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76–593 2002

S. HRG. 107–203

PNTR/WTO: A GOOD DEAL FOR U.S. SMALL

BUSINESSES IN CHINA?

ROUNDTABLE

BEFORE THE

COMMITTEE ON SMALL BUSINESS

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

MARCH 7, 2001

Printed for the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

ONE HUNDRED SEVENTH CONGRESS

CHRISTOPHER S. BOND, Missouri, Chairman

JOHN F. KERRY, Massachusetts, Ranking Member

CONRAD BURNS, Montana

ROBERT F. BENNETT, Utah

OLYMPIA J. SNOWE, Maine

MICHAEL ENZI, Wyoming

PETER G. FITZGERALD, Illinois

MIKE CRAPO, Idaho

GEORGE ALLEN, Virginia

JOHN ENSIGN, Nevada

CARL LEVIN, Michigan

TOM HARKIN, Iowa

JOSEPH I. LIEBERMAN, Connecticut

PAUL D. WELLSTONE, Minnesota

MAX CLELAND, Georgia

MARY LANDRIEU, Louisiana

JOHN EDWARDS, North Carolina

MARIA CANTWELL, Washington

EMILIA DISANTO, Republican Staff Director

PAUL H. COOKSEY, Republican Chief Counsel

PATRICIA R. FORBES, Democratic Staff Director and Chief Counsel

(III)

CONTENTS

OPENING STATEMENTS

Page

Bond, The Honorable Christopher S., Chairman, Committee on Small Business, and a United States Senator from Missouri ............................................. 1

Kerry, The Honorable John F., Ranking Member, Committee on Small Business, and a United States Senator from Massachusetts .................................. 53

COMMITTEE STAFF

PANELIST TESTIMONY

Allen, Susan Au, President, U.S. Pan Asian American Chamber of Commerce,

Washington, DC ................................................................................................... 35

Bowe, Peter A., President. Ellicott Machine Corporation International, Baltimore, MD .............................................................................................................. 10

Eisenhauer, David, President and Chief Executive Officer, SatCon Technology

Corporation, Cambridge, MA .............................................................................. 18

Hale, Peter, Director, Office of Policy Coordination, U.S. Department of Commerce, Washington, DC ....................................................................................... 46

Kapp, Robert A., Ph.D., President, The United States-China Business Council,

Washington, DC ................................................................................................... 23

ALPHABETICAL LISTING OF AND PANELISTS

Brims, Kitty, Senior Associate Director, Trade Policy, National Association

of Manufacturers, Washington, DC .................................................................... *

Coon, Dell, President, Kentucky Bloodstock Associates, Leesburg, VA .............. *

Cresanti, Robert, Senior Vice President of Government Relations and Counsel, Information Technology Association of America, Arlington, VA ............... *

Cowles, Adam, Assistant Director, International Affairs and Trade, U.S. General Accounting Office, Washington, DC ............................................................ *

Duggan, Marty, President and CEO, Small Business Exporters Association,

McLean, VA .......................................................................................................... *

Freedenberg, Paul, Director of Government Relations, Association for Manufacturing Technology, McLean, VA ..................................................................... *

Goodwin, Robert, Jr., Executive Vice President and General Counsel, Chindex

International, Inc., Bethesda, MD ...................................................................... *

Griffen, Leslie, Director of Asian Affairs, U.S. Chamber of Commerce, Washington, DC ............................................................................................................. *

Li, Dottie, Managing Director, TransPacific Communications, Cheverly, MD ... *

Meenan, James, U.S. Trade Advisor, Global Business Access, Ltd. and the

Small Business Trade Advisory Committee, Fairfax, VA ................................. *

Mueller, John D., Chairman, G&W Electric Company, and National Electrical

Manufacturers Association, Rosslyn, VA ........................................................... *

Noah, Jeff, Director of Small and Medium Manufacturers, National Association of Manufacturers, Washington, DC ............................................................ *

Smith, Jean, Acting Administrator, Office of International Trade, U.S. Small

Business Administration, Washington, DC ....................................................... *

Thomas, Kermit, Chairman, Banking Committee, National Black Chamber

of Commerce, Washington, DC ........................................................................... *

Weaver, Vanessa, Member of the Board of Directors, U.S. Export-Import

Bank, Washington, DC ........................................................................................ *

Page

IV

APPENDIX MATERIAL SUBMITTED

Kerry, The Honorable John F., Chairman, Committee on Small Business

and Entrepreneurship, and a United States Senator from Massachusetts,

Snowe, The Honorable Olympia J., a United States Senator from Maine,

letter to Robert Zoellick, United States Trade Representative ........................ 105

World Trade Organization: Status of China’s Trade Commitments to the

United States and Other Members, May 2000, a Report to Congressional

Committees by the U. S. General Accounting Office, submitted by Adam

Cotes ...................................................................................................................... 106

Small and Medium-Sized Businesses Speak Out on Trade and Investment

with the People’s Republic of China, results of a survey by the U.S. Chamber of Commerce ................................................................................................... 156

The Faces of Trade: Small Business Success Stories in China, a report published by the U.S. Chamber of Commerce ......................................................... 168

*Comments (if any) at various points between pages 10–103.

(1)

FORUM: PNTR/WTO: A GOOD DEAL FOR U.S.

SMALL BUSINESSES IN CHINA?

WEDNESDAY, MARCH 7, 2001

UNITED STATES SENATE, COMMITTEE ON SMALL BUSINESS, Washington, DC.

The Committee met, pursuant to notice, at 9:33 a.m., in room

SR–428A, Russell Senate Office Building, The Honorable Christopher S. Bond, Chairman of the Committee, presiding.

Present: Senators Bond and Kerry.

OPENING STATEMENT OF CHRISTOPHER S. BOND, CHAIRMAN,

SENATE COMMITTEE ON SMALL BUSINESS, AND A UNITED

STATES SENATOR FROM THE STATE OF MISSOURI

Chairman BOND. Good morning everyone and welcome. We are

delighted to have you here today to talk about China. We were a

little busy yesterday with matters on the floor which were of great

interest to small business and to which we had a successful outcome.

I regret to tell you that as we speak the Health, Education,

Labor, and Pensions Committee on which I also serve is holding a

markup, and that means I have to be there to vote the proxies. So

I am going to get this operation started and leave the discussions

to you all.

We are very interested in this subject and delighted to see so

many of you who come to talk about how PNTR and WTO membership is a good deal for U.S. small business in China. There’s a

question mark at the end of that title. I have a very strong view

what the answer should be, but this is something that we want all

of you to discuss.

This is the second roundtable forum that we’ve had in the 107th

Congress and I appreciate the opportunity to be with you to start

off the discussion of the opportunities and pitfalls of doing business

in China. Our discussion is intended to examine the Federal Government programs and policies that are designed to help business

to export their products and services to China.

Back quite a few years ago when I was Governor of Missouri, I

was a strong advocate for the development of export opportunities

because I believed that the economy of my State would benefit from

the opening of developing markets to U.S. products. We did trade

missions to many countries including China.

I will tell you parenthetically that I went there in 1984 to set up

a cooperative venture between agricultural activities, pork producers, feed manufacturers, animal health specialists who thought

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we had a great proposal to help improve the production of hogs in

China. Hogs in China were 30 percent lean meat and 70 percent

fat. Ours were just the opposite, 70 percent lean, 30 percent fat.

They wanted to find out how they could develop a pork industry

more like the United States. That was fine.

We met with the Bureau of Cereal Food, Oil, and Grain and they

said we had to go to the Agricultural Minister, who said we had

to go to the Minister of Foreign Affairs. That has only been 17

years and we are still waiting for a final report. So needless to say,

the pork producers, feed manufacturers, and animal health specialists in Missouri are getting a little skeptical about the ability of the

Chinese central government to carry through with their promises.

We recognize that there are some problems that some of you who

have had experience may be able to shed a little light on and how

we can overcome those problems.

But I started out working for the State of Missouri and I carried

that commitment to the United States Senate. And because I believe it is critical that we in Congress recognize that unless our

businesses, American businesses of all size, seize the opportunities

provided by our trade agreements, then we are going to miss out

on some tremendous opportunities. With a population of 1.3 billion

people, the Chinese market is unquestionably becoming one of the

most significant in the world and one that should not be ignored

by U.S. small business.

I know from having worked on the district export council during

the time I was trying to earn an honest living in the real world

that it is difficult to get small businesses to make that leap to get

into the market. But I think the opportunities are there.

I understand the Chinese government estimated that if China’s

economic growth is sustained for the coming decade then the economy could double by the year 2010. We only need to look at the

current trade deficit we have with China to wonder whether or not

we are doing all we can to take advantage of these opportunities.

In the year 2000 we exported about $16.3 billion of goods and services to China while importing $100 billion from China; surpassing

Japan as our largest trade deficit with any particular country.

As all of you, I am sure are well aware, last year Congress approved the permanent normalization trade relations between the

U.S. and China, but that approval was contingent on China’s accession into the WTO. We are going to have a brief summary of where

we stand before we begin the discussions. The negotiations between

China and the WTO have continued at a slower pace than expected

and it is possible that we may get an opportunity to vote again on

extending normal trade relations again this year. We hope that is

the last time we have to do it.

China’s accession to the WTO would mean that U.S. businesses

will enjoy a more favorable trading climate with China than at almost any time in history. Many of the trade barriers erected by the

Chinese government to protect domestic industry will be eliminated

and import tariffs will be substantially reduced. At least that is

what we hope. In addition, concern over weak legal protections, intellectual property laws that previously have bedeviled our trade

relations between the U.S. and China, should be addressed.

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It appears to us that there are two distinct types of trade barriers that business must overcome to be successful in China. The

first includes formal trade concerns which should be dealt with by

China in the WTO. The second, however, are more subtle barriers

that are not easily resolved.

U.S. business owners who have been successful in China have

told the Committee that their success has come in no small measure from their willingness to adapt to the Chinese business culture.

Many businesses have found that by employing representatives on

the ground in China they have been able to develop the personal

and business relationships that are critical to doing business in

China. The Chinese business culture emphasizes quanxi, or what

we call connections, and reflects the importance of establishing personal relationships prior to the establishment of a business relationship.

I also have spent time talking with American businesses, some

of our major businesses doing significant transactions in China.

They regretfully inform me that in the past they have seen that an

executed, signed, sealed, and delivered contract in China is sometimes only a temporary pause in the negotiations over the details

of the trade arrangement. Some of you may be able to shed light

on that.

The Federal Government has a lot of programs to help businesses become successful exporters, and the Committee is interested in knowing how these programs are being used. If small businesses are not utilizing the programs, what can we do to make it

easier to use them. We are also interested in the Committee on

policies and programs the Federal Government is not currently

supporting and providing but should be.

To help us understand these issues we have invited a panel of

experts to join us. We have Peter Bowe, the president of Ellicott

International in Baltimore, Maryland. Ellicott has been exporting

dredging equipment to China since 1979. Mr. Bowe is able to talk

about just how the business climate in China has changed since

the end of the Cultural Revolution.

We have Mr. David Eisenhaure, president and chief executive officer of SatCon Technology Corporation in Cambridge. It exports to

China products that improve air quality.

We also have Dr. Robert Kapp from the U.S.-China Business

Council. Then we will hear from a frequent friend at the Small

Business Committee, Susan Au Allen, president of the U.S.-Pan

Asian American Chamber of Commerce. Finally, we will hear from

Peter Hale, who is the acting director of the Office of Policy Coordination and International Trade Administration from the Department of Commerce.

Before turning to our panelists, let me encourage everyone to

take an active part in discussions. I hope that everyone will think

about areas where the Small Business Committee can be of assistance by encouraging dialogue or by providing a voice for small business when Congress debates exporting issues.

I might say for those of you who wish to speak, if you would set

your nameplate up on the side we will be able to identify and call

on you in order. We will be producing a formal transcript of today’s

forum and we will hold the record open for two weeks. We invite

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additional statements or information you would like to submit for

the record. This forum is also being carried live via our committee’s

own web site.

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Let me reiterate the invitation for those of you at the table and

our guests in the audience who will have thoughts to add, please

do so within that two-week period. If you are like I am, you will

find that some of the best ideas that should have been added to

this discussion probably will occur to you about 11:00 tonight. That

is why we keep the record open so we can get that information.

As I indicated, prior to starting the roundtable discussion I

would like to call on Adam Cowles, who is the Assistant Director

for International Affairs and Trade at the General Accounting Office, the GAO, to give us a brief update on the current status of

China’s accession to the WTO. Mr. Cowles, you might pull up that

microphone or grab a microphone somewhere so we can get it recorded and so it will be carried on the web.

Mr. COWLES. At GAO we have been doing work for the past 3

years helping Congress track progress—— Chairman BOND. Adam, would you grab that microphone and

pick it up? I think you have to pick up the whole thing.

Mr. COWLES. Actually, I am going to go over and—— Chairman BOND. Okay. Steal one from Mr. Freedenberg, then.

Mr. COWLES. Okay. I am going to do a little Vanna White thing

here, too. Okay. I am going to whiz through this really fast, but

just to give you an idea of where we are in the negotiations.

First, you know that there are two parallel tracks in the negotiations: bilateral negotiations on market access issues like tariffs and

services and non-tariff barriers like quotas and certain agricultural

issues. Those are generally concluded with the exception of Mexico

and a few clean-up issues, but I will get back to that. The multilateral negotiations are on how the WTO rules will apply to China,

as many of you know there are still a few outstanding issues. I am

not going to go into any detail about them, but the ones that you

hear about in the news are subsidies, industrial and agricultural

subsidies, what restrictions will apply, how trading rights will be

phased in for the first 3 years of the agreement.

There are some services issues left over from the bilateral negotiations on definitional issues, what the commitments will cover.

There are some things on how product standards will be regulated

in China, and there is a variety of others.

So, well, what happens? These negotiations all conclude, and

they result in an accession package, a document, an agreement

that augments China’s WTO commitments. And so the next working party meeting is scheduled for April.

Now, hopefully, that means that those negotiations, if they are

lucky, they can conclude and wrap them all up. But then they have

lots of clerical work to do: drafting the final agreement, finalizing

the language and things like that. The text is probably going to be

over 100 pages long, and so they have a lot of, you know, nitty-gritty work to do to get that all done.

So if the prognosis is that they can finish that by the first of

May, if they are lucky, then what happens? Then the WTO members will review the final accession package, and this will most

likely take about 2 months, in part because of some things that the

EU has to go over. This is the time when the President is going

to consult with Congress over the package and make all the necessary certifications under last year’s PNTR legislation.

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So by the time that gets done, that will all be in—take you

through June, and then the package—once all the members are

ready to sign off on it, they will report it to the WTO General

Council, which is the highest body in the WTO. Their next regularly scheduled meeting that would fit in with this scenario would

be in mid-July. So they meet then to approve the package, and at

that point, assuming they approve it, all the WTO members’ roles

are finished. The agreement, the terms and conditions of the agreement were finished up here when the package is reported out of

the working party. There is no more negotiation. The terms and

conditions are locked in forever.

At this point, the General Council approves the package. The

WTO members are all done with their rule, but yet China is still

not a member. Well, what happens next? The burden then goes to

China. The Chinese Standing Committee of the National People’s

Congress will meet to ratify China’s acceptance, and they will complete the implementation steps that they feel necessary, because

the day they walk into the WTO, they have to fulfill—you know,

be willing to fulfill all of the commitments that they have signed

on to.

Now, what happens, though, is that the People’s Congress meets

about every 60 days, the Standing Committee, but they can call a

special meeting for that. And so that takes you into—if you take

a minimum of 30 days for that to call the 155 members, that takes

you into August. And then when they deposit their articles of ratification at the WTO, there is then a 30-day waiting period that is

imposed on China, and so that takes you into September. And that

is all supposing that everything goes right and fast and good in the

next meeting of the WTO.

Then at that point, 17 years of negotiations are concluded, and

a lot of people in this room are very happy. [Laughter.]

Chairman BOND. Thank you, sir. So if everything works, if everything works right, that is the timetable we are looking at. Well, I

guess we keep our fingers crossed.

At this point let’s turn to the presentations of our guest panelists. I am going to have to take my leave, but I will now call on

Mr. Bowe to begin. Thank you all very much for being with us

today, and I look forward to seeing the record of the proceedings.

Thanks so much.

STATEMENT OF PETER A. BOWE, PRESIDENT, ELLICOTT MACHINE CORPORATION INTERNATIONAL, BALTIMORE, MARYLAND, AND VICE CHAIRMAN, SMALL BUSINESS EXPORTERS

ASSOCIATION

Mr. BOWE. Thank you, Mr. Chairman.

I am Peter Bowe. I am speaking on behalf of not only Ellicott

Machine but also on behalf of the Small Business Exporters Association, of which I am vice chairman. Ellicott makes dredges for

port construction, harbor construction, land reclamation, mining,

and environmental cleanup. We have been actively involved in exporting ever since we built all the dredges used in the original construction of the Panama Canal.

However, our experience in China has been erratic until recently. In 1977, we sold a big dredge for a harbor development for $3 milVerDate 11-MAY-2000 09:58 Jan 20, 2002 Jkt 076593 PO 00000 Frm 00014 Fmt 6633 Sfmt 6602 E:\HR\OC\B593.XXX pfrm04 PsN: B593
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lion. In 1985, we sold a $1 million dredge to western China for salt

mining. That was it until a few years ago.

However, the Chinese market for dredging equipment is the largest market in the world, but it has been dominated by our Dutch

and German competitors, who have not only strong governmental

advocacy on their behalf but special financing.

What we did to get started in a more organized way was to participate as a sponsor of a public-private partnership in 1996 between the State of Maryland and ten exporters. This partnership

established an office in Shanghai focusing not only on those ten

sponsors but all Maryland companies wishing to enter the China

market.

Our Chinese office, which was effectively subsidized by the State

of Maryland, was still expensive. However, we persisted because we

were committed to China, and we knew that it was not cheap to

enter new markets like that. We have experience based on harder

markets, like Vietnam and Egypt.

Our Chinese office has been successful. In 1999, after 3 years of effort, we had a $1 million sale for harbor dredging equipment, and

last year we had a $300,000 sale of two small dredges for environmental cleanup. I think this latter sale is perhaps more interesting

and significant than the larger-dollar sale because it shows that

the Chinese are now willing to consider their environmental needs

and spend money on that, as opposed to economic infrastructure

projects, which we typically associate with China.

PNTR will be helpful to Ellicott in two respects. First, lower duties on capital equipment are always advantageous in improving

the competitiveness of new equipment compared to used equipment

or locally manufactured equipment. Lower duties mean lower

prices on imported equipment. It is that simple.

Secondly, the next phase of our marketing plan in China involves

the use of locally manufactured components with technology transfer, where we will use those components in our dredges. However,

we are obviously reluctant to engage in technology transfer when

there are issues and risks of intellectual property protection. PNTR

will advance intellectual property rights protection and thus increase our comfort level in proceeding with this part of our plan.

Based on these two points alone, we are strong supporters of

PNTR, and based on that we predict that we will be doing a million

dollars a year in China on a regular basis.

However, this does not mean that issues for American exporters

to China, especially capital equipment exporters, are solved or that

the coast is clear for unrestricted export growth. The biggest issue

we have to deal with is the unavailability of financing for American

exporters comparable to what our foreign competition offers. Just

this month, we lost a $4 million sale to a Dutch competitor for

China who offered special financing. Attached to my written testimony is a copy of the Dutch ORET soft loan financing program for

China. This program has led to the export of $450 million of Dutch

exports to China over the last 11 years. That is from a country

with just 17 million people. Think of what the French and Germans are doing.

This financing includes a 35-percent grant element and sometimes more. Not surprisingly, the Chinese like that.

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The U.S. Ex-Im Bank has shown a special interest in the Chinese market by establishing an office there. We think that is a

great idea. However, Ex-Im’s restrictions on matching foreign tied

aid loans such as the Dutch program, and now the risk of a reduced Ex-Im budget, make Ex-Im’s financing far less attractive

than what our competitors offer all the time. This will continue to

be a big problem unless Congress agrees that we need to act as aggressively as our competitors do in the financing arena.

In response to a specific question from the Small Business Committee staff, we prepared a list of five points that we think small

businesses should consider when approaching the China market.

Number one, translate marketing materials into Chinese. It is

obvious, self-explanatory, but you have to do it.

Number two, establish a presence in China. It can take many

forms, and there are many ways of facilitating that. You can use

the Foreign Commercial Service. There are 10 States with offices

there, industry trade associations, but you have to do it.

Number three, go there. Any exporter must take the trouble to

visit China to see what the problems and opportunities are.

Number four, introduce your product and services via seminars.

We have found this is a great method to introduce new concepts

and products. You invite Chinese people to come for a formal presentation.

Number five, be patient and be prepared to spend some money

to develop the market. This also means don’t wait to act and don’t

be afraid to make mistakes. Everyone does. You have got to be prepared for several years of effort before you can achieve results.

For capital equipment exporters, I would add a sixth point of understanding the importance of financing. You have to know what

Ex-Im Bank can do, that is the primary U.S. agency involved, but

you also have to know what your foreign competition is offering.

China is a large market, but it is complicated and it is not for everyone.

Thank you.

[The prepared statement of Mr. Bowe follows:]

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Mr. CONLON. Thank you.

Mr. Eisenhaure.

STATEMENT OF DAVID EISENHAURE, PRESIDENT AND CHIEF

EXECUTIVE OFFICER, SATCON TECHNOLOGY CORPORATION, CAMBRIDGE, MASSACHUSETTS

Mr. EISENHAURE. Good morning. My name is David Eisenhaure,

and I am the president of SatCon Technology Corporation in Cambridge, Massachusetts. I would like to thank the Committee and

Senator Kerry for asking me to attend this forum and to have the

opportunity to discuss with you SatCon’s trading relationship with

China.

At SatCon, we manufacture reliable, affordable, and environmentally friendly power and energy management products for the

global community. Our products are focused on alternative energy

applications, distributed power generation, industrial automation,

telecommunication, and specialty electronics. We are a qualified

small business and employ approximately 350 people at six facilities located in Massachusetts, Maryland, and California.

As a small business with current trade relations with China, I

would like to explain the benefits that SatCon has derived from

this relationship. First, China represents a significant market opportunity for the industrial automation and distributed power generation products that are being built by SatCon employees in its

several divisions. Second, China is currently a source of materials

for SatCon. These materials are incorporated into the products that

SatCon sells back to China. Thirdly, as China grows its industrial

base, it will benefit from the environmentally friendly products

that SatCon produces.

To elaborate on these points, China has been a source for costeffective motor components such as motor magnets, which has allowed SatCon to grow its Magmotor Division in Worcester, Massachusetts, from approximately $1 million a year in revenues to $10

million in revenue over the last 3 years. This increase in sales has

resulted in the creation of 50 new manufacturing jobs.

Currently, SatCon imports approximately $750,000 of materials

from China a year. This year, we estimate that we will sell approximately $3.5 million in finished products back to China. As we

move forward in our trade relations with China, we will need to effectively balance imports with exports. We believe that we have

been successful in that effort, having achieved approximately a 5:1

ratio of exports to imports while creating new jobs in the process.

As China grows its industrial base, we expect to see increased sales

of our industrial automation motors and machines to China, resulting in further job creation here in the United States.

This industrial growth will also provide significant increased opportunities for SatCon’s environmentally friendly distributed power

generation and power quality products. This new product market

for distributed, or on-site, power generation is being driven by the

need to create remote electric power generation capability throughout the industrialized and non-industrialized world. Electric utility

grids, where they exist, are becoming stressed by increased demand, and the creation of new utility grids is prohibitively expenVerDate 11-MAY-2000 09:58 Jan 20, 2002 Jkt 076593 PO 00000 Frm 00022 Fmt 6633 Sfmt 6602 E:\HR\OC\B593.XXX pfrm04 PsN: B593
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sive. In addition, the generation of electricity is the second leading

contributor to air pollution worldwide.

Distributed power generation offers an opportunity. Using fuel

cells and clean burning microturbines, photovoltaics and wind turbines, on-site power generation offers an alternative. SatCon is

building the power electronics, software, and controls that allow

these systems to provide computer quality electricity for residential

and commercial uses. The use of distributed power generation systems in China would represent billions of dollars in potential revenue to United States small businesses, including SatCon. Since

these are new products and not displacement products, this new

market will result in the creation of thousands of new jobs.

Given the potential for increased air pollution with a growing industrial base in China, these environmentally friendly distributed

power generation products could help reduce the impact of increased electric demand on the global environment.

In closing, continuing our current import/export relationship with

China is necessary to maintaining our existing revenue growth and

job creation. Secondly, expansion of the market opportunity for increased sales of industrial motors and machines to support China’s

industrial growth represents additional increases in near-term revenue and job creation. And, finally, the billion-dollar market opportunity for distributed power generation represents significant

growth for SatCon and other American small businesses. Therefore,

we would recommend to this forum that we extend the permanent

normal trade relationship with China.

Thanks again to the Committee for allowing SatCon the opportunity to present its views on this important issue. If there are any

questions about SatCon’s trading relationship with China or any of

the marketing opportunities I have discussed or the potential for

distributed power generation, I would certainly be happy to address

those.

Thank you all.

[The prepared statement of Mr. Eisenhaure follows:]

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Mr. CONLON. Thank you.

Dr. Kapp.

STATEMENT OF ROBERT A. KAPP, PH.D., PRESIDENT, THE

UNITED STATES–CHINA BUSINESS COUNCIL, WASHINGTON,

D.C.

I have put some thoughts down in outline form for the record

and I don’t want to retrace every step here. Let me just make a

few points, and then we will move into discussion.

The first is this: while it is important to focus on the particular

characteristics of smaller companies and their needs, both domestically and internationally, it is worth remembering that when we

are talking about business with China, small business is a subset

of the broader category ‘‘business’’ itself. Most of the answers to the

question ‘‘Is WTO going to be good for small business?’’ I think, are

part of the more general answer as to whether WTO is going to be

good for American business as a whole.

Now, the PNTR matter is over. Congress has acted on that. The

bloodletting and the hand wringing are finished; we are now at the

point simply of asking ourselves, ‘‘when China enters the WTO,

what are the ways in which this is going to be helpful to American

business as a whole and small business in particular?’’ My central points on that, leaving aside the early sections of my

written outline, which work through a fair amount of China background, are contained in numbers VII and VIII.

The reason WTO matters to American business is that it advances processes in China (processes already underway, but processes that have a long way to go) that are going to make China a

better partner to the world in many ways, but particularly a better

partner to the world on economic and commercial matters, and

thus a better partner to America and a better partner to American

business and, finally, to American small business.

Several of the testimonies that we are hearing this morning do

a great job of adducing all the things that make doing business

with China difficult. Leaving aside the fact that it costs more to fly

to China than it does to fly to Toronto and the fact that you have

to deal with people who don’t speak English: leaving all those obvious things aside, business with China is tough for most U.S. firms.

It is tough for reasons that long pre-date the Communist revolution, but it is doubly tough because of the legacy that Maoism and

Stalinism left behind in China.

What we see in the WTO accession itself and in the agreements

China has signed with us in November 1999 and with other countries in their bilateral WTO accession agreements, is an extraordinary range of commitments to changing the way in which government operates in the Chinese economy, and ultimately the way in

which government relates to the citizenry of China itself.

Therefore, what business, small or large, can legitimately hope

for out of China’s WTO accession is a progressive liberalization of

the economy, a reduction of the stagnant interference of bureaucracy, a reduction of the opacity and the lack of understandability

of commercial process in China, a gradual increase in reliance on

publicly enunciated law, of processes that are indispensable to anybody who wants to do business over there but have remained

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opaque and highly personal to this time, and, indeed, the emergence, even more than we have already seen, of a genuine entrepreneurial culture and entrepreneurial class, if you will, in China.

This set of agreements, mainly embodied in the

Barshefsky-Shi Guangsheng agreement of November 1999, will

over time improve the ways in which the business environment and

the investment environment of China operate for American companies. For small firms, that is in a sense even more important than

for big ones, because of the costs of time and money that go into

dealing with this opaque system weigh so heavily on small firms

with limited resources. But it is important for large companies with

large investments and large transactions as well.

Quickly, on a couple of recommendations:

Congress needs to get behind the rule of law efforts of the United

States with China right away. Congress has dawdled and come up

with lots of reasons not to put any support into American programs

to assist China in the development of a more effective and dependable and publicly transparent system of legal institutions for many,

many years. And we need to get off the dime on that.

The U.S.-China Business Council created a fund from our own

companies to promote rule of law cooperation with China. We give

small grants to Chinese and American applicants. It is a great program. We have given grants in women’s legal services, labor rights

law, legal services for the poor, as well as commercial and administrative law. But we are no substitute for the efforts and the resources that the U.S. Government has been considering putting

forth in cooperation with China but has not yet delivered. This is

the year for Congress to act.

Many of the things that China needs as it grows its economy and

protects its citizens from further environmental degradation and so

forth, programs that are in their infancy, are potentially very important to American businesses, including small firms. But they

lack the kind of commercially compelling quality that comes when

you are selling a product to a consumer market, for example. And,

therefore, when the United States reopens the Trade Development

Agency with China; if the United States moves to re-engaging the

Asian Environmental Partnership programs with China, providing

this kind of support and development work and even financing in

some cases for small American companies to get involved in sectors

that are not slam-bang commercial sectors in China, this is going

to be very important for American smaller companies as well. Environmental protection and environmental services are a classic case

of that.

We will go on in discussion, and I thank you for your time.

[The prepared statement of Mr. Kapp follows:]

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Mr. CONLON. Thank you, Dr. Kapp.

Ms. Allen.

STATEMENT OF SUSAN AU ALLEN, PRESIDENT, U.S. PAN ASIAN

AMERICAN CHAMBER OF COMMERCE, WASHINGTON, D.C.

Ms. ALLEN. Thank you. I, too, appreciate the opportunity to

speak here on the question of whether giving permanent normal

trade status to China and its accession to the World Trade Organization are good deals for U.S. small businesses.

I think at this point there may be some conflicting interest between big businesses and small businesses, but I am here to speak

on behalf of the American small businesses, most of whom I represent within my organization.

I am the president of the U.S. Pan Asian American Chamber of

Commerce, a 17-year-old trade association. We are not a single ethnic Asian group. We represent all Americans of Asian heritage.

There are over 11 million Asian Americans in this country, and

it is growing at 4 percent a year. Chinese Americans constitute the

largest group of Asian Americans in this country.

At this point, I would just like to digress because I will come

back to this later. One of the questions posed at this forum is:

What can we do to help small businesses to go into China? One

thing to do is to hire people—I am not promoting myself, but hire

people who are like me, who have lived here, pledged allegiance to

this country, speak and write the language, and know the cultures

and mores of China.

One of the previous speakers mentioned that you have got to

have a presence there. The presence you have there is important,

particularly when you have somebody who you can trust.

There are about 1 million Asian American-owned businesses in

the country, and they produce about $267 billion worth of receipts

every year.

With that as a backdrop, let me share with you some of my views

with respect to doing business in China in the context of China’s

accession to the WTO.

Since Deng Xiaoping began economic reforms in December 1978,

China has come a long way, from a country with marginal trade

and investment to a major economic player in the world economy.

Today, China has a growing mixed economy and expansive global

interests. It is the world’s third largest economy and tenth largest

trading country. It is the world’s third largest user of mobile telephones, behind the United States and Japan.

Despite the lure of a 1.3 billion population market, buyers beware. China is not an easy place to do business in, particularly for

small businesses. Here are some of the reasons, and they are in my

prepared statement, but I will just pick a few points.

The tariffs are high. Non-tariff barriers are numerous. There are

import licensing requirements; import quotas; restrictions and controls; standards and certification requirements; trading rights system; multiple, time-consuming approval procedures: quality licenses before granting import approval with testing based on

standards and specs often unknown or unavailable to foreign investors and traders and not applied equally to domestic products—not

an equal playing field—safety standards that treat imported prodVerDate 11-MAY-2000 09:58 Jan 20, 2002 Jkt 076593 PO 00000 Frm 00039 Fmt 6633 Sfmt 6602 E:\HR\OC\B593.XXX pfrm04 PsN: B593
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ucts discriminatorily; local content requirements for exports; lack of

regulatory transparency; and foreign exchange balancing requirements. That is non-tariff barriers.

Corruption is pervasive. There are a lot of little Deng Xiaopings

in China with great guanxis, relationships, connections. The gradual decentralization of power has created a system where local officials have vast flexibility to pursue their own economic interests

and take advantage of the poorly enforced legal system for personal

gain.

As stated, laws are opaque and easily abused by officials; regulations are inadequate and could be changed without notice; assets

are not appraised or are undervalued before transactions; intermediaries often levy unauthorized charges and use income from

transfers before authorization is given. And China encourages the

development of favored domestic industries through tax incentives

and tariff exemptions, who in turn compete with foreign-owned

companies who do not receive these similar treatments.

Customs procedures are not applied uniformly throughout China.

The same products can be dutied twice or three times. An inadequate transportation infrastructure is going to cost delays, good

will, and customers and increase costs. And China also prohibits

foreign firms from setting up straightforward distribution networks, which is the biggest problem in China; and restriction

against foreign participation in distribution activities.

Let me give you some anecdotes. PricewaterhouseCoopers conducted an international survey of business environments and recently published its Opacity Index. Opacity is defined as the lack

of clear, accurate, formal, and widely accepted practices in broad

areas where business, finance, and government meet.

They looked at five areas that affect capital markets: corruption,

the legal system, economic and fiscal policies, accounting standards

and practices, and the regulatory regime. Overall, of major countries surveyed, China was the most opaque country, followed by

Russia. On the other hand, Singapore fared the best, followed by

the United States and Chile, who tied second.

The Australian Financial Review reported in February that the

China Securities Regulatory Commission is investigating shares

price manipulation in the Shanghai and Shenzhen stock markets.

The South China Morning Post in Hong Kong warned recently

that the stock market manipulation and fraud cases have caused

shudders among international investors, outside and within China.

Rampant collusion, price manipulation, and insider dealing in the

shares of the Shenzhen-listed China Venture Capital high-tech

company exemplifies the risks inherent in investing in China. But

these are all ignored during the very enthusiastic endorsement of

the investor’s market in China.

From the small business sector perspective, if you talk to the

small businessmen who are trading or investing in China now, they

would tell you that new venturers are in for an extreme shock.

First, unlike here in the United States, the notion of brisk Western-style business meetings that end in a handshake and the signing of a contract are foreign to the Chinese. For them, again, as

stated earlier by the chairman, building acquaintance and friendship comes before hard commerce.

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Sometimes when the Chinese tell you it is okay to a problem,

what they meant was they will look into it. They will not admit

that they have a problem, and they do not tell you that they have

a problem. They have a difficult time telling you that they have a

problem. So here we often interpret the term ‘‘okay’’ as okay, they

are going to take care of it, only to find later that the problem was

not taken care of.

Be that as it may, 1.3 billion people is a very, very attractive

market; 1.3 billion pairs of Q-tips is a great market for Americans.

There is no question that everybody is looking to this big market

for whatever product and services they can promote and sell. So

there are a few things to consider when we do business in China.

Remember, the bureaucracy is there. Laws are not clear and inadequate. Corruption is there. Finding a reliable partner is crucial,

and even if you find one, you should be one step behind him or her

all the time. They could be bribed. Distribution is one of the biggest

problems, as I said earlier. Getting import license clearance is a

trying process. Being paid in the renminbi is a problem. I have

often asked people who trade in China, ‘‘Have you been paid yet?’’ If they say ‘‘yes,’’ I’d say, ‘‘In what?’’ Air and noise pollution is a problem that affects your quality of

life if you take my suggestion and go there, and go there often and

stay there. Patience, patience, and cultural sensitivity, and polite

insistence will go a long way toward solving problems.

Mr. CONLON. Susan, in fairness to the other panelists, could you

just finish up?

Ms. ALLEN. I will. And, finally, when in China, observe the Chinese way. As we say here, when in Rome, do as the Romans do.

Thank you.

[The prepared statement of Ms. Allen follows:]

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Mr. CONLON. Thank you, Ms. Allen.

Mr. Hale.

STATEMENT OF PETER B. HALE, DIRECTOR, OFFICE OF POLICY COORDINATION, UNITED STATES DEPARTMENT OF COMMERCE, WASHINGTON, D.C.

Mr. HALE. Thank you. I welcome the opportunity to participate

in this forum and congratulate the Committee on focusing on this

topic, which I think is a very interesting one.

I am the Acting Assistant Secretary for Market Access and Compliance at the Department of Commerce. Today, I am here representing the Commerce Department’s International Trade Administration, which is comprised of my unit, the U.S. Commercial Service, the industry-oriented Trade Development Unit, and Import Administration.

I would like to start with a quick look at China’s economy and

our trade figures. According to the Chinese Government, China’s

gross domestic product exceeded $1 trillion last year for the first

time—a growth of about 8 percent over the previous year. Pretty

impressive growth and a very impressive number.

As Senator Bond indicated, our bilateral trade deficit with China

has also reached a record level. Last year, it measured nearly $84

billion, with China overtaking Japan as our trading partner with

which we have the largest bilateral deficit.

On the positive side, however, although imports of Chinese goods

by the U.S. continued to grow rapidly, last year was a good year

for our exports to China. Our exports topped $16 billion, a record

number, which was up almost 24 percent for the year.

Let me talk a little bit about numbers for small- and mediumsized businesses. In 1998, the most recent year for which we have

detailed census data available, some 8,400 U.S. small- and medium-sized companies exported to China. This represented about

80 percent of the U.S. companies that were selling in China. Perhaps the most interesting number, however, is that small- and medium-sized companies accounted for over $3 billion of our exports,

or about one-quarter of the total by value. For an economy that

most view as difficult—and I think we all agree has its difficulties—that is a pretty impressive number. Small businesses have

done better in China than I think most of us would have expected.

We in the Government, especially in the Department of Commerce, are paying quite a bit of attention to the needs of small

business in the Chinese market, and especially in anticipation of

China’s membership in the WTO. We co-chair, with our Chinese

counterpart, the U.S.-China Joint Commission on Commerce and

Trade, a major bilateral forum for us to discuss commercial issues

and commercial problems. The most recent session last spring paid

special attention to the needs of small- and medium-sized enterprises, and we have moved ahead with a number of programs to

support our small- and medium-sized companies in the Chinese

market. Following on after our commission meeting, we held what

we called a virtual trade mission—in other words, via the Internet—with China last year in the information technologies area.

Most of the 15 U.S. companies participating were small- and medium-sized, and took advantage of this new medium, at a very low

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cost for them. They didn’t have to travel. They just had a session

taped and then made available for Internet reaction from potential

customers. They took advantage of this mission to expose buyers in

China to their wares. We think it is going to be something that will

be very popular and is going to be very successful.

As you heard before, there are problems for companies, both big

and small, trying to enter the Chinese market. We believe that for

U.S. firms to prosper in this rapidly growing market, we must work

very closely with the Chinese to ensure that China meets its new

WTO obligations as it moves towards membership, including those

negotiated in the bilateral agreement the U.S. signed with China

last year. And we have taken a number of steps that will hopefully

make this easier to happen.

We developed a compliance initiative, working with other agencies around town, which the Congress funded last year, enabling us

to sharply increase the staff and programs that we have available

to focus on China and to enable us to work more closely with the

Chinese to help them understand and implement the new obligations they will incur with WTO membership.

We are increasing our staff in China. Our Commercial Service already has its largest overseas contingent in China, more than in

any other country, and we are adding a couple of officers with explicit responsibility for working on compliance issues, with both the

Chinese Government and with the American business community

in China.

In summary, we do believe the premise of this session that China’s WTO accession will create new business opportunities for U.S.

businesses, both large and small, and we think that with hard

work, perseverance, and so on, that the rewards in the market as

it opens with WTO membership will become very impressive.

To be realistic, we do not expect all the problems to go away immediately. China, as you have heard from the other speakers, has

a tremendous amount of change it has to do with laws, with regulations, with a lot of other things. They have had a good start. We

are trying to work with them to make the process as smooth as

possible, and we are optimistic that there will be many new and

welcomed opportunities for small- and medium-sized firms.

The basic question for this forum is: Will China’s WTO accession

be a good deal for small business? We believe the answer is yes if

we continue to work hard to make it so.

Thank you.

[The prepared statement of Mr. Hale follows:]

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Mr. CONLON. Senator Kerry.

Senator KERRY. Good morning, everybody. I am glad to be with

you. Thank you all for being here, and thank you particularly, panelists. Thank you, David Eisenhaure, for coming down from

SatCon. We are glad to welcome you here. And, everybody, we

thank you for your contributions.

I apologize for not being here at the outset, and I also have to

leave because we are having a Finance Committee hearing right

now on the marginal rate cuts, obviously important to all of you,

and to all of us as we try to sort out where we are going there.

But our very able staff on both sides, Paul Conlon and John

DaSilva, will be managing the process, and John will be here for

me throughout your comments.

Let me just say very quickly, I have had the privilege of being

deeply involved in these issues as a member of the Foreign Relations Committee, where I sat for some 16 years. I am the ranking

Democrat on the Asia Subcommittee, so I am constantly dealing

with issues related to China and, indeed, the whole Far East, as

well as for a number of years, until this year, when I shifted to the

Finance Committee, I have been on the Banking Committee where

we have done a lot of the export licensing and other kinds of issues

that are critical to trade. And I am the only member of our delegation in Massachusetts who hung in there on fast track and who has

supported every single one of the trade efforts to expand our capacity to take advantage of the global marketplace.

I think increasingly what happened in Seattle and elsewhere has

raised issues that we have to address, and, indeed, at the World

Economic Forum this year, there was a significant, very significant

level of discussion by all of the CEOs and companies and governments present to try to deal with the values that also have to be

part of the trading regime.

It is not going to do any of us any good to sort of think of trade

exclusively in the context of the trading rules and regulations if a

large part of the world isn’t going to benefit by it. And it is going

to be harder and harder to get governments to support those efforts

if their populations aren’t also benefiting.

So everybody needs to think about how we go down the road

from here in terms of transferring those values, as some have said,

putting a human face on globalization, and I think for small business that is as much a consideration as it is for larger businesses.

All of you will be ambassadors, so to speak, in this effort as you

engage in your relationships in export and in trade.

Enough said with respect to that. Let me just say that I want

to emphasize obviously the degree to which I believe this is good

for the long-term health of our economy. As you all know, export

sector jobs are the higher-paying jobs, the higher value-added jobs

of our society. It has contributed an astounding 30 percent of our

domestic growth, providing 11 million jobs. And it is going to grow.

And anybody who thinks any nation is going to turn back the wave

of international exchange of goods and services and culture and

people simply doesn’t understand or have a grasp on where we are

heading. So it is going to play a larger role, and we need to be prepared for that and capable of taking advantage of it.

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Just to give you an example, in my State of Massachusetts export sales of merchandise totaled $17.1 billion in 1999, representing a growth rate of 3.9% over 1998 levels and nearly doubling the national average. And 86 percent of Massachusetts firms

that exported in 1997–98 were small firms. And half of our exporters have less than 20 employees, just to give people a sense of the

possibilities here and what we can do.

I think we can do a lot more. Olympia Snowe and I joined together to ask Robert Zoellick to create a position of an Assistant

Trade Representative specifically targeted on small business because we think we could do a great deal more to enhance the capacity of small business to be leveraged in this marketplace now.

And, likewise, I have talked to Colin Powell and pressed very hard

with both he and the Commerce Department to augment significantly the Foreign Commercial Service and other representatives

that are abroad, because it has been my experience when I have

been to Hong Kong or various other stop points in the Far East

that we are losing extraordinary opportunities to marry small businesses with various business opportunities because we don’t have

the people on the ground, we don’t have the facilities, and we

haven’t committed ourselves to do this.

You know, foreign policy is not just the policy components. There

is a huge economic component of it today, and we have to factor

that more, I think, into our thinking, and maybe here you can discuss that a little bit, about ways we might be able to do that.

I think those are sort of the key observations that I wanted to

make, but I do think in the world of cyberspace, with the Internet

and other things happening, there is just an enormous opportunity

for us to be able to augment people’s abilities to be able to get into

some of these markets where heretofore they never thought they

could. And a lot of that is education, and to some degree technical

assistance, and we need to facilitate our own Government efforts

to some degree to make it—to have a very clear menu for people,

a very easy one-stop shop for people to be able to figure out how

they can take advantage of this. And I think to whatever degree

we can augment that here within the Small Business Committee.

I think we should make it a major mission of our efforts this

year, because there is far more growth for small businesses in export and in trade than many, many people sense. And that will significantly bolster our economy and even cushion us against, other

downsides, other downturns in various other sectors of the economy, if you have got a lot of cottage industry, a lot of small effort

going on that really is sustaining you with a broad-based job base.

Moreover, it significantly augments small business growth and a

lot of the value transfer that we are interested in having in some

of these countries and ultimately increases their capacity to have

economic stability and even political stability as a result. They go

hand in hand.

So I think this session is on the right track, and I thank all of

you for taking the time to come here and be part of it. I appreciate

it.

I don’t know, Paul, what you want to do now. Do you want to

proceed to questions?

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Mr. CONLON. Actually, just to get everybody to introduce themselves, so, Mr. Goodwin, if you would like to start by just stating

your name and what organization you are within, and then we can

go around the table.

Mr. GOODWIN. I am Bob Goodwin. I am the executive vice president and general counsel of Chindex International. We are a health

care company, both exporters and we own a hospital in Beijing as

well.

Ms. GRIFFIN. My name is Leslie Griffin. I am director of Asian

Affairs at the U.S. Chamber of Commerce, and thank you, Senator

Kerry, for holding this hearing. It is of great importance to us.

Ms. LI. My name is Dottie Li. I am the managing director for

TransPacific Communications, a boutique public affairs and communication shop. We counsel folks, small business, large business,

both U.S. and Chinese, Asian, what have you, when it comes to

business dealing with U.S.-Asia-related issues.

Mr. MEENAN. I am James Meenan. I am with Global Business

Access, and I am a member and past Chair of the Trade Advisory

Committee to the Department of Commerce and USTR, and I want

to thank you, Senator, for that legislation for USTR to appoint an

assistant for small business. We have been working on that for a

number of years and do find a major gap in that area of carrying

small business issues into the trade negotiating field. Commerce

does an outstanding job on the trade promotion, but it is the negotiation where we need representation.

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Senator KERRY. Good.

Mr. MUELLER. I am Jack Mueller. I am chairman of G&W Electric Company in Blue Island, Illinois. We manufacture high-voltage

electrical equipment used in the distribution of electric power. We

have been around since 1905. We are privately owned. We do about

$50 million in sales, 35 percent of which is exported. We have exported to China over the past 5 years about $15 million worth of

equipment. Some of it goes direct to Chinese customers, utilities

and others, numbering over 120. We started a Chinese manufacturing facility in Shanghai in 1996. We have 20 employees there,

all of whom are Chinese nationals, and that facility has exported

or has shipped about $2 million worth of product over the past 5

years.

Obviously, we have had a good experience in China. China’s

membership in WTO would be helpful to us to formalize primarily

the legal system. Somebody asked me earlier if we are able to collect on our shipments, and while our receivables tend to run longer

than elsewhere, we have had no particular problem in that area.

And I am also here representing the National Electrical Manufacturers Association (NEMA). NEMA heartily supports the WTO effort.

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Mr. NOAH. My name is Jeff Noah. I am the director of Small and

Medium Manufacturers at the National Association of Manufacturers. What a lot of people may not know is that NAM, 10,000 of its

14,000 members are small and medium manufacturers, so we do

have a strong interest in WTO.

Ms. SMITH. I am Jean Smith, the Acting Assistant Administrator

for the Office of International Trade at the Small Business Administration.

Mr. THOMAS. Kermit Thomas, chairman of the Banking Committee of the National Black Chamber of Commerce.

Ms. WEAVER. My name is Vanessa Weaver. I am a member of the

Board of Directors of the U.S. Export-Import Bank. Last year we

did about $15 billion in support of 2,500 export sales, 86 of which

were for small businesses. I am going to do as much as I can this

year and next year and every year I am there to help small businesses.

Ms. BRIMS. I am Kitty Brims with the National Association of

Manufacturers, and I would just like to thank you again for holding this and let you know that the NAM has also put together a

compliance program to monitor our business with the Chinese.

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Mr. COON. My name is Dell Coon. I am president of Kentucky

Bloodstock Associates. It has nothing to do with Count Dracula. I

buy and sell thoroughbred race horses. I truly have a small company. There is myself and 11 associates. Last year we did $122 million in business, 80 percent of which was export.

Everybody was talking about the patience that you have to have

in dealing with the Chinese, and I would like to tell you a true

story. There was a former Minister of China that previously had

been a history professor at Beijing University. He was in Paris

being interviewed by Paris Match, the publication, and he was

asked—and I will paraphrase it—Mr. Minister, since you are a

world-renowned historian, what do you think the net result of the

French Revolution was? And his answer was: It is too early to tell.

[Laughter.]

That will give you an idea of the resilience you have to have

when dealing in China. To give you an idea of the scope of the thoroughbred business—many of you have been to Hong Kong—the

largest tax contributor in Hong Kong is the Hong Kong Jockey

Club, the race track, and it is Hong Kong’s second largest employer.

Mr. COWLES. I am Adam Cowles from the U.S. General Accounting Office, and we have spent the last 3 years tracking progress in

the negotiations, and we will be spending the next 4 years, after

China gets in, tracking China’s compliance with its WTO commitments.

Mr. CRESANTI. I am Robert Cresanti with the ITAA, the Information Technology Association of America, and the World Information

Technology and Services Alliance, here representing our constituency, which consists of about 500 members, about two-thirds of

which are small businesses.

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Mr. DUGGAN. I am Marty Duggan, Small Business Exporters Association. I want to say thank you to the Committee for getting on

to this issue. We testified for a number of years regarding the trade

deficit. It was the Chairman who mentioned that our trade deficit

was in the neighborhood of $100 billion. And if you go back to

1986, it was $1 billion. And there has been these incremental

jumps ever since, and nobody has really done an awful lot about

it, especially the Congress. And I think that—I testified, I think,

4 or 5 years in a row before the Ways and Means Committee, and

the only thing I changed was the deficit numbers. So we are doing $16 billion a year. That is wonderful. But we

have still a long way to go to kind of level the playing field. And

it is nice to see that there was some balance in the presentations

with people who have been on both sides of the China question.

I think we have a difficult task ahead of us, and I would hope

that the Congress would become more involved.

Thank you.

Mr. FREEDENBERG. I am Paul Freedenberg. I am director of Government Relations with AMT, the Association for Manufacturing

Technology. We have 370 members, many of them in Massachusetts, ranging from $2 million in sales up to $1 billion. And we

build machine tools, measuring devices, and manufacturing software.

And China, outside Mexico and Canada, China is our largest export market, and that is despite very large barriers, both put out

by the Chinese and by the U.S. Government, in the area of tech

transfer.

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Mr. CONLON. I am going to start by just posing a question to Mr.

Eisenhaure and Mr. Bowe. We have heard a lot in the last hour

or so about some of the pitfalls and the difficulties of doing business in China. But given the fact that the business climate in

China is improving dramatically and will get better because of the

WTO agreement, how much do you expect your business activities

in China to grow over the next coming years?

Mr. EISENHAURE. We are quite satisfied with our relationship with China at the present time. We import about $750,000 a year

in raw materials and semi-finished subassemblies. We export to

China about $3.5 million. That is new sales that have occurred in

the 3 years. We would expect that sales to grow at about 50 percent a year.

You know, we put quite a bit of effort into our relationship with

China. We visit about three times a year. We have a Chineseowned trading company that represents us there. One of the key

things, just reflecting on some of the other things the panelists

mentioned, we have a Chinese nationalist who works for us as our

head of engineering who has been very helpful in personalizing our

relationship with the Chinese counterparts.

You know, from our point of view, we are a small business, we

will take any help that we can get. But, you know, what we would

like to be sure of is that the playing field is level between ourselves

and some of our friends in Great Britain and Germany who compete with us in the commercial marketplaces.

Mr. CONLON. Mr. Bowe.

Mr. BOWE. We are serving both the port construction markets

and environmental markets. So from the port construction side, obviously we want to see Chinese trade grow, both imports and exports. That creates an infrastructure pressure leading to demand

for our products.

We are selling both to central government and regional government entities, virtually all governmental entities. We have over a

dozen active prospects we are working on now, where, say, 2 years

ago it would have been zero or just a handful.

So looking at us as a project company, not so much a product

company, we see sustained opportunities over the intermediate

term.

Mr. CONLON. I want to start the roundtable discussion portion of

this by bringing up the issue of how effective have the existing export policies and programs of the Federal Government been in assisting the small businesses who wish to export. And if there are

specific areas we need to improve, what are they? With regard to

China specifically, but also it has an impact on other exporting to

other markets.

Mr. Goodwin.

Mr. GOODWIN. We have encountered the tied aid problem in the

U.S. and with the subsidized financing from our competitors in

China. And so there is many a sale that we have lost because the

buyers were able to get Dutch financing or Norwegian financing at

subsidized rates.

We have used Ex-Im programs. We even had a tied aid loan a

number of years ago. But it is a very difficult proposition. The U.S.

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sidized loans, and that is one area where we are concerned when

we see in the press talk about cutbacks in Ex-Im rather than the

other way around from a small business perspective.

Mr. CONLON. If you would put your card up on the side, then I

know to call on you in order. Let’s start with Mr. Mueller and work

our way down.

Mr. MUELLER. When we first started to export into China about

15 years ago, we utilized the services of the Commerce Department

and the State Department to help us in finding representation and

getting established through trade shows and so forth.

When we established our manufacturing facility in Shanghai, we

also used these people to assist us in making contacts as to location

of facility and so forth.

It has been a good experience. We have had very little problems

with the acceptance of our product. While we are a small company,

our products tend to be the technology leaders in the market segments in which they operate. So that the Chinese customers, electric utilities primarily, have been very interested in obtaining our

products, primarily by export from the United States into China.

Interestingly, when we established a manufacturing facility, in

order to more tailor our products to Chinese needs and to be closer

to our customers, initially our Chinese customers were reluctant to

buy from that facility because of their concerns about quality and

so forth. And when the facility became ISO 9001 certified, that

helped to alleviate that concern.

So it seems a little strange that local manufacturing was perceived to be less desirable than imports. But as I say, in the past

year or two, that has gone away.

Our Chinese manufacturing facility in no way, however, attracts

more exports. Actually, our exports from the United States into

China, either direct customers or to our own facility, have increased at between 30 and 50 percent each year for the past 4

years. And we expect that to continue.

Mr. CONLON. Mr. Meenan.

Mr. MEENAN. Thank you. Thanks for holding this session today,

most timely as well.

You have my remarks already for the record. I would just like

to synthesize a bit. The usual traditional support programs of the

U.S. Government have been good up to the point they have gone.

But I think the Government has to look beyond the box, outside of

the traditional that they have done.

We have been negotiating trade agreements extensively, obtaining good agreements and understandings, but that is only the very

first step. The Trade Compliance Center is going to have a lifetime

build-up of work with USTR turning these out at such a rapid

pace, and the need, as Dr. Kapp has pointed out, for the structural

changes that need to be done is the key that you are trying to get

to. The rest is only the understanding.

It was raised during Ambassador Zoellick’s confirmation hearing

in the written portion as to looking to other institutions, third parties such as the international financing institutions, to provide

packages of technical assistance and training possibly to the midmanagers in these countries so that when you enter a negotiating

cycle—and don’t wait until you conclude—start talking to these

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people, and the training—which will help bring them on board as

to what the reforms are that you are trying to do and get into

place. And I would hope that China in this case would be a classic

example where the Asian Development Bank, the World Bank, and

the UN through its UNDP and other programs could start working

with the mid-managers early on, both with best practices and other

interventions, both training and technical assistance, and tapping

the various resources to help move this whole process along.

The export promotion programs of the Small Business Administration, the Gold Key efforts of the Department of Commerce are

all good, but for them to work properly, you have to have the basic

ground rules in place and the rule of law. And this is where the

earlier technical assistance, if you want, the liberal aid for trade

sort of approach, needs to be integrated more between the USTR

that is negotiating it and then for the Compliance center that is

going to try to make it real. I think it would be a lot easier if the

U.S. Government got a handle on this whole situation a lot earlier

in the process.

Thank you.

Mr. CONLON. Thank you.

Ms. Griffin.

Ms. GRIFFIN. Yes, I was going to say, over the last several years

the U.S. Chamber has done a number of surveys and reports on the

question of small business experiences in China, and in the 1997

survey we did, over 15 percent listed the lack of Overseas Private

Investment Corporation programs in China, the fact that OPIC is

now restricted, as hindering their business in China. And a number

of them noted that they had used that as an active part of their

market entry strategy in other countries and were not able to do

so in China. And I wanted to ask that both a June 1997 survey

that we did that covers this whole area of Government promotion

programs in China and the 2000 report we did on small business

success stories in China please be entered into the record. And I

would note that a couple of the companies that we featured in our

small business report are here today, including Peter Bowe of

Ellicott and Bob Goodwin of Chindex.

Mr. CONLON. I have my copy here.

Mr. Kapp.

Mr. KAPP. I am particularly glad to be here because this subject

takes me back to my residence in the State of Washington where,

for many years, I was involved in trade association and business

association work in an environment where there were three or four

very large companies and a great many small firms. There wasn’t

really anybody in the middle in the State of Washington.

I do have a little bit of a sense of ‘‘de ́ja ́ vu all over again’’, as

Yogi said. The structural problem is—and please correct me if you

feel differently—that small businesses are often the fountains of

creativity and initiative and inventiveness in American business,

but their pockets aren’t very deep. And the time and money it

takes to get started in a market like China, which is clearly more

difficult than, say, Canada, is hard for small businesses to afford.

You have to put up money up front, you have to travel, you have

to have ‘‘guanxi’’ or ‘‘good relationships’’ before the money begins to

flow back.

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And so the search for remedies is always underway, and a Congress which runs in biennial terms sometimes kind of loses track

of how long that search has been going on. The search is always

to figure out how to bridge the gap between the limited resources

of smaller firms and the world-wide opportunities that they could

enjoy. Often this comes back to state efforts. State Departments of

Commerce can be very helpful. With regard to the reference to the

Maryland-China Council and the establishment of the Maryland

trade office, Washington State also has a trade office in Shanghai;

these things are all part of it.

Part of this has to do with market opening, taking people on relatively inexpensive acquaintance-making missions, trade shows

and so forth. A lot of it has to do with financing. These topics that

have come up today on financing are the same topics that were

being raised in the State of Washington and in the local export

councils 20 years ago.

The Committee might even want to look back over the last 10 or

15 years and try to come up with the core, enduring, unrelenting,

unyielding problems that have been at the center of the small business international trade agenda for 20 years or more now, to see

whether those can begin to be addressed in a more systematic way,

because this is not new material.

Mr. CONLON. Thank you, Dr. Kapp.

Mr. Freedenberg.

Mr. FREEDENBERG. We have had very good experience with Commerce Department support in China. I think they have an excellent

group on the ground. And we have—as I said, China is our largest

overseas market, but we have had less success with Ex-Im Bank

because most of our exporters are small.

I was on Senate Banking Committee oversight for Ex-Im 20

years ago, and we had the same problem. It is an ongoing problem,

and it is always going to be fixed. And we have always supported

Ex-Im. We see it as becoming supportive for small business. But

it hasn’t yet become such, and that is a real problem for us because

of all the competitive export financing that is all around the world.

So that is an area that needs work, and the fact that the Congress funded the administrative overhead to a larger extent last

year is good, because they need more people in order to service the

small businesses. It is much easier to serve large business than

small business, and it is more labor-intensive, but it is not something which they have been able to be successful at doing in China

or in most of the rest of the world.

Mr. CONLON. Mr. Duggan.

Mr. DUGGAN. I think for small business the two major problems

are information about the various markets that are available to

them and financing. I was reviewing some old correspondence that

goes back to the start of our organization 11 years ago, and you go

down the list and every damn one of them is a major problem

today. Nothing has changed.

As Paul said and as others have said before me, the need for involvement, for the realization by the policymakers as to what types

of problems are faced by U.S. exporters versus their competitors,

nobody seems to either have the time or the inclination to pay

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enough attention to these issues. There are a number of people out

there or countries out there that are eating our lunch.

Canada, for God’s sakes, 28 million people, their credit facility

for exports has over 800 employees. The Ex-Im Bank has somewhere just over 400.

I think that, if we are going to take advantage of the opportunities that the ingenuity of the companies around this table have to

offer, we have got to get serious about trade. And I think that we

can talk about this thing, but nothing seems to happen. And I

think that we better get off the dime and, you know, to have a 25

percent or 24 percent cut in the Ex-Im budget, Ex-Im is probably

the lowest financed credit agency in the world, of the major countries, at least, and here we are going to cut 24 percent of their

budget. We are going to go back over probably close to 20 years

when Ex-Im was doing well under $10 million a year. That is not

being very serious about the problems that we face internationally.

Mr. CONLON. Mr. Coon.

Mr. COON. Mr. Meenan had mentioned something a minute ago

about the Gold Key Program, and I think that is your bailiwick,

Mr. Hale. You have two employees working for you that I would

like to congratulate, and that is April Redmond and Sue Burns,

who did an incredible job for me in China.

Mr. HALE. Thank you very much.

Mr. COON. If any of you have not utilized the Gold Key service,

take a look at it. It can pay you great dividends for not much of

an investment.

Mr. CONLON. Something I read recently sounded pretty interesting, and that was the American Chamber of Commerce in China

conducted a study of its member companies’ experiences in China.

And they found that while most companies are profitable, only a

small percentage earn profits in China superior to those in other

markets.

Now, the companies cited various different reasons for why that

was so, mostly due to regulatory issues, a lot of which will be

solved by the WTO agreement. But the one significant problem

that they noted was the need for broader financing options.

How successful have the SBA and Ex-Im Bank programs been in

addressing the financing needs of small businesses? And what else

should they to effect—what should we do to effect some meaningful

improvement in that? And I can throw that open to the panel or

any of the participants.

Mr. Bowe.

Mr. BOWE. I don’t want to be redundant, but are you talking

about financing for the importer or financing for the exporters?

Mr. CONLON. Exporter.

Mr. BOWE. But you need both. Ex-Im’s programs for small business I think are dramatically improved over recent years with

something called the Working Capital Guarantee Program, and

that can be used to finance inventory and receivables related to export business, including China business. The issue that you are

hearing a number of panel members mention is that there is also

the need for financing on the buy side, that is, the importer in

China, and that is where Ex-Im Bank is falling short because our

competition is offering programs which clearly affect the purVerDate 11-MAY-2000 09:58 Jan 20, 2002 Jkt 076593 PO 00000 Frm 00096 Fmt 6633 Sfmt 6602 E:\HR\OC\B593.XXX pfrm04 PsN: B593
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chasing decisions of our customers. And that is a policy decision,

as Marty Duggan has mentioned, that Congress needs to grapple

with and get off the position of, well, it is not what we prefer to

do. The problem is it is the reality of all of our competition.

Mr. CONLON. Mr. Goodwin.

Mr. GOODWIN. Not to get too arcane about the intricacies of how

the Ex-Im program works, but the problem is, from our point of

view, that when we face subsidized competition in China—in other

words, we have a company that is selling a European product or

something that has financing for the buyer at subsidized rates, we

are unable to get Ex-Im to match that until the entire process has

been completed. They have a policy that they will match foreign

subsidized loans if you can prove it exists, but that decision on

matching only occurs after that loan has been notified to the

OECD.

There is an international agreement among the developed nations through the OECD to notify any subsidized loans. So Ex-Im

waits until that notification is made. When you wait until the notification is made, the deal is closed.

And so we can wait and prove the foreign subsidized loan exists,

but by the time we are able to get Ex-Im’s attention on it and the

loan is actually notified by the foreign country, the deal is closed.

And so it is a meaningless exercise, frankly.

And there has been no effort to creatively figure out how European countries are able to undertake their programs with the existence of the same OECD agreement on their side, but the U.S. Government is reluctant or unable to be creative in the same way that

the Europeans have been.

Mr. CONLON. Mr. Duggan.

Mr. DUGGAN. As Peter used to say, the thing that—before Ex-Im

would react, you had to produce the dead body. And that is exactly

what you are saying. I always liked that term, ‘‘the dead body,’’ because they wanted the documentation that just wasn’t available.

And by the time you reacted or they reacted, the deal was long

gone.

I think within the last couple of years, Ex-Im has dramatically

improved their performance, but the number of companies—and

there are somewhere in the neighborhood of 180,000 small businesses that are exporting, Ex-Im is serving somewhere in the

neighborhood of maybe 3,000, at the most.

Jean Smith is here from SBA. I don’t know how many SBA is

serving, but at one point it was a hell of a lot less than the thousands. So I think that we have been woefully negligent in this one

area.

Mr. CONLON. Mr. Meenan.

Mr. MEENAN. Our advisory committee for small minority business has been looking at this for a few years now. We have called

in some of the delegated-authority banks from Ex-Im, that work

with Ex-Im. We have had Jean over a few times as well as others

to talk about it, because they seem to be at a plateau, stuck for the

last few years, of a couple thousand transactions. At first we

thought if they put more delegated authority out there and pushed

it out to more of the banking institutions and not keep it in Washington, the process, that might help facilitate it. But then, again,

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we found that the banks were reluctant to take up on it. So there

has been a gap between the Ex-Im, SBA, and the banks willing— as Jean knows, one signed on for a new program and then got cold

feet when it came down to really moving it.

We have also invited the Federal Reserve to come, and they are

doing a study now on availability of credit to small businesses. But

their initial findings were positive insofar as credit scoring was

going, negative insofar as some bank practices. The report is still

not out, but there were some practices that don’t necessarily favor

certain institutions or geographic areas and what have you.

So there is a gap, I think, between the Federal programs, it

seems, and the banks and their willingness under the terms that

are provided to really move it. So, as such, the last few years we

looked at it, it has been at around 1,600 to 2,000 transactions for

small businesses, and given the number out there, that is fairly

limited for Ex-Im and SBA.

So, again, you need to look, not to beat it over the head, beyond

the box somehow. We need to break this ceiling that we are bumping up against and find new ways to energize it. It is even going

to be more difficult with the budget cuts that this Administration

has put through on SBA and Ex-Im, and particularly as to the

added fees in that that they now have to be charging, which will

even discourage the banks and the users even more.

With that, I would like to ask Jean from her perspective, SBA,

with the budget cuts and what have you, how attractive will your

package be now or in the future as it has been in the past. Sorry

to put you on the spot. [Laughter.]

Ms. SMITH. Well, nothing is in stone yet, but we have had to

react somewhat to the new budget for next year, and there have

been some scenarios in place, as I said, you know, and it will all

come out in the wash by this fall. But some of the proposed scenarios would do exactly as you said. In order to get close to a zero

subsidy rate for the loan programs, we have no choice but to increase fees.

On the export side of that, it probably is going to be quite

marked an increase in those fees. We currently have a quarter percent guarantee fee that exists for loans under 12 months, which is

our Export Working Capital Program. I don’t know—some of the

scenarios I have seen raise it to as much as 1 percent. So on a $1

million deal, which is our cap, it would go from $2,500 to a fee of

$10,000. So that is fairly significant.

So you are right. In terms of our efforts to increase volume and

access by small businesses to these guarantee programs, probably

that ability will be somewhat curtailed or our guarantee program

will be less attractive—let me put it that way—to many banks because of those fees.

Mr. CONLON. Mr. Bowe.

Mr. BOWE. Speaking further on the Ex-Im and the tied aid for

China, a couple of comments of what I would call the mechanics,

the problems of the mechanics, that is, trying to respond, to match

what a foreign competitor has done. I think there is even a deeper

philosophical problem that relates to the marketing side of it.

The document I attached in my written testimony was a translation of a Chinese document on how to access soft loans from forVerDate 11-MAY-2000 09:58 Jan 20, 2002 Jkt 076593 PO 00000 Frm 00098 Fmt 6633 Sfmt 6602 E:\HR\OC\B593.XXX pfrm04 PsN: B593
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eign countries, in this case Holland, and it describes what naturally becomes a collaborative relationship between the Chinese

Government and the Dutch Government and how Chinese institutions can access this financing and, therefore, proceed with their

projects.

So the Ex-Im approach or the congressionally mandated approach of matching tied aid presupposes that, but for financing, everything else being equal, the Chinese or whoever would buy from

an American supplier. With this kind of long-term relationship

building, that is not the case. The Chinese would not necessarily

welcome an American offer at the last minute of financing. They

would say, wait a minute, we have been meeting—it says we have

been meeting in Beijing and the Hague twice a year to develop the

projects which will be financed with this type of program. So coming in at the last minute really disrupts these relationships.

We have heard other testimony today about guanxi, the relationship building. This is true in other countries around the world. So

it is not just a mechanical problem. It is a philosophical marketing

problem that until the U.S. decides that it is something that we

want to do, the matching tied aid concept is destined to be unwelcome by the foreign government recipients that we are trying to

help.

Mr. CONLON. If we could narrow the discussion a little bit, just

to talk a little bit about if there is one thing that we in the Committee can do, what would that be? If there is one policy or program we should go after, where is that going to be? Where should

we concentrate our resources? Dr. Freedenberg?

Mr. FREEDENBERG. Since I have some perspective on this, about

a 20-year perspective on it, this is an argument that has been ongoing. If you wanted one word, it would be money. It has to do with

the fact that Congress—each new Administration decides to cut

corporate welfare. Ex-Im Bank is corporate welfare by usually

OMB’s definition. It is fairly much of a syllogism. The problem is

you need—and that is why these sorts of hearings are very important. But you need to educate the rest of the Congress on this

issue. It is always seen as some sort of a special subsidy that only

goes to U.S. business, and the perspective of it being one-sixth of

what our industrial competitors offer is never brought forward,

that is one-sixth as a percentage of our GDP versus, say, France

or Britain or other industrial—or certainly the Japanese.

So that is really where it comes. Then the rest of these programs,

these problems follow from that. We have to be very, very frugal

with our tied aid because we have so little of it. We have to be very

frugal with helping small business because we have so little money

and so little staff. And all of this sort of cascades down from the

lack of funds. So you can change the processes, but without the

funds, you are not going to get very far. And I am afraid, you

know—I hate to say it, but, you know, here we go again.

I helped Senator Heinz draft a debate on this with David Stockman back in 1982, and I could change the dates and it would be

exactly the debate you are going to have this year over Ex-Im

Bank. So I am—perhaps ‘‘discouraged’’ would be the word.

Mr. CONLON. Mr. Kapp.

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Mr. KAPP. A couple of quick points. I think Paul Freedenberg is

onto something very basic here, but there is one little China wrinkle that takes this back from the general theme of how small business makes its way in the global economy to the subject specifically

of business with China. And that is that the relationship with

China is so politically sensitive these days, and particularly on the

Hill, that it is impossible fully to separate an approach to China

as a national policy problem on the Hill from anything you do on

the economic side.

Now, our view, obviously, is—and I say this often to Chinese colleagues—that if there is not a strong and vibrant economic and

commercial relationship between the United States and China,

holding the whole relationship together is going to be much, much

harder. The economic constituencies in this country that believe

that a stable and productive relationship with China is both in

their interest commercially, and also in the national interest are

the glue politically, that holds things from flying apart far more

dangerously in the debate over U.S. relations with China.

I guess what I am saying is that if this is a China forum, part

of the answer to what can be done has got to be related to the

whole demeanor of the Congress and the whole demeanor of the

U.S. Government with regard to relations with China. If relations

with China are going to heck in a hand basket, anyway, and the

whole relationship turns sour, it is going to be difficult to craft the

kinds of measures that would help small businesses or help big

businesses or one sector or another in the Congress with China.

And, therefore, this probably needs to be seen in a more comprehensive way with regard to this particular bilateral relationship.

One other quick point on the question of programs. Programs are

important. Small businesses have limited resources. I would differ

a little with Marty on the notion that what is lacking is information. One of the problems now is that there is so much information—certainly with regard to China, there is so much information

out there, especially thanks to the Web, that a small business with

only one person who does all international business for the company is going to have a hard time just getting its hands around the

mass of information that is available.

I differ a little with Senator Kerry on the notion of one-stop shopping, a term which has been around, again, for a very long time.

We used to have companies in Seattle who would say, ‘‘I don’t want

to have to go from the Washington Council on International Trade

Office across town or down the street to the Export Assistance Center of Washington because I don’t want to have to make two stops.’’

And my reaction to that small business person was ‘‘If you don’t

want to make two stops, you better not go to China, because there

is a certain amount of——

[Laughter.]

Mr. KAPP. Well, let’s just say that international business imposes

certain things on you, whether you are big or little.

So one of the problems perhaps that remains and might be

thought about in terms of educational efforts over time along with

the question of how to deliver the services and minimize the hassle

quotient for small businesses with few people and limited funds, is

97

how to help little businesses develop realism about what it takes

to plunge in at all, certainly with China. Indeed, when I worked

in the State of Washington, we sometimes had to drag small businesses kicking and screaming into even being interested in international markets because domestic markets were so much easier to

deal with and so much more compelling.

In other words, this is a two-way street, and there is some responsibility on the shoulders of smaller companies as well. Obviously the companies here today have understood that and have

borne the responsibility extremely well and successfully.

Mr. CONLON. Mr. Eisenhaure.

Mr. EISENHAURE. There is one thing about small businesses, you

have to kind of go after targets of opportunity. You know, forcing

yourselves into new markets by buying your way in, is a way to

not be a small business but to be out of business. You know, if you

are trading in a particular marketplace and your competitor from

Great Britain or Germany has essentially the same product, has

the same cost basis, and he has free money, you kind of aren’t in

that business anymore. There is not much you can do about that.

It is impossible to compete with.

On the other hand, there are differing things that you can provide edges to small business. Right now we sell more product to

China than to any other country other than the U.S. One thing you

might do with funds you already have available is provide a commercialization program credit as part of the SBIR program so that

companies which have a positive trade relationship with China

could get some extra commercialization credit for that. You know,

a $750,000 SBIR award will substantially change the balance of

competitiveness compared to a foreign company if you are introducing a new product into one of these marketplaces.

Mr. CONLON. Ms. Li.

Ms. LI. I would like to add a little to what Bob just said, managing U.S.-China relationship. David Lumpton, who is the director

of China studies at the Nixon Center here in D.C., wrote a book

called ‘‘Same Bed, Different Dreams: Managing U.S.-China Relationship’’ from a broader perspective. For those of us here who

speak Chinese, that is ‘‘Teng Chang Imon.’’ From a smaller perspective—I guess that is another reason we

are here—for smaller business, especially the ones who are hoping

to get to China, in addition to facing the political and business obstacles, we have the so-called cultural barrier, which is absolutely

crucial. A few speakers did allude to that a little bit. I just want

to add a few comments to that.

A client of ours said to me once, before they became our client,

they said, Dottie, it is like stepping into a field of land mines blindfolded, going to China. I think some of you may have had that feeling in the past when you first started going to China. A bilingual

person doesn’t always make a translator or an interpreter. Peter

mentioned the translation of your materials presented to your Chinese counterparts. You can’t always get a person who speaks Chinese. I was born and raised in China, but you have to be trained

to be a translator or an interpreter. There are a lot of cultural nuances that need to be translated, not just within the text but also

within the dialogues and the conversations. And your guanxi with

98

your government officials, what have you, the cultural contents are

just crucial. We give training courses to companies three days,

sometimes, if we have to, four hours, but just those so-called crash

courses will help people, maybe a small step in reaching your goals,

to deal with the Chinese, as difficult as they might be.

Mr. CONLON. Mr. Mueller.

Mr. MUELLER. I think to your earlier question of what should the

Committee do, obviously number one is to push WTO. I do think

that it would be desirable, if it is possible, to lower the heat of the

rhetoric that is applied to China’s domestic policies and activities.

In addition, obviously, funding Ex-Im directed at small businesses

is another thing, and really finally, assuming WTO is approved,

that the compliance issues have to be addressed and the staffing

of personnel in various U.S. Government departments to facilitate

that enforcement and compliance is critical.

The agreements are meaningless unless compliance is encouraged.

Mr. CONLON. Ms. Griffin.

Ms. GRIFFIN. I was going to pick up on something Mr.

Eisenhaure said about the way your company makes use of imports. I think another problem on the Hill sometimes is there is a

sense that exports are good and imports are bad. And realizing

that we do have an enormous trade deficit that is going to continue

to be a political issue, I just think that folks should realize that imports play a very important role. I think of a company we featured

in an earlier version of our success stories. It was a company that

exported seeds from China, and in the course of getting those seeds

to the ultimate processing plant in the United States, they created

jobs for some of the trucking companies that took those seeds to

the plants and the people that cleaned those seeds and processed

those seeds. And I just think there needs to be a greater comfort

level with the import side of the U.S.-China relationship.

Mr. CONLON. Mr. Hale.

Mr. HALE. I would just like to respond and comment on a couple

of points that have been made.

We certainly agree very strongly that there is going to be a great

need to watch China’s compliance with the WTO agreement, and,

you know, as I think I noted in my comments or my remarks earlier, the Congress did give us and State Department and USTR and

Agriculture some extra resources this year for exactly that purpose.

We are getting those resources in place and think we have a handle on what is going to happen. The catch is until they are members of WTO, there isn’t anything they have to comply with. So we

are doing a lot of wheel-spinning at the moment.

Just a couple quick observations. Marty, in response to your

point on information, I would like to mention that we have set up

what I think is a reasonably good all-in-one-place web site on

China, commercial opportunities and doing business information

under the new Commerce-wide export.gov, add slash China to get

to the China thing. If you can get past the rather corny opening

picture of a door opening, which my staff thought was hilarious

and I haven’t been able to get rid of yet, the information is pretty

good.

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I also want to note just in passing that while some of our financial programs and some of the others, there have been some complaints about how they operate in China, I do want to note that

the Trade Development Agency did open its doors for business in

China the first of this year and have had a couple of things come

in already, and they are running around wondering how they are

going to do everything that comes through their door.

Finally, the Commerce Department has over 100 Export Assistance Centers around the country, many of which have reps from

other U.S. Government and State and local government export assistance units on the same site. They are primarily to serve small

business, and they serve, hundreds of thousands a year, hopefully

productively, getting more and more into the export business.

Thank you.

Mr. CONLON. Mr. Coon mentioned earlier about the Gold Key

Program. Could you describe that?

Mr. HALE. Yes. The Gold Key Program is basically if a U.S. company wants to explore market opportunities in, say, Beijing or

Shanghai or something, and Commercial Service in our embassies

or consulates, provides a hand-holding services, a place to hold

meetings and making of appointments for them. In other words,

the Gold Key to opening the market in Shanghai.

It is a service-for-fee operation, but it is very modest. It varies

a little bit from place to place. But it is an opportunity to draw on

the expertise of our people on the spot to try and find appropriate

business partners or buyers or sellers for you and provide a place

for your meetings, and so on and so forth.

You can learn more about it or sign up through any of our Export

Assistance Center regional offices.

Mr. COON. If I can add, the cost on it runs between $150 and

$225.

Mr. DUGGAN. They just doubled it.

Mr. COON. Really? When did it go up?

Mr. DUGGAN. It went to about $500.

Mr. HALE. It is higher—you know, of course, it varies according

to what sort of service you are looking for. Multiple days are cheaper than per day. Yes, we have had to raise the fees. I don’t know

for sure what they are, and my Commercial Service guy I think has

left. But they have been raised, but they are still far cheaper than,

you know, renting a hotel room or doing your own meetings. It is

a tremendous saver because basically you arrive in, in this example, Shanghai and you get a day—you know, whatever your schedule is. The first day you want to work, your appointments are

largely ready to go, or at least ready to start setting up. The facilities are all there and so on.

But we increasingly are having to charge, you know, cover a significant portion of the costs of the add-on services. Not the basics,

but the add-on services we do.

Mr. CONLON. Thank you, Mr. Hale.

Ms. Allen.

Ms. ALLEN. Well, this is an educational process for me, too, because most of the small businesses that I deal with do not know

and do not obtain government subsidy, and that corporate pork just

resonates on old memories.

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We are not here to ask for government subsidies. We are just

here to ask for the Government’s to help to create a climate that

will be hospitable to the small businesses that we represent.

What I hear today is, well first of all, we spent a substantial time

on financing. We talked about how the Dutch, the Canadian, and

British Governments subsidize their companies in doing business

with China. And I suppose those subsidies go to huge corporations

who I do not represent.

I can see on this issue there are two ways to approach the problem. One is for a head-of-state to head-of-state dialogue. This is an

impossible task, but this is something we can talk about, for our

President or our Secretary of State or Secretary of Commerce to

talk to their counterparts in these foreign countries and say, hey,

this is not fair, you are subsidizing your corporations, you are using

your taxpayers’ money, but we do not want to take our small business and our taxpayers to subsidize corporations just so they could

sell to China.

Here at home, if we have effective Ex-Im Bank export programs

and SBA programs for export, I would like to know more about it,

because in the last 17 years that I have been involved with this

trade association, very few information has been forthcoming.

Second, with regard to the barriers I talked about earlier, one of

the major barriers is—and we talked about compliance. You can hit

their heads with a hammer about compliance, but if there is no

place to enforce it, if there is no place to enforce any court order,

whether in the United States or Singapore or Japan, for the Chinese merchants or our Chinese counterparts to pay the fines, those

arguments are meaningless. We are just padding the lawyers’ pockets, and I am one of them.

With regard to information, yes, we have a lot of information.

There is plenty of information in print and in cyberspace. Just go

to cyberspace. There is plenty of it. You don’t have to worry about

that.

There are lots of consultants who are working for law firms, and

for accounting firms. They are full of information about how to do

business, where to go, and what to avoid. They are there.

I think what we have here is we are facing a climate in China

that is still not conducive to the small businesses. As Dr. Kapp

mentioned, the small businesses do not have the deep pockets that

the big businesses have. They cannot put somebody like McDonald’s and General Motors in China for 5 years living in a hotel and

wait for the opportunity, because they have got to produce their

widgets here at home and they have got to make their payroll.

One thing, though, I must say is that the Chinese people love

American products. They love them. The question is how do we get

it to them without having to go through all that bureaucratic morass.

The situation in China has changed substantially in the last 20

years. One way the Government can help is to encourage more exchanges, of business executives and legal scholars so that they will

be more educated to the rule of law. It will become part of their

life, part of their conversation. Because in China, if you talk to the

little people, the common people, the small businesses, they appreciate the rule of law. Of course, everybody will walk away from it

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when it is to their advantage, but, actually, they love it. They love

to have it.

Finally, we honestly believe that joining the WTO will help

China because it will put China on the spot. Once again, the question is: Are we going to be able to hold China’s feet to the fire and

make them comply with it or give them the leeway they have been

receiving all these years? Because they have been given preferential treatment. If we can do that, it will go a long way for small

businesses and big businesses.

Finally, I have spoken to small businesses, and they say it is

easier now for small businesses to go to China because all you need

to do is to go to find your counterpart, a small business, to do business with. Don’t aspire to work for or go for the multi-billion-dollar

company. Go work with your counterpart, because you understand

each other’s problem and you can actually make a deal, because

both parties want to make a deal.

Mr. CONLON. Thank you, Ms. Allen.

Mr. Hale, maybe you would like to just let everyone know how

the Commerce Department would deal with, you know, trade dispute issues when China does accede into the WTO, what the process is, and if someone has a particular problem, who do they go to

or how does that work?

Mr. HALE. Okay. We set up about a year ago—and I think Mr.

Meenan already has referenced it—something called the Trade

Compliance Center. I have got some brochures on the thing here.

It was basically aimed at watching foreign countries’ compliance

with trade agreements. Let’s talk China specifically now.

If a company encounters a problem, you know, it looks like business is going ahead and all of a sudden they run into some sort

of a problem, which appears to be prohibited, let’s say, under the

WTO agreement, I think the first thing that we would do, probably

through our Commercial Service reps in Beijing, is approach the

Chinese Government, our counterpart Ministry, MOFTEC, Ministry of Foreign Trade and Economic Cooperation, which I think we

have developed a very good working relationship with, and say,

hey, company X says that they have run into this problem, we

think that this violates, say, the intellectual property rights clauses

in the WTO, and could you help us—you know, first of all, take a

look and see if the company’s complaint is accurate and see what

happens.

We have actually been doing quite a bit of this without the

agreement with the MOFTEC people on what we would call a general market access problem. Many of these we find can be solved

right away. A certain percentage, a quick visit from someone from

the central government, and the problem is solved. And others,

frankly, we discover there is a problem on the U.S. side also, and

it is a misunderstanding. You know, the Chinese partner was waiting for this, the U.S. partner was waiting for that, neither knew

what the problem with the other was, bring them together, it is

solved.

There are going to be some that aren’t going to be solvable.

Hopefully, they can be worked out, increasing levels, eventually

reaching our Secretary to their Minister. If we can’t do it and it is,

say, a WTO violation, we will go over to USTR and request that

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a formal dispute settlement process be started with WTO in Geneva. So there are all different steps on this.

How it is going to work under the WTO we don’t know. Indications are that China does not want to get into, is not going to want

to get into a lot of very formal dispute settlement procedures. They

are complicated. They are drawn out. And you need a lot of sophistication to defend yourself. So we have the feeling that many of the

problems are going to be able to be worked out at the working

level, and hopefully even some in anticipation of problems, with

the—I guess for lack of a better word, the training that we have

been doing, both government to government and trying to encourage more and more academic, private sector, other organizations.

You know, the WTO obligations China is going to incur run this

huge gamut, and let’s touch base with all agencies in Beijing and

through the provinces.

It is not going to be easy. There are going to be, some real problems left over, but hopefully there will be enough goodwill between

the governments to solve or the will to do it.

Mr. CONLON. Mr. Meenan.

Mr. MEENAN. Back to your question as to what this Committee

could do, I would suggest in the context on the financial side, the

financing and the budget, that while the Administration is concerned about corporate welfare, you may want to question whether

they are throwing the baby out with the bath water, and that the

small business programs of the Ex-Im, OPIC, TDA, SBA, and that

are in their infancies in getting growth. You are only talking about

a couple thousand transactions a year equating to maybe a couple

aircraft sales. So why penalize these programs while they are taking on the overall cuts on that organization?

So for this Committee, I would urge you consider recommending

to your appropriators that they put a firewall up against the small

business programs. I don’t want to put one group against another

and say whose ox is going to get gored the most. These programs

are a drop in the bucket in their overall programs. And I would

suggest that this Committee, in looking out for the interest of the

small businesses for which they are receiving some benefits, but

not the lion’s share of these organizations who are facing these

cuts, that different marching orders be provided in either a firewall

or other protective fire gear be provided so these programs can at

least survive. With the increased fees are they are talking of in

other areas, it may be the death toll for a good number of these.

And we have already gone through a year or so at one point when

SBA had significantly reduced the subsidy rate and they were out

of business, in effect, for that period until Congress could right

what they had done wrong. So I would suggest now that the appropriators are looking at cutting the budgets further here for Ex-Im,

OPIC, and TDA, the Committee may wish to consider setting a

firewall up to protect these infant programs that are helping fund

small businesses.

Chairman BOND. I have returned from the Health, Education,

Labor, and Pensions Committee markup. It has all the earmarks

of being a 100-hour markup, so I have taken this break to come

back and join you.

Let me call on Mr. Kapp for the last comment.

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Mr. KAPP. Senator, I am almost sorry you came in the door just

now because I am about to say something that applies not only to

this Committee but to the Senate as a whole.

Chairman BOND. That would be a good point to make.

Mr. KAPP. The question that Paul had asked that got us focused

was, what would we recommend for this Committee to do. I was

going to say every member of this Committee is a member of the

U.S. Senate. The U.S.-China relationship is at a very delicate moment now. The Vice Premier, Qian Qichen, will be here in two

weeks for meetings with the highest figures in our executive

branch and our legislative branch in an effort to try to assess the

likely course of U.S.-China relations. There are lots of difficulties

out there, as we all know.

One of the things that the Chinese care a lot about is what everybody in the business called ‘‘capacity building,’’ that is, whether

it is China or other less developed countries, assisting such countries in the training and the development of cadres of manpower,

financial regulators, impartial judges, all sorts of manpower and

personnel power building efforts in which developing countries

have great needs if they are to build internationally compatible economic environments.

I would urge that the Congress in particular try to put some emphasis on an agenda of positive and cooperative programmatic

work with the Chinese over the years to come. If we don’t make

the positives happen, the negatives will swallow us. And a classic

case coming out of a meeting like this would be some effort to really initiate—and, for that matter, if it could only be done politically

up here, get congressional ownership of—a programmatic effort

over a period of years to work with the Chinese on the development

of the administrative talent and the technical talent with which the

Chinese economy will be all the more hospitable to small business.

You know, when small business gets over there and they feel as

though they are walking through a minefield with a blindfold on,

it is because they are talking to people half the time who are not

competent to do their jobs. And the Chinese are not immune—in

fact, they are receptive—to working with countries such as our own

on this kind of personnel capacity building. I would like to think

that Congress might go forward, in a sense put its best foot forward, on something like that. Long term, it is going to make a

great deal of difference to all business, including small business.

Chairman BOND. I think that is a point that is very well made.

Certainly based on my recommendations, I think that that is clearly a great need. From my visits to China, I have made some disparaging remarks about the difficulties, but if there is one thing that

I did gain from my visits to China, and to other countries in the

region, frankly, it is the desire to be able to develop the structure,

such as the one that we have in this country, to ensure that businesses flourish.

On a broader scale, I don’t know how many of you have read

Tom Friedman’s latest book, ‘‘Lexus and the Olive Tree.’’ There is

some very, very exciting news that the concept of democracy,

human rights, and free market capitalism are really winning the

debate worldwide. And that is a positive. But going along with it

is the need to have the right kind of structure, and that means

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things not only like having the right kind of regulators, but it is

having a system of property laws that respect contracts and respect

property rights and has bankruptcy laws that a lot of countries

haven’t had the willpower to implement. When you get a crippled

basket case, you are better off shutting it down.

We had an experience with our Resolution Trust Corporation

which was one of the most difficult things I had to deal with when

I first got here. It was not pleasant to go around closing down savings and loans, but after we got them closed down, we took a hit.

But coming back out of that, we saw what benefit it has to our

country, and countries like Thailand and Korea, which are dealing

with crippled major enterprises, need to have a structure for dealing with it.

I spent some time on my last couple of visits to Southeast Asia— I was particularly interested in biotechnology, which has been one

of my interests. And there was a crying need for scientific information, for the right kind of regulatory structure to ensure that genetically modified foods or other plant products can be regulated in

that country so that the citizens of those countries know that they

have somebody from their country who is competent to make those

decisions.

So I think your point is well taken. It is clear that Congress will

be putting a foot forward. It may be the triumph of hope over experience to think that we will put the best foot forward. But I think

that is a point well made.

I also understand that the major recommendations you made are,

number one, to ensure proper funding for Government offices that

ensure compliance by China with the multilateral and bilateral

trade agreements, and, second, to ensure proper funding for financing programs, SBA and places like the Export-Import Bank. I

signed a letter recommending that, and I appreciate very much

your advice in that area.

I think the discussion today should help this Committee in our

efforts to ensure that Congress takes the right steps, not just to enhance trade with China but with other markets around the world.

This is where the opportunities for small business lie. It is very difficult to take that step, but we need to continue to push to do it.

I think the Federal Government does have a critical role as an

advocate for U.S. businesses, but also in helping small businesses

develop their markets and break them out of their habit of thinking about the next-door neighbor being their market. That market

may be overseas. We need to eliminate trade barriers, but the internal barriers, the inertia, the fear of the unknown, the fear of

moving out, is one of the things that we need all of you, the organizations you work with and represent, to help us pursue.

As I indicated, the discussions here today will be transcribed,

and we will look forward to the comments in the next 2 weeks. We

will make it available to the members of this Committee and other

committees.

I thank all of you for participating, and we look forward to continuing to work with you in this and other areas. And if there is

no further business to come before the meeting, we will adjourn.

Thank you.

[Whereupon, at 11:43 a.m., the Committee was adjourned.]

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