[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

MADE IN AMERICA: INCREASING JOBS THROUGH EXPORTS AND TRADE

=======================================================================

HEARING

BEFORE THE

SUBCOMMITTEE ON COMMERCE, MANUFACTURING, AND TRADE

OF THE

COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

__________

MARCH 16, 2011

__________

Serial No. 112-21

Printed for the use of the Committee on Energy and Commerce

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COMMITTEE ON ENERGY AND COMMERCE

FRED UPTON, Michigan HENRY A. WAXMAN, California
Chairman Ranking Member
JOE BARTON, Texas JOHN D. DINGELL, Michigan
Chairman Emeritus EDWARD J. MARKEY, Massachusetts
CLIFF STEARNS, Florida EDOLPHUS TOWNS, New York
ED WHITFIELD, Kentucky FRANK PALLONE, Jr., New Jersey
JOHN SHIMKUS, Illinois BOBBY L. RUSH, Illinois
JOSEPH R. PITTS, Pennsylvania ANNA G. ESHOO, California
MARY BONO MACK, California ELIOT L. ENGEL, New York
GREG WALDEN, Oregon GENE GREEN, Texas
LEE TERRY, Nebraska DIANA DeGETTE, Colorado
MIKE ROGERS, Michigan LOIS CAPPS, California
SUE WILKINS MYRICK, North Carolina MICHAEL F. DOYLE, Pennsylvania
Vice Chair JANICE D. SCHAKOWSKY, Illinois
JOHN SULLIVAN, Oklahoma CHARLES A. GONZALEZ, Texas
TIM MURPHY, Pennsylvania JAY INSLEE, Washington
MICHAEL C. BURGESS, Texas TAMMY BALDWIN, Wisconsin
MARSHA BLACKBURN, Tennessee MIKE ROSS, Arkansas
BRIAN P. BILBRAY, California ANTHONY D. WEINER, New York
CHARLES F. BASS, New Hampshire JIM MATHESON, Utah
PHIL GINGREY, Georgia G.K. BUTTERFIELD, North Carolina
STEVE SCALISE, Louisiana JOHN BARROW, Georgia
ROBERT E. LATTA, Ohio DORIS O. MATSUI, California
CATHY McMORRIS RODGERS, Washington DONNA M. CHRISTENSEN, Virgin
GREGG HARPER, Mississippi Islands
LEONARD LANCE, New Jersey
BILL CASSIDY, Louisiana
BRETT GUTHRIE, Kentucky
PETE OLSON, Texas
DAVID B. McKINLEY, West Virginia
CORY GARDNER, Colorado
MIKE POMPEO, Kansas
ADAM KINZINGER, Illinois
H. MORGAN GRIFFITH, Virginia

(ii)

Subcommittee on Commerce, Manufacturing, and Trade

MARY BONO MACK, California
Chairman
MARSHA BLACKBURN, Tennessee G.K. BUTTERFIELD, North Carolina
Vice Chair Ranking Member
CLIFF STEARNS, Florida CHARLES A. GONZALEZ, Texas
CHARLES F. BASS, New Hampshire JIM MATHESON, Utah
GREGG HARPER, Mississippi JOHN D. DINGELL, Michigan
LEONARD LANCE, New Jersey EDOLPHUS TOWNS, New York
BILL CASSIDY, Louisiana BOBBY L. RUSH, Illinois
BRETT GUTHRIE, Kentucky JANICE D. SCHAKOWSKY, Illinois
PETE OLSON, Texas MIKE ROSS, Arkansas
DAVE B. McKINLEY, West Virginia HENRY A. WAXMAN, California, ex
MIKE POMPEO, Kansas officio
ADAM KINZINGER, Illinois
JOE BARTON, Texas
FRED UPTON, Michigan, ex officio

C O N T E N T S

----------
Page
Hon. Mary Bono Mack, a Representative in Congress from the State
of California, opening statement............................... 1
Prepared statement........................................... 3
Hon. G.K. Butterfield, a Representative in Congress from the
State of North Carolina, opening statement..................... 4
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, prepared statement.............................. 7
Hon. John D. Dingell, a Representative in Congress from the State
of Michigan, prepared statement................................ 21
Hon. Fred Upton, a Representative in Congress from the State of
Michigan, prepared statement................................... 107
Hon. Cliff Stearns, a Representative in Congress from the State
of Florida, prepared statement................................. 107
Hon. Edolphus Towns, a Representative in Congress from the State
of New York, prepared statement................................ 107

Witnesses

Francisco J. Sanchez, Under Secretary of Commerce for
International Trade............................................ 8
Prepared statement........................................... 10
Answers to submitted questions............................... 109
Robert W. Holleyman, II, President and Chief Executive Officer,
Business Software Alliance..................................... 34
Prepared statement........................................... 36
Answers to submitted questions............................... 119
John G. Murphy, Vice President, International Affairs, U.S.
Chamber of Commerce............................................ 46
Prepared statement........................................... 48
Answers to submitted questions............................... 122
Jack J. Pelton, President, Chairman, and CEO, Cessna Aircraft
Company........................................................ 58
Prepared statement........................................... 60
Answers to submitted questions............................... 128
Daniel J.Ikenson, Associate Director, Center for Trade Policy
Studies, Cato Institute........................................ 66
Prepared statement........................................... 68
Answers to submitted questions............................... 130
James Crouse, Executive Vice President of Sales and Marketing,
Capstone Turbine Corporation................................... 82
Prepared statement........................................... 84
Answers to submitted questions............................... 138

MADE IN AMERICA: INCREASING JOBS THROUGH EXPORTS AND TRADE

----------

WEDNESDAY, MARCH 16, 2011

House of Representatives,
Subcommittee on Commerce, Manufacturing, and Trade,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:10 a.m., in
room 2322 of the Rayburn House Office Building, Hon. Mary Bono
Mack (chairman of the subcommittee) presiding.
Members present: Representatives Bono Mack, Blackburn,
Stearns, Bass, Harper, Lance, Cassidy, Guthrie, Olson,
McKinley, Pompeo, Kinzinger, Barton, Butterfield, Gonzalez,
Dingell, and Towns.
Staff present: Paul Cancienne, Policy Coordinator,
Commerce, Manufacturing, and Trade; Robert Frisby, Detailee,
Commerce, Manufacturing, and Trade; Debbee Keller, Press
Secretary; Brian McCullough, Senior Professional Staff Member,
Commerce, Manufacturing, and Trade; Carly McWilliams,
Legislative Clerk; Gib Mullan, Chief Counsel, Commerce,
Manufacturing, and Trade; Shannon Weinberg, Counsel, Commerce,
Manufacturing, and Trade; Andrew Powalenty; Michelle Ash,
Democratic Chief Counsel; and Will Wallace, Democratic Policy
Analyst.

OPENING STATEMENT OF HON. MARY BONO MACK, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA

Mrs. Bono Mack. The subcommittee will come to order.
This is the second in our series of hearings aimed at
fostering job creation across the United States and to make
``Made in America'' matter again.
Today, with Japan reeling from a catastrophic earthquake
and tsunami and violent turmoil in the Middle East spreading,
our Nation's trade outlook is more clouded than ever. As
chairman of the subcommittee which has jurisdiction over trade
issues, I am convinced that we can create tens of thousands of
desperately needed jobs in our Nation by expanding U.S. exports
through our free trade agreements. The chair now recognizes
herself for an opening statement.
In 2007, Apple introduced its very first iPhone and
Congress finally approved the United States-Peru Trade
Promotion Agreement after years of give and take. Since then,
there have been three new generations of iPhones, two iPads and
several new nano iPods but not a single free trade agreement
signed into law. Not one. So while American ingenuity zips
along at millions of bits per second, America's trade policies
are stuck in the fax age, and it is time for an upgrade. Our
subcommittee has a unique opportunity to roll out a new model
for the future and to demonstrate leadership on this critically
important issue. But time is running out.
America's $46 billion trade deficit in January grew at the
fastest rate in 18 years. While Washington rolls its eyes and
wrings its hands, our competitors in Europe are busy signing on
the dotted line and moving quickly into promising new markets.
We simply cannot wait on the sidelines any longer, allowing
ourselves to be benched by partisan politics. Today, we will
hear what the Administration plans to do about the trade
imbalance from Francisco J. Sanchez, Under Secretary of
Commerce for International Trade.
Let me be clear: long-stalled trade promotion agreements
with South Korea, Colombia and Panama should move forward
immediately--all of them. Years of lost opportunities have only
resulted in thousands of lost jobs all across the county. Let
us make ``Made in America'' matter again by actually increasing
jobs through expanded exports and trade. If you doubt that we
can do it, then just consider the iPhone again. Today, Apple is
the second most valuable company in the world, and yet at one
point it was 90 days from bankruptcy court. Apple didn't turn
around its fortunes by being timid and parochial. Instead the
company was bold and innovative. Apple sold shares to rival
Microsoft and agreed to make Internet Explorer its default
browser. That is the kind of decisive, forward-looking thinking
we need today when it comes to our trade policies.
President Obama has vowed to double exports in 5 years, but
that is simply not going to happen if we continue to allow free
trade agreements to be held hostage by organized labor and to
languish in limbo. It is disingenuous for the Administration to
say: ``Let us work together to create new jobs, but not if it
means passing all three trade agreements together.'' That is
the kind of thinking that leads to a $46 billion U.S. trade
deficit in January, and that is the kind of thinking that
threatens the future prosperity of our Nation.
To date, the Administration has not offered any detailed
plans for opening up trade with Colombia and Panama. We have
gotten plenty of promises, but no plans. It is time to quit
playing politics with our trade policies. Tens of thousands of
new jobs hang in the balance, as well as tens of billions of
dollars in new exports.
Today, American businesses are genuinely concerned and, I
believe, rightfully so, that if the proposed United States-
Korea agreement is finally approved this year by itself, then
separate trade deals with Colombia and Panama will be quietly
forgotten, as a concession to organized labor. If that is not
the case, Secretary Sanchez, then this is the Administration's
golden opportunity to set the record straight. Please tell us
how the White House plans to deal with all three free-trade
agreements. Today, you have a chance to make some news, and to
give American businesses a reason to cheer. I have my fingers
crossed, Mr. Secretary, but at the very least, let us make sure
our signals are not crossed. Exactly what is the
Administration's plan and what is the timetable for
accomplishing it?
Recently, Secretary of State Clinton said, and I am quoting
now, ``Our goal is to have all three pending agreements--Korea,
Panama and Colombia--with their outstanding issues addressed
and approved by Congress this year.'' And, yet, with the next
breath, an Administration official warns that trying to pass
all three free trade agreements together, and quoting again,
``is putting all three agreements at risk.'' Perhaps I lost the
fax, Mr. Secretary, but how do you reconcile those positions?
It is my sincere hope that we can put politics aside, work
out our legitimate differences and approve all three trade
agreements this year. We simply cannot sit on the sidelines any
longer while other nations gain footholds in promising, new
global markets. Too much is at stake for us to fail.
[The prepared statement of Mrs. Bono Mack follows:]

Prepared Statement of Hon. Mary Bono Mack

In 2007, Apple introduced its first iPhone and Congress
finally approved the United States-Peru Trade Promotion
Agreement after years of give-and-take. Since then, there have
been three new generations of iPhones, two iPads and several
new nano iPods--but not a single free trade agreement signed
into law. Not one. So while American ingenuity zips along at
millions of bits per second, America's trade policies are stuck
in the fax age. It's time for an upgrade. Our subcommittee has
a unique opportunity to roll out a new model for the future and
to demonstrate leadership on this critically-important issue.
But time is running out.
America's $46 billion trade deficit in January grew at the
fastest rate in 18 years. While Washington rolls its eyes and
wrings its hands, our competitors in Europe are busy signing on
the dotted line and moving quickly into promising new markets.
We simply can't sit on the sidelines any longer, allowing
ourselves to be benched by partisan politics. Today, we'll hear
what the administration plans to do about the trade imbalance
from Francisco J. Sanchez, Under Secretary of Commerce for
International Trade.
Let me be clear: long-stalled trade promotion agreements
with South Korea, Colombia and Panama should move forward
immediately--all of them. Years of lost opportunities have only
resulted in thousands of lost jobs all across the county. Let's
make ``Made in America'' matter again by actually increasing
jobs through expanded exports and trade.
If you doubt that we can do it, then just consider the
iPhone again. Today, Apple is the second most valuable company
in the world, and yet--at one point--it was 90 days from
bankruptcy court. Apple didn't turn around its fortunes by
being timid and parochial. Instead the company was bold and
innovative. Apple sold shares to rival Microsoft and agreed to
make Internet Explorer its default browser.
That's the kind of decisive, forward-looking thinking we
need today when it comes to our trade policies. President Obama
has vowed to double exports in five years, but that's simply
not going to happen if we continue to allow free trade
agreements to be held hostage by organized labor and to
languish in limbo. It's disingenuous for the administration to
say: ``Let's work together to create new jobs, but not if it
means passing all three trade agreements together.''
That's the kind of thinking that leads to a $46 billion
U.S. trade deficit in January. And that's the kind of thinking
that threatens the future prosperity of our nation. To date,
the administration has not offered any detailed plans for
opening up trade with Colombia and Panama. We've gotten plenty
of promises, but no plans. It's time to quit playing politics
with our trade policies. Tens of thousands of new jobs hang in
the balance, as well as tens of billions of dollars in new
exports.
Today, American businesses are genuinely concerned--and, I
believe, rightfully so--that if the proposed the U.S.-Korea
agreement is finally approved this year by itself, then
separate trade deals with Colombia and Panama will be quietly
forgotten, as a concession to organized labor. If that's not
the case, Secretary Sanchez, then this is the administration's
golden opportunity to set the record straight. Please tell us
how the White House plans to deal with all three free-trade
agreements. Today, you have a chance to make some news, and to
give American businesses and workers a reason to cheer. I have
my fingers crossed, Mr. Secretary, but--at the very least--
let's make sure our signals aren't crossed. Exactly what is the
administration's plan? And what's the timetable for
accomplishing it?
Recently, Secretary of State Clinton said, ``Our goal is to
have all three pending agreements--Korea, Panama and Colombia--
with their outstanding issues addressed and approved by
Congress this year.'' And, yet, with the next breath, an
administration official warns that trying to pass all three
free trade agreements together ``is putting all three
agreements at risk.'' Perhaps, I lost the fax, Mr. Secretary,
but how do you reconcile those positions?
It's my sincere hope that we can put politics aside, work
out our legitimate differences and approve all three trade
agreements this year. We simply can't sit on the sidelines any
longer while other nations gain footholds in promising, new
global markets. Too much is at stake for us to fail.

Mrs. Bono Mack. I yield back my time and I would like to
recognize the gentleman from North Carolina, the ranking member
of our subcommittee, Mr. Butterfield, for 5 minutes.

OPENING STATEMENT OF HON. G.K. BUTTERFIELD, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NORTH CAROLINA

Mr. Butterfield. Let me thank you, Chairman Bono Mack, for
convening this very important hearing. This is a timely
conversation and I am glad that we are finally having it.
A major part of our economic recovery is indeed increased
exports. The President seems to get it. He clearly knows that
increasing exports is key to the American economy returning to
the pre-recession levels. To that end, during the State of the
Union the President announced the goal of doubling U.S. exports
by 2014, a goal that requires exports to grow to $3.14 trillion
at the end of that period. In March 2010, the President issued
an Executive Order officially creating the Export Promotion
Cabinet, which oversees the coordination and implementation of
the National Export Initiative. We refer to it as NEI. The NEI
brings together secretaries from seven federal departments as
well as the heads of other federal entities. As Commerce
Secretary Locke said recently, ``The NEI represents the first
time the United States will have a government-wide export
promotion strategy with focused attention from the President
and his Cabinet.''
Other nations have employed similar strategic initiatives
to their benefit, and it is absolutely essential that the
United States embrace the NEI by working towards its goal of
improving advocacy and trade promotion, increasing access to
export financing, removing trade barriers, enforcing trade
rules and adopting policies that promote sustainable and
balanced growth.
We have great potential to export more. With the world's
population at nearly 7 billion people, 95 percent of those live
outside of our country. The products they purchase and the
equipment they use must come from somewhere else. There is no
reason it shouldn't be from the United States. Recent data
indicates that foreign markets are buying more and more U.S.
goods. With only a year under NEI's belt, exports have grown 17
percent, let me repeat that, 17 percent, but more must be done.
We must not focus solely on convincing foreign entities to
purchase goods that we already make. Instead, we must also
encourage American businesses to innovate and develop cutting-
edge products that will be attractive to fast-growing foreign
markets. We must make more in America. This is beginning to
happen in areas like medical technology and green technology
and agriculture, but innovation is just one part of the effort
to increase exports. Exposure to foreign markets is another
equally important piece to this puzzle.
The ITA has been moving at a blazing pace to participate in
trade and reverse trade missions to put American manufacturers
in front of foreign buyers. Their efforts have paid off with
ITA executing 35 trade missions in 31 countries involving some
400 U.S. companies within the last year, resulting in an
anticipated $2 billion in increased exports. It is my hope that
small- and medium-sized enterprises across the United States,
those same businesses that are the focus of NEI, will avail
themselves of the tremendous opportunities to begin or increase
exports to foreign markets. This could yield immeasurable
benefits to the U.S. economy and could mean tens of thousands
of new good-paying jobs, dramatically transforming struggling
communities like Rocky Mount, North Carolina, located in my
Congressional district, where the unemployment rate is 12
percent. Just a small increase in exports could yield
tremendous benefits for the American people and for industry
across the country.
I want to thank the witnesses for being here today, the
Under Secretary and the other witnesses. I read your
testimonies last evening. I look forward to working with
American businesses and my colleagues in a collaborative effort
to increase American exports.
Thank you, and before I yield back, I want to read this
note, Madam Chairman. Just go ahead and yield back? All right.
I yield back. I saw the chairman emeritus down at the end of
the panel. I wanted to see if he needed time, but they are
going to work that out later. Thank you. I yield back.
Mrs. Bono Mack. I thank the gentleman, and Chairman Upton
yielded his 5 minutes for an opening statement to me in
accordance with committee rules. As his designee, I now
recognize Ms. Blackburn, the vice chairman of the subcommittee,
for 2 minutes.
Mrs. Blackburn. Thank you, Madam Chairman. Welcome to our
witnesses.
Earlier this year in his State of the Union, our President
laid out an encouraging goal of doubling exports in the next 3
years. We all took note of that, and now all we need it
leadership so that we can achieve that objective. It is
important to my State of Tennessee. Leadership is needed by
both the President and by both parties in Congress to finally
step up and do what is best for the economy.
That being said, without strong intellectual property
enforcement tools in place, no free trade or exporting policy
will work. In my home State of Tennessee, there are countless
companies, both big and small, that rely heavily on strong U.S.
export policies for their livelihoods, among them Tom James
Incorporated, Bridgestone, Swiftwick Socks, Cargill Cotton,
Nucor Steel, International Paper, Eastman Chemicals, FedEx,
Right Thought Pens, and now Volkswagen is on the way. Those are
just a few of the companies that are saying get this
intellectual property policy right. If IP cannot be protected,
innovation and commerce is going to slow. If we are to continue
as the world's leading innovator, if we are to reclaim the lead
in green innovation, if we are going to truly spur small
business growth, we must protect intellectual property with the
same vigor as physical property. We need your leadership to do
so. We need the leadership of this committee, and Madam
Chairman, I yield back.
Mrs. Bono Mack. I thank the gentlelady and would like to
recognize the gentleman from Texas, Mr. Barton, chairman
emeritus of this committee, for 2 minutes.
Mr. Barton. Thank you. If we are holding a hearing in this
subcommittee, there must be a Cabinet Secretary testifying in
another subcommittee. Last week, I believe we had the Secretary
of Health and Human Services and you had a hearing, so this
week we have the Secretary of Energy, the chairman of the
Nuclear Regulatory Commission, and we have a hearing here. So
it is no disrespect to you, Mr. Secretary, that given what has
happened in Japan, a lot of our members are going to be
downstairs with the NRC chairman and the Energy Secretary, but
we are glad you are here.
We are all concerned about jobs and we are all concerned
about job creation. I think both sides of the aisle agree with
that. Unfortunately, my friends on the Minority seem to be able
to only create jobs in the government sector, and those on my
side would rather we create as many jobs as possible in the
private sector. Hopefully we can reach agreement that that is
the way to go in this hearing.
There are several things that we need to do. Number one, we
need to enforce our existing free trade agreements. That is
easier said than done, obviously. And number two, we need to
pass new trade agreements, and I think you are very well aware
that the Senate has yet to take up several of those agreements
but hopefully in the next month or so they will. I would like
to see us pass a free trade agreement with Korea, with Colombia
and also with Panama.
And with that, Madam Chairwoman, I yield back, but welcome,
Mr. Secretary.
Mrs. Bono Mack. I would like to recognize the gentleman
from Illinois, Mr. Kinzinger, for 2 minutes.
Mr. Kinzinger. Thank you, Madam Chairman, for the time and
for holding this hearing, and thank you, sir, for coming in.
I want to say thank you to the Administration for the
support on the Korean free trade agreement. I think that is
going to be very important. In my district, the free trade
agreement itself will support $75 million in exports and nearly
300 jobs. More American goods in foreign markets means more
American jobs back home, and removing export tariffs on
agriculture, electronics and manufactured goods makes American
products more competitive in the Korean marketplace and fuels
both nations' economies. History has taught us that robust
trade creates jobs and strengthens the economy. Our Nation
cannot afford at this critical time to pass on opportunities to
expand free trade.
I am very concerned with this Administration's failure to
lead on two remaining free trade agreements with our allies and
partners to the south, Colombia and Panama. These trade
agreements serve as important milestones for the bilateral
relationships with these countries and failure to take action
puts American exports and jobs at risk. The U.S. International
Trade Commission believes a Colombian agreement alone could
increase U.S. exports by $1 billion. In Panama, companies like
Caterpillar build and deliver the equipment that is developing
the nation's infrastructure but do so under onerous rules and
fees. Free trade agreements lower costs and benefit us all.
Although I am pleased with the Administration's actions on
Korea, I do not believe we can allow a vote on the Korean free
trade agreement without taking action on Colombia and Panama.
We should not give the Administration a pass on future
agreements with the passage of one agreement.
Thank you, Madam Chairman, and I yield back.
Mrs. Bono Mack. The gentleman yields back, and the chair
recognizes the ranking member, Mr. Butterfield.
Mr. Butterfield. Thank you, Madam Chairman. I have no
further speakers except to say that the ranking member of the
full committee, Mr. Waxman, was here earlier. He wanted to be
here for this hearing and he especially wanted to welcome his
constituent, Mr. Crouse, from Capstone Turbine, but Mr. Waxman
had to leave for another hearing, and I ask unanimous consent
that his statement, his opening statement that he would have
given had he been here, be included in the record.
Mrs. Bono Mack. Without objection.
Mr. Butterfield. Thank you. I yield back.
[The prepared statement of Mr. Waxman follows:]

Prepared Statement of Hon. Henry A. Waxman

Thank you Chairman Bono Mack and Ranking Member Butterfield
for today's hearing.
In a global economy, exports are a national imperative.
They are a key indicator of our competitiveness, an important
component of deficit reduction, and a gauge of our future
economic health. I welcome President Obama's goal of doubling
U.S. exports within 5 years. It is a target that is not only
bold, but attainable if we stay focused on the task.
It is notable, that even as our economy shrank in 2010 in
the wake of the Wall Street collapse, U.S. exports grew by
17%--the largest year to year increase in history. Without a
doubt, exports will continue to be an important part of our
economic recovery. American companies will succeed not only by
innovating how they make products, but also by expanding where
they sell them.
Ensuring that our companies have an opportunity to succeed
on a level playing field is a responsibility that only
government can shoulder. Too often, American exports are
undermined by unfair trade practices, and even blatant criminal
acts such as intellectual property piracy.
IP sensitive industries are among our most internationally
competitive. Today, nearly half of the motion picture
industry's revenues are generated overseas. The software
industry estimates that sixty percent of its sales originate
outside the United States. Our success in eliminating trade
barriers in this arena and stepping up international
enforcement efforts against piracy will be essential for
achieving the goal of doubling exports.
But the question remains--once we reach the goal of
doubling exports, will it make a dent in our trade deficit.
Today, I worry that the answer is no. Because today, over 50%
of our trade deficit can be attributed to our dependence on
foreign oil.
As unrest unfolds in the Middle East and fuel prices once
again rise here at home, the moral, economic, and national
security consequences of our dependence on fossil fuels are as
clear as ever. Although we do not buy from Iran or Libya, our
appetite for oil bolsters the international crude prices that
are subsidizing these dangerous regimes.
We can do better. We need to do better. Building stronger
clean energy and energy efficiency markets here at home and
abroad is critical. It is not only critical for reducing the
staggering $366 billion worth of foreign oil we import. It is
critical for advancing U.S. leadership in the emerging and
lucrative field of clean-tech.
This morning we will have the opportunity to hear from
Capstone Turbine Corporation. The company is a leading
manufacturer of microturbines, or localized generators that
boost efficient energy usage with cost-savings, energy-savings,
and overall emissions reductions. More than 70% of the
company's products are manufactured for export and 100% of its
products are made in America. And, I am proud to say, Capstone
is headquartered in the 30th Congressional District of
California, which I represent.
Small- to medium-size firms like Capstone are a cornerstone
of the President's National Export Initiative.
I look forward to hearing from all of our witness about
what it will take to make the President's vision a reality.

Mrs. Bono Mack. And we did see Mr. Waxman pop in briefly so
I am sorry he had to leave but as Chairman Barton said, there
are other things happening as well.
But we do have two panels before us today. Each of the
witnesses has prepared an opening statement that will be placed
into the record. Each of you will have 5 minutes to summarize
that statement in your remarks.
On our first panel, we are fortunate to have the Hon.
Francisco J. Sanchez, Under Secretary of Commerce for
International Trade. We appreciate your being here very much
today, Mr. Secretary, and would recognize you for 5 minutes.

STATEMENT OF FRANCISCO J. SANCHEZ, UNDER SECRETARY OF COMMERCE
FOR INTERNATIONAL TRADE

Mr. Sanchez. Thank you. Good morning. Chairwoman Bono Mack,
Ranking Member Butterfield and members of the subcommittee,
thank you for giving me the opportunity to speak to you today.
In his State of the Union address, President Obama told
Americans that the future is ours to win. By understanding how
the world has changed, we can create the environment that can
expand the American economy. Great opportunities lie in the
vast global market. Today, 95 percent of the world's customers
live outside our borders. The International Monetary Fund
forecasts that 83 percent of the world's economic growth during
the next 5 years will happen outside the United States.
The nations of the world are giving rise to a new global
middle class. They are a new marketplace for American exports,
and one example of this is travel and tourism. Data released
just this morning reveals a record-breaking 60 million
international visitors in the United States, shattering the
previous record set in 2000. These travelers spent more than
$134 billion. That is a 12 percent increase over 2009,
generating a 50 percent increase for the travel trade surplus
of $32 billion. Travel and tourism is no small industry. These
exports generate $1.3 trillion for the U.S. economy, supporting
7.8 million jobs.
Through the National Export Initiative and its goal of
doubling exports by 2015, we hope to support millions of jobs
right here at home. U.S. exports of goods and services in 2010
representing $1.83 trillion increased nearly 17 percent over
2009. That is the largest year-to-year percent increase in more
than 20 years.
As we search for ways to create jobs for American workers,
increasing our Nation's exports must be a important tool in our
toolbox. On average, manufacturing jobs supported by exporting
pays up to 18 percent more than non-export-supported jobs.
The NEI is the United States' first Presidential-led
government-wide export promotion strategy and it is good for
American workers and companies alike. The NEI focuses on five
areas: improving trade advocacy and export promotion,
increasing access to credit, especially for small- and medium-
sized businesses, removing trade barriers abroad, robustly
enforcing our trade laws and pursuing policies to promote
strong, sustainable and balanced growth.
Congress created the International Trade Administration to
promote American companies and workers abroad. During 2010, ITA
assisted more than 5,500 U.S. companies. Eighty-five percent of
these were small- and medium-sized companies. ITA coordinated
an unprecedented 35 trade missions to 31 countries with nearly
400 companies participating. We recruited 13,000 foreign buyers
to major U.S. trade shows and connected them with U.S.
companies, resulting in approximately $770 million in sales. In
2010, ITA also assisted U.S. companies competing for foreign
government procurement contracts, winning projects valued at
$18.7 billion in U.S. export content, and that supported an
estimated 101,000 jobs. We successfully resolved 82 trade
barriers in 45 countries, helping to ensure U.S. companies
better access to overseas markets.
The Obama Administration is committed to aggressively
enforcing our trade laws. In 2010, we had approximately 300
anti-dumping and countervailing duty orders in place covering
more than 120 products from 40 countries. We strive to make ITA
the one point of contact in the Federal Government for
companies who want to succeed abroad. The Administration is
continuing our hard work to address outstanding concerns with
the pending trade agreements and to improve those agreements
and get them to Congress as they become ready.
As this subcommittee is aware and many of you have already
mentioned, the United States-Korea trade agreement is ready for
consideration. President Obama is eager to see this agreement
ratified as I know many of you are, and he requests that
Congress approve this agreement.
With the same engagement and bipartisan cooperation as we
have had on the Korea agreement, we will continue to address
outstanding concerns relating to the Panama and Colombia
agreements. Our goal is to have all three of these agreements
with their outstanding issues addressed approved by Congress.
We will not be left behind as others secure greater market
share at the expense of American exports. To compete, we must
access the world's fastest-growing markets and we must do so on
a playing field that is both level and reflects our values as
Americans. The NEI is the Obama Administration's commitment to
help U.S. companies compete and win in an increasingly
competitive global marketplace.
I thank you again for the opportunity to come before you,
and I look forward to answering your questions. Thank you.
[The prepared statement of Mr. Sanchez follows:]

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Mrs. Bono Mack. Thank you, Mr. Secretary. The chair
recognizes herself for 5 minutes for questions.
As you mentioned, the President's NEI is designed to double
U.S. exports by 2014. First of all, a clarification. Is that
2014 or 2015?
Mr. Sanchez. It is 2015.
Mrs. Bono Mack. The President did say in his State of the
Union 2014.
Mr. Sanchez. Well, then the President is right.
Mrs. Bono Mack. Good answer. But isn't that going to be
very difficult to accomplish unless we enter into new trade
agreements with countries like Korea, Colombia and Panama?
Mr. Sanchez. There is no question that one of the most
important things we can do to achieve the doubling of exports
is reducing barriers, and trade agreements play an important
role in that. In fact, we have 17 trade agreements in place
now. With those 17 countries, we actually have a trade surplus.
Mrs. Bono Mack. But if we focus on the three in question, I
think that a number of members raised those three specifically,
is the Administration committed to getting all three trade
agreements completed this year?
Mr. Sanchez. They absolutely are completed. They are
absolutely committed to getting all the issues resolved and
getting them to Congress as soon as possible.
Mrs. Bono Mack. What is the timetable?
Mr. Sanchez. Well, let me just say what we have done to
achieve that. Obviously, Korea is ready to come before you.
With Colombia, we sent a team to Colombia a few weeks ago.
There is a team now from Colombia meeting with folks at USTR.
We are working very, very hard to work through the issues that
we believe still need to be resolved with regard to their labor
code and violence toward labor organizers, so I am very
confident just from the activity that you have seen over the
last 8 weeks that we will move forward on Colombia.
Mrs. Bono Mack. Thank you. Switching gears for a second,
Mr. Secretary, U.S. creativity without a doubt is one of our
Nation's greatest competitiveness advantages but we have
ignored it for too long. Around the world, especially in places
like Russia, online theft is undermining that competitiveness.
Can you tell me what the Administration is doing to ensure that
the government of Russia effectively responds to this threat
before it joins the WTO?
Mr. Sanchez. Well, you are absolutely right. Intellectual
property rights protections is one of the most important trade
barriers that affect American competitiveness, and we work on
that issue across the world, and in Russia we work closely with
the business community, and Russia recently passed a law that
upgrades their enforcement of piracy and counterfeit products
so we----
Mrs. Bono Mack. Is piracy up or down?
Mr. Sanchez. I am sorry?
Mrs. Bono Mack. Is piracy, is the rate of it up or down?
Mr. Sanchez. I don't know the exact rate of piracy with
regard to Russia. What I can tell you is, though, with our
encouragement and working closely with the business community,
Russia has acted to expand and upgrade its enforcement. Now,
the proof is in the pudding, and this happened in late November
so it is too early to tell, but I can tell you that we are
closely monitoring what is going on in Russia. We are working
very closely with the business community, and if we don't see a
problem, we will be sure to continuously raise this issue
because it is very important to our competitiveness.
Mrs. Bono Mack. And also, a number of members on this
committee, specifically Ms. Blackburn and myself, are very
interested and very keenly aware and we will be watching. We
will hold Russia's as well as China's feet to the fire as far
as piracy goes.
But finally, I have three yes or no questions for you, a
simple yes or no, good news. Is the free trade agreement with
Colombia in trouble because of opposition from labor?
Mr. Sanchez. No.
Mrs. Bono Mack. What about Panama?
Mr. Sanchez. No.
Mrs. Bono Mack. Will the agreements again get done this
year?
Mr. Sanchez. I am confident we will resolve these issues
and get them to Congress.
Mrs. Bono Mack. Yes or no.
Mr. Sanchez. The issues will be resolved this year.
Mrs. Bono Mack. Thank you, and I yield back my time and
would recognize the ranking member for 5 minutes.
Mr. Butterfield. Thank you, Madam Chairman.
Mr. Under Secretary, the National Export Initiative lays
out what we call a bold goal to double exports in 5 short
years. It outlines priorities and strategies for streamlining
U.S. government export promotion activities. That is a
promising set of ideas. As chairman of the Trade Promotion
Coordinating Committee, the Department has Commerce has to
coordinate approximately 20 separate agencies. Is that correct?
Mr. Sanchez. Yes, sir.
Mr. Butterfield. In export promotion ranging from DOE to
the U.S. Trade Representative to the Department of Agriculture,
and instead of tackling the problem, the NEI creates another
layer called the Export Promotion Cabinet. Mr. Secretary, in
approximately 90 days the President intends to recommend how we
address some of these redundancies. He has promised to do that.
He should be commended. Previous Administrations only have
asked for generic reorganization authority but refuse to
explain how such authority might be used. So far, it sounds as
if the President will recommend specifics, and trade programs
are a good place to start. Would you speak to that briefly, if
you would, please?
Mr. Sanchez. Yes, Congressman. Let me first say that the
President's Export Promotion Cabinet does not really add
another layer of bureaucracy. In fact, it is requiring cabinets
to pay attention to the importance of export promotion. So for
many years the Secretary of Commerce and Secretary of State
were the primary Cabinet members who when they went abroad
would do commercial diplomacy. Under this Export Promotion
Cabinet, any Cabinet member that goes abroad is also tasked
with commercial diplomacy. In addition to this, Secretary of
State Clinton has directed her ambassadors and said that your
performance will be measured in part y the degree to which you
do commercial diplomacy. So it is more than anything putting
emphasis on the importance of this.
Now, specific to the reorganization, as President Obama
said, we can always do better and it is his goal to review how
we do export promotion. As you pointed out, there are many
agencies that have some role to play in export promotion and it
is his goal to take a fresh look at that and see how we can
best do that. Now, they are just now in the process of
gathering information, interviewing both folks within the
government as well as in the private sector that they serve,
and my understanding is that they will have a recommendation to
the President in about 90 days but it is still in the process
of being formulated.
Mr. Butterfield. Thank you. Some people have suggested that
in order to increase exports, the United States should focus on
exporting more of the same goods and the same services that it
already exports or more goods and services that U.S.
manufacturers are good at producing right now. That probably
sounds reasonable, but I am concerned that if that is all we
do, we may be forgetting the most basic tenet of economics,
that is, supply and demand. So Mr. Under Secretary, can you
tell me what ITA is doing to ensure that U.S. manufacturers
know what goods and services other countries really want? For
example, does ITA regularly survey the domestic and import
markets of other countries, and if so, how do we go about this?
Mr. Sanchez. Thank you for the question. We are doing
rigorous analysis both on the markets that offer the best
opportunity for us, and that is a combination of emerging
markets--China, Brazil, India--next-tier markets like Vietnam,
Indonesia, Turkey, Colombia, Peru, but also focusing on mature
markets, Canada and Mexico, for example. Forty-two percent of
our exports go to countries within the Western hemisphere, so
we are doing rigorous market analysis and then we are
superimposing on that sector analysis within each of those
markets to see where we get our best bang for the buck, and I
would say as the chairwoman pointed out in her opening
statement, it isn't just what we do best but it is the
innovation that we create. Apple is a great example of
innovation and practice and the very positive impact it can
have on our economy, so we are focusing on those sectors that
can have the highest impact in those markets where we see high
growth and high opportunity.
Mr. Butterfield. All right. I have another question but
maybe the next round. Thank you. I yield back.
Mrs. Bono Mack. Under the committee rules, the chair will
now recognize Mr. Pompeo of Kansas for 5 minutes.
Mr. Pompeo. Thank you, Madam Chairman, and good morning,
Secretary Sanchez.
Mr. Sanchez. Good morning.
Mr. Pompeo. You talked, when you were talking about the
Colombia agreement as labor being the last sticking point. Is
that correct?
Mr. Sanchez. Well, the issue was certain provisions in
their labor code as well as concerns about violence toward
labor organizers and in particular impunity toward those who
commit acts of violence.
Mr. Pompeo. And would that be the same for the Panama
agreement?
Mr. Sanchez. The Panama agreement, I think one of the
issues remaining has to do with their labor code. It is an
issue that we are working on closely with the Panamanian
government and we don't see any big problem. We don't foresee
any challenges in moving that forward.
Mr. Pompeo. We had a chance to talk just briefly before the
hearing started this morning, and you talked about being an
evangelist for trade.
Mr. Sanchez. Yes.
Mr. Pompeo. Kansas 4th Congressional district relies on
enormous trade exports. We build airplanes and airplane
components in south central Kansas and we export a lot of
agricultural items as well. When you are out evangelizing, do
you talk to organized labor about how important trade
agreements are to them? I know in our district that the more
trade we have--our aircraft manufacturing plants have the IAM
as their primary union and we have lots of union folks that are
great folks in the 4th district. These trade agreements are
critical to them. I hope that you are out there talking to them
about that. Can you tell me what you tell them about the
importance of trade?
Mr. Sanchez. Yes. I have reached out to labor and we do
meet, and I talk about the impact of the existing agreements.
As I mentioned earlier, we have 17 current agreements, and in
the aggregate with those 17 agreements, we have a goods
surplus, a significant surplus, and so overall they have been
good. Now, I acknowledge that in certain sectors and in certain
communities it isn't equally distributed and some of them may
be hurt and so it is important that we support those
communities when those things happen. But overall for our
economy, trade agreements have a positive impact. And the other
thing I tell them is that again as the chairwoman pointed out
in her statement is that other countries are not waiting for us
to sign agreements. Agreements are being signed by the EU, by
South Korea, by other countries in Southeast Asia, by countries
in South America, and so if we don't move, we get left behind,
and that is not good for the American economy, not good for
American companies and certainly not good for American workers.
Mr. Pompeo. I appreciate that. I am glad to hear that from
this Administration. I think that is an important message. I
know, I hear from our agriculture folks already about the delay
in Colombia impacting their ability to move crops into a market
that they think they can be incredibly competitive in.
I guess my last comment is, you had mentioned a series 80,
I think it was, in your statement, trade barriers that you had
knocked down. Can you give me a couple of concrete examples in
the last 12 months, places and particular barriers that you all
took on and were successful in helping us increase exports?
Mr. Sanchez. I don't have a specific one in mind but I can
give you kind of an illustration. These are initiated by a
company who is trying to get into a particular market and there
might be a regulation that is overly burdensome, goes beyond
just responding to the public benefits that they are trying to
create with the regulation and creates a barrier, so we will
work with that country, with that trading partner to put a
spotlight on that and reduce it. We have done this in 45
different countries including countries like China, Brazil,
Turkey and India. I will be happy to get more specific ones to
you in writing after the hearing.
Mr. Pompeo. I would appreciate that. We have got some
issues with export controls as well. I know that is not
directly tied to what you do, but I think you may be heading
out my way before long and I would love to get a chance to
spend a few minutes talking to you about that.
Mr. Sanchez. I will be well prepared with examples before I
go out to see you.
Mr. Pompeo. Thank you very much, Mr. Sanchez.
Mr. Sanchez. Thank you.
Mrs. Bono Mack. Thank you. The chair would recognize Mr.
Gonzalez for 5 minutes.
Mr. Gonzalez. Thank you very much, Madam Chair, and Mr.
Secretary, welcome. I know that many of us supported your
appointment, nomination and confirmation, so it is great to see
you here.
Mr. Sanchez. Thank you.
Mr. Gonzalez. Nothing is an easy road in Washington.
Mr. Butterfield. Will the gentleman yield?
Mr. Gonzalez. Of course.
Mr. Butterfield. When I first met the Under Secretary, the
first word that came out of his mouth was ``Charlie Gonzalez.''
I yield back.
Mr. Gonzalez. And the conversation continued regardless.
Anyway, Mr. Secretary, well, first of all, I will get the
parts and stuff out of the way because I know that my colleague
from Texas, Mr. Barton, alluded to the creation of private
sector jobs and it is not all created by the government. I will
say this about the present Administration. In the past month, I
think about 35,000-plus government jobs were lost and 200,000-
plus private sector jobs were created. I will say this, and I
think the record will bear me out, that this Administration's
record as far as creating private sector jobs far exceeds that
of the years 2000 to 2008, but I must say that beating the
number zero of net job creation between the years 2000 and 2008
shouldn't be all that hard to do, and we do have great
challenges and I am hoping that we will get past all this and
figure out how we are going to get out of this tremendous
recession that we still find ourselves in.
In a minute we are going to have the second panel, Mr.
Secretary, and a couple of those witnesses, maybe three--of
course, we will have the chamber and we will have think tank
but we are going to have businesspeople and they are going to
obviously touch on what they sense or feel is the greatest
challenge to them in finding markets and such. I have not read
their testimony. I am just assuming that that will be the crux
of the subject matter. What is your estimation? What do you
think it is? What do you think they are going to tell us in the
next hour or so?
Mr. Sanchez. Well, I think what the American business
community tells us every day is that they understand the
importance of exports and they want to export more, and so in
order to do that we have to reduce trade barriers. Now, we are
doing that certainly with trade agreements, which are a very
important tool, but we do it in a lot of other ways as well--
harmonizing standards, regulatory cooperation, really putting a
spotlight on corruption or the lack of intellectual property
rights protection. These are issues that of vital concern to
the business community. We work very closely with them to try
to reduce these non-tariff barriers every day. So I think they
will tell you that we need to get the three pending trade
agreements completed. I think they will also tell you that the
Trans-Pacific Partnership which will also expand and benefit us
in the Asia Pacific region needs to get done, and we are on
track. We are hoping to have the framework for an agreement on
that in November, and they will also tell you we need to the
base hits. You know, trade agreements you might think of as
home runs. Base hits are working every single day resolving the
trade barriers that Congressman Pompeo referred to that may
affect one particular sector or in some cases one particular
company. It is working on those issues that I mentioned country
by country. I have privilege of serving on the commercial
dialog with Brazil and another commercial dialog with India
where we raise these issues that create non-tariff barriers.
Those are the base hits that we have to be hitting every day
along with the bigger home runs like trade agreements.
Mr. Gonzalez. Thank you very much, and I would yield back
the balance of my time.
Mrs. Bono Mack. I thank the gentleman. The chair recognizes
the gentlelady from Tennessee, Ms. Blackburn, for her 5
minutes.
Mrs. Blackburn. Thank you, and thank you, Mr. Secretary.
Let us stay right there talking about these emerging
markets--Brazil, China, India. Tell me what you are doing to
help our businesses. In Tennessee, our exports have increased
tremendously. You know that. You know that this is an issue
that is important to us just like the intellectual property
protections are important to us and so since you raised Brazil,
which is a market that we have our eyes on, talk to me about
what ITA is doing on a daily basis to help businesses take
advantage of opportunities that are there or to seek out and
know where they can be competitive. How are you helping them
target and drill down on these?
Mr. Sanchez. Thank you, Madam Congresswoman. Brazil is a
very important market for us. It is one of our targeted
emerging markets. We have a team of trade specialists in
country in Brazil as well as our domestic network that work
with companies around the country to take advantage of the
opportunities that exist. Let me give you a few in the
infrastructure space. As you well know, Brazil is going to be
host to the Olympics as well as the World Cup. It is estimated
that Brazil will spend over $200 billion in infrastructure, and
American companies are well positioned to support Brazil as
they grow in that space. So we are working closely with the
business community promoting that. We have trade missions
there. We have information available through our portal, our
web portal, Export.gov, and we will continue to focus on that.
So on export promotion, we are disseminating information,
taking trade missions, extending gold key services, which is a
customized service that is extended on a fee basis for
companies that want to go down there and have appointments
already made for them so they can hit the ground running. So we
are doing a lot on the export promotion side.
Mrs. Blackburn. So you are facilitating the information
dissemination and the awareness as well as the onsite, in-
country relationship?
Mr. Sanchez. Yes, ma'am. We are doing both.
Mrs. Blackburn. All right. Let me switch gears, since I
just have a little bit more time left. I want to look at the
export initiative.
Mr. Sanchez. Yes.
Mrs. Blackburn. And ask you a little bit about what steps
the bureau is taking to make certain that we avoid duplication
and redundancies and duplication of efforts among other federal
agencies. You know this is something that we want to make
certain we clean up a lot of the bureaucratic operational
processes, so as we look at this, and you know Congress has not
appropriated funding for this yet, what are you doing that is
going to ensure that you get rid of some of these redundancies
before you stand it up?
Mr. Sanchez. Well, let me highlight three things. First, we
have the trade promotion coordinating committee, and that trade
promotion coordinating committee has as its membership all of
the agencies that have some role, even if it is a very small
role, in export promotion. We meet regularly. We talk about
what we are doing. We look for places to collaborate and
cooperation. So for example, under that effort, we recognize
that our best use of the trade specialists that we have both
domestically and internationally are for companies that are
export-ready, companies that have already dipped their toe in
the water and are exporting, although they may only be
exporting to one market or two markets. So we have begun to
focus on those companies. Now, there are a lot of companies
that have never----
Mrs. Blackburn. So you are focusing more on enabling growth
rather than enabling entry?
Mr. Sanchez. ITA is focused on that. SBA through this
effort of making sure that we weren't doing duplication and
maximizing our resources, we work with SBA who now takes the
lead on companies that have never exported before.
Mrs. Blackburn. OK.
Mr. Sanchez. So on the trade promotion coordinating
committee is one. Number two, within ITA, we have looked at how
we can streamline our own efforts and make it tighter, so we
have a unit of manufacturing and services. Their mandate was
quite broad and we are looking at now streamlining that and
focusing it just on sectors that have export potential, and
then more broadly, as Congressman Butterfield alluded to, the
President has directed his team to look at how we do export
promotion and trade policy and see if we can't do it better,
more effectively and more efficiently. So on three levels we
are actively----
Mrs. Blackburn. Do you feel like that in that process--and
my time is nearly up. Do you feel like in that process you are
picking winners and losers, or no?
Mr. Sanchez. No, that is not our job. It isn't our job, but
it is our----
Mrs. Blackburn. OK. My time is expired. I yield back.
Mrs. Bono Mack. The chair recognizes the chairman emeritus
of the full committee, the distinguished John Dingell.
Mr. Dingell. Madam Chairman, thank you for your kindness,
and I really much appreciate you holding this hearing. It is
important leadership in a very important area. Thank you.
I have an excellent opening statement which I have inserted
in the record, and I hope everybody will read it and find it
both enlightening and enjoyable.
[The prepared statement of Mr. Dingell follows:]

Prepared Statement of Hon. John D. Dingell

Thank you, Madam Chair, and I commend you for exercising
our Committee's often overlooked jurisdiction over trade-
related matters.
I wholeheartedly agree with calls to increase U.S. exports
in order to put people back to work and restore our country's
reputation as a place that makes things. When I came to
Congress some years ago, the United States exported more
merchandise than it imported. We now enjoy a sizeable goods
trade deficit, attributable, I believe, to unfair and deceptive
foreign trade practices, similarly poor enforcement of our own
trade laws, free trade agreements that are anything but, our
ballooning debt and associated interest payments thereon, and a
general focus on promoting the interests of the financial
services sector over those of our domestic manufacturers. The
current recession gives us the opportunity to re-orient U.S.
trade policy toward the job-creating export of tangible
manufactured goods and away from the smoke and mirrors long
associated with Wall Street.
I welcome our witnesses this morning, particularly Commerce
Undersecretary for International Trade, Francisco Sanchez. I
intend to focus my attention on the pending Korea-U.S. Free
Trade Agreement and ask that you, Mr. Sanchez, help me improve
my understanding of that deal by responding to a series of
``yes'' or ``no'' questions. I hope to learn about the deal's
potential effects on the automobile industry, which, as my
colleagues and those assembled here today know, is of great
importance to my home state of Michigan.
I thank you for your courtesy, Madam Chair, and yield back
the balance of my time.

Mr. Dingell. Now, Mr. Secretary, thank you for appearing
before the committee today. I have a number of questions to ask
you which though I think the best answer is a yes or no, and I
will try and see that you have them in writing so that you may
later make such additional comments as you find necessary. I
want to tell you, I am a particular admirer of your department,
particularly your Foreign Commercial Services Agency and the
market access and compliance operation that you have down
there. These are very important to us in our trade, and I hope
my colleagues on the committee will inform themselves of the
work that they do in increasing American exports and improving
our trade posture.
President Obama recently announced that the KORUS FTA will
create 70,000 jobs in the United States. Korean President Lee
Myung-bak has announced that the deal will create 335,000 jobs
in Korea in the next 10 years. Do you agree with these
estimates? Yes or no.
Mr. Sanchez. First of all, I just want to say thank you for
the kind comments about the International Trade Administration.
I can't speak to the estimates by the Korean president, but
yes, I do agree with the estimates and the impact on the U.S.
economy.
Mr. Dingell. You have no reason to challenge either set of
figures?
Mr. Sanchez. I have no reason to challenge, and I can----
Mr. Dingell. Thank you, Mr. Secretary. The International
Trade Commission's 2007 report on KORUS FTA as amended in March
2010 indicated that the U.S. motor vehicles and parts trade
deficit with Korea would increase between 1 billion and 1.3
billion annually if FTA was implemented. Does the Department of
Commerce estimate this as well? Yes or no.
Mr. Sanchez. I would need to look at that. I can't answer
that.
Mr. Dingell. But you have no reason to challenge those
numbers at this time?
Mr. Sanchez. Not at this time.
Mr. Dingell. I am troubled by the KORUS FTA's country-of-
origin rules. Is it true that such rules permit a product from
Korea with a minimum 35 percent Korean content to be considered
as having originated in Korea for U.S. tariff purposes? Yes or
no.
Mr. Sanchez. I am not familiar with that provision so I
can't----
Mr. Dingell. I believe it is so. Do you have any reason to
challenge it?
Mr. Sanchez. Not at this time.
Mr. Dingell. All right. Mr. Secretary, for the sake of
argument, is it possible if that be true that a Korean product
with 65 percent Chinese content could be imported to the United
States under the KORUS FTA's favorable tariff conditions? Yes
or no.
Mr. Sanchez. If that provision is in place, I suspect that
would be true.
Mr. Dingell. Now, Mr. Secretary, I note that KORUS FTA as
amended last December includes a provision that allows United
States to snap back its tariffs on automobiles and light trucks
if Korea violates the terms of FTA. Is it true that the
agreement does not allow the United States to snap back to its
original 25 percent tariff on light trucks? Yes or no.
Mr. Sanchez. Mr. Chairman, I am not familiar with that
provision but I have no reason to challenge your statement.
Mr. Dingell. Mr. Secretary, I appreciate your courtesy and
the way you are responding. Further, Mr. Secretary, is it true
that the snapback provision would allow Korea to reimpose an 8
percent tariff on U.S. vehicles while the United States would
be allowed to impose a tariff of only 2.5 percent on Korean
passenger vehicles? Yes or no.
Mr. Sanchez. Once again, I am not familiar with that
specific provision but have no reason to challenge your
statement.
Mr. Dingell. Mr. Secretary, I appreciate your courtesy.
Finally, Commerce will bear significant responsibility in
enforcing the terms of KORUS FTA. Will you commit that the
Department of Commerce will do so vigorously, vigilantly and
fairly?
Mr. Sanchez. Yes.
Mr. Dingell. Mr. Secretary, I want to thank you again for
your appearance here. I want my colleagues to know the very
great importance of the department of which you are part and
the extraordinary good work that you do in stimulating our
trade efforts abroad, particularly the assistance that you give
to small businesses and middle-sized businesses as they seek to
increase their exports and that your services in this
particular area are extraordinary.
Madam Chairman, I think it would be useful if this
committee were to take a look at that because they do superb
work in these areas and they do not have the funds and the
resources they need for producing the kind of benefits that
they can produce if we provide them support. Again, Madam
Chairman, I thank you for your courtesy and for your wisdom in
this matter. Thank you.
Mrs. Bono Mack. I thank the gentleman, and the chair
recognizes the gentleman from Illinois, Mr. Kinzinger, for 5
minutes.
Mr. Kinzinger. Thank you, Madam Chairman. Again, Mr.
Secretary, how are you?
Mr. Sanchez. Good.
Mr. Kinzinger. You have obviously heard this today. You
know where we are coming at on this. One of the reason
disappointments I have had is just, I think, the feeling that
there is no real hurry to do anything in Colombia or Panama or
really this idea that we can't find out exactly what it is but
there is a hesitancy. I don't know if it is an attempt to
satisfy base. I don't know what is going on but there is really
a hesitancy to do it, and I can tell you in my own life, prior
to coming here I was and remain in the reserves, a pilot with
the military, and I actually have been involved in some joint
operations in the south and I can tell you they are a very
strong ally of the United States, specifically, Colombia I am
talking about now, Panama as well, but a very strong ally of
the United States, and one of my concerns as we continue to
kind of just limp along or dilly-dally and we don't pass this
agreement which was negotiated years ago now, I am afraid that
we begin to lose that support in Colombia where the people
begin to wonder, you know, what is the hesitancy. Every moment
that goes by that this agreement is not in place that we are
unable to export in a very strong way to these nations, other
countries like China, European nations are very quick to come
in and pick up that vacuum, pick up that slack. So I really
feel that every moment that goes by not in Colombia
specifically I am talking about now we are losing potentially
the support of the people as they wonder what is happening and
we lose market export opportunities, not to mention the fact
the role that a free trade agreement or really a leveling of
the playing field for us, what a free trade agreement would do
in terms of just generally national defense, continuing to
build that alliance in an area of the world where frankly
American interests have begun to be challenged by many fronts
and especially on the eastern front of Colombia. So that is a
concern I have.
Let me ask you a few questions, and I guess I will start
with one first. You testified that the Korean free trade
agreement represents $10 billion in exports and 70,000 American
jobs. In both that and the one with Panama and Colombia that
have been sitting on the table, have there been any estimates
so far about how much really has been left on the table by our
failure to implement these trade agreements over the last few
years, how many potentially the export amount we have lost or
how many jobs have not been created because this has been
sitting on the table for so long?
Mr. Sanchez. I know that with the Colombia trade agreement,
I can say forward leaning. I can't speak to years past but
forward leaning it is estimated to increase exports by about a
billion dollars to that country, Panama, I think slightly less
than that. But let me just say, Congressman, that I agree with
you completely in how important moving these trade agreements
is. As with you, I have a history with Colombia as a
businessman and I recognize Colombia not only as a good friend
and an ally but as a strong commercial partner, so it is
important to move forward on this.
Mr. Kinzinger. Well, and so I think that is good because
from what I am hearing from you, it sounds like we are going to
have enthusiastic cooperation from the Administration here very
soon over passing all three of these trade agreements, which I
think would be great for the American economy and I look
forward to working in a bipartisan way with the Administration
on that.
In your opinion, what are the biggest impediments right now
to our global competitiveness for our business and our exports?
Mr. Sanchez. Well, let me put them in two categories. One
is domestic. Only 1 percent of American businesses export.
Compare this to Germany, 12 percent of their business is
exports. So one challenge we have is getting the word out to
American business, particularly small- and medium-sized
companies, that we can no longer look at our market as a
community, a state or----
Mr. Kinzinger. Well, I think business knows that. I think
we need to get that out continually and I would love to hear
the Administration continue to talk about this to organized
labor, to the American people about the importance of trade. Go
ahead.
Mr. Sanchez. Well, I think a lot of American business does
but I want to see more American businesses exporting, and then
within that 1 percent, 58 percent of those companies only
export to one market. So we need to do a better job of selling
our goods and services abroad.
Mr. Kinzinger. Well, let me ask you something because I am
almost out of time. What about corporate tax rates?
Mr. Sanchez. I think we need to look at everything that can
have an impact on our competitiveness.
Mr. Kinzinger. Well, what about corporate tax rates
specifically?
Mr. Sanchez. I think corporate tax rates should be looked
at. I think they should absolutely be looked at as----
Mr. Kinzinger. Would you support reducing corporate tax
rates so that we could reduce our costs overseas and be more
competitive in the export market?
Mr. Sanchez. Well, I certainly support a review of what we
need to do.
Mr. Kinzinger. All right. Thank you, sir.
Mr. Sanchez. Thank you.
Mrs. Bono Mack. The chair recognizes the gentleman from New
York, Mr. Towns, for 5 minutes.
Mr. Towns. Thank you very much, Madam Chair. Let me thank
you and the ranking member for having this hearing. I think it
is a very important hearing and you are doing it in a very
timely fashion, and I like that as well.
Let me ask you, since it is our job to analyze how trade
barriers are hurting American industry, will you develop an
analysis of the impact that the current visa processing
procedures and visa interview delays in key growth markets like
Brazil, China and India are having on travel to the United
States and provide it to this committee?
Mr. Sanchez. Congressman, you raise an important issue. I
am happy to provide information that could be useful to you and
to this committee. What I can say about that issue is that my
boss, Secretary Locke, heard an earful from American business
all over the country. He then raised this with Secretary of
State Clinton. He also heard about concerns when people come to
our borders and entry points so from those conversations a
working group has been established between Commerce, State and
Homeland Security to focus on visa and entry issues. We use
that working group to gather information from the business
community and make sure that State Department and Homeland
Security knows about these issues. We also use it as
dissemination of information to the business community. So we
are aware that this is a problem that we can solve ourselves
and we are working on it and working very closely with State
and Homeland Security.
Mr. Towns. So you don't need the Congress to do anything?
Mr. Sanchez. Well, I wouldn't say that. What I would say is
that we will provide you any useful information that we have
gathered, particularly in the last year and a half that we have
been working closely with those two agencies on this issue.
Mr. Towns. In your testimony, you said that you will use
all the tools in your toolbox. What tools do we have in that
box?
Mr. Sanchez. Well, we have a lot of tools. On the export
promotion side, we took 35 trade missions last year, a record-
setting number. We had 400 companies participate in it. We also
have an international buyers program where we bring--last year
we brought 13,000 foreign buyers to our shores to trade shows
and we connected them with American businesses where sales were
made. We provide market analysis. We have a gold key service,
which is a fee-based service for companies that want us to help
them identify the right distributors or potential buyers, and
we arrange their meetings for them in country so that is on the
export promotion side, a sample of services.
On the policy side, we focus on non-tariff trade barriers
and try to work with the business community on identifying
them, putting a spotlight on those barriers and then working
with our trade partners to reduce them.
Mr. Towns. In your testimony, you also indicated that ``we
are doing our part to keep America globally competitive and
implement President Obama's National Export Initiative.'' What
are some of the things you are actually doing?
Mr. Sanchez. Well, one is certainly reducing trade barriers
abroad. The more barriers we can reduce, the more competitive
we will be. On the domestic side, the President is committed to
the R&D tax credit and making that permanent. One of the
greatest competitive advantages we have around the world is we
invest more in research and development than any other nation
in the world. We need to continue to do that, and the R&D tax
credit will go a long way to helping that happen.
Mr. Towns. Before I yield back, let me thank you for the
work that you are doing.
Mr. Sanchez. Thank you, Congressman.
Mr. Towns. I really, really appreciate it, and I think that
you are moving in the right direction. If there is anything
that we need to do on this side of the aisle, I think you just
need to voice it because I think more and more people are
beginning to realize how important it is to improve in terms of
our trade and strengthen our relationship across the board and
realizing that there is a correlation between unemployment and
crime. We have to recognize that, and I think that more and
more people realize it and that we hope to be able to remove
those trade barriers and be able to move forward.
On that, Madam Chair, I yield back.
Mr. Sanchez. Thank you.
Mrs. Bono Mack. I thank the gentleman. The chair recognizes
Mr. Guthrie for 5 minutes.
Mr. Guthrie. Thank you, Madam Chairman.
Thank you, Mr. Secretary, for coming today. I appreciate
that. I know you mentioned tourism earlier, and that is a great
industry. We have people coming here. I think it is important.
I guess I didn't think of it so much as exports, but it is
great when people are here, and when I hear somebody walking
around with a foreign accent out here, I will stop and talk to
them because I am proud to show off our great capital city to
them and appreciate them being here.
But I was thinking I remember being in another country,
somewhere I won't mention, but standing in this grand
marketplace, great buildings, a castle, the whole, just
fantastic, and they were talking about the great ships that
came in and out of the harbor, and it dawned on me as I was
standing there. I said you know what their biggest industry now
is selling the history of when they were a great power, and
that is something that we need to make sure--I mean, that was
their number one industry was people coming to see the great
buildings built when it was a great power, and we have to be
mindful as we are here, and in Brazil, Brazil in the late
1990s, I believe it might have been the mid-1990s to late
1990s, had financial issues, deficit problems, and took some
tough medicine. They were willing to take the tough medicine,
and the president at the time, Cordoza, led that effort. They
had the same kind of federal system we have. And look where
they are now. I think the benefits of that have paid off
tremendously. It is a wonderful country, a great place to be,
180 million people, maybe somewhere around that.
Mr. Sanchez. I think over 190.
Mr. Guthrie. Over 190 million now. But I do know there are
trade barriers between Brazil. I know the President is either
going or is there.
Mr. Sanchez. Yes.
Mr. Guthrie. What is going on with Brazil in particular?
Mr. Sanchez. Well, it is certainly one of our targeted
emerging markets. As you have pointed out, many, many years ago
Brazil was called the sleeping giant. Well, it has awoken and
it is a tremendous opportunity for American business, but also
has challenges both tariff and non-tariff barriers. As I
mentioned earlier, I have the privilege of co-chairing the
commercial dialog with Brazil. That is the vehicle we use to
raise trade issues, and so we have done everything from trying
to get them to open up their express delivery service. Express
delivery is very important for our small- and medium-sized
companies who don't have their in-house logistics operations,
and we made progress there. We are working with them on
harmonizing standards in a number of sectors but in particular
in alternative energy because we see a great opportunity to
boost our efforts there. We are working closely to bring our
smart grid technology to Brazil, so we are working on a number
of fronts to create opportunities, and as I mentioned earlier,
we are doing a lot of export promotion in the infrastructure
area because Brazil will be making significant investments in
that sector over the next 6, 7 years.
Mr. Guthrie. And that is all good. Also, just the product
manufacturing to ship in is something that is interesting. On
the export initiative that is coming out of the White House, is
it solely focused on tariff barriers or are you trying to make
ways to business more competitive? I know you talked about the
research credit, but when you talk to businesses now, they are
just concerned about the regulatory environment. We had an
issue yesterday we were hearing in the full committee about
energy costs that could come because of the way the EPA is
regulating. I know in Kentucky manufacturing, energy, that
gives us competitive advantage in Kentucky compared to other
countries because we have low energy prices, and a lot of
businesses are just concerned not just about getting into
countries and finding out opportunities but being competitive
because of the regulatory structure that is coming down. I
don't know if you guys are looking. Is this just a Commerce
Department initiative or are you looking at----
Mr. Sanchez. No, the National Export Initiative is a
government-wide initiative specifically on regulations. The
President has directed his Administration to look at
regulations and how they affect our competitiveness, and
Commerce participates in that review. We don't get involved in
every regulatory review but those that have significant
economic impact, and then finally, looking at regulations
abroad that affect our competitiveness is something we take a
very active role in as well.
Mr. Guthrie. And I am just about out of time. The three
trade initiatives together we have discussed today, if they
were moved in together, I don't know if you said it or maybe I
read the Administration says that would put all three in
jeopardy if they moved together. Do you find that to be the
case if we were to approve all three at the same time?
Mr. Sanchez. You know, I am not aware of who said that but
what I can tell you is this. I know we have one that is ready
to go now, and as Ambassador Kirk said I think in recent
testimony, if we are a company and we have a product ready to
go, we ought to take that product to market. So we are going to
do that. The other two, I think we are close. We are working
very, very hard. There has been a lot of activity with both
Panama and Colombia. I know the President is committed to
getting them to Congress and so I would say let us finish up
the work we have to do on these other two. We are working them.
There have been meetings. In fact, there are meetings going on
I believe today with Colombian officials and U.S. officials,
and let us move with the product we have ready, which is Korea.
Mr. Guthrie. All right. Thanks. I will yield back.
Mr. Sanchez. Thank you, Congressman.
Mrs. Bono Mack. The chair recognizes Mr. Harper for 5
minutes.
Mr. Harper. Thank you, Madam Chair.
Good to see you, Mr. Sanchez.
Mr. Sanchez. Thank you, Congressman.
Mr. Harper. Thank you for being here. I know you would
rather be getting a root canal right now than having to come
join us, but we thank you for your time and patience with us
today.
Mr. Sanchez. So far it just feels like filling a cavity.
Mr. Harper. That is good. Well, hopefully it won't get any
worse than that.
Mr. Sanchez, I wanted to talk to you about an issue that I
believe just happened very recently, perhaps yesterday, when
the Commerce Department announced the final determination in an
administrative review of the anti-dumping duty order against
frozen fish fillets from Vietnam. Of course, this announcement,
as you know, represented a reversal from a preliminary
determination that your agency announced I believe just last
September. This decision seems to be at odds with your stated
mission of improving the competitiveness of U.S. industry and
taking appropriate steps against unfair trade. What is most
concerning to me is the apparently perhaps political nature of
the decision your agency announced yesterday. I understand that
just after last September's preliminary determination, the
Vietnamese significantly stepped up the diplomatic pressure on
the Commerce Department. Further, I understand that this
diplomatic pressure culminated with a meeting only a few weeks
ago very late in the administrative review process between you
and the Vietnamese government. I also understand that when the
U.S. industry requested a meeting with you to present their
side of the case, you were personally unavailable or unable to
make room on your schedule. And then I also understand that in
just a couple of weeks, perhaps in early April, you plan to
lead a trade mission to Vietnam, and I believe that is a good
thing. You know, that is certainly an important thing for you
to do, to lead a trade mission to Vietnam. However, I am
concerned that this recent decision perhaps may have been
political in nature and that it has been made to the detriment
of a U.S. industry and of course thousands of workers in that
industry. So I would ask if you could help this committee
better understand how the department reached this final
decision.
Mr. Sanchez. Congressman, I take my role as enforcing our
trade laws very, very seriously. I think it is one of the most
important things we can do is to make sure we are creating a
level playing field at home for American business. I can assure
you, I can look you and this committee in the eye and say that
this decision was made based on the statute that we have to
follow and based on the facts in the record. Politics played
zero role in this decision. In this particular case, a
preliminary decision was--because Vietnam is a non-market
economy, we have to look at other markets to determine our
evaluation of whether or not there is dumping going on. In the
preliminary finding, we looked at the Philippines. Subsequent
to that preliminary finding, we reviewed the record, and based
on the information in the record determined that Bangladesh was
a more appropriate market, analogous market. This was based on
what was brought in by the petitioners as well as those
defending, that is, the Vietnamese, and based on that, it was
determined by our staff that Bangladesh was the more
appropriate market. Upon doing that, that changed the
calculation.
But let me just close by saying enforcing our trade laws is
absolutely critical. I do that with great pride. There were no
political considerations taken in making this decision. We
followed the statute and we used the facts as were presented.
Mr. Harper. When this change was made, when you were
looking at the surrogate market economy, so previously, let us
say back to September of 2010, before that which country was
used?
Mr. Sanchez. I believe it was the Philippines.
Mr. Harper. And then the change was made, was that
September of 2010 that the change was made?
Mr. Sanchez. You can't hold me to the dates.
Mr. Harper. But the change was made to Bangladesh?
Mr. Sanchez. Correct.
Mr. Harper. Did you get a pushback from the Vietnamese
government on making that change?
Mr. Sanchez. I got no pushback on any change, and if we had
gotten a pushback, it wouldn't have made a difference. The only
thing that would make a difference is the facts that are
presented to us, what makes the most sense as we apply the
statute.
Mr. Harper. You understand our concern, though?
Mr. Sanchez. I absolutely understand.
Mr. Harper. The appearance and the timing and some of those
events that took place, we just needed to get a better
explanation on that.
Mr. Sanchez. I understand.
Mr. Harper. With that, I yield back.
Mrs. Bono Mack. I thank the gentleman. The chair recognizes
Dr. Cassidy for 5 minutes.
Mr. Cassidy. Hello, sir.
Mr. Sanchez. Hello, Congressman.
Mr. Cassidy. I am struck as I look at--can you just
speculate on the potential benefits to our export of products
such as rice if we complete that Colombia free trade agreement?
Mr. Sanchez. I can't speak specifically to rice but I can
speak without any hesitation that the trade agreement would be
very, very good for American business, and the President fully
supports getting that completed and getting it to Congress. I
can tell you that I would like to see it completed because it
will help me in my job doubling exports by 2014, as the
President pointed out.
Mr. Cassidy. Now, there has been concern from some folks
that Colombia's human rights record is such that we should not
have that free trade agreement. Do you have any assessment of
that?
Mr. Sanchez. Well, my understanding is that the issues that
we are focused on are certain provisions in the Colombia labor
code and concern about violence toward labor organizers and the
impunity that happens when violence occurs, that people
literally have gotten away with murder. What I can say is that
the Colombian government is a strong collaborator in
confronting these issues and working with us to address those
concerns. We have been meeting with them. There has been a lot
of activity over the last 6 weeks, I would say, and I think
that both the Colombian government and our team are committed
to working through the concerns we have, finding a solution and
getting this to Congress as soon as possible.
Mr. Cassidy. Not to put words in your mouth, but it is my
general sense that there has been dramatic improvement in that
record over the last decade.
Mr. Sanchez. I think there has been. I have a personal
history with Colombia and I would agree with you. I think there
have been improvements and I am particularly impressed with the
Santos administration, the current administration that has
taken great steps to focus particularly on this issue that
concerns us. In addition to that, the vice president of
Colombia was a 20-year labor leader and he is a strong
proponent of the free trade agreement.
Mr. Cassidy. So some of the criticism was that the violence
was particularly directed towards labor unions so the fact that
he is a labor leader and also a leader in their government I
presume is particularly significant.
Mr. Sanchez. Well, I think he is a strong voice to
underscore that he is going to pay attention to the concerns
that we have raised, and they actually have taken a lot of
steps since August when they took----
Mr. Cassidy. Let me interrupt, just because I have limited
time.
Mr. Sanchez. Sure.
Mr. Cassidy. Now, what I am about to ask is kind of
sociological in nature so you may defer. It is my general
impression, though, that as countries become bigger trading
partners, they become more prosperous, and as they become more
prosperous, there are more employment opportunities for folks
rather than to be a mule to bring cocaine across the border. So
do you know if there is a body of literature that suggests that
as a country becomes more prosperous, they are less likely to
resort to international criminal activity?
Mr. Sanchez. I am not familiar with any body of literature
that focuses on that but what I can tell you is that I believe
that a Colombia trade agreement will be good for our country.
Mr. Cassidy. Now, let me ask you, changing subjects, my
district, Louisiana Baton Rouge area, has a lot of
petrochemical plants. When I was looking over our exports to
Korea, and we have apparently lost many of our petrochemical
imports to China. Now, is that a function of China just having
proximity? Is it a function of China, you know, not having the
same environmental regulations and so that they can lower the
cost of production because they can potentially pollute with
impunity or is it because no, these tariffs are actually the
barrier, and if we eliminate these tariffs, whatever else is
there we will overcome it?
Mr. Sanchez. I believe it is probably a combination of many
of the things that you mentioned. What I do know is by
ratifying this agreement, we will put our American companies in
a much better competitive position and I believe it will help
and benefit companies in Louisiana as well as other States
around the country.
Mr. Cassidy. It has been my general impression that if we
do a value-added product, oftentimes the Chinese don't do that
well. They do the commodity generic product but the value-added
they don't, but of course, the value-added is the most value.
Mr. Sanchez. Well, what I would say, and I think we will
agree on this, is that when you lower barriers both tariff and
non-tariff, we can compete with anybody in the world, and I
believe that those companies in Louisiana will be well served
by the Korea trade agreement.
Mr. Cassidy. I will add to that, our workers can out-
compete with anybody.
Mr. Sanchez. I agree with you.
Mr. Cassidy. I yield back. Thank you.
Mr. Sanchez. Thank you, Congressman.
Mrs. Bono Mack. The chair recognizes Mr. McKinley for 5
minutes.
Mr. McKinley. Thank you, Madam Chairman.
Sorry I am late. We have a meeting downstairs going and I
am splitting my time.
Mr. Sanchez. I heard I have competition.
Mr. McKinley. I have a series of things. I am coming from
the northern section of West Virginia, and you have a
representative there in our district that is helping out, but I
have had conversations with him and he is very frustrated with
what is happening long term. The last American manufacturer of
china is existing in the northern district, Homer Laughlin
China, and he is holding on. He has got 900 union jobs and he
is struggling, and he is looking for help and apparently we
can't help him with the tariffs. He is up against all the
countries that we have free trade with and he is losing. He
can't keep up.
Mr. Sanchez. In the Chinese market, or you are talking
about generally?
Mr. McKinley. All his china. He makes Fiestaware. It is one
of his main products that you will see across America is
Fiestaware, but he is competing with India, Vietnam, Indonesia,
Japan, China, and he is struggling, and I don't have answers
for him. But when I asked him what could we do to help, he
said, ``Just give me some tariff protection and I can compete
with them.'' But with the fact that he has to work with so many
of the EPA requirements for air and water quality and against
people that are not paying a living wage, it is very difficult
for him. So I would like to have some direction how we could
help Homer Laughlin China to get through all this because I
have seen the demise. In the northern section of West Virginia,
we had a chemical industry which was very vibrant, now gone.
The glass industry, we had Fenton, Fostoria, Viking Glass, all
gone because of imports. I don't want to see Homer Laughlin go
the same way. In fact, we are trying to hold on to those. So I
am hoping you can see there is a general problem I have with
free trade, where we are going with that. We have a steel
industry that they used to have 30,000--we had two steel
companies, Weirton Steel and Wheeling Pittsburgh Steel with
30,000 steelworkers just 15, 20 years ago. Now we have less
than 2,000, and when you speak to them about it, it is all
about imports where China and Japan have dumped their steel in
America but it is so costly and so time-consuming to get
litigation, they just give it up, so we are down now to 2,000
with the prospects of them finally just shutting the doors
after a long and very illustrious history and full employment
where families have been counting on that. And then we have
Marble King down in Paden City, West Virginia, the largest
manufacturer of marble products in the country. She is
struggling against imports that are coming in that are unfairly
priced and she has been told by everyone she has to take it
before whatever, is it the WTO or what? She can't afford to do
that. She is just a small operation.
What are small companies supposed to do? Do we have a
mentality that if you are a U.S. Steel or Weirton Steel you can
handle it but these small companies are struggling. Homer
Laughlin has just 900 employees. They are struggling. What can
we do to help them?
Mr. Sanchez. Well, Congressman, in that particular case, if
you will get me contact information, I will make sure that our
team----
Mr. McKinley. Could you have your staff contact us?
Mr. Sanchez. I would be happy to, and we will reach out to
them----
Mr. McKinley. They said they have reached out and they are
hearing nothing back, so----
Mr. Sanchez. Well, count on it. We will reach out to them
and we will sit down with them and see how we can be of help.
For the broader issue, there is no question that some
communities are disadvantaged by trade agreements. Those
communities, we need to give them help and we have programs in
place. The Trade Adjustment Assistance Program, one that
President Obama is promoting from our department is the
economic adjustment assistance program that helps workers,
companies and communities. We can't leave communities behind as
we pursue these agreements.
Mr. McKinley. We feel left behind.
Mr. Sanchez. And so we need to make sure that we are doing
everything we can to help as the world marketplace changes and
affects some communities very positively and others quite
negatively. So any way that we can help your community, count
on us to be there to do that, and our staff will reach out to
your staff specifically to work on helping this company that
you mentioned.
Mr. McKinley. Thank you very much.
Mr. Sanchez. Thank you, Congressman.
Mrs. Bono Mack. All right. The chair would like to
recognize Mr. Olson for 5 minutes.
Mr. Olson. Thank you, Madam Chairman.
Sir, I am from Texas, and I want to ask you about the beef
industry and the impact of the Korean free trade agreement upon
that industry. As you know, Texas produces 14 percent of the
total U.S. cattle and 16 percent of the total U.S. beef cows,
and we are slapped with a 40 percent tariff before this beef
from Texas--American beef--reaches Korean soil. We need to get
rid of that tariff. I understand that the free trade agreement
does get rid of that tariff, and I ask you to stick to that
because it is important for our country.
Also, Australia is very close to finalizing their agreement
and they are a large beef producer as well. Could I go back to
the beef producers in my State and tell them that this
Administration is going to fight for them to end that 40
percent tariff and get American beef in South Korea?
Mr. Sanchez. Congressman, what I can tell you is that one
of the reasons that we didn't bring the Korea trade agreement
forward sooner is that we were working on that very issue, so
we are very much aware of the impact of tariffs on the beef
industry. It is probably still not perfect but it is far
better, and we will continue to fight once it is ratified to
make sure the implementation of this agreement makes good on
the commitments that were made on beef.
Mr. Olson. Yes, sir, I appreciate that, and as I understand
it, the original tariffs were put on our beef because of mad
cow disease, and obviously that is not a factor right now. That
was something that was a viable argument maybe 5, 10 years ago.
And so again it is very important for my beef producers back
home that we have a fair market there in Korea. It is a big
market and we want that market to be a U.S. market, not an
Australian market.
Mr. Sanchez. Got it.
Mr. Olson. Thank you, sir.
Mr. Sanchez. Thank you, Congressman.
Mr. Olson. I yield back my time.
Mrs. Bono Mack. All right. Seeing no other members present,
I would like to thank you very much, Mr. Secretary, for your
time today. You have been very gracious, and just to say to you
that it is our plan to work with you and Secretary Locke and
the successor, whoever might have that next post to move our
country forward and really make ``Made in America'' matter
again. So thank you for your time.
At this point we are going to take a brief, maybe 2- or 3-
minute recess as we reset the table, and again, thank you. We
are hoping you are back again soon and often.
Mr. Sanchez. Thank you very much for the opportunity to be
with you. I really appreciate it and look forward to working
with all of you and expanding export of American products and
services. Thank you.
Mrs. Bono Mack. Thank you.
On our second panel, we have, as you can see, five
witnesses. Our first witness is Robert W. Holleyman, II,
President and Chief Executive Officer of the Business Software
Alliance. Welcome. Our second witness is--oh, OK, not in order,
but another witness is Daniel Ikenson, Associate Director of
the Center for Trade Policy Studies at the CATO Institute.
Welcome. Also testifying today is John Murphy, Vice President,
International Affairs for the U.S. Chamber of Commerce. We also
have Jack J. Pelton, President, Chairman and CEO of Cessna
Aircraft Corporation, and finally we have James Crouse,
Executive Vice President of Sales and Marketing for the
Capstone Turbine Corporation.
Welcome to each of you. You will each be given 5 minutes to
make your testimony. To keep track of time, there are timers on
either side. If you need to slide them down so you have a
better view of them, feel free to do that. When you see the
yellow light, you are down to 1 minute, and when it hits red,
if you could briefly sum up your remarks, I would appreciate it
very much. So we are going to recognize Mr. Holleyman first for
5 minutes. Welcome.

STATEMENTS OF ROBERT HOLLEYMAN, II, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, BUSINESS SOFTWARE ALLIANCE; JOHN MURPHY,
VICE PRESIDENT, INTERNATIONAL AFFAIRS, U.S. CHAMBER OF
COMMERCE; JACK J. PELTON, PRESIDENT, CHAIRMAN AND CEO, CESSNA
AIRCRAFT COMPANY; DANIEL IKENSON, ASSOCIATE DIRECTOR, CENTER
FOR TRADE POLICY STUDIES, CATO INSTITUTE; AND JAMES CROUSE,
EXECUTIVE VICE PRESIDENT OF SALES AND MARKETING, CAPSTONE
TURBINE CORPORATION

STATEMENT OF ROBERT HOLLEYMAN, II

Mr. Holleyman. Thank you very much, Madam Chairman, Mr.
Ranking Member, members of this subcommittee. It is indeed a
pleasure to be with you today.
This is all about creating jobs and what is the link
between U.S. export policy and American jobs, and the software
industry certainly knows from experience how to do that and we
think there are some lessons that can apply to the broader
economy.
Software contributes a $36 billion trade surplus to the
United States. We employ nearly 2 million Americans at twice
the national average wage. And there is one simple thing that
would allow us to contribute even more and have broader impacts
on the U.S. economy, and that is to reduce software theft. For
us, the challenge is not how to encourage businesses in other
countries to use American software. They are already using it
in overwhelming numbers. But too often they are not paying for
it, and so stopping illegal software use will certainly create
jobs for the software industry but it will also create jobs in
the rest of the American economy, and let me explain that.
Software is an essential tool of production, and nearly
every company and business in every sector relies on software
to create products and to do business. That includes everything
from manufacturing to transportation to financial services. In
the United States, 80 percent of businesses pay for their
software, in contrast, in countries like China, where 80
percent of the businesses do not pay for their software. The
result is an unfair competitive advantage. For companies who
are operating in countries that use software to run their
operations but don't pay for it, then they have an ability to
undercut U.S. companies who do by and large pay for their
software, and this unfair competition undermines U.S. products,
U.S. sales, U.S. exports, and displaces U.S. jobs far outside
of the software industry. More than $50 billion of software is
installed illegally around the world, and this problem is
fastest growing in large, emerging markets like China where the
PC market is exploding and the software sales are not tracking.
Microsoft, one of our members, commissioned a study by
Dartmouth economists, who estimated that eliminating piracy in
China for Microsoft products alone would create as many as
60,000 new jobs throughout the U.S. economy, and of course,
this would be expanded significantly when extended to other
companies.
The United States government has a variety of trade tools
at their disposal to secure better protection overseas, and we
believe they must be used. But to maintain our leverage in
negotiations with trade partners, we also have to lead by
example in this countries. Federal agencies already require the
use of legal software within the Federal Government but we must
also extend this to the next logical step to ensure that
federal contractors are also using legal software. The U.S.
Intellectual Property Enforcement Coordinator, Victoria
Espinel, is exploring that very idea and others as part of her
joint strategic plan on IP enforcement, and Madam Chairman, I
want to thank you for your role and cosponsorship in helping
create through the IP Act, the PRO-IP Act, that position which
has been enormously important domestically and internationally.
But this Congress with the Administration has an even more
important role: that is, to keep up the pressure on every
country that is using illegal software because it not only
hurts the software industry but it hurts more businesses more
broadly, and I would use China as the recent example where
Congress weighed in quite strongly about the unfair competitive
advantage that exists because of the use of illegal software in
that country where President Obama raised directly with
President Hu Jintao that issue on multiple meetings. We now
have good commitments in place but unfortunately, I will
report, that we have not yet seen any measurable increase in
sales of legitimate software by our companies as a result, and
I think we know and share with you, as we do with the
Administration, that the ultimate test is not the commitments
but the ultimate test is whether we see increased sales and
exports of U.S. software in these high-value markets that will
benefit not only software jobs but it will better level the
playing field between all sectors of the U.S. economy.
So thank you for this opportunity to testify.
[The prepared statement of Mr. Holleyman follows:]

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Mrs. Bono Mack. Thank you.
Mr. Murphy, you are recognized now for 5 minutes.

STATEMENT OF JOHN MURPHY

Mr. Murphy. Good afternoon. Madam Chairman Bono Mack,
Ranking Member Butterfield, it is a pleasure and a welcome
opportunity for me to testify before this subcommittee today.
For the U.S. Chamber of Commerce, no priority facing our
Nation is more important than putting Americans back to work.
With nearly 9 percent of the workforce unemployed, the biggest
policy challenge we face over the next decade is to create the
20 million jobs that we need to replace the jobs lost in the
recession and to meet the needs of our growing workforce.
With booming demand overseas for U.S. goods and services,
we believe that trade can play a vital role in reaching this
goal. The opportunities are immense. Already, more than 50
million Americans are employed by firms that engage in
international trade. One in three manufacturing jobs depends on
exports, and 1 in 3 acres on American farms is planted for
hungry consumers overseas. Nor is trade just for big companies.
More than 97 percent of the quarter-million U.S. companies that
export are small- and midsized firms, but for companies large
and small, the chief obstacle to reaching the goal of doubling
U.S. exports by 2014 is the complex array of foreign barriers
to American exports. Those barriers are alive and well. For
example, Colombia's effective tariff on imports from the United
States averages 14 percent for manufactured goods and is even
higher for agricultural products. By contract, the average U.S.
tariff last year imposed on imports from Colombia was one-tenth
of 1 percent.
Historically, the only way the U.S. government has ever
enticed a foreign government to open its market to American
exports is by negotiating free trade agreements to eliminate
them on a reciprocal basis. This is just what will be achieved
by the FTAs with Colombia, Panama and South Korea. These are
pro-growth agreements that will create good American jobs,
bolster important allies and confirm American leadership around
the world.
Such agreements have a proven record of success. Between
2003 and 2008, for example, U.S. exports rose by 79 percent,
their fastest growth in nearly two decades. It is no
coincidence that this period also saw the U.S. implement free
trade agreements with 10 countries and saw earlier agreements
such as NAFTA attain their full implementation with the
elimination of all tariffs on U.S. goods entering Canada and
Mexico.
Recognizing these benefits, countries are rushing to
negotiate new trade accords but America is being left behind.
According to the World Trade Organization, there are 283
regional trade agreements in force around the globe today but
the United States has just 11 such agreements covering 17
countries. There are more than 100 such agreements currently
under negotiation among our trading partners. Unfortunately,
the United States is participating in just one of these.
The United States is standing on the sidelines while other
nations clinch new trade deals. For example, the European Union
has ratified an FTA with South Korea. Canada has done so with
Colombia. Both of those agreements are expected to enter force
by July 1st. If Washington delays further, U.S. exporters will
be put at a marked competitive disadvantage in Colombia,
Panama, and South Korea. According to a study by the U.S.
Chamber, the United States will more than 380,000 jobs and $40
billion in export sales if it fails to implement the pending
trade agreements while the European Union and Canada move
forward with their own agreements. Unfortunately, this is
already happening. The U.S. share of Colombia's import market
for agricultural products fell from about three-quarters in
2008 to about one-quarter last after Bogota implemented a new
trade deal with its South American neighbors.
In the interest of time, I will simply refer the committee
to my written testimony where I have also addressed the
importance of defending intellectual property at home and
abroad, and I would like to associate myself with the remarks
of Mr. Holleyman in that regard.
It is also important to modernize export controls s the
Obama Administration has begun to do in a very positive
initiative. It is also critical to develop a tax system that
incentivizes investment and job creation here in the United
States.
In conclusion, the United States needs a laser-like focus
on opening foreign markets. We need to approve the pending
trade agreements and negotiate more of them including the
Trans-Pacific Partnership and an ambitious Doha Round
agreement. Also, Congress should renew the traditional trade
negotiating authority that every President since FDR has
enjoyed. If we stand still on trade, we fall behind. At stake
is the standing of the United States in the world and our best
hopes for escaping high unemployment, massive deficits and
exploding entitlements.
The U.S. Chamber of Commerce looks forward to working with
the members of the committee to forge a trade agenda that will
create jobs, opportunity and growth here in the United States.
Thank you.
[The prepared statement of Mr. Murphy follows:]

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Mrs. Bono Mack. Thank you.
Mr. Pelton, you are recognized for 5 minutes.

STATEMENT OF JACK J. PELTON

Mr. Pelton. Chairman Bono Mack, Ranking Member Butterfield
and members of the subcommittee, my name is Jack Pelton. I am
Chairman, President and CEO of Cessna Aircraft Company. Cessna
is the world's largest general aviation manufacturer in the
world based on sales units, and since its inception in 1927,
Cessna has delivered more than 192,000 airplanes virtually to
every country in the world. Cessna is also one of the 70 member
companies of the General Aviation Manufacturers Association,
which represents the world's leading manufacturers of
generation aviation aircraft engines, avionics and components.
General aviation is an important contributor to the U.S.
economy. It supports more than 1.2 million jobs, is providing
more than $150 billion in economic activity, and in 2010
generated $5 billion in exports. We are one of the few
remaining manufacturing industries that still provides a
significant trade surplus for the United States. These exports
accounted for 62 percent of the billings generated by general
aviation manufacturers, significantly up from 50 percent of the
billings attributed to exports in 2009.
Cessna, like many other companies, is coping with the
realities of a weak economy. Since late 2008, we had to lay off
nearly 8,000 employees out of our 16,000 that we employed
before the recession. The three major manufacturers in Wichita
alone have been experiencing significant declines in sales in
recent years. In 2010 alone, Bombardier Learjet was down 29
percent, Hawker Beechcraft was down 22 percent and Cessna was
down 28 percent. We do believe the market is stabilizing as we
see an increase in orders in some segments of our industry.
The tax bill that was passed in 2010 will be very helpful
to our industry by extending the research and development tax
credits and allowing 100 percent expensing for capital
investments like aircraft, avionics, engines and cabin
equipment.
Cessna fully supports the current efforts to reform,
streamline and overhaul the export licensing and policy
framework. As an aircraft manufacturer, we have found that we
have a generally positive export environment for our physical
products: aircraft spares, ground support equipment. However,
ITAR in many cases is a problem for our utility and special
missions aircraft sales. These aircraft do not contain
sensitive military systems and are functionally equivalent to
commercial aircraft and do not provide significant military or
intelligence impact yet many of our export existing controls
and policies have slowed our globalization and have slowed our
sales efforts.
Due to the high standards we adhere to in the United
States, manufacturers cannot sell aircraft or major aircraft
parts unless they are certified by the Federal Aviation
Administration. This means that the financial health and
competitiveness of the U.S. manufacturers in the global market
depends in large part on the ability of the FAA to do its job.
Unfortunately, we are concerned that the FAA will be unable to
meet certification requests by manufacturers in the United
States unless the FAA is provided adequate resources and
implements new processes and procedures to streamline the
certification process. We believe it will not be able to keep
up with the demand by manufacturers and this will severely
diminish the competitiveness of the U.S. industry and its
ability to bring new products to the global market and create
new jobs in the economy.
There is, however, a mechanism already in place that can
help manage the resource demands on the FAA. For aircraft
certification, the FAA established organization designation
authorization, referred to as ODA, in 2006. This allows the FAA
to delegate routine certification tests such as the review and
approval of thousands of individual drawings and tests. More of
the U.S. manufacturers have invested in the development of the
ODA system that has been approved by the FAA but unfortunately
the certification process efficiencies have yet to be realized
by our industry.
Aircraft financing in this new economic climate remains a
challenge. The availability of credit continues to be a
constraint on exports, and Cessna has worked very hard to
create a $500 million facility backed by the Export-Import Bank
of the United States. This facility has assisted Cessna with
exports over the past couple years when liquidity in the market
has been very tight. We do applaud the Export-Import Bank for
working with us to deliver creative solutions that support our
export needs.
Madam Chairman, if government and industry work together on
the issues discussed here today, then we will help ensure that
our country stays ahead of the pack economically and
technologically in the years ahead. Thank you for the
opportunity to be here today.
[The prepared statement of Mr. Pelton follows:]

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Mrs. Bono Mack. Thank you, Mr. Pelton.
Mr. Ikenson, you are recognized for 5 minutes.

STATEMENT OF DANIEL IKENSON

Mr. Ikenson. Good morning, Chairman Bono Mack, Ranking
Member Butterfield and members of the committee. My name is Dan
Ikenson. I am an Associate Director at the Center for Trade
Policy Studies at the CATO Institute. I am pleased to be here
today to share my views on manufacturing, jobs and trade.
Expanding trade has been an important source of U.S. job
growth historically. In the quarter-century between 1983 and
2007, as real GDP more than doubled and the real value of U.S.
trade increased fivefold, the U.S. economy created 46 million
net new jobs. That is 1.84 million net new jobs per year. And
just to be clear, when I say expanding trade, I mean expanding
exports and imports. It is important to note that it is exports
and imports that support U.S. jobs up and down the supply chain
through various channels. I think people generally understand
that exports contribute to economic growth, which is essential
to job creation, but many of them make the mistake of
concluding that if exports help grow the economy and create
jobs, then imports must shrink the economy and cost jobs. Trade
is thus viewed as a competition between our producers who
employ us and their producers, who employ them. I think that is
the wrong way to look at trade.
In the 21st century, it is inaccurate to characterize
international trade as a competition between us and them
because of foreign direct investment, joint ventures and other
equity-sharing arrangements. Quite often, we are they and they
are we. Just apply that question to the U.S. auto and steel
industries. As a result of the proliferation of disaggregated
transnational production and supply chains, we and they often
collaborate in the same endeavor. There is competition between
supply chains but success first demands cooperation within
those supply chains, and this reality I think demands policies
that are welcoming of imports and foreign investment.
A recent study by the Asian Development Bank Institute
found that just a tiny fraction of the cost of producing the
Apple iPhone is Chinese value added. The only Chinese input is
labor, which is used to assemble the components manufactured in
other countries. The value of that labor accounts for about
$6.50, or 3.6 percent of the $179 it costs to produce the total
iPhone. The other 96.4 percent of the total cost is components
produced in other countries including the United States. Most
of the iPhone's value, however, accrues to Apple, which reaps
the lion's share of the approximately 100 percent markup, and
that markup goes to retailers, distributors, marketers and
other firms in the supply chain as well as to Apple, which
distributes some to shareholders and retains some for research
and development which supports engineering and design jobs
higher up the value chain so as to continue the virtuous
circle. So even though only about $6.50 of that iPhone is
Chinese value, the entire $179 cost is chocked up as an import
from China because that was the product's final point of
assembly. That added $1.9 billion to the U.S. trade deficit
with China in 2009.
But should we lament a trade deficit in iPhones or any
other products assembled abroad, particularly when those
products comprise U.S. value added and support high-paying U.S.
jobs? Legions of American workers and their factories, offices
and laboratories would be idled without access to foreign
workers and foreign factories. Without access to lower-cost
labor, countless ideas hatched in U.S. labs which became viable
commercial products that support hundreds of thousands of U.S.
jobs in engineering, design, marketing, logistics, retailing,
finance, accounting and manufacturing might never have made it
beyond conception.
Countless U.S. jobs up and down the value chain depend on
imports from China but imports support U.S. employment through
many other channels as well. According to the Bureau of
Economic Analysis, intermediate goods and capital equipment
accounted for 55 percent of the U.S. import value last year.
These are products purchased by producers, not consumers, so
imports help reduce the cost of production, enabling producers
to better compete and support U.S. jobs and wages. The 45
percent of imports that are consumer goods support U.S. jobs in
logistics, transportation, wholesaling, retailing and
aftermarket services industries, and by helping to keep prices
lower and quality higher, imports allow consumers to have more
resources with which to purchase other products and services,
both of which support U.S. jobs.
The Obama Administration, as we heard this morning, has
offered an answer to the question implicit in this hearing. Its
National Export Initiative aims to double U.S. exports in 5
years by reducing an eliminating various administrative,
regulatory and financial obstacles faced by U.S. exports. That
plan includes some laudable components which I fully support.
The idea of streamlining export controls makes a lot of sense
and it is likely to lead to export growth. Wrapping up the
three pending bilateral trade agreements, the Doha Round, the
Trans-Pacific Partnership agreement, those will clearly all
lead to increased exports.
But there are other aspects of the NEI that I find
troubling. First of all, it completely ignores the import side
of the equation. It is silent on the fact that U.S. exporters
are producers before they are exporters and as producers they
do a lot of importing, and there are many other ways to reduce
their costs including through streamlining of various
regulations.
Mrs. Bono Mack. Can you please wrap up? You are over the
limit.
Mr. Ikenson. Yes. I will just conclude by saying a serious
plan to boost U.S. economic growth and hiring should start by
identifying all policies, regulations, practices and conditions
that impede U.S. competitiveness not just those obstacles that
confront U.S. companies as exporters. Thank you.
[The prepared statement of Mr. Ikenson follows:]

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Mrs. Bono Mack. Thank you.
Mr. Crouse, 5 minutes.

STATEMENT OF JAMES CROUSE

Mr. Crouse. Thank you for the opportunity. I am Jim Crouse
with Capstone Microturbine manufacturing in Chatsworth,
California.
A microturbine is a small combustion turbine used to
generate electricity at the location of an end-use customer.
Capstone turbines are used as range extenders in hybrid
electric vehicles as well as stationary power for a host of
customers from hotels to hospitals to industrial customers on a
global basis. As the leading manufacturer of microturbine
energy systems, Capstone has valuable insight into what it
takes to compete globally in a growing industry characterized
by technological change and innovation.
Although we were invited to testify on behalf of the
chairwoman and ranking member, our power generation systems can
be found in almost every State in the United States. Customers
use our systems mainly to save money by increasing their energy
efficiency. By utilizing exhaust from the turbine to make hot
or chilled water, businesses can cut their energy costs by up
to 50 percent. The use of both electricity and thermal energy
simultaneously from a single fuel source is called combined
heat and power, or cogeneration. Some of our systems also
provide cooling, known as CCHP.
Microturbines produce very little criteria pollutants as
well as very little greenhouse gases. Capstone's unique
technology makes clean, efficient combustion possible. We are
able to use fossil fuels including abundant natural gas in a
clean, efficient manner. Other systems that we manufacture burn
biogas or methane from landfills or digesters. In these
applications, we are renewable energy.
Our customers can be found all over the world in a variety
of industries. Oil and gas companies use our product to power
their installations, oftentimes in remote locations. Oil and
gas customers prize reliability, and a microturbine is highly
reliable since it has only one moving part, does not require
lubrication or coolants and has only one maintenance interval
per year. Additionally, generating power with microturbines can
eliminate the need for air permitting as we design our product
to meet the most stringent air standards in the world:
California Air Resources Board standards.
Our CCHP and CHP customers typically are commercial
businesses such as industrial plants, hotels, hospitals and
retailers that use our product to increase their efficiency and
reduce their cost, making them more competitive in both a local
and global market. Microturbines are installed in hybrid buses,
trucks, and we have recently been installing microturbines in
marine applications both here in the United States and in
Europe.
Capstone employers approximately 200 highly skilled
American workers in its manufacturing facility in Los Angeles,
and with over 120 patents, Capstone is a technology innovator.
We produce about 80 percent of the world's microturbines. Most
of the balance is also manufactured in the United States by
Ingersoll Rand. This is not a product that we are buying from
China. This is a product we are selling to China. We have a
good and strong business in China.
We export because of a variety of reasons. That is where
the markets are. We sell in over 50 countries both developing
and developed countries on six continents. In many cases,
overseas markets are stronger than our domestic markets. Europe
is a particularly strong market for Capstone, in part because
of feed-in tariffs that exist there.
Capstone Turbine sees value in adopting long-term energy
policy here in the United States. We believe that a strong
domestic policy will only strengthen our export business.
According to Oak Ridge Laboratories, the CHP could provide 20
percent of the U.S. generating capacity by 2030, generating
$234 billion in new investment and create 1 million highly
skilled jobs. CO2 emissions could be cut by more than 800
million tons per year, the equivalent of taking half of the
U.S. passenger fleets off the road.
Energy efficiency combined heat and power makes sense
regardless of where you stand on climate change. Efficiency is
good. Saving money on your energy is good. It makes us more
competitive.
Capstone Turbine has received several grants in research
and development from the Department of Energy. However, lack of
long-term energy policy that promotes energy efficiency and
distributed generation in combined heat and power--sorry.
Mrs. Bono Mack. You can complete your sentence.
Mr. Crouse. So Capstone strongly believes that a strong
domestic policy is important. We have a bill currently that was
introduced by Linda Sanchez, and would love to see that bill
move forward to grow our business domestically, to see our
international business grow as well. The two are tied together,
domestic and international.
[The prepared statement of Mr. Crouse follows:]

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Mrs. Bono Mack. Thank you.
The chair will recognize herself for the first 5 minutes of
questioning, and I will begin by commenting on your testimony,
Mr. Crouse. As a resident of California, almost lifelong--we
moved from Cleveland before I was 2 but I don't admit that very
often--but it surprises me. California, you mentioned CARB and
what we live under, the most stringent regulations of any
State, I would say, in the country, yet you only sell 5 percent
of your total sales in California, and to me, that leads really
to my question, which is for Mr. Ikenson.
In your testimony, you mentioned that you are frustrated
that NEI is absolutely doing nothing to deal with the burdens
on business. I think you were trying to get into that when you
ran out of time. Can you go into a little bit more? Your exact
words are: ``The NEI is silent on the significant obstacles to
U.S. competitiveness at home and abroad.'' Can you expand?
Mr. Ikenson. Sure. Well, in fairness, it is called the
National Export Initiative, so limiting the concern to exports
is, I suppose, understandable, but it really should be
broadened. I wish it were called the National Economic
Initiative in which--I mean, if we are really concerned about
our exporters, we need to recognize first that they are
producers, and as producers, they rely on imported raw
materials that account for a lot of the costs, and they also
are confronted with lots of regulations. Those burdens are
immense. Having a free trade agreement with Korea is an
excellent idea. It is clearly going to lead to export growth,
but cutting a tariff, a foreign tariff, by 5 percent is a good
thing but what about cutting your costs, your domestic costs by
10 percent because the regulatory burden has subsided.
There was a survey of about 13,000 business executives that
was conducted by the World Economic Forum recently, and it
found that there were 52 countries that have less burdensome
regulations than the United States, and we operate in a global
economy here. Governments, enterprises are competing for
investment, capital investment and investment in human talent.
There is a competition in policy, and I think we are sort of
missing the boat here. We have the highest corporate tax rate
in the world. We have the regulatory burdens. Infrastructure is
in disrepair. We don't have a policy that welcomes high-skilled
immigrants.
Mrs. Bono Mack. Let me just jump in here if I can. I know
in your written testimony you write that the U.S. has the
highest corporate tax rate among all OECD countries. How would
you recommend reforming corporate taxes?
Mr. Ikenson. Well, I am not really an expert in the tax
field, but there has been a lot of tax competition globally
over the past decade or so. We need to streamline the tax
system. A lot of U.S. companies that are operating abroad, some
of them don't want to repatriate their profits because of the
corporate tax code, and these companies, in my view, are
unfairly demonized as either Benedict Arnold companies or
companies that aren't helping the U.S. economy. Well, you can
incentivize the return of those investments to create
productive facilities in the United States and to hire by
changing the tax code. I am not expert on how to do that but
there are plenty of others at CATO and maybe even at this table
who could help you.
Mrs. Bono Mack. I just like to note that you pointed it
out, so that is good enough to me. But also in your testimony,
you said something that I think we as Members of Congress feel
very often at home, and you talk about the American people, the
sentiment that they just don't get it and you spoke a little
bit about in your verbal testimony, that they think imports
bad, exports good, and then you talked a lot about iPhone, and
I just whipped off the back cover of mine. You know, Apple is
pretty smart that they do say designed by Apple in wonderful
California--I added a couple words there--but assembled in
China. And perhaps they in their own way could help by saying--
it is a mutt of a product.
Mr. Ikenson. Right.
Mrs. Bono Mack. It is assembled everywhere, and I think
that could help. Can you explain? Do you think the American
people would begin to understand? And I think about, I have a
brother who is an engineer. He has worked for Hyundai and Kia
and all sorts of car companies, and he has an American job, he
is an engineer. Can you speak of why the American people don't
quite understand that?
Mr. Ikenson. Yes, and I think that the media presents
fairly simplistic accountings of what the trade deficit means.
We hear about the trade deficit on a monthly basis, and it is
always reported that imports are bad and we are going to lose
jobs. There was a report last week that imports always mean
that foreigners are--when imports outpace exports, foreigners
add more jobs than are added in the United States. I think that
is not true. I mean, lots of jobs rely on imports.
And to get to the technical aspect, you flipped over your
iPhone. Pascal Lamy, who is the chairman of the WTO,
understands that people are misled by these trade statistics.
These trade statistics are reflective of a bygone era. We now
live in this age of globalization that we need to break out the
constituent elements of the value, and he is sort of leading a
charge to try to do that so people say hey, this import in fact
even though it is all attributed as an import from China, it is
actually supporting, you know, 10,000 U.S. jobs because of the
patents or the high-end manufacturing that happened here.
Mrs. Bono Mack. Well, thank you, and I am down to my last
15 seconds. Let me just jump to Mr. Holleyman.
Why do developed countries such as the United States and
France still have piracy rates of 20 to 40 percent,
respectively, and how much can Congress do and how much really
ought to be technologically driven?
Mr. Holleyman. Well, we certainly think the thing Congress
can do is to make sure that we have the right laws on the
books, and I think there are some additional things we can do
here in the United States. There is the use of trade pressure,
and I think I would put France very high on that list. It has
the fourth highest piracy losses in the world, and the U.S.
government should be pressing that issue. Technological
measures will certainly help but they won't solve the problem
and so we need to keep sort of one step ahead of the pace. In
the United States, I think one of the best signals would be
ensuring that as the U.S. government is required to use legal
software, that federal contractors are required to do that as
well. That would be the next big step that would be a great
thing to take to France and to China and other countries and
get them to do that.
Mrs. Bono Mack. Thank you. My time is expired. I would
recognize the ranking member, Mr. Butterfield, for his 5
minutes.
Mr. Butterfield. I thank the chairman.
Let me go to you, Mr. Crouse, if I can. Again, thank you
for your presence today. Mr. Crouse, recognizing export
promotion as a priority, President Obama's 2012 budget
increases resources for the ITA, particularly for the
commercial service. Meanwhile, others have sought to impose
severe cuts to export promotion, not believing it worth the
cost. Mr. Crouse, Capstone, I am told, has participated in
several trade missions. Would you say they were worth the cost
to you as the exporter?
Mr. Crouse. Yes, definitely. We participated, as you said,
in several trade missions, and it has resulted in new business
for us. We recently in the last couple weeks received an order
out of Tunisia after attending a trade mission in North Africa
a year ago or so. The Department of Commerce, by the way, is
one of the most professional government organizations I have
ever worked with. It is a pleasure to work with them, and we
plan to continue doing so.
Mr. Butterfield. Please tell me in what ways did the
support of the Federal Government allow Capstone to export
goods to new markets it otherwise might not have been able to
do?
Mr. Crouse. We used the gold key service that we are able
to use in-country resources to screen potential distributors or
customers prior to arriving so that when we get there, we
already have meetings set up and we are much more efficient and
able to streamline our sales process and partner process. It is
a big help.
Mr. Butterfield. In your work with ITA, have you had an
occasion to encounter U.S. trade professionals that were
stationed abroad?
Mr. Crouse. Yes, we have.
Mr. Butterfield. And did you find them to be reasonably
helpful to you and your company?
Mr. Crouse. Yes, both U.S. employees that were there
working internationally as well as some of the domestic or
locals that they have working in the offices there have always
been very helpful to us.
Mr. Butterfield. The Republican spending plan that passed
the House, we call it H.R. 1, would prevent those trade
professionals from being available when and where companies
such as yours could use their help to complete sales and to
generate jobs back home. Mr. Crouse, is it correct that on
these trade missions that you have traveled that you pay your
own way, you pay for your hotel room and for your food?
Mr. Crouse. Yes, we pay our own way.
Mr. Butterfield. My final question. Today, Google is the
global leader in Internet search. It is worth hundreds of
billions of dollars. It employs thousands and thousands around
the world including here in our country, and it is so well
known and used that the company's name is now a verb. The idea
that led to Google was originally funded in the mid-1990s by
the National Science Foundation, and let us not forget that the
Internet itself originated with the Federal Government and its
development was pushed along by NSF in the 1980s when it sought
to give researchers across the country a way to access its
supercomputing resources. Today, electric cars and iPhones and
other high-tech gadgets that we rely on daily are powered by
lithium ion batteries. The development of this type of battery
is a result of federally funded materials research at the
University of Texas in the 1980s. These are just a few examples
showing that the federal investments now in R&D can lead to
innovative, high-value products from the private sector well
into the future. It also shows that the Federal Government can
be, is and must be an engine for private sector growth, and
nowhere else is that more true than with respect to developing
new energy technologies.
In your testimony, you also note, Mr. Crouse, that your
company has received several R&D grants from the Department of
Energy. In the remaining minute, can you please tell me a
little bit more about those grants? For example, can you
describe the research Capstone has done or is now doing and how
that research relates to the growth of your business?
Mr. Crouse. Certainly. Capstone was founded 20 years ago,
and had DOE funding as well as funding from Ford and Southern
California Edison to develop a microturbine for hybrid electric
vehicles. Our turbine is more efficient than traditional
turbines, in part because of the funding and the research that
we did in cooperation with the government as well as other
private companies. Today we have several programs that we are
working on--a flexible fuel microturbine that will run on
hydrogen. We are also working on a more efficient turbine that
will increase our efficiency in the range of 45 percent. And
those programs combine government dollars with private dollars,
our own dollar and our investors' dollars, to develop new
technologies and products.
Mr. Butterfield. Mr. Crouse, thank you very much for
answering those questions. I wish you well as you continue to
grow your business.
Mr. Crouse. Thank you.
Mr. Butterfield. This Congress wants to be an ally, not an
obstacle, so thank you very much.
Mrs. Bono Mack. I thank the gentleman. The chair recognizes
Mr. Pompeo of Kansas for his 5 minutes.
Mr. Pompeo. Thank you, Madam Chairman.
Welcome to everyone here this morning. A special welcome to
Mr. Pelton, a constituent, and leader of a company with 8,000
employees in my home district. Thanks for all of the hard work
from you and your team in these challenging economic times. I
know that a group of witnesses that came to Washington, D.C.,
before was excoriated for having traveled in general aviation
aircraft. I want to go on the record hoping everyone in this
room flew here today on a general aviation aircraft built in
Wichita, Kansas.
Mr. Pelton, you talked about export controls. Can you give
me an example of a special mission aircraft as some place where
the government got in the way of helping you make a sale in a
foreign country for a product that didn't present any national
security risks?
Mr. Pelton. Congressman Pompeo, thank you for inviting me.
There are numerous examples. I can give you one today that is
right in front of that actually kind of dovetails into the
discussion earlier this morning dealing with Panama. The
government of Panama is interested in our brand-new CJ-4, which
we just certified last year. For us to even have the discussion
with the Panama government, I have to apply for a marketing
license to go down there to have the discussion. Now, here is
the interesting part about that. I don't know what they are
interested in, so when I apply for the license, I have to
decide are they looking for a VIP airplane, are they looking
for an airplane that may have a camera on it, it may have a
flare on it, it may have some sort of med-evac, and I have to
guess because I haven't been able to have contact with the
customer in Panama to really understand because I have to have
this marketing license. So I have to go get the marketing
license. Then once I have the discussion, which could take 6 to
9 months to get that license, so if the avenue is still open to
my competitors internationally who don't have to go through
those restrictions having gone down there and swept the deal
away from me, I will have to find out exactly what they need on
the airplane and I will have to come back and work with
potentially three different departments to get the licenses
necessary for whatever equipment may be installed. It could be
Commerce, it could be State and it could be Defense, depending
on what the item is. Many of the items that are on the
restricted list are really outdated and not that of national
security or technically one that we should be worried about as
a country, but I will have to continue to go through that
process, continue to apply, may even be rejected along the way,
and then in the end after the product is delivered to be able
to support that product down there if it has been determined
that there is a component as simple as a camera that gets
identified as ITAR. I have to in any support of that airplane
go through licensing to be able to keep that airplane working
properly and keep the customer's satisfaction that they demand.
So it is a very, very onerous process for product that is
essentially getting delivered with nothing that we should be
concerned about from a national security standpoint.
Mr. Pompeo. Thanks. Are there a couple quick hits that
maybe anybody on the panel, a couple quick things that Congress
could do? We talked about these regulatory issues. Are there a
couple rifle shots where we could when we have got unemployment
where it is today where we could really find bipartisan support
to get something down and move the ball forward?
Mr. Pelton. Before any of my colleagues here respond, I
think there are two quick hits that were discussed. The
research and development tax credit needs to be made permanent.
That provides the high-tech engineering jobs that this country
was founded on so we don't become a service industry, and I
also believe that while it has been lightly touched on, the
corporate tax rate, this is a fantastic country that is number
one in everything and I hope we are not going to be number one
in corporate tax rates, and if you can find a way to reduce the
corporate tax rates, I can assure you that the manufacturers in
this country can offset that revenue with new jobs immediately.
Mr. Pompeo. Thank you. Mr. Murphy?
Mr. Murphy. If I could just add to the tax comment there,
unfortunately we do seem to be on track to have the highest
corporate tax rate in the world if Japan moves forward and
lowers theirs. But often there is a comment made in response to
that, that many companies have exclusions that allow them to
pay much less. I would just mention a study done by KPMG. They
have an index that they do called the total tax index, which
looks at what companies are actually paying, and according to
this index, companies and operations of companies in Canada, in
the Netherlands and many other countries are often paying 20 to
40 percent less in taxes than production in the United States
is, and this is something that is--those are huge numbers. That
makes a significant difference. You know, the title of the
hearing is about making it in America. Companies have to take--
that is something that is very much on their radar as they
think about where they are going to be investing and hiring.
Mr. Pompeo. I appreciate that. Mr. Holleyman, did you have
something you wanted to say?
Mr. Holleyman. I will say that 60 cents of every dollar
spent around the world on software comes back to U.S.-based
companies, so every single bilateral discussion by any member
of this committee or the Administration should raise the issues
around IP theft.
Mr. Pompeo. Great. Thank you. My time is up. Thank you.
Mrs. Bono Mack. I thank the gentleman. Mr. Gonzalez, 5
minutes for your questions.
Mr. Gonzalez. Thank you very much, Madam Chairwoman.
Mr. Holleyman, in your testimony--I am trying to see if I
can find it quickly--nearly four out of five PC programs in
China, 79 percent, are not paid for. What is that figure for
the United States?
Mr. Holleyman. For the----
Mr. Gonzalez. I just want to know the extent of the
problem.
Mr. Holleyman. It is just the reverse, so essentially 80
percent of the software in China is not paid for. In the United
States, 80 percent of the software is paid for.
Mr. Gonzalez. And if you will just kind of walk me through
why is that, and I mean, I know you are going to assume that
Members of Congress are going to understand software and
everything else, but I assure you, it is not necessarily a
Member of Congress. We use programs. We use things that are
downloaded and so on. But technically, if you just walk me
through, tell me how something in the United States or in China
is basically acquired illegally and it continues obviously
spiraling uncontrollably in places like China.
Mr. Holleyman. Well, I will give you a great example. I
will focus on the business sector because that is where the
biggest opportunity is to change behavior quickly. What
happened in a hypothetical, let us say China, the 80 percent
piracy rate could be a business in China is operating and they
have 100 computers but they have only paid for the software for
20 of their computers, and they are internally duplicating for
all the rest of their operations. Or they may be 100 percent
illegal because they have used an illegal Office program or an
illegal operating system. So they have just internally
duplicated it, which is simple to do. There are no effective
penalties against it. And the big thing that we are trying to
do in China, which is really what the bilateral discussion is,
is really twofold. One, to get the Chinese government to ensure
that when it uses software that it is using only legal
software, and secondly, to ensure that when Chinese state-owned
enterprises use software, that they are using only legal
software. There are simple ways of making sure that that is
done, but unfortunately, in rapid growth markets like China, we
are seeing a dramatic lag in the use of legal software, and
what is happening is that because the market is growing so
fast, the dollar value of that is skyrocketing year over year.
And this goes much more broadly. It is not just the
software impact but that is a lower cost of doing business for
any enterprise in a high-piracy market, and any constituent of
yours who is using software, which is most every business, if
they have a competitor in a country with a high piracy rate,
the U.S. company has a higher cost of doing business than their
competitor in the area of tool production of software.
Mr. Gonzalez. Now, in the business environment, and I don't
want to say anything that could be controversial. I am trying
to contrast the situation in the United States and that in
China, and why it is viewed with some lax attitude of maybe not
seeing anything wrong with utilizing your software without
having to pay, obviously as we said, for the 100 computers as
opposed to the 20. But in the United States, it is an
environment, is it a business sense, is it certain human
behavior? Is it enforcement? What is that combination that
results in 30 percent or less or whatever it is.
Mr. Holleyman. Twenty percent in the United States.
Mr. Gonzalez. Twenty percent in the United States as
opposed to 80 percent in China.
Mr. Holleyman. By the way, I think 20 percent is too high
and so we are pressing to get it down further in the United
States. It is really two things. I mean, one, we have
constitutional underpinnings for intellectual property in this
country and we have the toughest civil laws on the books and
that provides an effective deterrent, particularly against
businesses that would otherwise use illegal software. It is
just not worth the risk and the cost. And secondly, I think
that is also why the software industry has grown so well out of
this country is we began with a stronger market both size-wise
but in terms of legal protection. In a country like China,
there are few effective civil remedies. There are no criminal
penalties whatsoever against use of pirated software within a
corporate environment. And finally, there just isn't any
deterrents in the marketplace that are effective and that is
why it really has to be a high-level, bilateral economic
discussion.
Mr. Gonzalez. Thank you very much, Mr. Holleyman.
Mr. Holleyman. Thank you.
Mr. Gonzalez. I yield back the balance of my time, Madam
Chairman.
Mrs. Bono Mack. Thank you, Mr. Gonzalez. I recognize Mr.
Lance of New Jersey for his 5 minutes.
Mr. Lance. Thank you, Madam Chair, and good afternoon to
you all.
Following up on that, and I guess to Mr. Holleyman, is it
better to have bilateral discussions on this issue as opposed
to the WTO, or it is a combination?
Mr. Holleyman. Certainly, Mr. Lance, is it a combination,
but I think that in this case, the most effective mechanism is
for the bilateral discussion, and when Members of Congress
speak, as they have, on this issue and when the President of
the United States directly talks about software enterprise
legalization to President Hu Jintao, I think that we have a lot
farther to go to see the results, but to me, it takes that type
of direct engagement.
Mr. Lance. And I am sure you follow this very closely, the
recent meetings here in Washington between the two presidents.
Do you think that that was at all helpful or do you think we
have to do more?
Mr. Holleyman. I think from a U.S. perspective, they were
very helpful in raising it to the highest level on the
bilateral relationship with China that we have ever seen. On
the China level, have my companies seen any increased sales as
a result of those commitments? No. I hope they will come but
they have not, and I need to be blunt about it including to the
U.S. government. So the U.S. side is working hard but we have
to ultimately test it by results, do we see increased sales,
not just commitments.
Mr. Lance. Well, thank you. This is very helpful.
Obviously, we respect what the Administration is doing but we
need to see results and not just levels of talks, even if they
are at the highest levels.
To Mr. Ikenson, yesterday the full committee passed out of
its jurisdiction an issue regarding net neutrality, and I am
sure you are aware of that. What is your position regarding the
FCC's recently announced net neutrality regulations?
Mr. Ikenson. That is an area that I am absolutely
uninvolved with, but I can tell you that CATO Institute
institutionally and our experts that deal with communications
issues like that, we are opposed to it.
Mr. Lance. Thank you.
And then back to the issue of corporate taxation, obviously
I am in agreement with many of my colleagues that the rate has
to be lowered in the United States to remain competitive. To
anybody on the panel who might be knowledgeable in this area, I
am also concerned about the repatriation of profits from
abroad. Perhaps to Mr. Murphy, your thoughts on that.
Mr. Murphy. Yes, and it is unfortunate that it has become
commonplace from a number of political leaders to hear the line
that our tax system actually incentivizes investment overseas
when in fact what they are describing is our system of
worldwide taxation, which is unique practically in the
industrialized world, and the deferral that is allowed on
income earned overseas is the fact that deferral exists only
partly levels the playing field for those U.S. companies. This
is an issue that has been brewing for a long time as a
competitive challenge for U.S. industry.
Mr. Lance. My bottom line is, we need to create more
American jobs, and if we can bring funds from abroad that will
create more American jobs, that is what I favor, and I know
there is a lot of talk regarding this but I want to get to the
bottom so we can create more American jobs, particularly more
American manufacturing jobs.
Mr. Murphy. The chamber strongly supports allowing
repatriation of those funds, which was done several years ago
successfully and we think it should be done again.
Mr. Lance. Is there any other member of the panel who would
like to comment on that?
I thank you very much, Madam Chair. I yield back the
balance of my time.
Mrs. Bono Mack. I thank the gentleman and recognize the
gentleman from Louisiana, Dr. Cassidy, for 5 minutes.
Mr. Cassidy. Thank you, Madam Chairman. It has been a long
time since I was called a gentleman.
Mrs. Bono Mack. A gentleman and a doctor, but please
remember your microphone. Thank you.
Mr. Cassidy. Mr. Murphy, it is my sense that when we
compete internationally, we typically are sending out high-
value-added products. Now, maybe agriculture is an exception so
I will limit myself to the manufacturing sector. But it seems
as if we are sending out something which the folks who are
employed in that field have good jobs with good benefits and so
obviously extrapolating from that, if that is true, is it safe
to say if we expand trade and this trend continues, we cannot
compete on commodity pricing for tennis shoes perhaps with
China but we certainly can compete on Micro Windows which again
is high value added. Would you agree with that statement, that
line of object?
Mr. Murphy. I would very much so, and you see that in high-
tech industries, for instance, in the defense industry. It is
the most sophisticated products that the United States excels
in producing and exports worldwide. But you see it in other
what you don't necessarily think of as high-tech products. For
instance, you think of the textile and apparel sector. The
textile industry is very capital intensive, and the United
States still has a significant textile industry which employs I
believe close to half a million Americans. What we don't have
is the cutting and sewing which is a low-skill, low-value-added
operation, the apparel making. That has largely moved outside
the United States, so I think that is another illustration.
Mr. Cassidy. So the way to save, manufacturing, at least in
terms of that manufacturing with good jobs and good benefits,
is to promote trade where our workers and our companies which
add value and intellectual expertise and in so doing employ
more, correct?
Mr. Murphy. That is absolutely correct, and you see that in
the statistics. For instance, major manufacturing States like
Ohio, for instance, are incredibly dependant on exports. The
proportion of exports of their manufacturing output that is
exported is very high. It is well above half.
Mr. Cassidy. Now, let me ask you, I represent Louisiana in
the 6th district, which is the Baton Rouge area, and so
recently Exxon Mobil did a big build-out. Now, I asked them,
since they have plants in China, they have refineries in the
United States, what do they do, where do they go, and they said
anything that involves intellectual property we do domestically
because if it is just strictly commodity, we are sure that our
blueprints are going to be--this isn't Exxon, OK? I am not
trying to get Exxon in trouble with China. I will just say the
observation of the person was that the absence of intellectual
property rights in China means that oftentimes whatever process
they bring there seems to be reproduced at a local plant. That
said, it seems like--now, they also said that it is the
availability of inexpensive feedstock, in this case, natural
gas, as well as the Mississippi River to transport as well as a
highly trained workforce that combines to make the United
States the place to be. What would happen in that scenario,
knowing that the feedstock is incredibly important because you
can find waterways and trained workforces in Europe, if we
raised our energy prices to, let us say, I think I just read
Denmark has a 38-cent-per-kilowatt-hour rate of energy and
probably Louisiana is 6 cents per kilowatt-hour, if we
increased our energy prices substantially, what would happen to
that sort of manufacturing base I just described?
Mr. Murphy. Well, I think even in your question you have
outlined how it is really a web of policies and industries that
come together that add up to the competitiveness of a nation.
So absolutely, when you take one of those strands and weaken
it, you undermine the competitiveness of industries worldwide.
That is why hearings like this are so useful to be able to draw
the connections between these different kinds of policies.
Mr. Cassidy. I am actually struck that when folks talk
about raising the price of carbon or the cost of energy, they
seem to ignore the impact it will have upon domestic
manufacturing, at least energy-intensive enterprises. I have
just read now Spain is having to withdraw their subsidies
because the effect of high-cost energy has made them less
competitive, weakened their economy, etc., etc., etc. I think
it used the word ``demoralized.'' Any other comments on that?
Mr. Murphy. Well, just in the chamber's membership, what
you have indicated is the reason why there is such a breadth of
concern about proposals to add to energy costs in this country,
and it comes not just from energy-producing companies and
sectors but from the major consumers, the industrial consumers.
Mr. Cassidy. And just to be sure, because sometimes for
whatever reason people don't make the connection, if we hurt
those industries, we hurt those workers. Those good jobs and
good benefits are now lost and they are shipped overseas.
Mr. Murphy. And it all goes into the calculus that
executives have to make about where they are going to site
production and invest and hire.
Mr. Cassidy. Yes. I yield back. Thank you.
Mrs. Bono Mack. I thank the gentleman and recognize Mr.
Stearns from Florida for 5 minutes.
Mr. Stearns. Thank you, Madam Chair, and this is a very
good hearing. I have been watching it on the television.
I hear from the other side, they are talking about, they
say if the government is broke, why are we giving tax breaks
for corporations, and there has been some question about that
we are not competitive as corporations. So Mr. Murphy, I think
one thing we need to explain to the American people is this
idea of territorial-based tax regime, and you might use an
example like if a company in the United States goes to Germany
and opens up a plant, that company is going to pay taxes in
Germany and then they are going to come back to the United
States and pay taxes. You might just elaborate on that so that
the people understand that there is sort of extra taxation on
our corporations.
Mr. Murphy. I am happy to. You know, as was mentioned
earlier, the United States is one of the very few countries in
the world that has this worldwide system of taxation and so the
danger is that a worldwide company that has operations in more
than one market is going to be taxed twice on its income. It is
a huge disincentive. By contrast, all of our major industrial
competitors have territorial tax systems where they only pay
taxes on their production in a given country. At present we
have some tax treaties that allow us to avoid double taxation
but this is a partial solution, and I think there is a growing
sense in the business community that it is time to have a full
reexamination of this system and whether or not it is
comprehensively putting U.S. industry at a disadvantage.
Mr. Stearns. Another point is Canada has dropped their
corporate tax rate, and I think the folks on the other side are
saying how can we drop the taxes on corporations. Well, again,
as you pointed out, they are competing globally, and if the tax
rates are less in Canada and other countries, those
corporations have an advantage.
Mr. Murphy. The Canadian government has taken a very
interesting approach to their competitiveness, whether it is
cutting their tax rates, which I believe is just a little bit--
the corporate tax rate is just above 15 percent, 16 percent.
They have also undertaken an initiative to permanently reduce
tariffs on industrial inputs that they import. As Mr. Ikenson
was pointing out, the competitiveness of a manufacturing
operation depends on imports much of the time as well, and with
little controversy the Canadians were able to permanently
eliminate a lot of those tariffs on imports.
Mr. Stearns. Mr. Ikenson, let me ask you a question. I
chair the Oversight and Investigation Committee, and we had
Cass Sunstein come up and we had a lot of questions for him
dealing with regulation, and the Obama Administration plants to
implement a slew of new regulations including regulation of
carbon emissions and implementing regulations obviously related
to health care. Do you have any concern? I asked them if there
was any economic impact on these regulations. They said they
didn't know of any. Do you have any concerns about the impact
of these up-and-coming regulations on the ability of the United
States to compete and what suggestions would you offer?
Mr. Ikenson. You know, President Obama visited the chamber
a few weeks ago and he said I have come to the center on taxes
and I have come to the center on trade, now invest and hire.
But there is a lot of uncertainty to the business environment,
the health care legislation, the Dodd-Frank bill. There is a
lot of pending regulation that hasn't been promulgated yet and
it is leaving the business community in a state of uncertainty
and I think that that is a problem. You know, regulations that
are absolutely sensible and not redundant make sense, I
suppose, under certain circumstances but maybe we have
superfluous regulation. Maybe there is too much. And certainly
the fact that we don't know what is coming down the pike is a
deterrent to investment. You know, as Mr. Murphy said, one way
we can stimulate our manufacturing base, which by the way is
the most prolific manufacturing sector in the world. We produce
more output by value than any other country in the world and we
are doing quite well but one way is to do what the Canadians
did. Let us scrap our tariffs on industrial inputs. And this
might be a little bit controversial, let us revisit the anti-
dumping law so that downstream users, our manufacturers, our
exporters, can have a say in the hearings at the International
Trade Commission.
Mr. Stearns. Thank you.
My last question is for Mr. Holleyman. You testified that
the U.S. government needs to increase its efforts to prevent
our own government from purchasing counterfeit software. How
often does the government purchase counterfeit software and how
does this happen that the government is not buying legitimate
copies of software?
Mr. Holleyman. That is a good question. The U.S. government
is overwhelmingly acquiring legitimate software, and that has
been a formal policy and Executive Order that has been in place
for over a decade, and typically when piracy happens within a
government or a business, it may not be a purchase of a
counterfeit product, it is simply allowing an extra three to
five to 1,000 people use a software program without having a
proper license. So our recommendation is to build on what is a
strong Executive Order here in the United States about federal
use of software. By the way, Inspector Generals within agencies
audit to make sure they have the proper licenses. Two, require
that federal contractors also have to comply with U.S. laws and
ensure that they are using legal software. That will help
reduce some of the 20 percent piracy rate here in the United
States, not eliminate it, but it will be a tool that we can use
with other governments to encourage them to lead by example.
Mrs. Bono Mack. And on that note, the gentleman is out of
time and we have to wrap things up today. I want to thank all
of our panelists and my colleagues and the ranking member for
his help today, for our staffs on both sides, and for everybody
for your time and for your commitment on these critically
important issues. Clearly, we have a great challenge before us
but I have always believed that new challenges create new
opportunities. Working together, I am convinced that we can
increase U.S. exports and create new U.S. jobs in the process.
I also need to remind members that they have 10 business
days to submit questions for the record, and I ask the
witnesses to please respond promptly to any questions that you
might receive.
Again, thank you all very much, and the hearing is now
adjourned.
[Whereupon, at 12:47 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]

Prepared statement of Hon. Fred Upton

Thank you, Madam Chairman. I want to commend you for
holding this timely hearing, the second in a series
investigating how we at the national level can foster an
environment of job creation.
As we heard at our last hearing, and as January's
impressive export numbers reveal, the U.S. manufacturing sector
is alive and close to well. How we get those companies fully
well is why we are here today. I firmly believe the key to
growing jobs here in the U.S. is growing demand, and the key to
growing demand is reaching consumers in the global economy.
Based on the President's creation of the National Export
Initiative, I am not alone in that belief. But while we may
agree on the need to grow our exports, we may not be on the
same page on how to do so.
I believe we need policy changes that will make our
companies more competitive with their foreign counterparts.
This can be accomplished in areas such as reforming our tax
regime and reducing regulatory burdens in ways that do not
sacrifice safety. I also believe we need to act on pending free
trade agreements with Korea, Panama, and Colombia. Those
agreements represent billions of dollars left on the table
because of a failure to act on them in the last four years. In
addition, I believe we must find new trade partners, opening
the doors of opportunity to new and emerging markets. Free
trade agreements not only remove tariffs and other barriers for
American products to enter foreign markets, they are essential
to ensuring producers here in America have access to affordable
supply chains.
Let me be clear: I fully support making it here in America,
but I do not believe we should demonize imports. Inexpensive
component parts used to manufacture and assemble final products
here in the U.S. not only keep American products affordable to
Americans, but they also ensure American products are
affordable to consumers in other countries. In other words,
affordable component parts are what keep our exports
competitive in foreign markets.
I look forward to hearing about what the Administration is
doing to foster growth in exports, whether and how Congress
should act to aid in that effort, and what the economic and
employer perspectives are on how the federal government can
help cultivate export growth to promote American job creation.
Thank you, Madam Chairman, and I yield back.
----------

Prepared statement of Hon. Cliff Stearns

Thank you, Mr. Chairman. I am deeply pleased to have the
opportunity to be here today to discuss and maintain our bi-
partisan mission to create jobs.
Unemployment remains a deep concern for all of us and we
hear about it from our constituents on a daily basis. The
solution obviously is job creation. No one in this committee
would dispute this to be true, but its time that our actions
reflected our words.
According to the President, our export should double in
five years. If the Administration is sincere about this goal to
boldly increase our exports, their actions should be just as
bold. We need to analyze if current trade laws are supporting
or impeding American companies from this achievement. We need
to put politics aside and work through these barriers to make
"Made in America" a proud statement.
We understand that the road to recovery will be tough and
will certainly take time. American families struggling to make
ends meet have been patient. Being here today enforces our
commitment to our constituents, showing we are sincere about
getting the economy on track and that are words are more than
just words. Again, I appreciate the opportunity to be here and
I look forward to hearing the testimonies of our witnesses.
Thank you Mr. Chairman.
----------

Prepared Statement of Hon. Edolphus Towns

Thank you Chairman Bono-Mack and Ranking member Butterfield
for holding this hearing today on ``Made in America: Increasing
Jobs through Exports and Trade''. Our economy has been steadily
improving over the course of the past several months. The
unemployment rate is a key indicator of economic strength.
Currently our unemployment rate sits at 9 percent and the Dow
Jones Industrial Average peaked above 12 thousand for the first
time in two years. While these economic indicators are welcome
news to the markets they do little to instill confidence in the
American people that jobs are on the way.
This congress must do everything in its power to promote
and create jobs, free and fair trade is one way to accomplish
this goal. As a Democrat I believe in free
and fair trade. In this 21st century economy we must be
ably equipped to compete in the global market place. Our
manufactures and small businesses must have open access to
overseas markets to promote job growth in America. There are
far too many barriers to this ideal that still permeate in the
market place today.
Given the opportunity free and fair trade will translate
into job growth for our economy; however the benefits of such
trade deals will be lost if we continue to incur imbalance in
US trade agreements. According to the Center for American
Progress the third quarter trade deficit in 2010 reached 3.7
percent of GDP, up from 2.4 percent in the second quarter of
the previous year. The higher the trade deficit the more
indebted the United States is to overseas investors who must
eventually be repaid.
I look forward to working with my colleagues on both sides
of the aisle to address these barriers to job growth and
economic independence. I also look forward to hearing from our
witnesses today on their ideas for unleashing American
innovation through trade. Capstone Turbine Corporation is one
such company that has unleashed their innovation in the global
market place and is excelling in their industry. Sixty percent
of all sales at Capstone Turbine Corporation are from exports.
I look forward to hearing from them on how we can translate
their success to other companies looking for economic growth.
Thank you and I yield back the balance of my time.
----------

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