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Hearing of the Commerce, Trade and Consumer Protection Subcommittee of the House Energy and Commerce Committee - Stimulating the Economy Through Trade: Examining the Role of Export Promotion

Hearing of the Commerce, Trade and Consumer Protection Subcommittee of the House Energy and Commerce Committee - Stimulating the Economy Through Trade: Examining the Role of Export Promotion





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REP. RUSH: The subcommittee will come to order. This is a hearing conducted by the Subcommittee on Commerce, Trade and Consumer Protection. The subject of this hearing is "Stimulating the Economy Through Trade: Examining the Role of Export Promotion."

The chair recognizes himself for five minutes for the purposes of opening statement.

I want to thank the members of the subcommittee for participating in our first trade hearing of the 111th Congress. Today the Obama administration -- (off mike consultation) -- today the Obama administration and Congress are revisiting our trade policies. It is essential that as American companies and workers are faced with unprecedented challenges that we recognize the importance of international trade as an essential component of our policy response to the global financial crisis.

Today's hearing will explore international trade as a tool to stimulate our economy and examine the role of exports in the growth of the U.S. economy. I also want to review the impact of government- sponsored export promotion programs and the effectiveness of assistance available to help U.S. businesses expand their markets for U.S. products and services. In the past, Congress has addressed concerns about several important aspects of export promotions, specifically as it relates to interagency coordination, common goals, small-business assistance and enforcement of trade agreements. Some progress has been made since then. However, today's economic environment demands more progress.

In my home state of Illinois, Caterpillar Incorporated has recently laid off 16 percent of its work force, despite the fact that its world-class equipment is needed and necessary to support massive infrastructure projects from China to Africa. Sixty percent of its market is overseas with untapped potential in emerging and new markets.

In the U.S., exports supports 6 million jobs in the manufacturing industry and 1 million jobs in the agricultural industry. More than one in every five American factory worker owes his or her job to exports. These jobs pay 13 to 18 percent more on average than non- export-related employment. Furthermore, in the recent months of stagnating domestic demand, most growth in manufacturing production was attributed to exports.

The U.S. is the world's largest manufacturing country. But despite its extensive engagement with the global economy, the U.S. has the smallest percentage of its gross domestic product derived from exports in comparison to any other G-7 country. U.S. export promotion spending lags behind that of Spain, the U.K., Italy, France, Korea, Canada and Japan. American exports in January 2009 were down compared to January of last year. In addition, exports accounted for only 13.1 percent of the U.S. economy. This certainly is not sufficient, especially now that the American consumer is spending less. We need to move to trade and exports to sustain economic growth. We cannot afford to be idle as our export numbers decrease. I strongly believe that if we're serious about lowering our trade deficit and creating more jobs for Americans, export promotion must be a national priority.

I commend U.S. businesses for their innovation, their strength and vision in this very competitive and perilous time. I also salute nonprofit groups for their dedication and creativity in assisting U.S. businesses as they embark in new ventures. I also recognize the importance of public-private partnerships in fostering the spirit of American businesses globally. Today is the first of a series of hearings on trade-related matters. I thank all the members and witnesses for their participation. It is my desire that we all continue to work together on trade issues in a bipartisan fashion with a goal of helping to bolster America's economy.

With that, I yield back the balance of my time and I recognize now the ranking member of this subcommittee, my friend from California, Mr. Radanovich, for five minutes.

REP. GEORGE RADANOVICH (R-CA): Thank you, Mr. Chairman, and good morning, everybody.

I do appreciate, Mr. Chairman, you calling this hearing to examine our trade promotion efforts. The global economy is suffering right now and consumer spending and business investments have slowed worldwide, exacerbating the clouded outlook for recovery. In such trying times, there is a temptation for countries to retreat into misguided protectionist trade policies, and in order to find a path toward a more stable economy we must treat trade as an opportunity, not a threat.

One simple approach is to continue to ensure free trade agreements remain a priority. Last year, we ran a $21 billion surplus in manufacturing with our FTA partner countries. America has also seen similar beneficial increases in surpluses with countries with which we have implemented trade agreements under the trade promotion authority. Trade agreements are growing in importance as international commerce becomes a more essential part of our economy and more Americans depend on trade for their livelihood. Particularly relevant today, effective and efficient international trade can serve as an important buffer for the economy which -- when domestic growth slows. In fact, despite the declines in the last part of 2008, export growth surpassed the growth in GWP -- GDP, excuse me. We exported over ($)1 trillion in goods and services last year and had a surplus in services trade of approximately $144 billion. The (second point ?) here is America produces and exports world-class goods and services and we have the potential to export much more if we're given the opportunity to access additional markets. After all, 96 percent of the world's consumers live outside of the United States.

Often the biggest barrier to improving trade is facilitating the connection between willing buyers and sellers. This is where the promotion of U.S. goods and services can be used to improve the prospects of our businesses, many of whom have little or no experience exporting their own goods. We have a number of federal agencies that assist our small and medium-sized businesses through the export process. Their services range from educating businesses on the basics of export trade through export assistance centers, to the more advanced services that introduce suppliers and buyers and provide market access guidance. With these programs in place we need to focus on improving the visibility of existing services and enhancing their effectiveness.

My home state of California is a leading exporter in many areas ranging from high-tech to something more important to my constituents, which is agriculture. Agricultural issues are different than those faced by manufacturers, and I commend you, Mr. Chairman, for inviting the Foreign Agriculture Service to discuss their role in promoting our agricultural exports.

Welcome, Ms. Hale.

Agriculture is a difficult business. Farmers are routinely subject to many factors beyond their control, including the vagarities (sic) of weather, pest and disease control, international competitors which are heavily subsidized, and foreign standards often subject to whimsical change. It's critical to note that specialty crop farmers and their associations spend millions of their own money to promote their own products abroad.

For instance, farmers with the California Apple Commission spent $1.2 million just last year alone to market their own products abroad. When farmers decide to seek assistance through federal programs, they must still spend funds up front and wait for reimbursement from FAS, which is not guaranteed, since their exports strategy must be approved. And while I encourage and I support the efforts of increased exports, I'm equally concerned that we not lose our export partners that we already have. Going backwards by adding new barriers to trade is not helpful to anybody and reminds one of the primary concerns raised by fruit, nut and vegetable growers in my district.

In one example, Mexico has claimed the presence of pests in our own stone fruit for more than a decade. As a result, the plan negotiated by the Animal and Plant Health Inspection Service, or APHIS, which most fresh stone fruit growers must follow if they wish to ship to Mexico, includes a dual regulation with the USDA inspectors and Mexican inspectors. The growers must pay for the dual regulation unless they are approved to receive assistance from the government under one of the existing technical assistance programs that would help offset the cost of the Mexican inspectors.

In addition, it's critical that our government continue to work to remove the non-tariff barriers thrown up to keep us -- to keep out our U.S. products. Some countries, such as Taiwan, have erected certain barriers based on questionable scientific evidence. The normally free flow of trade has ceased, causing the good folks in my own region and others throughout the nation enormous frustration. This must be tolerated, and I encourage our federal trade officials to work to remedy such problems.

I want to thank you, Mr. Chairman, for listening to my concerns. In a perfect world we would not have to worry about any trade barriers. My hope is that our officials will remain as vigilant in their negotiations with our trade partners to reduce such non-tariff trade barriers as they are in promoting our products.

Thank you, Mr. Chairman. I yield back.

REP. RUSH: The chair thanks the ranking member.

The chair now recognizes the gentlelady from California, my friend Ms. Matsui, for five minutes for the purposes of opening statements. It's two minutes, I'm sorry. Two minutes.

REP. DORIS O. MATSUI (D-CA): Thank you, Mr. Chairman, and thank you for calling today's hearing to examine the role of export promotion in today's economy. And I want to thank all the witnesses who are here today for sharing your expertise with us.

In today's economic recession, many families in my home district of Sacramento are struggling to make ends meet. I've heard countless stories of people struggling to keep their homes, their jobs and their way of life. Small businesses are also hurting as they try to make payroll, retain their employees and expand their business. I'm pleased that President Obama has announced a new proposal to immediately help small businesses obtain much needed capital or credit to help their businesses afloat (sic). However, we should also be exploring other avenues for small businesses to grow, and that's why I'm glad we're here today.

This Congress needs to ensure that companies have the tools to find new export opportunities for their products or services in existing foreign markets. Sacramento area small and medium-sized businesses export their products and ideas in health care, education, clean energy and agriculture around the world. In fact, the Sacramento region exported more than $3 billion in goods last year, while the Port of Sacramento handled 280,000 tons of exports last year. Yet, like in most communities, our small businesses have not reached their export potential. If we can provide a small business with a foreign market to increase their sales by as little as 5 percent, it could mean the difference between closing their doors and staying open another year.

The federal government, in partnership with the private sector, can do more. This is a time in which effective partnership is vital.

I thank you, Mr. Chairman, for holding this important hearing today, and I yield back the balance of my time.

REP. RUSH: The chair thanks the gentlelady.

The chair now recognizes the gentleman from Georgia, my friend Dr. Gingrey, for two minutes for the purposes of opening statements.

REP. PHIL GINGREY (R-GA): Mr. Chairman, I want to thank you for calling this hearing today on an economic issue that could not be more timely. In the face of our current economic struggles, the promotion of exports of American products is absolutely critical to our economic growth, now more than ever. Put simply, the relationship between American exports and job growth is incredibly important as we see unemployment numbers continue to rise.

In President Obama's inaugural address, he stressed the need to ensure that the federal government works efficiently, and I agree with him on that goal, particularly in this very important area. The overarching role that the federal government will play in export promotion will need to be reassessed. Currently, there are a number of different federal agencies that are at work in the realm of export promotion. Yet, there is a need to grow our export numbers in order to remain competitive in a global marketplace.

Furthermore, Mr. Chairman, the most direct way that the federal government can impact U.S. export is through existing and new free trade agreements.

First, and let me be perfectly clear, free trade needs to be fair trade, enabling domestic companies to benefit by the removal of foreign tariff barriers. This will increase the number of American exports and help us grow jobs right here at home.

I'm encouraged that Majority Leader Steny Hoyer last week said that the House will potentially revisit the Colombia Free Trade Agreement that was avoided during the 110th Congress. This free trade agreement was signed over two years ago.

Mr. Chairman, another interesting component of this hearing that has a tremendous impact on U.S. imports falls squarely within the agricultural industry. In my home state of Georgia, agricultural exports account for approximately $1.5 billion annually. This is a tremendous boost to the state's economy and it's imperative that the federal government remove technical barriers with trading partners so that Georgia farmers as well as farmers across the country -- California, as Mr. Radanovich said -- will be competitive globally.

Mr. Chairman, I again thank you for holding this important hearing on the promotion of international exports and trade. I look forward to hearing from the panel this morning and I yield back.

REP. RUSH: The chair thanks the gentleman.

The chair now recognizes the gentlelady from Ohio, Ms. Sutton, for two minutes for the purposes of opening statements.

REP. BETTY SUTTON (D-OH): Thank you, Chairman Rush for holding today's hearing on trade and promoting exports.

We all know that trade can benefit American businesses and workers. In fact, Ohio is the seventh largest exporting state in the nation and it is the only state that has increased exports every year since 1998.

However, there are real problems with our current trade policies that are no longer theoretical arguments. And while I don't believe that trade in and of itself is what is costing us jobs, I do believe that our trade system and bad trade policies and bad trade deals can cost us jobs and have cost us jobs.

And I also believe it doesn't have to be that way. You know, between 1994 and 2002 an estimated 525,094 U.S. workers were certified as eligible for the NAFTA transitional adjustment assistance. Since 2000 over 1,087 factories, companies or operations in Ohio have shut down or had massive layoffs, costing Ohio over 200,000 manufacturing jobs.

Now, promoting our exports is only useful if production continues to take place in the United States. We must never lose sight that without our workers the U.S. would not have products to export.

Often when we speak up to address the flaws and the unfair trade practices that currently exist with so-called free trade and other trade arrangements, name-calling ensues and we're attacked with distractive tactics such as being labeled as protectionist or saying we're simply against trade. Well, that isn't accurate and it really doesn't serve our purpose well.

We do not live in a perfect world and we're certainly operating under a perfect free market global system. And while the trade deficit has narrowed during the current recession, China now accounts for more than 60 percent of the U.S. trade deficit in manufactured goods.

We must have trade policies that no longer leave American workers and business at an unfair disadvantage. We cannot sit quietly aside while others engage in unfair trade practices. And while we should help promote our exports, it's also imperative to promote domestic production as well.

I look forward to this hearing and this panel and working on this very important issue.

REP. RUSH: The chair thanks the gentlelady.

The chair is privileged to recognize the gentleman from North Carolina, my friend Judge Butterfield.

REP. G.K. BUTTERFIELD (D-NC): Thank you very much, Chairman Rush and thank the five witnesses for coming out today to be a part of this very important hearing.

Mr. Chairman, you told us that we were going to get into some real deep issues, very important issues on this committee and today is an example of heading in that direction. And so thank you very much for your leadership.

You know, I think about the world so often and the world has just drastically changed. When I was a youngster many years ago going around to different high schools and middle schools in my district and talk about how the world has just literally transformed itself over the last 40 years.

We're living in a global economy and we cannot deny that. And that's a good thing. We can only benefit from increased export promotion. We are the world's largest exporter. In just five years exports have increased from 9.5 percent to almost 12 percent of GDP. Now, this growth has sustained nearly 6 million jobs in manufacturing and 1 million in agriculture jobs like those in my district. And we have reaped the benefit of double-digit increases in exports every year for the past five years. But more can be done and more must be done, considering the state or our economy. Despite double-digit gains, we could be exporting much, much more.

Here's a statistic that might shock some of you. Companies that export represent less than 1 percent of the U.S. business community. Now, that means out of all of the businesses that are located in this country, 99 percent do not export and 60 percent of these companies that do export only trade in one foreign market and one only.

Now, this untapped potential could yield immeasurable benefits to the U.S. economy and could mean tens of thousands of jobs. I'm confident that further exploring opportunities to increase exports would drastically change places like Rocky Mount, North Carolina in my district, where the unemployment rate is now nearly 14 percent. A plant just the other day, Cummins, laid off 390 employees.

So that illustrates, Mr. Chairman, the importance of this hearing today and I thank you for bringing us together. I yield back.

REP. RUSH: The chair thanks the gentleman.

The chair now is privileged to recognize the gentleman from Michigan, my friend Mr. Stupak, for two minutes for the purposes of giving an opening statement.

REP. BART STUPAK (D-MI): Mr. Chairman, I'll waive and use the extra time for questions, please.

REP. RUSH: The chair certainly thanks the gentleman.

Now it is my privilege to welcome this panel of experts to this hearing. I will introduce them starting from my left and the audience's right. And at the conclusion of my introduction I will swear them in because that's the new custom of this committee -- swear them in before they provide their testimony.

Beginning on my left, we have with us today Ms. Michelle O'Neill. Ms. O'Neill is the acting undersecretary for international trade in the International Trade Administration for the Department of Commerce.

Next we have Ms. Suzanne Hale. Ms. Hale is the acting administrator for the Foreign Agriculture Service at the Department of Agriculture.

Next we have Dr. Loren Yager. Dr. Yager is the director of international affairs and trade at the Government Accountability Office, GAO.

Next to Mr. Yager is Mr. Franklin J. Vargo. Mr. Vargo is the vice president of international economic affairs for the National Association of Manufacturers.

And then we have with us Ms. Liz Reilly. Ms. Reilly is the director of TradeRoots, which is a part of the U.S. Chamber of Commerce.

I want to welcome all the witnesses and we certainly, sincerely are grateful to you for taking the time off from your busy schedule to appear before this subcommittee today.

As I said before, it is a new practice of this subcommittee to swear in the witness. So I will ask that you please stand and raise your right hand. (Witnesses are sworn in.)

And now we will ask that you limit your opening statements to five minutes. And we'll begin with Ms. O'Neill.

Ms. O'Neill, again, welcome, and please give us your opening statement.

MS. O'NEILL: Chairman Rush, Ranking Member Radanovich, and members of the committee, thank you for the opportunity to speak before you today about how export promotion strengthens and supports America's economy.

As we've undoubtedly heard from the statements today, exporting is important to our economy. Last year alone it accounted for 13 percent of our gross domestic product and millions of jobs. I welcome the subcommittee's interest in this topic and look forward to outlining the International Trade Administration's efforts to promote U.S. exports.

The International Trade Administration is dedicated to helping U.S. companies, especially small businesses, compete and win in the global economy. We have trade professionals based in Washington and 109 U.S. communities and in 77 countries that provide trade promotion support to U.S. companies.

We guide companies through every step of the export process, from shipping and logistics to understanding foreign regulations to finding solutions when they encounter trade barriers. We provide a wide range of services, including trade counseling, advocacy and market research.

In 2008 we supported more than 12,000 export successes, totaling $67 billion in nearly 200 markets around the world. We know that 97 percent of exporters are small and medium-size businesses, but they only account for 29 percent of the value of U.S. exports.

We also know that of the 28 million businesses in the United States, less than 1 percent export, and of the companies that do export, 58 percent export to only one market.

For this reason our efforts are focused on getting more companies to export for the first time and for those companies that are already exporting to expand to additional markets.

To highlight the kind of work we do, let me use some recent examples.

Last year our commercial specialist in the Dominican Republic learned that a Dominican distributor was looking for a company that provides fuel additives for cars. After reaching out to our entire domestic network, our Chicago office identified a small Chicago-based business that employs 150 workers, the Gold Eagle Company. Our commercial specialist in the Dominican Republic arranged a meeting with a Dominican company which resulted in Gold Eagle's first sale to the Dominican Republic, valued at $50,000.

Oftentimes a company gets an inquiry for the first time through their website from a foreign buyer and doesn't know what to do. Other times a company is considering expanding its sales beyond the U.S. market and isn't sure how to proceed. In both cases a first stop for them could be one of our 300 trade specialists located in a nearby export assistance center or our Trade Information Center.

The Trade Information Center provides a single point of contact for all federal government export assistance programs. Through its 1- 800-USA-TRADE number, the Trade Information Center provides assistance ranging from helping fill out a certificate of origin, finding out about export finance options, or connecting with a companies local commerce export assistance center.

Last year the Trade Information Center responded to 36,000 inquiries, most of which were from small businesses.

We also hold seminars around the country to educate U.S. businesses on a whole range of topics, including the nuts and bolts of exporting, how to protect your intellectual property rights abroad, and how to fill out export documentation.

Through our strategic partners program, we're leveraging the client networks of trade associations, companies, universities and state and local governments to help small companies understand the benefits of exporting.

Let me give you two recent examples of how we work with our partners.

In the fall of 2008 one of our strategic partners, FedEx, led a Commerce Department certified trade mission to India to introduce 12 companies to business opportunities there. Of these companies, two had never exported before and the other 10 had never exported to India. Our offices in India arranged over 300 appointments for the companies with potential buyers' agents, distributors, and Indian government decision makers.

In another example, in September 2007, the state of North Dakota's trade office, in coordination with our offices in the former Soviet Union and in North Dakota, brought over 100 foreign buyers to the Big Iron Farm Machinery Show in West Fargo. In the six months following the trade show, U.S. companies exhibiting at the show sold approximately 14 million in U.S. farm machinery to visiting foreign buyers. In 2008 the state trade office was awarded a market development cooperator program grant for the state to establish an office in the Ukraine. Since then we've worked together on trade missions to Taiwan, Ukraine, Russian, Kazakhstan, Australia and South Korea.

At times U.S. companies will look to us to help them win bids on foreign government tenders through U.S. government advocacy. Our advocacy center ensures that U.S. companies can compete fairly against foreign competitors that are receiving high-level advocacy support from their governments.

Other times, a U.S. company may need assistance to overcome a problem they're facing in a foreign market. These problems could range from regulatory trade barriers to unfair trade practices. This is where our trade compliance center comes in. The trade compliance center staff works with foreign governments to find a solution so that the U.S. company has the best possible chance to sell its products and services in that market.

For example, a 2007 amendment to the Kazakh customs code required importers to provide additional documentation that is not normally required before releasing their goods. After direct discussions, the customs department authorized the release of some ($)70 million worth of U.S. goods. The Kazakh government amended the code and deleted the section that required importers to provide the additional documentation to clear customs.

In closing, the downturn in the world economy has affected all of our industries and their exports. In these times our export promotion work is even more important than ever for small business and to the long-term competitiveness of the United States.

The International Trade Administration remains committed to job creation through exporting. Thank you.

REP. RUSH: Thank you very much.

Now we will have opening statement from Ms. Suzanne Hale.

Ms. Hale, thank you so very much, and the chair recognizes you for five minutes for the purposes of an opening statement.

MS. HALE: Chairman Rush, members of the committee --

REP. RUSH: Pull that close to you, please.

MS. HALE: -- thank you for the -- Chairman Rush, members of the committee, thank you for this opportunity to discuss how USDA's Foreign Agricultural Service supports agricultural exports.

Exports are crucial to American agriculture. During these difficult times, agricultural trade is also important because it supports so many jobs off the farm.

Twenty-five years ago, the value of U.S. agricultural exports was about $35 billion a year. By last year U.S. farm exports had tripled to a record $115 billion. Even with the recent economic downturn, FY 2009 agricultural exports are forecast to reach ($)95.5 billion, the second highest level ever.

About one-third of U.S. agricultural production is exported. Every dollar a farm exports creates another $1.40 in supporting activities to process, package, finance and ship products.

U.S. agricultural exports mean U.S. jobs. USDA's Economic Research Service calculates that in 2007 agricultural exports generated 808,000 full-time American jobs.

Our mission at FAS is to link U.S. agriculture to the world. The agency maintains a small Washington-based staff and 97 offices around the globe. Our overseas network act as our eyes and ears as we work to reduce trade barriers and improve market access.

For example, our Cairo office was instrumental in opening the Egyptian market to U.S. cattle, and our staff in the Philippines recently resolved concerns over import quotas that would have severely limited our pork and poultry exports.

Because of the current economic crisis, credit is tight in many key markets.

Our export credit guarantee program, known as GSM 102, facilitates commercial sales of U.S. agricultural exports by providing credit guarantees. In fiscal year 2009, FAS expects to provide $5.5 billion in such guarantees.

Over the past two years the program has facilitated $2 billion in feed grain exports, directly benefiting states such as Illinois, Iowa, Nebraska and Minnesota. Wheat, poultry and cotton sales have similarly benefited from the program.

FAS administers several market-development programs, including the market access, or MAP, program. Under the MAP program, nonprofit commodity and trade associations pool their resources into technical expertise with USDA's to develop markets overseas.

In 2008 FAS approved $200 million in MAP funds to promote a wide variety of products, including soybeans in Romania, beef in Taiwan, grapes in Australia, and pomegranates in Korea.

Investments in MAP programs produce results. For example, the Northwest Cherry Growers analysis shows that cherry exports support an average of 31,000 jobs a year. Cherry exports, supported by $4.3 million in MAP funding over the past five years, also generated an estimated $131 million in federal and state taxes. Now, that's a good return.

The Foreign Market Development Program develops, maintains, and expands long term export markets for U.S. agricultural products. For example, the U.S. Grains Council is undertaking a five-year effort to help rebuild Iraq's poultry industry, an effort which has lead to nearly $4 million in sales of U.S. feed ingredients.

USDA's Technical Assistance For Specialty Crops program funds projects to remove the kind of technical barriers that were mentioned earlier. For example, the California Table Grape Commission used the program to fund fumigation research. This research helped increase grape sales to Australia from $16 million in 2007 to $52 million in 2008.

The program has also been used to gain access for California nectarines in Japan and to harmonize organic standards with Canada.

Emerging markets offer great potential for U.S. agricultural exports. A recent project funded under the Emerging Markets Program provided minority producers of fruit and vegetables in Florida with training and other support that enabled them to make their first international sales. The firms in that program now report $25 million a year in exports.

Our quality samples program enables U.S. agricultural trade organizations to provide small samples of agricultural products to potential importers in emerging markets. For example, exports of dried cranberries to Mexico increased 17 percent to $15 million after samples were distributed to Mexican bakers.

FAS also links U.S. agriculture to the world by sponsoring trade and investment missions. In March 2008, 17 U.S. agribusinesses met with more than 125 African counterparts through a trade and investment mission to West and Central Africa. The mission facilitated $6.6 million in sales.

At FAS we take pride in our efforts to improve the competitive position of U.S. agriculture in the global marketplace. Agricultural trade means jobs, both on and off the farm. Agricultural trade remains a bright spot in the U.S. economy, consistently producing a trade surplus.

I look forward to answering any questions you may have. Thank you.

REP. RUSH: Thank you very much.

Our next witness is Dr. Loren Yager.

Dr. Yager, we welcome you to this subcommittee hearing and we'll ask that you limit your remarks -- your opening remarks to five minutes, if you will.

MR. YAGER: Thank you, Chairman Rush, Ranking Member Radanovich, members of the subcommittee. Thank you for the opportunity to appear today to provide GAO's perspective on the role of exports in the U.S. economy.

As Congress responds to the economic downturn, it must consider the full range of tools available to further growth and create new jobs for U.S. workers. Some of these tools are related to promoting exports which can have broad benefits to the U.S. economy.

Trade enables the United States to achieve a higher standard of living through producing and exporting goods that are produced here most efficiently and importing goods and services that are produced more efficiently elsewhere.

U.S. exports of manufactured goods grew by approximately 50 percent from 2004 to 2008 to a level of $1.1 trillion. These exports have come from every state. For example, in 2008 Illinois exported ($)49 billion worth of manufactured goods.

Similarly, California exported ($)127 billion of manufactured goods with an additional ($)8 billion in agricultural products.

Because of the importance of trade to the U.S. economy, Congress has expressed long-standing concerns as to whether U.S. agencies are doing everything possible to promote U.S. exports.

I will briefly mention three policy areas in my statement today: first, coordinating export promotion programs; second, effectively meeting the needs of small businesses; and third, monitoring and enforcing trade agreements.

The first long-standing congressional concern I will discuss is the lack of effective coordination and follow-up of trade promotion activities. Other witnesses have described the Trade Promotion Coordinating Committee and provided details on specific functions of the Commerce and Agriculture departments.

In terms of coordination and follow-up, we have reviewed the TPCC several times since its inception and I testified in 2006 that the TPCC had improved on their follow-up of key measures. For example, in the 2008 National Export Strategy, there's information regarding the status of priority initiatives identified in the prior year's annual report.

However, despite the importance of agency coordination, the strategy still does not link the agencies' individual goals to an overall government export promotion strategy.

Promoting exports by small businesses has also been a long-term interest of the Congress, as reinforced by the importance of small business in many of the opening statements. While many small businesses export, it is widely recognized that they face a number of challenges in exporting and Congress has required that agencies focus a significant share of their efforts to small and medium size businesses.

In 2006 I testified about the lack of systematic measures for small-business participation in government export promotion programs. More recently we had a similar finding with regard to the Export- Import Bank, where a number of congressionally required measures lack targets and lack time frames.

The third and possibly most important priority for the United States is ensuring that U.S. trading partners comply with trade agreements. Monitoring and enforcing these trade agreements, which number in the hundreds and cover the vast majority of U.S. exports, is a key responsibility for numerous U.S. agencies.

Congress has expressed long-standing concerns regarding a number of these issues, of which I will mention two.

The first is China's compliance with its commitments. Congress has been keenly interested in the extent to which China is complying with its obligations. As a result, we have conducted a number of studies examining U.S. government efforts to oversee China's compliance and we've made recommendations to U.S. agencies to improve communication to key stakeholders such as the U.S. Congress.

A second point is the sufficiency of agencies' human capital. Effective monitoring and enforcement requires staff with expertise in trade policy, the foreign country and the particular industry.

However, we've found that trade agencies have not always been able to get the right people in the right places. We recommended that key trade agencies develop better planning and training to equip staff to handle increasingly complex barriers to U.S. exports.

Let me also mention that while in China last week, I heard a number of examples where having specialized U.S. government personnel in the embassy and in the consulates can assist U.S. firms. For example, in China, patent and trademark office staff, who are of particular interest to this subcommittee, have been actively assisting U.S. firms better protect their intellectual property, which, as you know, has been a big concern for U.S. firms, particularly in China.

Chairman Rush, Ranking Member Radanovich, this concludes my remarks. I'd be happy answer any questions that you have.

REP. RUSH: The chair thanks the gentleman.

Our next witness is Mr. Franklin J. Vargo.

We welcome you, Mr. Vargo, and we ask that you limit your opening statements to five minutes.

MR. VARGO: Thank you, Mr. Chairman, members of the subcommittee. I'm delighted to be here representing the National Association of Manufacturers.

You know, two-thirds of everything America exports are manufactured goods, so the NAM really cares about this.

Exports, unfortunately, are like Rodney Dangerfield. You know, they just don't get any respect. People don't see exports. They see imports in all the big-box stores -- nobody sees exports. A lot of Americans don't even think we export anything, even though we are one of the world's largest exporters and we are the largest manufacturer in the world. We manufacture one out of every $5 of everything made in the entire world. A lot of people find that astonishing, but it is, nevertheless, true.

Now, our exports of manufactured goods have passed $1 trillion and in recent years been growing about 15 percent a year -- as you noted, Mr. Chairman, one of the strongest parts of our economy.

People think, wow, that's really good. I look at exports and say, you know, we are not an export powerhouse. In fact, we are missing the boat on exports. Why do I say this? Because the NAM has started benchmarking our industry against industries around the world, and we have looked at the 15 major manufacturing economies in the world that account for about 80 percent of all the manufactured goods.

When we look at our imports in proportion to our -- size or our manufacturing industry, it's not really out of line with the average. When we look at our exports, we are dead last -- number 15 out of the 15 countries. The world average -- all the countries in the world -- when we look at the World Bank data and trade data, the average is twice what we export -- twice. We are exporting half as much of our manufacturing output as the average country in the world.

Now, if we were exporting at the average, we'd have another $1 trillion of exports. We wouldn't have a trade deficit. Why are we exporting so little? One of the -- and I should note that before I came to the NAM I had a lengthy career with the Department of Commerce in export promotion, trade policy and things.

And it's been a long-time observation that one of the most fundamental reasons we export as little as we do is we grew up as a continental economy, surrounded by ocean on both sides, natural resources, a large domestic market. German companies didn't grow up that way. Japanese companies didn't grow up that way. They knew they had to export in order to grow and survive. And we have to change the mentality of American companies. They are in a globalized world and they really need to do more.

Second reason is that the dollar is the world's reserve currency and in my view, at least, for too many years that has lead to the valuation of the dollar against other currencies that's too high to reflect the competitiveness of our exports.

Additionally, we face a lot of high trade barriers around the world. The fact of the matter is we need to get those trade barriers down somehow. And that's why the NAM has favored bilateral free trade agreements, and I -- without wanting to get into a debate over free trade agreements, I just want to note the fact that last year we had a manufactured goods trade surplus of $21 billion with our free trade partners as a group, ($)6 billion of which was with CAFTA, which used to be a deficit before the agreement went into effect. With countries with which we don't have trade agreements, we have a $477 billion deficit with about 277 of that being with China, with whom we have no trade agreement.

But having access to markets, being competitive, wanting to export is not enough. You've got to market. You know, just like an individual company, a country has to market its exports. And here I think we really do a very inadequate job. I look at -- you know, Commerce is doing well with what it's got. But I look at the resources. You know, last year Commerce had about $330 million for export promotion. The Department of Agriculture had twice that amount -- 600 and some million (dollars). Clearly, our national priority goes on promoting agricultural exports, not manufactured goods. And I don't want to stop agricultural goods. You know, as Ms. Hale noted, one-third of our agricultural production is exported. That's great, and we need that, and I'd like to see it go even higher. But only one-fifth of our manufacturing export -- production is exported. And if we could get that up to one-third, by my back-of-the-envelope calculation we'd pick up, you know, another 1.3 million jobs in America's factories, maybe a million and a half.

Now, promotion programs work. The figures I've seen, and I believe they're reliable, at least 100 to one, for every dollar you put into export promotion, you get a least $100 in additional exports. And that's a stream that goes into the future. Now, if you and I could put that into our personal portfolios, we'd all jump at it, so why does the U.S. government? Because they don't know. So that's why this hearing is so important.

I'd like to ask that the World Bank document "Export Promotion Agencies: What Works and What Does Not," which says every dollar of export promotion produces $300 of exports -- I'd like to ask this be put in the record of this hearing.

Again --

REP. RUSH: Will the gentleman -- by unanimous consent, the document will be placed in the record.

MR. VARGO: Okay, thank you, sir.

I don't want to take anything away from the agricultural program. I admire their programs; I wish the Commerce Department could do more. I note that proportional to the amount of agricultural and manufactured exports, because manufactured exports are 10 times as large as agriculture -- if Commerce had really had the same proportional budget, it would have a $6.4 billion export promotion budget, not ($)300 million. Now, I know the government has a huge deficit and we have huge stimulus programs, so here come the NAM and says, you know, could we have another ($)6 billion for export promotion? But the fact of the matter is these programs pay for themselves; they will generate a flow with tax revenue that would pay for itself.

Again, I'm really -- I'm thrilled that this subcommittee is holding this hearing. I look forward to working with you, Mr. Chairman, the members, your staffs, because we have to make the priority of exports more visible. You know, we're either going to pay our way in the world or borrow our way, and we've already seen -- you know, we've got a $5.5 trillion accumulated trade deficit accumulated already, thank you very much. So I'd like us to be an exporting market and paying our way in the world. We can do it, but so many small companies just don't have the time to fly over to Europe or fly over to China, and what do they do when they get there? You know, they need more help. The help they get is good, but it's much, much too small.

Thank you, sir.

REP. RUSH: Thank you so very much.

And now the chair recognizes Ms. Liz Reilly.

Ms. Reilly, we recognize you for the purposes of an opening statement. Would you please limit your statement to five minutes? And thank you for your attendance here today.

MS. REILLY: Thank you. Thank you, Chairman Rush and Ranking Member Radanovich and other members of the committee. I greatly appreciate the invitation to speak to this subcommittee on this wonderful Irish day.

The U.S. Chamber of Commerce is the world's largest business federation, representing 3 million businesses and organizations. TradeRoots is the only sustained national trade education program, dedicating (sic) to raising public awareness around the importance of international trade to local communities. Our partners include local chambers of commerce, trade associations, economic development groups and federal agencies. Last year, we hosted and visited over 300 congressional districts, where we talk about business and the importance of exporting and the resources that are available to do it.

Ninety-five percent of the world's population lives outside of the United States. In these challenging economic times, America must find a way to sell our things to these potential customers. Fifty- seven million Americans are employed by firms that engage in international trade. That's one in five factory jobs that depend on exports, as well as one in three acres of American farms that are planted specifically for export. In 2008, the U.S. set a new record and exported nearly $2 trillion of goods. That's over 13 percent of our GDP, but it should be more. Most Americans, however, tend to regard international trade as the domain of large multinationals, when in fact 97 percent of all exporters are SMEs. That's close to 240,000 companies, and their overseas sales represent nearly a third of all U.S. merchandise exports.

America's small-business people are amongst the innovative and hard-working entrepreneurs in the world. We've told many of their success stories as part of our Faces of Trade series, where we celebrate companies that are exporting "Made in the USA" products around the world.

If more U.S. business were able to seize export opportunities, the gains could be immense. The World Bank study that Mr. Vargo just cited says that one dollar spent in export promotion brought a fortyfold increase in exports, and 40-to-1 is not a bad return on investment. To address this need, the U.S. chamber proposes a doubling of federal expenditures on export promotion to small business.

From Seattle to Savannah, many U.S. companies are just not aware of the government services that are available to help them break into these new markets. I've talked to so many who have never heard of the U.S. departments' Export Assistance Centers or the Foreign Ag Service or that the Ex-Im Bank exists, and, let alone, gives out loans. And I don't think this is the fault of American business owners. Rather, I think it reflects the inadequate resources dedicated by the federal government to promote these services adequately.

Some companies have had challenging experiences with the Commercial Service offices overseas. Quality Float Works from Schaumberg, Illinois, was telling me that they normally fare very well, until recently, when the offices in Dubai were so understaffed that they were unable to assist in setting up business meetings. Other companies, such as Askinosie Chocolate in Springfield, Missouri, have worked with their USEACs, but they can't afford a fee. With the 15 percent -- with over 15 percent of Askinosie's gross revenue coming from overseas markets, finding new ones is imperative for their growth. Additional funding from the Department of Commerce should eliminate or lower these "gold key" service costs for small businesses.

Closely affiliated with the USEACs are 60 district export councils that combine the energies of more than 1,500 exporters. We recommend selecting an ex officio DEC member to participate on the President's Export Council, in order to represent small business.

Another exporter, York Wire & Cable in York, Pennsylvania, was recently telling me about the positive impact of market-access grants at the state level. Export-ready companies in good standing are eligible for $5,000 to explore new markets through trade shows, trade missions and internationalizing their websites. A similar grant system should be created at the federal level for companies around the country.

Market Development Cooperator Program grants, MDCP, are another effective tool for export promotion. TradeRoots was actually founded based on an MDCP grant to educate small businesses on exporting, and as a result of our grant, we've reached more than 3,800 SMEs and helped generate more than $9 million in U.S. exports. We support continuing and expanding MDCP grant funding.

An additional way to promote U.S. exports would be for Congress to pass the pending trade agreements with Colombia, Panama and South Korea. These accords would provide an estimated ($)42 billion over five years for American workers and farmers. More than 25,000 SMEs are already exporting to these countries and this number could rise sharply with their implementation.

A final priority should be to ensure adequate funding for programs dubbed "trade capacity building." The United States spends more than ($)1.3 billion annually, which is important to maintain.

In closing, investing in export potential of America's small and medium-sized businesses is crucial to stimulating our economy. I greatly appreciate the opportunity to testify today. The U.S. Chamber of Commerce stands ready to work with you on these and other important challenges in the year ahead. Thank you very much.

REP. RUSH: The chair thanks you so very much for your testimony, Ms. Reilly, and the chair thanks all the witnesses for their opening statements.

The chair now recognizes himself for five minutes for the purposes of asking questions of this outstanding panel. I'll begin with Mr. Vargo.

Mr. Vargo, you mentioned in your testimony the importance of penetrating new, promising markets. For my home state of Illinois, Canada is the first trading partner, followed by Mexico and then China. There is an old adage that says, quote, "never put all your eggs in the same basket." In trade context, it means it would be wise to diversify our export clientele and not put all our exports in the NAFTA basket.

Mr. Vargo, I have two questions. Have you identified a region with great opportunities for U.S. businesses, and have you also identified a specific product or sector that needs to be expanded in that particular market? How do you go about making such an assessment, and what specific change do you think the government needs to undertake to increase exports to these countries? That's about five questions -- (laughter) -- all in one. (Laughs.)

MR. VARGO: Thank you, Mr. Chairman. No, you're right. For your state and most others, NAFTA is the largest export market. Europe generally is number two. In our eyes, the most rapidly growing area -- it's taking some economic hits right now, is Asia, you know, China and other parts of Asia. But over the longer term, you know, there's going to do an enormous amount of growth there and we need to do more.

And Asia, it's culturally different from the United States. For most people, they really don't know what to do when they get there. We need a lot more assistance.

But I would also point to Europe. Why Europe? Because the European Union's a fairly easy market to sell to, and a lot of our companies, especially smaller companies, sell there already, but they only sell to one or two markets in the European Union. Now, if they can sell to Britain or Germany, they can sell to France, Italy, other countries. But they don't, and we don't have enough export promotion resources to make it easy for them to find customers and distributors, you know, in those markets. I would pick those two markets.

In what should we do, in China, I think -- and in some other Asian countries, I think American companies need more depth of assistance than they're getting. You know, we have one of -- the Commerce Department's set up American trade centers in all major cities in China -- physical facility with display space, temporary office space for companies -- they can't do it; they don't have the resources. In Europe, some of the most effective proponents of salespeople for American exports are what are called the FSNs, the Foreign Service nationals who work for the commercial service. They know the local markets.

Again, Commerce doesn't have the money to hire enough. So I think it's doable, but it comes down to resources and a national priority, and frankly, I just don't see a national priority for export expansion yet.

REP. RUSH: I want to ask Ms. O'Neill and Ms. Hale, in the brief time I have left, which is about a minute and 15 seconds, what are your respective agencies doing to identify emerging markets? And what are emerging markets, as far as you're concerned? How would you define emerging markets?

MS. O'NEILL: Thank you for the question. And I think Frank went to a good bit of how -- where we would see the largest opportunity for U.S. exports, and that is in Asia. I think we would probably define an emerging market as one where we haven't had big U.S. export penetration yet, but that they're also -- perhaps not the same legal and regularity infrastructure in the market and where our services on the ground are particularly needed to help U.S. companies navigate and identify opportunities in those markets. But I would say our attention has shifted to Asia, India, where it is more difficult for our companies to do business.

MS. HALE: I think one of the key things in identifying emerging markets is a market where incomes are increasing. We find that as income increase, people eat more meat, they eat more vegetable oil; there's a growing middle class, people go out and eat fast foods and enjoy American potato products. And so we're seeing a lot of growth in Southeast Asia, also in Central America. And it's very often related to growth in income.

REP. RUSH: (Off mike.) Now the chair recognizes the ranking member, Mr. Radanovich, for the purposes of questioning, for five minutes.

REP. RADANOVICH: Thank you, Mr. Chairman.

And again, I appreciate you panel members for your opening statements and for being here today.

I wanted to first ask Ms. Hale, Ambassador: Regarding the FAS and your recent reorganization, can you explain to me how this reorganization has led you to act -- to perform more efficiently for agriculture?

MS. HALE: I think one of the key things is that we're better staffed now to address the kinds of technical trade barriers that you mentioned before. We have an Office of Science and Technical Affairs that works with our sister agencies at USDA, like the Animal and Plant Health Inspection Service, the Food Safety and Inspection Service, to overcome and remove some of these technical barriers to trade. We also have an office that's doing more strategic planning on a country basis. We're better staffed to look at individual markets and bring together all of the department's resources in an integrated strategic plan, the kind that Dr. Yager was talking about. And then we also have all of our trade assistance programs in one area. So we have good coordination between our credit programs and our other marketing programs like the MAP program.

REP. RADANOVICH: Thank you very much. Can you tell me within your reorganization and such and -- is there an increased effort on the part of governmental staff in export promotion to kind of replace some of the work that maybe commodity and crop associations currently undertake?

MS. HALE: No, sir. (Laughs.)


MS. HALE: We're partners. Everything we do, we do with industry. And industry contributes very significant amounts of money for our programs. They're putting more into the programs that what we're putting into them. And we rely on their technical expertise. They know -- they're the experts in how to run feed trials, to show people how to use soybean meal to improve their productivity. They do things that our staff could just never do on our own. So that partnership has been very important over the years.

REP. RADANOVICH: Very good. Thank you very much. One more question, and that is, can you give me an idea, on the Uruguay round, what might have been new export markets that have opened up as a result of that?

MS. HALE: Goodness, that's a way back. (Laughs.) We're talking about history --

REP. RADANOVICH: A little way, yeah.

MS. HALE: Yes. I think that one of the most important accomplishments in the Uruguay round was the TBT agreement, the Technical Barriers to Trade agreement. That isn't addressed to a specific market, but what that agreement did was to make international standards the norm for addressing technical issues. So we have the -- OIE is the international animal health organization; Codex sets food safety standards, there's an SPS agreement that sets plant health standards. But the TBT agreement in the Uruguay round did was make those international standards WTO standards. And so we can use the World Trade Organization's dispute resolution mechanism to resolve cases when we have technical barriers to trade. And that's a big improvement.

REP. RADANOVICH: Very good. Thank you very much, Ambassador.

Dr. Yager, welcome to the committee. I noticed that the TPCC consists of about 20 different agencies. Can you give me a sense as to whether or not the -- it's an advantage to have 20 different agencies kind of sharing the same goals or, you know, does maybe just having one single effort -- can you give me an idea what the advantages or disadvantages might be?

MR. YAGER: Well, the TPCC was created, I guess, in the early 1990s, and there were some questions from the Congress at that time as to whether all the different agencies that had a small piece of export promotion were actually working towards the same goals. And so it's existed for about 15 years. We do think there is a big advantage in having an organization that brings together the export promotion efforts of the different agencies. There may be, you know, a large number of agencies, but realistically there's only a few that do, you know, the broad percentage of the export promotion effort. So after you get through Commerce, Agriculture and the Export-Import Bank, which is also a fairly large lender and provider of credit to U.S. firms, many of the other agencies are much smaller in terms of their funding and the kinds of contributions they make to export promotion. But we do believe that getting together and having a single report, which they put out every year, and trying to follow up on that to show -- for example, if they target big emerging markets in one year, we think it's very valuable for them to come back the next year and say, we were successful, here's some measures for how much we were able to accomplish in big emerging markets, for example. We think that kind of follow-up is very important. So we do think it's a good idea to have the trade promotion coordinating.

REP. RADANOVICH: Okay. Very good. Thank you, Doctor.

And thank you for the time, Mr. Chairman. I'm assuming there will be a second round of questions?

REP. RUSH: Yes, the chair does intend to engage in a second round of questions.

Our next member we will recognize will be Ms. Matsui of California, for five minutes.

REP. MATSUI: Thank you, Mr. Chairman.

As you know, California is home to one of the world's largest trade markets. And there are a number of small and medium businesses in California who export their brands and services but, you know, a lot of them have not reached their export potential, as we know. And there are a variety of services available, both by the government and by business associations, but a lot of businesses are not aware of this.

Ms. O'Neill, I'd like to ask about the budget situation in the U.S. Commercial Service. When my office called the local U.S. Commercial Service Export Assistance Center in my congressional district, I learned there is only one staff person there, responsible for 22 California counties, and our counties are pretty large in California. And this one person coordinates all the outreach, the training missions and consultations with individual companies. Now, over the last five years, the U.S. Commercial Service budget has remained relatively stagnant. It looks like it will increase this year maybe less than 1 percent.

Is the Department of Commerce asking for more resources?

MS. O'NEILL: Thank you, and you're right. Our largest presence in the states is in California, and certainly I will take back your concern about our staffing level in your district. We look forward to working with the new team, as Governor Locke is hopefully confirmed soon. There's been a lot of interesting ideas here today and I certainly look forward to working with Governor Locke and his team to explore what might be possible in the export promotion front.

REP. MATSUI: Mr. Vargo, do you see a similar situation at other Export Assistance offices around the country?

MR. VARGO: Regrettably, yes. If there is one thing that we could do up front, it would be to significantly increase the staff of our district export offices so they can get around more and work with companies. As I've noted, you know, the typical small-business owner is worried about his line of finance from his bank, holding on to his or her best customers. They just don't have time to wander through the Internet or fly over to China or France or somewhere. You know, we've got to have the commercial specialists go out and reach them and make it easy for them. You make it easy for them, they will do it. Believe me, they will do it. We've got lots of examples. The resources just aren't there.

REP. MATSUI: What can you tell me -- how you'd compare America's export promotion policies to those in Canada and Europe, Japan and China?

MR. VARGO: Well, they take their export promotion much more seriously than we do. They realize that this is where their future is, this is where their growth has to be, and we haven't gotten the joke yet, frankly. You know, we're missing the boat. I'm under oath, so I won't say that I know for 100 percent this is positive, but I hear that Canada has more commercial officers around the world than the United States does. And if that's true, that's ridiculous. Now, I do know that the Australian trade minister recently looked at the Market Development Cooperator program that principally the Agriculture Department uses, and the Commerce, too, a little bit -- and threw another $100 million into it for Australia because they see this as a way to expand their exports. So other countries are really pushing hard and we're missing out.

REP. MATSUI: I'm concerned because I feel that trade is very important and we have a huge trade deficit, and, as you say -- all of you say -- that it would be important to get the export business moving along. And it seems to me that within the last several years we haven't been doing that; we've been reducing our resources to do that. And my sense is that had we gone ahead and really funded or, you know, beefed up the resources, we might have been able to encourage others to actually get out there. I'm wondering whether any of you could answer this question: Has there been a change in the type of assistance given? I think in Mr. Vargo's testimony he was saying that it goes -- there's not as much outreach and that the businesses aren't getting as much assistance in the foreign offices as they might be because they aren't staffed, and there might be trade fairs and things of that nature more than anything else. Can you comment on that, and what direction you think we should be going?

MR. VARGO: May I comment?


MR. VARGO: Because our government witnesses may feel a little constraint.

You know, the budget situation I believe is so severe that offices are being closed in Europe, for example, to be able to move commercial officers to China and other parts of Asia. The worst thing is I'm not sure that they actually have enough funding to fill those new positions. So we may find they're cutting some positions and not filling others. And even if they are moving them, you know, that still leaves Europe, our second largest market, with inadequate resources.

Could I put in one plug, though, for Mr. Chairman and members of the committee? When Governor Locke is confirmed as secretary of Commerce, please bring him up here. Share with him your views on export promotion. Governor Engler, our president, is going to go over and see Secretary Locke as soon as he is confirmed on this. I'd like to have him here for the subcommittee as well.

REP. MATSUI: Fine, thank you.

I think that's it.

REP. RUSH: The chair thanks the gentlelady; your time is up.

Now, the chair recognizes Mr. Scalise from Louisiana for five minutes.

REP. STEVE SCALISE (R-LA): Thank you, Mr. Chairman.

In Louisiana, our port system's actually been doing very well. The increase from 2007 to 2008 was about 38 percent, so we've been promoting more exports and -- refer to exports, I'm sorry. But we have also been starting to prepare for the widening of the Panama Canal coming up in the next few years, which gives us a lot of opportunities to increase both imports and exports. I want to get each of your takes, if I could go down the table, starting with Ms. O'Neill, on what things are being done to prepare for the opportunities that would exist once the Panama Canal is widened.

MS. O'NEILL: As with all our free trade agreements, we work very closely with USTR and the negotiators to identify exactly where the market access opportunities are and develop sort of promotional materials around those opportunities. You've hit the nail on the head. The Panama Canal activity is going to be a key interest for a number of our companies, and we look forward to getting the word out on the opportunities there. Even independent of the agreement, we continue to work with our officers on the ground in Panama and with U.S. industry to make sure that we're well positioned to take advantage of those opportunities.

REP. SCALISE: Thank you.

Ms. Hale.

MS. HALE: Well, a lot of our corn and soybeans that are exported to Asia go through the Panama Canal, and the constraint now is the size of the canal. The ships that go through there are called "Panamax" because it's the maximum size that can go through the Panama Canal. And so with a larger canal, if we can increase the size of our ships, it would make our shipping more efficient, keep our shipping costs down and make us more competitive in Asia.

REP. SCALISE: Thank you.

I don't know if you have a take on it --

MR. YAGER: I think one of the things that we're aware of in doing the work on, you know, on imports and trade is that the ports on the West Coast, particularly the container ports of Los Angeles and Long Beach, in fact, are dominant in terms of shipping many of the goods and services. I think the opening of the Panama Canal offers an opportunity to have some of that trade diverted to other ports on the eastern side of the continent, which I think would reduce some of the congestion. One of the challenges that we have in the United States is port infrastructure, as you probably know, and I think you've been doing some things in New Orleans. But some of the ports on the West Coast are challenged, due to the volume of trade, particularly container shipping that's coming in. And so I think that will open up some options for eastern ports such as your own.

MR. VARGO: Well, certainly the widening of the Panama Canal I think will be good for the Louisiana ports and others. But in addition, the project is one of the world's largest construction projects, and we want American equipment, American technology used there, so the sooner we have that trading agreement in effect and get preferential access to that huge construction project, you know, the better off we are.

And I was very encouraged that President Obama's trade policy statement said that he expected that this agreement could move relatively quickly. We export about ($)5 billion a year to Panama already. I would like to see that grow. You know, in a good period, downhill with the wind behind its back, Panama will export as much to us in a year as China does every six hours. So there's certainly no threat there.

MS. REILLY: Thank you. And I would just have to echo basically what the whole panel has said, that the need to widen the Panama Canal is very important to U.S. business, obviously to get goods moving quicker and reduce congestion, but as well as the project and expanding it itself, that will allow -- the free trade agreement will allow U.S. companies access to bid on the expansion project.

REP. SCALISE: Thank you.

Ms. Hale, last year we had a 40 percent increase in agriculture exports. What was that attributable to? Is there any one thing or series of things?

MS. HALE: That's on a value basis, and so part of the increase was because of higher prices.

But we're also seeing just across-the-board increase in demand. CAFTA, we've seen a 30 percent increase in agricultural exports to Central America. With a growing middle class in places like China, we're seeing big increases in exports of products like soybeans, which are used for vegetable oil there -- crushed there and used for vegetable oil -- and then animal feed, because consumption of livestock products are increasing.

So there isn't one reason; it's a different reason in each market. But we are continuing to see good demand for U.S. agricultural products.

REP. SCALISE: Thanks. And one final question in my last few seconds, for Ms. O'Neill.

It does seem like we've got a surplus on exports of copyrighted material -- music, movies. Considering the problems with copyright infringements in other countries on those types of products, what is being done on our side to try to protect the intellectual property from copyright violations so that we can even increase more that margin?

MS. O'NEILL: That's a great example of a public-private partnership.

We've worked closely with the chamber and other multipliers to develop a program that we call Stop Fakes. It's a combination of technical assistance to companies that is helping them understand how to protect their intellectual property before they go into foreign markets, what resources are available to them once there are challenges, once they face a problem in a market, and then we're also redoubling our efforts overseas to work with foreign governments to improve their enforcement of their intellectual property rights and make sure that U.S. products and services are protected overseas.

REP. SCALISE: Thank you. Thank you, Mr. Chairman.

MR. YAGER: Mr. Scalise, if I could just briefly answer that.

I was in China last week actually looking at the issue of intellectual property protection, and one of the things I can point out is that U.S. agencies in some cases who have not had a presence abroad before such as the Patent and Trademark Office are now also putting some of their specialists into key places like southern China where a lot of the world's manufacturing takes place. So there's now a PTO representative in southern China that helps U.S. firms understand the legal system, communicate with the Chinese government and simply just be there to help U.S. firms think about how to protect their intellectual property so that they can --

REP. SCALISE: Is the government cooperating -- the Chinese government cooperating?

MR. YAGER: Yes, they're working more closely with the Chinese government on that. It is a long-term effort, though; it doesn't happen overnight.

But we think that that specialized personnel does offer some advantages and can get some results for U.S. firms.

REP. SCALISE: Thank you.

REP. RUSH: The gentleman's time is up.

The chair now recognizes the gentlelady from Ohio, Ms. Sutton, for five minutes.

REP. SUTTON: I thank the gentleman.

And I thank you all for your testimony.

You know, we're talking about exports now and I appreciate that, but I do think that it is somewhat a mistake to try and isolate exports out of our international trading system and just talk about it in a vacuum. So bear with me and if you don't have the responses today, that's okay because I'm going to talk a little bit more about the interconnectedness of our system.

I'm going to begin by -- an article that I would like to have permission to enter into the record from

REP. RUSH: Right. By unanimous consent, so ordered.

REP. SUTTON: Thank you, Mr. Chairman.

This article was dated December 14th and it came in the wake of the passage of the Peru Free Trade Agreement.

And I know, Ms. Reilly, you talked about your hope and the hope of your association that we might pass the Colombia Free Trade Agreement, so it's relevant as we consider that possibility.

Now, we heard that this trade agreement was, quite frankly, just a small piece of trade, you know, in the scheme of things and not that big of a deal, and we heard how it was going to open up our markets. And I'm all for exporting American goods, but I am not for exporting American jobs. And so I was struck right after this Peru Free Trade Agreement was passed that Peruvian President Alan Garcia urged American companies to invest in his country and said specifically come and open your factories in our country so we can sell your own products back to the U.S., Garcia told business executives today. Of course, where you have oil, mining, agriculture, fishing and manufacturing firms, he urged them to flock to his nation of 29 million people, which has a per capita income of less than $3,000 a year.

Okay, so the point is, you know, not all jobs are created equal. So we talk about jobs a lot of times in these discussions about trade, but obviously we weren't just talking about exporting to this market, we're also talking about trying to export jobs, or at least  we're not trying to export jobs, but there's certainly a reference to that.

And I'd just like to hear from Mr. Vargo and Ms. Reilly, if I could, about what you think about this.

MR. VARGO: I noted that article also. And certainly everybody wants more foreign investment in their country. You know, we want it, too.

When we look at the record, though -- and I'll be happy to send you data that the Bureau of Economic Analysis from the Commerce Department does -- we have not seen this large sucking sound and outflow of manufacturing investment to countries with which we have free trade agreements.

About 75 percent or so of the foreign direct investment from manufacturing goes to the industrial countries, principally Europe. It does go to Canada, Japan. And about 90 percent of the output there is for local consumption.

So, you know, one can read many different things into this and I'd be pleased to meet with you and exchange views on the data, but I'd like to make sure that the data are available.

But when we look at, again, the record with our free trade partners, we see that they have never been a large percentage of our trade deficit -- 10 percent, 5 percent, something like that  and now they are as a group in surplus.

So certainly it's very good to be concerned, and again, we can have a variety of views, but when I look at the data -- and I used to run the research office in the Commerce Department, so I've never met a number I didn't like -- I draw different conclusions. But it's good to be vigilant and it's good to ensure that our trade agreements do what we expect them to do. And we have seen our exports increase more rapidly to every country with which we have entered into a trade agreement than before.

And on Colombia, for example, you know, two-thirds of our imports from Colombia are oil and other mineral fuels, and we'd like to have secure sources of energy close to our borders.

So I thank you for the question.

REP. SUTTON: And I look forward to following up because I agree that numbers and data can say many things.

MR. VARGO: Right. Thank you.

REP. SUTTON: Ms. Reilly?

MS. REILLY: And I would also say that I also saw that article and know what you're referring to.

Regarding Peru specifically, our position is a little bit differently (sic) where we look at the thousands of small companies that are already exporting to Peru and the added tariff that was being put on those goods, which was an average of about 15 percent. So we just look at those numbers and think about the potential of once that agreement goes into place all the added value that's going to come back to those companies here in the U.S. and be a benefit on the bottom line.

Personally, I work with companies all around the country and I have not yet heard of any that are planning on relocating to opening to Peru in regards to this agreement.

REP. SUTTON: I appreciate that, Ms. Reilly, and actually that was just sort of an example to open up the discussion; it really wasn't about Peru per se. And I look forward to having more conversation as this hearing goes on.

Thank you.

MS. REILLY: Thank you.

REP. RUSH: Thank you very much.

The chair now recognizes Mr. Stupak for seven minutes for questioning.

REP. STUPAK: Thank you, Mr. Chairman.

Instead of talking about trade promotion, I want to talk about trade enforcement.

In fact, Mr. Vargo on Page 5 of your testimony you say top trade priority for the United States is opening foreign markets for U.S. goods and services by ensuring that the U.S. trading partners comply with existing trade agreements. I believe that's -- I think that's Dr. Yager or Mr. Vargo?

MR. YAGER: I believe it's in my statement.

REP. STUPAK: Yeah. Sure, Mr. Yager.

So let me ask you this: On trade agreements as a general rule, can countries refuse to allow products into their country if it's not safe or may jeopardize the health of the people?

MR. YAGER: I think the guidelines that are written into trade agreements is that they have to be legitimate concerns. They have to be technical concerns that also do not discriminate against foreign products. And so if there is a --

REP. STUPAK: Sure. Well, let's just take China since it's our biggest trading agreement. Like melamine, toys, heparin -- the drug for blood, anti-coagulant -- it's all right for the U.S., then, to refuse products from China if we can prove that there's a concern about the health and safety of the American people.

MR. YAGER: Well, I think there's a number of steps and I think you've also addressed some of these in prior statements about the ability of the United States to in fact put inspectors abroad, for example, in the Food and Drug Administration to ensure that the plants in China do get inspected on a regular basis. So I think there's a variety of ways that the United States can try to assure that the goods that are coming in --

REP. STUPAK: Sure, but as a general rule, a country can resist a product if it threatens the health and safety of its people?

MR. YAGER: The United States can prevent products from coming in if the kinds of efforts that take place are not discriminatory.

REP. STUPAK: Sure. So I was reading today in Congress Daily in the "Hill Briefs" there on Page 6 of today's Congress Daily, where President Obama's put a halt to the program which allowed up to 500 Mexican trucks to move across our border without the strict mileage limitations because of the concerns for the health and safety of those vehicles and drivers on our highways. And the Mexican economy department has said that it will -- it violates the North America Free Trade Agreement and it's going to retaliate with cancellation of truck access by U.S. trucks.

Now, how does that jibe with what we've just said about it's supposed to be far and open? If we have legitimate concern about these trucks that have -- Mexican trucks that haven't passed muster since we passed NAFTA which I believe was about 1994, or '93, August of '93 if I remember correctly -- and after 16 years we still don't feel these products are safe. So it would be -- our general rule then would be it would be illegal for Mexico to retaliate, would it not?

MR. YAGER: I don't know that case specifically, but I do know prior that the Mexican government did, I think, win the panel ruling that allowed them to gain access to U.S. -- to further U.S. markets through their trucking. So I'd have to look and do some more research on that, Representative Stupak, to --

REP. STUPAK: Let me ask you this, then: Dumping, illegal dumping where you undercut the price and put your surplus in another country, that's always been considered illegal under all trade agreements, right?

Well, then can you explain to me how back then a year or so ago, underneath a NewPage in which China and Indonesia and Korea were dumping treated paper -- excuse me -- glossy -- high-gloss paper in this country illegally. Commerce Department said it was illegal and we put tariffs in. They appealed to the ITC. The ITC ruling basically said well, you're true, particular with the case of China -- you're dumping, but it has a small effect on the U.S. economy; therefore, the tariffs were taken off. Is that now the standard for illegal dumping? Illegal dumping is legal, as long as it doesn't have a major impact on one's economy?

MR. VARGO: Could I answer that?


MR. VARGO: Actually, the NewPage case wasn't dumping, it was subsidies. And the NAM was instrumental in getting the Commerce Department to agree that our countervailing duties statutes would be applied against subsidies.

REP. STUPAK: Because of illegal dumping. Chinese was dumping here at less than cost.

MR. VARGO: Anyway. But the way the U.S. law is set up, and it's been set up a long time, in order for there to be dumping or countervailing duties applied, two things have to happen: the Commerce Department has to find that they are selling in the U.S. at less than they are selling at local market, or they're selling at less than the cost of production. That's what Commerce does.

REP. STUPAK: And they found they're selling at less than cost production. That's dumping.

MR. VARGO: That's true.

The International Trade Commission, then, as part of the law, which Congress passed a long time ago, said it has to find injury -- was that industry injured? And in this case, the ITC found no, so it's not a change in practice. Now, you know, we can question the decision, but anyway, they followed the practice; there's been no change in practice. But let me just for the record say the NAM strongly supports the application of U.S. dumping laws and countervailing duties.

REP. STUPAK: Well, for most of us, dumping is dumping, whether it costs one job or, in this case the paper industry, 550 jobs, people who lost their good-paying jobs because of this illegal dumping. So the -- (inaudible) -- of this so-called economic injury, if you read an opinion of the ITC, if the injury was greater, more economic injury to the U.S., then it would have been illegal. Most Americans are under the impression illegal dumping is illegal.

MR. VARGO: But by U.S. law, in order to be illegal, it has to have caused injury.

REP. STUPAK: So to my 550 people who lost their job, it's not an injury?

MR. VARGO: I'm not arguing one way or the other, sir, on that case. I'm just telling you -

REP. STUPAK: So when did Congress pass that crazy law?

MR. VARGO: Oh, 1970s.

REP. STUPAK: Yeah, I figured 1970s, before we had the big explosion in trade.

Ms. Reilly, let me ask you this: You indicated that we should pass the Korea free trade agreement, and coming from Michigan, the auto state, in our automobile trade with Korea, 87 percent of the deficit -- trade deficit between U.S.-Korea and U.S.-Korea trade deficit is $107 billion; we're in the hole. In 2006, South Korea sold over 700,000 vehicles here in the U.S., but the U.S. was only allowed to get in 4,556 vehicles. So Korea, according to our research, uses tariffs, prohibitive and discriminatory taxes and regulations designed to keep our imports out.

So how's this fair and free trade? Why should we pass Korea trade agreement when we can only get 4,500 of our cars into Korea, but yet they're allowed 700,000 in our country?

MS. REILLY: I appreciate your concern on that. And I cannot speak to the specifics of the autos issue within that agreement. But from a broader standpoint, the reason that we believe that we should pass the Korean agreement is because Korea is our seventh largest trading partner in the world.

REP. STUPAK: Even though they use tariffs, prohibitive, discriminatory taxes and regulations to keep our products out, we still should trade with them because they're our seventh largest?

MS. REILLY: They're our seventh largest for those goods, as well as our sixth largest for agricultural goods. So they're a tremendous potential customer for our companies.

REP. STUPAK: So when does a wrong become right? We have health and safety of American people. We have discriminatory tariffs, regulations, taxes, illegal dumping, but we all say that's okay. That's not fair and free trade to a lot of us up here on this panel.

MS. REILLY: I don't think that we're saying that that's okay. And I think that there's a lot of things that go into free trade agreements, and I am not privy to those discussions and those negotiations. But all of those things, ultimately, come out. That's where they talk about the importance of labor and environmental protections in these countries, as well as patent protections and IPR protections for different products within these countries.

There's a lot that go into them and while that they do have certain flaws, we believe as a whole they are beneficial for --

REP. STUPAK: Well, you think we should continue trading if these issues remain unsolved?

REP. RUSH: The gentleman's time is up.

REP. STUPAK: Should we -- one more --

REP. RUSH: The gentleman's time is up.


REP. RUSH: We'll have a second round.

The chair now recognizes the gentleman Mr. Braley for five minutes.

REP. BRUCE BRALEY (D-IA): Thank you, Mr. Chairman, for holding this important hearing.

I want to follow up on Mr. Stupak's questions. I think it's a very important conversation to have.

A lot of us up on this panel believe strongly in the concept of free trade when it's married with the concept of fair trade. But a lot of us see gross inequities in our current trading system that is -- imposes an unfair burden not just on U.S. workers but on U.S. companies competing in a global marketplace.

And I want to follow up on Mr. Stupak's point about the Mexican trucking agreement which many of us in Congress sought to terminate despite strong objections from the Bush administration. And I sat in on a hearing in the transportation subcommittees on highways and transit when we discussed that agreement at length.

And on paper it looked like it created an equitable system because Mexico is required to comply with the same requirements that U.S. trucking companies are required to comply with to operate in this country. And in fact, anyone like myself, who used to be a commercial truck operator, was provided a little green handbook that the Federal Motor Vehicle Safety Commission gives to every licensed truck driver to understand the rules of the road and also the rules of responsibility that go with operating a commercial vehicle.

And one of those includes maintaining a driver's file so that anyone who causes damage -- whether commercially or personally -- while operating that truck has a source of accountability, and that accountability is verifiable in this country. And one of the concerns many of us had about that Mexican trucking program is there was absolutely no corresponding transparency on the other side of the border to assure the safety of American citizens from the owners of these Mexican trucks. And nobody from the Bush administration could identify a similar source of verifiable information when these trucks crossed our border, so it was not a fair competition.

And the same point that Mr. Stupak was raising is another concern. If you go back and read the Soviet constitution, you would swear that the Soviet Union was a bastion of civil liberties and was doing everything to promote freedom and liberty within its country. It's one thing to have words on paper. It's another to have a commitment to enforce them.

And for many of us, the problem we have with the trading agreements that we have right now is that on paper they look good, but our trading partners do not have the same level of commitment to enforcing their domestic laws on the other side. And we don't feel that there is accountability in the ITC to enforce a fair and reciprocal responsibility.

So I'd be interested in hearing from this panel what changes you think could be made to the current framework we operate in in a global economy that accomplishes this dual goal of both a free trading system and a fair trading system and brings people together around a trade model that can accommodate all of the interests that have been discussed.

MR. VARGO: Congressman, if I could provide a response -- or at least some comments to that. Now, I'm not a trucking expert, but certainly the general rule is that we are able to keep anything unsafe out of our country. And, again, I've not examined this closely, but it's my general understanding that the records so far -- the Mexican trucks -- has not shown they were unsafe. But I don't want to engage in a debate in that. The principle, I think, is a good one and the principle should apply to other countries.

I'll give you one egregious example that the NAM has been involved in, and that is a situation of American poultry being kept out of the European market. Why is the NAM concerned about poultry? Well, it's a processed food. It's a manufactured good under our statistical system. We have poultry producers in the NAM. But it's a more important principle. Here's an area where because American chickens are dunked in a very mild chemical to make sure there's no salmonella, the European Union says, oh, you know, we don't do that and we won't take your poultry, even though the European commissioner said, you know, there's no scientific basis for this, everybody knows that, and we're going to stop this practice. But there was a public outrage so the commission said, I'm sorry, even though there's no scientific basis, we have no basis at all for keeping your poultry out, we're going to do it anyway.

Well, you know, that should not be. Now the U.S. trade representative is preparing a trade case against the Europeans and we need to pursue that aggressively.

What do we need to do? We need more resources. Certainly, there are lots of instances where we aren't -- where countries are not doing everything they should, you know, particularly in China. We've talked about Chinese counterfeiting. When I talk to our companies, most of them say the situation's getting worse and we need to take action on it.

I would differ if the feeling were generally all our trading partners are cheating on us. You know, from talking with our member companies, generally we don't see that. There are specific instances. And when there are instances, I think we need to move quickly.

REP. BRALEY: Thank you.

MR. YAGER: Mr. Braley, if I could just point out -- the last section of my written statement we made two comments about monitoring and forcing trade agreements.

The first had to do with better communication. And, for example, we did a report last year which took a look at United States trade representative's report on China's implementation of its WTO obligations. And we found it's quite difficult for stakeholders to go through that report and really understand the state of play within China. So we recommended that there be better communication, for example, from the key agencies to stakeholders, such as the Congress, so they have a better understanding of how things are going and ask more questions and get more involved in the process of monitoring enforcement.

The other point that I made in the statement had to do with getting the right people in the right places because many of the barriers that we do talk about are quite technical. And so the knowledge, for example, of the Chinese legal system is important.

We need to have the right people over there that can help address those, ask the right questions and put the kind of pressure on the authorities and, in some cases, provide technical assistance to them, because there are also companies within China that would also benefit from stronger intellectual property protection, stronger safety rules. And we need to link up with those likeminded companies in order to be successful. So we've made some recommendations also on human capital planning to get the right people in the right places.

REP. BRALEY: Thank you.

REP. RUSH: The gentleman's time is up.

The chair is now asking the panel if they would indulge us for one additional round of questioning. We will limit the questions to two minutes so as not to infringe too much on your valuable time.

The chair recognizes himself for two minutes.

I'd like to really point my questions to Ms. O'Neill and Ms. Hale. Recently, Time magazine published an article written by a gentleman -- Alex Perry -- stating that among the 10 elements that will shape the world tomorrow, Africa, as a business destination, ranks number six. It was the only continent mentioned.

What are your respective agencies doing to identify opportunities for U.S. companies to export to sub-Saharan Africa and to Latin America? And how are these efforts different from your past approach to these regions? And how, in the new -- well, China has paid some special attention to Africa. It's Africa's third largest trading partner after the U.S. and France. And how should this competition influence U.S. trade policy with respect to Africa?

So there are my three questions all within one general question. Would you care to respond?

MS. O'NEILL: Sure. Thank you very much.

Since the Congress's passage of the Africa Growth and Opportunity Act in 2000 we've been proud -- Commerce Department -- to be one of the co-hosts of an annual forum. The next one is in August 2009 in Kenya, and we've been actively participating. And this looks at how to provide technical assistance, better legal and regulatory infrastructure, how to -- I participate in a panel on expanding opportunities in telecom and information technologies, recently focused on Africa.

We also have five offices: Kenya, Tanzania, Ghana, South Africa and Nigeria. For the countries where we don't have a physical presence, we work closely with the State Department. We have a partnership post memorandum of understanding that allows us to work with State econ officers in those markets where there is demand for U.S. exports, U.S. support -- commercial support. We have a website: We're partnering -- looking closely at the multilateral development bank projects and also providing training -- trade promotion, coordinating committee training for the state officers on the ground.

REP. RUSH: (Off mike.)

MS. HALE: We're doing some capacity-building projects. For example, we will bring government officials to the United States so they can see how we regulate biotechnology. That's very important to us because so much of our agriculture production for corn and soybeans are the products of biotechnology.

We also have a lot of food assistance programs in Africa. The McGovern-Dole program is providing food for school lunches. Also, I mentioned the trade mission that we have. We also have scientific exchanges.

I think it's important that we're building relationships at all levels -- among scientists, among businesses, among government regulators -- that will support long-term trade relationships.

REP. RUSH: The chair will now recognize the ranking member for two minutes.

REP. RADANOVICH: Thank you, Mr. Chairman.

My first question goes to Mr. Vargo. Welcome to the subcommittee.

I want to know how much additional trade revenue you think could be brought in from the passage of pending free trade agreements. There's three so far that are pending -- Korea, Panama and Colombia.

MR. VARGO: Well, the average tariff on our manufactured goods in those countries ranges somewhere between 8 and 15 percent. And if we could get that down, you know, we would generally, I think, pick up, oh, 10, perhaps 20 percent more exports in those countries.

We export, if I recall, about ($)5 billion to Panama now, maybe ($)11 billion to Colombia, something like ($)30 billion to Korea, so we want that business.

REP. RADANOVICH: It's substantial.

MR. VARGO: You know, we want the agreements to be good. And the tariffs are not the only part of the agreement; you know, non-tariff barriers are important and other provisions of the agreements are important.

But, you know, I look at Colombia right now and I recognize that Congress and the administration want to do something more on the violence in Colombia, particularly that which affects members of unions. But from my point of view, this is costing us exports and jobs every day of delay because the Congress has already voted --


MR. VARGO: -- one-way free trade for Colombia.

REP. RADANOVICH: -- I'm going to ask you to sum up real quick because I want to try to get one more question.

MR. VARGO: I'm done, sir. (Laughter.)

REP. RADANOVICH: All right. Thank you very much for that.

Ms. Hale, during the last round you were very good in answering my Uruguay round question. But I forgot to ask the second part, and that was, as far as specialty crop exports, they were in surplus then, they're not now; can you explain why, perhaps and give me an idea what it would take in order to bring -- to increase exports of specialty crops?

MS. HALE: There's two important reasons why our specialty-crop exports have been increasing. One is that people see them as very healthful. And in countries like Europe and Japan, people are -- U.S. nuts and fruits are in very, very high demand. We're exporting 80 percent of our almonds, for example. Our walnut exports are $1 billion a year. And the industry has been done -- done a good job of promoting those -- the health benefits.

Another reason is that middle-income people are growing. And, you know, for a middle-income family in China, an orange is a treat -- a California orange. They'll buy the orange, split it up, the whole family will -- everybody will take a piece of it and it's a special treat. And we're seeing more consumers around the world that are able to afford American fruits and American nuts, and the industry has just done a good job promoting them.

You know, an example is the Emerging Markets Program. We just did a promotion for using American fruits and nuts in moon cakes. You know, it's a billion dollar business in China and American fruits and -- dried fruits and nuts would be a good contribution to Chinese moon cakes. So that kind of technical support in our marketing programs has been very important as well.

So the consumers are there and I think we've got good marketing programs to take advantage of the changes in the marketplace.

REP. RADANOVICH: Thank you very much.

I yield back, Mr. Chairman. Thank you.

REP. RUSH: The chair now recognizes Ms. Sutton.

REP. SUTTON: Thank you, Mr. Chairman.

And I'll just ask a couple of questions and then allow you to respond.

Ms. Reilly, in the last line of questioning you answered the question I offered with a statement that included a reference to when you were evaluating the Peru Free Trade Agreement, you just looked at the benefit on the bottom line. And that's an interesting remark to me and I'd just like to understand better what your association's assessment mechanism is on whether or not, you know, trade is working -- if it really just encompasses the benefit on the bottom line. So if you could just think about that for a moment.

Mr. Vargo, following up on some of Mr. Stupak's questions and, you know, I heard you, you know, referencing that your association is obviously against illegal dumping and certainly for the imposition of tariffs where appropriate to level the field.

One of the things that is happening now is that in this economic global downturn that we're experiencing, steel production in this country has been ramped down because, as one would when the market is down, one would cut back on production. China is taking advantage, in my view -- and certainly the data I will be happy to provide to show you -- and is ramping up production and exporting steel into this country in this moment of global interconnectedness and downturn. What should we do about that?

And then finally, the very last question I want to ask about is the drywall that we bring into this country from China. And some of you have referenced the -- that we don't have to accept unsafe products into this country if we know that they are unsafe. We know that some of the drywall imported from China has -- leaches formaldehyde. We know this. It's been declared not only unsafe for, you know, for some of our other trading partners, but China itself will not allow it to be used in their own country, and yet we have it being imported into this country.

And I'd just like to know about your thoughts on all of these things, because, again, these go to the issues that I'm talking about, about the comprehensive nature of our system and how it's working and what we need to do to fix it.

MS. REILLY: Well, first, to answer your question regarding how do we assess the bottom line is we look at it. And we look at the free trade agreements that have been implemented thus far and the companies that were already having duty-free access to U.S. markets, selling their things here with no taxes or tariffs on it and us selling our goods abroad with an average tariff of tax of about 15 percent. We look at that and we look at those numbers.

When we look at Ohio specifically and how trade has worked, I look at agreements like the U.S.-Chile agreement where 47 percent of exports have increased to Chile from Ohio. For NAFTA agreements, it's gone up 138 percent. Even the agreement with Jordan -- and I don't know what Ohio is selling to Jordan, but it's gone up over 1,000 percent.

So those are the numbers that we look at regarding that.

REP. SUTTON: I guess I was just asking about whether you look at anything besides numbers, and I appreciate that. Thank you.

MR. VARGO: On steel and China, you know, the NAM is a broad association. We have members of industry associations like American Iron and Steel Association (sic/Institute) and many others. You know, our view is, as I said, we support the strong and effective use of U.S. import laws.

We also believe in -- it's very important that the United States, everybody else adhere as closely as possible to the rules-based global trading system. We're very pleased that President Obama stressed that several times in his trade agenda. And it's important that we have a standstill on countries not start putting on more trade barriers because that is a road downward that will really hurt us, as well as everybody else.

But in the case of steel and China, you know, absolutely the steel industry should avail -- be able to avail itself of U.S. trade laws. I know the Commerce Department had -- already does special monitoring of Chinese steel. And there are additional tools that could be available, but I will let our steel industry speak for itself.

On drywall as an illustration of unsafe products coming into the United States, you know, it's very troublesome. And clearly we need to address this more carefully than we have, with having tighter inspection or certification of products that are coming into the United States. Again, you know, that's going to take resources. I think it's going to take some more general agreement.

And I think that we ought to look at what other countries do because some other countries, I think, have tougher requirements for getting into their country than we do. And it might be useful for this subcommittee to ask the GAO to look into that and see what other countries are doing that maybe we ought to consider doing -- legally. I'm not proposing we do anything funny here. But I think some other countries just do a more careful job of ensuring the safety of what's coming into their country.

REP. RUSH: The lady's time is up. The gentlelady's time is up.

The chair now recognizes the gentleman from Michigan for two minutes.

REP. STUPAK: Thank you, Mr. Chairman.

If we're to look at bottom-line numbers, look at the bottom-line numbers. If you just take January alone, our trade deficit is $39 billion. From 2001 to 2008 the trade deficit, cumulative, is $3.83 trillion. Every one of these trade deficits means lost (sic) in U.S. jobs.

While Michigan's a manufacturing state, we're a great state for exporting agricultural products, in fact, one of the leading states for doing that. But it doesn't offset the loss of jobs we have from manufacturing because it's a higher-value product, as opposed to agricultural products. So again, I don't mind promoting trade, but we have to do enforcement.

Mr. Vargo, you indicated -- in my first line of questions -- talked about inspections and certifications. And where I sit, as chairman of Oversight and Investigations and do the melamine, the heparin and the toy investigations and the illegal products coming in this country, I've been toying with the idea and like your comments on it because you mentioned China's steel, and earlier in the early part of this decade -- the early 2000s we were doing the Stand Up for Steel because China was illegally dumping steel in this country. That did have an impact and President Bush did put some tariffs in, which were modified, but we did have them.

But our concern right now, if you go back to safety is -- whether it's drywall from China, whether it's steel or their cement -- it's an inferior product. The Custom Border Patrol (sic) has indicated that they have a right to inspect the product coming in and they find it to be not of sufficient strength and therefore they will tag it as being inferior. But yet the importer -- the U.S. customer -- still comes, grabs that steel, takes the tags off and sells it in the U.S. economy. And we've seen schools collapse in California because of inferior steel from China.

So we're toying with the idea and to introduce legislation that will give the Custom Border Patrol (sic) not only continue their inspections but reject it right there -- not even allow the U.S. customer to pick up that steel. Just send it right back.

Do you have any problems with that?

MR. VARGO: Well, you know, I try to stick to a policy of speaking on things that I know something about, and there I don't. We do have a working group within the NAM looking at unsafe products coming into the United States. So with your permission, I'm going to take that point to our working group and will get an answer to you in writing.

REP. STUPAK: Please do, because once these inferior products get into the mainstream's commerce there's no way to recall them. Once they're in a building they're not going to go rip them out.

MR. VARGO: Understand. If I could just comment --


MR. VARGO: -- just very quickly on though on the overall trade deficit. You know, we had over a $450 billion trade deficit in manufactures last year. But I just want to point out again that with our free trade partners we had a surplus. All of our deficit was with countries that have not lowered their trade barriers to us.

I don't want to get into a squabble (for ?) free trade agreements --

REP. STUPAK: Sure and most of those countries, like China, have a VAT on there -- as our products come in they put a value-added tax on it, which is illegal and we're don't doing anything to enforce it.

MR. VARGO: Well, under world trade rules, sir, it's not illegal. And we don't have a VAT; you know, maybe we should.

REP. STUPAK: Yeah, we should have a VAT.

MR. VARGO: But if I could just make one point.


MR. VARGO: You know, we seem to be drifting more toward talking about trade agreements, et cetera. Please don't forget the central point here, which is we under-export. We don't have enough export promotion. So whatever other problems we deal with, I hope that this subcommittee will really press -- we need to increase our exports.

REP. STUPAK: But from where I sit as chairman of Oversight and Investigations, I see trade agreements jeopardize the health and safety of the American people because it's both ways -- the products we receive, and we're not doing a good job here in this country.

MR. VARGO: Well, you might want to have a separate hearing on this, but -- on export promotion. You know, whatever disagreements we have --


MR. VARGO: -- help us promote exports. Thank you.

REP. RUSH: The gentleman's time is up. And the chair really wants to emphasize that that's why we have two committees -- the Oversight and Investigations Committee, which the chairman does a sincerely good job. He's been keeping the American people safe for as long as he's been chair of that committee and I really want to commend him.

But we will be looking -- this committee is dedicated to promoting trade, international trade as a response to our economic problems that we are faced with as a nation. And so that is the purpose of this hearing and it will be the purpose of the -- attention of this committee.

I really want to thank all of the members of the panel. You have really been a tremendous asset to us here on the committee. Your testimony has been both forthright and informative to us. And we certainly want to let you know that we appreciate you taking your time out from your busy schedule to be with us today. And we thank you for enlightening us with your testimony.

The chair now calls this committee to close. The committee, right now, is adjourned.

But right before we adjourn, the chair asks for unanimous consent to enter the statement of Mr. Dennis Slater. He is the president of the Association of Equipment Manufacturers. And without any dissent, there is unanimous consent to enter Mr. Slater's statement into the record.

The subcommittee now stands adjourned. (Sounds gavel.)


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