PRESIDENT'S EXPORT COUNCIL

     2237 Rayburn House Office Building

Washington, DC

Wednesday,

September 29, 2004

Gilmour

87 pp.

The meeting was convened, pursuant to notice,

at 9:04 a.m., MR. J.W. MARRIOTT, JR., Chairman,

presiding.

APPEARANCES:

MR. J.W. MARRIOTT, JR.

Chairman

THE HONORABLE DONALD L. EVANS

Secretary of Commerce

MR. STEPHEN FRIEDMAN

Assistant to the President for

  Economic Policy and Director of

the National Economic Council

THE HONORABLE GRANT ALDONAS

Under Secretary for International Trade

DR. PAUL HSU

MR. SAMUEL BODMAN

MR. KEN JUSTER

MR. JOHN A. LUKE, JR.

CONGRESSMAN CHARLES W. PICKERING

MR. AL FRINK

MR. ARNOLD DONALD

MR. J. BRIAN FERGUSON

MS. BETTY MANETTA

MR. MICHAEL L. ESKEW

CONGRESSMAN JAY INSLEE

MR. HAROLD B. SMITH

MR. WARREN R. STALEY

CONGRESSMAN DAVID WU

MR. JAMES LAMBRIGHT

CONGRESSMAN ROBIN HAYES

MS. CECILIA OCHOA LEVINE

SENATOR JOHN CORNYN

I N D E X

                                                PAGE

MEETING CALLED TO ORDER

Mr. J.W. Marriott, Jr., Chairman5

WELCOME/INTRODUCTORY REMARKS

The Honorable Donald L. Evans

Secretary of Commerce7

THE CURRENT STATE OF U.S. INTERNATIONAL

TRADE

The Honorable Grant Aldonas

Under Secretary for International Trade19, 445

WHITE HOUSE UPDATE ON THE COUNCIL'S

RECOMMENDATION

Mr. Stephen Friedman

Assistant to the President for Economic

Policy and Director of the National

Economic Council21

INTRODUCTION OF THE CHINA BUSINESS

INFORMATION CENTER WEBSITE

The Honorable Grant Aldonas

Under Secretary for International Trade53

CORPORATE STEWARDSHIP SUBCOMMITTEE REPORT

Dr. Paul S. Hsu, Member of the Subcommittee61

SERVICES SUBCOMMITTEE REPORT

Presentation of Proposed Letter on

Security, Trade and Travel

Mr. Michael Eskew, Chairman64

TECHNOLOGY AND COMPETITIVENESS SUBCOMMITTEE

REPORT

Presentation of Proposed Letter on the

No Child Left Behind Act

Ms. Betty Manetta, Vice Chairman67

Presentation of Proposed Letter on

Standards

Mr. Harold Smith70

TRADE PROMOTION AND NEGOTIATIONS SUBCOMMITTEE

REPORT

Presentation of Proposed Letter on

U.S.-Russian Commercial Issues

Mr. Warren Staley, Vice Chairman74

I N D E X (Continued)

                                                PAGE

EXPORT ADMINISTRATION SUBCOMMITTEE REPORT

Presentation of Proposed Letter on

Export Controls

Mr. Brian Ferguson, Chairman76

GENERAL DISCUSSION80

MEETING ADJOURNED86

P R O C E E D I N G S

MEETING CALLED TO ORDER

J.W. Marriott, Jr., Chairman

CHAIRMAN MARRIOTT: Well, good morning, everybody, and welcome to this meeting of the President's Export Council. I want to officially call the meeting to order.

Today we will see the results of the work of our Corporate Stewardship Subcommittee and discuss letters of recommendation on security, trade and tourism, the No Child Left Behind Act, standards, Russia, and export controls and licenses.

We have had an active summer. Since we last met in March, members of the council traveled to China with Secretary Evans. We had a great trip. We met with Chinese officials at the very highest level, including Premier Win, two vice premiers, the Minister of Commerce, and the mayor of Shanghai, and many exciting and interesting business leaders.

Last month, we met by teleconference to approval or report to the President for our trip. We also approved a letter to Vice Premier Wu Yee in response to her questions, which we term an annex to our original report on China, talking about the issue of U.S. competitiveness in China, an issue raised during our meeting with Vice Premier Yee.

Finally, we approved the Subcommittee on Corporate Stewardship report entitled, "The Power to Help." It's a terrific report. I congratulate the subcommittee and its chairman, Ray Gilmartin. Mr. Secretary, it's an excellent report and we're going to hear more about it today from Paul Hsu, who is going to help us understand a little more about it.

We continue to produce our recommendations at a brisk pace, and I am happy the White House has sent Mr. Steve Friedman today to give us an official response to our reports and our recommendations.

When you respond today to the various issues that we will be discussing, will you please speak in the microphone? That way we can be sure that your comments and questions are recorded.

First, I want to introduce our good friend, Secretary of Commerce Don Evans. I want to thank you, Mr. Secretary, for all that you do for the PEC, your dedication to the council, your tremendous leadership, your support, your going to China with us and introducing us to all these wonderful people.

Ladies and gentlemen, Secretary Evans.

WELCOME/INTRODUCTORY REMARKS

The Honorable Donald L. Evans

Secretary of Commerce

SECRETARY EVANS: Bill, thanks so much. Thank you for your incredible leadership, terrific leadership. This council is making quit a different at a very defining moment in the history of our world and I just can't thank all of you enough for your participation, your active engagement.

As you said, Mr. Chairman, you are coming at us with reports and recommendations at a fairly brisk pace, which is good, and healthy, and very constructive, and we thank you for that. It will make a big difference in how trade policy is shaped, frankly, around the world.

So, thank you for your terrific leadership, and on a personal note let me just say how much I've enjoyed getting to know the members of the PEC, and I am looking forward to continuing to work with you to strengthen trade policy, strengthen exports for American companies, American workers, American businesses.

I also want to acknowledge the participation of Congress in this effort. Congressman Robin Hayes is with us. Robin has been a real champion of trade, a real champion of America, but a champion of kind of working closely with the PEC, as well as with Department of Commerce, as well as with the administration to do what we can to make sure that everybody is on a level playing field around the world, because that's going to be essential to moving trade forward and opening more trade around the world.

So, Congressman, thank you for your participation. Thank you for being here. I know that my good friend, Secretary Bodman, is going to join us in a few minutes, as will Steve Friedman. You'll be hearing from them.

I know Jim Morgan is not here, but I know what a terrific job he has been doing, and Applied Materials has been doing, as to their input into the PEC. This group has been part of an effort to kind of move free trade agreements forward.

We've knocked down about $6.4 billion of direct tariff barriers through trade agreements in the last several years, not to count the non-tariff barriers that we continue to work on. So, I thank you for that.

I also want to thank you because your support of free trade has meant that we have signed some 10 free trade agreements since the president took office. We have signed 12, and we have got 10 more in the pipeline.

When we showed up here, we had two. So, we've made some really dramatic progress in signing free trade agreements. I think one of the big points is, we've just got a lot of momentum and we need to continue that momentum.

This council helps provide a lot of that energy, wind, and momentum in the overall effort. As I mentioned a few moments ago, one of the critical pieces of moving it forward will be to ensure American workers that they're on a level playing field.

We've got to be able to look the American worker in the eye and tell them that we're all playing, basically, by the same rules and we're going to fight to make sure that other countries are enforcing their laws, their trade laws, complying with trade agreements, enforcing their trade agreements, and we will work very aggressively at that.

Some of the highlights, I think, in addition to just seeing these trade agreements signed, and passed, and entered into, really, our economy, is this council is focused on China. We will continue to have a focus there. We will talk about that some more today.

I enjoyed going with a group of you this last summer to China. I think that was a very worthwhile event, but you've focused on China. You've focused on moving the Doha Round forward. That's happening, in large part, because of your energy behind it.

Our continuing focus on intellectual property right protection is vital, critical to the ongoing expansion of this global economy. So, I thank you for that.

I know you've got a number of reports. I've had a chance to read some of the drafts of reports on security and education, on standards and exports. I'm looking forward to seeing the final draft, but I thank you for your hard work on that.

The fact-finding trip to China this last summer, I think, was, as I say, a very constructive one. Those of you that went to Beijing and Shanghai had a chance to listen to some of the leadership of China and what their views are.

One thing that we did learn while we were there, is that the European Union and Japan are actually exporting more to China than are American companies. That, to me, is something we need to focus on. Why is that? Why do they seem to be more competitive into the China market than the United States?

Congressman, how are you? Nice to see you. Congressman Jay Inslee has just joined us from the great State of Washington, also another big champion of trade.

But why is that? What is the competitive advantage that they maybe seem to have that we do not have? So, we are going to have a lot of focus.

Hello, Dr. Bodman. Nice to see you. My great friend, Dr. Bodman, has joined us, fresh back from West Virginia. Is that right?

DR. BODMAN: Fresh back.

SECRETARY EVANS: I see. Very good.

But China will continue, obviously, to be a market of great interest to Americans, American workers, American business, both from an export and an import perspective.

So, those of you that were on the China trade mission or China trip with us this last summer all had a chance to listen to Madam Wu Yee and hear her talk about competitiveness and how important the whole concept of competitiveness is. So, that's an area that will always be on the front burner, I think, with respect to PEC, and should be, and we look forward to working with you on that.

The Chairman mentioned Corporate Stewardship. I'm sorry Ray can't join us, but I know what a terrific job he has done in bringing together not only what corporate America is already doing. I mean, part of it is just highlighting what's going on out there in the world. It's happening.

People in America don't see it, they don't feel it. They don't really see what corporate America is doing around the world in the area of corporate stewardship. So, I'm delighted to have this opportunity to kind of highlight it, as well as put more emphasis on it so we can take it up to an even higher level.

But I had a chance to look at the report that that committee has brought together, and it's a terrific report because it really does talk about, I think, kind of the compassionate side, the stewardship side, the good corporate citizen side of corporate America that we all know is there, but the chance to highlight it, I think, is something that I'm very glad to see.

Under Secretary Grant Aldonas is with us. He's everywhere. He's probably in China right now as well, you just don't realize that.

(Laughter)

SECRETARY EVANS: He's always on the move and around. But he's going to talk to us some about China. It seems like I keep coming back to China in my comments. We're talking about setting up a web site that will relate to China.

He's going to talk about that a little bit, talk about the importance of at least highlighting the opportunities for small- and medium-sized companies to export into China.

We've got the Foreign Commercial Service Agency within the Department of Commerce. It's a great organization of people. They're all over the world. We've got a great team in China.

Some of you had a chance to meet some of the leadership of that team when you were there last June. Anyway, Grant will talk some more about China and small- and medium-sized companies' opportunities there.

Earlier this year, the president presented a report to the American people on the state of manufacturing. It had a number of recommendations in that report as to what we can do to make it easier for American manufacturers to compete domestically and internationally, as opposed to harder to compete.

One of the recommendations was to restructure, somewhat, the Department of Commerce, at least put in place an Assistant Secretary of Manufacturing and Services. I am delighted to say that we have done that. We have done it in grand manner, as a matter of fact, in the appointment of Al Frink, who is with us today.

Al, it's good to see you. Al is all over the place as well. I've learned a lot about his travels across this country, and getting great accolades wherever he goes. He knows the manufacturing. He's from the textile industry in America, so he knows the textile industry well.

He's somebody that's been an exporter of textiles from America, so there is export opportunity for textiles here in America. So, he knows their challenges, as well as challenges, quite frankly, that all manufacturing industries face when it comes to competing in this domestic economy.

We are going to always be emphasizing the importance of a level playing field. We will continue to do what we can to make it clear to our trading partners that we expect them to enforce their laws, and we expect them to comply with their trade agreements.

A bit of good news in terms of the economy. I mean, the economy is doing very, very well. It is very strong. Can we do better? Well, sure we can. We've always done better. I mean, this economy has always been getting better over the years, and it will, in my view, continue to get better. I note this morning that the second quarter GDP number was revised upward from 2.8 percent to 3.3 percent.

That was a little bit higher revision than most people thought it was going to be. It was due primarily to, exports were a little stronger in the second quarter than people thought they would be.

Quarter over quarter, they were up some 7.3 percent from the first quarter to the second quarter, so that's a pretty dramatic increase in exports in the second quarter. But I think it is emblematic of just how strong our economy is.

Exports, this year, are running at about $1.1 trillion a year. We're the largest exporter in the world. If exports were our economy by itself, it would be the sixth largest economy in the world.

The growth in the exports looks very healthy. This last year, overall, it's grown about 12.3 percent, well ahead of what the GDP growth has been for the year. So this gives you a sense that exports are growing faster than the GDP is, which is good. Exports support some 22 trades and about 22 million jobs in our economy.

`When you think about foreign companies that are here employing American workers, and when you think about exports of products and services that foreign customers are buying, that supports another 14 million jobs or so here in America.

So, open and free trade support some 22 million jobs or so here in America. I think that unemployment is 5.4 percent. What is interesting, if you look at unemployment today, it's at 5.4 percent, in the 1970s the average was 6.2 percent, in the 1980s it was 7.3 percent, in the 1990s it was 5.8 percent. So unemployment, right now, today, is well below what it was in the 1970s, 1980s, and 1990s.

Another indication of how strong our economy is, home ownership is at an all-time record high. Inflation is in check. Interest rates are at historic lows.

Our economy is growing faster than any economy in any industrialized world. So when you look at the overall economy, you just have to say, boy, it is very, very strong and will continue to get stronger as long as we pursue the kind of policies that create the conditions for more job growth in our economy, more economic growth in our economy.

Talking about jobs, we have created a lot of jobs. We have created about 1.7 million jobs since August of 2003. According to the household survey, we've got more Americans working today than ever in the history of our country.

So, you could just go on and on and on in terms of how strong our economy is because of the President's leadership and because of the tax relief that we've give this economy, and because of support of individuals like yourselves that have helped open up markets around the world so that exports can grow as well.

Finally, I would just say that the President really understands that the road to peace and freedom is through trade and through economic development and growth in the world.

My view is, trade and commerce leads to better communication. Communication leads to mutual understanding. Mutual understanding leads to respect. That leads to friendships around the world. Friendships lead to partnerships. Partnerships and capital investment lead to jobs.

At the end of the day, that's what everybody wants around the world. Everybody wants a job so they can put a roof over their family's head, educate their children, and put food on the table for their children.

So what you do here, in my view, is key to leading this world down the way to a place of freedom, peace and prosperity. I mean, trade is key, and that's exports. So, thank you for the role that you play, your commitment to the President and to the country. We look forward to continuing to hear your thoughts and your ideas, and we will continue to implement many of them.

Thank you, Bill, very much.

CHAIRMAN MARRIOTT: Mr. Secretary, thank you very much. We appreciate your great support to the PEC and to all of us, and the great work you are doing as Secretary of Commerce for the entire country. We appreciate the great work the President is doing, and the administration.

It is now my pleasure to introduce our Executive Director, Under Secretary Grant Aldonas. Grant went to China with us. He's been back to China. So, he's going to give us an update on the trip and tell us what's going on over there in that great empire.

THE CURRENT STATE OF U.S. INTERNATIONAL TRADE

The Honorable Grant Aldonas

Under Secretary for International Trade

MR. ALDONAS: First and foremost, I want to thank everybody for their leadership and work on this. It's really made a difference.

Also, I want to thank Ray and the others who have been working on a series of reports. I want to let you know that we've already done the follow-up we discussed in our most recent phone call.

We're going to be using the Corporate Stewardship report to roll out at the District Export Council in Memphis this coming month. District Export Councils are groups of small- and medium-sized businesses that are engaged in export promotion.

I think I will have to defer to Steve Friedman here.

CHAIRMAN MARRIOTT: Steve, hi. Come on in.

MR. ALDONAS: First to tell you, then I'll come back to China, on the issue of the District Export Council, before we roll them out, we'll make sure that's available to everybody.

CHAIRMAN MARRIOTT: Welcome to Steve Friedman. It's my pleasure to introduce you. He is assistant to the President for Economic Policy and Director of the National Economic Council.

By executive order, the NEC has four principal functions: to coordinate policymaking for domestic and international economic issues; coordinate economic policy advice for the President; to ensure policy decisions and programs are consistent with President's economic goals; and to monitor the implementation of the President's economic policy agenda.

We are very honored to have you with us here today, Steve. Go ahead.

SECRETARY EVANS: Can I jump in here just for a second, Mr. Chairman? He just has walked in and is sitting down and collecting his thoughts.

I just want to tell this council what a pleasure it's been for me personally to work with Steve on the National Economic Council. He is an incredible leader. He has done one terrific job serving this President and serving this country when it comes to bringing the economic policies into the administration and into the White House, into the Oval Office. He has brought great wisdom, good judgment, and quite a bit of long hours to his job. So, anyway, Steve, terrific job.

WHITE HOUSE UPDATE ON THE COUNCIL'S

RECOMMENDATION

Mr. Stephen Friedman, Assistant to the President

for Economic Policy and Director,

National Economic Council

MR. FRIEDMAN: Thank you. Thank you, Don, for those kind words. And not to throw bouquets back, but one of the great pleasures of the job is working with Don, John Snow, and Josh Bolton. The President's core economic team really meshes very well.

My apologies for being late. Normally our first meeting in the morning is at 7:30, and this week, for whatever reason, scheduling, it's been at 8:30, os that compressed it, and I'm tardy, for which I apologize.

I will just bring you a late economic bulletin. The Commerce Department put out their release this morning in the renewal of the second quarter GDP, and it was marked up from 2.8 to 3.3 percent, which I'm delighted with, because even though in one sense it is history, in another sense it indicates that we're coming into the third quarter in the rest of the year with some greater momentum. So, that's positive.

I want to thank this group for the work you do. It's been very, very important to us. No nation has ever gotten prosperous and stayed prosperous without very, very active, open borders and the ability to outreach and to export.

It makes us more competitive and more productive and it dramatically improves the living standards of our people. Your work in this area is tremendously important to us.

What I would like to do, is just briefly talk a little bit about the economy, as we'll see it, and then just make some comments about the agenda going forward, which I think does have some direct bearing on trade, and then open it up for any questions you have.

When we get to questions, make them just as tough and detailed as you choose. I'm comfortable with that because I have Don on my right and Grant on my left.

On the economy, you all know extremely well the really tough period we were in a few years ago. I think back to late 2002 and early 2003, when you couldn't open a research report without seeing estimates marked down and fears of a double-dip recession, and fears of deflation.

We have come out of that ditch. I think we got into the ditch because of bubbles bursting with the capital spending, the stock market, because of 9/11, because of the corporate accounting scandals, and I think we got out of it for three reasons.

Getting out of it is relative. I think we got out of it relatively well--extremely relatively well--compared to our European trade counterparts and our Japanese counterparts, the major economic nations of the world.

I think the three reasons were very accommodate monetary policy on the part of the Federal Reserve. I think the President's fiscal policy was the crucial stimulus. I think we needed that jump start. We needed that kick-start to the economy.

Then there is a third thing, which is something that Chairman Greenspan talks about a lot, and I think all of you know intuitively. It is the flexibility and resilience of the U.S. economy. We really do have the most adaptable economy in the world.

Now, to a tremendous extent, going forward, our economic mission, our mission as the administration, is to accomplish something the President talks about, which is, make America the best place in the world to do business.

If we do that, it'll be the best place in the world to create jobs, for entrepreneurs to live out their dreams, for people to really want to expand, which means building capital stock. You have to have workers to build those machines and you have to have workers to run them. A crucial part of that is, of course, trade.

Now, to accomplish this, you have to focus on about six or seven things which the President has spelled out. I won't go through all of them in detail, but I want to touch on a few of them. I think some of these are issues that you all have touched on in your letters and your advice to the administration.

For one thing, education is just crucial, and it's getting more crucial in the world that we're in. As the world gets more technology oriented, the levels of education that sufficed in the past are clearly not sufficient.

The Federal Reserve has pointed out that there is an unfortunate and growing gap between the top quartiles in income earners and the bottom, and this phenomenon is recent. It's a phenomenon of the last two or three decades. The world is demanding of technical skills.

For you all, I know that American business spends over $70 billion a year training workers, but we just have to do a better job in our K-12. Everyone knows that our university system is the crown jewel in the world. We have to get our kids to the higher levels of math and science.

We hear this in the technology industry, that if you don't get kids at an early age, it's very, very hard to have them at the level they can be trained. Without going into any detail on the President's programs, he's a passionate believer in this and his programs put a great deal of attention into programs on the educational front.

Another thing that I would want to emphasize in terms of making America the best place in the world to do business, which I think is a corollary to helping American exports, is we have a self-inflicted wound. We are the most litigious society in the world.

It is very, very hard for me to talk to a business group, or for Don, or John Snow, who are on the road constantly talking to business folks, where you don't hear about the litigious nature of our society as being an enormous time drain and money drain.

We all recognize that the ability to vindicate injuries or damages or property rights is crucial, but there is some level at which you have to look at it and say that it has to be rationalized.

That's why it's been an important objective of the President's to get class action reform, malpractice reform, which is not the only one, but one of the factors driving up health care costs, and asbestos reform.

It's hard to rationalize how you can have 70 major companies in the United States driven into bankruptcy over asbestos reform, with the smallest part of the money, less than half the money, actually going to the victims. That's just something that's got to be fixed there.

Another thing you hear about constantly from business types are health care costs. I won't go through the range of proposals that the President touched on in his acceptance speech, or administration policy, but I do want to touch on just two of them.

One, is health savings accounts. One of the key things we have to do to get health care costs under control is have people spending money, conscious that it's their own money, not thinking of it as a free good.

This is an initiative that the President has a lot of confidence in, where businesses or individuals can provide something that looks like a very turbo-charged 401(k), but dedicated towards health savings--I'm talking about the very broad brush--coupled with major medical insurance.

The whole concept is to get people to be saving for, Johnny broke his arm, but be protected against the real catastrophic illnesses, and spending money just the way they would make any kind of wise family budgetary decision.

Another major thing in health care which has incredible promise, is Tommy Thompson, the Secretary of Health and Human Services, pointed out some time ago that with all the brilliance of our medical healing arts in terms of advanced diagnostic equipment and advanced curative equipment, in terms of using information, he pointed out that we really had less information in some of our health care facilities than we would have in supermarkets.

We don't use health information technology the way you all, in your businesses, use it to make your products and do your work more effectively and efficiently.

I know for a fact that you're using it to make your businesses more effective, because if you weren't, the competition would have said you're no longer around. That's something where we can save immense amounts of money.

Now, the President has a number of other business, but trade is crucial. Bob Zoellick works tirelessly on negotiating what is an incredibly complex, 140-nation, plus all the various groups that have to be reconciled and brought into the situation here. You all are very familiar with that. Secretary Evans and Secretary Snow worked tirelessly on this subject.

The President is a fiercely free trade oriented thinker on this subject. We are very dedicated to opening up markets to U.S. business. We are very conscious of the fact that 95 percent of the world's population is outside the U.S. in the market. It needs to be markets for us.

Look on China and India as potentially immense opportunities--not potentially, but actually immense opportunities--for us, but coupled with the notion that you're not going to maintain a free trade constituency in the United States unless people feel it's on a level playing field and that the rules are being enforced.

I would say, you have seen the steady pressure that we have put on the Chinese on their currency. It's not something that's going to happen tomorrow morning at 9:00, but we've heard from one of their two senior leaders in the last day, just a reiteration that they are intending to move towards free markets. There is an unprecedented degree of collaboration that we have with them to try to help them get to that point.

I'd say one of the areas on trade, which is extremely pressing, is the intellectual property. There are a lot of things that you can justify or explain. You can't explain the fact that, give or take, 5 to 10 percent of world trade is in pirated goods. That's something that the administration works on very hard.

We brought the first WTO case against the Chinese because they were disadvantaging us on intellectual property with respect to computer chips. I think you will be seeing more from Secretary Evans and the Special Trade Representative on protecting property rights of American businesses.

So, Bill, let me stop here. If there are any questions, I am honored to be in front of this group. Back in my old business of investment banking, I would have walked over broken glass to get in front of this group.

(Laughter)

CHAIRMAN MARRIOTT: Thanks. Does anybody have questions? You're all satisfied with how things are going? You feel really good about things? I know I do. Things are a lot better than they were. It's the best year we've had in three or four years.

Questions?

MR. STALEY: I do have a question about the leadership in China. Do you walk away with a sense of leadership, that they understand the golden ring of currency, or are they just being bombarded with this from the U.S., and we're reacting? To what degree do they understand how the economy works, and what needs to be done?

MR. FRIEDMAN: You know, that's always a very interesting question. I have not visited with them there. I have here. I want to buck that to Don, who's done some heavy-duty visiting over there. But I think, to some extent, you may need a two-part answer.

I always have a question as to whether there's a difference between the people at the top and the people somewhat further down. I get a sense that, at very senior policy levels, they're very, very sophisticated and smart people.

When we meet with their leadership here, they are balancing a lot of different issues. They seem to me to be highly sophisticated about some of the issues they face. But let me ask Don to address that.

SECRETARY EVANS: Well, I guess I would make a couple of comments. I've been to China on a number of occasions. I continue to walk away with the impression that the leadership of China really does understand the kind of economic policies that they need to continue to move toward to create the environment for long-term economic growth, which is what they're really interested in, because, while they're doing well in the east, they've got about 800 million people in the west that live in poverty. So, they are very focused on continuing to move that economy toward a more free market economy.

You know, you asked the question about currency. I think that Steve did a good job just talking about the kind of consistent pressure we're continuing to place on them to kind of move that direction.

But I think what you're seeing is them taking the steps they need to take to move that direction, like setting up a futures market. I mean, that's something you've got to do as you move toward free-floating currency. Some of the bank reforms that you're seeing take place is also an indication they're moving in that direction.

When I first started going over there several years ago, there was lots of talk about all this growth, all this expansion, and all this, will there be a hard landing or a soft landing as they begin to kind of slow down the pretty rapidly heated expansion of that economy,

When I went over there last time in June, there was more talk--and there continues to be more talk with economists--that I think they really understand what's going on over there, and that they will be able to manage a slow-down in the economy without a hard landing, which is, I think, again, kind of an indication that the senior leadership over there is doing a pretty effective job of managing the pretty massive -- well, it's 1.2 billion people, so a lot of people, but pretty impressive growth rates, that they are slowing down.

But, you know, I think that the senior leadership is continuing to kind of say, we need to get the economic policies in place in this country that will provide us for long-term economic growth, because that's the ultimate answer to lifting that country to a much higher standard of living.

So, not to minimize the challenges they have in some areas of moving it from the central government leadership, Beijing, down to the provincial level, down to the cities, towns and communities, particularly when it comes to issues like intellectual property right protection, which you will hear us talking more and more about. So, anyway, I think that you've got leadership.

The other thing I would say, finally, is there's the transition of leadership that's been pretty smooth. When you think about it, that's a pretty major even that's all gone pretty smoothly.

MR. STALEY: Do you have a sense that it's the very top of the leadership? They just don't allow people to go ahead and make decisions --

SECRETARY EVANS: I don't know if it picks up the pace. I think it's been a pretty consistent pace of moving them toward the direction of more free market policies, more free market economic policies. It is my judgment that that will continue.

MR. ALDONAS: Could I just help a little bit on that one?

DR. BODMAN: If I could just, from Treasury's standpoint, we meet with their Central Bank frequently. We've got Ambassador Speltz, who is located in Manilla. He is really Secretary Snow's emissary. He spends a third of his time on matters related to the management, providing advice, input, and being a communicator between Beijing and Washington. They have a stream of people into and out of this town all the time, just as we do. Grant can speak to what his experiences are.

But from Treasury's standpoint, these people are very able. They understand very well. Their big problem, among others, are the banks and how to deal with their banks. They do not have a competitive banking situation.

Mr. Li Yu is here in town. I'll be seeing him this afternoon. He is coming by to talk about their efforts, get our thoughts and input on that particular subject. He and his colleagues will be here to meet with the G-7, sort of as a sidebar meeting when the World Bank and IMF meetings take place this weekend. So, they are very capable. They understand.

I think what the problem is, I think, as Secretary Evans mentioned, it's, getting down into the ranks below that is a real problem. Getting some of these institutions that were built under very different circumstances and that are kind of the backbone of how their economy works, getting the people -- you can imagine getting lending officers in the banks who are used to being told who to lend money to that don't know what a business plan is, that don't understand, even if you've got a good business plan, sometimes bankers make mistakes, you know, even in our country. There, they don't have that experience.

So, trying to change the fabric of that is a massive undertaking and they're very capable of doing it. Their problem is, in my view, on the mechanics of how to do it. I don't think there's a difference in what to do, it's really how to get it done.

MR. ALDONAS: Warren, I think you're referring to the fact that there has been some conjecture about the decisions within the Chinese government as to whether that play was going to create an inability to do the right things economically.

And I've got to say, our read was, there was always less division for the Chinese government than was rumored. You always get those rumors in advance of the Party meetings.

As a practical matter, the transition went smoothly, and we don't see them backing away at all from the sorts of things that they had committed to on the trade side.

In fact, while we had been concerned a year ago when the President launched his strategy on China that there had been a slow-down in the momentum on trade liberalization and moving the right direction on financial markets, that's not where we are today. We are pushing ahead.

If I could just use an analogy between two Minnesotans. I think the bottom line is, they know what to do. I'd say it's a little bit like, their skate blades are dull. When your skate blades are sharp, you get a lot of traction. When your stake blades are dull, you don't.

When you've got capital markets that are inefficient because of a non-performing loan problem, they don't adequately price risk, with a lot of the strings the government pulls, they don't fight the same way that they would if they were Alan Greenspan at the Federal Reserve. So I think there's a lot of confidence in what they're doing.

Whether the tools are there, going to Sam's point, filtering down to the loan officer who is responsible for that portfolio of non-performing loans, that's where you get the kind of sloppiness, and not a certainty about what the reason in the Chinese is going to be with a change of interest rate, or the other sorts of things we would be more familiar with.

MR. FRIEDMAN: I will give you an area where I think business can have very, very practical, positive impact on them. It's very important for them to really internalize that free trade is not an issue that is going to be resolved in the faculty club of some distinguished university or in the economics department.

It's going to take place in an atmosphere where, unless the American public believes it's fair and that we have a level playing field and we have an even chance, you're not going to have that constituency for free trade.

They just have to internalize and have the will to drive down through their country the fact that, if they are doing things that are just not really defensible, like some of the flagrant intellectual property thefts, it weakens the ability to have a free trade agenda.

I think business can help persuade them that it's in their enlightened self-interest to be enforcing those rules, doing some of the other things they need to be doing.

CHAIRMAN MARRIOTT: Okay. Any other questions of Steve? Yes?

MR. FRINK: Steve, as the voice of manufacturing, especially of late, one of the most loudly expressed concerns has been the difficulty buyers have had coming into this country. I know you're aware of this.

MR. FRIEDMAN: Yes.

MR. FRINK: I'm having difficulty answering it. At the Chicago Machine Show, my first visit after the good Secretary swore me in, I probably heard that the whole day as to the amount of buyers that were ready to buy equipment.

Even though, in some cases, they were CEOs of companies from China destined to go back and not stay here, they were not granted the ability to come and visit and purchase.

Conventions have been canceled, and a lot of others. The dollar estimate of that is rather staggering, if I can believe those numbers. I'm having difficulty responding to that in my early stage of experience. Perhaps you can help me with that and enlighten this group.

MR. FRIEDMAN: Well, it's an issue that we hear about in this context, we hear about in other contexts, of distinguished academics wanting to come into the country. It's something that Homeland Security is intensely focused on.

They recognize it's a problem. It's something that, clearly, the State Department and Department of Justice recognizes as a problem. It's a function of making a very, very large apparatus, adjusting it to the new challenges. It's something that's taken very, very seriously.

I don't know. Don, you're probably closer to the specifics than I am.

SECRETARY EVANS: Yes. Well, I just would only support what you're saying. It's something that Homeland Security is very focused on, and understands the concern.

There is, of course, the balance right now between security issues and the ability for people to get into the country to conduct trade, or commerce, or whatever it might be.

It's an issue that we need to continue to work on, and we will, through innovation, through technology, through whatever. I'm confident that, over time, this problem will not be what it is today. This issue will not be what it is today.

But it's not something that's not being focused on, it's something that is getting a lot of attention and a lot of focus at the highest levels as they're looking to resolve it.

MR. FRIEDMAN: Yes. At the Cabinet Secretary level, and coordinating meetings, providing revamped processes to deal with what, clearly, has been a very, very tough issue.

MR. FRINK: Thank you.

CHAIRMAN MARRIOTT: Any other questions? Yes, Congressman?

CONGRESSMAN INSLEE: Thank you. Steve, I'm Jay Inslee from the Seattle area. I don't know if we've ever met.

A question about how we can help when the business community sees a new front on the trade wars, if I can use that word, to try to reduce barriers that were suffering, or illegitimate activity by some of our trading friends.

The example, of course, that comes to mind, is Airbus and Boeing. I think now we are heading into a new stage of that relationship, which I think is long overdue, namely of at least the domestic industry believing we need to be more aggressive in resolving some of those issues.

I guess a question I have is, when we do that, we'd like to show support for the administration being aggressive in that regard. Could this body help you at all in showing sort of a national business community will in a willingness to be more aggressive on some of these issues?

In other words, when you are anticipating, maybe, or considering taking action, would this group help at all by bolstering your sort of credibility with your friends to let you know the whole business community is behind that type of activity?

I'd just use that example, because obviously everything's home grown, and that's my territory. But I'm sure there are others on the IP front where this would come into play.

I just wondered if this group, when you're considering something, if we can back you up or show that there is a consensus, we are a house united, not divided, et cetera. I just wondered how we could help in that regard.

MR. FRIEDMAN: I'll take a brief crack, and then Steve, Stan, Don, or Grant can add.

We spent a lot of time focusing on the level playing field issue. Some of these issues are ones that really are not susceptible to policy judgments from folks at this level, because the laws, in effect, make them quasi-judicial and they go into a black box. There are others that are policy issues.

I think at times you really can use that positive echo chamber or reinforcement from folks when you take an action that is designed to make the playing field level. In other words, we're not doing these things in a protectionist mode.

We're doing them in a way that, gee, if we think there is a strong case, we think someone is breaking the rules, then it's an obligation--that's what the rules are for--to enforce it. And, yes, it would be helpful at that time having folks in the business community recognize that this is really done in the interest of free trade, not in the interests of protectionism. I don't know. Let me see if my colleagues have something to add to that.

MR. ALDONAS: I can certainly add to that, Congressman. One of the things that would be enormously helpful, I think both from PEC, as well as from Congress, is we are in negotiations with WTO that will affect the Subsidies Code and affect the sorts of disciplines that are imposed on government interventions, like the government has made on behalf of Airbus, where you have lonchee, that essentially means they carry all the risk of the A380, or whatever else that Airbus wants to do.

But it's not a problem that's unique. Oftentimes, the debate when we're going to be negotiating about rules falls on the side of, you have to protect our dumping laws.

And while I don't think people disagree we need that sort of buffer, people have a tendency to forget that this is an opportunity as well, which Bob and I, negotiating on stuff at Doha, created so what we could do is impose greater discipline on this kind of government intervention in the marketplace.

So, I think it would be important to endorse whether it's in the area of aerospace, whether it's steel, whether it's textiles, that would get governments out of the business of subsidizing their entities, but that the playing field is level. So, one of the things that is probably worth squeezing on, is what should be an American agenda in these negotiations? I think we've got a pretty good sense.

But it would be important to have the key factor in both Congress and the PEC about, what is the direction we should be taking to get this stuff out of the marketplace. There is an opportunity there that's on the table that we ought to take advantage of, and I think some further direction from the business community would help.

DR. BODMAN: If I can just add, the more there is the pressure that this government is adding from a unified approach to these problems, the stronger our ability to negotiate and have an impact as these various issues come up.

Frankly, if I had been responsible for negotiation, first when I worked for Secretary Evans, now when I work for John Snow, in both cases, the fact that we have -- reflect that. That is a strong thing, the fact that we're trying to work in concert with the Congress. It's a very important key.

CONGRESSMAN INSLEE: If I can follow up on that. That being so, maybe I could suggest, at our next meeting, we could consider some ideas about how to express a unity of purpose in that regard. We may start with Boeing and Airbus, but I'm sure there are others that are new on the radar screen. Perhaps we can work with the staff in ginning up some letters in that regard.

CHAIRMAN MARRIOTT: Good. Thank you. We will.

We'll take one more question for Steve. Anybody else?

(No response)

CHAIRMAN MARRIOTT: Thank you very, very much. Appreciate you being here.

MR. FRIEDMAN: Thanks.

CHAIRMAN MARRIOTT: Grant, we'll go back to China.

THE CURRENT STATE OF U.S. INTERNATIONAL TRADE

(CONTINUED)

The Honorable Grant Aldonas

Under Secretary for International Trade

MR. ALDONAS: Okay. I was just mentioning, at the tail end, I know that Paul is going to be laying out the report on corporate and social responsibility. Steve, before you escape, I think we've got a copy of it here that you can take home as bedtime reading.

(Laughter)

MR. ALDONAS: But it really is a wonderful report. One of the things we're going to be doing, is rolling it out to a much broader audience in the United States through our District Export Councils to make sure that it's not just the top guys who are involved in this, but all the way through the trading community, that people know when they're going offshore that there's a consistent set of American business ethics that need to be taken with them as a really useful tool.

With that, I did want to switch a little bit to China. The first thing I wanted to start out with, was just to make sure I go back by the context and remind everybody about how important the efforts of the PEC has been in this regard. I mentioned earlier that we felt that there was a slowing of the momentum in terms of liberalization in China and compliance with WTO.

That led the President, in August of last year, really to lay out a strategy that would have certainly the folks here traveling to China, up to the point where the President himself went and met with Premier Wen. The President didn't flinch at that point. We know we've got a lot of issues on the deck with China.

But the point he made was, we've got to have a trading relationship that is fair, and also important is that it's perceived as fair. So, the drive that he was making was, let's bring it to the meeting with Wen, I'll have my conversation with him, we'll set up the process, and start solving the individual problems. That was what led to the elevated JCTT meeting in April.

The run-up to that was trying to refine an agenda where we could accomplish things on IPR, get a road map in terms of Chinese compliance, and solve some of the problems like the semiconductor issue on which we brought the WTO case. The -- standards issue, which would have forced our semiconductor guys to cough up their technology if they wanted into the Chinese market.

To try to accelerate. We succeeded in doing the introduction of free distribution of marketing in China six months ahead of the WTO commitments. But, really, a lengthy line of items that we've largely succeeded in.

Then the question was how to reinforce that in terms of our export promotion activities. I know, for those of you who were in China, you got a full dose of that from Vice Premier Wu Yee.

I went back to China, at the boss' orders, in September. Part of it was on the IPR effort. What Wu Yee was doing, consistent with what she had committed to when she met with Secretary Evans and Ambassador Zoellick, was to bring together all of the provincial governors and mayors at a conference and lay out the dictates to them on IPR to say they were going to be held accountable.

This is a very, very important shift. We can accomplish certain things by talking with folks in Beijing, as you all know, but on an issue like IPR, until you get it down to the local level and really turn it into a cooperative effort on law enforcement, you haven't really cracked down.

What she had me there doing, was providing the U.S. perspective. But, most importantly, she was providing Beijing's perspective on who was going to be held accountable if they didn't see things go down.

I made the point that, while we have seen progress in terms of the Chinese commitment, at the same time we've seen, for example, burgeoning sales of DVD machines, but a real decline in sales of legitimate DVDs. So, you know there's something that's still wrong there.

We pointed out that there's a very simple measure here, from our perspective, which is that the sales of legitimate U.S. goods have to go up, and sales of pirated goods have to go down. That's the easy metric in terms of seeing whether it's succeeded.

Now, the one thing I'm happy to report on that, is we're actually starting to see that cooperation. We had good cooperation between the Ministry of Public Security in Shanghai and our legal attache and our Customs attache in China led to the biggest bust ever in Shanghai on pirated DVDs and CDs.

Now, having said that, the other point that Wu Yee was stressing, as well as we were, in the discussions in Sha Min, was that it's not limited to software.

It's not limited to CDs. It's just as important from the point of view of an American manufacturer that has to buy a $25,000 copy of software to run a machine tool that their competition faced at the same sort of pricing. So, that's the level that we're trying to get to in terms of the discussion.

So the fact that we now have greater cooperation from the Ministry of Public Security, and they've bought into this, in many respects, because of the pressure that we collectively have brought to bear. It means we're actually making progress on the law enforcement problem.

So, I think we're going to start to see a shift in the direction of a much broader cooperative level, which is helping. We've got a long way to go, but they're looking at the right models.

In fact, I was in Hong Kong on part of the trip. The Chinese Ministry of Public of Security was in Hong Kong to see how Hong Kong has gone, basically, from 95 percent pirated software to 5 percent pirated software in their market, and to work with Customs and Excise in Hong Kong to develop the same sorts of skills.

We've got a couple of big-ticket items that are still out there, which I know that Secretary Evans will be pressing them on as we come to the end of the year.

Before, since all the trade had to go through government entities, there was no need in their system for a law that said trading of big goods on the international market was illegal. And one of the major things we pressed them for, was to criminalize this activity now that you can trade free, because we've started to see the fake goods coming out of their market and into ours.

So, as a consequence, the last step of this process is judicial interpretation to criminalize an awful lot of behavior and allow us, for the first time, to engage in more serious law enforcement cooperation with the Chinese.

But, on the whole, the trend that's very positive in terms of what they're trying to implement, we told them the results of that are the numbers that we're going to have to see, trying to revert.

Beyond that, the one thing I wanted to stress was how much Yee appreciated the efforts of the PEC and the fact that there was a response on the way, which I mentioned to her, in terms of your homework assignment, in terms of how we try and do a better job of promoting exports.

We stepped up to the plate in our discussions with Wu Yee to say that not only would a letter from Secretary Evans covering your memorandum be forthcoming, but that we were already moving on some of the things that we had talked about. I know that we're going to talk about some of those today, Bill.

One, is we have created a China Business Information Center inside the Commercial Service where there's a one-stop shop for any small- or medium-sized exporter interested in China.

We have a web site on which we'd appreciate your endorsement, which really allows you not to have to go through a series of web pages if you're interested in China. You want to get to the information about China and your exporter, it's all there, in terms of the financing, in terms of the government agency help, those sorts of things.

We also have fulfilled what Congress was very helpful in putting together with us, with was an American Trading Center concept, which will expand our reach beyond where we have embassies and consulates. We're going to be opening up offices that will be staffed by Foreign Service officers, Foreign Service nationals, that will give us a broader reach out into places that aren't currently served on a regular basis. So, we know there's a lot of economic activity that we have not yet covered, so that's part of the goal.

In addition to that, we've been working with the National Association of Manufacturers, to actually allow them to create a platform for the 14,000 member companies and 300 trade associations, including the Deputy Major of Shanghai promising to give them land in a free trade zone in Shanghai so they could create a facility for NAM members, and really use Shanghai, with a better business environment, where I think small businesses can have a better shot at the Chinese market as a vehicle to get into the Chinese market as a whole.

INTRODUCTION OF THE CHINA BUSINESS INFORMATION CENTER

WEBSITE

The Honorable Grant Aldonas

Under Secretary for International Trade

MR. ALDONAS: So, there's a lot of good things that are coming together on the export promotion side. I don't know if this would be an appropriate point, Bill, to ask for the endorsement of the website. I don't know if you guys have had a chance to take a look at it.

CHAIRMAN MARRIOTT: It's in here, in this folder that's in front of you all. It seems like it's terrific. I would recommend that we approve it. Does anybody have any objections or questions or concerns?

(No response)

CHAIRMAN MARRIOTT: If not, it's done.

MR. ALDONAS: Thank you.

Just a quick summary on the trade scene generally, then. The first and most important thing I wanted to reinforce was the success that came out of the Geneva discussions on the WTO, and there's a huge breakdown.

It's a real tribute, first of all to the President, and second of all to Ambassador Zoellick, and really everybody on the trade team in terms of trying to put this thing back on track.

In the absence of some very strong leadership by the President and being very supportive in trying to move this process forward, we would not be where we are today. It's really the President's leadership that has allowed various areas to say, look, we're prepared to go the whole hog in terms of whether it's on the -- whether it's going to zero on tariffs on manufacturing, if everybody else is coming with us, whether it's opening up capital markets and making sure that we had -- financial services.

With that kind of backing, I was really able to bring pressure on the EU and Japan and was able to bring the developing world together on what I think will provide an advantageous package at the end of the road.

Now, having said that, all it really did was set up the parameters which were to be negotiated. Now these other areas on manufacturing services have to catch up with agriculture, so we're still going to require a very sustained push to do it. We spent a lot of time on manufacturing.

One of the areas that needed a strong push is on services, because we get, many times, more liberalization internally in a lot of countries in the developing world by driving the services agenda.

So one of the things that I intend to focus on, and we'd welcome thoughts from the PEC, is how, on the services side, we try and get back to the point we were in the late 1990s where developing countries understood it was in their interests to be open on the services side, that that would drive a lot of change and economic growth.

On FTAs, one of the most interesting things that's happened, at least, since we last met, is Secretary Evans was with the President in Ireland at the summit. We had great efforts by Mike and a lot of others to try and bring this off.

The Trans-Atlantic Business Dialogue really was the driving force behind putting on the agenda the idea of moving in the direction of free trade areas, so suddenly you're talking about very large economic entities talking about, how do we move, not wanting to be restrained -- with WTO, but trying to find a way to get further liberalization as well.

Interestingly enough, we had expressions of interest from Korea and Japan as well. We're moving to a stage where I think there's going to be less the smaller markets, and it's going to be much more, what other directions we need to be moving with some of the major players.

And certainly, in the theory and strategy that the President -- put together -- liberalization, the listening sessions that are going on between the United States and Europe with the business community in the next couple of months will really, I think, help drive this process with the WTO as well.

I think what you always need to see is the fact that a player as big as the United States, representing anywhere between 20 and 30 percent of the world's GDP, has options. One of the goals -- options with some of the bigger players, reinforcing the relationship with the NAFTA, and then the other places that we can go for further trade liberalization.

This is always important in trying to move the WTO process along as well. So, right now, I have to say things are on a much healthier course than they have been for at least a year since Cancun.

On the bilaterals, I hope very much we get a vote on Central America before Congress goes home, and on Bahrain, both of which are on deck, especially in respect that we're going to be moving ahead with other countries in the Middle East under the -- arrangement. There, we're getting strong support out of the business community as well.

So, those will be topics that I don't want you to be surprised will be coming back to you, because there are some very big concepts out there that we're going to need some help with from the President's Export Council as we try to flesh out this agenda going forward.

CHAIRMAN MARRIOTT: Thanks.

Any questions for Grant?

(No response)

CHAIRMAN MARRIOTT: Thank you very much.

MR. ALDONAS: Thank you.

CHAIRMAN MARRIOTT: Good report.

We've talked a lot about China. Some members of the PEC have thought that maybe we should have a China task force. Dr. Paul Hsu is going to talk to us about that.

THE PRESIDENT'S EXPORT COUNCIL

CHINA TASK FORCE

Dr. Paul Hsu, Member, President's Export Council

DR. HSU: Thank you, Mr. Chairman.

During our recent trip to China, as Secretary Evans and Secretary Aldonas mentioned, Vice Premier Wu Yee did challenge us on why U.S. companies have only a 8.2 percent share of the Chinese market.

After the trip, Mr. Chairman, when we prepared our trip report on China, we started looking into the issues. Of course, we looked at the Chinese barriers to free trade, such as currency, transparency, regulation, intellectual property rights, and so on.

We also talked to the experts at Commerce, such as Secretary Aldonas, and we understand that the European companies are selling 50 percent more into the Chinese than we are, and the Japanese companies are selling 100 percent more into the Chinese market than we are.

We started to realize that these companies are facing the same free trade barriers as we are. So the key question is, how? How are they doing that, and why are they more successful than we are?

So, Mr. Chairman, I would like to make a motion for the PEC to assign maybe a task force to one of the existing subcommittees to pursue the answer to these questions.

I believe, Mr. Chairman, this is a very complex issue involving the collection of data from sources outside of the government, and in many cases it would be outside of the United States. It could really require an awful lot of time, an awful lot of energy to complete this task, because the parameters of this study, sir, may go beyond our members' expertise. So, that's my motion.

CHAIRMAN MARRIOTT: Thank you.

Questions, comments?

(No response)

CHAIRMAN MARRIOTT: Mr. Secretary, anything?

SECRETARY EVANS: No. I think it's a good idea. I like the idea.

CHAIRMAN MARRIOTT: Great, are you okay?

MR. ALDONAS: Yes.

CHAIRMAN MARRIOTT: All right.

Anybody have any objections, comments, questions?

(No response)

CHAIRMAN MARRIOTT: Okay, Paul. Let's go.

DR. HSU: Thank you.

CHAIRMAN MARRIOTT: Good deal. Thank you.

We will now begin our subcommittee reports. Once the reports have been submitted, I'll open the floor for comments. All the letters that were received are on the web site.

So to get started here, I'd like to call upon Paul, again, who's a member of the Subcommittee on Corporate Stewardship, to give the report, as Ray Gilmartin, the chairman, could not be here.

CORPORATE STEWARDSHIP SUBCOMMITTEE REPORT

By Dr. Paul S. Hsu, Member of the Subcommittee

DR. HSU: Mr. Chairman, Mr. Ray Gilmartin could not be here today. As of 8:30 this morning, I got the assignment. Thank you very much, Mr. Chairman.

(Laughter)

CHAIRMAN MARRIOTT: We're glad you're here, Paul.

(Laughter)

DR. HSU: I will tell you, I might be better looking, but I'm not ready.

(Laughter)

DR. HSU: So, I hope I live up to your expectations.

Mr. Chairman, the Subcommittee for Corporate Stewardship is honored and pleased to present to the council our report. As you see from the copy in your folder, it's called The Power to Help: U.S. Businesses Creating a Better Tomorrow. We are very pleased that the council voted to approve this report, and later it will be submitted to the President.

Later this morning, immediately following this meeting, I hope that you can join, Mr. Chairman and Secretary Evans, all the members of the Corporate Stewardship Subcommittee for a U.S. Chamber of Commerce Center for Corporate Citizenship Policy Forum. It's called "The Next Step for U.S. Corporate Stewardship in the International Arena."

In that forum, we will discuss the report and do some planning on how we might build on it to accomplish our subcommittee's goals, of which there are two. First, informing American business and the public about the positive impact that corporate stewardship has around the world and to encourage other companies to do the same, and second, to provide the developing nations with a better understanding of the contribution that U.S. business can make, and the effect those contributions can have on their economy and the quality of the lives of their citizens.

Just on a personal note, I spent half of my adult live overseas. I was a co-op student working for TI in Taipei when I was in college. Mr. Chairman, TI was the first U.S. company in Taiwan to build a dormitory for their employees. So, I actually saw with my own eyes the impact of a U.S. company on people's lives.

I would like to thank all the members of our subcommittee for the effort on this report, and I would seriously like to thank the U.S. Chamber of Commerce, who created this forum, and, most importantly, we'd like to express our appreciation to Secretary Evans for his encouragement.

Mr. Chairman, that concludes my report.

CHAIRMAN MARRIOTT: Thank you very much. I think it's an excellent report. We approved it at the meeting in August, so no vote today is necessary.

I would like, now, to go to our formal letters for the day, and first call upon Mike Eskew, chairman of the Subcommittee on Services, to give the report.

SERVICES SUBCOMMITTEE REPORT

PRESENTATION OF PROPOSED LETTER ON

SECURITY, TRADE AND TRAVEL

By Mr. Michael Eskew, Chairman of the Subcommittee

MR. ESKEW: Thank you, Mr. Chairman.

On behalf of the Services Subcommittee, I am pleased to present our report in addressing the need for increased public/private partnership and the formulation of security measures that impact international trade and travel.

Above all, our committee recognizes the need to protect our borders and to ensure that security policies meet that goal. As members of the business community, we are acutely aware that overly burdensome security measures can be economically devastating, particularly when they do not account for businesses and their operating realities.

The private sector has a wealth of experience in creating security strategies. We are eager to share this expertise with those in government who are tasked with securing our nation.

Our findings in this paper can best be summarized in four recommendations:

1)U.S. Government should view the private

sector as a partner with experience,

entrepreneurial spirit, and incentives

to continuously advance security

processes.

2)The U.S. Government should seek early

guidance from the private sector in

developing security policies

3)The U.S. Government should harness the

resources of the business community to

better anticipate possible threats

4)The U.S. Government should be allocated

adequate resources to ensure that

consular offices and other agencies are

able to comply with security

requirements

In summary, securing U.S. borders, in the interests of both the government and the business community, we endeavor to partner in effective ways to meet new security challenges.

So, Mr. Chairman, at this point I'd like to open up the floor for discussion.

CHAIRMAN MARRIOTT: Okay. Thank you very much. It's a good report, and a very vital issue. It addresses the visa problem that we talked about earlier.

MR. ESKEW: That's right. Al mentioned it earlier.

CHAIRMAN MARRIOTT: We've had such a difficult time with that, and are having a difficult time.

Any comments or questions?

(No response)

CHAIRMAN MARRIOTT: Hearing none, we'll assume the report has been approved by you. We have a consensus. Thank you very much, Mike.

The next report will come from Betty Manetta, Vice Chairman of the Subcommittee on Technology and Competitiveness. Mr. Barton could not be here today, and asked that Betty present in his place.

TECHNOLOGY AND COMPETITIVENESS SUBCOMMITTEE REPORT

PRESENTATION OF PROPOSED LETTER

ON THE NO CHILD LEFT BEHIND ACT

By Ms. Betty Manetta, Vice Chairman of the Subcommittee

MS. MANETTA: Thank you, Mr. Chairman.

This letter urges the President, Congress, and the nation to continue to support and stay the course on No Child Left Behind.

The committee's research and findings reveal that the U.S. needs to continue to put its emphasis on No Child Left Behind and on education in order to maintain our competitive edge in the marketplace.

As Steven Friedman pointed out, the future of our economy depends on our education from K-12. It is imperative that we focus on education in order to be competitive in this global marketplace.

Countries such as Japan, India and China have made education a priority 40 years ago, and today we are starting to see the fruits of their labor as we're starting to tap into those countries for the pool of talent that resides there.

This is why No Child Left Behind is being discussed at the President's Export Council, and specifically at the Competitiveness and Technology Subcommittee.

In order for us to continue to be competitive in this global economy, we have to focus on the future and specifically on the youth and education.

America has always been the envy of the world, and now we have a competitive force out there that's starting to look at other countries, so we need to put the emphasis back where it belongs.

Next week, October 4, marks 1,000 days that the No Child Left Behind Act was implemented, and we've seen some significant strides in states like North Carolina, Massachusetts, Pennsylvania, Arizona. We've seen some initiatives going on. In order for us to continue, we have to stay the course.

The President, Congress, and all officials, both in the state, local, and educational forces, need to band together to work together to make this a reality. We have to have bipartisan support on this in order to go forward.

The letter has some interesting facts and figures that I think are very sobering. Really, we need to stay the course and we need to support the President, and the President's Export Council needs to continue to support this. Thank you.

CHAIRMAN MARRIOTT: Thank you.

Are there any comments, questions, suggestions from any member of the President's Export Council, or other members here today?

(No response)

CHAIRMAN MARRIOTT: If not, I will assume that the report has been approved. We thank you very much.

MS. MANETTA: Thank you.

CHAIRMAN MARRIOTT: The second letter of recommendation has been submitted by the Subcommittee on Technology and Competitiveness. I'd like to call upon Harold Smith of the Subcommittee on Technology to present this letter.

Harold?

TECHNOLOGY AND COMPETITIVENESS SUBCOMMITTEE REPORT

PRESENTATION OF PROPOSED LETTER ON STANDARDS

By Mr. Harold Smith, Member of the Subcommittee

MR. SMITH: Again, substituting for John Barton, Mr. Chairman.

The letter of recommendation being considered today discusses the PEC's activities with the Commerce Department as Commerce implements the eight-point standard initiative which was announced in March, 2003.

As background, the U.S. has a strong and unique tradition of developing and using voluntary consensus standards to support the needs of our citizens and the competitiveness of our industries.

These voluntary consensus standards for products, processes and services underpin our nation's economy and our crucial factors in our international competitiveness.

Standards and standards-related technical regulations are pervasive features of global commerce, affecting an estimated 80 percent of world trade. These technical specifications make up much of the vocabulary of the exacting language of industry, consumer protection and government regulation.

As such, foreign standards and methods used to assess conformity with standards can either facilitate efficient international trade and its resultant benefits, or they can impede access to import markets.

Divergent standards peculiar to a nation or a region does not address testing and compliance procedures, unilateral and non-transparent standard-setting exercises, and using -- other standards-related problems are now recognized as major impediments to free trade.

In its response to industry concerns and its own observation in March of 2003, the Commerce Department announced an eight-point initiative to augment current activities as an effective framework to address the relationship between foreign standards and the international competitiveness of U.S. companies. Those eight points are outlined in the letter.

Mr. Secretary, the PEC congratulates you as you embark on this exercise to better prepare your staff and our exporters which will need to identify and make accessible these standards, but the letter expresses the PEC's feeling that the effort is, at this point, under funded and recommends that the administration reconsider funding levels for this initiative.

Further, as noted earlier, our standards-making process is unique in the world. It encourages participation by nearly any interested party, regardless of their credentials. Our system is regulated by the participants themselves, not by the Federal Government, which is often the case amongst our trading partners.

As a signatory to the WTO, the Federal Government, however, is obligated to ensure that the standards created with our consensus-based system are not themselves intended or likely to be used as a non-tariff trade barrier.

However, we have not created a mechanism to meet that obligation. In our letter, the community recommends a simple and virtually no cost method to accomplish this goal.

We recommend the applicable OMB guide to require that federal employees involved in the creation of standards include in their annual report a statement verifying that the standard they helped produce meets the code of practice. We believe this will satisfy the requirements of the WTO agreement and ensure that our own standards body -- we hope that the PEC will -- to the President.

CHAIRMAN MARRIOTT: Thank you, Harold.

Any comments, questions from members of the PEC?

(No response)

CHAIRMAN MARRIOTT: Anybody else? Anything?

(No response)

CHAIRMAN MARRIOTT: Okay. We have a consensus and we will move on. Thank you very much.

The next report would be from Warren Staley, Vice Chairman of the Subcommittee on Trade Promotion and Negotiations. Mr. Lee Raymond could not be here today and asked Mr. Staley to present in his place.

Warren?

TRADE PROMOTION AND NEGOTIATIONS SUBCOMMITTEE REPORT

PRESENTATION OF PROPOSED LETTER ON

U.S.-RUSSIAN COMMERCIAL ISSUES

Mr. Warren Staley, Vice Chairman

MR. STALEY: Thank you, Mr. Chairman.

I am pleased to be here today representing the subcommittee. The committee and staff have continued to do very good work since the last President's Export Council's meeting, where they had submitted a letter focused on Russia and commercial issues.

The letter has been circulated among the other subcommittees. This topic was, in large part, chosen by the committee because of Russian's transformation and emergence as a -- recently and what we think is an apparent change -- thinking about earlier.

Today, Russia is estimated to have the tenth largest economy in the world. However, the commercial -- U.S. -- not to mention the

geopolitical --

In 2003, Russia was the United States' thirtieth largest trading partner, and all cumulative U.S. direct investment in Russia was only $5.5 billion, which is just equivalent to our investments in Costa Rica.

The letter presented today identifies many of the key issues that must be addressed by leaders in both of our nations if the U.S.-Russia commercial relationship is to go forward to its full potential.

Areas where the greatest opportunities exist include the rule of law, intellectual property rights, regulatory environment, financial services reform, energy sector development, and, importantly, WTO membership.

So, on behalf of the Trade Promotion and Negotiations Subcommittee, Mr. Chairman, I thank you for the opportunity to present this letter at this time.

CHAIRMAN MARRIOTT: Thanks, Warren.

Questions, comments from anybody?

(No response)

CHAIRMAN MARRIOTT: A great opportunity in Russia. Tremendous.

Since we have consensus, we'll now move on to the final presentation from Brian Ferguson, chairman of the Subcommittee on Export Administration.

EXPORT ADMINISTRATION SUBCOMMITTEE REPORT

PRESENTATION OF PROPOSED LETTER ON EXPORT CONTROLS

By Mr. Brian Ferguson, Chairman of the Subcommittee

MR. FERGUSON: Thank you, Mr. Chairman.

The Subcommittee on Export Administration has been working on an agenda for approximately a year that surfaced as a result of surveying the membership and prioritizing items that were of most interest to the business community.

We decided we'd be most successful if we worked on some real problems that have real solutions. Mr. Secretary, we focused on answers that could be dealt with either through executive order or through regulatory processes that do not require statutory fixes.

The areas that surfaced as being the most important were in the areas of technological developments and existing controls around those technological developments, foreign availability, and other countries' export controls on those foreign available products, and a variety of security and economic issues.

The theme of these issues sounds similar to what I heard from Mr. Frink and Dr. Hsu. These are typically things where we, as a government, are somehow getting in the way of our exports through the processes and practices that we engage in. They reflect a different economic situation than we face today.

Through some adjustments that will provide the needed protections, we can advance the export of American business. But, again, the theme that you keep hearing from us over and over, is somehow we're getting in the way of our own exports. These are recommendations that help us get out of the way of that, and still provide the needed protections.

The paper describes those recommendations. Again, they can be implemented through either executive order or through regulatory processes, and we offer them to you for consideration.

We will begin to embark now on a new agenda for this subcommittee. We'll take on two subjects. One, we've been asked to take on the subject of nanotechnology. Nanotechnology has a variety of societal and ethical implications that are just now being understood.

There will be interests in that technology and concerns about that technology from Homeland Security, from Defense, from State, from Commerce. There is a vacuum of ignorance, generally, that we have to fill among our committee to get our arms around this. That's the first step we have to undertake.

By the way, I need to send my thanks to Under Secretary Kenneth Juster in all of these processes. He and his staff have been very helpful in developing these real solutions that you can undertake to help improve our exports, and they're also helping us to get off to a good start on this subject of nanotechnology as well. We will undertake that here, shortly.

The other topic that we will be undertaking shortly, now that we've offered you recommendations that can be undertaken without statutory work, our next step is to recommend a framework for statutory changes for the Export Control Act changes that, hopefully, we can tee up in the next administration. That framework is something we will be undertaking right away.

We will only get to the point we want to through statutory changes, ultimately, and through cooperation with Under Secretary Juster and others, we will present a framework to you somewhere down the road in another meeting of the PEC.

That's my report, Mr. Chairman.

CHAIRMAN MARRIOTT: Terrific. Thank you very much, Brian.

Comments or questions to Brian? Yes?

MR. FRINK: I would only comment that I highly endorse Brian's recommendation about the nanotechnology. Having visited NIST and seen the development, it is mind-boggling and it represents the future. Seeing it first-hand as I did, I just heartily endorse it.

CHAIRMAN MARRIOTT: Good. Other comments or questions?

(No response)

CHAIRMAN MARRIOTT: Hearing none, we have a consensus here. I propose that all of the letters that we've approved this morning be transmitted to Secretary Evans, who will then pass them on to the President.

I'd like to thank all the subcommittees for the tremendously hard work that has gone into drafting these letters, and I'm sure redrafting them many times.

GENERAL DISCUSSION

CHAIRMAN MARRIOTT: I would open the floor now for discussion, comments, and questions from any members of the PEC, or others who have any questions they'd like to discuss or issues they'd like to present.

SECRETARY EVANS: Let me just say one thing. That would be that, after, again, having a chance to listen to the overview of the drafts of the reports being submitted to my office, which we'll pass on to the president, I just appreciate you staying focused on really serious issues of the moment. I think all of these issues that you're addressing are really serious, high-priority issues that not only require our full attention, but your support.

As was talked about earlier, I think, in order to kind of move and advance the ball and advance good policy, it's a collective effort. We can do our work in the administration, but we've got to work with Congress, we've got to work with the private sector.

So have you bringing into clear focus how important these issues are, as well as your recommendations as to kind of what we can do to improve our competitiveness in the world and having your full support behind it, it will be very helpful in continue to make real, positive changes for this economy. So, thank you.

CHAIRMAN MARRIOTT: Do you have anything else you'd like to say?

SECRETARY EVANS: Well, just that there continues to be, obviously, great interest in China. I'm planning on heading back there in the not-too-distant future so that everybody is clear that we're very serious on strengthening our economic relationship with them.

It's interesting, Paul, this task force that you're putting together to see why it is that American companies may be exporting somewhat less than Japan and European countries. I'm looking forward to kind of seeing what some of the conclusions are from that report. But you're making a big difference, so thank you. Keep up the good work.

CHAIRMAN MARRIOTT: Go ahead. Betty?

MS. MANETTA: Yes. Just one thing that I wanted to bring up. When we were in China, the big impetus was SMEs, the small/medium enterprise. Throughout today's topics, you know, we haven't touched upon that.

I think that we need to remember that, as we move forward relative to education, entrepreneurialism is the spark that's going to help the economy, and we can't forget the small and medium enterprises in this country, as well as those abroad, China, Mexico. Wherever we go, it's the same scenario, so we have to keep that as the backdrop as we move forward with all of our letters.

CHAIRMAN MARRIOTT: Thanks.

Yes, Grant?

MR. ALDONAS: Mr. Chairman, why don't I plan on, the next time we get together, I'll send something out to everybody and explain a little bit -- and how we try -- move that offshore -- we can also talk about some of the other things that we need to focus on -- particularly with respect to China, and things like that. What we can do then is focus on areas that we really ought to be focusing more attention on --

MS. MANETTA: Thank you, Grant.

CHAIRMAN MARRIOTT: Other comments, questions?

SECRETARY EVANS: One last thing that I would say. Sitting next to my good friend here, Sam Bodman, who is a chemical engineer, I'm an engineer also. I mean, I don't think you can put enough emphasis on how important education is, but the importance of math and sciences and bringing more of those students into the pipeline so that we start to reverse this decline of engineering graduates that we've been seeing in our country for many, many years. I mean, you really talk about one of the serious issues in the future, and maintaining our competitiveness and innovation.

I mean, it comes from the labs, research, scientists, and mathematicians. We just need to continue to do everything we can to put as much focus and emphasis on that as possible. So, I thank you for doing that, drawing the country's attention to the seriousness of that problem.

MR. ESKEW: Mr. Secretary, as a fellow engineer -- things that we did -- Sputnik, an urgency -- younger generation -- same urgency that we --

CHAIRMAN MARRIOTT: That's a good comment.

Yes, Bill?

MR. FRINK: Can I make a comment to that effect? Again, fresh from my early circuit of hitting the road, I attended Sinclair Community College yesterday and I visited the technical facilities there to see what is being done to educate students and re-educate older individuals who need the necessary training for the more modern, high-tech world of manufacturing.

I asked how their recruitments were doing, and they were 50 percent off. I asked how they were recruiting. I said, give me the document that does the best job of creating interest, and they did. They pulled it out. The document was one that was so unexciting, that I can see where today's youth did not connect.

In the meantime, they had in their facility a bike that was being produced that had given the students a creative opportunity to machine components that would hold gauges, and I saw this work of art forming.

I said, you ought to have that on the top of your brochure and create the interest. There seems to be a lack of marketing being done to encourage people to get into the exciting challenges of higher-tech manufacturing and engineering today.

In visiting the Chicago show and seeing all these machines being produced and hearing of the tremendous lack of people that there are to run them, I said, you know, I haven't seen the evolution. The machines are so clean and beautiful, you should be monikering it like color manufacturing.

It's no longer the blue, oil-drenched coveralls that you might have thought of, from a perception standpoint, in the past. You could run these machines in a suit.

I think there's just a lack of effort being put into the creative and attractive environment for young people to think of that as part of their career, from an early stage and from a re-training standpoint.

I'm a nut for marketing, because that's so much of what drove our company to success. I see a need to better market those areas to attract the right individuals.

CHAIRMAN MARRIOTT: Good. Thank you.

Further comments? Final, closing comments? Yes, Cecilia?

MS. LEVINE: Just one more comment. I think, in the area of marketing of different ideas, we need to market more the idea of why free trade is good for the United States and why free trade is good for the world.

It's very difficult, when you're in another country that is fighting for survival or to be competitive, and then you come in and you say, well, we're promoting free trade. You try to explain. But I think we need a big package of marketing of free trade and why it's good for everyone.

CHAIRMAN MARRIOTT: Good. Thank you. These have been comments.

Any others?

(No response)

CHAIRMAN MARRIOTT: Okay.

Let me just say that I really am pleased with the way the meeting has gone, thank the presenters, thank the subcommittees, all the work they've done. We're grateful for the staff, for the tremendous work that you've done. Thanks, Grant, for your presentation, and Mr. Secretary, for your tremendous involvement with our group here.

Nothing else to be said here today, the meeting is adjourned. Thank you very much.

(Whereupon, at 10:44 a.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 Wednesday, September 29, 2004, were transcribed as herein appears, and this is the original of transcript thereof.

                                    LISA DENNIS

Court Reporter