Hearing of the House Energy and Commerce Committee

HEADLINE: HEARING OF THE HOUSE ENERGY AND COMMERCE COMMITTEE

SUBJECT: THE STATE OF U.S. INDUSTRY

CHAIRED BY: REPRESENTATIVE JOE BARTON (R-TX)

WITNESSES: DONALD EVANS, SECRETARY, DEPARTMENT OF COMMERCE

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REP. BARTON: Wait a minute, I think Mr. Brown too -- he's ahead of you, he's senior. The gentleman from Ohio is recognized.

REP. STRICKLAND: I'll defer to my Ohio colleague.

REP. BARTON: Yeah, Mr. Brown of Ohio is recognized for three minutes.

REP. SHERROD BROWN (D-OH): I thank you, Mr. Chairman. Thank you for having this hearing.

Secretary Evans, thank you for being here. We know the numbers: one in six manufacturing jobs in my state has been lost since President Bush took office; 168,000 manufacturing jobs in my state have been lost; 300,000 Ohioans are unemployed today. That's 2,000 people have lost their jobs every week of the Bush administration; 260 people have lost their jobs every day since George Bush took office in Ohio alone.

What puzzles Ohioans, that the Bush administration actually seems to be hurting not helping American manufacturing and working Americans, in large part because the president's answer to every bad case and bad piece of economic news is the same: more tax cuts for the wealthiest Americans with the hope that some of those benefits will trickle down and create jobs and help someone else, and more trade agreements that hemorrhage jobs, that ship jobs overseas. I would hope today, Mr. Secretary, that we could hear from you some words of support for the Crane-Rangel bill legislation that actually rewards American manufacturing for keeping -- American manufacturers for keeping their jobs in this state. So many Republican members have cosponsored this bill. It's the White House and Republican leadership that have refused to allow the Crane-Rangel bill to come to the House floor.

I got a letter yesterday from a man named David Grombose (ph) who lost his steel industry job midway through the Bush administration. He's had decades of factory experience, skills that include a degree in computer management. He's been out of work for a year-and-a-half.

He's long since exhausted his unemployment benefits. He writes, quote, "It isn't easy on the unemployment line. Hope is waning and despair is close to setting in. I've almost given up. But that's not my nature. I've worked hard all my life. I started at age 13 delivering newspapers at 4:00 am. I really don't know what to do next."

Mr. Chairman, I have a stack of letters from others in my district saying essentially the same thing: frustrated that they can't find jobs, angry that their unemployment benefits have not been extended. Some 900,000 Americans are in that position. I would like to ask unanimous consent, Mr. Chairman, to enter these into the record if I could.

REP. BARTON: Excuse me just a sec. Excuse me, could you repeat --

REP. BROWN: I would like to ask unanimous consent to enter these letters into the record, Mr. Chairman.

REP. BARTON: Do we know what -- have the majority staff seen the letters?

REP. BROWN: I don't know if -- they're simply --

REP. BARTON: Will you let us look at them? I'm sure that during the hearing we will.

REP. BROWN: Okay, I appreciate that. Mr. Chair, Mr. Grombose and the 2.8 million other Americans like him deserve better from this administration, from this Congress. But we'd better hurry up. During the time I've been talking, three more American manufacturing jobs have disappeared. I yield back my time.

REP. BARTON: The gentleman from Florida, Mr. Stearns, one of our distinguished subcommittee chairmen, wishes to make a three opening statement.

REP. CLIFF STEARNS (R-FL): Thank you, Mr. Chairman. I won't be long, and I just obviously ask unanimous consent that my entire statement be part of the record. But I want --

REP. BARTON: Without objection, so ordered.

REP. STEARNS: I want to welcome the secretary. But I would like to raise one point with the administration. I'm concerned about the privacy implications of outsourcing. Jobs involving access to sensitive information are being outsourced, including financial services, medical examinations and tax preparation.

I'm concerned that sensitive financial, medical and other personal information will not receive the same type of protection that it does when work with the information is done in the United States. I understand the companies are subject to the same U.S. privacy laws whether they are processing the information in the U.S. or in India, but I want to know that the administration are doing all they can to ensure the privacy and security of that information. And I hope, Mr. Secretary, perhaps you'll address that.

Thank you, Mr. Chairman.

REP. BARTON: We thank the gentleman. We want to point out that members that don't make opening statements do get an additional three minutes in the questioning. I just thought I'd mention that again. The gentleman from Michigan, Mr. Stupak, is recognized I assume for a three minute opening statement.

REP. BART STUPAK (D-MI): No, Mr. Chairman, I'll waive my three minutes. I just want to make sure that our opening statements will be made part of the record?

REP. BARTON: All opening statements will be made part of the record.

REP. STUPAK: Then I'll waive my three minutes.

REP. BARTON: Well bless you. That's a good example.

Mr. Green, are you going to waive your opening statement?

REP. GENE GREEN (D-TX): No, Mr. Chairman. I appreciate our secretary --

(Cross talk.)

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REP. BARTON: Thank you. And I'd like to recognize Mr. Brown. I think you had an opening statement, so five minutes.

REP. BROWN: Yeah, and I will probably go less than that. Thank you, Mr. Chairman.

Mr. Secretary, about three weeks ago I was asked to speak to the Akron area machine shop owners and operators. About 60 men and women who own small machine shops showed up. Right before I spoke a gentleman walked up and he had put this pile of brochures, leaflets, auction notices on my table. And I'd just like to share -- I didn't know what they were at first. I'd like to share them with you.

The first one from Chicago, "High tech manufacturing plant closing." This is a newsletter, an auction leaflet on a fire sale, on a going out of business sale. From Pittsburgh, "Plant close, everything sells." From Mansfield, Ohio, "Two complete stamping and machine tool shops being dismantled and sold." From Charlotte, North Carolina, "Plant closing, everything must sell." From Marion, Ohio, "Complete shop close out auction." From Cuyahoga Falls in my district, Ohio, "Absolute auction." From Scottsboro, Alabama, "Precision C&C (ph) shop, jobs shop, downsizing because of outsourcing."

He said this is one month of these -- that these shops are getting it. Now, these shop owners, overwhelmingly Republican, overwhelming voted for George Bush they told me, they don't think you get it. They don't think you understand that there are tens of thousands of people who have lost their jobs in many -- in these shops alone in tens of thousands, maybe hundreds of thousands of people that believe that they're going to lose their jobs due to trade policy, due to outsourcing, due to the fact that you can't appoint -- you haven't appointed a manufacturing job czar, even though the president announced it in my district on Labor Day, in Richfield, Ohio.

Now, my question is why not support Crane-Rangel? Crane-Rangel has the endorsement of the Manufacturing Association of America, it has the National Association of Manufacturing, it has the endorsement of the AFL-CIO, it's got 170 bipartisan cosponsors, roughly half and half. Please tell the president to support Crane-Rangel. Why is he not supporting it?

MR. EVANS: Well, the president has laid out his economic jobs and growth agenda and he's been very clear about what the elements of it are. We believe that if we pursue that agenda we'll continue to create the conditions for a growing --

REP. BROWN: But the government's plan, Mr. Secretary, is to give incentives to all kinds of companies, equally giving those incentives -- in fact, giving more incentives to bigger companies than smaller companies in not rewarding U.S. production. Crane-Rangel says if you do 70 percent of your production in the U.S. you get 70 percent of the tax break. If you do 100 percent you get 100 percent. If you do 10 percent you only get 10 percent. What is wrong with that concept to help these job shop owners all over the country that are seeing their shops close?

MR. EVANS: Well, let me say, Congressman, that I think again the economy is strong and getting stronger. If you look at the manufacturing indicators over the last four or five months, they are powerful numbers. The ISM index has been up over 60 percent, over 60, for the last five or six months, which is a very powerful number. I just got back from a meeting with the National Association of Manufacturers. They're all telling me that they haven't seen their order books so full, so strong, so powerful --

REP. BROWN: Different manufacturers from the ones that I'm seeing. Let me ask one more real brief question. The Jordan Free Trade Agreement had strong environmental and worker protection provisions supported unanimously by the House. Tom Donohue, president of the Chamber of Commerce, said trade promotion authority should be unencumbered by requirements to advance labor, environmental or other social agenda objectives. Two weeks ago Ambassador Zoellick said because of Jordan FTA, trade between the U.S. and Jordan has nearly tripled in only three years. Who's right, Ambassador Zoellick saying Jordan is working with environmental and labor standards, or Chamber of Commerce president Tom Donohue who says they're bad?

MR. EVANS: Well, I didn't see -- I haven't looked at the context of what Tom Donohue was saying. The agreement with Jordan is working well. We're continuing to see trade with them increase and --

REP. BROWN: I hope then that you could advocate a similar kind of agreement with CAFTA and with FTAA with labor and environmental standards as strong as Jordan so that we really could see that economic growth coming out of those Latin American countries.

I yield back and I thank the chairman.

MR. EVANS: Thank you, Congressman.

REP. JOHN SHIMKUS (R-IL): Thank you, and the gentleman yields back.

And, Mr. Secretary, I always try to --

REP. BROWN: Mr. Chairman, I have 45 seconds left, so Mr. Stupak just wanted to make sure that his questions were in the record, if I could get unanimous consent for that. Okay, and I don't know if he can come back, but he would like that in the record if he doesn't.

REP. SHIMKUS: No objection? Hearing none, so ordered.

Again, it's great to have you here and I think you brought up a lot of great points. Obviously we're at a theatrical point in the year where we're going to have a lot of accusations flying back and forth, but you can't really dispute kind of some real numbers. The 5.6 unemployment rate is as low as we've seen in years. When I mention the numbers, that we've got more people employed in this country than in the history of the country, people really don't believe me. We do have a perception issue out there and when I taught high school psychology, perception turns into reality for a lot of people. And it may not be that the individuals' jobs are lost, but they fear their neighbors' jobs, or they fear someone else's job loss.

So you did in your testimony talk about some great -- some progress being made, although it's never enough. When I talk about this, and we mentioned this yesterday, 21,000 new jobs last month -- well, it's not 125,000 new jobs but it is 21,000 new jobs, and those 21,000 people who have jobs now are better off because -- and that's better than no job increase and that's better than job decreases. So we've got to keep this in perspective. Tell me how the -- with the focus on small business, the reducing of tax rates for individuals, how that helps small businesses?

MR. EVANS: Well, Congressman, as you know no doubt, small businesses create 70 to 75 percent of the new jobs in America. And when you cut the highest marginal rate, about 80 percent of that savings goes to -- 70 or 80 percent goes to small business owners in America, the real job creators of this economy. And so that's how, by lowering rates -- you see, there are some 23 million small businesses all across America that pay their taxes through their individual tax return. And so as you lower those taxes that means that they have more money to hire people and grow their businesses.

REP. SHIMKUS: Isn't it because they're not incorporated, they're a sole proprietorship, so --

MR. EVANS: Sole proprietorships or Subchapter S or, you know, partnerships. That's correct. And that's lost in this debate. It gets lost in the debate. There's always the discussion of it's a tax cut for the rich. Well, you know, these people they're talking to are small business owners that are responsible for hundreds of thousands, millions of workers in our economy, responsible for their livelihood, for their families, have great responsibilities that are paying their taxes through their individual tax return and not as a C corporation, as a corporation paying the corporate tax rate.

REP. SHIMKUS: Thank you. I know that there's tremendous focus on manufacturing. I talk about it in my district all the time. I have a list of, you know, 500 manufacturers in southern Illinois. People do not believe that we have 500 manufacturing facilities. It's easy for the public to see when a factory closes because it puts a chain, they close the gate and it's empty.

I always talk about if a manufacturing company in my district exports 10 percent of their product, then you could actually say that 10 percent of the workforce is attributed to foreign trade. So whether it's a tire company or an oil filter, air filter that are all in my district, or a paper product that may go overseas. The overseas part of the trade is a job employment aspect in the manufacturing that is remaining in this country. Talk about the importance of the overseas market to our country today.

MR. EVANS: Well, the overseas market -- the export sector of our economy was responsible for about 25 percent of the growth in the 1990s; 25 percent of the economy growth. Those individuals across America, American workers that work for companies that export, make about 10 million employees directly. But, you know, there are a lot more that are connected to it. Take the export of a tractor from the United States to some other country. I know that when you export a tractor -- a Case New Holland tractor for example. When you export a Case New --

REP. SHIMKUS: Of the John Deere folks in Illinois.

MR. EVANS: Let me take John Deere. John Deere or Case New Holland, they're both about the same. And when that tractor leaves America there are about 250 parts on it that were manufactured and made some place else. Not inside the plant itself, but suppliers to that John Deere or Case New Holland or Caterpillar, or whoever it might be. And those jobs get lost in some of these analyses and some of the calculation.

And so when I say that there are 10 million jobs directly that you can tie to exports and our economy, I'm exported there are many, many, many more out there. There's the suppliers that are supplying these exporters. So that's -- you know, it's a critical part of our growing economy and, as I say, it is the reason that we saw our economy grow. It was 25 percent of the growth in the 1990s.

REP. SHIMKUS: And trade negotiations for me is tariffs, tariffs, tariffs and it's additional cost of doing service if you want to get into that country. Tractors are a perfect example of how we -- if we want to sell a John Deere tractor to Chile, we actually sell it through Canada. Canada has a free trade agreement with Chile, so these are sold through a Canadian firm to Chile instead of our ability to have direct access to that market because we don't really have a level playing field on the -- or negotiations for a reduction in tariffs.

I also want to have the chance -- Grant Aldonas, who works for you, I've had a lot of relationships on that with the steel issue, on the trade debate. I just want to give you a lot of kudos. I think he does a great job and he's become a good friend and he's working in the trenches.

The last question has to deal with productivity. When my 500 manufacturing firms -- when they want to stay in this country and they want to compete and affect how they can still produce, because of our high taxes, our high litigious society, all the other costs, they automate and they become more productive. Can you talk about the productivity debate that's falling in our country; whether that's good or that's bad? It's good because it keeps my companies in southern Illinois if they become more productive.

MR. EVANS: Well, first of all I think that productivity growth in this economy has been remarkable in the last several years. And those that deserve the credit are the workers on the plant floors and the factory floors, the people that have their hands on it, touching it every day, that are coming up with the innovative ideas to increase the productivity of America. Over the last two years productivity growth in America has grown at the fastest pace that it has in 40 years, which is absolutely remarkable. And, you know, that has been a challenge, though, of course in the short term as to job creation.

But productivity growth is healthy for this economy. It means a higher standard of living for the American people. It means more capital to invest in the years ahead, which will in turn mean more jobs in the years ahead. But in the short term, in terms of job creation, yes, it does create a challenge. But as we work through this ongoing recovery and strengthening recovery, no doubt productivity numbers will begin to come down some and we will see job growth in this economy. But it's quite remarkable. I mean, again, we're the envy of the world to have the kind of productivity numbers that we have.

REP. SHIMKUS: I'm going to recognize the gentleman from Georgia, Mr. Norwood, for eight minutes or such part of that as he may consume.

REP. CHARLIE NORWOOD (R-GA): I'll probably need it all. Thank you, Mr. Chairman.

And, Mr. Secretary, I'm delighted you're here.

MR. EVANS: Thank you, sir.

REP. NORWOOD: I can easily associate myself with the chairman's remarks. I think you have been a very good secretary. The biggest problem I see is that you aren't running USTR also. If we could have you do both, I think the country would be better off. I'm going to go through a statement here and there are some questions built into it, because of time limitation. But I'm very anxious about all of those questions and I'll ask you to verbally answer as many you can and those we can't in writing.

Mr. Chairman, I'm delighted that you're having this hearing today to focus this committee on the state of our country's manufacturing industry. Many of our great manufacturers have roots in Georgia and I'm proud to represent them.

I have taken time to sift through the Commerce Department's strategic plan to promote U.S. trade and industry, and I have to tell you for the most part I'm very pleased with your suggestions. But I also have some concerns that I'd like to have us address. Your report expressed a need to enforce trade agreements and combat unfair trade practices. I believe you mean that. I know you mean that because you've told me so, and I couldn't agree with you more. But having said that, I'm pretty disappointed with the lack of action on the number of unfair practices.

For starters, there's this problem with China manipulating their currency, and I'd like for you to address that at some point. The undervalued yuan has contributed to our trade deficit with China, as you know. It has risen from $30 billion in 1994 to an estimated $126 billion in 2003. It has hurt U.S. production and employment in several U.S. manufacturing sectors, particularly Texas, and for those who are forced to compete domestically and internationally against artificially low cost goods from China. At some point I'd like for you to explain to me or tell me if we're going to take any action on this issue in 2004.

Secondly, strengthening the U.S. patent system is also important in holding our trade partners to the same laws is vital for some of our industries to grow. One case where that is not happening and could prove to be devastating to my home state if it's not fixed is with the rug and carpet industry. Again, one of our great industries in Georgia with strong roots. The U.S. carpet industry produces 45 percent of the world's carpet and is a $12 billion per year presence at the mill level.

The mills produce in this country about two billion square yards of carpet annually in 230 plants, Mr. Chairman, located in 21 states, and a workforce in excess of 70,000 people. In Georgia 80 percent of the domestic industry is located within 65 miles of one little town. Now, despite these robust numbers and significant economic input, the carpet and rug industry faces tremendous challenges from abroad, particularly China.

By far the most immediate problem facing us across the country is the theft of intellectual property rights, primarily -- well, India too. China and India. One of my questions is, can we expect action to be taken on this in 2004? Mr. Secretary, all of us from Georgia are sending you a letter very soon asking you, in conjunction with the U.S. trade representative, to give a renewed priority to intellectual property theft in the context of the upcoming Doha trade round. And I might mention at this point the last time we had a Doha trade round, we wrote the U.S. trade representative a letter which not only did they not even consider what we wanted them to do, they did the absolute opposite thing in nonreciprocal agreements, which is what Mr. Dingell is talking about.

If we're going to get all tariffs to zero in this country, then let's have reciprocal agreements for these people around the country.

It doesn't do any good for us to lower -- for example, lower tariffs on small trucks to zero when we let other countries keep their tariffs on it. I don't understand that, I'm not smart enough to. But I do know that the trade representative went right to Doha two or three years ago and signed a nonreciprocal trade agreement, which I just can't catch on with that. Maybe you'll enlighten me.

I have also great concerns about outsourcing, and I've been worried about that before 60 Minutes had their little report. I'd like to hear from you a little bit about that. And I'd like to start then for your answers with this question. I noticed in the Wall Street Journal today Walter Riston had an article in there that said the balance of jobs we import from abroad greatly exceeds the jobs we export from abroad. The balance of jobs we -- okay, true or false?

MR. EVANS: Well, you know, I don't think we know the absolute answer to that, Congressman. And let me -- but I want to talk to that very important point.

REP. NORWOOD: Good.

MR. EVANS: First let me talk about unfair trade practices and enforcement and getting other people to -- because we ought to be able to look our American workers in the eye and tell them, you're on a level playing field. We're all playing by the same rules. It's not any more complicated to me than that. And I must admit to you that having been secretary of Commerce now, and an honor to serve this president and this country for three years or so, I go around the world and we have nice bilateral discussions and they're interesting discussions.

But I'm more -- I'm from the private sector and I want results. I don't want to have a lot of interesting discussions, I want results. I expect when we go talk to other countries and we point out deficiencies in their enforcement, we point out deficiencies in their practices that are creating this unlevel playing field, there's action and there's not just a lot of talk about it. And that is one of the outcomes of the manufacturers' report.

We have two areas. One is we have established what we call the Unfair Trade Practices Task Force, and this task force has the charge to look at other countries around the world and try and identify the unfair trade practices, and not sit and wait for industry necessarily to come to us. For example, we're going to monitor 30 products that are coming in from China to see if there's any signals that those send to us that -- or are a red flag that we ought to look into further that identify unfair trade practices.

REP. NORWOOD: Mr. Secretary, that's why I bragged on you. I know you're doing that. But the truth is they're breaking the rules out there faster than you can catch them.

MR. EVANS: Well, I know it. And let me tell you about the other unit. The other unit we're putting in place is called the Unit of Investigation and Compliance. The lacking area, as I have seen it, has been in investigation. We go over there and we can talk about it, but you've got to go put the case on the table in front of them and show it to them and say, look -- what we've done before is we will go to retail outlets and I'll find -- here's, you know, a CD that they sell for $20 over there. In America it's $4,000. Well, what you've got to do is you've got to go over there and build the case for them. Here's where they're being manufactured, here's the truck that's carrying them to this store.

And so we are in the process of hiring investigators that will put together the case that you can put on the table in front of them and tell them, "You have to fix this." And so instead of just a lot of, you know, nice conversations about kind of trade policy and you need to enforce your laws, we're going to be much more aggressive in terms of investigation and showing the facts to them: "Here's the case, now go take care of it." So those are two areas that we're going to be pursuing very hard.

In terms of outsourcing what I would say to you is one other area within the manufacturing report is a unit called the Unit of Industrial Analysis. And the idea is to have a place where you can go and develop good data, good information where you know what the facts are. There's a lot of numbers being tossed around about outsourcing: how big is it, how small is it? You know, nobody knows for sure. There are a lot of forecasts what it might mean, it's scaring people, it's concerning people.

Here's what I do know: I do know that foreign companies now in America employ directly about 6.4 million. In your state they employ about 244,000. You've got -- in your state you've got Honda, you've got Mitsubishi, you've got Panasonic, you've got Pirelli Tires, you've got companies like that in your state that are employing workers in your state directly. That doesn't count the number of employees that actually support those companies. There is another however many that support them.

And the other thing I know is that we now have, with the rest of the world, a trade surplus in services. In other words, we are exporting more services to other countries than we're importing and that includes India and it includes China. And so I don't know what the exact number is. What I can tell you is, is that our export in services is about $250 billion. You could equate that to about 1.5 million jobs or so, and so there's a tremendous amount of jobs in the service sector of our economy that depend on exports. Are others going to export in to us? Yes, they are.

But I'm one that thinks that -- I don't know. I don't want to say on the record that I know that's true until I know what the facts are. But that's why we have this new unit of Industrial Analysis in place, industry analysis, and they're working on that very question. They're really trying to get to some good hard numbers as to whether or not there are more foreign companies employing workers here in America than we're outsourcing some place else.

REP. NORWOOD: Mr. Chairman, since nobody else is here, may I ask unanimous consent that he answer the other two questions that I proposed earlier?

REP. SHIMKUS: Just remember he's supposed to be gone 12:45, so we want to be respectful --

(Cross talk.)

MR. EVANS: Let me talk about reciprocal trade agreements because I agree with you, and that's the way we laid out the proposal to take on goods and services, to take it everybody goes to zero by the year 2015. We have made the commitment and I know certainly I made a commitment to the textile sector of our economy that when we entered into trade agreements, there would be reciprocal market access. We have one of the lowest tariffs levels of any country in the world, period, and it's time for the other countries to move toward us.

REP. NORWOOD: Well, there's no question in my mind, Mr. Secretary, you're saved. The problem is you're in that CRTA group and there are folks in there that aren't saved. They just simply do not believe -- you know, we're so busy trying to make a trade out there and trying to have a trade agreement that sometimes we make the trade even though it's not in our best interests, just to say we made a trade. And if you don't have reciprocal versus nonreciprocal agreements, we don't win. We just -- could you comment on the China manipulation of the yuan?

MR. EVANS: Yeah. Well, let me -- two things, I'll get to that in just a second. The other is Grant Aldonas, who we talked about, he is in China right now and he is with a group from the textile sector of our economy. So they're over there and they're focused on it and they're telling them, look, we're going to have a meeting in America in April and it's the JCTT. But don't -- you know, we're not really interested in meeting unless you're coming over here with some results. And so we're working on that.

Let me tell you that this whole -- in terms of currency, I leave that to the secretary of Treasury. I mean, that's his area of responsibility not mine. What I would say to you is this: that when I go over there and talk to the Chinese leadership, we encourage them to work toward the kinds of economic policies, fiscal policies, monetary policies, regulatory policies that work here in America, which are free market kinds of policies. Free flow of capital, markets make decisions. That's the kind of environment you create for long term economic growth in your country. And so certainly when I go there I talk very clearly about the importance of free market forces determining (price ?).

REP. NORWOOD: They're not listening to it all, though. They're still manipulating.

REP. SHIMKUS: The gentleman's time has more than expired. I want to be respectful of the secretary's time. I don't want to run back over to the floor because I have a big biannual Republican versus Democrat basketball game tonight and I have to save my strength to beat the Democrats.

So, Mr. Secretary, thank you for your time. We appreciate your candor and we look forward to working with you as we move the economy forward. And with that, I adjourn this hearing.