Chapter 2:

Resource Allocation

The essence of a strategic approach to export promotion is to allocate
resources so as to maximize goals.  In this era of fiscal constraint,
government must spend its limited funds wisely.  That means that the
government must:

o         Allocate its resources strategically, through a unified budget
          process, to activities that will return the greatest benefit to the
          US economy;

o         Deploy resources to those areas of the world where the demand for US
          goods and services is increasing, and to those sectors which are best
          positioned to exploit new opportunities; and

o         Create performance measures, and constantly measure performance to
          make sure that export promotion programs are effective and efficient.

Regrettably, the export promotion programs of the US  government have
not been initiated or constructed around the single goal of export
promotion.  They never have been subject to a single cross-cutting
budgetary review that would clearly ask which programs deserve more or
less funding -- or none at all. Instead, programs have been established
at different times, in response to different concerns, and housed in
different agencies.

Recently, the General Accounting Office specifically criticized the lack
of an export promotion budget:  . . . although the US government devotes
significant funds to export promotion programs, the programs are not
funded on the basis of any government-wide strategy or set of
priorities.  That must change.  As the Vice President explained earlier
this month when he unveiled the National Performance Review, We must
develop budgets based on outcomes.
  
And Congress has demanded change. The Export Enhancement Act requires
the TPCC to create a unified budget for export promotion for the federal
government that will be consistent with priorities established by the
TPCC export promotion strategy.

In addition, the government never has attempted comprehensively to
prioritize resource allocation by geographic target markets, or by
different industrial sectors. This is needed to determine where the US
government can make the biggest difference.

The highest priorities may not necessarily be the largest potential
markets for US exporters, or the most likely industry sectors to
increase exports over the coming years, or those countries which are
currently the largest importers of US goods, or those companies which
are now our largest exporters.  As in the budget context, some US export
industries -- and some regions, countries, and types of firms
(especially large ones) -- are better served by private export promotion
activities than others, so fewer government resources may be needed for
promotion.

In other words, government should focus its efforts on activities that
would otherwise go unsupported by the private sector.  It is not the
best use of federal resources to engage in activities that, absent
governmental action, would be carried out by the private sector. 
Rather, the government should carefully consider whether its programs
provide the most bang for the buck.

In establishing priorities, the Administration should consider the
following:

o         The expected increase in the dollar volume of exports.

o         The expected increase in the number of export-related jobs.

o         The expected increase in the number of firms exporting.

o         The extent to which successful exports will establish a long-term
          presence in the market.

o         The existence of spillover benefits to other sectors from the
          increased export activity.

o         The extent to which successful exporting will bestow technological
          advantage on the United States.

It has been argued by some, for example, that exports of certain US
industries may have more strategic value than others (e.g., computers,
software).  Some industries have been called the industries of the
future (e.g., biotechnology) and are considered building blocks or
markets for a whole range of other industries (semi-conductors, consumer
electronics).  Others may have stronger linkages providing markets for
other industries (e.g., autos, aerospace, and chemicals).

In the geographic context, "prioritizing" means that we must carefully
assess the potential of, for example, the emerging markets of Southern
Asia and South America, which have explosive growth rates and rapidly
rising standards of living.  These are the kind of issues that will be
further explored by the unified budget process coordinated with OMB, the
National Economic Council, and TPCC in the FY 1995 budget cycle.

Resource deployment does not, of course, require that some areas receive
all of the available resources, while other markets for US exports
receive none.  A balanced approach, seeking to maximize export sales
over the longer run, may require diversification, much in the same
manner that a private investor would maintain a mixed portfolio to
secure the greatest overall return on investment.

Finally, government must measure performance, not just activities but
results.  In the past, export promotion programs either have been judged
by the number of activities (e.g., meetings held, contacts made,
documents delivered) or not at all.  A failure to evaluate properly may
mask failure, cloud the fact that government programs are not necessary
to fill a gap in the activities of the private sector, or obscure the
means by which a program can be improved.

By contrast, well-crafted performance measures permit a strategic vision
to be realized by:

o         Strengthening management accountability.

o         Ensuring common objectives and priorities.

o         Assessing results accurately.

The creation of performance measures is not simple.  The link between
the export service provided and the outcome obtained can be difficult to
measure.  That is especially true when intervening macroeconomic events,
such as the fluctuation of currency exchange rates, may be the dominant
explanation for shifting patterns of trade.  Nonetheless, the existence
of other factors need not lead to performance measures that focus only
on the quantity, but not the quality, of government action.

In creating performance measures, therefore, the TPCC must focus on the
specific results of investing government resources and the linkage
between government action and export success.  Three kinds of
performance measures deserve particular attention:

Microeconomic Impact:  For example, what specific results did the client
get in terms of export orders or the number of new markets successfully
entered?

Demonstrable Impact on US Exporters:  Did the program facilitate private
firms in increasing exports?  For example, did the program lead an
exporter to begin to market overseas, even if orders have not yet been
received?

Product/Service Quality:  Was the client satisfied with the timeliness,
accuracy, and quality of the service provided?

GOALS

1.        Create a unified, cross-cutting trade promotion budget beginning with
          the FY 1995 budget.

2.        Develop a process to set geographic and sectoral priorities, which
          will inform the budget process.

3.        Develop performance measures for all export promotion programs, which
          also will inform the budget process and guide management decisions.

RECOMMENDATIONS/ACTIONS

1.        Create a unified budget for export promotion in FY 1995.

o         A TPCC budget group has been formed, and key agencies have agreed to
          work together to develop a budget cross-cut.

o         OMB, the National Economic Council, and the TPCC will each play key
          roles in the agreed-upon process:

a.        The TPCC, working with OMB, will collect information regarding all
          existing export promotion programs and current resource allocation. 
          They will analyze and evaluate programs.  The results of this process
          will be used to set trade promotion priorities.

b.        An NEC interagency group will make basic policy decisions concerning
          trade promotion priorities.  Such priorities might include regions of
          the world to emphasize, sectors of the US economy to highlight, and
          types of export promotion activities to encourage.  This interagency
          group also will seek to ensure that trade promotion policy is well-
          integrated with the US government's overall trade policy. 1/

     (Footnote 1: The integration of trade policy and export promotion
     initiatives is especially critical.  For example, whenever the US
     government is able to lower a tariff or nontariff barrier in a target
     market, export promotion efforts will be directed toward maximizing US
     exports to that country, to take maximum advantage of the new
     environment.  USTR and Commerce will work closely together to achieve
     this objective.)

c.        The recommendations of the NEC interagency group will inform the
          regular budget process of OMB.  This process will produce a unified
          trade promotion budget that reflects the priorities set by the
          interagency group.

d.               The budget cross-cut will detail categories of export promotion
                 activities and geographic focus across agencies.  The cross-cutting
                 budget process will be based on the Federal Coordinating Council
                 for Science, Engineering, and Technology (FCCSET) model.  A
                 preliminary FY 1993 budget cross cut is being prepared, although
                 information was incomplete at the time of publication of this
                 report.  This will be refined over the next month, in preparation
                 for the FY 1995 budget cross-cut process.                                                                                                             

2.        Complete by December 31, 1993, an analysis of the current
          expenditures of US export promotion efforts by geographic and
          industrial sectors.

The TPCC will develop criteria, guided by the NEC working group, to be
used by each agency to help deploy resources in a manner consistent with
the strategic plan.

3.        OMB will chair a TPCC performance measurement coordinating network
          to: 

o         Devise uniform performance measures for export promotion programs.

o         Evaluate export promotion activities by geographic area and
          industrial sector rather than by government agency.

o         Develop a consolidated TPCC semi-annual performance report.

o         Ensure that agencies carry out the required performance measures.