[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
                  AMERICAN COMPETITIVENESS WORLDWIDE: 
                    IMPACTS ON SMALL BUSINESSES AND 
                             ENTREPRENEURS

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

                                HEARING

                               before the

        SUBCOMMITTEE ON ECOMOMIC GROWTH, TAX AND CAPITAL ACCESS

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                              JULY 9, 2013

                               __________

                               [GRAPHIC] [TIFF OMITTED] TONGRESS.#13
                               

            Small Business Committee Document Number 113-028
              Available via the GPO Website: www.fdsys.gov



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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                       BLAINE LUETKEMER, Missouri
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director


                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Tom Rice....................................................     1
Hon. Judy Chu....................................................     2

                               WITNESSES

Professor Michael Porter, Institute for Strategy and 
  Competitiveness, Harvard Business School, Boston, MA...........     5
Mr. James McConeghy, Chief Financial Officer, Chobani, Norwich, 
  NY.............................................................     7
Mr. Smyth McKissick, Chief Executive Officer, Alice Manufacturing 
  Co, Inc., Easley, SC, testifying on behalf of the National 
  Council of Textile Organizations...............................     9
Dr. Cynthia McIntyre, Senior Vice President, Council on 
  Competitiveness, Washington, DC................................    11

                                APPENDIX

Prepared Statements:
    Professor Michael Porter, Institute for Strategy and 
      Competitiveness, Harvard Business School, Boston, MA.......    28
    Mr. James McConeghy, Chief Financial Officer, Chobani, 
      Norwich, NY................................................    82
    Mr. Smyth McKissick, Chief Executive Officer, Alice 
      Manufacturing Co, Inc., Easley, SC, testifying on behalf of 
      the National Council of Textile Organizations..............    85
    Dr. Cynthia McIntyre, Senior Vice President, Council on 
      Competitiveness, Washington, DC............................    93
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.


  AMERICAN COMPETITIVENESS WORLDWIDE: IMPACTS ON SMALL BUSINESSES AND 
                             ENTREPRENEURS

                              ----------                              


                         TUESDAY, JULY 9, 2013

                  House of Representatives,
               Committee on Small Business,
  Subcommittee on Economic Growth, Tax and Capital 
                                            Access,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 1:00 p.m., in 
Room 2360, Rayburn House Office Building. Hon. Tom Rice 
[chairman of the subcommittee] presiding.
    Present: Representatives Rice, Chabot, King, Coffman, 
Mulvaney, Hanna, Chu, Payne, and Schneider.
    Chairman RICE. Good afternoon. At this time I would like to 
call to order the Subcommittee on Economic Growth, Tax, and 
Capital Access of the Small Business Committee.
    Today's hearing covers a topic which I believe is of the 
utmost importance--in fact, I think there is nothing more 
important--and that is restoring America's competitiveness. For 
decades, America was the world's place to do business. We had 
the best education, quality of life, workforce, access to 
capital, infrastructure, and economic markets, but in the last 
50 years that has changed. We have watched as millions of 
American jobs have moved overseas. It is not necessarily that 
we have regressed, but our competitors worldwide have improved. 
We must change the attitude that we are the only game in town 
and improve our competitive standing in the world if we want to 
reverse this trend. We cannot maintain the world's highest tax 
rate and regulatory burden and expect job creators to return.
    A nation's competitiveness is primarily based on its firms' 
abilities to compete across global markets, while at the same 
time raising the standard of living for all citizens. I was 
sent to Washington to work on solutions that will boost our 
economy and create jobs for all Americans, and restoring our 
competitiveness is necessary for achieving both.
    To ensure competitiveness, America's broad economic policy 
must focus on helping businesses increase long-term 
productivity. This means promoting policies that give our firms 
the ability to be the best in the world, such as reducing 
onerous regulations. Fortunately, this afternoon, we have Dr. 
Michael Porter, who has extensively studied this issue of 
competitiveness and has eight broad policy changes he believes 
will allow our nation to experience substantial economic 
growth.
    It is important to note the impact of these policies will 
have on small firms. For example, as a tax attorney, I know the 
challenges faced by small businesses in trying to figure out 
the nation's complex tax code. The Committee on Small Business 
has previously held hearings on the burdens of this and 
reforming the tax code will go a long way in helping America's 
small businesses. However, a complex tax code is but one part 
of the burden. As we will hear today, a holistic approach is 
necessary to truly ensure that companies are able to be 
competitive. As we all know, a diet is nothing without 
exercise, and while one will help, to be successful you must do 
both. Competitiveness is the same way. One is good, but to 
restore America's competitive edge, we must combine various 
factors until we have created an atmosphere that propels our 
businesses to the top.
    Additionally, while Congress must work together at the 
federal level to create policies, it is important to remember 
that the businesses themselves can lead the way in their local 
communities. For example, throughout many parts of the United 
States, area employers are working with community colleges to 
develop curricula that would allow the companies to hire local 
students with requisite skills, such as advanced manufacturing. 
This sort of initiative is necessary, and I applaud these 
efforts. We need companies who are aware of the challenges in 
their industry to, whenever possible, take steps to address 
those concerns.
    Today's witnesses truly understand both the challenges and 
conditions necessary to restore America's competitiveness, and 
I thank you all for being here. I look forward to your 
testimony. The road to reviving our country's competitive edge 
in an increasingly global economy will take hard work but is 
work I am committed to. I now yield to my Ranking Member Chu 
for her opening remarks.
    Ms. Chu. Hold on one second. We have been called for votes, 
obviously, but if you want to go ahead and make your open, or 
do you want to wait until we come back?
    Ms. CHU. Why do we not wait until we come back. Then we 
might have more peace of mind here.
    Chairman RICE. As you can see, we have 11 minutes before we 
are supposed to--before the first vote ends, so we are going to 
have to recess this hearing. We will be back here in about, I 
would say, 20 minutes. Thank you.
    [Recess]
    Chairman RICE. We will call the meeting back to order.
    I was walking back over with Congressman Mulvaney and he 
was so disappointed he missed my opening statement, he wanted 
me to do it again. But I said no, I am going to decline.
    So at this time I yield to Ranking Member Chu to give her 
opening statement.
    Ms. CHU. Well, thank you so much, Mr. Chair.
    Good morning. Well, actually, it is good afternoon, now. 
Today's hearing will provide insights into U.S. competitiveness 
and what we, as policymakers, need to do to keep America one 
step ahead of this rapidly changing world. Professor Michael 
Porter and his team at the Harvard Business School have spent 
years studying this topic, and today, Professor Porter will 
share the insights that they put forward in their study, 
``Restoring U.S. Competitiveness.''
    Among the suggestions we will hear are about the need to 
reform our tax code and fix our immigration system. I look 
forward to exploring each of the witnesses' recommendations on 
how we can make America more competitive.
    American competitiveness is so fundamental to what makes 
this country great. The United States continues to be the 
world's largest economy with a gross domestic product of nearly 
$15 trillion, followed far behind by China at only $7 trillion. 
We continue to be the world's largest manufacturer. Our 
military's power and technological capabilities are rivaled by 
no other country on earth. In my own state of California we 
have Silicon Valley and Hollywood, the world's leaders in 
technology and entertainment industries.
    Small businesses are central to achieving this high level 
of innovation. Research has found that small firms are much 
more likely to develop emerging technologies than are large 
firms. Although small firms accounted for only 8 percent of 
patents granted, they counted for 24 percent of the patents in 
the top 100 emerging clusters. Ensuring that small firms have 
the tools and resources they need to continue this work is 
critical to not just their own success but also for America's 
leadership in the global economy.
    In recent years, however, both small and large businesses 
are struggling to recover from the recession, and experts worry 
that as a result, America is losing ground on competitiveness. 
Americans wages have been stagnant for years. Our roads, 
bridges, and ports are crumbling. Our immigration system is 
broken. And scholars and experts worry that the U.S. is falling 
behind on manufacturing, education, infrastructure, and 
innovation.
    Today, we will hear experts share with the Committee a 
variety of policy recommendations on how to make America the 
leader in global competitiveness. One of those key issues is 
improving the tax code. I certainly agree that we need tax 
reform to make the code simpler. I would ask, however, that we 
keep in mind a recent study by the Government Accountability 
Office which found that most American profitable companies only 
pay a fraction of the taxes they owe under the official 
corporate rate of 35 percent. When they take into account 
deductions and legal loopholes, American corporations paid a 
12.6 percent tax rate on corporate profits. So as we engage in 
a conversation about tax reform, we must ensure that 
corporations do pay their fair share and that our country's 
middle class and small businesses do not end up carrying the 
tax burden.
    Corporate tax reform could also have a significant impact 
on small business by eliminating the deductions that small 
businesses care about the most. So as we start having a 
conversation about corporate tax reform, we need to ensure that 
small businesses are not negatively affected.
    One of the policy recommendations that we will hear about 
today offered by Professor Porter concerns the importance of 
reforming our immigration system by allowing high-skilled 
individuals who study in American universities to stay and work 
in this country. Indeed, immigration reform is vital to 
maintaining American competitiveness. Immigrants have made 
extraordinary contributions to America, including iconic 
successes like Intel, Google, Yahoo, and eBay, which were 
started by immigrants in the Silicon Valley. In fact, it is the 
world's hub of innovation where immigrants helped found half of 
all technology and engineering companies, many which began as 
small startups.
    I would point out, however, that we will not be able to 
attract the best and brightest if those with employment-based 
visas cannot live and work in the U.S. with their families at 
their sides. That is why fixing the family-based visa system is 
also critical to fixing America's competitiveness. In fact, 
immigrants are twice as likely to start up businesses as 
native-borns and there are many who have come to the U.S. 
through the family visa system. Comprehensive immigration 
reform is a key issue in Congress right now and it is my hope 
that we will be able to reach a bipartisan agreement that will 
put us back on track to restoring America's competitiveness.
    With this in mind, I am looking forward to today's hearing 
which will provide insights into what our country needs to do 
to remain the most competitive nation in the world. Thank you, 
Chairman Rice, for convening this hearing, and I yield back.
    Chairman RICE. Thank you, Ranking Member Chu.
    If additional members have an opening statement prepared, I 
ask that they submit it for the record.
    I would also like to take a moment to explain the timing 
lights for you. You will each have five minutes to deliver your 
testimony. The light will start out as green. When you have one 
minute remaining, the light will turn yellow. Finally, it will 
turn red at the end of your five minutes. We will be a little 
liberal on that.
    I ask that you try to keep to that time limit, but we will 
be a little lenient if you are close to finishing.
    At this time we would like to go ahead and proceed with the 
witnesses. We will start out with Professor Michael Porter.
    Michael Eugene Porter received a BSE with high honors in 
aerospace and mechanical engineering from Princeton University, 
where he was elected Phi Beta Kappa and Tau Beta Pi. He 
received an MBA with high distinction from Harvard Business 
School, where he was a George F. Baker Scholar, and a Ph.D. in 
Business Economics from Harvard University. Professor Porter is 
the Bishop William Lawrence University Professor at Harvard 
Business School located in Cambridge, Massachusetts, and he 
also leads the Institute for Strategy and Competitiveness. 
Professor Porter is widely regarded as an expert in 
competitiveness and economic development and generally 
recognized as the father of the modern strategy field. Most 
recently, in February, Professor Porter, along with his 
colleagues at Harvard's Institute for Strategy and 
Competitiveness, released a study which examines America's 
business environment and recommends actions that can be taken 
at the federal level to restore competitiveness.
    Thank you for being here today, Professor Porter. You have 
five minutes. You may begin.

   STATEMENTS OF MICHAEL PORTER, PROFESSOR, HARVARD BUSINESS 
SCHOOL; JIM MCCONEGHY, CHIEF EXECUTIVE OFFICER, CHOBANI; SMYTH 
MCKISSICK, CEO, ALICE MANUFACTURING COMPANY; CYNTHIA MCINTYRE, 
       SENIOR VICE PRESIDENT, COUNCIL ON COMPETITIVENESS.

                  STATEMENT OF MICHAEL PORTER

    Mr. PORTER. Thank you so much, Mr. Rice, and other members 
of the Committee, and visitors for attending today.
    We are here to talk about a topic that is anything but a 
sound bite. This is a complex topic, and I think when we 
approach this question of competitiveness we have to approach 
it with the understanding that there are a lot of moving pieces 
here. And when we think about it, we have to think rigorously 
and we have to think strategically. We cannot think that 
competitiveness can be solved by one magic bullet; one simple 
solution will solve this problem. This is a problem that has 
been building for many, many years and it will take us really a 
strategic focus to address it.
    I would like to just make five basic points in my opening 
statement which we can explore in more detail as the hearing 
proceeds.
    First point is what do we mean by competitiveness? And when 
we talk about competitiveness, competitiveness occurs when 
businesses based in a location, like the United States, can 
meet the test of international competition while improving the 
standard of living of the average citizen. Competitiveness is 
not just about businesses being competitive; it is also about 
the average worker doing well. We have to do those things 
together if we are going to be truly competitive. If businesses 
succeed by cutting wages and laying off people, that is not 
success. That is not being competitive. That is a sign that we 
are not competitive. That is a sign that we cannot sustain and 
grow the prosperity of the average citizen.
    So much of the debate about competitiveness is really 
clouded and confused by a lack of understanding of this basic 
truth. Republicans tend to focus on businesses doing well. 
Democrats tend to focus on the average worker doing well. But, 
of course, competitiveness is when we can do those things 
together. We are really all in this together. And the only way 
we can achieve those dual objectives is by improving 
productivity. We have to create the most productive business 
environment. If we can equip our workers to be productive, then 
they can support high wages. Then we can have a rising standard 
of living. But if we cannot be productive in America, if we 
cannot be at the vanguard of efficiency and productivity in how 
we do business in this country, we are simply not going to be 
able to keep up anymore because other nations around the world 
are making very rapid improvements in their business 
environments and the skill bases of their populations. So 
competitiveness is fundamentally about the question of making 
America productive.
    Now, the second point I would like to make is that there is 
really undeniable evidence that the U.S., as an economy, is 
facing a fundamental structural competitiveness problem. This 
is not a cyclical problem. This is not a recession. This is 
something different.
    Why do we believe that? Because all the indicators that 
signal declining competitiveness have started declining well 
before the 2008 recession. You see here a slide about job 
growth. The American job machine started sputtering in the 
1990s. It did not start sputtering in 2008. The wage growth of 
the American households has been stagnant for decades. And this 
problem is the mother of all issues. If we cannot address these 
conditions which have allowed us to not sustain job growth and 
not sustain wage growth, if we cannot deal with these 
conditions and these problems, we are going to have rising 
inequality. We are going to lose our influence in the world. 
And we are not going to be able to really renew the American 
dream. This is the mother of all issues. It affects all the 
other issues. If we cannot solve the fundamental problem of 
competiveness and economic vitality and job growth and income 
growth, we are not going to have the resources to really do 
almost anything that we want to do as a country.
    Now, to address this problem, we have to address the 
underlying causes. And here is kind of a synthesis of what we 
found from our Harvard Business School research, is really kind 
of the balance sheet of the United States from the point of 
view of competitiveness. Luckily, we retained some profound 
strengths. You see those on the upper right hand corner. We are 
innovative. We are entrepreneurial. We have well-developed 
clusters. We have a lot of strengths, strengths that are 
powerful and profound in the modern global economy.
    But we have allowed some of the more basic elements of our 
business environment to erode. Our skill base is eroding. Our 
infrastructure is eroding. Our public education is not up to 
snuff. Our tax code is uncompetitive. Our regulations are too 
costly and too time-consuming. Our litigation and legal system 
is too costly and too time-consuming.
    As a result, although we retain key strengths, they are 
being weighed down by these growing weaknesses, while other 
countries are making rapid progress in fixing the very things 
that we have allowed to erode.
    So in order to address this problem, we have to tackle 
these fundamental challenges, and that leads to my fourth 
point. We need a strategy in Washington to address those things 
that are really on the critical path. And these are the eight 
areas that we have determined really are the most pressing 
issues. These do not address all the problems we have in 
American competitiveness, but they really get at the things 
that we find and we believe are really core to making progress 
over the next three to five to seven years. Immigration of 
highly-skilled individuals is part of the broader immigration 
problem, but it is the part that really matters to our 
competitiveness. Simplifying the corporate tax code by cutting 
the rate and ending the loopholes is something that is common 
sense and I think most people agree on. More controversial is 
our international taxation system, which is locking lots of 
money outside of the U.S. and is unique in the world, and it is 
not supporting really the growth of our businesses. There are 
many weaknesses in the trading system that is working against 
the U.S. economy. We have to lead the reform of that system.
    Improving infrastructure, simplifying regulation, getting 
on with the great opportunity we have in shale gas and our 
energy reserves. And then finally, creating a sustainable 
budget. None of these things probably sound even remotely 
surprising to any of you. This is pure, unadulterated common 
sense. But these are the areas which we found if we could make 
some headway on these areas, not seek perfection, not seek 
everything everybody wants, but just move ahead on these areas, 
it will have a transformational impact on business confidence, 
on business investment, and we will start building momentum in 
this economy again.
    So let me conclude there and, of course, we can have a 
fulsome discussion of this complex topic over the coming 
balance of the hearing. Thank you, Mr. Chairman.
    Chairman RICE. Thank you, Professor Porter.
    I now yield to Representative Hanna to introduce Mr. 
McConeghy.
    Mr. HANNA. I would like to report that I am not just 
pleased to represent you here, but pleased to be a customer. 
And my wife.
    Today, I am honored to be here to introduce Jim McConeghy, 
the chief financial officer of Chobani, which is headquartered 
within my district in Norwich, New York. Chobani was founded by 
Hamdi Ulukaya, a Turkish immigrant to our nation who began 
modestly in 2005. It received an SBA loan to start making Greek 
yogurt so many individuals around the world enjoy today.
    Chobani has experienced rapid growth and success despite a 
very rough economy, and as I said, is a worldwide brand. Today, 
Chobani grosses $1 billion and employs over 2,500 individuals. 
Chobani's story is uniquely American, and its success has 
invigorated dairy farms and communities in upstate New York 
where we are proud to call you our neighbor.
    Mr. McConeghy, I look forward to having you share Chobani's 
experiences with us today. Thank you. You may begin.

                   STATEMENT OF JIM MCCONEGHY

    Mr. MCCONEGHY. Thank you, Mr. Hanna, for the introduction.
    Mr. Chairman and members of the Subcommittee, thank you for 
the opportunity to testify at today's hearing. As Congressman 
Hanna said, I am Jim McConeghy, the chief financial officer of 
Chobani.
    The Chobani story is one that could only happen in America. 
Where else could a Turkish immigrant transform a shuttered 
factory into a thriving food manufacturing business in just a 
few short years?
    Our story began in 2005, when with the help of a Small 
Business Administration loan, our founder, Hamdi Ulukaya, 
acquired a former Kraft plant in Central New York. Two years 
later, the first cups of Chobani rolled off the line, and 
today, Chobani is the number one selling brand of Greek yogurt 
in the country.
    In less than six years, we have grown our business from 
nothing to over a billion dollars in revenue. We have expanded 
our reach around the globe. We have invested more than 700 
million dollars between our original manufacturing facility in 
New York and our new plant in Twin Falls, Idaho. We are no 
longer a startup with five employees but a global organization 
with a workforce some 2,600 strong. It is the American dream 
come to life, proving that if you truly believe in something 
and work hard, anything is possible.
    Of course, with opportunities, there are challenges for the 
future of Chobani. Chobani's success is strongly burdened by 
the current federal regulatory and legal environment. The four 
most prominent challenges I will touch on today are the lack of 
an FDA standard of identify for Greek yogurt, geographic 
indicators in international trade, trade in dairy products with 
Canada, and tax return.
    First, Chobani strongly supports the establishment of a 
standard of identify for Greek yogurt. The Food and Drug 
Administration establishes standards of identity for various 
food products that reduce consumer confusion. Unfortunately, 
the current FDA standards of identity for yogurt are extremely 
outdated and do not take into account current manufacturing 
processes. The definition does not reflect the composition and 
the processes used to manufacture Greek yogurt, which is very 
different from traditional yogurt. The lack of a proper 
standard of identity for true Greek yogurt literally allows any 
product that meets one of the current FDA standard definitions 
of yogurt to be branded as Greek yogurt, regardless of the 
composition or the processes used to manufacture it. USDA's 
Child Nutrition program routinely follows FDA's standards of 
identity for products used in their programs. The lack of a 
standard of identity for true Greek yogurt makes it difficult 
for consumers and the USDA to differentiate between yogurt and 
Greek yogurt for purposes of nutrition programs, including the 
proper allowances for meat and meat alternatives in the Child 
Nutrition program crediting.
    FDA and Congress must recognize and address this blatant 
inequity in order for the rapidly emerging market for Greek 
yogurt to meet its potential without misleading consumers 
towards a product that is not true. An update to the 30-year-
old standard is clearly in order.
    Second, we have seen an increase in challenges of the 
labeling of common food products abroad. We recently embarked 
on a costly and difficult process in England and Wales after it 
was incorrectly, in our opinion, ruled at the term ``Greek'' on 
our true Greek yogurt misled consumers into presuming that it 
was from Greece. The EU position puts common food names at 
great risk. If this problem is not dealt with soon, the EU's 
aggressive actions to monopolize common food names, such as 
bologna, feta, and provolone, will damage sales of many popular 
food products around the globe. Arguing that a small group of 
EU producers should have an exclusive right to use such name is 
like claiming that only Italians should be able to use the term 
``pizza.'' Protectionism is protectionism no matter how you 
couch it.
    On a third point, Chobani recently engaged in an extensive 
process to bring our products to Canada. This process included 
researching the ability to import yogurt into Canada from the 
United States and to explore making yogurt in Canada for 
Canadian consumers. In the case of importing yogurt, we found 
this to be centrally impossible as there is a 237-1/2 percent 
duty at the border for all imports into Canada. This is despite 
the ``open borders'' promulgated by NAFTA.
    As an alternative, we attempted to buy land and build a 
manufacturing facility in Canada. When this plan became visible 
to our competitors, they launched a series of actions directly 
against various Canadian government agencies and the local 
Chobani entity to stall our Canadian plants. Despite the fact 
that we and the Canadian government prevailed in court, all of 
the previous market barriers continue to exist. Accordingly, we 
recommend that Congress and the administration use the TPP 
umbrella to look at the closed borders for dairy with Canada.
    Last, we understand there are many discussions surrounding 
tax reform in the halls of government. We wholly support this 
effort to eliminate inconsistencies and the taxation of 
different types of US entities and to have a globally 
competitive tax system. We at Chobani thank you for your 
support of a fair and competitive business environment.
    Chairman RICE. Thank you, Mr. McConeghy.
    Next, I want to introduce Mr. Smyth McKissick. Since 1988, 
Mr. McKissick has served as the president and CEO of Alice 
Manufacturing Company in Easley, South Carolina. For 90 years, 
four generations of the McKissick family have led Alice 
Manufacturing Company. Alice is widely recognized today as a 
modern and successful textile company, as well as an important 
part of the upstate community. Mr. McKissick also serves as a 
life trustee of Clemson University. He has previously served as 
the chairman of the South Carolina Manufacturers Alliance, 
chairman of the National Council of Textile Organizations, co-
chair of the American Manufacturing Trade Action Coalition, and 
is an independent director of People's Bank Corp, Inc. He is a 
graduate of Clemson University, and has an MBA from the 
University of South Carolina, which is his redeeming factor. He 
and his wife, Martha, reside in Greenville and have three 
children.
    Mr. McKissick, welcome.

                  STATEMENT OF SMYTH MCKISSICK

    Mr. MCKISSICK. Chairman Rice and members of the 
Subcommittee, thank you for the opportunity to be here today.
    My name is Smyth McKissick, and I am the CEO of Alice 
Manufacturing Company. We are a 103-year-old company located in 
Easley, South Carolina, employing 300 associates. We produce 
fabrics primarily for home furnishings, apparel, and health 
care applications.
    Over the years, we and other U.S. textile manufacturers 
have consistently invested in the most technologically advanced 
equipment, continuing education, and technical training. In 
fact, the U.S. textile industry has been a world leader in 
innovation, developing biological resistant factors, wrinkle-
free fabrics, and sophisticated fabrics for military and 
industrial applications. The U.S. textile industry is the third 
largest exporter of textile products in the world. We ship 
nearly $23 billion worth of textile and apparel products to 
over 170 countries and our product industry employs over half a 
million people.
    Our industry is experiencing a resurgence, and we have 
invested over $3 billion in new technology, machinery, and 
manufacturing facilities since 2010. This positive trend could 
be further bolstered by sound U.S. trade policy, especially as 
our government negotiates the terms of the Trans-Pacific 
Partnership or TPP. TPP is the largest free trade agreement 
since NAFTA. Our country, as you will know, is negotiating with 
11 other nations, including Viet Nam. U.S. manufacturing jobs 
are at stake, and it is critical that our negotiators get this 
trade agreement right.
    Prior to the Asian currency crisis, the U.S. textile 
industry was thriving. Overnight, as foreign currency values 
sank, the U.S. market was flooded with imported goods. These 
devaluations allowed our foreign competitors to gain a huge 
pricing advantage; thus, the U.S. textile supply chain was 
decimated. Our industry was cut in half and thousands upon 
thousands of U.S. textile jobs were lost in the process.
    At Alice Manufacturing Company, we realize we had to 
quickly establish a new business model in order to survive. We 
employ two primary strategies in our company. The first was a 
direct sale to retail whereby our company became a virtual 
vertical home textile supplier. Our second strategy was our 
optimization of our NAFTA and CAFTA partnerships. Alice 
partnered directly with manufacturers in Mexico and Central 
America, and this allowed for the opening of new markets for 
our fabrics. Our business is growing as a result of these new 
strategies.
    NAFTA and CAFTA are so beneficial to the U.S. textile 
industry because of three critically important provisions. The 
first is a yarn forward rule of origin. The second are fair 
market access provisions, and finally, strict customs 
enforcement. Yarn forward has been instrumental in the creation 
of nearly $25 billion of two-way trade between the industry and 
our free trade agreement partners. It is critically important 
to maintain yarn forward and fair market access principles in 
the TPP. If not, the TPP could become the single greatest 
threat to the U.S. textile industry since the Asian currency 
crisis.
    Our industry's principle concern with the TPP is the 
participation of Viet Nam, a nonmarket economy. The government 
of Viet Nam heavily subsidizes its textile and apparent sector. 
We must have counterbalancing measures such as long tariff 
phase outs for sensitive products and strict customs rules and 
enforcement to deter illegal trade. While our government 
continues to negotiate for yarn forward in the TPP, the 
Vietnamese government are opposed to yarn forward. They are 
looking for a single transformation rule of origin. Vietnam 
wants to import goods from China and export those goods to the 
United States duty free. This would put over 500,000 U.S. 
textile jobs at risk. More than 75 percent of the apparel 
produced in Vietnam today uses fabrics and other textile 
imports from China. The total projected job loss in the U.S. 
after 10 years of a single transformation rule is over 530,000. 
The total projected job loss in the Western Hemisphere is two 
million.
    Another major concern of the U.S. domestic textile industry 
is that nonmarket export-driven countries have been known to 
use currency manipulation to create artificial competitive 
advantages in the marketplace. Currency manipulation clearly 
distorts true competitiveness. It can quickly negate the intent 
of trade agreements and it can cause serious job loss. Currency 
manipulation is the antithesis of the principles of free trade 
and this practice must be addressed in the TPP.
    In conclusion, a poorly negotiated TPP will cause 
widespread job losses in the United States and the Western 
Hemisphere. I am here today to urge you to endorse the textile 
and apparel trading rules in the TPP that are cornerstones of 
every major free trade agreement since NAFTA. You can take 
action by signing onto the Coble-McHenry-Pascrell Dear 
Colleague Letter to the USTR.
    I would like to thank you Subcommittee members who have 
already agreed to sign this important letter, including you, 
Mr. Chairman, and thank you all for the opportunity to be here 
this afternoon. Thank you very much.
    Chairman RICE. Thank you very much, Mr. McKissick.
    I will now yield to Ranking Member Chu to introduce our 
last witness.
    Ms. CHU. Yes. It is my pleasure to introduce Dr. Cynthia R. 
McIntyre. Dr. McIntyre is senior vice president at the Council 
on Competitiveness. During the last five years, she has led the 
High Performance Computing Initiative that promotes the use of 
HPC in the private sector for greater economic return and 
competitive advantage. As a result of these efforts, the 
council was asked by the White House in 2010 to create and lead 
a public-private partnership to help small- and medium-size 
(SME) manufacturers use this type of modeling and simulation. 
Since its inception, several of these enterprises have seen 
improvement to their product development process and bottom-
line sales projections. Dr. McIntyre holds a Ph.D. in physics 
from the Massachusetts Institute of Technology.

                 STATEMENT OF CYNTHIA MCINTYRE

    Ms. MCINTYRE. Chairman Rice, Ranking Member Chu, and other 
distinguished members on the Subcommittee, thank you for having 
me here today. My name is Dr. Cynthia McIntyre and I am a 
senior vice president at the Council on Competitiveness, a 
nonpartisan, nongovernmental organization composed of CEOs, 
labor leaders, university presidents, and national laboratory 
directors working together to keep America competitive and 
Americans prosperous.
    It is an honor to share with you a public-private 
partnership with which the Council on Competitiveness has been 
heavily involved since its inception, the National Digital 
Engineering and Manufacturing Consortia. This pilot public-
private partnership connecting small- and medium-sizes 
manufacturers with high-performance computing via modeling and 
simulation, is currently wrapping up its pilot phase in the 
Midwest. Research by the Council on Competitiveness presents 
powerful evidence of the capacity of high-performance 
computing, also known as HPC, to drive innovation and make U.S. 
companies and the nation more competitive. Indeed, for those 
who have adopted it, HPC represents a crucial edge that can 
build and sustain competitive advantage through innovative 
product design, production techniques, cost savings, improved 
time-to-market cycles, and overall quality.
    However, Council research has also shown that many U.S. 
companies are stuck on the desktop, not able to take full 
advantage of HPC, while still others, including many suppliers 
to U.S. tier one companies, have limited, if any, computational 
R&D capacity. Through additional research, the Council 
determined that public-private sector collaboration is the best 
and most effective means for quickly advancing HPC and 
manufacturing.
    Next, the Council and selected original equipment 
manufacturers developed a Midwestern Regional Pilot Program as 
a public-private partnership with the U.S. Federal Government. 
The pilot program is aimed at improving competitiveness and 
innovation in small- and medium-size enterprises in the U.S. 
manufacturing supply chain. The ultimate outcome of the pilot 
program will be a workforce with enhanced technical skills, 
improved product quality, better customization of products, and 
job retention and growth. With these principles as goals, the 
National Digital Engineering and Manufacturing Consortium, 
known as NDEMC, was born. NDEMC brokers and promotes 
collaborative relationships that will sustain the growth of 
American manufacturing through job creation and enhanced 
competitiveness. NDEMC provides modeling simulation and 
analytics, education, and training, access to high performance 
computing, and access to software as a service to small- and 
medium-size manufacturers. These services will be available 
through a distributed application to make U.S. SMEs more 
competitive in the global marketplace.
    A great example of how NDEMC has positively impacted U.S. 
companies is the case of Jeco Plastic Products, LLC, a small, 
custom-mold manufacturer of large, complex, and high-tolerance 
products with a plant in the Indianapolis area. And this is 
plastic material. Jeco's custom base includes large U.S. and 
international original equipment manufacturers in the 
automotive, aerospace, printing, and defense industries. To 
take advantage of a monumental opportunity to secure a large 
OEM account, Jeco Plastic Products required high-performance 
computing to perform tasks that in-house software that they had 
could not accomplish. Jeco joined the NDEMC program to gain 
education, training, experience, access to university 
expertise, software, and hardware to successfully compete 
against large foreign competitors. By employing HPC through 
NDEMC, Jeco earned a multi-year contract with a large German 
automotive company, increasing American exports and keeping 
people employed. In fact, due to increased production demand 
from their large client, Jeco is expected to increase payroll 
and hire 15 advanced manufacturing workers during the next few 
years. Jeco's size is about 35 people all total. So they are 
looking to hire 15 more.
    Currently, the NDEMC pilot program is wrapping up its 
federal funding and the Council on Competitiveness and other 
key NDEMC stakeholders are working to move NDEMC from a public-
private partnership to a nonprofit entity which would be the 
conduit for new partnerships, including new public-private 
partnerships across the United States which will continue to 
work together to sustain America's manufacturing 
competitiveness. The EPA and its partners will study the 
economic impact of technology-based innovation infrastructure 
towards boosting the long-term job capacity and competitiveness 
of U.S. manufacturing and industry.
    Thank you, and I look forward to your questions.
    Chairman RICE. Thank you, Dr. McIntyre, for being here.
    So now comes a time when you are on the hot seat. We get to 
ask questions.
    I am going to use my time to allow Professor Porter to 
complete his presentation. Professor Porter.
    Mr. PORTER. We need to equip the U.S. Congress with Harvard 
Business School-style name cards. We will transfer that 
technology. I need to put this on. It is probably best off the 
record anyway.
    So thank you, Mr. Chairman. I would like to take a few more 
minutes to complete some of the remarks that I was hoping to 
make earlier in the short time, but also I think reflect on the 
comments we have just heard. Because I think what we just heard 
is actually a wonderful series of case studies in both the 
problems and the solutions that I talked about earlier.
    Now, again, going back to this slide, I want to emphasize, 
and we heard this in the testimony, there is a lot of strengths 
in America. We have a lot of innovation, a lot of technology, a 
lot of new business models, a lot of path breaking companies, 
and we heard about the transformation of Alice. We heard about 
the Chobani story. Look at the amazing things that we can do. 
Look at the amazing strengths that we have in this country that 
are in many ways unique in the world, and still unique in the 
world despite the effort of many other countries to catch up in 
these areas.
    But net-net, the cold hard truth is we are not generating 
jobs at a reasonable rate. This has been going on now for well 
over a decade and so we have this chronic job issue. We do not 
have an attractive enough business environment to generate 
enough investment to create enough jobs. We have great stories 
but net-net we are not creating jobs fast enough.
    In terms of incomes, people with high skill and Ph.D.s are 
doing great. That is not the real problem. The problem is 
really the middle. It is that great middle. The people without 
unique skills, without Ph.D.s, how can we create an environment 
where they can prosper, where their incomes can rise? Instead, 
we are in an environment where inequality is growing and that 
is creating all kinds of stresses and strains in our society.
    When we look at the problems that are holding us back, it 
is not the lack of innovation. It is not the lack of top 
management. It is not the lack of excellent, high-end 
education. It is these things in the lower left. It is these 
basics. It is having an efficient, simple, responsive 
regulatory system. Listen to Mr. McConeghy's commentary about 
the FDA and getting a regulation updated after 30 years to deal 
with the changes in the marketplace. Look at the cost of that. 
The company is doing okay, but think of how much better it 
could do if we had more responsive regulation, more pragmatic 
that did not slow things down and add unnecessary cost. Look at 
the examples of how the trading system has not * we have not 
taken the leadership and not been forceful in really making 
sure that the trading system works for America like it works 
for other countries. There was a time when we did not have to 
worry about that. We were so strong that we could simply not 
worry about trade barriers and subsidies and restrictions on 
U.S. goods in Canada, but those days are over. Other nations 
have caught up, so trade is again one of the areas that I spoke 
about in my eight recommendations.
    Mr. McConeghy also talked about the fundamental need for 
tax reform. This is the number one thing that we hear in 
business. Just give us a reasonable corporate tax rate. We will 
give up on the loopholes. We are ready to do that deal but 
right now we cannot have the highest corporate rate in the OECD 
and expect to be able to invest and renew our activities in 
America. Again, another one of our eight recommendations.
    The weaknesses that we see in that lower left-hand corner 
actually have a disproportionate negative impact on small 
business. Big businesses can deal with this stuff. They have 
the legal departments. They have the tax minimization 
departments. They have multinational operations where they can 
kind of mitigate the effect of the unproductive American 
business environment, but small businesses who are basically in 
America, they are the most affected. We cannot help small 
businesses by passing new subsidies for small businesses to try 
to offset the fundamental weaknesses in the business 
environment. That is a loser's game. We have been trying to do 
that but it is not working. We have to fix the basic 
circumstances in our business environment that are leading to 
the anemic job growth, the lack of income growth, and the lack 
of economic growth in our economy.
    Now, who needs to take action here? Well, I think what we 
found through our Harvard Business School project is all the 
stakeholders need to act. There is a lot that business can do. 
You heard Dr. McIntyre's description of a very innovative 
public-private partnership where businesses are actually 
playing a major role in really improving skills and in 
improving technology and seeding other small companies. So 
business can do a lot, and we have been working all across the 
country to mobilize and inform business to take a more forceful 
role back in America again. Many businesses kind of lost the 
understanding that they really had to invest in improving 
America's business environment. There is a lot they should be 
doing.
    States and local regions and cities have a lot to do. All 
across the country we see all kinds of innovative efforts at 
the state level--in South Carolina, in Tennessee, and state 
after state in which I work where government and business are 
working collaboratively together to deal with the problems that 
can be dealt with at the state and local level.
    But the real sticking point now, the thing that is 
fundamentally driving the poor performance of our economy, is 
right here in Washington. This is where we are not making 
progress. This is the one place in our society where we do not 
see progress. And where do we need to make that progress? We 
need to make that progress in those--that small set of things 
that is really on the critical path. Again, we can make our 
patent system better, but that is not the problem. We have got 
a lot of patents. We can improve our R&D spending. We should, 
but that is not the critical constraint. There is a lot of 
things that we can improve, and there is somebody in this town 
and some interest groups that are arguing that that is the most 
important issue, but actually, the reality is that the most 
important issues are the things that are staring at us right on 
that screen, in that lower left-hand corner. And if we move to 
my last slide with those eight areas, it is these eight areas 
that when we engage with business and we survey thousands of 
companies and we scour the economy looking for what is really 
going on here, it is these eight areas that are the sticking 
points that would unlock that resurgence of progress, that 
sense of optimism, that confidence in the business community 
and among other stakeholders that America was actually in 
business again.
    The high-skilled immigration is a pressing constraint. We 
have thousands of jobs that we cannot fill today. That does not 
mean we should not train Americans, but we need to take some 
steps today to get onboard with what has been a great American 
strength, which is getting people to come to this country that 
can really contribute to our economy.
    The corporate tax code, again, we are not talking about a 
windfall to corporations; we are talking about just bringing 
the corporate tax rate down to a reasonable level, and the 
price of that is going to be to eliminate a lot of these 
loopholes. It is time to do that deal now. Our alumni are 
overwhelmingly willing to do that deal.
    The international tax system, we do not need to seek 
perfection here but right now the idea that if you bring money 
back in the U.S. you should pay the highest tax rate in the 
OECD. Nobody is going to bring money back to the U.S. just 
pragmatically. So we have got to find a compromise, a way of 
changing that international taxation system so that it is 
hopefully fair for the country but also fair for business.
    The trading system we just heard about, there are a lot of 
distortions there that did not matter to us when we were 
dominant but they matter now and they are really stalling the 
ability to create jobs and grow incomes.
    Regulatory costs, we need good regulation. We need high 
standards. We need safe products, but we do not need to spend 
years and years and years and years on process and delay and 
expense to get there. Let us do it a better way.
    Logistics and transportation. We have got to be efficient 
in moving goods and services around; otherwise, it is going to 
make it even harder to pay higher wages to workers, and so on. 
We have got to deal with these areas.
    Now, the challenge is that to make progress on these common 
sense areas, we sometimes get caught up in trying to be perfect 
and do everything at once. And I think what we have deemed now 
more than everything else is to start making some progress on 
these things where we can, get some momentum, and then I think 
you are going to find that there is a steamroller that can 
restart. This American machine, this American competitive 
machine that we have, these strengths that we have are sitting 
there and they can be unleashed, but we have got to start the 
ball rolling in Washington. I think this is the critical 
constraint.
    So let me stop there, Mr. Chairman. And I know some of the 
things I have said are controversial, but I think we all have 
to be honest and realistic about where we stand. We are a 
nonpartisan institution. We are just about trying to help you 
and all of us understand what is really going on and hopefully 
this is something that can start to build from this Committee 
on this day in this meeting and these discussions to a much 
wider process of really pragmatically moving ahead on some of 
the things that are holding our country back.
    Chairman RICE. Well, I appreciate your comments, Professor 
Porter. I hear people on both sides of the aisle talking about 
many, if not all of these things frequently. It is just we do 
not seem to make progress on them, and one of the reasons I 
wanted you here was to see if you could help nudge us in that 
direction.
    I am going to yield now to Ranking Member Chu for her 
questions.
    Ms. CHU. Dr. McIntyre, you talked about the NDEMC system, 
the National Digital Engineering and Manufacturing Consortium, 
which was bringing cutting-edge technologies such as modeling, 
simulation, and analytical tools to small- and medium-size 
businesses that would otherwise not have access to them. In 
introducing these suite of services, what challenges are you 
facing in getting small companies to adopt these new tools? Do 
they need specialized personnel? Do the employees have the 
capability to use them? And also, what are the costs of these 
services?
    Ms. MCINTYRE. Thank you so much for the question.
    There are challenges that the small- and medium-size 
manufacturers face even with our assistance to use these tools. 
I think the biggest problem for them is not having the in-house 
expertise oftentimes to understand how to use the tools, the 
benefit of the tools, even though these tools can help solve 
some of the problems that they are facing. We oftentimes say 
that if we gave them all the HPC equipment and all the software 
that they needed for free, it probably would just sit in a 
closet because there is no person there who could actually use 
those tools. So getting them connected to the right expertise 
and we go to the university so we are trusted sources, and 
couple them to the university so that they can act as 
educators, trainers, and consultants to help them use those 
tools. So it is a very time-intensive process working with them 
to make sure that they have the expertise that they need.
    Ms. CHU. And the cost?
    Ms. MCINTYRE. And the cost right now, there is no cost to 
them in the pilot. The federal dollars and the OEM dollars 
cover that cost at this time. We are looking at making it 
affordable, trying to understand what that price point should 
be. We have had some of the SMEs come back a second and a third 
time and volunteer to pay, so we are moving towards a pay per 
service, but right now in this pilot it is a free cost to them, 
no money out, but they must dedicate human resources in order 
to do it.
    Ms. CHU. Thank you.
    Mr. McConeghy, your story about Chobani Yogurt is certainly 
most impressive. And you mentioned that Mr. Ulukaya, the 
founder of Chobani Yogurt used an SBA loan to purchase the 
commercial real estate that became the first Chobani factory. 
The SBA provides capital to companies that are unable to secure 
conventional financing. Why did the founder choose to obtain a 
SBA loan over conventional financing?
    Mr. MCCONEGHY. Frankly, I think it was the most cost-
effective and it was available. He is an entrepreneur at heart. 
He started the business fundamentally with nothing and when you 
are an entrepreneur, capital is everything to just get started. 
And so the SBA program just was a very cost-effective program. 
He worked with his bankers at the time, Key Bank, and they 
introduced him to the program and made it work. There is not a 
lot of seed capital available for virtually what is a startup 
unless you have it yourself. So the SBA program was very 
helpful.
    Ms. CHU. Thank you.
    Professor Porter, nearly two decades ago you formulated the 
Porter Hypothesis, which proposed that strong environmental 
regulations can actually spur efficiency and innovation and 
lead to improvements in competitiveness. Can you share with 
this Committee your theory and how we can improve 
competitiveness by having high standards?
    Mr. PORTER. Well, thank you, Ms. Chu, for that question.
    The conventional wisdom about environmental regulation 
historically has been that, frankly, environmental regulation 
inevitably would raise cost because if you had to be cleaner 
that would be costly. What we have learned from decades of 
research is actually that environmental impact is costly; that 
is if you are dumping materials or not using resources 
effectively, you are actually wasting money. And the Porter 
Hypothesis was really based on this insight which grew out of 
the early work that I did on competitiveness. I found that some 
of the countries that had the highest environmental performance 
were actually the most efficient because they used energy 
better, they used resources better, they used water better, 
they did not waste resources, they did not dump material; they 
recycled it. And so that was an insight that I think was 
radical but now has become widely accepted in the business 
community. And so business is now radically transforming the 
way it does business, the way it runs its supply chains, to try 
to minimize logistical waste and minimize energy use and so 
forth.
    Now, how do you achieve high environmental performance? 
Well, one of the ways you do that is you set high standards--
standards for energy, standards for quality, and providing 
those standards are set in a sophisticated way, those standards 
can be very, very positive. High standards are a good thing. 
The countries with high standards usually do well in the 
effective industries. But the big risk is twofold. First of 
all, there is a difference between the standards and how you 
actually implement the standards. And you want to have very 
high standards but you want to implement the standards in a 
very efficient and very timely and very nonintrusive way. And 
the other thing about the standards is you want to make sure 
the standards are about outcomes, not about the methods you 
use. So, for example, if you tell a company to deal with the 
water issue, they have to clean up the water with a particular 
technology, that actually is going to add cost. But if you tell 
the company, well, you need to improve your water use, you 
figure it out and we will just measure whether you achieve it 
or not, then that stimulates innovation.
    So the debate we are having on regulation frankly is a 
little bit of a silly debate. We are debating whether 
regulation is good or bad. That is a completely silly debate. 
We need regulation because if we do not have regulation, we 
have bad outcomes. The real debate ought to be about do we have 
efficient regulation or inefficient regulation. There is really 
no debate to have there. And that is what I am saying and that 
is what our recommendation is; that we need to rethink the way 
we go about regulation. That does not mean reducing the 
standards; that means reducing the time delays. That means 
catching up with 30-year-old process technology changes in the 
yogurt industry.
    At this moment, we are driving our medical device industry 
to Europe because the FDA is so slow in implementing new 
standards for medical devices, that medical device companies 
are just saying, look, we cannot wait. We are going to go to 
Europe. The European standards are just as high as the American 
standards but they just go about it in a more efficient way. So 
our challenge in America on regulation--in environmental 
regulation and other kinds of regulation--is to keep our high 
standards but go about applying those standards in a very, very 
cost-effective way. That is the challenge. And unfortunately, 
it is not easy. You cannot just pass one law and you are done. 
You have to go area by area by area but we have not yet found a 
mechanism to do that effectively in this country so far. 
Hopefully, we will. Hopefully, we can come out of this period 
we are in right now raising the level of debate and really 
understanding what the real issues are and working 
constructively on the things that we all care about, which is 
creating a business environment where companies can thrive, 
where people can hire more workers, where we can export more, 
and not thinking that it is a contest between business versus 
the worker, and not thinking it is a contest between wealthy 
people and poor people, but it is really a contest to be 
productive.
    Ms. CHU. And so Professor Porter, you mentioned that there 
are certain countries that have high standards, but is there a 
country that has high standards and also regulations that are 
manageable?
    Mr. PORTER. Well, you know, I think one country that I 
think is sort of an interesting model for us to consider in 
America is Germany. I mean, Germany has very high wages, which 
they have been able to sustain and they have very high levels 
of employment. Germany has quite high standards in many areas, 
but the way they go about applying those, implementing those 
standards is much more pragmatic, much less intrusive, and that 
would be true in a number of other European countries as well. 
If we look to a country like China, that is not what we aspire 
to. They have low standards. It is polluted. The air is 
horrible. People are getting sick, so that is not where we are 
going. We do not want to be like that. That is not going to 
make us competitive. We want high standards but we want to be 
pragmatic and efficient and timely in how we apply those 
standards. And in order to do that we are going to have to have 
a much more trusting dialogue between the private sector and 
the public sector in setting these standards and we are going 
to have to create new processes and methods for actually 
setting these standards really sector by sector, industry by 
industry. That has been very hard for us to achieve 
historically over the last 10 or 20 years.
    Ms. CHU. Very interesting. Thank you, Professor Porter. And 
I yield back.
    Chairman RICE. To Mr. Hanna.
    Mr. HANNA. Thank you.
    Dr. McIntyre, Mr. McConeghy, and Mr. McKissick, do you 
agree or disagree with Mr. Porter's statements here today?
    Mr. MCCONEGHY. I agree.
    Mr. MCKISSICK. I agree.
    Mr. HANNA. All yeses. Me, too.
    All of this being said, I want to ask you a few things. You 
are familiar with a gentleman, Michael Spence.
    Mr. PORTER. Michael Spence is one of my coauthors.
    Mr. HANNA. I am glad to hear that. Someone I enjoy and his 
belief in tradable goods.
    The middle class is shrinking, incomes are down, taxpayers 
are not there because they are simply not making enough money. 
A couple things. What is the future like if we stay on the path 
we are on? Because you have already indicated in your statement 
that we are way behind in the sense that we have taken, I 
guess, some things for granted and the rest of the world is 
passing us by, doing exactly what we do, but doing it in many 
ways as well. STEM education, there is much talk about science, 
technology, engineering, and math. Mr. Spence is particularly 
written about that a great deal. And how we can change the 
dynamic. I mean, I have read what you wrote here but what you 
say is so poignant to me and it is something everybody I think 
in this Congress should hear said as beautifully as you have 
said it. I would also like to give a little more time to talk 
about maybe Michael Spence's work and what you think about his 
thesis in terms of tradable, value-added, highly-intellectual 
properties being that place that the rest of the world goes to 
because we cannot make what we used to make as well and be who 
we want to be, which is a thriving middle class who once again 
become taxpayers and kind of live that ``American dream.''
    Mr. PORTER. Well, thank you for that question. Mike Spence 
and I are dear old friends and I am very proud of him for his 
tremendous contribution.
    The point he makes about traded and nontraded is something 
I actually skipped earlier and it grows also out of the work I 
have done. When you look at an economy like the United States, 
there are really two economies there. One is the local economy, 
and there are a certain number of industries that are really 
existing to serve the needs of the population living in 
California or America. So let us take health care. The health 
care industry is not a traded industry. It is a local industry. 
Health care services are provided to the people who live near 
the health care provider. The same is true with retailing. The 
same is true with housing and real estate. There is a big local 
economy. In fact, about two-thirds of all the jobs are local. 
They are not traded. They are serving the local region.
    The other one-third of the jobs are traded. Those are in 
industries like automobiles where we not only serve the local 
market but we also serve the international or global market in 
that particular field. Those are traded goods. The local 
economy is very important and it accounts for a lot of jobs, 
but the real driver of prosperity in an economy is the traded 
economy. It is our ability to compete in those fields where we 
can specialize in areas where we are really unique and we can 
then expand and grow those industries and serve the world. So 
Hollywood is a great example. We serve the world in video 
entertainment and movies. That is a traded good. Software. We 
are a global player in that traded industry, and those 
industries serve the world. They do not just serve the United 
States.
    Now, the stunning statistic, Mr. Hanna, is over the last 20 
years of the jobs that America has created, zero net jobs have 
been created in the traded economy. Zero. And I think Mike 
Spence, through his work, really came to the same conclusion. 
All the jobs that we have created over the last 20 years, net 
jobs, have been in the local economy.
    Mr. HANNA. He calls it service-oriented.
    Mr. PORTER. And it is service-oriented. It is some goods 
but mostly service-oriented. And so this is just a further sign 
that something is broken here, that we have not created enough 
of an effective enough business environment so that that traded 
work where we have to compete can actually be successfully done 
competitively here. So I think it really reinforces the point 
that I am making.
    Now, the point you made about the middle class is a 
profound point. In America, the problem we are having is not 
with the people who have high levels of skill and high levels 
of education. They are doing actually quite well. The global 
economy is a net plus for them. The problem is the people that 
have a high school degree that do not have special skills. They 
are very dependent on the competitiveness of our business 
environment. If we have a crummy business environment, then the 
person with just average skill, that job is going to go because 
you can get that job done cheaper somewhere else.
    So what we have to do is we have to have such an efficient 
business environment that people without really unique high-
level skills can be employed and be productive in America. And 
that is where we really lost out. And that is putting us on a 
profoundly dangerous course because if upper income people do 
well--usually because they have really high and unique skills--
and the middle and lower income people do poorly and we have a 
growing divide, it just tears our society apart. And it erodes 
the support for business. And so it starts leading to policies 
that really work against business and then that just makes it 
worse and worse and worse and worse. So what we have got to do 
is we have got to get this flywheel reversed and moving in the 
other direction. If we can improve our business environment, 
there will be more investment here. Not only will the high 
skilled people do well but the middle skill people. You know, 
Apple was a brilliant, innovative company but they made nothing 
in America. So we did not get all the benefits of that 
innovation because we did not have a competitive enough 
business environment so that they could make anything in 
America cost-effectively. But what if we had a better business 
environment? Then we would not only get Apple's brilliance and 
innovation and patents, but we would also get a lot of 
manufacturing opportunities that would spawn off of those 
innovative companies.
    So this is kind of the fix that we are in. The good news is 
that the really, really hard stuff, the hardest thing that we 
have to fix is K-12 or public education. Finally, after decades 
of work I think there are some bright signs there. We are 
working on that. The reason we did not put it on our list is 
because it is really not fundamentally a federal issue, but 
these other areas, these eight areas, we can fix those areas. 
They are not rocket science and there is a lot of common 
ground. And the question is how do we get enough weight and 
energy behind this to actually get it done.
    Mr. HANNA. Thank you.
    Chairman RICE. Mr. Payne.
    Mr. PAYNE. Thank you, Mr. Chairman.
    This has really been an extraordinary panel in terms of 
your testimony. And you know that when two or three of your 
questions have been answered before you ask them. So I would 
like to thank you for that.
    Mr. Porter, in your submitted presentation you also 
identified the need to responsibly develop the American shale 
gas and oil reserves. With the similar environmental concerns 
as oil drilling, do you agree that the fracking should undergo 
the same amount of regulation or at least improve regulations 
such as measuring and reporting air pollution and minimizing 
water use and improving well casing and cementing?
    Mr. PORTER. Mr. Payne, thank you for that question.
    Everybody needs to know that the great windfall that we 
have got in America is the shale oil and gas. It is 
transformational. It is going to allow us to do things in 
America with a competitive advantage that we could have never 
dreamed of before. It is going to allow us to over time 
diminish our need to import oil which has been a massive part 
of our negative trade balance for decades. So it is a windfall.
    It does not come easily because there are legitimate 
environmental issues that have to be addressed. That said, 
there are rapid improvements in technology, and if we put in 
place the right kind of regulatory framework that requires 
reporting and inventory and best practices in terms of 
technology and utilization of water and aquifers and so forth, 
I am confident from everything I know and from all we have 
studied that we can develop this resource in a very responsible 
way that will adequately protect our environment. Again, if we 
approach the regulatory process pragmatically and with common 
sense, without emotion, without extreme positions.
    I know a number of the companies in the field and, for 
example, Baker Hughes is one of our great American oil field 
service companies. They have come up with breakthrough 
technologies to minimize water use to reduce the risk of some 
of the environmental impacts. So the innovation machine in 
America is working but we need an overall regulatory framework 
here. I am confident we can put one in place but yet we do not 
have one now and that has created a lot of uncertainty about 
whether this resource can be developed, how it can be 
developed, whether we should export gas or not, and right now 
we are kind of stuck in that terrible situation where we have 
got a great asset but really we are not moving forward in 
putting it into production.
    Mr. PAYNE. And to the rest of the panel, each one of you, 
if you could just address the impact that the education system 
has had on your sectors, and do you have recommendations to 
address the negative impacts?
    Ms. MCINTYRE. Thank you for that question.
    As far as science and engineering, education in the U.S., 
we certainly have excellent universities and are doing quite 
well there. The pipeline for students going into science and 
engineering is a concern that we, in fact, are able to produce 
a number of engineers and scientists that we need in order for 
the innovation stream to come forward at this point. For high 
performance computing, it is a real challenge. The expertise 
that I talked about not having for small- and medium-size 
manufacturers, there are not a lot of people migrating towards 
education that would help them to learn how to use high 
performance computing. So we need a way of getting younger 
people to understand the benefits of using this type of 
computing technology and the education that should undergird 
the use of that technology. But there are universities now 
looking at how can we do this, how can we educate the 
professionals now to use these tools.
    Mr. MCCONEGHY. Congressman, thank you.
    I guess I would offer two things. Certainly, we were 
founded by an immigrant to the country, and having good common 
sense immigration, certainly educating foreign students in our 
fine universities and then inviting them to leave probably does 
not sound real smart to a guy like me.
    Secondarily, business has to cooperate with universities to 
drive practical education and certainly, we have worked with a 
number of the colleges in our area in New York State and with 
our recent move to Idaho around manufacturing techniques and 
technologies, and I would say both of those things I would put 
at the top of the list. Immigration, certainly starting with 
those students that are here studying and inviting them to 
stay, not inviting them to leave, and clearly business has to 
work with the institutions in this area.
    Mr. MCKISSICK. Thank you, Congressman Payne.
    In the northwestern corner of South Carolina, we are quite 
blessed because we have an outstanding K-12 system in our 
community. However, I would say South Carolina's single 
greatest problem is K-12 and clearly we must make improvements 
there if we are to advance as a state.
    Regarding technical training, South Carolina is incredibly 
blessed to have an outstanding technical education system, and 
frankly, when Senator Ernest F. Hollings was the governor of 
South Carolina in the early `60s, he led an effort to really 
drive great investment in technical training, and it has been 
growing and thriving and changing with industry needs and 
changing as our economic dynamics have changed ever since. So 
that is quite a positive for us. Higher ed in South Carolina is 
terrific, especially in the region that I live. And I am 
biased. I am a Clemson University fan. But I do not think there 
is any doubt but that we must focus on K-12 in our state and in 
our country.
    Mr. PAYNE. Mr. Porter, any thoughts?
    Mr. PORTER. Well, I think the panel has made excellent 
contributions, and I have little to add. I would add a few 
points.
    I think at the university level, the U.S. historically had 
more university graduates as a percentage of the workforce than 
any other country. Today, we are way back in the pack, so I 
think we still have a higher education issue, and the issue 
there is more accessibility and affordability, and also the 
issue of getting people into the STEM pipeline as Dr. McIntyre 
was talking about. There are some excellent efforts in that 
area; we can do better.
    There is a critical need in the middle skill area. Lots of 
promising efforts, including South Carolina. The K-12 problem 
is a profound problem and that is probably the subject for a 
whole another discussion, but Harvard Business School is 
working with the Gates Foundation and Boston Consulting Group 
to do kind of a comprehensive assessment of what we have 
learned about improving K-12 education. There are a lot of 
success stories and we would love to share that work with you 
as it rolls out.
    Mr. PAYNE. Thank you, Mr. Chairman. I yield back.
    Chairman RICE. I am going to ask one more question which is 
going to open it up to another round if anybody else does, but 
this is the most important thing to me as far as I am 
concerned. Our American competitiveness in jobs is the most 
important thing. If we can make progress on this front, if we 
can get it resolved, I think it solves a lot of other problems.
    Mr. McKissick, I want to ask you--could you put that slide 
back up, the slide that was up earlier about the quadrants?
    Mr. McKissick, do you know what your effective tax rate is 
at your company?
    Mr. MCKISSICK. Yes. Ours is in the high 30 percent range.
    Chairman RICE. You had mentioned earlier--I am an ex-lawyer 
by trade and they say never ask a question if you know the 
answer, but I do not know the answer to this and I am treading 
on dangerous ground here.
    You said earlier that you worked with partnerships with 
people in Mexico to do part of your manufacturing. Was the 
effect of that to get a lower tax rate in Mexico at any point?
    Mr. MCKISSICK. No. It was more about partnering with 
companies that had state-of-the-art technology and a desire to 
be best in class.
    Chairman RICE. Right.
    Mr. MCKISSICK. And it was also to create a new outlet for 
our fabrics. And in Mexico, unlike most NAFTA models, most 
NAFTA models are such that you do a level of production in 
Mexico and it comes back to the U.S. market. Not in our case. 
In our case, our fabrics stay in Mexico. We spin yards. We 
weave fabrics. Those fabrics are finished in Mexico, cut and 
sewn in Mexico. Outstanding designs are applied to those 
fabrics, and they have got an incredible distribution system 
that goes to the Mexican consumer. So to me it is a wonderful 
example of how NAFTA should work.
    Chairman RICE. All right. Let me ask you this. You are in 
the high 30s tax rate here in the United States. Ireland is 13. 
Would you be more competitive at a 13 percent tax rate 
worldwide?
    Mr. MCKISSICK. Well, absolutely. And you ask, well, what do 
you do with the money. Well, it goes right back into plants. I 
mean, that is seed capital. If you are a private company, and 
we are, that is seed capital to grow your business. So there is 
absolutely no question but that you can buy new technologies. 
You can get better in everything you do.
    Chairman RICE. If we cannot get our ports dug out for all 
of our environmental regulations it takes so long to work 
through and as a result of that you pay 10 percent more in 
transportation costs than your competitors worldwide, are you 
more or less competitive as a result of that?
    Mr. MCKISSICK. There is no doubt that Charleston Harbor is 
a competitive advantage to every manufacturer in South 
Carolina. You know, if you look at the resources of our 
wonderful state, Charleston Harbor has a huge advantage and it 
is critically important that that harbor be dredged to be able 
to access so the biggest of ships can come in there and ship 
product in and ship product out.
    Chairman RICE. And if we close down all of our coal plants 
and the price of our utilities go up 20 percent, are you more 
or less competitive worldwide?
    Mr. MCKISSICK. Well, I agree with Dr. Porter in that one of 
the phenomenal advantages we have in this country are the cost 
of energy, especially if you are a manufacturer like ours. We 
use a lot of compressed air. That is what we do. When you spin 
yarn and weave fabrics, you use a lot of compressed air. We 
have got such a leg up on our foreign competitors on our 
utility costs. We have got one of the best utilities I think on 
the planet that services our area, Duke Energy. They are 
fantastic. But if we do not understand the criticality, the 
critical importance, the role that they play in our economy, we 
are going to hurt ourselves. They are laying the golden egg, 
and I think we have got to protect that and we have got to 
leverage our energy resources.
    Chairman RICE. Mr. McConeghy, I am going to ask you the 
same questions.
    Mr. MCCONEGHY. Okay.
    Chairman RICE. Do you know your effective tax rate?
    Mr. MCCONEGHY. I do know our effective tax rate.
    Chairman RICE. What is it?
    Mr. MCCONEGHY. Our effective tax rate is very low, 
basically, because of the significant investments that our 
founder has chosen to make in factories where the bonus 
depreciation has knocked a lot of income off our books in the 
short term. But over the long term--it is just a timing 
question for us. We are actually a sub S-corporation, so I 
expect our tax rate will be in the high 30 percent in the very 
near future.
    Chairman RICE. All right. And you talked about operations 
in Canada, and I was not sure if you continued with that. Did 
you actually complete the new facility in Canada?
    Mr. MCKISSICK. We did not complete it because of the 
barriers that we found fundamentally in the trade system that 
protected the Canadian dairy industry.
    Chairman RICE. Do you have any other operations offshore?
    Mr. MCKISSICK. Our international headquarters is based in 
Amsterdam, and we own a business in Australia, and we are 
exporting product from the United States to the U.K. at this 
time.
    Chairman RICE. Do you produce product in Amsterdam?
    Mr. MCKISSICK. We produce product in Australia only at this 
time and the U.S.
    Chairman RICE. Why is your international headquarters in 
Amsterdam?
    Mr. MCKISSICK. It is the best place to set up an 
international business?
    Chairman RICE. Why?
    Mr. MCKISSICK. Because of the taxes.
    Chairman RICE. Okay.
    If we cannot get our ports dug out, if it takes 14 years to 
get permission to dig out the Miami port and as a result 
transportation costs to the United States are 10 to 20 percent 
higher than other places in the world, does that hurt or help 
your competitiveness worldwide?
    Mr. MCKISSICK. I think it is pretty straightforward. It 
hurts. Right? You know, for us we know that cost is an 
important factor. Most of our product actually comes from the 
U.S. obviously with dairy being our number one input. We 
actually recently on-shored some manufacturing because of the 
logistics costs. We actually took manufacturing from Central 
and South America and brought it back to the United States 
because of costs. So we pay close attention to costs, as all 
business people do all the time. And it is critical that we do 
it effectively, that we do not just run over the environment. 
Nobody thinks that that is the way to go. Dr. Porter is 
absolutely right.
    We have had a situation in New York recently. We want to 
bring some cutting-edge technology and we have spoken to the 
folks in the New York government. We said, ``Hey, we want to do 
this, but we are going to generate a lot more water. It is very 
clean but it is above the quantities.'' And they said, ``Hey, 
we can help with that so long as it is clean.'' That type of 
change in headset is critical; not just to have arbitrary 
standards because that change will drive our costs down and 
make us much more competitive.
    Chairman RICE. Thank you, sir.
    Mr. Porter, I just want to say do you have anything to add 
to that?
    Mr. PORTER. Well, you know, I think on the corporate tax 
issue this is the number one issue that we heard from the 
thousands and thousands of business people that we surveyed--
give us a more reasonable corporate tax structure that is more 
in line with other countries. We will not then have to play all 
these complicated games to try to figure out how to move 
activities and minimize taxes by being complicated. We have 
great American companies with headquarters in Switzerland--
world headquarters in Switzerland right now, and every time I 
see that it makes me want to cry because that is simply 
happening because we are just too far out of line. If we could 
bring down that rate to let us call it a median level. It does 
not have to be low, it does not have to be Ireland, just a 
median level, and then do the trade of eliminating a lot of the 
deductions and special deals that have been made over the 
years, I think business is ready to do that deal. And I think a 
lot of people would breathe a big sigh of relief if we could 
move in that direction.
    Now, how to deal with the territorial system is much more 
complicated. I think there is room for compromise. I am not a 
purist. Jumping to a pure territorial system now may not be 
feasible. Let us find movement in that direction that will make 
progress. Again, the system we have now is the one that is 
creating all this complexity and tax shifting and transferred 
pricing. We have created that ourselves. That did not happen as 
an act of God. We created this complex world that we live in 
now from a tax point of view, and I think most business people 
now have understood that that is just not the way to go. It is 
not good for business. The question is can we move in the right 
direction? Can we be pragmatic?
    We also, Chairman, surveyed the general public about 
competitiveness--a sample of the general public, 1,000 members 
of the public, a very carefully selected sample to be unbiased 
in every possible way. And their number one, of all the eight 
things on the list that I have that you have seen earlier, of 
all the eight things, the one that had the most support from 
the general public was corporate tax reform. Because I think 
intuitively these people understood that the current system is 
not working for America.
    Chairman RICE. I want to ask one more question and then I 
will shut up.
    Go back to that other slide. At the top right, things where 
we are strong and improving--universities, entrepreneurship, 
firm management, property rights, clusters, innovation, capital 
markets--most all those things are in the realm of the private 
sector. Not all, but almost every one of them; right?
    Mr. PORTER. A lot of them.
    Chairman RICE. Those are the things we are doing great at. 
Bottom left, things we are not doing well. First, tell me where 
this section of quadrants came from. How did you derive this?
    Mr. PORTER. Well, this quadrant came from--we have done two 
large-scale surveys of all Harvard Business School alumni, and 
those alumni are in general in relatively senior management 
positions, and they are actually spread over the world. So this 
is a mixture of what our alumni living in Germany think and our 
alumni living in America think. And this simply tabulates the 
survey data from our alumni.
    Chairman RICE. Okay. So is this like 35 people or is it 100 
people?
    Mr. PORTER. This is more than 10,000 people. We have done 
it twice and gotten basically the same answer twice.
    Chairman RICE. All right. So top right, private sector, 
doing pretty good.
    Mr. PORTER. Right.
    Chairman RICE. Bottom left, legal framework, regulation, 
tax code, macro policy, political system.
    Mr. PORTER. That is pretty much sitting right around us 
where we are speaking now.
    Chairman RICE. Thank you, sir.
    Ms. Chu.
    Ms. CHU. Well, I just have one question, which is that one 
of the pilots--and this is for Dr. McIntyre--one of the policy 
recommendations put forward by your council, the Council on 
Competitiveness, is to ensure lower cost, easy access to high 
quality education, and training for all Americans. And on July 
1st, the student loan rates doubled from 3.4 to 6.8 percent for 
over seven million students. What impact will this have on 
students who already face high education costs? And how could 
this possibly affect the American labor force?
    Ms. MCINTYRE. The increase in the rate to pay back loans is 
going to have an effect on time to degree completion for 
students, many of whom have to work in order to sustain 
themselves. They may not take out as large a loan in order to 
go to school, and so they will have to work more. So it could 
impact time to degree.
    It is going to have an impact on those who are able to go 
to college or to universities or even two-year colleges because 
of not being as affordable as it used to be. So it is a 
concern. I think we will see some of those effects I think 
sooner rather than later in terms of the number of loans. And 
then decisions will be made because of that.
    Ms. CHU. Thank you. I yield back.
    Chairman RICE. Mr. Hanna.
    Mr. HANNA. No.
    Chairman RICE. I want to thank our witnesses for their 
testimony and participation today. As we have heard today, 
restoring America's competitiveness is imperative to our 
country's well-being. I am encouraged by the firms who have 
managed to remain competitive despite the obstacles and changes 
needed that are clearly outlined by our witnesses. As I stated 
at the outset, I am committed to reviving our nation's 
competitive edge and will continue to work toward that goal. 
The real-life experiences shared by the businesses and 
solutions proposed by economic experts who are dedicated to our 
nation's long-term success will help our nation's political 
leaders better understand our current environment and make 
wiser choices for the future.
    I ask unanimous consent that the members have five 
legislative days to submit statements and supporting materials 
for the record.
    Without objection, so ordered.
    Thank you very much, panel, for being here. This is the 
best panel I have had since I have been in Congress. I have 
truly enjoyed it. These are really fundamental things that we 
need to work on and I appreciate so much your time. The hearing 
is now adjourned.
    [Whereupon, at 3:17 p.m., the Subcommittee was adjourned.]


                            A P P E N D I X

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                    Testimony of Mr. James McConeghy


                        Chief Financial Officer


                                Chobani


 Before the U.S. House of Representatives Committee on Small Business 
        Subcommittee on Economic Growth, Tax and Capital Access


    Mr. Chairman and members of the Subcommittee, thank you for 
the opportunity to testify at today's hearing. I am James 
McConeghy, the Chief Financial Officer at Chobani Greek Yogurt 
located in Norwich, New York.

    The creation of Chobani is truly an American success story. 
Chobani was established in 2005 by Hamdi Ulukaya, a Turkish 
immigrant, who purchased an old Kraft Foods Plant in New 
Berlin, New York. Since its founding, it has grown from five to 
2,600 employees and is the nation's top selling Greek yogurt.

    The Chobani story is one that could only happen in America. 
Where else could a Turkish immigrant transform a shuttered 
factory into a thriving food manufacturing business in just a 
few short years?

    Our story began in 2005 when, with the help of a Small 
Business Administration loan, our founder, Hamdi Ulukaya, 
acquired a former Kraft Food plant in Central New York. Two 
years later, the first cups of Chobani Greek Yogurt rolled off 
the line. Today, Chobani is the number one selling Greek Yogurt 
brand in the country.

    In less than six years, we've grown our business from 
nothing to over $1 billion in sales, and expanded our reach 
across the globe. We've invested more than $700 million between 
our original manufacturing facility in New York and our new 
plant in Twin Falls, Idaho. We're no longer a start-up with 5 
employees, but a global organization with a workforce more than 
2,600 strong.

    It is the American Dream come to life--proving that, if you 
truly believe in something and work hard, anything is possible.

            Challenges to the Future of Chobani Greek Yogurt


    The future of Chobani's success is strongly burdened by 
current federal regulatory and legal challenges. The four most 
prominent challenges that I will touch on today are the lack of 
an FDA standard of identity for Greek Yogurt, Geographic 
Indicators in international trade, Trans-Pacific Partnership 
(TPP) trade negotiations and their potential impact on trade in 
dairy products with Canada, and tax reform.

    First, Chobani strongly supports the establishment of a 
standard of identity for Greek Yogurt. The Food and Drug 
Administration establishes standards of identity for various 
food products to reduce consumer confusion. Unfortunately, the 
current FDA standards of identity (SI) for yogurt are extremely 
outdated, do not take into account current manufacturing 
processes and only include definitions for Yogurt, Nonfat 
yogurt and Lowfat Yogurt. The definition does not reflect the 
composition and processes used to manufacture Greek Yogurt, 
which is very distinct from traditional yogurt. Greek Yogurt is 
to yogurt as sour cream is to milk.

    The lack of a proper standard of identity for true Greek 
Yogurt literally allows any product that meets one of the 
current FDA standard definitions of yogurt to be branded as 
Greek Yogurt, regardless of its composition or the processes 
used to manufacture it. USDA's Child Nutrition Programs 
routinely follow FDA Standards of Identity for products used in 
their programs. The lack of a SI for true Greek Yogurt makes it 
difficult for consumers and the USDA to differentiate between 
yogurt and Greek Yogurt for purposes of the nutrition programs, 
including proper allowances for meat/meat alternates in child 
nutrition program crediting. FDA and Congress must recognize 
and address this blatant inequity in order for the rapidly 
emerging market for Greek Yogurt to meet its potential without 
misleading consumers towards a product that is not ``true'' 
Greek Yogurt.

    Second, we have seen an increase in challenges of the 
labeling of common food products abroad. We recently embarked 
on a costly and difficult process of re-labeling in England and 
Wales after it was, incorrectly in our opinion, ruled that 
using the term `Greek' on our true Greek Yogurt product mislead 
consumers into presuming the yogurt was made in Greece. The 
European Union (EU) has embarked on an aggressive campaign to 
monopolize commercially significant terms that are used in 
foreign markets as a competitive advantage for EU member 
country produced products.

    Chobani is devoted to preserving and protecting properly 
applied use of common food names. However, the EU position puts 
common food names at great risk. If this problem is not dealt 
with soon, the EU's aggressive actions to monopolize common 
food names will damage sales of many popular food products 
around the globe.

    Recently, the EU has been actively working to control many 
common names for foods, actions indicating a strategy to secure 
exclusive rights to names long used in many places around the 
world outside the EU. Generic names used by millions of 
consumers. Common names like bologna, chorizo, feta, 
gorgonzola, parmesan, provolone, and salami.

    Arguing that a small group of EU producers should have an 
exclusive right to use such names is like claiming that only 
Italians should be permitted to use the term ``pizza''. 
Protectionism is protectionism, not matter how you couch it. We 
hope Congress will continue to urge our negotiators to take an 
aggressive stance on the matter of geographic indicators in 
future trade negotiations.

    On a third point, Chobani recently engaged in an extensive 
process to bring our product to Canada. This process included 
researching the ability to import yogurt into Canada from the 
United States and to explore making yogurt in Canada for 
Canadian consumers.

    In the case of importing yogurt, we found this to be 
essentially impossible, as there is a 237.5% duty for virtually 
all yogurt imports. This is despite the open borders 
promulgated by NAFTA.

    As an alternative, we attempted to buy land and build a 
manufacturing facility in Canada. When this plan became visible 
to our competitors, they launched a series of actions directly 
against various Canadian government agencies and the local 
Chobani entity to stall our Canadian plans. Despite the fact 
that we and the Canadian government prevailed in court, all of 
the previous market barriers continue to exit.

    Accordingly, we recommend that the Congress and the 
Administration use the TPP umbrella to look at the closed 
borders for dairy trade with Canada. We understand that other 
countries are recommending the same course of action.

    Lastly, we understand that there are many discussions 
surrounding ``Tax Reform'' in the halls of government. We 
wholly support this effort to eliminate inconsistencies in the 
taxation of U.S. entities and to have a globally competitive 
tax system.

    We appreciate the support that this Committee has shown and 
the opportunity for us to testify today. We look forward to 
working with the Committee in addressing the current 
challenges.

[GRAPHIC] [TIFF OMITTED] T1935.055

    Chairman Rice and members of the subcommittee, Good 
afternoon and thank you for the opportunity to discuss the 
important role that over 500,000 men and women earning their 
livelihoods in the textile sector play in advancing the U.S. 
economy.

    Good afternoon, my name is Smyth McKissick and I am the CEO 
of Alice Manufacturing. We are located in Easley, South 
Carolina. My company produces yarns and fabrics primarily for 
home furnishings, apparel, and health care applications. We 
also create home furnishing products, mainly fashion bedding, 
which we sell directly to our country's great retailers. Alice 
Manufacturing was established in 1910, and for four generations 
my family has lead this company through good times and bad 
including numerous recessions, the Great Depression, and World 
War II. Over the years, Alice and other U.S. textile 
manufacturers have consistently invested in the most 
technologically advanced equipment, continuing education, and 
technical training for our manufacturing facilities and 
workers. We employ best practices such as Lean, Six Sigma, and 
Maintenance Excellence. As a result our employee productivity, 
a key measure of competitiveness, has enjoyed incredible 
growth.

    While our company and industry have adapted to changing 
times, U.S. trade policy has oftentimes hampered the growth and 
competitiveness of the U.S. textile industry. Our prosperity as 
an industry is dependent upon healthy engagement with the rest 
of the world. As the third largest exporter of textile products 
in the world, shipping nearly $23 billion in textile and 
apparel products to more than 170 countries, our industry is 
opposed to the unfair, or even in some instances illegal, trade 
practices that many foreign `competitors' use to gain U.S. 
market share. These unfair practices are many and are damaging 
to the U.S. industrial base and run contrary to the core 
principles of ``free trade''.

    The U.S. textile industry has been a world leader in 
innovation, developing biological resistant fabrics, wrinkle 
free fabrics, and sophisticated fabrics for military and other 
industrial applications. For all the positives that the U.S. 
industry enjoys, some serious challenges also confront U.S. 
textile manufacturers. For example, our chief competitors are 
located in countries that manipulate their currency, encourage 
nonperforming loans, ignore labor and environmental laws, 
tolerate nontariff barriers, and steal intellectual property. 
We also face the difficulty of the U.S. government's tendency 
to trade U.S. textile manufacturing interests away to 
competitors for perceived gains in other policy arenas. This 
does nothing more than erode the U.S. industrial base and 
displace workers and families in small towns and communities 
nationwide.

    Prior to the Asian financial crisis, the textile industry 
in the United States was quite successful. One hundred percent 
of the apparel manufacturing process took place on American 
soil, from the cotton fields, to shirt, and retail. When the 
crisis hit, overnight, the U.S. market was flooded with 
artificially cheap goods. Due in large part to currency 
devaluations, our foreign `competitors' gained a huge pricing 
advantage driven by weakened currency. These `competitors' 
didn't become more productive nor did they develop new 
manufacturing practices that created a competitive edge, these 
`competitors' cheated, and the United States textile supply 
chain was decimated. The industry was cut in half and thousands 
upon thousands of U.S. textile jobs were lost in the process.

    At Alice Manufacturing, we realized that we had to quickly 
establish new business models in order survive. Our customers 
were being put out of business which required new strategies to 
access the consumer base. The first strategic move that Alice 
made was the creation of a new division whereby we would sell 
direct to retail. Before, we were an intermediate supplier of 
fabric in a complex, U.S. based, supply chain. Our new 
division, allowed Alice to become a ``vertically integrated'' 
home textile supplier. Knowing that the creation of outstanding 
designs is the ``crown-jewel'' of fashion bedding, we developed 
our own ``in-house'' design team by adding incredibly talented 
designers to our workforce. Using our fabrics, the product is 
finished with our designs, then cut and sewn, and sold to our 
country's major retailers. Our focus is on great designs, 
outstanding customer service, outstanding quality, and 
competitive pricing. Later, we diversified our product mix with 
the use of outside suppliers. This division of our company is a 
great contributor to our overall success.

    Our second strategy is one whereby we partner directly with 
our neighbors in NAFTA and CAFTA countries. By doing so we are 
able to optimize our supply chain by spinning fibers into yarns 
and weaving fabrics in our U.S. based plants and then export 
the fabric to Mexico for finishing and cut and sew. Most of the 
products made from our fabrics are sold abroad. It's an optimal 
partnership and we are blessed to have ``World-Class'' 
producers in the NAFTA/CAFTA countries to partner with. We have 
benefited from having market access through out trade 
agreements to this region and our business is growing as a 
result. What makes these trade agreements so beneficial to the 
U.S. textile industry are the core tenants of textile and 
apparel trade: the Yarn Forward Rule of Origin, access to 
partnering countries markets, and customs enforcement.

    Additionally, productivity is a critical component of 
competitiveness, and productivity growth is as important as 
anything we do. We invest in state-of-the-art manufacturing 
equipment as well as training to arm our workforce with the 
necessary skills and assets to compete. Most importantly, doing 
business with integrity is everything! We pride ourselves in 
doing what we say we'll do. Our customers depend on us to 
deliver great quality on time.

    Though we've been able to ``re-create'' ourselves and start 
a new and growing business inside our company; at the same time 
we had to downsize our core business. It's incredibly difficult 
to go to a workforce that has been part of our company for 
generations and tell them that their job will be lost. 
Especially knowing that these workers were being displaced by 
foreign `competitors' relying on a foreign supply chain that is 
dependent upon unfair or illegal subsidies like: currency 
manipulation, technology transfer, theft of intellectual 
property, and rebates of import duties to name a few. That is 
why enacting fair trade and investment policies that promote 
the competitiveness of U.S. manufacturers, as well as the 
competitiveness of the nations we trade with is critically 
important. Government to government, economy to economy, and 
industry to industry, the two-way exchange of goods must be 
fair and create mutual benefits.

    Yet, there is good news to share, over the past few years 
the U.S. textile industry has experienced resurgence. Textile 
manufacturing has begun to come back to the United States; in 
fact, the textile industry has invested over $3 billion in new 
technologies, machinery, and manufacturing facilities since 
2010. This positive trend could be further bolstered by sound 
U.S. trade policy, particularly as the U.S. government works to 
complete negotiations on the Trans-Pacific Partnership or the 
TPP. The TPP is the largest free trade agreement since NAFTA 
that the U.S. is negotiating with eleven other nations--Japan, 
Mexico, Chile, Peru, Canada, Australia, New Zealand, Brunei, 
Singapore, Malaysia and Vietnam. If properly structured, the 
U.S. textile industry is poised to continue a positive 
trajectory of growth. However, if weak rules are adopted, 
particularly given Vietnam's participation in the TPP, our 
industry will be at the mercy of an unfair free trade 
agreement, which will decimate the United States textile 
industry once again.

    There have been a number of U.S. policies that have 
complimented U.S. textile manufacturing over the past 10 years. 
New markets have opened, and new international partnerships 
have been formed. The yarn forward rule of origin has been 
especially important to our industry. The yarn forward rule of 
origin means that the yarn used to form fabric, dyeing and 
finishing of fabric, and the final cut, sew, and assembly must 
occur in a free trade partner country to gain U.S. market 
access. Yarn forward has been the standard bearer in the 
creation of nearly $25 billion in two-way trade between the 
industry and our FTA partners. The rule has been the primary 
force behind the more than two million textile and apparel jobs 
in the United States and amongst our Western Hemisphere free 
trade partners.

    Other examples of policies that have helped Alice to remain 
globally competitive are cotton and energy policies. Programs 
such as the Economic Adjustment Assistance Act have allowed 
Alice and other textile manufactures to invest in new machinery 
and equipment which had lead to the creation of thousands of 
textile jobs since the program was enacted in the 2008 farm 
bill. Energy costs have also been a huge contributor to our 
success. Textile manufacturing requires large amounts of energy 
and energy costs in the U.S. are an important competitive 
advantage.

    While we have been able to regain a foothold over the past 
few years there are new policies which could present great 
danger to our industry. The Trans Pacific Partnership (TPP) 
could be the U.S. textile industry's single greatest threat 
since the Asian financial crisis. TPP negotiators must 
recognize that trade developed under free-market principles 
must be both defended and encouraged for the TPP to work as 
intended. In the case of Vietnam, a non-market economy, the 
government heavily subsidizes its industrial sectors 
particularly its textile and apparel sector. This requires new 
counterbalancing measures. These measures include long tariff 
phase outs for sensitive product categories and strict customs 
rules and enforcement to deter illegal trade. The U.S. textile 
industry continues to be concerned about the treatment of state 
owned and directed Vinatex, the 10th largest garment producer 
in the world, and by far the largest textile and apparel 
producer in Vietnam. This past week, news broke that the 
Chinese are considering heavy investments into Vinatex if the 
United States buckles to the single transformation rule that 
Vietnam would like to see in the TPP. Should the U.S. agree to 
a single transformation rule, Chinese state owned and operated 
textile producers will be granted duty-free access to the 
United States market through Vietnam. This is because single 
transformation rules requires that only the cut and sew part of 
the manufacturing process take place inside a TPP country in 
order to gain preferential access to the U.S. market. This 
means that Vietnam could continue to import textile inputs from 
China, cut and sew the apparel in Vietnam, and then export to 
the U.S. If this occurs, Vietnam and China stand to gain 
billions of dollars in textile trade at our industry's expense.

    While the United States continues to hold fast on a yard 
forward rule of origin in the TPP, the Vietnamese oppose yarn 
forward. They are focusing on short-term foreign earnings and 
job growth from apparel exports. The Vietnamese are looking for 
a single transformation rule of origin and the U.S. apparel and 
retail importers have stated that they will support and push 
for single transformation as well. Single transformation 
creates an uneven playing field between the U.S. and Vietnam 
and will allow Vietnam to import goods from China and export 
those goods to the United States duty-free, circumventing the 
TPP agreement and flooding the U.S. market with duty-free 
Chinese textile and apparel products, leaving over 500,000 U.S. 
textile jobs at risk.

    The initial 6-8 year impact of a single transformation rule 
in the TPP would prove devastating to the U.S. textile 
industry. Exports to the Western Hemisphere would decline by 
$3.8 billion and exports of apparel to the U.S. from the CAFTA, 
NAFTA, and the Andean regions would decline by $4.5 billion. 
Total possible job losses in the Western Hemisphere could total 
more than 1.5 million. These figures do not include collateral 
damage to other textile sectors including industrial, home 
furnishings, and military which are likely to be significant as 
overall industry capacity declines. The total projected job 
loss in the United States after 10 years of a single 
transformation rule as part of the TPP would be equivalent to 
532,363 jobs. Vietnam fully expects that the TPP will allow 
integration of textile and apparel trade under a single 
transformation rule.

    More than 75% of the apparel produced in Vietnam uses 
fabric and other textile inputs from China. A yarn forward rule 
would encourage Vietnam to build its own textile industry or 
source its inputs from another TPP country, like the United 
States, so that the value of the orders for textile processing 
goes to Vietnam and not China, as it does now. Vietnam 
continues to insist upon a single transformation rule and is 
prepared to trade the long-term benefits of having a primary 
textile sector for short-term gain; giving away a yarn forward 
rule would be a disaster for the textile and apparel industries 
in this hemisphere. The only winner in this situation is China.

    Another concern of the U.S. domestic industry is that 
Vietnam engages in currency manipulation. Trade with countries 
that manipulate currency to gain export advantages and drive 
down the cost of goods creates uneven playing fields that sends 
manufacturing and jobs overseas. Currency manipulation easily 
nullifies any U.S. export benefits in an FTA with Vietnam. The 
Vietnamese government has steadily devalued the dong my more 
than 25% over the past three years; these devaluations have 
been a crucial assist in making Vietnam the fastest-growing 
apparel exporter to the United States and in taking the market 
share of production jobs from the U.S. textile industry and its 
Western Hemisphere partners. Currency manipulation must be 
addressed in the TPP if U.S. textile producers are to get a 
fair and competitive playing field under the agreement. It 
makes no sense to ignore such a fundamental issue in the TPP, 
particularly one that has such significant impact on U.S. jobs. 
If currency manipulation by the Vietnamese government continues 
to depress the value of the dong it will erase any market 
opening benefits for U.S. textile exporters under the TPP.

    The United States government has a unique opportunity to 
develop a high standard 21st century forward thinking agreement 
through the Trans-Pacific Partnership. The yarn forward rule of 
origin supports hundreds of thousands of U.S. jobs as well as 
1.5 million textile and apparel jobs in countries bordering and 
near the United States. In our past FTA agreements this rule is 
serving to bring jobs and production from Asia to the United 
States and the West Hemisphere. The yarn-forward rule of origin 
creates strong partnerships and export growth and opportunities 
for the U.S. textile industry around the world.

    In conclusion, a flexible rule of origin will cause 
widespread plant closures and job losses in the United States 
and destroy enormous export markets that our free trade 
partners in CAFTA, NAFTA, the Andean region and African trade 
promotion programs depend on. It would also encourage Chinese 
textile manufacturers to continue to displace U.S. production 
and retard our textile sector development. In the entire TPP 
region the principal beneficiaries would be the importers and 
retailers who would get more than $1 billion in new duty 
savings, while displacing more U.S. manufacturing jobs at a 
time when the need for these jobs is extremely high.

    I am here today to urge you to endorse the fundamental 
trading rules that have encapsulated every major FTA over the 
last 25 years along with the principles of fair market access 
and strong customs enforcement in the Trans-Pacific 
Partnership. This will allow the U.S. textile industry to 
continue to innovate, grow, and prosper. The distinguished 
members of this Subcommittee can support these principles by 
signing onto a Dear Colleague Letter authored by 
Representatives Coble (R-NC), McHenry (R-NC), and Pascrell (D-
NJ) to the USTR that already has more than 143 of your 
colleagues supporting these important trading rules. I would 
like to thank those Subcommittee members who have already 
agreed to sign onto this important letter, including you, Mr. 
Chairman.

    Thank you for the opportunity to provide testimony to the 
Subcommittee today and I would be pleased to answer any 
questions that you or any of the Subcommittee members may have 
of me, Mr. Chairman.

    Respectfully Submitted:

    Smyth McKissick
    Chief Executive Officer
    Alice Manufacturing

               Key Facts about the U.S. Textile Industry

     The U.S. textile industry is a large manufacturing 
employer in the United States. The overall textile sector--from 
textile fibers to apparel--employed 499,000 workers in 2012.

           Textile companies alone employed 235,000 
        workers.
           The U.S. government estimates that one 
        textile job in this country supports three other jobs.

     U.S. textile shipments totaled more than $53 
billion in 2012.

     The U.S. textile industry is the third largest 
exporter of textile products in the world. Exports of all 
textile products exceeded $17 billion in 2011 and again in 
2012. Total textile and apparel exports were a record $22.6 
billion in 2012.

     Two-thirds of U.S. textile exports during 2012 
went to our Western Hemisphere free trade partners. The U.S. 
textile industry exported to more than 170 countries, with 24 
countries buying more than $100 million a year.

     The U.S. textile industry supplies more than 8,000 
different textile products per year to the U.S. military.

     The U.S. is the world leader in textile research 
and development, with private textile companies and 
universities developing new textile materials such as 
conductive fabric with antistatic properties, electronic 
textiles that monitor heart rate and other vital signs, 
antimicrobial fibers, antiballistic body armor for people and 
the machines that carry them and new garments that adapt to the 
climate to make the wearer warmer or cooler.

     The U.S. textile industry invested $16.5 billion 
in new plants and equipment from 2001 to 2010. And recently 
producers have opened new fiber, yarn and recycling facilities 
to convert textile waste to new textile uses and resins.

     The U.S. textile industry has increased 
productivity by 45 percent over the last 10 years, making 
textiles one of the top industries among all industrial sectors 
in productivity increases.

     In 2011, textile workers on average earned 135% 
more than apparel store workers ($576 per week vs. $245) and 
received health care and pension benefits.
    Testimony of Dr. Cynthia McIntyre

    Senior Vice President

    Council on Competitiveness

U.S. House of Representatives Committee on Small Business Subcommittee 
       on Subcommittee on Economic Growth, Tax and Capital Access


                                Hearing


  American Competitiveness Worldwide: Impacts on Small Businesses and 
                             Entrepreneurs


                              July 9, 2013


                                1:00 pm


    Chairman Rice, Ranking Member Chu, and other distinguished 
Members on the Subcommittee, thank you for having me here 
today. It is an honor to share with you on a public-private 
partnership with which the Council on Competitiveness has been 
heavily involved since its inception, the National Digital 
Engineering and Manufacturing Consortium. This program 
currently wrapping up its pilot phase is a pilot public-private 
partnership connecting small and medium-sized manufacturers 
with high performance computing via modeling and simulation.

    U.S. manufacturers are being challenged today by an 
unprecedented confluence of global events. This convergence of 
powerful internal and external forces--The Great Recession, 
global economic contraction, the U.S. automotive manufacturing 
base receiving from the financial crisis and the recession, and 
increasing competition from overseas--is challenging U.S. 
manufacturing leadership like never before. Indeed, these 
extraordinary circumstances require extraordinary measures, and 
the U.S. public and private sectors must cooperate 
strategically, coordinating and investing to repair, 
reposition, and reaffirm U.S. global leadership in 
manufacturing.

    Research by the Council on Competitiveness presents 
powerful evidence of the capacity of high performance computing 
(HPC) to drive innovation and make U.S. companies and the 
nation more competitive. Indeed, for those who have adopted it, 
HPC represents a crucial edge that can build and sustain 
competitive advantage through innovative product design, 
production techniques, cost savings, improved time-to-market 
cycles, and overall quality. However, Council research has also 
shown that many U.S. companies are ``stuck at the desktop'' and 
not able to take full advantage of HPC, while still others--
including many suppliers to U.S. tier 1 companies--have 
limited, if any, computational R&D capacity (with many not even 
using desktop workstations).

    Our situation becomes even more critical when one surveys 
the competitive landscape that U.S. companies face today--where 
many foreign governments have established public-private 
partnerships for the use of HPC in manufacturing. Indeed, 
sustained national investments in innovation and manufacturing 
are occurring in China (e.g., China's 863 Program), the 
European Union (PRACE program), and in the UK to name only a 
few. Meanwhile, our own national policy regarding HPC is 
fragmented. The time is right for the U.S. federal government 
to take bold steps to leverage HPC for next-generation 
innovation, manufacturing, and U.S. competitiveness.

    The Council sees public-private sector collaboration as the 
best and most effective means for quickly advancing HPC in 
manufacturing. However, to be successful in this effort, much 
closer coordination between government, national labs, 
universities, and industry will be needed and must be bolstered 
by a national strategy that transcends the parochial interests 
of any single federal agency, department, university, or HPC 
center. To these ends, the Council offered several 
recommendations for quick action:

     Improve coordination of the federal government's 
overall approach to advancing HPC (i.e., work toward a more 
balanced program across DOE labs, NSF-funded supercomputing 
centers, the DOD, universities, and so on).

     Increase outreach efforts to chief executives (the 
so-called ``C-suite'') in manufacturing to help them better 
understand the true benefits of HPC to their bottom lines. 
Bring together CEOs and CTOs from the nation's manufacturing 
base, along with U.S. experts in HPC hardware and software, in 
a national summit to better frame and address the issues 
surrounding HPC for next-generation manufacturing.

     Enhance industrial access to HPC resources by 
establishing a government-supported HPC center or program 
dedicated solely to assisting U.S. industrial partners in 
addressing their research and innovation needs by adopting or 
improving modeling, simulation, and advanced computation.

            The center or program would provide assistance with 
        problem definition; software selection, development, or 
        customization (indeed, software is often the most 
        crucial gap); and access to HPC hardware.

            It should feature a task force or working group 
        that would (1) visit all top U.S. manufacturing 
        companies, HPC centers, national labs, and major 
        independent software vendors (ISVs); and (2) work to 
        address major technical hurdles in the manufacturing 
        sector's use of HPC (e.g., software, interoperability, 
        multiphysics, and so on).

            It should be overseen by an advisory board with 
        balanced membership from government, university, and 
        industry.

            It could be started with initial funding from the 
        federal government, but should be supported in the long 
        term by a broad mixture of support from federal, 
        university, and industrial partners.

     Invest in U.S. HPC expertise. Some of our most 
precious national resources are the people who operate in the 
HPC domain--from the computational scientists and engineers to 
the domain experts that apply HPC in their fields (e.g. 
mechanical, electrical, chemical engineers). The federal 
government, national labs, universities, and industry need to 
take concrete steps to educate, train, retrain and retain 
people with the expertise to take advantage of large HPC 
systems and manage their application and deployment in new 
settings, and create the new software and hardware needed to 
drive innovation.

    The Council on Competitiveness and selected original 
equipment manufacturers (OEMs) developed a Midwestern regional 
pilot program as a public-private partnership with the U.S. 
federal government based on these recommendations. The pilot 
program is aimed at improving competiveness and innovation in 
small- and medium-sized enterprises (SMEs) in the U.S. 
manufacturing supply chain. The ultimate outcome of the pilot 
program will be a workforce with enhanced technical skills, 
improved product quality, better customization of products, and 
job retention and growth.

    On August 31, 2010, a Summit & Workshop was held at the 
Gleacher Center in Chicago that brought together 
representatives from a broad cross-section of industry, 
academia and the federal government to brainstorm ideas and to 
agree upon the necessary and desired components for such a 
pilot program. This document captures the decisions made at 
that meeting, and provides guidelines for implementing the 
pilot program.

    The high level goal of this pilot program is to develop and 
demonstrate a sustainable, scalable and replicable model for 
accelerating and broadening use of modeling, simulation and 
analysis (MS&A) in Midwestern SMEs through a public-private 
partnership (described below). Funding will be provided as seed 
money for this pilot program, with the expectation that it will 
demonstrate a path toward long-term sustainability. This is 
only achievable if (a) the supply chain members can rapidly 
reach a point where the results produce cost-benefits that 
allow and incentivize them to continue use of MS&A, either 
independently or within the continued context of the pilot 
program, and (b) software vendors can develop a business model 
that provides easier and more affordable access to software 
tools for SMEs.

    The longer term goals of this pilot program are to put U.S. 
manufacturing on a path toward using MS&A for digital 
prototyping of new and existing products and for process 
manufacturing. Also, we expect this pilot program to be a 
demonstration of effective coordination that will be used in 
the startup of other regional centers.

    The current level of MS&A across the manufactures in the 
U.S. is greatly varied with the companies lying at one of the 
three levels; entry, advancing, and expert. The key points are 
that U.S. manufacturers are at different levels in their 
adoption of MS&A in their processes, and that a natural 
progression of adoption and expertise exists to either adopt or 
advance usage to the next level. The focus of the pilot program 
is on the first two levels:

     Entry level--supply chain manufacturers who 
currently have no capabilities in MS&A, but recognize the 
benefits as a way to increase their competitive advantage.

     Advancing--supply chain manufacturers who 
currently have some initial capability, but want to become more 
advanced in their use of MS&A to promote innovation and ensure 
their long-term competitive advantage.

    This early pilot program laid the groundwork for the formal 
recognition of the pilot program as a partnership with the U.S. 
government. In March 2011, a Memorandum of Understanding was 
signed at a White House Ceremony, formally establishing the 
public-private partnership (PPP) known as the National Digital 
Engineering and Manufacturing Consortium (NDEMC) for five 
years. The Council of Competitiveness became the lead partner 
for the project, in collaboration with a number of other 
stakeholders. The Consortium is funded by a public-private 
partnership established by the United States Government and a 
number of participating OEMs. This funding partnership has the 
U.S. government giving $2 million and the private sector 
contributing $2.5 million to the project. Some of the companies 
backing the project include Deere & Company, General Electric, 
Lockheed Martin Corporation and Proctor and Gamble.

    The NDEMC's main purpose is to pilot programs that promote 
adoption and advancement of modeling and simulation (MS&A) and 
high performance computing (HPC) among small and medium-sized 
manufacturers (SMEs) in the United States. The network of OEMs, 
manufacturers, solution providers, and collaborators that make 
up the NDEMC will result in accelerated innovation through a 
powerful collaborative ecosystem of like-minded organizations.

    NDEMC is energizing the growth and development of small- 
and medium-sized American manufacturing enterprises (SMEs) by 
promoting public-private partnerships and encouraging skills 
transfer of advanced manufacturing techniques and processes 
that leverage computational power, simulation and cutting-edge 
modeling techniques. With funding through the Economic 
Development Administration, and as the initial project of 
President Obama's Advanced Manufacturing Partnership, the White 
House and the Council of Competitiveness are leading the effort 
to collaborate with SMEs to use modeling and simulation.

    NDEMC brokers and promotes collaborative relationships that 
will sustain the growth of American manufacturing through jobs 
creation and enhanced competitiveness. NDEMC provides modeling, 
simulation and analytics education and training, access to High 
Performance Computing (HPC) and access to Software as a Service 
(SaaS). These services will be available through a distributed 
application to make U.S. SMEs more competitive in the global 
marketplace.

    A great example of how NDEMC has positively impacted U.S. 
companies is the case of Jeco Plastic Products LLC. Jeco 
Plastic Products, LLC is a small custom-mold manufacturer of 
large, complex, and high-tolerance products with a plant in the 
Indianapolis area. Two processes are used in the manufacturing 
facility--rotational molding and twin-sheet pressure. Jeco's 
customer base includes large U.S. and international original 
equipment manufacturers (OEMs) in the automotive, aerospace, 
printing and defense industries. To take advantage of a 
monumental opportunity to secure a large OEM account, Jeco 
Plastic Products required high performance computing (HPC) and 
modeling, simulation and analysis (MS&A) resources to 
successfully evaluate design scenarios and predict the product 
performance of a complex custom pallet. In house finite element 
analysis (FEA) software and computing resources were inadequate 
to accomplish this task. Jeco joined the NDEMC program to gain 
training, experience, access to university expertise, software 
and hardware to successfully compete against large foreign 
competitors. By employing HPC simulation, the company was able 
to simulate and analyze their pallet in a highly predictive and 
time-efficient manner. Without these HPC resources, they would 
not have earned a multiyear contract from a large German 
automotive OEM.

    Improvements to Jeco's pallet product have impacted their 
bottom-line as sales revenue is expected to double, payroll 
will increase by 35 percent at their plant, and they will be in 
contention for additional high-margin, domestic and export 
business projects.

    Overcoming Technical Challenges with High-Impact Computing 
Jeco experienced a technical challenge in its simulation of 
complex, high tolerance designs in inhomogeneous anisotropic 
materials, which is virtually impossible to produce with the 
current commercially available software. Tedious trial-and-
error physical design and testing was deemed inefficient and 
would not meet the expectations of their large automotive OEM 
client. High-ranking executives at the company were cognizant 
that they needed to upgrade their MS&A capabilities to 
effectively compete in this high growth niche industry.

    A last minute requirement for a multi-year project with a 
major German OEM required Jeco to take immediate action to 
upgrade. The critical situation prompted the company to contact 
Purdue University for assistance through their Manufacturing 
Extension Partnership (MEP) program, which led to becoming part 
of the NDEMC Midwest Project. Jeco understood that the 
relatively small cosmetic alteration required by their client 
could potentially affect critical specifications for 
deflection, and they needed outside assistance. To facilitate 
this change and receive the initial order, they had to rapidly 
analyze a very complex design before making the expensive, 
irreversible tool changes. Access to HPC and the Purdue support 
staff were invaluable resources in enabling the company to make 
quick and accurate evaluations for the final step in the design 
process. Jeco CEO Craig Carson learned that the NDEMC public-
private partnership would be instrumental in accessing the 
training, hardware and software necessary for MS&A.

    Based on their limited resources, Jeco's participation in 
the NDEMC project became imperative to meet their strategic 
organizational, product and financial objectives. NDEMC's 
Midwest Project offered Jeco access to Purdue's faculty and 
staff. Jeco's leadership valued the university's strong 
collaboration, unwavering support and intellectual insight to 
assist them in bringing technological improvement to their 
pallet product. The program also introduced the company to 
superior test facilities for a wide range of applications. This 
included utilizing HPC simulation paired with laboratory 
materials test equipment at Purdue to validate their models.

    From an MS&A perspective, NDEMC facilitated Jeco's access 
to software which ordinarily would have been beyond the realm 
of possibility due to budgetary constraints. By gaining access 
to MS&A and technical expertise, Jeco had the ability to 
develop creative technological solutions in the final, time-
critical phase of the product innovation process.

    Based on current projections, Jeco management is expecting 
a reasonably steady increase in incremental, cumulative sales 
revenue for rotational molding between 2013 and 2022, totaling 
nearly $23 million during the period. These projections are 
based on a full-scale release of a new product for their German 
OEM customer and additional projects in the twin-sheet 
thermoforming market. Due to increased production demand from 
their large clients, Jeco is expected to increase payroll and 
hire 15 advanced manufacturing workers within the next few 
years.

    While we celebrate the successes and learn from the 
challenges of the Midwest pilot program, NDEMC continues to 
move forward. I am pleased to share with you that the NDEMC 
program received the HPCwire Editor's Choice Award for Best HPC 
Collaboration Between Government and Industry in 2012. 
Currently the NDEMC pilot program is wrapping up its federal 
funding and the Council on Competitiveness and other key NDEMC 
stakeholders are working to move NDEMC from a public-private 
partnership to a non-profit entity which would be the conduit 
for new partnerships, including new public-private 
partnerships, across the United States which will continue to 
work together to sustain America's manufacturing and 
competitiveness. The EDA and its partners will study the 
economic impact of technology-based innovation infrastructure 
toward boosting the long-term job capacity and competitiveness 
of U.S. manufacturing and industry.

    Thank you.

    For further information on the National Digital Engineering 
and Manufacturing Consortium please visit www.ndemc.org.

    For further information on the Council on Competitiveness 
and its manufacturing work, including the US Manufacturing 
Competitiveness Initiative and the American Energy & 
Manufacturing Partnership, please visit www.compete.org.

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