International Trade: Observations on U.S. and Foreign Countries' Export Promotion Activities
Published: 2009-12-09T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: As Congress considers policies to bolster the recovery of the U.S. economy, it must consider the full range of tools available to stimulate growth and create new jobs, including promoting exports. According to the Department of Commerce, U.S. exports of manufactured goods totaled $1.8 trillion in 2008--accounting for approximately 13 percent of the U.S. Gross Domestic Product. GAO's testimony addresses the benefits of exports and provides updated information on U.S. export promotion efforts. It also includes initial observations about foreign export promotion activities. The observations about U.S. export promotion efforts are based on a variety of reports and testimonies GAO has issued on international trade over the past 4 years. Observations about foreign export promotion practices are based on a preliminary review of several key expert studies.
section_title: What GAO Found
paragraphs: Exports, and trade more broadly, contribute to the U.S. economy in a variety of ways. Trade enables the United States to achieve a higher standard of living through producing and exporting goods and services that are produced here relatively efficiently, and importing goods and services that are produced here relatively inefficiently. Rationales for export promotion programs include macroeconomic considerations such as job creation and economic growth. Others are based on microeconomic considerations such as "market failures," for example where imperfect information prevents markets from generating the most efficient outcome. Rationales also exist for export programs based on achieving broader trade policy objectives, such as helping U.S. exporters overcome foreign trade barriers that make it difficult for U.S. products to penetrate foreign markets. However, measuring the effectiveness of export promotion activities is difficult. For example, quantifying the growth in exports is complicated by the fact that other factors, such as government policies and firm-specific conditions, also determine growth. Export promotion efforts in the United States are guided by the National Export Strategy. According to the strategy, 20 agencies are part of the Trade Promotion Coordinating Committee (TPCC), of which 9 of the agencies have budgets for programs or activities related to export promotion, with the Departments of Commerce, Agriculture, and State actively engaged in export promotion overseas. Agency export promotion activities include providing basic export counseling; assisting with collecting and providing data on foreign markets; and advising firms on how to best market their products overseas. While GAO has not recently performed an in-depth comparison of U.S. and foreign export promotion activities, the findings and recommendations in our past reviews of U.S. agencies are consistent with expert studies looking at export promotion practices in other countries. Specifically, GAO has identified elements of U.S. export promotion activities that warrant attention: (1) coordination; (2) targeted services for small and medium enterprises and other priorities; (3) performance monitoring; and (4) partnerships and methodologies for setting user fees. The expert studies GAO reviewed echo the importance of each of these elements with regard to the activities of foreign export promotion agencies and may be informative for policy discussions about U.S. export promotion activities.

section_title: Letter
paragraphs: Thank you for the opportunity to appear today before the Subcommittee  on International Trade, Customs, and Global Competitiveness to provide  our perspective on the role of U.S. export promotion. As Congress  considers policies to bolster the recovery of the U.S. economy, it must  consider the full range of tools available to stimulate growth and create  new jobs, including promoting exports. My statement today will provide  an overview of (1) the benefits of exporting, rationale for export  promotion activities and extent of U.S. activities; and (2) observations  about U.S. and foreign export promotion, focusing on the importance of  coordination, targeting services, performance monitoring, and  collaborative partnerships. GAO has reviewed export promotion activities  in agencies including the Department of Commerce and the Export-Import  Bank over the years and recommended changes to improve the data and  information regarding their export promotion activities, and the agencies  have responded to our recommendations. For example, Commerce agreed  with recommendations we made earlier this year to improve their  procedures for determining costs and setting user fees and their  information about customers and demand for the export promotion  services they offer. Similarly, Ex-Im has taken several steps to respond to  recommendations we made regarding determining the number of  transactions that directly benefit small business, and improving the system  for estimating the value of direct small business support for those  transactions where the exporter is not known at the time Ex-Im authorizes  the transaction.
My remarks about U.S. export promotion efforts are based on a variety of  reports and testimonies we have issued on international trade over the  past 4 years, and include some additional observations about foreign  export promotion practices based on a preliminary review of several key  expert studies. We conducted our work from November to December,  2009 in accordance with all sections of GAO’s Quality Assurance  Framework that are relevant to our objectives. The framework requires  that we plan and perform the engagement to obtain sufficient and  appropriate evidence to meet our stated objectives and to discuss any  limitations in our work. We believe that the information and data obtained,  and the analysis conducted, provide a reasonable basis for any findings  and conclusions.
subsections: section_title: The Benefits of Exporting and U.S. Efforts to Promote Exports
subsections: section_title: Exports Provide Economic Benefits
paragraphs: Trade, and exports more specifically, contributes to the U.S. economy in a  variety of ways. Trade generally enables the United States to achieve a  higher standard of living through exporting goods and services that are  produced domestically relatively efficiently, and importing goods and  services that are produced domestically relatively inefficiently. An  indication of this is that firms engaged in the international marketplace  tend to exhibit higher rates of productivity growth and pay higher wages  and benefits to their workers than domestically oriented firms of the same  size.
In addition, the benefits of exports accrue to many U.S. states. For  example, in 2008, according to Commerce, Oregon’s exports totaled $19.4  billion, with computers, electronics and agricultural products accounting  for more than half of that amount. According to the Idaho Department of  Commerce, in 2008, Idaho exported $5.01 billion worth of goods, with  exports of high-tech products including semiconductors, computers, and  capital equipment accounting for 63 percent, or $3.2 billion, of the total.  Agricultural and food exports from Idaho totaled approximately $676  million, about 14 percent of its total exports.
Exports can also serve as a countercyclical force for the U.S. economy,  stimulating the U.S. economy when demand from abroad is greater than  domestic demand. For several years, the United States increasingly  imported more than it exported and served as an engine of growth for  other nations. In contrast, when the U.S. economy slowed in 2007 through  the first two quarters of 2009, the economic downturn was somewhat  mitigated by an improving trade balance. For example, with continued  global demand for U.S. goods and services, increases in net exports  accounted for over half of U.S. economic growth in 2007 and 2008.
section_title: Export Promotion Is Based on Several Rationales
paragraphs: Several rationales exist for the use of government export promotion  programs to support exporting firms and sectors. In addition to  macroeconomic considerations of job creation and economic growth,  microeconomic considerations exist for government programs to address  “market failures” – where conditions such as imperfect information and  entry barriers prevent markets from generating the most efficient  outcome. Rationales may also exist for export programs based on  achieving broader trade policy objectives, such as helping U.S. exporters  overcome foreign trade barriers that make it difficult for U.S. products to  penetrate foreign markets. Examples of export promotion addressing  market failures and achieving broader trade policy objectives include:    Foreign market information: Some firms may not export because they lack  information about export markets, but U.S. officials abroad may have  access to commercially valuable information about foreign markets that  the private sector may not otherwise be able to access.
Advocacy: Government representation on behalf of a firm competing for a  potential export sale may influence procurement decisions, particularly in  helping establish a firm’s credibility in foreign markets.
Export finance assistance: Government finance can fill gaps created when  the private sector is reluctant to finance certain exports, particularly for  small and medium sized enterprises (SMEs).
Not withstanding these rationales, measuring the effectiveness of export  promotion activities is inherently difficult. For example, quantifying the  growth in exports is complicated by the fact that other factors, such as  government policies and firm-specific conditions, also determine growth.  Nevertheless, according to the World Bank, the number of national export  promotion agencies worldwide has tripled over the past two decades.
section_title: U.S. Export Promotion Is Supported by a Wide Variety of Agencies and Activities
paragraphs: Export promotion efforts in the United States are guided by the National  Export Strategy and are pursued by a wide variety of agencies and through  a wide range of activities. According to the strategy, 20 export promotion  agencies are part of the Trade Promotion Coordinating Committee  (TPCC), of which 9 of the agencies have budgets for programs or activities  related to export promotion, with Commerce, the Department of  Agriculture (Agriculture), and the Department of State (State) actively  engaged in export promotion overseas. To support U.S. businesses in- country, as well as gather data and information about local markets,  Agriculture has 101 offices in 81 countries and Commerce has 126 offices  in more than 80 countries. State personnel provide in-country services at  approximately 100 embassies overseas where either Commerce or  Agriculture lacks a presence. In both 2007 and 2008, the budget for U.S.  trade promotion activities was about $1.3 billion. In 2009, TPCC agencies  requested $1.2 billion in funding, with Agriculture, Commerce and State  accounting for 91 percent of the total trade promotion budget authority.
The wide range of activities that are considered export promotion include:    providing basic export counseling;    assisting with collecting and providing data on foreign markets;    advising firms on how to best market their products overseas;    providing loans, insurance, and guarantee programs;    advocating on behalf of domestic firms; and    monitoring trade agreements.
section_title: Observations Regarding U.S. and Foreign Export Promotion Efforts
paragraphs: While GAO has not recently performed an in-depth comparison of U.S. and  foreign export promotion activities, the findings and recommendations in  our past reviews of U.S. agencies are consistent with several expert  studies looking at export promotion practices in other countries.  Specifically, GAO has identified elements of U.S. export promotion  activities that warrant attention: (1) coordination; (2) targeted services for  small and medium enterprises and other priorities; (3) performance  monitoring; and (4) partnerships and methodologies for setting user fees.  The expert studies we reviewed echo the importance of each of these  activities for foreign export promotion. (See app. I for a listing of these  studies.) Although we do not endorse any specific changes to U.S. export  promotion programs implied by the studies, we provide this information to  assist in Congressional oversight of U.S. export promotion programs and  for a policy discussion about U.S. export promotion activities. GAO has  begun a new body of work in this area based on renewed congressional  interest.
subsections: section_title: Coordination of U.S. Export Promotion Activities
paragraphs: U.S. export promotion activities are coordinated by the TPCC. To address  a longstanding congressional concern over a lack of effective  coordination, GAO has reviewed the TPCC several times since its  inception. In 2006, we testified that the TPCC had made progress over time  in improving coordination, including interagency training and joint  outreach. However, in both 2006 and 2009, we found the TPCC continued  to face challenges in other areas of its coordination responsibilities. For  example, in March 2009, we testified that the National Export Strategy  continues to lack an overall review of agencies’ allocation of resources  relative to government-wide export promotion priorities. Similarly, we  testified in 2006 that, despite its mandate to propose a unified federal trade  promotion budget, the TPCC continued to have little influence over  agencies’ allocation of resources for trade promotion.
Our observations about the importance of clearly coordinated  responsibilities among export promotion agencies are consistent with  findings in several expert studies that examined foreign export promotion  practices. For example, the International Trade Center reported that most  successful exporting countries have established a central or national  export promotion agency that coordinates implementation of the national  export strategy, leads in creation of a support network, and acts as a first  stop for the business community. In a review of 104 countries, the World  Bank study found that a single and strong export promotion agency is  preferred to the sometimes observed proliferation of agencies within  countries. Well-coordinated activities among a larger partnership of  support agencies are emphasized in studies by the Australian Trade  Authority (Austrade) and the Boston Consulting Group. Austrade, for  example, stated that effectively coordinating export service providers is  important for potential and new-to-export firms, since some – especially  small and medium-sized enterprises – have encountered difficulties in  identifying or accessing appropriate services for their needs. Examples of  notable foreign coordination efforts that the reports cited include:    Canada’s National Sector Teams and Regional Trade Networks that were  created to enhance coordination and improve access to services for the  business community; and   The Philippine Export Act that gave an apex body, the Export  Development Council, overall responsibility for formulating and  coordinating the national export development effort. The council was  chaired by the Secretary of the Department of Trade and Industry and had  cabinet-level members from the eight ministries concerned with economic  development.
section_title: Targeting Services for SMEs and Other Priorities
paragraphs: Providing services targeted to small businesses has been a high priority for  U.S. export promotion activities. Commerce seeks to broaden and deepen  the exporter base with the majority of exports supported by its  Commercial Service deriving from SMEs while for the U.S. Export-Import  Bank (Ex-Im), Congress requires that a certain percentage of financing be  for small business. GAO has found limitations in both programs. In 2009,  we recommended that Commerce take steps to improve its databases and  procedures because they lacked reliable information about the size,  location, and type of its customers. In 2006, we recommended, among  other things, that Ex-Im more accurately determine the number of  transactions that directly benefit small business and improve the system  for estimating the value of direct small business support for those  transactions where the exporter is not known at the time Ex-Im authorizes  the transaction. As we testified in 2008, Ex-Im has taken several steps in  response to those recommendations. Beyond SMEs, U.S. export  promotion priorities are more broadly outlined in the National Export  Strategy. However, as we testified in 2006, the focus of the national export  strategies continues to change from year to year with little evaluation of  previous efforts’ effectiveness. For example, the 2003 strategy prioritized  on capacity building, Russia, and transportation security; the 2004 strategy  highlighted China, free trade agreements, and coordination in crisis  regions; and the 2005 strategy covered free trade agreements, China, and  six “growth markets” (Japan, South Korea, India, Brazil, Russia, and the  European Union). At the time of our 2006 testimony, some member agency  officials commented on the ad hoc nature of the national export strategies.
Our observations about the importance of targeting services, for example,  to SMEs and other assistance priorities are reflected in expert studies on  foreign export promotion. For example, most of the studies we reviewed  recognized that SMEs have unique needs and that services should be  tailored to account for common financing and informational constraints  faced by smaller firms. Several studies also emphasized the importance of  prioritizing assistance to certain sectors or firms based on the exporting  goals of each country. According to the Boston Consulting Group,  fragmentation of efforts from having too many targets tends to undermine  an agency’s chance of success. As a result, it suggested screening for  export ready firms and transitioning firms across different states of  exporting, focusing on services for smaller firms that are “threshold” or  “mature” exporters. Conversely, the World Bank emphasized prioritizing  assistance to large firms that are not yet exporters, and both the World  Bank and the Asia Pacific Economic Cooperation studies discussed a  focus on non-traditional export sectors. To select priorities, Nathan  Associates explained that sectors, markets, or firms should be selected on  the basis of market research combined with stakeholder consultation.
Examples of targeted or tailored foreign promotion efforts that the studies  cited include:    The United Kingdom’s Export Explorer and Passport to Export Success  programs that were targeted to new exporters. Export Explorer, for  instance, combined coaching at home with support from the overseas  network, giving new exporters the experience of exporting to  geographically close markets and enabling them to gain confidence.
The Indian Ministry of Industry’s cluster-development program and  Malaysian efforts to connect SMEs with other exporters. Malaysia’s Small  and Medium Industries Development Corporation, for instance, linked  SMEs into the supply chain of larger multinational corporations that have  the systems and knowledge needed for SMEs to become globally  competitive.
section_title: Performance Monitoring
paragraphs: While recognizing the challenge of measuring the effectiveness of export  promotion activities, GAO has found in several reviews of U.S. programs  that performance monitoring could be improved. For a number of years  we have noted that TPCC agencies do not identify or measure agencies’  progress toward mutual goals as part of the National Export Strategy.  More recently, in March 2009, we reported that better evaluation by  Commerce of its Commercial Service fee-based programs and customers,  including states, could improve program continuity, help managers target  their resources more efficiently and effectively, assess costs and benefits,  and help the Congress make more informed funding decisions. In 2008, we  reported that Ex-Im had developed performance standards for its small  business financing in most, although not all, of the areas specified by  Congress, that some measures for monitoring progress against the  standards lacked targets and timeframes, and that Ex-Im was just  beginning to compile and use the small business information it was  collecting to improve operations. We recommended that Ex-Im establish  performance standards for functions not currently addressed, revise  several current measures to include measurable targets and time frames,  and take steps to establish a measure for financing for small businesses  owned by socially and economically disadvantaged individuals and  women.
Using meaningful performance monitoring as a learning tool is also  discussed in the expert studies on foreign export promotion. The  International Trade Center’s Executive Forum noted that, although  performance evaluation is inherently challenging, without widely accepted  performance measures, export promotion agencies have difficulty forming  and implementing export strategies. The center outlined measurements  that focus on the impact of export promotion agency services rather than  export quantities. Similarly, the Boston Consulting Group stated that  evaluation is needed to justify and account for the use of public monies  and to obtain feedback for the allocation of resources and the design of  programs. To achieve these goals, export promotion agencies may use a  collection of quantitative and qualitative measures combined with  independent feedback from clients. Nathan Associates also emphasized  the role that assessing client satisfaction plays in program design, but  suggested that client satisfaction be assessed through in-depth interviews  rather than surveys that may be biased. Examples of foreign efforts to  improve performance monitoring that the studies cited include:    Australia’s use of a Customer Relationship Management System in order to  track export results, assess client satisfaction, and obtain lessons learned.  Australia collected this information as part of its fee-based services system  and each of its three trade-related outcomes –awareness raising, export  services, and export finance assistance—was assigned a target against  which results were measured.
New Zealand’s performance evaluation system that emphasized client  input by compiling monthly feedback gathered by account managers,  verifying every six months by independent survey, and concentrating on  achieving a high deliver-in-full-and-on-time rating for specific services.
section_title: Partnerships to Improve Export Promotion Efforts
paragraphs: Recognizing the value of partnerships, U.S. export promotion agencies  have developed collaborative relationships with the private sector, cities,  and states. For example, Commerce initiated its Corporate Partnership  Program, leveraging the private sector’s sales and marketing expertise in  2004. Likewise, Agriculture has programs that work in partnership with  the private sector including the Market Access Program and the Foreign  Market Development Program. GAO has evaluated federal-state  partnerships, but has not evaluated private sector partnerships. For  example, we reported in 2009 that state offices often partner with  Commerce on trade missions and other activities, and most states  responding to a GAO survey reported that Commerce’s services were  important to their export promotion capabilities. A third of the states also  said they provide grants or payments to defray firms’ costs and to facilitate  access to Commerce programs. More generally, in 2006, we testified that  based on our long record of oversight, the TPCC could continue to make  improvements in outreach efforts to the private sector and that sustained  high-level administration involvement would be necessary for the TPCC to  achieve its fundamental objectives. To ensure costs charged for export  promotion services are appropriate, GAO has also recently done work  related to cost recovery for some Commerce programs. In 2009, we  reviewed Commerce’s methodology for establishing fees for export  promotion services. While Commerce collects about $10 million annually  through fees, we found that it lacked good information on the true costs of  providing services. Similarly, Commerce lacked reliable information about  how its fees (or lack thereof) affected their customers’ access to the  program, or how they compared to state or private sector fees. As a result,  it was unclear whether the fees Commerce established reflect their policy  objectives or whether they optimize the efficient and effective  management of these programs. We recommended that Commerce  improve its procedures for setting user fees and collect and process more  reliable information about its customers.
More broadly, the importance of both public and private sector  involvement – as well as appropriately set user fees—is another key  observation discussed in the expert studies. Regarding the role of  contributions from the private sector, several studies discussed the  importance of including private sector methodologies and input to ensure  firm needs do not outgrow the expertise of the export assistance offered.  These studies also addressed the importance of independence, to  guarantee continuity as governments change and the autonomy needed to  operate by commercial principles. For example, the World Bank study  found that export promotion agencies with a large share of the executive  board in the hands of the private sector, but with a large share of public  sector funding, are most effective. Studies by Nathan Associates and the  International Trade Center also emphasized the importance of a  predictable and long-term level of public sector funding, with fees charged  for some services. Specific examples of how foreign export agencies  charge fees or incorporate public and private sector involvement that the  reports cited include:    The Danish Trade Council and Enterprise Ireland, whose executive boards  were comprised mostly of successful business people representing key  sectors in the economy;   Costa Rica’s semi-private trade promotion agency that was run by a mostly  private board of directors but was supported by a statutorily independent  source of income from taxes in the free trade zones; and   Australia’s system of providing free services to help “intenders” and “new  exporters” build export readiness, select target markets, and obtain initial  market information while customized services that helped companies  understand and enter new export markets were billed on a full cost- recovery basis.
section_title: Concluding Remarks
paragraphs: Mr. Chairman, this is an opportune time for Congress to review the role  that exports can play in the U.S. recovery, as well as the role of U.S.  agencies’ export promotion programs. We have performed a number of  studies for the Congress on the range of U.S. export promotion programs,  and we stand ready to assist Congressional oversight of these important  matters. We appreciate the opportunity to contribute to the  Subcommittee’s first hearing on this subject and look forward to future  opportunities to assist the Subcommittee on this and other issues related  to your portfolio of international trade issues.
Chairman Wyden and Ranking Member Crapo, this concludes my remarks,  and I would be happy to answer any questions you or other members of  the Subcommittee may have.
section_title: Contact and Acknowledgements
paragraphs: For further information about this testimony, please contact me at (202)  512-4347 or by e-mail at YagerL@gao.gov. Adam Cowles (Assistant  Director), Beth Bowditch, Karen Deans, Kendall Helm, Julie Hirshen,  Richard Krashevski, and Yesook Merrill made contributions to this  testimony.
section_title: Appendix I. Listing of Key Studies on Foreign Export Promotion Practices
paragraphs: Asia-Pacific Economic Cooperation. Alliance in Practice: Building the  Core of Trade Promotion. APEC Working Group on Trade Promotion,  March 2007. [Examines export promotion in the People’s Republic of  China, Chinese Taipei, Indonesia, Malaysia, Thailand, Vietnam, and the  Philippines.]   Australian Trade Commission. Knowing and Growing the Exporter  Community. Sydney, Australia, 2002. [Examines export promotion in  Canada, France, Ireland, Spain, Sweden, the United Kingdom, and the  United States.]    The Boston Consulting Group. Export Development and Promotion:  Lessons from Four Benchmark Countries. Study commissioned for New  Zealand, May 2004. [Examines export promotion in Chile, Denmark,  Malaysia, and the United Kingdom.] International Trade Center. Redefining Export Promotion: The Need for a  Strategic Response. United Nations and World Trade Organization, 2002.
International Trade Center Executive Forum. Export Strategy and the  Role of the National Trade Promotion Organization. ITC Position Paper  for the Consultative Cycle 2006 Innovations in Export Strategy, Mexico  City, Mexico, April 2006.
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