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28–572 PDF 2006

CUTTING OUR TRADE DEFICIT: CAN THE U.S.

MUSTER ITS DIVERSE TRADE PROMOTION OPERATIONS TO MAKE AN IMPACT?

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

WASHINGTON, DC, APRIL 26, 2006

Serial No. 109–48

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 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

JEB BRADLEY, New Hampshire 

STEVE KING, Iowa 

THADDEUS MCCOTTER, Michigan 

RIC KELLER, Florida 

TED POE, Texas 

MICHAEL SODREL, Indiana 

JEFF FORTENBERRY, Nebraska 

MICHAEL FITZPATRICK, Pennsylvania 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

NYDIA VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

TOM UDALL, New Mexico 

DANIEL LIPINSKI, Illinois 

ENI FALEOMAVAEGA, American Samoa 

DONNA CHRISTENSEN, Virgin Islands 

DANNY DAVIS, Illinois 

ED CASE, Hawaii 

MADELEINE BORDALLO, Guam 

RAU ́ L GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

LINDA SA ́ NCHEZ, California 

JOHN BARROW, Georgia 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

J. MATTHEW SZYMANSKI, Chief of Staff 

PHIL ESKELAND, Deputy Chief of Staff/Policy Director 

MICHAEL DAY, Minority Staff Director

(II) 

C O N T E N T S 

WITNESSES

Page 

Mica, The Honorable John L. (FL-7), Congressman, U.S. House of Representatives ....................................................................................................................... 3

Lavin, The Honorable Franklin L., Undersecretary for International Trade, 

International Trade Administration ................................................................... 6

Yager, Dr. Loren, Ph.D., Director, Internationl Affairs and Trade, U.S. Government Accountability Office ............................................................................. 8

Hill, Ms. Kathy M., President, The State International Development Organizations ................................................................................................................... 9

Holmes, Ambassador J. Anthony, President, American Foreign Service Association .................................................................................................................... 11

Morrison, Dr. James, Ph.D., President, Small Business Exporters Association 13

Scott, Mr. Robert E., Director of International Programs, Economic Policy 

Institute ................................................................................................................ 15

APPENDIX

Opening statements: 

Manzullo, Hon. Donald A. ................................................................................ 26

Velazquez, Hon. Nydia ..................................................................................... 32

Prepared statements: 

Mica, The Honorable John L. (FL-7), Congressman, U.S. House of Representatives ................................................................................................... 34

Lavin, The Honorable Franklin L., Undersecretary for International 

Trade, International Trade Administration ................................................ 37

Yager, Dr. Loren, Ph.D., Director, International Affairs and Trade, U.S. 

Government Accountability Office ............................................................... 42

Hill, Ms. Kathy M., President, The State International Development Organizations ..................................................................................................... 63

Holmes, Ambassador J. Anthony, President, American Foreign Service 

Association ..................................................................................................... 70

Morrison, Dr. James, Ph.D., President, Small Business Exporters Association ................................................................................................................. 74

Additional Material: 

Mendelowitz, Mr. Allan I., Ph.D., Member of the Board of Directors, 

Federal Housing Finance Board .................................................................. 82

(III) 

(1)

CUTTING OUR TRADE DEFICIT: CAN THE U.S. 

MUSTER ITS DIVERSE TRADE 

PROMOTIONOPERATIONS TO MAKE AN IMPACT? 

WEDNESDAY, APRIL 26, 2006

HOUSE OF REPRESENTATIVES

COMMITTEE ON SMALL BUSINESS

Washington, DC 

The Committee met, pursuant to call, at 2:00 p.m., in Room 

2360, Rayburn House Office Building, Hon. Donald Manzullo 

[Chairman of the Committee] presiding. 

Present: Representatives Manzullo, Kelly, Akin, Velazquez, 

Udall, Bordallo, Sanchez, Barrow. 

Chairman MANZULLO. Good afternoon. I am pleased to open this 

hearing on the important topic of trade promotion and the extent 

to which the diverse U.S. programs can be coordinated to enhance 

small business exports which offer a key tool to help reduce our 

trade deficit. 

I welcome our six witnesses who bring real practical experiences 

to addressing the question of how we can do a better job at trade 

promotion. I guess the first thing I should do is learn how to do 

a count. Seven witnesses. 

With the U.S. trade deficit in goods and services running approximately 65 billion or more per month so far in 2006, the U.S. 

is well on its way to break the 2005 record annual trade deficit of 

$724 billion. So far this year until the end of February, the accumulated U.S. trade deficit with China, just China alone, is somewhat worse, totaling $31.75 billion up to $.63 billion from the same 

period last year. 

Equally threatening is the U.S. dependence on the inflow of foreign capital to finance these deficits for the purpose of federal debt 

instruments which, in turn, lends support for a strong dollar that 

continues its deficit to debt cycle. 

Congress and the Export Enhancement Act of 1992 established 

the Trade Promotion Coordinating Committee, TPCC, with two 

main purposes: one, providing a unified framework to coordinate 

the export promotion and export financing activities of the U.S. 

government; and, two, developing a government-wide strategic plan 

for carrying out federal export promotion and export financing programs. 

Two of the key duties assigned to the TPCC were assess the appropriate levels and allocation of resources among agencies in support of export promotion and export financing and provide recVerDate 0ct 09 2002 18:51 Nov 03, 2006 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 G:\HEARINGS\28572.TXT MIKE
2

ommendation to the President; and to coordinate official trade promotion efforts to insure better delivery of services to U.S. businesses. 

Over the past 14 years, TPCC has had mixed results in fulfilling 

its congressional mandates. Without clear budgetary influence or a 

strong will to exert oversight authority of the numerous federal entities that make up its members currently totaling 21, the TPCC’s 

impact that unified the diverse U.S. trade promotion and finance 

operations has been negligible. Our trading partners are well organized and effectively market their small businesses in the expanding global markets, particularly in China. With small businesses offering the best prospect to boost export growth, we need to redouble 

our efforts to help them achieve this goal. 

It is time the U.S. put some order into its federal trade promotion and finance operations through strengthening the TPCC. 

We do this by elevating the TPCC to an Executive Office of the 

President level operation, by providing it with budgetary input authority over federal trade promotion and finance operations, by 

staffing TPCC directly or through detailed assignments to effectively perform oversight of the U.S. trade operations, and lengthen 

the national export strategy with verifiable performance benchmarks to the annual federal budget submission. 

I now yield for an opening statement from the Ranking Minority 

Member, Representative Velazquez of New York. 

[Chairman Manzullo’s opening statement may be found in the 

appendix.] 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Small business international trade prospects are on the rise. This 

represent 97 percent of all exporters, and are experiencing growth 

at two times the rate of their larger counterparts. They generate 

30 percent of the nation’s total value of exports and dominate many 

of these industries. 

The tremendous growth of the global market has allowed American small businesses to remain competitive and strong. Yet since 

2002, the nation’s trade deficit has been rising to unprecedented 

levels with no end in sight. It is time to acknowledge that current 

economic policies are undermining the leadership position of our 

nation’s industries in the global market. 

Therefore, as we consider a new national promotion strategy, it 

is crucial to focus on trade policies that target those businesses 

with the ability to export successfully and accommodate this dynamic global economy. 

In my opinion, the answer to our trade deficit is through small 

businesses. However, our nation’s commitment to trade promotion 

is declining, as indicated by several factors, all of which impede the 

growth of our country’s small exporters. 

The Trade Promotion Coordinating Committee is vastly under 

funded. The administration has provided fewer resources to its 19 

member agency for which to contribute to the export promotion objectives. Since FY 1999, the Committee’s budget has been cut by 

over 30 percent. Today member agencies are contributing a mere 

$1.8 million to trade promotion goals. 

This lack of adequate funding has left the committee without the 

necessary resources and staffing it needs as well as leverage over 

3

agencies to utilize their budget resources to fulfill its mandate. The 

small business program has not been coordinated successfully within the TPCC, and many exporters claim the process to gain information and resources to facilitate trade transactions is unwieldy 

and confusing. 

Finally, as advisors to the U.S. Trade Representative, the TPCC 

has not adequately represented the needs of small business in 

trade agreement negotiations. In 2002, the General Accounting Office investigation corroborated these findings and confirmed that 

the Committee has exhibited effective and inconsistent policies for 

coordinating federal agency export promotion efforts in supporting 

small business exporters. 

Given the dynamics of the global economy and the importance of 

international trade, this is simply unacceptable. As the trade deficit continues to rise, one question remains: why would we choose 

to ignore these small businesses who are our strategic asset for 

spurring innovation and increasing our global market share? 

The global economy only continues to grow with each passing 

year. Yet trade deficits are growing, and our national industries 

are losing their competitive edge. It is more important now than 

ever for our nation’s small businesses to remain on the cutting edge 

of their industries. 

Instead of ignoring the tremendous potential of small exporters, 

the TPCC needs to focus on recommitting and supporting the 

growth of these entrepreneurs well into the future. In order to insure that our nation’s small business exporters are able to compete 

more efficiently and effectively in the global market, it is critical 

to invest adequate resources into making this happen. 

Our trade policies must be reflective of the important role these 

entrepreneurs play in the world economy. It is my hope to find a 

solution that truly supports their continued innovation and advancement. 

I look forward to hearing the testimony of today’s witnesses. 

Thank you, Mr. Chairman. 

[Ranking Member Velazquez’s opening statement may be found 

in the appendix.] 

Chairman MANZULLO. Thank you. 

We are sorry that we are late, but we had to vote. We had some 

members of the Indonesian parliament that had stopped by to visit, 

and unfortunately, they had to leave. So we are sorry that happened. 

The order will be starting with Congressman Mica, and then Secretary Lavin. There is a clock up there. When you see the yellow, 

that means you have a minute, and then when you see the red, 

that means that time has expired, and it is set for five minutes. 

So if you could keep your remarks to that, we would appreciate it. 

Congressman Mica. 

STATEMENT OF THE HONORABLE JOHN MICA (FL-7), 

CONGRESSMAN, U.S. HOUSE OF REPRESENTATIVES 

Mr. MICA. Well, thank you, Mr. Chairman, and thank members 

of the Committee for conducting this important hearing. 

Right now I guess on everyone’s agenda is gas prices and energy 

concerns. Within Congress, everyone is concerned about the deficit 

4

we are running. Personally, I think the greatest challenge we face 

is our trade deficit. I circulated this little chart. It shows a $724 

billion trade deficit. 

I would like to ask at this time. I have a long statement that I 

would like included and maybe these charts in the record. 

Chairman MANZULLO. The statements of all the witnesses will be 

admitted without objection. 

Mr. MICA. Great. This is the challenge we really face for the future. Just from some personal history, I was involved in international trade. I was a chief of staff for one of the Senators and 

accidentally got involved in an international trade issue, right after 

I left turned it into a little consulting business, represented many 

American businesses, some large corporations and small companies 

overseas, in addition to being a developer in the communications 

business. 

So I have seen some of how this operates at first hand over the 

years. Let me say that as a business person, having been involved 

in international trade that the United States assistance programs 

and trade development and promotion, anything that we have to do 

with promoting trade and business, both nationally and internationally, is dysfunctional at very best. 

This chart, which has been revised slightly, some of you spoke 

to the 19 agencies that are involved in international trade. Most of 

this chart has not changed. We still have all of these agencies involved in some way, but in a very dysfunctional fashion. 

And I remember when we tried to change some of the responsibilities of the Trade Promotion Coordinating Committee. We 

made some moderate changes, but basically one of the problems 

you have with this is this committee is basically a toothless tiger. 

They do come up with a report, and I read through their report this 

morning just to see what it has. It is basically a compilation of a 

few things that are going on. It has no strategic business plan or 

plan to promote U.S. business in a coordinated fashion between all 

the agencies of the United States, and part of its problem is it has 

no teeth. 

I commend Chairman Manzullo for drafting legislation which he 

as introduced and I am pleased to be a co-sponsor to, to at least 

try to give some status to this important objective. 

So basically, the United States as business is business has no 

business plan. That is our first problem. We have no coordination 

of these 19 agencies with any teeth to do anything, and you will 

hear probably a lot of the witnesses will tell you what a great job 

they are doing. 

If this is a great job, folks, you know, and we are in trouble. 

So the first thing you need is some teeth to the tiger and somebody in charge and a business plan that really has a plan of action. 

The Department of Commerce that we have, which is our biggest 

agency, and I have this chart. I always like to pull this chart out. 

This shows the number of people in the Department of Commerce. 

What are there, 30,000 in the Department of Commerce? There are 

really only several thousand that are involved in business and 

international trade. 

The International Trade Administration has four percent of the 

employees. Most of them are in NOAA, the National Oceanic and 

5

Atmospheric Administration, Bureau of Census. That makes up 65 

percent of them, and then some other agencies put in here. 

So we have a Department of Commerce which is also farcically 

named and operated as far as promoting business. 

Now, they are charged with foreign commercial service, and the 

foreign commercial service is probably one of the greatest stepchildren in government. It is not only a stepchild because it mostly 

is located under the State Department within an embassy in foreign locations. So it is a stepchild from both its placement under 

a diplomatic agency, and it is also an abused and neglected and 

now it is going to be a starved agency. 

First of all, most foreign countries do not have a foreign commercial service office. So first to conduct and promote and assist U.S. 

business overseas, the majority of countries do not have them. Most 

of the countries where we have them probably don’t need them, 

and then the balance, some 99 in some 99 countries or over 90 

countries, most of the commercial service is handled by the State 

Department. 

And if you think that the people that are involved, economic officers, in the State Department are interested in conducting business, in these 90-some markets that don’t have foreign commercial 

service operators, I submit this statement from the State Department in a letter to me. 

‘‘Many economic officers are entry level officers who in their first 

one or two years in the foreign serve filled rotational or consular 

positions.’’ 

So what they are doing is sending people with probably no experience to be there for a short time to conduct one of our most important strategic responsibilities, a business of this country. 

Chairman MANZULLO. Your time. 

Mr. MICA. Okay, and I am just about finished. These guys yielded me a minute anyway. 

Chairman MANZULLO. Set a bad precedent here. 

Mr. MICA. So, again, if you look at where we have operations, we 

have them where we do not need them. We do not have them 

where we need them. 

I put in some examples. I managed to get one foreign commercial 

service officer in the Slovak Republic, and I have the results of that 

one person over three or four years, which is incredible, and the 

Baltics, which is one of the best markets in the world, I think we 

just lost the person there because our policy now, and it is not 

these guys’ fault; it is partly Congress’ fault, the agencies’, committees’ of Congress fault. You only have a little piece of this for small 

business, but I commend you for taking this on and focusing attention on this. 

So I hope in my running over the items that I have submitted 

that I show a little bit of the picture out there and I would be glad 

to answer questions. 

[Congressman Mica’s testimony may be found in the appendix.] 

Chairman MANZULLO. Congressman, I appreciate your passion in 

the area. 

Our next witness is Franklin Lavin. Secretary Lavin is the 

Under Secretary for International Trade, the International Trade 

Administration, a very impressive background, including the fact 

6

the he speaks Chinese; is the former U.S. Ambassador to Singapore. So he brings a tremendous amount of experience to this position, and we look forward to your testimony. 

STATEMENT OF THE HONORABLE FRANKLIN L. LAVIN, 

INTERNATIONAL TRADE ADMINISTRATION 

Mr. LAVIN. Thank you, Mr. Chairman, Ranking Member, other 

members, and thank you, Congressman Mica, for your comments, 

much of which I agree with. 

But I am very glad to be here today to talk about the Trade Promotion Coordinating Committee and how the federal government 

can best help U.S. small and medium sized companies export. 

And I want to begin by first expressing my gratitude toward you, 

Mr. Chairman, and the Committee for your leadership on this 

issue. 

I think in the first instance, I should begin by noting that the 

U.S. economy is performing very well. We’ve got a pro growth economic agenda. Businesses are growing. Last year alone we saw two 

million jobs created, economic growth of three and a half percent, 

wrapping up 11 quarters of GDP growth, this despite the challenges of hurricane and high energy costs, and our indicators so far 

this year tell us that ’06 is going to be a very strong year as well. 

But of particular relevance to the discussion today, it’s exporters 

that are an important engine of this growth. One in five are manufacturing jobs that depend on exports, and jobs linked to exports 

pay some 13 to 18 percent more than other U.S. jobs. 

Our merchandise exports last year grew about 11 percent and 13 

percent in 2004. Agricultural exports hit a record high in 2005 and 

support some one million jobs. Service exports have doubled in 

about a decade. 

So we began, I think, with some good news, but despite this good 

news, I think we asked ourselves could U.S. businesses, particularly the small and medium size businesses be doing even better 

in a growing global economy because what we have seen in the last 

decade is a dramatic reduction in trade barriers and a range of improvements in technology that have made it easier for businesses 

to compete, but we have a significant segment of the U.S. business 

community that does not export or does not compete internationally. 

Part of this challenge is the attractiveness of our home market. 

We have the largest domestic market in the world, and a good 

number of our companies are still building out their domestic activity. 

But we view our primary challenge as one of encouraging these 

small and medium size companies to take advantage of improved 

operating environment, improved access to foreign markets, and 

improved opportunities and growing economy. 

So both at the Commerce Department itself and through the 

TPCC, our overriding priority is simply reaching out to this wider 

community of U.S. exporters and potential exporters. In my view 

there is a substantial untapped community of U.S. companies who 

are capable of exporting but not yet in that business. 

So given the large number of U.S. companies, we have something 

like 5.7 million companies in the United States. Given reasonable 

7

smallness of our staff, despite the fact that I think we have a very 

strong staff, what we are trying to do is develop partnerships with 

key private sector organizations to help us carry out this mission. 

We have been working a lot over the last six months with the 

express delivery companies, the international ones. The Web based 

marketplace is the international banks, all of whom have an orientation the same way we do and the TPCC does. How do we help 

these small companies become competitive overseas? 

And I will wrap up, if I may, Mr. Chairman, with one example. 

We started talking with Federal Express in 2004, and in the last 

six or 12 months we think that relationship with FedEx has grown 

quite substantially. They simply have a marketing program and 

communication channel, a customer database, and the resources 

far in excess that we have in the Commerce Department. They 

have an ability to work with their customer base and help their 

customer base move into different markets. 

So they have communication channels. They have resources. We 

think we have technical know-how, and we can marry up. 

So, for example, FedEx can identify all of their customers that 

current export to Mexico, and when the Central America Free 

Trade Agreement comes on line and El Salvador is implemented, 

we can explain to all Federal Express customers in Mexico in a 

commercial basis Mexico just got bigger. El Salvador is just as easy 

as Mexico. Why don’t we take all FedEx customers who currently 

export to Mexico and help them now export to E. Salvador, migrate 

to a new market? 

And they’ve got a mechanism, a system and program in place to 

do just the kind of activity. You can see how that can work across 

the board. 

Yes, we are talking with UPS. We will talk with DHL. We will 

talk with all of the carriers. We will talk with the U.S. banks, and 

we have had some very interesting initial discussions with eBay as 

well. 

The role of technology in helping exporters has just shifted so 

dramatically over the last ten years that our ability to be successful 

overseas in large part, in my view, is going to depend on our ability 

to get these force multipliers, get these U.S. companies engaged in 

our mission and work with them to help carry that message and 

help U.S. companies get overseas. 

We have moved the TPCC to directly interface with Commercial 

Service, and I think that is the right move. It is essentially to my 

mind the group that needs to focus on sales, marketing, customer 

contact, if you will. So I’m very comfortable with that new focus. 

And let me close, Mr. Chairman, by saying that in my view in 

the era we’re in, the TPCC is now even more vital in reaching 

America’s small business, and this effort to improve our communication channel and improve our contact beyond the normal government channels is going to be key to the success, and I look forward to working with you and the Committee in that effort. 

Thank you very much. 

[The Honorable Franklin L. Lavin’s testimony may be found in 

the appendix.] 

Mr. AKIN. Very interesting testimony. We appreciate that. 

8

Our next witness is Loren Yager. Dr. Yager is the Director of 

International Affairs and Trade, currently serving on the U.S. Government Accountability Office, where he is responsible for international trade related issues. 

Dr. Yager, we look forward to your testimony. 

STATEMENT OF LOREN YAGER, Ph.D., U.S. GOVERNMENT 

ACCOUNTABILITY OFFICE 

Dr. YAGER. Thank you, Mr. Chairman. 

Mr. Chairman and members of the Committee, thank you for the 

opportunity to appear before the Small Business Committee on our 

work on the Trade Promotion Coordinating Committee. Mr. Lavin 

has provided quite a bit of background on the TPCC in his statement, and I know that this Committee is also very familiar with 

many details of that Committee. 

I do want to emphasize that GAO has consistently been asked by 

the Congress to perform oversight on the trade promotion activities 

in the federal government, and those requests began even before 

the creation of the TPCC in 1992. 

We have recently updated this work at your request, Mr. Chairman. However, I will draw on this larger body of work in my remarks as I believe that the consistency of our findings over time 

provides a useful context for today’s discussion. 

Today, as requested, I will do three things: first, report on the 

trends and the budget authorities of the member agencies; second, 

discuss the Committee’s efforts to improve coordination; and, third, 

update our findings regarding the Committee’s role in defining 

goals and aligning resources. 

In terms of the TPCC budget, as reported in the national export 

strategies, overall trade promotion resources dropped by about onethird in the last few years, primarily as a result of budget decreases at two of the four key agencies. Funding for three Department of Agriculture programs dropped in Fiscal Years 2005 to 

2006, and ExIm Bank lowered its projected costs for providing financing. 

At the same time, budget authority for the two other key agencies, Departments of Commerce and State, have remained relatively steady. However, the effects of these trends on the agency’s 

trade promotion activities is not always clear. 

For example, the decline in ExIm Bank’s budget authority did 

not reduce its ability to provide export financing. On the other 

hand, Commerce Department officials emphasize that while their 

budget is not changed, recent increases in the cost of security for 

overseas offices included in the department’s trade promotion budget authority diminished the resources available for trade promotion 

activities. 

On my second point, our review of agency coordination shows the 

Committee has achieved some important progress, particularly 

when compared to the situation that existed in the early 1990s 

prior to the TPCC. At that time, there was little awareness or cooperation among agencies of the other’s activities, and there was a 

great deal of inefficiency and overlap. 

In the last few years, the TPCC built on some earlier efforts and 

pursued a number of initiatives to improve agency coordination of 

9

trade promotion activities. For example, since 2002, TPCC completed and implemented a number of changes as a result of its private sector outreach efforts, including joint training and other activities that leverage resources of TPCC agencies. 

However, some interagency coordination challenges persist, particularly among the Departments of Commerce, State and Agriculture regarding plans to realign overseas staff. 

Third, on my point, the TPCC has not been as successful in defining goals and aligning resources. For example, the strategies do 

not identify or measure progress towards member agency goals in 

relation to the strategy’s broad federal trade promotion priorities, 

and the agencies have not articulated measurable goals in support 

of these priorities. 

The lack of systematic information also makes it difficult to assess progress or trends in small and medium size businesses’ participation in trade promotion activities. 

While TPCC agencies track small business participation in a variety of ways, we observe that the national export strategies provide only anecdotal information on these businesses’ participation 

in trade promotion activities. 

Moreover, the annual strategies do not review agencies’ allocation of resources in relation to the broad priorities, and the TPCC 

has little influence over agencies’ allocation of resources to support 

their goals or its priorities. Agency representatives told us as they 

had during our 2002 review that they would resist any effort by the 

TPCC to review their budgets. 

Mr. Chairman, based on our long record of oversight over the 

TPCC, we believe that the TPCC can continue to make improvements in interagency coordination and do a better job of tracking 

small and medium size businesses’ participation in a consistent 

manner. 

However, we question whether the TPCC in its current structure 

can achieve the fundamental objectives associated with defining 

goals and aligning resources. 

We also question whether the TPCC’s current move into the Office of the Assistant Secretary for Trade Promotion within the 

Commerce Department will help it achieve those goals. 

As we noted in previous reviews in the TPCC, sustained high 

level involvement is necessary for the TPCC to achieve its fundamental objectives. It is not clear that the current move would facilitate this kind of involvement. 

Mr. Chairman, this concludes my statement. I will be happy to 

address any questions that you have. 

[Dr. Yager’s testimony may be found in the appendix.] 

Mr. AKIN. Doctor, thank you for bringing it in on time here. 

And our next witness is Kathy Hill, and if you would proceed, 

and you know the drill on the clock there. Thank you. 

STATEMENT OF KATHY M. HILL, THE STATE INTERNATIONAL 

DEVELOPMENT ORGANIZATION 

Ms. HILL. Thank you. It is a pleasure to appear before this Committee. 

My name is Kathy Hill, and I am the Director for Trade for the 

State of Iowa, the Department of Economic Development. But here 

10

today I am in the capacity of the President of the State International Development Organization, or SIDO. 

We are the only international association of state international 

trade directors, and as state trade professionals, we work every day 

with the small businesses and help them find or expand their global markets. 

We are very thankful that you reached out to us, and it is an 

honor for us to be here. 

There are three things that I would like to bring up today. First, 

intergovernmental cooperation is essential to address our trade deficit. We have to work smarter. We have to work harder, and we 

have to facilitate the needs of our companies with an integrated approach. 

Second, recent decisions made by the U.S. Department of Commerce have set back the progress made in promoting intergovernmental cooperation over the past few years. 

And, thirdly, we believe that the best way to insure that all involved in trade are on the same page, and this is through strengthening the role in the White House coordination of federal programs. 

You may not know, but state programs of the 50 states, we are 

involved in trade promotion. We have a staff of about 1,000 here 

in the United States if you put us all together. We have a budget 

of over $75 million, and we have over 200 overseas offices. We provide unique services and complementary services to our federal 

counterparts, including export promotion grants that cover a lot of 

the program fees that are charged by federal programs. 

And with that then we have our own unique ability to help the 

small businesses export through trade missions and trade shows, 

and then we go ahead and we contract with the Department of 

Commerce and use their services, again, supplementing Commerce’s budget costs. 

When we faced our budget cuts in 2001, we had to depend more 

on Commerce and the USEACs. But now that there is talk about 

raising the fees for service for gold and platinum key services, we 

are going to have to reevaluate how we are going to have to use 

the services of the federal government. 

Connecticut has changed their program totally to rely on commerce. Florida is probably Commerce’s largest user, their largest 

customer. As states, we provide Commerce about $800,000, and 

that is not counting in-kind services or it is not counting the services that we provide with housing that we are doing joint offices. 

So we need to work together to strengthen the business community and to globalize the business community, and the federal government needs to coordinate the services offered to the business 

communities. 

We have a program, and a federal program. It is called MAP 

funds, market access program. Iowa companies this year or federal 

year 2004, they access $800,000 of MAP money. This is a program 

through the U.S. Department of Agriculture. They leverage $2.5 

million. We have got $800,000. This is a fabulous program, to help 

companies market internationally. 

There is no program like this for manufacturers and service companies. Instead, we are seeing more of defragmentation, and we are 

seeing budget cuts for those kind of companies when we are looking 

11

at a trillion dollar trade deficit. So, again, the work that is being 

done here today is an extremely important thing. 

I would also like to mention the White House Intergovernmental 

Committee. Recently at our meetings we met with the White House 

Committee, and we have excellent assistance from them. We were 

able to sit down with Commerce, with the USTR’s Office as the 

State International Development Organization, discuss what issues 

that we have, how we can work together and coordinate more closely, and we appreciate that type of oversight, and we think that by 

doing more coordination and coordinating the federal programs 

could only enhance globalization because it is not going away. So 

how do we work harder? How do we work smarter? 

Thank you. 

[Ms. Hill’s testimony may be found in the appendix.] 

Mr. AKIN. Thank you very much for sharing your testimony. 

Our next witness is the Honorable Anthony Holmes, President of 

American Foreign Service Association; is that correct? 

Mr. HOLMES. Correct. 

Mr. AKIN. Proceed, please. 

STATEMENT OF THE HONORABLE J. ANTHONY HOLMES, 

AMERICAN FOREIGN SERVICE ASSOCIATION 

Mr. HOLMES. Thank you. 

Mr. Chairman, members of the Committee, on behalf of more 

than 27,000 active duty and retired members of the United States 

Foreign Service, I would like to thank you for the invitation to 

speak before this panel today on a subject of great relevance to the 

U.S. Foreign Service. 

AFSA is here because we believe there needs to be a more ambitious U.S. government vision of commercial diplomacy overseas. 

More than 15 years ago, a Bill of Rights for U.S. Business was promulgated, and our ambassadors abroad were given detailed advocacy guidelines to promote a trade liberalization agenda to facilitate the work of our export credit and project finance agencies and 

to provide market intelligence and business contacts to America’s 

small and medium sized enterprises. 

The creation of the TPCC in 1992, the Trade Advocacy Center at 

the Commerce Department in 1994, and the roll-out of U.S. Export 

Assistance Centers throughout the 1990s were additional elements 

of the U.S. government’s growing realization that supporting U.S. 

business overseas was and remains a genuine strategic priority. 

Fifteen years after this seachange in thinking, the SME business 

person is fully aware of the global forces competing with him or her 

in his or her own market. He or she sees that evidence every day 

as more and more international companies are becoming dependent 

on their ability to reach U.S. consumers. 

But how do American SMEs penetrate foreign markets? What 

data are available? Who are the key contacts? Are there any special 

market barriers? Is financing available? 

These are some of the questions asked by SMEs who are ready 

and able to join the global economy if they can find the help they 

need just to get started. 

As the President of AFSA, I am asking today for the administration and the Congress to work together to raise the priority of comVerDate 0ct 09 2002 18:51 Nov 03, 2006 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 G:\HEARINGS\28572.TXT MIKE
12

mercial diplomacy in an era of increasing global competition and 

increasing budget stringency. As my written testimony explains, we 

believe that a more unified, authoritative TPCC would be both desirable and logical to achieve this end, and only if it is not merely 

an exercise in moving boxes around on an organizational chart. 

A stronger TPCC must be part of a more comprehensive trade 

agenda, an agenda as ambitious as that encompassed by the Uruguay Round of the GATT negotiations. 

Mr. Chairman, I am asking for two things today. First, the TPCC 

needs to be reinvigorated. Coordination among the 19 TPCC agencies must be improved, with clear delineation of TPCC functions at 

our missions overseas, and with an acknowledged TPCC coordinator linked to a unified decision making process in Washington. 

The prerogatives of individual agencies can be preserved, but 

when consensus breaks down, there needs to be a default decision 

making process in Washington capable of quickly resolving the dispute. 

Further, as the head of TPCC, the Secretary of Commerce should 

be given additional executive authority beyond that provided for in 

the original 1992 legislation. He must have sufficient authority to 

move the bureaucracy on matters of trade. 

A recent analogy would be the creation of the post of the Director 

of National Intelligence. There may be rational explanations for the 

dispersed nature of our government’s economic and commercial 

functions, but the problems this creates for effective trade promotion are not dissimilar to the recent problems faced by consumers of the U.S. government’s intelligence community. 

Secondly, Mr. Chairman, I ask that Congress provide the resources necessary to attract and retain the most qualified people 

for careers in the Foreign Service promoting trade. The professional career service is the foundation for an effective global competitiveness policy. It may not be cheap to achieve, but the value 

to our national interest is immense. 

The simple fact is that an appropriately funded trade promotion 

apparatus would grant our SMEs sustainable access to new markets overseas. As President Bush remarked the other day, trade is 

one of the most powerful engines of growth and job creation. Americans account for about five percent of the world’s population, and 

that means 95 percent of our potential customers live overseas. 

In conclusion, Mr. Chairman, I commend you and the members 

of your Committee on the leadership you are showing in this vital 

area. Thank you again for the opportunity to participate in today’s 

hearing, and I would be delighted to answer any questions you may 

have. 

[Ambassador Holmes’ testimony may be found in the appendix.] 

Mr. AKIN. Thank you for sharing your testimony. 

I think we are going to jump to the questions after everybody has 

had a chance. 

Our next witness is Dr. James Morrison, President, Small Business Exporters Association of the United States. 

Welcome, James. 

13

STATEMENT OF JAMES MORRISON, Ph.D., SMALL BUSINESS 

EXPORTERS ASSOCIATION 

Dr. MORRISON. Thank you, Mr. Chairman, Representative Velazquez, and members of the Committee. Thank you for inviting me 

to appear here today. 

I am James Morrison, President of the Small Business Exporters 

Association of the United States. 

SBEA is the oldest and largest nonprofit association exclusively 

representing small and mid-size U.S. companies that export. 

Today’s hearing focuses on the crucial issue of how our country 

can best response to a trade deficit approaching one trillion dollars 

a year. What should we do? 

First of all, the U.S. can and should uphold our own trade laws 

and hold other nations to the international commitments they have 

made to join the WTO and to take part in other trade agreements. 

Our country should not, however, try to handle the trade deficit 

by limiting imports through political fiat. Not only would this likely 

violate the same kinds of international trade agreements that we 

are trying to get other nations to honor, but according to almost 

every reputable economist, it would lower the U.S. standard of living. 

Nor should we seek refuge in manipulating the exchange rate of 

the dollar, not when we criticize other nations for similar actions 

and not when that, too, would lower our standard of living and 

could even push us into a recession. 

What can we do? It is an old saying, but it is often true, that 

the best defense is a good offense. Effective export promotion in a 

government where at least 19 agencies play a role in international 

trade is quite a challenge. As SBEA notes in its written testimony, 

there is a thread running through the difficulties that several 

international trade agencies, ExIm, SBA, and TPCC, among others, 

are encountering in their export promotion efforts. 

It is this: responsibility to carry out the job is not being matched 

by authority to do so. H.R. 5196, which was introduced this morning, seeks to address this problem at both SBA and TPCC. 

At SBA, the bill would elevate the agency’s international trade 

operation to appoint just below the administrator. This is a very 

valuable and long overdue change. 

SBA is fundamentally by statute and culture a domestic agency. 

If Congress wants the agency to play a constructive role in export 

promotion, and I think it is fair to say that Congress does, then 

SBA needs a strong signal to treat that as a priority. The position 

on an organizational chart means something, and people in an organization know what it means. 

SBA would also urge Congress to clarify the role of SBA’s Office 

of International Trade in the development and improvement of the 

agency’s products and services for exporters. OIT can suggest now. 

It cannot initiate, and it cannot veto. 

Congress should also take a hard look at OIT’s resources. The office now has 15 export finance specialists and U.S. export assistance centers around the country. It once had 20. Yet this tiny 

group of people has underwritten billions of dollars in exports over 

the past few years. Just the jobs created and the taxes paid on 

these export sales cover the costs of the USEAC specialists many 

14

times over. Yet this spectacularly successful program, which ought 

to be expanded into more USEACs, is constantly threatened with 

extinction. 

Overall, OIT has about 25 employees. That works out to one per 

10,000 small business exporters and one per one million small businesses overall, and this is despite the fact that small companies 

represent the greatest up side potential for U.S. export sales and 

are the companies that typically need the most assistance in getting into exporting and then obtaining export financing. 

The problem that TPCC faces is similar in certain respects. Creating TPCC created an expectation for coordination, but that explicit or implied responsibility was not well matched with TPCC’s 

actual authority. For one thing, TPCC is well down the organization chart of the Department of Commerce, one of the major agencies that TPCC is expected to coordinate. 

For another, its ability to influence the activities of other agencies when Congress seems to want TPCC to exercise it through the 

budgetary process is limited by TPCC’s inability to intervene in 

that process in a timely way. 

H.R. 5196 also seeks to address these problems, first, by elevating TPCC to a position within the White House and, second, by 

allowing it to intervene earlier in the budget setting process. 

While these are constructive changes, and SBEA supports the 

overall thrust of them, we also think it is important to ask TPCC 

with keeping the agencies focused on government-wide trade promotion goals. Coordination, after all, should be seen as a means, 

not an end. 

As an example of such a goal and one that would particularly 

benefit SMEs in international trade, we suggest lowering export 

transaction costs. In our written testimony, we go into some detail 

about how different agencies could help achieve this goal by attacking high fixed costs of exporting. 

But suffice it to say in a situation where only an export sale 

above one million dollars can be profitable, few companies will export. If the threshold falls to $500,000, more companies will export. 

At a profitability point of $250,000 or even $100,000, many more 

companies will export, and all U.S. exporters benefit because costs 

fall for everyone, and so everyone can benefit from more competitive prices. 

When the fixed costs of trading with Mexico and Canada fell 

after NAFTA, the number of USSMEs exporting to Canada doubled. Those exporting to Mexico nearly tripled. The values of 

those— 

Mr. AKIN. Dr. Morrison, you are pretty much out of time here. 

Can you summarize things here, please? 

Dr. MORRISON. Yes. I have only got two sentences left here. 

Mr. AKIN. All right. 

Dr. MORRISON. Export promotion gets much easier as red tape 

and fixed costs decline. 

That concludes our remarks, and I would be happy to accept 

questions. 

[Dr. Morrison’s testimony may be found in the appendix.] 

Mr. AKIN. Thank you. 

15

And our last witness is Robert Scott, Senior International Economist and Director of International Programs. 

Roberts, proceed. 

STATEMENT OF ROBERT E. SCOTT, ECONOMIC POLICY 

INSTITUTE 

Mr. SCOTT. Thank you, Mr. Chairman and Representative Velazquez and other members of the Committee. 

U.S. export performance has declined for more than two decades. 

U.S. export promotion strategies are flawed and ineffective because 

they are built on a faulty understanding of the causes of our weak 

export growth. Small and large businesses in the United States are 

confronted by a number of fundamental barriers to expanding exports. 

First of all and most important is the sustained over valuation 

of the dollar since 1995. That has been aided and abetted by a passive and noninterventionist response from responsible officials at 

the White House and in Treasury. 

There are also, as you know, persistent tariff and non-tariff barriers to U.S. exports that are still major problems today. You have 

highly unbalanced trade flows with countries like China that are 

continuing to be a huge barrier to exports. 

We also have high and rapidly growing benefit costs for U.S. 

workers for things such as health care. 

Finally, we have low levels of R&D support which can provide 

the seed corn for increased competitiveness. 

Our export promotion plans and activities as set forth in the 

TPCC’s national export strategy report for 2005 failed to directly 

address these problems. If you do not outline the problem, you cannot design solutions that are going to redress it. 

The NES has a three-pronged strategy for 2005: promoting new 

trade agreements; identifying promising market opportunities in 

China; and increasing trade leads type programs in other countries 

that are identified there. 

The Clinton and Bush administrations have frequently reported 

they negotiated hundreds of trade agreements over the last decade. 

Likewise, the NES proclaims that 12 FTAs have been negotiated 

and more are under negotiation, and that this will improve export 

performance. 

Such assertions assume that simply approving these agreements 

is going to improve export performance. A review of the history laid 

out in some of the charts I prepared for you today shows that nothing could be further from the truth. 

In Figure 1, I show that U.S. export performance has declined 

steadily in every decade since the 1970s, despite the hundreds of 

trade agreements that we have negotiated. 

U.S. imports have always, in every decade, grown faster than exports, and as a result our trade deficit has soared, as we all know 

and as is shown in Figure 2. 

Over valuation of the dollar is a key problem because it increases 

the cost of U.S. exports and reduces the price of imports here in 

this country. The trade deficit is increased from two percent of 

GDP in 1995, about $110 billion, to seven percent of GDP in the 

16

fourth quarter 2000, which is actually over $900 billion. That is in 

the broadest measure of the current account. 

In the mid-1980s, the last time we had a seriously over valued 

dollar and a large trade deficit, the Reagan administration negotiated a coordinated international campaign to bring down the dollar’s value. Secretary James Baker met with his counterparts in 

the G5 and negotiated the Plaza Accord. In two years the dollar 

came down by 25 percent, and the current account deficit shrank 

to a manageable one percent of GDP as shown in my Figure 3. 

China’s particular problem, imports are six times as large as exports. A large reason for this is because China is intervening in foreign exchange markets buying massive quantities of dollars and depressing its currency. 

The NES strategy touts the rapid growth of exports to China in 

2004. However, imports to China increased to 29 percent, much 

faster than the 22 percent increase in exports. So our trade deficit 

with China increased 31 percent in that one year alone. The same 

pattern prevailed in 2005. 

U.S. exports are also harmed by low levels of spending on research and development. As I document in my testimony, I have 

shown in the last chart we have had stable funding for R&D here, 

but compared to other countries, we are now ranked about 15th in 

the world, and that just will not do it. 

I see my time is running out. I will conclude with some policy 

suggestions. Treasury needs to find that China is guilty of currency 

intervention and begin negotiations to end that practice. We need 

to work with other members of the G8 now to come out with a plan 

for reducing the dollar by probably 30 to 40 percent. We need big 

increases in non-defense R&D spending and policies to reduce barriers such as high health care costs that are particularly damaging 

for U.S. firms. 

We need to expand enforcement of trade remedy and perhaps establish an independent agency to do that. These measures will—

I see I am out of time—reduce export barriers, and I think they 

will provide the best way to stimulate exports for large and small 

businesses, which I think will be the best way to reduce the trade 

deficit. 

Thank you, Mr. Chairman and members of the Committee. 

[Mr. Scott’s testimony may be found in the appendix.] 

Mr. AKIN. Thank you, Mr. Scott. 

And thank you all. You have got a marathon hearing going. Usually we do tiers of witnesses, and our Chairman is an aggressive, 

go-getter kind of guy. He has lined up seven people all at one time. 

So we are proud of you all for visiting us and for helping us out 

with your comments. 

I am going to turn to the Ranking Lady, Ms. Velazquez, for the 

first question. 

Ms. VELAZQUEZ. Thank you. Thank you, Mr. Chairman. 

Mr. Lavin, as Ms. Hill from the State International Development 

Organization indicated in her written testimony, increases in fees 

by the Department of Commerce for the Gold Key program, which 

helps small businesses find foreign buyers, will out price many 

small businesses, do you think that the Department of Commerce 

request for reduced funding for trade promotion programs, such as 

17

the Gold Key Program, is consistent with national export promotional objectives? 

Since you tried before and exporters and state development officials were opposed to those fees and Commerce said that they will 

not go for those fees, but this year they reappear again. 

Mr. LAVIN. Thank you, Congresswoman, for your question, and 

thanks to Kathy Hill also for raising this point. 

I think I agree very much with her sentiment that there is an 

argument for some kind of a fee structure in what we offer, but I 

think we want to be very careful not to price the fees in such a way 

that it his prohibitive, that we push people away from us, and we 

have to be very mindful that small businesses are going to be less 

capable of paying those fees. 

So I would favor a kind of fee structure that is modest, that requires that the business we are working with has a commitment, 

has a buy into the program, but it is modest enough that it does 

not push away the small businesses we are trying to reach. 

And I would advise anybody in the U.S. government to keep in 

mind that as they encourage government agencies to move towards 

cost recovery, they are, in effect, discriminating against smaller 

businesses. 

Ms. VELAZQUEZ. Mr. Lavin, but Commerce promised that or 

guaranteed that those fees would not reappear, and yet they are 

here again. 

Mr. Morrison or Ms. Hill, would you like to comment on the impact of those fees? 

Ms. HILL. I think one thing and the point that I was trying to 

make is that I do not know if Commerce or possibly this Committee 

has an understanding of how much the states subsidize those fees, 

to begin with, and we are not going to increase our subsidies. 

So if Commerce wants to raise their rates, that is something we 

cannot stop. We do not agree with it. We will advocate against it. 

We will continue to advocate against it as SIDO, but the small and 

medium size company cannot afford to pay those fees. 

I think that if a company goes to Commerce and asks for help 

and is willing to pay three to $500 a day for a gold key service, 

that they are committed. Otherwise they wouldn’t be paying that 

fee. They wouldn’t be traveling to that country. 

So I think the argument of commitment may not totally stand, 

but at the same time, I do believe that I understand that you cannot keep the same fees for the next 20 years. that is quite understandable, but at the same time, we have to stay competitive. 

Dr. MORRISON. I would agree with what Ms. Hill just said. I 

think when you are talking about gold key fees of couple hundred 

bucks a day or seven or 800 bucks a day, that becomes something 

that is feasible for an SME. What Commerce is really contemplating is quadrupling or quintupling those fees to thousands of 

dollars a day. That makes it much harder for a small business to 

do a back-of-the-envelope in which they can afford to go to the 

country, pay these fees, and not have a sale come out of it. So it 

is pushing companies away. It is not a good idea. 

I devoted a lot of my written testimony to the idea of lowering 

transaction costs. This is a way of raising transaction costs. If you 

do that, you will have fewer businesses. 

18

Ms. VELAZQUEZ. Thank you, Mr. Morrison. 

Mr. Scott, from an economist’s perspective, what are the returns 

on public investment in research and development and training 

programs designed to increase U.S. business competitiveness in 

global markets? 

Mr. SCOTT. Well, there is a long record in economic research 

showing that public investments in R&D and in training pay a 

much higher return than is perceived by the private business. The 

reason is that there are externalities. There are benefits that accrues to the country as a whole that the private firm cannot perceive. 

So private firms tend to under invest in research and in training. 

So those are responsibilities that naturally fall on the federal and 

state and local governments, and yet we, I think, are under investing in those key areas, and that is one reason we are falling behind 

in terms of exports and competitiveness. 

Thank you. 

Ms. VELAZQUEZ. Thank you. 

Ambassador Holmes, in your written testimony you mention 

funding reductions and fee increased in the FY 2007 budget impacting the services administered by the U.S. and foreign commercial service. In what specific ways do you think the cuts will impact 

small U.S. exporters, and what impact will this have on our overall 

export promotion strategy? 

Mr. HOLMES. Thank you. 

I think that the previous answers have addressed this question 

as well. It is inevitable that our commercial service will have fewer 

clients because the increased fees act as a major deterrent to small 

and medium size enterprises, even venturing into the international 

market. 

I think the trend in U.S. government support to all business, including small and medium size enterprises, is going precisely 180 

degrees in the wrong direction. We should be expanding U.S. government budget support for export promotion agencies and increasing the size of our footprint overseas, and instead of reducing the 

foreign commercial service presence overseas, we should be expanding it. 

Mr. MICA. Could I comment? I am going to leave, and I did not 

get to respond to those questions, but I just want to echo what has 

been said here. 

The first part of this discussion is kind of ludicrous because we 

do not even have the service in most of the places where we need 

it, and now we are slashing because of some of the cost recovery 

things for security and other items. We are slashing the numbers 

that we even have. 

So instead of adding more locations where we are promoting 

business, we are cutting back. We are charging those that least 

likely afford it. If you are a medium or small business, where do 

we need to be doing business the most? Let’s just take a cut at it. 

Where is our biggest trade deficit? China. 

It is almost a joke. I think we have 18 people total in China, full 

time U.S. equivalents. We have very few offices. I was in Chengdu. 

They have no one there. You need people who can speak the language, who can deal with these people. We are facing China, Inc., 

19

where if you do not know the difference between business, government and finance, and they play us like a Stradivarius, and we 

have no one to help small U.S. business or medium to even get 

there. 

We should be paying them to go a bonus and sponsoring a trade 

missions and opening rather than charging them. So we are pushing more people out of the market. We are exporting less, and we 

are getting whipped. 

I am sorry I have to go, but I could not resist making those comments. 

Mr. AKIN. Before you go, I would like to give you a chance at 

least at one question here because I get my shot at it as at least 

the acting Chair, you know, because my question was to you somewhat, Congressman. 

When I take a look at this coming from a business background, 

I mean, I have seen some ridiculous looking organization charts before, but this has got to be the most confused mess I have ever seen 

almost. 

My question— 

Mr. MICA. We got them together in 1992, and I was involved a 

bit in that, but again, it has no teeth. Nobody is in charge. It is 

sort of reporting. 

The bill we have is an improvement. It does give us some status. 

Mr. AKIN. I was just going to ask: politically is this thing so difficult that you have got so many committees involved they can 

never get fixture? 

Mr. MICA. That is the problem. In the 1990s, when our side took 

over in 1995, I got a trade sort of office started, a bill, and we got 

it pretty far in the House. We could not do it in the Senate, and 

then it died, and that is when we reorganized the committees to, 

I think, about 18 and it was a little bit easier at that time because 

no on had jurisdiction. 

Now everybody has got their turf. No one wants to give up anything. So it is very difficult, but we need a business plan, and we 

need to be competing in these markets. And there is great opportunities. They love U.S. products, but our guys, and, Ms. Velazquez, 

I think you said 92 percent of the business is small business; but 

they cannot compete. 

Where they need the language, the finance, and finance is a key, 

too, I just talked to someone who got turned down from ExIm because he could not get a loan because there is instability in this 

market overseas. 

Well, what in the hell do we need financing for U.S. assistance 

if it is not for those places? 

Mr. AKIN. That are unstable. 

Mr. MICA. Yes. So you need finance assistance. You need promotion assistance, language assistance, assistance in those markets, and certainly in most of the emerging market. Look at the list 

of where we do not even have an office. You have got the State Department in charge of commercial operations for which they put 

their lowest priority personnel who are on a rotational basis. That 

is what they have told me. 

So we do not have it together, and we are getting creamed. 

Thank you. 

20

Mr. AKIN. Thank you for your optimistic statement there. 

[Laughter.] 

Mr. AKIN. I have all sorts of mischievous questions. I have got 

a couple more minutes to do a few. Here is one for Mr. Scott. 

Is it true that just because you know all of our labor unions run 

our cost of labor so high that we just cannot be competitive overseas? 

Actually that is a softball question. 

Mr. SCOTT. Thank you, Mr. Chairman. 

Actually, our unit labor costs are very competitive, particularly, 

for example, against countries in Europe and Japan. They have 

much higher unit labor costs, and yet we have large trade deficits 

with those countries as well. 

So there is clearly something wrong with this picture that I think 

we need to address again. Currency is one major issue, but other 

things I talked about as well. 

Thank you. 

Mr. AKIN. You cannot blame it on that. I remember one of the 

examples that was given to me was the Danish. Their labor costs 

are higher than ours, and yet they are building all of the ships and 

we are not. You know, you cannot blame it on, I mean, just an excuse. There are some reasons we have to work together. 

Let me just throw out one more kind of crazy question. What 

would happen if a bunch of us radical Republican conservatives—

I know this sounds like Doomsday—but say we were to actually do 

what some people have been talking about and just get rid of the 

IRS and go to a national sales tax. Of course, a national sales tax 

would mean anything that we manufacture in this country would 

have no tax on it when it is exported. Anything coming into this 

country would be taxed at the rate of the national sales tax when 

it came in. 

What do you think that would do to the situation? 

[Pause in proceedings.] 

Mr. AKIN. Now that I have everybody jumping for that question, 

you can think about it. 

Here is your last question, and I would like you, because I do not 

have enough time to get a complete answer to this, but if you could 

write this down. If you had one recommendation of what we should 

be doing to correct this, if you could just do one thing, what would 

it be? 

I will let you go ahead. I have got just a few more. 

Mr. HOLMES. I will repeat to you, Congressman, my mantra: resources, resources, resources. We cannot be a super power on a 

shoestring. We cannot do this job by exacting such a cost as we 

have heard described on the SMEs themselves. The U.S. government has to step up. 

I realize this is not the Appropriations Committee, but you cannot do what we have articulated, enshrined as our national objectives with a declining budget for promotion this way. We have to 

step up. It I realize is painful in the short term, but in the long 

term it will not be. 

Dr. YAGER. If I can also add to that, I think that certainly resources are important, but I think one of the things that we have 

emphasized and we have observed it now for many years in doing 

21

the work on the TPCC, and that is follow through. Right now the 

strategies identify a number of different priorities every year, and 

some of those priorities do repeat from one year to the next. 

For example, China has been in the booklet for some time, but 

I think what we are looking for is some systematic follow-up to 

make sure that the priorities that were identified in previous years 

are getting additional attention so that you can look at that book 

in the following year and say, ‘‘How did we do in terms of the priorities of last year? Did we achieve those goals? To what extent do 

we need to put those in the book again to see whether we can do 

even better?’’ 

So I would say resources, but our focus has been on followthrough and making sure that you set goals and then you follow 

through with them both at the agency level and again with oversight from committees like this one. 

Ms. HILL. I would agree. I would say coordination and then 

elimination. Coordinate your agencies and eliminate duplication, 

and that way at the state level we have had to go through this 

after 9/11, especially when our budget were cut, and we can help 

and SIDO would be more than happy to work on any committee 

that there might be to talk about this, but coordination and elimination. 

Mr. AKIN. Unfortunately, in my brief six years here, I realize 

that sometimes that is a little harder to do with the Congress than 

we certainly wish it were. 

I am a little out of time, and I want to recognize another fine 

member of the Committee, Congressman John Barrow has been 

waiting and he has got—no? You are okay for questions? 

Okay. Then, Ms. Sanchez, did you want to? 

Okay. Then, Ms. Bordallo, would you want to ask a question? I 

have got one. I am just about to try to get some good information 

out of these witnesses, but I wanted to defer to you. Are you okay? 

Okay. Then let’s go ahead then. If you had just one thing you 

were going to do, let’s go with you, James, and then Robert. 

Dr. MORRISON. I would do a better job, as I indicated in the testimony of aligning responsibility with authority. If you give these 

people responsibility to do something and you give them no authority to actually execute, it just becomes somebody else’s secondary 

consideration. That is a problem throughout the trade promotion 

area. 

Mr. AKIN. I put that all in the same category as the organizational chart is just a mess. You basically have to clarify who is 

doing what and make sure you hold them accountable and proceed 

that way. 

Okay. Yes, Robert. 

Mr. SCOTT. Well, surprisingly, I think I will back away from the 

currency issue. The dollar will fall one way or another. It will be 

a hard landing or a soft landing. I think there is universal agreement amongst the IMF and central bankers around the world. This 

has to happen as Herb Stallings says. Something cannot keep going 

on forever. It will not. 

So can we do? I want to go back to an earlier question about a 

sales tax. In my view, I would like to see us institute a value added 

or sales type tax to pay for health care, to take that burden off the 

22

backs of U.S. businesses, and then we could rebate that tax at the 

border. 

That is what the Europeans do. They do not pay for health care 

on their exports to us. When we sell products in Europe, not only 

do we pay for our health care expenses for U.S. businesses. We pay 

for theirs as well when the value added tax is imposed. So I think 

it is an interesting way to level the playing field. 

Mr. AKIN. You are going to cause me some heart stress here 

when you say ‘‘value added.’’ I was thinking of a straight sales tax 

and not a value added, but that is a form of sales tax. It is a legitimate answer. Yes, okay. 

Anybody else? 

Mr. LAVIN. Mr. Chairman, for my part, we have something like 

5.7 million businesses in the United States. Only about 220,000 of 

those export. A rough guess would be there is probably several 

hundred thousand companies that are export capable that could arguably compete internationally. 

So the one thing we need to do is find a way to talk to, reach, 

and work with that pool of several hundred thousand companies 

which are not in the export business, but could conceivably be. So 

if you say what change could we make or do, I would say rather 

than focus on internal talking to other government agencies, which 

I am all for, we really need to find a way to talk to those 300,000, 

500,000 companies out there that could conceivably be successful 

exporters. 

Mr. AKIN. So maybe what you do is you just take a lot of these 

government employees, commission them as sales people, tell them 

to give them a percent of what we can do in terms of international 

sales, and turn them loose on American businesses. 

Mr. LAVIN. Yes. 

Mr. AKIN. I am the government. I am here to help you sell product. 

Mr. LAVIN. We could do it. We have kind of already got that in 

the private sector, and they are all of the international enablers. 

The international banks will only get paid when that letter of credit is issued or the currency exchange takes place or the express 

company that only gets paid when the shipment takes place. So 

there is a whole range as far as multipliers out there whose livelihood is entirely dependent on getting those numbers to grow. So 

I think our challenge is how do we harness that private sector desire for success and focus it so that we’re helping these SMEs get 

into those markets. 

Mr. AKIN. I guess I have got one final question, and I am going 

to call it on the hearing unless somebody else wants to. Did you 

want to do another round? 

Okay. Why don’t you go ahead then and I will go with the last 

question. Ms. Bordallo. 

Ms. BORDALLO. Thank you, Mr. Chairman. I apologize for being 

late, but there are a number of things going on at one time. 

I think this is for Frankly Lavin; is that correct? Yes, Mr. Lavin. 

Do you believe that the yearly meetings among the TPCC agency 

leaders are adequate to design and coordinate and evaluate trade 

promotion policy for all of the 19 member agencies? 

23

Mr. LAVIN. Congresswoman, we have reasonably regular meetings of the entire TPCC. I think I have had two within sort of six 

or seven months of assuming my office. So it is a little hard for me 

to say only have been in it about six months how many in the 

course of a year. 

But more important than the entire group of 19 getting together, 

it is the daily discussions with USTR, with Agriculture, with ExIm, 

with the other constituent members that I think help the process 

along. Most issues that come up, Congressmen, do not involve all 

19 members as a whole. It usually involves two agencies. So there 

is an issue or problem, and we just have a phone call or a quick 

meeting to say can we solve this. 

It is useful to get all 19 together somewhat regularly to have sort 

of strategy discussions, and the one we had a few months ago was 

looking at DR-CAFTA is DR-CAFTA is moving to implementation. 

What kind of programs and message do we want to make sure we 

do so that we are aligned, so that we are giving the right message, 

so that we are helping our businesses into these new markets? 

And I think that is a good example where you do want to get all 

19 lined up, but in day-to-day activity, it is typically two agencies, 

maybe three agencies that need to fit together. 

Ms. BORDALLO. I understand. Mr. Lavin, would you say then of 

the 19 agencies you would have an annual meeting? Is that what 

you are saying here, and then with the others it is more or less on 

a daily basis? 

Mr. LAVIN. It is certainly more than annual, ma’am, because I 

have already had one, and I think we have got another one set for 

May. So it is going to be two in about seven months. 

Well, I do not know over the course of the year if it will be three, 

four, or five, but we will meet together every 90 days or so, 60 days 

in a large group setting. I mean, this week alone I have had several discussions with USTR. I have had several discussions with 

NSC reps. I got together with ExIm leadership in the course of the 

WHO visit. I have had a number of State Department chats. 

I mean, it is part of the bread and butter of everyday life. 

Ms. BORDALLO. Well, I think the communication is important. 

Mr. LAVIN. Absolutely. 

Ms. BORDALLO. Dr. Yager, given the fact that economic conditions are highly dynamic in the increasingly globalized economy 

and the country’s export strategy must, therefore, be updated continuously, do you believe there is a need for greater congressional 

oversight over the development of export promotion objectives? 

Dr. YAGER. Well, certainly we have been involved now as I have 

mentioned in my statement. We have been involved as a result of 

congressional questions now for about 15 years. We have done, I 

think, about six studies on the issue of trade promotion and looking 

at the Trade Promotion Coordinating Committee, as well as some 

of the individual agencies and what they do. 

So certainly we think that that oversight has a very important 

role, and we believe, of course, that even with a change if this 

group should be moved to the White House or anyplace else, we 

still would believe that congressional oversight is a very important 

part of this process. 

24

I think as Mr. Lavin has said, there are always going to be 

changes. Maybe technology deserves a very special focus. Maybe 

there are certain kinds of questions that can be asked and certain 

catalysts for change can be created by the Congress in terms of getting more effective functioning out of a Committee like this one. 

So we certainly would be very strongly in support of continued 

oversight. 

Ms. BORDALLO. I think the question was a greater oversight. 

Dr. YAGER. Well, from our standpoint, we have been almost continuously involved in this. So, again, it may be from different committees, but we would be in favor of— 

Ms. BORDALLO. So you would not object to. 

Dr. YAGER. Would not, would not object to that. That is correct. 

Ms. BORDALLO. Thank you. 

Thank you, Mr. Chairman. 

Mr. AKIN. Thank you. 

Just one last question, just a common sense kind of thing. Just 

the poor old average American out there in the street who does not 

get into this international trade stuff very much, if we do not deal 

with this issue, how is it going to affect the average guy on the 

street here? What is the bottom line in one sentence? 

Say it gets twice as bad as it is now. Let’s say the balance of 

trade gets more out of line. What is the practical ramification? 

Mr. SCOTT. Thank you, Mr. Chairman. 

I have done many studies of job loss associated and job displacement associated with trade deficit, and there are certainly millions 

of workers that have been affected. I think the hidden part of the 

iceberg is really the wage effect, and the large the trade deficit 

grows and the more we come into unfair competition with workers 

around the world, we are going to see more and more workers’ 

wages depressed. 

It has been estimated that up to 50 million workers will be affected by offshoring of services. So I think this is the hidden danger 

of the trade problem. If we do not attack this and do not improve 

our performance— 

Mr. AKIN. I just need really short answers. 

Mr. SCOTT. Thank you. 

Mr. AKIN. So the short answer is one? 

Mr. SCOTT. Wages. 

Mr. AKIN. Wages are going to go down. Two, unemployment is 

going to go up. 

Mr. SCOTT. Jobs are going to be pushed out. 

Dr. MORRISON. About a quarter of our growth over the last decade or so has been contingent on international trade. If we do not 

manage to keep up the pace, we are going to see slowing growth. 

Mr. AKIN. Hurt the economy? 

Dr. MORRISON. Hurt the economy. You bet. 

Mr. LAVIN. It is our best path to continue prosperity, to help our 

companies compete successfully internationally, and it moves our 

companies up to that global level of excellence, and it helps our 

kids become more internationally aware and competitive as well. 

So whether the economy in the 21st Century is going to be international, we want to make sure that our companies are winners, 

25

that the jobs are there, that the products are the best, and that we 

can compete anyplace in the world. 

Mr. AKIN. So we are talking about prosperity and jobs. 

Mr. LAVIN. Absolutely. 

Dr. YAGER. I think I would call it standard of living. I think the 

fact that we have exporters here that are not able to sell their 

products in the world marketplace could have an effect on our 

standard of living because to the extent that we have products that 

others would be willing to buy and pay prices for, but we’re not 

able to get those out there, our standard of living is lower than it 

would be under that situation. 

And of course, I think we also would agree that there is a more 

macroeconomics thread in terms of the balance of trade. The deficit 

cannot go on forever, and I think one of the questions is: how will 

it come around? Will it be a soft landing or will it be more of a 

shock to the U.S.? 

Mr. AKIN. Well, I think you have gotten the attention of the average guy on the street if you talk about those things, and I appreciate you all taking time to join us, and I also thank the other 

members for their questions and all, and I hope you all have a 

great day. 

The hearing is adjourned. 

[Whereupon, at 4:14 p.m., the Committee was adjourned.]

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