PRESIDENT'S EXPORT COUNCIL







 









Room SD-50

Dirksen Senate Office Building

Washington, DC


Tuesday,

December 6, 2005

Gilmour

92 pp.



The meeting was convened, pursuant to notice,


at 10:22 a.m., MR. J.W. MARRIOTT, JR., Chairman,


presiding.


APPEARANCES:


CONGRESSIONAL


THE HONORABLE PHIL ENGLISH

R-Pennsylvania


THE HONORABLE ROBIN HAYES

R-North Carolina


THE HONORABLE JAY INSLEE

D-Washington


THE HONORABLE CHARLES W. PICKERING

R-Mississippi



EXECUTIVE BRANCH


THE HONORABLE CARLOS M. GUTIERREZ

Secretary of Commerce


THE HONORABLE MICHAEL CHERTOFF

Secretary of Homeland Security


THE HONORABLE ANDREW H. CARD, JR.

White House Chief of Staff


THE HONORABLE HECTOR BARRETO

Small Business Administrator


MR. JAMES LAMBRIGHT

Acting President of the Export-Import Bank

 of the United States


THE HONORABLE SUSAN SCHWAB

Deputy U.S. Trade Representative


THE HONORABLE FRANKLIN L. LAVIN

Under Secretary of Commerce for

  International Trade


THE HONORABLE DAVID McCORMICK

Under Secretary of Commerce for Industry

  and Security


MR. FLOYD GAIBLER

Deputy Under Secretary of Agriculture

  for Farm and Foreign Agriculture


THE HONORABLE ALBERT A. FRINK

Assistant Secretary of Commerce for

  Manufacturing and Services


THE HONORABLE TONY WAYNE

Assistant Secretary of State for

  Economic and Business Affairs


MR. ANDY CARD

Chief of Staff to the President



PRIVATE SECTOR


MR. J.W. MARRIOTT, JR.

Chairman and CEO

Marriott International, Inc.

Chairman, President's Export Council


MR. JAMES C. MORGAN

Chairman

Applied Materials, Inc.

Vice Chairman, President's Export Council


MS. CECILIA OCHOA LEVINE

President

MFI International Manufacturing, LLC


MS. BETTY MANETTA

President and CEO

Argent Associates, Inc.


MR. WARREN R. STALEY

Chairman and CEO

Cargill, Inc.


DR. PAUL S. HSU

Chairman and CEO

Total Parts Plus, Inc.


MR. HAROLD B. SMITH

Chairman of the Executive Committee

Illinois Tool Works, Inc.


MR. JACK FARIS

President and CEO

National Federation of Independent Business


MR. CHRISTOPHER JENNY

Senior Partner

The Parthenon Group


MS. SHARON ALLEN

Chairman

Deloitte & Touche


MR. JOHN S. CHEN

Chairman and CEO

Sybase, Inc.




MR. PHILIP M. CONDIT

Former Chairman and CEO

The Boeing Company


MR. JAMES F. DICKE, II

Chairman and CEO

Crown Equipment Corporation


MR. MICHAEL L. ESKEW

Chairman and CEO

UPS


MR. J. BRIAN FERGUSON

Chairman and CEO

Eastman Chemical Company


MR. TONY JAMES

President

The Blackstone Group


MR. PRAKASH PURAM

President and CEO

iXMatch Inc.


MR. LEE R. RAYMOND

Chairman and CEO

ExxonMobile


MR. TIMOTHY P. SMUCKER

Chairman and CEO

The J.M. Smucker Company




I N D E X

                                                PAGE


AGENDA ITEM


MEETING CALLED TO ORDER

Mr. J.W. Marriott, Jr., Chairman6


WELCOME/INTRODUCTORY REMARKS

The Honorable Carlos M. Gutierrez

Secretary of Commerce8


REMARKS

The Honorable Franklin L. Lavin

Under Secretary of Commerce for

International Trade21


HONG KONG MINISTERIAL MEETING UPDATE

The Honorable Susan Schwab

Deputy U.S. Trade Representative30


SUBCOMMITTEE REPORTS


SERVICES

Mr. Mike Eskew44


TECHNOLOGY AND COMPETITIVENESS

Ms. Betty Manetta62


TRADE PROMOTION AND NEGOTIATION

Mr. Lee Raymond69


EXPORT ADMINISTRATION

Mr. Brian Ferguson74


CHINA TASK FORCE

Dr. Paul Hsu76


CLOSING COMMENTS

The Honorable Andy Card

White House Chief of Staff80





P R O C E E D I N G S

MEETING CALLED TO ORDER

By Chairman J.W. Marriott, Jr.

CHAIRMAN MARRIOTT: It's a pleasure for me to welcome you all this morning to the fall/winter meeting of the President's Export Council, and the meeting is now officially called to order.

I would like to welcome the six new members of the council: Sharon Allen of Deloitte & Touche; John Chen of Sybase, Inc.; Jim Dicke of Crown Equipment Corporation; Tony James of The Blackstone Group; Prakesh Puram, of iXMatch Inc.; and Tim Smucker of the J.M. Smucker Company.

I would like them all to come forward now, and Secretary Gutierrez will swear you in. So, please come on up.

(Whereupon, the nominees were duly sworn.)

(Applause)

CHAIRMAN MARRIOTT: On behalf of the entire council, we look forward to working with you, and again, we welcome you.

At our last meeting, we were honored to meet with President Bush, who shared with us his commitment to free and fair trade, corporate stewardship, and a more secure world. We approved three letters, a recommendation, and had a constructive conversation on visa acquisition issues with Secretary Gutierrez and Homeland Security Advisor Fran Townsend.

Today, we have seven letters to discuss, visa acquisition, foreign monopolies, small business and competitiveness, innovation, the Hong Kong ministerial, nanotechnology, and U.S. trade with China.

We are thrilled and honored to have Secretary Gutierrez with us this morning. He has been very busy in his first year as chairman of the department. He has overseen the passage of CAFTA, traveled around the world to advocate for U.S. industry and also around the United States, and he has overseen the recovery efforts by the business community from Hurricanes Katrina and Wilma. It is an honor and a privilege to welcome Secretary Gutierrez. Mr. Secretary?

 

 

 

 

 

 

 

 

 

WELCOME/INTRODUCTORY REMARKS

By Honorable Carlos M. Gutierrez

Secretary of Commerce

SECRETARY GUTIERREZ: Thank you, Mr. Chairman. I would like to welcome everyone, and a special welcome to Sharon Allen, John Chen, Jim Dicke, Tony James, Prakash Puram, and Tim Smucker. My old friend, Tim. Prakash, I believe we met 10 years ago. So, it is great to see you again.

I also want to thank members of Congress for being here and just recognize them, and it is great that they could spend the time with us and show their interest in the topic of exports, which is so important for our economy.

Phil English is here, from Pennsylvania. Representative English. Robin Hayes, from North Carolina. Welcome, sir. Charles Pickering, from Mississippi. Almost. Okay. Well, we have got his name there. Jay Inslee, Washington. Okay. They will be here soon.

And we have with us also, and it is a real pleasure to introduce, Under Secretary Frank Lavin, who is in charge of International Trade Administration. Under Secretary Lavin came to the Commerce Department after a very successful stint as ambassador to Singapore, and brings a tremendous amount of experience, energy and leadership to the Department, and we are very, very pleased that he is with us.

Also with us today is Deputy U.S. Trade Representative Susan Schwab. She should be right here. We have Director Barreto from the Small Business Administration.

Also, Under Secretary David McCormick, who just took over in the Bureau of Industry Security, also a great background, CEO, tremendous scholastic credentials, veteran of the Gulf War. It is a real honor to have him in the Department. David McCormick, welcome.

Acting Chairman Lambright from the Export-Import Bank is here with us. Thank you. Welcome. And welcome to everyone. We should have Secretary Chertoff joining us shortly, and Secretary Card will be here as well, I believe, around 11:30 to close out the meeting.

I just wanted to make some comments that are probably relevant to what we will be talking about today. We have been talking recently a lot about the economy, and the President made a speech yesterday in North Carolina, talking about the accomplishments of the American people, and American businesses, and American workers.

We often either forget, or do not hear, just how strong our economy is. Very often, what we hear about are the anecdotes of companies that may not be doing as well as others, but what we do not hear about is those companies that are creating jobs, investing their capital, launching new products, opening up markets, and ultimately really giving life to this economy.

So let me just give you a run-down of what we are seeing. Even with the impact that we saw from the hurricanes--and I find this just to be a remarkable accomplishment--our GDP, in the third quarter, grew 4.3 percent. That is the tenth consecutive quarter of GDP growth above 3 percent. It is actually the largest quarter we have had in the last four quarters.

So, think about that. Our strongest quarter has been right in the middle of those hurricanes at a time when people were forecasting either a recession or a decline in our growth rate.

I am going to stop here and welcome Secretary Chertoff.

SECRETARY CHERTOFF: Thank you.

SECRETARY GUTIERREZ: So a great result, and just a reminder that we have got great momentum. Today we are the fastest-growing industrialized economy in the world. So as we look around the world, who can actually match our growth rates in the sphere of developed, industrialized nations? There is no one. The European Union is growing at 1.2, 1.5 percent. Japan is nowhere near our growth rates.

I can tell you, as we look around, there is no economy that is performing like this anywhere in the world. Obviously, China is growing at a rate of 9 percent, but that is in the segment of developing economies.

Nearly 4.5 million jobs have been created since May of 2003. Just for perspective, we have created enough jobs to employ everyone in Ireland. Our unemployment rate is 5 percent, and no one is satisfied and we have said we are not going to stop until every American who wants to work has a job, but 5 percent is below the average of the past three decades. So, very impressive numbers.

You can go on and on. As I mentioned this morning, more Americans own a home today than ever before in our history. More Americans are working today than ever before in our history. We just received an update this morning on the third quarter productivity numbers.

The first number to come out was 4.1 percent, and this morning we see they revised a number for the third quarter at 4.7 percent, which is remarkable. Our rate of productivity growth is the highest that it has been since World War II.

So, the economy is firing on all cylinders. Of course, the challenge, as opposed to just feeling great about what everyone has done, is how do we keep it going? Open and fair trade is a key element of that momentum.

As you well know, the President believes in the power of free and fair trade. We have signed more free trade agreements since he took office than all previous administrations. I believe the number is up to 12. Each one of those trade agreements has results attached to it.

If you take, for example, Chile, our business is up about 30 percent with Chile, their exports are up. There is no question that, every time we have the opportunity to do so, we prove that free and fair trade works.

One of the comments that Chairman Greenspan mentioned this morning that I think we all have to be aware of and be very vigilant of, is the fact that there is a tendency to embrace protectionist or isolationist policies, which we believe would be devastating for our economy.

We would look at those 4 percent growth rates and basically they would become a thing of the past. So, it is very important that we be aligned and that we share a vision of a global economy where everyone is participating and embracing opening markets and embracing free and fair trade.

I was in Brussels last week for a U.S.-E.U. ministerial, and obviously the subject of Doha came up. Susan Schwab, who will be here shortly, is going to address that. She has been quite close to it. I know that all of you are very interested in how that is going.

I was in Central America--some of you were there with me as well--on a trade mission. I can tell you that there is tremendous interest in using these trade agreements to drive businesses. We had 100 applications for the trade mission, 19 companies went down.

It was great to see the local business people wanting to do business with our companies and getting started. We should start with CAFTA, by the way, early next year, so that is moving ahead quite well.

I believe Susan Schwab is here, if you want to join us. Deputy U.S. Trade Representative. Just in time.

We have also received recommendations. I just want to take a moment to address them at a high level. The first one is on China. I know we will have the opportunity to talk about China, but one of the guiding principles that the President has stated in our relations with China is that of engagement.

You will find that there is also an inclination to want to flex our muscles and to want to create a trade war with China, and we believe there is so much at stake, we have so much investment there, there is so much business to be done, and there are strategic reasons for being thoughtful and being strategic at this time and not getting carried away with emotions. So, a policy of engagement.

If you look at China and look at what they have accomplished over the past 5 to 10 years, there is no question that over the last 10 years they have come a long way. We believe, over the next 10 years, they will continue to go a long way.

But again, it is a policy of engagement. It is a policy of dialogue. It is a policy of addressing the issues and not getting emotional and having the whole relationship break down. This is what we wanted. Twenty-five years ago, we were wishing, dreaming, and praying for a global economy where China and Russia would be participants.

We have that today and it is a matter of managing through it and not taking our ball home and saying we are not going to play any more, which frankly is something that, alarmingly, you hear a little bit of in Washington.

Intellectual property rights protection is a big issue for us. It is an issue that starts from the President on down, and he has directed all of his cabinet agencies to be focused on this.

This July, China made specific commitments to protect IPR. When President Hu met with President Bush this September, he reaffirmed those commitments and he pledged that China will step up its efforts to protect intellectual property. That is a very symbolic statement for the president of China to say that at the UN. Once again, he committed to President Bush, when the President was over there recently.

The President also appointed an international intellectual property coordinator. That office is housed at Commerce and it is charged with focusing the resources of the Federal Government on IPR protection and monitoring progress overseas.

So, now we have someone who does nothing but focus on intellectual property rights 24/7, and coordinating the efforts of other agencies that are also involved in intellectual property rights protection, whether that be Homeland Security, Treasury, the State Department, Justice.

So, a great opportunity to really represent and show a common front to all of our trading partners. We are working closely with the private sector on programs to protect U.S. patents, trademarks, and copyrights.

Last week, we were in Brussels and we agreed to work together to enforce a zero tolerance policy on the theft of intellectual property, and just the importance of that.

We have never been able to align ourselves and come together with the European Union on a common stance on intellectual property, so because of that it was easy for other nations to play us off against each other. And on something like intellectual property rights, it is too important, there is too much at stake.

The fact that the European Union and the U.S. made a common statement, saying we have a zero tolerance policy and we will represent a common front to the rest of the world, we believe, was a great move forward.

The subject of business visas also was front and center at that meeting. Both the European and American CEOs were calling for a preferred business travel program to ease travel restrictions across the Atlantic.

I understand that current international business visa programs are causing companies problems. This is probably the most common complaint that we hear from business, the whole issue of visas. We just want you to know that we are aware of that. Chairman Marriott has brought this up, and brings it up every time we speak.

We understand that this is a key issue. I am sure you all understand it is not an easy balance to strike. On one hand, we want commerce, but we also want security. Striking that balance is an every-day challenge, but we recognize how important it is to the private sector.

Immigration. It is part of a strategy to strengthen homeland security. The President, last week, proposed comprehensive immigration reform. He outlined the steps we are taking to further secure our borders, and I am pleased that Secretary Chertoff is here and he will be able to address that as we go into the meeting.

The President also proposed the creation of a new temporary worker program. The purpose is to match foreign workers with American employers for jobs that Americans do not want. The program would be for a limited time period, so this is not amnesty, and it also is not the extreme of having to put 10 million people on a bus and sending them somewhere. So, the solution lies somewhere in between, and that is precisely what the President is seeking.

You can imagine, this is a very emotional issue. There are strong feelings on both sides. Again, it is another issue where we believe we need to be thoughtful and be strategic and not be carried away by sheer emotions.

How we deal with the issue of immigration will have an impact on our economy for many, many decades to come, so it is a major initiative.

Just in closing, I want to thank all of you for your role in driving our economy to where it is today. We know that does not happen without the private sector, and we know that it is the private sector that is out there every day, risking capital, creating jobs, opening markets, making decisions.

You manage your businesses where you are. We do not manage your businesses in Washington. And as easy as that sounds to say, it is a key principle and we could very easily make a slight move and start thinking that we manage business in Washington, and strategically it would change the nature of our economy.

So, please know that we are very aware that what we can do here in Washington is create an environment so that you can do what you do best, and you are doing it quite well.

Innovation is key. We will be talking later about a business environment that encourages investment in research and development. We believe, again, that it is all about responsible tax policies. The last thing we need today is a tax increase. One thing I would just say, is not passing and not making the President's tax cuts permanent would be equivalent to a tax increase.

Tort reform. We spend more money suing each other than we do on R&D, $240 billion a year. There is a lot of work to be done to ensure that business people are not looking over their shoulders, worried about being sued and worried about creating jobs and investing in their business.

An educational system that prepares students for the jobs in the 21st century. We will continue to emphasize and drive free and fair trade.

So, thank you again for everything that you are doing for this country, for everything you are doing for our economy. We are very proud of this group and we are very proud of our association with the President's Export Council. Thank you.

CHAIRMAN MARRIOTT: Thank you, Mr. Secretary. We appreciate your great support.

I would now like to introduce Frank Lavin. He has been introduced a little bit by Secretary Gutierrez. He is Under Secretary for International Trade and Executive Director of our Council.

In addition to being Ambassador to Singapore, he was in the Bush 41 administration as Deputy Assistant Secretary of Commerce for Asia and the Pacific. During the Reagan administration, he served in the White House as Director of the Office of Political Affairs, and on the Reagan National Security Council staff.

Welcome, Frank. Thank you.

 

 

 

 

 

REMARKS

By Honorable Franklin L. Lavin

Under Secretary of Commerce for International Trade

MR. LAVIN: Thank you, Mr. Chairman. I am very glad to be here. Mr. Secretary, thank you for your comments. Secretary Chertoff, colleagues, I am delighted to be able to join in my first PEC meeting. But I have worked with, for, or alongside many of the companies here.

Some were able to come out to Singapore where I have spent the last few years, and some I have worked with in other capacities. But it is good to be back in Washington. I have been back for a few weeks and am still living out of a suitcase, Mr. Chairman, not at one of your fine hotels. But I look forward to having a chance to work with all of the companies here as we move ahead through the PEC process.

(Showing of slides)

MR. LAVIN: What I wanted to do was sort of set the stage for Ambassador Schwab's comments on Doha, but talk a little bit about the state of trade today, the state of where we are in the export position, and kind of bridge from Chairman Greenspan's comments--which, fortuitously, I hope, are consistent with mine--and then turn it over to Ambassador Schwab for her take on what we are likely to see in the next week or so.

Can I ask you to go ahead to the next slide, please? I have just got a few.

(Changing of slides)

MR. LAVIN: There is a lot of good news in the picture. If we look at the raw numbers, we look at the aggregate, there is an extraordinary amount of good news, which is to say, our trade has gone up, in raw numbers, by very, very healthy percentages, very, very healthy aggregates, and the total numbers, at $1.2 trillion, are nothing short of impressive.

(Changing of slides)

MR. LAVIN: Even when you take that down to something that is probably a little more meaningful indicator as a percentage of GDP, we can see a long-term trend that is encouraging.

First, a post-war spike when Europe and Japan were decimated, a drop-off as Europe and Japan come back on-line, but then gradual improvement for almost all of that post-war period.

In recent few years, everybody here knows we faced a lot of problems with our currency, and that has trimmed our exports. But, still, we are in a reasonably strong position of 10 percent plus of overall GDP. That long-term trend line should be an encouraging trend line. So that is, if you will, the good news.

Let me go to the next slide for the bad news.

(Changing of slides)

MR. LAVIN: The bad news, if you will, or the challenge might be a fair way to say it, is we, the United States, typically under-perform when compared to the other industrialized nations, so we think we are doing respectively well at 10 percent, and that does sound like a reasonable figure, but we look at all of our major equivalent nations of advanced industrialized nations, and they do much, much better than we do.

Now, there might be some very sound structural reasons why that is the case. We have a much larger domestic market. It takes a long time for a decent-sized SME in the United States to grow just to the national borders.

Clearly, if you are in a market like Germany's, GDP is 20 percent that of ours, you can operate internationally at a much earlier point in your process of maturation. So, there are probably some very sound macroeconomic reasons why we see that discrepancy.

Nonetheless, those of us around the table ought to be concerned that, vis-a-vis our competitors, we under-perform. The question then becomes for us, well, what do we do about it? What is the challenge ahead? In my view, and this maybe shapes part of PEC's work plans as we move ahead, there are really two sides of the coin.

One, is to remove/reduce trade barriers in general, make it as easy as possible for U.S. companies to operate overseas. The second pillar is "missionary" work domestically, that we have a large pool of U.S. companies who are not oriented towards international activity. They are heritage, they are corporate culture, their emphasis is on the domestic market. For a variety of perfectly legitimate reasons, they do not think internationally.

What has not been fully taken on board, I think, is the enormous reduction in difficulties in operating internationally over the last generation. Not just travel, as Chairman Greenspan said, but communication costs, translation costs, currency costs, all of these costs have been reduced over the last few decades, as well as a reduction in general trade barriers, so that even reasonably small companies can find a percentage of their business coming from overseas.

You do not need to open up an office in Tokyo, you do not need to open up manufacturing in China, you do not need to have a sales team covering the continent of Europe. Even with a reasonably small set-up you can enjoy some success in the international marketplace, but we need to encourage companies to do that.

Let me just highlight one point on the trade barrier side. As trade barriers come down, our business shoots up. Look at the next slide, please.

(Changing of slides)

MR. LAVIN: Our figures only went back to 1992, so we have seen an increase in the number of companies that export. But go to the next slide, I think, which is the FTA slide. Yes.

(Changing of slides)

MR. LAVIN: If we look at the left-hand pie chart, 31 percent of our exports go to FTA countries--these are 2004 numbers--but those countries only represent 7 percent of world GDP, ex-U.S., obviously. Take the U.S. out of that equation. So, 7 percent of our potential market accounts for 31 percent of our success, so to speak, which shows you, to my mind, very dramatically the utility of free trade agreements.

These numbers almost certainly understate our success because they are 2004 numbers, and we just had Central America come in to place this year, and it will be implemented over the course of next year, and so forth. So, we are likely to see that trend even more pronounced next year.

So one challenge in front of us is how to keep on the path of liberalization, how to continue to pull down these barriers and make it as easy as possible to operate overseas.

The other challenge, the other pillar, is what do we have to do domestically to encourage companies to take a look overseas, and how can they take a toe in the water that does not involve a major commitment of people or strategic planning? But for reasonably small companies, how do we allow them to operate internationally?

We have got a pool. We have 200,000 companies now operating and successfully exporting. We could have a pool, conceivably, several times larger than that, so we might have a pool of a half a million to a million companies that somehow need to get that kind of message and need to think through initial steps. But that is quite a challenge.

My view is, we need to look at some of the great intermediaries in trade, at least one of whom is sitting at the table, and that is UPS, but one of the great service providers in trade. Those are typically the express companies, the banks, the other service companies that play a broader role.

They play a logistics role, a currency role, and they also have a customer contact ability, and credibility and marketing capabilities with that customer pool than, frankly, the U.S. Government has. The private sector, if harnessed, aligned, and incentivized the right way, is just going to out-perform government every day of the week, in my view.

Here is one example. Here is what I am talking about. Right now with Mexico, where we have a free trade agreement in place, we have about 55,000 U.S. companies exporting. But if we just take it south one notch to Guatemala, it is about 10 percent, about 5,500.

But we have just signed an free trade agreement with Guatemala. It is not fully implemented, but assuming that takes place over the coming months and so forth--that is Sue's department--soon enough, what we have really done is expand the Mexican market. Conceivably, every U.S. exporter in Mexico ought to be comfortable in Guatemala.

Now, some of those folks are going to drop out. Some of them are just on the border. They are not really even serious about Mexico. They are the accidental exporters. But some of them are very serious about developing sales and operations in Mexico.

What do we have to do to encourage that pool of U.S. companies to move into a smaller market, which is now somewhat homogeneous to Mexico, and undertake their activities there?

To my mind, the entities that will have much greater success than the U.S. Commerce Department making that point are going to be companies like UPS, Bank of America, or other great U.S. institutions because it is in their financial interests to help their clients grow as well.

If you are doing something successful in Mexico, we are now going to be able to say, let us try to undertake it in Guatemala. So those are some of the challenges in front of us.

I do not know, Mr. Chairman, if we have time for questions at this point, because I am happy to take questions on these points. We can get into them, or we can get into an open discussion.

CHAIRMAN MARRIOTT: Thank you very much.

It is a pleasure to welcome Congressman Jay Inslee. Thank you for being here.

Next, we will have an opportunity to hear about the WTO Hong Kong ministerial meeting, which will take place later this month. Part of the team leading the U.S. delegation is Deputy U.S. Trade Representative Susan Schwab. We are delighted to have you with us this morning to give us an update. Thank you.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HONG KONG MINISTERIAL MEETING UPDATE

By Honorable Susan Schwab

Deputy U.S. Trade Representative

MS. SCHWAB: My presentation is being passed around. I think what we will do, rather than using the overhead, you all will have copies and you will see, as I start going through this, I will be going through this quite rapidly so that we have got some time for broader discussion.

Mr. Chairman, thank you very much.

CHAIRMAN MARRIOTT: Glad to have you.

MS. SCHWAB: Mr. Secretary, Mr. Secretary, Congressmen, and as Frank said, my colleagues in the trade policy and trade promotion business, and above all, members of the President's Export Council, I am delighted to be here. Like Frank, I have been on the job, what, four weeks or so? But this is also not my first experience with the President's Export Council.

During the first Bush administration, I had the great honor and privilege to serve as the Director General of the U.S. and Foreign Commercial Service and had a lot of opportunity to work with the President's Export Council, and indeed, lots of small, medium, and large U.S. businesses as the Commerce Department's trade promotion arm worked to help facilitate exports. So, I am delighted to be able to participate in this today.

I am here substituting for Rob Portman, who is on his way back from yet one more--and one more as in the third in ten days--trip to Geneva, trying do his best to make sure that the outcome of the Doha ministerial that will take place in Hong Kong next week is a successful outcome that propels us forward to a successful conclusion in the Doha round of multilateral trade negotiations.

What you have in front of you is generally Rob Portman's presentation that he loves using with various business groups, and I am just going to walk through it quickly to give you a sense of the direction, and then I will add a little bit of color commentary in terms of the negotiations we anticipate next week.

The benefits of free and fair trade, I do not need to get into that because you would not be here if you did not believe in them. But these are some statistics that are not U.S. Government statistics that tell a compelling story.

For example, one of the University of Michigan study items that is referenced in the third bullet here in terms of the implications of reducing global barriers to trade, if we were able to reduce only a third of the global barriers to trade, you would still be talking about the equivalent of a $2,500 income boost for every American family.

What you have in front of you is an articulation. When we are talking about the 2005-2006 trade agenda, this is the administration's trade agenda, the President's trade agenda, with a variety of elements to it.

Global trade talks and the Doha development agenda is what I am going to be speaking about today. I will leave with you the bilateral and regional agreements. Those are the FTAs, the CAFTA, and so on, the materials on that.

The reason I was late today, is we are in a very intensive round with the Peruvian trade minister, agricultural minister, and health minister, trying to see if there is any way we can close an FTA in the next 24 hours with them. That is touch and go. I would not put money on it, but we are all working very, very hard.

Then finally, enforcement of U.S. trade laws and international agreements, a lot of which is ultimately the responsibility of the Department of Commerce through the administration of antidumping and countervailing duty laws.

The Doha Development Round. We have three principal areas of focus. You all have been briefed on these before: manufactured goods, services, and agriculture. There are various approaches to each one of these three. There are other things going on, too.

Obviously, we have got rules negotiations going on, trade facilitation discussions going on. I am going to focus primarily on manufactured goods, services, and agriculture because those are the ones you tend to hear the most about and the ones you would be reading about in the next week, if we are lucky, coming out of Hong Kong. Better that than reading about demonstrators, but we'll get to that a little later.

In terms of manufactured goods, some of you who follow this closely will have heard these strange phrases about "Swiss formulas" and "coefficients". What we are really talking about here is a formula under which the highest of the tariffs that are out there would take a proportionately higher cut than the lower of the tariffs out there. It is pretty straightforward.

The question is what numbers you plug in, what kinds of exceptions people take, and so on. The developing countries versus developed countries is the coefficient difference. You get a sense of where we are going.

For those of you who are actively engaged in international commerce, you will know that sometimes what you are dealing with is an applied rate that is significantly lower than a bound rate, "bound" meaning the rate that this country commits not to go any higher than this level.

Of course, countries want to negotiate from their higher bound rate and we would like to be negotiating from their lower applied rate. So, you get a sense of the dynamics.

When we are talking about what is at stake in manufactured goods, that is pretty obvious. Many of you represent the manufactured goods sector. We are talking about a very, very significant part of overall U.S. trade in goods and services that has increased dramatically, 81 percent, since the Uruguay Round.

We have talked about tariffs. Why are we interested in seeing higher tariff levels cut more dramatically than lower tariff levels? Well, when you go to the next page, what is at stake in terms of manufactured goods, tariff levels, you will see that our average tariff rate--bound tariff rate, we are talking about now--is significantly lower than the tariff rates that we are seeing across the world. Hence, the focus on the so-called "Swiss formula" and all of these wonderful coefficients.

In services, again, we are talking about a huge, huge element of our economy, over $800 billion in 2004, closet to $350 billion in global trade, and we have a surplus in trade and services. Exports have gone up dramatically.

Under the current WTO arrangement, the United States has significantly more of our services enterprises covered than do our trading partners, and that is what is reflected in this particular slide.

In our negotiation, not surprisingly, services, we have got a variety of approaches that we are taking. Bilaterals. There are request/offer procedures that take place. We are most interested in access in certain sectors; we are approached about access in others.

Secretary Gutierrez mentioned temporary business visa issues. A lot of you face these issues. Many of you are interested in bringing in, for example, for training purposes, foreign country nationals that will then go back home and do some support work for your overseas investments for some of your export activities.

That is a very, very sensitive issue, politically, here. So that is an area, for example, that is referred to as Mode 4 in the parlance. I am trying to learn my way back into the acronyms and jargon associated with this particular enterprise. This is referred to as Mode 4.

Anything related to immigration, obviously, is very sensitive. But the President has been very clear in his intent to take this on and take on immigration issues, because it is the right thing to do.

Plurilateral agreements. That is pretty straightforward. When you think about, for example, civil aviation, which is in fact outside the WTO, it is perhaps a very, very good example where we have agreements in place, there are a series of understandings that are multi-country understandings, and then there are bilateral negotiations.

Then multilaterally there have been some talks about coming up with formulas multilaterally on services. Honestly, everyone is trying to get their arms around this. I think the focus in the next year is more likely to be in the first two areas.

Again, when you look at the potential benefits, the potential benefits from further globalized opening of access, reduction of barriers in services can be of significant benefit to all of us.

Finally, agriculture. Up to this point, I suspect agriculture is the only thing you have been reading about in the papers in terms of the Doha Development Round. That is because agriculture is among the most sensitive of the issues that we are addressing, not to say that there are not sensitivities in other areas, and I mentioned immigration, but agriculture being a particularly sensitive area for virtually every country involved.

You will know that the United States, a number of weeks ago--actually, in October--came out with a very forward-leaning, very ambitious, very forthcoming agricultural proposal designed to jog loose a serious ambitious dialogue in Hong Kong.

The response on the part of the EU, which I might note, currently, has approximately four times the level of support subsidies as we supply to our agricultural community, under the proposal that we have put out, would drop down to a 2:1 ratio as opposed to a 4:1 ratio.

Unfortunately, the EU came back with a proposal that could not be described as ambitious by any normal human being, a most disappointing proposal on their part. They came in and said, we have done CAP reform, reform to the Common Agricultural Policy, in the year 2003. This is very sensitive. Oh, by the way, we are also very, very interested in services and manufactured goods trade and eliminating barriers.

We recognize, though, that the road to get there, almost by definition, has to start with an ambitious approach in agriculture. That is largely because of the developing countries, the idea of bringing the developing countries into this negotiation, in particular the advanced developing countries, the Brazils, the Indias, the Chinas, for example, where we see very, very important potential markets for our trade in the years to come.

So in agriculture--and I will not spend much time on this--we have got three pillars: market access, direct export subsidies, and domestic support. This amber box -- again, this is one of these wonderful WTO-isms, amber box, green box, blue box. The amber box refers to the most trade distorting kind of supports that one would provide in an agricultural economy.

But U.S. agricultural exports are phenomenally important also to our economy and we are committed to making as much progress as we possibly can, getting subsidies down overseas, reducing barriers, improving market access.

Moving on from the agriculture charts to the status of the WTO negotiations, and I am going to close really with this slide and leave the other slides to you, if anyone has questions on the bilateral issues or the enforcement issues. In the interest of time, I thought I would leave room, and perhaps we could get into a more generalized discussion.

Agriculture is central to the Doha Round. This became clear in Cancun. For those of you who remember the ministerial that took place in Cancun, the least-developing countries came out with a particular challenge to cotton trade barriers.

This is an area where we are under significant criticism for our cotton support programs, and we anticipate to hear that again at the upcoming meets in Hong Kong.

The least developing countries have differences of opinion as to how this should be approached. I think there is a general recognition. This is the Doha Development Round and it is in everyone's interests that the least-developing countries engage in more global trade. But that includes more global trade with each other as well.

The potential benefits from south-south trade are very, very significant, and often they get caught up in these preferential programs. The Europeans have a preferential program with the ACP countries, Africa, Caribbean, Pacific former colonies. We have preferential programs through the GSP program, the Caribbean Basin Initiative and some of the countries that graduated from that then became FTA partners through CAFTA, we have AGOA with the African countries. But at the end of the day, preferences are unilateral gifts, as it were, to countries and they are not bound by us.

We can turn around and change them, withdraw them at any given point in time, we can limit what is in there. Part of the dialogue next week in Hong Kong, is what can be done to enhance trade with and among developing countries.

Our agricultural proposal, I talked about. I have talked about the important that we place on manufactured goods, trade and reduction of barriers. We have been very, very active over the last several weeks in trying to see what kind of outcome we can have in Hong Kong that, while we know it will not close out the Doha Round negotiations, we are not ready for that, how can we propel it forward?

Because we are looking at a very, very clear deadline, the summer of 2007, when trade promotion authority, TPA, the President's authority to get fast track, accelerated legislative treatment to implement trade agreements, that expires. The executive branch will have to come back to the Congress to seek extension of TPA, and that is not currently in the cards.

Therefore, we know, as negotiators, and all of our trading partners know -- and I might note for the record, TPA, which used to be referred to as fast track, has been in existence since trade legislation in 1974.

Almost inevitably, major multilateral trade rounds ended exactly at the point that our trade promotion authority was about to expire. So, everybody knows that the critical deadline has to do with when the United States is in a position to implement a trade agreement. So, that is the drop-dead date.

What that really means is closing out the Doha Development agenda by the end of 2006, so we are really focused very, very strongly on 2006.

I talked about the three pillars. We have talked about the importance of enhanced market access, particularly with advanced developing countries. We have talked a little bit about EU and agriculture. There are issues, such as intellectual property and others, that we can talk about separately if you would like.

That is an area where we have made significantly more progress through bilateral free trade agreements, where we are able to sit down with countries that are really serious about trade liberalizing deals and get into services, and investment, and intellectual property-type areas that we have not been able to get into through multilateral negotiations, that we hope will set precedents and lay some groundwork for future plurilateral and multilateral deals.

Let me stop right there.

CHAIRMAN MARRIOTT: Thank you. Thank you very much, Ambassador Schwab. We appreciate the thorough review, and good luck.

It is now time for us to begin our subcommittee reports. I want, first, to establish the rule of order. Once the reports have been presented, I will open the floor for comments. You have copies of the seven letters for consideration in your binder. They are on-line and are available outside this room for the public.

First, I would like to call on Mike Eskew, chairman of the Subcommittee on Services, to give his report.

Welcome, Mike. Thank you.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REPORT OF THE SERVICES SUBCOMMITTEE

By Mr. Mike Eskew

MR. ESKEW: Thank you, Mr. Chairman, Mr. Secretary, Mr. Secretary, Congressmen. Good morning, everyone.

Our subcommittee is working to advance the priorities of the service industry. As you know, services are a key component of the overall U.S. economy. More than 80 percent of the Nation's private sector GDP is comprised of services, where the U.S. enjoys a significant advantage.

Our subcommittee has drafted two letters for consideration of the full PEC. The first, is our letter dealing with U.S. visa acquisition processes. To present this letter, I would like to turn to Harold Smith, from Illinois Tool Works.

Harold, if you would.

MR. SMITH: Thank you, Mike.

Mr. Chairman, I am pleased to present this letter, which, as I understand it, has been circulated to all the members of the council and is otherwise publicly available.

I might read just the second paragraph of it, which I think makes several of the key points involved in the letter. By the way, Mr. Secretary, I was delighted to hear you report -- well, I guess I wasn't delighted to hear you report, but you did report that this is the issue that you hear the most about from American business.

Our hope is that work suggested in this letter and future cooperation between the private sector and all the authorities that are involved in this can help make some significant progress.

The membership of the PEC represents the diversity of the American economy. However, we all have a common interest in how the U.S. visa system affects businesses and exports. We see that easy and reliable movement of goods and people, always with due regard for national security and public safety, is essential to our ability to compete, grow and deliver gains for the U.S. economy and its citizens.

The race to attract human capital is intensifying as the global economy becomes more interdependent. We must improve the visa acquisition process to effectively compete for that same finite talent pool, something that other nations have targeted for pursuit at their national level.

One of the difficulties in talking about this issue, is that in some cases it is like proving a negative. We do not know all of the problems that are caused by the visa acquisition process as it stands today.

Some numbers are available. We can look at tourism. That is one that is available. We can look at some of the student numbers. But the effect of the visa acquisition process goes well beyond the kinds of numbers that we can look at and affects so many of the things that we do.

Some of these are cited in the letter: international meetings and conventions, which have moved elsewhere or are right now talking about moving elsewhere because of the difficulty of people seeking visas being assured that they will get visas to come in; the delays caused in a number of countries, and in some, very serious delays, by the visa acquisition process for any applicant.

As everybody here knows, all visa applicants now are required to have an in-person interview. As an example, in Brazil, Rio de Janeiro, the waiting time to get a personal interview is 100-plus days.

For that matter, in Brazil, a country about the size of the United States, there are four locations--only four locations--where you can go to have that personal interview.

The State Department, the Consular Service, has introduced new Business Visa Centers, a new program, a positive step. It should be expanded, we think, to more consulates with business windows. This is for business visitors, not tourists; both are important. Business windows set aside time blocks for interviewing business applicants, and group appointments.

My company had an applicant from China, the comptroller of one of our business there that actually is an importer into China of goods exported from this country. The comptroller applied for a visa just last week and was turned down for a reason that we have no basis to understand, and is back in line, waiting for a time period to expand before she can reapply for a visa.

So, we urge some kind of a system where American companies can become certified to sponsor applicants for temporary working visas, something a little bit similar to the CT-PAT program, which involves containers and trailer loads coming into the country.

In thinking about this issue, I am reminded of--and many around the table will remember--the old say that a hog could cross the country in a railroad car, but a person had to change trains in Chicago. We are a little bit in that same situation today. A container can come in the country after having been inspected and sealed up by a company offshore and brought in, but a person cannot.

The letter goes on to talk about the competitive importance of attracting innovative and skilled brain power to this country for employment here and ways that we should make the U.S. the first choice of that kind of talent, because that talent does have a choice as to where it goes to live and work.

Finally, we make the observation that the men and women of the Consular Corps and all of our border security people are, in many ways, the first face of America. They can play a role in fostering a positive image of the U.S. abroad, and that is important in the very broadest sense.

In all the areas of this letter, we offer the cooperation of the President's Export Council members and others in the private sector to work with the Departments of State, Homeland Security, and Commerce, and with the Congress, particularly on the requirement for nearly universal in-person interviews to get a visa. On any of these issues, private sector and government cooperation can be a big part of the solution, we feel.

Finally, we urge that this matter get the highest priority, devoting attention and resources that are needed, because I think we are convinced that the problem can be solved if it is addressed with the right resources and the right commitment on the part of all the parties involved.

So, Mr. Chairman, I would move the adoption of this letter that has been submitted to the council.

CHAIRMAN MARRIOTT: Thank you very much.

I would like, before we open it to general comments, to ask Secretary Chertoff if he will make a comment or two.

SECRETARY CHERTOFF: Thank you, Mr. Chairman.

Well, let me say that this is obviously an issue we have focused on. It is a responsibility we share with the Department of State. We also operate within the parameters of what the statute is. Very recently, Congress has enacted a law that requires personal interviews. There is actually a good reason for that.

But certainly the idea of finding ways to change the process to make it a little bit more user friendly and to enable us to separate those that we want to welcome from that very small number that we want to keep out, that would be a positive step forward.

I would certainly, for example, be interested in examining whether there are things we could do to have a kind of trusted traveler or reliable sponsor traveler program. That is a theme we generally try to use across the board, not only with cargo, but it is an approach we are trying to take, for example, with even these waiver countries or people getting on airplanes, just building a trusted traveler concept.

We have already done some things. We have talked about lengthening, for example, the length of visas for students. I have spent time in the last few months talking to Secretary Rice about things we might do together to be a little bit more friendly and welcoming to people overseas, because we clearly want to encourage those people who have real intellectual capital and other assets, people who come in and work or study in this country. There is real mutual value to that.

Let me say, in general, our approach is very much oriented on risk management. Risk management, as you know, is not risk elimination and it is not a guarantee. It is a balancing process and it requires that we measure what the serious risks are and address those, and then the less serious risks, we accommodate.

Sometimes when we try to address this issue publicly, it is difficult because the public discourse is, from time to time, dominated by the individual anecdote or the worst-case scenario, which then drives the discussion to a point of eliminating any risk at all.

I think it is important that there always be countervailing voices heard. Sometimes the general benefit of a system that balances risk is diffused across all this side of the economy, so it is very hard to find people who are strong proponents of that more balanced approach when you only hear from those who have a very rooted position in eliminating a certain kind of risk.

So I think, in general, as we consider these issues with visas and things of that sort, I encourage those who have a feeling that there is a balanced approach that has value to make sure that we educate the public about that, because I think that is important.

CHAIRMAN MARRIOTT: Thank you very much.

Are there other comments from the floor anybody would like to make? Yes?

MR. PURAM: Secretary Chertoff, my visa was rejected three times 27 years ago, and it was rejected because I refused to say that I would return to India. So, the State Department said, under those circumstances, we cannot let you go as a student. Well, times have changed, because people do want to return to India, China, or Singapore now.

The Financial Times had, on the front page, on the headlines, that the European Union is offering an opportunity for EU citizenship for students coming from specific schools and universities in China, India, Singapore, and Malaysia upon landing. So, we are really competing. This is a race for competitive talent.

The second issue is parents. Thousands of parents are interested in coming as tourists. Mr. Marriott would have to build a lot of hotels if they were allowed in. But the word that comes across, is arbitrary rejection, without a reason.

What happens is, the students graduate to become citizens, and then by the time they are allowed to sponsor their parents as immigrants--and the parents have no desire to come as immigrants, they want to come as tourists--they are actually past 60 or 70 years of age, so they are burdened with catastrophic illnesses and they are forced to come as immigrants, even though they have no desire to do so. They want to come earlier in their lives, when they are 50, 60, or 65.

So, there are some parts of the policy that keep the most attractive people out, is one point. The other point is, we are really in a competition for these folks.

If you really want to retain these brains, it is a minuscule portion of the total people entering the country and we have to create the incentive programs. Maybe the citizenship process stays in place, but things like a spouse, who automatically is a highly-qualified and highly-educated spouse, by and large, don't like to sit at home and be housewives or homemakers.

So, simple things like that could really help the private sector's need for competitive talent, as well as the economy as a whole. Because when a parent comes, what does a guy like me do? Remodel his home, buy furniture, take them to Mt. Rushmore, spend on tourist trips.

So, I am hearing thousands and thousands of cases of arbitrary rejection of parents, in fact, parents who visited here before. So the notion of risk management has to be really educated out to the consulate embassies.

CHAIRMAN MARRIOTT: Well said. Thank you very much.

Are there any other comments? Yes?

MS. LEVINE: Secretary Chertoff, I would like to thank you very much for your visit to El Paso, Texas. The economy of our border states depends very much on Mexico and trade with Mexico. Production-sharing companies depend on it constantly.

Your presence, and the presence of the President, is very important for us to continue to send the message that we need secure borders, but fluid and efficient borders, with dignity. I am a first generation immigrant and I would like to thank you for all your efforts.

MR. MORGAN: I would just like to make one quick comment. I just came back from an extended trip into the inner part of China a few weeks ago. One of the things that I had not quite picked up on before, is how much some of the students who would like to come here and would bring great intellectual support to our university systems are getting turned off by the process and are really much more encouraged, where they didn't used to be, to go to other countries.

I think that is a trend that is kind of building up not only just along the coast, but kind of throughout China. So if that is important, I think the quicker we address these issues and getting the right people able to come to the U.S., including tourists, the better off our economy will be and the better off we will be for the long term.

CHAIRMAN MARRIOTT: Any other questions or comments on the visa letter?

CONGRESSMAN INSLEE: Mr. Chairman, I am Jay Inslee, from Seattle. What you are hearing around here is replicated in my district. I have a high-tech district.

I am very concerned that this is a self-inflicted intellectual isolation of the United States that we are seeing, with huge, long-term damage for our research agenda for the United States, from students, to workers, et cetera.

I just wondered, do you sense any possibility for your department to propose some changes--statutory, if necessary--to really alleviate this? Because I think this was not something we anticipated in Congress, but now is very much shooting ourselves economically in the foot, with, I think, minimal increases in security.

That is my, sort of, reaction to it when I look at the people that are subject to this screening process. I just wondered, is the department considering any new approach to this that you would come to Congress with? How could we spur that discussion?

SECRETARY CHERTOFF: I think, imbedded in all the concerns I hear, are several different issues. Some of them are process issues, some of them are, frankly, more substantial policy issues, many of which you can read about, debated with a considerable amount of heat, if not light, every day in the newspapers.

On the process issue, we do want to try to streamline the process. As I said, I have spoken to Secretary Rice about things. A lot of the outward face of the United States is Department of State. They actually are the people who deal in the consulates.

What we want to do, is make the process as efficient as possible. Some of that is, I think, things we can do in terms of just improving the system. Sometimes we can allow people to have visas for longer periods of time.

A separate set of issues is raising the limits of people who can come in for work purposes, particularly people who are highly skilled and have certain kinds of backgrounds. Again, that is really a matter of Congress. As I know you know, you will find colleagues who have very strong views on that one way or the other.

The third and largest issue, I think, which is the general attitude we have with respect to immigration. Of course, some of the screening is driven by concerns about security, but a good deal of the screening is driven by concerns about over-stays.

Although people talk about illegal migration in the country as if it is all between ports of entry, there is a significant amount of illegal migration that occurs through people who come into ports of entry and over-stay their visas as tourists. You just have to open the paper to see how heated people have become about this issue.

In some sense, if we do not try at some level to control or ascertain the reasons people are coming into the country at ports of entry so we can screen out people who are just coming in to over-stay, we wind up hearing it on the back end, with a great deal of people being concerned about large numbers of illegal migrants.

I think that the President has articulated very clearly an approach to border security that involves both vigorous enforcement, but also a temporary worker program, which I think is a way of really laying out the two sides of the coin on this.

One side, is having a legitimate channel in general for people who feel needed responsibilities and roles in this country that we cannot fill with our own population. The second piece of that then is, once we have provided that, we should make sure that those who come in use those available channels.

I think each side reinforces the other, which is why I think we have been pretty clear about saying that a pure enforcement strategy would put an enormous amount of pressure and would not be as effective.

I think, again, I will conclude by just saying what I said earlier. The public debate is often dominated by only part of the story. In particular, the most dramatic elements tend to be those that focus on the enforcement side.

I think I certainly have been out there, and I know Secretary Gutierrez has, and other members of the Cabinet, talking about the importance of both sides of the coin, welcoming as well as securing. I think that is a discussion that needs to happen over and over again to have a balanced view.

CHAIRMAN MARRIOTT: Thank you.

Any other comments, questions?

(No response)

CHAIRMAN MARRIOTT: Any objections to the letter?

(No response)

CHAIRMAN MARRIOTT: If not, the letter is approved and we will pass it on to Secretary Gutierrez, who will then submit it to the President.

We are thrilled and happy to have Congressman Phil English join us. Welcome. Thank you very much for being here.

I will now open the floor to comments to the foreign government monopoly letter. Mike?

MR. ESKEW: Yes, Mr. Chairman. Our second initiative is the letter on the need for disciplines and trade agreements to address when a foreign government monopoly abuses its monopoly position to compete with the private sector.

According to a study on this subject by the Economic Strategy Institute, this is an area of concern for several service sector industries, including telecom, transportation, broadcasting, energy, and financial services.

There mere existence of a monopoly is not the issue, except when those monopoly suppliers use their profits or other government-granted privileges in a predatory manner.

My industry, express delivery, faces it first-hand when we compete against foreign postal authorities that may have a government-granted monopoly on first-class letters, and then use those profits on other revenues to compete with the private sector in an anti-competitive manner.

One such government post has been fined for such behavior by the European Commission on Competitive Authorities, so such abuse is being addressed in their home market, but they continue to use that monopoly status to compete unfairly with private companies around the globe.

Another sector that faces this type of competition is the telecom sector. In this case, however, the WTO has agreed upon a set of rules under the basic telecom agreement to discipline anti-competitive cross-subsidization from government monopolies. Those types of disciplines should be expanded beyond the telecom industry and cover other service sectors.

In goods trade, we have antidumping laws and other remedies to guard against such anti-competitive cross-border practices.

The purpose of this letter is to encourage the administration to undertake new initiatives to address this issue in a services content. We urge the adoption of this letter and would like to open the floor for discussion.

CHAIRMAN MARRIOTT: Any comments, discussion?

(No response)

CHAIRMAN MARRIOTT: Any objections to the letter?

(No response)

CHAIRMAN MARRIOTT: If not, we will assume the letter is approved and we will pass it on to Secretary Gutierrez to pass it on to the President.

Now I would like to ask Betty Manetta, chairperson of the Subcommittee on Technology and Competitiveness, to give her report.

 

 

 

 

 

 

 

 

 

 

 

 

 

REPORT OF SUBCOMMITTEE ON TECHNOLOGY AND

COMPETITIVENESS

By Ms. Betty Manetta

MS. MANETTA: Thank you, Chairman. Good morning, all.

I am pleased to present to you today two letters for your consideration that underscore the importance of the U.S. Government advancing the environment for technology competitiveness and innovation.

Our first letter is on small business and competitiveness. Our goal in providing this letter to the President is three-fold. First, we want to acknowledge our Nation's leadership role in global technology and competitiveness.

Second, we want to emphasize the need to develop and implement a national vision for technology leadership to grow global competitiveness and exceed our current leadership capabilities.

Finally, by incorporating small-, women-, and minority-owned businesses into this nation vision and engaging corporations and universities in entrepreneurial programs, we can create a strong synergy for improving business models and creating new market opportunities.

In an effort to complement the outstanding accomplishments of the interagency working groups, we believe that the success of our country's competitiveness over the long term will be dependent on a combination of five key elements:

1.A sustained vision and commitment for

technology leadership.

2.Evolving our national information and

communications infrastructure

3.A commitment to investing and developing

leadership in science and technology in

our schools through corporate America,

who rely on the labor pool for future

executives

4.A commitment to lowering the cost of

business resulting from burdensome

regulations, a complicated Tax Code, an

out-of-control litigation system, and

mandated employee benefits imposed on

small businesses

5.Creating an environment that stimulates

small-, minority-, and women-owned

businesses for entrepreneurial

innovation nationally and

internationally

We recommend to the President and his administration to outline a national vision for technology leadership to grow our global competitiveness and exceed our current leadership.

Our vision for increasing our competitiveness through technology should include national security networks, use of biotechnology, solar energy, fusion, and others, including the expansion of broad-band networks for government services, health, and education.

Relative to education, the PEC subcommittee also recommends, and holds the President strongly accountable for, the importance of No Child Left Behind. As we heard this morning from Chairman Greenspan, after the fourth grade it becomes critical that we truly improve the educational system, especially in our high schools.

Finally, we recommend that the administration continue to engage small-, women-, and minority-owned businesses in our Nation's technological vision. We believe that programs through entrepreneurial partnerships between universities and corporations could be paramount in this endeavor.

Recently, two companies have been in the media. One was IBM, who is asking their leadership to take critical roles in technology and going to universities and teaching, and the second one was a joint initiative between the U.S. Hispanic Chamber of Commerce and SBC, creating Casa Cyber, which is a think tank on innovative ways to incubating small companies on technology.

We seek your approval on this letter. We also are requesting a complementary letter on critical RFID technology, which we believe is important in the evolution of trade, as well as security, in our country.

CHAIRMAN MARRIOTT: Betty, have you covered both small business and the innovation?

MS. MANETTA: No. Innovation is the second.

CHAIRMAN MARRIOTT: Okay.

Are there comments on the small business and competitiveness letter?

MR. SMUCKER: Mr. Chairman, I would just like to support what she said in regard to RFID technology. That is clearly the new generation of bar codes, and clearly the support for the infrastructure of that organization, GS-1, Global Standards, Inc., number one, in Brussels, and headquartered at Princeton, need the support and intellectual engine that this organization can provide. So, I support and am glad to help in any way I can.

CHAIRMAN MARRIOTT: Thank you.

Are there any other comments?

(No response)

CHAIRMAN MARRIOTT: Any objections to the small business and competitiveness letter?

(No response)

CHAIRMAN MARRIOTT: If not, we will assume it is approved and we will pass it on to the President.

MS. MANETTA: I am doing the second letter on innovation for Ray Gilmartin.

Our goal in providing the President with this letter is two-fold. First, we hope to enhance the U.S. domestic environment for innovation so we can ensure American future competitiveness.

Second, we want to enhance the worldwide environment for innovation. A U.S. initiative, Innovative Products, can compete overseas and the benefits of trade and innovation can be enjoyed by people in countries across the globe.

For U.S. domestic policy, this letter recommends focusing on the key areas of education, research, and innovation infrastructure. We recommend that the President and his administration follow the excellent recommendation made in the recent report by the Council on Competitiveness, "Innovative America: Thriving in a World of Challenge and Change."

Moving beyond the U.S. domestic sphere, our letter also urges the President and his administration to enhance the global enforcement for innovation. For U.S. international relations and trade policy, this letter focuses on the key areas of intellectual property protection, competition-based markets, and strengthening the environment for global business.

We have already discussed the intellectual property piece of this. Competition-based markets support innovation by providing industries with the incentive to develop, refine, and market new products. A global business environment that embodies free market principles, the rule of law, ethics, and free trade is critical to innovation.

These three key areas are universal enabling conditions that nourish innovation. They are essential to the products of U.S. innovative industries and are critical to the development of the innovative industries of U.S. trade partners. As such, we seek your approval for this letter and encourage you to support it. Thank you.

CHAIRMAN MARRIOTT: Thank you, Betty.

Comments on innovation?

(No response)

CHAIRMAN MARRIOTT: I think we all agree it is good. Anybody have any other comments?

(No response)

CHAIRMAN MARRIOTT: Any objections?

(No response)

CHAIRMAN MARRIOTT: Okay. We will assume that is approved and we will pass it on.

MS. MANETTA: Thank you.

CHAIRMAN MARRIOTT: Now I would like to call upon Lee Raymond, chairman of the Subcommittee on Trade Promotion and Negotiations, to give his report.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REPORT OF THE SUBCOMMITTEE ON TRADE PROMOTION

AND NEGOTIATION

By Mr. Lee Raymond

MR. RAYMOND: Thank you, Mr. Chairman, Secretary Gutierrez, and council members. Thank you for the opportunity to present the Trade Promotion and Negotiation Subcommittee letter on the World Trade Organization's Doha Round and the upcoming Hong Kong ministerial.

A week from today, Ambassador Portman will lead the U.S. delegation at the WTO's sixth ministerial conference, and the second since the launch of the Doha Round negotiations in 2001.

The Hong Kong ministerial represents an important opportunity to advance the goals of the Doha Development Agenda, namely to reduce barriers to trade and improve global economic growth.

The President's Export Council has long supported the administration's goal of an ambitious and balanced result of the Doha Round. Seeking multilateral trade liberalization is the best way to spur growth around the world and lift hundreds of millions out of poverty.

Following the setback at the Cancun ministerial in 2003, the PEC offered its encouragement for efforts to get the talks back on track. The council reiterated its views on the importance of the Doha Round to the U.S. economy in a letter in May of this year.

PEC members recognized that it will be very difficult to reach the consensus agreement among 149 countries, with Saudi Arabia joining the WTO most recently. Nonetheless, the United States must continue to pursue a conclusion to the negotiations by the end of 2006, before expiration of the trade promotion authority in 2007.

A successful Doha Round will be one that achieves significant liberalization in the areas of agriculture, non-agricultural market access and services trade, and one that improves the flow of global trade through an agreement on trade facilitation.

The recent U.S. proposal on agriculture is an example of the bold initiatives that are necessary to move the round forward. The European Union and other WTO members must make the commitments necessary to ensure a favorable result to the negotiations.

It is also worth repeating that an agreement resulting in a substantial opening of industrial market access and services trade is not only in the interest of the United States, but would also provide great benefits to the economies of the developing countries.

As stated in our report, "it is important that the administration maintain its commitment to achieving a high-quality and balanced agreement. Such an agreement would mean expanded U.S. trade and stronger growth in the world economy."

The council's Subcommittee on Trade Promotion and Negotiation wishes to convey its continued support for the U.S. negotiators as they prepare for the Hong Kong ministerial and subsequent negotiations next year.

I submit the subcommittee's letter for adoption.

CHAIRMAN MARRIOTT: Thank you.

Are there any comments from the committee? Yes?

CONGRESSMAN HAYES: Thank you, Mr. Chairman. I would like to call attention to the incredibly productive agreement that Secretary Gutierrez and the administration negotiated with China recently. This is vitally important.

China has a managed economy. You want to sell them not only what they want, but what their consumers need. What the administration's Secretary did here, was to open the doors.

Mr. Chairman, I have tried to list the items in the order of priority for us, number one. A lot of things happen in Washington here, and there are few people, you should know, that think that the money that is running the economy comes from the government rather than the other way around. So, you all participate and it helps keep the balance here that says the economy is what keeps the government running. Thank you.

CHAIRMAN MARRIOTT: Thank you. That was a great comment.

Does anybody else have anything they would like to say?

(No response)

CHAIRMAN MARRIOTT: Any objections to the letter?

(No response)

CHAIRMAN MARRIOTT: If not, we will approve the letter and we will pass it on to Secretary Gutierrez and to the President.

Now I would like to call upon Brian Ferguson, chairman of the Subcommittee on Export Administration, to give the council a report on the subcommittee's activities.

I would also like to note that Brian will be stepping down as chairman of the PEC Subcommittee on Export Administration following this meeting. On behalf of our council, we thank you very much for your service and your leadership. Terrific job.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REPORT OF THE SUBCOMMITTEE ON EXPORT ADMINISTRATION

By Mr. Brian Ferguson

MR. FERGUSON: Thank you, Mr. Chairman, Mr. Secretary, and everyone.

The subcommittee members have done a marvelous job over the last two and a half years and they deserve an awful lot of credit on all the progress that was made there.

My principal purpose is to present a letter regarding nanotechnology. This is a subject that was brought to us by former Secretary Evans early last year. His concern was about the national security implications of this very complex technology.

To have a useful conversation, we added some members to the subcommittee who actually understood the technology. They have recommended a series of policy guidelines that would guide the export administration of this technology, recognizing that there are a number of ways this technology could be used in dual-use purposes.

These policy recommendations are similar to the policy recommendations you would expect from other kinds of high-technologies that are used in computers and other defense kinds of work.

In the interest of time, and recognizing that you want to move along, I would recommend this letter. Also, I would acknowledge that the complexity of this subject is one that I think is going to be undertaken by the Subcommittee on Emerging Technologies.

There are a number of issues that go beyond the export control of this technology, and I think that the PEC-7 will be undertaking those separately and will move out of the PECSEA.

With that, I would recommend the letter.

CHAIRMAN MARRIOTT: Thank you very much.

Comments or questions from the council? Anybody have anything that they'd like to say?

(No response)

CHAIRMAN MARRIOTT: If there are no objections, we will approve the letter.

We thank you very much, Brian, for all your good work. The letter will then be passed on to the President.

I would like, now, to call on Paul Hsu to give the council a report on activities of our China Task Force.

 

 

 

 

 

REPORT OF THE CHINA TASK FORCE

By Dr. Paul Hsu

DR. HSU: Thank you, Mr. Chairman.

Last June, the President's Export Council traveled to China with then-Secretary of Commerce Don Evans to identify ways in which the United States and China could improve their trade and economic relationship. Our recommendations were contained in a letter to the President dated August 19, 2004.

During a meeting with the PEC members and Vice Premier Wu Yi, we asserted that the U.S. exports to China only accounted for 2 percent of China's total imports, a figure way below Japan, Korea, and the European nations, and she asked why. So, February of this year the China Task Force was established.

In collaboration with the staff at Department of Commerce, the PEC researched this topic and assembled our findings and recommendations in this letter to the President.

Although this result provides some insight on factors affecting the U.S. trade balance with China, it does not change the fact that the U.S. trade deficit with China is growing. We believe a clear, close and continued collaboration between the United States and China will be the key to resolve our trade difference.

In summary, this letter is really not only to respond to Vice Premier Wu Yi's request, but to emphasize that it is the time for the United States to step up its effort to grow U.S. exports to China, with fair trade and intellectual property right protections. These are Secretary Gutierrez's priorities, and we agree and support that. Thank you.

CHAIRMAN MARRIOTT: Thank you very much.

Are there questions or comments on this letter?

MR. LAVIN: Mr. Chairman?

CHAIRMAN MARRIOTT: Yes?

MR. LAVIN: If I may, this is a very well done letter, and my compliments to the group that put this together. We are focusing on a lot of China issues, so this is all a very good basis for moving ahead.

One of the bullets on the second page is whether or not the PEC wants to formally suggest a foreign aid program to China. It might be something we could reflect on a little bit.

I mean, besides the policy question about whether formal U.S. Government aid to China is appropriate at this point, I think it is also a fair question to ask the connection between that initiative and export promotion. So, I know the right sense is behind it, but I think it is fair to put it on the table to see, is that really the direction we want to go.

CHAIRMAN MARRIOTT: Can we send this back to the committee and have you take a look at it?

DR. HSU: Okay.

CHAIRMAN MARRIOTT: And work with Frank and sort out what you want to do here on the language.

DR. HSU: Okay.

CHAIRMAN MARRIOTT: Okay. Thank you. Thank you very much, Paul.

DR. HSU: Thank you.

CHAIRMAN MARRIOTT: I want to thank all the subcommittee chairs and the staff representatives for their very hard work in getting these seven letters ready.

We are thrilled today to have joining us a very distinguished speaker and a great friend, the Honorable Andy Card, White House Chief of Staff. Secretary Card has served the Nation as Secretary of Transportation, and Deputy Chief of Staff under President George H.W. Bush, and since 2001 has served as Chief of Staff to President George W. Bush.

On behalf of the entire council, thank you for joining us.

MR. CARD: Thank you very much.

CHAIRMAN MARRIOTT: The floor is yours. We are thrilled to have you here.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CLOSING COMMENTS

By Honorable Andy Card

White House Chief of Staff

MR. CARD: Well, thank you.

Obviously, the work that you are doing is critical in terms of helping to advise the President, through the Secretary of Commerce.

I welcome the Secretary of Commerce and the Secretary of Homeland Security here, because it is important that they work in partnership because there would be no commerce without an understanding of the visa policy and how to make sure we are a safe country that can do work, but we also want to have open borders so that we can export some of our work, or at least the products that come from the work that we do.

I really appreciate Congressman Phil English being here, and Robin Hayes. Robin Hayes has been a stalwart to help make sure that we have a climate of competitiveness in the country and are able to compete with our fellow consumers and manufacturers around the world. So, I appreciate that.

The recommendations that have come from the Economic Council are significant in that they call upon us to make sure that we are an exporting Nation, which means we have to be a competitive Nation as we build our product, and we have to be an open Nation so that we can sell that which we build to other places around the world, in addition to selling it to our own consumers.

I compliment Ambassador Rob Portman and Susan Schwab for what they do to help make sure that markets are opened for American products, and knowing that our markets will be opened for products that come in from overseas.

We have to make sure that the balance is justified, it is correct, and respects the rule of law. It is the rule of law that we find to be the greatest challenge in some of the markets that are open to competition, and so the challenge is of making sure that your intellectual property is protected and that your ability to market is protected, at the same time that our borders were opened so that our consumers can have broad choices. And to keep all of you competitive in the world, you must be competitive in the U.S. market, and we understand that.

So, we have to have smart consumers who understand the value of choice as we create a climate where other consumers around the world can be smarter and take advantage of increased choices in their marketplaces. So, I compliment what our team of international negotiators does to try to help open markets.

I also highlight your interest in innovation in the United States. Clearly, we will not be able to be a competitive Nation if we do not continue to push the envelope of innovation, and that means taking advantage of the new technologies, the nanotechnology, and whatever, that really comes from the flexibility in our economy.

We have a much stronger economy than the perception is. That economic strength is there, in part, because of good monetary policy. I hope it is in part because of good fiscal policy. It really comes down to the great flexibility that is in our economy.

That flexibility comes through a sensible regulation and a relationship between the government and our economy. I encourage you to take a look at our economy to make sure that it can continue to be very flexible.

The productivity gains in the United States over the last four years are beyond that which anyone could have predicted. That is what has allowed us to be competitive with other economies around the world who carry much lower, I'm going to say, cost of doing business.

We are not the cheapest place to do business, but we are the most competitive in how we conduct that business. It is because we have a competitive transportation system that is the envy of the world. We have a regulatory regime that I hope becomes less onerous over time rather than more onerous, and that allows us to take advantage of the intellectual might of America that shows up through its workers.

And to make sure that intellectual might is there, I do call to your attention the National Academy of Science study on competitiveness, and what we should be doing as a Nation to encourage more people to get an engineering degree or a science degree, to understand more about math, and take advantage of the intellectual power that must come through competition. We want to make sure that America can do that.

So the work that you are doing to call attention not just to our ability to export, but to create a climate where we can build what should be exported, is very important, and I compliment that.

I have to tell you, some of you I have known in other lives and have had the benefit of working with you in other positions in government, I have had the benefit of working with many of you in the private sector, and I had the benefit of meeting some of you at a PEC meeting a couple of years ago.

When I last met with you, I had the privilege of swearing some of you in to be members of the President's Export Council. I know Secretary Gutierrez swore the new members in today. But I want to call attention to that which you have done, which is to take an oath.

The oath that you took is a pretty significant oath and it derives from the oath that our President takes. The President takes his oath right from the constitution. It was pretty dramatic when the President took the oath for the first time. It was a cold, rainy, almost snowy day in Washington. It was January 20, 2001.

When Governor George W. Bush was escorted to the steps of the Capitol, Laura held the Bible and the Chief Justice asked her to put the Bible before the governor, and the governor placed his hand on the Bible and raised his right hand.

The Chief Justice administered an oath that is shorter than the oath that you took. It is the shortest oath taken by anyone who serves in government. It called for the President to preserve, protect, and defend the constitution. That is basically all it said. There were no conditional clauses to it.

It didn't say, if the wind is blowing in the right direction, or if the UN says it's okay, or if the French give permission. It just said, observe, protect and defend the constitution.

I doubt that the President thought much about that oath when he took it. I suspect his mind was more focused on his inaugural address that was to be delivered right after he took the oath. And it was a great inaugural address, and I would encourage you to go back and read it because it was very visionary. It was also quite insightful.

But I whispered into the President's ear, on a pretty historic day, unfortunately, a day of infamy, not unlike tomorrow's day of infamy, when I said, "A second plane to the second tower in America is under attack." That was in a classroom at a school in Florida. It was September 11th, a beautiful, sunny day in 2001.

There is not a doubt in my mind that when I whispered those words in the President's ear, he thought about his oath. He has been focused on keeping that oath, I know, ever since that day. When he walks into the Oval Office, he is thinking about that oath. He knows that he cannot keep that oath without an awful lot of help.

Now, the help, appropriately, should come from the White House staff. That is the only reason we exist, is to help the President do his job. The help comes from everyone who serves in the executive branch of government. After all, Article 2 creates the executive branch of government. Article 2 in the constitution does it, just like creating the office of the presidency.

The constitution does not mention Commerce, Homeland Security, HUD, DHS, GSA, or OPM. It mentions the President. So, the President should get help from everybody who is serving in the executive branch of government.

The President also gets help from members of Congress. I would like to say he gets help from all members of Congress, but he gets help from members of Congress and has to keep the oath in their minds as well.

But as you do your work, recognize that you have taken an oath to "protect and defend the constitution of the United States against all enemies, foreign and domestic."

In that context, you have to help the President keep his oath, so you are part of the community that is helping the President keep the most awesome responsibility that he has for us.

But I also want you to think about the other people who have taken the oath, and every one of them took it voluntarily, many of whom are very young, 18, 19, 20, 21 years old. They showed up without coercion and they put a uniform on.

It could be a Navy uniform, a Marine uniform, an Army uniform, Air Force uniform, or a Coast Guard uniform. They took the same oath that you took, to "protect and defend the constitution of the United States against all enemies, foreign and domestic."

But then they took a long oath. It called for them to follow the commend of the Commander-in-Chief. When the Commander-in-Chief works to keep his oath, he knows that he is frequently asking for them to stand in harm's way.

When they stand in harm's way, many of them make sacrifices far beyond that which the President would ever invite on anyone. When he goes to Walter Reed Hospital or to Bethesda Naval Hospital and he walks into a room and he sees a soldier or a Marine, and they go to stand for the President of the United States but they do not have any legs, or they go to render a salute to the Commander-in-Chief but they do not have an arm, and he stands beside them and he says, after a citation is read and a Purple Heart is pinned on his breast, "Thank you, on behalf of a grateful Nation, for your sacrifice." That's a hard thing to do.

Or when he goes to a holding room after he's given a speech and there's a family and they're holding an American flag and clutching a photograph, and the President says, "On behalf of a grateful Nation, thank you for your sacrifice." That's the burden that the President carries. It is a burden that he carries on behalf of all of us.

So, you have taken an oath to help the people of this great country under our constitution, and to help the President, because you are an extension of the executive branch of government, with the exception of four members. They are part of Article 1. By the way, you are all part of Article 1 as well.

It is pretty significant. I would ask you to keep that in mind as you help to open the doors of America who have harmed us, and when you help to open doors around the world not just for commerce, but for the fruits of democracy and liberty.

So I appreciate what you do, the recommendations that you make. We take them very seriously. You are the captains of industry. You are the motivators for innovation. You are the stimulus for hope and excitement and you satiate the needs of consumers.

That is a pretty remarkable calling that you have, but it is the climate that comes under our constitution that allows you to exercise the kind of free speech that shows up in the marketplace. That free speech does invite ideas and hope and dreams.

So I thank you and I appreciate the work you do. I look forward to reviewing the recommendations you have. I guarantee, the President will be excited about them. Thank you.

(Applause)

CHAIRMAN MARRIOTT: Thank you very much, Secretary Card. We are grateful for your words to us this morning. We appreciate your being here, representing the President. I do hope that these letters will be helpful.

I would like to open up the floor for discussion in these last few minutes, if anybody has anything they would like to bring up, any comments, questions.

MR. LAVIN: Mr. Chairman?

CHAIRMAN MARRIOTT: Yes.

MR. LAVIN: I am sorry. First, as a newcomer to this meeting, let me just issue an invitation. Whether people are here in an individual capacity or corporate capacity, it is very important for us to keep this discussion going. So, please come by and see us. Sometimes, it is even more fruitful, in small group discussions, to get into some of these points. So, please let us hear from you when you come through town, or when people come through town, to keep it going.

Secondly, I want to make sure people here recognize the very good staff work that put the meeting together today. We have Assistant Secretary Al Frink here as Assistant Secretary for Manufacturing and Services, and it was his people -- where's Sarah Aker? Is Sarah here?

CHAIRMAN MARRIOTT: I think she escorted

the --

MR. LAVIN: She escorted the Chief of Staff out. But anyhow, we are here today, in part, because Al and his team, Sarah, and a lot of other people did some wonderful work.

Mr. Chairman, with your permission, I would like to ask for a round of applause for the team.

(Applause)

CHAIRMAN MARRIOTT: Thank you very much. Thank you all for coming.

Our next meeting will be sometime in the spring. We will let you know as soon as we have a date.

Can I have a motion to adjourn?

MR. LAMBRIGHT: So moved.

CHAIRMAN MARRIOTT: Second?

MR. STALEY: Second.

CHAIRMAN MARRIOTT: All in favor, aye?

(Chorus of Ayes)

CHAIRMAN MARRIOTT: Thank you very much. The meeting is now adjourned.

(Whereupon, at 12:07 p.m. the meeting was concluded.)

 

 

 

 

 

 

 

 

 

 

 

 

 

C E R T I F I C A T E

This is to certify that the foregoing proceedings of a meeting of the President's Export Council, held on December 6, 2005, were transcribed as herein appears, and this is the original of transcript thereof.

 

                                    WILLIAM J. MOFFITT

Official Court Reporter

 

 

My Commission expires: May 14, 2009