Testimony of Secretary of Commerce Donald L. Evans

On the State of American Industry

Before the

House Committee on Energy and Commerce

March 24, 2004

Mr. Chairman, thank you the invitation to participate in this hearing on the state of American industry and the United States’ economy. I appreciate your leadership in raising the concerns of American companies and workers and helping policymakers understand the challenges and opportunities U.S companies and workers are facing. I would like to also congratulate my friend Chairman Barton on your new role as Chairman of this Committee. You have served this country well for over 20 years and I am sure your experience and leadership will bring you continued great success. I look forward to working with you and other members of the Committee as we continue strengthening the environment that will enable American businesses to continue to succeed in today’s global economy.

I strongly believe that businesses are at the strategic center of any civil society. There are more than 138 million Americans at work right now realizing their aspirations for their families. Businesses in America – from the smallest shop to the biggest corporations offer opportunity for those with a dream, provide a foundation for community and ground our democracy

The State of American Industry is Strong

America’s economy is an amazing engine—generating opportunity, jobs, and the most sophisticated and technologically advanced products in history. It is a testimony to the genius of our system, the talents and discipline of our work force, and the vision of our entrepreneurial spirit.

With only five percent of the world’s population, the United States produces about one-third of the global output. Americans have created an $11 trillion economy. The United States remains far and away the largest producer of manufactured goods in the world. Standing alone, our manufacturing sector would be the 5^th largest in the world – larger than China’s economy as a whole. America is the global leader in services, and retains a significant advantage in banking, insurance, telecommunications, information technology and healthcare.

Household wealth has soared from an inflation-adjusted $7.8 trillion in 1950 to $44 trillion in 2004. We all understand how important it is for people to own a home and build their own savings. A record 72 million American families own their own home. More than 52 million, or nearly half of, American households, own equities according to a recent survey released by the Investment Company Institute and the Securities Industry Association. That represents a 7 percent gain, or 3.5 million more households, from January 1999.

The Resilience of the American Economy

The Bush Administration took office on the bust side of a boom-bust cycle that led to a recession and significant job losses. In fact, nearly 1.8 million jobs were lost before the President’s first year in office was complete: a year marked by a recession that had been brewing for months, the collapse of the dot-com bubble, the tragedy of September 11, and the discovery of years of corporate malfeasance.

It is difficult to estimate the effects of 9/11 on our psyche or business confidence. But we now know that in the 5 months following September 11, almost 1.2 million jobs were lost: 51 percent of all jobs lost in overall payroll employment decline since January 2001.

The President’s leadership has seen us through some of the most difficult times in recent memory and resulted in remarkable economic resiliency. Fortunately, the tax initiatives of 2001, 2002 and 2003 softened the blow from the recent recession and set the stage for vigorous economic growth going forward. Without the President’s tax relief for families and small business, by the end of this year real GDP would be 3.5 to 4.0 percent lower and 3 million more people would be out of work, according to a Treasury Department analysis.

The Joint Economic Committee recently noted that the peak unemployment rate just after the last recession was far lower than in prior recessions. The 6.3 percent peak in unemployment during the last recession compares favorably to 7.8 percent in 1980, 10.8 percent in 1982, and 7.8 percent after the 1990-91 contraction. Indeed, the current 5.6 percent unemployment rate is below the average rate of the 1970s, the 1980s, and the 1990s.

A look at the global economy also underlines the positive direction we see at home.

The latest data shows European unemployment at 8 percent compared to 5.6 percent in the United States. America also has the lowest long-term unemployment rate in the West.

Over the past three years, the American economy has grown about twice as fast as the economies of Europe and Japan. In 2003, the U.S. economy expanded at a pace of 4.3 percent, with the second half of 2003 posting the best growth in 20 years. You cannot have strong employment without economic growth.

Several other indicators show that the economy is recovering from the shocks this economy has faced over the past few years. Just look at recent data:

· Jobless claims are at their lowest level since the recession began.

· Nominal after-tax income was up 3.4 percent in 2003.

· Productivity grew from 2001 to 2003 at the fastest 2-year rate in 50 years.

· Small business confidence over the past several months has been at 20-year highs.

· The equity markets added $4.2 trillion in new wealth from October 2002 to today.

· The economy has created 364,000 jobs in the past six months according to the payroll survey and nearly one million according to the household survey.

· The purchasing managers index of manufacturing activity recorded its fourth month over 60 in February, indicating the strongest sustained pickup in activity since 1983.

· And a recent employment survey shows that manufacturers are optimistic about hiring.

The last time a Secretary of Commerce testified before this Committee was late 1995. A few months later, President Bill Clinton noted in his State of the Union that "Our economy is the healthiest it has been in three decades [and] we have the lowest combined rates of unemployment and inflation in 27 years." At that time, the combination of unemployment and inflation, or the “misery index,” stood at 8.3 percent. Today that measure is still lower – at 7.3 percent. In addition, the mortgage rate was then at 7.8 percent; today it is 5.4 percent. Based on the average price of a home ($168,700), the average American homeowner is now paying $2,600 less per year in mortgage payments.

Clearly, the President is taking the country in the right direction.

We do, however, have a lot of work to do, and neither the President nor I will be satisfied until every American who wants a job can find one. But both of us know that heaping additional burdens on business and closing markets always kills jobs. That was the painful lesson of the Depression, when raising barriers to trade compounded and prolonged the misery for working people around the world.

There is more to do. The government must continue to encourage economic growth through implementing the policies that support the principles I will discuss. The President has proposed an aggressive plan and I am pleased to be here today to discuss it.

Before President Bush asked me to serve in his Administration, I spent almost 30 years in the private sector; I know that our company helped many of our fellow employees realize the dreams they had for their families. Watching those dreams become reality was the most rewarding aspect of my tenure as a company president and chief executive officer.

During those years, I was tested through business cycles. Identifying challenges and risks, and adapting to opportunities allowed our company to compete and win. We did not ignore challenges, did not try to stop change, and never gave people working with us false promises of avoiding change.

Mr. Chairman, I know that there is anxiety out there in America. I know that far too many of our workers are hurting. As a CEO, nothing gave me greater satisfaction than changing a person’s life by offering them a job. And nothing was more painful than telling someone at our company that we no longer had a job for them. That experience stayed with me. When I look at the latest economic data, I see through the numbers. I always see a person with hopes and dreams and a family. Fortunately, we are beginning to see favorable momentum.

The President and I are committed to creating the conditions for economic growth and vitality so every single citizen who wants to work can find work. The President is defining America’s economic future in the world -- not assigning blame, promoting economic isolationism, or selling Americans short. As Secretary of Commerce, my job is to advocate for American business. My focus everyday is to help companies, workers and communities as they work to meet new challenges and seize opportunities.

Mr. Chairman, I believe that we are at a time of transition. Transitions are never easy and this Administration knows there are workers experiencing pain. We are directing resources and focusing our efforts on those who are hurting. For example, our Economic Development Administration at the Department of Commerce has worked with the Labor Department as they deploy “rapid response” teams to Michigan, North Carolina and Tennessee to assist communities in those states dealing with economic dislocation.

The challenges of today will require policymakers to be forward-looking and innovative like never before. We have to understand and keep up with the rapid pace of change, because our businesses must continue to lead the world, enter new markets, control costs, and attract, train and retain the best people.

We are at a crucial time in our economic history and the decisions we make today will have profound impact. This morning, I want to talk about four key objectives that I believe are critical to our future success:

1. Ensuring that our economy remains the most competitive in the world;

2. Promoting America’s immense innovative capacity;

3. Preparing our workers for the 21^st century economy; and

4. Promoting strong commercial ties with the 95 percent of the world’s population that does not have the blessing of living in this country.

These objectives are fundamental. American companies and workers recognize they are the ingredients for our success. I have been to many states in the three years that I have had the honor of serving this Administration and people tell me time and time again – allow us to create, compete and seek new markets and we will get the job done every time.

These principles are also the foundation of the President’s six-point economic plan to promote economic growth and provide momentum for job creation.

As clear and intuitive as these principles sound, however, they are not universally held.

Some seek refuge in policies and rhetoric that promise winning without competition, job creation through economic isolationism, and small business fed by additional taxation.

I look forward to our dialogue about the challenges and opportunities facing American industry and the steps that the Bush Administration is taking to promote the principles of economic development I just articulated. But before turning to each of these subjects in more depth, I want to take a moment to provide a framework for where the economy of the United States currently stands.

Keeping our Economy the Most Competitive in the World

As our workers equip themselves for new challenges and competition, and as American businesses cut costs, manage smarter and engage in new markets they rightly expect the government at all levels to work with them, not against them.

Rising costs of health care, litigation, energy and unnecessary regulation kill jobs. It is the steady accumulation of multiple burdens that has had the most severe impact on the competitive environment in which our companies operate.

While our businesses have tightened their belts and raised their productivity in an effort to succeed in the marketplace, they have seen that advantage and their hard-won productivity gains eroded by higher energy costs, medical and pension costs, tort liability costs, and excessive taxation and burdensome regulation. According to the National Association of Manufacturers, these overhead costs add approximately 22 percent to American manufacturers’ labor costs (nearly $5 per hour worked).

As Secretary of Commerce, I have spent considerable time working with and listening to manufacturers all across the United States. Over the past year, we held 20 roundtable discussions with hundreds of manufacturers in the automotive, aerospace, biotechnology, furniture, semiconductor, and textile industries, among others, in more than fourteen states. And I can tell you that they did not ask us to isolate them behind walls or to impose new tariff regimes. They told us to get our own house in order by attacking the burdensome costs that make them less competitive in a global environment.

Based on this effort, we released Manufacturing in America in January, a comprehensive report with more than 50 recommendations. We have already implemented a number of these recommendations and will be enacting more soon. For our part, we will be appointing an Assistant Secretary for Manufacturing and Services and establishing an Unfair Trade Practices Task Force to monitor and ensure our foreign competitors are playing by the rules when importing into the U.S. market. In addition, we will also aggressively pursue trade violations that put U.S. exporters at a disadvantage through a new Office of Investigations and Compliance. The President’s Manufacturing Council will also be established to provide high-level guidance on issues impacting manufac-turing in the United States.

These steps will help, but it will take a much larger, very sustained effort from policymakers to get some fundamental costs in line to assist our companies to continue to win in the world economy.

We all know that rising health care costs are eroding competitiveness. In 1980, health care was 8.8 percent of GDP. In 2000 it was 13.3 percent and in 2002 it was nearly 15 percent. It will be 16 percent of GDP within five years. Businesses pay for their employees’ health benefits because of tax incentives and because they see their own interest served by a healthy and motivated workforce: 97% of the National Association of Manufacturers’ members pay for employee health care benefits. However, there is a competitive cost of doing so: the United States already spends more than twice as much on health care per person as other industrialized countries.

Regulatory compliance remains a huge burden in expense and lost time. While the exact cost of regulation is uncertain, the total cost is comparable to discretionary spending— about $640 billion in 2001, according to the Office of Management and Budget (OMB). Regulation can increase the cost of producing goods and services in the economy, thereby raising prices to the consumer and placing jobs and wages at risk.

Regulatory compliance costs fall hardest on small and medium-sized businesses. This is a significant finding since small firms account for the vast majority of new business growth. Small business ownership is a critical vehicle for all Americans—and increasingly for women and minorities—to achieve greater economic opportunity.

In 1999, the OECD estimated that the economic deregulation that occurred in the United States over the last 20 years permanently increased GDP by 2 percent. The OECD also estimates that further deregulation of the transportation, energy, and telecommunication sectors would increase U.S. GDP by another 1 percent.

This country must build on a national energy plan that will help us access new sources of supply and improve energy transmission. Businesses use nearly 40 percent of the natural gas and 30 percent of the electricity consumed in the United States.

I hear a great deal from businesses of all shapes and sizes about the complexity of our tax system, and the disincentives that complexity creates for doing business in the United States. This complexity raises costs but it also raises uncertainty, which is the enemy of investment and job creation. The tax code also has a profound effect on the relative attractiveness of investing in and creating jobs in the United States. The first, and easiest, action to take is to make the President’s tax cuts permanent so businesses can continue to expand and plan for future growth.

One of the most egregious examples of government increasing costs comes out of the tort system in this country. In 2002, the lawsuit burden was $809 for each American. More than $200 billion is spent on our tort system, and only 20 percent of that goes toward economic damages. One issue of particular concern is the ongoing asbestos litigation. The continuing litigation has yet to help many of the individuals who were harmed by prolonged exposure to asbestos. At the same time, the litigation hangs over our economy, raising all companies’ insurance costs and dampening their ability to hire.

You cannot say you support creating the environment for job creation unless you grapple with the underlying drivers of costs that discourage hiring and depress investment. That is why President Bush has proposed relief for the engines of our economy.

Ensure the United States Remains the Most Innovative Nation on Earth

The innovative capacity of the United States has always been one of our greatest strengths. The innovation infrastructure of our country is built on over 200 years of invention, discovery, development and commercialization. It is an intricate system that exists no place else on Earth. Our investments in innovation – whether in federal labs, at universities, or in businesses across America – create breakthroughs, cures, industries and jobs every day.

America’s entrepreneurial spirit will originate from businesses being built in garages and innovations taking place on shop floors. It is America’s inventors and workers who create new ways of thinking and doing, spawning new industries and ways of life.

Innovation ensures the jobs created will be good jobs. New products and production methods continue to raise our productivity and competitiveness, and will raise our standard of living to unprecedented levels. President Bush has made historic commitments to the innovative capacity of the United States. We will spend a record $126 billion on federal R&D this year, and the President has proposed $132 billion next year. This is a 42 percent increase since President Bush took office. In addition, the American private sector will spend another $193 billion on R&D this year. To help promote this private sector commitment we continue to urge Congress to make the R&D tax credit permanent.

Business leaders want a continued commitment to R&D and assurance that the government reinforces, rather than creates obstacles to, the process of generating new ideas and of bringing innovations to the marketplace. That is why the Administration continues to support the unique capabilities of national labs and universities, including establishing cooperative research programs for the benefit of small and medium-sized businesses. In addition, this Administration is promoting the process of manufacturing technology transfer to ensure that the benefits of R&D are diffused broadly throughout the manufacturing sector, particularly to small and medium-sized enterprises.

Innovation and investment are key drivers of the economy. One reason for the manufacturing sector’s early entry into recession was a sharp drop in business investment as industry pulled back from a period of heavy investment in technology. Not surprisingly, the industries with the most significant job losses in manufacturing are precisely those industries – telecommunications equipment and computing – that benefited most from the boom in investment of the late 1990s.

There is recent evidence that innovation will continue to propel the American economy. According to the Institute for International Economics, our economy shed 71,000 software programmer jobs paying an average of $64,000 between 1999-2002. But at the same time, 115,000 software engineering jobs paying $75,000 were created, a good sign that higher-paying jobs are replacing those being lost.

Americans should expect great advances in biotechnology, nanotechnology, and in many other industries across our economy. These advances will improve lives around the world and create American jobs. That is why the President is taking dramatic steps to promote innovation through R&D, with targeted spending at the record levels noted above. This money catalyzes the private sector’s ingenuity and creates the industries and jobs of the future.

Business leaders emphasize the importance of adequately and effectively protecting intellectual property rights, and the corrosive effect of the failure of some of our trading partners to enforce these rights. Intellectual property protection is essential in ensuring the virtuous cycle of innovation that raises our productivity and meets the needs of consumers around the world. That is why the Department of Commerce continues to strengthen the Patent and Trademark Office, enhancing intellectual property protection and increasing the availability of new products and services.

This Administration is promoting the technological infrastructure of the 21^st century. We have taken concrete steps to create an economic and regulatory environment in which broadband can flourish:

· The President's tax relief has given businesses powerful incentives to invest in broadband technology.

· The President’s economic security package allows companies faster depreciation for capital-intensive broadband equipment.

· The President has signed a two-year extension of the moratorium on Internet access taxes, and urges the Congress to make the moratorium permanent.

· Under this Administration, the FCC has issued an Order freeing newly deployed broadband infrastructure from economic regulation designed for a different era. This decision provides a powerful incentive for incumbents and new entrants alike to invest in new broadband infrastructure.

· The Administration also supports policies that will ensure that Voice-over-Internet Protocol is also free from unnecessary economic regulation.

· The Administration has doubled the amount of radio spectrum available for unlicensed wireless broadband technologies and cleared the way for additional licensed spectrum as well. And,

· The Administration is working to ensure that Broadband-over-Power Lines can be beneficially deployed as quickly as possible.

All of these actions have helped to ensure that consumers have a variety of choices for broadband, particularly in rural communities, and will speed infrastructure investment in the United States. As a result we have seen the number of broadband subscribers in the United States increase from 10 million in 2001 to over 21 million today.

Other pro-growth policies will help American businesses create new industries, companies and jobs. When some propose raising tax rates, they are disproportionately taxing the engines of growth--small businesses. Small businesses owners pay almost 80 percent of the taxes in the top rate through pass-through tax entities. Small businesses create approximately 70 percent of the new private-sector jobs in this economy. Small businesses employ half our workforce. If taxes are raised on these firms, they will have less money to hire and invest.

Innovation, technology and entrepreneurship continue to create jobs and augment our standard of living and we must be committed to helping them flourish.

Preparing our Workers for the 21^st Century Economy

There are fundamental and structural changes under way in our economy.

To meet this challenge and benefit from the opportunities that innovation creates, it is crucial that students, workers, job seekers and communities are provided with the assistance and tools they need to succeed. America’s workforce must adapt to meet the needs of the 21^st Century economy, and we must be there to support them.

Employment in manufacturing has been declining since 1979. The decline of manufacturing employment and the rise of service employment are manifestations of structural change. What many fail to note is that this phenomenon is global: almost all major industrialized economies have lost manufacturing jobs. Some have tried to lay the blame solely on low-cost labor in developing countries, but it is important to note that China lost 8.6 million manufacturing jobs between 1998 and 2002.

In each one of your districts, new jobs are being created every day. The Business Employment Dynamics report indicates the American economy creates about 600,000 jobs a week. Amid dynamic job “churning” in this country, 39.2 million jobs have been created since 1980. According to recent data from the Bureau of Labor Statistics (BLS), the United States is expected to create 21 million net new jobs by 2012, increasing our workforce to 165.3 million in 2012. And looking deeper into these numbers reveals that the trend of our economy becoming more deeply based upon services will continue. In addition these new jobs will be predominantly in emerging fields and industries - four of the ten fastest growing industries, in terms of output, from 2002 – 2012 are expected to be in high tech.

Add to this the fact that BLS also estimates that the average American changes jobs ten times from ages 18 to 36, and you get more insight into the shifting and dynamic work environment that Americans face.

We will need to prepare for this ongoing transition. The talent and motivation of the men and women who work in and manage America’s companies must be matched by our efforts to promote education and training to compete in a dynamic, global economy.

Some business leaders I have spoken to express serious concerns about whether the United States is adequately preparing the next generation for the demands of a high-tech workplace. Advanced labor skills are one of the decisive factors determining our nation’s ability to compete in the global economy.

Preparing the next generation of America’s leaders starts with the basics. That is why passage of President Bush’s No Child Left Behind Act of 2001 was so important. The new law reflects the President’s determination to improve the performance of America's elementary and secondary schools while at the same time ensuring that no child is trapped in a failing school.

In addition, the President has a $250 million community college job training initiative, to train people for today's economy and help them find jobs. The President’s “Jobs for the 21^st Century” initiative will prepare our economy and workforce for new challenges by expanding access to post-secondary education and fostering job-training partnerships between community colleges and employers in industries with the most demand for skilled workers.

This Administration is committed to investing in the types of ongoing retraining programs our workers need to develop the skills in our transitioning economy. The Administration’s 2005 budget proposes roughly $23 billion to fund 31 job training and employment programs government-wide. The bulk of this funding, about $19 billion, is administered by the Departments of Labor and Education primarily through the Workforce Investment Act (WIA), the Carl D. Perkins Vocational and Technical Education Act (Perkins), Vocational Rehabilitation Services, and Pell Grants for students enrolled in technical or two-year post-secondary schools.

We will also dedicate over $1.1 billion in fiscal year 2005 for training and cash benefits for workers dislocated by increased imports or a shift of production to certain foreign countries.

Government can do a great deal, but it is important to note the significant investment that American business is making in the future of the American workforce. The private sector spends about $60 billion a year to provide training and education for American workers. This investment is made in major corporations that have extensive programs akin to in-house business schools, and in small businesses that help with tuition for part-time classes and local seminars.

These public and private investments make a difference in the lives of millions of Americans and they are essential to the competitive position of our industry and workers.

Promoting Strong Commercial Ties with the 95 Percent of the World that doesn’t have the Blessing of Living in this Country

I cannot talk about the American economy without talking about the important role of trade and the role of investment in a global economy.

Expanding trade and investment abroad are, and have been, fundamental pillars of American economic success in the 20^th and 21^st centuries. Trade represents an unprecedented opportunity for our workers and our future. Americans welcome trade because it expands opportunity and growth. Over 230,000 small and medium-sized enterprises (SMEs) export from the United States, accounting for 97 percent of all American exporters. Very small companies— those with fewer than 20 employees—make up more than two-thirds of all American exporting firms. President Bush supports expanding trade, just as do American businesses, because the benefits are clear.

Since the creation of GATT in 1948, real GDP has skyrocketed. World exports have grown from $58 billion to nearly $6 trillion. Expressed in 2000 dollars, U.S. per capita GDP grew from $12,000 in 1950 to $36,000 in 2002. Today, U.S. GDP is five times larger than it was in 1950, and American exports are 20 times larger. American exports accounted for nearly 25 percent of U.S. economic growth in the 1990s and supports more than 10 million jobs.

Fair trade helps to lower prices and raise American living standards. Over the past decade, NAFTA and the Uruguay Round agreements have raised the income of the average American family of four by up to $2,000 a year. A University of Michigan study shows that lowering global trade barriers by one-third could boost the American economy by $177 billion, and raise living standards for the average family by $2,500.

Trade also drives competition and innovation, both of which are key to raising productivity and greater prosperity worldwide.

Trade and security go hand in hand. Countries that trade together have more to lose in the event of conflict; trade becomes part of a virtuous circle reinforcing peaceful international relations and stronger economic development. We have seen in the not-too-distant past that, when economies close their doors, it has a ripple effect. Other nations adopt protectionism and everyone loses. The world experienced this in the 1930s with the Great Depression and the ensuing conflict of World War II.

The combined effects of rapid changes in communications, transportation technology, the end of Cold War economic divisions, and the global lowering of trade barriers have made the global marketplace a reality. That translates into expanded markets for American goods and services, but also stiffer competition -- both in export markets and here at home.

However, this is no reason to withdraw from the world economically. Our business leaders understand that their future growth depends on a global market and that their access to export markets depends on a willingness to engage foreign competitors here. And they do not shrink from the task.

I do not hear an interest in economic isolationism from the business community, whether in the form of tariffs or quotas. Rather, our companies and workers see international trade as a simple question of fairness. If the United States keeps its markets open to its trading partners’ goods, then they should do the same. But, where our trading partners do not live up to the terms of our agreements or otherwise heed the rules, those trading partners should face the consequences as laid out in those agreements.

Trade Enforcement

This Administration will continue our efforts to eliminate tariff and non-tariff barriers to our exports through negotiation with our trading partners. We will also continue to vigorously enforce existing trade rules and American trade laws. Since January 2001, Commerce has initiated and completed 152 new antidumping and countervailing duty investigations resulting in 61 new orders placed on unfairly traded imports.

We know that we have the best workers in the world, and that we can compete with anyone. But the competition has to be fair. The security and prosperity of our nation and the world depend on the rules being perceived as fair.

In order to ensure this end, this Administration is taking new and proactive measures to strengthen the enforcement and compliance of our trade agreements. Within the Department of Commerce’s International Trade Administration, we have created a new Unfair Trade Practices Task Force that will expand and strengthen our ability to advance American commercial interests by attacking the root causes of unfair trade. This office analyzes market trends and foreign government and business practices to identify potential unfair trade problems at the earliest stage possible. The Task Force is presently analyzing the 30 largest categories of Chinese imports, including computers, footwear, office machine parts, furniture, and radio/TV equipment.

We are also creating a new Office of Investigations and Compliance as an enforcement unit within the Commerce Department to make sure our trading partners abide by their agreements and to combat violators of intellectual property rights (IPR) around the world. Many of the investigators in the unit will have law degrees. The unit will have a team of experts in IPR, corporate accounting, investigations, and intelligence.

In addition, we are building an Office of China Compliance to focus on antidumping cases involving imports from China and to concentrate on and strengthen our expertise to address the unique problems encountered in China and other non-market countries.

Nothing hurts innovation like having your ideas stolen from you. We are working hard to make sure that does not happen. The World Trade Organization (WTO) has agreements barring the theft of intellectual property. Piracy by foreign businesses, particularly in China, for example, is a chronic problem for many American firms. Last fall, I led a mission to China and highlighted China’s lack of IPR enforcement. I met with high-ranking Chinese officials and reiterated our continuing concern; that effective IPR protection requires that criminal penalties for intellectual property theft and fines are large enough to be a deterrent rather than a business expense.

I believe in the strong enforcement of our trade laws, especially intellectual property protection, and we are taking proactive measures to combat piracy. I have tasked Commerce agencies, such as the Patent and Trademark Office and the new Office of Investigations and Compliance, to coordinate their efforts to vigorously pursue allegations of IPR violations wherever they occur, especially in China.

The Administration is committed to exercising the legal remedies available under the WTO and under U.S. law when clear violations occur. As a matter of fact, the United States Trade Representative announced the filing of a case at the WTO regarding China's discriminatory tax rebate policy for integrated circuits.

This Administration also is working with industry through the vigorous enforcement of trade laws, and through consultations with the governments involved to address the efforts of other governments to confer an unfair competitive advantage on their industry.

In one such case, after discovering that a Chinese factory counterfeited its medical products, the American company involved contacted the Commerce Department with the problem. Working with the Chinese government, this Administration ensured that the counterfeiter and distributor were arrested on criminal charges, resulting in the elimination of the counterfeiting of medical supplies valued at roughly $15 million per year. Virtually all of the businesses I meet indicate that they are prepared to compete head-on with anyone in the global marketplace; what they are not prepared to do is compete against foreign governments as well.

While I have mentioned just a few of the steps we are taking to bolster trade enforcement and compliance, I need to address briefly and specifically our trade relationship with China. The stakes involved are high. China is growing at an extraordinary rate and is becoming a major player in the global economy. Indeed, China now represents the fastest-growing market for American goods and services. Our exports to China surged by 28 percent in 2003, while imports were up by 22 percent last year. China is our third largest trading partner. Bilateral merchandise trade reached $181 billion in 2003. China’s development, and the increased standard of living literally bringing hundreds of millions of people out of poverty – are extremely positive signs.

One of the basic reasons for negotiating for 15 years with the Chinese over their accession to the World Trade Organization was to knock down the many barriers to entering China’s market. The situation facing our businesses from a competitive perspective was far worse prior to China’s entry into the WTO. Our firms lacked access to the Chinese market, but their businesses had relatively free access to ours.

While China’s market represents an enormous opportunity, it presents challenges we must confront: we must be strong on growth and strong on enforcement. There is still a very long way to go. I can assure you that the Department of Commerce is dedicated to making sure that China and all nations plays by the rules. In 2003, over 50 percent of all new antidumping orders put in place by the Department were against China. Historically that figure has been 18 percent.

This Administration will continue to pursue China’s compliance with its WTO commitments vigorously and enforce our domestic unfair trade laws rigorously and fairly. The Commerce Department is fully committed to ensuring that China complies with WTO rules, opens markets, drops barriers, eliminates state subsidies, and allows market forces to determine economic decisions. In June, I will be going to China to continue pressing their leadership for compliance, enforcement and openness.

Around the world this Administration will continue to fight so American workers will continue to succeed in the global economy.

Working with the World Benefits Everyone

Before I conclude, permit me to address a topic that has been much in the news: the impact of international competition on job creation.

In addition to trading products, American workers now compete in a global labor market. About 2.4 billion of the world’s 6.3 billion people are currently part of the global workforce. About 75 percent of these workers live and work in developing countries and about 25 percent in the industrialized world. These are staggering numbers and when you consider that, with only 5 percent of the world’s population, the United States generates approximately 33 percent of global GDP you get a sense of the true economic leadership position we have.

The United States greatly benefits by doing business with the world. Right now, foreign companies employ 6.4 million Americans, who, in turn, help employ millions more. Foreign business leaders realize that American workers are the best in the world. There are hundreds of foreign companies employing American workers, including Norwegian Cruise Lines, Honda, and UBS Investment Bank.

New foreign investments occur regularly, although they do not seem to attract the attention devoted to investment offshore. But foreign investments made here are creating many times more jobs than are being offshored from the United States. For example, in my home state of Texas, Toyota plans to hire 2,000 employees in the next year at its new San Antonio facility.

Foreign direct investment in the United States totaled $82 billion in 2003, over twice the amount from the previous year. In fact, since 1990, foreigners have made direct investments of $1.5 trillion in U.S. companies and factories. Increased foreign investment means more factories, more research and development and more jobs for Americans through companies based abroad. These companies account for hundreds of thousands of good jobs, including more than 700,000 in California, almost 500,000 in New York, more than 425,000 in Texas, and more than 300,000 each in Illinois and Florida.

Many of those 6.4 million jobs are at risk if this country begins to engage in the isolationism that would cause us to close down global labor markets. America cannot turn back from a global marketplace of goods and services. Engagement with the world adds jobs and growth, while a policy of economic isolation destroys them.

Our advanced financial, legal, and educational systems make the United States a prime location for investment in our businesses and workers. America must continue to strengthen those competitive advantages through the policies I have discussed today. Unfortunately, there are some who do not seem to believe that American workers can compete with workers around the world. I know we can.

It is important to have the facts: according to the Bureau of Labor Statistics, only one percent of job losses in large layoffs are associated with overseas relocation, with another two percent due to import competition. Contrast that to the 36 percent due to seasonal layoffs. Forrester Research projects a worst-case scenario that 3.3 million jobs will be lost over the next decade. Our economy creates nearly 3 million jobs each month. As the Washington Post noted, the jobs projected to go overseas represent about one percent of the job “churning” in our labor market.

IBM, for example, recently won a contract from Nokia, the Finnish telecommunications company, worth over $5 billion. Alone, this contract equals almost one-third of the entire Indian information technology software and services industry in 2003. Put another way, the Best Buy retailing chain has more revenues than the entire Indian IT sector.

In 2003, the United States exported $305 billion of Total Services, and we ran a services surplus of $59 billion. Using a simple share of GDP, U.S. exports of Total Services support more than 3.9 million jobs in the United States. In 2002 (latest data available by region), the United States ran a significant trade surplus of Total Private Services with China and India. Exports to both countries combined were $9.3 billion while imports were $5.8 billion.

There are, however, some American workers who have seen jobs outsourced or are concerned about their jobs going overseas. We all share these concerns and we are all motivated to address them. Globalism and competition are concepts, but a paycheck is a reality, and this Administration is dedicated to providing the opportunity for every American to find a job and provide for his or her family.

We will continue to strengthen the programs I described earlier to assist individuals and communities in the adjustment to a growing global economy. We will continue to work to ensure that American companies can continue to successfully compete with anyone in the world. We will enforce our trade laws and make sure others play by the rules. We will promote education and support innovation. And we will not shrink from these challenges or accept defeat. The worst thing the United States could do is to pursue isolationist policies that will cost jobs.

America has overcome the challenge of lower global wages in the past, and always come out better for it. Forty years ago, people worried about low-cost Japanese labor. Ten years ago, people feared jobs would all migrate to Mexico. Some make the same mistake when they look to China and India with concern today. The doomsayers will undoubtedly have another target in the future.

To achieve sustained growth for all Americans, the United States must continue to stay engaged in the world. We must ensure free, fair and open competition. It makes our industries more productive, while American workers and their families enjoy higher wages and better products and services at cheaper prices.

American Industry and Workers Will Meet the Challenges and Lead the World

Americans are innovative, pragmatic problem-solvers who thrive on competition. We have the future in our hands, and we control our own destiny through the choices we make.

The President understands that economic security and national security are inseparable. In both areas he has laid out a complementary vision of America’s leadership role. He faces these challenges with confidence, understands how to succeed in this environment, and believes in the American people. Embracing and shaping the global economy toward American values is the only way to ensure a more stable, peaceful and secure world for the next generation of Americans.

America cannot follow the path urged by isolationists who are afraid to confront the challenges we face, who refuse to be honest with the American people about those challenges, and who deny what it will take to respond. There is no protection in protectionism, only defeat and defeatism.

The United States needs pro-growth economic programs to create a better American future in a more secure and prosperous world. President Bush is dedicated to pursuing economic policies that give American companies and American workers the freedom to succeed. As American companies remake themselves and successfully meet their customers’ needs, they will create long-term economic growth and new American jobs. To support this process, we must protect the flexibility and productivity that have made the American economy the envy of the world and American workers the most prosperous in history.

Mr. Chairman and Members of the Committee it is an honor to be with you today and I appreciate your time and attention. I would be pleased to answer any questions that you may have.