile
companies, Wal-Marts, Microsoft. Do you believe that concerns
of small businesses are being adequately addressed by federal
agencies?
Mr. Robertson. I think one of the big problems in the steel
industry and other industries is that companies like Wal-Mart,
people that have embraced a distribution model where they
import products to distribute, whether it be manufacturers or
retailers. Obviously retailers can produce anywhere they want.
But, yes, to me that's a big issue.
We are trying to create jobs in America. We are trying to
create a competitive landscape, a competitive playing field for
America so we can grow our industry and grow our jobs. That to
me is the centerpiece of what we ought to be considering.
Mr. McElhattan. Let me understand the question. Could you
repeat the question, please?
Chairman Tipton. We seem to pay a lot of attention when we
have Microsoft, when we have Wal-Mart in terms of international
issues when it comes to trade. Is the federal government paying
enough attention to the small businesses. The number one
employer in this country happens to be small business. When we
are talking about our ability to export and being able to grow
those markets, is enough focus coming out of the feds to be
able to address that, or is it being focused primarily on the
big guys?
Mr. McElhattan. I don't think it is. I think that is
according to the earlier panel is a great indication of that.
We have had great services from district export councils and
small business. That's the perspective that I see that through,
is there are a lot of supporting agencies encouraging us. We
are in a funny time right now where in our growth, we have gone
from being a smaller company and are kind of moving into being
a larger company. But as we have grown, we have felt adequate
support from that.
We have different issues now with export controls, but the
encouragement to export, I think we have seen great services.
Mr. Groll. I would agree. I think the services that are
available are adequate. The issues that government is dealing
with are the ones that are issues with other countries. An
example for us is we just set up exports to Brazil. It took us
almost a year to get approved to go in to get our product
approved in Brazil. Then it faces a 70 percent import duty
which makes it really expensive in the market there. They're
trying to protect their domestic market.
I don't know that there's much that we can do as an
individual company to deal with that, but in general, some type
of free trade agreement or some type of agreement to have them
reduce their import duties would be very helpful to us.
Chairman Tipton. Did you want to speak to that?
Mr. Robertson. Just one other point. If you look at the
National Association of Manufacturers or even the chamber of
commerce, when you talk about small business versus large
business, they get into some of these issues that are very
prominent on Capitol Hill, and there's a big divide. I wonder
sometimes who gets the most support when some of these issues
are really decided.
I think it's important that this has been kind of a
revelation for this morning frankly about some of the things
I'm hearing. I'm impressed.
Mr. McElhattan. Can I add one thing to that?
Chairman Tipton. Yes, sir.
Mr. McElhattan. One of the things Dave brought up was
approvals. We see that consistently. Brazil is a great example
where the product approvals, what that product is stamped with,
we see that being used in many ways as a barrier to entry to a
U.S. manufacturer and something to increase our costs and makes
us less competitive as we have to have 14 approvals when we do
a new product launch.
Chairman Tipton. I actually made a note of that in terms of
product review, how that ultimately affects some of your costs
which impacts your ability to be competitive as well simply. It
all add up into dollars. I have a few more questions, but I
would like to yield Ranking Member Critz.
Mr. Critz. Thank you, Mr. Chairman.
One quick note. We did pass in Small Business Committee, a
provision that every free trade agreement now has to do a
report on what its impact is going to be on small businesses,
so that at least we have some sort of documentation that allows
us to review what's going on. We are trying to push that.
Mr. McElhatten, I'm trying to get my arms around what you
were talking about. Because of national security, when you
provide a product or you have a product, you now have to
navigate the complex and time-consuming processes to get
approvals because of national security.
Do you believe there could be a more balance approach
between security and commercial interests to implement these
export controls?
Mr. McElhattan. I do.
Mr. Critz. So you know, the three earlier panelists are
still here. You have the Ex-Im Bank, the Department of Commerce
and the Pennsylvania Exporting Assistance Program. These are
people that help implement a lot of things that we are talking
about. We are all looking for ideas.
Mr. McElhattan. I guess from the perspective of a general
philosophy around embargo, countries that are embargoed and
where we can't sell products to, I think there is room for
improvement in U.S. policy in that. I'm not going to speak to
that so much. I think from a more tactical level, there could
be less of a burden placed on manufacturers and specifically
around dual use.
I think that reevaluating what products could be dual use,
it appeared that when these were first put in place, there was
a much broader scope around that. I think trimming that down,
if that list is able to become smaller as a more practical
determination of what is considered dual use, I would make the
argument all day long that our products should not be in that
category. With fewer products in that category, you're going to
have less administration costs and overhead around maintaining
those classifications. At that level I think there is room for
improvement around that level.
Then the spirit of enforcement I think. We have seen from
our perspective there be a harsher, and this is very
subjective, but just a harsher attitude towards businesses with
regard to making sure that export controls are maintained. Can
I give an example just real quick?
Mr. Critz. Sure, absolutely.
Mr. McElhattan. Where that can be at odds where it feels as
a company grows, we have a strong commercial presence in China.
China has just moved from being our number five largest country
that we are doing business in to number four. It's a large
market opportunity for us. We have about 220 employees in China
on the sales side. Services in the field, we have a small
manufacturing operation there.
China is leading the efforts in rebuilding the Sudan.
That's an embargoed country for us with tremendous export
controls. When we put enforcement into our team in China and
say ``You cannot ship there'' and very harsh attitudes around
that, our employees there, who are part of our family, are not
able to participate in something that is very national, to them
they are very proud that they are rebuilding this country, and
the U.S. is more punitive towards it, just shut it off. So
that's where the rough happens.
Does it make us less competitive? Yeah, on nips and tucks
in creating an employer of choice to work for a U.S. company in
Shanghai or Beijing or Xian or wherever we have offices in
cities there. That's more of the high level. But I think at the
tactical level, it can be more simply applied.
Mr. Critz. You have a facility in Shanghai?
Mr. McElhattan. Shanghai is our Asia-Pacific, yes.
Mr. Critz. Did you have to put a facility in China to sell
to China?
Mr. McElhattan. No.
Mr. Critz. No?
Mr. McElhattan. No. We began selling in China in 1986. We
have been in the markets there for 25 years, 26 years now. In
2000 is when we made the large investment to put an emphasis on
foreign enterprise. We had been JVs all the way up to 2000.
Mr. Critz. One question for the whole panel. You heard the
testimony earlier. You have the Export Assistance Center, the
Export-Import Bank, and you have the Pennsylvania Exporting
Assistance Program, part of the DCED at the state level, but
it's the international business.
Have you worked with any of these agencies? Have you worked
with any other agency that has helped you generate business
internationally? We will go right to left here.
Mr. Robertson. No, but I think that might change.
Mr. Critz. From what you heard today?
Mr. Robertson. Yes. I was very impressed. We export not a
lot, but some through our current customer base into their
plants, overseas plants where they need our product to be
successful. That's the extent of what we do. But we might
explore that opportunity, that contact information.
Mr. Critz. Good.
Mr. McElhattan. Probably 12 or 13 years ago, we partnered
with--and I'm going to get this wrong--I think it was the U.S.
Commercial Service on getting--it's what the Pittsburgh
Technology Council has downstairs, that kind of a forum where
they can bring in trade representatives. We partnered with
that. One specific example I remember is Venezuela. We wanted
to get into Venezuela. We were able to identify number of
potential partners with services like that and began to build a
base of distribution as we moved to get representatives there.
We didn't take advantage of any of the financing opportunities,
but we have on the commercial relationship side.
Mr. Groll. We have not taken advantage of any of those
services, but we are planning to. Based on what I heard this
morning, I think there are additional opportunities we are
going to investigate.
Mr. Critz. We have heard testimony about currency
manipulation. We have heard about countries that are open and
not. Is there a particular trading partner that you have or a
nation that's out there that is creating heartburn in your
industry, where you are trying to get into the country to do
business there, but it's been nearly impossible or because of
their protectionist laws, or a country that is doing things
that is harming your business here domestically because of an
unfair competitive advantage?
Mr. Robertson. It's clearly China, and my major concern
today, if you read any of the economic reports coming out of
China, of course, their growth is still pretty impressive at
seven to eight percent let's say, but when you were at 12 or 13
percent, they are certainly seeing a slowdown. They built in my
case an unbelievable steel industry and downstream
manufacturing around that. If anyone doesn't believe that their
game plan is going to be to export more, we are kidding
ourselves. I am really concerned about if you think it has been
rough the last ten years what we might confront going forward.
Mr. McElhattan. A little bit different spin. I am going to
bring out Iran. In 2006 we made a large acquisition of a
European company based in France, and they were doing a
significant amount of business in Iran. The day we bought them,
we had to go in and shut down, ``You have to stop orders today.
You cannot ship to Iran right now.'' And they said, ``Okay. We
will.'' We said, ``No, no, no. You have to shut it down.'' So
suddenly these folks in Iran who had been betting their lives
on the products this company was providing can no longer have
access to them. In our business, along with us and the newly
acquired business was hurt to the tune of half a million
dollars of revenue per year because of U.S. policy.
I understand it, but that's one, that economy. We look at
energy ecomonies and how many U.S. companies provide
technology. I agree with the statements Mr. Groll made earlier
about technology and manufacturing in a country like Iran that
is energy rich. That's lost opportunity for U.S. manufacturers,
significant lost opportunity.
Mr. Critz. I'm not going to comment.
Mr. McElhattan. I understand.
Mr. Critz. But I'll let it go.
Mr. Groll. I think the big issue for us is China. Their
lack of regard for intellectual property protection is a big
problem. Inability to enforce any kind of patent or trademark
rights in China. It's very expensive and probably not something
that a small manufacturer can do. Of course, with their ability
to maintain their undervalued currency, they keep their
products artificially cheap on top of the fact that they are
able to manufacture them very inexpensively, they get an
advantage on trading.
Mr. Critz. Mr. Chairman.
Chairman Tipton. I have been listening as we are talking
about some of the complexities being able to sell overseas,
some of the challenges, China being able to deal with them. I
am curious. Maybe you can tell me.
Given all of the changing foreign regulations that come out
and the different technical barriers I know that you probably
see in terms of trying to be able to deal with foreign
countries and the change in tariffs, I would like to know just
how you keep up with that. What's the doorway that you look
through to say this is how we keep up with it?
Mr. Robertson. We are part of an industry group, American
Wire Producers Association. We have a caucus, wire and wire
products caucus. They sort this out for us and help our members
understand the playing field in that respect.
Mr. McElhattan. We tend to do it through consultants. We
hire consultants so we have people on staff whose job it is to
manage this.
Mr. Groll. As well we hire outside consultants. We do as a
medical device manufacturer, we have certain regulations that
involve periodic review of a lot of aspects of our business,
including domestic and international regulations. So every six
months we ask a question is there anything new that we should
be aware of.
Chairman Tipton. We just heard from SBA, Commerce about the
entire list of opportunities out there for information, and
you've all sought private sector solutions it sounds like to be
able to keep up with it, through your trade associations or
consultants to be able to do that. Interesting.
Well, did you have any other questions that you would like
to be able to put forward here?
Mr. Critz. No.
Chairman Tipton. Again, I would like to thank you gentlemen
for taking the time. I know you would rather probably be out
earning a dollar rather than in here.
Mr. Critz. It is beautiful outside. They'd rather be
playing golf.
Chairman Tipton. Looking out seeing sparkle on the river,
my fly rod is probably beckoning somewhere.
We do appreciate it. It is through testimony much like
yours that we get a little bit of guidance. It's incredibly
important from the small business committee, and that
extrapolates out into the other committees we have as well the
real impacts on real businesses. For you it is not a
theoretical exercise. It is real impacts, real jobs, real lives
that are being affected by policies that may hurt or hopefully
at times help coming out of Washington.
Your impact in regard to these manufacturing issues is
deeply appreciated. We all do share that same mission, I
believe, increasing U.S. exports and ensuring that foreign
competitors play by the same rules. We have got to make sure
that we are indeed standing up for American industry and
American jobs and American futures.
Our committee has been working to educate more small
businesses on the benefits of exporting. Glad to hear that
you're actively pursuing this, Mr. Groll. We will also be
identifying ways to make the overall trade process simpler to
understand and stronger as well.
I know in my small community, we just looked at getting
dollars in from Texas and Arizona. That's our outside income
coming in. But the rollover dollars and how that impacts our
community probably cannot be overstated.
I would ask for unanimous consent that members would have
five legislative days to be able to submit statements and
supporting materials for the record.
Chairman Tipton. Without hearing objection, it is so
ordered. This hearing is now adjourned. Thank you again for
attending.
[Whereupon, at 12:01 p.m., the Subcommittee was adjourned.]
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