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Hearing of the House Small Business Committee - Impact of Pending Free Trade Agreements on U.S. Small Business Panel I

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Location: Washington, DC


Hearing of the House Small Business Committee - Impact of Pending Free Trade Agreements on U.S. Small Business Panel I

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REP. STEVE CHABOT (R-OH): Thank you, Madame Chairwoman, for holding this vital and timely hearing on the proposed free trade agreements and their impact on small businesses.

I want to welcome our distinguished panels of witnesses, including Ambassador Veroneau and Gary Ellerhorst, who we'll introduce, I think, on the next panel, who is a constituent of mind from Harrison, Ohio.

This committee's oversight jurisdiction encompasses problems of all types of small businesses. T his includes firms wanting to export, as well as those competing with imports. Today we will examine the proposed free trade agreements and hear the testimony of the deputy U.S. trade representative and a panel of distinguished witnesses from various sectors of the economy. I want to thank them for being with us and sharing their perspectives.

Free trade boosts our economy, eliminates worldwide barriers, and strengthens our global and regional ties with other nations. Trade also creates new opportunities for American workers and farmers and ranchers and business, including small businesses, which obviously is the focus of our hearing this morning.

September was America's 49th consecutive month of job creation, the longest uninterrupted period of job growth on record. And yesterday the Department of Commerce reported that the economy grew faster than expected in the third quarter, led in part by a surge in exports.

Greater exports translate into more and higher-paying jobs. In the United States, approximately 95 percent of all direct exporters are small businesses, and small firms account for roughly 29 percent of exports, totally $614 billion.

Trade benefits can be seen in every state. According to the Department of Commerce, over 10,000 companies exported from my home state of Ohio in 2005. Of those, 89 percent were small- and medium- size firms with less than 500 employees. Since the U.S.-Chile and U.S.-Singapore free trade agreements were implemented in 2004, Ohio's exports to Chile have grown by 55 percent, and exports to Singapore have risen by 99 percent.

But challenging barriers such as customs issues and high tariffs still exist. We in Congress must do all that we can to make it easier for small businesses to compete and to prosper in the global marketplace. Free trade agreements provide important protections, such as transparency and a stable legal trade framework for all businesses, large and small. The stability and transparency lead to exports, growing at twice the rate of -- to FTA partners than to countries where the U.S. has no agreement. The jobs supported by exports pay 13 (percent) to 18 percent more than those not supported by exports.

Today, Peru, Colombia, and Panama enjoy duty-free access to U.S. markets. Yet when U.S. goods are shipped to those markets, our products are tagged with significant tariffs. Free trade agreements with those countries will knock down many of these barriers and offer U.S. exporters, many of whom are small businesses, a chance to compete fairly.

Peru's economy, for example, is among the fastest growing in South America. So there are significant mutual benefits from the free trade agreement. Yet free trade agreements are not the sole magic elixir to increase exports by small businesses. Technical assistance from federal programs can help, if it reached small businesses. However, in our very tight budget environment, I'm skeptical about funding increases for federal programs.

So I look forward to hearing from our distinguished panel about innovative ways we can expand trading relationships and keep our small businesses competitive.

Again, I want to thank the chairwoman for holding this timely hearing and I thank the ambassador and the other witnesses for being with us today, and I think we all look forward to the testimony.

I yield back.

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REP. STEVE CHABOT (R-OH): Thank you very much, Madame Chair.

Mr. Ambassador, relative to the -- your goals in these free trade agreements, if -- correct me if I'm wrong. My understanding is essentially what you're trying to do is lower the tariffs on our goods going over to other countries so we can export more. And our tariffs have been traditionally lower, and therefore our interests are adversely affected by that lack of parity so-to-speak. So the idea with the trade agreements is to lower both, which should benefit both large businesses, medium businesses. Everybody should benefit from that is my understanding. And are there any natural, you know, adverse interests that small businesses and big businesses would have in this whole process -- or historically have they both benefited?

MR. VERONEAU: Well, I would say virtually all the time their interests are synonymous and our goals would equally serve both small and large businesses to the extent that we're eliminating tariffs. Different companies will -- depending on their capabilities -- will take advantage of that new market access, obviously. But I would submit that to the extent that a tariff is eliminated, or more importantly, a non-tariff barrier is eliminated or a sector -- telecommunications or insurance -- is opened up, I would submit that it is the small and medium-size enterprises that stand the most to gain, because they are less likely to have an army of lawyers and trade experts who can find their way around otherwise complex trade barriers.

REP. CHABOT: Okay, thank you.

And relative to free trade agreements, I think historically the goal was to do it on a broader basis. If you look at NAFTA, if you look at the African Free Trade, the Caribbean basin, you know Doha -- that whole idea was to lower -- and we've run into difficulties in that area so it seems like more and more we're having a country-to- country: U.S. with Panama, U.S. with Peru, South Korea, Colombia, et cetera -- Singapore or others that we've done in the past.

Does that seem to be the trend that's maybe politically the most realistic to anticipate in the future?

MR. VERONEAU: Well, we certainly would like to see trade liberalization occur on a global basis. The Doha negotiations, as you mentioned, have been going on for a while now. We're still hoping we can achieve success. And there happens to actually be a lot of activity right now on that front. But I think I would envision that there would continue to be, in addition to global efforts, more bilateral efforts. And I think Europe is clearly on this track, Canada is and others. And in Asia, there's been a proliferation of these bilateral trade agreements. So I would envision you're going to see a continuation of not only WTO global trade liberalization efforts but also these bilateral agreements for a number of reasons. Including, you can frankly do a lot more in a bilateral agreement. You can eliminate tariffs completely. You can open up sectors completely. You can assure higher protections of intellectual property in a bilateral agreement far more than you can in a global agreement where you have to get the consent of 150 WTO members.

REP. CHABOT: And it seems to me, just as one member of Congress who's been following this for the last 13 years since I've been here, it seems like just, unfortunately, the political realities of Congress are that it's going to be more and more challenging to get one that deals with the whole region and the United States as opposed to individual countries. It's just tougher and tougher unfortunately. I mean, I think we benefit from trade agreements, and I'd like to see them broader. But that just doesn't seem politically to be doable in Congress anytime in the near future. So it looks like you're going to see more and more of these country-to-country. Could you comment on Fast-Track which was the old name and now Trade Promotion Authority, and how important that is, you know, in actually accomplishing these trade agreements in a way that's favorable to the U.S.?

MR. VERONEAU: Right. The Fast-Track or, as we call it now, Trade Promotion Authority -- I think the best way to think of it is from the perspective of the negotiator. You're at the negotiating table, and you're negotiating with your counterpart. And ultimately, they're going to want to know, are you the ultimate authority? Is this the end of the negotiations? Can you deliver? Or are we going to get a deal here, and then it's going to come back to Congress to change the agreement and modify a series of provisions? As opposed to say, all right, in its totality, we think this is a good agreement or we think it's a bad agreement. I think there's a tremendous amount of power that you give a negotiator and a negotiator has to have in order to drive the best deal for U.S. interests. And without Fast-Track, without TPA, it's much more difficult to get that best value, best deal for the United States.

Our view has been and continues to be that every president of whatever party should have Fast-Track Trade Promotion Authority. It is just so essential to driving the best bargain for U.S. companies. I think they should always have it. It's unfortunate that it lapsed. It is our hope that we can reclaim and renew this authority so that, for the balance of this administration and for the next president, the next president should have this authority regardless of what party that president is from.

REP. CHABOT: Thank you. And before I yield back, I just want to make one point, just emphasize something that you said in your testimony, and that's relative to the free trade agreement with Colombia. This was, essentially, begun under the previous administration under President Clinton, and it's been carried on through the Bush administration. And I think it's very important to recognize that that country is critical to the interests of the United States in South America when one considers Chavez in Venezuela and others in that region who certainly don't have the interests of the United States in mind. I think we ought to be very careful to harm the relationship that we have with the government in Colombia right now, because they are really critical to U.S. interests.

And I would yield back my time. Thank you.

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