Testimony of
Secretary of Commerce Donald L. Evans
Senate Commerce Committee
August 1, 2001
Thank you, Mr. Chairman, Senator McCain, and Members of the Committee, for inviting me to testify before the Senate Commerce Committee on how to ensure that Americans receive the benefits from the trade agreements we negotiate.
Mr. Chairman, I would like to discuss our ideas about establishing a new American trade agenda to serve the interests of all Americans. I will address the need to expand our exports - to benefit our businesses, our farmers, our workers; the need to monitor compliance; and the need to support export promotion activities to "fill in" behind our negotiations. I am interested in the Committee's view on an agenda to serve that purpose. That is, I am here today as much to listen as to testify.
Expanding Economic Opportunities for All Americans
President Bush and I agree that trade means considerably more than just economic growth, more higher-paying jobs, and a rising standard of living in America. Trade is ultimately about freedom. It is the freedom for America's farmers, entrepreneurs, and workers to pursue their own economic destiny. And, as the President has said, trade also encourages those habits of liberty that form the foundation of democratic self-government. Trade and open markets allow men and women around the world to pursue their own destiny, rather than depending on the hand of government to determine their future. That's why President Bush calls free trade a moral imperative. Mr. Chairman, freedom is our most important export.
Importance of Expanding Exports to the U.S. Economy
That said, Mr. Chairman, I never lose sight of the fact that trade is, above all, a bread and butter, kitchen table issue for all Americans. Beyond the moral arguments and beyond statistics, trade has real meaning for and a real impact on real people. What that boils down to is whether our trade policies are expanding economic opportunities for U.S. farmers, workers, and firms here at home and abroad. That, in turn, depends on opening new markets for U.S. exports.
The United States, I am pleased to say, remains the world's largest exporter, with U.S. exports representing a 12.7 percentage point share of total world exports of manufactured goods. U.S. exports accounted for nearly one quarter of our economic growth during the past decade. More than 20 percent of the goods produced in the United States are exported, and more than 200,000 U.S. firms rely on exports for some portion of their business. With 78 percent of global gross domestic product and 95 percent of humanity outside our borders, we must continue to open foreign markets to American exports.
Last year, U.S. exports of goods and services were equivalent to 11 percent of gross domestic product. U.S. export trade has expanded even faster than the overall U.S. economy. U.S. exports increased from $57 billion in 1970 to $1,069 billion in 2000, an increase of over 10 percent per year. We estimate that some 12 million U.S. jobs are now supported by exports, and these jobs pay up to 18 percent more than the national average.
Equally important, exports make up a growing share of the markets served by American small and medium-sized businesses. Those businesses create three out of four 4 jobs in America, account for one-half of the annual U.S. gross domestic product, and represent 97 percent of all U.S. exporters. To stay at the forefront of innovation, U.S. small and medium-sized businesses need access to foreign markets and a level playing field globally.
The growth in trade as a factor in the U.S. economy mirrors the importance of trade globally. Trade as a percentage of the world economy has grown 16-fold since the creation of the General Agreement on Tariffs and Trade in 1947. Estimates of the increase in global growth that would result from a new round of World Trade Organization negotiations run as high as $600 billion. Both the growth in world trade and the process of writing the rules that will govern trade relations will go on, with or without us.
Given the competitiveness of the U.S. economy, the growth in world trade and the potential reduction of barriers to U.S. exports could open a new market for U.S. exports. But, to realize that potential, the President has to be able to take a seat at the negotiating table. It is not in our national interest to let the rest of the world set the rules of the road that will govern our trade. When the rules of the road are set by others, they will create, rather than remove, barriers to our exports and put American exports at a competitive disadvantage. And, in the end, that means less investment, slower economic growth and fewer job opportunities.
Relationship of Trade and Investment
As you have pointed out previously, Mr. Chairman, both trade agreements and trade barriers are about investment. I understand your concern and the concerns of other members of the Committee and the Congress that trade agreements might become a vehicle for encouraging investment abroad solely as a means for lowering a company's costs and then exporting back to the United States.
First, let me say that trade and investment are not either/or propositions. Our experience throughout the post-war period is that trade and investment grow together. Europe and the United States have invested heavily in each other yet trade has also grown rapidly. That said, we as a nation have been concerned about trade barriers and investment rules that are intended to force U.S. firms to invest abroad rather than export and/or to have to export a large part of the output of their foreign investments back to the United States.
For example, when U.S. automobile exports face high tariffs of 35 percent in Brazil (as opposed to the 2.5 percent tariffs Brazilian autos face here), it creates an artificial incentive to invest in Brazil behind that high tariff wall. That means that Brazil gets both investment and jobs that would otherwise go to the United States. Eliminating those tariff barriers would allow American companies to enter the Brazilian market by exporting, and the investment and jobs would stay home in the United States.
In other cases, countries impose investment requirements or provide investment incentives that encourage U.S. firms to invest abroad as a condition of access to their markets. Those requirements or incentives are often coupled with the obligation to export a significant share of the new facilities output. The net effect of these "trade-related investment measures" is to shift investment abroad and reduce job opportunities in the United States.
Elimination of those requirements or incentives, together with tariff reductions, allows U.S. firms to export, thereby keeping investment and jobs here at home. For example, when Chrysler was deciding where to build the Durango, now one of the hottest selling vehicles in the North American market, it was able to base its plant in Delaware, rather than having to build in either Mexico or Canada to gain access to those markets. This is a good example of how trade liberalization under the North American Free Trade Agreement (NAFTA) has affected both trade and investment.
The numbers on investment tend to bear out what one would expect from the elimination of trade barriers abroad. Over the last five to ten years, while the tariff cuts under the NAFTA and the Uruguay Round took hold, the United States has continued to see a strong inflow of foreign investment generally. In fact, the United States has steadily run a capital account surplus since 1975. Statistics on foreign direct investment (FDI) reinforce the same basic message: the United States remains both the largest exporter and the largest recipient of FDI.
In other words, since the implementation of the NAFTA and the Uruguay Round and the elimination of significant barriers to U.S. exports, we have seen more foreign direct investment in the United States than we have seen U.S. direct investment abroad. What that means in practical terms is that eliminating barriers to U.S. exports can have a real impact on the level of investment and the number of jobs created here in the United States. While eliminating those trade barriers is not the only thing that makes the United States an attractive place to invest, it certainly has been a strong contributing factor.
Need for Trade Promotion Authority
Mr. Chairman, we have got to get back into the international trade game if we are to break down barriers to U.S. exports and improve job opportunities for American workers. President Bush has observed that, "Free trade agreements are being negotiated all over the world, and we're not party to them." There are over 130 preferential trade agreements in the world today. The United States belongs to only two.
Our competitors are busy inking deals while our negotiators sit on the sidelines, and these deals are placing us at a competitive disadvantage. For instance, a U.S. company exporting a tractor to Chile must pay a $25,000 tariff. If that U.S. company moved its factory to Brazil and exported a tractor to Chile, it would pay a $15,000 tariff. But, a Canadian company exporting a tractor to Chile pays no tariff at all because Canada has a free trade agreement with Chile. What that means is that the Canadian company is going to get the sale, and the investment and jobs that go along with producing that tractor.
The President has made clear that he intends to press forward wherever we can to expand trade and economic opportunities for all Americans. We want to be prepared to take action where the opportunities arise and to ensure that our exporters gain their fair share of the new export markets those agreements may create. To do that, however, the Congress and the President need to reach agreement on the scope and goals for our trade negotiations. And, the vehicle for reaching that agreement is Trade Promotion Authority (TPA).
It has been argued recently that TPA is not necessary now, that it is only needed at the end of a negotiation to implement the deal. My own view is that TPA is just as important at the beginning of a negotiation as it is at the end. That is because TPA represents something of a contract between the Congress and the President on the scope of negotiations and the goals we should pursue at the negotiating table.
With TPA in hand, the President can face our trading partners with the full backing of Congress. And, our trading partners cannot mistake the importance of Congress' role in setting the agenda for such talks, as well as its role in approving and implementing any eventual bargain. In my view, that both strengthens the President's hand and reinforces the constitutional role of the Congress in the trade policy process.
Both strengthening the President's hand in negotiations and reinforcing the constitutional role of the Congress are essential to a successful American trade policy -- one that serves the interest of all Americans. Given what is at stake in terms of economic opportunity, the time to renew the contract between the Congress and the President is now. The United States has historically played a leadership role in international trade, constantly pushing for more freedom, more opportunity, and more fairness in the global marketplace. It is time America got back in the game.
Compliance and Enforcement Are Key
Mr. Chairman, I understand - as do you - that a second element is needed to ensure that American farmers, workers and firms benefit from an aggressive American trade agenda. The process here in the United States cannot end with the negotiation of an agreement and its implementation by the Congress. If we do not aggressively enforce our current agreements, we cannot expect Americans to support further trade negotiations. That is, promises made must be promises kept.
In the end, it is about trust. The ability of the Congress to trust that the President will make use of Trade Promotion Authority in a way that works for all Americans and the ability of the American people to trust both the Congress and the President to defend their interests. That trust ultimately depends on our ability to ensure that the United States gets what we bargained for under existing and future trade agreements.
I believe in keeping a bargain when I make one. Since my confirmation hearing before this Committee in January, I have made compliance a top priority at the Commerce Department. Mr. Chairman, I know the important role you played in focusing the Department's compliance efforts in the past, and I want to provide you with the strongest possible assurance that we will follow through.
Making Compliance and Enforcement a Priority
I have made compliance and enforcement the highest priority for all the units within the International Trade Administration, so that our commercial officers at home and overseas, as well as our industry analysts and desk officers in Washington, work together to enforce our trade agreement rights. Our emphasis is on problem-solving, and we have cast a wide "net" in that effort. Rather than simply waiting for problems to come to us, the Department conducts extensive public outreach programs to ensure that American business understands the benefits of trade agreements that they are due and the resources available through the Commerce Department and other governmental agencies to enforce them. We have a Compliance Liaison Program with trade associations and local business export councils to facilitate communication and prompt action on compliance issues. We also conduct routine surveys of our private sector Compliance Liaisons to learn about trade barriers and compliance problems their industries are facing.
While much of the attention focuses on ITA and its Market Access and Compliance (MAC) unit, I have made clear that trade agreements compliance is everyone's job, not only in ITA or MAC, but throughout the Department. ITA coordinates a bi-weekly Compliance Coordinators meeting, including representatives from all relevant Commerce Department agencies, to promote the sharing of their expertise on compliance issues facing the Department and American exporters. Thus, the National Institute of Standards and Technology, for example, may help ITA analyze whether a country is abiding by the WTO Agreement on Technical Barriers to Trade when it proposes a new standard or a testing and certification requirement that affects U.S. exporters. Similarly, the Patent and Trademark Office assists ITA in determining whether the actions of certain countries are consistent with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights. ITA and the National Telecommunications and Information Administration (NTIA) work together to promote pro-competitive regulatory environments in foreign telecommunications markets, including monitoring and enforcement of commitments made in the WTO Agreement on Basic Telecommunications Services. ITA relies on NTIA for its expertise on the telecommunications policy in the United States so that these principles can be effectively advocated with foreign governments.
The most important point is that it works. Let me offer a few recent examples.
As one of my first actions as Secretary, I expanded our compliance liaison outreach to include the Congress. I asked all Members of Congress to identify a staff person to work with our Compliance Center to refer constituent market access or compliance problems. If staffs are not already working with us on this effort, I hope they will. The Trade Compliance Center also maintains a "Trade Complaint Hotline," a service that allows U.S. exporters, especially small and medium-sized firms, to file market access and trade agreement complaints online.
We also learn about potential problems from all different parts of the Department. Sources include the worldwide network of the Department's Commercial Service and Export Assistance Centers throughout the United States, our industry and country desks, and trade agreement specialists. For example, we received a complaint through our Columbia, South Carolina Export Assistance Center from a small company that was unable to sell its chemical product in Sweden because it was required to divulge proprietary information to a Swedish local government body. The Compliance team worked with the Swedish government to resolve the issue, resulting in an $8 million sale for the company.
Let me emphasize that our goal is to solve problems at a practical level. Once a problem is identified, a compliance action team analyzes it, develops a strategy and then applies compliance advocacy, in the form of calls, letters and meetings between Departmental and foreign government officials -- beginning at the staff level and working on up to me as needed.
If, and when, that is not possible, we help build cases that USTR can litigate at the World Trade Organization or in other formal dispute fora.
Combating Unfair Trade Practices
While it does not always entail the enforcement of our trade agreement rights, I am just as committed to ensuring that we are aggressively investigating allegations of subsidies or dumping under our trade laws. There is nothing more dispiriting to American workers and farmers than to believe that they are not competing on a level playing field.
When our companies complain about unfair trade practices, our office of Import Administration (IA) is responsible for investigating the claims, ordering the imposition of offsetting duties, as well as seeking to eliminate the governmental interference or underlying distortions in the market that gave rise to the U.S. industry's complaint in the first place.
ITA's Import Administration unit also plays a lead role in monitoring trade agreements in the antidumping and subsidies arena. IA provides much of the substantive work on the annual report to the Congress on our trading partners' compliance with their subsidies commitments, as well as working within ITA and with U.S. Customs to ensure the vigorous enforcement of antidumping and countervailing duty orders resulting from their investigations.
In my view, these actions are not only consistent with our international obligations and the President's commitment to trade liberalization, but essential to them. By way of example, the security of America's softwood lumber industry and lumber jobs has been a key priority for me since I took office. In response to Congressional and industry concerns, on April 3, 2001, I initiated a Lumber Import Monitoring Program to keep track of import levels and detect destabilizing surges. We have been using a number of methods to ensure that we have the most current information available regarding the level of lumber imports. High-level Commerce officials have visited U.S. ports and have met with Customs staff in order to share information and educate them on our monitoring plans. As part of this plan, in order to get the most timely and accurate information, we secured the early release of preliminary softwood lumber data.
Following the expiration of the Softwood Lumber Agreement, my Department initiated two lumber investigations on April 23, 2001, to determine if softwood lumber imports have been unfairly subsidized and/or sold at dumped prices. We have teams of professionals hard at work ensuring that the investigations are conducted expeditiously and in full compliance with our unfair trade laws. You can be sure that we will enforce our laws vigorously where it concerns softwood lumber. We are taking a serious look at the allegations of critical circumstances and will take all steps to ensure effective and speedy relief.
I believe that the Congress well understands the necessity of finding solutions to address underlying market distortions. That is why, as part of the implementing legislation for the Uruguay Round Agreements, the Congress created the Subsidies Enforcement Office in IA to assists the private sector in fighting foreign subsidies. In addition, the Congress passed the Compliance Initiative for the FY 2001 budget, providing compliance funding for several agencies, including the International Trade Administration's Import Administration and Market Access and Compliance units, which are expanding their activities. One key part of this expansion is the development of an overseas trade compliance team with staff in Beijing, Tokyo, Seoul, and Geneva.
Mr. Chairman, thank you for your support of the Compliance Initiative. I am committed to aggressive enforcement, and so is the President. He is asking us to go beyond investigating unfair practices. We seek to eliminate unfair subsidies, and the inefficient, excess capacity propped up by such subsidies. We are looking to find a way to get rid of the governmental interference and underlying distortions in the market.
Export Promotion
Mr. Chairman, there is a third element to our approach to trade that is designed to reinforce what we do at the negotiating table and what we do in the way of compliance and enforcement. I am acutely aware that negotiating trade agreements, even with full compliance, will only take us so far. We need to "fill in" behind those agreements. For our economy to benefit fully from our efforts to open new markets, we need to expand the base of exporters and provide the promotional support they need to compete in the global marketplace, particularly our small and medium-businesses.
That, in fact, is an element that has been missing from our trade strategy to date and the President and I aim to rectify that situation. To take full advantage of the markets we open at the bargaining table, small businesses, in particular, need to get information, expertise, support and financing to do the deals that our agreements have made possible. This requires the coordinated effort of all of the Federal agencies involved in export promotion process.
Benchmarking Best Practices in Export Promotion
Fortunately, we have the right management tool in place - the Trade Promotion
Coordinating Committee (TPCC), which was created by Executive Memorandum in 1990 and then adopted by the Congress in statutory form in 1992. The TPCC, which is comprised of 19 agencies, works on behalf of small businesses by working to coordinate government export promotion programs.
The TPCC has, for example, streamlined financing for small business, resulting in a quadrupling of the value of exports supported by the working capital programs of the Export-Import Bank and the Small Business Administration (SBA). Recently, the TPCC organized a series of seminars in Baltimore, Los Angeles and Chicago, during which officials from the Commerce Department, USTR, SBA, and the Export-Import Bank provided information to small firms about business opportunities arising out of recent trade legislation.
We have a plan for taking the TPCC back to its roots as a management tool by undertaking a benchmarking exercise that will help us better serve our small business customers. Our goal is to ensure that we offer them world-class export promotion services in support of their efforts to take advantage of the new opportunities created by recent trade agreements.
As the Chair of the TPCC, I have received the commitments of the heads of the member agencies to undertake this innovative benchmarking review and have established a timeline for its completion. We will assess our customers' expectations and their level of satisfaction. We also will compare our business processes to those in other government agencies and the private sector to determine whether we are making use of best available practices. We intend to produce an interim report to the Congress at the end of September and provide a full report on March 30 of next year. This report will include recommended reforms of our programs and services.
It is more important than ever that our policy and promotion efforts on behalf of small businesses are coordinated and mutually reinforcing. Our goal is to provide the American people, and the small and medium-sized exporters in particular, the most efficient, strategically focused, well-coordinated and customer-driven programs possible.
Innovative Support for Small Businesses
Mr. Chairman, earlier I mentioned the importance of international trade to small business. Accordingly, I have placed a high priority on helping our small and medium-sized businesses benefit from our trade agreements. The Department of Commerce has a worldwide network of 1800 employees who strive to help U.S. firms realize their export potential, with an emphasis on outreach to small and medium-sized enterprises.
We have Commercial Service officers posted in 160 locations in 85 countries abroad;
they are our "eyes and ears" on the ground, sharing information with Commerce headquarters
and our district offices. Our 105 U.S. Export Assistance Centers (USEACs) throughout the
Nation offer export counseling, market research, trade events and international finance solutions
to U.S. exporters. During FY 2000, these centers counseled 17,855 U.S. companies, nearly all of
whom were small and medium-sized.
The Commerce Department also has developed a number of high-quality tools to facilitate small and medium-sized enterprises (SME) exports. We offer free, online export finance Matchmaking and organize one-day Creative Export Financing Seminars throughout the United States. Our Web portal - Export.Gov - consolidates export information into a single, customer-focused site.
This allows small businesses to quickly and easily identify sources of information on every stage of the export process - from finding a partner to getting paid. In addition, we have just added the capability to help SMEs transact international business online. Under this "BuyUSA" addition to our web portal, U.S. exporters are matched with qualified international business partners and can also take full advantage of one-on-one export counseling from the local USEAC. Our Trade Information Center, with its toll-free telephone number, also provides counseling. During FY 2000, the Trade Information Center handled 85,401 direct inquiries and had 645,284 Web site hits - many of which came from small businesses.
From multibillion dollar infrastructure projects to the strategic contracts for small businesses, our Advocacy Center fights to win deals for U.S. businesses and jobs for U.S. workers. Since its inception in 1993 to July 2001, the Advocacy Center recorded more than 160 advocacy successes for SMEs, totaling approximately $3.9 billion, with over $2.2 billion in U.S. content.
Mr. Chairman, it is clear that SMEs would be among the major beneficiaries of negotiations that reduce foreign barriers to U.S. exports. The number of SMEs that export merchandise soared from 108,026 in 1992 to 198,101 in 1998. These figures count only firms that export goods directly, and do not include suppliers whose inputs are exported in final products or services exporters. For example, nearly 200 companies in 27 states, representing about 75,000 other jobs, provide parts for the Case IH MX Magnum tractor that is exported from the CaseNewHolland plant in Racine, Wisconsin.
Trade Needs to Work for All Americans
Mr. Chairman, we need to make our trade agreements work for all Americans. We need to engage in a dialogue that will help us move forward as a nation with the full support of the Congress for our efforts to open new markets for American goods, services, and ideas.
But, I would be remiss if I did not emphasize that it will take more than an active trade agenda, solid enforcement of trade agreements, and export promotion to succeed in the global marketplace. In the end, we need to make certain that America remains a place in which individuals want to invest their time, their talent, and their capital. That will require a commitment to get the economic fundamentals right and ensure a constantly improving quality of public education not only for our children, but for those already in the marketplace. It will also require a sustained commitment to help those affected by the economic adjustment that invariably attends changes in our economy.
I look forward to working with you, Mr. Chairman, and the Members of the Commerce Committee to address those challenges as well. Thank you for inviting me to provide our views on trade and I welcome your questions.