[Senate Hearing 113-580]
[From the U.S. Government Publishing Office]





                                                        S. Hrg. 113-580
 
                THE ROLE OF TRADE AND TECHNOLOGY IN 
                    21ST-CENTURY MANUFACTURING

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

                                HEARING

                               BEFORE THE
                               
                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 17, 2014

                               __________
                               
                               
                               
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                          COMMITTEE ON FINANCE

                      RON WYDEN, Oregon, Chairman

JOHN D. ROCKEFELLER IV, West         ORRIN G. HATCH, Utah
Virginia                             CHUCK GRASSLEY, Iowa
CHARLES E. SCHUMER, New York         MIKE CRAPO, Idaho
DEBBIE STABENOW, Michigan            PAT ROBERTS, Kansas
MARIA CANTWELL, Washington           MICHAEL B. ENZI, Wyoming
BILL NELSON, Florida                 JOHN CORNYN, Texas
ROBERT MENENDEZ, New Jersey          JOHN THUNE, South Dakota
THOMAS R. CARPER, Delaware           RICHARD BURR, North Carolina
BENJAMIN L. CARDIN, Maryland         JOHNNY ISAKSON, Georgia
SHERROD BROWN, Ohio                  ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado          PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania
MARK R. WARNER, Virginia

                    Joshua Sheinkman, Staff Director

               Chris Campbell, Republican Staff Director

                                  (ii)



                            C O N T E N T S

                               __________

                           OPENING STATEMENTS

                                                                   Page
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee 
  on Finance.....................................................     1
Hatch, Hon. Orrin G., a U.S. Senator from Utah...................     3

                               WITNESSES

Ezell, Stephen J., senior analyst, Information Technology and 
  Innovation Foundation, Washington, DC..........................     5
Sturm, Jacklyn A., vice president and general manager of global 
  supply management, Intel Corporation, Santa Clara, CA..........     6
Kimber, Ray, founder, owner, and president, Kimber Kable, on 
  behalf of Kimber Kable and the Consumer Electronics 
  Association, Ogden, UT.........................................     8

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Ezell, Stephen J.:
    Testimony....................................................     5
    Prepared statement...........................................    27
Hatch, Hon. Orrin G.:
    Opening statement............................................     3
    Prepared statement...........................................    37
Kimber, Ray:
    Testimony....................................................     8
    Prepared statement...........................................    40
Sturm, Jacklyn A.:
    Testimony....................................................     6
    Prepared statement...........................................    44
    Response to a question from Senator Hatch....................    62
Wyden, Hon. Ron:
    Opening statement............................................     1
    Prepared statement...........................................    63

                                 (iii)


     THE ROLE OF TRADE AND TECHNOLOGY IN 21ST-CENTURY MANUFACTURING

                              ----------                              


                        THURSDAY, JULY 17, 2014

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:06 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. Ron 
Wyden (chairman of the committee) presiding.
    Present: Senators Cantwell, Cardin, Brown, Hatch, Grassley, 
Thune, and Isakson.
    Also present: Democratic Staff: Joshua Sheinkman, Staff 
Director; Lisa Pearlman, International Trade Counsel; and Jayme 
White, Chief Advisor for International Competitiveness and 
Innovation. Republican Staff: Everett Eissenstat, Chief 
International Trade Counsel; Shane Warren, International Trade 
Counsel; Rebecca Eubank, International Trade Analyst; and Kevin 
Rosenbaum, Detailee.

   OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM 
             OREGON, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The Finance Committee will come to order.
    Americans, from the water cooler to professional societies, 
now often debate the future of American manufacturing. Academic 
journals, for example, are filled with articles where naysayers 
say that American manufacturers cannot compete with cheap labor 
in Asia or that robots and computers do the jobs once held by 
our hardworking middle-class workers.
    This hearing is going to show that it is too soon to hang 
the crepe on American manufacturing. There is genuine reason to 
be optimistic, because many American manufacturing companies--
many American manufacturing companies--now succeed in tough 
global markets. Manufacturing accounts for more than $2 
trillion in the American economy, it supports more than 17 
million American jobs, and it drives three-quarters of all 
private sector spending on research and development. There are 
many more players in the manufacturing game worldwide, but the 
bottom line is, America is more than holding its own.
    Now, that is not to say there have not been significant 
changes in recent years, and it is not to say that it is going 
to be exclusively smooth sailing from this point on. U.S. 
manufacturers have run up against greater competition today. 
Some of it is unfair, and 50 or 60 years ago the United States 
was the world's factory, accounting for 40 percent of the 
world's manufacturing goods. Today, the U.S. accounts for less 
than 20 percent.
    Yet, American manufacturing has real strengths and 
opportunities to build on. For example, technology is an area 
where it is ``advantage America.'' The same is true in finished 
products and production methods. It is important for the 
Finance Committee to identify and examine which policies have 
stifled manufacturing and learn the lessons of the past. So the 
focus today is going to be on how to come up with fresh trade-
related policies that can unleash the full potential of 
American manufacturers and give our manufacturers--American 
manufacturers--a new springboard to good-paying, middle-class 
jobs.
    So there is a tremendous opportunity before American 
producers. There are going to be about a billion new middle-
class consumers in markets around the world with significant 
sums of money to spend. That number is only going to grow as 
more people rise from poverty. Many of those consumers prize 
American products. They look for the American brand because the 
American brand represents top-notch quality, safety, and 
reliability. The American brand is a winner. Furthermore, 
American manufacturers are at the forefront of a number of 
fields, innovative fields, that are going to lead our economy 
in the future: clean energy, health care, and information 
technology are just a handful of examples.
    For example, I am very pleased that Oregon's largest 
manufacturer, Intel, is here today. Their products are at the 
core of computing equipment and form the foundation of the 
global digital economy. Intel competes and they win in tough 
global markets. There are many more examples of vibrant 
manufacturers from Oregon and from other States.
    Brammo, based just outside Medford, makes award-winning 
electric vehicles. A-dec, based in Newberg, makes some of the 
world's best dental equipment. Erickson, based in Portland, 
makes heavy-lift aircraft for a huge number of uses.
    Now, I think I have established that American manufacturing 
has a lot of room to grow, and I think every member of this 
committee--we have Democrats and Republicans here--can also 
attest to the fact that in their home states there are 
thriving, cutting-edge manufacturers that are winning in tough 
global markets. The investments these manufacturers make 
support stable, healthy communities, and they create good-
paying jobs for our hardworking middle class.
    The bottom line? The right policies, especially on trade, 
can help launch a new era defined by successful, sustained 
manufacturing in America. Those policies ought to reflect what 
American manufacturing looks like today and where it is headed 
in the future, and not in effect be tethered to what was done 
10 or 20 years ago. Our new policies have to dismantle trade 
barriers American manufacturers face abroad, like tariffs on 
high-tech products, requirements to relocate factories, 
intellectual property theft, and anti-competitive subsidies for 
state-owned enterprises.
    New policies have to foster an environment in which 
American manufacturers of all sizes can grow and create good-
paying middle-class jobs. The challenge ought to be, 
colleagues, to make things here, add value to them here, and 
then ship them, ship that American brand around the world.
    Today's hearing gives the Finance Committee a chance to, on 
a bipartisan basis, develop those trade policies that can meet 
those objectives. Senator Hatch has been a close partner in all 
of these issues. For those of you who were not here yesterday, 
Senator Hatch made some extremely important points yesterday 
with respect to protecting American intellectual property.
    [The prepared statement of Chairman Wyden appears in the 
appendix.]
    The Chairman. Senator Hatch, we welcome your statement.

           OPENING STATEMENT OF HON. ORRIN G. HATCH, 
                    A U.S. SENATOR FROM UTAH

    Senator Hatch. Well, thank you very much, Mr. Chairman, for 
holding this hearing on the role of trade and technology in the 
21st century with regard to manufacturing.
    The success of our manufacturing sector is vital. Nearly 12 
million Americans are directly employed by manufacturing. That 
is nearly 1 out of 10 American jobs. This is true in my State, 
where nearly 10 percent of working Utahans are employed in 
manufacturing. That is 120,000 jobs in Utah alone. That is one 
reason I am happy Ray Kimber is here with us today, and we 
welcome all three of you with us today.
    I often talk about the small, innovative company that 
begins in a garage and grows to become the driver of economic 
growth and a source of jobs. That is Kimber Kable. Twenty-five 
years ago, Mr. Kimber figured out a way to weave audio cables 
to reduce unwanted noise and improve fidelity. He founded 
Kimber Kable to manufacture those cables, and now he employs 30 
people in Ogden, UT. He sells his cables to the world. Today, 
two-thirds of Kimber Kables are shipped to customers overseas.
    Ray is not only a friend, he is also an outstanding example 
of a larger truth, that the U.S. manufacturing sector is the 
most innovative in the world and American workers are 
unsurpassed in manufacturing productivity. Because of U.S. 
innovation and productivity, in those areas where U.S. 
manufacturing competes on an equal footing, it succeeds.
    Our manufacturers maintain a trade surplus of $60 billion 
per year with the 20 countries where we have a free trade 
agreement in place. Per capita, the consumers from those 
countries purchased nearly 13 times more U.S. goods than 
consumers from the rest of the world. When you find a market 
that is open and secured by strong international trade rules, 
you will find goods like Mr. Kimber's that are manufactured in 
America.
    Put simply, U.S. trade agreements are good for U.S. 
manufacturers, but we need to do a better job of opening 
overseas markets and making sure that our manufacturers do not 
face discrimination and other trade barriers. There are several 
negotiations under way with our partners in the Pacific region, 
in Europe, and in the World Trade Organization that will help 
address the challenges faced by U.S. manufacturers, but I do 
not think any of these efforts are going to succeed without 
Trade Promotion Authority, or TPA.
    Without TPA, this administration is severely handicapped in 
negotiating high-quality agreements that will benefit American 
manufacturers and achieve the goals of Congress. That is why in 
January former Senator Baucus and I introduced the bipartisan 
Congressional Trade Priorities Act which would renew TPA and 
empower our trade negotiators to bring home trade agreements 
that meet the high standards set by Congress and to see those 
agreements passed into law.
    Importantly, the bill sets negotiating objectives for our 
agreements. I want to highlight two of those today. We have 
witnesses with us here today representing companies that have 
created and taken advantage of advances in technology. Part of 
getting their products around the world happens to be digital 
trade. That is why the TPA bill we introduced requires U.S. 
trade agreements to ensure that electronically delivered goods 
and services are classified with the most liberal trade 
treatment possible and that our trading partners allow the free 
flow of data across borders.
    But using the Internet to market, sell, and transmit 
digital products is only part of the story. These companies are 
also innovators, and their innovations must be protected. Our 
witnesses today have experienced first-hand the destructive 
impact of intellectual property theft. Mr. Kimber, for example, 
has had to contend with counterfeiters stealing his company's 
name to sell inferior products.
    Our TPA bill also requires that U.S. trade agreements 
reflect a standard of intellectual property rights protection 
similar to that found in U.S. law, and it calls for an end to 
the theft of U.S. intellectual property by foreign governments, 
including piracy and the theft of trade secrets, and for the 
elimination of measures that require U.S. companies to locate 
their intellectual property abroad in return for market access.
    For our manufacturers to continue to succeed overseas, we 
must also ensure our companies are able to exploit global 
supply chains so they can access the best inputs, add the most 
value to products, and ship their goods around the world as 
efficiently as possible. That is why last year former Senator 
Baucus and I introduced the Trade Facilitation and Trade 
Enforcement and Reauthorization Act to make trade facilitation 
a top priority at U.S. Customs and Border Protection and to 
improve intellectual property rights enforcement at the border.
    Trade is good for U.S. manufacturing. Like I said, where 
our manufacturers operate in markets secured by free trade 
agreements, they succeed. But the challenges they face around 
the world are only growing, and we in Congress need to do our 
part to help achieve the conditions overseas under which 
American manufacturers can thrive.
    That being the case, I hope the committee will soon be able 
to consider some of these pending trade bills. We really cannot 
afford to wait, and I want to personally express my regard for 
our chairman of this committee, who has worked very hard to try 
to work in a bipartisan way to get these things done, and who I 
think shares much of the same feelings that I do about 
international trade and what we need to do and how we need to 
do it. So I thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Hatch. I will not turn 
this into a bouquet-tossing contest, but I really appreciate 
the fact that, consistently, we are trying to work in a 
bipartisan way here in the Finance Committee. Certainly, as 
your statement indicated, manufacturing is an ideal opportunity 
for doing that.
    [The prepared statement of Senator Hatch appears in the 
appendix.]
    The Chairman. So we welcome our guests. First before us 
will be Mr. Stephen Ezell, who is a senior analyst at the 
Information Technology and Innovation Foundation.
    Next will be Ms. Jacklyn Sturm, who is vice president and 
general manager of global supply management at Intel 
Corporation. They, of course, have an enormous footprint in my 
home State in manufacturing, and around the country. We are 
happy to have Ms. Sturm here.
    Finally--and we already heard some glowing remarks, almost 
an introduction of Mr. Kimber--we are happy to have you, Mr. 
Kimber. He is the founder and owner of Kimber Kable, a 
manufacturer from Utah. Let the record show that Mr. Kimber's 
testimony is also going to be on behalf of another organization 
that we worked very closely with, the Consumer Electronics 
Association, and we always appreciate the input of that fine 
group.
    So let us begin with Mr. Ezell. Welcome.

  STATEMENT OF STEPHEN J. EZELL, SENIOR ANALYST, INFORMATION 
      TECHNOLOGY AND INNOVATION FOUNDATION, WASHINGTON, DC

    Mr. Ezell. Chairman Wyden, Ranking Member Hatch, and 
members of the committee, I appreciate the opportunity to 
discuss the role of trade and technology in 21st-century 
manufacturing and commend you for taking up this important 
topic.
    Today I would like to provide an overview of America's 
manufacturing economy and offer several policy recommendations 
to bolster it. You have ably detailed manufacturing's vital 
importance to the U.S. economy. Unfortunately, the 2000s were a 
disaster for U.S. manufacturing, as America lost almost 6 
million, or one-third, of its manufacturing jobs and saw real 
manufacturing output, when measured accurately, decline by 11 
percent.
    Yet today we hear talk of an inevitable U.S. manufacturing 
renaissance. For example, the Boston Consulting Group recently 
asserted that lower production costs will fuel a dramatic re-
shoring of U.S. manufacturing, generating up to 5 million new 
jobs by 2020. To be sure, lower energy costs, a slightly 
depreciated dollar, and mostly rising foreign wages will help, 
yet the reality is that U.S. manufacturing costs per worker 
hour are already quite low, just 60 percent of Germany's level 
and only 20 percent higher than South Korea's.
    Despite this, when one excludes the U.S. computer and 
electronic sector--because official government data overstates 
this sector's output--U.S. manufacturing value added in 2012 
actually remained 7.4 percent below 2007 levels. America has 
fewer manufacturing factories today than it did just 2 years 
ago. While we have added back 650,000 manufacturing jobs since 
2010, this only recovers one-tenth of the loss we experienced 
in the 2000s.
    Likewise, while we have stemmed the outsourcing tide, at 
best we are at parity, with the United States re-shoring 
roughly one manufacturing job for each one off-shore today. In 
short, some believe that simply getting the business climate 
right and costs low enough are all that is needed for American 
manufacturing to thrive, but lower manufacturing costs alone 
will not restore the erosion of an industrial commons that has 
left America unable to manufacture a wide variety of high-
technology products, nor will they address countries' rampant 
and growing use of innovation work-influenced trade practices 
which seek to advantage domestic producers at the expense of 
American manufacturers. These policies, which the World Trade 
Organization found countries used at an all-time record high in 
2012, include currency manipulation, export subsidies, 
discriminatory technology standards, intellectual property 
theft, and localization barriers to trade which force American 
enterprises to manufacture locally or sacrifice intellectual 
property if they desire access to foreign markets.
    Rather, it will require effective technology and trade 
policies to ensure that American manufacturers can reliably 
innovate and fairly compete in global markets. With one in 
three U.S. manufacturing jobs dependent on exports and more 
than 90 percent of the world's consumers living beyond 
America's shores, Congress should support market-expanding free 
trade agreements such as the TTIP, TPP, and an expanded 
Information Technology Agreement which could boost U.S. exports 
of information technology products by $3 billion annually, 
supporting 60,000 U.S. jobs.
    With the U.S. Export-Import Bank supporting $37 billion in 
U.S. exports annually and 205,000 U.S. jobs in 2013, it is 
imperative that Congress swiftly renew the bank's 
authorization. Congress can also help boost exports by 
strengthening American manufacturers' ability to innovate next-
generation products by expanding the research and development 
tax credit and supporting a national network for manufacturing 
innovation.
    But innovative products will not reach foreign markets 
unless America commits to combating foreign mercantilism, thus 
Congress should require the U.S. Trade Representative's office 
to rank nations according to the extent of their use of 
mercantilist practices, while providing it with significantly 
expanded resources for trade enforcement.
    In conclusion, American manufacturing can once again become 
a key driver of U.S. economic and employment growth, but that 
will not happen in the absence of constructive and 
comprehensive public policies to support American manufacturing 
competitiveness.
    Thanks. I look forward to your questions.
    The Chairman. Thank you very much, Mr. Ezell.
    [The prepared statement of Mr. Ezell appears in the 
appendix.]
    The Chairman. Ms. Sturm, welcome.

   STATEMENT OF JACKLYN A. STURM, VICE PRESIDENT AND GENERAL 
 MANAGER OF GLOBAL SUPPLY MANAGEMENT, INTEL CORPORATION, SANTA 
                           CLARA, CA

    Ms. Sturm. Good morning, Chairman Wyden, Ranking Member 
Hatch, and members of the committee. I appreciate the 
opportunity to discuss how increased trade can help strengthen 
21st-century technology manufacturing.
    Intel is a prime example of why the U.S. Government should 
open up new markets and remove existing trade barriers overseas 
to increase U.S. exports. Although we began as a small start-
up, today Intel is the world's largest semiconductor 
manufacturer, and our products power everything from phones and 
tablets to servers and super-computers, and they form the 
foundation of the information economy.
    Last year, the International Trade Commission reported that 
semiconductors were among the top three U.S. manufactured 
exports. Intel's revenue in 2013 was about $53 billion, and it 
was generated from sales to customers in more than 120 
countries. In fact, more than three-fourths of our sales are 
actually generated outside of the U.S., yet, at the same time, 
three-fourths of our advanced manufacturing and R&D are 
conducted across 23 States here in the U.S. The revenue we 
generate selling domestically manufactured products outside 
this country helps create and sustain high-paying jobs here at 
home. Of our over 100,000 employees worldwide, more than half 
are based in the U.S. This domestically manufactured/
internationally sold dynamic is fundamental to the growth of 
our business.
    But our access to foreign markets does not just impact 
Intel and its employees. To support our business, we contract 
with over 7,000 suppliers in 46 States, and more than 3,000 of 
those suppliers are classified as small businesses. In 2012 
alone, Intel's multiplier effect on the U.S. GDP was more than 
$96 billion.
    All of these economic benefits, however, are dependent upon 
our ability to sell innovative semi-conductor products outside 
of the U.S., although they are made in the U.S., to the 95 
percent of consumers who live overseas. So today I would like 
to make three key points to ensure that the U.S. Government 
trade agenda protects and promotes further U.S. manufacturing 
such as ours.
    First, existing trade agreements need to be expanded. Too 
many key markets are subject to too few existing trade rules. 
One key example in our industry is the WTO Information 
Technology Agreement, which dramatically increased U.S. exports 
when it was implemented, by eliminating significant duties in 
many countries on a range of technology products. 
Unfortunately, many of the digital products developed in the 
last decade are not covered by the ITA, which was negotiated 
back in 1997. The Information Technology and Innovation 
Foundation estimates that expansion of ITA could increase 
direct U.S. exports by $2.8 billion, boost U.S. revenues by $10 
billion, and support an increase of 60,000 new jobs.
    Intel strongly supports the administration's efforts to 
expand product coverage of this aging agreement and, because of 
the accelerating pace of technology and innovation, it is 
imperative that ITA expansion be completed quickly.
    Second, the U.S. must enter into additional robust trade 
agreements on an accelerated basis. America's 20 existing free 
trade agreement partners account for less than 10 percent of 
the global economy, but those 20 partners purchased nearly half 
of all of U.S. manufactured goods exported. U.S. exports create 
and sustain U.S. jobs. We need more FTAs to create more of 
those U.S. jobs.
    We appreciate the administration's ongoing negotiations of 
both TTIP and TPP. TPP will set the standard for market access 
in the Asia Pacific region and, of most interest to Intel, USTR 
has pushed hard for language that will increase trade secret 
protection, enhance e-commerce provisions, restrict commercial 
encryption regulation, and ensure more robust due process 
protection in competition cases. We hope this agreement will be 
completed quickly, but without sacrificing quality.
    TTIP is another key initiative. The transatlantic economy 
accounts for nearly half of the world's GDP and a third of its 
trade. When the U.S. and E.U. speak with one voice on emerging 
trade issues such as forced IP transfer and tech mandates, we 
set a precedent that other governments are more likely to 
follow. Despite these major agreements in the works, other 
economies such as Europe and India have entered more regional 
trade agreements than the U.S.
    As global competitiveness increases, our pace to increase 
market access for U.S. goods and services must also increase. 
However, we should also ensure that our FTAs are robust and 
effective. If and when Congress considers Trade Promotion 
Authority, it should direct negotiators to fully address 21st-
century manufacturing challenges.
    Third, the government must use a variety of mechanisms to 
tackle ever more complex non-tariff barriers, or NTBs. Some 
governments are linking traditional NTBs, such as local content 
measures, with new NTBs that promote discriminatory standards 
and favor domestic intellectual property rights to create 
national manufacturing champions. Existing trade rules do not 
deal with these complex NTBs holistically, and new trade 
agreements are not likely to adequately fill the gaps or keep 
up with rapid technological developments.
    For example, the government should seek other ways besides 
FTAs to isolate data protectionism, while dealing with 
legitimate privacy and security concerns, including development 
of best practices through increased international 
collaboration.
    Finally, trade agreements should be living documents that 
can be easily updated to effectively address new barriers 
raised by greater global competitiveness in the information 
economy.
    Intel appreciates the chance to share our views, and we 
look forward to working with you to ensure that trade 
agreements help American manufacturers prosper and create more 
jobs here at home. Thank you.
    The Chairman. Ms. Sturm, thank you very much. We appreciate 
your comments and having Intel pay good wages to so many 
Oregonians day in and day out. We thank you.
    [The prepared statement of Ms. Sturm appears in the 
appendix.]
    The Chairman. Let us welcome Mr. Kimber.

STATEMENT OF RAY KIMBER, FOUNDER, OWNER, AND PRESIDENT, KIMBER 
 KABLE, ON BEHALF OF KIMBER KABLE AND THE CONSUMER ELECTRONICS 
                     ASSOCIATION, OGDEN, UT

    Mr. Kimber. Good morning, Chairman Wyden, Ranking Member 
Hatch, and distinguished members of the committee. My name is 
Ray Kimber. I am founder and CEO of Kimber Kable of Ogden, UT. 
It is my pleasure to appear today on behalf of Kimber Kable and 
the Consumer Electronics Association, of which I am a 
longstanding member.
    CEA owns and produces the international Consumer 
Electronics Show, the global stage for innovation. CEA's over 
2,000 member companies represent the $211-billion U.S. consumer 
electronics industry, and that is an updated figure from just 
yesterday.
    I founded my company in 1979 with the Kimber Kable product 
line of audio, video, and speaker cables. Over time, our 
innovations have established us as a global leader in sound 
technology and audio cable. Our product improves the fidelity 
of entire audio/video systems. Both Kimber Kable and CEA rely 
upon an open global marketplace with policies that promote free 
trade and protect our innovations at home and abroad.
    Kimber Kable employs 30 people in Ogden, UT, where our 
product is manufactured in a facility one and a half times the 
size of a football field. Approximately 60 to 70 percent of the 
product we manufacture in Utah is exported to nearly 60 
countries. Kimber Kable is typical of U.S. manufacturers that 
rely on access to international markets for continued growth 
and success. Enactment of trade agreements and legislation 
which protect us against counterfeiters and trademark 
infringers are strong examples of areas where my government can 
help me and other American innovators.
    I commend you, Mr. Chairman and Ranking Member, for working 
with industry to secure agreements and policies that U.S. 
companies need to be competitive. Free trade agreements have 
worked for us in the past. FTAs increase confidence and 
certainty for U.S. industry doing business in those partner 
countries.
    America's free trade agreement partner countries buy more 
goods from the U.S. than other countries. We want new FTAs 
negotiated and passed by Congress to establish good rules where 
U.S. companies can operate with confidence that they have 
protections and enforcement. Please do not forget 
counterfeiting, an area in which we face daily challenges and 
damages. Agreements currently under negotiation, such as the 
Trans-Atlantic Trade and Investment Partnership and the Trade 
in Services Agreement, can do just that.
    For agreements to be concluded swiftly, we need FTA 
partners to trust that the United States has the ability to 
actually pass these agreements into law. Trade Promotion 
Authority expired in 2007, and, without its renewal, we risk 
that negotiated trade agreements will never pass into law. That 
costs me, my employees, and our families in Utah, along with 
the entire U.S. economy. It literally diminishes our ability to 
innovate and remain competitive in the global marketplace.
    Finally, I want to address a pending agreement, the success 
of which would be a boon to our industry. The Information 
Technology Agreement, ITA, was negotiated over 15 years ago and 
has not been updated since. Products such as video games and 
consoles and the audio/video systems that support them are not 
part of the original agreement.
    Updating the ITA to include these will make them more 
affordable, promoting greater production, thereby creating 
jobs. CEA and its members have been working tirelessly with the 
USTR to advance the deal. We could use Congress's help to 
encourage China to return to the negotiation table motivated to 
make significant and meaningful progress.
    We risk falling behind other countries that are passing 
agreements with each other. How can you expect me to maintain 
innovative competitiveness if my government is not matching my 
passion with crucial agreements and legislation? I think a 
unified Congress which promptly passes needed agreements and 
bills will send just as strong a message as the content of the 
bills and agreements themselves. I respectfully say ``please.''
    Thank you again for the opportunity to testify. I will 
sincerely respond to any questions that the committee may have.
    The Chairman. Thank you all. You have been very, very 
helpful. I know you are going to get important questions from 
colleagues.
    [The prepared statement of Mr. Kimber appears in the 
appendix.]
    The Chairman. Let me start with you, Ms. Sturm, on the 
question of strengthening trade secret protection. It really is 
hard to over-emphasize the importance here, because we are 
talking about ``advantage America.'' These are our inventions. 
These are the creative efforts of Americans. Then you have 
threats from traditional moles and state-supported cyber-theft, 
a whole host of very significant efforts that are coming from 
around the world, that undermine our intellectual property.
    I think it would be very helpful if Intel could start by 
outlining what the company sees as the major gaps--the major 
gaps today--in global trade secret protection.
    Ms. Sturm. Thank you, Mr. Chairman. Yes, we think trade 
secrets are critical to how we operate our business. We develop 
very advanced manufacturing techniques, and those are not 
patented because we do not even want them to be visible to the 
world. It is crucial to us that we protect them and that we 
maintain a high degree of confidentiality internally.
    From the standpoint of trade secret capability, we would 
like to see more focus on enforcement and then also on better 
written trade agreements in the future that set up effective 
protections for trade secrets.
    The Chairman. I also understand that, in the area of the 
trade secret rules, it seems that the rules are particularly 
weak in the area of these flimsy protections, on providing 
unfair advantages to state-owned enterprises, and with 
inadequate disciplines on technical standards. I understand 
that you all are concerned about those as well.
    Ms. Sturm. We look at those as non-tariff barriers. We 
certainly are concerned when preferential access is given to 
products that are inferior to ours. Relative to trade secrets, 
those protections really are in the realm of enforcing existing 
trade agreements and ensuring that future agreements build in 
even stronger protections.
    The Chairman. Let me offer a question for you, Mr. Ezell. 
Senator Cantwell has done very good work on this question of 
the 
Export-Import Bank and is an eloquent advocate for it. I hear 
Oregonians talk a lot about how important it is for the small 
firms, that the small firms often just kind of get lost in this 
debate about great titans of enterprise, taking one position or 
another. You all work a lot with the small firms. What would be 
some examples of how the Export-Import Bank is important for 
the small firms?
    Mr. Ezell. Well, regarding the question on the Export-
Import Bank, I think it is first important to recognize that 
global export credit competition has only increased. In fact, 
over the past 5 years China and Germany respectively have 
issued 4 and 5 times as much export credit as the United States 
has, so we need to both reauthorize the Export Bank and 
increase its lending portfolio.
    Now, with regard to the question of small and medium 
enterprises, the reality is that the vast majority of the 
bank's transactions--80 percent--go to SMEs. In 2013, the U.S. 
Export-Import Bank supported the export activities of 3,400 
U.S. SMEs, so it can play a vital role in helping our small 
businesses export.
    One other key point here, I think, is that sometimes you 
will hear the criticism of the Export-Import Bank that its 
activities only support the activities of larger corporations 
such as GE or Boeing. But the reality is that every single time 
the U.S. Export-Import Bank supports the sale of a Boeing 
aircraft, it is also supporting the activities of the 22,000 
suppliers, the vast majority of them small businesses, that 
comprise Boeing's value chain for the production of aircraft. 
So across the board, from the bank support for large businesses 
to small ones, there are at heart supporting the export 
capacity of small U.S. businesses.
    The Chairman. One last question if I might, for you, Mr. 
Ezell, and you, Mr. Kimber. When we are talking about the new 
priorities--because that is a big part of our agenda here, to 
respond to trade barriers--it seems to me that if we are 
dealing with preferences for a country's state-owned 
enterprises, requirements that U.S. companies produce in a 
foreign country to access its market, and these technical kinds 
of standards, these strike me as three of the areas that we 
really ought to zero in on. I think Ms. Sturm touched on those 
as well. Do you share that view, Mr. Kimber, and then Mr. 
Ezell?
    Mr. Kimber. I do. We have some markets--for instance, 
Brazil--where the import tariff for our class of goods is so 
high that it makes it untenable to even attempt much of a 
business down there. They do not have anybody that competes 
with us down there, so I do not really understand that.
    What we have found is that, when we go into a market, it 
actually triggers and encourages legitimate competitors of our 
product for the benefit of the entire global marketplace. So I 
think that the high tariffs for products as collateral damage 
actually damage the country that establishes such high tariffs. 
So we can actually do them a favor by making them do the right 
thing.
    The Chairman. You are being too logical, Mr. Kimber.
    Mr. Kimber. I am sorry.
    The Chairman. It is an important point. We do not have too 
much of that in government.
    Do you want to add anything, Mr. Ezell? I know my time is 
up.
    Mr. Ezell. Just to say that the evolution of trade in the 
global economy is that, as countries have reduced their tariffs 
to trade, they have surreptitiously replaced them with these 
types of non-tariff barriers. I think you correctly called out 
localization barriers to trade that force U.S. companies to 
either locate their production offshore or to sacrifice their 
intellectual property as a condition of exporting to foreign 
markets as one of the key challenges we face.
    For example, India recently put in place a policy called 
the Preferential Market Access policy which would have required 
that 80 percent of the computer and electronics sold in India 
by 2020 be manufactured there. While they have repealed that to 
only apply to government procurement of electronic products, 
these types of policies are poised to do significant damage to 
the global production system and also to U.S. manufacturers. 
You are exactly right to call on Congress to push back more 
strongly against them.
    The Chairman. Very good.
    Senator Hatch?
    Senator Hatch. Well, thank you, Mr. Chairman.
    Mr. Kimber, you export to almost 60 countries around the 
world, and, in many of these markets, your products still face 
high tariff barriers. I agree with you that updating the 
Information Technology Agreement would help you and other 
companies across the United States access growing foreign 
markets.
    Can you give us some idea of what concluding an updated 
Information Technology Agreement would mean to your company and 
its ability to export to more countries, including China?
    Mr. Kimber. Yes. We actually export a fair amount to China 
now, but our biggest scourge is counterfeit products. 
Counterfeiting literally costs us. It deprives and deceives the 
consumers. Counterfeiting damages my reputation.
    Let me show you how we struggle to grow and retain our 
overseas markets. These percentages are the export portion of 
our total sales: in 2012, we exported 76 percent; in 2013, 67 
percent; in 2014 year-to-date, 62 percent. This sales erosion 
is directly tied to certain models of our product.
    In countries around the globe like Taiwan, China, Canada, 
even right here in the U.S., counterfeit goods are running 
roughshod, damaging both manufacturers and consumers. Sometimes 
it even seems that counterfeit producers are aided, or at least 
protected, by local governments.
    Senator Hatch, I believe that your efforts to introduce the 
Customs reauthorization bill will have a measurable benefit to 
me and to the CEA members and the U.S. economy, if passed. This 
bill would direct agencies to coordinate with each other and 
with Kimber Kable. We need to stop bad product crossing the 
border. Current Customs and Border Protection internal policies 
impede such cooperation and coordination. This is an action 
that CEA members have long urged.
    It is illogical to continue CBP's internal policy that 
impedes cooperation and coordination. Legislation such as the 
proposed Customs reauthorization bill will streamline 
information sharing and is a critical action that Congress 
should take to protect all consumers and help domestic 
manufacturers like me. Please pass this bill. Thank you.
    Senator Hatch. Thanks, Mr. Kimber.
    Ms. Sturm, you pointed out in your statement that trade 
secret theft is a growing problem around the world. We know 
that China in particular is systematically stealing critical 
information from hundreds of U.S. companies. That is why the 
Trade Promotion Authority bill that we introduced earlier this 
year includes provisions directed at combating this threat, 
including new provisions calling for governments to protect 
trade secret information and to prevent or eliminate their 
involvement in the theft of trade secrets. So would you please 
tell us why it is so important for our trade agreements to 
address this growing threat?
    Ms. Sturm. Advanced manufacturing requires an effective use 
of trade secrets to deliver high-yield, low-cost products, and 
protecting those trade secrets allows companies to stay 
competitive. At this point, we believe that our trade secrets 
are well-protected inside our company, but we believe that 
trade agreements need to be better enforced to ensure that 
individuals and countries that do not follow these agreements 
are penalized and that the penalties are effective enough to 
make an impact on those countries.
    Senator Hatch. Thank you.
    Mr. Ezell, ITIF published a report in April of 2014 
entitled, ``The Indian Economy at the Crossroads.'' In that 
report, you make a compelling case that the path to growing 
India's economy lies in India repudiating its ``innovation 
mercantilist'' policies of the past and instead embracing an 
economic model that respects intellectual property rights, 
attracts investment, and of course unleashes India's labor 
productivity.
    Now, we are all hopeful that India's new Prime Minister 
Modi will follow that path. Unfortunately, I understand that 
one of the first trade actions by the new Indian government at 
the World Trade Organization was to block consensus on a 
protocol to implement the trade facilitation agreement. I find 
that very troubling.
    What can we do as a government to help make the case that 
policies that protect intellectual property, enhance trade 
facilitation, and liberalize trade and investment, are key 
tools to economic development?
    Mr. Ezell. I think several things. The first will be to 
demonstrate that policies such as local content requirements, 
which mandate our companies to locate production in these 
nations, are not as effective as these countries focusing on 
providing an attractive and compelling location for our 
manufacturers to put their production activities there.
    For example, Intel would certainly not put a semiconductor 
fabrication facility in India where there are rolling 
blackouts, so it is incumbent upon us to show them that 
investing in the innovation potential and the infrastructure in 
their own economy is what they need to attract the 
manufacturing activity that can drive their growth.
    I think it is also important to point out that, when you 
look at intellectual property in India, for example, a lot of 
the people who are most strongly damaged by intellectual 
property theft are content creators, for example, in Bollywood, 
which is the second-
largest movie production industry in the world. IP theft of 
movies and digital content affects their own innovators. So 
when India does not implement as strong an intellectual 
property rights statute as it could, it only damages the long-
term innovation potential of its own economy. Having a whole-
government approach that constantly makes that case toward 
Indian colleagues, I think, is one of the strongest things we 
can do to get them to put in place strong intellectual property 
rights statutes and better trade rules.
    Senator Hatch. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Hatch.
    Senator Brown?
    Senator Brown. Thank you, Mr. Chairman.
    Recently--and this question is for you, Ms. Sturm--DOJ 
indicted five Chinese military officers for the cyber-theft of 
trade secrets from U.S. manufacturers and the United 
Steelworkers. The stealing of trade secrets by the Chinese 
military underscores just how valuable IP and trade secrets of 
U.S. manufacturers are to the Chinese government. We know, or 
we think, that there has been a long-term pattern of that kind 
of abuse of the rule of law.
    I met earlier this week with the Software Alliance and 
talked about some of these issues on trade secrets and theft of 
trade secrets. Is this threat one of the reasons that Intel and 
other companies you observe are looking to in-source, to bring 
jobs back here?
    Ms. Sturm. Like most major companies, Intel is subject to 
cyber-attacks with the intent to extract IP. We do not think it 
is isolated to China at all. Relative to our operations, we 
think that we have robust controls that protect us from that, 
so, no.
    Senator Brown. All right.
    It is pretty apparent, it is pretty obvious, that U.S. 
trade policy and tax policy have encouraged jobs, American 
companies, to relocate overseas. It is pretty interesting. The 
last 20 years is the only time period I can think of in 
economic history around the world where companies will shut 
down in Cleveland and move production to Wuhan and then sell 
their products back to Ohio, or back to Cleveland, or back to 
the United States, and it has become a business plan for a 
number of U.S. companies.
    There are other factors of course, but trade agreements and 
tax policy seem to have played into that. What happens is we, 
the most innovative country probably in the history of the 
world, with a great system of research and development and 
universities, we lead the world in innovation still. But when 
the production goes overseas, both in terms of process and 
product, the innovation takes place on the shop floor, making a 
production more efficient and making a product itself that is 
manufactured better.
    What do we change about U.S. trade policy? What does TPP 
do, what does TTIP do, to begin to change that whole view that 
is part of many companies' business plans: to shut down here, 
move overseas, and sell back into the United States? How do we 
change trade policy, tax policy? This is for both Mr. Ezell and 
Ms. Sturm. How does that play with these proposed trade 
agreements, and what do you suggest we do to encourage 
companies to no longer do that and to begin to re-shore jobs?
    Ms. Sturm. I think the most important thing that could be 
done to affect those kinds of changes is comprehensive tax 
reform. In particular, in the short-term, a stronger and 
permanent R&D tax credit would stimulate companies to retain a 
lot of those activities at home.
    Senator Brown. Mr. Ezell?
    Mr. Ezell. So ITIF talks about the four Ts, which we call 
Technology, Trade, Tax, and Talent policy. I think countries 
have to get that suite of policies right to create an 
attractive environment in which manufacturing can occur. With 
regard to tax policy, for example, U.S. manufacturers pay a 
corporate tax rate that is 37-
percent higher than Asian manufacturers do, so we do need a 
corporate tax reform.
    However, in the process of doing that, we should not 
sacrifice incentives for firms to invest in research and 
development and investment. For example, the U.S. only has the 
world's 27th most generous R&D tax credit now. Brazil, China, 
and India even offer more attractive R&D tax credits than we 
do, so we need to increase our incentives for American firms to 
invest in innovation and capital equipment.
    Senator Brown. So is this going to just be a continued race 
to see which countries can have the lowest tax rates? I mean, 
you see that the chairman has shown great leadership when 
dealing with this inversion issue. The chase just continues. We 
do not have the highest effective tax rates in the world.
    I mean, I think there is a bit of disingenuousness in 
somebody always saying, from the Wall Street Journal and other 
people all the time, we have the highest tax rates in the 
world. Well, look at effective tax rates. I think we need 
change. I am not arguing against that. But where does this end?
    I mean, you live in this country, you work in this country. 
You benefit from infrastructure, you benefit from medical 
research, you benefit in your businesses, let alone personally, 
from scientific research. You benefit in the freedoms we have. 
Then you want to move just to continue to lobby for and look 
for the lowest tax rates. We are just going to keep moving and 
keep moving and keep moving. Is that where we end up? Mr. 
Kimber?
    Mr. Kimber. Well, I would make the point that the actual 
tax rate is not as important or crucial to me as the complexity 
of how to assure that I pay the right tax. I view the 
complexity of how much time, effort, and money we spend on 
outside professionals to make sure that even we, as a small 
company, pay the correct amount as the essential equivalent of 
a non-tariff barrier.
    If you could make it more certain, less complex, I think 
that would help. I do not mind paying taxes. I understand the 
benefits, and I support appropriate taxation. But to have it so 
convoluted that it makes it difficult for me to be assured that 
I am paying the right amount, that kind of uncertainty is 
something you guys could fix, and I wish you would, please.
    Senator Brown. I think Senators Wyden and Hatch have argued 
for a simpler tax system. We will have other decisions to make 
with it, but I think there is general agreement on that.
    Mr. Kimber. So, thank you.
    Senator Brown. Would the two of you like to comment on my 
question?
    Ms. Sturm. Yes. Let me say that we are looking for a level 
playing field. As we go around the world, countries come to us 
repeatedly looking to bring our high-skilled, high-paying jobs 
into their country. They routinely offer us a billion or more 
dollars, which is largely comprised of tax-based incentives, to 
bring those jobs, to operate in their countries. So that does 
create an uneven playing field, and that is one of the issues 
that we would like to see addressed.
    Senator Brown. Mr. Ezell?
    Mr. Ezell. I would stress, on tax policy, that it is about 
assessing where we stand competitively via other countries. It 
is also about ensuring that more of those tax dollars go back 
into reinvesting in the manufacturing capabilities of our 
firms. For example, we have a great program called the U.S. 
Manufacturing Extension Partnership, which supports the 
innovation capacity of small businesses. When you look at 
countries like Germany, they invest 3 times as much as a share 
of GDP as we do, Japan 20 times as much. So reinvesting those 
tax dollars in our innovation potential, I think, is very 
important.
    Senator Brown. Fair enough. Thank you. Thank you.
    The Chairman. Thank you, Senator Brown.
    Before we go to Senator Isakson, I want to address a number 
of the important points that Senator Brown made. What Senator 
Brown was talking about is how we grow red, white, and blue 
jobs, jobs in this country--high-skill, high-wage jobs for our 
people, this point that Senator Brown touched on with respect 
to innovation taking place on the factory floor. We just want 
to make sure that those factory floors are in the United 
States. So what Senator Hatch and I and all our colleagues have 
tried to do on a bipartisan basis is attack those kinds of 
opportunities to do it.
    For example, a number of you mentioned the research and 
development tax credit. That is in the extenders package, not 
just the way it used to be, but as an improved version so as to 
do more to create opportunities for inventors, as Senator Brown 
so correctly said--to have the innovation on the factory floors 
here in America.
    Also, colleagues, so we know, because we have had several 
references to the matter of the international taxation debate, 
next Tuesday we will have an extremely important hearing on 
international taxes that will touch on, obviously first and 
foremost, the inversion question. Senator Hatch and I are 
working with colleagues to tackle that in a bipartisan way as 
well.
    Senator Isakson?
    Senator Isakson. Mr. Chairman, I am going to apologize for 
not asking a question, but there is no need to really ask a 
question of these three witnesses. Our only problem today is, 
they had the wrong audience. We ought to send these remarks to 
the leadership of the Senate in both parties to make them 
realize that we have a lot of work to do. Ms. Cantwell is going 
to talk about the Export-Import Bank. I think she is going to 
sing out of Mr. Ezell's hymnal about the importance of that.
    I am going to talk about what Ms. Sturm said on the TPA. I 
mean, Trade Promotion Authority is absolutely essential if we 
are ever going to do a TTIP or a Trans-Pacific Partnership. We 
have the African Growth and Opportunity Act, which I know we 
have a hearing coming up on.
    The biggest enemy of manufacturing domestically in the 
United States of America is the U.S. House and Senate. We need 
to pass the legislation that facilitates the ability for them 
to do business.
    I will add one other statement that was not mentioned, and 
that is the Miscellaneous Tariff bill. There are a lot of 20th-
century manufacturers in the United States still producing a 
lot of jobs who make products that have components in them that 
are minute in their import value but have heavy tariffs on them 
that cost the American manufacturer a lot of money.
    This committee should be moving forward on the 
Miscellaneous Tariff bill, moving forward on the two 
partnership bills. But understand that nothing is going to 
happen without us taking action on the Export-Import Bank, TPP, 
AGOA, TTIP, and Trade Promotion Authority. I want to commend 
the witnesses on addressing the key points of what we need to 
pay attention to as members of the U.S. Senate.
    Thank you very much.
    The Chairman. Well said, Senator Isakson.
    Next is Senator Cantwell, the leader of the effort on the 
Export-Import Bank, and particularly on raising that question 
of the small companies.
    Senator Cantwell. Thank you, Mr. Chairman. I want to 
associate my comments with the member from Georgia, because I 
think Senator Isakson hit the nail right on the head. You guys 
have clearly outlined what we need to be doing, and we here 
need to do our job.
    I think so many people think that we are somehow helping 
U.S. manufacturing when all we are doing is delaying the 
certainty and predictability that they need to compete. They 
have to focus every single day on shipping product. That is the 
level of competition that they face. They are so busy focusing 
on shipping product, yet we think they should take time away 
from that competition and come and run around the halls here 
and explain to us in intimate detail things that we cannot 
understand. I would rather they be competitive and ship their 
product and have us do our job.
    So first of all, I want to thank you, Mr. Ezell, for 
clearly articulating that the health of U.S. manufacturing 
depends on exports. I do not think we can emphasize that 
enough, that the market is outside the United States of 
America.
    I have a question, though. Your testimony--I am trying to 
understand the upside and the down-side in manufacturing. So I 
think you are saying--well, let me try this. We used to have 
about 18 million manufacturing jobs in the United States?
    Mr. Ezell. That is correct.
    Senator Cantwell. All right. And we lost 6 million, so we 
are down to about 12 or 13?
    Mr. Ezell. Twelve-point-one million, yes.
    Senator Cantwell. All right. So we are at 12 million. All 
right. What is the upside for us and what is the risk side? By 
that I mean, how big of an upside do you think we have in 
manufacturing? I am not asking for an exact, precise number, 
but I know in aviation, we have a world demand for 35,000 new 
airplanes. That is a lot of jobs. But we have to build them, we 
have to compete, we have to have the Export-Import Bank to sell 
them, all of that. So what do you think the upside is for the 
U.S. economy on manufacturing, if we proceed correctly?
    Mr. Ezell. I think the upside is at least 3 to 5 million 
more U.S. manufacturing jobs. The key point of my testimony was 
that we cannot rely on market forces and lower production costs 
alone, though they are important. But they will not be 
sufficient to ensure a U.S. manufacturing renaissance without 
these types of proactive public policies around trade and 
technology that we have been talking about here today.
    One key point I would just like to make----
    Senator Cantwell. Well, our calling card in the competitive 
arena is our ability to innovate, correct? Our ability to 
innovate next-generation faster than anybody else, right?
    Mr. Ezell. That is precisely right.
    Senator Cantwell. All right.
    Mr. Ezell. And our ability to do so depends on three 
conditions existing in global marketplaces. First is the 
existence of large markets, because our innovative products, 
like aircraft and semiconductors, have very high fixed costs of 
initial design and development, so their marginal costs need to 
be spread across larger global markets. That does not happen 
when other countries are closed to our exports. Intellectual 
property theft then becomes a key threat to our ability to 
innovate, because so much of our innovation is knowledge- and 
resource-intensive.
    Then when you get excess competition in the global 
economy--for example, India recently issued a compulsory 
license for Bayer's Nexavar, an anti-cancer drug, and that is 
going to allow an Indian manufacturer to now produce a generic 
copy.
    So it creates excess competition in the global economy 
which prevents our manufacturers not only from competing, but 
from then generating profits from one generation of innovation 
that can be reinvested into the future.
    So, getting no excess competition, access to large markets, 
and protection of intellectual property rights in the global 
economy, are the key things we have to have to assure American 
innovation.
    Senator Cantwell. Well, I appreciate your speed there. 
Thank you. But what is the down-side? Because we are at 12 
million, and if the upside is another 3.5 million or higher, 
what is the down-side if we do not act? What happens to that 12 
million?
    Mr. Ezell. Well, when you consider that we lost a third of 
our manufacturing jobs in the prior decade, if we do not get 
our act right, we could lose at least 20 to 30 percent in the 
coming decade. That is not inevitable. It should not happen. It 
does not have to happen.
    But just very briefly, if you look back to the year 1997, 
the U.S. has lost 43 percent of its manufacturing jobs when 
correcting for labor force growth; Germany has only lost 8 
percent over that time. So Germany has put in place a right set 
of policies to support the export economy. We need to be 
thoughtful about looking at what other countries are doing 
smartly and how we can emulate such policies in the United 
States.
    Senator Cantwell. I do not know where else we can be so 
accountable for an upside of 3.5 million or a loss of 3.5 
million. So, I mean, to me, as I said, I think my colleague 
Senator Isakson got it right.
    I did want to just put up two charts quickly. To your 
earlier point, this is the U.S. aerospace supply chain. You can 
see that it has companies in every State in the United States. 
In fact, we are passing out for our colleagues today data and 
information about the supply chain companies that exist in 
their area. Then the second chart is just the actual Ex-Im 
larger supply chain, which is 33,000 companies. It shows by 
State each of those States and where these manufacturing jobs 
are.
    So there is a lot at stake all throughout the United 
States. I do not think people--I noticed when I handed Senator 
Schumer his handout yesterday, he was delighted to see that 
there were more supply chain manufacturers in his State than in 
mine. So I think that you can see that it is all across the 
United States of America, and this is why we have to get this 
policy right. This is why we have to move forward on the Ex-Im 
Bank and these other policies we have discussed here today. So, 
thank you.
    Mr. Kimber. If I could just make note, even though our 
primary product is consumer electronics, we do supply component 
parts to the manufacturers for both aerospace and automotive. 
So internally we innovate these little ideas, and it has picked 
up, so it ends up being little parts inside of big parts that 
end up flying or driving.
    Senator Cantwell. If I could just, Mr. Chairman, make one 
last point. I think our colleagues just really need to 
understand what Mr. Kimber just said. Our competitive advantage 
is that the small companies are continuing to perfect the 
innovation, so it is flat organizations continuing to be the 
best experts at their particular area. That is why we can 
innovate faster, but it is a very spread-across-the-United 
States thing. So just because you do not hear from them does 
not mean they do not exist and they are not producing great 
products. We have to empower them.
    Ms. Sturm. If I may make one last comment relative to the 
down-side. I agree with Mr. Ezell that there is a meaningful 
downside, but I want to express that our international 
competitors are not standing still. So we may have experienced 
something from 1997 until now, but competition is accelerating, 
and, as preferential policies are being established by 
international governments, they are facilitating even greater 
acceleration there. So we must act.
    The Chairman. I think the point Senator Cantwell makes very 
much dovetails with that last comment, Ms. Sturm. The reason 
Senator Cantwell pushes so hard for us to innovate and for 
policies that encourage that innovation is because of what you 
just said. We know the international competition is not just 
sitting around reading paperbacks; they are out there 
innovating, and we appreciate that.
    Senator Thune has joined us, and we welcome him.
    Senator Thune. Thank you, Mr. Chairman, to you and Senator 
Hatch, for holding this hearing today. I want to thank our 
witnesses for being here.
    I think many Americans would be surprised to know that the 
majority of our Nation's exports are manufactured goods. While 
many manufacturers face pressure from foreign competitors, the 
fact is that trade agreements, when they are enforced, make our 
trading partners play by the rules. I think that has been very 
successful in encouraging U.S. exports.
    So, if you look at the countries around the world with 
which we do business, those with which we have free trade 
agreements, they constitute a big part of our manufactured 
exports. I think something we need to continue to do is 
aggressively expand those trading relationships through trade 
agreements. We need a renewed and strengthened TPA in order to 
do that. So let me put my plug in, as I am sure some of my 
colleagues, including Senator Hatch, have already done.
    Ms. Sturm, I would like to ask a question about what you 
see in terms of the increasing trend of trading partners using 
non-tariff barriers as a way to block access to markets and 
unfairly block the flow of trade. What are the emerging trade 
barriers for IT goods and services?
    We see a lot of those when we talk about agricultural 
exports, and that is something that I am a little bit more 
familiar with. But what areas, when it comes to the goods and 
services that a company like yours exports, what types of non-
tariff barriers do you run into?
    Ms. Sturm. Thank you, Senator. What we see is preferential 
focus, and Mr. Ezell discussed the PMA in India, where 
governments are attempting to set preferential standards for 
locally developed technologies. Then those are implemented to 
the exclusion of other technology that may in fact be better, 
and this can limit the ability to bring leading-edge product to 
market.
    Also, as Mr. Ezell pointed out, because of the scale of 
operations that are required in our high fixed-cost businesses, 
in order for us to be successful we need to be able to sell our 
product in very high volume. As countries limit our access to 
those markets through discriminatory standards or even through 
technology mandates, it reduces our ability to be competitive 
with our products, both from a cost standpoint as well as an 
access standpoint.
    Senator Thune. Mr. Kimber, there is a perception that 
exporting is generally something done only by multinational 
companies, and your company has 29 employees, yet you export 
the majority of what you manufacture to nearly 60 countries 
around the world, I understand.
    So what particular challenges does a smaller company like 
yours face in becoming an exporter, and is there anything that 
Congress can do to make that process easier?
    Mr. Kimber. Well, the trade agreements, so that the tariffs 
are equalized and intellectual property rights are protected, 
are really key. For instance, we had a case where we had a 
serious inquiry from Vietnam years ago, and, because we sell 
parts to our own competitors, what they did not realize was, 
when they called in to one of our divisions to buy our own 
brand-name printed-on parts that they wanted to buy from us to 
put on counterfeit goods, that they were busted.
    So, if we would have had a trade agreement with Vietnam at 
the time, I think that we would have stood a much better chance 
of being in that country legitimately, and so it has kind of a 
follow-on.
    If I could draw a parallel between the type of development 
and research that we do, along with bringing an actual product 
to market, with the legislative product, it has to be the same 
way. If we design and just continue to re-design and re-design 
and never bring a product to market, then we do not ever know 
what we are doing, and we will get eaten alive by our 
competitors. So, I think that that is a fair analogy between 
development of legislative agreements and development of actual 
technology and products.
    Senator Thune. In your estimation, is this problem of 
counterfeit goods getting better or worse?
    Mr. Kimber. It is getting worse. We pay a lot of money to 
counsel just to take care of eBay. It is just like Whac-A-Mole. 
We can identify and we can figure it out, but it is tough. It 
is not just that they are competing with a product that mimics 
our technology; they are actually using our own brand name and 
our own trade dress.
    Senator Thune. Are there additional steps you think that we 
ought to be taking?
    Mr. Kimber. Yes. I think Senator Hatch's bill, where it 
requires, say, Border Patrol, the Customs people, to actually, 
if there is a product coming into the States that says Kimber 
Kable on it, contact us and say, we do not think this is yours, 
because we think that all of your product is made in the U.S. 
So we can put a stop to that right there. If we can impede 
that, it means we discourage it. If you discourage bad behavior 
long enough, hopefully it goes away.
    Senator Thune. Yes.
    Mr. Chairman, my time has expired. Thank you. Thank you all 
very much.
    The Chairman. Thank you, Senator Thune.
    We have been joined by Senator Cardin. He is always ready 
to swing into action. Let us recognize him at this time.
    Senator Cardin. Well, Mr. Chairman, thank you. I want to 
thank our witnesses. I apologize for not being here for the 
full hearing. We had a Foreign Relations Committee meeting on 
the border issues. But I am extremely interested in this 
subject. I have been doing in Maryland what I call ``Made in 
Maryland'' tours and have really seen the innovation and 
creativity of manufacturing in our State.
    I usually ask the people there what we can do to try to 
help. It is interesting. International trade comes up 
frequently, and I am talking about, as Senator Thune was 
mentioning, smaller companies. This past week I went to the 
Tulkoff company, which is the largest horseradish producer in 
the United States. It does not have much penetration outside 
the United States. Part of that is the type of products they 
manufacture, but part of it is the difficulty of a small 
company dealing with market access outside of the United 
States.
    It seems to me that we have made a huge error in 
manufacturing in that we have sort of adopted the World Trade 
Organization's tax regime, which allows for consumption taxes 
to be border-
adjusted, whereas we rely more on income taxes, which are not 
border-adjusted. When we tried to correct that, we got into 
trouble with the WTO, and the manufacturing credit has not 
really solved the problem.
    So can you just share with me your thoughts on what would 
be the most important steps for us to take to try to help 
market access to smaller companies in manufacturing that 
produce products? What would be on top of your wish list if we 
could make certain changes to gain greater access for our 
companies in the international market? What is number-one on 
your list? What would you like to see? Don't be bashful--go. 
Mr. Ezell, why don't you start?
    Mr. Ezell. Well, of course I would say that market access, 
expanding free trade agreements that can do a better job of 
opening global markets to our exporters, would be the first 
thing. But getting down to a more detailed and technical level, 
I think one thing that would really help is, I mentioned 
earlier our Manufacturing Extension Partnership, which is a 
program that helps our manufacturers innovate and adopt modern 
manufacturing processes.
    But when you compare how that program operates in most 
other countries of the world, like Britain's Manufacturing and 
Advisory Service, they have an export orientation to that 
program where they are helping those small manufacturers 
understand needs and tastes in foreign markets, so they are 
helping them tailor their products and services to the taste of 
a global economy.
    I think we can look at having MEP most certainly bolster 
the export potential of our small firms, and also have our 
embassies around the world be more attuned to the export 
capacity of our small manufacturers and make that a greater 
part of the trade portfolio at the embassy level.
    Senator Cardin. There have been some success stories in my 
State. Marlin Steel, which is a small steel manufacturer, 
exports a lot more than--I mean, the export market is huge for 
them even though they are a small specialty steel operation. So 
it has worked. I am not trying to say it cannot.
    But it seems to me it is challenging for small 
manufacturers to take the risk of needing market share outside 
of the United States in order to be able to be successful. It 
seems to me that most of the initiatives that you are talking 
about are aimed more towards the larger manufacturers.
    Mr. Ezell. Well, for example, the Manufacturing Extension 
Partnership is designed specifically for companies of less than 
500 
employees, so it is specifically targeted to SMEs. So, I think 
it could have an incremental impact, because the first order of 
business in getting to exports is that our manufacturers 
innovate next-generation products. So, I think it would play an 
important role.
    Another point to elaborate on, one Mr. Kimber made earlier, 
is that small businesses are often subject to foreign firms 
counterfeiting or exploiting their intellectual property, and 
they clearly do not have the resources to contest those unfair 
trade practices, so we really do need to increase funding for 
agencies like the Interagency Trade Enforcement Committee, 
ITEC. The Senate legislation has called for $12 million in 
funding for this agency in 2015, the House only $7 million. We 
have to adequately resource these agencies.
    Senator Cardin. I agree completely. Also, we should have 
quality trade agreements that give us a better chance for 
manufacturing, quality trade agreements that have strong 
enforcement provisions for anti-competitive manufacturing 
practices in other countries, which we have been somewhat weak 
about.
    Mr. Kimber. Yes. Let me brag about a fellow CEA member. 
MiTek manufactures speakers in Ennis, TX. They have about 150 
employees there. They also manufacture in Kentucky and Phoenix 
with about 100 employees each. They recently outfitted the 
Shanghai airport and the Shenzhen ferry station with U.S.-made 
paging systems, even in the face of a 40-percent tariff.
    Can you imagine how good those products are to overcome 
that kind of price barrier? Imagine how much more innovation 
and how much more sales we would get if that trade tariff was 
even-handed on both sides. So it is important. We are 
overcoming it, and we can see how the technology can do it, but 
it is----
    Senator Cardin. Well, I agree with you. My time has 
expired, but let me just point out that in TPP one of the major 
issues is whether we really will get a level playing field on 
government procurement and state-owned enterprises, 
particularly in the developing countries that are aspirants in 
TPP.
    So I agree with you on your trade, but there have to be 
quality agreements. The trade regime has been more skewed 
towards Europe and Asia from the point of view of their 
practices than it has through the United States, particularly 
on taxes but also on intellectual property. I look forward to 
working with you.
    Thank you, Mr. Chairman.
    Mr. Kimber. Thank you, Senator.
    The Chairman. Senator Cardin, well said. The ultimate 
compliment, I think, is Senator Hatch's, because he wanted me 
to mention specifically that he very much wanted to be here for 
your questions, and apparently he was called away by a 
scheduleing conflict. So as usual, you have made points that 
resonate here in a bipartisan way.
    Senator Cardin. Can I get a transcript of the exchange and 
give it to Senator Hatch?
    The Chairman. Yes. I will make sure that that is available. 
I thank you for those valuable points. You know we are going to 
work very closely with you and your office on these questions 
in the context of these trade agreements.
    The second thing I want to do, Mr. Kimber, is, I am very 
glad that now, on several occasions, you mentioned how 
important it is for the Congress to require the Customs agents 
to take the steps necessary to identify counterfeit goods. As 
you know, this is a problem around the country, but it is a 
big, big problem, as Ms. Sturm knows, in the Pacific Northwest. 
We are talking about fake computer chips, we are talking about 
fake Nikes, we are taking about all manner of fakes. So I am 
very glad that you have made that point. It is one that Senator 
Hatch and I will be following up on in a bipartisan way.
    I have one last question that somehow we managed to not get 
at, and I think it would be good for you, Mr. Ezell, and any of 
you, if you choose, can comment on it.
    Mr. Ezell, you in effect tried to kind of take us through 
some lessons to be learned from successful exporting 
industries. You really cited several that you felt were winning 
in global markets. Electronics, aerospace, pharmaceuticals, I 
think, were three that you cited.
    Almost as a wrap-up and the fact that you all have done a 
lot of research, are there some broader policy lessons to be 
learned from the fact that there are some sectors that are 
doing well, some comments you can give about why they are doing 
well and perhaps policies that would allow us to get more 
sectors into what I call the winner's circle?
    Mr. Ezell. I think today's most innovative companies 
recognize that there has been a globalization of both 
innovation production and innovation consumption. That means 
that these companies tap into global markets to find best-of-
breed suppliers and partners, and they have the ability to 
export their finished products at scale to the entire world.
    Another key point is that they embrace modern concepts of 
open and collaborative innovation. If you look at Proctor and 
Gamble, it gets 50 percent of its ideas for new products 
outside the company and beyond the shores. But you cannot have 
open innovation without open trade. This increasingly 
pernicious use of localization barriers to trade, which are 
both affecting manufacturing and digital markets, is a huge 
problem.
    Indonesia and Vietnam, for example, recently announced 
localization barriers to digital trade that will require 
Internet companies to use local data centers in the provision 
of digital services. But, when you start to shut down cross-
border data flows with these types of local data storage or 
local IT facility use requirements, then you are disrupting the 
global production and value chains on which modern innovation 
relies.
    So, from a trade policy perspective, I think we need to 
ensure that our companies both have access to suppliers and 
partners across the world in modern global value chains and 
then also the ability to innovate their products on a global 
basis.
    The Chairman. Thank all three of you. I am just going to 
send you off with one comment. I think you have reinforced 
again why those who are hanging crepe over the American 
manufacturing sector are just wrong. I talked, I think a couple 
of hours ago, about the American brand. It is really now, based 
on your testimony, the American manufacturing brand. We have a 
brand in the manufacturing sector that the world is interested 
in.
    What I am taking away from your testimony today is that the 
two areas that we have really, I think, come back to again 
repeatedly--one of them is trade and one of them is tax--are 
both areas under the jurisdiction of the Finance Committee.
    In effect, our big challenge is that policies in both of 
these areas really have not kept up with the times. You look, 
for example, at the tax issue. I have 9 years of sweat equity 
into the only bipartisan Federal income tax reform bills that 
have been put in front of the Senate in several decades. When 
you look at the 1986 tax reform debate, the global economy was 
hugely different in 1986.
    Now it plays a much bigger role. And that is why it is so 
important in this set of hearings that we are really starting 
on Tuesday--where we will look at the global economy, where we 
will look at inversions--that we do it in a bipartisan way, 
that we recognize that, as I would describe it, we have a big 
job in the sense of playing catch-up ball so that the good work 
that you are doing, the innovation that you all are producing 
on your factory floors and in the areas that we have talked 
about, are not held back by policies in the tax area that are 
out of date.
    On the trade issue, I often tell my colleagues--and lots of 
them were not even around for the TPA vote in 2002, which I 
supported--the times are very different. I remember as a young 
member of the House, having a full head of hair and rugged good 
looks back then--yes, Mr. Kimber--the President had the ex-
Presidents to the White House. He talked for 45 minutes without 
notes, really kind of laying out what was then the challenge of 
exporting and getting American goods and services into global 
markets.
    The digital economy was not a big factor in those early 
debates in the Clinton days. Now Senator Thune and I have a 
bipartisan piece of legislation to kind of update what we are 
doing on an issue that really was not even on the radar back 
then during those first years when President Clinton was 
inspiring a lot of us to really look to the future and figure 
out how to address it.
    Now, as you have heard from my colleagues, I thought 
Senator Brown and Senator Cardin made some very important 
points about areas where we need, on a bipartisan basis, to 
update our trade laws. I just so appreciate the three of you. 
You have given us very helpful and thoughtful comments today, 
ones that I think we can pick up in this committee, 
particularly on the trade issue but also on the tax issue, in a 
bipartisan way. You can expect that we will be calling on you 
all often.
    With that, the Finance Committee is adjourned.
    [Whereupon, at 11:36 a.m., the hearing was concluded.]
                            A P P E N D I X

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