Under Secretary of Commerce for International Trade - Franklin L. Lavin - Testimony before House Small Business Committee

Under Secretary of Commerce for International Trade
Franklin L. Lavin
TESTIMONY BEFORE HOUSE SMALL BUSINESS
COMMITTEE
Wednesday, April 26, 2006

Mr. Chairman, members of the Committee, it is an honor to appear before you today. It is my pleasure to talk about the Trade Promotion Coordinating Committee (TPCC) and how the Federal Government can best help U.S. small and medium-sized companies export. I would also like to express my gratitude to you Mr. Chairman, for your continuing leadership on this issue.

I would like to discuss two points today. First I would like to provide you with some perspectives on the U.S. economy and U.S. engagement in the global marketplace. Second, I will outline how the TPCC is changing to maximize the impact we can make on the number of companies exporting by focusing on partnerships and promotion.

The global trading environment – how are U.S. exporters faring?

The American economy is strong, aided by the President’s pro-growth agenda. Businesses are thriving, investing, and hiring. In 2005, we saw the creation of two million jobs and economic growth of 3.5 percent – 11 consecutive quarters of GDP growth despite the challenges of hurricanes and high energy costs. Leading economic indicators show that the economy will continue to grow in 2006.

Exporters are an important engine of this growth. One in five manufacturing jobs depends on exports. And jobs linked to exports pay an estimated 13 to 18 percent more than other U.S. jobs. U.S. merchandise exports grew 11 percent in 2005 and 13 percent in 2004. Agricultural exports set a record high in 2005 and supported almost 1 million jobs. And services exports doubled in the last decade.

Yet, despite this good news, we should ask ourselves if the United States could be doing even better in a growing global economy. U.S. business participation in the global economy has remained relatively flat, with only a seven percent increase in the number of U.S. companies exporting between 1997 and 2004. In addition, while the dollar volume of merchandise exports from SMEs has risen by more than 16 percent over this same period, the share of U.S. merchandise exports accounted for by SMEs has remained around 30 percent.

While there are a number of explanations for these trends, a common reason advanced is that U.S. companies are comfortable with the large and dynamic domestic market. In a 2002 TPCC survey, 36 percent of non-exporters cited “better market prospects here in the U.S.” as their reason for not exporting.

So the challenge for us is to encourage more U.S. small and medium-sized companies to take advantage of improved ease of access to foreign markets and improved opportunities in a growing world economy.

The good news for U.S. companies is that it has never been easier to compete successfully in the global marketplace. Many of the impediments that once plagued international business are no longer factors. The reduction of market access barriers has been a major driver in reducing the costs of exporting, with tariff and non-tariff barriers coming down around the world – a process that continues to advance today through bilateral and multilateral trade negotiations. Technology has been another major driver, with more and more of the world’s businesses and consumers connected through the Internet, cell phones, telephones, and business travel.

Examples of these trends include:

In the eight rounds of multilateral trade negotiations since 1947, the average tariffs of industrial countries have come down from 38.5 percent to just 4 percent. The major developing countries have also bound most of their tariff rates, promising to keep customs tariffs under a ceiling. China, for example, has moved from average applied rates in 1997 of 17.6 percent, to all of their tariffs being bound today at 10 percent.
Travel abroad by U.S. citizens has increased 30 percent since 1990.
Telecommunications infrastructure investment in low- and middle-income countries has grown from $60 billion in the 1990 to 1995 period, to almost $300 billion in the 1996 to 2003 period.
Domestic credit to the private sector in low- and middle-income countries has grown from 39 percent of GDP in 1990 to 59 percent of GDP in 2003.

These changes are part and parcel of a period of healthy global economic growth. The International Monetary Fund forecasts that the global economy will grow in 2006 at more than four percent for the fourth consecutive year. The last fifteen years have seen the transformation of the Chinese and Indian economies and the integration of Eastern Europe and the former Soviet Union into the world economy. There has never been a greater opportunity to be a successful exporter.

What we see, therefore, is that while the U.S. economy is thriving, the rest of the world is also growing, and the United States could do better on trade. Our overriding priority is to improve our capability to reach out to the wider community of U.S. exporters and potential exporters. There are a huge untapped number of U.S. companies capable of exporting. Our job is to figure out how to reach them and provide the information and services they may need to introduce their goods and services to foreign markets.

Using partnerships to further boost trade promotion

Given the enormous opportunities for U.S. firms and the large number of SMEs that we are working to reach, this year’s National Export Strategy will focus on the partnerships we will need to carry out the TPCC mission with the greatest impact possible. To that end, we have developed what I refer to as a “21 st century approach.”

Why is this critical? By way of illustration, the Commercial Service counseled over 140,000 American companies last year – a sizable number when you consider that our figures show that about 232,000 U.S. firms are actual exporters. However, according to the U.S. Census Bureau, there are 5.7 million U.S. companies. There are likely thousands of SMEs whom we have not touched, which could be exporting.

So how to reach them? When you consider the Federal Government’s ability to contact these firms -- compared to private-sector U.S. companies that are already doing business with them -- our course becomes clear. Express delivery companies, banks, and web-based marketplaces have tremendous reach to these potential small business exporters.

I would like to highlight one of our partnerships. In 2004, the Commercial Service struck a partnership with FedEx based on a shared interest in increased outbound shipment volume, worldwide reach, and an SME client base and customer focus. We now cooperate on a wide range of U.S. export promotion activities and training, and FedEx’s huge client base now has greater awareness of the Commercial Service through FedEx’s websites and newsletters.

Commercial Service programs and services are now featured in FedEx’s monthly eNewsletter sent to 120,000 FedEx clients. We have participated in more than 110 marketing events with FedEx to showcase the assistance available and 160 smaller international seminars covering a variety of topics important to American exporters. These efforts have significantly expanded the reach of our skilled trade specialists.

Commerce is cultivating partnerships with a wide range of other private sector enterprises.

The Commercial Service’s partnership with PNC Bank, begun in 2005, is based on a shared commitment to assisting firms navigating the uncertainties of foreign markets. Activities include joint seminars, web-based conferences, and training.
The Commercial Service’s latest partnership is with eBay, providing greater visibility for U.S. Government export promotion programs in this huge marketplace. We expect this partnership to help government stay in tune with the importance of the Internet to international transactions.

Going forward, we stand ready to offer the same terms to other interested and qualified companies sharing our goals of export education and trade facilitation.

Commerce is not alone in looking to partnerships to reach more firms.

OPIC has been an innovator in changing its operations and programs in order to make them more accessible to small businesses. It is developing a sophisticated new model for leveraging private and public partnerships. The Enterprise Development network will be a strategic alliance among financial institutions, brokers, and law firms designed to facilitate efficient delivery of OPIC funding to SME projects.
Ex-Im Bank’s City-State Partner Program now has 45 city-state partners in 35 states, including in January 2006, an agreement with California’s Centers for International Trade Development with 14 offices throughout the state.
SBA’s Office of International Trade works with several large internal and external partners to reach more companies, including its own network of SBA District Offices, Small Business Development Centers (often based at universities), and SCORE service.
The U.S. Department of Agriculture, Foreign Agricultural Service, also relies upon partners such as the states themselves, State Regional Trade Groups, the AgTrade Coalition (consisting of more than 100 associations), and other major groups to reach out to the private sector.

In the coming year, the TPCC agencies will strengthen current partnering arrangements with the private sector and seek new partners that align government and partner goals targeting various market segments.

At the same time, Federal agencies will continue to work closely with our state and local partners. The multiplier relationships they have established and nurtured for years include organizations like state economic development agencies, city export programs, district export councils, and the like. Our officers stationed in embassies and consulates worldwide work closely with American Chambers of Commerce (AmChams), which provide information on market access issues and commercial opportunities.

These networks, fully established and operating, are working well. For example, state partners are working closely with the Commercial Service to organize trade missions to key markets. But I believe that we can do more, through building a network of private-sector multipliers, to reach potential and current exporters.

In support of our new focus, I have detailed the TPCC Secretariat to the U.S. Commercial Service. Linking the TPCC to the operational unit responsible for our promotional efforts is a good fit given our emphasis on promotion and partnership. This change also addresses the need to continue improving coordination between agencies, particularly in growth markets and with new FTA partners.

While focusing on promotion, we remain committed to coordination

While we see an additional emphasis on promotion and partnerships, the TPCC will continue to be a force for more strategic and effective coordination between the agencies.

TPCC agencies will continue to leverage resources in priority markets. For example, this past fall, Secretary Gutierrez led a trade mission to the CAFTA-DR countries that included twenty U.S. companies (mostly small firms), as well as the heads of the Small Business Administration, Overseas Private Investment Corporation, and the U.S. Trade and Development Agency, and senior officials from Export-Import Bank, the Millennium Challenge Corporation, and the Inter-American Development Bank.

As a follow-up to this trip, agencies have been meeting on priority projects and trying to ensure that trade mission participants see positive results. USTDA consultants have traveled to the region and have received concrete recommendations for projects that support USTDA’s Central America Trade Integration Initiative. USTDA will follow up on this work with a trip in June . OPIC and USTR will visit countries that have implemented the CAFTA-DR agreement this May to announce a number of investment and technical assistance programs. Ex-Im Bank will visit the region in June to explore potential projects in the energy and transportation sectors. The Commercial Service has conducted over twenty outreach events throughout the United States, many along with Ex-Im Bank, and in conjunction with private-public partners like FedEx.

Agencies have also pursued close cooperation regarding trade promotion opportunities with new FTA partner Bahrain. And we are looking at the Secretary’s trip to Brazil in June as a kick off for a coordinated TPCC effort involving Brazil.

In short, the TPCC is now even more vital in reaching America’s small businesses. The effort to broaden the participation of U.S. companies in trade will require all of our attention and effort. Mr. Chairman, you have been a valued and committed partner in this endeavor, and we look forward to working with you toward this goal.