[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
READY TO EXPORT: SMALL BUSINESS POLICY RECOMMENDATIONS FOR USTR
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
JUNE 26, 2013
__________
[GRAPHIC] [TIFF OMITTED]
Small Business Committee Document Number 113-026
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMER, Missouri
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Sam Graves.................................................. 1
Hon. Nydia Velazquez............................................. 2
WITNESSES
Ms. Pam Johnson, President, National Corn Growers, Floyd, IA,
testifying on behalf of the National Corn Growers Association.. 3
Mr. Brooke Fishback, International Sales Manager, Health
Enterprises, Inc., North Attleboro, MA......................... 5
Mr. Gary Hufbauer, Reginald Jones Senior Fellow, Pete Peterson
Institute for International Economics, Washington, DC.......... 7
Ms. Mariana Huberman, Owner, The UPS Store, Washington, DC....... 8
APPENDIX
Prepared Statements:
Ms. Pam Johnson, President, National Corn Growers, Floyd, IA,
testifying on behalf of the National Corn Growers
Association................................................ 24
Mr. Brooke Fishback, International Sales Manager, Health
Enterprises, Inc., North Attleboro, MA..................... 28
Mr. Gary Hufbauer, Reginald Jones Senior Fellow, Pete
Peterson Institute for International Economics, Washington,
DC......................................................... 35
Ms. Mariana Huberman, Owner, The UPS Store, Washington, DC... 39
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
READY TO EXPORT: SMALL BUSINESS POLICY RECOMMENDATIONS FOR USTR
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WEDNESDAY, JUNE 26, 2013
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 1:00 p.m., in Room
2360, Rayburn House Office Building. Hon. Sam Graves [chairman
of the Committee] presiding.
Present: Representatives Graves, Chabot, King, Coffman,
Luetkemeyer, Mulvaney, Tipton, Herrera Beutler, Hanna,
Huelskamp, Schweikert, Collins, Rice, Velazquez, Schrader, Chu,
Payne, Meng, and Schneider.
Chairman GRAVES. Good afternoon, everybody. We will call
this hearing to order.
And I want to thank our witnesses for making the trip to
Washington for this very important hearing. I look forward to
your testimony. I know some of you have come a long way, and we
appreciate that very much.
This hearing comes at a very important time for the
international trade community. Last week, at the G8 Summit in
Northern Ireland, President Obama officially launched trade
negotiations with the European Union. In addition, Michael
Froman was sworn in as the United States trade representative.
It appears that we may have some momentum on the trade agenda,
which is welcomed news to many small businesses I know.
This Committee understands the benefits of international
trade for small firms in the economy overall. In 2012, exports
of goods and services reached 2.2 trillion, or nearly 14
percent of the U.S. gross domestic product. Those exports
provide new sales opportunities, and most important, they help
create and support good-paying American jobs. Unfortunately,
along with limited resources, small firms face a variety of
trade barriers that constrain their participation in the global
market. As a result, small businesses that do export rely
heavily on the negotiated free trade agreements that remove
complex trade barriers, provide protection for their
intellectual property, and help streamline the trade process.
Currently, the USTR is working on a variety of initiatives
that will help remove barriers and open new markets for small
business exporters, most notably the Trans-Pacific Partnership,
the Trans-Atlantic Trade and Investment Partnership, and the
World Trade Organization negotiations regarding services and
information technology. These agreements hold great potential
for small businesses, and we must make these negotiations a
priority.
Earlier this year, the Committee drafted a set of trade
policy principles aimed at identifying no-cost, common-sense
solutions to assist small business exporters. The first
principle, and the primary focus of today's hearing, is
developing an aggressive trade strategy to open new markets for
exporters, and we cannot sit on the sidelines while other
countries negotiate trade agreements and put our businesses at
a competitive disadvantage. We need leadership from the
administration and new USTR to seize these opportunities.
Today, we are going to hear directly from small businesses
about the administration's trade policy agenda, and
specifically, how to help increase U.S. exports and create
good-paying, U.S. jobs. And with that, again, I want to thank
all of our witnesses for being here. And I will turn to Ranking
Member Velazquez for her opening statement.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
In the last year, international trade has emerged as a
bright spot in the continuing U.S. economic recovery. According
to the Department of Commerce, exports increased 1.2 percent to
$187 billion in April, the second highest level on record. U.S.
businesses are having particular success selling industrial and
telecommunications commitment abroad, while American-made
vehicles and auto parts also rose to a high level of $12.8
billion.
Given the critical connection between trade and job
creation, this is good news for U.S. workers. With foreign
trade on the rise, so are opportunities for small businesses as
they make up 98 percent of all exporters. Recent research
confirms this, showing that more small firms are exporting
today than just three years ago, while many more are becoming
increasingly interested in doing so. For many companies, their
success depends in part on their ability to access these
international markets.
Small businesses, however, face many challenges. It takes
time to identify foreign markets, to target new customers, and
to learn the ins and outs of the exporting process. In fact,
nearly half of small exporters spend a minimum of a few months
a year, as well as an average of 8.4 percent of their annual
operating revenue preparing to export. Compounding this
obstacle is that they often have fewer resources to expand on
developing a trade strategy or complying with complex
regulations. As a result, they consistently enter fewer markets
than their larger counterparts, with nearly 60 percent only
entering one, while more than half of large firms export to
four or five markets.
In order to help breach this divide, there are several
tools and resources available to small exporters. The key core
are U.S. Export Assistance Centers, which fill a void by
providing access to technical trade specialists in over 100
cities in the United States and 80 countries worldwide. By
delivering foreign industry and market expertise, as well as
trade compliance assistance, small businesses are better able
to navigate the complex terrain of the international
marketplace.
Another top challenge that small exporters face is securing
credit, which is essential to finance cross-border
transactions. If banks are unwilling to provide this funding,
companies' ability to export will be severely curtailed.
To address these very problems, the SBA and the Export-
Import Bank provide small business specific export financing
products. Last year, SBA loans generated $1.7 billion worth of
small business exports, while Ex-Im Bank authorized more than
$6.1 billion in financing and insurance for small businesses, a
record for the bank. These initiatives are critical, especially
during periods when banks pull back on their own lending to
exporters.
While these nuts-and-bolts challenges always persist, there
is another on the horizon that is even more serious--that weak
global demand could reduce U.S. exports. The recession in
Europe continues to put a dent in American sales abroad as
exports to the European Union declined nearly 8 percent. With
China, the trade deficit rose to $24 billion, the highest level
since January, and the largest with any single nation. Exports
to China decreased by 5 percent.
Not only are American exports declining, but imports from
these foreign nations are rising as the U.S. market remains a
top destination. International trade will always be a complex
undertaking dependent on this complex global macroeconomic
climate, as well as a country's specific trade policies and
resources. Regardless, it is absolutely critical that small
businesses are able to participate in this marketplace. Doing
so gives them access to more customers, which in turn fuels
their growth and employment, and that of the U.S. economy
overall.
I would like to take a moment to thank all the witnesses
for being here, and I look forward to hearing your perspective
on these challenges. Thank you.
Chairman GRAVES. I yield to Representative King for
introduction.
Mr. KING. Thank you, Mr. Chairman.
I would like to welcome and introduce Pam Johnson, a
constituent of mine, but also a friend, and a focused and
determined and hard-working member of the family farm where she
and her husband and two sons raise corn and soybeans near
Floyd, Iowa. She is the president of the National Corn Growers
Association, and also Pam is very active in national and state
advocacy groups. She serves as a member of the National Agri
Industry Council Executive Committee, and is the current
director of the Iowa Corn Growers Association as well. All of
that and still time to farm. She is testifying on behalf of the
National Growers Association, and I want to thank Pam Johnson
for being here to testify today.
STATEMENTS OF PAM JOHNSON, PRESIDENT, NATIONAL CORN GROWERS
ASSOCIATION; BROOKE FISHBACK, INTERNATIONAL SALES MANAGER,
HEALTH ENTERPRISES, INC.; GARY HUFBAUER, REGIONAL JONES SENIOR
FELLOW, PETERSON INSTITUTE FOR NATIONAL ECONOMICS; MARIANA
HUBERMAN, UPS STORE OWNER.
STATEMENT OF PAM JOHNSON
Ms. JOHNSON. Thank you for that kind introduction.
Chairman Graves, Ranking Member Velazquez, and members of
the Committee, thank you for the opportunity to testify about
exports and policy recommendations for the U.S. Trade
Representative.
NCGA, as you have heard, I currently serve as president of
the National Corn Growers Association. NCGA was founded in 1957
and represents over 38,000 dues-paying farmers. We support a
consistent U.S. trade policy that maximizes corn access, market
access for corn and corn products, and does not disadvantage
our industry for the benefit of another sector. As farmers, we
know that 95 percent of the world's population lives outside of
our borders. That is why trade is so important to us and to our
nation.
NCGA members have much to gain from government policies
that encourage exports and facilitate small, family-owned farms
entering the global marketplace. The administration's current
trade agenda is ambitious and it is complex, negotiating
simultaneously with the E.U. and the Asia-Pacific countries
will require a tremendous amount of resources and a well-
defined set of principles to guide the trade talks. Trade is
most efficient when policies are predictable, reliable, and
designed to encourage, not hinder, the flow of trade. During my
testimony, I hope to emphasize the recommendations that will
maximize family farmers' access to foreign markets.
Currently, USTR is preparing for the first round of the
Trans-Atlantic Trade and Investment Partnership negotiations.
NCGA has called for the trade agreement to be comprehensive and
to tackle the significant hurdles that must be overcome when
dealing with ag products. For NCGA members, the biggest
challenge is the approval of corn and corn products that are
derived through biotechnology. The E.U. is a market that holds
great potential, but it is often overshadowed by delays and
approvals and regulatory decisions that are dictated by
political pressure and not by science-based evaluations.
Unjustified regulations are costing family farmers millions
in lost sales to the E.U. and could result in even greater
losses of U.S. exports if they are adopted by other countries.
So we urge USTR to keep the following principles in mind as
they begin negotiations with the EU.
International trade rules that fully support trade and
products of biotechnology for planting, processing, and
marketing subject to science-based regulation. We must oppose
de facto bands or moratoria on approvals by Europe and other
WTO member countries. There is no justification for measures
taken under the guise of the precautionary principle absent the
relevant scientific evidence and politically motivated bands or
moratoria by WTO member states are not consistent with the
members WTO obligations.
NCGA members do not support a `` take what you can get''
approach to the bilateral agreement with the EU. The Trans-
Pacific Partnership negotiating structure should be used as a
template for TTP. This is the best way to achieve an outcome
that the food and ag sector can strongly support. TPP is
intended to be a comprehensive agreement covering all sectors
without exceptions. All topics are to be included as a single
undertaking, which means that nothing is agreed to until
everything is agreed to. Critical SBS provisions must be
subject to dispute resolution; otherwise, USTR sends a signal
that family farmers' issues are a low priority. USTR must keep
the concept of competitiveness in mind when addressing
international regulatory challenges for ag products derived
from biotechnology. Trade disruptions caused by barriers to
biotech stand to hurt the entire value chain. We encourage USTR
to improve the international regulatory environment.
Last month, the USDA released its fourth outlook for US ag
trade in fiscal year 2013. USDA projects $139.5 billion in ag
exports, which if realized would be a new record.
In conclusion, ag producers succeed when industry and
government work side by side. As a farmer, I cannot and should
not assume that our industry will be taken care of in TPP or
TTIP. It is critical that U.S. negotiators have an appreciation
for how increasing exports translates into benefits for family
farmers. The U.S. economy will not benefit from ag issues being
placed on a to-do list, so now is the perfect time to eliminate
longstanding barriers to ag exports and promote policies that
bring economic opportunity back to rural America. Thank you.
Chairman GRAVES. Thank you very much, Ms. Johnson.
Our next witness is Brooke Fishback, international sales
manager at Health Enterprises, Inc. He is a member of the
International Trade Advisory Committee 11, which advises the
secretary of commerce and the USTR on the small business trade
policy.
Thank you very much for being here. I look forward to
hearing your testimony.
STATEMENT OF BROOKE FISHBACK
Mr. FISHBACK. Chairman Graves, Ranking Member Velazquez,
and members of the Committee, thank you for the invitation to
testify at this hearing on international trade policy and for
the opportunity to share my views and experiences of our
company, Health Enterprises.
My name is Brooke Fishback, and I am the international
sales manager for Health Enterprises, a leading manufacturer
and distributor of first aid and other consumer health products
and a true American success story. In the early 1970s, Arthur
Lehman founded the company in the basement of his home and sold
products door-to-door to independent pharmacies. Today, still
family-owned and operated, we sell our products under Acu-Life
brand and as private label brands to over 25,000 retail stores
here in the U.S. and have exported our products to over 60
countries worldwide. Even with all this growth domestically and
internationally, we are still a small business, with fewer than
50 employees involved in sales, marketing, production, and
logistics at our headquarters in North Attleboro,
Massachusetts. That being the case, and similar to small
businesses throughout the U.S., we do not have large legal
teams or in-house regulatory departments to navigate
complicated international rules for global commerce. Instead,
we rely on the USTR to negotiate beneficial, easy-to-understand
trade agreements, so that we can sell our products to those 95
percent of consumers that live outside of our domestic market.
First, I would like to talk about trade agreements, and I
have two points for USTR. Point one, USTR should strive to
include Trans-Pacific partnership negotiations as soon as
possible so that we can begin receiving the benefits of the
trade agreement. Currently, around 36 percent of our export
sales are directed to TPP-negotiating countries. We are excited
about exploring new sales opportunities and would estimate the
market is worth tens of thousands of dollars per year in new
business.
Point two, USTR should energetically enter into Trans-
Atlantic Trade Investment Partnership negotiations. Around 38
percent of our export sales are directed to E.U. member states,
with the UK being our top market. Tariff rates between the U.S.
and E.U. are already relatively low, and so the key will be to
find common ground as it pertains to nontariff barriers,
including standards and regulatory cohesion. We currently
encounter issues of costly and time-consuming re-registration
with our FTA registered products in the European Union. For
example, for us to sell a simple finger splint, the kind that
you would buy in the first aid aisle of a retail pharmacy here
in the U.S., in the E.U. we need to register the product with
the member country's Ministry of Health, which costs several
thousand dollars and requires many man-hours to complete the
paperwork.
Second, I would like the USTR to continue to work on
leveling the playing field for U.S. companies. For example,
USTR needs to ensure the countries to whom we grant
preferential duty rates to enter our market under the
generalized system of preferences or other programs also grant
U.S. exporters equitable access to their markets. Brazil, for
example, represents the largest market in Latin America and
should theoretically be a good market for U.S. exporters. The
problem is they have high duties, taxes, regulatory, and other
nontariff barriers to keep U.S. exports out, while we allow low
tariff or duty-free access to most Brazilian exports.
In conclusion, I would like to leave you with four key
points which will help small businesses like ours increase
exports. Point one, free trade. USTR needs to maintain an
aggressive trade agenda to assist small businesses in growing
their international business. Small businesses are the engines
of export growth and exporting stimulates the economy and
creates good American jobs.
Point two, trade promotion authority. The president needs
TPA for good faith trade negotiations with other countries.
Trade agreements should not be renegotiated when sent to
Congress but be subject to an up or down vote.
Point three, exporter education. Ensure sufficient funding
for the SBA's Small Business Development Centers so that they
can provide export education for U.S. small businesses. In
conjunction, we support your Committee's work in exploring
additional opportunities for coordinating state and federal
trade agencies to assist small businesses.
Point four, export promotion. Ensure sufficient funding for
the U.S. Commercial Service, and in particular, their overseas
offices, which provide the `` boots on the ground'' support
that we need for market information and which perform the Gold
Key matchmaking service which arranges meetings for U.S.
companies with prescreen potential partners in foreign
countries. Ensure that costs for U.S. commercial service
services like their Gold Key, remain affordable so that small
businesses can actually participate.
Thank you again for the opportunity to testify. I look
forward to your questions.
Ms. VELAZQUEZ. It is my pleasure to introduce to the
committee Dr. Gary Hufbauer, the reginald Jones Senior Fellow
with the Peterson Institute for National Economics where he has
written extensively on foreign trade issues. He was formerly
the Maurice Greenberg Chair and Director of Studies at the
Council on Foreign Relations, the Marcus Wallenburg Professor
of International Finance Diplomacy at Georgetown University,
and the Deputy Assistant Secretary for International Trade and
Investment Policy at the U.S. Department of Treasury. Welcome,
sir.
STATEMENT OF GARY HUFBAUER
Mr. HUFBAUER. Thank you, Ranking Member Velazquez, and
thank you, Chairman Graves.
In thinking about the impact of free trade agreements on
small business, I think it is useful to distinguish between
direct exports and indirect exports of these firms. Turning
first to direct exports, over 300,000 American small business
firms, defined as firms with fewer than 500 employees, directly
export goods and services to foreign markets. The number, as
Ranking Member Velazquez said, 98 percent of all U.S. firms
that do any exporting. And they contributed about a third of
U.S. merchandise exports between 2002 and 2010. We do not know
what their contribution was to services exports. These same
firms account for about half of U.S. employment, so the direct
exports are less than their employment share in the U.S.
Now, turning to indirect exports by small business, this is
a very important component as suppliers to multinational
corporations that export everything from heavy equipment to
entertainment software and so forth. And these indirect exports
are combined with other intermediates and mobile value chains.
This is undercounted. This is underappreciated. But to give a
rough idea of what is going on, the OECD recently conducted a
study of the value-added and services exports, and they found
that when we do it on a value-added basis, services exports are
about 40 percent of merchandise exports amongst OECD countries,
whereas the official statistic is only 20 percent. I think if
we were able to get data on the indirect exports of small
business firms we would find that they are much more important.
And a big recommendation that I have is that this Committee
press International Trade Commission and the Department of
Commerce to do a much, much better job on the indirect export
angle.
Now, turning to free trade agreements, they are positive
for the reasons my colleagues on the panel have said. A recent
survey by the International Trade Commission on Korea--the
U.S.-Korea Free Trade Agreement found a generally favorable
impression by small business firms. Standards are an important
issue as have been mentioned, a very important issue. U.S.
firms have done much better in the Korean auto market and other
examples that can be sold.
Now, we should expect similar positive outcomes but on a
much, much larger scale from the Trans-Pacific Partnership and
the Trans-Atlantic Trade and Investment Partnership. An
important issue again referenced by my colleagues is trade
facilitation. That is kind of a gooney phrase but it means a
lot. And to be very concrete and blunt, it means cutting down
on corruption in a lot of foreign markets, which is a big
problem for everyone, but the smaller you are, the bigger the
problem. And hopefully we will get some progress on trade
facilitation at the Bali Ministerial Summit from the WTO, but
also in the TPP and the TTIP.
I would also mention the new study by the World Bank on the
so-called eBay effect when we combine Internet. Everybody knows
about that. And eBay and sales and so forth. It really cuts the
impact of distance on cutting down exports. More distance
really reduces exports but the eBay effect, which is eBay-type
online services plus UPS, FedEx, so forth, really does a great
job, and that is important to small business.
There are many actions outside FTAs to help small
businesses. I recount them in my testimony and you all know
them, but I would just conclude by saying that this country is
really shrinking in infrastructure. I mean, really descending.
You know, 20 years ago when I was out of graduate school we
were first. In the 1990s we were about third, and now we are
about 17th. It is really discouraging because that is a big
part of doing business internationally and we are slipping.
Thank you very much.
Chairman GRAVES. Our final witness is Ms. Mariana Huberman,
UPS Store owner that is here in Washington, D.C. As a service
exporter, she advises and assists small businesses with
exporting and transporting their products to foreign buyers.
Welcome to the Small Business Committee and I look forward to
hearing from you.
STATEMENT OF MARIANA HUBERMAN
Ms. HUBERMAN. Thank you, Chairman Graves, Ranking Member
Velazquez, and members of the Committee for the opportunity to
appear before the House Committee on Small Business to discuss
some small business recommendations for international trade
negotiations.
As the chairman said, my name is Mariana Huberman, and I
have been the owner of a UPS store here in Washington, D.C.
since 2005. The UPS Store network is the world's largest
franchisor of retail shipping, postal, printing, and business
service centers. Today, there are nearly 4,700 independently
owned UPS store locations in the U.S. and Canada, and I am
proud to say that my store is ranked in the top 30 on that
list.
When I decided to open my store, I wanted to provide
excellent customer service and critical business services that
were lacking in my neighborhood. My staff knows the names of
most of our clients, and they know ours. We really consider
ourselves to be vital partners in their growth and success.
Every day, my staff and I deal with small business owners
looking to grow their businesses, both domestically and
internationally. It is our job to make their jobs easier,
whether by navigating complex custom rules when shipping their
packages, providing a business mailbox to ensure they do not
miss important shipments, or printing their marketing materials
to grow their business footprint. It is also our goal to become
an integral partner to each of them and help them access the
global marketplace.
However, these customers face a number of challenges when
looking to export. For example, we have a couple of art
galleries and artists who are clients. We ship their artwork
all around the country and we also try to ship it around the
globe, but we run into trouble when shipping to Italy because
customs regulations there require that the Italian Ministry of
Arts perform a mandatory inspection on all artwork which could
delay artwork for a minimum of 10 days. Another customer sells
non-prescription vitamin supplements and has a difficult time
getting those delivered overseas because countries like
Australia require import approval from the Department of
Health. And Germany requires a German doctor's prescription. In
the Ukraine, you not only need a doctor's prescription, but you
also have to list the ingredients in English and Latin, and
then their intended purpose in Ukrainian.
We have a customer who is a potter and sells her items
online. We tried to ship a set of coffee mugs to New Zealand
and could not do it because we needed to provide a heavy metal
certificate or have the item subjected to testing by the New
Zealand Ministry of Health. We even ran into problems when a
customer wanted to send some clothing to a children's charity
in South Africa. Once we got everything ready to go, we found
out that used clothing is not acceptable in South Africa and
that full duties would be applied to any of the unworn items
for things being sent to an orphanage.
When one of these business owners ships an item overseas,
we try our best to determine before we start if their items are
going to be held up in customs or not. Once the packages arrive
at their destinations, we work with UPS and their overseas
customs contacts to clear the merchandise as quickly as
possible. It is good to have a partner like UPS to help
facilitate trade for our customers, but even UPS continues to
face challenges in the customs arena, like the ones I mentioned
and any improvements to these systems would be a great benefit
to our customers.
Small businesses can effectively export to global markets
if only there are international rules that enable them and
their service firms, such as UPS that serve them, to move their
information, products, and services freely across borders.
Fortunately, there are several international negotiations
underway through which the U.S. government can eliminate
barriers and create new international rules that will greatly
expand the opportunities for small companies from the United
States.
Important trade negotiations for small businesses are
taking place in Geneva, Switzerland. The first is the
negotiations in the World Trade Organization on what is called
trade facilitation. These are the procedures and rules at the
border that determine how effectively and economically goods
can enter foreign markets. Small businesses cannot afford
delivery delays to their foreign customers because they do not
get paid until their merchandise is delivered. New
international rules are needed to reflect all the changes in
the world since the last set of international rules for
services was established almost 20 years ago. The United States
recognizes this efficiency, and last year teamed with other
countries to eliminate negotiations on the Trade and Services
Agreement. The TSA negotiations could be most helpful to small
businesses in the U.S. by establishing open markets and
nondiscrimination for U.S. service companies enabling to reach
the 95 percent of consumers who live outside the U.S.
The United States is also negotiating a comprehensive trade
and investment agreement with the E.U. and the so-called Trans-
Atlantic Trade and Investment Partnership and the Trans-Pacific
Partnership with the 11 countries around the Pacific Rim. In
both these negotiations, it is important that the U.S.
negotiators seek the same high-level ambition as they are
seeking in the two sets of negotiations in Geneva.
Small businesses are the lifeblood of the American economy
and the services are the central nervous system on which the
small businesses depend. Small businesses cannot penetrate
foreign markets without an array of services to support them,
and those services must have free access to foreign markets and
nondiscriminatory treatment within those markets.
Given the several negotiations on new international rules,
it is timely for the Committee to be holding this hearing today
on small business recommendations to the newly confirmed U.S.
trade representative and any agencies that participate in these
negotiations.
Thank you again, Chairman Graves and the Committee for
giving attention to these issues of vital importance to the
expansion and prosperity of America's small businesses and
their employees.
Chairman GRAVES. Thank you, Ms. Huberman.
We have got two votes. We are going to go ahead and I think
we have time for one question to start off which I will turn to
and yield to Representative Luetkemeyer and we will recess for
a short period and come back. Blaine.
Mr. LUETKEMEYER. Thank you, Mr. Chairman.
I appreciate everybody's testimony this afternoon. It was
very interesting.
Ms. Johnson, what percentage of the corn crop is exported
right now per year roughly?
Ms. JOHNSON. Well, because of the drought last year we have
seen a decrease. In 2011, it was 13 percent. This last was 8
percent, and we know that we have lost that market. I have
personally been to Korea and Japan and China talking and
building relationships, telling them their business is
important to us and we want to be back to being their reliable
supplier.
Mr. LUETKEMEYER. One of the problems that we have with the
E.U. is the genetically modified corn. Can you describe that
just a little bit and what, if anything, is being done to solve
that problem?
Ms. JOHNSON. Sure. As I talked about in my testimony,
solving the SPS restrictions is a priority for our members in
the E.U. because that is used as a nontariff barrier to block
biotech products, and in the United States our corn is now 88
percent used as a biotechnology event. As is with our
competitors in Brazil and Argentina, we are both up at about
the same levels. So those SPS restrictions are hugely important
to us in the EU.
Mr. LUETKEMEYER. You made comment that you liked the Trans-
Pacific Agreement. You thought it would be a good template for
our trade rep to use in his discussions with the EU. Can you
elaborate just a little bit on the highlights of that that you
like?
Ms. JOHNSON. Sure. I think the main thing is, as I said, I
think the big point is that we know that 95 percent of the
population lives outside the United States. So using that as a
template for TPP and TTIP would help us in a framework that
would be workable. To hit the ground running I think would
help.
Mr. LUETKEMEYER. Mr. Hufbauer, you talked about indirect
exports and were very emphatic about being able to use those or
to expand those in the negotiations. Would you like to
elaborate on just a little bit? It seemed like you had a lot of
good information and were quite emphatic in your testimony
about how important this was. I would like to hear a little bit
more about that.
Mr. HUFBAUER. Well, my guess--thank you, Congressman--my
guess is that they are as important as the direct exports, but
that is a guess because the data is so poor. So we need better
data.
Now, what the story of international trade today is
increasingly becoming are these vast global value chains, which
are really--there is a U.S.-E.U. There is a U.S-Mexico-Canada.
There are Asian global value chains. Africa, unfortunately, is
not part of this very much today. But behind these global value
chains are lots and lots of suppliers and small businesses are
a big part of those suppliers. And what happens is that these
global value chains impose upon their suppliers all the
standards that are required in the final market, so all the
kinds of things that Ms. Johnson spoke of in the agricultural
field or standards in any kind of medical area or any
manufacturing, those are going to descend down to the
suppliers. And if the supplier does not meet the standard, it
is going to be knocked out of the chain.
Mr. LUETKEMEYER. So how does it get addressed in a trade
agreement?
Mr. HUFBAUER. The way it gets addressed is by trying to
have more objective standards. And the amount----
Mr. LUETKEMEYER. Forgive me for interrupting. The objective
standards versus the punitive standards that are set in some of
the trade agreements?
Mr. HUFBAUER. No, as opposed to--a big example of the
nonobjective standards is the precautionary principle, which is
basically, you know, we think it is going to harm three
generations down so we do not import it. No scientific evidence
for that.
But that is just one. There are a lot of standards which
are unique to the standards, are not compatible with
international standards, and block imports, unless you meet
their country's standards. So a major objective of the TTIP is
supposedly to get regulatory convergence between the U.S. and
Europe in lots of areas. We have worked over that ground for 20
years without success. This is supposed to be the big
initiative, so auto standards, electrical products--you go
right down the list--we either recognize theirs or we convert
with them over time. It will be a long-term process, but then
that feeds down to suppliers. So if you are a small business
firm to try to make one kind of product with one set of
standards for the U.S. market and another for the Korean market
and a third for the European market, I mean, you know, it kills
you. Financially, that kills you. I headed up a national----
Mr. LUETKEMEYER. Basically, you are looking for
standardization in this agreement?
Mr. HUFBAUER. Yeah. More standardization. I headed up a
committee 20 years ago for the National Academy of Sciences on
this, and it is a major, major problem. So that will hopefully
be addressed to some extent in these agreements.
Mr. LUETKEMEYER. Thank you very much. I see my time has
expired. Thank you, Mr. Chairman.
Chairman GRAVES. We will go ahead and recess, and when we
come back Ms. Velazquez will have her questions. And so it will
be about 30 minutes, 20 minutes. We will probably be back in
about 20 minutes.
[Recess]
Chairman GRAVES. All right. We will call the hearing back
to order, and we apologize for the delay.
I will now turn to Ranking Member Velazquez, who we just
learned is going to be one of the star players tonight in the
congressional softball game. So I hope everybody can attend.
Ms. VELAZQUEZ. Thank you. Thank you.
Dr. Hufbauer, as labor costs have increased in foreign
markets and transportation expenses remain high, there has been
a pickup in reshoring. Many U.S. companies, including large
companies like Apple and Caterpillar, as well as small
businesses, are moving production back to the U.S. Do you
expect this trend to accelerate?
Mr. HUFBAUER. Thank you, Congresswoman Velazquez.
I think there are two very favorable things for the U.S. in
the next--let us say the next decade. One is that we will
probably be the low cost energy country amongst major
countries, and certainly, by comparison with China or Japan,
Europe, we will be lower cost. And that will be very favorable.
And secondly, as your question indicates, wage rates are
rising fairly rapidly in Asia--not so much in Europe but in
Asia they are--and that is favorable for the U.S. So I would
expect at least the trend to continue and U.S. manufacturing to
have a fairly good decade going ahead maybe compared to the
decade of the past. But I have to add that productivity in
manufacturing in this country is very high. Our growth rates in
productivity are quite high and there is no indication they are
slowing down. So it might not be such a boom in employment.
Sales, yes; employment, less so. Thank you.
Ms. VELAZQUEZ. What impact would the Trans-Pacific and
Trans-Atlantic Partnership have on the economic viability of
reshoring?
Mr. HUFBAUER. Well, I think there is going to be a lot of
this global value chain idea, which is tied in with offshoring
and producing goods and services where they are, you know,
least cost is definitely going to continue and we are just part
of the way down this historic roadmap. But the TPP, if it
succeeds, will cut barriers abroad very substantially. Our
barriers are generally low. They are not zero but they are
generally low whereas barriers in many countries in the TPP
group are modest to high, especially when you talk about the
standards and the behind-the-border barriers. So I think it
will mean good times for U.S. participation in Asia. And if we
did not have the TPP, I think the headwinds would be much
harder for U.S. suppliers.
Ms. VELAZQUEZ. Thank you.
Ms. Johnson, many have questioned the benefits of free
trade agreements, arguing that they actually divert demand for
domestic goods to lower costs of foreign goods, which produces
poor quality jobs abroad. If the Trans-Pacific Partnership is
ratified, would U.S. corn growers create more jobs as a result
of that? Or would the benefits flow mainly to foreign
producers?
Ms. JOHNSON. Well, first of all, we have to put it in the
context of where we think the growth potential is, and TPP is
focused on a region in the world where we know that the demand
for corn and corn products and livestock is really growing
because of the growth of the middle class there and the ability
for purchases, and a diet that people want more protein. So
this is very important to us. We think the growth part as we
look out to the future, we think it is where we can grow our
products and exports. And one in 12 jobs is directly tied back
to agriculture in the United States, and if TPP is ratified, we
think that it will increase the opportunities for a high demand
for corn and those corn products, so that we will see economic
growth on farms from increased exports and then more
opportunities for the next generation. I have two young sons
that are back farming and a lot of people their age are able to
come back if there is opportunity to participate in those jobs.
And I think that U.S. Corn Growers, we believe that we can
compete on quality. And as I said before, you know, we have
been--even though our exports have gone down to 8 percent, we
have been back recreating those relationships so that we can
get back in the market and be competitive with other countries
who are also going after these same markets.
Ms. VELAZQUEZ. Thank you.
Mr. Fishback, you spoke about the importance of
assistance--technical assistance and support for exporters, our
American exporters. The recent sequester has reduced funding
for the Commerce Department's International Trade
Administration limiting export promotion services and trade
compliance assistance. What will the impact of these reductions
to small businesses or small importers be?
Mr. FISHBACK. Thank you for the question.
I think one of the primary things to remember is that
expenditures on programs that support export promotion actually
generate revenue, so a lot of expenditures----
Ms. VELAZQUEZ. Yeah. So it is a wonderful thing to actually
spend money on because it generates the revenue. So by not
spending more money on it you are going to have less
opportunities for especially new-to-export companies entering
new markets, you are going to reduce potential revenue for
those companies, and then on the back end, decrease tax revenue
from the increased salaries that you would experience from
someone working in one of those companies, and corporate income
taxes from those companies as well. So by not spending money on
it you are doing great injustice to not only small businesses
and their ability to grow, but also to the overall revenue for
the U.S. government.
Ms. VELAZQUEZ. Yes. That is why it is so important----
Mr. FISHBACK. It is very important.
Ms. VELAZQUEZ.--that we come together in Congress and put
an end to sequestration.
Ms. Huberman, the U.S. is currently part of the
negotiations to update rules for the ``trade in services.'' As
a business that provides shipping and logistics services, can
you discuss how this will impact your franchise, directly?
Ms. HUBERMAN. I think it will impact my customers in a way
that makes--levels the playing field and allows them to export
their goods and services. It will affect my business because I
will receive revenue, I will be able to hire more people, and
pay more taxes as we were talking about, which is not
necessarily a good thing for me anyway. But that is what it is
about. It is about leveling the playing field for all of the
small businesses who cannot get their products overseas. I
mean, the delays that we have with getting just simple things
delivered is just ridiculous for reasons like the ones I
mentioned earlier.
Ms. VELAZQUEZ. And what is the practical impact of these
delays on small exporters' bottom line?
Ms. HUBERMAN. They do not ship. They do not do it. They
would rather give up the sale than deal with those delays
because they end up looking back to the customers on the
backend, or their items might spoil or they will get--sometimes
a lot of things get lost in customs depending what countries
you are shipping to. Things just happen to disappear once they
get into the hands of customs officials overseas.
Ms. VELAZQUEZ. Thank you. Thank you, Mr. Chairman.
Chairman GRAVES. Mr. Coffman.
Mr. COFFMAN. Thank you, Mr. Chairman.
I wonder if the panel could just briefly answer this. If
you think that the U.S. economy and small business exporters in
particular are better off with a free trade agreement in place
or worse off? I want to maybe start with you, Ms. Johnson.
Ms. JOHNSON. Well, as we look at the competition and we see
that all the free trade agreements that they have been making
with different countries, I think that we have to be also to be
competitive; that we have to be in the game also. And so those
are very important to us, whatever trade agreements they are.
As I said, our future is dependent on being able to export.
Small business is the engine that makes the United States work.
And so true for farmers, also. As I said, we are only 5 percent
of the population in the world now, so our growth potential
depends on good trade policy and FTAs.
Mr. COFFMAN. Mr. Fishback.
Mr. FISHBACK. The last statistic with free trade agreements
is that we actually have a trade surplus with any countries
with whom we have a trade agreement. Having a trade agreement
in place for small business exports only increases our ability
to increase our sales in a given market because it reduces our
costs and improves the avenues that we have for actually
facilitating the trade; the more free trade agreements, the
better, from my perspective, for a small business. In fact, I
was just in South Africa a month and a half ago doing a Gold
Key service in Cape Town, and the president came out with his
`` Doing Business in Africa'' campaign last year but did not
back it up with any support for small businesses. So while I
was there, I found out that the European Union has a trade
agreement with South Africa, which could reduce some of their
tariff rates by 20 percent versus the ones that I am paying.
And so if we are going to come out with some type of agenda
item like that, maybe we should back it up with exploring new
free trade agreements with companies to help us out.
Mr. COFFMAN. Mr. Hufbauer.
Mr. HUFBAUER. Thanks.
I think that free trade agreements are a very big plus for
small business. There is a lot of evidence that trade
internationally is much smaller than it is domestically, and
there are a lot of barriers and free trade agreements tend to
cut into the barriers.
The one additional point I would make is that it is really
too costly and too cumbersome for a small business firm to
bring a dispute under a trade agreement. These things, these
disputes that you read about, the legal costs start at
$100,000, and you can quickly march up to a million dollars. So
what the government should do, in my opinion, and of course, it
will require money, is be more aggressive on looking at
barriers which adversely affect small businesses and bringing
cases on their behalf. GE can take care of itself but small
business firms cannot.
Mr. COFFMAN. Ms. Huberman.
Ms. HUBERMAN. I can only speak to it from a practical
everyday interaction with my customers, and I can tell you that
the trade deal we have with Canada makes my customers' ability
to get their products into Canada much easier than any place
else right now.
Mr. COFFMAN. Well, I want to thank you all for your
testimony here today. I think that small business is the engine
that certainly drives economic development in this country;
that drives job creation. And so I think whatever we can do to
facilitate more export markets, particularly for small
business, I think is such a plus for the U.S. economy.
Mr. Chairman, I yield back.
Chairman GRAVES. Mr. Collins.
Mr. COLLINS. Thank you, Mr. Chairman.
I am just really happy to hear all the stories of small
business exporting, and you are right, 95 percent of the people
are elsewhere. Every small business wants to grow, and I think
every small business wants to export, and most of them do not.
They look at it. They know they should be doing it.
So I guess Mr. Fishback is somebody who sells what you
sell. What advice would you give to that small business person,
and what role do our free trade agreements play versus just all
the regulations getting started. How do they get started?
Mr. FISHBACK. That is a great question. And your Committee
is actually working on some things to assist that by looking at
ways to take government resources and blend them together to
make more clear points of contact for companies that want to
start exporting. And it comes down to education; making sure
that there are channels for those companies to get education on
exporting, which comes through looking at what we currently
have in place with states and with federal governments, finding
ways to bring the state and the federal government together so
they can work together to train these people so that they are
able to do it.
In looking at that, our belief is that the SBDCs in the
states do the best job of the initial counseling with companies
that are new to exporting or wanting to export. In
Massachusetts, we have the Mass Export Center that does a
fantastic job and should potentially be considered a model for
the nation. And then once they have that understanding of how
it works, it is basically a template that you can follow into
other markets and then bring in the UCX and the commercial
services----
Mr. COLLINS. Do you think finding a partner, I mean, in
some cases the government helping you find that partner in that
first key export market where you can get your product over
there but you have got somebody doing the heavy lifting is key
to a new small business putting their toe in the water?
Mr. FISHBACK. That is a huge amount of assistance. I did
three Gold Key services here already this year using the
services of the U.S. Commercial Service, and the commercial
attache at the embassies overseas. It provides companies with
access to a group of prequalified companies that they would not
normally be able to get in front of working with the U.S.
government provides instant credibility for these new export
companies. And it works. And one of the points that I made in
my testimony was that the U.S. Commercial Service is looking to
increase costs on small businesses for their international
services, and if they do that then small businesses will not
use them because it will be too expensive. And for us, by using
them we have seen and experienced quick and good sales growth.
For example, I was in New Zealand about a month ago doing a
Gold Key service in Auckland, signed up a new distributor right
away. The Gold Key cost $700. We have already had about
$14,000-$15,000 in sales from it. So you already see the
revenue generation that can happen from it. So those services,
the `` boots on the ground'' overseas are essential for our
companies to be able to compete.
Mr. COLLINS. Good. Thank you.
One other interesting thing as we look at the TPP, and
there is concern I think with Japan and their currency and
their situation with the value of their currency dropping, and
I have heard folk talk. What role does the trade representative
play in the currency world in free trade versus Treasury? I
wonder, Mr. Hufbauer, if you have just got a thought on that.
Mr. HUFBAUER. I could give you a three hour dissertation
but that is not what you want.
Mr. COLLINS. No, we have one minute and 20 seconds.
Mr. HUFBAUER. Exactly.
The turf between USTR and Treasury is closely guarded.
Treasury does not want USTR to be involved in this area, and
they have been very explicit on that when I was in government
30 years ago; the same story today. But there is growing
recognition that the currency issue is critical in trade
agreements because of the argument, you know, currencies can
drop 5 percent overnight. You spend three years negotiating
tariffs down. So I expect this will play a role in the TPP, and
maybe in TTIP as well.
Mr. COLLINS. Thank you.
Mr. Chairman, I yield back.
Chairman GRAVES. Mr. King.
Mr. KING. Thank you, Mr. Chairman.
I want to thank the witnesses for your testimony. It is not
always an easy thing to leave your busy lives and come here to
help advise us on the path that we need to take, plus sometimes
it just puts us in a position where we are given advice on down
the line as well.
But I was interested in what I heard in your testimony, Ms.
Johnson, when you were speaking, I believe, of the Trans-
Pacific partnership, asking for a comprehensive agreement. And
I like the language, `` Nothing is agreed to until everything
is agreed to.'' And I was not clear whether that also applies
to TTIP as well as TTP--TPP, excuse me.
Ms. JOHNSON. Thank you for that question.
Yes, it does. I think that is a key point that you picked
up on is it has to be comprehensive, and so we said that it
will be a template for TPP, so a comprehensive plan on TTIP and
then comprehensive plan on TPP also is I think one of the most
critical recommendations that we would give about going
forward.
Mr. KING. And then to embellish that point, when I sit down
and talk to the Europeans about trade, and I do more of that
than I ever thought I would coming into this job, they are
constantly trying to pull us back from why do they not say--
they say, why do you not exempt GMOs and then we will apply our
sanitary and phytosanitary specs to your things, and then we
can go ahead and do business. I would guess that you have been
in some of those negotiations I have just described. Could you
describe some of that for the panel, please?
Ms. JOHNSON. Well, I think the point that you bring up is,
and my point in the testimony, is that it has to be a
comprehensive package; that we cannot leave certain things out
to renegotiate later because it will come back to really hurt
agriculture. So, you know, SPS has been used in the E.U. to
prevent a lot of our ag products, a lot of our corn products,
livestock issues, our production practices here. They have used
the SPS against us. So I believe it is very important that we
make sure that we do not leave anything off the table; we do it
right the first time.
Mr. KING. And I point out also it is really interesting
that I can sit down with, say, German intellectuals,
industrialists, or agriculture people and they all come to the
same point. It is agriculture that is our barrier in our trade,
and most everything else we seem to be able to get worked out
but agriculture is a barrier. Is that your experience, too, Ms.
Johnson?
Ms. JOHNSON. Yes, it is. And, you know, I am still hopeful
that once in a while you hear something optimistic about the
comment out of the U.K. now that maybe the E.U. should take a
different look at biotech. So we are still very hopeful that
that will happen, and as America's National Corn Growers
Association, we have been working with the Corn Growers
Associations in Brazil and Argentina saying yes, we are
competitors, but there are certain things that we need to
collaborate on. And it is just what you are saying, is the
trade barriers, the trade disruptions that are due to
biotechnology and modern farm practices hurt everybody and
curtain the ability of agriculture no matter where you are from
to be able to grow in a global marketplace.
Mr. KING. And I recall as GMO, roundup ready soybeans came
to the floor in Argentina but not Brazil, but they found their
way across the border and essentially washed over the
continent, and now I see that the European Union seems to be
the citadel that is locking those products out. And I think
that they are going to end up being--they will be the last
stand but eventually productivity and the demands of that and
the health of the food will become apparent.
I spoke with an elected member of the German Bundestag who
represented a region--I better not say where because I will
identify him then--but he said, `` I agree with you that there
is no sound science that says that GMOs are a risk to healthy,
but we have to take this position.'' And I said, `` Why do you
not just take my position?'' He said, `` Well, I cannot do
that; I am elected.'' I said, `` How about I will go with you
and I can take this position and you can nod your head?'' And
he said, `` I would be voted out of office.'' It is a political
position that has grown. The Green Party, for example, in some
countries in Western Europe, it does not exist anymore because
it has been so absorbed by the other parties. It is not true in
very case, but I think we have to just keep pushing the GMOs
and push the sound science that we have. If we do that then
eventually this trade component of this thing will wash over
that continent and we will get it done.
But I wanted to turn quickly to Mr. Fishback, and you
mentioned regulations, how difficult it is to fill all the
paperwork out. Have you compared how difficult it is for
someone who wants to export to the United States when they fill
out our paperwork? Are we also putting the barrier up like that
for them?
Mr. FISHBACK. That is a great question. And I have not had
the opportunity to do that but my natural reaction is they must
be doing something if they are not going to budget on their
end.
Mr. COLLINS. The clock has run down. I appreciate all the
witnesses. And Mr. Chairman, I thank you and I yield back the
balance of my time.
Chairman GRAVES. Thank you, Chairman.
Mr. HANNA. Mr. Hufbauer, you mentioned, to pick up on what
Ms. Velazquez says, the ranking member, things that encourage
other companies to come back. You mentioned energy, which is
yet to be seen but is clearly on the horizon. You mentioned
productivity.
I am going to ask you two questions. What other things are
there? I mean, as an economist, what other items specifically
are there? And then I want to dig a little deeper. In your
testimony you talk about transportation and how other countries
are so far ahead of us. And I wondered if you could be more
specific about both of those items. The reason companies are
coming back besides those two and how big of a barrier and how
big a problem transportation is and how you might quantify that
for me.
Mr. HUFBAUER. Thank you, Congressman. Let me start with
your last point on transportation.
The way this is typically measured is the turnaround time
in ports and the cost per container. No one is better than
Singapore on both counts. Singapore's cost for entering a
container is about $400, is a standard container. In the U.S.
it is about $1,800. That is a big difference. The turnaround
time in Singapore, but also impressively in Shanghai, Hong
Kong, and a few other ports around the world, you know, that is
24 hours. We are not there. We take longer. Long Beach is
really congested and you can go right through a lot of ports.
You can find their turnaround times. World Bank does this. And
we are up into days. And that adds to the expense, and then we
do not have the intermodal transportation we should from some
of our ports to the inland. The rail does not connect as
efficiently as it should or the roads for the trucks do not
connect.
You know, we are way behind, and not just Asia. We are
behind Netherlands. We are behind the U.K. We are not good at
ports the way we were years ago comparatively. And we are
behind Canada. That would be my comment on transportation.
On air transportation cargo, we are quite good. We are not
maybe the best but we are very high on that. And obviously, for
an increasing amount of trade done by Internet and so forth we
are top of the game. So that is a big plus.
Now, as for other factors that are going to favor the U.S.
economy--I do not want to be all negative--but another way we
are relatively losing--not in an absolute sense but relative to
other countries--is our educational system, as I am sure you
have heard many times, is not keeping us far ahead of the
competition. And there a lot of things in technical vocational
education and so forth where we could learn from other
countries, but still we are tops but others are catching up
with us on the education, engineering sides, the whole lot of
it. But still we are tops and we do produce and extremely wide
variety of products and goods and services which other
countries do not usually have that same variety, and that is a
great strength of the U.S. because you can have these networks
which combine all these inputs. We are very inventive in terms
of biotech and medical and so forth and so on. Those are our
strengths going forward and I think they will prevail.
Mr. HANNA. And other reasons why companies might come here
that once looked to leave?
Mr. HUFBAUER. Well, it is those strengths. Let me just be
very specific. On technical vocational--the Germans pioneered
this--they linked up their equivalent of our technical
vocational schools with companies. We are not doing that. That
is a reason companies will locate here because they can get a
college, whatever it calls itself, to train people for the very
specific kind of either computer or mechanical or whatever that
they need. And that is a big reason to be here.
In terms of labor relations, you know, every country has
difficulties from time to time, strikes. Our strike rate or
labor disturbance rate is very low compared to other countries.
You have a good workforce in this country, and that is a big
plus. And we are not tops. Tops in terms of honesty for
countries goes to Finland, but we are not too far down. We are
like five or six on the World Bank rankings, and that means we
are a very honest country, and that makes a lot of difference
to companies who do not want to have to deal with corruption.
Mr. HANNA. Thank you for that, sir. I yield back.
Chairman GRAVES. I have one question.
As far as the U.S. Trade Representative goes, how would
each of you grade his performance in terms of working with
small businesses to try and improve some of the prospects out
there?
Ms. JOHNSON. I do not really have a good answer for that
because I do not know enough to comment on it, but one thing I
would like to say is that I think good trade policy is really
necessary to move everything forward for all of us. And I was
asked earlier about jobs and how important that is and how
important it is for the USTR for us in agriculture. And we form
partnerships with public-private partnership with the
government for market access programs and foreign market
development, and so the statistics from that is every billion
dollars that we have in ag exports that the USTR helps us with
supports approximately 6,800 U.S. jobs. So extremely important
to us that position.
Chairman GRAVES. Mr. Fishback.
Mr. FISHBACK. Yeah. I would say that they have done a good
job in the last couple of years of reaching out to small
businesses, even creating small business liaisons within
different departments to specifically address the needs of
small businesses. Now, the key is that that continues. Now we
have a new trade representative who follows the president's
agenda but also has his own line items that he wants to run
through as well, so the key now is that they have started to
reach out to small businesses more, which we appreciate. I
think that just needs to continue moving forward.
Chairman GRAVES. Mr. Hufbauer.
Mr. HUFBAUER. I will be a little more negative.
The USTR is absolutely overwhelmed. Our trade ministry
compared to the trade ministry of other countries is very small
and the budget was cut as Ranking Member Velazquez said, and
they are suffering from the sequester as well.
I was recently in Surabaya--and I do not know if you travel
to Indonesia very much. It is a long trip. It is an exhausting
trip. I was fortunate to go business class. The U.S. reps went
economy class. I mean, that is a tough trip and they are
exhausted when they get there. They are younger than I am. They
marshaled through the meetings. There was an Asia-Pacific
Economic Cooperation (APEC) meeting. This is amazing that we do
what we do with the budget that we give--that we as a country
give USTR. And I just do not think that they have enough
resources to do what they are supposed to do. And certainly, I
would think they need more resources to do a proper job for
small business.
Ms. HUBERMAN. And chairman, I appreciate you asking me the
question but I really do not feel qualified to answer it.
Chairman GRAVES. Mr. Huelskamp.
Mr. HUELSKAMP. Thank you, Mr. Chairman. I appreciate the
opportunity to ask some questions.
Ms. Johnson, particularly as a farmer, good to see you
here, and I look at our ag exports and the opportunities out
there, I mean, it is tremendous. And as we discuss our Farm
Bill, I hope we continue to look forward to the export side of
the equation because that is tremendous growth and resulting
prosperity for rural America. Whether it be corn or other
commodities, what do you see as the best prospects for ag
exports around the world?
Ms. JOHNSON. That is a great question. And I think one
thing that we are very optimistic about is the potential for
growth for rural communities and farmers and all ag exports and
corn and coal products. So corn and DDGs and livestock,
especially now when we are looking at countries like China,
considering what food security means to them and what they have
to do and what they have to learn from us, possibly the
Smithfield purchase. And that will translate into millions of
dollars worth of exports, whether it is raw greens or it is
meats. So I think that potential is huge.
Before you came in we talked about how we are 5 percent of
the world's population now. So if we are going to look at what
our future is going to look like, we are going to have to
figure this out. So I really appreciate the Committee's
recognition about how important exports are to small
businesses, including agriculture.
Mr. HUELSKAMP. And in your opinion--I appreciate that, Ms.
Johnson--in your opinion, whether it be the U.S. trade
representative or other offices, do you think they do a
sufficient enough job promoting ag exports? Oftentimes, those
of us in ag country feel that perhaps it is not high on the
agenda for these big negotiations and happens to get lost. Past
administrations have clearly not been very supportive of
agriculture. But I am just curious of your current take on the
efforts and negotiations.
Ms. JOHNSON. Thank you for that question. That is why I am
really thankful to be at the table today and to be able to give
input on what our recommendations would be going forward with
TPP and TTIP is because we think they have to be comprehensive
trade agreements and that no single thing is agreed to until
everything is agreed to and how important it is to agriculture.
Now that that framework is established going forward, I think
it is critical to making these trade agreements fruitful for
the future of agriculture and the future of rural America and
small businesses in general.
Mr. HUELSKAMP. Absolutely. And whether it is the beef
industry, which is very big in my district; wheat, which half
of it leaves the country generally; and numerous products, what
is driving our growth and prosperity in rural America is that
ability to export and feed the world, fuel the world, and in
some cases, clothe the world. And I appreciate the chairman's
bringing folks in here to talk about that because it has an
impact obviously on some of the very large businesses in this
country, but for the very small businesses it is amazing how
highly dependent they are on export markets, whether it is
another 20 cents on the price of a bushel of corn or whatever
the numbers are today, it makes an incredible difference in
rural America. So I appreciate your testimony.
I yield back.
Ms. JOHNSON. Thank you.
Chairman GRAVES. Go ahead.
Ms. VELAZQUEZ. Thank you, Mr. Chairman.
Mr. Hufbauer, and I invite anyone on the panel to comment,
given the fact that here we are discussing the important role
of small businesses as exporters--98 percent of all exporters
are small businesses--they represent 30 percent of the all the
revenues when it comes to export-import. And 60 percent of
small exporters enter one market, and in that market only one
customer. So there is so much that can be done to increase the
role of small exporters.
My question to you is we have the Office of the USTR, and
in that office we do not have anyone whose sole responsibility
is to be at the table whenever we are negotiating any trade
agreements that represent the interests of small businesses.
Mr. HUFBAUER. I could not agree with you more. They are
stretched but if you want it to happen you have to kind of
legislated on a line item basis or something to have the kind
of people--they might come from the Small Business
Administration or whatever--who are delegated to USTR to really
zero in on the problems of the, for example, the health care
products industry might be quite different than the problems of
say the software, the small software products and so forth. So
the person or persons have to have some industry expertise and
really have to drill down into the barriers. I will not go on
at length, but I did review a thesis from a very able Ph.D.
student at the Hebrew University a couple of years ago who
looked into small business representation in the WTO and found
it was lacking. Generally, it is not just the U.S. Generally,
small business just does not get the attention it deserves
given the potential that you have outlined. Thank you.
Ms. VELAZQUEZ. Mr. Fishback.
Mr. FISHBACK. I would echo those remarks. I think it is
essential, as you mentioned, just based on the statements that
you made that we have a seat at the table--that small business
have a seat at the table during these trade negotiations.
I know recently--and I mentioned Brazil previously as a
probable market for small business exporters--I know recently
there was a Federal Register notice to try to get a small
business executive as a part of the CEO Forum. So at least that
is a voice at the table. But to the extent that you can have a
small business government official at the table advocating on
behalf of small businesses who like the members of the panel
understand what it takes to run a small business is essential.
Ms. VELAZQUEZ. Ms. Johnson.
Ms. JOHNSON. I think as Congressman Huelskamp outlined for
us, that certainly in these new, huge opportunities in trade we
do not want agriculture left out of the picture as it has
sometimes in the past. So I would appreciate a voice at the
table and make sure that the agreements--because agriculture is
so important to our country, it is also important for the
growth of our country. And I know you outlined some good points
but it is also the way we are going to bring the next
generation back not just to farming but to small businesses and
all those processes that go down the line for value added
processes and products, whether it is livestock and corn
products.
Ms. VELAZQUEZ. Thank you.
Thank you, Mr. Chairman.
Chairman GRAVES. With that, I want to thank you all for
participating today. This Committee is going to continue to
make sure that the small businesses are a priority for the U.S.
Trade Representative during international trade negotiations.
And we have invited Ambassador Froman to address our Committee
on the status of the negotiations and how the administration is
working to help increase exports for small businesses, and we
look forward to hearing--or hosting him, I guess, later this
year.
But with that, I would ask unanimous consent that members
have five legislative days to submit statements and supporting
materials for the record. Without objection that is so ordered.
And with that the hearing is adjourned. Thank you.
[Whereupon, at 2:53 p.m., the Committee was adjourned.]
A P P E N D I X
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House Committee on Small Business
Hearing
June 26, 2013
Impact on Recent and Pending Free Trade Agreements
on Small Businesses
Statement by
Gary Hufbauer
Reginald Jones Senior Fellow
Peterson Institute for International Economics
Chairman Graves and members of the Committee, thank you for
inviting me to testify. My name is Gary Hufbauer and I am a
Senior Fellow at the Peterson Institute for International
Economics, a non-profit, non-partisan policy research
institute.\1\
---------------------------------------------------------------------------
\1\ Sean Miner, Research Analyst at the Peterson Institute, gave
valuable assistance in preparing this testimony.
In thinking about the impact of free trade agreements
(FTAs) on US small business firms, it is useful to distinguish
between direct exports and indirect exports of these firms.
---------------------------------------------------------------------------
Trade agreements improve both channels.
Direct Exports by Small Business
Over 300,000 American small business firms, defined as
firms with fewer than 500 employees, directly export goods and
services to foreign markets. These firms number 98% of all US
firms than export; between 2002 and 2010 they contributed about
a third of total US merchandise exports, and this share seems
to be rising.\2\ Since small business firms account for almost
half of US employment,\3\ their direct export share is somewhat
less than their employment share.\4\ However, small businesses
that export usually grow faster, increase employees, and pay
higher salaries than those that just sell domestically. Canada
is the top destination country for small business exporters,
followed by China, the United Kingdom, Mexico, and Australia.
It is not a coincidence that the United States has free trade
agreements with three of these countries, and that the English
language is spoken in three of them--features that make doing
business abroad much easier.
---------------------------------------------------------------------------
\2\ SBA, Office of Advocacy, FAQ http://www.sba.gov/sites/default/
files/FAQ--Sept--2012.pdf
\3\ http:www.ustr.gov/about-us/press-office/blog/2013/june/ustr-
celebrates-small-business-week
\4\ See National Small Business Association and the Small Business
Exporters Association Survey http://news.yahoo.com/small-business-
exports-picking-survey-040313009.html. For more than half of small
business exporters, exports account for less than 10% of revenue.
Exports account for more than half of revenue for only one in seven
small business firms.
---------------------------------------------------------------------------
Indirect Exports by Small Business
Small business firms play an important role as suppliers to
multinational corporations that in turn export everything from
heavy equipment and aircraft to entertainment and software. A
large volume of exported goods and services are intermediate
products that are combined with other intermediates in global
value chains (GVCs). Again, small business firms supply a large
share of goods and services to these GVCs. Unfortunately,
official statistics do a poor job of tracking indirect exports
of small business firms. To give an indication of how important
such sales might be, a recent evaluation by the OECD and WTO
concluded that, after properly accounting for specialized
business services purchased by manufacturing exporters,
services contribute fully 40% of the value of world exports,
about twice the direct export figure reported in official
statistics.\5\ My guess is that a similar calculation of
indirect exports by small business firms would boost their
contribution perhaps to 50% of US exports. The US Department of
Commerce and the US International Trade Commission should do a
much better job of tracking the indirect exports of small
business firms.
---------------------------------------------------------------------------
\5\ OECD - WTO http://www.oecd.org/industry/ind/
measuringtradeinvalue-addedanoecd-wtojointinitiative.htm
---------------------------------------------------------------------------
Impact of Free Trade Agreements
FTAs make a significant positive impact on small business
exports by lowering the fixed and variable costs of doing
business abroad. They do this by eliminating tariffs, cutting
red tape at the border, simplifying international payments, and
allowing multiple entries on a single business visa.
A recent survey by the International Trade Commission on
the effects of the Korea-US FTA on small and medium size
enterprises (SMEs) found that respondents viewed the FTA in a
favorable light, and expected benefits to grow over time.\6\
The report stated that small manufacturers experienced an
improved trading environment in Korea by opening new business
opportunities, strengthening business relationships, and
fostering more regular sales. US agriculture firms also
increased their exports, especially where high tariffs were cut
or eliminated. Service sales improved, often attributed to the
better environment for intellectual property rights (IPR).\7\
---------------------------------------------------------------------------
\6\ ITC: U.S.-Korea FTA effect on SMEs http://www.usitc.gov/
publications/332/pub4393.pdf
\7\ ITC: U.S.-Korea FTA effect on SMEs http://www.usitc.gov/
publications/332/pub4393.pdf
Standards for suppliers often serve as a barrier to entry
for smaller American companies looking to export. US auto
companies that wanted to sell to Korea's market before the FTA
often faced strict safety standards, limiting their business
opportunities, particularly for firms that were exporting
smaller volumes.\8\ Another obstacle addressed in FTAs is the
arbitrary use of environmental standards for protectionist
purposes. Provisions in the FTA seek to ensure that
environmental standards answer genuine problems.\9\
---------------------------------------------------------------------------
\8\ http://www.whitehouse.gov/sites/default/files/email-files/
South--Korea--Trade--Agreement--
Overview.pdf
\9\ http://www.wto.org/english/thewto--e/
whatis--e/tif--e/agrm4--e.htm#TRS
We should expect similar positive outcomes, on a much
larger scale, if the Trans-Pacific Partnership (TTP) and the
Transatlantic Trade and Investment Partnership (TTIP) are
concluded. Here are some examples. ``Trade facilitation'' will
be an important payoff. This is the technical jargon for agreed
measures that cut red-tape at customs ports and upgrade hard
and soft infrastructure. Another payoff, both in the TPP and
TTIP, will be convergence of standards, or mutual recognition
of standards, so that small business firms can sell their goods
and services abroad without expensive modification. Improving
the channels for online marketing will be another benefit. A
new study by the World Bank shows how the ``eBay effect''
lowers the negative impact of distance on international sales
by some 65%.\10\ The alliance between online marketing firms,
such as eBay, and express carriers (FedEx, UPS, DHL) will make
it much easier for small business firms to reach foreign
markets.
---------------------------------------------------------------------------
\10\ World Bank: How eBay Reduces Trade Costs http://www-
wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2012/10/25/
000158349--20121025161729/Rendered/PDF/wps6253.pdf
---------------------------------------------------------------------------
Actions outside FTAs to Help Small Business
Unlike the situation two decades ago, US infrastructure is
far from the world's beset. The United States is well behind
several Asian and European countries--meaning that our roads,
ports and airports are second class. These deficiencies
adversely impact US exports. Small business exporters are
further hindered by the scarcity of finance. A report from the
Small Business Administration's Office of Advocacy concluded
that small business relies more than big business on bank
finance, but that credit conditions have been tight.\11\ For
some small business firms, export controls are an important
issue. The vice president of international affairs at the
Aerospace Industries Association, Remy Nathan, said ``The
existing web of regulations spans across multiple agencies and
is so complex that some smaller firms are hesitant to attempt
exports for fear they might break the law.'' \12\
---------------------------------------------------------------------------
\11\ SBA Credit Availability Effects on Small Business http://
www.sba/gov/sites/default/files/files/rs404tot(3).pdf
\12\ http://thehill.com/blogs/regwatch/business/296035-obama-
forges-ahead-with-overhaul-of-export-controls
These subjects call for action in the United States, under
Congressional leadership, Shortcomings that curtail America's
export potential will not be cured by event the most ambitious
---------------------------------------------------------------------------
FTA; they require reform here at home.
Thank you, Chairman Graves and members of the committee. I
am happy to answer questions.
Testimony of Mariana Huberman
Owner, The UPS Store #5259
Before the House Committee on Small Business
Ready to Export: Small Business Policy Recommendations for USTR
June 26, 2013
Thank you Chairman Graves, Ranking Member Velazquez, and
members of the Committee for the opportunity to appear before
the House Committee on Small Business to discuss small business
recommendations for international trade negotiations. My name
is Mariana Huberman and I have been an owner of The UPS Store
#5259 in Washington, D.C. since 2005.
The UPS Store network is the world's largest franchisor of
retail shipping, postal, printing and business service centers.
Today, there are nearly 4,700 independently owned The UPS Store
locations in the U.S., Puerto Rico and Canada. And I am proud
to say my UPS Store is ranked in top 30 of these Stores.
When I decided to open my Store, I wanted to provide
excellent customer service and provide critical business
services that were lacking in my neighborhood. My staff knows
the names of most of our customers and they know ours. We
really consider ourselves to be vital partners in their growth
and success.
Every day my staff and I deal with small business owners
looking to grow their businesses both domestically and
internationally. It is our job to make their jobs easier--
whether by navigating complex customs rules when shipping their
international packages, providing a business mailbox to ensure
they don't miss an important shipment, or printing their
marketing materials to grow their business footprint--it is
also our goal to become an integral partner to each of them and
help them access the global marketplace. However, these
customers face a number of challenges when looking to export.
For example, we have a couple of art galleries and a number
of self-represented artists who are clients. We ship their
artwork all around the country and we also work to ship it all
around the globe, but we run into trouble when shipping to
Italy because, customs regulations require that the Italian
Ministry of Arts perform a mandatory inspection of all the
artwork which could delay the delivery for a minimum of 10
days.
Another customer sells non-prescription vitamin supplements
and has a difficult time getting those delivered overseas
because some countries, like Australia, require import approval
from the Department of Health and in Germany, the supplements
can only be shipped to a German pharmacy with a German doctor's
prescription and copy of the pharmacy order. To ship to the
Ukraine, you not only need a doctor's prescription, you also
have to list the contents in English and Latin and then their
intended purpose in Ukrainian!
We have a customer who is a potter and sells her items
online. We tried to shop a set of coffee mugs to New Zealand
and ended up not doing it because we needed to provide a Heavy
Metals Certificate or have the items subjected to testing by
the New Zealand Ministry of Health.
We even ran into a problem when a customer wanted to send
some clothing to a children's charity in South Africa. Once we
got everything ready to go, we found out that used clothing was
not acceptable into South Africa and that full duties would be
applied to any of the unworn items--for items being sent to an
orphanage!
When one of these business owners ships an item overseas,
we try to determine before we start processing their packages
if they are going to be held up in Customs or not. While we
cannot control things like customs duties, we try to inform our
customers of the current regulations and restrictions before
shipping their items. Once the packages arrive at their
destinations, we work with UPS and their overseas Customs
contacts to clear their merchandise as quickly as possible. It
is good to have a partner like UPS to help facilitate trade for
our customers but even they continue to face challenges in the
Customs arena, like the ones I mentioned, and any improvements
to these systems would benefit our customers. Particularly
since UPS operates one of the world's largest, most
sophisticated, intermodal transportation service networks and
is one of the world's largest customs brokerage firms.
Why American Small Businesses Need New Trade Agreements
The United States is the world's largest and most
competitive provider of services, with a trade surplus of more
than $150 billion last year. But around the world, U.S.
services firms are not able to compete fairly because of entry
barriers, discriminatory treatment, and a general failure to
keep international rules aligned with new technologies and the
realities of modern business practices. Small businesses are
least able to cope with these barriers and outdated rules.
The digital revolution, especially the development of the
Internet, has made it possible for small businesses to provide
our services to foreign countries. But small businesses do not
always have the resources to break down the barriers that they
face. We need the U.S. government to negotiate and enforce fair
international rules in services and customs procedures.
As a result of the Internet, small businesses can advertise
our products and services across the globe at negligible cost.
We can receive payments from our customers across the Internet.
We can determine the various requirements and standards in
foreign markets from the various websites. And, of course, we
can ship our products directly to foreign customers by UPS and
other express delivery companies.
Small entrepreneurs can realistically aspire to serve
foreign markets without having to be physically present in
those markets. However, this only is possible if there are
international rules that enable these small businesses, and the
services firms such as UPS that serve them, to move their
information, products, and services freely across borders.
It also is essential for small businesses that governments
be required to publicize their various regulations, product and
service standards, and customs rules, and to provide due
process for dealing with compliance issues.
Fortunately, there are several international negotiations
underway in which the U.S. government can eliminate barriers
and create new international rules that will greatly expand the
opportunities for small companies and professionals from the
United States.
Two important trade negotiations for small businesses are
taking place in Geneva, Switzerland.
Negotiations on Trade Facilitation in the WTO
The first is the negotiations in the World Trade
Organization (WTO) on what is called ``trade facilitation''.
These are the procedures and rules at the border that determine
how efficiently and economically goods can enter a foreign
market. This is extremely important for the small business
customers of UPS and other express delivery companies.
Small businesses cannot afford to have their products
delayed in being delivered to their foreign customers because
they won't get paid until the customer receives its
merchandise. While some large companies may have the financial
resources to wait for payment, small businesses rarely have
that ability.
Also, small businesses do not have the resources or the
ability to fight discrimination or other forms of unfair
treatment by foreign customs officials. There needs to be
predictable, enforceable, and fair treatment for the exports of
small U.S. businesses.
Efficient and speedy customs processes, coordinated between
the U.S. and its global trading partners, will constitute a
huge step towards removing the bottlenecks found in global
supply chains. By embracing the opportunities of e-commerce and
meeting the growing demands of international trade flows
through effective trade facilitation, the global economy stands
to gain immensely.
Chokepoints at the border, such as costly customs
procedures, inefficient facilitation programs, and burdensome
regulations, reduce the critical predictability of the supply
chain, and as a result can have the same stifling impact on
trade as tariffs.
Negotiations on the Trade in Services Agreement (TISA)
New international rules are needed to reflect all the
changes in the world since the last set of international rules
for services were established twenty years ago by the World
Trade Organizations in the General Agreement on Trade in
Services (GATS). The United States recognized this deficiency
and teamed last year with other countries to initiate
negotiations on the Trade in Services Agreement (TISA). The
purpose of these negotiations is to increase access to
international markets for services firms and to establish new
rules for services. These negotiations now include 50 countries
accounting for over 70 percent of world trade in services.
The TISA negotiations could be most helpful to small
businesses in the United States by establishing open markets
and non-discrimination for the U.S. services companies upon
which U.S. small businesses depend. Among the services which
facilitate the exports of small businesses are: express
delivery, electronic payment services, information and
communications technology services, retail services, and
insurance services. If these services are not able to operate
freely in foreign markets, then small businesses in the United
States will not succeed in reaching the 95 percent of consumers
who live outside the United States.
Other Negotiations
As the United States negotiates the trade facilitation in
the WTO and the TISA, it also is negotiating a comprehensive
trade and investment agreement with the European Union, the so-
called Transatlantic Trade and Investment Partnership (TTIP)
and the Trans-Pacific Partnership (TPP) with eleven countries
around the Pacific Rim.
In both these negotiations, it is important that the U.S.
negotiators seek the same high-level of ambition as they are
seeking in the two sets of negotiations in Geneva (Trade
Facilitation and the Trade in Services Agreement).
Conclusion
Small businesses are the lifeblood of the American economy,
and services are the central nervous system on which small
businesses depend. They cannot penetrate foreign markets
without an array of services to support them. And those
services must have free access to foreign markets and non-
discriminatory treatment within those markets.
Given the several negotiations on new international rules,
it is timely for the Committee to be holding its hearing today
on small business recommendations to the incoming U.S. Trade
Representative and the many agencies that participate in these
negotiations.
Thank you again, Chairman Graves and the Committee, for
giving attention to these issues of vital importance to the
expansion and prosperity of America's small businesses and
their employees.