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


Location: Washington, DC

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


REP. CHABOT: Thank you, Madame Chairwoman.

I'm pleased to welcome a constituent of mine, Gary Ellerhorst, who's president and CEO of Crown Plastics Company, Inc., which is located in Harrison, Ohio, which is in my congressional district.

He happens, also, to be a graduate of one of the more distinguished high schools in our district, Elder High School, who happens to be playing my son's high school, St. X, in the state playoffs this week and one of the rivals in my high school as well. So football in Cincinnati is a big deal and we always talk about that back home.

But Crown was a co-founded in 1973 by Gary's father, Bob Ellerhorst. Gary began as a second-shift machine operator, worked his way up to sales manager and today he and three of his brothers manage the company, which now employs 52 people. Crown manufacturers plastics material resin and is the world leader in the manufacture of ultra-high molecular weight polyethylene, which is used in the manufacture of high-quality snowboards, and which line the bottom of four American Gold and Silver Medal winning snowboarders in the 2006 Winter Olympics. Gary is a two-term past president of the Main Street Harrison Downtown Revitalization Program.

And I want to thank him for adding his perspective to the hearing and I think we all look forward to his testimony.

Mr. Ellerhorst.

MR. ELLERHORST: Madame Chairwoman, Councilman Chabot and esteemed committee members, I would like to thank you for the honor of speaking with you this morning on the subject of small business and free trade agreements. Unlike many who come before you, I have no charts or graphs, no reams of data, no results of exhausted research. I am here with nothing but 30 years experience of working in, growing with and managing a small manufacturing business in the Midwestern region of the United States.

Like every other company in America we are challenged by the ever-changing landscape of the global market we find ourselves in. The acceleration of market changes for our company over the past five years, and the necessary adaptation that goes along with it, has exceeded that of our first 30 years in business. Explosions in technological advancement and the massive shift in manufacturing throughout the world has created the scenario where over 50 percent of what Crown Plastics now produces either involves the use of materials from outside the U.S. or is exported in the form of finished products or components. We currently export product to approximately 15 countries throughout North and Central America, Asia, Europe, the Middle East, as well as Australia and New Zealand.

Much of our growth in exports are in areas of the world that have developed through trade with the United States such as Mexico, Canada and China. We have found that open trade policies have not only encouraged economic cooperation to reduce costs and red tape, but that economic growth experienced by our international trade partners has also led to increased demand for additional U.S. products. In other words, investment in trade is investment in the American economy.

Crown Plastic's future strategy has part of its focus in Central, Latin and South America -- several of these countries, again, being currently considered for additional free trade agreements. Again, I am sure you have received data from both sides of the issue, but my experience tells me that enacting these proposed agreements will in the long term prove to economically, politically and socially beneficial.

As a parent and a CEO of a small business, I completely understand the natural tendency to want to help when we see an issue with things or people we care about. But I also see that in some cases we have tried so hard to protect our children from everything that they are now susceptible to everything. If we raised an animal in the protected environment of our homes and then later released it into the wild without the necessary developed skills and instincts needed to survive, our actions would rightly be admonished as cruelty. Why then do we insist on doing the same to our own businesses?

While artificial supports and protections are usually well intentioned, in the short-term reality they only benefit the small portion of the economic population they are designed to help, while actually creating additional difficulties for the rest. More importantly, in the long run they only serve to artificially prop up outdated, antiquated and inefficient policies and practices and provide a false sense of security and success to those they are intended to help. Meanwhile, the global marketplace continues to shift and grow around us. The end result, as we see with so many of these programs, is that a lifetime of continued addiction to such support is we are no longer to fend for ourselves in the wilds of the marketplace; or finally forced to deal with the realities of an open market, a massive investment of time and money to impose a greatly accelerated process of adjustment, which may or may not succeed. In either case, we are the weaker for it.

Businesses like everything else needs to constantly be able to adjust to the changing environment or risk extinction. Besides our competitors, we are in a constant battle with economic forces such as interest rates, energy costs, currency fluctuations, technological advances, health care costs and so on. On top of that we have national and international political issues, environmental issues and people issues. And when we finally think we have it all figured out, along comes 9/11 or Katrina or wildfires and we continue to survive and to succeed. Is it difficult? Absolutely. Is it painful sometimes? You bet. But what in life is not? And we in American have got to quit looking for the painless fix that does not exist.

When faced with a problem, we demand that somebody fix it, but just don't let the solution affect me; or we waste our efforts putting band-aids on symptoms and ignoring the disease -- the category in which artificial supports and trade restrictions fall. We have economic cancers that require chemotherapeutic treatment. During the process we will feel sick and our hair will fall out, but when we are past it we will be stronger and the alternative is far less desirable. The longer we waste time trying to avoid discomfort, the more intrusive and painful the cure becomes.

I understand that when it comes to free trade agreements like those being considered, many across the political spectrum have legitimate human rights, environmental and economic fair play concerns. But unlike some issues that require sanctions in trade barriers, most social economic issues are best addressed through economic engagement. Having a vested economic stake is the best way to ensure proactive cooperation and one need only to look at recent changes in China for proof. There are still many, many problems, but a whole host of issues are moving rapidly in the right direction.

But I suspect the biggest issue with protectionism is fear: fear of the future, fear of uncontrollable forces in the marketplace, fear of the unknown. Well, I am here to represent all those who are not afraid of the uncertainties of the global marketplace but rather revel in their opportunities. Why do we feel this way? Because we have two huge advantages over many of our foreign competitors. The first is us: me, those sitting at this table with me, and millions of men and women like us who have grown up with the American entrepreneurial competitive spirit etched into our very being. The second is you, all you honorable representatives working in a government based on a constitution which allows people like us to strive to be all we wish to be. Working together, there is not a country on earth that can compete with us.

Circling the wagons may at times seem like a good idea as it might help you to defend yourself, but the only thing it actually guarantees is that you either move in a circle or stop moving altogether.

But all this requires a third factor, and that is trust; a trust and faith and confidence in and between the people and the government, as well as in the global free market economy; a trust and understanding that as with nature and the U.S. Constitution, the free market system always works best when not tampered with, despite our best intentions. And with that trust and understanding, I guarantee you that we will not fail.

Again, as a mere small-businessman with no Ph.D. in economics, no studies or data or anything else to back me up except a nonpolitical common sense opinion, how can I be so sure? Simple: because I am an entrepreneur in the greatest country this world has ever known, and we, the American businessmen and women, will simply not allow ourselves to fail. I will grow Crown Plastics, I will be successful, and I will make bigger profits for myself and my family in the near future, and at that time I will be thrilled to come back to Washington to meet with you nice people once again and discuss the issue of how much of it you will allow me to keep.

Thank you again for allowing me the honor of addressing you here today.

REP. VELAZQUEZ: Thank you. Thank you very much, Mr. Ellerhorst.

Let me just say that I love real people, and it's really refreshing when we are able to bring people from our own districts to come here and talk to us about your own stories, definitely.

Mr. -- well, something that really brought my attention is the statement that you made about the best tool that we have to deal with human rights and environmental violations is through economic engagement. So that's why I support for this government to do commercial trade with Cuba. Would you support that?

MR. ELLERHORST: I believe that there are -- outside of the free trade, there are political and governmental decisions that are made by our government for what it deems to be the best interest of our national security. At that point, I feel we need to defer to our representatives to make those decisions. I would like to see free trade open with Cuba, but under the proper circumstances.

REP. : Madame Chair --

REP. VELAZQUEZ: Sure. Well, we did it with Vietnam.

REP. CHABOT: Would the gentlelady yield?

REP. VELAZQUEZ: Yes, sure.

REP. CHABOT: I'd just like to comment. That was a pretty impressive answer I think, Mr. Ellerhorst. (Laughter.)


REP. CHABOT: Thank you, Madame Chair.

Mr. Ellerhorst, I'll begin with you if I can.

I think you stated that about 40 percent of your business is export related. How important is trade to the bottom line and especially with respect to the number employees? I think you have about 52 right now.


REP. CHABOT: If you didn't have the export trade opportunities that you have now, because we were more protectionist or whatever, how would that impact your ability to hire more people? Is that one of the critical aspects of all this?

MR. ELLERHORST: Yes. We probably -- if we didn't export, we would be maybe half of the people currently that we have at this point. You know, it's kind of unique, because it didn't start as an export. That's the other thing. We create business here and then as that shifts within the marketplace, things that didn't use to export as companies move, then our businesses have to move with it.

So it is critical. And the free trade agreements, from the aspect of making things less -- I'm not as intelligent as the people sitting to my right when it comes to all the exportation and the issues involved. So the simpler it is for somebody like me, the more time I can spend on growing my business and less time on dealing with how I'm supposed to get this material out of the country. So exports right now are huge and I think in the next five years it'll even become more critical for us as a company.

REP. CHABOT: I imagine with the winning of the gold medals and the silver medals in the Olympics, that must have been kind of a -- your employees must have gotten a pretty big rush out that, I would think. Is that accurate?

MR. ELLERHORST: Yeah. There's posters all over the place. You know, when they're on the gold medal stand and they turn their board over, they like to see what it is they make. And it probably garnished 53 more people watching every snowboard event in the Olympics. (Laughter.)

REP. CHABOT: I'll bet. I'll bet. Thank you.

Mr. Ubl, you stated that the medical technology industry jobs pay about 30 percent more than the average U.S. salary. How important is it opening new markets to keeping those high-paying jobs in this country?

MR. UBL: Oh, it's just incredibly important. We're very proud in our sector of that statistic. And we actually just had the Lewin Group take a look at the economic impact of the medical technology sector, both in the indirect -- the direct impact that you mentioned, but indirect in terms of other jobs that they stimulate and other economic activity. I mean, if you consider two states where we have a high concentration of companies, you'll get a better sense. But in Massachusetts, one in five jobs in medical technology is dependent on free trade. In California, one in seven jobs are dependent on just trade with Asia. So trade is an incredibly important aspect and the typical medical technology company has around 50 percent of their sales outside the U.S.

REP. CHABOT: Thank you.

Mr. Wolf, relative to the pork industry, I understand it's really experiencing record growth, and that the U.S. is one of the world's leading pork-producing countries, and it's the second leading pork exporter and that consumer demand is really high worldwide.

With the current environment, did you envision a continued growth for the industry? And I don't know if you happened to see this, but I think it was on one of the "Good Morning America"-type shows, they were referring to some survey out there talking about, you know, people living longer and getting cancer and the gist what I got is you're not supposed to eat anything, and as long as you don't eat anything you're probably safe. And they particularly bashed bacon --

REP. VELASQUEZ: I saw that.

REP. CHABOT: Did you see that too?

I happen to consider bacon to be nature's perfect meat myself -- (laughter) -- but they're saying don't eat it. And I think you should have this forum to defend bacon and your other products -- (laughter) -- so go ahead.

MR. WOLF: Thank you very much. I appreciate your comments on bacon. I feel the same.

REP. VELASQUEZ: What is this -- free advertisement here? (Laughter).

MR. WOLF: The check's in the mail. (Laughter.)

REP. CHABOT: He's just kidding, right? (Laughter.)

MR. WOLF: Yeah, yeah, of course. I'm sorry. I didn't realize that.

REP. CHABOT: That's all right.

MR. WOLF: No. We feel that we are the best place to produce pork in the world. We can do it. We have the resources. We have the technology, the ability to do it. We've got a very healthy animal or product that we produce. Our biggest thing is competing and getting the tariffs down, of course. And as I said earlier, the nontariff barriers that they put up to prevent us, because they -- nobody can compete with us on cost production-wise. So that's where we feel that we can continue to do it on a long-term basis.

And I appreciate you bringing up the report, because we discussed that a little bit just a few minutes ago. I think everything's got to be taken in moderation. I think if you sit down and eat 10 pounds of bacon a day you're probably going to get sick -- as well as any other food --

REP. CHABOT: Oh, man! (Laughter.)

MR. WOLF: -- as well as any other food out there. So I think the report has to be looked at very, very closely before it goes any further. But thank you.

REP. CHABOT: Thank you.

Mr. Johnson, you mentioned particularly as a problem: China. And I know we're all very familiar and we hear a lot about the currency manipulation aspects of what China's doing that's counterproductive. And you mentioned about the textile customs enforcement, how it's really either nonexistent or isn't where it ought to be.

Other than the currency manipulation, would you tell us, again, some of the -- what is China doing to get around the rules and just, you know, creating a non-level playing field that we ought to be aware of and that Congress perhaps should act to counterbalance that?

MR. JOHNSON: Well, I think enforcement here again is key. We did a review of the subsidies that China is giving to its textile industry -- 73 subsidies.

Twenty -- I think 23 of those were export-related, which is a banned-on-its-face subsidy by the WTO.

China has been doing this since it joined the WTO, and we have forwarded these to USTR to go after them in the WTO. But our experience with the current structure of trade -- of administration in this country, is that the resources go too heavily towards negotiation and too little towards enforcement, and that enforcement is not seen as a -- as a strong career-path, either within Commerce or within USTR.

If there's a way to make enforcement of these agreements -- investigatory ability of the Commerce Department and USTR., if there's a way to enhance that; and to also help small and medium-sized businesses bring cases when they find them to these groups. We had to do a lot of digging and a lot of searching. We're an association with a lot of members, we could afford to do that. Most small companies can't. I would suggest those three areas.

REP. CHABOT: Okay, thank you.

And finally, Mrs. Ling, you referenced the establishment of market-accepted international standards. Could you describe the efforts that are underway to do so currently?

MS. LING: Within ASME, we have what we call a boiler and pressure vessel code. It's about 85 years old. It began purely as a U.S. code, accepted by state law and cities. It is now accepted in over 100 countries around the world.

The importance of, again, the right language in the text is to ensure that the U.S. businesses that use the A.S.M.E. standards can get their product accepted in other nations without going through the unnecessary hoops and loops based on technical regulations and technical requirements.

So that's an example of the international standards that organizations such as A.S.M.E. has developed. As far as the U.S. technical consensus standards, I would estimate there's probably tens upon tens upon tens of thousands of standards impacting every sector represented here today at this table, and every other sector that's not.

Standards, again, are a non-sexy product developed by organizations such as the A.S.M.E., but they underpin every product that goes out.

REP. CHABOT: Thank you very much, Ms. Ling.

And I yield back the balance of my time.


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