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91–193 PDF 2004

S. HRG. 108–487

SMALL BUSINESS MANUFACTURING

IN A GLOBAL MARKET

FIELD HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS

AND ENTREPRENEURSHIP

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

OCTOBER, 9, 2003

Printed for the use of the Committee on Small Business and Entrepreneurship

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

(

(II)

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

OLYMPIA J. SNOWE, Maine, Chair

CHRISTOPHER S. BOND, Missouri

CONRAD BURNS, Montana

ROBERT F. BENNETT, Utah

MICHAEL ENZI, Wyoming

PETER G. FITZGERALD, Illinois

MIKE CRAPO, Idaho

GEORGE ALLEN, Virginia

JOHN ENSIGN, Nevada

NORMAN COLEMAN, Minnesota

JOHN F. KERRY, Massachusetts

CARL LEVIN, Michigan

TOM HARKIN, Iowa

JOSEPH I. LIEBERMAN, Connecticut

MARY LANDRIEU, Louisiana

JOHN EDWARDS, North Carolina

MARIA CANTWELL, Washington

EVAN BAYH, Indiana

MARK PRYOR, Arkansas

MARK E. WARREN, Staff Director and Chief Counsel

PATRICIA R. FORBES, Democratic Staff Director and Chief Counsel

(III)

CONTENTS

OPENING STATEMENTS

Page

Snowe, The Honorable Olympia J., Chair, Committee on Small Business

and Entrepreneurship, and a United States Senator from Maine ................... 1

Michaud, The Honorable Michael, a Representative in Congress from Maine .. 5

WITNESS TESTIMONY

Aldonas, Grant D., Under Secretary for International Trade Administration,

U.S. Department of Commerce, Washington, D.C. ............................................ 6

Olson, Pamela, Assistant Secretary (Tax Policy), U.S. Department of the

Treasury, Washington, D.C. ................................................................................ 25

Pulkkinen, Bruce, President and CEO, Windham Millwork, Inc., Board

Member of the Maine MEP, Florida MEP, Arizona MEP, and New Mexico

MEP, and National Board Member of the National Association of Manufacturing .................................................................................................................... 51

Labrie, Thom, President, Former Auburn Machinery, Inc., Lewiston, Maine ... 59

Bonney, LoLisa, CFO and General Manager, Winderosa Gaskets, Dixfield,

Maine .................................................................................................................... 65

Rodrigue, Rodney P., President and CEO, Maine Manufacturing Extension

Partnership ........................................................................................................... 71

Cousineau, Randy, Owner and President, Cousineau, Inc., North Anson,

Maine .................................................................................................................... 96

Cairns, Allen, Managing Partner, Creative Mold Company, Auburn, Maine .... 100

Wentworth, John, President, Moosehead Manufacturing, Monson, Maine ........ 110

Featherman, Bernard, Chairman, Biddeford-Saco Chamber of Commerce and

Industry President of Southland Steel Corporation, Biddeford-Saco, Maine .. 116

ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

Aldonas, Grant D.:

Prepared statement .......................................................................................... 12

Bonney, LoLisa:

Prepared statement .......................................................................................... 68

Cairns, Allen:

Prepared statement .......................................................................................... 102

Cousineau, Randy:

Prepared statement .......................................................................................... 98

Featherman, Bernard:

Prepared statement .......................................................................................... 119

Letter ................................................................................................................. 123

Labrie, Thom:

Prepared statement .......................................................................................... 62

Michaud, The Honorable Michael:

Prepared statement .......................................................................................... 136

Olson, Pamela:

Prepared statement .......................................................................................... 29

Pulkkinen, Bruce:

Prepared statement .......................................................................................... 55

(IV)

Rodrigue, Rodney P.:

Prepared statement .......................................................................................... 74

Snowe, The Honorable Olympia J.:

Prepared statement .......................................................................................... 137

Wentworth, John:

Prepared statement .......................................................................................... 113

COMMENTS FOR THE RECORD

Barreto, The Honorable Hector V., Administrator, U.S. Small Business

Administration, Washington, D.C. ...................................................................... 144

Lumbert, Charles C., President and Managing Partner, Moose River Lumber

Company, Inc., Jackman, Maine, letter ............................................................. 149

Merkle, Donald R., Chief Financial Officer, Hubbardton Forge, Castleton,

Vermont, letter and attachments ........................................................................ 151

Small Business Legislative Council, Washington, D.C., letter ............................ 156

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SMALL BUSINESS MANUFACTURING IN A

GLOBAL MARKET

THURSDAY, OCTOBER 9, 2003

UNITED STATES SENATE, COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP, Washington, D.C.

The Committee met, pursuant to notice, at 9:30 a.m., in the

Council Chamber Room of the Lewiston City Hall, Lewiston,

Maine, the Honorable Olympia J. Snowe, Chair of the Committee,

presiding.

Present: Senator Snowe.

OPENING STATEMENT OF THE HONORABLE OLYMPIA J.

SNOWE, CHAIR, SENATE COMMITTEE ON SMALL BUSINESS

AND ENTREPRENEURSHIP, AND A UNITED STATES SENATOR

FROM MAINE

Chair SNOWE. The hearing will come to order. I want to welcome

everybody, first and foremost, and thank all of you for being here

today. I am sorry some of you have to stand in the room, but we’ve

been advised that, due to fire code, we cannot have any more chairs

in the room. There is an overflow room as well that monitors this

by closed circuit TV. So, I appreciate it.

I know there is a lot of interest in this subject and, so, we will

begin. And hopefully, we can accommodate as many witnesses. We

have two panels here this morning and will proceed as we can.

I want to welcome Congressman Michaud, who is here for a short

duration. I know he has a long history in representing the Second

Congressional District on this issue and the impact of lost manufacturing jobs. I am also particularly aware of the Second Congressional District’s concerns, having represented it myself for 16 years

before being elected to the Senate. So I want to welcome you. And,

because you are a Member of the Small Business Committee in the

House of Representatives, this is a joint venture here today. I

thank you. I want to welcome all of you to today’s field hearing,

‘‘Small Business Manufacturing in a Global Market.’’

Let me begin by saying that this is my first field hearing as

Chair of the Small Business Committee. I chose this subject because I believe it is having a serious effect, certainly on my State

and, also, across the country. It is also a pleasure for me to be here

in Lewiston-Auburn, where my hometown roots run so deep. Today,

I couldn’t help but think how appropriate it would be that my first

field hearing would be in a place where it all started for me. I also

thought that it was entirely fitting that a hearing, focusing on the

importance and resurgence of manufacturing, be held in a place

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that was literally built by manufacturing and the hard-working

people who made Lewiston-Auburn’s legendary industrial base possible. Of course, it is also an area that is all too familiar with the

tremendous losses experienced by the manufacturing sector. So it

is altogether appropriate that we are here; and I thank the City

of Lewiston for hosting this hearing here today in their City Council Chambers.

I also want to thank the witnesses who have so generously taken

the time to be here today and to offer their testimony on one of the

most pressing issues facing our State and our country. We are extremely fortunate to have key members of the President’s Administration with us: the Honorable Grant Aldonas, the United States

Commerce Under Secretary for International Trade, and the Honorable Pamela Olson, United States Department of the Treasury,

Assistant Secretary for Tax Policy. Your presence here today attests to the President’s understanding of manufacturing’s importance to our economy and his commitment to aiding its recovery.

As many of you know, the Small Business Administrator was supposed to be here today, Hector Barreto, but he was called away on

a family emergency. However, he has submitted testimony that will

be available through the Committee as well. Finally, among our

panelists are Maine small business representatives, who are exceptional advocates for the manufacturing sector of our economy and

have taken valuable time away from their businesses to make invaluable contributions to this hearing. I want to thank each and

every one of you, and I am looking forward to hearing your testimony here shortly.

Let me open by saying that it would be impossible to overstate

the role of small business manufacturers within the overall manufacturing industry and our Nation’s economy. With small business

manufacturers constituting over 98 percent of our Nation’s manufacturing enterprises, employing 12 million people, and supplying

more than 50 percent of the manufacturing value added in this

country, it is a sector we cannot afford to ignore. Yet we know that

no industry has witnessed a more profound erosion of jobs than

U.S. manufacturing. That is why I have chosen to focus my first

field hearing on strengthening this vital sector that has also been

a traditional source of quality, decent wages and critical benefits.

The damage manufacturing has sustained is nothing short of

stunning. From July 2000 through June 2003, almost 2.7 million

U.S. manufacturing jobs have been eliminated. Incredibly, New

England lost more than 214,000 manufacturing jobs in the last 10

years, with 78 percent of those losses occurring in the last 21⁄2

years. Here in Maine, we have been shedding manufacturing jobs

at an alarming rate over this past decade and all the moreso, in

the past 2 years. From January 1993 through June 2003, we lost

more than 18,900 manufacturing jobs, and, astoundingly, 17,300 of

those occurred between July 2000 and June 2003. So we are far

from heading in the right direction.

There should be no doubt of the need to bolster our manufacturing industry, especially with unemployment levels reaching a

high of 6.4 percent in the United States. The bottom line is, if we

are to ensure the road to recovery is robust, we have a special obligation to provide the tools for growth in manufacturing. It is not

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only critical for the preservation of the sector, but also to preserve

other sectors of the economy. In fact, it has been reported that for

every dollar in manufacturing product, an additional $1.26 is created in other industry sectors, such as supplies of raw materials,

marketing and retail industries. That’s more than a 100 percent return on the initial investment. We should be so lucky to do that

with our mutual funds.

Looking even more broadly, a healthy manufacturing sector is essential to our Nation’s security and its status as a world power. We

must end this trend of becoming increasingly dependent upon other

countries for the products we use and rely upon.

Now is the crucial time for everyone—industry representatives,

Congress, the President, Republicans and Democrats alike—to

work together toward the common goal of revitalizing our manufacturing industry.

Cheap imports from China constantly threaten the realization of

our goal. In fact, China’s trade surplus with the United States rose

25 percent during the first half of 2003. Although China is advantaged by low labor costs, U.S. manufacturers have consistently reassured us that they can compete with China, if only there was a

level playing field.

The Chairman of the House Small Business Committee, Mr.

Manzullo, and I have requested General Accounting Office study to

examine the effects of China’s manipulation of currency. We expect

that study to be out next March or April—with certain encouragement to be done sooner. Then I will hold hearings at the Small

Business Committee in Washington to evaluate those effects and

what impact they are having. I think we know what the effect is

on our industry.

I also urged the President in July—and, also, Treasury Secretary

Snow in August, before his trip to Asia—to confront China concerning its unfair trade practices including its artificial manipulation of the yuan. I am pleased the Administration has increased its

pressure on China. I am also optimistic, with the creation of the

U.S./China Security and Economic Commission, that we will be

able to focus on this issue as well. I have submitted testimony,

along with those across the industry and in Congress, in hopes to

have this commission aggressively address the China currency

issue.

I am pleased that the President has created a position for manufacturers in the Commerce Department, an Assistant Secretary for

Manufacturing, as a point person within the Administration on

manufacturing issues.

Another matter that will have an enormous impact on domestic

manufacturers is the replacement of the extraterritorial income tax

and foreign sales corporation provisions that are in current tax

laws to specifically provide U.S. companies that export a tax incentive to export their goods. The intent of those laws was to make

U.S. exports more competitive overseas by reducing their maximum

tax rate and corporate tax rate. However, these same tax incentives were targeted by the World Trade Organization as being noncompliant and as providing an export subsidy. Consequently, they

must be repealed or else the United States could face $4 billion in

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sanctions. At the same time, such a repeal would add about $50

billion in manufacturers’ tax burden over the next 10 years.

Last week in the Senate Finance Committee, of which I am a

Member—we had to address this problem to remedy it, by creating

a lower tax rate for all manufacturers so that they wouldn’t face

the effects of the repeal of the export tax that was available under

the foreign sales corporation. I, and some other Members of the

Committee, made sure that we included Subchapter S corporations,

proprietorships and partnerships so that small business, per se,

would not be excluded from this preferential rate. I am pleased

that the Committee accepted several of my initiatives, and increased the phase-out for small business expensing from $400,000

to $800,000. I also worked with the Finance Committee to ensure

that the tax break for manufacturers included softwood lumber

producers. The softwood lumber industry here in Maine—like

paper and steel—has faced unfair trade practices from countries

that subsidize their products and dump them on U.S. markets, in

violation, of course, of our trade laws. The Administration has

taken a firm stance on enforcing trade laws. In particular, I want

to thank the Under Secretary for his untiring work on behalf of the

softwood lumber industry, and throughout the country, and in his

negotiations for a fair market with Canada. The Finance Committee will work with this Administration on increasing our efforts

to ensure that our trading partners comply with international

trade agreements.

Of course, it’s the Small Business Committee that has oversight

jurisdiction over the Small Business Administration, and we just

passed Senate legislation to reauthorize the SBA for the coming 3

years. Reflecting my concerns for Small Business manufacturers,

that bill contains numerous provisions that will benefit manufacturers, including an increase in the 7(a) loan size from $2 million

to $2.6 million for small businesses involved in exporting products;

changes allowing small businesses to now participate in the 7(a)

and the 504 loan programs simultaneously; and an increase of

maximum guarantees for manufacturing loans from $2 million to

$4 million. Provisions like these in the SBA Reauthorization bill

should directly benefit small business manufacturers. Now, I will

be engaged in the process of working out the differences with this

legislation and the House legislation so that we can move this bill

as quickly as possible before the end of this congressional session.

It is also essential that the SBA is properly equipped to become

more actively involved in small business importing and exporting

programs and trade issues that directly affect small business manufacturers. That is why I intend to offer legislation, with respect

to these issues and to increase the SBA’s participation in trade negotiations. It will also improve access to capital for businesses that

export, as well as for businesses that are adversely affected by unfair imports. Finally, the legislation will call for an increased SBA

role with the U.S. Export Assistance Centers that are dispersed

around the country and their participation in developing trade policy and negotiating trade agreements. So that’s my vision, and

that’s what I hope to accomplish here today.

But, more importantly, I hope to focus more attention on small

business manufacturers’ concerns, and to hear from you firsthand,

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specifically, what we can do in Congress, with the President and

the Administration to assist you. I want to learn what we can do

in the short-term, as well as the long-term, to remedy many of the

difficulties that you’re currently facing as a result of this declining

economy, imports, unfair trade and a host of issues that have made

your responsibilities as small business manufacturers to keep your

doors open all the more difficult.

So, as Chair of the Committee, I welcome you, I thank you for

taking the time to be here today to express your views, because I

certainly want to hear them. I should also say that we have the

transcript being taken for this hearing today. Everybody will have

a chance to submit their testimony for the record. We will be keeping this record open for the next several weeks so that people have

the opportunity to follow up on anything that might be said here

today, or to offer other testimony or information that they want to

submit for the record. So, with that, I welcome each and every one

of you.

Congressman Michaud, would you care to say anything?

STATEMENT OF THE HONORABLE MICHAEL H. MICHAUD, A

REPRESENTATIVE IN CONGRESS FROM MAINE

Representative MICHAUD. Just briefly, Senator Snowe.

I do want to thank Senator Snowe for allowing me to participate

briefly this morning. I am glad my schedule was rearranged and

that I was invited by the good Senator. She is definitely enthusiastic about this issue and really cares about this issue and what

effect it has, not only in the State of Maine, but all across this

country.

Manufacturing definitely has been on the decline and I have

been lobbying the Administration to create an Assistant Secretary

of Commerce for Manufacturing and I am pleased that the effort

finally paid off and that the President is moving forward with our

suggestion to create such a position.

But also I am very pleased to say that I joined the House Manufacturing Caucus in order to delve into specific issues surrounding

manufacturing and to work on addressing this spiraling program.

In addition to my membership of the Housing Manufacturing

Caucus, I am a Member of the House Small Business Committee.

This affords me the chance to hear the concerns of manufacturers

and businesses of all sizes.

This is an important issue not only for the State of Maine but

all around the country. I want to thank Senator Snowe for her

leadership in this area, and I am looking forward to working with

her in a bipartisan manner on and through this issue. Because it

is not a Democratic issue or a Republican issue—it’s an issue that

affects people, jobs and the economy. I think we’ve all seen too

much.

What has happened in the State of Maine, particularly since the

beginning of this year, with the closing of large- or medium-sized

businesses, can create a sometimes devastating economic ripple effect for small businesses in the area. They are losing manufacturing jobs left and right. We must to do something in a bipartisan

manner to accept responsibility for many of the policies that curVerDate 03-FEB-2003 11:42 Jul 07, 2004 Jkt 091193 PO 00000 Frm 00009 Fmt 6601 Sfmt 6601 D:\DOCS\91193.TXT SSC1 PsN: SSC1
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rently hurt manufacturers, such as unfair trade agreements and

spiraling health care costs.

So, once again, thank you very much, Senator Snowe, for allowing me to be here.

Chair SNOWE. No. I thank you, Congressman Michaud. I appreciate those words and I think all of you know that Mike obviously

comes from Millinocket. Having worked at the mills for more than

30 years, he has witnessed firsthand the devastation of the closure

of those mills. Fortunately, one of them is open and hopefully, the

second will open with a new buyer. But clearly, it’s been devastating for those communities in the region and also for the State.

So I appreciate your being here today.

I would like to introduce the first panel. It consists of two highranking members of the President’s Administration, each of whom

are committed deeply to aiding small business manufacturers

throughout Maine and the Nation.

Testifying first is Under Secretary for International Trade, Grant

Aldonas. He is head of the International Trade Administration. Mr.

Aldonas is the Commerce Department’s main advisor on international trade and has been acting as the Administration’s point

person on manufacturing. The priorities of his office include expanding export opportunities for American businesses, enforcing

trade agreements, and ensuring compliance with U.S. trade laws

that curtail unfair trade practices by foreign companies, such as

prohibiting dumping of foreign-made goods and the elimination of

foreign manufacturing subsidies.

His office is known for placing special emphasis on working with

small- and medium-sized businesses to ensure fair competition

with foreign imports. As I said earlier, Grant has also been the

President’s point person for manufacturing, and I truly appreciate

all that you have done on our behalf.

Testifying next is Pamela Olson, the Department of the Treasury’s Assistant Secretary for Tax Policy. Mrs. Olson has responsibility for policy analysis relating to all aspects of domestic and

international issues of Federal taxation. Her office also negotiates

tax treaties for the United States. Mrs. Olson, and the Administration as a whole, remain committed to reforming and updating the

tax system to ensure that it does not impede the success of American manufacturers.

So on behalf of the Committee, the State, and the small business

manufacturers who are represented here today, and for all, we appreciate your presence here today. If you traveled to Maine, we

hope you enjoy Maine and take some time to spend your money to

help our economy, too.

Okay. We’ll begin with you, Mr. Secretary.

STATEMENT OF THE HONORABLE GRANT E. ALDONAS, UNDER

SECRETARY FOR INTERNATIONAL TRADE ADMINISTRATION,

U.S. DEPARTMENT OF COMMERCE, WASHINGTON, D.C.

Mr. ALDONAS. Thank you, Madam Chair. First of all, I want to

thank you for the invitation and for your continuing interest in the

success of our small business manufacturing sector. It’s obviously

been at the top of my list, and the Administration’s list, for some

time.

7

It’s great to be in Maine. So far, all I have contributed to the

economy was sticking 50 cents in the meter outside in front of the

building, so I hope I get a chance to do that. I had the great fortune when I was a young of getting a scholarship to go to an Upward Bound program in Hurricane Island. And fell in love with the

State of Maine and the people here. When I was going through the

history of manufacturing, as we’ve been looking at the manufacturing sector hard over the past 6 months, it’s striking how much

of our history as a Nation in manufacturing starts here in Maine

and elsewhere in New England. The sort of productivity gains—we

have a saying, ‘‘it all starts with Yankee ingenuity.’’

At some point, way back in our past, and grappling at some of

the issues that we faced then and still face today, the themes that

you see are themes that we have seen throughout our history,

frankly. In terms of trying to make sure that markets were open,

trade was free. It wasn’t burdened by government intervention,

things of that nature. And I am very pleased that we have this

kind of leadership coming from the State of Maine. It reflects well

on the people here.

I am also pleased because, later today, I get to do one of my favorite parts of my job, which is hand out an Export Achievement

Certificate to the Strainrite Companies—which is a wonderful example of a small manufacturer in Maine succeeding through exporting, frankly, by finding a market niche. Now, 15 percent of its

sales are overseas. They sell their products all around the world.

They, in fact, have become one of the world’s most significant manufacturers of vessel housings, filtering operations and containers

for hazardous waste. It’s a success story. It’s the kind of thing that,

at the Commerce Department, we take great pride in. I know both

of you do as well. It’s important that we reinforce those efforts as

we go through this process because there is a lot of value to be

added there.

I was also struck by the news article in the Sun Journal this

morning about Cianbro and the oil rigs that they had been producing for Brazil. Because, again, it’s an example of, increasingly,

where our business is in the United States. They are going to press

for markets worldwide. We are going to have to work as hard as

the next guy, and sometimes harder because we’ve got the most

open and competitive market in the world, to make sure that we

are out there finding new markets and finding new sales techniques.

The Cianbro sales are a marvelous example of taking what was

a company that was dedicated to the manufacture of pulp and

paper and turning it into something very different. But $100 million in revenues as a result of the effort they made to make good

with the Brazilians. But let me turn to the substance of our conversation today.

The first thing I want to do is assure you both of the Administration’s cooperation in your efforts to ensure that we are building the

best economic environment we can for small- and medium-sized

manufacturers. That was the motivation behind the President’s announcement in March, of the manufacturing agenda of which our

initiative has been a part.

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The Secretary of Commerce directed me to, essentially, go and

have a conversation with our manufacturers across the country,

find out what their challenges were, come back with a report and

recommendations in terms of how to grapple with those challenges.

What we’ve done since that time is hold roundtables across the

country in 23 cities with manufacturers, both large and small, representing virtually every industry in the United States. I am happy

to report on some of those findings today, but the most important

thing I want to convey—and I really appreciate the Congressman’s

point about bipartisanship because what this is going to require is

really tackling what I have come to describe as a crisis of neglect,

particularly for our small- or medium-sized businesses. What you

find is, unlike the folks that we have on the panel today, at all levels of Government and in every branch, and here I include the

courts—what you really have are, not through any meanness of

spirit, but decisions that are made with a sense that the individual

decision is not that high relative to the benefits that we see.

What we have had a tendency to forget is the multiple burdens

that we create as every level of government and every branch of

government imposes additional costs on our small businesses. Just

to put this in perspective, as I am sure we will hear on the panel

that comes next, the most striking thing about going across the

country and talking with small manufacturers is just how good

they are, and how hard they work at getting their own costs down

so they can compete in a environment where there is a constant

pressure on their pricing power.

What I would like to see, frankly, is that as a government, both

inside the Administration and in Congress, that we are doing the

same things with the sorts of costs that we impose on business.

That we are matching their level of effort in terms of driving those

costs down. The reason I say that is that when we went across the

country, what you really heard—let me try and group the issues in

two different ways.

One, the first problem that you heard, and although it wasn’t

with the intensity as the second problem, it certainly was the

weight of most of what we heard about from small manufacturers,

and that’s what I have come to call ‘‘keeping our own side of the

street clean.’’ As a practical matter, whether it’s rising energy

costs, rising health care costs—of which I know, Senator Snowe,

you offered an awful lot leadership over a very long time—pension

costs, the costs of personal injury suits.

I was struck 2 weeks ago, as I was trying to go through a part

of the report on tort reform, that a decision was made in Federal

District Court in New York saying that Boeing could be sued, because the events of September 11 were somehow foreseeable, as a

manufacturer of aircraft. That’s absurd, frankly. For the 35,000

small suppliers that provide their goods and services to Boeing, it’s

catastrophic. It not only affects that group of 35,000 suppliers, it

affects small businesses at large. Because when decisions like that

are made in the courts, it raises insurance costs for everybody and

the insurance costs are most dramatic for small- and medium-sized

businesses, who end up paying—big companies do as well. The big

companies can deal with it, seeing those sharply rising costs is

9

much harder in terms of the small- and medium-sized businesses.

So there is fair domestic agenda that we have to tackle.

Now, probably the first thing out of the box, and to really reinforce the point that we had made to the manufacturers, was we

weren’t going to wait for a report when we knew there was some

obvious answers.

So one of the reasons the President has come forward—and I

really appreciate the support, Congressman, in terms of trying to

provide a focal point inside the Administration for manufacturing—

is really to combat this crisis of neglect. Trying to provide a focus

so that there is a constant advocate for small- and medium-sized

manufacturers inside the Administration and inside our Federal

Government that is constantly raising the issue of the costs of the

decision we make—whether it’s in Congress, whether it’s in the Administrative agencies, or in the courts—so that we recognize the

impact we’re having on competitiveness.

I am certain that as Pam starts to talk about the tax side, one

of the things you are going to hear is that, in an economy as integrated into the global economy as ours is, there is no domestic economic policy choice that does not have an implication for our competitiveness. That’s why we have to focus so hard on it, and need

to focus inside the Federal Government, frankly, to bring those

costs to light. Now the second thing, which I have to tell you generated a lot more heat, was the issue of leveling the playing field.

Where, again, I know that both of you have been consistent advocates in terms of what we face.

There are three issues, one of which is surprising to me. This

didn’t come out of the conversations with the manufacturers so

much as it came out working hard on the numbers, on what we see

in the economy.

The first thing is the lack of economic growth abroad. We have

a tendency to look at unfair trade practices, we have a tendency

to look at the exchange rate side—which are crucial problems, I’ll

get to those in a minute. What was fascinating to me is that when

we see the rising trade deficit particularly over the last, say, 4 to

5 years, sort of from the Asian financial crisis in 1997 forward, the

most significant thing is the drop in our exports. What’s important

to realize is that 97 percent of all our exporters are small- and medium-sized manufacturers. This is a huge hit on the guys that are

behind us, that will be testifying later. It’s a huge hit on the folks

who they supply, even if they don’t export directly like Boeing—

things like that. It is directly attributable to the lack of growth in

both Europe and Japan. So one of the things that you’ll see is Administration, Secretary Snow, the President, certainly Secretary

Evans, being a strong advocate with our friends and our trading

partners in Europe, Japan and elsewhere in Asia. That we really

have to get off our duffs and get their economies moving as well,

because growth can kill a lot of what ails both the manufacturing

sector in the United States as well as the manufacturing sector

abroad.

But turning to the two main issues, obviously, on exchange rates,

it’s the Treasury’s province. There are serious problems. I know

they will be coming out with a report next week about currency,

as they are required to do on a regular basis. The main thing to

10

keep in mind—and here I am going to pause for a second on

China—is that we often looked at the exchange rate as the signal

in the marketplace—but what it really reveals is our structure underneath the exchange rate from the Chinese economy for example.

One of the things that I think is probably important to understand

is the Administration has been the most vigorous that I have ever

seen, in 25 years of dealing with these issues, in terms of trying

to tackle those underlying problems. Because that’s the solution

that has to be solved, frankly, before the Chinese will see that it’s

in their own interest to change the peg at the end of the day. One

of the best things they could do is open up their financial services

market. I know from your perspective on the Finance Committee

center that one of the things that we are arguing for is not only

on the manufacturing side, but trying open up services markets. I

never want to forget that by opening up the services market, like

capital markets in China, we would do a world of good for our manufacturers as well.

The last thing is unfair trade practices. Plainly, when you look

at China and other countries, and I don’t mean to single out China,

because it obviously is just one of a number of countries that we

face. But one of the things that you have to face is the equity in

the trading relationship. Is there an equivalent set of opportunities

for our guys there? Are we facing what is undistorted trade coming

into our market? And there, I think, you really have to go to the

core of the Chinese system. As I have talked with manufacturers

across the country, it’s true we face significant tariff barriers going

in. We face WTO non-compliance. We face what we think are subsidies in dumping coming into our country. Probably the most important thing is the fact that their companies don’t face the capital

market pressures that our small businesses do in the United

States. They simply don’t have to turn a profit. If there is a single

thing that Secretary Evans and I will be doing in China in about

a week is confronting them with what is the ultimate subsidy. As

long as the spigot stays on from the state-owned banks to the stateowned enterprises, those goods will try and find a market. They

will be dumped in the most open market in the world—and that’s

the United States, as a practical matter.

What we are doing on both those fronts—I know Secretary Snow

has already taken up the issue of exchange rates. We will be pressing that when we are in China in a week.

On the trade side, what I have done is, as you know—I have

been working pretty hard in terms of trying to make sure we are

doing a credible job of enforcing the trade laws. We need to take

that one step further. As far as I am concerned, one of the weaknesses of our current trade system is that we are obliged to wait,

literally, until an industry is injured, before we get a petition—

whether it’s on dumping or countervailing duties. You’ve seen this

in the lumber and the paper industry over time. What we really

need to do is get out and investigate the issues, the allegations, as

we find them—before an industry has to be injured. Act aggressively on it with our trading partners and let them draw the conclusion as to whether or not they want to trade in our market, or

whether we will use the leverage of our market to ensure that

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they’re adhering to the rules, that they are playing fair, and that

our guys aren’t facing subsidized competition.

Thank you very much.

[The prepared statement of Mr. Aldonas follows:]

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Chair SNOWE. Thank you very much, Mr. Secretary.

Secretary Olson.

STATEMENT OF THE HONORABLE PAMELA OLSON, ASSISTANT

SECRETARY [TAX POLICY], U.S. DEPARTMENT OF THE

TREASURY, WASHINGTON, D.C.

Ms. OLSON. Thank you, Madam Chair, Congressman Michaud. I

appreciate the opportunity to appear before you today to discuss

current tax issues affecting small business manufacturing in a

global market. I especially appreciate the opportunity to come outside the Washington Beltway. I am looking forward to hearing

what the folks on the next panel have to say.

In Washington, we tend to think of things in a macro sense.

Which is a lot like sticking one foot in a bucket of ice water and

another foot in a bucket of boiling hot water and saying, ‘‘On average, I am comfortable.’’ When you look at things on a micro level,

as this field hearing gives us the opportunity to do, you get a very

different picture from the picture that you get when you look at

things from a macro level.

Small business, as you’ve noted, has been fundamental to the

United States throughout our history, but only in recent decades

has the global marketplace acquired the prominent role it now occupies in the U.S. economy. If we look back to 1960, which I would

note is the time that our international tax rules were put in place,

trade in goods to and from the U.S. represented just over 6 percent

of Gross Domestic Product (GDP). Today, trade in goods to and

from the U.S. represents over 20 percent of GDP, a three-fold increase, while trade in goods and services represents more than 25

percent of GDP today. While large multinational corporations still

dominate U.S. trade, in this era of globalization international markets are increasingly important to small business as well. Even

small manufacturers who are not themselves selling abroad, and

many of them are today, are more frequently involved directly in

the global marketplace by supplying their wares to large businesses who are competing on the international stage.

U.S. tax policy, therefore, has important effects on both small

business and the U.S. role in world markets. In both contexts, the

basic role of tax policy is to raise needed government revenue in

ways that pose as little burden as possible on taxpayers and that

keep distortions to private economic decisions to a minimum, based

on the belief that individuals and businesses know better than the

government how to make the most out of the limited resources at

their disposal. To foster the small business economy, this Administration is committed to easing unnecessary restrictions, reducing

taxes and streamlining burdens. While it is important for us to

work to level all playing fields, we can ensure that our own rules

minimize the barriers to the free flow of trades, the free flow of

capital that globalization necessitates. And that is something for

which we have vigorously worked over the last 3 years.

With these principles in mind, the Administration, with the help

of Congress, has taken significant steps to ease the tax burden on

small businesses across the board—particularly in manufacturing,

especially those producing for the world market but, as well, those

focused on the local economy.

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In the past 2 years, personal income tax rates have been cut by

3 to 5 percent, relief has been provided for the marriage penalty,

the 10 percent tax bracket broadened, and the child credit expanded. Because most small businesses are flow-through entities (S

corporations, partnerships, or sole proprietorships) and pay taxes

at the individual rates of their owners, these reductions in personal

tax rates have also been, in effect, reductions in small business tax

rates. These changes have benefited 23 million households who

own interest in small businesses in America.

Small business in all forms of organization can benefit from the

expansion of small business expensing. The amount of investment

that may be immediately deducted by small businesses was increased from $25,000 to $100,000. And the limit at which expensing phases out was lifted from $200,000 to $400,000, increasing the

number of taxpayers who qualify for this important simplification,

as well as reduction in taxes.

Lowering the dividend and capital gains rates reduces the role

of taxes when small businesses are choosing the type of entity in

which to operate their business. The partial relief from the double

taxation of dividends will make the use of C corporations more

available to small business owners and reduce the tax cost to small

businesses growing.

Phasing out the estate tax allows innovative entrepreneurs to

pass their life’s work to their children, not to the government, and

not to expend excessive resources on estate planning.

Unfortunately, of course, all these initiatives are scheduled to expire later this decade. Making them permanent would be one of the

best things that we could be doing for small business. It would

eliminate one area of uncertainty as small business attempts to

plan for the future and keep the tax burden as low as possible on

this productive segment of our economy. Madam Chair, your proposal, which was incorporated in the Senate Finance Committee

bill last week, that the deduction for small business expensing

phase out at fifty-cents for each dollar of excess investment, rather

than dollar for dollar as under current law, would also improve the

provision by reducing the investment disincentive as the deduction

phases out.

Although these legislative actions have provided much needed

tax relief to small businesses, the complexity of the tax laws continues to plague small business owners. Our tax laws have become

devastatingly complex in recent years. Many small business owners

are unprepared to deal with this complexity and do not have the

resources to hire sophisticated tax counsel or accountants to advise

them. Tax law compliance drains the time, energy, and financial

resources of small business owners and diverts their attention from

the more important goal of building a business.

Recognizing the need for simplification, the Treasury Department has undertaken initiatives not needing legislative action to

decrease burdens on small business. For example, last year, the

IRS and Treasury issued a revenue procedure that permits small

businesses with gross receipts of less than $10 million to use the

cash method of accounting. We expect that the revenue procedure

will eliminate many disputes that have arisen concerning the use

of the cash method by small business taxpayers, allowing those

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taxpayers to focus on growth, not tax compliance. Another step

taken last year was to exempt 2.6 million small corporations from

some IRS filing requirements, reducing the burden on those businesses by 61 million hours annually. Treasury is continuing to

work with the IRS to find ways to reduce the burden of recordkeeping, filing and complying with the tax laws.

Looking ahead on the international side, many of areas of our

tax law are in need of reform to ensure that our tax system does

not impede the efficient, effective and successful operation of U.S.

companies and the American workers they employ in today’s global

marketplace. The pending repeal of FSC/ETI, and its replacement

with one of the measures currently under consideration in Congress, will bring the United States into compliance with the World

Trade Organization’s ruling on export subsidies and avoid the possible imposition of $4 billion in tariffs. It will not, however, ensure

that our businesses, including small businesses who export, remain

internationally competitive or that our tax system fosters efficient

business structures and operations.

We must continue to work on legislation that will address a

number of issues. Let me just run through these briefly. I have detailed them in my testimony.

The first is the double tax on corporate income. This is a particularly adverse effect on manufacturers, because manufacturers tend

to do business in C corporation form. The double tax on C corporations was a particularly adverse effect on the paper industry and

they were one of the industries that pushed most hard for the

elimination or relief from the double tax. I’d note that today companies in the U.S., businesses in the U.S., small and large, compete

in a global marketplace for capital and prior to the tax act earlier

this year, the U.S. was the only—one of only three major trading

countries that had a complete double tax on corporate income without any relief.

So the tax bill that was enacted earlier this year brought important relief to manufacturers and, in particular, to the paper industry, making the R&D credit permanent.

The President’s budget proposes doing so. Research is central to

American businesses’ ability to compete successfully in the global

economy. It results in new processes and innovative products that

open up new markets and create job opportunities. American businesses can continue to compete only if they stay at the forefront of

technological innovation. The research credit encourages technological developments that are an essential component of economic

growth and a high standard of living in the future. The credit

should be made permanent to give businesses certainty that they

need to plan.

Depreciation: The current system of tax depreciation merits reevaluation. Inappropriate depreciation rules can hinder the competitiveness of our businesses by tilting investment away from profitable areas into less productive endeavors. This can pose a particular burden for large and small businesses in capital-intensive

industries such as manufacturing.

The corporate AMT: The corporate Alternative Minimum Tax

(AMT) is known in some circles as the anti-manufacturing tax. It

is an alternative tax system to the regular tax system. The AMT

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means that companies must keep a second, or sometimes third, set

of books to compute their tax liability. The tax is pro-cyclical,

meaning it hits you when you are down and takes a particular bite

out of manufacturers because of its pro-cyclical effect. And the adjustments it has for depreciation, which has a particular effect on

manufacturers because they are more capital-intensive than other

industries, and it limits on that operating losses. And again, the

manufacturing trends tend to be cyclical, more than other industries, so it is more adversely affected by things that put limits on

its ability to use, in that, operating losses such as the AMT.

The accounting rules: Current law specifies detailed and complicated accounting rules. Complying with these rules can be difficult and costly, especially for small businesses. To relieve compliance burdens, and perhaps reduce taxes as well, consideration

could be given to simplifying capitalization rules—which has a particular effect on manufacturers who are required to carry extra

overhead in their inventory and the rules regarding long-term contracts. These changes would provide significant benefits to the

manufacturers who must expend resources to comply with these

rules.

Finally, simplification. It has been observed that ‘‘it is difficult to

predict the future of an economy in which it takes more brains to

figure out the tax on our income than it does to earn it.’’ That is

the situation we face. Our tax laws are extraordinarily complex. A

recent IRS study of the burden and cost of complexity to individual

taxpayers put the burden well in excess of three billion hours per

year, and the cost well in excess of $60 billion per year. And that

is just the individual side. On the business side the rules are even

more complex and the burdens of compliance go even higher. While

large businesses can grapple with them, many small- and mediumsize businesses simply cannot. The challenge for businesses trying

to comply with the law is enormous. It is time for us to undertake

a serious effort to simplify our tax rules. We recognize that broad

simplification of the tax system will be difficult to achieve, but we

believe it important that we remain vigilant against further increases in complexity. As we have written regulations over the

course of the last 3 years at the Treasury Department, we’ve made

that a priority. A $1000 tax break that costs a small business

$3000 in accountants’ fees is no favor to small business.

In conclusion, I want to thank you again for the opportunity to

appear before you today.

[The prepared statement of Ms. Olson follows:]

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Chair SNOWE. Thank you, Secretary Olson.

Let me just follow up with a few questions because obviously, we

recognize that we have a serious problem. In fact, I’d say it was

urgent and nothing short of a crisis as it affects the manufacturing

sector of our economy.

The question is, what can we do now? I know there are a lot of

initiatives underway. Things are beginning to happen with the creation of an Assistant Secretary in the Commerce Department.

There are reports coming out. There are statements being made,

you know, to China about its currency and so on. But the question

is, at what point will action be taken and what do we do in Congress to address these issues?

I mean, obviously there has been an acceleration of loss in this

segment of the economy and I think it’s very troubling when you

read reports about the fact it’s not only the jobs that we are losing

in the terms of the quantity, but it’s also in the terms of the quality. The types of jobs we are losing overseas that may be irretrievable in terms of the skills that are lost, and that enhances the capabilities of our trading partners if we lose some of these capabilities.

So it’s the quantity, it’s the quality, it’s the type of capabilities

that we are losing that the manufacturers in this country provide.

It’s really the mom and pop manufacturers. I mean, that’s why I

thought it was a good approach in the Finance Committee last

week to replace the repeal of the extra-territorial income tax with

a manufacturers tax break, because it does help that industry that

has a disproportionate number of exporters. And, also, because

they are the ones that are being adversely affected by unfair trading.

So where do we start? I mean, we’ve got the Assistant Secretary.

We have reports coming out, we’ve engaged in, you know, 20

roundtables across the country. We obviously understand that

there are some serious problems.

We are going to hear from the second panel that maybe the top

three problems are: China, China and China. It’s a disproportional

part of our problem, in the sense that the trade surplus from China

in the first part of this year has already increased by 25 percent.

Obviously, that is really affecting our abilities in more ways than

one. And they still have a number of industries that are stateowned. They are manipulating their currency. They subsidize their

industries, and obviously, with the low wages and everything else

that they afford their industries, there is no way for our manufacturers to compete on a level playing field. So we’ll start with the

Commerce Department. What do you expect for action?

Mr. ALDONAS. Well, I was looking at the chart over here and,

Senator Snowe—I mean, one of the things, when you look at that

chart with respect to jobs lost in Maine, it tells you it’s more than

just a cyclical phenomena. It’s not just the recession and then, now,

a slow recovery. And that’s really what you are pointing to in terms

of the underlying things. And my point in raising that is that we

are going to have to address some of the longer-term trends as well

as some of the shorter-term things. So I sort of want to divide

things up in those two categories.

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In the short-term, probably the most important thing we are seeing is an awful lot of pressure from imports because there is no

growth abroad that is absorbing that. So that stuff is coming on the

market and a lot of it’s coming here. China today is actually the

assembly point for most of what we used to see out of a number

of different Asia countries, which accounts for a lot of the rise in

their exports to us. But the fact is, that there are unique things

about the Chinese system, as you pointed out, that have to be addressed. So most immediately, what we’ll be raising with the Chinese, when Secretary Evans and I are there next week, is our interest in having positive economic relations, but why that has to

be a two-way street and what that two-way street means. And ultimately, from my perspective, it does mean, either—you need to

make a choice, frankly. Either you are going to ensure that you are

playing in the market in a way that we expect to see you play in

the market, or you are going to face the consequences.

That is why, in this Administration, 50 percent of the dumping

cases that we have taken up have been directed at China. And that

will continue to be the case, in my view, as it will probably accelerate. Because my goal is to get beyond waiting for someone to file

a petition and go after individual areas like machine tools, like textiles and apparel, a number of these things in the electronics area,

and point out where we have the problems.

Now, I have to say, the Chinese are very pragmatic. This is a situation different than I think we faced in the 1980s with Japan.

They understand we are their market, and they are very concerned, ultimately, about making sure that people are employed.

The good part of the news from China is that they raised 300 million people out of poverty. The bad news is they have 900 million

to go. And what that means is they are going to very concerned

with employment. We need to represent our interest and make the

case to them that, if they want access to our market and they want

to see those people employed, there is a model of openness and a

market both on the dumping side as well as on trade agreements

enforcement.

Second thing, in terms of the longer-term trends, I have to say—

and this is the way I want to come back to the point of bipartisanship. If you look at a lot of the costs that have been rising for small

business, it’s things we have been debating in this country for decades. Energy. There is an energy plan before Congress right now.

It’s one of the things that we have to grapple with. And we do have

to get beyond what I think are static positions that have been developed over time, because you can’t have a plastics industry in the

United States with the rise in natural gas prices we have right

now. And a lot of the manufacturing, in terms of trying, for example, to lift weight out of an automobile, means you are moving from

steel into plastics. And you can draw your own conclusion about

what that means for small businesses in the plastic molding business throughout the country. So energy prices make a real difference.

It’s the same thing on health care. As both of you know, in terms

of where we are, given the inflation that we’ve seen in health care

costs, it offsets virtually all the gains that small businesses try and

make in raising their productivity. The hardest thing that I think

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I saw as I was going across the country was the effort that folks

had invested in trying to strip out costs in their own manufacturing operations only to see them erased by what, in effect, was

the doubling of health care costs in a very short period of time.

Growth helps that, but growth isn’t all of that. So we have to tackle those longer-term problems as well.

Providing more focus to what we do in support of manufacturing

is important as well. I know we’ve talked before about the things

that we need to be promoting for exports for small- and mediumsized manufacturers. One of the things I intend to do is get us focused much more on what I call a global supply chain initiative,

increasing what you are seeing for small manufacturers. The goal

may not be to export to China or export to Japan. It may be to export to Toyota and let them take it global as a practical matter. It

may be exporting to Wal-Mart and letting them take it global as

opposed to them being the seventh largest trading partner of China

if they were standing alone as a nation.

So more of our focus inside the Commerce Department in terms

of what we do on exports is to make sure we are identifying where

our small business can compete, where they find their market

niche, where they find the companies that are going to take them

global as a practical matter.

There is a number of other things that I know that you have

been thinking about, certainly, in terms of the sorts of flexibility

we need to see in a job market and in communities, investing communities as they make a transition—that, I think, we need to focus

hard on. The effort on trade adjustment assistance you made as a

part of the TPA battle was crucial. I think that’s important. I think

we need to go further and make sure they are integrated with the

systems we otherwise have at the Department of Labor. And that’s

not done yet. So there are a number of things that I think we can

be acting off, where Congress, in fact, has their hand on the lever.

Chair SNOWE. Secretary Olson, would you care to comment.

Ms. OLSON. One of the things that’s obviously pressing that’s on

the tax side is the need to bring the tax laws in to compliance with

the WTO decision on the FSC/ETI. And I think, as you rightly observed, the Committee mark-up last week—it’s really important

that we focus on what we can do for the manufacturing sector

through the tax laws.

It always seems like there are too many things on our plate for

us to handle. One of the things that I have tried to make a priority

at the Treasury Department is looking for ways to simplify the

rules so that we can relieve some of the dead weight burden that

we have on taxpayers in America, particularly small/medium-sized

businesses in America.

As I said, I really like coming outside the Beltway to listen to

people. One of the things I learned last summer, and one of the discussions I had with a bunch of small businesses, was that—we

have a number of provisions in the tax code that try to take small

businesses out of the complexities of some of the rules. So, for example, we’ll have something that doesn’t kick in until you have $5

million in gross receipts or $10 million in gross receipts or something like that that relieves some of that burden. But that, sometimes, some of those exceptions, which are good exceptions, and we

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definitely shouldn’t do away with them. But we should think about

whether we need to expand them, because what they do is they

function as a ceiling on small businesses’ willingness to grow.

At one of these meetings we were talking about the percentage

completion of contract method of accounting that contractors have

to use and one of the folks in the audience commented that, when

he gets to $10 million in receipts for the year, he stops taking on

business. Because when he passes that, he’s going to have to subject himself to using that method of accounting. And it is such a

complicated method of accounting he just doesn’t want to do it. So,

the compliance costs that we have imposed on businesses with our

complex tax rules are something that really deserves a very serious

look.

There are so many provisions in the Internal Revenue Code that

put a particular burden on manufacturers: the depreciation rules,

the AMT rules, even the structure of our R&E credit. The R&E

credit is a very complicated set of rules and it causes enormous disputes between taxpayers and the IRS. So do accounting methods

for that matter. But the things start with—it’s kind of a good idea.

Like the notion behind the research credit is that it’s supposed to

reward incremental increases in research, which is, you know—

sounds like a good idea except, when you go to try to put it in practice, what you find is that businesses have to go out and hire special accountants to do special kinds of computations and recordkeeping in order to determine whether or not they qualify for the

credit. So going back and taking another look at some of these very

complicated rules would be a good way for us to help small business in America and, particularly, manufacturers.

Chair SNOWE. Well, if you look at that chart, not only is it a staggering number of losses over the last decade, there are disproportionate numbers occurring in the last 2-21⁄2 years. So that’s what’s

so stunning. And that’s certainly true, I think, of most of the manufacturing jobs that have been lost, including the 3 million jobs

during the course of this recession and since then.

And then we have a trade deficit that continues to rise even

though we are no longer in a recession. You understand when that

happens in a recession, but you don’t understand why it’s happening now.

And with a loss of jobs, there isn’t a day, I don’t think, that I

pick up the paper here in Maine without finding that another manufacturer is closing the doors. I am going to hear from the next

panel—including one that has closed their doors. I mean, that’s the

problem.

I would say to you and to the President’s Administration, develop

an interagency task force of some kind with other departments and

coalesce around several top ideas that need to be driven now, because I think there is a matter of urgency here. We can talk about

a number of issues, but I think we can identify some key issues

that we can get done now. Some are longer-term, some are shorter,

and I think that we can’t afford just to wait for the long-term, as

I see it.

With China, their obligations are clear as part of the World

Trade Organization. And they have been non-compliant. How long

do we go on with this process of allowing non-compliance?

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Second, they understand that manipulation of currency is a violation of WTO. How long do we allow that to continue? There are

subsidies. They still have state-owned enterprises. I was in China

a couple of years ago, and it’s staggering. They have intellectual

property rights. You walk into a store, and what do they have? CDs

and DVDs. And what have they done? They have stolen the ideas

and the rights and the music of our industries. And they are doing

it over and over again. So, they seize the property rights, then they

develop the technology, and then they undercut our industries and

they subsidize them. And what do we have? We are losing that

technology and that base as well. So, we are going to lose that capability in America. We are close to it now in terms of where manufacturing is.

So, how can we approach it between Congress and Administration, on the short-term, immediately? I know we are doing a lot of

things and a lot of things are happening, but I don’t know if anything is going to be concluded. I think, frankly, in the foreign sales

corporations and extra-territorial income tax—I think it’s important to replace it with a lower rate for manufacturers, because it

really does identify that segment of the economy that’s disproportionately affected by the export tax incentive and it’s disproportionately affected by unfair trade practices.

So, couldn’t we identify certain things that could happen now,

maybe there is an inter-agency task force that can provide an agenda for action within these next 6 months and tell the Congress, this

is what you’ve got to do? On a bipartisan basis, obviously, it can’t

happen otherwise. In the Senate you have to have 60 votes, the

magic 60. Let’s get this done. There are things that can be done

now.

I know Rod Rodrigue, Chief Executive Officer of the Manufacturing Extension Partnership, a great program with promise, is

going to be testifying. As he said in his testimony, we spend more

time arguing about keeping $100 million for that program than we

do about the $87 billion supplemental. We need to have support for

those types of programs. We get the biggest bang for the buck on

those programs. So, can we identify the top five issues? What

would you say? How can we get some action?

Mr. ALDONAS. Well, I agree with what you are suggesting. That’s

precisely what the report is designed to do. It really does identify

what are the single largest cost drivers on the domestic side and

point out the sorts of things we need to tackle those. It also identifies the things that we have to be doing on the international side.

The point I was trying to make earlier, Senator, is that there are

things that are so obvious that we are already moving on them.

Plainly, in terms of, for example, Chinese imports, we’ve already

started the review within the Commerce Department to look at a

range of practices that we don’t have current petitions on from industries, but it is absolutely obvious that these things are having

an impact on our industry. And so there is no reason for us to wait

for a petition. We need to get out ahead of that prerequisite, as a

practical matter. Of course, what people will tell you, looking at

that, is we are not ahead of the curve right now.

Second thing is, on the currency side. One thing that I do want

to make sure, though, that the President gets credit for, is that he

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understands this issue. And he is the guy who will tell the Chinese.

And will be, as of next week—where we have to be on this issue.

And it’s a fairly simple thing, as you both know. It’s sort of like—

either we’re going to play fair or we are going to have to take action in response. That’s really what it boils down to. And Congress,

I think, has been enormously patient in the year that China has

come into the WTO. We’ve encouraged them to move in the right

direction, but our patience, I think, has worn thin. Just as yours

has worn thin on things like intellectual property rights, which are

key to our manufacturers.

When we talk about how we are going to succeed in the future,

it depends on technology. Well, guess what? That boils down to intellectual property rights, just as you were pointing out. And it

does require a vigorous enforcement of the trade laws as well.

Chair SNOWE. Is that the message that Secretary Evans will be

taking to China?

Mr. ALDONAS. Absolutely.

Chair SNOWE. I know that Secretary Snow is doing a great job

as well, and they both have, as a team, in getting that message

across and raising this issue of the manipulation and the pegging

of the currency—both with China and Japan. I really appreciate

that, because I do think that is a critical issue. But is that the message that Secretary Evans will be taking to China?

Mr. ALDONAS. Absolutely. And let me put it in context. We are

essentially on the course of about 3 months of very close conversation with the Chinese over all these issues. It really started this

summer with Secretary Snow’s trip. The President will be meeting

with the President at the APEC meeting. After that Bob Zelik,

USDR, will be in China. Secretary Evans will be in China in October to advance U.S. interests and advocate for a level playing field

in our economic relations with China. We will have another opportunity to raise outstanding issues during our annual Joint Commission on Commerce and Trade (JCCT) at the end of the year. And

what we have identified is a very clear list of actions that we expect the Chinese to take as a part of—in this process. And failing

that—that’s the point where we need to reconsider what we are

doing.

And again, I think the Chinese have been very pragmatic about

this. When they say they are defending their own national interest,

our job, as far as I am concerned, is to make sure we are defending

our national interest. And drawing the line in the sand and saying,

frankly, this is what we have to see. Absent that, you understand

we will use the tools available to us within the trading system to

make sure that the playing field is level.

Now, the optimum way to do this, obviously, is to see change on

the Chinese side. I mean, that would be something that would be

good for our growth and good for their growth. And that’s the message that we really need to bring home to them. But, failing that,

they don’t leave us many options, to be honest.

Representative MICHAUD. Thank you very much. Great presentation. Just a couple of quick questions. You just talked about,

when you look at tax breaks, are you also looking at large corporation benefits—and if they do decide to take their paper machine

and move it over to China, or whereever else, whether or not they

41

will lose those particular benefits? There’s the long-term problem

and the short-term problem.

And when we look at small businesses, those are the ones that

will more likely stay in this country. The large corporations, they

can afford to move overseas. So are you looking at what effect they

have and, if they do move overseas, whether or not we can take

those back or—and also, on the short-term.

And I know there is also health care—a 55-cent tax credit for

health care. Part of the problem within this rate is that you get affected, because of a shutdown. You are going to have to provide

health care and, in a lot of cases, people cannot afford that other

35 percent. So, it’s good to have that program there, particularly

when you look at an area in Maine—at one time earlier in the

year—the unemployment rate is over 30 percent. You just move 30

miles north of the plant that shut down. Thirty miles south, another Chapter 11. And it’s real devastating. And I am just wondering if your Department is looking at, in the short-term, how can

these programs move forward?

The National Emergency Grant Program is great. The downside

of it is, they are not processing those grants within the 30-day time

frame.

Mr. ALDONAS. Got it.

Representative MICHAUD. And this has an adverse effect on

small business. It actually really does. Using the region as an example, there is no health insurance coverage. These grants are 60

to 90 days of coming in late. And they did have an adverse effect

on small businesses because, if someone with no health insurance

coverage goes into the hospital, that’s been shifted onto the small

business—having a huge rippling effect.

So, are you looking at, on the short-term what can be done, particularly in——

Mr. ALDONAS. Congressman, let me take the second one first. I

want to draw a distinction, which was implicit in what you were

saying, between the social safety net on the one hand and the costs

I was talking about for manufacturers, the ongoing costs for manufacturers, because there is no doubt we have to grapple with the

safety net side. And I am happy to raise the issues with respect

to the NEG grants with the Department of Labor and make sure

that we are turning this over as quickly as we can. But I want to

underscore that the costs I was talking are the costs that we impose day-in and day-out on operating businesses, that drive them

to the point where they are putting people into the social safety

net. And, so, without disagreeing with the notion that we have to

make sure the programs work when people do fall out of the job

market and they do have that protection. At the same time, I

think, that we have to focus hard on the costs that may drive companies into that position. And, so, when I talk about the rising

health insurance costs, the one thing I want to make sure we are

focusing on is a bipartisan solution that is making sure that our

guys aren’t bearing huge costs, or we are going to have to find an

alternative in terms of how we go after this. And I know this is

something which both of you know better than I do, in terms of the

health care side, in terms of what the options are. But I want to

be very conscious of trying to make sure we draw the dividing line

42

about where the effort needs to be for the benefit of the manufacturers that are still operating.

On a tax break side, I really defer to my colleague about the

sorts of things the Treasury has underway. But one of the things

that I want to do is reinforce for you—the fact that when I go out

and talk with manufacturers, they understand that to succeed locally, lots of times, American manufacturers have to succeed globally. And they don’t complain about the notion that companies are

investing abroad, to manufacture abroad, when they are serving

that market. I think the concern is always, when they create an export platform due to subsidies in China, and ship the stuff back

and start dumping it back into our market. And what they understand is, is that the code, at least since 1962, have in fact penalized

American manufacturing in its ability to be globally competitive.

So, one of the things to be careful about is to understand there

are already penalties in the code that we impose on our best competitors in manufacturing. And so, when we think about—what

about these guys who are sort of escaping and taking jobs overseas?

We’ve got a broad dividing line about the folks who have to go

overseas to succeed, which means jobs stay here as well. And those

who are, simply for tax reasons, going offshore to get the additional

tax benefits—which is really the problem you are leading to. And

those are incentives that are built in the code that, I think, fall

under the rubric of things we need to clean up. Because we

shouldn’t be providing artificial incentives over there, nor should

we be penalizing in terms of trying to succeed in their global manufacturing.

Representative MICHAUD. [Off mic.] There are certain types of

paper that are imported from around the world that puts companies in Maine at a disadvantage. I worked at Great Northern Paper

Company for 29 years. We made directory paper, 75 percent of the

directory paper sold in the United States are imported, 50 percent

of which is imported from Canada. When you look at the subsidy

that the paper mills in Canada receive from the Canadian government, it puts U.S. firms at a competitive disadvantage. I know

there is a process that companies can go through if they feel that

they have been hurt by NAFTA. The problem actually is not in

that process [inaudible] Department of Commerce. Are you looking

at how the Department can assist businesses like Great Northern

Paper Co., that have to spend over a million dollars for them to rectify their case in theory—they are not a large corporation, they

have only two mills in Maine. Can you tell me if the Department

is looking at how they can help businesses move forward without

them having to go further into debt and ultimately close down?

Mr. ALDONAS. Yes. Congressman, I am glad you asked, because

we are. We have regularly provided what’s known as pre-petition

counseling, particularly for small manufacturers. Because, as opposed to having to go and do what Pam described, which is hire

a law firm in Washington to spend a million dollars to essentially

get your case heard, you’ve got to be able to come to the Commerce

Department to understand the particulars and what you would

have to go through. My own instinct is we have to go farther than

that. That is why I was saying, we need to get out in front of this.

43

We don’t need—if we hear that sort of complaint—and I have got

to say, I haven’t spent a lot of time with lumber over the years.

I have a pretty good idea of what goes on in Canada. If that’s the

sort of thing, I know the people to call. And that’s the sort of thing

where I think we should take up for the company with the Canadians, regardless of whether they filed a petition. Right. I mean,

this is one of the things where we don’t have to wait for that sort

of result.

And if there is a concern, that’s the sort of thing I do want to

hear about. Because it may be that, as in many things, that by getting to the right person on the other side, we can help solve a problem in the short run, rather that having to force someone to go

through the whole litigation process that the dumping laws would

otherwise entail.

Representative MICHAUD. Trade deficit that we already have, you

look at the kind of budget system that we currently have. The U.S.

Treasury is looking at almost $7 trillion worth of debt and that is

a lot of United States debt. What’s going to happen later on down

the road when we continue to lose manufacturing at the rate that

we are currently losing manufacturing.

Ms. OLSON. Well, I guess I would say that one of the things that

I was going to mention, that your comment highlights, is the importance of some of our big trading partners doing more to encourage pro-growth policies. And that’s one of the things that Secretary

Snow and the President, in the trips that they have made abroad

over the course of the last year, have emphasized.

Japan has had a stagnant economy for well over a decade now.

Germany, which has been the largest economy and the engine of

growth over there, has been stagnant for some time. And so one of

the things that they have been focusing on is encouraging those

economies to adopt more pro-growth policies. The statistics that I

have seen about what’s happened with the trade imbalance suggest

that a whole lot of the problem stems from the decline in exports

on our part, as opposed to increases in imports. And that’s because

our big trading partners, like Germany and like Japan, have had

stagnant economies and, therefore, they are not buying what they

used to buy. I think there is a line in Grant’s testimony, from

former Secretary Summers, on us flying on a one-engine plane.

Right? And the one engine that’s driving the plane forward is the

U.S. economy because nobody else is moving. So, it’s really important, for purposes of our addressing our trade imbalance, as well

as addressing the health of the U.S. economy and getting it growing again—which, in turn, will affect our budget deficit. That will

get those economies growing again so that they become markets for

us again.

I think that the President’s firmly of the view, and I know that

Secretary Snow shares this view, that the best thing that we can

do for our budget situation is to get the U.S. economy healthy and

strong again. Outside of the manufacturing sector, I think, we are

moving in that direction, but there is clearly a lot of room for improvement. And that’s the best thing that we can do.

Currently the size of the deficit is unwelcome. And we do need

to be focusing hard on making sure that the economy is growing

and that we are getting that back under control.

44

Mr. ALDONAS. Could I just add to that? One of the points that

Pam made. I always like to try and find ways to put things in perspective.

For example, on the manufacturing—we are very concerned

about it, but one of the things we ought to also acknowledge is the

strength of our manufacturing sector. Our manufacturing—we are

still the largest producer of exported manufactured goods in the

world. Our manufacturing sector, standing alone, would be the

fourth or fifth largest economy in the world. Larger, in fact, than

China’s whole economy. So, I always like to find those things—well,

the one about Japan and growth.

The most amusing statistic I heard was that Japan’s annual bar

tab is larger than the economy of Vietnam. Right. And the reason

I say that is because it drives home the point about how much they

would add to solving our problems, internationally, including the

problem with China, if they would get off their butts and grow.

Right? And it’s not as if their problems aren’t known, just like we

know what our problems are and have for some time.

And I have to say that it’s with a certain degree of frustration,

because we become the dumping grounds for a lot of goods from

China, as well as a lot of other places. Precisely because we are not

seeing that growth in the rest of the world, as Larry Summers

said. And we are flying on one engine. And so there has to be an

effort on that side as well. I know that’s what the President is

going to be focused on when he goes to the G8 Summit in the coming year. It’s all going to be about growth, because that is an answer to a lot of this as well. And I never—in focusing on China,

I never want to let the other guys off the hook.

Chair SNOWE. No, I agree with that. I think that that is true. I

mean there are a host of other countries, obviously, you know—the

giants in the world economy, in essence, and, in terms of the numbers as well. And I know that Secretary Evans indicated in a

speech last month that he intends to make sure that China honors

its commitments. I was just wondering how we intend to go about

doing that.

Would this team be one, which I think is a great idea, to address

China’s unfair trade practices in the manipulation of its currency

for example?

Mr. ALDONAS. Sure. In the sense that, with respect to any allegation on the currency side, what you are really talking about is the

degree to which that action by the Chinese government, in effect,

implies a subsidy to their manufacturers. And that’s the core of

what we do in this unfair investigation practices team.

But I also want to say that, again, the peg only represents the

fundamentals that are going on in their financial system, which is

the ultimate subsidy. And that’s the sort of thing that we intend

to raise with the Chinese. We will be asking them as they go

through a process in the World Trade Organization of having to

identify all their subsidies. We are going to be asking them for the

elimination of the list as well simply listing them over at the WTO.

That’ll be one of the things that we take up with the Chinese going

forward. And it relates to the peg, as a practical matter, because

if we can move them past the underlying problems, the peg largely

becomes irrelevant at that point.

45

Ms. OLSON. Might I go back to the Congressman’s first question

about international tax? I think the international tax area is so

complicated it’s probably the best illustration in the world of the

law of unintended consequences.

If I might give you an example, the shipping industry is an area

that we decided we were going to address back in the early 1960s

with the changes that we put in place for international tax rules.

Back then the U.S. had a very vibrant shipping industry. We identified shipping income as mobile income and decided that, regardless where in the world a U.S. company earned its shipping income,

we were going to tax it, currently at the maximum corporate rate.

Since then our shipping industry has largely left. I think we still

have a strong one in the Caribbean, but that’s about it. Otherwise

it has gravitated to other places in the world where it is not taxed

on a global basis. Indeed, in many cases it’s not taxed at all, because it’s taxed purely on a territorial basis, and that means that

the income that’s earned on the high seas doesn’t get taxed at all.

So, we took a competitive industry and, by subjecting it to tax burdens that the same industry in other parts of the world weren’t

subject, we did away with our shipping industry.

We’ve seen the same thing happen in the oil services industry,

where much of the income is earned at high seas drilling for oil and

so forth. And that industry as well has, to a large measure, dried

up in the U.S. in terms of the international operations.

So what we have is industries that have to earn a 35 percent

greater return in order to be competitive. And unless there are

competitive advantages that allow them to more than make up for

that, it becomes very difficult for them to compete. Now that has

resulted over the course of the last 20 years or so, in some companies being taken over by foreign companies, some companies moving—as you no doubt have seen the newspapers, over the course of

the last couple of years in particular, moving their headquarters,

on paper to places like Bermuda, with the argument that they can

escape the U.S. tax net. That’s a very troubling situation. It suggests that we need to address the underlying fundamentals.

Now, there are some other things tangled up with that, where

companies from other countries have learned to strip the U.S. tax

base by loading a U.S. entity with debt and then taking interest

deductions out of the country. So those are issues that we need to

address. And what we need to do is make sure that we’ve got a

level playing field as much as possible for U.S. companies so that

they can compete abroad, because that means more jobs for American workers.

I think it’s really important to understand another related area

is that under those international changes that were made in the

early 1960s, we subjected marketing income to current tax in the

U.S. that’s earned abroad. Well, other companies that are located

somewhere else may not pay tax on that income at all, or they’ll

pay tax only at the rate that is imposed in the country in which

they are located. We tax it again, back here, on a current basis.

And that marketing income is particularly of concern right now, because that marketing income is income that is earned in selling

U.S.-made goods and services abroad. So what we are doing is—

we’re taxing them on a disproportionate—relative to what their

46

competitors are—and in doing so we put some of our most competitive companies at a disadvantage on a global basis.

Mr. ALDONAS. If I could just follow-up on Pam’s point about the

shipping industry? It’s an interesting illustration, because what

you’ve got is something which is the classic services industry, but

it drives a lot of demand for manufactured goods, particularly in

places like Maine. If the customers leave, so does the manufacturing industry. When shipping industry leaves, you start to see a

decline in shipbuilding and it has a big impact on a State like

Maine, as a practical matter.

More broadly, if you think about what happens with China,

where they have their own shipping company, it ends up being

much more lower cost for them to engage in trade, simply by virtue

of the fact that they have a shipping industry in their country. The

fact that we don’t imposes a penalty on our exports. And, in fact,

encourages something that has a dramatic singular impact on a

State like Maine as well as a broader effect on all manufacturing

in the United States. So, some of the things that you’d get cranked

up about, whenever I hear about them from Pam, are things that

may not be purely on the manufacturing side. It may be other

things that have implications for manufacturing in the United

States that we need to clean up as well.

Chair SNOWE. How is Treasury and the Administration going to

approach the legislation that we passed last week in the Finance

Committee?

Ms. OLSON. Well, the most important thing is for us to bring our

laws into compliance with the WTO ruling. So we look forward to

working with Congress to seeing that happen. And we, at the

Treasury Department, have been working very closely with Committee staff to make sure that we have identified, as much as possible, the issues that might cause administrative concerns, implementation concerns, down the road, to make sure that we have

those questions answered as much as possible. So that the legislation, if it’s enacted into law, will provide the biggest benefit and

greater certainty for both tax payers and for the IRS in administering it.

Chair SNOWE. Well, I hope that the underlying principle would

be embraced, to gear things towards the manufacturers, because

they are obviously going to be disproportionately affected by the repeal of the export tax incentive. And I hope that will continue to

be the principle underlying the legislation. Hopefully, we can do it

this year. I think it remains open to question exactly what the action will be in the House to resolve it before we ultimately adjourn

this year. But I certainly would hope that we could, because the

clock is ticking in terms of our compliance.

There are other issues that are tax-related that could help manufacturers. You were referring to some of them on depreciation, for

example, alternative minimum tax. I gather now that the exemption for small businesses is $7.5 million. I am thinking about increasing it to $10 million. Is there an agenda for manufacturers on

tax-related issues? I think we need to have an overall agenda for

manufacturers. It has to be inter-agency, because it would be a

waste if one department is doing one thing, but another department is doing another. And, obviously, what happens in Treasury

47

is, also, as important as what happens in Commerce in these

issues.

I am wondering if this agenda will be merged in some way so

that we can look at the total picture of what the effect is on manufacturers and see what we can drive through Congress. That’s

going to be the key issue here. Maybe something can be done administratively and on the trade-related issues, initiating complaints and that sort of thing. But again, we’ve got to get to the

forefront of the Congressional agenda. The train’s been leaving the

station. I know Secretary Evans, according to a conversation I had

with him the other day, says that the focus is jobs, jobs. He has

laid out, I think, some very important issues as well. So, I am just

worried about time, the agenda, and how this is all going to work,

because there are so many issues that we can talk about. The question is what can we get done that is critical, that is going to make

a material difference to the manufacturing industry now, right

now, in the economy, because manufacturing is obviously where the

job losses are occurring and will continue to occur, from what I see.

Mr. ALDONAS. There’s two guarantees that I can offer you.

Chair SNOWE. Okay.

Mr. ALDONAS. The first thing is that, whatever is in our report

will not be limited to——

Chair SNOWE. When is that report coming out, by the way?

Mr. ALDONAS. Well, that comes to my second guarantee.

Chair SNOWE. Okay.

Mr. ALDONAS. The first guarantee is that it will not be limited

to things that the Commerce Department can do. And I know for

a fact that whatever I write about taxation, my colleague will be

telling me whether it’s right or wrong and how to reshape it. But,

as a practical matter, this is the inter-agency process on taxes on

manufacturing. And I have got a pretty comfortable idea where we

need to go and the things that need to be identified on the tax

agenda.

Second thing is, I guarantee you, that when I leave Maine today,

I’ll be going back to my computer to finish drafting the report.

Chair SNOWE. Okay.

Mr. ALDONAS. Because it’s on my shoulders. And what I am really hoping—I’ll tell you where the draft is. We have laid out the

analysis. We’ve got a good set of recommendations that really are

across the waterfront that is in the inter-agency process.

One, I expect that what we’ll be doing is going back to what, I

would hope, is an ultimate draft to OMB to get it out to inter-agency. Because it covers things from what we can do at the Commerce

Department; where USDR has the lead on trade compliance with

WTO actions; where Treasury has the lead on things like the exchange rates and on economic growth abroad, as well as on taxes;

Department of Education, Department of Labor, Department of Energy, sort of across-the-board. Because it is just so abundantly

clear, when you go to talk to manufacturers, just as you said and

just as the Congressman said, that the time is now. There are

things that we have to do. Number one, to make sure we have the

answers right in terms of the problem, but also to convey to manufacturers that the government is moving on the things that will address their problems.

48

Chair SNOWE. I appreciate that. And I think it is going to be critical that we are all on the same page on those issues in Congress

and with the relevant Committees and Chairmen so that this becomes an action-oriented process and a very efficient—well, I know

‘‘efficient’’ and ‘‘Congress’’ is an oxymoron, it doesn’t exist in Congress—but in any event, it just——

Mr. ALDONAS. It is a worthy goal. There is nothing wrong with

that.

Chair SNOWE. Well, you have to drive that process. Otherwise,

things get stalled, and you know where we are in the political

scene, and it’s going to be very, very important. These key issues

are huge. I know you know it, and the Secretaries know it, and the

President knows it. If we can all be working on the same page, Republicans, Democrats, Congress and the President, we’ve at least

identified those issues that we can do this year. Otherwise, this

problem is just going to continue to magnify. I am not sure I see

a reverse here, at least in this part of the economy. It may change,

but we can’t predicate people’s lives and livelihood on hope. We

have to come up with some concrete action and I am sure you’re

getting the same message across the country.

Mr. ALDONAS. Although, you know what’s interesting about it is,

it’s not with the focus that you bring to the issue of small manufacturers, which are consistently the most vibrant part of our economy. It’s where the jobs are, it’s where the jobs creation is, and it’s

where the innovation is.

Chair SNOWE. And we know how essential innovation is. According to this article in The New York Times, and, you know, again,

I don’t always believe everything I read but, no matter which numbers you take in terms of the jobs lost to overseas competitors, it

is troubling—because, as you say, we are losing our innovation.

And that becomes another major structural problem for our economy.

Mr. ALDONAS. It’s the key to our future.

Chair SNOWE. It is the key to our future. And then companies

find that they can save as much as 50 percent for each job shifted

abroad. Then there are the other costs in this State and across the

country—health care, workers’ compensation in this State and I am

sure it’s true in other States, tax-related issues, and many others.

We have another WTO related issue in the continued subsidy and

dumping offset. And one of the bills that I have introduced to address that issue, would have the revenue go back to the affected

communities.

Mr. ALDONAS. Well, it won’t surprise you that I think it’s a terrific idea. A: we have to come into WTO compliance. The WTO’s

rule that the current system is giving it back to the individual company is something that is inconsistent with the rules on dumping.

But investing it in communities that are facing the pressure from

trade and are making an effort towards the transition that makes

them more competitive, and, therefore, allows them an economic future and a stake in an economic future in the United States is, I

think, key. And, so, to the extent that those funds can be applied

to those sorts of initiatives, it’s all to the good, frankly. It’s one of

the parts of the program that, actually, at the Economic Development Administration of the Commerce Department, that I am most

49

proud of. They actually provide a lot of value for the money that

the public invests in EDA. And as I understand it, under the proposal that’s the sort of direction you want to head with the dumping duties. And it would be really reaching out to the people most

affected by trade.

Chair SNOWE. Secretary Olson.

Ms. OLSON. One of the things I was struck by when you were

talking about finishing things more quickly on short-term agenda

and the fact that we need to act now, is the fact that one of the

things that we should be focusing on is how we speed up government. I am not going to touch Congress. I’ll leave that to you to

figure out. But, clearly, one of the things that I have seen over and

over again in the course of the last 3 years that I have been at the

Treasury Department is that we don’t move fast enough to address

emerging issues. And so we could contribute a lot if we could find

some ways for us to make the governmental processes move more

swiftly.

The other thing I wanted to assure is that the Administration is

firmly committed to seeing that the benefits that are going to be

lost in the repeal of FSC and ETI do, so much as possible, stay

with the communities that have benefited from those provisions—

so that they are not going to suffer from the repeal of the $50 billion.

Chair SNOWE. I appreciate that. I appreciate all of the comments

and your efforts to be here today to express your views on behalf

of Secretary Snow, Secretary Evans and the President. I know,

based on all the statements that I have read, that they have been

active on many of the issues that we’ve discussed here this morning—and are certainly moving in the right direction. I appreciate

the fact that you are here today, and I am grateful for the opportunity for everybody to hear you.

I hope that you will be able to listen to the testimony that is

going to be given subsequent to yours, and also submitted to you

as well for comments, because they do represent—the next panel

represents—a broad array of manufacturers who are doing their

level best in spite of all these exigencies and problems that have

developed. In fact, one of the companies who is totally excluded

from the Asian markets, Winderosa Gaskets, will testify that they

can’t compete in that market because of the inequities and the barriers and the non-tariff barriers. There are so many issues there.

We need to tackle those issues. It’s really a matter of urgency.

Mr. ALDONAS. I know you are trying to wrap up, but let me give

you one more guarantee.

Chair SNOWE. Yes.

Mr. ALDONAS. One things Secretary Evans has asked me to do

when we have the report out is to go back to the 23 cities that we

visited to discuss the recommendations with manufacturers—because this is not going to be a static process. This is something

where we need their feedback, and we need to be shaping the agenda as we move along. And I’d be happy to add a 24th city to the

list for a return, to come back.

Chair SNOWE. Oh, we’ll appreciate it. Wouldn’t we? Yes.

Mr. ALDONAS. And meet with the same panelists.

50

Chair SNOWE. Absolutely. That would be terrific. We would welcome that. I appreciate it and I also thank you for all that you’ve

done concerning the softwood lumber issue. I know you are in the

process of reviewing the data for the rates again. Will you include

the Maritime Provinces in the discussions?

Mr. ALDONAS. The Maritimes are covered under the dumping

case and so we are sort of stuck with that part of it. They traditionally have been excluded on the CVD side, the Countervailing Duty

side. As we have looked at the policy bulletin that would really—

is the negotiation about how the Canadians should be changing

their practices. The fact that there is essentially free trade between

Maine and Maritimes means that there is very little that they need

to do to qualify for the treatment and to be out from under the

Countervailing Duty as far as the Countervailing Duty going forward. But we still have to grapple with the dumping side. That is

something which I have been working on with my colleagues at the

Commerce Department, because I understand sort of the unique

trade that goes on between Maine and the Maritimes. And our goal

is not to interfere with that when we are trying to grapple with the

subsidies provided by Quebec and Ontario.

Chair SNOWE. Right. The minute they don’t benefit from those

types of subsidies they should not be under that umbrella.

Mr. ALDONAS. Exactly right.

Chair SNOWE. I know you know that, and I hope that we can continue to work on that issue. I should tell this audience that Secretary Aldonas has done a yeoman’s effort on behalf of the softwood

lumber industry, and we appreciate all that you do. We thank both

of you.

Thank you, Secretary Olson, for being here.

[Recess.]

Chair SNOWE. All right, sorry for the delay. Thank you all. May

the hearing come to order, please. Thank you.

We have an excellent second panel here as well. I thank you all

for being here today.

The second panel consists of small business manufacturers and

their representatives who are here today to express not only their

individual concerns, but also those shared by small business manufacturers throughout the country.

We have Bruce Pulkkinen, the President and CEO, of Windham

Millwork. In addition to testifying in his capacity at Windham Millwork, Bruce is also testifying in his capacity as a board member

of the National Association of Manufacturers. The National Association of Manufacturers represents 14,000 manufacturing companies nationwide and is the voice of the industry on all issues facing

manufacturers.

Thom Labrie is the President of Auburn Enterprises, formerly

Auburn Manufacturing Incorporated, which was located here in

Lewiston, was dedicated to developing machinery for converting recoverable waste wood fiber into sellable product. The recent closure

of Auburn Manufacturing was a true loss for Lewiston.

LoLisa Bonney is the General Manager of Winderosa Gaskets, a

precision gasket producer that exports to 38 foreign markets. It is

located in Dixfield, Maine. Winderosa has been extremely successVerDate 03-FEB-2003 11:42 Jul 07, 2004 Jkt 091193 PO 00000 Frm 00054 Fmt 6601 Sfmt 6601 D:\DOCS\91193.TXT SSC1 PsN: SSC1
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ful and has recently received an Export Achievement Award from

Commerce Secretary Don Evans.

Rodney Rodrigue is the Executive Director of the Maine Manufacturing Extension Partnership and the President and CEO of

MEP MSI. Rod has done such an excellent job with the Maine

Manufacturing Extension Partnership that he started MEP MSI in

order to help Manufacturing Extension Partnership Centers around

the country operate more efficiently and effectively. I am sure they

will under your leadership.

Randy Cousineau is the owner and President of Cousineau Incorporated, located in North Anson. A family-owned company that produces lumber and wood chips. Randy’s family has owned and run

the business for more than 40 years, beginning with his father.

Allen Cairns is the Managing Partner for Creative Mold Company, located here in Auburn. Creative Mold Company is a custom

mold maker that manufacturers molds for a number of large and

small companies in a wide range of industries.

John Wentworth is the President of Moosehead Manufacturing.

Moosehead has facilities in Monson and the Dover-Foxcroft area

and is well known for manufacturing high quality furniture.

We also have with us Bernard Featherman, who is here on behalf of the Biddeford/Saco Chamber of Commerce. He is also the

President of Southland Steel Corporation and will be testifying as

well.

I welcome you all. And I thank you. All of your full statements

will be included in the record. We hope you can confine those statements to 5 minutes each and then we will have a discussion, a big

discussion.

Okay. Bruce, we’ll start with you.

STATEMENT OF BRUCE PULKKINEN, PRESIDENT AND CEO OF

WINDHAM MILLWORK, INC., BOARD MEMBER OF THE MAINE

MEP, FLORIDA MEP, ARIZONA MEP, AND NEW MEXICO MEP,

AND NATIONAL BOARD MEMBER OF THE NATIONAL ASSOCIATION OF MANUFACTURING

Mr. PULKKINEN. Thank you. I would like to begin by thanking

Senator Snowe and the rest of her Committee for inviting me to

participate today. More importantly, I thank her for holding these

types of events so that the manufacturing community has the opportunity to express their concerns, and to thank her Committee

for the positive changes they are attempting to make.

I wear several hats today. My company, Windham Millwork, is

a 47-year-old family manufacturing business started by my dad.

We build beautiful products from wood, with our market being predominately architectural woodwork and cabinetry for the education, health care, and corporate construction markets. My second

hat is that I sit on the Manufacturing Extension Partnership

boards in several States. The reason I do that in several States is

because I am truly committed to that effort that the Manufacturing

Extension Partnership corporations do in the various States. Finally, I sit on the board of NAM as a small manufacturer and

spend a good deal of time trying to influence policy changes that

would benefit small- and medium-sized manufacturers.

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Small businesses today face challenges that are, quite frankly,

overwhelming. I would like to relate how some of those challenges

have affected our company, discuss what we have been able to do

to meet them, and what the new and improved manufacturing environment would look like if we could influence you, our bipartisan

leadership, to create it.

The challenges we see in our company are similar to those found

by most of the NAM small- and medium-sized manufacturers.

Challenge Number One: How can we grow and re-invest in our

company when more than 50 percent of our profit flows out of the

company in the form of taxation, Federal, State, and local taxes?

Our most serious impediment to growth is the fact that growing

in a small company really relates to cash flow. Other than from

bank debt, the cash flow for small companies comes from profit. In

our company, after we have rewarded our employees with year-end

bonuses and have paid the 50 percent of our profit in taxes, we

quite frankly are left with the bare minimum needed to maintain

the status quo. We can reinvest in those things that are wearing

out, but we really cannot expand and grow.

The Jobs and Growth Tax Relief Reconciliation Act of 2003 allowed us to better afford the purchase of a new high technology

piece of equipment, due to the accelerated depreciation section of

the act. However, and this is the key fact for me, in order to really

generate small business expansion, you folks need to provide much

more in terms of tax relief and credits. The first year write-off

should be a minimum of $500,000—again, these are my opinions—

so, a minimum of $500,000. One small piece of equipment for me

is a quarter-of-a-million dollars to make that investment. So if I

want to replace or to expand and put two pieces of equipment in,

I’d like to be able to maximize my first year write-off.

And years ago we had a thing known as an investment tax credit, direct tax credit for reinvesting in one’s company. Those two key

things for me are probably the most important things that I could

see as a company that would allow me to expand and to grow—and

not just have to sort of maintain the status quo.

One only needs to look to our north to find a country that values

its manufacturing base and does the things it needs to do to protect

and help them to succeed.

The first year accelerated depreciation and investment tax credit

should also include investments made for training and for research

and development. Was the Tax Act too little, too late for American

manufacturers? It may be too little, but if folks in Washington can

react quickly enough, I don’t think it has to be too late.

Challenge Number Two: How do we get better at what we do so

that we can compete with foreign competitors on the current uneven playing field?

It is painfully clear that countries like China do many things

that created the unfair playing field we have now and, as a result,

we’re seeing unprecedented increases in our trade deficit with

China. A lot has been said about this today, and I am going to skip

a lot of what I might have said prior to hearing previous testimony,

but there are two issues here. Level the playing the field if possible, but more importantly to me, it’s to provide American manufacturers with the tools we need to compete.

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In terms of leveling the playing field, our leaders must play

hardball under the WTO rules with China. And I am very happy

to hear Chairwoman Snowe allude to that. I think it’s time to play

by the rules or they don’t get to play in our field. The NAM has

been working on this in several areas and it will take a strong will

from those who negotiate for us in the WTO arena.

Most importantly we need to slow and reverse the trade deficit with China. Today it just passed $100 billion. At its current pace

will exceed $300 billion in 5 years. Our manufacturing base will be

beyond the point of no return by then. I firmly believe that. I think

our base will be gone in that 5-year period if we have not stemmed

the tide of the deficit. I am afraid that we will be unsuccessful to

some degree in controlling the playing field issue but, and this is

the key again, to me, we can control what we do at home.

I will switch hats for a minute to my company. Today’s discussion is not about Canada, but it was competition from Canada that

helped our company realize that we better get a whole lot better

at what we do if we were to survive. With the strong U.S. dollar

and the weak Canadian dollar a couple of years ago, we began to

see much of the business begin to go to the Canadian woodworking

firms.

I began to explore what might be out there for outside services

to help us improve our competitiveness. My familiarity with MEP

and our State Governor’s Training Initiative allowed me to partner

with them to train nearly our entire staff in one way or another.

We leveraged the training funds with our own funds in order to

hire MEP and other consultants to help us get leaner, allowing us

to do more with what we had today. With MEP’s help we began

a transition that is ongoing today and will continue as we move forward. To make a long story a little shorter, we were able to grow

this year so that we will finish nearly 35 percent over last year—

in the same plant, with the same people building the same products. Without being able to leverage the help we received from the

State and MEP with our own funds, this process would have been

impossible to begin, let alone finish.

Every year, companies who have benefited from MEP services

travel to Washington to support the program and, despite receiving

bipartisan support, there is always a battle to maintain the program at the current level. This is a $104 million expenditure that

seems to take as much debate as we are seeing today on the $87

billion needed to rebuild Iraq. If we want some impact in this country, take a portion of that $87 billion and invest it in American

manufacturing through tax incentives, training help, and better access to research and technology. MEP dollars provide a tremendous

return in terms of the Federal investment. The other tax incentives

will do the same.

And I am running out of time, so I am going to skip to the very

end. I think that this is a case of preaching to the choir, but this

fifth and final point that I want to make really encompasses all

that I have said earlier. My father told me a very long time ago

that what our company does is extremely important. He also said

that if we employ good hardworking people and we produce the

highest quality products at a fair value, we will be successful. He

taught me that we were in an honorable profession and that manuVerDate 03-FEB-2003 11:42 Jul 07, 2004 Jkt 091193 PO 00000 Frm 00057 Fmt 6601 Sfmt 6601 D:\DOCS\91193.TXT SSC1 PsN: SSC1
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facturing was the key to any country’s success. The reason, he said,

is that we take relatively inexpensive natural resources and we add

value. It is the added value that drives the economy—not more

lawyers, not more stockbrokers, and not more lawmakers. When we

import products from outside our borders we are not really importing, we are really exporting the wealth in this country. And it does

not come back. When we produce our own products we are creating

wealth, and when we export them we are importing the wealth of

our trading partners. This is a very clear concept. We need to make

something to increase value, and we need to export to create

wealth in this country.

To begin to change the trade deficit and to begin to gain back

manufacturing jobs it will take all of the changes in taxation, technology, and training our leaders have the courage to enact. The

rest is up to us as manufacturers.

Thank you.

[The prepared statement of Mr. Pulkkinen follows:]

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Chair SNOWE. Oh, thank you Bruce.

Thom.

STATEMENT OF THOM LABRIE, PRESIDENT OF FORMER

AUBURN MACHINERY, INC., LEWISTON, MAINE

Mr. LABRIE. I want to thank you for the opportunity to speak

here, but since I only have 300 seconds to try to put together a

meaningful message, I’ll get moving along.

Auburn Machinery was started 27 years ago for the purpose of

developing, manufacturing and distributing equipment to the sawmill and the woodworking industries. In order to remain viable, we

aggressively developed new products continually and focused heavily on generating some new technologies to increase the products’

revenue and value—adding job opportunities out of every tree harvested but, specifically, out of already harvested forest resources.

Auburn was a small company, employed 20 people, paid aboveaverage wages, provided a comfortable and friendly small company

working environment, provided flexible hours to meet employees’

needs, provided excellent health insurance programs, contributed

about 25 percent or more to the 401K and retirement plan, made

financial contributions to our employees further education and really had little employee turnover in 27 years.

Unfortunately, this year we had to close the company down. A

lot of reasons for the company’s demise, but some of the contributing factors were: the recession; the immediate and long-term fallout of 9/11; the war with Iraq; postponed equipment buying decisions by nervous owners and managers; the high cost of doing business in Maine. We know Maine is the 50th worst State to start up

and run a business; and a problematic product liability system

which affects equipment manufacturers right between the eyeballs.

But when you get down to the main problem, Auburn Machinery

is a classical example of the trickle-down effect of the de-industrialization of America.

The closing down of wood processing operations all over the country leaving few potential customers for Auburn’s products and services. And simultaneously, through plant closing, dumping thousands of machines onto the market, through plant liquidation sales,

at $0.10 to $0.20 on the dollar.

The other half of it is, really, competing against well-funded, Chinese industries that use direct and indirect distributors to sell

‘‘Cheap Chinese Copies’’ (CCC) of our products, often, our own proprietary equipment.

Now, most of the rest of what I had written has been covered already, so I did a quick little rewrite. And getting down to some of

the needs, some of the changes that I think would help.

First, looking at entrepreneurs in general. They need access to

R&D funding, unquestionably, if we are going to drive industry forward. And we need better access to affordable investment capital.

There needs to be access to funding to develop merchandising programs to bring new products to the marketplace.

We need copy artist protection. Of the last trade shows we attended, the Chinese were all over our equipment. At the Atlanta

IWF show in 2002, within 10 minutes of unloading our equipment,

the Chinese were in our booth looking closely at our new products.

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At other shows, they distract us, they do all kinds of things to get

their people access our equipment. And in one case in Las Vegas,

they sent in American businesspeople to get all the information out

of us to give it back to them. We decided then we had to cut back

on trade shows to stop making it so easy for these copy artists to

get hands-on access to our products. Trade shows more and more

are working against new product developers in this country. So,

this is a battle that needs to be dealt with to help entrepreneurs.

We really need to enforce the existing anti-dumping rules and we

need to force a level playing field related to safety, health and environmental issues from offshore competitors.

On the Maine forest products industry side, this is where we

have been involved traditionally, and are more involved today than

ever. The industry in Maine, which is a critical natural resource

base industry for this State, needs the resources to unite this sector

into a single efficient entity. Right now it’s a very, very fragmented

industry, and I am using the word industry loosely. It needs the

resources to develop cutting edge products and develop programs

focused on value-added products. There needs to be created an aggressive merchandising program to promote Maine-made wood

products. It needs help to develop the ‘‘wood is good’’ message to

educate students and consumers about the true story about the economical and environmental benefits of wood—the environmental

value and benefits that wood provides as a manufacturing and

building material.

In the end, looking at small business, Auburn Machine was a 20-

employee company, but it provided the primary and secondary

woodworking, the de-construction and the recycling industries with

cutting edge technologies, in order to improve their viability and

environmental performance. Auburn’s proprietary equipment is

today being used from Canada to Chile, and from California to

around the globe to Siberia. Over the past few years, the company

has won numerous awards for its innovative technologies and proprietary wood recovery equipment. I am making this point to show

the potential broad-based effects of a small company in this country. It’s propriety wood recovery and value-added technology is currently being used by the Army Corps of Engineers to reduce their

volume of solid and hazardous waste materials by up to 90 percent

in the disposal of military buildings on closed bases around this

country—potentially saving the Federal Government hundreds of

millions of dollars in hazardous waste disposal fees and unknown

levels of hazardous landfill liability for generations to come.

Small companies create revolutionary changes. Consider the

ramifications of the first automobiles and planes that were being

developed in bicycle shops, and the computer being developed in a

garage in California.

In conclusion, what we get down to is this. We have to stop

studying and reviewing the issues that were discussed here today.

We know the reality. We’ve got to deal with it. We have to start

enforcing fair playing rules and we have to do it now. The problem

that we have is because of where we’ve allowed ourselves to go

through the de-industrialization process. We have less leverage

every single day to use a big stick. We’ve heard about the Chinese

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buying American debt. Imagine the leverage that that tool is on

our economy as that situation grows.

And in closing I will say, if I have one thing that I am the most

concerned about its not the painful economic and social consequences of de-industrialization as much as it is the national security issue. No country can remain secure and sovereign and no

economy can remain healthy and viable when they are forced to depend on foreigners, friends and foes alike, for food, clothing, parts

for cars, boats, trucks, computers, and most other goods that keep

our system functions and our defenses operational. We’ve put ourselves in an extremely dangerous situation, and the longer we

dance with it, the worse it’s going to get.

Thank you.

[The prepared statement of Mr. Labrie follows:]

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Chair SNOWE. Thank you. Thank you Thom. Well said. I am

sorry that you had such an unfortunate experience.

Mr. LABRIE. It’s the price of being in business.

Chair SNOWE. Yes. Well, we regret that. I understand what it

took for you to run the business with forces beyond your control.

LoLisa.

STATEMENT OF LOLISA BONNEY, CFO AND GENERAL

MANAGER, WINDEROSA GASKETS, DIXFIELD, MAINE

Ms. BONNEY. I don’t really think you need me here. Between

these two and your first panel, I think, really, you have a really

good perspective of the problems of small business. Thank you for

you efforts and thank you for your interest in this. I am kind of

looking at, in the last 20 years that I have been in small business—we are becoming like the spotted owl. And we don’t want to

become an endangered species. We need help.

I am General Manager of Winderosa Gaskets of Peru, Maine. We

manufacture small engine gaskets for snowmobiles, personal

watercraft, dirt bikes, ATVs, and lawn and garden equipment. And

we’re in what you might call a remote corner of a remote State, but

we call it the beautiful foothills of western mountains. I am responsible for distribution of all our products. I am not a professional

speaker.

Chair SNOWE. Oh, you are doing just fine.

Ms. BONNEY. Running a business is challenging enough, particularly when you are in remote locations in Maine.

The subject of foreign trade is near and dear to us, since about

45 percent of our total sales volume comes from exports, and that’s

a percentage that has held pretty constant for the past 4 or 5

years. The company was founded in 1982, and exports have been

a significant part of our distribution since about 1985.

We distribute to nearly 40 countries all over Europe, Australia,

New Zealand and New Guinea. One of our big growth markets is

the fact that, with our dirt bike line—and lot of foreign countries,

like in Europe, and a lot of these countries—like there are more

cars per household than there are people. It’s transportation. So

that’s a huge growth market for us. Our sales have grown since

1982 from about $50,000 to about $2 million, our annual sales

today.

Exporting has been such an essential component of our success

that we have been privileged to have received several awards. We

received the Small Business Exporters from the U.S. SBA in 2000,

and just last month we received the U.S. Department of Commerce

Export Achievement Award from Secretary Evans when he was visiting Maine last month.

I think we’ve demonstrated the potential for international trade

from such a small and relatively remote community as ours. But

our success on the global stage may have started coincidentally,

when two people from Sweden showed up at our door with white

suits and wanting to buy our products and couldn’t speak

English—because they tracked us down. Today we are very strongly committed to that export trade. We do whatever is required to

be successful with that concept. We participate in a variety of trade

shows to attract international buyers here in the States—in places

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like Cincinnati, Indianapolis and Louisville. Actually, one of my

partners is in Las Vegas right now working at a show. And abroad

in places like Cologne, Germany. We also work very well with the

Maine Trade Center in Portland and the Department of Commerce

that is situated there. It’s helped us a lot.

Being an efficient exporter means that we must first be as efficient as possible in our own production operations. As soon as we

moved to Peru about 7 years ago, from our Dixfield location where

we worked for 15 years. When we got moved into our facility, one

of the first things we did is—we got lined up with MEP and they

worked with us on a continuous-flow manufacturing program and

they helped us achieve our ISO 9001 Certification. And that has

been very beneficial too—not only running our company more efficiently, but getting more foreign sales that we’re looking for.

An essential part has been our commitment and growth of understanding of logistics management—a concept which is becoming increasingly important in domestic business as well. It is absolutely

vital for international success. Many smaller firms consider the

time and energy spent in logistics of efficient distribution may be

an additional cost, but we believe it is critical to our profitability.

Freight options from Peru are limited. Whoever Boise, which is

now Meade, and International Paper has for trucking, that’s who

we get. When they change, we have to change contracts, you know.

That’s just where we are. But with where we are and our customers so far-flung, we must really concentrate on the most costeffective means of delivering our goods to where they need to be,

when they need to be there.

In addition to the products we develop for the after market, we

are mindful of the fact that a good part of our gaskets are ultimately used on original equipment, so it’s going right into the original equipment—like in Bombardier, Ski–Doo, and Sea–Doo. We sell

original equipment to them, for example. So our role is that of a

sub-tier supplier in sometimes sophisticated and geographically

dispersed supply chains—makes it kind of difficult.

Ultimately, our business succeeds relative to the success of the

supply chains of which we are a part, so it is in our interests, as

well as those of our customers, that we do whatever we can to ensure the supply chain functions smoothly—and that, from the perspective of the end user, it is completely seamless and transparent.

Doing international business from Peru, Maine does present

some challenges and some expense that some competitors elsewhere around the world do not experience. We remain confident,

though, that to the extent we are playing on a relatively level playing field, we can compete effectively. We have not been able to

withstand specific challenges from less expensive offshore competitors over the years. Some years ago, the gasket market was flooded

with products from Italy, which proved after time in the field to

have been of poor quality, inferior materials, inadequately fabricated. It took years for the industry to comprehend the magnitude of this problem. And then it took additional time for those

poor-quality goods to be removed from the marketplace and for machines in which they had been installed to be retrofitted.

So a big measure of our confidence stems from our consistent history of being able to produce higher quality gaskets than those

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available from other sources. As of about 3 years ago, we lost our

market share in Singapore and Malaysia due to Chinese imports

that we can’t compete with.

I see I am running out of time.

One of our largest markets is Canada due to the snowmobile

business that we do and we have been pretty successful up there.

Some of our Canadian distributors’ orders for the pre-season were

quite soft this year—to the extent that I had to lay off two people

in July. And we just learned that, when some catalogues went out,

that they have begun buying cheaper gaskets from a manufacturer

in China. They’ve imported a line so that now we are facing it.

We are clearly not afraid to compete on the global stage. It’s

where we belong. We have demonstrated that, on a reasonably

level field, we can compete efficiently. And while we have not yet

experienced the pressures of offshore competition that have impacted other U.S. manufacturers, we need to take action now to

withstand threats to our market.

We need to preserve the ability to deliver superior products, to

be innovative and the cutting edge of the requirements of our specific markets.

We need access to infrastructure in this country that is supportive of manufacturing in general and seamless functioning of

complex supply chains. There seems to be a negative connotation

when people talk about industrial backing or infrastructure for industry.

You know, in the paper the other day, they were talking about

the jobs they would be supplying for the stem research for the

$90,000 pay. That’s great for the people that have those educations.

I have people working for me—they are the Beckys and the Kens

and the Caras that are the single moms that couldn’t make it cutting hair. You know, that’s the type of people we are employing and

giving good jobs and 80 percent of their health insurance. This is

the kind of job people don’t see. In school they are not teaching you

to go into manufacturing. They are saying, you know, be on a computer, you need to be in high-tech, you need to be doing stem research. Well, what about building things? People don’t build things

anymore. They don’t think that’s a career. You know, it’s scary.

You are seeing an attitude change.

We are grateful for all the opportunities afforded to us thus far

in our growth, and we are committed to continue doing world-class

business from Peru, Maine.

We appreciate the attention that Senator Snowe and others are

bringing to our situation. We’re confident that if government and

the private manufacturing sector work together to recognize and

address the realities of foreign competition, we will continue to provide good quality jobs in an area where they are all too scarce. We

don’t want to become the spotted owl.

Thank you for the opportunity to address your panel, and we are

ready to provide any insight and answer any questions that you

may have. Thank you.

[The prepared statement of Ms. Bonney follows:]

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Chair SNOWE. Thank you, LoLisa, very much. We appreciate

your testimony. Thank you.

Rod.

STATEMENT OF RODNEY P. RODRIGUE, PRESIDENT AND CEO,

MAINE MANUFACTURING EXTENSION PARTNERSHIP

Mr. RODRIGUE. Senator Snowe and members of your staff and

distinguished members of the panel.

My name is Rod Rodrigue and I am the President and Chief Executive Officer of the Maine Manufacturing Extension Partnership.

I appreciate the opportunity to speak to your panel on a subject

that you, Senator Snowe, have continually championed. My written

statement provides a report on the overall role of U.S. manufacturing and the many challenges is faces today. I think we are all

in agreement of that. I have also submitted a number of reports

that detail many of the problems and, hopefully, solutions along

with testimonies with several Maine manufacturers who have been

impacted by the China trade. The substantial barriers to manufacturing growth and development are prevalent not only here in

Maine but throughout the Nation. I am glad everyone used my

chart, there, I think, the one——

Chair SNOWE. Is that your chart?

Mr. RODRIGUE.——[continuing.] from the country—you could actually superimpose it just over that and I think it almost mirrors

that chart.

I would like, however, to focus my brief oral testimony on outlining to you, Senator Snowe, real-time achievable solutions that

can be quickly implemented. The timing issue that you mentioned

is absolutely crucial. If these folks are extremely successful, who

testified earlier, in the next year or 2 or 3, it will still be too late

for a lot of our manufacturers. We are losing them daily and we

need some real-time action, right now. So I applaud all the things

they are doing, but we need some real-time, short-term solutions.

These solutions are not simply ideas, but pilot programs that have

been completed and have proven track records. Although these

short-term solutions do not require major new Federal investments,

they do require a solid commitment to preserve existing programs

and a total dedication to refocus various programs into a single

unified initiative to assisting the U.S. manufacturing community.

We are very fortunate here in Maine, because we have the SBA

with Mary MacAleney, SBDC (Small Business Development Centers), MTI (Maine Technology Institute) and so forth, and we all

pull together. But, nationally, that’s what has to happen.

We also need to passionately embrace the realization that we are

a Nation of producers, and that a robust manufacturing community

is the fundamental key to full recovery and to strengthening our

national defense and Homeland Security.

We need to realize that we are facing an economic national crisis

in the manufacturing community that is devastating to our very

economic survival and to our very way of life.

If we do not succeed in reversing this trend, I believe the following quote from ‘‘Securing America’s Future: The Case for a

Strong Manufacturing Base’’—it’s a 2003 report prepared for the

Council of Manufacturing—will come to pass. And I quote, ‘‘If the

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U.S. manufacturing base continues to shrink at its present rate

and the critical mass is lost, the manufacturing innovation process

will shift to other global centers. Once that happens, a decline in

U.S. living standards in the future is virtually assured.’’

We must streamline transfer of technologies from the Federal

laboratories and universities system to small manufacturing enterprises. Assessing which technologies are relevant to their business

and producing second and third generation products is fundamental to maintaining manufacturing superiority. The Government

Accounting Office report submitted with this testimony suggests

that our Federal laboratory system is under-utilized in transferring

technologies to small manufacturing enterprises, even though these

labs are mandated to work directly with small manufacturing enterprises. Most of the services provided by the Federal laboratory

system cannot be accessed by small manufacturers because they

are unaffordable and mired in manufacturing bureaucracy and

legal paperwork. The Maine MEP has had considerable success enabling small manufacturing enterprises to draw down existing

technologies from the Federal laboratories on a real-time basis.

These were done within 6 to 9 months and had tremendous economic impact. Some of the companies are alive today because of

that transfer. We were, unfortunately, under budget constraints

and could not continue.

Attached to this testimony is a list of over 200 successful realtime technology transfer projects that utilize National Institute of

Standards and Technology data, and laboratories and universities.

This successful effort, we believe, could be used as a national model

and could be rolled out immediately.

We should strive to remove the barriers that limit small manufacturing enterprises access to Federal contracts and expand market opportunities.

We support the Administration’s action to appoint an Under Secretary of Commerce for Manufacturing with the mandate to reduce

the bureaucratic burden of these businesses and to refocus government assistance from a variety of sources directly to the manufacturing community. This action should quickly be followed by implementing the recommendations of the 2003 report on National Research Council titled, ‘‘Equipping Tomorrow’s Military Force.’’ We

want a piece of that $87 billion to keep these small businesses

alive, facilitate entry and strengthen small manufacturing enterprises into the defense and commercial supply chains. We need to

build supply chains that are strong, flexible and robust in order to

compete globally and protect small manufacturers from the predatory practices of foreign competition. Strength and flexibility in the

supply chains can only come by engaging large numbers of small

manufacturing and enterprises through teaming arrangements in

response to procurement opportunities. These same teaming arrangements were used in World War II by Kaiser and Knudsen in

building one ship a day when we had a national emergency. These

same practices are relevant today and should be redeveloped.

The whole program only talks about one thing and that is about

cutting through the red tape and getting it done. In the future,

supply chains will compete, not companies.

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Because of your support, Senator, we are about to launch an initiative with our New England Partners to enhance the Department

of Defense and Original Equipment Manufacturers access to New

England’s small manufacturing enterprises and provide these suppliers with expanded access to defense and commercial procurement. That will start within a month and that was due to your initiative and vision over a year ago. And we thank you for that.

In closing, we need to refocus the resources we have throughout

the Federal Government into one single program in support of

manufacturing. If we succeed, we will stabilize, reinvigorate and

rejuvenate the manufacturing base. America’s workers can compete. They respect free trade, but need fair trade. Senator Snowe,

you have been a consistent champion for small manufacturers and

for the MEP system and for that we remain extremely grateful.

Much of what we have been able to accomplish so far, and what

we are doing now, is directly attributable to you leadership and

your vision. That vision and leadership has never been more needed than right now. The men and women who go to work everyday

in our factories deserve the basic human dignity of being assured

of their rightful place in building wealth for their families, for their

State and for our Nation. And I thank you for having this session

and thank you for inviting me.

[The prepared statement of Mr. Rodrigue follows:]

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Chair SNOWE. Thank you, Rod. I appreciate it. Thank you for

coming.

Randy Cousineau.

STATEMENT OF RANDY COUSINEAU, OWNER AND PRESIDENT

OF COUSINEAU, INC., NORTH ANSON, MAINE

Mr. COUSINEAU. It looks like this chart—that we are here because we are losing jobs in Maine—and it looks like we’ve lost

18,000 jobs in the last 3 years, or 22 percent. That’s about 22 percent. And somewhere in 11 to 12 years, we’ll have no manufacturing jobs left. Zero. And I can’t speak for other manufacturing

things, but I can for lumber and dowels.

We are 70 miles, where we are located from the Canadian border—two Canadian borders, actually, because the Jackman/Armstrong and Coburn Gore—and they have different rules than we do.

They have no workman’s comp. They have no insurance. In our

small company it costs us $40,000 per month to have those two

things that we pay. They have power at three-and-a-half-cents a

kilowatt. Our power here in Maine is somewhere between 8 and 14

cents a kilowatt. Our power bill, in our company, is $22,000 a

month. If it was three-and-a-half cents, it would be $8,300.

They have a help. If you take a log up there and you produce it

into lumber, the government will help pay the labor force to

produce lumber for manufacturing jobs. They also have a machinery—if you take a piece of machinery, if a company makes a piece

of machinery and it doesn’t work properly or it can be improved,

you submit a form and the Canadian government will pay money

or will pay the rest of the money to help make that machinery improve so it does a better job.

There is no duty on our logs going into Canada, at all, or lumber

coming back out of Canada. And we, the Maine people in sawmills,

cannot work and buy logs for the same price as the Canadians do,

because they have so many advantages, more than we do.

Last Tuesday, our mill shut down at 2:30, because we ran out

of logs. And I went over to pick my son up, Joey, in Kingfield and

took him to the dentist. And it’s 18 miles from Kingfield to Farmington on Route 27 going to Coburn. And I met six tractor trailers

full of oak logs. And that’s about 35,000 wood feet and that would

have lasted our crew, or our mill, for ten hours to saw. Obviously,

it was on my mind, but that’s not uncommon.

Every time you travel that route or the Jackman route, you’ll see

hardwood logs going into Canada. So our Maine logs are going to

Canada. We’re not providing any jobs, or less jobs, because we have

not the logs to produce the lumber.

We are now, currently, down to 4 days a week because we are

low on logs. We are getting them as far as Massachusetts. We’re

not the only mill. There are two other mills right next to us, or

right within 50 miles, that are down to 4 days a week also. And

it sounds like I am against Canadians. We’ve done a lot of business

with Canada and with a name like Cousineau you can’t be against

Canadians. But we just need to get—either we need to do what

they do or they need to do what we do.

And then the other thing that won’t be so easy to cure is the

Asian market or Russia. We have a company in California, our bigVerDate 03-FEB-2003 11:42 Jul 07, 2004 Jkt 091193 PO 00000 Frm 00100 Fmt 6601 Sfmt 6601 D:\DOCS\91193.TXT SSC1 PsN: SSC1
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gest company in California, that was buying two loads of birch a

year—a week—off of us last year, all through 2002 and half of

2003. And now they are getting the Russian birch, balsam birch,

from Russia and they are bringing two loads a week in over there.

And we are not shipping any.

The Russians provide the timber for nothing for the sawmills to have jobs. They work at $4 a day, approximately $20 a week. Our

labor force, with benefits, is averaging $648 a week and, obviously,

he can buy it for like half-price than what we can sell it to him

for.

Thank you.

[The prepared statement of Mr. Cousineau follows:]

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Chair SNOWE. Thank you, Randy, very much, for telling your

story. And I think that listening to all of you so far dramatically

illustrates the challenges that you face on a daily basis as small

businesses, just wanting to do your job and keep your people employed in doing what you set out to do when you started your business or to continue the business. That’s why I appreciate your

being here today and sharing your stories.

Allen Cairns.

STATEMENT OF ALLEN CAIRNS, MANAGING PARTNER,

CREATIVE MOLD COMPANY, AUBURN, MAINE

Mr. CAIRNS. Thank you, Senator Snowe, for the opportunity to

speak today and thank you for your grasp of the situation and your

enthusiasm for searching for solutions.

Our firm, Creative Mold Company, manufactures custom-made

molds, primarily for the footwear in military industries but, also,

for automotive, medical and other industries. Basically, we make

the molds for final finished products which are made out of rubber

and plastic. We are, effectively, a domestic production company

with domestic customers. Probably 90 percent of our production

stays within the United States. So, for us, foreign trade is sending

a completed mold to Vermont. We have several customers who

work with us making military boots. We provide the molds for

those companies. We are also working providing molds for a product that will be used by military personnel in the field—and for us

that illustrates a very, very important point which is, if we lose domestic manufacturing capacity, we give up a great deal of domestic

security by not being able to produce vital and needed goods at the

time that we may need them. And so, for that reason, I think, we

need to, as a country, make a decision that we have to have a vital

domestic manufacturing capacity. Whether they are in all industries or certain industries is certainly open to question.

There is not a lot that I can add that hasn’t already been said

today, but I’d like to put some of our comments or some of our observations, perhaps, in a larger perspective which, probably, if anything, illustrates why it’s going to be difficult to solve the problem.

Generally speaking, I think we all understand that we are in a capitalist society and, given that, to pursue a profit is important for

us. All of us on this panel are owners of small businesses and

maintaining those as vital entities means that we have to be profitmaking enterprises. So the pursuit of profit is a natural and fully

expected dynamic and really not a bad thing in and of itself. But

what we find is the market has a life of its own and right now we

are finding what the implications of the market are. When the dynamics are set in play for profit-making to be maximized, we have

to look for the lowest cost commodities, lowest prices and so forth

in terms of how we can manufacture.

What we’ve seen over the last few years has been probably the

final wringing out of the efficiencies in our country of a great deal

of—certainly using machines and industrialization, but also computers, telecommunications and so forth. And all those capacities

have been exported. They are no longer a competitive advantage of

ours. They have been expropriated and used and thoroughly integrated. And, actually, there can be an argument that the newer the

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market, the more efficient they are going to be because they don’t

have the old baggage to overcome. So, effectively, we are reaching

a diminishing effect of using computers and other technologies as

competitive factors. And so given that, I think, what we are finding

is labor becomes one of the last drivers of how a company may be

profitable, and given that, you have to go where the labor is cheapest—and where the labor is cheapest is China, India, South Korea,

Brazil and other countries as well.

So, unfortunately, what we find is there are two fundamental

paths or dynamics that we are going to look at or that we need to

focus on. One is cheap labor and the second is the opening up of

very large new markets. Many of those are more important for

large manufacturers than they are for small manufacturers. And,

unfortunately, what we may find out is, depending upon whose perspective you take, some of these dynamics are positive and some

of these dynamics are extremely negative. And you have to look at

it on a short-term basis and a longer-term basis.

One of my concerns is what do we mean when we talk about a

level playing field. That’s a term that is bandied about and included in every conversation of international trade. I am not sure

we all agree on what that means. A level playing field certainly

means playing by the rules of the World Trade Organization and

other requirements that our countries have agreed to and must follow. But when all those things are fully implemented and we have

achieved a level playing field, how do we compete when the minimum monthly wage in Beijing is $51 U.S. per month, and Shanghai is $61, and Quang Shu, which is a major manufacturing area

is $62 per month. The average monthly wages for low skilled employees in China are $100 per month U.S., factory supervisors are

$187, clerical staff $185 to $200 U.S., junior executives with university degrees, $187 to $250, and mid- and high-level executive

managers, $437 to $750 U.S.—quite as dramatic.

There is a definite, well-educated professional class of engineers,

architects, accountants, and so forth, who will work for roughly

1/5 what U.S. salary levels are. How do you compete against this

when labor becomes an important aspect of the finished product,

and in my business that is exactly what is happening? We can and

have computer, numerical machines which can operate by themselves for hours at a time, cutting pieces of aluminum. But the flip

side of it is—we still need to pay American workers living wages.

So, to finalize in terms of my observations, we really need to look

at the differences and the effects of large companies versus small

companies, because I believe the dynamics are entirely different—

as well as the long-term effects on this country versus the shortterm effects. The short-term effects are the importation of lowerpriced goods. The long-term effects are the transmission of our

technology and manufacturing infrastructure to another country.

We need to look at it from a point of view from consumers, point

of view from shareholders of companies, and as employees—and

then, finally, as citizens of the United States where our security interests may be at risk. And we all wear different hats at different

times.

[The prepared statement of Mr. Cairns follows:]

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Chair SNOWE. Thank you very much, Allen.

John Wentworth.

STATEMENT OF JOHN WENTWORTH, PRESIDENT, MOOSEHEAD

MANUFACTURING, MONSON, MAINE

Mr. WENTWORTH. Thank you very much, Senator Snowe.

My name is John Wentworth and I am the President of

Moosehead Manufacturing Company, a solid hardwood, residential,

case goods manufacturer headquartered in Monson, Maine. My primary hat today is of President of Moosehead, but I left off my bio

that I also sit on the Board of Directors of the Maine Wood Products Association, which represents 200 wood products manufacturers in the State of Maine, and the American Furniture Manufacturers Association, of which I don’t dare guess how many today remain.

I would like to thank you for this opportunity on behalf of the

200 working men and women who work at Moosehead on a daily

basis.

Moosehead is a nationally-recognized brand known for its high

value and quality. We produce our products in two facilities, located in Monson and Dover-Foxcroft, and use select hardwood logs

harvested primarily from our own neck of the woods. We take great

pride in the fact that we use the entire log. Our plants and dry

kilns are heated with the bark and sawdust produced in our own

operations. No fossil fuels are used for heat or processing.

Moosehead goes to great lengths to ensure that our facilities are

safe and pleasant workplaces, with a safety record admired by

many in the wood products industry. I am proud of the craftspeople

at Moosehead.

I was asked to share with the Committee some of the problems

facing Moosehead Manufacturing and other small business manufacturers. While the challenges of running a natural resource-based

manufacturing company may be numerous, there are three areas

that I would like to highlight. They are: The costs, intended and

unintended, of government rules and regulations; The cost of providing health care to our employees; and the effect of cheap imported furniture on the U.S. furniture industry.

When it comes to regulations, small companies find it extremely

difficult to allocate expensive human and financial resources on

new rules and regulations. On top of complying with a myriad of

existing regulations on the State and Federal level, including

OSHA, EPA, and the Consumer Product Safety Commission, for example, the industry is facing new regulations on the emission

standards on our wood-fired boilers. As previously mentioned,

many wood product manufacturers operate wood-fired boilers that

burn scrap wood left over from the production process to heat the

facilities and prepare kiln-dried hardwood lumber for the production operations. If unrealistic or excessive emission rules are imposed on our industry, the American Furniture Manufacturers Association (AFMA) estimates the cost would be between $500,000

and $1,000,000 per boiler—or we would be forced to pay to have

these materials sent to a landfill and buy fuel oil for heat and processing—which, in my opinion, would have little environmental

value.

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The second issue I would like to share is the out-of-control cost

of providing health care. The owners and managers of Moosehead

Manufacturing Company believe that the health care insurance is

the most important benefit we provide our people. We offer company-sponsored health insurance to our employees and their families for a very low weekly premium. Because we have a self-funded

plan it is in our best interest to help our employees remain as

healthy as possible. A company nurse, employee assistance personnel, wellness programs, exercise programs, smoking cessation

aids, free health screening, and even premium reimbursements for

healthy behavior and lifestyle changes are a part of our total

health care program. Despite these efforts, costs continue to rise at

an alarming rate. Many smaller companies cannot afford to offer

this very important benefit. Senate Bill 545, which I believe you

sponsored, Senator Snowe, is a big help for many of the smaller

Maine wood products associates and hopefully this will pass quickly. As a side note, in 2002 and in 2003 Moosehead will spend half

as much for health care as it does for all the wood it takes to build

its furniture.

These two issues that I just touched on very briefly are issues

that Moosehead, along with all our domestic partners, have to deal

with. Manufacturers in Vermont, manufacturers in North Carolina,

manufacturers in Michigan, all have to deal with health care and

all have to deal with regulations. Undoubtedly, though, the most

significant factor affecting the industry is imports from foreign

countries where you do not have to deal with the same regulations

that we do. And this is where, in my opinion, the greatest danger

arises.

The combination of $2-a-day labor, lower environmental standards, and the manipulation of currency values has made China the

dominant producer of wood furniture in the world. Approximately

half of all the case goods sold in the United States today are imported. And 40 percent of those are of Chinese origin.

I cannot stand, or in this case sit, before you today and say that

all furniture manufacturers are in agreement on the nature of the

problem or the appropriate solutions. Among the members of the

American Furniture Manufacturers Association, there is great diversity in the opinion about sourcing overseas. Many companies

have closed domestic furniture factories and are themselves buying

product from the Pacific Rim countries. This is not something that

they enjoy doing, but is something that simply is done to keep their

companies viable and to preserve as much of their domestic operations as they can. There are no easy answers to this situation. It

is one that has played out in other industries, such as textiles and

shoes.

I believe one thing we can all agree on—that foreign producers

should adhere to the international laws and trading regulations.

Below cost selling—i.e., dumping—does not represent free or fair

trade. Moosehead is one of 31 companies that make up the American Furniture Manufacturers Committee for Legal Trade. We are

petitioning the International Trade Commission and the U.S. Department of Commerce to determine if China is dumping bedroom

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cates that residential wood furniture from China is being dumped

into the United States.

I would like to ask that the International Trade Commission and

the International Trade Association be properly equipped, financially and otherwise, to administer and enforce the Nation’s antidumping laws and provide relief to domestic industries that have

been injured by unfair trading practices. I also await the Bush Administration’s recommendations for strengthening domestic manufacturing.

On behalf of Moosehead, the Maine Wood Products Association,

and the American Manufacturers Association I thank you for the

opportunity to address the Committee.

[The prepared statement of Mr. Wentworth follows:]

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Chair SNOWE. Thank you, John. Has this petition been filed?

Mr. WENTWORTH. It’s in the process of being filed.

Chair SNOWE. Okay.

Mr. WENTWORTH. And by the end of this month, it should be

filed. It should be filed by the end of October.

Chair SNOWE. Okay. Thanks.

Bernard Featherman.

STATEMENT OF BERNARD FEATHERMAN, CHAIRMAN, BIDDEFORD-SACO CHAMBER OF COMMERCE AND INDUSTRY, AND

PRESIDENT OF SOUTHLAND STEEL CORPORATION, BIDDEFORD-SACO, MAINE

Mr. FEATHERMAN. Senator Snowe, distinguished presenters and

guests.

My name is Bernard Featherman. I am a past president of a

family-owned, small business manufacturer of steel storage equipment products. As an entrepreneur, I was inducted as a lifetime

member of the Institute of American Entrepreneurs in 1990. I reside in Maine with my wife, Sandra. I am here today as the Chair

of the Manufacturing and Industry Group of Biddeford-Saco Chamber of Commerce, representing our small manufacturers.

Let me say Maine is noted for its pristine air, clean lakes, wonderful forestry and fine resorts. It has a low cost-of-living, amplypriced housing, fine educational institutions, and the quality of life

opportunities to induce entrepreneurs and small manufacturers to

locate here.

The question I am most asked is, ‘‘How do you find business?’’

Well, I am not quite sure how to respond. In one sense, good. Another, improving. Yet, with cautious optimism, we are not out of

the woods, so to speak. Small manufacturers were down almost 40

percent or more in sales volume in 2001. The last 12 to 24 months

saw a collapse of the price structures as a result of a customerdriven market, of which we still find today.

Statistically, a non-profit small business advocacy group in

Washington found Maine to be ranked 48th lowest amongst the

States with the worst small business policy climate. Most small

businesses in Maine find this to be true. Why is Maine so unfriendly to small businesses? Many existing businesses feel the

need for a more business-friendly climate by our local politicians.

It is troubling to hear the impressions stated by a majority of businessmen and women, both from small and large businesses in other

fields locally, who have expressed similar feelings.

Local municipalities and the State government in Maine impose

a high tax burden on small businesses and entrepreneurs, such as

personal income and tax rates, State and local sales taxes, gross receipts and excise taxes, high electric utility costs, and increased

health care costs. Even unemployment taxes are out of whack. Perhaps this unfriendly business atmosphere is unwarranted, but the

facts suggest otherwise.

Unfair imports continue to erode our manufacturing base. It is

estimated by year 2015 the total manufacturers in the U.S.A. will

drop to 10 percent of all kinds of businesses.

Here are some of the important concerns affecting small manufacturers in our area of Maine. And I’ll go over them because of

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time: Federal Grants; Health Care Issues; Federal Liability Reform; Creative Financing and Capital Assistance; A National Energy Policy; An International Trade Policy; and IRS Tax Revisions.

And I’ll go through these as quickly as possible.

The Federal Grants are needed to train the untrained in their

workplace employment, and it has to be increased. Present employees need to be upgraded.

We need continuing education in technical schools and colleges in

order to upgrade our students into higher skilled jobs through

training grants. We can retool older workers or upgrade them into

higher paying jobs, or into their own entrepreneurial small businesses. New jobs can be created. We should encourage entrepreneurial education. As a side note, Maine graduates one of the highest percentage of high school students of any State, but over 60

percent of those who go on to college out-of-state do not return to

Maine, because they have no decent paying jobs to come back to.

Small manufacturing jobs may be the answer.

On health care issues, the costs are affecting small manufacturers’ survival. One solution is to have small manufacturers pool together co-op health plan buying groups. Federal laws could make

it mandatory for States like Maine to open up its market to all insurance companies, rather than limiting only to a few. Cost continues to rise annually and some of my colleagues here have mentioned that it’s gone up. It’s gone up as high as 25 to 40 percent.

Most small manufacturers net between 2 to 5 percent if they are

lucky, and these costs wipe out most it, if not all of it.

Federal liability reform is needed to protect small manufacturers

against frivolous lawsuits by promoting legislation for liability reform. A cap of $250,000 should be set on punitive damages, that’s

non-economic damages, in civil cases against small manufacturers.

Creative financing and capital assistance programs are needed

for the exceptional cases involving small manufacturers. I have

here something that Arundel Machine Tool Co. sent me just this

past week.

‘‘We need to get ISO certified by the first quarter of 2004 to allow our company

to grow another $500,000 or more in sales. This would add another four to six employees; therefore, we’d take four to six people off the unemployment rolls. The cost

to get ISO certified is high enough that we cannot afford to drop $15,000 right now

simply due to cash flow reasons. What is offered by the State or local government

to cover such things that, in turn, will end up helping the State in the long run?

We’d have six more people paying income taxes, buying from more local businesses

and so forth.’’

That’s very typical and very good, I think, and really gets to the

point.

On the national energy problem—we have to set up a national

energy policy so that States like Maine can be more competitive

with lower utility costs. As my colleagues said, that is a very important point for small manufacturers. Again, maybe we could set

up co-op buying groups as incentives to induce small manufacturers to invest in energy-saving equipment and, also, buy additional

equipment.

An international trade policy to permit American-made goods to

compete with foreign-made goods imported to the United States

from countries who are paying pennies a day to their work forces

with no environmental policies in force. I think we have to do

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something about that. Far Eastern countries, especially China,

which has been mentioned so many times, are driven by a low margin business approach to our U.S.A.-made products. We must do

something about this.

On IRS tax revisions, we need to encourage investments and jobs

creation. We have between 70–80,000 self-employed people in

Maine. Manufacturing jobs could be increased through entrepreneurship. Restructuring the Federal tax system.

I have other things to say, but I think I have tried to get the

points across within a limited time.

As small businesses, most of us fill a narrow niche in order to

survive and grow. We determine the products to make, the customers to sell. We generally are low labor-intensive operations, low

volume. We reduce costs rather than price reduce. Our strength is

in people power and above all, hard work. We in Maine are the essence of the American way of life. We dare to dream and innovate

in our own way.

I want to thank you again, Senator Snowe. I want you to know

in the 1980s, I went to Washington to an oversight committee and

presented testimony so that we could have a Senate small business

committee. I am very pleased that it is in very capable hands.

Thank you.

[The prepared statement of Mr. Featherman follows:]

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Chair SNOWE. Thank you. Thank you for your vision.

The fact is, small business plays a pivotal role in our manufacturing industry. Try to convey that to Congress. That is one of the

issues I recently discusses here in Maine. I was in Bangor on Tuesday to celebrate the 50th anniversary of the Small Business Administration. During a roundtable, the question came up, why is it

so hard, if small business plays such a role in our economy—it creates three-quarters of all the net new jobs in America—why isn’t

that conveyed in Congress? So often, the Small Business Administration is targeted either for extinction or for serious cutbacks. It

is amazing, because as I have looked at these programs, now as the

new Chair of the Small Business Committee, I am really astounded

at the relationship that exists between the investments made in

these programs and the exponential benefits that result from those

investments in job creation. It’s very impressive. We can maximize

the investments that we make in small businesses through programs like the 7(a), and the 504 Loan Program, which yields multiple benefits in job creation, because small businesses are the job

creators. That’s what is happening in America. It’s true, obviously,

here in Maine. We know that. But it’s also true nationally. It

amazes me that the contradictions exist, because a lot of people

don’t realize and appreciate how important these programs and the

Small Business Administration is. It will grow even more crucial,

and should be elevated and profiled, because everything revolves

around small business one way or the other. That’s why I appreciate the efforts that you all made to be here today.

Speaking of job creators, I would like to say that Bernard

Featherman’s wife, Sandra Featherman, is President of the University of New England and has done a dynamite job in her leadership

on behalf of that university. It’s so important to Maine. She’s done

an outstanding job there.

Mr. FEATHERMAN. Thank you very much, Senator.

Chair SNOWE. Give her my very best.

I want to thank all of you for your testimony. It really illustrated

a broad array of problems and that ultimately seem to come back

to many of the same issues. And, I would like to know several

things.

First of all, which programs have you utilized in the past? Several of you mentioned the Maine Manufacturing Extension Partnership, which is chaired by Rod Rodrigue, who has done an excellent job, as I was saying earlier.

Bruce, you mentioned the MEP and I attributed it to Rodney,

when you said that there is so much of a fight over the $100-million program, and yet it produces so much in the way of benefits.

Do you benefit from the MEP? How many others have used the

MEP? You did LoLisa, Thom. And so you obviously found it valuable. Did it help get you started, or with connections, did it provide

you technical assistance?

Mr. LABRIE. I have all of the above to answer the question.

Chair SNOWE. All of the above. Okay.

Ms. BONNEY. Taking those grants——

Mr. LABRIE. As a matter of fact, I have an appointment to meet

with some of those folks right after this meeting this morning to

further our efforts and getting better at what we do.

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Chair SNOWE. Oh great. That is extremely important. The MEP’s

value is something I have always believed in, but it’s important to

hear, firsthand, about the kind of benefits it provides for you to get

started, or continue, or to expand and enhance.

Do any of you use small business programs through the Small

Business Administration?

Mr. FEATHERMAN. We’ve used them.

Chair SNOWE. You’ve used them, Bernard.

Mr. FEATHERMAN. We’ve used, also, International Trade, and

we’ve gone to universities and gotten business plans, set up on how

to export. And we set up a trading house in the early 1990s. Which

was very successful because of their help.

Mr. RODRIGUE. We take a lot of credit for all the work we do. As

you know, in this kind of program you have to take all the credit

you can. But a lot of the programs that we’ve completed, we

worked closely with SBA, SBDC. They’ve given us leads. We’ve

worked with them and brought them in, so that program is being

used very heavily in Maine with small manufacturers.

Chair SNOWE. Well, what interests me here, is that although

there are a vast number of SBA programs, even on the trade front,

it is interesting that with the exception of Bernard, no one here has

used those programs, I don’t know, maybe they wouldn’t have

worked for you.

I have discovered this, not only in this State, but around the

country. We have to do a better job in conveying what these programs are all about and how useful they could ultimately be for

many small business owners. So we’re going to do a better job on

that. The SBA Administrator was recently supposed to be in

Maine, but couldn’t attend. The deputy, who is attending in his

stead, and I spoke about how we can elevate the SBA’s profile. Not

only the profile of the agency, but also of the programs that come

within its jurisdiction that are really invaluable. To that point I see

two persons in the background that are important to Maine small

businesses. Jeff Butland, the Regional Director for the Small Business Administration, who is based in Boston, and previously served

Maine as its former President of the Senate. And Mary MacAleney,

SBA’s District Director, located in Augusta.

So, again, there are a lot of programs out there, ust put that in

the back of your mind, because there may be something that we

can do in that regard that could be a value to you and what you

are trying to do within your own businesses.

Bruce and, then, Thom.

Mr. PULKKINEN. I would like to comment on that. I think that,

and I am very much in touch with what’s going on with MEP programs and NAM and Small Business, and I think it’s the average

manufacturer, unfortunately, does not know what some of those

programs are that are out there. Including myself. The SBA programs, the ones that I am most familiar with, are help in guarantees for finance and things like that. And since our company has

not had a need for that since the early 1990s, I have not been involved in that. But, I think, one of the important differences—that

the MEP program, for example, is out in the street and is out going

to the businesses. They are going in through the door of the business. And as a businessperson, you are sort of busy just trying to

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get everything done every day, and you don’t have the time to lift

your head up and see what’s around.

And that’s the difference. It’s a partnership between all of those

organizations and somebody that’s a lead person going in there,

whether it’s an MEP organization in some State or it might be the

SBA organization in the State. But you need to get out and see the

businesses.

Chair SNOWE. You know, that’s exactly——

Mr. PULKKINEN. It’s the only way it works.

Chair SNOWE. That’s an excellent observation—and that’s something we realized, too. Obviously you’ve done that, Rod, and that’s

something that we certainly need to work on. I’ll convey that to the

Administrator because it’s getting the word out. You’re right. You

don’t have time to go searching for programs and you have to meet

the commitments that already are a result of State and Federal

regulation. You just don’t have time. That’s exactly correct. And

we’ve got to change that. There are Small Business Development

Centers and Women’s Business Centers. There’s technical assistance that they can provide you. For instance, loan guarantees for

purchases of real estate, machinery, and a broad array of programs

that might fit something that you are trying to do at that moment

in time.

Also, for technical assistance with trade, there are U.S. Exports

Assistance Centers all over the country, like the regional one in

Boston, that provide all kinds of technical assistance. Promoting

our resources is something we need to do a better job with. I am

going to convey that to the Administration, because this is what I

have learned in traveling in Maine, and getting input from national

small business owners, too. Many people are not aware of what’s

out there. Yes.

Mr. PULKKINEN. Senator Snowe, I don’t want to give you more

business to work on, but you and your capable staff could look into

the idea of setting up a resource booklet from the Senate Small

Business Committee that could be distributed out. And those of us

in industry, and many of the people that I represent, do not know

where to go. And that would be wonderful if we could get a resource book on that, of all the departments that would help us.

Chair SNOWE. Right. I have a pamphlet, but I don’t know if it’s

all-inclusive enough. It’s on the table. But I agree with you.

We have to bring the SBA to you. That’s the bottom line. And

that’s the message I have heard almost universally. That’s why I

was interested in knowing.

Yes, Thom.

Could it have helped you in anyway?

Mr. LABRIE. Not really. What I did want to say was, is that

Annie, Pete and Rod have been very supportive of some of the creative things that we’ve done in the past, but also, MTI has been

an excellent program.

Chair SNOWE. The Institute. Okay.

Mr. LABRIE. Maine Technology Institute, with the State of

Maine, been very, very helpful and really looking for new and innovative ideas of support, so worth putting them at the front end,

also.

Mr. RODRIGUE. Senator.

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Chair SNOWE. Yes, Rod.

Mr. RODRIGUE. The short-term issue for us, however, is daily.

Even though we have these great programs, we are facing a very,

very crucial, critical, acute problem over the next 18-24 months.

Chair SNOWE. Absolutely.

Mr. RODRIGUE. One of the things that we have, I don’t want to

say——

Chair SNOWE. No. That’s going to be my next question. Go ahead.

Mr. RODRIGUE. I don’t want say it’s a fundamental flaw in our

approach, but to some degree it is. Everything that we’ve talked

about is cutting the expenses for the manufacturers. Let’s cut the

taxes. Let’s try to cut this. Business is built up two ways: revenue

and expenses. We are really trying to make them leaner and faster

and better and all the things that we do, and that’s in many, many

programs. We have to drive the revenue for the manufacturers.

They are so busy getting their widgets out the door they can’t go

after new marketplaces. There are marketplaces out there.

Chair SNOWE. I agree.

Mr. RODRIGUE. If there isn’t one mill in this State or in this

country, if we could have doubled the sales of a very small manufacturer, and I don’t mean big numbers, $500,000 a year-

$1,000,000 a year, we would have a thousand manufacturers, and

now they are gone. They are now extinct. This is an irreversible

exit that is happening daily and we need to drive the upper side,

the revenue side. We are the largest buyers of everything in the

world, $355 billion in defense alone, and we have a hard time. If

you can make a titanium ball valve today with all of the right

qualities and so forth, it’ll take you 2 years to sell it to the Navy—

and they’ll buy it at twice the price from Sweden. That is some of

the things that we really have to address and get these folks into

the supply chains. And what we need to do that is raw political

power.

Chair SNOWE. You mentioned the fact that the universities and

Federal laboratories are mandated to work with and include smalland medium-sized enterprises, and that’s not happening.

Mr. RODRIGUE. That’s not happening.

Chair SNOWE. Now whose responsibility would that be?

Mr. RODRIGUE. Well, I think the bureaucracy that’s set up, they

will work with you, but it takes you a year-and-a-half to get——

Chair SNOWE. Okay. So which laboratories, you mean whichever

department they are in?

Mr. RODRIGUE. For example, there are 714 labs in this country.

I think the grand-daddy of them all is the National Institute of

Standards and Technology. But at each one of the them, you have

to go in, you have to apply, you have to do—even if you have the

money to pay for it, and in a lot of cases you don’t.

We did a pilot program and Maine was awarded the pilot. And

it worked so well because we didn’t have to go through all the bureaucracy, we just went in and found, and we did it—Kenway Corporation is in existence today, I think, because of what we did. Cyr

Scientific has taken advantage of it. Embed Tech is still here today

and, really, with brand new marketplace, we got them the technology. I don’t like to use the word technology transfer, because it’s

an AE pipeline. We need technology extension, which is a 6-month

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pipeline. And I believe that the pilot program, and I have supplied

your staff with it, should be done and put [inaudible] I think Dr.

[inaudible] at National Institute of Standards and Technology could

go ahead. I don’t like to throw money at, just say, throw money at

it. But I think if we refocus what we already have, Senator, I think

we could be very successful.

Chair SNOWE. Well, I would agree, and we have to figure out

what we need to do in order to accomplish that. I think that’s exactly right. We must change the mindset of the Federal bureaucracy. We have found that with contracting and procurement, the

barriers exist. Particularly harmed are small businesses. The Government’s doors get slammed and we have to re-open them. The

Administrator of the SBA and I are committed to doing that. But

right now, focusing on these manufacturing issues is what’s going

to work best.

And obviously, China is an issue. Most of you discussed China,

right? Could I say all of you? Randy, you dealt with a China problem? Yes. All of you? Yes. All of you?

Mr. LABRIE. I have sold to China, but I have sold to Canada, and

I have [inaudible] overnight they raised the tariff on the product

I was making 50 percent. So I had to come in 3 percent higher than

their manufacturer for prices of the same goods. So what I did

was—I went to my customers and wrote the duty drawback, so

they could get their money back when they shipped the goods back

to the United States. And I got them connected with American customers. So, that’s one way we can do it. But I don’t know how we

can do it in China.

Chair SNOWE. So all of you faced problems with China?

Mr. LABRIE. Yes.

Chair SNOWE. And then obviously, Canada and some other countries. LoLisa, you were talking about——

Ms. BONNEY. Italy.

Chair SNOWE. Right. So how much in Eastern Europe? Was that

your primary competitor? Or competitors?

Mr. LABRIE. No. But let me just make a point. Over the last few

years we literally stopped exporting, because the export of our technology sped up the process of them copying our technology. If we

sent it to Asia, it went to China. If we sent it to Europe, it went

to Eastern Europe. So this has been part of the problem.

Chair SNOWE. Yes. Absolutely. And that’s a huge part of the

problem. And what you were talking about, LoLisa, was your gaskets. So one of your former customers in Canada is buying them

from Malaysia, did you say?

Ms. BONNEY. China.

Chair SNOWE. China. And so what is the difference in price

would you say?

Ms. BONNEY. Probably 30 percent.

Chair SNOWE. 30 percent.

Ms. BONNEY. But you are talking about inferior materials that

they are bringing into the country. Words like asbestos, that

shouldn’t even be imported. They don’t seem to control those imports. That’s the trouble we had with Italy. They brought in a lot

of stuff like that. And who’s controlling that?

Chair SNOWE. Okay.

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Randy, I wanted to mention to you, and I was going to ask Grant

while he’s here. Grant, if there’s a shortage of log supply, can’t they

invoke export controls on that?

Mr. COUSINEAU. Yes.

Chair SNOWE. And I was going to ask Grant, too, since both of

you are here.

Is that something you thought about, Randy? I mean at all? Has

anybody ever mentioned that to you?

Mr. COUSINEAU. To do export——

Chair SNOWE. No. To impose export controls. If logs are in a

short supply—are they in a short supply?

Mr. COUSINEAU. Yes.

Chair SNOWE. Yes.

Mr. COUSINEAU. And if they weren’t going to Canada, there

would be plenty of logs being cut in the State of Maine.

Chair SNOWE. Yes.

Mr. COUSINEAU. But they are.

Chair SNOWE. So then, Grant, I was asking the Secretary—is it

possible to invoke export controls in this instance?

Mr. ALDONAS. Getting back to your experience on the House side

when you worked on a lot of export provisions, there is a provision

in the Export Administration Act that allows for the control of logs

that are in short supply, and you need to come in and make a case.

Essentially that is within the Export Administration side of the

Commerce Department.

Chair SNOWE. Has anybody made that case, Randy, that you

know of?

Mr. COUSINEAU. I don’t believe it has. No.

Chair SNOWE. Well, let’s explore that issue with you further.

Okay. I’ll have my staff be in touch and explore that issue with you

further, but, obviously, it’s indicative of the nature of the problems

that you are dealing with in any event. Now, I would like to know,

to wrap this up, if Congress and the President had five things or

three things, the top three things that we could get done now,

something that is critically important, what would it be? What do

you think we ought to focus on?

Thom.

Mr. LABRIE. I don’t know if it necessarily fits the President or the

Congress. But if you were to ask me what I think would be the best

return of investment for helping Maine’s industries or manufacturers, especially the natural resource-based industries—these industries are very strong in the manufacturing area, they are extremely

weak in the merchandising area. If there is one place that money

should be spent, it’s to promote Maine-made products, just like

they do with tourism. There is a tremendous return on investment

on those dollars. It’s an area where if the industry can bring orders

and demand to the table for Maine-made products, we can create

jobs.

But when it comes to the industry developing new products and

having to bring them to market, they have no clue in general how

to do it and that’s where it stops. So any kind of promotion generating demand for Maine-made products will get tremendous return

on investment on those dollars.

Chair SNOWE. Okay. Thanks.

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Bruce.

Mr. PULKKINEN. I think I’d go along with that whole-heartedly.

I think our company is very good at what we do. We are probably

one of the best at what we do, and I am proud of what we do as

a company. But for us, the resources to go out and develop new

markets, even within the United States, or outside the United

States, it’s impossible for us to do. We don’t have the funds available. We don’t have the personnel available, at times, and so we’re

looking to groups, like Rod’s group, to put us in touch with all the

different folks that are out there. A little piece here, a little piece

there, help with the marketing side here, help with getting into the

government contracting side, or the supply chain side over here. A

little piece of help inside our plant on how do we get a little better

at what we’re doing, whether it is packaging or what-have-you.

It’s being able to go to all those sources and get better at what

we do so that we can find that market, identify that market and

get out to that market. I have no doubt—I have a bank that’s 100

percent behind me. Financing has not been my issue. It has been

for many companies. It’s really getting help to that marketplace. I

know it helped the company tremendously over the next few years.

Chair SNOWE. And what would you want, since Secretary

Aldonas is writing up the report as we speak, you know he’s finishing it very quickly. And he’s going to be making recommendations to the Secretary and the Secretary will be making recommendations to the President on what actions to be taken.

Mr. PULKKINEN. Mine goes back a little bit to helping companies

from a tax standpoint. If I can reinvest more of my dollars into the

company, I would just as soon not take a dollar out of the company.

If I could invest all those dollars into expansion and growth without losing so much on the side, if I got credit for reinvesting in my

company.

I think if all companies got credit for reinvesting, that would be

the single most important thing that the Treasury side, or the

President and Congress could do for me.

Chair SNOWE. Rod.

Mr. RODRIGUE. Oh, yes. We have three ways of creating wealth

in this Nation. It’s mining, manufacturing and agriculture. The

mining and agriculture—when you get done cutting the head off

the fish or cutting the piece of wood, you need to go to manufacturing. We spend $900 million a year on agriculture. We’ve been

the breadbasket, and it’s been very successful. We have a hard

time with a great program like the MEP program and other programs. We have a trillion dollars worth of technology sitting on the

shelf and we can’t access it. Both of these come under the Department of Commerce. I know that their hearts are in the right place.

I just want to make sure their minds will follow. So I am hoping

that, as they hear this and see it, they’ll see that it is imperative,

because the Administration’s policy is, basically, let’s make ourselves safe.

Great manufacturing will make this country safe and will stir

and bring back the economy. So, I would hope that they would put

together a strike team and build it from the ground up, not from

the top down—and I think we could succeed.

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Chair SNOWE. Yes. I would agree. And time is of the essence, obviously.

LoLisa.

Ms. BONNEY. I would like to add to Rod that was a small business owner. We’ve got 13 people on hand. I get a little tired of

hearing about how they are trying to cut these programs—SBA,

SBDC, Rod’s program, the MEP. I mean, don’t you people realize

that—I mean, why does it have to be, you know, continually——

Chair SNOWE. I know. I understand. I feel like that.

Ms. BONNEY. It’s the same thing. His program is a great program. It’s just kind of like, you know, beating a dead horse. Come

on.

Chair SNOWE. Oh, no. Now you’ve got a feeling what Congress

is like. Believe me, I know that what makes sense doesn’t always

make sense to them. These programs work, and they need to hear

the real story. The problem among a lot of my colleagues is that

they need to hear what we’re talking about concerning jobs, and

what works in these programs. And these programs do work! You

are a prime indication. You are the personal testimony to that. I’ll

bring your message to Washington.

I know that you are so busy doing your jobs. The fact that you

even have to be here today is really regrettable. It is unfortunate

that we are in a situation that you have to take time out of your

businesses to be here. I just want you to know that Secretary

Aldonas, Secretary Olson, and I all realize that you have taken valuable time away from your own businesses to be here today to

share your thoughts. You have to continue to work to make things

better for you, because it’s going to make things better for America.

That’s the issue. That’s the correlation here. That’s what we’ve got

to do to make it better.

Can I ask another question? One other question? If for example,

our Government addressed the China issues and its currency, to

what degree do you think that would have an impact on your businesses’ ability to compete? Would that help offset the other issues?

The cost of health care, for instance, which I am working on with

the associated health plans. I won’t get into that now, but I’ll tell

you, I am trying to drive that train out of the station. Health care

cost is a very important issue to small business owners. I am working on the health care issue as we speak. In fact, association health

plan legislation has passed the House, and I am trying to get similar legislation through the Senate now. It’s a very important legislation aimed at putting small businesses on the same playing field

as large corporations and unions. The President has been championing this package, and it’s a great idea. It offers the efficiencies

and buying power that large companies and unions enjoy now. If

you had access to national plans with affordable health insurance

for your employees, I am sure it would make a difference.

Let’s just end the China question.

Mr. LABRIE. I think the health care issue is so important that

that should be number one in my mind, because that affects all

businesses, whether we’re manufacturers or otherwise. And it is a

very important issue.

Chair SNOWE. Yes, it is. Actually, it is the number one issue for

small business owners, from what I have heard. It has risen to

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their primary concern, because it’s impeding their abilities to offer

that benefit to their employees.

John.

Mr. WENTWORTH. My take on the Chinese furniture issue is that,

in the long term, it will not change the situation. What we are hoping for is enough time to give us the opportunity and resources to

buy some new markets and new niches. And if I may use one quick

example, we have a dealer here in Lewiston—we make the cocktail

tables at approximately 45 inches long and 30 inches wide out of

solid maple. It’s very nice. And we wholesale for $149. In speaking

to him about declining sales, he showed me one he’s imported from

China made out of Chinese oak that he buys for $39.

Chair SNOWE. Unbelievable.

Mr. WENTWORTH. Now at 15 to 20 percent tariff that doesn’t—

those discrepancies aren’t going to be made up. So we have to have

time to be able to find new markets for wood products, maybe

make custom furniture, maybe make quick turnaround, do something different in our marketing approach.

Chair SNOWE. Do you work with Rod?

Mr. WENTWORTH. We have in the past. We’re using a private consultant at this time right now. We have used them in the past.

Chair SNOWE. Secretary Aldonas, Moosehead Furniture has an

outstanding reputation. It is a good example of a company doing

the best it can while dealing with all these external forces.

Mr. RODRIGUE. If I could add, it just comes back to the point that

I was trying to make and that is when you do level the playing

field, and even if we imposed upon them the cost of health insurance, the cost of a lot of the other impediments that we appear to

have—to the extent that we can impose a labor cost on them—what

are we going to do in a labor-intensive business, number one. Number two, even in India, right now, accountants—IBM is moving

over their programs and a lot of those types of professional jobs.

It’s not necessarily manufacturing which is being exposed to labor

as a commodity and as a way of taking care of things, call centers

and so forth. Could I?

Chair SNOWE. Yes. Rod—and then Thom.

Mr. RODRIGUE. I admire everything you are trying to do with

China. I don’t put too many bets on the fact that they are going

to make the Chinese do what they want and that I think, if they

end up doing it, they’ll find ways around it. And I don’t know.

There’s a long way for it to trickle down and the gaps are so wide.

I think we can do things right here. I think we are going to have

trade with China, no matter what any of us do. And I don’t think

it’s going to level the playing field enough to help these manufacturers. My biggest fear is for us to focus on China and some of

these issues, which I think we should be working on, but they are

longer-term solutions.

The short-term solutions are what we need to do. And I think the

Administration has to face that. Otherwise, when you do fix the

problem, and if you could magically fix it in 3 years, you are going

to lose half of your small manufacturing base while finding other

market niches and get them into supply chains where they won’t

be subject to these predatory type of attacks on their particular

businesses. Build a solid structure. If we could do that for 18 to 24

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months, it gives them the respite they need then to move in and

find their place in the market. So it’s a salvage operation at this

particular point.

Chair SNOWE. I just saw a statistic which may have been in one

of your testimonies, that stated the employers with 500 or fewer

employees are two-and-a-half-times more innovative than larger

companies. So, you’re really the niche laboratory for building

things, for an agency or creating something for the Defense Department, for example. So when you talk about buying American, absolutely! That’s what under-girds the Defense industrial base and

supports innovation in this country. That’s one of the issues right

now in the Defense Authorization Conference Report.

Yes, Thom.

Mr. LABRIE. On the currency issue, obviously, any help is help,

but the question is what does the currency exchange end up

being—with the bigger the gain, the better, obviously?

On the previous question about if you could bring something to

the President and Congress, whatever, as a small businessperson.

The main, number one, is trying to protect American innovation

from Chinese copy artists. I don’t know how you do it. The tax system is never going to do it. And then, number two, beat it down

to a level playing field as much as is reasonably possible. And if

you do those two things, it’s going to go a long way to helping the

situation.

Chair SNOWE. Yes, intellectual property rights and piracy are

two huge issues there, without question. They just run abandon on

those issues. That has really been detrimental.

Bruce, you have the final word.

Mr. PULKKINEN. Final word. You said ‘‘Buy American.’’ If we can

take Rod’s ideas and get enough of us that manufacture in this

country up to speed, and have the ability to supply not only our

own markets, but the Federal market—if we can produce the products here in the U.S. that the U.S. Government needs to buy, we

ought to be doing it here. Buy American.

Chair SNOWE. I appreciate it. Exactly. Absolutely. And what a

better way to start than with the Federal Government—and now,

in a $350 billion defense authorization report. That’s, to me, absolutely pivotal.

I want to thank all of you for participating in this hearing.

Thank you, Secretary Aldonas and Secretary Olson for your efforts

and your presence here today. I know that you, Grant, will be

doing all you can.

I encourage you to persist in your efforts on behalf of these individuals, and all those you have talked to across America, when it

comes to the challenges facing small businesses and small business

manufacturers. As Chair of the Senate Small Business Committee,

I am certainly concerned about their need. This has been very helpful to me.

I am grateful to have had the opportunity to listen to you today.

Thank you for sharing your experiences, however difficult, with me

and with the Administration officials. I assure you that the President, the Secretary of Commerce, Secretary Evans, Secretary Snow

of the Treasury, and I, are all committed to doing everything we

can to reverse this serious decline in the number of manufacturing

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jobs and the number of manufacturers. So, again, thank you very

much.

This hearing is adjourned.

[Whereupon, the hearing adjourned.]

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