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92–619 PDF 2003

THE CHILEAN FREE TRADE AGREEMENT: OPENING

DOORS TO SOUTH AMERICAN MARKETS

HEARING

BEFORE THE

SUBCOMMITTEE ON TAX, FINANCE AND EXPORTS

OF THE

COMMITTEE ON SMALL BUSINESS 

HOUSE OF REPRESENTATIVES

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

WASHINGTON, DC, JUNE 12, 2003

Serial No. 108–19

Printed for the use of the Committee on Small Business

(

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

COMMITTEE ON SMALL BUSINESS 

DONALD A. MANZULLO, Illinois, Chairman 

ROSCOE BARTLETT, Maryland, Vice 

Chairman 

SUE KELLY, New York 

STEVE CHABOT, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

JIM DEMINT, South Carolina 

SAM GRAVES, Missouri 

EDWARD SCHROCK, Virginia 

TODD AKIN, Missouri 

SHELLEY MOORE CAPITO, West Virginia 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

TRENT FRANKS, Arizona 

JIM GERLACH, Pennsylvania 

JEB BRADLEY, New Hampshire 

BOB BEAUPREZ, Colorado 

CHRIS CHOCOLA, Indiana 

STEVE KING, Iowa 

THADDEUS MCCOTTER, Michigan 

NYDIA VELA ́ ZQUEZ, New York 

JUANITA MILLENDER-MCDONALD, 

California 

TOM UDALL, New Mexico 

FRANK BALLANCE, North Carolina 

DONNA CHRISTENSEN, Virgin Islands 

DANNY DAVIS, Illinois 

CHARLES GONZALEZ, Texas 

GRACE NAPOLITANO, California 

ANI ́BAL ACEVEDO-VILA ́ , Puerto Rico 

ED CASE, Hawaii 

MADELEINE BORDALLO, Guam 

DENISE MAJETTE, Georgia 

JIM MARSHALL, Georgia 

MICHAEL MICHAUD, Maine 

LINDA SA ́ NCHEZ, California 

ENI FALEOMAVAEGA, American Samoa 

BRAD MILLER, North Carolina 

J. MATTHEW SZYMANSKI, Chief of Staff and Chief Counsel 

PHIL ESKELAND, Policy Director 

MICHAEL DAY, Minority Staff Director

(II) 

C O N T E N T S 

WITNESSES

Page 

Padilla, Christopher A., Office of U.S. Trade Representative .............................. 3

Rosales, Manuel, U.S. Small Business Administration ........................................ 6

Workman, Willard A., U.S. Chamber of Commerce .............................................. 13

Morrison, James, Small Business Exporters Association ..................................... 15

Schantz, Arland, Evergreen Farm .......................................................................... 17

Wesson, Laurence N., National Association of Manufacturers ............................ 18

APPENDIX

Opening statements: 

Toomey, Hon. Patrick J. ................................................................................... 25

Millender-McDonald, Hon. Juanita ................................................................. 31

Prepared statements: 

Padilla, Christopher A. .................................................................................... 38

Rosales, Manuel ................................................................................................ 46

Workman, Willard A. ....................................................................................... 51

Morrison, James ............................................................................................... 56

Schantz, Arland ................................................................................................ 60

Wesson, Laurence N. ........................................................................................ 63

(III)

(1)

HEARING ON THE CHILEAN FREE TRADE 

AGREEMENT: OPENING DOORS TO SOUTH 

AMERICAN MARKETS 

THURSDAY, JUNE 12, 2003

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON TAX, FINANCE AND EXPORTS

COMMITTEE ON SMALL BUSINESS

WASHINGTON, D.C. 

The subcommittee met, pursuant to call, at 10:06 a.m. in Room 

2360, Rayburn House Office Building, Hon. Patrick J. Toomey 

[chairman of the subcommittee] presiding. 

Present: Representatives Toomey, Millender-McDonald, Chabot, 

Beauprez, Ballance 

Chairman TOOMEY. Good morning, everyone. This hearing will 

come to order. Welcome to the hearing on the Chilean Free Trade 

Agreement: Opening Doors to South American Markets by the 

Small Business Subcommittee on Tax, Finance and Exports. 

I am delighted to be able to discuss this important topic this 

morning and looking forward to the input from the witnesses on a 

trade agreement, that discussions of which began in December, 

2000 in a serious way and just last Friday, on June 6, the United 

States Trade Representative, Robert Zoellick, and the Chilean Foreign Minister Soledad Alvear signed the agreement, clearing the 

way for what I hope will be a vote soon in this 108th Congress. 

I would be the first to clearly acknowledge I am a big believer 

in free markets and expanding trade and I think it is critical that 

we reduce trade barriers all around the world, create a level playing field and open up foreign markets to American goods and services. This trade agreement is a major step in that direction. 

I think it is worth nothing that last year after a tough fight, Congress passed the Trade Promotion Authority Act, which is essentially an agreement between the President and Congress on how 

market opening trade agreements will be conducted and how those 

agreements will be approved. 

Trade Promotion Authority will really energize the efforts to remove the existing trade barriers, expand U.S. trade and provide a 

real boost to our economy, entrepreneurs and the expansion of jobs. 

It was under the Trade Promotion Authority that we were really 

able to wrap up this trade agreement and I think that is a very 

important development. 

Again, this summer hopefully we will have a vote on this very 

important agreement. Trade between the United States and Chile 

is surprisingly large, despite Chile’s relatively small population and 

2

its geographic distance. This agreement nevertheless is long overdue. 

Since 1997 the share of Chile’s imports that have come from the 

United States has experienced a steady and dramatic decline. Back 

in 1997, U.S. goods made up about 24 percent of Chile’s foreign 

purchases. By 2002, the American share of Chilean imports had 

fallen to less than 17 percent. So in other words, over the course 

of six years, the United States lost nearly one-third of its share of 

Chilean imports. 

It is not a coincidence that this plunge in trade occurred as other 

nations were implementing their own free trade agreements with 

Chile, gaining market share and taking it away from the United 

States. 

American companies currently operate at a significant competitive disadvantage with respect to competitors such as companies 

from Canada, Mexico and the European Union, all of whom have 

free trade agreements with Chile. 

As an example, a U.S. made Caterpillar 140 horsepower motor 

grader, a popular piece of equipment, that sold in Chile, when it 

is sold in Chile, there are $13,000 worth of tariffs added to that 

sale. The same exact tractor made in Canada pay zero in tariffs. 

It is very obvious that there is a huge economic incentive to ship 

the jobs and the manufacturing to Canada, not in the United 

States where the product will have a competitive advantage and 

that is the kind of policy that doesn’t make any sense for America, 

it doesn’t make any sense for American jobs. 

The National Association of Manufacturers estimates that the 

current lack of a free trade agreement with Chile costs U.S. exporters $800 million per year in sales and affects 10,000 U.S. jobs. This 

trade agreement will remedy these competitive disadvantages and 

give American companies and American workers a level playing 

field on which to compete with our competitors. 

I think it is also worth nothing that this helps to promote a 

broader U.S. foreign policy goal that we have throughout the Americas. In addition to the merit it has in its own right in developing 

expanding trade between the United States and Chile, a U.S.-Chile 

free trade agreement is a critical first step toward the completion 

of a 34-nation free trade area of the Americas, which I think is a 

very, very important and worthwhile goal. 

I think it is also vital to send the message to our trading partners that when countries stay on a path of market opening, economic reforms and establishing viable democracies, as Chile clearly 

has, that the United States is then prepared and in fact eager to 

improve mutual trade and economic relations. In that respect, you 

can’t find a better trading partner than Chile. 

That is why it has been nearly a decade, the last decade during 

which both democratic and republican administrations have made 

reaching this agreement a high priority. Chile’s outstanding democratic and economic credentials largely explain the success of the 

Chilean economy and the reason that we seek to have even closer 

ties. 

Chile has one of the highest standards of living in Latin America 

and the Caribbean. The trade investment regime is among the 

most open in Latin America. Strong budget discipline has yielded 

3

one of the smallest budget deficits in the western hemisphere and 

Chile has had the second fastest growth in domestic product in 

Latin America over the last ten years. In short, Chile has an outstanding track record of accomplishment and it is an ideal candidate for expanding trade. 

[Mr. Toomey’s statement may be found in the appendix.] 

Chairman TOOMEY. The first panel we have with us today I am 

very eager to hear from. Leading things off we have Mr. Christopher Padilla, Assistant U.S. Trade Representative for Intergovernmental Affairs and the Public Liaison for the Office of the 

United States Trade Representative. Mr. Padilla will provide us an 

overview of the Chilean free trade agreement and how it will help 

not only our nation’s small businesses, but our economy as a whole. 

Also with us today is the Honorable Manuel Rosales, Assistant 

Administrator of the Office of International Trade at the Small 

Business Administration. Mr. Rosales and his staff over at the SBA 

have done an outstanding job in laying the groundwork in preparation for this agreement. 

In addition to his regular duties, Mr. Rosales has crafted working 

partnerships with his Chilean counterparts and has stayed ahead 

of the curve, thus being ready to assist American small businesses 

who either want to become involved or become more heavily involved in trade with Chile. I thank you both very much for joining 

us today and I welcome the comments of Mr. Padilla. 

STATEMENT OF CHRISTOPHER A. PADILLA, ASSISTANT U.S. 

TRADE REPRESENTATIVE FOR INTERGOVERNMENTAL AFFAIRS AND PUBLIC LIAISON, OFFICE OF THE UNITED 

STATES TRADE REPRESENTATIVE, WASHINGTON, D.C. 

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

for holding this hearing, for your interest in our trade policy and 

specifically for your interest in Chile. 

I was honored to appear in a program with you and Administrator Rosales in Philadelphia. I think it was a couple of months 

ago when we were still working on wrapping up the U.S.-Chile free 

trade agreement and I am very pleased to be here today to talk 

about an agreement that we expect to be submitting to Congress 

for its consideration very shortly. 

I would like to start this morning by talking briefly about a company from your home state, Mr. Chairman, of Pennsylvania. Gulden Ophthalmics, which is a small business, less than $1 million 

in revenues, based in Elkins Park, Pennsylvania. The president of 

the company, Tom Cockley, recently visited Santiago and his story 

is told in a publication put forward by the U.S. Chamber of Commerce about benefits to small business of the U.S.-Chile free trade 

agreement. 

Mr. Cockley’s company, which has been in existence since 1938, 

wants to expand its sales in Chile, particularly sales of ophthalmic 

products to hospitals, clinic, universities and medical centers. Mr. 

Cockley says that the current Chilean import duty of six percent 

has effectively given his competitors from Europe a competitive advantage, because Europe has a free trade agreement with Chile 

and until recently the United States did not. 

4

He says, ‘‘If the United States passes the U.S.-Chile free trade 

agreement, there would be no import duty and we would be able 

to sell our products competitively. A reduction of this trade barrier 

would improve our company’s growth and employment prospects’’. 

He also says, ‘‘If we do not export to Chile, then we do not export 

to all of South America’’. 

I think the example of Gulden Ophthalmics is an excellent example of why it makes sound economic sense for the United States to 

have a free trade agreement with Chile. Over the past 15 years 

Chile has established a thriving democracy, a thriving economy, a 

free market society and an open economy built on trade. 

A U.S.-Chile free trade agreement will help Chile to continue its 

impressive record of reform, growth and development and as you 

said, Mr. Chairman, it will also help spur progress toward even 

bigger and better things, such as a hemispheric wide free trade 

area of the Americas. 

For small businesses in the United States, emerging markets like 

Chile provide excellent opportunities for fast growth in exports. In 

1999, nearly 80 percent of all U.S. firms that exported to Chile 

were small or medium-sized businesses and they generated over 

$900 million on U.S. exports. 

We believe that small business succeeds under free trade regimes. As both tariff and non-tariff barriers are reduced, opportunities for small businesses to foreign markets improves substantially. 

Most small businesses are based in the United States and are export businesses. They tend not to be foreign invested businesses. So 

tariffs and non-tariff barriers are significant obstacles to their 

growth. 

Since the introduction of the NAFTA in 1994, small business exports to Canada and Mexico have increased at a substantially higher rate than small business exports to the rest of the world. In fact, 

Mexico is now the number two market for U.S. small business exports. 

Small and medium-sized businesses benefit from things like the 

elimination of tariffs, but also important aspects of our free trade 

agreement, such as increased transparency and laws and regulations in foreign countries, trade and customs facilitation to make 

it easier for small businesses to get their products across borders 

and through often rigorous or difficult customs procedures, and 

protection of intellectual property rights. 

Small businesses have important assets in their trademarks and 

their copyrights, in their intellectual property and they are often 

the first victims of piracy and theft in foreign countries, because pirates believe that small businesses have fewer assets or fewer resources to go after intellectual property piracy. 

For all those reasons, free trade agreements are particularly important to small business and the free trade agreement that the 

President will soon submit to Congress has four distinguishing features that I would like to talk about today and bring to your attention. 

First, this free trade agreement is comprehensive. Unlike free 

trade agreements that our competitors have negotiated with Chile, 

our free trade agreement covers all products and all services and 

5

covers a number of other cutting edge areas, like intellectual property protection and trade facilitation. 

Second, the free trade agreement with Chile promotes transparency and good governance, which is particularly important in 

Latin America and Chile has been a leader in this field. 

Third, the free trade agreement is modern. It is up-to-date. It 

deals with things like piracy of digital products, such as movies or 

text or videos that might be transmitted over the Internet. These 

are new businesses that have come into existence since the last 

free trade agreement was submitted for Congressional consideration. 

Finally, the U.S.-Chile free trade agreement uses an innovative 

approach to support and promote respect for environmental protection and worker rights, which of course was a difficult area that 

the Congress grappled with and crafted a bipartisan compromise in 

the Trade Promotion Authority Act. 

Let me talk about each of these four areas briefly, if I might. 

First, the agreement is comprehensive. It covers all goods, all services and all government procurement. Second, the agreement promotes transparency. The U.S.-Chile FTA is the first agreement 

that will have specific, concrete obligations on things like publishing customs rules on the Internet, on allowing small U.S. businesses to request binding advance rulings from Chilean customs 

authorities or provisions which allow the rapid release of goods 

from customs. 

Third, the agreement is modern. It provides state-of-the-art protection for digital products, like software, music, text and videos 

and as I said, small businesses whose critical asset is often their 

trademark or their copyright will benefit from stronger IPR protection. 

Finally, the agreement uses an innovative approach on labor and 

environment. The FTA’s encourage a high level of protection for 

labor and environment and they oblige signatories, like Chile to enforce their own domestic labor and environmental laws. This effective enforcement provision is subject to dispute settlement and is 

backed by an effective remedy including the innovative use of monetary fines. 

To sum up, Mr. Chairman, as Ambassador Zoellick recently said 

in Miami last Friday when the agreement was signed, ‘‘The U.S.-

Chile free trade agreement is a partnership for growth, a partnership in creating economic opportunity for the people of both countries’’. 

With Congressional guidance and support, the Bush administration is pursuing and ambitious and comprehensive trade policy. 

The U.S.-Chile free trade agreement will be one of the first of many 

free trade agreements that we hope to submit for your consideration. We will continue to move forward bilaterally, regionally and 

globally and together we can show the world the power of free 

trade to strength democracy and promote prosperity. Thank you. 

[Mr. Padilla’s statement may be found in the appendix.] 

Chairman TOOMEY. Thank you very much, Mr. Padilla. Mr. 

Rosales. 

6

STATEMENT OF MANUEL ROSALES, ASSISTANT ADMINISTRATOR, OFFICE OF INTERNATIONAL TRADE, SMALL BUSINESS ADMINISTRATION, WASHINGTON, D.C. 

Mr. ROSALES. Thank you. I would like to thank Chairman 

Toomey for inviting us to participate in this most important hearing. 

SBA strongly supports the Bush and Lagos administrations’ commitment to bilateral free trade agreement, which as you know was 

signed June 6. Chile already offers excellent market opportunities 

for U.S. small businesses. Seventy-nine percent of U.S. exporters to 

Chile are small businesses with close to 950 million in annual merchandise export sales. 

U.S. small businesses export account for around 30 percent of all 

U.S. manufacturing exports. In Chile, this figure is just over 36 

percent. Chile’s preferential access to most markets in South America, low inflation, strong financial systems, low levels of corruption 

and open competitive economy also provides an excellent base for 

U.S. small business to expand into the Latin American marketplace. 

According to the National Association of Manufacturers new updated figures, the absence of U.S.-Chile FTA costs U.S. exporters 

more than one billion a year in sales and costs the U.S. economy 

approximately 20,000 jobs. Since we know that the U.S. small businesses account for 36 percent of U.S. exports to Chile, we can assume that more than 360 million of the one billion plus is lost in 

sales to U.S. small businesses. 

Reducing the cost of doing business overseas allows small businesses to overcome and become more global players and a growth 

at a much faster rate. Small businesses typically have limited access to investment capital and are disproportionately impacted by 

trade barriers. 

Small businesses do not have parents or affiliates that multinational enterprises have to help get protect into the new markets. 

They do not have lawyers on call to get around bureaucratic red 

tape or protect against pitfalls of doing business internationally. 

Last year, the SBA engaged in conversation with counterpart 

agencies in Chile to explore ways to cooperatively support and promote small business trade linkages between the United States and 

Chile. SBA believes this cooperation gives a head start for positioning U.S. and Chilean businesses to immediately and effectively 

take advantage of the opportunity that the FTA would provide. 

We know that to support U.S. small businesses international 

marketplace, we need to be proactive and stay ahead of the curve, 

as opposed to waiting for things to happen and then be reacting. 

With than in mind, on December 5, 2002 SBA signed an external 

cooperative memorandum with The Technical Cooperation Service 

of Chile, SERCOTEC and CORFO, the Chilean Economic Development Agency, to initiative institutional cooperation to promote and 

support the development of growth, stability and global competitiveness of small business and medium enterprises, SMEs, and promote trade opportunities for SMEs in each country. 

SBA is currently working on a process of developing an action 

plan in effectively advancing this initiative. The primary focus of 

initial activities include sharing strategy for promoting small busiVerDate 0ct 09 2002 15:30 Apr 02, 2004 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 G:\HEARINGS\92619.TXT NANCY
7

ness access to government contracting. SBA also plans to work the 

American Chamber of Commerce in Chile, the AMCHAM, to develop a tool kit for doing business between the United States and 

Chile and to coordinate the organization and coordination of small 

business trade, delegations to promote strategies, alliances between 

SMEs in Chile and the United States. 

On a broader scale, as part of the cooperative memorandum, SBA 

is committed to working closely with the Chileans in formation of 

a cooperation and the coordination of the SME Congress of the 

Americas. The mission of this Congress is to create an atmospheric 

network of public and private sector small business service providers to promote the growth of free enterprise in the Americas to 

the development of small business in international trade. 

S.B.A. will be hosting a steering committee during our 50th anniversary in September in Washington to launch its initiative and 

begin to develop a strategic plan to help ensure the effectiveness 

and sustainability of this process. SBA will be discussing plans for 

the first full Congress, tentatively scheduled to take place in Chile 

2004 during the APIC’s conferences. 

S.B.A. believes in successful cooperation with Chile can play an 

important role in generating hemispheric support for a free trade 

area of the Americas. If we can show a tangible result in how U.S.-

Chile offers increased opportunities for small business’ growth, 

then together SBA can help build grassroots support for free trade 

through the hemisphere. 

S.B.A. sees this cooperative agreement with Chile as the first 

step to strengthening the hemispheric united through small business. Chile has been the model of economic reform and liberalization for the developing markets. SBA views Chile as an ideal partner in helping ushering in a new era of regional prosperity to small 

business growth. 

We believe that the free trade agreement will help make this vision a reality. Thank you, Mr. Chairman, for your time and I am 

happy to answer any questions you may have. 

[Mr. Rosales’s statement may be found in the appendix.] 

Chairman TOOMEY. Thank you very much, Mr. Rosales. I appreciate your input as well. A couple of questions come to mind. The 

first one, Mr. Padilla maybe you could shed some light on. Exactly 

what does it mean to end up with a free trade agreement? We use 

that term frequently and maybe you could share with us, as a very 

practical matter for instance: Does a free trade agreement with another country mean that a Pennsylvania manufacturer can sell 

with no more obstacles in Chile than he would have in Massachusetts? Is it a complete absence of all tariffs? Is it a complete absence of all quotas or is it just movement in that direction? Maybe 

you could shed some light on that. 

Mr. PADILLA. Well, Mr. Chairman, a free trade agreement especially the type of 21st century free trade agreement that this administration is negotiating, come about as close as we possibly can 

to making it as easy to sell in Chile as it would be for a Pennsylvania company to sell in Massachusetts. 

There are a few things that are important in our free trade 

agreements that I want to emphasize. They are comprehensive. 

They cover every product. No product and no service is excluded. 

8

That is a lot different than the kind of free trade agreements that 

our European friends negotiate, where they tend to leave out agriculture, for example. 

The other thing about our free trade agreement, as I said they 

are quite state-of-the-art. They deal not only with tariffs and 

quotas, but they also deal with things like the protection of intellectual property, electronic commerce, protecting the right of investors in Chile, U.S. investors in Chile and that is why we are so 

proud of this agreement. 

If you look at the U.S.-Chile agreement, it is nearly 900 pages 

long. I don’t look forward to your job of reading through it when 

we submit it for your consideration, but it is designed to make it 

almost as easy to sell in Chile as in Massachusetts. 

Chairman TOOMEY. My follow-up question to that: My understanding is that historically and in certainly recent years, the tariffs that Chile has imposed on American goods and services being 

sold there is higher than any tariffs in the other direction. 

Mr. PADILLA. Indeed. 

Chairman TOOMEY. So clearly I can see the appeal and how valuable and appealing and attractive this is to American businesses 

and job. What is in it for the Chileans? What do they perceive to 

be the advantage? They could have of course unilaterally lowered 

their tariffs. What is it that brings them to the table? 

Mr. PADILLA. Well, the agreement is truly a win/win agreement. 

You are right in that Chile’s average tariffs are higher than the 

United States, if you look at it across an average. But, there are 

some important areas where they would like increased access to 

our markets, particularly in the agriculture area. 

Chile is very competitive because they are in the southern hemisphere. A lot of our fruits and vegetables off season come from 

Chile. In fact, the port of Philadelphia is one of the largest ports 

in the country for the import of Chilean grapes and other fresh 

fruits during the winter months. They also are very competitive in 

the wine area. 

They will get access to our market under this agreement, although in some of our most sensitive agricultural products that access is phased in over a 12-year period so as to give our competitive 

producers time to adjust. 

Chairman TOOMEY. Thank you. Mr. Rosales, are there any particular industries in which small business manufacturers or service 

providers are likely to have any more immediate or more rapid 

prospects for expanding exports as a result of this agreement? 

Mr. ROSALES. Yes, sir. I would say the services industry. If you 

look at the total exports of small business abroad, roughly 35 percent are in the service industry and the high tech industry. So I 

see that is a great opportunities for small businesses in Chile. 

Chairman TOOMEY. Do those industries face any particularly difficult hurdles now that are going to be diminished as a result of 

the free trade agreement? 

Mr. ROSALES. Well, as Mr. Padilla indicated, the intellectual 

properties and piracy is one area that is a major concern. The other 

obviously is they don’t have the multinational support that they 

would have from a major corporation, attorneys, consultants to 

help them get into those marketplaces. So obviously the lowering 

9

of the barriers is very, very helpful for the small businesses to grow 

and flourish in the Chilean market. 

Chairman TOOMEY. Terrific. Thank you very much. At this time 

I would be happy to recognize the gentleman from North Carolina, 

if he has any questions. 

Mr. BALLANCE. If I could yield just now, since I came in a little 

bit late. Thank you. 

Chairman TOOMEY. Certainly. Thank you. The gentleman from 

Colorado. 

Mr. BEAUPREZ. Thank you, Mr. Chairman. I would like to pursue 

a little bit of this same line of thinking that you were doing. Let’s 

get, if we can, even more specific since I have not visited Chile specifically. I have some appreciation for the kind of market there. 

Give me, one or the other or both of you, a quick overview and 

talk very specifically also about how American, especially small 

business, yesterday we had a hearing and we had some businesses 

that were completely owner-operated, one employee but they were 

still exporting some iron works, for example this one gentleman. Is 

this a market that is going to be attractive to Internet advertising 

contact? Is it more of a face-to-face market? Is it a market that is 

in its infancies in some industries or much more sophisticated or 

all of the above? How are especially American small businesses 

going to prepare and maybe compete better and position themselves better? 

Mr. PADILLA. I will lead off by saying that the Chilean market 

is a very sophisticated market. In fact, the original idea was to add 

Chile along with Mexico to the NAFTA agreement, as far back as 

1994. Since then, the market has become even more attractive. 

Chile is one of the most advanced and developed economies in 

South America. They have a very sophisticated Internet economy, 

for example, which is why our agreement includes e-commerce provisions to allow small businesses to sell their goods and services via 

Internet, which is particularly important because small businesses 

probably don’t have a presence in Santiago, Chile. They may not 

even have a distributor. That is why we emphasized the e-commerce provisions in this agreement. 

Mr. ROSALES. Coming from California and having dealt extensively with organizations like Chambers of Commerce, particularly 

Hispanic side, we see the opportunities in Chile for small businesses as tremendous. As Mr. Padilla has said, it is a very sophisticated society. We have already been doing trade with Chile. Thirtysix percent of small business exports are going to Chile. 

We see the opportunities not only in reference to high tech area, 

but also to light manufacturing. I have had the opportunity to visit 

Chile twice. It is a very modern society, very open. With the Internet, you will see that the increase of small business participation 

around the world will even be higher. 

Our experience through NAFTA, before NAFTA we had 60,000 

exports. Now there is 220,000, of which 97 percent are small businesses. Just to Mexico and Canada SMEs, 95,000 of them are exporting to the tune of $40 billion a year in all products. So we anticipate that the opening up of the Chilean marketplace will be a 

tremendous boom to small businesses. 

10

Mr. BEAUPREZ. If you know, I formerly had a little background 

in livestock, specifically dairy cattle and did some exporting of that, 

it is my understanding this is an extremely climatically a very diverse country and a very rich agricultural country, but I am not familiar with the quality or the extent of their livestock industry. 

Now not specifically just dairy cattle, but dairy, beef, chicken, poultry, hogs, the whole gamut. Is there opportunity for our agricultural industry that is really suffering? 

Mr. PADILLA. Absolutely. In fact, about three-quarters of U.S. 

farm goods will be duty free into Chile within the first four years 

of implementation of the agreement. The agriculture sectors in the 

U.S. that I think will benefit particularly are beef, poultry, pork, 

to some extent grains mainly wheat and in fact, the cattlemen and 

the National Pork Producers and others were some of the first industries out with supportive statements when we concluded the 

agreement last fall. 

One of the advantages is because Chile is in the southern hemisphere, the agriculture markets tend to be complimentary particularly in fresh fruits and vegetables. Most of the grapes that you eat 

in the wintertime probably already come from Chile and under this 

agreement they will come duty free and hopefully save money for 

U.S. consumers. 

Mr. BEAUPREZ. Thank you, Mr. Chairman. 

Chairman TOOMEY. Thank you. At this time, the gentleman from 

North Carolina. 

Mr. BALLANCE. Mr. Chairman, I do want to follow up on the last 

question that was raised about farmers. My district is in North 

Carolina, and I was just looking and seeing that Governor Michael 

Easley is one of the supporters of the American Farm Bureau and 

then I note that there are some issues about labor. What is that 

problem? 

Mr. PADILLA. We actually don’t see any major problems on labor 

standards in Chile. As part of the negotiation of this agreement, in 

fact the Chilean government repealed a lot of the Panache era old 

labor laws, because they knew as a result of our Trade Promotion 

Authority bill that we were going to have to include provisions on 

effective enforcement of domestic labor laws, as well as environmental laws in this agreement. 

I think this is an example, Congressman, of how we can have a 

constructive approach on labor. When these countries know that we 

are going to pursue effective enforcement of domestic labor laws, 

we are seeing that they are making positive changes up front. 

Chile did it. We are already seeing Guatemala now, with whom we 

are negotiating as part of the Central America agreement, seeking 

to change some of their labor laws as well, because they know they 

are going to come under scrutiny. 

Mr. BALLANCE. Thank you. Thank you, Mr. Chairman. 

Chairman TOOMEY. At this time the Chair will recognize the 

ranking member, the gentlelady from California. 

Ms. MILLENDER-MCDONALD. Thank you so much, Mr. Chairman. 

Let me apologize first for having a speaking engagement at the 

U.S. Chamber of Commerce and so I am running through the traffic to get here, because of our fine and outstanding presenters. I 

thank you both so much for being here and certainly would like to 

11

welcome the Honorable Manuel Rosales from California. He hails 

from our great state and we are just so proud of the work that you 

are doing. 

We recognize that in 2000, the United States and Chile announced that they would negotiate a free trade agreement and 

after more than two years of this negotiation, a bilateral agreement 

was reached and recently signed by President Bush. So it is now 

up to Congress to approve this implementation legislation. 

Mr. Rosales, in your testimony you mentioned that small businesses typically have limited access to investment capital and are 

disproportionately affected by trade barriers when they are trying 

to take part in the global market. That is absolutely the truth. In 

fact, my great Chairman is coming out to my district and we are 

going to talk about small businesses and international trade, because it is so important that we get into that market. 

Can you tell this Committee what trade facilitation activities in 

the SBA is working on to help small businesses take advantage of 

the U.S.-Chile free trade agreement? 

Mr. ROSALES. Yes, we can. Thank you for that question. When 

I was chairman of the California Hispanic Chamber of Commerce 

almost 12 years ago and we began the negotiations with NAFTA, 

it became very clear to me as a statewide small business association that we needed to be in the proactive mode to be able to have 

advantages that the multinationals were going to get immediately 

from these trade agreements. 

So at the SBA we took that same philosophy. We looked at how 

can we begin to create the linkages between small business in the 

United States and small businesses in Chile and at the same time 

look at the multipliers in each country, the Chambers of Commerce, the trade associations, because we wanted to have our small 

businesses in line, ready to go when these agreements were signed. 

So with that, we signed an MOU of understanding with both our 

counterpart agencies in Chile, SERCOTEC and CORFO, to begin 

the linkages and begin developing those relationships. We visited 

Chile. We participated as part of one of the deliverables on government contracting, being able to transfer some of our technology, 

some of our knowledge here in the Small Business Administration 

to the Chilean counterparts. 

We see the opportunities as tremendous. Before NAFTA, as I indicated there was only 60,000 exporters in the United States. Now 

we have over 220,000. In California, we have seen the small businesses have done much more business with Mexico because of the 

trade barriers coming down. Small businesses are obviously more 

able to compete if there is transparency, lower tariffs, availability 

to be able to compete equally. 

In Rhode Island, your natural state, sir, is one of the top exporting states in the country in the export to Canada and that happened during the NAFTA years. So we see small business as taking 

an opportunity to look at how we can help. Small Business Administration has lending programs, export financing capital and we 

also have trade promotion programs to assist our small businesses 

to get involved in the international arena. 

We are participating as we speak on the CAFTA negotiations. 

We have one of our representatives who sit on the capacity buildVerDate 0ct 09 2002 15:30 Apr 02, 2004 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 G:\HEARINGS\92619.TXT NANCY
12

ing committee to be able to represent small businesses in such an 

important issue. We assist at USDR in the government contracting 

phase of the negotiations. It was a small step in the negotiation, 

but we think it was a very helpful step. 

So we are doing, at the Small Business Administration, in the 

international arena as much as possible to create those linkages 

way before these agreements will take place so we are prepared 

and ready to take advantage of the opportunities. 

Ms. MILLENDER-MCDONALD. You know a lot of small businesses 

are still rather nervous about going into global markets. They still 

think that they are not quite ready for that. How are we getting 

the word out and how can we remove that fear, because now that 

the world is much smaller than we once thought it is clear that we 

bring those small businesses into this global market? Are you doing 

technical assistance or what are some of the other things outside 

of the funding that you spoke about that you are doing? 

Mr. ROSALES. Yes, ma’am. One of our strongest programs is 

called export training assistance program. That is delivered 

through the USEAC network in combination with XM Bank and 

the commercial service. 

At the same time, we do have on our Web site FedMission online, 

which provides a self-certification by small businesses who are interested in doing business abroad in industry or country-related. In 

any activity that happens in those areas, we immediately notify 

them of the opportunities. 

We are also looking at the opportunities of doing it more online, 

because most small businesses don’t have the opportunity to dedicate the time. So we are looking at putting the e-tap online so we 

can have more access to small businesses 24 hours a day. 

On top of that, we have been coordinating with the Chamber of 

Commerce to trade roots where we go out promoting the opportunities for small businesses. The ability for them to get involved and 

presenting them with success stories so they can see they can actually do the same things themselves. 

But in the long run, I think small businesses understand that 

they are in the global marketplace and they are competing now. I 

will give you an example. Back in 1985 when I was an executive 

of a mutual fund company, we needed to present prospectuses and 

have them printed. So we went out looking for a local printer. They 

gave us a two-month turnaround. They told us, well you know our 

consultant Jay Walter Thompson said maybe we can do it faster. 

They recommended it to a company in Taiwan and they did it in 

25 hours. 

So they were competing then and we are competing now. So I 

think small businesses understand that they are in a world competitive environment and they are looking to see how they can get 

more involved. Our commerce department did a survey of 2,000 

small businesses. Thirty percent said yes, we will be interested in 

exporting if somebody showed us how to do it and at the SBA we 

have those programs and we have the ability to show them how. 

Ms. MILLENDER-MCDONALD. It is so great to see the name of 

Padilla and Rosales before us, because you represent the future in 

the global markets and small business. Thank you, Mr. Chairman. 

13

Chairman TOOMEY. Thank you very much and to the two witnesses, I would like to thank you for being here today and for your 

very illuminating testimony, but most of all I want to congratulate 

you for the great work you did in helping to reach this agreement. 

This is going to be great progress for both of our countries and 

mostly for the workers of America. So congratulations. At this time, 

I would invite the second panel to approach the witness table. 

Good morning, gentlemen. Starting our second panel this morning is Mr. Willard Workman, Senior Vice-President for International Affairs at the United States Chamber of Commerce. Mr. 

Workman is responsible for the Chamber’s policy positions on international economic investment and trade issues confronting the U.S. 

business community and he will be examining, among other things 

the impact of the agreement on the Chamber’s membership. 

Also with us today is Mr. James Morrison, President of the Small 

Business Exporters Association, which is the international arm of 

the National Small Business United, a bipartisan association of 

65,000 companies in all 50 states. 

We also have with us two small business owners from my own 

home state of Pennsylvania. Mr. Arland Schantz. Welcome, Arland. 

Arland is a constituent and a friend and a seventh generation 

farmer in the Lehigh Valley. Mr. Schantz will examine the impact 

of this agreement on American farmers. 

In addition, we have Mr. Larry Wesson, president and CEO of 

Aurora Instruments in Ambler, Pennsylvania. Mr. Wesson will be 

testifying on behalf of the National Association of Manufacturers. 

Mr. Wesson’s company manufactures equipment for the telecommunications, cable televisions, military, aerospace and research 

industries. Welcome to all of you. Thank you very much for being 

here. At this point I will recognize Mr. Workman. 

STATEMENT OF WILLARD A. WORKMAN, SENIOR VICE PRESIDENT FOR INTERNATIONAL AFFAIRS, U.S. CHAMBER OF 

COMMERCE, WASHINGTON, D.C. 

Mr. WORKMAN. Thank you, Mr. Chairman. You have my statement and I submit it for the record. I will just try to very quickly 

summarize the points there and a few other points that occurred 

as I listened to the previous panel. 

I represent the U.S. Chamber of Commerce. Most people think 

that we represent only large enterprises, but 96 percent of our 

membership are small business who employ 100 or fewer workers, 

60 percent of our membership employ ten or fewer workers. So although we do represent the large companies, the driving power and 

quite frankly the strength of our organization is small business. 

The issue of the Chile/U.S. free trade agreement is something 

that I personally have lived with for a long time, since I remember 

when it was initially proposed by President Bush, Sr., right after 

he signed the NAFTA agreement. Then after the NAFTA was 

passed by the Congress under President Clinton’s tenure, President 

Clinton restated the desire to have Chile join the NAFTA arrangement. So this has been a long time, from my point of view, coming 

and I am glad to see that we are finally almost into the end zone 

on this. 

14

The agreement, we have reviewed it. We have read the 900 pages 

that Mr. Padilla referred to. It is not scintillating reading I can assure you, but it is very, very important. It is a world-class agreement. We are pleased with it. We endorse it and we urge the Congress to pass it with all due speed. 

A couple things about why are we interested in free trade agreements and particularly as they affect small business. Let me give 

you a statistic that I have cobbled together. In 1992, according to 

the Census Bureau there were 118,000 small business exporters 

and they accounted for about 11 percent by dollar value of all U.S. 

merchandise exports in 1992. 

By 1997, that number had gone to 209,000 small business exporters and they accounted for about 30 percent by dollar value of all 

U.S. merchandise goods exports. I don’t have statistics for the next 

5-year tranche, which would be 2002. They are not available yet, 

but the indications are that we have probably seen yet another 

doubling. So we are looking at, at least, 400,000 small business exporters. 

Within the small business community, trade, not just exporting, 

but importing, some investment, what have you, the full range of 

engagement on trade is one of the fastest growing areas for small 

business in all sectors. So that is a particular interest of ours. 

I have a growing number of small business members that are 

calling me and asking me questions about things. So since we are 

a voluntary dues paying organization, I am trying to respond to my 

customers by this. 

The last point I would make is to talk a little bit about why trade 

agreements in general are so important for small business and particularly in light of 9–11. There is a trend, a slight trend but a 

trend of companies, of multinationals both American and European 

and Asian and Latin American, of pursuing and invest in lieu of 

export strategy on how they access markets. 

Now at that level, it washes out. A large company in order to access the German market, in the past they could export to it, but 

because there are necessarily delays now at ports of entry, because 

of increased security, to service the German market they will build 

a plant in Germany and service the market that way. The same 

thing with the German company who wants to sell into the U.S. 

market, instead of exporting into the market, they will build a 

plant in Alabama or North Carolina or wherever. So at that level 

there is a wash. To the consumer, it is almost an invisible transaction or change. 

To the small businessmen, they don’t have the wherewithal. It is 

not in their business interest to go invest and build a plant in 

every foreign market that they want to access. So that is why lowering the tariff and the non-tariff barriers to their products and 

their service exports is so important. For them it is not a question 

of efficiency, as it is for the multinational. For them it is a question 

of survival. 

So I just wanted to give you some context about why at least our 

small business members have a particular interest in free trade 

agreements and why they work so hard and so long to urge the 

Congress to pass the old fast track Trade Promotion Authority that 

you did last year. 

15

So with that I conclude my remarks and I thank you. 

[Mr. Workman’s statement may be found in the appendix.] 

Chairman TOOMEY. Thank you, Mr. Workman. Mr. Morrison. 

STATEMENT OF JAMES MORRISON, PRESIDENT, SMALL 

BUSINESS EXPORTERS ASSOCIATION, WASHINGTON, D.C. 

Mr. MORRISON. Chairman Toomey, Representative MillenderMcDonald and members of the Subcommittee, thank you for asking 

me to appear here today. I am James Morrison, the President of 

the Small Business Exporters Association. 

S.B.E.A. has a strong interest in international trade policy and 

trade negotiations. We work on behalf of American small and medium-sized enterprises with the World Trade Organization in Geneva. I also serve as a member of the Advisory Committee on Trade 

Policy and Negotiation, the federal government senior trade advisory panel. 

The trade agreement the Subcommittee is considering today 

comes at an important time. American SME exporters have increased dramatically in recent years, from 65,000 in 1987 to at 

least 225,000 today, perhaps 400,000 as we just heard. 

So the willingness to export is there, but most small business exporters ship to only one country, typically Canada or Mexico. SMEs 

still account for only about 30 percent of the dollar value of U.S. 

exports. 

So we need to extend the range of countries where smaller companies trade and to increase the value of their exports. Trade 

agreements are a vital part of this. Lowering the hassle factor of 

exporting to specific countries makes those countries more attractive export destinations and lowering exporting costs to those countries means that more American goods can sell there and more 

American companies can earn profits there and that can mean 

more American jobs. 

So it is good that the Subcommittee is reviewing the Chilean free 

trade agreement. We are very satisfied with this agreement and we 

urge Congress to approve it, but before I get into the specifics of 

the agreement let me suggest a way of thinking about it. 

S.M.E. exporters face both fixed and variable costs. An example 

of a fixed cost is a licensing fee. All businesses pay the same fee. 

An example of a variable cost is a tariff. The more you ship, the 

more you pay. If we want American SMEs to export more, it is obviously important to reduce variable costs like tariffs, but we also 

need to pay close attention to those fixed costs, because they can 

impose disproportionate burdens on SMEs. 

Paying $10,000 in legal fees to export is a nuisance for a large 

company. It is a potential show-stopper for a small company. This 

disproportionate burden concept incidentally is what underlies the 

Regulatory Flexibility Act, which tells federal regulators how to 

deal with small business. The Reg Flex Act basically says, try to 

avoid federal rules that are especially burdensome to small business. 

In exporting, these so-called non-tariff barriers generate such disproportionate costs for SMEs. Non-tariff barriers include foreign 

patent and trademark costs, physical presence requirements, paperwork requirements, performance bonds, licenses and other 

16

issues. Sometimes these disproportionate costs are subtle, such as 

when a country requires a foreign company to be structured in a 

certain way to do business there. 

Trade agreements can also help SMEs when they free up sectors 

of a country’s economy where small businesses excel. Examples include e-commerce, professional services, some types of construction 

and various specific product lines, such as medical equipment and 

do-it-yourself supplies. 

Looked at in this way, I think it is fair to say that the Chile 

agreement is a remarkable step forward. First of all, it will immediately eliminate Chilean tariffs on 85 percent or more of all American consumer and industrial goods. That levels the playing field 

for us with other countries that have established free trade deals 

with Chile. 

Crucially for American SMEs, the Chile FTA also clears a way 

a range of non-tariff barriers, those disproportionate burdens that 

have impeded SMEs’ access to Chile such as: Eliminating physical 

presence requirements that require companies to set up offices in 

Chile to trade there, making trading rules transparent so they are 

simple to understand, fair and stable. The Chile agreement sets 

very high standards in these areas. Simplifying customs procedures, a big plus for small exporters. The Chile agreement goes a 

long way down that road. Trade facilitation. As a general rule, 

American SMEs like to trade with foreign SMEs. So making more 

Chilean companies import ready helps our small exporters. The 

FTA goes in this direction. 

Liberalizing services trade. This is a boon to many small American companies that sell their services abroad, like consultants, engineers and accountants. The Chile FTA enormously helped businesses like theirs by eliminating service sector quotas, monopolies, 

exclusive domestic supply agreements and required corporate structures, basing technical standards and licensing on objective and 

transparent criteria and eliminating requirements that in effect restrict imports. 

Opening up e-commerce in Chile to American companies. Giving 

American companies a crack at Chilean government’s own procurement by requiring open bidding on contracts worth $56,000 or more 

and prohibiting favoritism toward Chilean in such procurements. 

These are among the reasons why SBEA believes this agreement 

is a very good deal for smaller American companies. We commend 

USTR for its growing awareness of SME needs and trade agreements, as shown by this agreement. We again salute them for recently creating the first director of small business affairs in the history of the agency and we thank Greg Walters for his diligent work 

in that job. 

That concludes my remarks for today. I would be happy to accept 

questions. 

[Mr. Morrison’s statement may be found in the appendix.] 

Chairman TOOMEY. Thank you very much, Mr. Morrison. At this 

time I am delighted to recognize Mr. Schantz. 

17

STATEMENT OF ARLAND SCHANTZ, OWNER/OPERATOR, 

EVERGREEN FARM, ZIONSVILLE, PA 

Mr. SCHANTZ. Thank you. Mr. Chairman, I would like to briefly 

summarize the previous handed in written testimony. 

Chairman TOOMEY. If you could just bring the microphone a little bit closer to your mouth. Thank you. 

Mr. SCHANTZ. Okay. Mr. Chairman, members of the Committee, 

I am Arland Schantz, owner of Evergreen Farm. I am a seventh 

generation farmer in Lehigh County, Pennsylvania where I operate 

a 150-acre Christmas tree, hay and grain farm. 

I appreciate the opportunity to testify today on the free trade 

agreement with Chile and the impact that it will have on small 

farmers like me. One in three acres of U.S. agricultural production 

is destined for a foreign market. Farmers earn on an average 25 

percent of their net farm income from export sales. However, many 

foreign markets remain closed to our exports. At the same time 

farm import competition has increased dramatically. 

Today America’s farmers are embarking on a new era, one in 

which the future will offer significantly more export opportunities 

to countries with whom the United States has signed free trade 

agreements. We must use these agreements to eliminate the many 

trade barriers on our exports. 

The agreement with Chile broke through many of these barriers 

and should become the standard for future free trade deals in that 

regard. In specific, two areas formerly used by Chile to block U.S. 

agricultural exports have been resolved. 

First, Chile operates a price band on imports of wheat, oilseeds, 

edible vegetable oils and sugar. Chile uses this price band to protect its producers from lower priced imports. This price band will 

be eliminated for U.S. agricultural imports when the agreement is 

fully implemented. 

Secondly, Chile maintains several SPS barriers on U.S. agricultural imports without a scientific basis. These barriers block the 

export of U.S. fruits, beef, lamb and pork and dairy products. We 

export meats, poultry and dairy products to all corners of the globe. 

However, Chile failed to recognize our federal inspection system 

and denied access to most U.S. meat, poultry and dairy plants. In 

addition, Chile failed to recognize U.S. beef grading standards. 

A parallel process was established to address these barriers. SPS 

measures that lack scientific merit should be fully eradicated before free trade deals are consummated. Failing to do this results 

in meaningless agreements. What good are zero tariffs when SPS 

measures block our exports? 

As a result of parallel process, Chile agreed to recognize our beef 

grading standards and federal inspection system for U.S. dairy, 

pork, beef and lamb. Both countries have agreed to undertake a 

two-year progress to study U.S. poultry standards. We urge Congress to monitor this two-year study closely to ensure its success. 

The agreement with Chile will open export doors for several U.S. 

commodities, including meats, dairy and wheat. I appreciate the 

opportunity to testify on the benefits of this agreement for U.S. 

farmers. Thank you. 

[Mr. Schantz’s statement may be found in the appendix.] 

Chairman TOOMEY. Thank you, Mr. Schantz. Mr. Wesson. 

18

STATEMENT OF LAURENCE N. WESSON, PRESIDENT AND CEO, 

AURORA INSTRUMENTS, INC., AMBLER, PA 

Mr. WESSON. Thank you. Mr. Chairman and members of the 

Subcommittee, my name is Larry Wesson and I am president and 

CEO of Aurora Instruments, a small manufacturer of fiber optic 

test equipment located in Ambler in the great commonwealth of 

Pennsylvania. 

I am pleased to have this opportunity to address the Subcommittee and support the proposed free trade agreement with 

Chile. I am also pleased to speak on behalf of the National Association of Manufacturers or NAM and its 14,000 members, particularly the 10,000 small and medium manufacturers like Aurora Instruments. 

Aurora has been in business for 13 years and as you mentioned, 

we compete internationally in very exciting and challenging markets for telecommunications, cable television, military, aerospace 

and research. We manufacture fiber optic test equipment, primarily 

fusion splicers and related equipment. 

As an example, a fusion splicer I should mention is a device that 

welds two optical fibers together. If you can see this, that is a 

coded fiber. At the tip it is stripped, but a machine has to line up 

two of those and weld them together automatically. It is a very difficult thing to do. 

Aurora is also unique in being the only company which manufactures portable automatic fusion splicers in the United States. In 

fact, the only one in the western hemisphere, but we are a small 

company and we often feel like an American David against foreign 

Goliaths competing with us, particularly from Japan and Europe. 

Europe, as we know, now has a free trade agreement with Chile. 

Yet with striving, we can sometimes win big and Aurora has 

been very serious about export issues and very active in pursuing 

ways and means of expanding our exports. We have been very successful in many countries and we have exported to over 30 countries worldwide and we have done very well, particularly in India, 

Australia, Mexico, Columbia and Chile. 

As an example of Chile, back in 1974 we had 74 percent of the 

Chilean market for portable fusion splicers, a small company like 

ours and our price at the time was 5.3 percent higher than our 

competitors. We still had 57 percent of the market in 1998, but 

since then things have gone downhill steadily. Factors that have 

hurt us have been not just tariffs, but also the telecom crisis, the 

Asian currency crisis, the overvalued U.S. dollar, but also our Japanese competitors are very aggressive on pricing. 

By the year 2000 and 2001, our effective prices were 20 percent 

higher than those of our competitors and our market share had 

fallen to 34 percent. By the year 2002, we sold nothing at all in 

Chile. 

Over exactly the same period, our distributor in Chile has been 

importing ever increasing quantities from Europe. Their percentage 

of their own imports to Chile from Europe rose from 1.9 percent in 

1995 to 64.7 percent in 2002. Overall, U.S. suppliers including Aurora have seen their share of our distributors’ imports to Chile fall 

from 87 percent to 31 percent. 

19

I want to emphasize that the proposed free trade agreement is 

not a panacea. It is not going to solve everything for U.S. exporters. 

Many other factors as I mentioned, such as the overvalued dollar 

and the worldwide telecom market depression have a great deal to 

do with our business and our market, but it is very clear to us that 

a few percentage points saved in duty makes a big difference. 

As we see, when we are within a few points of our competitors, 

our technology and our service and our responsiveness can allow us 

to compete very strongly and win a major portion of the market. 

As part of our strong commitment to exports, my partner and I 

have participated in three international trade missions with Governor Tom Ridge and the most recent one was in Chile and we 

were in Santiago when the free trade agreement process started in 

December, 2000. We were privileged to be present when officials of 

the Chilean government presented to our group on the merits of 

this free trade agreement and in the strongest possible terms, it 

was the hottest topic of conversation at that time. 

I would like to close with one final reason, if you don’t mind and 

perhaps ultimately the most important. In my mind free trade is 

a part of freedom and trade should be free because people should 

be free to keep and enjoy the fruits of their own labor and burdens 

like import duties takes some of that value from both sides of an 

honest relationship and voluntary transactions. Thank you. I look 

forward to your questions. 

[Mr. Wesson’s statement may be found in the appendix.] 

Chairman TOOMEY. Thank you very much, Mr. Wesson and I appreciate the very principled statement you made at the end of your 

comments about one of the fundamental philosophical justifications 

for free trade. It is a manifestation of personal freedom. 

You told a compelling story about the decline in the market 

share that you have had in Chile. Do you anticipate that with the 

adoption of this free trade agreement, will that be enough in and 

of itself to regain some presence in the Chilean market in your 

judgment? 

Mr. WESSON. Yes. I think it would have an immediate effect. In 

fact, we are already hearing from our distributor that they see new 

opportunities. They want to revive the relationship and look at 

their pricing and be competitive with the Japanese imports. The 

value of the dollar is also very important and we have seen some 

progress in that. I think it is no coincidence that their revival of 

interest in importing our product comes at the same time as the 

enactment of the free trade agreement. 

Chairman TOOMEY. Right. So despite all the other factors, many 

of which you alluded to that have contributed to the decline in your 

market share, this agreement in and of itself is likely to allow you 

to regain a foothold in Chile and begin the growth of yourself. That 

is terrific. 

Mr. WESSON. Yes. 

Chairman TOOMEY. This is for either Mr. Workman or Mr. Morrison or both of you. Many people observe that we have had a significant decline in the number of manufacturing jobs in particular in 

the United States and that the manufacturing sector of our economy has declined as a percentage of our total GDP and that has 

been true for a number of years now. 

20

Many people attribute that decline to competition that comes 

from overseas, as a result of America’s relatively free trading regime, the fact that we have a relatively open economy and some 

suggest that this is actually harmful to America because of this decline in manufacturing companies and manufacturing jobs. How do 

you respond to a charge such as that? Either or both of you. 

Mr. WORKMAN. You are absolutely right. The manufacturing sector has been in stress and in a recession far longer than the rest 

of the economy. The notion that we are somehow exporting jobs, I 

take issue with. The investment will be made because there is a 

good return on the investment and so although you are putting 

money out in new plant and equipment someplace in country X, 

there is a return back to the United States to the parent company 

and that allows them to export to their subsidiaries. 

If you look at the fabric of U.S. exports, a significant, perhaps a 

majority of it is intracompany transfers where the parent company 

in Waukegan, Illinois is exporting to the assembly plant in Lyon, 

France. So this notion that we are exporting jobs, I take some issue 

with. 

The other point about that manufacturing is a percent of GDP 

has declined is also absolutely true, but someone once said, I forget 

who about statistics and damn statistics, if you look at the GDP 

and compare it with the end of World War II, when manufacturing 

accounted for something like 60 percent of U.S. GDP, our U.S. GDP 

is 11 or 12 times larger now than it was back in 1945, 1950. 

Just comparing those numbers in constant dollars with 1945, 

even though we have fewer people working, i.e. we are more productive, we are more efficient, even though as a percent of the larger economy it is lower, the output is about three or four times what 

it was in 1950. So this kind of angst about we are losing our manufacturing base is something that we need to pay attention to for 

sure, but I don’t think it is time to ring the alarm bells quite yet. 

Chairman TOOMEY. Mr. Morrison, did you want to add anything 

to that? 

Mr. MORRISON. I guess I would say two things. First of all, when 

we have agreements with other countries it is always important to 

police the agreements and make sure that it safeguards any agreements are implemented and observed by everybody and there are 

instances in which that doesn’t happen and those have been pointed out from time-to-time and they do deserve attention. 

The other thing I would say is that you know the best defense 

is a good offense. A lot of times I hear people complaining about 

imports and business. I say well how are you exporting? What are 

you doing to export? There isn’t much of an answer. 

Ninety-six percent of the world’s consumers live outside of the 

United States. It seems to me that any entrepreneur that doesn’t 

have a plan for dealing with most of the world’s population can’t 

really call themselves an entrepreneur. I think if companies focus 

more on export markets, on selling abroad, the issue of I being I 

will hustle a little bit here becomes less relevant. 

I had a member talk to me the other day about a printing press 

that he wanted to sell that got out bid by an Italian company and 

I said, well it can’t be labor cost differential because there is not 

much in Italy. In fact, it may be more there. What it boiled down 

21

to was that they worked harder and they out hustled him for the 

contract. 

I think American companies have to realize that we are in a 

global trade situation and that most of the world’s consumers are 

outside of this country and we have to focus on exporting. 

Chairman TOOMEY. Thank you very much. At this time I will recognize the gentlelady from California. 

Ms. MILLENDER-MCDONALD. Thank you so much, Mr. Chairman. 

Mr. Workman I suppose you say you take issue at the sayings that 

jobs are being exported out of the country. Perhaps that may not 

be a good assessment, but we are losing jobs to foreign countries 

by virtue of those jobs going over to those countries and the workers over there are getting the jobs that we once had. This is why 

the Chairman of the Full Committee continues to have hearings on 

our assessment of our manufacturing base. 

You spoke of small business now we have exporting over 400,000 

as opposed to Mr. Morrison saying that it was once 65,000. What 

sizes are these small businesses that we have that are 400,000 now 

that are part of this global market and what is the bottom line net 

profit for them? Do you have any——. 

Mr. MORRISON. Well, the Census Bureau that did the survey in 

1992 and 1997, they used as their measure as to what is a small 

business a 500 workers or less. So that is what the 118,000 in 1992 

and the 209,000 in 1997 and as I said, we don’t have the figures 

yet for 2002, because they do these in five-year segments, but the 

estimates are that it is going to be over 400,000. We have been seeing a trend where they double every five years in terms of numbers 

involved. That is the quote definition that Census used to define 

a small business. 

On the issue of exporting jobs, I want to reemphasize a point 

that my colleague made earlier when we talk about a level playing 

field. There is a way, a legal, internationally recognized way to 

level the playing field in the U.S. market and that is called the 

anti-dumping countervailing duty laws. 

The Chamber has long been an advocate for very strong, very 

rigorously enforced anti-dumping countervailing duty, where you 

impose a duty on a good that is being either subsidized for sale into 

the U.S. market or is being dumped so below market price in order 

to get market share in the U.S. market. 

In our mind you can’t be an advocate for open free and fair trade 

and just focus on the export side, unless you look at having rigorous enforcement of the laws to protect American companies here 

in the U.S. market. So that is one of the chapters in the Chile 

agreement that at the chamber we pay very much attention to. 

Now I can’t get into discussions about whether we should protect 

steel or——. 

Ms. MILLENDER-MCDONALD. That was my next question. You 

must have been reading my mind and that is rather dangerous 

when you do that. 

Mr. MORRISON. Because as you might imagine, all the steel companies or steel producers are members of the Chamber and all the 

users are members of the Chamber. 

Ms. MILLENDER-MCDONALD. I understand. 

22

Mr. MORRISON. So we are aggressively neutral on that particular 

sector. 

Ms. MILLENDER-MCDONALD. Delicate balance there. That is true. 

In fact, a lot of the car manufacturers in my district are wondering 

if the President is going to repeal the Section 201 to allow now for 

the importing of steel back into the country and we are hoping that 

kind of stays to some degree. 

Dr. Morrison and I know with a Ph.D. I will call you Dr. Morrison, with the devalued dollar, how can we see the effects of what 

we perceive as growing small businesses that are in this global 

market those numbers be perhaps decreased, because you have the 

devalued dollar? 

Also, with the European Union, I think Mr. Wesson talked about 

Europe has a free trade agreement with Chile, but you know there 

are a lot of subsidies that go along with the European anything. 

They have a lot of subsidies that the EU gives to them. With our 

devalued dollar, do we see a decrease in these small businesses 

going more global or are we going to continue to see the increase 

of these small businesses? 

Mr. MORRISON. I think the dollar is sort of like steel, it cuts both 

ways. If you use imported products as an input into your process 

at some level, then even if you are an exporter your prices are 

probably going to go up. If you are a pure exporter, basing all of 

the production on domestic factors, the cost of your exports will go 

down. A lot of my members are pretty happy about the dollar right 

now. They are selling in markets where they couldn’t get into for 

the last couple of years. There is differences of opinion on that, depending on how a particular business is structured. 

Ms. MILLENDER-MCDONALD. And the commodity that you have I 

suppose, too. 

Mr. MORRISON. Yes. I think that between the dollar and agreements like this, of which there are quite a few in the pipeline, the 

prospects are pretty bright for small business exporters. 

Ms. MILLENDER-MCDONALD. That is encouraging. It seems like 

my time goes so quickly. I wanted to ask Mr. Schantz something. 

Chairman TOOMEY. I would be happy to yield additional time to 

the gentlelady from California. 

Ms. MILLENDER-MCDONALD. Thank you so much. Mr. Schantz is 

it? 

Mr. SCHANTZ. Schantz. 

Ms. MILLENDER-MCDONALD. Yes. Thank you. How do you pronounce your name again? 

Mr. SCHANTZ. Schantz. 

Ms. MILLENDER-MCDONALD. Schantz. Thank you. You were saying that and in looking at your statement and it is good to know 

you have Christmas trees, I will know where to come to get a 

Christmas tree, you are saying foreign import competition has increased drastically. The United States has one of the most open agricultural markets in the world and we really do, but then as we 

go down to your statement you say, yet they experience limited opportunities to export abroad. Why is that and when will we get to 

this more balanced competition when it comes to agriculture? Agriculture is number one in the state of California. So we have had 

mucho problems with the ability to export. 

23

Mr. SCHANTZ. Well, agriculture is the top in Pennsylvania also. 

One of those various problems do arise which the Chilean free 

trade agreement is solving is the non-tariff type barriers that have 

been a problem in exports. 

I being in production agriculture, do not know maybe some of the 

real specifics of it, but I know so often different things come up like 

the price bonding, like the licensing requirements, things like that, 

the sanitary type requirements that are thrown into an agreement 

that even though the tariffs have been reduced, these other items 

sort of limit the amount of product that can flow out of the country. 

Ms. MILLENDER-MCDONALD. So the Chile agreement will help us 

in expanding opportunities now in the agriculture industry? 

Mr. SCHANTZ. Yes, in the certain sectors that they are in need 

of. I mean it will be of benefit yes, to agriculture. But of course certain products it will be a benefit more than others. 

Ms. MILLENDER-MCDONALD. I guess that is predicated on all 

commodities, as to whether one is better than the other. Mr. 

Wesson, with the European Union having free trade with Chile and 

now that we are entering into this, do you think with all of their 

subsidies it will hurt or hinder us as we move into the Chile agreement? 

Mr. WESSON. That is hard to say. I have seen evidence of European subsidies in some cases. I can’t put my finger on it in Chile 

or South America. They are not a significant factor. Again, the 

value of the dollar and the tariffs and VAT seem to have more effect. I have heard that some countries in Europe are trying to adhere to international standards on subsidies with mixed success. 

The more the better. They have posed a problem for us in other 

countries, like India. 

Ms. MILLENDER-MCDONALD. I know. 

Mr. WESSON. It has been a big deal in India. But as to an effect 

in Chile, I can’t say. 

Ms. MILLENDER-MCDONALD. Just one more question to all of you 

and I would like for each of you to answer if you can. It has been 

stated that the Chilean agreement will be used as a model for future trade agreements, especially those in Central and South 

America. Do you believe this is a wise idea, recognizing that certain areas especially those in Central America, have both weak and 

poorly enforced laws? That is a grab bag. 

Mr. WORKMAN. I think that is a nice sound bite, but I used to 

be a trade negotiator and the reality is each one is unique. That 

is also why although some people say why don’t we just do ten 

trade agreements and then send them all up to the Congress at the 

same time, that is why the Congress has always insisted in viewing 

them one agreement at a time. They have to rest on their individual merits. 

I think the larger issue here and individual bilateral free trade 

agreements are important, we should go ahead and do them. We 

haven’t been doing them for eight years. But, the real bang for the 

buck in the regional agreements and the WTO, DOHA round of negotiations, if we get an agreement in DOHA that is with 146 countries. So, it covers almost 80 percent of our trade. 

That is where I think in terms of priority that is where the administration should be focused and things are not going well at 

24

DOHA. They haven’t met one of the deadlines that they set for 

themselves. They have this mid-term ministerial coming up in 

Cancun in September, a nice place to visit but I don’t know what 

they are going to put in the communique. 

That is where the issue of agriculture. I also own the family farm 

in the great state of Delaware, which some claim is a suburb of 

Philadelphia but we take issue with that, and I will tell you that 

what happened in the Uruguay round was that we didn’t reach a 

conclusion, particularly with the Europeans on agriculture. Those 

negotiations and this is not well known, have actually continued 

since 1994. We still haven’t reached a conclusion with the Europeans. 

They are now extending it to the ten new members of the European Union. So this is a problem. That is a major problem. If you 

are going to continue to do as a concept trade negotiations as what 

they call a single undertaking, i.e. we deal with industrial goods 

and agriculture, then we are going to have to get the Europeans 

to come to grips with their agriculture policy. 

For friends like my colleague from Pennsylvania, it absolutely 

forces American farmers out of third country markets. The issue is 

not access to the European Union market, but they are subsidizing 

their exports to the rest of the world. So that is a big issue and 

it is a tough issue. I wish the administration well. We will do all 

we can to support them on that. 

Mr. MORRISON. I just would add to that, that if I understand the 

administration’s negotiating strategy and I am sure that Mr. 

Padilla or Mr. Workman would be better to speak to this than me, 

but it is competitive liberalization and the reason that they will 

start with a country like Singapore or a country like Chile is that 

they can establish the baseline that they are looking for in the 

other agreements. 

Now for the other countries to get to that baseline, like some of 

the Central American countries, is going to take a lot of heavy lifting and I think that is part of the idea is to encourage them to do 

a lot more than they have done. 

Mr. Padilla mentioned the Guatemalans taking another look at 

their labor laws. I think that is the idea is to try to force the other 

countries up to the level that has been set by the Chile deal. 

As far as the Europeans are concerned, just to go back to your 

other point, I mean where we encounter them most aggressively is 

in the export finance area, less in the subsidiary area, but they 

play a lot of games with their export financing and that is the back 

door way of subsidizing their exports. 

Ms. MILLENDER-MCDONALD. Mr. Chairman, thank you so much. 

I do have a statement for the record. 

Chairman TOOMEY. Without objection it will be submitted to the 

record. 

[Ms. Millender-McDonald’s statement may be found in the appendix.] 

Chairman TOOMEY. I would like to thank all the witnesses for 

their very helpful testimony. Thank you for being here and the 

hearing is adjourned. 

[Whereupon, at 1:26 p.m., the Subcommittee was adjourned.]

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