U.S. GOVERNMENT PRINTING OFFICE

66–396 WASHINGTON : 2000

TRADE WITH CHINA HELPS SMALL

BUSINESS EXPORTERS WORK

HEARING

BEFORE THE

SUBCOMMITTEE ON TAX, FINANCE, AND EXPORTS

OF THE

COMMITTEE ON SMALL BUSINESS

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

SECOND SESSION

WASHINGTON, DC

MAY 16, 2000

Serial No. 106–58

Printed for the use of the Committee on Small Business

(

(II)

COMMITTEE ON SMALL BUSINESS

JAMES M. TALENT, Missouri, Chairman

LARRY COMBEST, Texas

JOEL HEFLEY, Colorado

DONALD A. MANZULLO, Illinois

ROSCOE G. BARTLETT, Maryland

FRANK A. LOBIONDO, New Jersey

SUE W. KELLY, New York

STEVEN J. CHABOT, Ohio

PHIL ENGLISH, Pennsylvania

DAVID M. MCINTOSH, Indiana

RICK HILL, Montana

JOSEPH R. PITTS, Pennsylvania

MICHAEL P. FORBES, New York

JOHN E. SWEENEY, New York

PATRICK J. TOOMEY, Pennsylvania

JIM DEMINT, South Carolina

EDWARD PEASE, Indiana

JOHN THUNE, South Dakota

MARY BONO, California

NYDIA M. VELA ́ZQUEZ, New York

JUANITA MILLENDER-MCDONALD,

California

DANNY K. DAVIS, Illinois

CAROLYN MCCARTHY, New York

BILL PASCRELL, New Jersey

RUBE ́N HINOJOSA, Texas

DONNA M. CHRISTIAN-CHRISTENSEN,

Virgin Islands

ROBERT A. BRADY, Pennsylvania

TOM UDALL, New Mexico

DENNIS MOORE, Kansas

STEPHANIE TUBBS JONES, Ohio

CHARLES A. GONZALEZ, Texas

DAVID D. PHELPS, Illinois

GRACE F. NAPOLITANO, California

BRIAN BAIRD, Washington

MARK UDALL, Colorado

SHELLEY BERKLEY, Nevada

HARRY KATRICHIS, Chief Counsel

MICHAEL DAY, Minority Staff Director

SUBCOMMITTEE ON TAX, FINANCE, AND EXPORTS

DONALD A. MANZULLO, Illinois, Chairman

STEVEN J. CHABOT, Ohio

PHIL ENGLISH, Pennsylvania

PATRICK J. TOOMEY, Pennsylvania

CAROLYN MCCARTHY, New York

RUBE ́N HINOJOSA, Texas

CHARLES A. GONZALEZ, Texas

GRACE F. NAPOLITANO, California

PHILIP ESKELAND, Senior Professional Staff Member

(III)

C O N T E N T S

Page

Hearings held on May 16, 2000 .............................................................................. 1

WITNESSES

Crane, Philip M., a Representative in Congress from the State of Illinois ........ 3

Alvarez, Aida, Administrator, Small Business Administration ........................... 4

Olson, James E., CEO, Olson Technologies, Inc., Allentown, PA ........................ 16

Gabbour, Jeffrey, Vice President, Prestige Enterprise International, Cincinnati, OH ........................................................................................................... 18

DeDocker, Sharon K., Vice President, Aqua-Aerobic Systems, Inc., Rockford,

IL ........................................................................................................................... 20

Phelps, Robert, Owner-operator, Phelps Farms, Rockton, IL .............................. 22

Parker, Keith, Chairman and CEO, Summit Environmental Corporation, Inc.,

Longview, TX ........................................................................................................ 25

APPENDIX

Opening statements:

Manzullo, Hon. Donald A ................................................................................. 29

Prepared statements:

Crane, Philip M ................................................................................................ 31

Alvarez, Aida ..................................................................................................... 33

DeDocker, Sharon K ......................................................................................... 40

Olson, James E ................................................................................................. 45

Gabbour, Jeffrey ............................................................................................... 51

Parker, Keith .................................................................................................... 56

Phelps, Robert ................................................................................................... 61

Additional material:

Department of Commerce Report .................................................................... 64

Chamber of Commerce Report ......................................................................... 82

GAO Study ........................................................................................................ 128

CRS Report ....................................................................................................... 145

Senate Bill 2277 ............................................................................................... 162

White House Press Release ............................................................................. 164

Summary of U.S.-China Bill Bilateral WTO Agreement .............................. 167

The U.S.-China WTO Accession Deal ............................................................. 173

SOCMA News Release ..................................................................................... 175

NAM Statement ................................................................................................ 176

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TRADE WITH CHINA HELPS SMALL BUSINESS

EXPORTERS WORK

TUESDAY, MAY 16, 2000

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON TAX, FINANCE, AND EXPORTS, COMMITTEE ON SMALL BUSINESS, Washington, DC.

The Subcommittee met, pursuant to call, at 10 a.m., in room

2360 Rayburn House Office Building, Hon. Donald A. Manzullo

(chairman of the Subcommittee) presiding.

Chairman MANZULLO. The Subcommittee will come to order.

Good morning. I have a very short opening statement, and Mrs.

McCarthy has a very short opening statement, and then we will

proceed directly to testimony.

Trade with China helps small business exporters work. There is

a myth that a U.S.-China WTO agreement is only for big multinational corporations who cannot wait to ship jobs to Chinese

workers. I want to dispel that myth right here and now.

Few people know that 82 percent of all direct U.S. exporters to

China are small- and medium-sized companies. These exporters

generated 35 percent of the dollar volume of all U.S. exports to

China in 1997. And out of every country in the world, China ranks

third as the largest growth market for small business exporters.

Today, we will look behind the rhetoric and the trade statistics

to see if trade with China and, more specifically, the recently negotiated U.S.-China World Trade Organization Accession Agreement,

benefits small business exporters.

Before the Subcommittee today is a mere fraction of the real-life

stories of the impact of China trade on small business exporters.

We all understand that international trade is more than raw statistics. This hearing puts real faces behind these statistics.

Who are these exporters? People like Sharon DeDoncker of AquaAerobic Systems, Inc. Sharon, I always mess your name up. You

can pronounce it and we will get it right for the record. We have

Sharon from Aqua-Aerobic Systems in Rockford, Illinois, but she is

not alone. Many more small- and medium-sized companies

throughout northern Illinois export to China. In fact, China represents one of the fastest growing export markets for Rockford, Illinois. Between 1993 and 1998, exports from Rockford to China

surged nearly 300 percent.

Small- and medium-sized companies throughout northern Illinois

stand to benefit from this agreement with China, either directly as

exporters or indirectly as suppliers to exporters. Some of these

companies include Coffee Masters of Spring Grove; E.D. Entyre of

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Oregon; Clinton Electronics of Loves Park; Abar-Ipsen Industries of

Pecatonica; Modine Manufacturing in McHenry, which supplies

Chrysler’s Jeep Cherokee plant in Beijing; Seward Screw Products

of Seward, Illinois, which supplies more than 80 parts to HarleyDavidson; Bergstrom Manufacturing of Rockford, a supplier to the

construction equipment manufacturer, Caterpillar; Cherry Valley

Tool & Machine of Belvidere, Kysor/Westram Corporation of Byron,

and Rockford Spring Company, who are all suppliers to the agricultural equipment manufacturer, Case.

Simply put, this agreement is uniquely beneficial to small business exporters. I commend this administration for reaching this

historic agreement.

I look forward to the testimony of our witnesses.

Mrs. McCarthy.

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

Mrs. MCCARTHY. Thank you, Mr. Chairman, for scheduling this

hearing to discuss the impact of the trade agreement reached between the U.S. and China and American small businesses. I would

also like to thank Administrator Alvarez and Chairman Crane, as

well as our second panel of guest witnesses, for taking time out of

their busy schedules to be with us today.

As we all know, the United States reached a trade deal with

China in November of last year, allowing them to become a member of the World Trade Organization. Next week, the House of Representatives is scheduled to vote on granting China permanent

trade status in order to reap the benefits touted within the trade

agreement.

History has shown that isolationism does not sustain or promote

economic growth. Fair trade with other countries can be extremely

beneficial to both small and large businesses. This was exemplified

in recently passed legislation that promoted trade with African and

Caribbean countries.

However, the trade deal reached with China differs significantly

from the African trade proposal. Throughout the past 10 years, the

United States has engaged in an aggressive trade policy with

China. Unfortunately, the U.S. still suffers a large trade deficit

with China and encounters numerous trade barriers when attempting to enter their markets. Although the agreement reached between the United States and China removes many of these barriers, I am still concerned over the inefficient monitoring mechanisms needed to protect American businesses and workers.

It is argued that China would fall under the same disciplinary

proceedings as other WTO member countries, but this is a slow and

daunting process that could take as long as 2 years before any action is taken. During that time, more American jobs and businesses

could be jeopardized because of China’s noncompliance.

While I believe in fair trade and supported normal trade relations with China in the past, I have several reservations about

granting China permanent trade status. Providing small businesses

with new markets to export their goods and services is one of the

many factors we must address before making this important step.

Although trade with China presents several concerns outside the

realm of trade, I look forward to the testimony from our distinguished guests on the impact on small businesses.

3

I thank you, Mr. Chairman, and I look forward to the testimony.

Chairman MANZULLO. Thank you. Our first witness will be Congressman Phil Crane, who is in the neighboring congressional district to the one that I represent. He is the chairman of the Trade

Subcommittee on Ways and Means.

Mr. Crane.

STATEMENT OF HON. PHILIP M. CRANE, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF ILLINOIS

Mr. CRANE. Thank you, Mr. Chairman. I thought maybe it would

be ladies first, but I see it is age before beauty.

I thank you for inviting me to testimony before your Committee

in support of granting China permanent normal trade relations and

its importance to small businesses throughout the United States.

I would like to enter a copy of my statement into the record.

Chairman MANZULLO. Without objection.

Mr. CRANE. Thank you, Mr. Chairman.

I want to share with you the results of a General Accounting Office report I requested on the impact of international trade on

small- and medium-sized U.S. businesses. But, first, I want to talk

about the overall importance to our country of granting China permanent normal trade relations.

Approving permanent normal trade relations with China will create new jobs for a new economy. We are talking about more American jobs, jobs paying a higher wage because export-related jobs

pay an average of 17 percent more than nonexport-related jobs, according to the Department of Commerce.

[The information may be found in appendix.]

Mr. CRANE. The choice facing us on normalizing trade relations

with China is historic, perhaps the most important vote the House

will cast this decade. The new trade agreement with China is a

one-way deal in our favor because it does not increase access to the

U.S. market for the Chinese.

The United States represents only 5 percent of the world’s population, while China is roughly 20 percent. We can sell only a limited number of products and services within the United States. In

order to keep our economy growing, we have to have access to a

market the size of China’s, not only as it exists today, which is

huge, but access, as it continues to grow into the world’s largest

consuming market.

In a global economy, increasing trade with China is not only the

best way to keep our economy growing, but it is also the best way

to help improve the standard of living and human rights conditions

in China.

This is clearly a win/win for America and for China. While we

are all in agreement, we need to continue to keep the pressure on

the Chinese Government to improve human rights, labor, and environmental conditions, giving the Chinese people access to products

and services, manufactured and created with our standards, is the

best way to improve conditions in their country.

Mr. Chairman, as you know, small- and medium-sized businesses

are huge exporters of products and services. The nonpartisan GAO

study I requested shows that over 202,000 small- and mediumsized businesses in 1997 exported goods to countries around the

4

world, a figure nearly double the 112,000 companies that exported

goods in 1992, just over a 5-year time frame. I would like to enter

the complete study into the record. The study also found that companies with fewer than 500 employees accounted for 97 percent of

all U.S. exporters in 1997, which is the most recent year that data

is available.

[The information may be found in appendix.]

Mr. CRANE. Some of the other highlights of the GAO study include: exports by small- and medium-sized firms account for onethird of the total value of exported U.S. goods. In 1997, these businesses exported goods valued at $172 billion and accounted for 31

percent of total U.S. exports. Ten years before, small- and mediumsized firms exported $42 billion in goods, or 26 percent of all U.S.

exports that year.

Small- and medium-sized businesses represented the highest

shares of total U.S. exports in miscellaneous manufactured goods,

66 percent; lumber and wood products, 64 percent; and apparel, 51

percent. By value, U.S. goods exports rose from $251 billion in 1987

to $689 billion in 1997. U.S. goods exports increased from 5 percent

of gross domestic product in 1987 to 8 percent of GDP in 1997.

Similarly, U.S. service exports rose from $99 billion in 1987 to $258

billion in 1997. Since 1990, small businesses have created 75 percent of all net new jobs.

This study shows that it is not just Wall Street that will benefit

from trade with China, but Main Street small businesses started

by American entrepreneurs that represent the heart of our economy as well. For hundreds of thousands of these businesses, expanded trade has meant more and better jobs, higher wages, and

better benefits for their employees. This report is another indication that expanding trade with China will open international markets even more to these diesel engines of our Nation’s economy.

In today’s international marketplace, small- and medium-sized

businesses are no longer competing here in America, but around

the world. I hope my colleagues who remain undecided on the upcoming vote on China will remember how vitally important international trade is to small businesses and the thousands they employ in their districts back home.

Thank you, Mr. Chairman.

Chairman MANZULLO. Thank you, Mr. Chairman.

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

Chairman MANZULLO. Our next witness from the first panel is

Administrator Alvarez. She is the Administrator of the U.S. Small

Business Administration, a person with whom I have worked on

several projects and for whom I have the utmost respect. She is

quite scholarly, and I can tell you firsthand she is an excellent administrator.

STATEMENT OF HON. AIDA ALVAREZ, ADMINISTRATOR, SMALL

BUSINESS ADMINISTRATION, ACCOMPANIED BY JIM

WILFONG, OFFICE OF INTERNATIONAL TRADE

Ms. ALVAREZ. Thank you so much. That is very kind, Mr. Chairman.

Mr. Chairman, Ranking Member McCarthy, Chairman Crane

and distinguished members here, thank you for inviting me to tesVerDate 11-MAY-2000 04:35 Sep 19, 2000 Jkt 066396 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 E:\HR\OC\B396.XXX pfrm07 PsN: B396
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tify about America’s small businesses and trade with China. I can

only echo what Chairman Crane just said about the importance of

international trade and the potential opportunities with PNTR for

small businesses.

The opportunities, as I said, are growing for small business in

the international trade arena. This Subcommittee is well aware of

that and the fact that the voice of small business is often ignored

in debates on issues of national importance, particularly the permanent normal trade relations for China, which is why we are here

today. It is important to note that in the aggregate, small business

is big business for this economy. It is the engine that drives the

economic growth in this country.

As we heard, 97 percent of all U.S. exporters are small businesses, generating at least one-third of the revenues produced by

those exports. With specific focus on China, China is actually the

tenth largest export market for U.S. small businesses. As you said,

Mr. Chairman, small businesses account for 82 percent—82 percent

of the U.S. exporters to China; 35 percent of the revenues generated. And, the growth rate is really impressive. From 1992 to

1997, for example, the number of small businesses exporting to

China increased 141 percent.

Clearly, China’s growing market is creating unprecedented opportunities for American entrepreneurs. We talked about where a

vast part of the world’s population resides, and it is in China.

I know that you will be hearing on the next panel testimony from

many small businesses that are already trading successfully with

China, but I am sure you will hear from them that it has not always been smooth sailing. It is not easy to be a small business trying to do business with China. For small businesses, there are continuing problems with a lack of published rules, high tariffs, requirements to have expensive local partners, requirements to obtain multiple import and business licenses.

What effect, if any, would permanent normal trade relations

have on U.S. small businesses? I can tell you from my experience

and in talking to small businesses around the country that they believe PNTR would be a big win for them. In fact, I would venture

to say that small businesses may even enjoy greater benefits relative to large companies.

For example, Boeing, which has a long-standing presence in

China, has the ability to deal directly with the government. Not so

for small businesses; small businesses historically have not had

that type of clout. With the Chinese Government lowering barriers

and opening up more business-to-business contact, we anticipate

that the playing field will be significantly leveled for untold numbers of small businesses.

It is not just the owners who benefit from PNTR. We believe that

PNTR would also be a big win for the people who work for small

businesses. We know, for example, and we heard some of those figures here this morning, small business exporters experience 20 percent greater job growth. They pay wages that are 17 percent higher, on average. They provide benefits that are 11 percent higher,

on average, than their nonexporting counterparts.

Let me just highlight a few of the key aspects of the PNTR

agreement that will help U.S. small businesses. Under this agreeVerDate 11-MAY-2000 04:35 Sep 19, 2000 Jkt 066396 PO 00000 Frm 00009 Fmt 6633 Sfmt 6602 E:\HR\OC\B396.XXX pfrm07 PsN: B396
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ment, China will cut the average general industrial tariff from 24.6

percent to 9.4 percent by 2005; lower information technology tariffs

from 13.3 percent to 0 by 2005—which is a real key, given the

number of small businesses involved in information technology we

see a lot of growth in that sector; lower tariffs on key agricultural

products from 31.5 percent to an average of 14.5 percent by 2004,

very important to many small businesses that sell processed foods

and other value-added agricultural products; and eliminate the required use of Chinese Government-approved middlemen to sell

products in China.

U.S. companies will have the right to import and export and to

have their own distribution networks in China to sell U.S.-made

products directly to customers; allow professionals and service providers to operate within China in accordance with WTO standards—an important development, since many of the accounting law

and engineering firms doing business in China are small businesses. China must conform its standards and inspection procedures to WTO norms, so that rules otherwise obscure, will be published, making them more transparent for businesses, which reduces the cost of compliance—there are really savings involved in

these reforms; simplify and make uniform customs and licensing

procedures, a move that will reduce paperwork costs for small businesses significantly—again, reductions in costs for these small

businesses, allowing them to do more; expand its obligation to protect intellectual property, while at the same time providing injured

parties access to China’s courts and the WTO dispute settlement

system.

This is just a very quick overview of some of the benefits to small

businesses that would result from PNTR with China.

We have looked at this issue closely because China will enter the

WTO regardless of what action the United States takes. Our markets are already open to China, and our assessment is that we gain

nothing by withholding PNTR. Our trade representatives, Ambassador Barshefsky and her team, have negotiated critical marketopening gains with China. We run the risk of ceding those gains

to other countries.

Congresswoman McCarthy made reference to this: We should not

underestimate the difficulty for China in implementing these reforms. These are very difficult reforms for them to implement, and

they also need to overcome constituencies opposed to these reforms.

Granting PNTR is our chance to support those in China who

seek to advance the type of market-oriented economic reforms that

we have been pressing China to adopt, while enabling American

small businesses to capitalize on the really substantial trade liberalization commitments that China has made.

I thank you for the opportunity to appear here today, and I

would be happy to take your questions.

Chairman MANZULLO. I appreciate that very much. I also appreciate your enthusiasm as to what is going on here.

[Ms. Alvarez’s statement may be found in appendix.]

Chairman MANZULLO. Congressman Crane, I have several questions, but the one question I really want to zero in on is your statement, with which I concur wholeheartedly, that the U.S.-China

WTO accession agreement is one-sided, in favor of America.

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Could you explain that?

Mr. CRANE. Yes, indeed.

I think it is a vitally important thing for all of us to be aware

of when this vote comes up, Mrs. McCarthy. There are 135 member-nations in WTO right now. China’s accession will add to that

number one more; there will be 136 members. If we do not grant

permanent NTR, 134 countries in the world will suddenly have access to that market, with the incredible reduction of tariff barriers

that will occur, and the only exception will be us.

We are the only ones that will not have access to that market,

and they will continue to have access to our market. That is why,

as I indicated—I mean, it is truly a win-win proposition, but it is

incredible in terms of what the potential for increased U.S. exports

amounts to in agriculture alone. They are talking about $2 billion

a year. I mean, it is mind-boggling.

And that is not the only thing. I mean, in the auto industry, I

can’t understand for the life of me why the auto unions are expressing—I mean their leaders, at least—are expressing opposition

to this, because it lowers the tariffs on U.S. auto exports 75 percent, and it eliminates quotas on U.S. auto exports to China altogether.

I mean, there are so many provisions in this that are so exciting

to contemplate in terms of our expanded opportunities that it

truly—I mean, this is the most exciting opportunity, and it has,

though, implications beyond economic implications.

As you know, Taiwan has been up to speed and they have sought

accession too, and there was a general agreement that Taiwan

would come in after China, but that means immediately. I mean,

it is China, and then Taiwan, like that.

But there are some security problems, as you know, in that area.

For us to create a situation between ourselves and China that distances our improved relations with them since Deng Xiaoping led

the crusade for Leninist capitalism, it is the ultimate oxymoron,

but he truly believed in free enterprise and he started China down

that path. Jiang Zemin embraces it, Tenghui Lee is a total believer.

He was unilaterally privatizing state-owned enterprises. Now, that

was not good politics over there for him, but he believed in it.

These are the kinds of reforms we want to see accelerate, and the

best way to accomplish that is to have that contact, that personal

contact with them.

I was in China some years ago and Motorola, which has its corporate headquarters in my district—Motorola was visiting with the

head of their plant over there in Shanghai, and he was explaining

to me that they have to maintain clean working conditions for their

employees; they have to pay overtime for more than a 40-hour

workweek; they have to provide health care benefits to their employees. I said, did you bring all that over from the United States?

He said, no, those were the guidelines that the Chinese Government imposes on all foreign firms doing business over here. I

thought, well, that is a little unfair, because they are not imposing

those same standards on domestic businesses.

But I thought about it for a moment, and I thought, gee, if I am

working in some grungy Chinese plant and there are no health

care benefits, no overtime pay, no clean working conditions, and

8

Aida is working for Motorola and she is enjoying all of those benefits, and at the end of the long day we are having our Tsing-taos

together, and I am moaning about the working conditions and how

terrible it is for me, it is only natural Aida is going to say, Phil,

why do you work there? Come work for Motorola.

I am reminded, folks, that Ben Franklin made the observation,

A good example is the best sermon. We are providing that kind of

good example that does have a ripple effect. I mean, it spreads out

to help advance the civilized values that we mutually embrace.

Having that kind of a presence there is a decided plus for us.

The other point I would make is to keep in mind that we have

been at full employment now for almost 5 years. There are, according to Mr. Sweeney, I think, 6 million illegal immigrants working

in the United States right now, 6 million. And he is trying to recruit them to join the AFL–CIO. We are in a situation where we

almost are required to import labor, because of our problems in

that regard. This will increase that kind of pressure.

But the thing to keep in mind is that an increase in the payment

for those people that have jobs related to exports, the figures that

I quoted in my original statement of, on average, a 17 percent higher pay rate than those people who are simply working for jobs—

I mean, doing jobs for our domestic economy.

Chairman MANZULLO. Mrs. McCarthy.

Mrs. MCCARTHY. Thank you, Mr. Chairman. Again, the testimony from both of you—as I said, this is going to be a tough vote

for an awful lot of members, because a lot of us do feel both sides

are right. I think that should be understood. But we are talking

about small business today, and I think that is where I want to

stay.

The SBA claims that small businesses will benefit from the use

of the WTO dispute settlement process. With small businesses, will

they have the direct access to the WTO dispute settlement procedures?

Ms. ALVAREZ. I believe they will. Prior to the WTO meeting in

Seattle, we were engaged in conversations with the U.S. Trade

Representative’s office and the Commerce Department, because

there is a strong interest on the part of the administration, for example, to having an assistant secretary-level person at USTR

whose exclusive focus would be small business; and we went to Seattle with that in mind. We saw Congressman Manzullo there. The

idea is that we need to incorporate the small business interest at

every level of the process. I think that would ensure the right outcome.

Mrs. MCCARTHY. With my concern following that up, will our

small businesses be able to go through the procedures and the red

tape? We know that the WTO, sometimes takes years to have a settlement one way or the other. Can our small businesses sustain

that as far as working with them?

Ms. ALVAREZ. Right now we have a relatively modest international effort at the SBA. Nonetheless, it is effective. We have an

international trade loan program, we have an export working capital program, we work with the Department of Commerce and

other agencies that promote U.S. export assistance centers. We

9

would have to add to our responsibility the kind of assistance and

counseling that is necessary to help these businesses succeed.

I think that could happen. More and more, I see us working together with other Federal agencies so that we can complement

what they do in other parts of the world, and I think that that

would extend to the China commitment.

Mrs. MCCARTHY. If I could ask one other question, the administration claims that PNTR to China will benefit small business subcontractors, supplying large U.S. companies, who, in turn, will increase exports to China.

What will prevent these large companies from moving their subcontracting needs to Chinese suppliers?

Ms. ALVAREZ. Right now, Boeing, which is a major exporter, is

also a major user of U.S. small businesses as subcontractors. In the

case of a company like Boeing—and there are many others—we

monitor their subcontracting relationships with small business.

They also do business with the Federal Government, and if they

want to be competitive vis-a-vis other companies in gaining access

to the Federal contracting market, they have to have a very compelling subcontracting program, because we have right now, by

law, a requirement that 23 percent of all Federal contracts go to

small business. So that may be an indirect way to do it, but I can

assure you that many of these companies right now maintain a

very active small business subcontracting—U.S. small business

subcontracting capacity, because we are monitoring that.

Mrs. MCCARTHY. Well, I know we are monitoring that right now.

My concern is, once we are over there, especially with the large corporations, and they have their foot there, I am still concerned that

our small businesses here could end up getting hurt.

Ms. ALVAREZ. I think that is a fair concern.

Chairman MANZULLO. If I could interrupt you, Mrs. McCarthy,

Congressman Crane has a meeting that he has to attend. I beg the

indulgence of the other members that don’t have an opportunity of

questioning him. But you understand the vagaries of the schedules

we have here.

What I would like to do is, if you could just suspend for a second,

if anybody has a very quick question of Congressman Crane.

Mr. Hinojosa, if you have a question? Do you have a question you

want to ask Mr. Crane?

Mr. HINOJOSA. First, I want to thank both Congressman Crane

and Administrator Alvarez for coming to talk to us today.

Congressman Crane, do you have small businesses exporting to

China today?

Mr. CRANE. Today, in my district? We had a Trade Subcommittee

hearing about 5 years ago in my district, and Charlie Rangel was

out there with me, and I have the corporate headquarters in my

district of Motorola, Sears, Ameritech, United Airlines, Kemper Insurance, and right on my border are Baxter & Abbott and AllState

Insurance, so I know that my district—and I think it is a bigger

export district even than Don’s, and he has a biggee.

But Illinois was the first largest export State, so it was exciting

to hear testimony from these people. The revelation that came out

of that hearing was that better than 90 percent of our Illinois exVerDate 11-MAY-2000 04:35 Sep 19, 2000 Jkt 066396 PO 00000 Frm 00013 Fmt 6633 Sfmt 6602 E:\HR\OC\B396.XXX pfrm07 PsN: B396
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porters were businesses employing 500 or fewer, and it was awesome, I mean to Charlie and to me.

In addition to that, though, I then—about a year later, I had a

fellow who came in doing business in the Persian Gulf, and he

handed me a folder and said, Congressman, this is a list of businesses in your district doing businesses in the Persian Gulf. Do you

know how many there are?

I said, I haven’t the vaguest idea.

He said, Over 150. He said, These are businesses employing 100

to 150 people.

I opened it up and I looked at the names of them. There was not

a single name of those over 150 businesses in my district that I recognized. I never heard of them before—I mean, really small businesses. But this is the awesome part of the role of small business

in international trade.

Well, you know, it has always been; the backbone of business in

our entire history has been small business. I mean, the giants grew

out of small businesses, but small business is the real backbone.

But it is an awesome figure.

The one unfortunate thing to me is that the message is not being

properly communicated by the heads of those businesses to their

employees about the importance of trade to our business, and that

translates into the importance in preserving your job.

When I talk about trade at a town meeting back home, people

start falling off to sleep. Oh, come on, let’s talk about the important

things. I mean, it is sad. It is a sad, sad thing that we are not properly getting the message out on the importance of trade.

Mr. HINOJOSA. Well, I asked that question because I wanted to

see if you or the Administrator could tell me how these small businesses are financing their accounts receivables and what kind of

assistance they are getting in ensuring that there is prompt payment for their goods or services, whatever they may be exporting

to China.

Mr. CRANE. Well, I would yield to Aida on that one to respond,

if I may. But if that—is it for me, Mrs. Napolitano?

Ms. NAPOLITANO. It would take several hours, sir, and I yield to

you.

Mr. CRANE. Well, I will catch you on the floor. Thank you so

much.

Mr. Chairman, I appreciate it. Thank you.

Chairman MANZULLO. Thank you, Mr. Crane.

Why don’t you go ahead and answer the question here?

Ms. ALVAREZ. I know that Congresswoman McCarthy had also

asked——

Chairman MANZULLO. Let’s finish the answer to that question.

Ms. ALVAREZ. The other thought, Congresswoman, is, I went out

to Washington State, I toured the Boeing plant, I met with the people who are in charge of their small business activity, and I met

with some of these small businesses.

These are very sophisticated companies. The people who perform

work for these major companies, the small businesses, have very

specialized skills. These are not low-skilled activity. There may be

nothing to prevent this from happening in China, but I don’t know

that they have the capacity, the way we do, to generate—to

11

produce small businesses that have the level of sophistication that

we do. Those are the businesses that the ‘‘Boeings’’ and these other

companies are hiring.

Part of it is an outgrowth of the reengineering of businesses.

When big businesses started to break up and reconfigure themselves, they lost sophisticated workers who went off and started

their own companies—and then eventually were actually hired

back with their employees by these big companies. This approach

lends more flexibility to the operations of the big business. Many

big businesses decided that they had core expertise, and that all of

the other areas that were required could be provided by small businesses; and that is the sort of model that they are using in this

country.

I just don’t see these companies, not in the near term, suddenly

discovering that China has that kind of a capacity. They will not

discover that kind of capacity in China. I do not believe so.

Mrs. MCCARTHY. Thank you.

I think this is really a complicated question, because even as you

answer, I start thinking for the future. I happened to think of

Japan after World War II when we helped them so much and certainly they started copying everything that we did, and pretty soon,

they were competing with us tremendously; and for a long period

of time, we did lose jobs because of that.

I am really just trying to find my way through this, because we

are supposed to protect our small businesses. I want to make sure

that we are protecting our small businesses. Because, gosh knows,

you know, even if it is only 5 to 7 years down the road—and I tend

to think that certainly in China they have extremely bright people,

they are going to be educated, they are going to be trained for jobs,

and pretty soon we are going to be competing with them.

Of course, on our end, I happen to think very strongly that we

have to take many of our workers and start upgrading them now,

not waiting for when they might lose jobs down the road. So that

is where I am coming from.

Thank you. I appreciate it.

Ms. ALVAREZ. Yes. I understand.

Chairman MANZULLO. Congressman Hinojosa.

Mr. HINOJOSA. Yes. I asked the question about how——

Ms. ALVAREZ. Financing.

Mr. HINOJOSA [continuing]. The small businesses take care of financing their accounts receivables and what type of assistance do

they get for prompt payment.

Ms. ALVAREZ. I think that is really a good question, and it is certainly one of the challenges that we are facing at the SBA. We

have a couple of programs that are meant to assist small business

and financing, but we find that our programs are actually underutilized, partly because nobody knows about them. Many people,

small businesses and the banking community, don’t know about

them. We experience the same sort of frustration as Congressman

Crane expressed at the lack of interest or awareness out there.

That is why this hearing is so important.

We have an international trade loan program where we guarantee loans up to $1.25 million for small businesses doing interVerDate 11-MAY-2000 04:35 Sep 19, 2000 Jkt 066396 PO 00000 Frm 00015 Fmt 6633 Sfmt 6602 E:\HR\OC\B396.XXX pfrm07 PsN: B396
12

national activity. We also have an export working capital loan program in which we provide a 90 percent guarantee up to $750,000.

There are different ways of financing transactions. The export

working capital program relies on accounts receivable, and inventory for collateral. Under the international trade loan program, the

collateral is fixed asset-based. These programs, however, I think

are underutilized. Small businesses tend to find financing in other

ways.

Jim Wilfong is the head of our Office of International Trade. Jim

has been out there visiting with not only the small businesses, but

with the finance community, and exploring precisely the question

that you just asked.

Chairman MANZULLO. Could you spell your name for the record,

please.

Mr. WILFONG. Jim Wilfong, W-I-L-F-O-N-G.

Chairman MANZULLO. You need to bring the mike closer to you.

Mr. WILFONG. Mr. Chairman, as the Administrator said, I have

been trying to really find out why small businesses have not been

using our programs or some of the Ex-Im programs for small companies as well, and it is exactly as she described.

I called on one area in New England to make sure that I could

figure it out in one spot. I went to 15 banks, most of them community banks, because a lot of small business people are doing business there. Before I came to the Small Business Administration, I

was an exporter for 25, 30 years. I was doing my business with

community-based banks as well.

What I found is that they do not know about our programs. For

the most part, they do not know when they have exporters. If I

bring 20 to 30 relationship managers from those banks together for

each one of the banks, which we did, maybe one of the people who

was working there knew that they had an exporter. So it is really

a question of education.

They are financing these loans on second mortgages on their

houses and with credit cards; they are financing them with irrevocable international letters of credit, wire transfers, cash in advance, a whole host of different ways; but what would really help

them is if they really knew more about the export working capital

program that we have, which allows them to finance on the basis

of the transaction.

Ex-Im has the same program. We handle the smaller accounts in

small business, and they handle the larger ones. So I hope that answers your question.

Mr. HINOJOSA. Mr. Chairman, I want to share with the group

that yesterday morning at 7:30 a.m. I was in my district, and

thanks to the University of Texas Pan American at Edinburg,

Texas, we had a digital teleconference with China. We had 25

small businessmen and women from my district talking to about 12

businessmen and women from—I think they were all men, from

Shanghai; and we had a terrible connection, so that we could not

see them clearly, but we could hear them very clearly, and they

said that they were getting a good picture in China.

But I want to share with you that we talked for about an hour,

and it was to introduce ourselves to them and to find out what kind

of interest they had to bring American products and what Chinese

13

products they had to let us buy from them. So we could not match

the businesses on this first try.

In 30 days we hope to have another one of these digital teleconferences and succeed.

But we did talk about the concerns that there was lack of knowledge about—how do we get the product there, who finances it, how

are we going to be assured payment—the kinds of questions that

any small businessman who has never exported so far would have.

Now, if we had sent merchandise to Mexico because we happen

to be in south Texas, adjacent to Mexico, then that is a lot easier.

But we just do not have a lot of experience. In looking at some data

that was provided to us this morning, I see that in our metropolitan merchandise export totals from my congressional area, there

has only been $117,000 exported in 1998, which is peanuts, you

know, for what is being sent to other countries. So obviously, there

is lack of information, as the Administrator said, about what help

is available.

I was very pleased that for the first time, we brought the Department of Commerce together with the SBA representatives to this

meeting so that they could begin to share with our participants in

this teleconference that there are programs like the Administrator

mentioned, and we just need a lot of help for other small businesses in regions of the country where we do have the capacity to

manufacture and to produce agricultural products, and we are just

not doing a good job. I can only tell you, we are not doing a good

job in workshops and in some way making this help and assistance

available.

I look forward to working with you to make it happen.

Ms. ALVAREZ. Yes. I couldn’t have said it better. I totally agree.

There has been an evolution, I believe. When I became the Administrator 3 years ago, it was very clear to me that going into the

21st century there were three areas that were of necessary focus

for small business: one, the incredible diversity of the small business community; that means women and minorities, which are

among the fastest growing of new small businesses. Secondly, the

critical importance of technology for small businesses to be competitive. It is not optional; it is necessary. And third, there is a

global marketplace for small business.

Now, to me, that makes total sense, and all of my experience

bears that out, but frankly it is a new direction, because we have

not been positioned in the past to promote these programs. We

have been holding seminars and sessions; we have embarked on

agreements with other countries where there are strategic alliances

already in place at the level of the President and the State Department and so forth, and where we view our expertise is value-added

to the peace process; and in the course of that, we believe we will

open doors for small business, because it is all about people-to-people.

Next week, there are trade missions going to Egypt and Mexico.

We have played a key role in organizing those, working with the

Department of Commerce and our sister agencies. This has not

happened before, and it reinforces relationships, very important relationships, that we have with Mexico and Egypt.

14

When we start to think big picture we see how to minimize the

cost to the taxpayer by maximizing connections across agencies.

And finally I do believe that when the President made SBA a Cabinet-level agency, he was acknowledging the fact that small business was a critical component of our economy.

Mr. HINOJOSA. Administrator Alvarez, I want to say that one

thing you could do is inform all the members of the Small Business

Committee months in advance before these trade missions, because

I knew nothing about Egypt and Mexico trade missions, and I have

heard nothing in 3 years that I have been in Congress about your

missions. So we are not informed, the left hand does not know

what the right hand is doing.

Ms. ALVAREZ. We need to do a better job.

Mr. HINOJOSA. I think you ought to send to Members Only, so

that it will come straight to our desks.

Ms. ALVAREZ. There are a lot of channels that we go through,

and it does not get to you.

Chairman MANZULLO. Thank you very much.

Congresswoman Napolitano.

Ms. NAPOLITANO. Thank you, Mr. Chairman, and I beg your indulgence for a minute because I will have to go to a markup quickly.

Ms. Alvarez, since I sit on Small Business and I ask all kinds

of questions and I am very involved in providing access to SBA for

my district, my concern has been, in the past, because in California

we did a survey a while back, that NAFTA had adversely impacted

small business.

Now, if that is so, what has the SBA done to be able to—if we

are going to be working on China, if the WTO is given to China,

the PNTR, as SBA, what is the administration going to be doing

to prevent the same type of negative impact to small business that

was experienced because of NAFTA?

Ms. ALVAREZ. Well, we are just asking Jim if we had statistics

on it. There is no question that during my tenure, I was brought

into this issue of the impact of NAFTA on small business. I think

we could have done a better job.

When I was brought into it, we started playing a very active role

in trying to help displaced workers, for example, set themselves up

as entrepreneurs, if that was their interest, and we started giving

them priority in terms of loans, which they might not have had

prior to that initiative.

We view the overall effect of NAFTA as very positive. I myself

have gone on trade missions to Mexico with U.S. small businesses,

largely from California and Texas, and they have all been very enthusiastic about the access that NAFTA has created for them.

Ms. NAPOLITANO. I understand that, and that is not really where

I was going.

I think maybe what my concern is, is that—and you did slightly

hit upon the retraining issue for entrepreneurships—but, then

again, the small businesses that lost because of NAFTA, whose employees are unable to locate jobs, comparable-paying jobs, and thus,

it becomes a problem of unemployment in our districts, such as

mine that is still losing jobs.

15

It is unfortunate that we have not set forth a program involving

SBA, Labor and Education, to be able to do just that, those employees, those companies, those secretaries that are affected negatively.

They should have something to benefit them out of the benefits of

any trade agreement, and that is one of my biggest concerns, because that is where I am coming from.

Ms. ALVAREZ. I totally agree with you. I think we need to do a

better job of that, and I think it needs to be coordinated across

agencies. The fact is that as you look at patterns, what often happens is, people lose a job; and then they actually migrate somewhere else and find a better-paying job. We have seen studies that

show that, but it means they leave your district, it means that the

action is somewhere else, given their skills set.

But in the meantime, we need to do a better job of retraining

people, I agree.

Ms. NAPOLITANO. One other quick question. Because of NAFTA,

of course, right after—it is given to us that as a result of NAFTA,

the Mexican peso was devalued, so consequently it eliminated any

benefits from the lowering of the tariffs.

What will happen with WTO—with PNTR? Do you think that the

yuan might be devalued and thus negate any benefit to our American companies?

Mr. WILFONG. I am not a currency expert, but I do not think so.

I don’t think that that is going to happen, because the peso was

traded on the international currency markets and I don’t believe

that the Chinese yuan is traded that way. I don’t think—it is not

traded over the counter that way, so I don’t think that that is a

factor at this point.

Ms. NAPOLITANO. Thank you, Mr. Chairman.

Chairman MANZULLO. Do any other members have a follow-up

question for Commissioner Alvarez?

Thank you very much.

Ms. ALVAREZ. Thank you very much. I appreciate the opportunity.

Chairman MANZULLO. All right. Let’s have our second panel. We

want to get started as soon as possible because of other committee

meetings that are taking place.

We have our second panel, and what I would like to do is to have

Congressman Toomey introduce Mr. Olson from Olson Technologies, and then we will start our testimony with him.

Mr. TOOMEY. Thank you, Mr. Chairman. I want to thank you for

allowing me the opportunity to recommend Mr. Olson to this Committee, and I want to thank Mr. Olson for coming to Washington

today to be with us. I know you have a very hectic schedule, running a thriving business.

I want to say just a couple of words about Olson Technologies

that Mr. Olson may not get a chance to tell us, and that is that

this is an amazing success story in the Lehigh Valley, right in the

heart of the Lehigh Valley of Pennsylvania, which is in my district

and in the city of Allentown, which has often been characterized as

an area which experienced and lived through the decline of heavy

industry, which very, very fortunately—some would say miraculously—has been largely offset by an emerging high-tech service

16

sector and an export-oriented part of our economy. So the economy

generally is thriving.

But Mr. Olson and Olson Technologies are in some ways the exception because they still represent heavy manufacturing in the

heart of an old industrial city, and they are doing a wonderful job,

and they are very successful and they are thriving I think largely

due to the fact that they recognize that the future and their success

depends on innovation and expanding markets, which Mr. Olson is

going to talk to us about today, and not trying to turn the clock

back and erect walls and barriers to prevent trade and to protect

narrow sectors of the economy.

So I am just delighted that Mr. Olson was able to come down

here today. His company is, as I say, a great success story, and I

welcome and look forward to his testimony and that of the other

members of this panel.

Thank you, Mr. Chairman.

Chairman MANZULLO. Okay. We are going to get this timer going

here. We would like to limit your testimony to 5 minutes.

Mr. Olson, please.

STATEMENT OF JAMES E. OLSON, CHIEF EXECUTIVE OFFICER,

OLSON TECHNOLOGIES, ALLENTOWN, PENNSYLVANIA

Mr. OLSON. Good morning. My name is James Olson. I am the

CEO of Olson Technologies in Allentown, Pennsylvania. I would

like to thank Chairman Manzullo and Congressman Toomey and

all of the members of the Subcommittee on Tax, Finance and Exports for inviting me here to come and testify in support of Permanent Normal Trade Relations with the People’s Republic of China.

Olson Technologies is a small manufacturer located in eastern

Pennsylvania, in downtown Allentown. The company was founded

in 1862, and was purchased by the present management in 1984.

We employ 47 people and our shop floor is currently represented

by the United Steel Workers of America.

One segment of business produces large-diameter butterfly

valves for infrastructure projects around the world. These large-diameter valves range from 42 inches in diameter to 12 feet in diameter, and they are used primarily in controlling water in electrical power plants, wastewater treatment plants, and fresh water

drinking plants.

Olson Technologies has been involved in international trade for

over 25 years. Our international business started with what I affectionately call ‘‘piggybacking’’ with large Fortune 500 companies

who secured international projects around the world, and we supplied the valves for them. We would secure a contract to supply a

complete set of valves, sold and delivered here in the United

States, and the Fortune 500 companies would, in turn, install them

in the countries. This business has amounted to about 10 percent

of Olson Technology’s overall sales and at times has risen to as

high as 25 to 30 percent of our business.

Today, Olson Technologies can point with pride to having installed large-diameter valves at numerous Korean nuclear power

plants, Pakistani power plants, power plants in Thailand and in a

number of other countries throughout the world. Our need to piggyback with Fortune 500 has lessened to some degree, and we now

17

compete directly for infrastructure projects in the international

market.

Because of my company’s experience in dealing in the international market and in dealing with China, I support permanent

normal trade relations with China. Our experience relating directly

to China involves buying products from Chinese foundries and from

Chinese machine shops and shipping them into this country. We

also build in our shop these large-diameter butterfly valves to the

specific Chinese national standard, which is a technical standard

we have to meet in China, and then turn around and ship them

into China.

Because of this experience, we believe full membership in the

permanent normal trade relations with China will provide Olson

Technologies with a number of concessions that we don’t currently

have, but our Chinese valve companies do have these concessions.

One of these concessions would lower the tariffs on our products so

that we could compete more favorably in the Chinese infrastructure

market.

Another concession would remove restrictions on having our own

sales force, which would be able to operate in China and free us

from using a restrictive Chinese sales force.

Finally, these concessions would allow me to set up my own distribution and communications inside China to assist in getting my

products directly to the markets.

Of course, these concessions wouldn’t really mean much if China

wasn’t such a large, growing economy. In the next 25 years, I believe China is going to build out its infrastructure, the same way

as other emerging countries around the world have. This will mean

a large increase in power plant projects and a large need for the

large-diameter valves produced by my company.

It will also mean building wastewater treatment plants, and the

specific valves that are designed in my company that the Chinese

do not have the technology for. This will all mean building numerous plants and the need for valves.

In the next 25 to 30 years, the production increase at Olson

Technologies could be anywhere from 25 to 150 percent. This would

mean new hires in Allentown, increased business with our suppliers, and a general boost to the economy for Olson Technologies.

As I mentioned before, Olson Technologies has had experience in

dealing with China in both purchasing and selling. Over the past

10 years, at least, China has had more favored terms in selling

their products in the United States, and a number of my valve

company associates have suffered from the importing of valves into

the United States. I am sure many of them are also now purchasing machine parts and castings made in China at very favorable prices.

In conclusion, I would like to state that the recent loss of a large

bid for the Beijing water treatment plant number 9 was a very low

point in my U.S.-China relationship, but the future of infrastructure built out and improving conditions for the Chinese with new

plants and products makes the prospect of doing business in China

extremely exciting.

18

I therefore urge your support for permanent normal trade relations with China for the benefit of Olson Technologies and other

mid- and small-sized manufacturers.

Thank you, Mr. Chairman.

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

Chairman MANZULLO. Thank you very much. I am going to try

to calm down these troops outside in line for the Appropriations

Committee. I will be right back.

[Brief pause in the proceedings.]

Chairman MANZULLO. Mr. Chabot, do you want to introduce the

next witness?

Mr. CHABOT. Yes. We have a witness that we are very pleased

to have here from Cincinnati, Ohio, Mr. Jeffrey Gabbour, who is

Vice President and co-owner of Prestige International, Inc. It is a

private enterprise based in Cincinnati, Ohio, and it was established

in 1977, I understand. Its former name was Robbins International,

Inc.

The Prestige Robbins Group is a group of manufacturers and exporters of quality residential commercial hardwood floors, and they

also have special designer parquets that are often used in commercial, as well as specialized sports systems for multipurpose sports

applications. They are used in school gymnasiums, health clubs,

recreation facilities, sports centers, et cetera.

They have headquarters in Cincinnati, and they also have manufacturing facilities in Michigan, Wisconsin, Tennessee, North Carolina and Arkansas.

Mr. Gabbour understands and speaks a number of languages—

French, English, Japanese, Italian, and reads Spanish as well. He

is responsible for manufacturing and overlooking businesses in 55

countries worldwide and working with over 210 distributors and

representatives. He is responsible for managing the continued

growth of the company and ensuring future development of business within new territories of trade.

He has traveled in mainland China 10 times in the past 10 years

and has engaged in business with China since 1976.

We are very pleased to have him here and we look forward to

hearing his testimony, and we welcome him here.

STATEMENT OF JEFFREY L. GABBOUR, PRESTIGE

ENTERPRISE INTERNATIONAL, CINCINNATI, OHIO

Mr. GABBOUR. Thank you, Congressman. That was half my

speech.

Chairman Manzullo, Mr. Chabot and other distinguished members, I really appreciate this forum to voice our views and experience, and appreciate that people really want to hear from us and

what PNTR means to small businesses like ourselves.

Our company was set up almost 25 years ago as an export arm

to a large U.S. manufacturing firm that was set up in 1896. Our

small firm represents 20 percent of overall sales. That means 80

percent of the manufacturing is supported within the U.S. market,

the other 20 percent is due to international markets. Our main

growth has really been throughout Asia. That is really what spearheaded us in our wave of growth, except for China.

19

China has really been left out of our mix. It only makes up, currently, 1 percent of our overall sales. Why? For two reasons: tariff

barriers and nontariff barriers. So I am going to do my best to

share some personal experience on what we have done in China for

the past 15 years and what PNTR means to us.

Until now, we have had a number of hurdles for import contracts. In order for us to do business in China currently, we have

been constantly asked to move our operations over to China, meaning to move our operations, whether it be from Cincinnati or Arkansas, and to manufacture in Shanghai, Beijing, Hubei and other

provinces.

They have asked us to invest. They have asked us to transfer

technology. When we do refuse, then they see where we can use

local content. They will actually break up our product and say, why

don’t we have 30 percent of your content be supplied from local

Chinese companies?

Our main objective is to use 100 percent North American raw

materials and to manufacture 100 percent made in USA goods.

Now, the reason—another reason for this, and this will answer

a question that Mrs. McCarthy had—is that we maintain certain

industrial standards on our products. We have to meet certain

ASTM, FIBA, different association standards. Therefore, we guarantee that all of our subcontracts will be delegated to American

factories, because these factories are accredited and certified to

manufacture under standards. And that has been our main point,

why we can’t have local content, because as soon as we have local

content, then we lose certification.

Right now, China is pushing to meet certain international standards. We are in the building industry, and they are trying to meet

certain international building codes. Our most successful example

was in 1997 when we supplied the China national games, their

version of the Olympic games. It took us 4 years to promote a

three-stadium project. It took numerous meetings, numerous trips

to China.

What is the moral of this story, of us being able to supply these

projects? Is that after the supply of this job to the government sector, they have actually changed their views on the building industry and building codes and how to build future facilities, again, in

the sports industry.

So we feel, even as a small business, we have actually made an

impact on a certain industry, and because these were national

games, we had people from every single province in China, who attended the national games in Shanghai. So now we started getting

inquiries from Xi’an and Hubei and other regions because of what

we were able to do in one region.

We have a business philosophy, whether it be for China or international, we call it the ‘‘planting seeds philosophy.’’ We went into

China really in 1980 when very few American companies were

going there. People thought we were crazy to go there. Our idea at

that time was to plant seeds, to set a foot in the door, to try to

change and influence ideology on our products.

We have proven that after 10, 15 years of patience, we were able

to write our first contract in Mainland China. That is why we are

a big supporter of PNTR, because whether changes will take place

20

today or 10 years from now, all we are doing is planting seeds.

Without the seeds, we will not be able to influence what kind of

business we can do in China.

By lowering the tariffs and also eliminating some of the nontariff

barriers, it is going to allow business-to-business—it is going to

allow face-to-face meetings. Numerous times I have met with my

Chinese counterparts who want to import our goods because they

base it on technical merit, but so many times what is the stopping

block is that the tariffs are too high. We are eliminated anywhere

from $2 million to $5 million contracts because of this.

Now, in closing, I would just like to state that the irony of all

of this is that China is actually welcoming our American products

into the market, and by voting no, we would basically be putting

sanctions on ourselves.

So I strongly urge Members of Congress—and I hope you can understand the point of view of a small business and how it does impact our community and our people and our families.

Thank you very much.

Chairman MANZULLO. Thank you very much.

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

Chairman MANZULLO. I have the pleasure of having two constituents here at this hearing, but I guess that is my prerogative when

you are chairman. But aside from prerogatives, it is also the area

of expertise.

I have asked Sharon DeDoncker from Aqua-Aerobics to testify.

Sharon has been at Aqua-Aerobics for almost 30 years. Bob Phelps,

who is a local farmer, to will testify, too.

We will start first with Sharon. Sharon is Vice President for

International Sales at Aqua-Aerobics in Rockford. Their international sales and market activities are about $45 million a year,

dealing with wastewater treatment equipment.

Sharon, we welcome your testimony.

STATEMENT OF SHARON K. DeDONCKER, VICE PRESIDENT/

INTERNATIONAL, AQUA-AEROBIC SYSTEMS, INC., ROCKFORD, ILLINOIS

Ms. DEDONCKER. My name is Sharon DeDoncker, and I am Vice

President of International Sales with Aqua-Aerobic Systems; and I

am here today as part of the U.S. Chamber of Commerce PNTR

support group.

Aqua-Aerobic Systems is a privately owned company in Rockford.

We manufacture and market equipment used for water and wastewater treatment. We sell both to municipalities and to industries.

The company has been in business since 1969. We have annual

sales of $45 million and we employ 135.

The U.S. market is a mature market for our product, so if we are

going to grow, we have to really look at the international market.

We have assigned our resources accordingly into that area. Currently, international sales are about 10 to 15 percent of our business, but we are looking at a growth to 20 percent of our business

within the next 2 years. One of the best markets for our products

is the China market.

21

In 1997, China spent $7.2 billion on their environment, making

it one of the best markets for U.S. environmental technology products. We have aggressively pursued this market.

Over the last year, we now have a rep who works full-time in

that area dedicated to China. We have taken part in technology exchange groups. I have been to China three times myself last year,

working on relationship-building. Our technical staff has worked

with local engineers on writing designs and specifications. We have

also hosted many groups at our plant in Rockford, and we worked

with the government officials of Rockford’s sister city in

Changzhou. In other words, we believe in China and we have invested accordingly.

We are a typical small company with very limited resources. If

we are successful in an area, it is because we use resources outside

of our plant, such as government resources, and that has been crucial to our success in these areas and maintaining business there.

But I have to believe, if PNTR does not pass, that the resources

for supporting government activities in China will also be limited,

which is a real shame for small companies like us since we really

desperately need the government’s support to maintain our efforts

in foreign countries.

We have not been active in China that long, probably only 2

years that we have been aggressively working that market. In that

2 years, though, we have started to see success already. Just last

year, we booked a $2.8 million job which we will be shipping next

month. That one job will represent 6 percent of our company’s total

bookings for this year.

One benefit that we like about China is that it is so large. Not

only are there a lot of projects there for us, they are huge projects

compared to what we normally do. A small project there starts at

half a million, and for us, $1 million in additional sales equates to

an additional employee.

With passage of the PNTR, we feel our sales to China can grow

at a rate of 20 percent a year and sales to this area could represent

50 percent of our international sales in a very short period of time.

Passage of PNTR is very important to Aqua-Aerobic Systems. In

fact, it is crucial to our continued work in this area. If it does not

pass, there are just too many obstacles for us to overcome, and it

is very possible that we will decide to totally suspend our activity

in this area. Not only would we lose out on the largest market in

the world for our product, but we would lose the time and the

money that we have already invested in this area.

The key reason why this is important to us is the price issue.

China has agreed to significantly reduce tariffs as a condition of

WTO membership. However, without PNTR, China can deny the

tariff reductions to U.S. companies while continuing to grant them

to the other WTO members. We are talking about reductions in the

range of 10 to 15 percent. If you are a salesperson, no matter how

well you do, this is a really difficult obstacle to overcome; 10 and

15 percent is a huge difference.

We need equitable tariffs to maintain our price competitiveness

with other international companies, which we can get if PNTR is

granted. Without having an equal playing field, we cannot be a viable participant in this market.

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The U.S. is the largest producer of water and wastewater treatment equipment in the world, and China has a tremendous need.

The government there is developing and enforcing pollution regulations, so with passage of PNTR, we can take advantage of this

need. Without passage, no U.S. company can benefit, while our

international competitors can.

As I said, we are typical of U.S. small companies. We need the

same backing that our international competitors get from their governments. We need passage of this measure in order to compete on

an equal basis with our international competitors.

I would like to thank you for giving me this opportunity to express our support of passage of PNTR. Thank you.

Chairman MANZULLO. Sharon, thank you very much.

[Ms. DeDoncker’s statement may be found in appendix.]

Chairman MANZULLO. Our next witness is Bob Phelps who lives

in Rockton, Illinois, in Winnebago County. He has farmed the family farm since 1974 in partnership with his dad. Bob holds a Bachelor of Science degree in Agricultural Economics from the University of Illinois. He is a member of the Illinois Farm Bureau board

of directors. He is also local school board member and former president. He is a graduate of the Illinois Agricultural Leadership program in 1992, and was a member of the McCoy Fellowship, the

American Council on Germany, in 1996. He is here today instead

of planting his crops.

Bob, we welcome your testimony.

STATEMENT OF ROBERT ‘‘BOB’’ PHELPS, OWNER-OPERATOR,

PHELPS FARMS, ROCKTON, ILLINOIS

Mr. PHELPS. Thank you very much, Mr. Chairman and members

of the Committee.

Chairman MANZULLO. Bob, are the crops in, or is it still too wet

to get them in?

Mr. PHELPS. We have been planting. In fact, I think somebody

is planting at home today. So hopefully tomorrow we will finish, I

think.

Chairman MANZULLO. If you could pull the mike closer to you

while you testify. Thank you, Bob.

Mr. PHELPS. Again, Congressman Manzullo, members of the

Committee, I appreciate the opportunity to come before you and

present today.

My name is Robert Phelps and I am a family farmer. My family

has farmed for five generations in Rockton Township north of Rockford, Illinois. We primarily raise corn and soybeans and feed beef

cattle. We also raise lesser amounts of wheat and alfalfa.

I am sure you have all heard the numbers surrounding the

granting of permanent normal trade relations to China. The

amount we export in agricultural commodities, their value, the

number of people affected both here and there, and the tariffs and

their expected reductions have all been examined and reexamined,

and I am not going to reiterate them here. They are all with merit,

and they are all important to me.

While I personally do not export a product, the vast majority of

my grain and oilseeds do enter the export channel. I know very

well the importance of expanded markets and what happens to

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farm prices when markets are taken away or their existence

threatened. History has shown that when markets are removed

through embargoes, increased tariffs, or the threat of retaliation,

farm prices drop.

For me, this issue is all about incentives and choices. I am one

of the early links in the food chain and for the last few years, I

have been selling a product to the next link in that chain for a

price that is at or below my cost of production. In any other industry, I could establish my price received based on costs and reasonable return on my investment, but in agriculture, I can only accept

or reject a bid offered me, a bid independent of those costs or returns. This is certainly not conducive to profitability.

Additionally, I currently have few, if any, meaningful noneconomic incentives to produce that food product. Regulations and

restrictions from various agencies and units of government that I

must comply with are increasing, all bearing a cost with no means

of recovery, while my foreign competitors face far fewer barriers.

The majority of my net income in the past few years has come from

the government, not the marketplace.

I listen to Alan Greenspan tout the growth of the American economy while rural America stagnates. All of these factors weigh very

heavily as I try to economically justify producing food for a growing

world.

I believe it is time for a real incentive. There are, in fact, 11⁄3 billion of them, the people in the People’s Republic of China.

Producing a product that someone wants, is willing to pay for,

and having the increased market access that we talked about during the discussion surrounding the creation of the 1996 farm bill

is an incentive. Creating enough demand to result in a price for my

product that moves toward profitability and away from government

subsidization is an incentive for all involved. Increased trade is the

safety net we need.

Nobody can predict how much commodity prices would rise with

the granting of permanent normal trading relations with China,

but increased market access will certainly positively shift the demand curve. If the increased access and resulting demand can generate a modest 5-cent increase in the price of a bushel of corn, a

10-cent increase in the price of a bushel of soybeans, it would, for

me, generate enough income to equal the amount that my wife and

I pay towards 1 year of our daughter’s college education, or it could

be used to pay down long-term debt more quickly, or to replace

equipment in a more timely fashion.

I might add, it would also offset the cost of last year’s interest

rate hikes by the Fed and they are talking about that again today.

In any case, those dollars are immediately pumped back into the

economy. The ripple effect is profound. Every penny per bushel

that comes from the marketplace is a penny per bushel that the

Federal Government does not have to provide when prices are

below loan rates.

I believe another incentive for me would be the knowledge of an

improved standard of living for the 11⁄3 billion Chinese, primarily

in the form of better nutrition. The demand for pork and beef in

their diets will have a very positive impact on their nutritional

well-being. We enjoy in this country an abundant, diverse, safe and

24

affordable food supply. There is no reason the citizens of China

should not as well.

Earlier I mentioned choices, and I realize that I do have choices.

I have the choice of what I grow on my land or how it is used based

on what the market tells me. One choice I have is the option of

growing houses, and much of my land is well suited for them. I live

in a high-demand area for rural real estate, real estate that satisfies the desire of those who want a place in the country.

I also have the option or choice of producing food for people who

need it.

Granting permanent normal trade relations to China gives me an

incentive to make the choice of using my land for food production.

I think that is the right choice. It is the best way I know how to

wisely use our resources for the outcome and benefit of a worldwide

society.

Again, thank you for providing me the opportunity to present my

views.

Chairman MANZULLO. Thank you very much, Bob.

[Mr. Phelps’ statement may be found in appendix.]

Chairman MANZULLO. I have to run off to the Banking Committee. I am asking Congressman Chabot if he would come over

and chair the rest of the hearing. I don’t know if I will have an

opportunity to come back. If I don’t, again, I want to thank you for

coming out, and we really appreciate your interest in traveling all

the way to Washington to tell us your life story.

Mr. CHABOT [presiding]. Thank you for the witnesses’ testimony

so far.

Our next and final witness on this panel is Mr. Keith Parker.

Mr. Parker achieved the honor rank of Eagle Scout at the age of

13. He is the last 4-sport letterman to graduate from Longview

High School, Longview, Texas, and is a member of the LHS Athletic Hall of Fame. He had a college scholarship in three sports and

later spent 3 years playing professional football as a tight end.

Mr. Parker in his professional career is a licensed financial planner with expertise in finance and tax planning, and has earned numerous industry sales awards. He first met Dr. Mohsen Amiran in

1994 and purchased the patent rights to this new fire technology

in April of 1998, while Summit was in the registration phase with

the Securities and Exchange Commission. He has arranged and attended several nationally recognized demonstrations where FlameOut has been certified according to industry-recognized ratings,

Federal Aviation standards and military specifications.

Mr. Parker has been known to set himself afire, put a blowtorch

to his arm, or even hold a 5,300 degree piece of magnesium in the

palm of his hand to demonstrate the fast-acting and lifesaving benefits of FlameOut. He has dedicated his life to showing the world

an entire line of environmental products whose benefits are totally

environmentally friendly. Keith Parker founded Summit Environmental Corporation.

Mr. Parker is a pre-law graduate of Texas A&M University,

where he majored in both political science and behavioral psychology. He continued his pursuit of higher education at Southern

Methodist University and Southwest Texas University with graduate studies in tax law, estate planning and philosophy.

25

We welcome you here, Mr. Parker. We would like to hear your

testimony.

STATEMENT OF B. KEITH PARKER, CHAIRMAN AND CEO, SUMMIT ENVIRONMENTAL CORPORATION, INC., LONGVIEW,

TEXAS

Mr. PARKER. Thank you, Mr. Chairman and distinguished members.

Mrs. McCarthy, I would like to thank you for your comment earlier about the access for resolution to disputes, because that is a

concern of a small company like Summit Environmental.

I think Summit Environmental represents the true spirit of entrepreneurship in the United States. As my resume says, I am a

licensed financial planner. I was in that business for 25 years until

I met Dr. Mohsen Amiran in 1994, and the man changed my life

because of a product that he developed that I learned about.

In 1992, at the Geneva Peace Conference, a fire-fighting agent,

which is the most popular agent that was ever developed in the

world called Halon, was banned because it depletes the ozone and

its toxic runoff gets into the groundwater. The United States Environmental Protection Agency under the Clean Air Act set up a program called Significant New Alternative Policy, and Dr. Amiran’s

formulation was the first product ever approved under the program

as a replacement for Halon.

Through the long and the short, I founded in 1997 Summit Technologies, which was our initial company, and then in 1998, after

going through the SB–2 process, our registration was approved as

a public company, Summit Environmental Corporation.

Today, because of the technology we own the patent rights to, we

are dealing with the Federal Aviation Agency on replacement of all

of the Halon fire extinguishers on board, commercial aircraft,

which is a mandated replacement through what is called the minimum performance standards.

We are in current tests with the United States Navy, Naval Research Laboratories’ misting system for passenger cabins for this

product.

As you have heard in my resume, I have set myself on fire. This

is truly a unique product because it prevents reignition. Once fuel

has come in contact with this product, it molecularly reorganizes

the hydrocarbon chain and renders it nonflammable.

We are currently dealing with the Naval Warfare Center at Patuxent River for the development of another product we have, a

turbine cleaner for jet engines that is being tested on the F–16, and

we have an absorbent for cleaning up all types of semiliquids and

liquids which has U.S. EPA, Department of Agriculture, World

Health Organization, California Title 22 approvals. So we are—this

is the process that we have entered into.

We do our marketing through Strategic Alliance Partners, and

all of these contracts with the Federal Aviation Agency and the

United States Navy have come about because of our strategic alliance with a company called International Aero, which is the largest

reconfiguration company for commercial aircraft in the world.

In 16 short months after becoming public, we have been able to

forge agreements in 48 countries for the acceptance of our product.

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Tested just recently, we received the approval of the Forestry Service and the State Fire Department in the Government of Chile. But

all of these countries, which are included in my paper submitted

as an exhibit—despite all of these 48 countries, is the situation

that we run into with China. We have had four attempts that have

failed. I would like to just kind of cover those, because they are

issues that have been talked about today.

China wants the manufacturing of finished goods domiciled in

order to keep their own citizens employed. They request review of

patent-pending files under the disguise of verifying their existence.

However, when qualifications such as no tape recorder, no cameras,

no note pads, no computers, pens, pencils, pads, et cetera, are

added, they are no longer interested in seeing if we have a patent

pending.

An increasing line of handouts with regards to requests for

monthly retainers have come from a myriad of Chinese citizens

within the United States, professing to give us introductions which

we have no way of verifying whether that introduction will lead to

another introduction for another retainer.

The infusion of your own company’s capital is often requested as

a sign of good faith. Of key importance to Summit is obviously the

market size vs. population growth, the product needs and environmental issues which center around the fact that modern firefighting, as it is known today, began in the Province of Hainan in

China. We feel like we could be recognized very easily with this

technology there.

In answer to Mr. Hinojosa’s question earlier about financing, we

are forced to deal with either irrevocable letters of credit or 50 percent deposits and the balance due on shipping to ensure that the

financial stability of our company stays intact because, like I said,

we are a young public company.

I thank you for the opportunity to address the Committee. Thank

you.

Mr. CHABOT. Thank you very much.

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

Mr. CHABOT. We may be able to get in if we limit our questions

to about 3 minutes or so, finish this up before we go over to vote,

if that would be okay with others.

Mrs. MCCARTHY. I have an amendment coming up, so that

means I have to be at the Rules Committee probably by 12 o’clock.

Mr. CHABOT. Okay. I will tell you what I will do. We will limit

our questions to 3 minutes, and I will defer to you and let you go

first.

Mrs. MCCARTHY. I thank you for that.

This is very hard for me, because I think I have been a fighter

for my business people, and I will continue to do that. But I guess

I have just so many questions, but I think, you know, here we are

dealing with business. On one of my other committees we deal with

national security, and then I deal with human rights issues. So, I

mean, I have to be honest with you.

For 7 months, I have probably met with over 80 different groups,

almost all businesses, trying to get my way through this issue. So

it is probably with a very heavy heart—no matter how I vote, it

is going to be a hard vote for me, because as I said earlier, I think

27

both sides are right, and I also think there are some things wrong.

So I just want to say that.

My question, I am going back to you, Mr. Olson, because my concern again—and you are in the high-tech industry—so from your

testimony, you stated that companies such as yours will effect numerous changes in human rights, working conditions, environmental and a number of other social concerns if PNTR is granted

to China.

Can you give me some examples of how Olson Technologies can

effect these changes?

Mr. OLSON. Thank you, Congresswoman.

Yes, I feel that the potential of sending some of my people in my

plant over for repair of valves and for the installation of valves into

the People’s Republic of China—that would include sending over

some United Steel Workers—I think would have a major impact on

the potential changes in what they see and the way they deal with

the Chinese.

I also feel that the valves that we make go into the kind of

projects that I think need to be built in China and will be built in

China, and that the increase of that potential for valves will bring

us in closer contact with the Chinese where we have to go over and

install, set up, turn them on, actually, when the plant gets started;

and I think that the continuous interface with the Chinese will effect those kinds of changes.

Mr. CHABOT. Thank you. The gentlewoman’s time has expired.

I am going to keep my questions and comments brief.

I have given a lot of thought to this, as well, on both sides, and

it is my determination that it is in the best interests of this country

that we do approve permanent normal trade relations, and it is my

intention to vote accordingly.

But one of the things that I think that the business community

needs to do a better job of is actually educating the work force, the

people that work in the plants, the people that work on the line,

because they are getting a lot of information, especially from the

unions on one side of this, and I don’t know that the business community has done as good a job as we need to to educate the workers about how many future jobs are dependent upon trade and how

the American standard of living is dependent upon trade, and just

how important it is.

Mr. Gabbour, especially since you are from my district, I would

be interested to hear anything you might have to say about how

we can better get the work force into this whole process and make

sure that they understand how significant trade is to actual jobs

in this country.

Mr. GABBOUR. Thank you. Actually, I have very specific examples

regarding this. Many years ago when the U.S. economy was not

doing so well, I remember the phone calls from the various plants

to our small office in Cincinnati asking us whether we had any new

international orders, because if we did not, then they would have

to shut down the plant 2 days a week and only operate 3 out of

5 days a week. The biggest problem with that was the morale of

the people, letting them go home 2 days out of the week and not

getting paid for it, because there was just simply not enough work

to be done.

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When the Asian economy really started taking off, our orders

started coming in and we kept those plants, not just in Ohio, but

in Michigan and Wisconsin and Arkansas, running at full capacity,

because we could not even keep up with the orders. Most of them

were coming from the thriving economies like Thailand, Korea and

Japan, all but China. And what was devastating to us is that every

time we looked at projects in China, they were in the range of, like

I said, anywhere from half a million to 2 million, up to $5 million

that we simply did not have access to because people could not afford our products.

So we have directly seen how it has impacted the work force,

even within our own industry, not just the 15 people that work in

our headquarters, but there are 1,000 workers that are directly and

indirectly related in our field that are affected by this. And because

of the Asian economy thriving, we kept the plants running at full

capacity.

Now that the U.S. market has come back, we are at full capacity

still, and now we cannot even keep up with orders, and we are still

making up 20 percent.

Mr. CHABOT. Thank you very much.

Mr. HINOJOSA. Only 5 minutes left to vote and we do not want

to miss it.

I just want to commend you because your presentation was excellent, and I am encouraged because the area that I represent does

not trade with Asia, and I am convinced that what I learned in

China was that there is a great deal of need for lots of services,

especially environmental services like what you all represent—

medical services, medical equipment, those were some of the things

that stood out in what they are asking for. I just hope that the day

will come soon, and Don Manzullo says he will make it happen,

that we could put you on a video teleconference to visit with some

of our business people in south Texas so that they can see examples of those who are successfully trading with China and that

maybe that might be a way in which we could turn things around

for an area like ours.

Mr. CHABOT. Thank you very much.

Mr. HINOJOSA. We thank you for coming and we appreciate your

time.

Mr. CHABOT. We thank the panel for their testimony here this

afternoon. This is a very important issue, and you have made an

important contribution to Congress as it deals with this issue.

At this time, we are adjourned.

[Whereupon, at 11:45 a.m., the Subcommittee was adjourned.]

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