U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

93–041 PDF 2003

END OF SESSION REVIEW ON THE STATE OF

U.S. MANUFACTURING

ROUNDTABLE DISCUSSION

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES7

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

WASHINGTON, DC, OCTOBER 29, 2003

Serial No. 108–A

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house

COMMITTEE ON SMALL BUSINESS 

DONALD A. MANZULLO, Illinois, Chairman 

ROSCOE BARTLETT, Maryland, Vice 

Chairman 

SUE KELLY, New York 

STEVE CHABOT, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

JIM DEMINT, South Carolina 

SAM GRAVES, Missouri 

EDWARD SCHROCK, Virginia 

TODD AKIN, Missouri 

SHELLEY MOORE CAPITO, West Virginia 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

TRENT FRANKS, Arizona 

JIM GERLACH, Pennsylvania 

JEB BRADLEY, New Hampshire 

BOB BEAUPREZ, Colorado 

CHRIS CHOCOLA, Indiana 

STEVE KING, Iowa 

THADDEUS MCCOTTER, Michigan 

NYDIA VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

TOM UDALL, New Mexico 

FRANK BALLANCE, North Carolina 

DONNA CHRISTENSEN, Virgin Islands 

DANNY DAVIS, Illinois 

CHARLES GONZALEZ, Texas 

GRACE NAPOLITANO, California 

ANI ́BAL ACEVEDO-VILA ́ , Puerto Rico 

ED CASE, Hawaii 

MADELEINE BORDALLO, Guam 

DENISE MAJETTE, Georgia 

JIM MARSHALL, Georgia 

MICHAEL MICHAUD, Maine 

LINDA SA ́ NCHEZ, California 

ENI FALEOMAVAEGA, American Samoa 

BRAD MILLER, North Carolina 

J. MATTHEW SZYMANSKI, Chief of Staff and Chief Counsel 

PHIL ESKELAND, Policy Director 

MICHAEL DAY, Minority Staff Director

(II) 

C O N T E N T S 

WITNESSES

Page 

Brogan, Molly, Government Affairs Manager, National Small Business Association .................................................................................................................... 1

Carr, Kevin, Director, Manufacturing Extension Program, National Institute 

for Standards and Technology ............................................................................ 1

Darien, Kristie L., Director of Government Affairs, National Association for 

the Self-Employed ................................................................................................ 1

Freedenberg, Paul, Vice-President, Government Relations, Association for 

Manufacturing Technology .................................................................................. 1

Gaskin, Bill, President, Precision Metalforming Association ............................... 1

Howell, Thomas, Partner, Dewey Ballantine, LLP ............................................... 1

Jarrett, Jim, Vice-President of Worldwide Government Affairs, Intel Corporation ........................................................................................................................ 1

Kopenhaver, Janet, Director of Government Affairs, American Wire Producers 

Association ............................................................................................................ 1

Vargo, Franklin J., Vice-President for International Economic Affairs, National Association of Manufacturers (NAM) ...................................................... 1

Wessner, Dr. Charles W., Director, program on technology and Innovation, 

National Academy of Sciences ............................................................................. 2

Wellham, Mike, Senior Vice-President, RTI International Metals, Inc .............. 2

Calamaro, Ray, Partner, Hogan & Harston, LLP, Outside Counsel, RTI International Metals, Inc ............................................................................................. 2

Coffey, Matthew B., President and COO, National Tooling and Machining 

Association ............................................................................................................ 5

Green, The Hon. Mark, a Representative in Congress from the State of 

Wisconsin .............................................................................................................. 6

Peterson, The Hon. John E., a Representative in Congress from the State 

of Pennsylvania .................................................................................................... 16

Ryan, The Hon. Timothy J., a Representative in Congress from the State 

of Ohio ................................................................................................................... 19

(III) 

(1)

END OF SESSION REVIEW ON THE STATE OF 

U.S. MANUFACTURING 

WEDNESDAY, OCTOBER 29, 2003

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, D.C. 

The Committee met, pursuant to call, at 2:01 p.m. in Room 2360, 

Rayburn House Office Building, Hon. Donald Manzullo presiding. 

Present: Representatives Manzullo, Millender-McDonald, 

Majette, Shuster, Schrock, Ballance, Chocola, Kelly. 

Chairman MANZULLO. Good afternoon. We are going to begin the 

hearing. Will everyone go around the table and introduce themselves? 

Ms. BROGAN. Good afternoon. My name is Molly Brogan, Government Affairs Manager, National Small Business Association. 

Mr. CARR. I am Kevin Carr, Director, National Institute of 

Standards and Technology Manufacturing Extension Program. 

Ms. DARIEN. I am Kristie Darien, Director of Government Affairs, National Association for the Self-Employed. 

Mr. FREEDENBERG. I am Paul Freedenberg, Vice-President, Government Relations, Association for Manufacturing Technology. 

Mr. GASKIN. I am Bill Gaskin with Precision Metalforming Association. We are the trade association of metal stamping, fabricating, roll forming, spinning companies that make parts for virtually every manufactured product. It is a $41 billion industry. We 

have about 1,200 member companies. 

Mr. HOWELL. My name is Tom Howell. I am a lawyer with the 

firm of Dewey Ballantine, LLP. We represent a range of American 

manufacturing industries. 

Mr. JARRETT. I am Jim Jarrett. I am Vice-President of Government Affairs for Intel Corporation. We are based in Santa Clara, 

California. We are the world’s largest manufacturer of semiconductor chips for computers and network equipment and cell phones, 

et cetera. 

Ms. KOPENHAVER. Good afternoon. I am Janet Kopenhaver. I am 

Director of Government Affairs for the American Wire Producers 

Association, which as the name connotes, we represent manufacturers of wire and wire products and our Association represents 

over 85 percent of the domestic industry. 

Mr. VARGO. I am Frank Vargo with the National Association of 

Manufacturers, representing 14,000 American manufacturers, large 

and small. 

2

Mr. WESSNER. Hi. I am Chuck Wessner. I work with the National Academy of Sciences and will be providing some information 

from our reports. I underline that my remarks are my own. 

Mr. WELLHAM. Good afternoon. I am Mike Wellham. I am the 

Senior Vice-President with RTI International Metals. We are located in Niles, Ohio and we are a titanium producer. 

Mr. CALAMARO. Mr. Chairman, hi. I am Ray Calamaro I am outside counsel to RTI, here accompanying Mr. Wellham. 

Chairman MANZULLO. Let us see. Kevin, you came in late. Okay. 

Mr. CARR. Hi. I am Kevin Carr. I am the Director of the Manufacturing Extension Partnership at the National Institute of Standards and Technology, which is part of the Department of Commerce. 

Chairman MANZULLO. Thank you. You have to talk into the 

mike. 

Ms. DARIEN. Hi. I am Kristie Darien. I am the Director of Government Affairs for the National Association for the Self-Employed 

and we represent the self-employed and micro businesses with ten 

or less employees. Thank you. 

Chairman MANZULLO. That is great. Did we get everybody? 

Okay. Good afternoon and welcome to this roundtable discussion 

looking at the current state of U.S. manufacturing. A special welcome to those of you who have come a long distance today to join 

us. 

We all know why we are here. It is because despite our best efforts, manufacturing in the United States is in rough shape. Unless 

we do something about it, the effects will be catastrophic. 

You can ask any one of the 2.8 million Americans who have lost 

their manufacturing jobs over the past 38 months. We lost three 

factories in one week in Rockford, 1,200 people. The jobs are gone. 

That is just in one week. 

Our unemployment is officially 11.1 before the layoffs. It is probably over 12 percent. Effectively it is 15, 16, 17 percent, because 

the people have been off the unemployment roles because they 

have been unemployed for such tremendous periods of time. 

The problem goes deep. It is crucial this Congress fosters an environment that keeps Americans working. Our continued prosperity depends on keeping Americans at the job. 

We have a continuous effort with the Defense Department that 

turns a deaf ear to the pleas of our nation’s manufacturers. More 

and more contracts go to foreign companies to the exclusion of U.S. 

companies. It all started with the infamous four and a half hour 

hearing on the black berets, where three Generals came and testified and I carry that black beret in my briefcase. It is made in 

China. 

The other 614,999 are in a warehouse in Mechanisburg, Pennsylvania, because I decided that those berets made in China should 

not be distributed to our men and women in uniform, because what 

good does this serve their morale when they take off that beret and 

find out that it is made in China? 

Anyway, we have been having a very interesting time. We have 

had probably 30, 35 hearings on manufacturing. The only Committee in Congress that is devoted to trying to figure out why we 

3

are having a destruction of our manufacturing base. We talk about 

manipulation to currency. 

Frank, a year and a half ago, we held the first hearing in Congress on the RMB, and today there is a bill going on that I am 

probably going to have to miss Congressman Manzullo’s Sense of 

Congress resolution urging our administration to use every tool 

possible in order to keep the currency from being manipulated. 

I just got back from the Milan, Italy international machine tool 

show. I was there two days and absolutely totally remarkable what 

is going on in European countries compared to American countries. 

We met with the Lombardi Society. It is about 6,200 corporations 

and manufacturing in Italy is mostly medium and small businesses. There is one town of 25,000 people that has 2,000 manufacturing jobs. That is the intensity of it. 

Because these are small and medium corporations, the people 

who run them have their families in them and they are more concerned about long-term planning, the jobs being solid and taking 

care of their children and grandchildren than they are about the 

value of the stock. 

It is very interesting to see how that culture takes a look at manufacturing and that is one of the reasons we believe that they have 

succeeded in keeping these corporations so profitable. 

We have a lot of things to talk about and I am just going to 

throw it up. Whoever wants to talk about any topic first, just raise 

your hand and you will choose the first topic. Who will be the first 

to go? Good, then I will have to say then who will be the second 

and that gets a hand up. Mike, go ahead and put the mike close 

to your mouth so we can hear you. Then if you want to talk for 

a couple of minutes and anybody wants to join in, just raise your 

hands. It is very, very informal. 

Before you do that, we have two members here, Congressman 

Green and Congressman Ballance. Did either of you have any opening statement that you would want to make? You are all set. 

Congresswoman Sue Kelly just joined us. Sue, did you have any 

opening statements you want to make? Okay. Thank you for coming. 

Mr. WELLHAM. Thank you, Mr. Chairman. The comments I would 

like to make today are tied to the procurement issues of the Department of Defense. I would like to discuss two issues as they relate to the titanium industry in general The first one being the 

Berry Amendment or the Specialty Metals Clause and the second 

one is the preferential trade treatment provided to foreign countries. 

Chairman MANZULLO. Mike, you need to pull it closer to your 

mouth. 

Mr. WELLHAM. Preferential trade treatment provided to our foreign competitors. In regards to the Berry Amendment, there have 

been waivers granted that have adversely affected the domestic titanium industry and for those of you that may not be aware of 

what the Berry Amendment is, it simply says that specialty melted 

products that are used in defense applications must be procured 

from U.S. sources and must be melted in the United States. 

Today there are efforts by the Department of Defense and others 

to undermine the Berry Amendment. The Berry Amendment was 

4

originally adopted to ensure the continued strength of the U.S. Defense Industrial Base and compliance with the Berry Amendment 

is critical for the survival of the U.S. titanium industry. 

In addition to the critical challenges to the Berry Amendment 

that our industry faces, it is important to note that our trade policy 

now favors high-tech defense critical jobs in Russia over those in 

the U.S. through misplaced preference, known as GSP for imports 

of Russian titanium. There is no reason Russian titanium imports 

should have this preference over U.S. products. 

For both the Berry Amendment and GSP, all the U.S. needs to 

do is to enforce existing safeguards and disallow inappropriate 

preferences, but for reasons we cannot understand there seems to 

be opposition to both. 

So Mr. Chairman, I thank you and the Committee again for allowing RTI to participate in this discussion. 

Chairman MANZULLO. Okay. Anybody want to comment on that? 

Yes, Charles. 

Mr. WESSNER. I would be grateful, because I think the first 

speaker has raised a question that has some broader ramifications. 

There is actually a certain irony, because I think in Clyde 

Prestowitz’s book, in 1986, he pointed out that a gentleman by the 

name of Frank Vargo, who I think is sitting not far from me, was 

raising concerns about the trends in American trade balance. 

I think it is very important that this session not be considered 

what some would see as a simple-minded expression of protectionist sentiment. Questions about trade are often characterized in 

very absolutist terms. 

On the one hand, there are right-thinking ‘‘free trade’’ advocates, 

and on the other hand are wrong-thinking ‘‘protectionists’’. But in 

reality, trade issues, as you know, are much more complex and that 

is reflected in the trade negotiation process and the complexity of 

the trade agreements themselves. 

To paraphrase the President’s remarks about Saddam just pulling up his weapons and dropping them in the parking lot, if we 

were just implementing completely free trade, we would not need 

1,000-page trade agreements; would we? And we perhaps would not 

need a large enforcement office, although keep in mind we do not 

have a large enforcement office? 

The challenge of enforcement of trade agreements is something 

that successive administrations have not been able to get their 

arms around. 

What I have here—and I will not read to you, but I think is 

worth looking at—is a series of questions raised by the Science 

Committee, because they are concerned about the long-term impact 

of their technology policy. 

I do not mean to be too outrageous, but I was thinking about the 

sniper events, the sadness that struck this community a year ago. 

I work on technology policy, but if you do not have an effective 

trade policy it is a little bit like saying that someone is shooting 

the children in your backyard and you go in and you tell your wife 

we have to have more children. 

Actually, your job as the head of a household is to protect your 

family and the job we have as a nation is to protect firms and proVerDate 0ct 09 2002 16:19 Apr 15, 2004 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 G:\HEARINGS\93041.TXT NANCY
5

vide them with a competitive environment, but one where they are 

also protected against predatory practices. 

One of the other key points that I would like to make here is 

that we tend to assume as a nation that we know what the rest 

of the world should do. We believe in a rules based liberal trading 

order and that has been very effective for us, but conditions are 

changing and our ability to maintain a liberal trading regime requires us to be able to maintain the economic leadership that we 

have had. 

Some of the policies, whether it is currency manipulation or desire to get rid of our anti-dumping legislation or discriminatory 

practices with investment, you can count the ways, all make it 

harder for us to compete. 

Mr. Chairman, my son is a pretty good soccer player. His team 

won the state championship. And one of the things that he taught 

me—I used to complain about the refs not being fair. He said, you 

know Dad, the refs are never fair. The objective is to win. 

Now China has understood that concept, and we are still in the 

back complaining about the refs. I think we need to start off with 

the idea that there is not some absolutist right or wrong in trade. 

The question is just how do we win for American citizens in the 

world economy? 

Chairman MANZULLO. Any members want to comment? Anyone 

else want to comment on that? 

Mr. COFFEY. I think that what Dr. Wessner says is absolutely 

right on target. We are in a situation where I believe most entrepreneurs are in fact interested or have been interested in free trade 

for a long time, but now they are starting to see economic effects 

that they do not understand and that the U.S. government cannot 

explain to them. 

And they have always looked at the U.S. government as a partner in their business, because after all it takes as much money out 

of the business as the owner ever does in taxes of various kinds. 

What their frustration is, is they do not see the U.S. government 

standing in their partnership role of protecting their market or trying to make sure that their markets are fair. 

That is really the core of the problem. I do not think we are here 

talking about protectionism. I think we are here talking about a 

market that is out of balance, that we do not understand why we 

are having the micro economic effect we are having. 

We understand some of the macroeconomic effect, but when you 

come down to the small and medium sized manufacturer, there is 

virtually no data to tell you exactly what is going on and how these 

free trade agreements have in fact impacted the micro economy 

while you can still have a macro economy that looks like it is growing and doing just fine. 

I think that is really the dilemma that we have to address to the 

administration is: Why don’t we have the data? Why don’t we understand these impacts and why are we rushing head-long into new 

free trade agreements when we don’t even understand the impact 

of the ones we have already passed and implemented? 

Chairman MANZULLO. We had the assistant of USTR, one of the 

assistants in our office and asked her if she had any data on the 

6

extent of foreign countries’ purchase of U.S. procurement and vice 

versa. She said that data does not exist. 

I said, then why is it that in the new free trade agreements you 

continue to open up our procurement to foreign countries? She said, 

well the major corporations say this is good and I said, I can understand that and that may be the case, but with no data how do you 

forge ahead? Where do you open up our procurement the way it is? 

Mr. COFFEY. We cannot even get the government to promise to 

enforce to buy American provisions that exist. 

Chairman MANZULLO. Tell me about it. Right. That goes on constantly. Mark? 

Mr. GREEN. Thank you, Mr. Chairman. Something that you have 

in the materials that you have distributed I think is very important 

and I think we assume too often that lawmakers here in Washington understand it and that is your references to talking about 

the value of manufacturing. 

We have all seen the recent economic data that indicates that we 

are perhaps on the front edge of a recovery. It is anemic and it is 

uneven, but I think we are beginning to see a recovery. 

But I don’t think we can get our arms around these challenges, 

if we simply look at number of jobs and unemployment statistics 

and not go deeper and look at the kinds of jobs that are being lost 

and the kinds of jobs that are being created. 

I do think we need to make sure that we understand the value 

of manufacturing. I think the public gets it. I think the public instinctively knows that when you lose manufacturing capacity you 

have lost something beyond simply losing numbers of jobs. It is 

deeper than that. It goes to the character of our economy. It also 

I believe has national security implications. 

I think we need to keep coming back to that issue of why manufacturing is our focus and why it is so important that it is not simply raw numbers of jobs. It is instead the character of jobs and getting our economic self-sufficiency and what manufacturing jobs 

mean in terms of spinoffs. 

In my home state of Wisconsin, Mr. Chairman like your state 

and your area in Illinois, we have lost a lot of manufacturing jobs 

and it is not simply the job loss. It is the manufacturing capacity 

and the damage to communities. All across my state we have small 

communities that have grown up around basically one or two manufacturers. They are the dominant part of the community. They are 

the character of that community and when that company leaves 

the community it isn’t just the tragedy of losing numbers of jobs. 

It is the change in the character of that community. It is far deeper 

than that. 

I do think we need to keep coming back to this issue of why it 

is that we care about manufacturing. Mr. Chairman, you and I 

were in a session not so very long ago where Mr. Greenspan spoke 

and was talking about jobs and I notice you are nodding your head. 

As I recall, your dander was up on that day. 

Chairman MANZULLO. That happens once in awhile. 

Mr. GREEN. And the reason I recall that is because the reference 

that the Chairman made, Chairman Greenspan, to how we should 

evaluate trade agreements and economic policy and paraphrasing 

7

him, anything that creates value to the economy we should support. 

It wasn’t his opinion necessarily, but he was saying that there 

is a good debate going on right now as to whether or not we should 

be looking at manufacturing especially and that maybe we should 

just be looking at whether or not something adds jobs or not. Both 

you and I disagreed with the Chairman quite strongly. 

I do think we need to keep coming back to that and talking about 

why manufacturing should be a national priority, because although 

the public gets it, I am not always sure that a lot of folks out here 

get it. I think in their policies, our policies we are oftentimes shortsighted. We do not get to that distinction. 

Chairman MANZULLO. I had asked Mr. Greenspan the question 

as to whether or not he agreed with the NAM statement that if we 

continued to lose 50 to 60,000 manufacturing jobs each month, this 

will affect our critical mass and the United States will have to get 

used to a lower standard of living. Mrs. Kelly was chairing that remarkable banking committee. 

He said, well what we lose in manufacturing jobs we create in 

a high value white collar jobs and I said, well we are losing those 

jobs rapidly also. He says, well this continues, it may be a problem. 

I think he threw in the word systemic in there. 

That is a good segueway. Frank, go ahead. I wanted to ask Jim 

a question, but let me raise that up and then you can make the 

comment. 

Your boss, Andy Grove, made the most astounding statement 

about three weeks ago, when he said that Congress has to adopt 

a policy, a national policy and he was vague on that, because he 

is not quite sure what the policy should be or who should establish 

it, but he is very much concerned that with our tremendous loss 

of high-value, white-collar, technical jobs going overseas that the 

United States is going to be in deep, deep trouble and we are trying to get him to come and testify. 

He is the first CEO that has come out and then he talked about 

the tough decision that he has to make as to his fiduciary obligation to increase the value of shares and he weighs that against laying off the human beings in America that have made the company 

great. You could just see the agony in his words. 

I just commend him so much and Intel is in the same boat on 

that. Did you want to comment on that and then we can go to 

Frank? You do not have to, but I just wanted to commend your 

boss for making that statement. 

Mr. JARRETT. Yes. Andy’s point was to try and really awaken 

people to the fact that if we look at the software industry, you can 

see the beginning of trends of market segment share loss, just like 

we saw them in the 1980s in the semiconductor industry and earlier in other industries. 

His view is, there is still time to arrest this process, just as we 

were able to arrest it in the semiconductor industry and his real 

focus is to urge the government to recognize that the world has 

changed in a very substantial way. 

If you go back to the early 1980s, for example, China, India, Russia, they were not players in high technology. They were inward 

looking countries at that point. Today, those three countries, two 

8

and a half billion people all together, are very eager, committed 

players in high technology. 

So the world has become a much more competitive place now 

than it was 20 years ago for high technology and our point is that 

in addition to looking at kind of a number of policies of the government, we also need to be looking at what is the government doing 

fundamentally to urge and increase the competitiveness of American businesses, large and small? 

Our position is to really take a look at things that can be done, 

like looking at our tax laws, looking at R&D tax credits. They are 

really helping to stimulate and incentivize corporations to invest in 

research and development so that those new products that are 

going to come out of that pipeline and create the new jobs are really being urged. 

Looking at tax laws, looking at the government’s financing of research and development in basic research and development. There 

has been a very nice tandem that has always existed in the United 

States where the government shoulders most of the burden for 

funding basic research at the universities, at the national labs, at 

the research institutes in America and the American corporations 

shoulder most of the burden for applied research and development. 

In recent years, that has not been growing as rapidly as it 

should, the basic research funding particularly in the physical 

sciences that are really behind the advances that have taken place 

in things like physics and chemistry and other areas. 

Looking at those kinds of things and then also looking at something very, very fundamental, looking at the quality of our K 

through 12 education system, which particularly in the math and 

science area, you know our students just are not keeping up. They 

are not competing and people like Intel we need those people for 

the 21st century jobs to be very competent in math and science. 

Those are not short-term things. They are long-term, systemic 

kinds of actions that need to be taken, but we think it is important 

and we think it is something that the government can do that will 

make a difference. 

Chairman MANZULLO. Let us go to Frank. I am sorry. Mrs. Kelly. 

Ms. KELLY. I simply wanted to ask a question of all of you and 

perhaps you have already discussed this before I came in. Absent 

changes in the tax laws, which are more difficult to do, it seems 

to me that having studied this problem for a number of years here 

in this Committee, there might be a possibility that we can attack 

this through training and educating procurement officers. 

I do not know how much of that is done by the government. 

Maybe you can tell me, but the other thing is by constructing the 

bid situation so that we are looking at best practices and so forth 

when you submit your bids, because these things are let out by bid, 

perhaps we can give a leg up to U.S. manufacturers in that way. 

I would be interested in your opinion about that. Anyone can answer. Jim, since you were talking, do you want to start? 

Mr. JARRETT. I really cannot there, because that is an aspect of 

the business that we are not really involved in very much. We are 

in a largely commercial sector where it is not a bidding process. 

Chairman MANZULLO. Congressman——. 

Mr. JARRETT. I will leave it to others. 

9

Chairman MANZULLO. Frank? 

Mr. VARGO. I would like to respond to that and then be able to 

make a few more general comments also. I agree with you fully and 

we have started discussing that within the NAM, because the NAM 

represents 10,000 small companies, as well as 4,000 large ones and 

increasingly with the pressure that our smaller companies are 

under just to stay in business, to be able to extend the loan for another six months and hold on to the customers, they do not have 

the time to look at how can they improve their businesses. 

With the incredibly efficient distribution structure we have in the 

United States, it becomes increasingly necessary for small companies to know how to deal with big buyers and they do not. 

We actually have been thinking along the same lines that you 

are in looking at what can we do to build in best practices and 

maybe bring some of the large buyers and smaller manufacturers 

together, because a lot of this does come down to marketing and 

know how. So we do agree with that. 

Could I make just a more general comment? 

Chairman MANZULLO. Sure. 

Mr. VARGO. Responding to what Congressman Green had raised 

about manufacturing, because a lot of people look at manufacturing 

and say, look, it is 13, 14 percent of the American work force. You 

know who cares? It is a very small factor. 

But manufacturing really undergirds the entire American economy. It is where the innovation comes from. Frequently people say, 

well, manufacturing is going to go the way of agriculture, where 

three percent of the work force can feed the United States and half 

of the rest of the world. But why can agriculture do that? It is because of the genius of innovation that came out of John Deere and 

CNH and many other companies in developing the equipment that 

makes agriculture productive, the fertilizers, the seeds, et cetera 

and so it is with the rest of the economy. 

If we do not have a vibrant, growing manufacturing sector, we 

just are not going to have growth in the economy at all. 

Also, people overlook the fact that manufacturing is basically 

how we pay our way in the world. When I ask many Congressional 

representatives to estimate what percent of our exports are agricultural goods? Most commonly I get an estimate 30 percent, 50 percent. It is not. It is eight percent. America’s farmers export about 

50 billion a year and America’s manufacturers export almost that 

must every month. 

Now America’s farmers have real, real trade barriers as do our 

manufacturers overseas and we need to open up markets for them, 

but my point here is that manufacturing accounts for two-thirds of 

all of our experts of goods and services and nothing can make up 

for that. We have to have a very healthy, vibrant manufacturing 

sector. 

Ms. KELLY. Let us go on around the table. Dr. Wessner, did I 

pronounce that right? 

Mr. WESSNER. Wessner. 

Ms. KELLY. Wessner. Dr. Wessner, if you could make it brief, because we have a certain limited period of time and you did speak. 

I will go on to the next two hands I saw, but please go ahead. 

10

Mr. WESSNER. Thank you. I appreciate the opportunity and forgive my enthusiasm. 

Ms. KELLY. We are glad to have it, sir. 

Mr. WESSNER. I would just like to make two quick points. In 1996, we wrote the saying that the $36 billion deficit with China 

was likely to rise. We had a very difficult time in the academies 

with it when we described the different objectives in the trading 

system. In 2003, no one wants to talk about the $103 billion deficit with 

China, and neither do the reviewers want to talk about it, but we 

are now talking about how we retain the semiconductor industry. 

So I am particularly pleased that you have invited a representative 

of Intel, because from the perspective of basic research from the efficiency of our other sectors, from banking to trucking, if we lose 

our edge in semiconductor technologies and applications, we have 

lost a big part of what makes the U.S. economy work. 

I would simply hope that at some point we can talk about some 

very specific things. May I say, with the greatest respect, some of 

what is wrong comes from this building and I think it is important 

that we not just complain about the trade practices of our friends 

in east Asia, but that we talk about how we can make things better 

for companies like Intel and IBM. They are integral to the nation’s 

economic fabric. They support an amazing array of both service 

companies and suppliers and share R&D consortium. 

In basic research in the 1960s, the Congress in its wisdom provided 2 percent of the GDP in R&D. Now, the Congress in its wisdom provides 0.8 percent. We have had flat federal R&D and rising 

private sector R&D, yet we have dropped dramatically in the very 

sectors of physics and chemistry and mechanical engineering that 

support the gains that have characterized the economy since the 

mid-1990s. 

I want to be clear. We are not doing special pleading for the 

semiconductor industry. We are doing special pleading for the 

American economy, and we really think that there are a series of 

very concrete things, such as partnerships and targeted R&D tax 

credits—and I take your point about taxation. There are a number 

of things that can be done which would help large and small companies alike. 

Ms. KELLY. Dr. Wessner, I am glad you brought that up. For the 

last nine years, I have represented the home base of IBM. At one 

point in the early 1990s, IBM furloughed out 14,700 jobs. On top 

of that, General Motors closed its plant in my district and furloughed out 7,000 more. 

I know what you are talking about and I know that there are 

ways that we in this building need to react to enhance the R&D 

that is coming. If we do not, it is my personal opinion that the U.S. 

economy will not have anything further to drive it into a better and 

better position worldwide. 

You could not be talking to somebody here in this seat anyway 

that would agree with you more. 

Mr. WESSNER. Delighted to hear that, ma’am. 

Ms. KELLY. I would like to go now, I saw the hand of Mr. Howell. 

Mr. HOWELL. Back in the 1970s, as you know, there was a competition emerging between the states for manufacturing industries. 

11

We saw the Sunbelt emerge and industrial development authorities 

in places like Arizona and New Mexico making pitches to companies based in New Jersey and the Northeast to move out there. 

And they used a variety of incentives to do that, infrastructural 

support and tax abatements and so on. 

That competition is now global and it is being waged at the international level between countries and we are seeing the same kinds 

of incentives, plus more powerful policy tools being used by other 

governments. Things that were not available to U.S. states in the 

1970s. 

For example, Arizona could not offer a protected market to a 

company that invested there. You would have no competition from 

outside Arizona in Arizona because of a tariff or something and yet 

we do see that vis-a ́-vis China, where the Chinese have got a preferential value added tax for the semiconductor producers that are 

based there and it is causing a huge wave of investment in China 

that might not otherwise be occurring. 

The states could not offer exemption from federal income tax. If 

you settle your factory in Arizona, you are not going to pay any tax. 

Taiwan and China are able to offer essentially that incentive to 

firms that locate there. 

Arizona could not offer individual exemptions from income tax. 

If you are working in a desirable industry like software design, 

they could not promise you would not pay any federal taxes or 

state taxes, but those kinds of things are available in China and 

Taiwan. 

Those kinds of incentives, as much as the pure economics, are 

what is driving this offshore movement of manufacturing investment in jobs. There is not really a coherent U.S. response to that 

yet. There is obviously a lot of concern, but we need more of a concerted answer as a country to that challenge that we have got so 

far. 

Ms. KELLY. Thank you very much. Mr. Gaskin, I saw your hand 

and I then will go to you, Mr. Freedenberg. 

Mr. GASKIN. Thank you. Many people have arrived since we went 

through introductions, so let me just say again that we represent 

the metalforming industry in the U.S., mostly small, middle market companies. 

There are four levels at least, there are probably lots more, but 

engaged in this. You have the SMM’s, those companies that we represent and Matt does and some other. We are really the heartbeat 

of America. They have created the jobs in the last ten years and 

they are in trouble. 

We have multinationals. We have consumers that love low prices, 

but we really have a need in the public for jobs and that is what 

I think we have to respond to. 

This last two years, almost a third of my member companies 

have lost money. These are privately held firms, tens of thousands 

of them across the country and they will not be here in three years 

or in two and a half years, if something does not happen. 

There are short-term things and longer terms things. Steel tariffs, which we happen to have been engaged in, in the last few 

years, have had a dramatic impact on jobs, shipping them offshore, 

12

accelerating decisions to produce things in other countries. You 

cannot document that, but you know it is happening. 

Sixty-eight percent of our member companies last January reported that they had lost jobs to foreign countries. That is an acceleration over the year before and the year before that. 

I think we do need to be looking at fixes that are short-term. 

Some things like getting rid of tariffs, but otherwise really attacking cost issues, the legal environment, the product liability environment, the regulatory environment. Some real quick, concrete action 

to lower the cost of doing business. 

Health care, I do not know how to solve it, but what we know 

is that every year more and more of our small middle market companies have to give up covering their employees, because they cannot afford it and stay in business. It is a miserable situation. That 

just is not right. 

So there are some very concrete cost things and then the incentives and some people have mentioned already R&D. You know 

that is important to small companies, but it is really important to 

big companies, because they are our customers. If they do not have 

new products for us to make parts for and components for in this 

country, we are out of business. R&D is really important to them 

as well and then currency issues and level playing fields. 

Ms. KELLY. Mr. Gaskin, I just want to ask you, you mentioned 

just briefly currency issues. Do you want to elucidate that a bit? 

Mr. GASKIN. Frank Vargo is the expert in the room perhaps on 

it, but there are a few things that we can do. Eliminating tariffs 

are one of them, but keeping the pressure on the Chinese and others to correct the currency imbalance is another. We do not control 

that in any sense of the world, but we can keep pressure on. 

The resolution that is going through the floor today is a good reminder to everybody that we need to take action and keep the pressure on. I credit those in the administration and in Congress who 

have given the Chinese officials some gas in the last few months 

about currency manipulation, because it needs to be said. It needs 

to be done. We need to keep pressure on. 

Ms. KELLY. Thank you. Dr. Freedenberg? 

Mr. FREEDENBERG. Let me comment on the currency issue first 

and then go to another. My emphasis would be on the need for 

speed in that area. 

The Chinese are going to want to buy time, because our argument is irrefutable and so they are going to play for time. John 

Minor Kane said in the long run we will all be dead and that is 

what is going to happen to a lot of American industry if we let 

them play for time, because they would like to have the adjustment 

after they get their financial house in order. 

That certainly would not be in the next few years. We really do 

need to keep the pressure up. The President has made it an issue. 

The Secretary of the Treasury has now made it an issue. But I 

think the fact that Congress is pressing the administration is very, 

very important because otherwise we are going to see the same deleterious effects that have had such a really bad affect on the American industry. 

It also parenthetically keeps other Asian countries from adjusting, at least that is their justification. They say they cannot afford 

13

to as long as the Chinese do not adjust. They do not want to lose 

competitiveness to them. So that is why it is very important for us 

to keep this drive up right now. 

Secondly, it was pointed out by my colleague from Intel, there 

has been less R&D money and that is something that we felt as 

well in the machine tool industry. We have recently begun a new 

smart machine initiative and we have put some of our own money 

in as seed money, but what Congress has done lately and it is just 

the reality of a tight budget, they have cut the funds, I would say 

with OMB’s advice, for programs such as MEP and advanced technology program, which then hurts us in terms of developing the 

kind of labor saving machinery and efficient machinery that will 

keep jobs in the United States. 

It sounds funny to say labor saving will keep jobs, but if you do 

not have the factory open, you are not going to have any jobs. We 

are not going to compete with cheap labor. We are going to have 

to compete with what America has always competed with, which is 

great technology. 

In the area of basic manufacturing, we are not putting the money 

in that we need to, to stay on top; whereas the Europeans are, the 

Japanese are and other competitors are, but we are not and the result shows up in a few years. It is an inevitable result. I would just 

like to put my word in for that. 

Ms. KELLY. Thank you. Yes, Ms. Darien. 

Ms. DARIEN. I am here on behalf of the National Association for 

the Self-Employed and amongst this well respected group I will not 

pretend to be an expert on manufacturing, but what I am aware 

of and what our members are definitely aware of is that the effect 

of the crumbling manufacturing sector has occurred to micro businesses and these are businesses that are suppliers, retailers. These 

are the plumbers. These are people who have all been affected by 

the depleting manufacturing base. They are losing jobs. 

They are losing clients and in my research, I really had not 

found any sort of surveys or studies that really quantified this effect. You know how the manufacturing base and how it is depleting, how that is affecting on a larger scale small business, micro 

businesses, independent contractors that they contract out to and 

that is really a large concern for our association. I am sure that 

that is a pretty significant number, if we could find out what that 

actually would be. 

A couple of things pointed out by our members are obviously 

costs. The current cost to run their business is just astounding and 

the biggest cost is health care. I do not think you can effectively 

assist manufacturers if you do not take care of the health care crisis that is going on right now. 

I think that a big focus on trying to assist this sector of the economy is to deal with the current health care climate. Thank you. 

Ms. KELLY. Thank you very much. Where are we now? Who 

wants to speak? 

Mr. CARR. I am struggling with what is left to say. The program 

I work with, Manufacturing Extension Partnership, deals a lot with 

the very small firms that are represented here, a lot of whom are 

self-employed and 75 percent of which are part of some sort of supply chain. 

14

There is a quote from Alexander Hamilton we sort of keep up on 

our wall and it says, ‘‘Not only the wealth, but the independence 

and security of a country appear to be materially connected with 

the prosperity of its manufacturers’’. 

This idea that you can call out one of the three primary sources 

of wealth creation in the country and still live with anything close 

to our current standard of living is somewhat ridiculous. 

More than anything, we are heavily involved on a day-to-day 

basis trying to help these small- and medium-sized manufacturers, 

which have the health care costs and face environmental challenges, remain competitive primarily through use of technology and 

technology adoption. 

It is possible. We are dealing with a lot of companies now that 

are adopting new technologies, that are thinking more strategically, who are embedding, if you will, more innovation into their 

manufacturing processes and as a result of that, are surviving, but 

we are just a tiny piece of this very big problem. We serve roughly 

21,000 small manufacturers a year. There are 350,000 small manufacturers. 

Our focus is on the health and the welfare of that manufacturer, 

not only just as a stand alone company, but also as a sort of integrated system of supply. A comment that was made earlier I believe by Mr. Howell is this idea that we are a smoke stack chasing 

the world at this point. What the states did with each other is now 

being played out on a global scale. 

So the idea of having an infrastructure, which is one that provides the best environment, if you will, conducive to doing business 

in the 21st century is where we place a lot of our focus. The tools, 

the technologies, the systems, and the processes necessary to at 

least get our firms as competitive or as high performing as possible 

is really the role that we are involved in. 

I am happy to report that there are firms that are surviving and 

are growing and are identifying niches, but I think the level of resources that we represent to this overall problem is just scratching 

the surface, if you will. 

Chairman MANZULLO. We have not heard from Janet or Molly. 

Ms. BROGAN. I was actually just going to raise my hand. Best for 

last, right? I would like to echo a couple of comments by Mr. Gaskin and Ms. Darien. 

First of all, I think we need to take a look at this and this is 

coming from the woman who is representing the National Small 

Business Association. I think we need to look at this also a small 

business issue. 

The cost of doing business is skyrocketing. The cost of health 

care is skyrocketing beyond that. I think there are a lot of small 

solutions that we can implement. Small piecemeal things we can 

do, but it may not get to the root of the issue. 

Ms. Kelly, you mentioned procurement and training with procurement options and while I think that is a fantastic idea, I can 

tell you that small business procurement is difficult. Some agencies 

are actually exempted from FAR. I mean when we are dealing with 

those kind of exemptions and these kind of loopholes and things 

like that, it is a deeper issue than just training and talking to proVerDate 0ct 09 2002 16:19 Apr 15, 2004 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 G:\HEARINGS\93041.TXT NANCY
15

curement officers. While I do think that will help, I think we need 

to go that next step. 

In addition to my gloom and doom that we need to do this, that 

and the other thing, I wanted to let you know some results that 

we got from a survey we just did of our membership. 

More than 90 percent of the small manufacturers that we surveyed said that they expect their work force to grow or either maintain its current status. I think that is a small glimmer of hope. I 

think that is a good thing. 

I also wanted to let you know that in addition to those good facts, 

two percent said that they have moved some portion of their operations overseas this year. Seven percent said they are considering 

it for next year. That is not a good statistic. 

That is something that should be an alert to us that we need to 

continue these discussions, these roundtables with experts in the 

field of manufacturing, experts in the field of small business, experts such as yourself who have been here and heard these arguments and been through these conversations. 

I just encourage us to take an entrepreneurial look at it and look 

at it also as a small business issue, because I think that will help 

us come to a larger, bigger solution versus piecemeal things here 

and there that may help this sector or that sector. 

Chairman MANZULLO. Janet. 

Ms. KOPENHAVER. Okay. I have actually been holding off because 

I did not have a quote. Everybody was quoting and the only quote 

I could think of was, if you like sausage and respect the law, then 

don’t watch either being made. That just came into my head. 

I do appreciate the opportunity to be here. I think this is a great 

forum. As you said, there is not much else to add. The American 

Wire Producers Association members are having big problems with 

health care. Most of our companies are small businesses who are 

just getting killed by the increasing costs. 

The currency issue is another important issue for us that we are 

working on. I did bring with me in response to actually a request 

from the Chairman, who I guess you were conference called in to 

a meeting one of my members had with Mrs. Napolitano, you had 

asked for some information on nails. This is just one sector——. 

Chairman MANZULLO. Foreign nails. 

Ms. KOPENHAVER. Foreign nails. Right. 

Chairman MANZULLO. Okay. All right. 

Ms. KOPENHAVER. It is just one product that our members make, 

but it does give a little tiny snapshot and if you multiply that times 

however many thousandfold of small businesses being hit by these 

problems in the U.S. it tells a big story. 

Basically overall imports of these products have grown. From 

2001 to 2002, the imports grew by 25 percent and by a further ten 

percent in the first half of 2002 to 2003. Imports from China, since 

2001 have increased by 119 percent. They are killing our nail producers. 

Over eight companies in the last couple of years have just shut 

down. Our largest nail producer has really decreased dramatically 

the amount of nails that they are producing. Overall the industry 

has, in the last couple of years and this is not a large figure, but 

they have laid off more than 1,000 people and it is more than half 

16

of the companies that were in the U.S. that were manufacturing 

nails are no longer in business. Again, it is just one snippet. one 

tiny sector, but it tells a big story I think of just nationwide. 

Again, thank you for inviting us. 

Chairman MANZULLO. Let me ask any members what are you 

hearing from your constituents? John? 

Mr. PETERSON. John Peterson, Pennsylvania. I represent a large 

rural district in northern Pennsylvania, 16 counties. In the last two 

years, the year 2001 and 2002, my actual count is 17,376 manufacturing jobs gone. That is more than a thousand a county. These are 

small rural counties. 

That pace has continued in 2003. I lost one company and that 

was over 1,000 itself and I lose one almost every week it seems 

like. If we have a good week, we did not have a company downsize 

or close. 

I guess I want to ask a couple of questions. A number of you 

have mentioned, I am very focused on China myself, because I do 

not think it is fair competition. They are not sleeping in Mexico. 

They have a game plan. They are working it. They are doing it 

very well and you have to give them credit. They are smart 

businesspeople. We have not had a low labor market that anywhere near could compete with them. This is a giant. 

An issue that many of you have brought up that we are doing 

nothing about in Congress is the cost of health care. Would you 

consider maybe that the largest down pressure at the moment, especially for the smaller ones? 

My friends that run larger companies self insure, have some ability to control their costs and get an affordable price. If you are a 

smaller business, you are an entrepreneur, I was a supermarket 

operator for 26 years, so you have no ability to control your health 

care costs. 

Over half of America is served by one insurer for health care and 

there is nothing. Nobody is even discussing it. You know and I 

know that a monopoly never gives us a good price and when you 

allow monopolies to exist in over half of America as one insurer 

and they are not green and they invented the system we have, God 

bless them, they really were the ones, but where they control the 

marketplace, our businesses are not going to be competitive. 

Now you add to that exploding energy costs and if you use natural gas to heat, melt, cook, bend or if you use it like the petrochemicals and fertilizers and polymers as an ingredient and also as 

fuel, you will not compete today with Europe having natural gas 

at half our price. 

One of our chemical companies recently moved 2,000 jobs to Germany. Germany. That is not a cheap place to do business. But natural gas costs half as much there. 

If we do not get a handle on energy costs, health care costs, 

China may not be the biggest problem when you come right down 

to it. They are a huge problem. 

Another thing that is really undervalued in Washington, some 

states value it and those who value it are doing much better, is 

technology education. You listen to the Department of Education, 

I sit on HHS. They talk about academics, academics, academics 

and they are important. 

17

If you are not using the latest technology, if you do not have high 

field technical workers today you cannot compete with cheap labor. 

That is the only way we can compete with cheap labor is use the 

best technology. 

The federal government has not invested hardly anything in 

technical education, in my view. Have not valued it. Now some 

states are doing it very well and they are adding Congressmen 

where states like mine is losing Congressmen every ten years. You 

see that through redistribution. 

In my view, it is a much bigger picture than just foreign imports, 

whether it is tort reforms or whatever. We have a lot of issues that 

we need to allow our companies to be competitive with costs. 

Chairman MANZULLO. Chris Chocola. 

Mr. CHOCOLA. Thank you, Mr. Chairman. I am Chris Chocola 

from Indiana. Indiana is a state that is very heavily reliant on 

manufacturing. My district in particular is north central Indiana. 

We have lost several manufacturing jobs. 

In fact, I am a freshman member of Congress. I have not even 

been here a year yet and I came directly from a lifetime in manufacturing. I spent my whole life in manufacturing and ran for Congress in large part because I thought we needed more people with 

that perspective here. 

The disappointing thing since I have been elected though is I 

think we have all stated the case very well. I think there is no 

question that we have lost manufacturing jobs in America. There 

is no question a lot of them are moving overseas. 

We can keep talking about that all day long. The question is: 

What do we do about it? I may have been a member of some of 

your organizations. Certainly you all have members of your organizations in my district and I hear from them daily. I visit them on 

a regular basis. 

I hear the problem stated all the time very clearly, but I do not 

hear what the solution is. I think it is so important that stop complaining and start focusing on what do we do. 

In Congress we have done some things. Certainly association 

health care plans to talk about health care costs, not the end all 

but it is a step in the right direction. 

Some tort reform that we have not been able to get through in 

the Senate. Again, there are a thousand pieces of this puzzle and 

there has been progress on some of them, but I would consider it 

a small victory if I walk into one of your members’ organizations 

and they say, we have complained enough, but these are the things 

we ought to do. 

That you are educating them and we are educating them on 

what the solutions are, rather than just the problem. So as a 

former businessperson, if you complain much and do not do much, 

you go out of business quickly. 

All I hear a lot of times is the low hourly cost in foreign countries. That is certainly an issue, but we are not going to compete 

with that. In our business we had 1,300 employees. 

We never would have moved our business because of low hourly 

wages. It was a very small part of our total cost of doing business, 

but the 134 lawsuits in Barber County, Alabama was a real problem. The $100,000 that IDEM wanted us to put into a paint booth 

18

the size of that picture basically that we did not paint more than 

once a month in. 

The fact that we had the highest catches on corporate profits in 

the industrialized world essentially. Those are problems that we all 

need to work together on and we need to get your members focused 

on and we need to be able to talk about it when we go visit their 

businesses, rather than just stating the problem over and over 

again. 

I think certainly everybody here is on the same page. I hope that 

we can have a much more substantive discussion on what the solutions are in the future rather than just stating the problem. 

Chairman MANZULLO. Mrs. Kelly and then Mr. Ryan. 

Ms. KELLY. I just want to pick up on what Mr. Chocola has just 

said and go back to you, Mr. Vargo, because you said that the NAM 

has ideas about what we can do here that would provide some solutions. 

It is absolutely essential that we work with you and with every 

person here and every association. We need the tools from you so 

we can fight the battles here that give you the tools to do the work 

that you need to do here in the United States and keep those jobs. 

I am sure that the Chairman would agree with me that if you 

have ideas and you are willing to come in and speak with us about 

them, we have very open doors and open ears. Please do that. 

Mr. VARGO. Thank you. We do and we will. Of all the problems 

we face, by far the most serious is the rising cost pressures and the 

inability of manufacturers to raise prices. Let me just illustrate. 

Since 1994, U.S. manufactured prices on average are six percent 

lower today than they were then, but the prices and the costs and 

the rest of the economy are up about 18 percent. We have had to 

absorb all that and the way a lot of companies have absorbed is 

just by going out of business or looking at going offshore. 

What raises these? Health care. Absolutely number one and unfortunately I do not have the solutions on me, but we have to find 

them. 

Energy costs. This is a relatively new item, but it is going to 

drive a lot of our chemical and plastic and other companies out of 

this country, because energy is cheaper, as you note in Germany 

and other places. 

Cost of litigation. These ludicrous asbestos suits. Come on now. 

How long has Congress been going around this. We have got to do 

something about that. We have got to get the cost of litigation 

down. 

We have to do something about the fact that it takes longer to 

get a patent now than it did five years ago. We have got to do 

something about the fact that we are graduating fewer engineers 

today than we did five years ago and ten years ago and about half 

of our graduates students in engineering schools are foreign students who are going to take their educations and use them to develop technology and other questions. I don’t have a complete agenda with me. 

Chairman MANZULLO. We have a seven-point handout. 

Mr. VARGO. We want to move on then. 

Chairman MANZULLO. Congressman Ryan. 

19

Mr. RYAN. Thank you. Chairman Manzullo, thank you for putting this together for us. Part of it is finding solutions to what the 

problems are. 

I was home this past weekend and Chairman Manzullo and I 

have a tradition that we go home for the weekend and we come 

back and we exchange war stories as to how many jobs we have 

lost and where they went and what industry they were in. 

I missed the beginning and when I went home this weekend, I 

had manufacturers tell me that the banks are not even loaning 

them money anymore and in some instances pulling money out already. 

When I came in you were talking a lot about R&D and I heard 

health care. None of these are issues that transcend any particular 

industry. 

I do not want to start a discussion about two of the major issues 

that we have in Congress today, the war and the tax cuts. I do not 

want to open up that can of worms, but I would like to do is just 

whoever would like to comment on this. 

The money that we have spent on tax cuts, say for instance over 

the last couple of years, would it benefit your industry more if we 

took that money and put it somehow into the health care for you 

or put that money into research and development? Just say the 

same money, whatever dollar-for-dollar and there are all kinds of 

numbers floating around. I do not even know what the exact one 

is. 

Would that benefit you more if you had that much money that 

we spent on the tax cuts? Would you rather have seen that in research and development money or prescription drug coverage that 

would alleviate a lot of the health care problems. 

Chairman MANZULLO. That is a loaded question. Does anybody 

want to handle it? But it is a good question. 

Mr. RYAN. If not, say it. We are here to find out what the answers are. 

Mr. COFFEY. I think when you look at any business, you have to 

look at five factors in the business. You have to look at the market. 

You have to look at the technology. You have to look at the organization. You have to look at the human resources and you have to 

make sure that in any solution, any approach you take that you address the drivers of a business so you do not get down to a situation that says, well if we spent the money this way versus that 

way, would it be better for you, because the business needs you to 

look at what they are trying to do in a balanced way. 

If you spend it on straightening out the market, which we have 

talked about the instability in the market and we have several recommendations for how to solve that problem or at least address 

that problem, then you go to technology. 

There are plenty of people here who would say we need more 

R&D investment. All right. Then you go to human resources and 

there are plenty of us in this room and outside this room who 

would tell you nothing innovative occurs in a society unless human 

beings are highly trained and highly skilled at the working level. 

If you are not going to do that, which the federal government has 

not been doing, then we are not going to make it in terms of innovation. 

20

In any competitive situation, like we face right now, the future 

of the industry in the United States depends upon innovation. We 

have to come out with new things that are not now out there. 

What we have is a super efficient global economy for the copying 

of everything that is out there. What we need is the innovation. 

What we need is the investment in people to create that innovation 

and in fundamental basic R&D as you have heard here before 

today, to make sure that we are out there exploring those perimeters. 

Chairman MANZULLO. I want to go to Congressman Ballance. My 

nephew was an engineer. Good kid. Lost his job at EDS in Milwaukee. It was a massive layoff and they shipped those jobs over 

to India and other countries. It just amazes me how we can talk 

about more education, more R&D, more people being involved, not 

enough people involved in engineering schools. 

Where are those jobs going to be? Do you know the number of 

unemployed engineers in this country? I could name my nephew for 

one. Who is going to take care of these kids that are unemployed 

now? We are talking about more education. The kid went to Milwaukee School of Engineering. He is a tremendous engineer. 

You know what he did? He got laid off from EDS and he said, 

you know life is short and he is remodeling homes now, because he 

can make a turnaround on it. He can be his own entrepreneur on 

it. He went for months without being employed. 

Mr. Ballance and then we can go over to whoever raised their 

hand. I thought I would throw that in, Frank. 

Mr. BALLANCE. Mr. Chairman, thank you so much for this roundtable. I came to listen and I have enjoyed the comments that I have 

heard. I do have to go to a rural meeting and I wanted to comment 

before I left. 

I represent a rural area of eastern North Carolina, northeastern 

that is heavily dependent on textiles and now many of those towns 

and all of those jobs are gone. 

I have always believed that one of the key roles that the government should play in this national government inclusive is creating 

a framework where businesses can foster and prosper. I am not 

sure that we are doing all that we can do or should do, because if 

you are in business, you are looking at the bottom line. You are not 

out there just to try and help people. You are out to make money. 

If you help people in the same process, then that is good. 

But Mr. Chairman, I think that we have to have an environment, 

tax wise and otherwise to make these jobs attractive to 

businesspeople to keep these jobs in America and apparently that 

is not happening right now, because all of the jobs are leaving. 

Chairman MANZULLO. Congresswoman Millender-McDonald. 

Ms. MILLENDER-MCDONALD. Thank you, Mr. Chairman and I 

thank you all for being here. I represent Los Angeles’ south bay 

part of southern California. Senior member on transportation so we 

have the ports of Los Angeles and Long Beach. Also I represent 

from Watts to Virginia Country Club. You are talking about a dichotomy of trying to balance the whole notion of the needs and 

services of my constituents. 

When the gentleman talked about innovation, you are absolutely 

right that there must be innovations. There must be investment in 

21

people, but we must all come to the table with solutions for that, 

because we have children and grandchildren who are already in 

college, who are contemplating coming out finding a good American 

job. It is incumbent upon us to make sure that those jobs are here. 

When the Chinese businessmen were here a couple of weeks ago 

and I asked them about the currency manipulation that they are 

doing, they said do not blame us. Blame yourselves. Perhaps they 

are correct. We must blame ourselves. 

We must look at the solutions for health care cost. It is absolutely skyrocketing, but it is incumbent upon us and you to help 

our future generations for finding the type of nexus that will give 

them the jobs that they want. 

I have a granddaughter who is nine years old who has just run 

for vice-president of student council. My God I says she is already 

going into politics. But what she said is that, Grandma, why is it 

that every time I look at a label it says made in China? I says, you 

have been here before. My goodness with that type of mind. She 

is extremely bright. She is concerned already at nine years old as 

to why the labels were saying made in China. 

I think we must find the innovation. When we have the HB1 

bills that are coming out of this Congress, where we are bringing 

people over from India and all to do the jobs that his nephew could 

have done as an engineer, it is high time businesspeople that we 

work together. Business is our business and business is your business, but business should be all of our business in trying to find 

solutions. 

We do not have those answers today, but we must have other 

open discussions like this talking about the recent tax policy and 

why that has failed to encourage manufacturing sector jobs. That 

is something that you guys need to tell us. What has happened? 

Why has that not created the jobs that we thought would be contingent upon this tax policy? 

What can we do? We are all groping in the dark for answers, 

when the answers must be among all of us? So when the gentleman says innovation and investment in people and the five factors are that of marketing, technology, organization and human resources, you are absolutely right. But the question is: How do we 

get there? 

Chairman MANZULLO. Mr. Schrock. 

Mr. SCHROCK. He had a question. He had a comment. 

Chairman MANZULLO. Let me——. 

Mr. SCHROCK. Okay. Thank you, Mr. Chairman. I am sorry I am 

late, because I love discussions like this, but I was meeting with 

some Defense people, which kind of ties into the question I want 

to ask Mike Wellham, as it involves the joint strike part of the F–

22, the F–18, the M–1 A–1 and all that sort of neat equipment that 

we need in the military. 

I understand that your company is one of the major producers of 

titanium, supplier of titanium in the U.S. for defense and aerospace companies and U.S. statutes that were created right here on 

the Hill require that all titanium products delivered to Department 

of Defense must be smelted domestically to protect production capabilities, such as yours, but it also came to my attention that your 

22

facility now is in Ohio, not far from where I was born and raised 

oddly enough. 

It is currently experiencing a work stoppage due to a contract 

dispute with your union employees and I think you had the same 

thing three or four or five years ago. What is your plan to fulfill 

the needs of the major aerospace and defense suppliers, since they 

are limited in sources of titanium for production and you are likely 

the sole source supplier in many cases? It is a catch 22 I am sure. 

Mr. WELLHAM. It is a catch 22 and it is a double-edged sword, 

because on one hand we have our customer base, including the federal government coming to us on a regular basis and asking us to 

lower costs, on the other hand we have a union environment in 

which our costs are not in line with our global competition. 

We are looking at those costs trying to determine how it is we 

can drive costs out of our business to make us more competitive 

with our global competition and to make up for some of the trade 

issues that we are dealing with. 

But how to serve the customers, particularly in this time when 

there is a labor stoppage, fortunately or unfortunately, which way 

you want to look at it, the demand in the titanium industry as a 

whole currently is half today what it was five years ago. 

There is an overabundance of capacity in domestic as well as foreign titanium currently and quite frankly, we expect our labor dispute to be settled in a reasonable time frame, but we also expect 

that we can support our existing customer base with the non represented employees that are currently in place at our mill. 

Mr. SCHROCK. It is a problem, because when you had Defense 

platforms and ships and fighters and such that need that stuff it 

could certainly impact the way we react around the world, if just 

one little product like that is held hostage and that is a problem. 

Believe me, I want things to stay on shore too. I am tired of everything going offshore. 

You heard a few folks say here, somehow we have to balance 

that and try to help solve some of those problems so we do not have 

it, because you could be held hostage by your workers and that 

could be a very bad thing. 

Chairman MANZULLO. Congressman Shuster. 

Mr. SHUSTER. Thank you, Mr. Chairman. 

Chairman MANZULLO. Do you want to pull the mike closer? 

Mr. SHUSTER. Thank you very much. I apologize for coming in 

late and having heard all the discussion and some of the questions 

I may pose you might have talked about already, but I certainly 

would like to hear your answers. 

I hail from rural Pennsylvania. I do not know if Mr. Peterson has 

spoken yet, but our districts border each other and we are losing 

our manufacturing base in rural Pennsylvania, the rural America. 

I do not believe that we are ever going to be able to compete with 

their low labor costs or their low cost to produce a plant or the land 

costs, but there are things we can do here in government, tax policy, getting that burden off your back. The regulatory environment 

that you have to live under, change that, make sure you are able 

to operate out there without the government tripping you up at 

every turn. 

23

Of course trade. Making it a level playing field out there. We 

have to make sure that we are pounding away at these countries 

that are putting up barriers for us to get in there to trade. The 

Chinese with their manipulation of their currency. Those are the 

kinds of things that I would like to hear your ideas on what we 

can do here in Congress to make your job easier. 

Like I said in the beginning, I do not think we are going to find 

an American worker that works for 50 cents an hour, but still 

when you look at some of the studies on productivity, the American 

worker is still the most productive worker in the world. 

I heard somebody today talking about manufacturing a car in 

America, the quality is high, it is relatively inexpensive, the Japanese now are sending Hondas that are produced in Ohio back to 

Japan. We can succeed. 

Mr. BALLANCE. That is okay. That is good. 

Mr. SHUSTER. That is good. That is a case where we can do that 

with our work force, our highly skilled work force. I would like to 

hear your ideas on those other tax policy, regulatory policy and 

trade, where those stumbling blocks are. Thank you, Chairman. 

Chairman MANZULLO. Jim? 

Mr. JARRETT. In the area of regulatory policy, one thing we have 

not touched on so far, the United States has always, particularly 

in high technology, it has always been this great breeding ground 

for start-up companies. 

One of the aspects of those start-up companies is that they cannot afford to pay high salaries to their people. So one of the things 

that they do to attract people to go to these very risky ventures is 

that they give them a piece of the action. They give them stock options so that they can be owners of that company. 

This has proved to be a very successful method for attracting and 

keeping people to small companies and to large companies. In the 

case of Intel, we give stock options to all 80,000 employees. 

Right now we have got the Financial Accounting Standards 

Board in a great rush to require the expensing of those stock options and all the surveys indicate that companies, if this happens, 

companies are going to be giving out fewer stock options. 

At the same time, if you go across the Pacific to China, take a 

look at their tenth five-year plan, go to the IT section there, they 

specifically encourage the use of stock options as a way to attract 

skilled people both in the country and to return to the country from 

other countries. 

So this is happening and we are seeing it in China. We are seeing start-up companies over there using stock options and so we 

have this very curious thing where a capitalist country is moving 

toward not using stock options while a communist country is moving toward using stock options. It is a very curious sort of thing. 

There is a bill in Congress right now, sponsored by Representatives Dreier and Eshoo and it would slow down this express that 

FASB is running and say, take a few years, let us see what happens as a result of Sarbanes-Oxley, which we just passed last year. 

Let us assess what is going on there. Let us look at more disclosure of information on stock options for companies and make sure 

that investors know everything that they need to know about stock 

options and let us take three years of a holiday here before we imVerDate 0ct 09 2002 16:19 Apr 15, 2004 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 G:\HEARINGS\93041.TXT NANCY
24

plement something that could have some very fundamental impacts 

on American innovation. It kind of falls under the category of do 

no harm. What we think is important is just let us pause for a 

minute before we rush into——. 

Mr. SHUSTER. If the Chairman will allow me. 

Chairman MANZULLO. Sure, go ahead. 

Mr. SHUSTER. That is a typical knee-jerk reaction down here in 

Washington. We find some people abusing the system and all of a 

sudden we want to stop everything and I think you are absolutely 

right. It is an irony what you said a communist country is moving 

towards capitalism and we are moving away from it, it seems. 

Chairman MANZULLO. Kristie? 

Ms. DARIEN. I just want to make two comments. First to respond 

to the Congressman’s question, at least on behalf of our members. 

We have 250,000 member businesses which represent about 

600,000 owners and employees. We would give back all the money 

to get health care costs lowered. 

For our members, any money they might have gotten from the 

tax cuts would have just went to cover costs of their health care 

that is rising 15 percent a year. 

We have had members that have three to four increases a year 

and the reason why we say that, it is not just about health. It is 

not just about keeping your workers and yourself healthy to run 

your business. It is about attracting employees. How can they attract employees when they cannot offer a health care plan? 

You know those educated workers are just going to go to some 

larger company that is going to offer them pension, health care and 

so for us health care is much more important than any sort of 

money they had received from a tax package. 

In terms of manufacturing, another concern is what is SBA 

doing? From our perspective, Small Business Administration 

should be in the foreground where something gets done, decisions 

are made, research is done on this issue. 

Manufacturing is one of the biggest faces of our economy and it 

is a really large part of small business history and yet I feel like 

the SBA has not really taken a big role in trying to come up with 

solutions or research on this issue. I would challenge that the SBA 

get involved, not just in research and coming up with potential solutions, but especially also access to capital. 

Unfortunately, SBA loans really do not help the manufacturing 

sector. They are hard enough to get as is for a small business 

owner, but the current limits just will not help a manufacturer 

whose one piece of equipment is $250,000. We really need to look 

into ways that we can help manufacturers through an SBA program. 

Chairman MANZULLO. Kristie, let me answer that. We have been 

in the process of drafting the reauthorization bill and it is called 

The Small Business Reauthorization and Manufacturing Revitalization Act. It is a mouthful, but we increased the 504 loan limit 

from two to four million, because of the tremendous amount of capital that is necessary. 

The shrinkage of capital and the complexity of analyzing the 

manufacturing company could lead to the following conclusion: InVerDate 0ct 09 2002 16:19 Apr 15, 2004 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 G:\HEARINGS\93041.TXT NANCY
25

gersoll in Rockford, Illinois, one of the giant leaders in cutting 

tools, machine tools, production line systems, split into three parts. 

The first part that spun out was the production line system. 

Think of engine blocks being on a conveyor belt with different machining applications. No one wanted to buy it. Phil James who used 

to be with the company retired. He went to ten banks and joint 

venture companies and if you look at the lack of information on 

manufacturing, you know some guys don’t know the difference between a Bridgeport and Bridgestone tires and they don’t know the 

human capital and ideas and the value of a patent and they don’t 

have the ability to research the market and see if you can make 

some money. 

Do you know who bought Ingersoll? A wholly-owned Chinese or 

state-owned Chinese company, Dalian, came in, bought that Rockford, Illinois company; saved hundreds of jobs at the company 

itself, plus hundreds, if not thousands, from the subs and the subs’ 

subs. 

Now, what does that indicate to me? It indicates the fact that 

very few people in this country understand the nature of manufacturing. There are only about 45 or 50 Congressional districts out 

of 435 that have a substantial manufacturing base. 

My Dad was a master machinist and chef and carpenter in the 

restaurant there. All these things that his generation got involved 

in. 

But today there has been a big problem. Washington does not 

understand manufacturing. It has absolutely no clue. The Bureau 

of Labor Statistics, we contacted them. How many tool and dye jobs 

do you have in Rockford, Illinois? The tool and dye center of the 

world. 570. That was their number. They were off by probably ten 

or 15 times. No clue. 

Roger Ferguson testified before our Small Business Committee, 

the deputy at the Fed, marvelous man and I said, Dr. Ferguson, 

I think I gave him almost the quote from Mann, even though it 

was not out at that time, about the decline in manufacturing. He 

said it is only, at that time, 16 percent of the GDP. It is less now. 

I said, Dr. Ferguson, I said have you ever had your hands bathed 

with the sweet smell of machine oil? I want to tell you, that is like 

gold dust if you are involved in manufacturing, because that machine oil, that smell of that, that means things are being manufactured. 

He said, no. He said, but if you invite me, I will come to your 

district and he did about six weeks later. He came out there. We 

took him to a tool and dye shop, a mold shop, boring facility, machine facility and he sat down and as a result of that and the man 

that he brought up in Chicago said he knew what a Bridgeport 

was. He had a background in manufacturing, but he added to the 

advisory panel of the Fed in order to make up the periodic beige 

book, one of the young men in our area who is involved in manufacturing. 

We asked the Fed some time ago to take into consideration under 

economic indicators the, Paul what is it, the machine tool index? 

Matt, can you help me on it? Paul, why don’t you take the mike? 

Mr. FREEDENBERG. Quarterly report on machine tools. 

26

Chairman MANZULLO. Right. The quarterly report. Paul, why 

don’t you explain what that indicator means and then go into your 

own comment? 

Mr. FREEDENBERG. Well, it is——. 

Chairman MANZULLO. Could you pull the mike closer? 

Mr. FREEDENBERG. It is a leading indicator of manufacturing, because obviously if you are going to be going into more production, 

you are going to be buying machine tools. It is the first indication 

of increased production in a company and that is what I was really 

going to talk about, which is we are talking about how do you get 

competitive? 

We had a study a couple of years ago that showed that our entire 

manufacturing economy has been, our sector has been increasing in 

productivity, much higher than the rest of the economy, six, eight 

percent in the last few years. But, if you look at any particular machine tool that comes out, you can increase your productivity by 

100 percent, 200 percent, because the same operator might be able 

to operate two or three machines. 

If you are talking about competing against low cost labor, the 

only way you can do it is with technology and with staying ahead 

of the game that way. 

Now, obviously there has been such a downturn in manufacturing. You were talking about Ingersoll; Ingersoll sold after bankruptcy for $15.7 million. You have got one of the real gems of 

American manufacturing. 

Chairman MANZULLO. They got the campus and all the patents 

and all the machinery. 

Mr. FREEDENBERG. It is incredible and it shows you how bad off 

our manufacturing sector is when the market value that is at that 

low of an amount and as it turned out, the Italians really got a 

great bargain out of it and they are going to be in the center now 

of not only our domestic aerospace, but with Ingersoll’s capability 

defense aerospace as well with their fiber placement and their 

stealth, et cetera. Stealth production. 

The fact that the marketplace values it so low tells you what direction manufacturing is going right now. The only way around it 

and I really bristle at the Chinese remarks we should look to ourselves. How do we look to ourselves and they get a 40 percent advantage in price? That is not ourselves. That is them. It is not 

a——. 

Chairman MANZULLO. But it is also us. We cater to——. 

Mr. FREEDENBERG. Well because—it is us because we did not negotiate a very good deal and we have not pressed our own rights 

either within the WTO or press the IMF—in which we are the largest voting member—to enforce the rules. Clearly these are violations of international agreements. 

That is our fault, but it is our fault for being sort of Mr. Nice 

Guy and saying, well we will get around to that in a little while. 

The point is, you can also do a lot by investing in manufacturing, 

investing in innovation. The capability is there. Industry can become quite competitive worldwide. It is already the most productive. It has the capability to become even more productive, retain 

those jobs and go head-to-head with the Chinese even, because 

labor is not the major cost. It is just one of a number of costs. 

27

I think Frank’s number is 11 percent the total cost of the goods. 

Just having low labor costs does not mean you are going to win the 

competition. 

In fact, when I traveled to China a year ago, the Chinese were 

looking for productive American machine tools, because they wanted to be competitive in the future. They knew that they were not 

just going to be able to rely on pure labor and they certainly were 

not going to produce good quality products if they simply were relying on labor and old fashioned machinery. There is a lot that we 

can do to stay competitive. 

Chairman MANZULLO. Bill? 

Mr. GASKIN. Three quick comments regarding the cost advantage. Plant and Moran, a consulting firm in the Midwest that 

works a lot with middle market manufacturing companies, metal 

stamping and plastic injection molding, calculated that for metal 

stamping the Chinese cost advantage is 27 percent and that is 

labor and material cost and things like that. 

If you are dealing with the kind of disparity we are with currency, 40 percent, even if you got 20 of that corrected, we would 

be within seven percent. We can be seven percent competitive. We 

can beat them if we get that kind of change in the currency. That 

is just an anecdotal comment. 

Second, on the Congressman’s question about the tax incentives 

that have been provided, you know on the business side the accelerated depreciation and the expensing that has been in the tax bill 

this year is very positive. Our industry, as I mentioned earlier, has 

lousy profitability. A third of the companies lost money. 1.8 percent 

average profit in the industry, before tax. 

It is tough to look at tax incentives right now, just because you 

are losing money. They do not help you much. On the other hand, 

there is a company in Michigan that is doing okay. They are about 

a $50 million company. They are buying a $6 million stamping line 

from a U.S. producer. 

Based on that tax credit and the expensing and a brownfield 

credit that is available to them, between the two they have a new 

customer where they have about 20 percent of the capacity of that 

stamping line filled with a new customer. 

Now in the normal environment, they would not buy a $6 million 

piece of machinery for 20 percent of the time, but because of the 

tax advantages, they figure they are cash positive for two years. 

They are still making money and so he has two years to fill the 

rest of that machine. He is buying $6 million worth of capital 

equipment in a tough time. So it works and our machine tool industry needs that support. 

To answer the other question from Congressman Shuster about 

specific things, I do not want to pander to the Chairman, but the 

seven points that you have in your slides, the seven points for what 

manufacturing needs, it is an excellent starting point. 

I would put number five, kill the steel tariffs to top, because that 

could happen tomorrow, not by this body, but by somebody up the 

street. 

Chairman MANZULLO. Mr. Ryan might have a different——. 

Mr. GASKIN. I understand that, but for manufacturers it would 

send a clear signal. 

28

Chairman MANZULLO. At least resolve the issue of the steel tariff 

then everybody could agree on that. 

Mr. GASKIN. Right. But the other items that you have on your 

list are excellent. It is the reducing health care. It is the seven 

things. They are really positive steps that Congress could take. I 

think they are——. 

Chairman MANZULLO. Constituent Brad Comb that bought the 

first high speed hard milling machine that is made by a Japanese 

firm. It is not made in America, 20,000 rpms. 

Five months earlier, 13,000 rpms was the state-of-the-art. He has 

both machines. He has orders that are coming out the ears. 

Tom, I want to ask you to take a couple of minutes. You appeared before our Committee and had some of the most innovative 

tax thoughts on what American industries could do. Do you remember when you appeared before us? 

Mr. HOWELL. I do, Mr. Chairman. 

Chairman MANZULLO. They were a very, very unusual approach. 

Could you take a few minutes and share those with us? 

Mr. HOWELL. Yes. 

Chairman MANZULLO. Could you pull the mike forward, sir? 

Mr. HOWELL. Yes. They were actually not so much my thought. 

We just released today the study for the semiconductor industry association, which looks at the industrial policies in China and also 

in Taiwan that have been feeding this movement of investment to 

those areas. 

One of the factors that we point out is some of the tax policies. 

One of the benefits that the Taiwanese brought in first and has 

now been copied by the Chinese as of about two years ago is the 

tax holiday, where essentially an enterprise that builds a fab, the 

wafer fab in an industrial zone that they designate as a high tech 

zone does not pay any taxes for five years and they do not begin 

running that holiday until the enterprise earns its first profit. 

So a start-up for example, because it is not profitable right away, 

so the clock does not begin running until your first profitable year. 

They also have got tax depreciation rules that enable them to 

defer the first year of profitability so the net effect is a holiday that 

may run ten years. It is essentially tax free production for ten 

years. That is one incentive. 

Now the other is, Jim mentioned the stock options and it is true 

that they are encouraging the use of stock options in both countries, but the way they are taxed is interesting. In Taiwan the 

stock options are given as compensation, in stock given as compensation to employees at semiconductor plants and they are taxed 

at the par value of the share. So that could be a dollar or one yuan, 

one dollar and the market value may be $150. 

That individual only pays income tax on the face value of the 

shares. When they convert and sell the stock, they do not pay any 

taxes on the capital gain, because there is no capital gains tax in 

Taiwan. 

Now in China, it is working the same way, although their tax 

system is a lot more primitive than that of Taiwan. Essentially you 

get the stock options and sell them. Exercise them and sell them 

and you don’t pay tax. 

29

What that means is you can, as a young engineer, get rich very 

quickly working for one of these companies, particularly one where 

the stock is hot, like TSMC or now SMIC in Shanghai. 

There is nothing like that in our system to compete with that 

and the result is that the foundries that are being built over there, 

their competitors say they can get the best people. They are drawing the best people and they are not just drawing Chinese or Taiwanese. They are drawing people from Europe and the United 

States and Korea and all over the place, because that is where you 

can go to make a lot of money in a hurry, which is what motivates 

a lot of people. 

Chairman MANZULLO. Chuck? 

Mr. WESSNER. Mr. Chairman, I appreciate the opportunity to 

speak with you again. I would like to commend you for bringing 

this group together, because I think you have clarified some things 

that had not been clarified, and Congressman Shuster and Congressman Schrock have raised some very valuable points. 

The first thing I think you clarified here is that the problem that 

we are talking about is a loss of jobs in high-tech sectors. We have 

to ask, ‘‘Where is that coming from?’’ It is not coming from fair 

competition on a level playing field and it is not labor costs. I think 

that is an important finding of this. 

It is coming from the impact, as Tom Howell just described, for 

foreign industrial policies. So the question is: Do we want to whine 

or do we want to find something constructive that we can do? And 

you have identified three areas. 

Some of them are framework conditions. Some of them are technology policy and R&D policies and some are trade policies. 

I will be very brief, despite that structure. The first—and I mentioned, in your absence, I thought that some of the problems we are 

facing come from here. 

Chairman MANZULLO. I went down to the Floor to speak on the 

bill that Phil English and I introduced on the Chinese RMB being 

undervalued, but I did not have a chance. I came right back. 

Mr. WESSNER. I am glad you did, because if you look on the trade 

front, the point that Paul Freedenberg raised, which is exceedingly 

important, is that speed is necessary. You know, I used that analogy about the sniper. We do not go into reproduction, that is the 

creation of new firms, when we are having them taken down by 

other countries’ industrial policies. 

There has to be immediate action on the part of the USDR. You 

cannot do enough to press them. It only takes a year or two to 

make very significant shifts in the future of the U.S. economy. We 

can document that, but we would very much like to leave that with 

you. 

George Scalise, not a man known for his hyperbole, who is the 

President of the Semiconductor Industry Association, has warned 

that we are facing an unparalleled situation of people like Gordon 

Moore, who is a founder of Intel, has suggested that the business 

model that Intel was built on can be changed by the collective impact of these policies. 

In the 1980s, this Congress in its wisdom took a combination of 

policies in technology policy funding SEMATECH, and an innovaVerDate 0ct 09 2002 16:19 Apr 15, 2004 Jkt 000000 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 G:\HEARINGS\93041.TXT NANCY
30

tive trade agreement that did not restrict access to our borders, but 

stopped dumping from other countries. 

They set up the semiconductor research corporation. They have 

done a series of things. We have some of those things at work right 

now. We mentioned energy policy. We are all interested in homeland security and we are focused on manufacturing. 

You have a program that works on that, that the National Academy of Sciences evaluated and found to be highly effective. It is 

called the Advanced Technology Program, where 63 percent of its 

grants go to small companies. 

We are trying to help corporations. If someone wants to accuse 

us of being in favor of corporate welfare, in favor of welfare for 

American corporations, where do I sign up? 

You talked about the problems in education, Congresswoman 

McDonald. If you will look, there is a chart here I would like to 

show you. It will not be long. 

This shows our engineering degrees. We graduated 55,000 undergraduate degrees last year. The Chinese put out 220,000. We may 

be twice as smart as some foreigners, but I am not sure we are four 

times smarter. 

I really think that we need to look at how we can get more 

women into engineering. They are winnowed out. I am not suggesting an entitlement. What I am suggesting are positive grants, 

awards for women to participate in engineering. Scholarships. 

There are ways to address that. 

Chairman MANZULLO. Why are they winnowed out? 

Mr. WESSNER. They take a boot camp approach. The idea is to 

get as many out as possible. And we can document this. You can 

talk to the Office of Science and Technology Policy. There have 

been a number of academy reports. I am not, sir, particularly PC 

in my views. I mean I am really not. 

Mr. SCHROCK. Good. You ought to run for office here. 

Mr. WESSNER. Women are good in math and details, that is why 

we do not want you to be engineers, right? 

Ms. MILLENDER-MCDONALD. Right. 

Mr. WESSNER. I mean that just does not float. There is a systemic problem here that needs to be addressed and when you identify that and what I am talking about is not allocating. I am talking about incentives to encourage women to participate more, but 

that is not the only thought. 

So you have ATP. You have your excellent SBIR program. That 

should be reinforced. The reason I could not speak to you—and I 

was honored to be invited to speak to your Committee at the last 

meeting—was because the Bundestag asked me to come talk to 

them in Germany about the ATP program and the SBIR program. 

They think these programs represent best practice in the world 

and they wanted to know how to emulate it. They asked me, mystified, why the budget proposals were zero for that program. 

Chairman MANZULLO. Charles, could I throw something out to 

you? 

Mr. WESSNER. Sure. 

Chairman MANZULLO. We had a hearing, a very remarkable 

hearing last week and it was on outsourcing. One of the witnesses 

was Natasha Humphries, a young African-American lady and she 

31

worked for Palm, P-A-L-M, Palm Corporation, who refused to comment on what happened to her. 

She was forced to train her own replacement in India. The company never squared with her, and 12 highly trained people—I 

think most of them were women—got the axe from Palm. And, 

ironically, one of the women was born in India, moved to the 

United States and got fired when she was seven months pregnant. 

You were there. 

It was riveting. There it is. She is highly trained. She is competent. She is articulate. She got canned with 12 of her friends, 

only one has gotten their job back. 

Then I saw in the paper where somebody wanted to increase the 

number of H–1B visas. I am putting out a dear colleague and saying, first you take care of Natasha, then you take care of the other 

11 people that were fired and let me give you some lists of people, 

including my nephew, that have been canned in this country—I am 

serious—before we let other people in here to take the jobs of these 

Americans that were born and raised in this country. 

I mean this is the American dream. She was the sweetest lady, 

kind, pleasant, intelligent, the type of person you would want to 

have in your corporate structure. Jim, write her name down. It is 

Natasha Humphries. And you look at her and say, I cannot believe 

she is unemployed. 

Mr. WESSNER. Congressman, that is the point. You want Jim to 

be able to write her name down and you want Intel to be here to 

hire them. 

Chairman MANZULLO. I was teasing Jim. 

Mr. WESSNER. The way that you do that, I am here to give you 

the best advice possible and what you want to do on the one hand 

create new firms, which will hire. There is this inevitable term and 

the individual stories are always troublesome, but what you want 

is an environment where she can be promptly rehired by an American firm or for that matter by a German firm working here or an 

Italian firm. 

Chairman MANZULLO. She got canned, because they could do the 

same thing cheaper in India. If there is a shortage for people like 

her, why can’t she get a job? 

Mr. WESSNER. My suggestion would be that she can get a job, 

but I am trying to take one step back from the individual tragedies 

and ask: What do the high tech firms themselves tell you they 

need? There are on the H–1B visas occasional shortages of highly 

qualified people. 

I am in effect the son of an H–1B visa person. He was German. 

He came in the 1860s to get out of Germany and he got a wonderful job that provided him with a blue uniform and all he had to 

do was go south. 

Chairman MANZULLO. Somebody came in the 1860s? How old are 

you? 

Mr. WESSNER. Indirectly, sir. But my point is that they have all 

come through, haven’t they? 

Mr. SCHROCK. He looks well for his age, doesn’t he? 

Chairman MANZULLO. He really does. 

Mr. WESSNER. Sometimes when you talk about these issues, you 

feel that you have done it for several generations. 

32

Chairman MANZULLO. Congresswoman Majette? You were at 

that hearing, weren’t you? 

Ms. MAJETTE. Yes, I was and her story was very compelling. I 

agree with the Chairman that we need to create the kind of environment so that we do not have that kind of casualty, but I also 

agree with you, Doctor, that what we need to do is to focus on education and make sure that in this country we are preparing to have 

young people in the pipeline, making sure that we are providing on 

the front end the kind of education that they will need in order to 

fill all of the colleges and universities and come out with the engineering degrees and those other things that will be able to help 

create the kind of innovation that we need. 

My son is a senior in high school and he wants to be an engineer 

and last weekend we were working on his applications for various 

schools. But we as a country do not focus on what we need to focus 

on. We are not putting the resources where they need to be. 

At the very beginning of the education process, creating the kind 

of opportunities early on, exposing our young people, children to 

the opportunities that they would have in terms of research and 

development and different career paths and women and minorities 

being able to have those opportunities to grow this economy and to 

be placed in those positions, whether it is here in this country or 

overseas, but particularly in this country because companies are 

going to vote with their feet. 

They are going to look for locating in areas where there is a well 

trained, well educated, multilingual work force and if they do not 

find it in Georgia, where I live and in other states, then they are 

going to look elsewhere and find those individuals to be able to do 

the work that they need for them to do. 

So I am certainly for square in favor of putting the resources, the 

human resources, making that kind of investment on the front end, 

with full funding for Head Start, with full funding for Leave No 

Child Behind, with doing the kinds of creative things and figuring 

out what are the needs in particular communities? How are we 

going to make sure that we are providing that basis, that educational foundation upon which everything else that we seek to do 

as a community and as a nation must be founded. 

Ms. MILLENDER-MCDONALD. I would like to also echo what my 

colleague has said and to really commend you, Doctor, for your sensitivity. 

As the outgoing Democratic chair of the Women’s Caucus of the 

House and as former Director of Gender Equity, I have tried to 

push women, because your work force over the next couple of decades will be the majority women. 

It is so important that you do that, but there is a culture that 

has to be changed. People tend to not think women can and so they 

are the last hired and the first fired. 

I think that culture has to come with also the education of 

women, because after all, if you are going to have a work force that 

mirrors that of women, you have got to put them in educational 

programs that will position them for those jobs that will be critical 

to us as we begin to pull our jobs back from China and Taiwan and 

other places into the United States. 

33

So I will say to you I really applaud you for your sensitivity and 

also what Paul has said too, because I am looking for Molly Brogan. Is she here? Yes, Molly. Because I had a Congressional hearing with my Chairman of the Subcommittee in trying to look at 

small businesses get some type of assistance for exporting their 

businesses overseas. 

I mean it seems like that is the going thing and so if that is indeed the problem or the concern, then we need to have small businesses getting into the pipeline of exporting their businesses overseas. I am interested in knowing what are we doing for that as 

well. 

Chairman MANZULLO. Let me go to Mr. Schrock and then Matt 

and then Frank. 

Mr. SCHROCK. Yes, let me just make a couple comments. I love 

the comment that Ms. Millender-McDonald said. You know my 

wife, who does not get involved in politics and says very little, says 

to me, when you want to find the best man for the job, send a 

woman. So do I. You know I think some of these situations that 

we are talking about and of course it is easy for me to say, I have 

only been here three years, were treated right here. Right in these 

three buildings. The three buildings on the other side of the Capitol 

and voted on the Capitol. 

We have created this mess we are in right now and it is incumbent upon us to try to undue some of that. But boy once things get 

into law, it is murder to try to untangle that stuff and every time 

I question some of these things, people say to me, well they are 

trade laws that we created. Why in God’s name did we create them 

in the first place? And if we created them, can’t we undo them? 

Why can’t we do that? 

There is just talk and talk and talk and nothing more than that. 

An Act of Congress. I know we say that, but it never gets done and 

if we don’t, these people are going to die on the vine out there. 

Chairman MANZULLO. Okay. Matt and then Frank. 

Mr. COFFEY. Okay. I want to follow up on the human resource 

question. I hope that in your thinking about human resources and 

education and training that you do not stop at somebody getting an 

academic degree. 

The fact is that the future of manufacturing in the United States 

depends upon lifelong learning by everyone who works in the company and if you are not considering doing something for the incumbent work force, you are in fact placing the businesses at a disadvantage. 

Ms. MILLENDER-MCDONALD. Here, here. 

Chairman MANZULLO. Frank and then Bill. 

Mr. VARGO. Mr. Chairman, let me just bring in an element of 

good news here, because we have been talking about all the problems and there are a lot of problems. 

Several things have been done right. One of them was the administration a little over a year ago saying, you know, our currency 

should be set. The value should be set by the marketplace, because 

everybody knew it was overvalued. 

What that did was to send a very strong signal to the financial 

traders in New York and in other financial centers that the TreasVerDate 0ct 09 2002 16:19 Apr 15, 2004 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6633 G:\HEARINGS\93041.TXT NANCY
34

ury was not going to intervene to prevent the dollar from going 

back to where it ought to and it has started to move down. 

February 2002, Mr. Chairman, the dollar had gone up 30 percent 

from where it had started in 1997. That is like putting a 30 percent 

tax on our exports and a 30 percent subsidy on our imports. 

With the currencies that are free to float today, we are only up 

four percent over where we started and so we are basically back 

and that is going to pick up 100, $150 billion in trade for us, just 

what has happened so far. 

Certainly the Asian countries, Chinese currency and others, they 

are being prevented from moving and that is why we have been 

putting a focus there, but we are going to see, certainly by early 

next year, the result of what has already happened with the European and Canadian and other currencies. 

Chairman MANZULLO. Bill? 

Mr. GASKIN. My comment really was related to the interest in 

training and developing skills and supports what Matt said. His organization and mine and many others in the room have developed 

skill standards and curriculum and training systems for technical 

workers, high skilled craftsmen over the last five, ten years, responding to the demand in the 1990s when it was hard to hire a 

tool and dye maker. It was hard to find people. Now we are in a 

different situation. There is a surplus. 

You know, we are the result. Our current generation is coming 

out of schools and in their 20s and probably 30s, have been brainwashed into thinking that manufacturing is dirty, dark, dangerous 

and dead-end. 

Chairman MANZULLO. And oily. 

Mr. GASKIN. Yes, it is not where you want to be. Semiconductors 

excepted, they know those are clean rooms because they see them 

on TV. 

But if it is manufacturing the way a lot of people think about it, 

it is dirty, dark, dangerous and dead-end. You do not want your kid 

going there. 

So what have our guidance counselors done for the last 20 years? 

You know it is college and out. It is not getting people into the 

trades and to skills. I am not suggesting we can go backwards into 

the traditional apprenticeship programs, but we need to have a reversal of the brainwashing and we need some money probably. 

Probably some billions to create a new vision for manufacturing 

in this country. A PR program, as it were, to help people realize 

that there are good jobs, good careers, life long learning careers. 

You may start out in a manufacturing position. You may become 

an engineer, if there is any of that left in this country. You may 

become the owner some day. It is that career path that people are 

looking for at any age. 

I just offer another possible solution. How about some Congressional money for retraining us as a society? I think that we need 

to do that. 

Chairman MANZULLO. Then that adds to the debt and that 

makes it worse. Currently the only money that we have has been 

displaced as a result of NAFTA or something like that. 

35

Mr. GASKIN. We need to create a new vision I think, because we 

have been brainwashed to think that manufacturing is not good in 

this country. 

Chairman MANZULLO. When I was in Milan last week, a constituent was there, Bernie Bowersock. Runs a place called North 

American Tool, 89 employees, and he had a very expensive corner 

booth in Milan. That is his name, Bowersock. 

Mr. SCHROCK. Love his name. 

Chairman MANZULLO. Some people would say that Schrock is a 

funny name. 

Mr. SCHROCK. I deserve that. 

Chairman MANZULLO. Yes. But I said, how are you doing it? A 

couple of things. He sells taps all over the world and he said, I can 

give 24-hour service worldwide. I have the fastest service of anybody in the world. He has 89 employees. 

The second thing was absolutely stunning. He said, Don, by the 

way you know the conventional tap is being replaced by a new milling product. I said, what are you talking about? He said, well the 

conventional tap, a tap is used to put threads into a block of steel 

so you can screw something into it and a tap itself looks like a long 

screw. 

So you put it on a spindle, which is like a chuck on a drill and 

then you go very slowly down into the metal and then you bring 

it back up again and you form the thread. 

He said, now let me show you the new process for this. Who 

would ever think that a tap would be replaced? He said, the tap 

you make the hole is just a little smaller than what the tap will 

be itself. 

He said, in the milling process, you make the whole a little bit 

bigger than your mill. It is a short stubby thing. It gets put on a 

spindle. It goes [makes noise]. I looked at that and he said, now 

what I am doing is I am looking at the day when these taps will 

be replaced by this new type of a mill bit. I mean some extraordinary science is going on there. 

He was looking around the corner, looking to see where he is 

going to take his manufacturing firm, refusing to give up in the 

light of the stiff competition that is coming in. 

Let me share one other thing. This is some really good news. We 

had a hearing several months ago, on June 4, with several people 

from the Department of State, FBI and Homeland Security and 

BOINS, for the reason that it is very difficult to bring in people 

from two or three countries, to look at machinery even though it 

is not subject to a validated export license, four head machines for 

example and our government considers everybody from India and 

everybody from China to be a terrorist. 

These people want to come here and buy our stuff. I mean they 

want to come in here because they are really excited in buying the 

things that we are making. We decided at that time to meet periodically and Matt Szymanski, who is the Chief of Staff of our Small 

Business Committee, has been working with them on a periodic 

basis. 

We are at the point now where man I do not know all these eight 

points that you are giving me here, but this one right here? We 

cannot explain it. Then I cannot read it. 

36

I am not going to read all of it, but the bottom line is that we 

are seeing some extraordinary, not extraordinary, we are seeing a 

lot of cooperation amongst some extraordinary people that are involved in our government that really understand that issue. 

I mean we want to sell stuff, but we cannot bring over the people 

that want to buy it. But as a result of that hearing, I think we are 

pretty close to, I do not want to call it a business class visa where 

you have a multiple entry that would last a year or so, but this is 

one of the things that we can do. We can move very, very quickly 

on it. 

We are out of time. 

Ms. MILLENDER-MCDONALD. Mr. Chairman, may I just say one 

thing? 

Chairman MANZULLO. Yes, of course. 

Ms. MILLENDER-MCDONALD. In a meeting that I had today looking at possible increased funding for our transportation infrastructure that is sorely needed for all of you who are business people, 

it was said to me that the Ports of Los Angeles and Long Beach 

get so many cargo containers coming in, my God it is going to 

quadruple over the next ten to 15 years, but we have no cargo 

going out. 

Chairman MANZULLO. That bothers me. 

Ms. MILLENDER-MCDONALD. And that is the telling thing. Those 

containers are not being filled here to go back, but we are getting 

them by the loads coming in from China and other places. 

I think with that we need to look at some innovative things that 

we can do to help you to help us, because we are looking at things 

outside of the box on funding for transportation that we know we 

have got to do in order to make the infrastructure work best for 

you as you transport your business across this country. 

Thank you so much for this meeting. 

Chairman MANZULLO. Thank you very much. I want to thank 

each of you for participating. It is great to have these ideas that 

we get all over the place. It gets everybody thinking of is there one 

thing that we can do easily to help the manufacturing sector going 

on? That I consider to be a breakthrough in getting the visas and 

that is across the board. Bipartisan, regardless of even your position and trade. Thank you all for coming. I appreciate you taking 

this time and our roundtable is adjourned. 

[Whereupon, at 4:05 p.m., the Committee meeting was adjourned.] 

Æ