[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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76-469                    WASHINGTON : 2012
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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

                              ----------                              
                                                                   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

                              ----------                              


                         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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