U.S. GOVERNMENT PRINTING OFFICE

63–185 CC WASHINGTON : 2000

A RECORD TRADE DEFICIT, HOW CAN THE U.S.

GOVERNMENT PREVENT A LOOMING TRADE

CRISIS?

HEARING

BEFORE THE

SUBCOMMITTEE ON CRIMINAL JUSTICE,

DRUG POLICY, AND HUMAN RESOURCES

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

MARCH 25, 1999

Serial No. 106–95

Printed for the use of the Committee on Government Reform

(

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

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BOB BARR, Georgia

DAN MILLER, Florida

ASA HUTCHINSON, Arkansas

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

JOHN T. DOOLITTLE, California

HELEN CHENOWETH, Idaho

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

HAROLD E. FORD, JR., Tennessee

JANICE D. SCHAKOWSKY, Illinois

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

DAVID A. KASS, Deputy Counsel and Parliamentarian

CARLA J. MARTIN, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON CRIMINAL JUSTICE, DRUG POLICY, AND HUMAN RESOURCES

JOHN L. MICA, Florida, Chairman

BOB BARR, Georgia

BENJAMIN A. GILMAN, New York

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

ASA HUTCHINSON, Arkansas

DOUG OSE, California

PATSY T. MINK, Hawaii

EDOLPHUS TOWNS, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

ROBERT B. CHARLES, Staff Director and Chief Counsel

ANDREW RICHARDSON, Professional Staff Member

AMY DAVENPORT, Clerk

DAVID RAPALLO, Minority Counsel

MICHEAL YEAGER, Minority Counsel

(III)

C O N T E N T S

Page

Hearing held on March 25, 1999 ............................................................................ 1

Statement of:

Chimerine, Dr. Lawrence, senior vice president and chief economist, Economic Strategy Institute; Howard Lewis, vice president, economic policy, National Association of Manufacturers; Reginald Brown, director

of marketing for the Florida Fruit and Vegetable Association; and

Barry Solarz, vice president for tax & trade, American Iron & Steel

Institute ......................................................................................................... 44

Copps, Michael J., Assistant Secretary for Trade Development, Department of Commerce; and Johnnie E. Frazier, Acting Inspector General,

Department of Commerce ............................................................................. 108

Letters, statements, et cetera, submitted for the record by:

Brown, Reginald, director of marketing for the Florida Fruit and Vegetable Association, prepared statement of ....................................................... 73

Chimerine, Dr. Lawrence, senior vice president and chief economist, Economic Strategy Institute, prepared statement of ....................................... 48

Copps, Michael J., Assistant Secretary for Trade Development, Department of Commerce, prepared statement of ................................................. 113

Frazier, Johnnie E., Acting Inspector General, Department of Commerce,

prepared statement of ................................................................................... 129

Kucinich, Hon. Dennis J., a Representative in Congress from the State

of Ohio, prepared statement of .................................................................... 16

Lewis, Howard, vice president, economic policy, National Association of

Manufacturers:

Prepared statement of ............................................................................... 66

Understatement of Export Merchandise Trade Data ............................. 95

Mica, Hon. John L., a Representative in Congress from the State of

Florida:

Chart on TPCC agencies ........................................................................... 4

Prepared statement of ............................................................................... 7

Mink, Hon. Patsy T., a Representative in Congress from the State of

Hawaii, prepared statement of .................................................................... 12

Solarz, Barry, vice president for tax & trade, American Iron & Steel

Institute, prepared statement of .................................................................. 79

(1)

A RECORD TRADE DEFICIT, HOW CAN THE

U.S. GOVERNMENT PREVENT A LOOMING

TRADE CRISIS?

THURSDAY, MARCH 25, 1999

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON CRIMINAL JUSTICE, DRUG POLICY,

AND HUMAN RESOURCES,

COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittee met, pursuant to notice, at 2:07 p.m., in room

2247, Rayburn House Office Building, Hon. John L. Mica (chairman of the subcommittee) presiding.

Present: Representatives Ose, Mink, Kucinich, Cummings, and

Tierney.

Staff present: Sharon Pinkerton, deputy staff diretor; Andrew

Richardson, professional staff member; Glee Smith, counsel; Amy

Davenport, clerk; David Rapallo and Michael Yeager, minority

counsels; Courtney Cook, minority staff assistant; Jean Gosa, minority staff assistant; and Andrew Su, minority research assistant.

Mr. MICA. The meeting of the Criminal Justice, Drug Policy, and

Human Resources Subcommittee will come to order. I would like to

welcome everyone this afternoon for our hearing entitled, ‘‘Record

Trade Deficit: How Can the U.S. Government Prevent a Looming

Trade Crisis?’’ I’d like to open with some comments, and then I’ll

be pleased to yield to our ranking member. We’ll go ahead and proceed. I think our other members will be joining us shortly.

I’m pleased again to extend a welcome to everyone today to discuss what I believe is one of the most critical topics, that is the

U.S. trade deficit. The U.S. balance of trade which has long been

ignored has reached alarming levels. I view this trade imbalance

as one of the most critical issues facing our subcommittee, which

now has oversight jurisdiction of the Department of Commerce, the

U.S. Trade Representative’s Office, the Export-Import Bank, the

Trade Development Agency, and the Overseas Private Investment

Corp.

The end of the cold war and the resulting globalization have created a world in which trade issues have never been more important

and are increasingly defining our global relationships. With a

record high trade deficit, this is certainly an appropriate time for

Congress and this subcommittee to begin exercising our oversight

responsibility in this critical area.

The news reports of banana wars, beef battles, and steel dumping cases clearly show the damage that occurs unless the U.S. GovVerDate 11-MAY-2000 12:47 Jul 24, 2000 Jkt 000000 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 C:\DOCS\63185.TXT HGOVREF1 PsN: HGOVREF1
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ernment is vigorous in advocating for U.S. commercial interests.

The United States must reexamine its approach in order to aggressively promote exports while also taking steps to ensure complete

enforcement of our laws against unfair trade practices.

This hearing has been convened because I believe the current

wave of global turbulence is beginning to hit our shores. The crisis

of collapsing currencies which started in Asia has spread to Russia

and Brazil. The United States should be a winner in the global

economy, not a loser. Instead, in 1998, the trade deficit reached a

stunning all time high of $233 billion.

This is a 50 percent increase over the previous year’s deficit.

Commerce Department officials have predicted that our 1999 deficit could reach $300 billion. These numbers should serve as a

wake-up call for the U.S. Government to do more to prevent what

could be an impending disaster.

Year in and year out, we are consuming more than we produce.

Every year, billions of dollars go abroad and more and more foreign

produced goods capture our markets. I don’t believe this situation

can endure without some serious consequences. Now, I realize that

many of the economic indicators, such as unemployment and inflation, are positive, but this rosy picture also has some thorns.

Recently, Alan Greenspan issued a warning about our soaring

trade deficit. Let me quote him. He said, ‘‘The widening of the current account deficits has some disquieting aspects, especially when

viewed in the long term context.’’ He then warned that our own

currency is endangered by the continued deficit.

The United States was once the world’s greatest creditor nation.

Now, we are its greatest debtor. In 1998, the American personal

savings rate fell to a post-war World War II low of half a percent

of disposable income. We spend 99.5 percent of our after tax income, according to a Newsweek article that was recently published.

Another area of concern is manufacturing. There are now more

Americans in government than in manufacturing jobs. Almost 15

million jobs have been created since 1992, but only 4.3 percent of

these 629,000 are in manufacturing. Almost all the rest are in service industries and government.

Perhaps the most disturbing element of the recent trade numbers

issued by the Department of Commerce is that U.S. exports have

actually fallen for the first time in 13 years. In the past, exports

have been the engine of our economic growth. In the United States,

1 in 10 American workers owes his or her job to exports. On average, manufacturing jobs in companies that export pay at least 15

percent more than other manufacturing jobs, and also provide better benefits.

In my previous private sector work, I assisted businesses in pursuing international trade opportunities, and I know how important

these markets are to keeping business healthy and profitable. This

work provided me with a good vantage point for seeing how competitive the international market is, and how important it is for

U.S. business to know that the U.S. Government is an effective advocate for their products and services.

In the 103d and 104th Congress, I joined Senator Roth in introducing legislation to create a Department of Trade. The goal of that

legislation was to reorganize the 19 different Federal agencies with

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trade responsibilities into a single coherent Trade Department.

This department could focus solely on the business of trade instead

of being distracted as our Department of Commerce is now with

the Census Bureau, Weather Service, and other activities that detract from what I think should be their primary purpose. Much of

that legislation passed the House during the 104th session of Congress. The Senate did not pass the measures.

I believe there is still much that can and should be done to reorganize our Nation’s trade functions in an effort to better assist our

U.S. companies as they compete overseas.

[Chart shown.]

[The information referred to follows:]

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Mr. MICA. I have a chart that I used then to show the different

agencies, 19 different Federal agencies and their principal bureaus,

involved in trade promotion. It is, in my opinion, a design for disaster. It really doesn’t accomplish what we could with the $2 billionplus we will spend this year on this effort. And it is done in a disjointed fashion.

The Trade Promotion Coordinating Council has remedied some

communication problems, but administratively and functionally

this is still a disaster. Without objection, we’ll make a smaller copy

of that as part of the record.

Of course, while exporting more will certainly improve our deficit, we have to make sure that our laws against dumping are also

rigorously enforced. The majority of our machine tools, a quarter

of our steel, a third of our automobiles, and more than half our textiles are now foreign made. Why? A tidal wave, a tsunami of imports from Asia has, in fact, been hitting our shores. When all

those cheap manufactured goods pour in, our own manufacturing

base suffers.

This is already happening in the steel industry, which has recently suffered almost 10,000 lost jobs. Not because the steel industry is inefficient. In fact, since the 1980’s, the steel industry has

poured $50 billion into modernization. The U.S. steel industry is

more environmentally sensitive than its global counterparts. Yet,

their work force shrunk by over two-thirds during the last 25

years.

Why? Because Russia, Japan, China, South Korea, Brazil, and

Indonesia are all illegally dumping steel into our country to save

their own steel industries. To add insult to injury, four of these

countries are being bailed out of the crisis with IMF money, International Monetary Fund loans supported by our own U.S. tax dollars.

Well, I strongly believe in free trade, but I also believe that free

trade must be fair trade. Our two top deficit trading partners are

Japan, with a $66 billion, and China with a $57 billion surplus.

These two countries alone represent half of our entire trade deficit.

Clearly, the United States must develop a strategy to deal with

these two countries.

Part of the problem is explained by the fact that both of these

countries erect unfair trade barriers. They are running huge trade

surpluses at the expense of the United States while denying the

United States, its companies and businesses access to their own

markets. Even now, the administration is shaping a deal to have

China enter the WTO, the World Trade Organization, and under

favorable conditions to China. Our trade deficit with China is $1

billion a week.

China, despite being the most populous country in the world,

shows no signs of becoming a purchaser of United States goods.

While China accounts for less than 2 percent of our global exports,

the United States has been purchasing over 30 percent of China’s

exports.

January trade numbers demonstrate this problem. Exports to

China in January totalled $779 million. That’s down from $1.3 billion in December 1998. This compared to China’s imports to the

United States during the same month of $5.56 billion.

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In other words, the ratio of United States/China imports to exports was 7 to 1 in January. We sell less to China than we do to

Singapore which is a very tiny country, a small land area. We are,

in fact, vulnerable to this situation. We get our competitive clocks

cleaned when we conduct business in this manner with unfair

trade practices and allowing one-sided trade agreements.

The record deficit is certainly a result of imports outpacing exports. Today, we’ll hear what’s happening on both sides of that

equation. Clearly, the U.S. Government must do a better job in addressing these critical issues if we are to prevent what I consider

to be a potential trade meltdown. Today, we’ll hear from Mr. Larry

Chimerine, chief economist at the Economic Strategy Institute,

about why the trade deficit matters and what the implications of

a sustained trade deficit are for our country.

Mr. Howard Lewis, vice president for economic policy for the

International Association of Manufacturers, will comment about

how our current trade situation has impacted manufacturers, and

provide some suggestions about how the Federal Government can

work more closely with the private sector to promote trade.

We’ll also hear from Mr. Reginald Brown, director of marketing

for the Florida Fruit and Vegetable Association, and Mr. Barry Solarz who is vice president for tax trade for the American Iron and

Steel Institute. He will outline how trade deficits and trade policies

have injured their industry.

Finally, we will hear from Assistant Secretary for Trade, Michael

Copps, from the Department of Commerce, about the U.S. Government’s role in promoting U.S. exports around the world. We’ll also

hear some recommendations from the Department’s Inspector General, Johnnie Frazier, as to how the Department could more effectively do its job.

Excuse me for that lengthy opening statement, but I wanted to

get that on the record. I’m pleased now to recognize the distinguished ranking member, Mrs. Mink from Hawaii.

[The prepared statement of Hon. John L. Mica follows:]

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Mrs. MINK. Thank you, Mr. Chairman. I, too, want to join you

in welcoming our distinguished witnesses for this afternoon. This

subcommittee has oversight jurisdiction over a number of trade-related Federal agencies. It’s important that we exercise this jurisdiction, which the House has granted to this subcommittee, and do

whatever we can to ensure that laws that have been enacted and

agencies that are operating to enforce these laws to promote our interests are working effectively. That is the responsibility of this

subcommittee.

I would like to yield the balance of my time to my colleague, Congressman Dennis Kucinich, for remarks he would like to make at

this point in the record.

[The prepared statement of Hon. Patsy T. Mink follows:]

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Mr. KUCINICH. Thank you very much, Mr. Chairman. Thank you,

Mrs. Mink. Mr. Chairman, I thank you for calling this hearing. It’s

an extremely important topic. And you know, we all know, that

Japan makes cars and that many Americans like to buy them,

right? Well, the fact shows up in the trade deficit data, of course.

But did you know that the same data show that Americans like

to buy Canadian cars more than Japanese cars, and Mexican cars

somewhat less than Japanese cars? Canadian cars? Mexican cars?

Of course, there are no identifiable Canadian and Mexican brands

of automobiles. So why the trade deficit data shows that Americans

are importing more cars from Canada and Mexico than we sell to

the Canadians and Mexicans? Those cars carry American brands,

but they are now made in Mexico and Canada.

The reason, members of the committee, is NAFTA, the North

American Free Trade Agreement with Mexico. Since the North

American Free Trade Agreement was passed, the United States

trade balance with Mexico has gone from a surplus, where the

United States sold more to Mexico than it bought, to a deficit.

Mr. Chairman, a critical factor explaining this phenomenon, that

this hearing is to probe, is NAFTA. Before NAFTA was implemented in 1994, the United States had a positive balance of trade

of goods and services with Mexico. According to Department of

Commerce data, in 1992 the United States trade surplus with Mexico was worth $5.4 billion. In 1997, 3 years after NAFTA the

United States had a trade deficit with Mexico of about $19.5 billion. According to the United Auto Workers, three quarters of the

U.S. trade deficit with Mexico is attributable to the auto sector.

Go back to the example, then. What NAFTA did was make it

easier for United States auto companies to close their American operations and to reopen them in Mexico. Today, U.S. auto makers

frequently make vehicles in this way. An engine is manufactured

in a plant in Ohio, then it is sent to Mexico for assembly in a truck.

That counts as an export from the United States to Mexico. The

fully assembled truck is then sent back to the United States, and

that counts as an import from Mexico. The value of the assembled

truck is greater than the engine, so balance of trade in this vehicle

is in deficit. It adds to the U.S. trade deficit.

At one time, the engine would have been sent from Ohio to

Michigan where it would have been assembled into a truck in the

United States and the production of the truck would not have

added to the trade deficit.

Now, this raises an important point. When Ohio produces an engine that is shipped to Mexico, the Department of Commerce considers that an export. And it is widely believed that all exports are

good. But this case shows the fallacy of that proposition.

Ohio’s export of an engine to Mexico occurs because the assembly

plant in Michigan was closed and reopened in Mexico, causing a

loss in United States jobs. This export represents a deterioration

of the U.S. economy. Auto companies choose to close their United

States operations and reopen in Mexico because wages are so much

lower there, because unions are not independent, because environmental laws are poorly enforced, and because NAFTA both lowered

the tariff on products produced in Mexico and sent to the United

States, and protected the investment of United States companies

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with laws that are equivalent to American property protection.

NAFTA has aggravated the trade deficit with Mexico.

The trade deficit with Mexico is a component in the overall

United States trade deficit with the world. As is the case with Mexico, the United States trade deficit with the world is a drag on the

United States economy. According to economist Charles McMillian,

Trade is a clearly defined and routinely measured component of the Nation’s economy, gross domestic product. By definition, GDP consists of four components: first,

personal consumption; second, gross private investment; third, government expenditures; fourth, net exports trade. Statistically, international trade has been a constant drag on the U.S. economy since 1982 with accumulated losses to the U.S. economy of $1.6 trillion over the past 15 years.

Far from accounting for any of the country’s GDP growth during the first 6 years

of the Clinton administration, net trade losses reduced real GDP by an average of—

this is a negative—$126 billion or minus 1.8 percent of GDP per year. By definition,

a trade deficit means that a county’s domestic firms produce less than it’s consumers buy. That is, at it’s most basic level, trade deficit’s mean that trade is reducing

not expanding the overall market of U.S.-based firms and workers.

That’s the end of the quote from Mr. McMillian.

I would, at this point, submit for the record, with the Chair’s

unanimous consent, this report published this month by this distinguished economist, from which I took that quote. In conclusion,

could we submit this report?

Mr. MICA. Without objection, we will submit that and include it

into the record.

Mr. KUCINICH. Thank you, Mr. Chairman. In conclusion, a growing trade deficit represents a drag on the U.S. economy, NAFTA

has added to the trade deficit. NAFTA is therefore a problem for

the U.S. economy. Thank you, Mr. Chairman.

[The prepared statement of Hon. Dennis J. Kucinich and the report referred to follow:]

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Mr. MICA. I thank you, Mr. Kucinich, for a very interesting opening statement. The information you have provided, as it relates to

how we calculate exports and imports, particularly with this question of export for assembly and then reentry, is something the subcommittee needs to look into further.

I’m pleased to recognize, at this time, the gentleman from California, Mr. Ose, for an opening statement.

Mr. OSE. Thank you, Mr. Chairman. I thank you for calling this

hearing. As you know, California has a tremendous interest in

trade. With respect to agriculture, as it affects my district directly,

I am most interested in hearing the testimony today. This is one

subcommittee meeting I would not miss. So I thank you.

Mr. MICA. I thank the gentleman. And I’d like to again welcome

our panel. As you may know, this is an investigations and oversight subcommittee of Congress, and in that vein, we have a policy

of swearing in all of our witnesses. So, if you would not mind,

please stand and raise your right hands?

[Witnesses sworn.]

Mr. MICA. All of the witnesses answered in the affirmative. We

welcome each and every one of the panelists today. Thank you for

your participation and we look forward to your testimony. Let me

say at the outset that we try to limit the oral testimony to 5 minutes. If you have lengthy statements or other materials that you

would like made part of the record, we will do that upon request

and unanimous consent. We’ll also leave the record open for an appropriate number of days, at least 10 days to complete that. Without objection, so ordered.

With that, I would like to recognize Mr. Larry—tell me the correct pronunciation?

Dr. CHIMERINE. Chimerine, Mr. Chairman.

Mr. MICA. Chimerine.

Dr. CHIMERINE. But it’s been butchered before.

Mr. MICA. All right. Even a little name like ‘‘Mica’’ has been

butchered, but we’re pleased to have you. You are with the Economic Strategy Institute. Sir, welcome and you are recognized.

STATEMENTS OF DR. LAWRENCE CHIMERINE, SENIOR VICE

PRESIDENT AND CHIEF ECONOMIST, ECONOMIC STRATEGY

INSTITUTE; HOWARD LEWIS, VICE PRESIDENT, ECONOMIC

POLICY, NATIONAL ASSOCIATION OF MANUFACTURERS;

REGINALD BROWN, DIRECTOR OF MARKETING FOR THE

FLORIDA FRUIT AND VEGETABLE ASSOCIATION; AND BARRY

SOLARZ, VICE PRESIDENT FOR TAX & TRADE, AMERICAN

IRON & STEEL INSTITUTE

Dr. CHIMERINE. Thank you very much, Mr. Chairman. Since I’m

going to try to stick to your time criteria, let me focus on two or

three issues this afternoon. I’m an economist, I’m not a trade policy

expert. My colleagues here can talk more about specific trade policy

issues better than I can. What I’d like to cover this morning are

the two, I think, central macro economic issues reflecting trade.

No. 1, does it matter? And I think you made reference to this in

your comments earlier. It disturbs me greatly. Quite frankly, even

a large part of the economics profession, and other policy analysts,

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are arguing ‘‘so what?’’—that the economy is doing great anyway

and trade deficits are irrelevant.

Second, even before that issue, many of them say not only that

it doesn’t matter but that it’s a sign of strength. They argue that

it’s good we’re running this big trade deficit, because it reflects the

fact that our economy is strong and other economies are not doing

as well around the world, so why be concerned about it? I think

both arguments are not only dead wrong but very disturbing, and

creating a sense of complacency regarding trade that is very dangerous from a long term perspective.

Let me start with what causes the trade deficit. It is true that

the trade deficit is now rising—it is essentially going off the chart,

as you mentioned, because of macro economic conditions around

the world, largely, the recessions in Asia and in other emerging

market countries around the world, and slower growth in Europe.

All of this is holding down our exports.

Second, the overvalued dollar, or the sharp increase of the value

of the dollar against many currencies, is triggering rising import

penetration which is displacing domestic production in the United

States. That combination is pushing the trade deficit up dramatically. But I think it’s important not to forget the fact that we’ve

had a persistent trade imbalance now for almost 20 years, regardless of relative macro economic conditions.

We had large trade deficits even when Asia was thriving and

booming, and even when the dollar was a lot weaker. It does vary

somewhat year to year, but we have been running a large trade

deficit every year now for almost 20 years regardless of macro economic conditions, oil prices, exchange rates, and some of these

other economic determinants of trade flows. This is a serious persistent problem.

In my judgment, it largely reflects structural factors which have

caused a persistent structural trade imbalance in the United

States. And periodically, much as now, we get macro economic factors which add to it. But the real problem is the structural trade

deficit, and without going into a lot of detail, it reflects a number

of factors.

First is the export-led growth strategies that most of Asia has

employed in recent decades, including closed markets, tying their

currencies to the dollar at favorable exchange rates, and other

characteristics of those economies designed essentially to generate

growth by exporting primarily to the United States. They all subsidize their exports with preferential tax policies and other subsidies.

Some of them require U.S. companies to produce in that market

to sell there. And they employ a whole variety of other what we

call ‘‘unfair trade practices,’’ primarily practices which limit access

to their markets and which give them an advantage in exporting

to the United States and other markets. These are the factors, in

my judgment, that are the root cause of our trade deficit.

Now, you’ll hear many macro economists say that that is not the

case, that we have a trade deficit because we don’t save enough.

This is an outgrowth of that famous identity that, roughly speaking, the trade deficit is the difference between investment and savVerDate 11-MAY-2000 12:47 Jul 24, 2000 Jkt 000000 PO 00000 Frm 00049 Fmt 6633 Sfmt 6633 C:\DOCS\63185.TXT HGOVREF1 PsN: HGOVREF1
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ings. It is often argued that our low savings rate is why we have

a big trade deficit.

That’s like saying the reason a company is losing money is because their revenues are lower than their costs. It tells you absolutely nothing about what’s going on; whether revenues have fallen, whether the cost structure is too high, whether they are losing

market share, et cetera.

Similarly, that identity can reflect a number of forces. In fact,

some of our low savings rate, in my judgment, reflects the trade

imbalance which puts downward pressure on wages and jobs in the

United States, thus lowering savings. It is not automatic that causality goes from savings to trade. It’s a two-way relationship. So it

does not in any way undermine the argument that we do have a

significant structural trade deficit.

These same economists will tell you that the reason that now we

have a trade deficit is that the economies overseas are very weak.

Well, earlier they said that all that matters is how much we save.

Well then, you can’t come back 2 days later and say that the recessions overseas are affecting our trade deficit. It is a combination of

a number of factors, but there is this large structural component.

They will also argue that, if anything, we should be happy about

the unfair trade practices which exist overseas. They argue that

dumping is good for the United States—it’s like a gift to consumers—without telling us what it does to the production side of the

economy? It’s nice to have lower prices, but if you don’t have a job

it doesn’t really matter very much. Of course, they also argue that

if other countries have closed markets, it’s their consumers that are

hurt, not us.

But what about the U.S. companies that cannot sell into those

markets? What about the global economies of scale they lose by

having limited access to foreign markets, and how does that affect

their competitiveness in the long term? So all those oversimplifications, in my judgment, misrepresent the real trade problems, or

causes of the trade deficit in the United States.

Does it matter? I think it matters greatly. Admittedly, the economy is relatively strong right now. Domestic demand is particularly

buoyant, housing activity is at a very high level. But it is not preordained that the domestic economy is always going to be so

strong, that it’s always going to offset the drag from trade. We

have had many times over the last 20 years when that was not the

case. But it’s the long term consequences, some of which you mentioned in your opening statement, which bother me even more.

As we continue to run these trade deficits year after year, our

foreign debt is piling up, increasingly sucking more income and

dividends out of the system on a long term basis. Eventually, foreigners are going to decide they have enough dollar assets.

When that’s the case, we’ll see sharp downward pressure on the

dollar exchange rate, a sharp increase in interest rates, and it will

slow long term economic growth. And, of course, as I said a moment ago, it has a significant impact on the competitiveness of the

industries that are directly affected. It is an important issue that

needs to be addressed.

What do we do about it? Very briefly, I think you said so yourself, Mr. Chairman, in your opening remarks, there is no one magic

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bullet. I think it requires a multitude of trade policies all designed,

No. 1, to provide more access to foreign markets, and No. 2, to limit

unfair import penetration in the United States.

This has to start with trade policies aimed at opening foreign

markets—which this administration, to its credit, has tried to do

probably more than any other administration over the last five or

six decades, I wish with more success, but nonetheless, they have

made the effort.

It means enforcing and tightening existing trade laws in the

United States, particularly anti-dumping, which is more important

now than ever because overcapacity breeds dumping, and we are

awash in overcapacity in most manufactured goods and commodities around the world because of the crisis overseas.

It means, in my judgment, increasing funding for programs

which will improve U.S. competitiveness and increase our access to

foreign markets. I’m talking about export financing and promotion

programs, which we underfund in this country relative to our trading partners, and which represent a small part of our budget. In

fact, we could increase these ten-fold and use up only a small part

of our budget surplus.

You know, I think the biggest threat to prosperity in this country

is trade and competitiveness. I think we get much more bang from

the buck with selected tax cuts and expenditure increases designed

to improve our competitiveness and give us a more fair shake in

global markets, than we would with big tax cuts for example.

And it probably implies looking at a number of other things.

Strengthening the dispute resolution mechanism in the WTO and

a number of other programs designed, in my judgment, to accomplish the twin goals of equal access overseas and limiting unfair

penetration of U.S. markets. Thank you.

[The prepared statement of Mr. Chimerine follows:]

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Mr. MICA. Thank you for your testimony. I’d like to recognize Mr.

Howard Lewis, vice president, economic policy of the National Association of Manufacturers. Welcome sir, and you are recognized.

Mr. LEWIS. Thank you Mr. Chairman, members of the subcommittee. I have a longer statement which I’d like to have added

to the record.

Mr. MICA. Without objection that will be made part of the record.

Mr. LEWIS. I’ll pare down my remarks today to try to keep it

within your 5 minute limit. Let me begin my testimony this afternoon with a discussion of the U.S. trade deficit.

Right now, as Larry has indicated, the United States is running

U.S. record trade deficits. Last year these deficits reached $169 billion. This year they expect to exceed that by a considerable

amount. To say the least, the trade deficit is a complex and large

subject.

To a great extent right now the deficits reflect the difference in

growth rates between the United States and very weak economies

overseas. It also reflects some significant swings in exchange rates

that we’ve seen over the past several years.

So the first point I really want to make is there are some very

large economic forces at play here. In my testimony today I’d like

to draw your attention to two points about the trade deficit.

First, in looking at the deficit, people have tended to concentrate,

quite rightly, on the import side of the ledger and ignore what’s

happening on the export side. Given the nature of this deficit that

we’re running at this time, this is a big mistake, and let me explain

why.

Overall imports grew last year by about 5 percent or $52 billion.

At the same time exports actually fell seven-tenths of 1 percent, $6

billion. Well, a lot of people say, ‘‘Isn’t that what happens when you

run a record trade deficit? Imports go up exports go down.’’ Not

necessarily. You’ve got to look at the specific case.

For example, if you go back to 1987, which is the last time we

were running a record trade deficit, in that year imports grew by

about 12 percent or by about $57 billion. But exports also grew in

that year by roughly $45 billion. So in 1987, the last record trade

deficit, you had, and I put this in quotes, ‘‘only’’ a $12 billion swing.

That is in sharp contrast to what you’ve seen this time or this past

year where you have a negative $58 billion swing.

So the importance of exports here is important but I don’t want

to be misunderstood here either. There is no doubt that recent import surges in steel, semi-conductors, and other industries have

had a serious impact on American workers and firms. This should

not be down played for 1 minute.

But it is equally important to recognize the impact that this decline in U.S. exports have had on American workers and firms. Export expansion has powered 30 percent of the economic growth in

this country over the last 15 years and this source of growth has

now dried up. What is more, jobs connected with these exports are

precisely the types of jobs that we want to see more of in this country.

In comparison to non-exporters, plants that export grow jobs 18

percent faster, are 10 percent less likely to go out of business, pay

on the average 15 percent more, and provide benefits 40 percent

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higher. We should pay attention, in other words, when this type of

job begins to dry up and that is precisely what has happened since

mid 1997.

The second point I want to make about the trade deficit may

come as something of a surprise. While there is no doubt that we

are running a record trade deficit, these deficits probably aren’t as

big as we think they are. The information on why this is so has

been sitting on the Census Bureau website for 2 years now.

Basically, we have known for some time that just in the area of

merchandise trade, I’m not even talking about services, just in the

area of merchandise trade we under count U.S. exports by somewhere between 3 to 10 percent. In 1998, that would have amounted

to between $20 and $67 billion in exports or would have reduced

the U.S. trade deficit by somewhere between 10 and 40 percent.

The fact that we might be able to reduce the trade deficit by up

to 40 percent by just getting the numbers right obviously doesn’t

mean that we don’t need aggressive policies that open markets and

promote trade, just the opposite. On the other hand, anyone who

is concerned about the efficiency and the effectiveness of government, as this subcommittee is, should be worried by the fact that

we don’t have the ability to collect accurate data upon which to

make our policy decisions. Incidently, there apparently is no under

counting in the import area. You get those numbers right.

Let me just skip quickly, Mr. Chairman, to the discussion of export promotion. I do want to say though that the biggest point I’m

making about the trade deficit right now is the fall off in our U.S.

exports. Some people who are looking at the trade deficit and looking at these massive macro economic factors that are driving these

deficits may view the issue of export promotion as relatively unimportant in the scheme of things. I don’t share this view.

What the U.S. Government does in these areas can have a major

impact on U.S. export in specific industries in specific countries.

For example, over the next 2 years the Export-Import Bank will

probably support $6 billion to Korea, in exports to Korea. That represents a significant share of exports to that market which is still

the 10th largest economy in the world.

Next year, U.S. semi-conductor companies will start selling a

chip for use in ordinary personal computers and laptops that exceeds the super computer control levels that Congress put in place

last year. Recently, an executive from a high tech company began

his testimony in the Senate Finance Committee by saying, ‘‘If I had

known at my company’s founding what I know today about U.S.

international tax rules, I would have advised that parent company

be established outside the United States.’’

Finally, when Congress decided last year to require commercial

satellites be placed on the Arms Export Control List it significantly

and, I admit, probably unintentionally raised taxes on U.S. commercial satellites anywhere in the world, due to the differences between the tax law treatment of defense and commercial exports.

The point I’m making here is that this stuff is really important and

we should pay a lot of attention to the policies in this area, not

only to the policies in this area but also to how they are implemented.

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Three years ago, Mr. Chairman, and I’ll just briefly conclude

here, the NAM’s chairman of our Small Business Committee urged

us to get back into the business of running trade missions. As I

point out in my longer testimony, this a bit of going back to the

future for us since the NAM was founded in 1895 to do precisely

this.

However, we weren’t sure how to get back to the future, and we

found a lot of help in the U.S. Department of Commerce in their

Matchmaker Program. Through the Matchmaker Program we basically have created a very effective public-private partnership. It’s

an export program. They’ve got the product, U.S. Government can

deliver a superior product in the way of a trade mission overseas.

We’ve got the customers. And the trick is to marry these two up.

We’ve started these programs in Mexico and Europe and we hope

to do some more later this year and more. They really are roll-upyour-sleeves trade missions, they aren’t vacation junkets. For example, in our Mexico mission the United States Commercial Service in Mexico will set up some place between 300 to 400 meetings

for our 20 participants that will be going down there. That’s a lot

of work.

The more I have worked in this practical side of U.S. trade policy, the more impressed I have become with the ability of our Commercial Service to even deliver these products. For example, when

I was in Southeast Asia, I actually talked to commercial officers

who could not make long distance phone calls, who could not make

long distance phone calls from our Embassy. I have seen the antiquated equipment that people have in the Government offices.

Just the other day, I was listening to the head of the Eximbank

discuss how to improve his agency. Along with some complex matters on the Bank’s portfolio, he had some straight forward recommendations, including putting all the export financing agencies

in one building, upgrading Eximbank’s technology and stationing

Export-Import Bank officials overseas.

I was struck by how doable these suggestions were in comparison

to many of the issues we deal with here in Washington. Making

phone calls, using modern technology, putting staff where they are

needed, all steps that are absolutely essential to the efficiency and

effectiveness of any export advocacy program whether in

Eximbank, TDA, OPEC or Commerce.

Mr. Chairman, this concludes my testimony. I will be glad to answer any questions.

Mr. MICA. Thank you, Mr. Lewis. I’ll now turn to Mr. Reginald

Brown, director of marketing for the Florida Fruit and Vegetable

Association. You are recognized and welcome, sir.

[The prepared statement of Mr. Lewis follows:]

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Mr. BROWN. Thank you and good afternoon. We commend you for

holding this hearing. The issues at stake are very intensely held

by our members and we have had some very interesting experiences with trade over the last 4 or 5 years in our industry. I’d like

to just take an opportunity to walk through some of those experiences with you this afternoon. And, hopefully, have the written testimony submitted into the record, and move forward from there.

Mr. MICA. Without objection, your lengthy statement will be

made part of the record.

Mr. BROWN. Florida is geographically located in an area of the

country that allows us to produce many of the commodities that the

American consumer eats in the winter time. Our primary competitor historically is the Mexican vegetable industry and primarily the

State of Sinola in Western Mexico.

After the North American Free Trade Agreement was enacted,

we fell under the gun, if you will, as the identified sacrificial lamb

or lost soul in the process of trade. We got into a situation where

the Mexican industry was building up their capacity to produce.

They were ready for the lower tariffs that the treaty offered to the

Mexican producers, and got themselves in position to take a greater share of the American market away from the Florida production

system.

You add into that the fact that immediately after the passage of

NAFTA, the peso fell in half. We ended up with a great, huge dam

that was originally the North American Free Trade Agreement that

suddenly burst under the pressure of the peso devaluation. We

were absolutely submerged under a sea of imported product.

During the 5 years or 4 years that we’ve been dealing with this

issue, from about 1991 through about 1997, 1998, I’ll give you some

idea of what happened in the shift in competitive position between

the two countries. In the production of cucumbers in 1990 and

1991, Florida represented about 47 percent of the domestic market

during the period that we competed with each other. Currently,

Florida holds about 23 percent market share. It fell roughly in half.

In the production of squash to feed the American public, we held

approximately 27 percent market share and that fell to 13 percent.

In the production of eggplants, we held about 48 percent share and

that fell to 21 percent. In the production of peppers, we held a 63

percent share and it fell to 50 percent during that period of time.

Now, the great tomato wars we’ve all heard so much about and

we’ve all been to battle over in various trade remedy opportunities

that we were offered through the trade laws of this country, that

particular industry has fallen from a 65 percent share to a 47 percent share. If the other crops we talked about just prior to that had

the strength that the tomato industry had, they had a much more

pervasive case in terms of the amount of market share that was

lost due primarily to the peso devaluation and the very favorable

anticipated situation with the North American Free Trade Agreement. This is a severe problem for our industry in terms of the import surge.

On the export side, we have yet to manage to enter any fresh citrus into Mexico. They continue to hold up some artificial barriers

in the farm by the sanitary areas that permit the entry of citrus

into Mexico. And we feel very strongly that being in the fresh

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produce industry we are believers in free trade, but we’ve got to

have fair trade.

The issue revolves around the fact that we don’t seem to be able

to play the game in both directions as well as we should. We are

currently working on export markets around the world. We have

made some progress with small penetration into the Japanese market with the United States tomatoes. We are continuing to try to

make penetration into the Chinese market, but the Chinese are

holding very high tariff barriers on the perimeters of their country,

and they are also holding up the traditional weapon of choice, unsubstantiated by the sanitary restrictions that prevent the entry of

United States products to China. These are the kinds of problems

concerns that our industry has dealing with trade issues.

The purpose of the meeting today is how can the U.S. Government more effectively promote trade? Well, being from kind of the

bottom of the pile, down where the producer makes something from

the land and where food is made in this country, that is on the

farm, we just think you ought to do a better job of negotiating good

deals because the deals that we’ve experienced to date have not

been good for us.

Our negotiators need to be more aggressive in looking out for the

interests of U.S. industries domestically from countries importing

into the United States, and also more aggressive in opening doors

and knocking down product sanitary barriers in other parts of the

world.

The United States needs to look at a system in future trade negotiations of a request and offer type of approach to tariff reductions, not a unilateral tariff reduction process. We need to look very

seriously at exemptions for commodities that are sensitive in the

negotiation process that would give those industries adequate protection from foreign imports.

We need to look at safeguard mechanisms that are crafted for

sensitive items that are functional. We’ve had some offered that

have been enacted into trade treaties that have not worked, and we

have tested them to the extent we were able to and found them to

be ineffective. We need to look at mechanisms that deal with ways

of dealing in major trade disruptions when they occur due to currency devaluation and currency manipulation.

We also need to look at domestic trade relief statutes that give

adequate protection for regional or crop-specific seasonality issues

so we can use our current trade laws, under 201 and 202 and our

dumping cases, for those industries that are very narrowly based

and very much focused in the targets of importing countries. We

do appreciate the effort the Department of Commerce has given to

the industry in the suspension agreement with the Mexican tomato

producers in dealing with our industry in Florida, but we look forward to hopefully having more success with trade agreements.

Hopefully, if we can have some success, we will not see a future

in which the ability to produce many of these products is no longer

available in this country. I thank you for the opportunity to speak.

[The prepared statement of Mr. Brown follows:]

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Mr. MICA. Thank you for your testimony, sir. Now, I’d like to recognize Mr. Barry D. Solarz, vice president for trade and tax at the

American Iron and Steel Institute. You are recognized, sir.

Mr. SOLARZ. Thank you Mr. Chairman. Given the time limits, I

will summarize my remarks and ask that the full text of my statement be submitted into the record.

Mr. MICA. Without objection, the full text will be made part of

the record, thank you.

Mr. SOLARZ. Thank you. I will first summarize the steel trade

situation, the key lessons to be learned from the case of steel. Then

I will focus on what, for us, is the single most important thing the

Government can do in both the short and long run to address this

country’s large, and as Larry Chimerine has correctly pointed out,

persistent trade deficit—and that is to improve the effectiveness of

U.S. trade laws and trade law enforcement.

In 1998, U.S. steel imports exceeded exports by a record 36 million tons and the U.S. steel trade deficit was a record $11.7 billion,

or nearly 7 percent of our total record trade deficit last year. As

a result, America’s steel trade crises is now at the center of our

public debate about the future of U.S. trade policy and the case of

steel deserves close review in any examination of our overall trade

deficit.

Since 1980, U.S. steel producers have reduced inefficient capacity

by 30 percent, reduced employment by 60 percent, invested nearly

$60 billion in modernization, more than doubled labor productivity

and emerged as a world class industry once again.

Yet, what has occurred in U.S. steel trade over the past year

turns free trade theory on its head. In what some might call a triumph of inefficiency, dumped and subsidized imports, often from

less efficient, heavily polluting foreign competitors, have caused serious injury to technologically advanced, internationally competitive, environmentally responsible U.S. steel companies and their

highly skilled employees.

So instead of these being the best of times for our new and world

class America steel industry, U.S. steel import market share hit an

all time record 37 percent in November 1998. This is happening because major foreign competitors have not made the kind of hard

and painful adjustments that U.S. steel companies and employees

have made.

Foreign steel cartels, closed markets, currency manipulation,

government subsidies and dumping have remained pervasive in

world steel trade. A number of key steel producing countries

abroad have experienced a collapse of their currency and domestic

steel demand. These countries have all tried to export their way

out of trouble, at the same time.

Due to the collapse of Asia and other major export markets,

they’ve all simultaneously targeted the large, strong and open U.S.

market with record imports at cutthroat illegal prices. The result

is a supply driven crisis that has caused the United States to become the world’s steel dumping ground.

Accordingly, the case of steel does hold important lessons for the

future of U.S. trade policy. The case of steel shows us that we need

to ensure, as Larry Chimerine has been pointing out, two way free

and fair trade.

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We also believe that we need to establish a new consensus on

U.S. trade policy. We need to ensure more burden sharing by other

major industrial nations, especially the European Union and

Japan. We need to ensure that the IMF focuses on increasing domestic demand in countries in crisis and not just on encouraging

them to export their way out of difficulty.

We need, as Larry has mentioned, to treat our trade deficit as

though it matters because it’s costing thousands of good manufacturing jobs and, over time, is a recipe for industrial stagnation and

decline. We need to address the import as well as the export side

of the trade ledger in our policies.

In some contrast to what Howard Lewis has said on this, we do

feel that there has often been a greater focus put on export promotion than on what is going on in terms of unfair trade in the

U.S. market.

That, Mr. Chairman, brings me to my final point. Mr. Chairman,

most important of all, we need to ensure that U.S. trade laws are

as strong as the World Trade Organization allows and that U.S.

trade laws and trade agreements are vigorously enforced. The case

of steel shows once again that even the most competitive U.S. industry can be destroyed by foreign unfair trade.

It shows that even when demand is strong, as it is, world class

U.S. mills can suffer significant lay offs, short work weeks, severe

price depression, production cuts, and lost orders. It shows why the

United States needs to ensure that trade is fair and rule based. It

shows why the United States needs to negotiate forcefully with

other governments engaged in unfair trade.

It shows also, unfortunately, in the recent announcement of bilateral agreements giving dumped steel from Russia a guaranteed

United States market share over the strong objection of United

States trade law petitioners, that U.S. trade policy principles and

the health of key U.S. industries can still be sacrificed to, ‘‘higher

foreign policy interests.’’

It shows one more thing. Where the rules are not being enforced,

and the trade laws are not as effective as they should be, Congress

should take immediate steps to strengthen our trade laws in WTO

consistent ways. My written statement contains attachments that

provide additional information on this critical issue for steel and

the U.S. economy. AISI appreciates this opportunity to provide

comments on the U.S. trade deficit and the case of steel.

[The prepared statement of Mr. Solarz follows:]

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Mr. MICA. Thank you for your testimony. I’ll lead with some

questions, if I may.

Mr. Chimerine, I was particularly interested in the opening

statement by my colleague, Mr. Kucinich, from Ohio, who talked

about what he labeled improper trade accounting. He described one

particular situation dealing with the manufacture of automobiles.

Do you feel we properly count today, and should we take a look

at how we calculate our trade deficit? Then, based on his statement, it sounds like the trade deficit could be even worse than

what is reported, is that correct?

Dr. CHIMERINE. It’s very hard to say, Mr. Chairman. I think it

could go either way. I think Howard Lewis has earlier indicated

that in some sense, in some ways, we’re probably understating our

trade deficit. We probably do miss some exports and do not count

some exports that we actually make.

But I must tell you, I don’t think I would change the equation

very much. If we added $50 billion or took $50 billion off the reported trade deficit, it’s the same story. The fundamental trend is

we have a huge and persistent trade imbalance. It is largely structural, at least on an average basis. Sometimes, there are short

term forces that make it larger or smaller.

To me that’s the overriding issue. While I’m not the first to advocate measures to improve the quality of our statistics, and I agree

that the trade statistics in particular tend to be inaccurate and

very erratic, I think the real issue is the fact that under any circumstances, no matter how we measure it, we have serious trade

problems that are going to have sizable long term consequences. I

think that ought to be our primary focus.

Mr. MICA. My next question deals with the consequences. Mr.

Lewis testified that for the first time since 1987, we’ve seen this

huge explosion of, I think you’ve described it, in 1987 a different

situation but in 1998 we ended up with not only——

Mr. LEWIS. A negative trade, $1 billion swing in our——

Mr. MICA. Right. The drop, or the increase in our trade deficit

but a decrease in exports. What’s going to happen if that continues? You can both comment. You are the economist, we want to

give you multiple answers.

Dr. CHIMERINE. I don’t know if that’s good or bad, Mr. Chairman,

but I’ll answer it. Clearly over the last 30 or 40 years, in fact, probably the entire post-war period, world trade has grown at a rate

faster than overall economic growth, probably close to double the

rate of GDP growth on a global basis.

So there has been a consistent trend where both the level of exports and the level of imports in most countries, including the

United States, have been rising relative to our GDP. That’s even

happened in prior recessions.

What happened in prior recessions, particularly overseas recessions, is that the trend in exports continued but it was temporarily

dampened by the recessionary conditions in some of our trading

partner countries. But that wasn’t large enough to completely obliterate the trend, it just slowed the process.

Now we have such extraordinarily depressed conditions in Asia,

which was the most rapid growth region of the world, and it’s

spreading to other parts of the world, as you yourself mentioned,

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particularly Latin America. Those pressures have been so huge

that we actually have negative growth in exports. But as Howard

mentioned, it’s a relatively small decline, which tells you how powerful the upward movement, the upward trend is, given how serious the economic recessions are currently in other parts of the

world.

With respect to the increase in the trade deficit over the last several years, the last year and a half in particular, while some of it

is coming on the import side, for reasons Barry Solarz mentioned,

clearly the export part of the equation is being dramatically dampened by overseas economic conditions. When you add that to what

was already a baseline $100 or $150 billion a year trade deficit,

we’re already up to $250 or close to $300 billion.

So, clearly, the drop off in exports is troubling. Some of it, hopefully, is temporary as a result of the recessionary conditions overseas.

Mr. MICA. Did you want to respond, Mr. Lewis?

Mr. LEWIS. Yes, I think two points. One is something that Larry

brought up in his testimony, the impact of this if we continue to

see this lack of growth in exports. The impact is that right now the

economy is being carried by consumer spending, construction, and

so on. That’s not going to go on forever. At some point, this important source of growth that we’ve seen in the past is going to really—or the lack of it is going to really hit home. So that would be

the sort of big macro economic point on exports.

If I could just comment. I would be glad to submit the report on

the under counting of U.S. exports. It seems to be an ideal topic

for this subcommittee. But just to give you one illustration of why

this is taking place, the Government doesn’t actually count exports

under $2,500. They use a model that is either 10 or 15 years old,

I forget, and basically try to estimate how much is happening.

Well, I don’t know how many Fed Ex trucks and UPS trucks I

probably passed in the taxi cab on the way up here, but they are

an illustration of exactly why we have this problem. It’s that business and the way we do business around the world has vastly

changed. Just-in-time inventory means that you have millions of

shipments under this threshold level of $2,500.

It’s the way people do business now. It’s the type of thing where

there are clearly, as Larry points out, really big problems we need

to deal with. But we also should get the numbers right so that we

know what’s going on. I’d be glad to submit this report if it would

be of interest to the committee?

Mr. MICA. I think it would be of interest, and we would be glad

to make it a part of the record, without objection. I want to be fair

to my colleagues. I’d like to yield to Mr. Kucinich.

[The information referred to follows:]

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Mr. KUCINICH. Thank you very much, Mr. Chairman. Thank you

to all the panelists for your participation. I’ve read your testimony.

It’s critical for this discussion that the chair has facilitated.

For Mr. Solarz, you’ve correctly said that foreign steel exporters

have violated U.S. trade law. Preliminary determination has been

made, as you know, by the Department of Commerce, but I’d like

you to comment on the effect of devaluation of foreign currencies

and what that’s had on making cheaper steel made in Korea,

Brazil, Japan and Russia.

First of all, what I’d like to know is this: if Korea, Brazil, Russia,

Japan, did not illegally subsidize their steel, wouldn’t it be true

that a devaluation of the currency of those nations by 60 or 80 percent would cause their steel to be able to greatly underprice American steel?

Mr. SOLARZ. It’s actually a slightly more complicated question

than maybe even you are assuming in asking it. I’ll give you one

example which is Russia, where nobody can figure out what the

costs and what the prices are, and the workers aren’t paid for

months at a time. You have trading companies going in there and

taking 10 cents on the dollar, taking steel by the boat load from

that country and essentially dumping it at prices that haven’t been

seen in the U.S. market in decades.

Russia came into the U.S. market as a price leader. What then

happened was that the Japanese came in and the Japanese announced that ‘‘We will meet the Russian prices. And steel consumers, you can have Japanese quality at Russian prices,’’ which broke

the back of this market and essentially created anarchy in it.

Now, we do have some experience with this issue of the relationship between exchange rate changes and unfair trade case findings.

However, it might be better to put this question to Mr. Copps.

After all, this was an issue at the very beginning when cases were

filed against Japan, which at the time had a weaker currency

against the dollar than it has now. A lot of people were expressing

the point of view that with the yen to dollar exchange rate, it

would be very difficult to find a significant dumping margin vis a

vis Japan.

But as we’ve seen in the recent preliminary margin determinations by the Department of Commerce, significant dumping margins were found in the case of Japan. Russia, of course, is a very

different situation because of its non-market economy nature. The

Department of Commerce has to look to a surrogate free market

producer in order to come up with dumping comparisons.

Mr. KUCINICH. Well, let me do a followup question. Isn’t it true

that export-led growth policies are helped by devalued currencies

because exports are made cheaper when the currency is devalued?

Mr. SOLARZ. Absolutely. We and others at this table have expressed concerns about the exchange rate issue. I know at least

two of us at this table, if not three, have mentioned the term ‘‘currency manipulation.’’ I believe there has been a long history——

Mr. KUCINICH. I saw that in your testimony.

Mr. SOLARZ [continuing]. There has been a long history of that

certainly in the case of South Korea and other countries as well.

We did express, in both the oral and written testimony, significant

concerns about the position that the IMF took with respect to a

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number of countries in crisis, at least at the beginning, with these

really counterproductive austerity measures——

Mr. KUCINICH. Mr. Chairman, Mr. Solarz just put his finger on

what I think is part of the core problem here. Would you say it’s

true then that these so called structural adjustment policies and

austerity mechanisms promoted by these international financial institutions such as the IMF were meant to promote or they lead to

export-led growth.

Mr. SOLARZ. Yes, Congressman Kucinich. We and many other

manufacturers have expressed concerns about this and the agricultural sector probably did as well. When we expressed our concerns

about this, we did it in the context of a supporter of the IMF aid

packages.

We were a supporter of the IMF aid package for South Korea,

for example, and actually saw in that aid package the possible

seeds for the first time in decades of eliminating some of those

structural barriers and anti-competitive practices in the South Korean economy that United States trade policy for the last several

decades has had no success at all in chipping away at.

Mr. KUCINICH. I understand. There is a conundrum here and I

just wondered, you know, it seems to be true that the U.S. trade

deficit, at least the recent surge in imported steel, could be aggravated by export-led growth policies promoted by the IMF? You

know, we’re looking at the same mechanisms here. Would you

agree with that?

Mr. SOLARZ. Yes. We would agree that in this kind of environment it certainly made things worse for our industry and it really

does no favor for the county in crisis either because it is our view,

and I know that Dr. Chimerine shares it, that these countries descended into crisis essentially because they followed that ‘‘Japan,

Inc.’’ model of over-investing and over-exporting, and they all

turned to exporting at the same time, and the whole thing was not

sustainable for the long run.

Mr. KUCINICH. So as we look at this, would you say that exportled growth policies promoted by the IMF can cost the United States

in the form of import surges and trade deficits?

Mr. SOLARZ. Yes.

Mr. KUCINICH. And would you recommend to Congress—and, Mr.

Chairman, this is how, I mean, this hearing is so important—before it gives the IMF more funding as it did last year, that Congress demand that the IMF stop promoting export-led growth at

the expense of U.S. manufacturing?

Mr. SOLARZ. We certainly felt that the IMF should have put

greater stress on trying to rebuild domestic demand in the countries in crisis. Just as we believe that——

Mr. KUCINICH. Instead of propelling export-led growth.

Mr. SOLARZ. Absolutely. Just as we believe that ultimately the

only long term solution for the Russian economy is to rebuild domestic demand. I wish I could show you now a chart that would

show what domestic steel production and consumption was around

1990 in the former Soviet Union.

You had about 165 million tons of production and about 170 metric tons of consumption. Today, you are looking, in Russia alone,

steel consumption in the order of 17 million tons. There has been

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a complete collapse of that economy and domestic steel demand,

and ultimately, to rebuild it has got to be the solution.

Mr. KUCINICH. Mr. Chairman, here you see in this one panel you

know American manufacturing which we’re very proud of, which

has been the mainstay of this country’s growth in so many ways,

through two world wars and more, and the steel industry which

has been the core of that along with automotive and aerospace, and

of course this part of agriculture, the fruit and vegetable industry,

and they all have been in trouble because of these trade policies.

Each testimony presented here by the gentlemen has been very

valuable and it points out the importance of this hearing. I want

to tell the chairman how much I appreciate that he has taken the

time to address this issue.

Mr. MICA. Thank you.

Dr. CHIMERINE. Mr. Chairman, can I make a comment?

Mr. MICA. Yes, go ahead.

Dr. CHIMERINE. I think several of us have pointed this out already. When the history of this recent crisis, the economic and financial crisis in Asia is written, I think it will become clear that

the fundamental cause of the crisis is the way these economies

have been structured, or the economic strategy they’ve had in place

in some cases for several decades and others for 10 or 15 years

which, as Congressman Kucinich mentioned, is essentially to structure their economies to generate export-led growth.

They are all trying to copy the Japanese model in one way or another. The cause of the crisis in my judgment is that not everybody

can grow by exporting at the same time. Somebody has to buy

something and it can’t always just be us. They are all targeting the

U.S. market. When Japan did it by itself, it was successful. There

isn’t enough in the United States to support everybody at the same

time so it led to overcapacity and over investment, and so forth.

Where the IMF has entered, in my judgment, is over the last 18

months in the way they addressed the crisis. They made it worse

by insisting on huge austerity measures as a condition for the financing programs they put in place, which created more downward

pressure on economies that were already collapsing, and which No.

1 has aggravated the global over capacity problem in steel and just

about everything else.

Second, because their domestic economy has been squeezed down

even further by IMF insistence on high interest rates, and tax increases, and whatever, it’s forced them even more to look to exports

for growth. Now luckily, a little too late in my opinion, the IMF has

backed off and is now trying to be more of an instrument of growth

in that region instead of austerity.

But what we should have insisted on when we debated the IMF

funding issue here in the United States was, No. 1, that they back

away from austerity and, No. 2, that they insist on meaningful long

term reforms that will give us more access to those markets and

move them away from just exporting their way to economic growth.

Now, again, this is gradually happening but had it been recognized sooner, I think the crisis would have been far less severe

than turned out to be. And it wouldn’t have spread as much to

other parts of the world, and some of the negative effects on U.S.

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industries and U.S. trade probably would have been considerably

less.

Mr. KUCINICH. Mr. Chairman, if you would yield just for a second, and think about this in these terms. When one of our constituents, who is perhaps a steel worker, gets a notice at work telling

him that he’s laid off in a steel mill that has invested $40 to $50

million or more in improving its ability to produce but has already

had reductions in work force, but everybody is ready to go and sell

their product, and then I mean you start to see how this whole system kind of unravels.

Mr. MICA. If you want to see your constituent unravel, tell him

that his tax dollars have gone to Washington to support policies

that help unravel his economic status.

Mr. KUCINICH. Exactly.

Mr. MICA. And that would upset him or her. I appreciate the

gentleman’s comments. I would like to recognize the gentleman

from Massachusetts, Mr. Tierney.

Mr. TIERNEY. Thank you, Mr. Chairman, for your remarks and

Mr. Kucinich yours. Members of the panel, thank you for joining

us and sharing with us your views today. I would like to shift gears

just a little bit, if I could, and talk about offsets.

I notice, Mr. Chimerine, in your testimony you alluded to the impact that the requirement of some governments that we shift technology to them in return for our ability to sell over there, causes

us some pain, not only the technology but in the aerospace industry

in particular, shipping and training of labor in order to build the

project—sometimes building a facility in another country for them

and that’s only with regard to the direct offsets, we talk about the

indirect offsets and the havoc that’s been reaping.

You made a comment on page 13 of your testimony that I

thought was interesting. One of the things you said we had to do

was that the U.S. Government had to prevent foreign countries

from insisting on technological transfers as a condition for selling

in their markets. How do we do that?

Dr. CHIMERINE. That’s a good question.

Mr. TIERNEY. No, no, no. You’ve got to give us answers here.

Dr. CHIMERINE. Since I’ve dominated the time up here, I’m going

to suggest you ask my three colleagues. And all of them, quite seriously, are probably better able to be more specific on that than I

am. But I find it an extremely serious problem, particularly with

China. China is very clever, as all of us have mentioned, or several

of us. They insist that you shift some production to those markets

as a condition of selling there. They force you to take on partners,

they force you to transfer technology.

I don’t know the specific best way to deal with this, but I must

tell you that increasingly I’ve become of the opinion, I’m a free

trader, I believe strongly in two-way free trade, but———

Mr. TIERNEY. But you are fast becoming a fair trader, right?

Dr. CHIMERINE. No, but the problem is that we have one-way

free trade. And the reason support for free trade in this country is

eroding despite the strong economy, is I think most people, maybe

not the academic economics community, but I think most other people, realize this is not right, it’s not fair, and it’s not in our national

interest.

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I’m becoming increasingly of the opinion, like we’re now doing in

the case of, you know, bananas, and the beef hormone situation

with Europe, that in order to bring about equal access overseas, to

stop the unfair trade practices you are talking about, we’re going

to have to limit access to our market. That’s the only thing they

seem to understand.

And whether you put offsets in, or strengthen anti-dumping, negotiate individual trade agreements with the Japanese or others,

which we don’t even have the staff at USTR and Commerce to

monitor and enforce, I’m not sure it’s even worth it any more. I

think the only thing that seems to work is when we limit access

to our market to force them to back away from some of the trade

practices that are onerous.

But whether that’s something we could do with offsets, or tightening anti-dumping laws, or all of these things, all of which I support, I don’t know the precise best way to do it nor do I know

whether they are going to really work anymore.

Mr. TIERNEY. I would like to share that with the rest of the panel

since——

Mr. LEWIS. I would like to make one comment about how to deal

with this problem of basically trade-related investment measures.

You want to invest here, you’ve got to bring over such and such

technology, you’ve got to export so much out of this country, et

cetera. I mean that’s been going on a long time, it’s been going on

in Mexico.

In fact, I think one of the stronger points of NAFTA was the

TRIMS provision which prohibits the use of trade-related investment measures. If we could have a similar strong trade-related investment measures around the world, we probably would begin to

address your problem.

Mr. TIERNEY. Of course we exempted aerospace from some of the

agreements——

Mr. LEWIS. And I think that too we’ve got to distinguish between

offsets in the military area and offsets in the commercial area. I

was primarily talking about what goes on in the commercial area.

But I think it’s a very serious problem. The other point that I’d like

to just touch on here, and again it seems to me very relevant to

this subcommittee, and Mr. Brown and Mr. Solarz raised it, and

that’s implementation of trade agreements.

Basically, we go out and negotiate these treaties over 8, 10 years.

Everybody is exhausted at the end of them. We drag back here, we

go through a big fight in Congress, we get it ratified, everybody is

collapsing, and then we go onto the next one. I’m kidding around

a little bit here, but I think the need to pay attention to how these

things are implemented, not only by the United States, but also

how we could strengthen the international trade systems monitoring of the implementation.

I’ve recently become more and more fascinated with this question

after talking with some colleagues who simply have discovered in

certain countries tariffs that should have been reduced weren’t reduced, simply because nobody made them, nobody checked.

Now, admittedly, you can’t go around the world checking a zillion

tariffs, but there are certainly ways that you can do this in terms

of, at the risk of sounding boring, standard accounting procedures.

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You don’t go in when you are doing an audit and count every single

sale that ever took place. You take sampling and you examine.

So if you go in and you find out that country ‘‘X’’ has not reduced

their tariff in 500 out of 1,000 cases, then you’ve probably got a

problem. And the implementation is really critical. And I know the

Department of Commerce has been taking some steps to strengthen

their work in the trade compliance area here that I think this subcommittee should probably look at. Thank you.

Mr. TIERNEY. Mr. Solarz, so you have any comments you want

to share on that issue. I’m not forcing you to do it, but if you had

something I didn’t want to prevent you from doing it.

Mr. SOLARZ. Well, I certainly agree with the comment made

about ultimately, for better or worse, the U.S. market, this wonderful large market, is a point of leverage. But in making that comment, I would not suggest at all that we need to do anything that

would in any way violate our WTO or international commitments.

What we are saying in our testimony is, we’ve got laws on the

books, they can be improved, and they can be improved in ways

that are consistent with existing international trade rules. And one

of the big problems is that these rules and laws in the United

States are not always strictly enforced.

And, again, the most recent example of our concern in this regard are these agreements on steel, these bilateral agreements on

steel with respect to Russia. Yes, the Department of Commerce

talks about significant declines, tremendous declines from 1998 levels, in terms of these agreements.

But we would point out and so would the petitioners, both the

unions and the companies that filed the Hot Roll Case against Russia, that Russia currently, and you see it with these preliminary

anti-dumping margins, is in no position to be selling any of this

steel in the United States market. It cannot sell this steel at a competitive fair price consistent with our laws and international trade

rules.

Unfortunately, for foreign policy reasons, our Government has

decided that the law in this case was not good enough in terms of

application of anti-dumping law, and so they took advantage of another aspect of the law and have announced this agreement to at

least provide them some guaranteed market for dumped, and I will

underline again ‘‘dumped’’ steel.

And that’s one way, Mr. Chairman, that we can reduce the trade

deficit—and that is to prevent future occurrences of suspension

agreements in trade cases over the objection and in this case over

the strong objection of U.S. petitioners.

Mr. TIERNEY. Let me get back to the offsets for 1 second, if I

may, Mr. Chairman? The comment was made that we have to take

some action, that maybe we have to use the fact that we are a big

market to do that. Whenever I mention that to the aerospace industry types they get apoplectic.

Mr. SOLARZ. I know.

Mr. TIERNEY. You can’t do this, you go down the line. And yet

they talk about being in a prisoner’s dilemma. That they don’t really want to do the offset business but, my God, these companies demand it. Negotiations haven’t gotten us very far, frankly.

106

It’s the European nations, the Netherlands, and countries like

that are probably more problematic in this area than the Asian

countries. So if we’re not going to have much success at negotiating, do we have to do something a little bit more harsh? Do we

have to move in that direction? What do we say to these industrialists who want to keep telling us about their prisoner’s dilemma

but don’t really want to make any other recommendations?

Dr. CHIMERINE. Well, I think obviously many of them are concerned. I’m sure in the case of commercial aircraft, that our major

aircraft manufacturer worries that if we push this too hard the

business will go to Airbus because they don’t fight them as hard

on technology transfer and other issues, there is that risk. And this

is probably why we haven’t addressed the issue.

Every time we do something like this, somebody objects because

they feel they are going to be hurt by it or lose something by it.

For example, there are steel users in this country who are fighting

strengthening the dumping laws to help the steel industry or other

measures that would help the steel industry.

Mr. TIERNEY. Do we have something to counter that with, do we

have——

Dr. CHIMERINE. Well, you know to me it really comes down to

what’s in the national interest. And over the long term, we have

to address the issue of the trade deficit. It’s going off the charts,

it’s going to cause serious problems. As my colleagues mentioned,

it already affects the composition of our output. We lose high paying jobs, even when the economy is strong, and in the long term

it’s probably going to weaken the economy. To me that has to be

the overriding objective.

And if somebody gets hurt in the short term as a result of the

strong measures, if it strengthens the economy in the long run,

we’re all better off. But it’s a very difficult political issue, and if it

was easy we’d have done it by now. I don’t have any brilliant new

insights, unfortunately.

Mr. TIERNEY. I want to thank all of the panel members, and

thank you, Mr. Chairman.

Mr. MICA. Thank you. One of the problems we seem to have is

that we no longer have clear U.S. interests in the various industries or activities. U.S. interests have been plummeted by foreign

interests and have become part and parcel to the foreign interests—whether it’s Florida growers, or I remember the days in

which we had pure Florida orange juice or fruit and vegetable operations.

Now those folks are investing overseas and they no longer are interested in preserving U.S. interests. Steel has now become internationalized. In just about every activity, we see some U.S. investments, and there is no longer the clear outcry for any action. If you

take some action, you don’t have the support for sustaining or following through with it, which is part of the problem.

I think the testimony of this panel boils down to three areas—

we need tougher trade negotiation, we need tougher enforcement of

existing laws on trade, and then enhanced promotion and support

for U.S. activities. Plus, I think we may need to revisit some of the

policies that now finance international financial organizations that

undo our position, which is an interesting new phenomena.

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Dr. CHIMERINE. Mr. Chairman, can I make one other point?

Mr. MICA. Yes.

Dr. CHIMERINE. I think there is one other issue that all of us

here would agree with, and that’s tightening the WTO.

Mr. MICA. China, if you look at this chart up here the second one

you can’t see, China is now No. 2 after Japan. They are part of the

problem and they are also asking for admission into WTO. Do you

want to comment?

Dr. CHIMERINE. Yes. My concern really is that a lot of the trade

practices that everyone here today mentioned, including you, Mr.

Chairman, and Congressman Tierney and others on the panel, are

really not under the WTO’s jurisdiction. I mean, they are good at

looking at tariffs, but they’ve got very limited jurisdiction over

some of these other unfair trade practices. That has to be changed.

And, second, in my opinion, there has to be a mechanism so that

if the WTO finds Europe or somebody else in violation of WTO

rules, there are strong penalties imposed by the WTO. Right now,

it’s probably not working toward U.S. interests because it doesn’t

address a lot of these issues, it doesn’t have the power. The Europeans are now ignoring the findings. So I think we ought to work

in that direction, in addition to everything else.

And, last, to your point, and I know Howard mentioned this, and

I guess I did too, we need to beef up our trade monitoring and enforcement group here in the United States. We negotiate all these

trade agreements. I can remember all the agreements we negotiated with Japan on an industry by industry basis as part of the

framework talks.

They haven’t done half or more of the things that they promised

to do. And nobody seems to monitor them, nobody seems to do anything about it. So beefing up that aspect, which is not expensive,

would be a very good starting point, I think.

Mr. TIERNEY. I think the chairman covered this, thank you.

Mr. MICA. I want to thank you. This is the first of our hearings

to look at this problem. We appreciate your providing us with testimony and look forward to working with you as we pursue this matter, we think it’s very important. This panel is excused.

I’d like to call our last panel. We have two people testifying, Mr.

Michael J. Copps, Assistant Secretary for Trade Development in

the Department of Commerce and Mr. Johnnie E. Frazier, Acting

Inspector General of the Department of Commerce.

We’re pleased to have both of you gentlemen join us, and hopefully respond to the topic that we have at hand that’s so important,

dealing with the record trade deficit the United States is experiencing. As I mentioned to our other panelists, this is an investigations

and oversight subcommittee of Congress and we do swear in our

witnesses.

So, if you wouldn’t mind standing, please raise your right hands?

[Witnesses sworn.]

Mr. MICA. Thank you. We welcome both of you. Let the record

reflect both of the witnesses answered in the affirmative. We’re

pleased, again, to have you join us, to have your testimony. And

we do have a policy of allowing lengthy statements being submitted

for the record.

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We ask you that you try to use your open time of 5 minutes, we

give a little where there are only two witnesses on a panel, and we

will put lengthy statements in the record. Mr. Copps, you are recognized.

STATEMENTS OF MICHAEL J. COPPS, ASSISTANT SECRETARY

FOR TRADE DEVELOPMENT, DEPARTMENT OF COMMERCE;

AND JOHNNIE E. FRAZIER, ACTING INSPECTOR GENERAL,

DEPARTMENT OF COMMERCE

Mr. COPPS. Thank you very much for inviting me here today to

talk about the compelling necessity to encourage American exports.

It’s always good to come home, and as someone who worked on

Capitol Hill for nearly 15 years I’m grateful for the opportunity to

be with you. I share your concern about the level of the trade deficit for 1998, and the prospect that it will go even higher this year.

My job is not so much to analyze trade deficits as to do something about them. My job is to work day in day out with the private sector to grow American exports in the global marketplace. I

spend my time not debating whether America should be part of the

global economy—that decision was made irreversibly long ago—but

working to ensure that America does well rather than poorly as a

participant in that global economy.

Mr. Chairman, my prepared remarks do delve briefly into the

trade deficit problem, and I ask permission at this time to include

that statement at the conclusion of these remarks.

Mr. MICA. Without objection, so ordered.

Mr. COPPS. But let me use these precious few minutes I have to

tell you about how we at the International Trade Administration

at the Department of Commerce are trying to get that deficit down.

Trade promotion is an effective tool to shrink the deficit. Can it do

it by itself? I think I prefer to let the economists debate that one.

What I do know is that if we as a Nation can mobilize our resources to take advantage of the opportunities of world commerce,

that deficit will shrink significantly. And I would deem that a substantial contribution to the Nation’s well being. In its early days

the Clinton administration developed and began implementing a

coordinated National Export Strategy in pursuit of increased exports.

The National Export Strategy is continuously updated by the

interagency Trade Promotion Coordination Committee which was

given new life and vitality by the administration to unify previously fragmented and duplicative Government export programs.

Secretary of Commerce, William Daley chairs this important group.

The TPCC combines the resources of some 20 cabinet, independent, and White House organizations to initiate creative export promotion programs. This effort is not just desirable, it is imperative

to counter the aggressive export promotion programs of other countries, programs targeted to put U.S. exporters at significant disadvantage and to put U.S. workers out of jobs.

The Department of Commerce is the lead agency in carrying out

most of the export promotion elements of the strategy with the notable exception of the large agricultural export program. Commerce’s activities are relatively low in cost because we rely heavily

on the expertise of the ITA country and industry experts in advisVerDate 11-MAY-2000 12:47 Jul 24, 2000 Jkt 000000 PO 00000 Frm 00112 Fmt 6633 Sfmt 6633 C:\DOCS\63185.TXT HGOVREF1 PsN: HGOVREF1
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ing, assisting and advocating for our exporters, but they are important and critical nevertheless.

Our export promotion strategy aims to match the aggressiveness

of our competition, and it is marked by personal involvement at the

highest level. In fact, I’m appearing before you because my boss,

Secretary of Commerce Daley is in Korea today on one leg of a

trade mission through Asia. And my immediate superior, Under

Secretary for International Trade, David Aaron, is similarly engaged in Central America. Their mission objective is to advocate on

behalf of U.S. business.

These are just two of a number of missions either completed or

planned during this year, and designed both to promote exports

and to remove impediments to our exports. Secretary Daley has

been to 35 countries championing U.S. business in the 2 years that

he has been our Secretary of Commerce.

Let me take just a moment to provide a broad overview of the

Department of Commerce’s International Trade Administration because I believe we are well organized to play the lead role in implementing the Nation’s National Export Strategy. I often liken ITA

to four legs on a table. One leg is our United States and Foreign

Commercial Service, a globe spanning operation of 1,400 employees

dedicated to helping U.S. business, particularly small or mediumsize business, export.

Here at home the Commercial Service has 105 Export Assistance

Centers counseling U.S. firms on the steps needed to enter the export market and to succeed in it. These are one-stop shops. That

is, they offer access not only to the resources of the Department of

Commerce but to those of the Small Business Administration, the

U.S. Export-Import Bank, and a range of other U.S. Government

agencies. And they work with and are often located near State and

private groups charged with the same mission.

Overseas the Commercial Service has 140 international field offices. The commercial officers stationed abroad advise U.S. companies on opportunities, help them with project bidding, arrange

meetings, provide interpreters, collect valuable market information.

Last year the Export Assistance Centers helped to bring about export sales worth nearly $2 billion.

My shop is Trade Development a second leg of the ITA table.

And it’s a unique place in our Government that deals every day

with the private sector—with U.S. companies and trade associations—to identify opportunities for the full range of U.S. businesses. We make sure that America is putting its best foot forward.

We deploy the coordinated strength of the private and public sectors in a world where other countries learned that lesson long ago.

Our industry expertise spans the gamut from basic industries to

high tech.

And we’re also the home of the Advocacy Center. And I’m proud

of that Advocacy Center because advocacy is really a hallmark of

the administration’s National Export Strategy. Your government

and mine, far more than ever before, is directly and aggressively

advocating on behalf of U.S. business. There is not a time when the

President, the Vice President, or a Cabinet member goes out of the

country to meet a foreign potentate or trade minister, or whatever,

that that Cabinet member doesn’t have in his or her briefcase a list

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of specific U.S. business projects, commercial projects, that they are

expected to advocate for when they get there.

The Advocacy Center works with the Government agencies and

the private sector to get its job done. This is a startling change in

attitude, and I don’t say that as a partisan statement because I’ve

been in this town long enough, and I’ve watched enough administrations of both parties come and go, standing blithely off on the

sidelines while leaders from other countries aggressively promoted

their home products and walked off with the contracts and walked

off with the jobs too. U.S. business suffered and U.S. jobs were lost.

That doesn’t happen any more.

And over the 5 years that we’ve had our little Advocacy Center

down at the Department of Commerce, we can count some 420 competitions in which our efforts assisted—and business will acknowledge our efforts assisted—their successful winning of the contracts.

Those awards translated into $60 billion of U.S. content and support, probably somewhere on the order of 800,000 U.S. jobs. It

seems to me that in this time of soaring trade deficits, advocacy is

more important than ever and we ought to be putting more effort

into advocacy.

We also have in Trade Development, where I work, the Trade Information Center, that’s the 1–800–USA trade number where small

and medium-size businesses can call to take the first step in accessing the global economy. We’ve received 85,000 telephone calls

last year, 90 percent of them from small business. We had 475,000

inquiries.

Market Access and compliance is another leg of the ITA table.

And this follows up the discussion you just had with the private

sector because this is where we are trying to focus on identifying

and eliminating trade barriers, and in making sure that we have

compliance with our trade agreements. And this is really the high

priority of Secretary Daley and Under Secretary Aaron.

Whenever we discover restrictions on our access to a foreign market, we try to move aggressively. We have a new Trade Compliance

Center in ITA. We have put together a far reaching data base so

that there will be a place where all the trade agreements are available for business. And if a business has a complaint, or a trade association, or has knowledge of where a trade agreement is not

being adequately enforced, then they work with the Trade Compliance Center.

We work to try to solve those problems. And if enforcement becomes necessary, we coordinate with USTR. Now, this is a relatively new effort in the past couple of years, but as I said I know

of no higher priority that the Secretary and Under Secretary Aaron

have.

The Market Access and Compliance Center also, let me just mention for 1 minute, has a regional focus. Where our Trade Development has a sector focus. Trade Development deals with different

business sectors. Market Access and Compliance has a regional

focus so they have specific commercial knowledge on Russia, China,

Latin America, Europe, what have you.

Then the fourth and final leg of the ITA table—and these legs

are all necessary to support ITA—is the Import Administration.

The Import Administration enforces laws and agreements to preVerDate 11-MAY-2000 12:47 Jul 24, 2000 Jkt 000000 PO 00000 Frm 00114 Fmt 6633 Sfmt 6633 C:\DOCS\63185.TXT HGOVREF1 PsN: HGOVREF1
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vent unfairly traded imports. The most prominent recent example

has been the determination that certain countries were dumping

rolled steel products and a countervailing duty should be imposed

to safeguard the U.S. steel industry. That’s a high visibility issue.

Secretary Daley was up here the day before he left on his trip testifying before Congress as he has done many, many times before.

At the core of the National Export Strategy is a commitment to

involve particularly America’s small and medium-sized businesses

in exporting. We are part of a global economy, as I said before.

We’re not going to make a decision whether we’re a part of it. That

decision was made for us. The decision is: do we get in there and

participate well or do we drop the ball and participate poorly?

SMEs are the locomotive of this country in creating jobs, in creating opportunity. And if our future is indeed in that global marketplace, we have to make darn sure the small and medium-sized

enterprises are given the tools to go there and compete. Some of

the most dynamic exporters we have in this country, and about 30

percent of our goods overseas are accounted for by SMEs, are the

SME exporters really pushing the edge of the envelope in accessing

foreign countries.

Let me conclude with just a quick comment, talking up public

sector and private sector partnering. I want to talk that up because

it works. I’ve worked in the public sector for close to 20 years. I’ve

worked in the private sector running a Washington office for a

major corporation and as a senior official of a trade association.

Having worked in the private sector, I know that the private sector

cannot get the job of trade development done alone in a world

where investment climate and procurement decisions and all the

rest are made by government. Government has to be part of the

equation.

Having worked in Government for a number of years, I know

that Government can’t solve the problems alone. You need the innovation, the creativity and the expertise of the private sector. The

reason I came back to Government and joined this administration

5 years ago was to bring the public sector and the private sector

partners together in some innovative and creative ways, get everybody around the table, leverage off one another’s strengths, so that

when decisions are made overseas about business deals and trade

agreements that everybody is there, everybody has an input, and

that the strategic decisions of the United States are informed by

a good strong commercial perspective.

I hope you can tell I feel very strongly about that because I do.

I’m a true believer that the only way this country is going to prosper and progress in the global economy is by using all of our resources. And I include in that the active cooperation with Capitol

Hill, the executive branch, the States, the local governments and

the private sector too.

I could go on. You’ve already been very generous in according me

this much time. So why don’t I cease and desist at this point, but

I will look forward to having some further discussion with you in

a couple of minutes. Thank you.

Mr. MICA. Thank you. We will defer questions until after we’ve

heard from Mr. Frazier, the Acting Inspector General of the Department of Commerce. He will probably be commenting on the reVerDate 11-MAY-2000 12:47 Jul 24, 2000 Jkt 000000 PO 00000 Frm 00115 Fmt 6633 Sfmt 6633 C:\DOCS\63185.TXT HGOVREF1 PsN: HGOVREF1
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port released, I believe last week, on the International Trade Administration and it’s efforts to improve and be better prepared for

export challenges of the 21st century. Mr. Frazier you are welcomed and recognized.

[The prepared statement of Mr. Copps follows:]

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Mr. FRAZIER. Thank you, Mr. Chairman. Mr. Chairman and

members of the committee, I am pleased to be here this afternoon

to discuss some of the Inspector General’s work related to the effort

by the Department of Commerce, primarily the International Trade

Administration, to promote U.S. exports.

Much of our work within ITA has concentrated on the United

States and Foreign Commercial Service, the Department’s largest

and most visible export promotion unit. My testimony will also include IG observations relevant to export promotion efforts by other

parts of Commerce. And, finally, I will briefly highlight some of our

observations on how certain trade promotion activities are or

should be coordinated among various Federal agencies with trade

promotion responsibilities.

International trade is vital to the health of our Nation’s economy

as reported in the Trade Promotion Coordinating Committee’s 1997

export strategy, our exports support 11 million U.S. jobs. In 1998,

the United States exported $931 billion in goods and services. However, the Nation’s 1998 trade deficit, as reported by the census Bureau, was $469 billion. More recent figures suggest that the Nation’s trade deficit continues to climb.

Obviously, there are many economic and other factors that have

an impact on the trade deficit. While leaving that debate to expert

economists, policymakers and others, I do believe that we in the

Office of Inspector General have seen more than enough to convince us that notwithstanding some significant and lingering concerns, the Department of Commerce is aggressively promoting U.S.

exports.

As we conduct our reviews of ITA operations and activities, we

routinely ask questions geared to determining how ITA can more

effectively and efficiently pursue its export promotion responsibilities. The answers we find are varied, sometimes complex, but always insightful. For example, one long standing concern of ours is

that ITA’s organizational structure, as it has been managed, has

allowed fragmented and duplicative approaches to providing trade

promotion services. Realizing the agency’s organizational problems,

both the previous and current Under Secretary have prepared reorganization proposals in response to these problems.

The United States and Foreign Commercial Service is the Department’s principal and most visible promotional organization,

with a global network of offices strategically located in more than

220 cities worldwide. It has long been clear to us that both congressional and executive branch officials recognize the need for the Department to concentrate its efforts on helping individual U.S. exporters, primarily the smaller ones.

This direction is clearly stated in the Trade Act of 1988. Given

the specificity of the act’s objectives, it is no surprise that much of

our work is concentrated on how well United States and Foreign

Commercial Service is fulfilling its trade promotion responsibilities.

One specific example, No. 4, and I’ll point to the chart here [indicating visual aid on tripod] gets to the substance of what many

U.S. firms need and want, actual trade leads and an introduction

to key contacts in a foreign country. The United States and Foreign

Commercial Service fulfills this requirement in a variety of ways,

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most notably through its gold key service, agent distributor services, and matchmaker program.

During our various reviews of United States and Foreign Commercial Service offices many clients have told us that these services

are some of the most valuable export assistance services available.

Other exporters have told us how these services can work better.

And, finally, although ITA is clearly the lead Commerce agency

in the area of trade promotion, it is not the only Commerce agency

that plays a role in the advancement of U.S. exports. For example,

Commerce’s National Institute of Standards and Technology plays

a key role in ensuring that U.S. firms have a competitive opportunity, if not an advantage, in the global marketplace through its

work on measurement and standards issues.

NIST currently has representatives in Saudi Arabia, Belgium,

Mexico, Brazil, and India. Commerce also has the lead for the Government’s Trade Promotion Coordinating Committee. The committee was first created in 1990. The Secretary of Commerce was designated as the chairman of the committee, which included senior

level representatives from 18 Federal agencies, now expanded to

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The committee’s mission is to ensure that the Federal Government is doing all that it can to help U.S. companies export. The

committee has made some progress toward establishing a governmentwide strategy for export promotion activities.

In an earlier report on the Department’s trade promotion efforts,

we reported concerns about the lack of adequate interagency coordination. Since that review, the committee has established a secretariat to improve the coordination between the U.S. Government

agencies on Federal trade promotion efforts.

We believe that the Coordinating Committee can be an effective

tool for better addressing coordination problems between the foreign affairs agencies located in missions overseas, problems that we

have too often seen. This completes my summary statement, and

I’ll be very glad to answer any questions you may have.

[The prepared statement of Mr. Frazier follows:]

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Mr. MICA. Thank you for your testimony. I do have several questions. First, part of your report, and I’ll just read from some of it,

states that ‘‘many of the problems in ITA’s management of its programs and operations point to periodic voids in leadership and general direction of the individual units.’’ Is this something that has

been remedied, or is this something you have identified and are

continuing to resolve?

Mr. FRAZIER. I’d surely like to think that the reorganization proposals that are currently being explored by the Department will address this issue. This is something that GAO raised as early as

1990. In 1991, they raised it again, I think. And we raised it in

1993 as a problem, saying, basically, that the way that agency is

structured and has been managed has allowed many of the units

to virtually compete with one another.

And that could be healthy on many occasions, but at the same

time, if it’s not very clear as to who has the lead responsibility in

a given area, we think that the competition can be unhealthy and

counterproductive.

As we completed our most recent work, the report that you are

holding there, we interviewed most of the senior managers in ITA,

again, asking the question, ‘‘How can we make the organization

stronger, better suited, better prepared to help U.S. exporters?’’

And one of the things that we constantly heard was ‘‘to make certain that it was clear as to who had the primary responsibility in

the area of trade promotion.’’ In ITA, Trade Development and the

United States and Foreign Commercial Service had the primary responsibilities along those lines.

And my understanding is that they are moving now to make it

very clear that MAC, the Market Access and Compliance Unit will

primarily concentrate on policy issues as opposed to competing with

TD and with the United States and Foreign Commercial Service.

So, with a little luck, Mr. Chairman, the new proposals, some of

the changes that are being discussed, should address a lot of those

long-standing problems.

Mr. COPPS. Could I add just a comment?

Mr. MICA. Yes, go right ahead.

Mr. COPPS. I think that a lot of the challenge in making an organization like ITA run efficiently is management rather than simply

organization. And I think for various reasons over the past few

years we have had some long management intervals between Assistant Secretaries.

One of them was killed with Secretary Brown, as you may remember. Others left and I say this non-partisanly, because it takes

a long time to get nominations through the White House and

through the Congress too. But I think right now we have a management team in ITA that’s the best that I’ve seen in the 51⁄2 years

that I’ve been there.

We have team players heading Market Access and Compliance,

the Foreign and Commercial Service, Trade Development, and Import Administration, all working under Ambassador Aaron. So I

think that some of the management challenges are in the process

of being met. And with the modest organizational realignment that

is being contemplated, I’m optimistic about where we are going.

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Mr. MICA. Well, there are always two questions. One is—can personnel make the administrative changes that are necessary to accomplish the goal? The second is, should the structure be changed

organizationally to accomplish the goals?

From the testimony of Mr. Frazier, I believe he said, this seems

to be a recurrent problem, whether we’ve had Republicans or

Democrats in charge in the Department. And he cited, as I recall

from his testimony, 1990 and 1993 problems, that this has been

looked at. In his testimony and also in his summary, he cites,

‘‘ITA’s current organizational structure as it has been managed has

encouraged fragmented and often duplicative approaches to providing trade promotion services and support to U.S. firms.’’

So Congress also has a responsibility and an oversight requirement to see that there is a structure in place that will accomplish

our objectives. Mr. Frazier, it does not appear that has occurred.

What is your comment and the point you are making here?

Mr. FRAZIER. Let me add a couple of things here. One, we go

back to 1993 when we issued a similar report to the one that you

have, where we first surfaced this issue, reported on it. As I indicated, GAO had previously raised the issue as did consultants

brought in by ITA.

One of the problems that we found back in 1993 was that there

were many, many political appointees throughout ITA who came

and went with such frequency as to not provide in our judgment

the kind of continuity needed. It was almost like a revolving door

on many occasions. One of the things that I’m aware of that Secretary Daley did last year was to reduce the number of political appointees occupying some of the positions in ITA. And I think that

has made a big difference because you aren’t going to have those

kinds of voids that we were experiencing in the early 1990’s. So I’m

hopeful that that will make a difference.

The other thing is that I think that the Secretary has said that

he and Ambassador Aaron are working to come up with some kind

of a modified structure that will deal with these issues. And, again,

part of it is the commitment of the various leaders in ITA to agree

to work together. But, again, I would point to the one caveat that

we put in our statement, ‘‘as it has been managed.’’

A lot of this has to do, as I think Mike points out, with management. If you get the kind of leadership that is necessary to make

people do what they are supposed to do, make it very clear what

you expect of them, and hold them accountable for those responsibilities, then I think that some of these problems can in fact be

addressed without a major reorganization, per se.

Mr. MICA. Well, again, you talk about personnel. In your recommendations you say that, at a minimum, we should aim to reduce the overlapping administrative and programmatic functions

and remove organizational barriers that inhibit internal coordination and cooperation. Now, that is one aim.

I’d like you to address a second. First, can these be done administratively? Second, are there any legislative remedies that should

be examined?

Mr. FRAZIER. I think that all of them, quite candidly, can be

dealt with from a leadership management perspective. Part of it is

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that you are going to annoy a few people as you take away certain

responsibilities and tasks that people have always enjoyed doing.

It’s interesting because we find that if we talk to trade specialists

in one part of ITA who are very excited about the work that they

do helping exporters, they like the idea of working directly with exporters. But if that’s not their primary duty, somebody has to tell

them ‘‘You cannot concentrate on it.’’ You can get a lot of satisfaction from seeing people have success.

The people in Market Access an Compliance, that’s not their primary responsibility. They have to move away from that. That has

been difficult for some people to accept. So, again, I think that

these are all issues that if properly managed, with the proper leadership, can be handled.

Mr. MICA. Further beyond the internal operation of ITA, your report touches upon some of the activities between various U.S. agencies operating to promote U.S. exports. You do talk about some instances of overlapping—failure to communicate on projects, inefficient operations, you call it ‘‘embarrassing overlap.’’ Do some of

these uncoordinated activities that are legislatively mandated need

to have the attention of Congress as far as reorganization?

Mr. FRAZIER. Mr. Chairman, in theory the Trade Promotion Coordinating Committee can play a major role here, if they lay out

certain basic guidelines, if you will, requiring agencies to take certain simple basic actions when they are working overseas. You

know, we spend a lot of time inspecting our commercial operations

overseas. And as part of that process, we invariably go and meet

with representatives from other foreign affairs agencies that are

overseas.

For example, the Foreign Agricultural Service, USIA, and others.

And if we go in and find out that they are working on various

projects and they have not coordinated with one another, we think

that that is such a disservice to U.S. exporters. If we find, for example, folks who are working with the Foreign Agricultural Service

and yet not working with our people to sell farm equipment and

other things that would support what the FAS is doing, that’s a

problem.

And I guess the thing that makes it all the more significant is

that when we find examples of where it’s working exceptionally

well, and we see how beneficial that can be, it’s all the more reason

that it’s essential that this cooperation exists overseas.

Mr. MICA. Assistant Secretary Copps, we heard in the other

panel some recommendations for some simple implementation of

minor conveniences, such as being able to make long distance telephone calls. Can those things be addressed?

Mr. COPPS. I was not here to hear what the specific suggestion

was about long distance telephone calls, so I’m not aware of that.

Mr. MICA. Again, the inadequacy of some of the equipment. I visited one of our—I always try to visit our embassies, our Foreign

Commercial Service operations, if I can get past the massive security and even as a Member of Congress I always feel like I’ve accomplished something. But then you see sometimes the inadequately equipped offices. One office did not have a telephone

modem.

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The witness testified that the office wasn’t permitted to make

long distance calls. Seeing that they are dealing with international

trade promotion, don’t you think that would be considered a bare

necessity to conduct business?

Mr. COPPS. I think they would not only be desirable but that

they would be essential. And I would be happy to raise this with

Assistant Secretary Awilda Marquez. She is the Director General

of the United States and Foreign Commercial Service. They have

a large commitment, just as we all do in ITA, to become the digital

department and the modern communications department.

We are looking right now at trying to make much more massive

use of technology such as video conferencing, and the Internet, and

e-commerce. We have to do that just to continue on doing the job

that we’re doing. Our budgets for travel and things like that are

constantly tight so we have to find new and more effective ways to

reach out to do things.

Mr. MICA. Do our Foreign Commercial Service operations in the

various countries now all have websites?

Mr. COPPS. I’m not aware of the fact if each office has one, but

I know that the Foreign Commercial Service has an extensive commitment to websites, as do we all in the Department of Commerce.

I think if you will go to the ITA Home Page and look at the resources and the information that is there on every industry, on

every country, an market analysis for every country, that you’d be

quite impressed by what you see.

Mr. MICA. Would it be possible to check back with the committee

and provide us with information on the number of our posts, where

we have posts or a Foreign Commercial Service officer, and if they

have webpages in those countries? I think one of the most important things in conducting business is having basic information.

Probably the easiest way to access that information today is

through existing technology, particularly for medium and small

businesses. Usually the large businesses can hire their own research or acquire the basic knowledge. But I would appreciate if

you would report back to us on that.

Mr. COPPS. I will be delighted to do so and get the information

from the FCS and I know I can report from our shop, in TD, that

all of our offices have their own websites, their own industry sector

information, and how to’s on exporting.

Mr. MICA. What about the 105 U.S. centers, do they all have

websites?

Mr. COPPS. I would think so but I will check on that——

Mr. MICA. In the not too distant past, unfortunately, we did find

that there were offices that did not have websites, and did not have

sufficient computer equipment. When the earlier witness spoke of

the concern about going into an overseas post that could not make

long distance phone calls because they had exceeded their budget,

if you will, they were running out of money and they could not return calls. We reported on some of that probably 18 months ago.

I would like to think that a lot of that has been addressed, but it

was clearly one of the problems.

If you go to our report on the Export Assistance Center, that’s

the 105 centers that you were just referring to, in that report, and

again that was 3 years ago, we were very troubled by the fact that

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many of the sites did not have the information technology capabilities, websites, and things that were necessary. We could not believe

going into an office that could not access the Internet, for example.

So it was something that we were concerned about.

In the report that you have, one of our recommendations is that

ITA get a better handle on its information technology issues even

with the possibility of consolidating some of those. You would go in

one part of ITA and they would have state-of-the-art equipment,

then you go down the hall and there would be something less desirable, we’ll say. And the other thing is that we were concerned that

many of the systems were not interactive. And, again, that’s some

of the things that can be fixed in house.

I am pleased to report we have assurances from ITA management that all of the recommendations in our report are being addressed. I think there was one recommendation in there that they

disagreed with, and we are going to pursue it also.

I have further questions and I’ll be submitting them to you and

also the Secretary. I’d like to yield to the gentleman from Ohio, Mr.

Kucinich.

Mr. KUCINICH. Thank you, Mr. Chairman. I have two questions

for Mr. Copps. But welcome to both of you gentlemen. Thank you

for the work that you are doing for the country and I’m very grateful for your participation.

Mr. COPPS. Thank you.

Mr. KUCINICH. The administration had repeatedly defended

NAFTA and advocated for NAFTA’s expansion to the Caribbean

and Africa by citing the growth of United States exports since

NAFTA was enacted. I don’t know if you were here, Mr. Copps,

when I was making my remarks. But I pointed out in my statement that Ohio’s export of an engine to Mexico occurs because the

assembly plant in Michigan was closed after NAFTA and reopened

in Mexico, causing a loss of United States jobs. This export represents a deterioration of the U.S. economy.

Furthermore, when the truck assembled in Mexico comes back to

the United States, it adds to the trade deficit. Therefore, the trade

deficit reflects a deterioration of the U.S. economy. If the administration had advocated the passage of NAFTA by claiming it would

increase the trade deficit, my guess is that Congress would not

have passed it. My question is this: with 5 years of experience now

with NAFTA, don’t you have to agree that a growing trade deficit

with Mexico is causing the opposite reaction in the United States

economy than the net growth the administration promised?

And if the administration promises economic growth and Congress passes NAFTA expansion to the Caribbean and Africa, why

should the Congress believe the administration based on NAFTA’s

track record in causing a growing trade deficit, if you could give a

stab at that?

Mr. COPPS. Well, I think we would probably have a small element of disagreement on the overall thrust of NAFTA. I realize

when you get a devotee and an opponent of NAFTA together, it’s

sometimes difficult to find common ground. But——

Mr. KUCINICH. Well, you could stick with the facts and see where

it takes you.

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Mr. COPPS. All right. My conclusion is that NAFTA is working

for America. It is leveling the field of play that was previously tilted toward Mexico. In 1993, the United States faced some pretty

significant tariff barriers and non-tariff barriers. In 1999, most of

those tariffs are gone. A lot of the licensing requirements and other

non-tariff barriers are gone too. In 5 years our U.S. exports have

gone up something on the order of 92 percent. Even last year, up

another 11 percent.

When the Asian crisis came along, I think thanks to NAFTA,

Mexico was not in a position to raise tariffs against the United

States which it might otherwise have done. You know, I’ve seen reports like one from the Dallas Federal Reserve which did a study

concluding NAFTA actually reduced our trade deficit with Mexico.

I’m not an expert on that report, but I know that there is some

lively discussion that’s——

Mr. KUCINICH. Actually, I have that available, Mr. Copps. Before

NAFTA was implemented in 1994, the United States had a positive

balance of trade on goods and services with Mexico. Now, according

to the Department of Commerce data, this is where we get it from,

in 1992 the United States trade surplus with Mexico was about

$5.4 billion. In 1997, 3 years after NAFTA, the United States had

a trade deficit with Mexico worth $19.5 billion.

Based on the facts that I get from the Department of Commerce,

I would take issue with the assertion that NAFTA has been good

for the United States with respect to its balance of trade or imbalance of trade with Mexico.

Mr. COPPS. Well, I understand what you are saying. And, again,

I think we would have to go back to some of the fundamentals and

what it is that caused the massive dislocations and difficulties that

Mexico had. My interpretation is that NAFTA probably helped us

weather those and was a positive contribution. Your interpretation

of that is obviously very different.

Mr. KUCINICH. Thank you very much.

Mr. COPPS. Thank you.

Mr. MICA. I thank the gentleman. I was just relaying to staff

that when I came to Congress in 1993 from the private sector, I

had been involved in international trade. I visited many of our embassies and our Foreign Commercial Service offices around the

world in that capacity, and one of the first things I did upon taking

office was to, I think, write all of the Foreign Commercial Service

offices and Ambassadors around the world with my own little inquiry.

It wasn’t quite as detailed as the IG’s reports, but just trying to

assess what we were doing and where we were on assisting trade

promotion. After the State Department contained itself from an apoplectic fit about my unilateral action, we were able to agree on

how the information could be gathered, which we did gather. I

found our efforts, as I suspected, just from the samples that I had

been involved in personally observing, that there were some serious

deficits.

Unfortunately, it does not appear that we have made a whole lot

of progress even on some simple matters. We have changed some

faces. I do, before I close however, want to become complimentary.

I rarely do this of the Clinton administration. You might listen to

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this, Dennis, but I will say at the highest levels the administration

has attempted to inject itself in the trade promotion and I commend them for that. They have done that very well on repeated occasions. Even, I remember, in the private sector, when we couldn’t

get the Republican top folks to do the same thing, so I am very

complimentary in that regard.

However, it seems that we are still in a bit of chaos, disorganization, and a lack of reforms at lower levels. And I think the IG’s report does detail some of that. I am not interested in bashing the

agency, but in our capacity we are going to conduct some rigorous

oversight.

We would be glad to sit down with the Department and others

and look at these reports and see what we can do to bring about

some corrective measures. So that’s the intent of this first hearing,

and what we will be seeing in the coming months and 2 years.

Mr. COPPS. Could I just respond to that for 1 second?

Mr. MICA. Yes.

Mr. COPPS. I have over the years very much welcomed your openminded approach to this. You may not recall, but I recall that we

had the opportunity to have some discussions on ITA reorganization during the great dismantlement debates of a few years back,

and I appreciated your willingness to listen and we have very much

appreciated the suggestions you made.

I’m not here to suggest that our organization is perfect or that

the implementation is perfect. And we depend on my colleague, Mr.

Frazier, and on the oversight of subcommittees like yours, and as

much as anything, on the creative input of our partners in the private sector to critique both our performance and our organization.

But I just want you to understand that when all these debates go

on, as Teddy Roosevelt said, ‘‘We’re in the arena.’’

And we are in one heck of an international competition right this

minute and we are out there doing our job. And I want to reflect

on all of the employees of Department of Commerce who I think,

by and large, are committed to getting the job done, are working

hard, are making a contribution to public service and are I think

aware of the very high stakes involved for the American people and

the American worker and American industry as we try to succeed

in the global economy.

Mr. MICA. I thank you both for your testimony and for your participation. As I said, we will leave the record open for at least 10

days for any additional comments. We look forward to working

with you in a cooperative effort to see how we can all do a better

job. Thank you. There being no further business before the subcommittee, this meeting is adjourned.

[Whereupon, at 4:30 p.m., the subcommittee was adjourned.]

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