[Senate Hearing 106-915]
[From the U.S. Government Publishing Office]
. S. Hrg. 106-915
MARKETS FOR A NEW MILLENNIUM
=======================================================================
FIELD HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION
UNITED STATES SENATE
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
JUNE 19, 1999
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
JOHN McCAIN, Arizona, Chairman
TED STEVENS, Alaska ERNEST F. HOLLINGS, South Carolina
CONRAD BURNS, Montana DANIEL K. INOUYE, Hawaii
SLADE GORTON, Washington JOHN D. ROCKEFELLER IV, West Virginia
TRENT LOTT, Mississippi JOHN F. KERRY, Massachusetts
KAY BAILEY HUTCHISON, Texas JOHN B. BREAUX, Louisiana
OLYMPIA J. SNOWE, Maine RICHARD H. BRYAN, Nevada
JOHN ASHCROFT, Missouri BYRON L. DORGAN, North Dakota
BILL FRIST, Tennessee RON WYDEN, Oregon
SPENCER ABRAHAM, Michigan MAX CLELAND, Georgia
SAM BROWNBACK, Kansas
Mark Buse, Staff Director
Martha P. Allbright, General Counsel
Ivan A. Schlager, Democratic Chief Counsel and Staff Director
Kevin D. Kayes, Democratic General Counsel
C O N T E N T S
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Page
Hearing held June 19, 1999....................................... 1
Statement of Senator Ashcroft.................................... 1
Witnesses
Cook, Mike, president, Marketing Division of Necco Seeds......... 41
Copps, Michael J., assistant secretary for Trade Development,
International Trade Administration, U.S. Department of Commerce 57
Prepared statement........................................... 60
Eberle, Karl, vice president and general manager, Harley-Davidson
Corporation, Kansas City Operations............................ 3
Prepared statement........................................... 6
Ehinger, Robert, director, International Trade Data System, U.S.
Department of the Treasury..................................... 46
Prepared statement........................................... 48
Grueff, James, assistant deputy administrator for International
Trade Policy, Foreign Agricultural Service, U.S. Department of
Agriculture.................................................... 64
Prepared statement........................................... 65
Hurst, Blake, District #1 board director, Missouri Farm Bureau,
and farmer..................................................... 29
Klestinec, Jan, president, Dollins Tool, Inc..................... 42
Prepared statement........................................... 44
Newsom, Tiffany, executive director, North America's Superhighway
Coalition, Inc................................................. 37
Prepared statement........................................... 39
Pyle, Mary K., director, International Business Development and
managing director of the Kansas City Area World Trade Center... 32
Prepared statement........................................... 34
Ray, Jan, president, International Trade Club of Greater Kansas
City, Inc...................................................... 23
Prepared statement........................................... 25
MARKETS FOR A NEW MILLENNIUM
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SATURDAY, JUNE 19, 1999
U. S. Senate,
Committee on Commerce, Science, and Transportation,
Kansas City, Missouri
The committee met, pursuant to notice, at 10:50 a.m. in the
Foyer of Midwest Terminal Company, 1700 North Universal Street,
Kansas City, Missouri, Hon. John Ashcroft presiding.
Staff members assigned to this hearing: Robert Taylor,
Republican counsel; and Gregg Elias, Democratic counsel.
OPENING STATEMENT OF HON. JOHN ASHCROFT,
U.S. SENATOR FROM MISSOURI
Senator Ashcroft: Good morning. I am pleased to call this
meeting to order. I would like to thank all of you who have
come to participate in this hearing today, and especially want
to express my pleasure in the fact that Kansas City is so
focused on the opportunities that appear to be represented in
the kinds of inquiries that are being made by us and the
members of the city council who are here. Teresa Loar and Chuck
Eddy are to be commended, as local officials, for expressing
their interest and sacrificing their Saturday. And those of you
that have also come to help us from industry and from the
governmental entities, I am grateful.
This hearing has been entitled ``Markets for a New
Millennium.'' It is an honor to spend time with you today and
to exchange ideas in one of the nation's premier potentials for
the kind of New Millennium marketing that will include not just
the United States but the capacity of American producers, be
they agricultural or industrial or service sector related, to
serve the entire world.
We are here to discuss the cornerstone of economic
opportunity for every Missourian. Kansas City, of course, is
already a leader, as we well know, and Missouri is a leader.
Our state ranks second in the number of farms. We just heard
this morning, again, that Kansas City is the second most active
railhead in the nation. We are in the top five states in
livestock production. Missouri's success reflects the ingenuity
and competitiveness of the private sector.
I believe that the best definition of America is a phrase.
It is not geography, it is not demography. It is a definition
that simply says, ``The best is yet to come.'' It has always
been true about this country; we want it always to be true
about this country, and this State.
This definition is our basis for developing international
trade, because if we are going to continue to improve our
standing, we will have to continue to improve our performance.
Our capacity is the best capacity for competitive work, and I
believe we cannot be either hindered by hurdles that we put in
the way of those who would serve the world, and we cannot be
allowed to be stopped by barriers that others would put in our
way in foreign markets.
Missourians need to have full access at every stage from
the farm gate to the foreign market, from the factory floor to
the trading centers of the international community.
International trade does not just occur at the nation's
borders. It begins in the factory and on the farm. A more
advanced transportation infrastructure will accommodate us in
helping develop international trade from the heart of America.
It is my belief that the heart of America has the capacity and
opportunity to demonstrate that we can be the heart of
America's international trade. Missouri is already first-class
in production, processing, marketing, and manufacturing-at home
and abroad. America is the world's leader in technology, and
Missouri is at the head of the pack.
But our continued prosperity and competitiveness for the
next generation is tied to our current competitiveness in
global markets. The U.S. must face, head-on, the barriers that
our own government places between us and foreign markets. If
indeed the Heartland of America is to be at the heart of
foreign trade, we must make sure that we do everything we can
to streamline our approach to helping Missourians move their
goods to markets overseas.
As we are holding this hearing, the President is meeting
with the Heads of State of the G8 countries at the summit in
Cologne, Germany. He has made a commitment to raise with his
foreign counterparts the issue of their barriers to U.S.
agriculture grown with biotechnology. That is something I asked
him to do. It is something that we passed a resolution last
week in the Senate asking him to do, and I thank the President
publicly for doing it.
This commitment was made because Senator Harkin of Iowa and
I passed the resolution and asked the President to raise these
issues. The interests of the American farmer have always had a
seat at the table, especially at the highest political levels,
I believe they ought to continue to do so.
Nearly 40 percent of all U.S. agricultural production is
exported, so in terms of the industries that we have
represented today, all of them are interested in export,
clearly. Agriculture is one of the highest levels of exports.
Some agricultural sectors export over half of their production.
In the United States, we consume less than half of the soybeans
we produce, for instance. That means the rest has to go
overseas.
However, we can create even more export opportunities,
because 95 percent of the world's market, 95 percent of the
world's consumers, live outside the United States. This gives
us an opportunity to build on our tradition of ascending
opportunity in world markets.
America must lead on every front. My goal is for the
nation's international trade policy to reinforce the character
and definition that we have a level of ascending opportunity.
We must remove barriers here at home by streamlining, by
integrating, by doing a better job so that Missouri's
enterprising business community will be able to get the goods
out of America efficiently and effectively. And we must break
down barriers overseas that would keep us from being
competitive.
It is my pleasure now to call upon a group of individuals
whose from-ground-zero-up understanding of manufacturing and
farming and processing and moving goods in international trade
can help us comprehend what our challenges are. I am delighted
to welcome the witnesses we have here from this community and
from the State of Missouri.
So, today, it will be my privilege first to call upon Mr.
Karle Eberle, who is the Executive Vice President of the
Harley-Davidson Corporation. Harley-Davidson is a relatively
new member of the Kansas City community, since 1998. It is my
understanding that about a quarter of the sales of all Harley-
Davidson products are in overseas settings, and so it is with
that in mind that I welcome the testimony of Mr. Eberle.
Would you please turn that microphone toward you, and give
me and the rest of us a chance to hear clearly those things
that you can develop in us an awareness about.
STATEMENT OF KARL EBERLE, VICE PRESIDENT AND
GENERAL MANAGER, HARLEY-DAVIDSON CORPORATION, KANSAS CITY
OPERATIONS
Mr. Eberle. OK. Thank you, Senator. I would like to thank
you for making this opportunity possible today. I am going to
give you 20 minutes worth of testimony in 5 minutes, and then I
am going to leave for my daughter's baseball game.
I have had the privilege of working for Harley-Davidson for
the past 9 years, and it is a very unique company. To really
understand our export capability and importance, I would like
to give you a little background on the company.
With that, I would like to show you some of the models that
we make. We have four families of motorcycles in these mounted
slides: a Sportster family, which is made exclusively in Kansas
City now; we have our Dyna and Softail family, which is made in
York, Pennsylvania, along with the Touring motorcycles.
The Touring and the Sportster both represent about 25
percent of our total volume, and contrary to what most people
believe, there are Harleys for less than $20,000. In fact, the
family of Sportsters start at $5400 and go to about $8500, and
the York models can go to about $18,500 at suggested retail
price. Obviously, with the shortage of Harleys, that in itself
is part of a wish list to get one at retail price.
In addition to that, we offer the Buell model. The Buell
model is our sport bike model, which is particularly popular in
Europe and Asia, where sport bikes make up the biggest portion
of the heavyweight motorcycle market.
We are a lot more than just a motorcycle company. Seventy
eight percent of our sales are motorcycles, but our mission is
really about fulfilling dreams. I think this picture captures a
lot of it; there are not many customers or products that will
brand themselves with the brand of the company, and that is
very typical for our products. We have a 94 percent repurchase
rate amongst our customers.
A little bit about the Kansas City facility. The Kansas
City facility was constructed in 1996 and 1997 with a capital
investment of $85 million. We started up production in January
1998. We are currently in the 400-employee range, and we
continue to go up.
The economic impact that we have had on Missouri: in 1996,
about $45 million; $85 million in 1997 at the peak of our
construction; and in 1998, about $78 million.
As far as the public-private partnership that we have
established with the State of Missouri and the city of Kansas
City, Missouri, our success in Kansas City is due in large part
to that relationship that has been established with both the
State and the City. We certainly look forward to continued
relationship in that. We have had enormous success when it
comes to training, infrastructure, utilities, and community
support with that partnership. It is a very important part of
our future.
From a revenue perspective, if you look at our growth over
the last 13 years, we have had a year-over-year growth of 17\1/
2\ percent from total revenue for the company. Earnings has
grown faster than that. It is a compounded annual growth rate
of 37 percent year over year. Exports is a very critical piece
of that.
If you look at registrations, the top line is the worldwide
registrations of heavyweight motorcycles, and it has grown for
7 years in a row. The last 2 years have been double-digit
growth. The bottom line indicates Harley's growth, and we have
had steady growth for the last 13 years in the motorcycle
market. This is the heavyweight motorcycle market, which is
651cc and above.
Worldwide market share: this chart shows the four main
areas, but in the U.S. last year--and this is from 1998--there
was a 19 percent growth in the market. In Europe it grew at 8
percent, and in the Pacific Rim, 17 percent. Of that, Harley-
Davidson grew at about 18 percent in the U.S. alone. If you add
it all up worldwide, 1 out of 4 motorcycles is a Harley-
Davidson heavyweight motorcycle that has been sold in 1998.
So we are definitely a player, and we believe we have
significant opportunities in both Europe and Asia because of
our lower percentage of market share.
If you look at export versus domestic, we are at
approximately 30 percent of all of our products are sent
overseas. That in itself says a lot. When you look at Kansas
City, the only reason Kansas City exists today is because of
the export potential that we have been displaying over the
years. Without this 30 percent, there would be no need to build
the Kansas City facility.
Now, with that comes its challenges. One of them is the
Japanese area. We will use it as an example. You can see here,
for the past 4 years, we have had an annual growth rate of 20
percent up to 1997. What we found is that there were some very
unique opportunities from a regulatory standpoint. We worked
directly with the U.S. Offices of Trade and Department of
Commerce, and indirectly with American Motorcycle
Manufacturer's Association, as well as some of the federal
international motorcycle associations, to influence some of the
barriers to trade.
For example, there was a barrier in Japan that in order to
get a license on a heavyweight motorcycle, you had to be able
to put the motorcycle on its side and pick it up. Well, there
are not many of us that can do that, especially if you are
riding a Harley.
In working with these agencies, both directly and
indirectly, we were able to influence that law. That law was
reversed. And as a result of it, in 1998--or between 1996 and
1997, we saw a 43 percent increase in our export sales to Japan
alone.
Now there are other barriers over there. For example--you
cannot ride tandem on a motorcycle over there. That, obviously,
is a huge barrier for us, and we are working now to resolve
that issue. But it certainly talks about the growth potential
in the export market, but it is something that you have to pay
close proximity to and attention.
In addition to that, global harmonization is another thing
that we are looking very hard at, and for example, we have four
engine platforms in our motorcycles, and we have 26 different
models. With the international requirements for exports, each
one of those has eight different varieties, so we come up with
208 variants, instead of 26. So--and I am sure we are not
unique in this industry; that those requirements have barriers
to other manufacturers as well. So that is an area that we
would also like to work.
Bottom line, though, for Harley-Davidson, this is a--this
really shows our shareholder price from 1986 to 1999. If you
invested 65 cents in 1986, in March 1999, you would have got
back $57.38. We believe this is indicative of Harley-Davidson's
performance, and we believe it is indicative of what has gone
on. It is really work in progress for the past 96 years.
So we look forward to continued growth in the export
business, and we look forward to our 100th anniversary in 2003.
Thank you.
Senator Ashcroft: Let me thank you very much. I know you
are eager to get to your daughter's game, and you should be. We
need for parents to spend more time with their children in this
culture. I'm glad that you, as a leader, a community leader,
not only lead in industry but in character and in your family.
But before you go, I guess I want to make sure I understand
clearly. You are telling us here today that if we did not have
export opportunities, there would be no need to have the Kansas
City production facility.
Mr. Eberle: That is correct.
Senator Ashcroft: About 30 percent of all the company's
output finds its way into international markets.
Mr. Eberle: Yes. That is a fair statement. Kansas City
presently produces about 25 percent of the total motorcycle
volume for Harley. So that would eliminate the need for Kansas
City.
Senator Ashcroft: Well, I thank you very much for coming. I
wish you the best, and I hope you will extend to your daughter
our best wishes that she has a great day----
Mr. Eberle: Thank you, Senator.
Senator Ashcroft: --and that she plays to the very top of
her capacity. If she does that, we may have a job for her with
the Royals.
Mr. Eberle: Thank you very much.
[The prepared statement of Mr. Eberle follows:]
Prepared Statement of Karl Eberle, Vice President and General Manager,
Kansas City Operations
Thank you for the invitation to speak on Harley-Davidson and the
importance of exports for our company. I would like to thank Senator
John Ashcroft's office, and Mike Copps, Assistant Secretary for Trade
Development for making this input today possible.
I would like to set the context for our conversation by providing
an overview of Harley-Davidson. I've had the privilege of working for
Harley-Davidson the last nine years, and it is truly a unique company.
The passion and commitment of our employees, dealers, and customers are
instrumental in our business success. By first providing the overview,
I can hi-lite exports and its importance to Harley-Davidson's business.
At the center of the lifestyle, the passion and the brand of
Harley-Davidson are Harley-Davidson motorcycles.
Under the Harley-Davidson brand we offer 24 different motorcycle
models in the custom and touring segments of the heavyweight motorcycle
market, above the 650cc displacement. Contrary to popular belief not
all Harley-Davidson motorcycles cost $20,000. In fact our motorcycles
range in manufacturers suggested retail price, or MSRP from $5,400 to
$18,500. However, the fact that demand still exceeds supply in most of
our markets does create the opportunity price premiums at retail.
We have four families of motorcycles that are considered
heavyweight Custom motorcycles. Our Softail and Dyna families are our
larger custom motorcycles, while our Sportster family is the platform
for our smaller custom bikes. The pictures show a Sportster on top and
a Fatboy model from our Softail family below.
In the Touring segment we offer a variety of models. This slide
depicts the Ultra Classic Electra Glide which is designed for long
comfortable rides.
Our new Twin Cam 88 engine which has gained notoriety as the best
air cooled v-twin engine in the industry currently powers all the Dyna
and Touring motorcycles.
Under the Buell brand, we offer motorcycles that compete in the
Sport/Performance segment of the heavyweight motorcycle market which in
Europe and the Asia/Pacific capture the majority of the heavyweight
market.
Buell motorcycles are powered by Harley-Davidson engines, but
that's where the similarity ends. Buells are purchased by customers
that desire a different riding experience: one that requires a
motorcycle with higher performance and handling characteristics
suitable for more aggressive riding.
We offer three Buell models with an MSRP range of $8,600 to
$12,800.
This picture is of the 1999 Lightening XI that was introduced to
the U.S. market in July of last year. It has been well received and was
featured on the cover of Cycle World Magazine. They subsequently named
it one of the 10 best motorcycles in the world.
Although 78% of our sales are motorcycles, Harley-Davidson is much
more than a motorcycle manufacturing company.
Harley-Davidson has 96 years of heritage and mystique behind the
brand. The brand represents individuality, freedom, and a desire for
adventure. And even as we've made motorcycling a more socially
acceptable sport and broadened the customer base--we've managed to keep
an ``edge'' to the brand.
In 1998 we rewrote our mission statement and it starts with simple
phrase ``We fulfill dreams...'' I really think this captures what
Harley-Davidson means to our customers. Some of them feel so strongly
about it that they even brand themselves with our brand. This loyalty
is also illustrated by our incredible H-D motorcycle repurchase intent
of 94 percent.
Our success in Kansas City is in a large part due to the public-
private partnership with the state of Missouri and the city of Kansas
City, Missouri. We appreciate this continued support from all levels of
Government.
Harley-Davidson is also about growth.
This chart illustrates the steady, consistent growth that Harley-
Davidson has experienced over the past 13 years, and we are committed
to growth in the future. As we will discuss in a minute, expanding in
international markets is an essential tenet of our future growth
strategies.
This chart also shows our consistent steady growth in earnings. And
for 12 of the last 13 years earnings have grown faster than revenue.
There aren't many companies that have delivered this type of
financial results.
Turning to the market now, the Worldwide heavyweight motorcycle
market grew for the seventh consecutive year in 1998. And for the last
two years it has been growing at a double-digit rate.
During the same timeframe Harley-Davidson retail registrations have
also grown. In fact Harley-Davidson retail registrations have grown
steadily for the past 13 years.
More specifically, this chart shows the 1998 growth in each of the
three major regions.
As you can see all three regions experienced strong growth in 1998.
Harley-Davidson and Buell retail registrations also grew in each
region. Although in each region we grew somewhat less than the overall
market--worldwide we gained a little market share. This may seem
counter intuitive--but because the U.S. is over 70% of our sales and it
is growing faster than the world it really drives our market share.
However, as this data indicates, we have significant opportunity to
increase market share in Europe and in Asia/Pacific.
Exports represent a substantial and important part of our
motorcycle business. This percentage varies by model and by country.
The challenge to growth is to overcome the barriers to entry, including
complexity due to unique country requirements.
Specifically, for the period from 1994 to 1997 Harley-Davidson has
experienced an average annual growth rate of 20%.
Harley-Davidson maintains a very active and effective regulatory
and international affairs strategy. This strategy divides into two
basic tenets. The first is to create direct influence on international
trade barriers and regulatory interests through U.S. government
agencies. Harley-Davidson has worked extensively over the past years
with the United States Trade Representative's Office and the United
States Department of Commerce.
The second tenet of this strategy is to exert indirect influence
through the support of industry and consumer groups. Harley-Davidson
maintains constant involvement with the world's most influential
motorcycle associations--evidenced by the fact the Tim Hoelter, Harley-
Davidson's Vice President of International Trade and Regulatory
Affairs, is also the acting president of International Motorcycle
Manufacturer's association.
The influence brought by these strategies has made a difference for
Harley-Davidson.
In 1994, Harley-Davidson began an effort in conjunction with the
United States Department of Commerce to petition the OTO Council on
regulations and licensing issues for large class motorcycles. Because
Harley-Davidson competes singularly in the large engine displacement
category, these regulations create unnecessary disadvantages for our
products. Utilizing the direct and indirect influence strategy
previously described, Harley-Davidson was able to coordinate an
effective intervention which resulted in the change to the licensing
requirements in 1996. Although we continue our efforts to influence the
tandem riding and maximum speed restrictions, this singular change on
licensing has made an impact on the market. Without the combined
influence of the United States Department of Commerce, and numerous
industry and rider associations, these changes would likely not have
occurred.
Due to the regulatory changes brought about by Harley-Davidson's
efforts, the 651+ cc motorcycle market grew by over 73% in 1997 in
Japan. Although the bulk of the growth was in the sport/performance
segment of the market, which is dominated by Japanese manufacturers,
the changes also created a 43% growth for Harley-Davidson in the same
year.
Clearly, removing the licensing barrier benefited the entire
industry. Harley-Davidson's ongoing strategy has been to open markets
and allow competition to exist on the merits of the competitors.
Although the intervention we sponsored in Japan created a larger
dividend for our competition, it has continued to crate the market
structure to provide an open playing field.
In addition to our efforts to continue to influence the tandem
riding and maximum speed restrictions in Japan, we have engaged in a
strategy to support ``global harmonization'' in our industry. Contrary
to the phrase, ``global harmonization'' does not imply that we are
going to ``buy the world a Coke.'' In fact, it centers on providing
common regulatory specifications for vehicles in the same categories
across all global markets.
The absence of this creates significant cost to everyone's
products. For Harley-Davidson this creates a proliferation from 26
different models to 208 variants due to the eight different regulatory
specifications that the industry is subject to across the various
international markets.
Given the significant effort expended to simply change the
licensing standard in Japan, global harmonization becomes an effort of
significant proportion.
I began this discussion by commenting on Harley-Davidson as a truly
unique company. Wall Street has a way of valuing the success of a
company's business proposition or model.
This graphic show that for the last 13 consecutive years we have
delivered sustainable growth. Our strategy that I have outlined in
Japan represents an important part of that 13 year history--and more
importantly represents the experience and strategies needed to sustain
our future growth in international markets.
Its been a pleasure to talk to all of you this afternoon, and
convey a little bit of the Harley-Davidson story. It's a work-in-
progress that has been 96 years in the making.
Thank you.
Senator Ashcroft. Thank you very much.
It is my pleasure now to call upon Ms. Jan Ray, who is the
President of the International Trade Club of Greater Kansas
City. I have to say that this is a unique organization, which I
believe, has a membership of over 700. To have that kind of
intense involvement in a community like Kansas City is a
reflection of the fact that this community is interested in and
focused on its ability to serve the world.
I am very pleased that you would come and be a part of this
hearing, and would ask you to give your testimony at this time.
STATEMENT OF JAN RAY, PRESIDENT, INTERNATIONAL TRADE CLUB OF
GREATER KANSAS CITY, INC.
Ms. Ray. Thank you, Senator Ashcroft. It is a pleasure to
be here on behalf of the International Trade Club presenting to
your hearing today under the topic of ``Markets for the
Millennium.'' I, ironically, have been out of the country doing
international business, so have just returned, so have pulled
together the best information possible to reflect on what the
International Trade Club does in the Greater Kansas City area.
We are the oldest international organization in the area.
We have been in business for over 55 years, starting out in
1944 through just a small group of Kansas City business
persons, who were either interested in international trade or
doing some international trade, and they just informally formed
an organization. Of course, later the organization was
formalized. Today--you are correct, Senator--we represent over
700 members and over 350 different companies in the Greater
Kansas City area.
Our organization is comprised of both manufacturers and
service organizations. Our goal for the International Trade
Club is really quite simplistic, and we intentionally keep it
that way. It is all based on our mission statement, and that is
that our mission statement says that we are here to promote
international business through focused commercial education and
networking. So, therefore, I am going to share with you an idea
of our educational programs and what we have done just so far
this year.
So far this year, since January 1, we have conducted 18
different seminars and conferences on a variety of topics. I am
just going to quickly go through the topics, which I think will
give you an idea of how diverse our organization is.
On January 6, we did a breakfast meeting on the update of
North America's Superhighway Coalition. On the 13th of January,
we did an export documentation seminar; on the 15th, Security
While Traveling Overseas. These seminars are open to both
members and nonmembers of the International Trade Club.
On January 27, we began a three-part series on import, the
import aspects, the first one being called Customs Compliance
Assessment. On February 3, we did a seminar on globalization;
on February 10, International Letters of Credit; on February
24, the second part of the import series; on March 3,
Communications Across the Pond; on March 10, a report on the
Jackson Hole Conference; on March 24, the third part of the
import series; on April 7, China and Its Business Insights; on
April 22, Current Events in Transportation; on April 28, the
fourth part of the import series; on May 5, International
Agriculture.
May 18, is a premier event of the International Trade Club,
in conjunction with the Greater Kansas City Chamber of Commerce
and other international organizations, called our World Trade
Week. This year, the theme was the European Union. All of the
various countries involved in the European Union were
represented, and our two keynote speakers featured Minister
John Richardson, who is the Deputy Head of the European
delegation to the United States in Washington, D.C., and also
Ambassador Thomas Niles. Ambassador Niles is the former
Ambassador to both the European Union and Greece and is now the
President of the United States Council of International
Business in New York City.
Then after that, we have also had another seminar on
Business with Russia; another one on International Sales and
Marketing; and then the end of this month, June 29, one on the
``How To'' of International Trade. So hopefully that gives you
an idea of our members' interests in getting a broad base of
information on the global marketplace. Ten of these seminars
were offered in conjunction with the Greater Kansas City
Chamber, so we very much try to partner with other
international organizations.
The networking component of the International Trade Club is
comprised of any number of meetings, receptions--and this year
we started a new program called International After Hours,
where anyone who is involved in the international marketplace
is encouraged to come and to network with others.
The International Trade Club provides information to new
members of the international marketplace, as well as veterans
in the international marketplace. While we do not have
particular statistics regarding our own members, for obvious
reasons--many of them are very sensitive competitors to one
another, if you will. But since our members are comprised of a
broad base of both service and manufacturing, and are on both
the Missouri side and the Kansas side, we feel very comfortable
in using the Department of Commerce figures.
So, therefore, the figures that we use for the
International Trade Club is that--and the most recent figures
we have are the 1997 figures from the Department of Commerce,
and that the export totals from the Greater Kansas City area
were 3 billion 818 million. Those are broken out into various
global regions. The NAFTA countries, Canada and Mexico,
comprising the largest of 1 billion 190 million, going on down
to Australia with the smallest export totals of 41 million.
As far as the product totals, in 1995, again, the latest
figures that we have, the manufactured goods were 1 billion 425
million; the non-manufactured goods 1 billion 925 million. So
that gives you an idea of the scope of the numbers that we deal
with at the International Trade Club.
To also give you an idea of our organization and how we try
to keep it open to, again, new persons interested in the
international marketplace, as well as veterans, we try to keep
our membership very, very low. For example, a corporation
membership is $300, and that entitles you to up to five
members. An individual membership is $80; an educational
membership, $65. We have several students who are members at
$30.
We are more than happy to provide you with additional
information on behalf of the International Trade Club for
additional conferences, seminars, other aspects of our
organization, but hopefully that gives you an idea of what we
are about in the Greater Kansas City area. Thank you.
[The prepared statement of Ms. Ray follows:]
Prepared Statement of Jan Ray, President, International Trade Club of
Greater Kansas City, Inc.
The International Trade Club of Greater Kansas City, Inc. is 55
years old and is comprised of a membership of over 600 members
representing approximately 350 companies.
The foundation for the club through its over half a century rests
with its mission statement: to promote international business through
focused commercial education and networking to support individuals and
businesses in the Greater Kansas City area.
The commercial education component of the mission statement is
fulfilled through a number of seminars conducted annually. This year's
seminars have included:
Jan. 6 Updates on NASCO & the Federal Highway Bill (North America's
Superhighway Coalition)
Jan. 13 Export Documentation Seminar
Jan. 15 Security While Traveling Overseas
Jan. 27 Import Series Part I--Customs Compliance Assessment
Feb. 3 Globalization
Feb. 10 International Letters of Credit Seminar
Feb. 24 Import Series II--Fundamentals of Importing
Mar. 3 Communications Across the Pond
Mar. 10 The Jackson Hole Conference Report Seminar
Mar. 24 Import Series Part III - Draw Back Regulations
Apr. 7 China--Business Insights
Apr. 21 Current Events In Transportation
Apr. 28 Import Series Part IV--Custom Penalties & Prior Disclosure
May 5 International Agriculture
May 18 The European Union
June 2 Business with Russia
June 9 International Sales & Marketing
June 29 The ``How to'' of International Trade
Ten of these seminars were offered in conjunction with the
International Division of the Greater Kansas City Chamber of Commerce.
A recent survey by the International Trade Club indicated a majority of
our members are interested in specific countries and focused tactical
seminars.
The networking component of the mission statement is fulfilled
through a number of meetings, receptions, and other social gatherings
throughout the year. At the request of our members for additional
networking opportunities, we established a new program for 1999
entitled International After Hours, a bi-monthly reception after
business hours for socializing. Anyone doing business or interested in
doing business in the international marketplace is encouraged to
attend. The response has exceeded our expectations.
Whether you are new to the international arena or a veteran
conducting business globally, the International Trade Club offers
opportunities to grow your business. Joint efforts with other Kansas
City international organizations offer further additional international
opportunities for our members.
While the International Trade Club does not have statistics for the
international business activities of its individual members, we feel
comfortable in the utilization of the export totals as compiled by the
Department of Commerce for the Greater Kansas City area. Our membership
base is representative of a broad spectrum of manufacturers and service
providers doing business throughout the world. (See Attachment A)
An additional indicator of international activity utilized by the
International Trade Club is via the Heartland International Business
Index (HIBI). This index was started by the International Trade Club in
1996 in conjunction with Professor Ernie Goss of Creighton University
in Omaha, Nebraska. The index is compiled for the Heartland Alliance
and is an economic indicator of international business with the nine
member states: Missouri, Kansas, Iowa, Nebraska, Oklahoma, North and
South Dakota, Minnesota and Arkansas. An index of 50 or greater depicts
growth. The HIBI measures changes in the monthly export and import
activities for the nine Heartland states and compares it to the United
States average.
Heartland export orders moved up again in May but lagged national
export order growth. Heartland orders reached 48.8 in May, up from
April's 48.3. For the state of Missouri, the May export index reached
51.5. In comparison, the national export orders index rose to 52.4 in
May from 51.6 in April.
The international Trade club offers its information, educational
seminars and networking opportunities to both members and non-members.
Attachment A--METROPOLITAN MERCHANDISE EXPORT TOTALS TO SELECTED DESTINATIONS, 1993-1997
(Dollars)
Metro Area Market 1993 1994 1995 1996 1997
Kansas City, MO--KS:
NAFTA Countries 618,809,120 847,505,187 876,500,509 1,357,188,382 1,189,840,808
Canada 293,854,580 339,084,694 367,111,902 367,877,533 428,549,412
Mexico 324,954,540 508,420,493 509,388,607 989,310,849 761,291,396
Caribbean & Cen. Am. 114,347,297 103,391,288 145,636,859 199,916,463 201,256,375
South America 199,536,800 210,120,898 347,100,721 430,400,459 465,822,516
Argentina 12,081,225 14,921,657 25,245,639 27,014,374 58,330,189
Brazil 26,291,887 20,429,696 35,163,954 53,888,913 31,992,833
Other S. America 161,163,688 174,769,545 286,691,128 349,497,172 375,499,494
Europe 481,708,946 361,974,091 437,091,393 468,425,032 553,038,579
Belgium 17,450,740 51,072,031 56,614,152 46,760,730 18,219,017
France 21,239,285 21,051,989 33,384,156 21,155,256 43,694,308
Germany 63,972,678 55,731,314 63,621,474 57,336,185 91,970,975
Netherlands 28,956,352 26,196,421 31,459,253 50,819,745 34,553,953
United Kingdom 44,725,101 60,977,867 51,585,236 76,226,784 83,449,763
Turkey 11,821,220 1,632,025 4,189,802 19,017,620 78,912,939
Former Soviet Rep. 184,320,230 38,248,835 51,514,030 53,601,755 37,835,754
Poland 4,358,781 1,531,999 2,324,133 10,805,888 8,924,521
Other E. Europe 49,601,412 26,304,802 11,521,377 21,287,319 19,580,823
Other Europe 55,263,147 79,226,808 130,877,780 111,413,750 135,896,526
Asia 444,915,091 639,106,772 1,150,334,518 1,120,338,531 997,262,380
Japan 174,130,326 253,748,329 537,506,287 641,303,100 506,344,558
China 24,355,050 43,284,423 53,823,085 61,331,086 94,858,679
Hong Kong 12,580,443 12,015,611 20,093,584 14,233,688 14,073,400
Taiwan 129,046,883 96,272,287 147,597,701 131,077,211 134,836,632
Singapore 19,244,376 21,761,282 21,599,816 26,799,930 27,523,987
S. Korea 31,103,316 60,701,207 225,709,254 142,680,787 88,397,567
Indonesia 4,454,307 5,542,880 17,571,672 24,275,191 48,528,334
India 2,560,371 6,877,798 4,110,614 5,892,277 11,653,882
Other Asia 47,440,019 138,902,955 122,322,505 72,745,261 71,045,341
Africa 137,178,912 154,512,708 151,044,462 146,603,884 138,942,401
North Africa 95,519,079 106,907,239 67,657,516 57,752,552 77,359,227
Rep. of S. Africa 26,363,882 16,467,488 40,076,825 17,296,692 11,649,485
Other Subsaharan 15,295,951 31,137,981 43,310,121 71,554,640 49,933,689
Africa
Middle East 127,191,232 167,769,396 163,514,359 167,667,103 209,305,801
Australia 24,719,571 41,746,231 34,652,697 63,037,728 41,364,482
Rest of World 77,493,573 52,433,249 44,294,047 31,494,979 20,803,523
World 2,225,900,542 2,578,559,820 3,350,169,565 3,985,072,561 3,817,636,865
Prepared by: Office of Trade and Economic Analysis, International Trade Administration, Dept. of Commerce
Source: Exporter Location Series, Census Bureau
METROPOLITAN MERCHANDISE EXPORTS TO THE WORLD, BY PRODUCT SECTOR, 1993-1997
(Dollars)
MSA Product Description 1993 1994 1995 1996 1997
Kansas City, MO--KS
Manufactured Products 1,091,733,254 1,347,718,649 1,425,258,895 1,503,492,234 1,910,850,976
Food Products 238,162,931 265,968,846 272,592,351 263,017,143 322,198,192
Tobacco Products 0 0 0 9,000 3,000
Textiles & Apparel 32,301,376 38,498,541 55,432,534 79,740,201 111,787,875
Lumber & Wood Products 13,566,986 14,728,566 14,728,035 13,535,749 14,306,412
Furniture & Fixtures 3,294,598 4,139,051 3,825,995 4,474,742 6,658,105
Paper Products 11,239,681 15,048,675 21,886,957 19,213,555 23,354,208
Printing & Publishing 28,390,480 38,854,962 36,563,259 44,419,324 48,528,875
Chemical Products 147,440,454 159,975,381 175,085,786 205,955,751 263,572,247
Refined Petroleum 2,888,980 2,560,564 2,839,454 2,656,603 3,181,278
Products
Rubber & Plastic Products 20,473,488 26,269,201 30,064,647 25,126,297 31,514,467
Leather Products 340,264 1,358,341 920,571 813,251 1,288,359
Stone, Clay, & Glass 13,430,163 28,545,578 22,939,950 22,014,497 14,743,510
Products
Primary Metals 9,138,995 18,247,017 12,423,241 15,653,235 52,555,024
Fabricated Metal Products 67,092,356 102,291,728 129,505,671 129,688,990 175,384,447
Industrial Machinery & 191,589,598 216,459,294 243,548,400 288,178,409 361,152,240
Computers
Electric & Electronic 95,358,737 174,995,373 128,507,282 111,524,108 157,610,891
Equipment
Transportation Equipment 82,195,303 98,843,199 121,980,631 102,275,851 122,388,014
Scientific & Measuring 122,795,399 116,047,629 129,138,245 145,991,282 168,372,423
Instruments
Misc. Manufactures 7,413,054 10,179,612 12,430,558 11,872,227 18,629,083
Unidentified Manufactures 4,620,411 14,707,091 10,845,328 17,331,583 13,622,018
Nonmanufactured 1,134,167,288 1,230,841,171 1,924,910,670 2,481,580,327 1,906,785,889
Commodities
TOTAL 2,225,900,542 2,578,559,820 3,350,169,565 3,985,072,561 3,817,636,865
Senator Ashcroft. Well, we thank you very much. It seems to
me that a person who goes to at least two out of three of their
conferences should get a Ph.D. in about the span of 6 months.
Ms. Ray. We agree.
Senator Ashcroft. What a tremendous array of informational
conferences you hold.
It is my pleasure now to call upon a longtime friend, a
personal friend and also a friend of this community. He is a
farmer, a board member of the Missouri Farm Bureau. And given
the fact that 40 percent of all agriculture in the country is
exported, it really behooves us to make sure that we do not
have barriers between that community and overseas markets--
barriers either through our own inefficiency in the way we
handle goods for export or barriers that we allow to exist
overseas.
I have tried to focus on both of these categories of
barriers in my legislative duties. Sometimes we have been very
quick to impose embargoes, which make it impossible for our
farmers to export. I think we have to review carefully these
U.S. barriers.
I have also spent a lot of time recently in speaking to the
effects of foreign barriers such as those the European
community has against American agricultural products. Senator
Baucus of Montana and I specifically called the Ambassador of
the European Union to our offices to talk to him about their
continued refusal to accept American beef and other
agricultural products in spite of the fact that they have lost
every WTO case and have exhausted their appeals.
So as we work together, I am delighted to have this
opportunity to hear from someone at the production base of one
of America's greatest industries, the agricultural industry.
Mr. Blake Hurst is here to provide us with information on how
we can understand better our capacity to help in agricultural
export and production.
Mr. Hurst.
STATEMENT OF BLAKE HURST, DISTRICT #1 BOARD DIRECTOR, MISSOURI
FARM BUREAU, AND FARMER
Mr. Hurst. Thank you, Senator. I raise corn and soybeans,
as you know, in Northwest Missouri, about two hours north of
here, with two brothers and my father. My wife, Julie, and I
also have a commercial greenhouse business where we raise
bedding plants that are shipped to about four different states.
It is my privilege to serve on the State Board of Directors of
Missouri Farm Bureau, a farm organization representing 80,000
member families in the State of Missouri.
I want to thank you especially today, Senator, for your
continued efforts to expand trade opportunities for our
nation's farmers and ranchers. We appreciate your work to
ensure that the world leaders discuss the biotechnology issue
and the other non-tariff restraints to trade at the G8 meeting,
your leadership in pursuing legislation in trade sanctions
related to agriculture, and your attempt to make the customs
service more efficient by standardizing international trade
data.
As you know, U.S. agriculture has not shared in the
prosperity associated and enjoyed by the general economy. These
are trying times in agriculture, and we must pursue every
opportunity to enhance the demand for the products that we
raise.
You know, I think back to the 1996 Presidential campaign. I
think one of the most unfortunate metaphors that anybody, any
candidate, used that year was Pat Buchanan's call for peasants
to attack Washington with pitchforks--peasants with
pitchforks--in protest against international trade, because you
know the peasants that Pat was talking to have replaced that
pitchfork with a skid loader made in Japan, and they paid for
that skid loader with dollars earned from selling soybeans to
Germany and Asia. We farmers are totally dependent on trade,
and the troubles we have experienced in the last few years are
largely a result of the economic turmoil in Asia, and of course
the Russian troubles and trade barriers as we try to sell to
Europe.
Three years ago we exported $60 billion of farm products;
this year we will only export $49 billion. The U.S. Department
of Agriculture has reported that stockpiles of U.S. soybeans
could be the largest in 13 years, and stockpiles of corn the
largest in seven. Of course, as you know, soybean prices are
lower than they have been in 20 years. So there are three
things I would like to bring up today that could perhaps help
turn this agriculture situation around.
First, infrastructure must be in place for low-cost
movement to U.S. borders. The agreements must be in place that
allow fair competition in overseas trade, and mechanisms must
be in place to enforce and resolve trade conflicts, as you
pointed out in your remarks.
There are 6 billion people in the world today, 95 percent
of which are outside our borders. About 1.5 billion people live
a life of subsistence, and another 800 million people are so
malnourished they cannot work. This is unacceptable, given the
abilities of the American farmer to feed the world.
In 1996, U.S. agriculture exports, as I said, reached $60
billion, about 30 percent of our sales. In 1997, Missouri
agriculture exports totaled $1.55 billion, again, almost 30
percent of Missouri farmers' sales. The loss of our export
markets would erase demand for almost a third of our state's
annual production.
The U.S. has been blessed with the climate and natural
resources that make us the envy of the world. But it is
frustrating that we seem reluctant to take advantage of these
assets. We have an inland waterway that allows products to be
shipped to and from ports in a cost-efficient and
environmentally friendly manner. Missouri, Mississippi, and
many other rivers are gateways to the world that must
constantly fight government officials and environmentalists
that seem to put the pallid sturgeon before farmers, and the
least tern before the 800 million people that need to eat what
we produce.
We have an aging lock-and-dam system on the Mississippi
River that must be modernized; have a rail system that has been
consolidated to a point that it is not uncommon for grain to
sit on the ground waiting for shipment. This reduces quality
and prices paid to producers. Rail movement is no longer seen
by my fellow farmers as a dependable means of getting our grain
to market.
Five, the very same environmental groups that are fighting
navigation on the rivers also work to cut off funding for
highway projects here in Missouri. Our concern with funding for
rural roadways is well known, and we are appreciative, when you
were Governor, that you kept in mind how important the farm-to-
market roads are to farmers, because before the grain that
leaves my farm can get to that intermodal transportation
facility, it has to go down Route C and Route O and through
Craig and Fairfax and Westboro. If we do not have the roads and
bridges that allow us to do that efficiently, then our prices
go up and we are not as competitive.
Increased transportation costs, for whatever reason, not
only hurts producers in the rural communities, but also make
our products less competitive in world markets.
Free and fair world trade will not happen on its own. The
U.S. must remain the leader in pursuing international
agreements that open new markets. Farm Bureau and farmers
strongly support fast-track negotiating authority, and we hope
the administration will work on that before the WTO talks start
again.
I also believe it is important that agriculture be exempted
from unilateral trade sanctions that do nothing more than
penalize U.S. producers. A recent Farm Bureau trade mission to
Cuba found a market desperately waiting access to U.S. farm
products, a market that might amount to a billion dollars a
year. Economic sanctions are costing the U.S. $15 to $19
billion in loss of exports in 1995. This translates into loss
of more than 200,000 American export-related jobs.
Trade agreements are not worth the paper they are written
on if they cannot be enforced. There must be a rigid dispute
resolution process in place with specific time tables. Social
policies and political concerns cannot replace sound science.
Ongoing disputes with the EU are ominous reminders of the
presence of politics. We cannot agree to actions that are
ignored by competitors. If the beef hormone issue is indicative
of the way the present dispute process works, then we need to
change it.
Finally, increased trade will not simply happen. Our future
lies in utilizing our natural resources in a manner that
recognizes our competitive advantages and opening new markets
to international trade agreements and vigorous enforcement and
improvement of the dispute resolution procedures that govern
present-day trade agreements.
Thank you very much.
Senator Ashcroft. Well, thank you, Blake. You touched down
on a number of very important points for us, whether it is
infrastructure, which is fundamental to getting our goods to a
place where they can be exported, or to trade agreements that
may look good on paper, but if they are unenforceable, are
useless. I was just stunned when the Europeans, having lost a
protracted set of appeals regarding American beef, decided on
May 13, the last deadline for compliance, to say, ``We will not
comply, regardless of the absence of any support for our
position. The fact that we have lost--just start stacking on
the penalties. We will not comply.''
It is clear that we need to look carefully at that. I am
very pleased that we are trying to revise in some way the
dispute resolution mechanisms of our trade agreements, because
if we just resolve the disputes and we win the dispute
resolution and then the other countries simply say, ``Well, you
get to call yourself the winner, but we are going to continue
to make you the loser by not complying,'' it is obviously a
very unacceptable situation.
Thank you for your testimony.
Ms. Mary Pyle is the Director of the Kansas City Chamber of
Commerce Division on International Business Development. She is
the Managing Director of the Kansas City World Trade Center. We
have been able to work together on the I-35/I-29 corridor, and
I believe it was with you and your organization that this grant
that we worked to help achieve for the $800,000 to study how
this corridor transportation capacity can be better utilized in
international trade would work.
So it is my pleasure to call upon you for your remarks at
this time. It would be inappropriate for me to welcome you to
Kansas City, but I welcome you to this hearing.
STATEMENT OF MARY K. PYLE, DIRECTOR, INTERNATIONAL BUSINESS
DEVELOPMENT AND MANAGING DIRECTOR OF THE KANSAS CITY AREA WORLD
TRADE CENTER
Ms. Pyle. Thank you, Senator Ashcroft, for the opportunity
to speak with you today. On behalf of the Greater Kansas City
Chamber of Commerce, it is an honor to be able to appear before
this distinguished field panel hearing.
The Chamber has intense interest in international trade
development that are longstanding and numerous. To summarize
our priorities today, relative to this hearing, the Chamber and
our membership strongly supports full funding for international
trade data systems, a trade processing technology, and
infrastructure that will simplify and reduce the cost of
importing and exporting our goods.
We also support increased funding for the development of
international trade corridors, such as I-29 and I-35 corridor;
approval of normal trade relations with China this year and
permanent normal trade relations for China; approval of fast-
track authority for the President; and continued management of
the Missouri River with priority for navigation.
Rather than repeat testimony or cover testimony submitted
in writing for the record, the Chamber felt this might be a
good opportunity for your limited time, too, to answer the most
common question regarding inland trade processing; how would
this work?
Our Chamber represents small business, so we thought we
would take an example. Let us assume I am a small button-maker
from Columbia, Missouri. I would like to take advantage of
NAFTA. I have worked with the Missouri Department of Economic
Development and I have identified a buyer for my product. Now I
have to get it there. I will be shipping one container of
buttons every other month to Monterrey, Mexico.
Right now, I must wade through various forms and paperwork
required by U.S. agencies, as well as forms required by the
Mexican government. I must identify a customs broker and a
freight forwarder who will be able to represent my interests in
Kansas City, in Monterrey, and also at the border in Laredo.
If there is any problem with my shipment, I must resolve it
long-distance or by using my agent at the border. Because I
have a small volume, I am not able to take advantage of
competition in the rate for hauling my containers to Mexico.
Railroads have difficulty accounting for such a small
container, calling loads like mine ``orphans,'' and
discouraging their inclusions in trains. So I must ship by
truck.
I would like to tell my customers when to expect delivery,
but I can only tell them the date I have shipped my product. I
have no idea when they will arrive, because processes at the
borders can be so unpredictable. I am fairly confident in my
company and the driver taking my container to the border, but I
do not know who might be taking my load the rest of the way to
Monterrey, where it needs to be transferred to a Mexican
carrier, and it will be difficult to track that load. I worry
about inventory control.
I am forced to pay an additional 6 percent overhead caused
by processing, and I am swamped in paperwork and am at the
mercy of freight forwarders and numerous people who I do not
know. Because my deliveries are unpredictable, payment for them
is also unpredictable, and I question cash flow.
I need help with international banking, with the customs
brokering process, and with paperwork. I need help managing
inventory and cash-flow. For six container loads per year,
despite the prospect of increased sales, I decide it is not
worth it for me to pursue this opportunity, and I have passed
up an opportunity internationally.
Now, for example, let us envision the button export process
with the Kansas City International Trade Processing Center
already in place. I have worked with State and Commerce
Department and have identified the opportunity in Monterrey,
Mexico. I register as a user of the international trade data
system and review the information I need to provide that will
satisfy the regulatory entities in Mexico and in the U.S.
I still have a number of questions about banking, forms,
tariffs, taxes, risks, and shipping options. But rather than
going through the phone book, I can travel to the International
Trade Processing Center in Kansas City and visit onsite with
representatives of each of the organizations.
I find out I can provide all my trade data on a secure
internet site, directly from my business. All parties involved
in the inspection process will accept this information. I can
prepay all my fees, all my tariffs. Having pre-filed, my load
can be sealed and proceed directly to its portage in Mexico,
without having to stop at way stations along the way. It can be
processed in minutes, rather than days.
Because the trains are assembled in Kansas City that can go
directly to Monterrey without being altered along the way, I
now have the option of using truck or train. I find this
competition reduces my shipping costs substantially. I also
find I am able to track my inventory along the way, and I am
able to tell my customer when to expect delivery.
My account receivables are a little more regular. When I
experience a problem, I am able to address it through Kansas
City, rather than people in Laredo or elsewhere. Not only have
I saved on shipping costs, but my other costs associated in
getting goods across the border. I figure I am saving between
10 and 25 percent per shipment, which allows me to invest more
money in business and also look at additional international
markets.
This is obviously a dramatic and simplified answer of how
the International Trade Processing Center envisioned for Kansas
City would work. It assumes a fully functional trade corridor
that includes Kansas City and a fully developed and staffed
trade processing center. We believe this type of system could
be up and running in Kansas City within the next 3 to 5 years
if Federal resources were available.
We appreciate the efforts of the Commerce Committee to
address this critical need for enhanced trade processing
capabilities and maximum use of existing infrastructure. We
very much appreciate your efforts, Senator, to be an advocate
and a champion for international business and--that America
could be much more competitive in the international
marketplace.
Thank you for allowing the Chamber an opportunity to
testify.
Senator Ashcroft. I am very pleased that you would so
testify. You left out one thing, and that is after this new
millennial approach, the guy needs to go to the bank to deposit
his profits----
Ms. Pyle. Details.
Senator Ashcroft. Details, yes.
It obviously has great promise, especially for those
businesses that have the scale that would allow them to,
through the result of the mass of their enterprise, to be able
to endure so many of these requirements.
[The prepared statement of Ms. Pyle follows:]
Prepared Statement of Mary K. Pyle, Director, International Business
Development and Managing Director of the Kansas City Area World
Trade Center
background
The Kansas City region has been evolving as an international trade
processing center since its founding as a trading post in the mid-19th
Century. It has always been a critical component in the
transcontinental movement of goods and services. Innovations have
included providing the first permanent rail crossing over the Missouri
River, the first paved runways and the initial construction of the
nation's Interstate highway system. The concept of processing
international goods at an inland site is a natural progression in the
region's logistics development. Most recently, the iteration we're
discussing today has its genesis in 1993 with the work of the Chamber's
Inland Port Task Force. Since then we have undertaken with the Mid-
America Regional Council two landmark studies to confirm the concept is
feasible and practical. Those studies were the Intermodal Freight
Strategies Study in 1995 that won the American Consulting Engineers
Council's top award for an engineering project, and the Mid-Continent
Tradeway Study completed in March of this year. Through the North
America's Superhighway Coalition, we also worked with U.S. Treasury to
identify Kansas City as the first international compliance center in a
memorandum of understanding signed by Assistant Undersecretary John
Simpson in 1996.
barriers to kansas city development of inland trade and processing
There have been essentially three barriers to Kansas City's
development as an International Trade Processing Center that build on
each other and perpetuate a negative cycle: (1) a mindset among policy-
makers and government agencies that trade improvements, particularly
infrastructure-related improvements, must be focused at traditional
access and egress points such as deepwater ports and border crossings;
(2) a lack of necessary funds to jumpstart the process of international
trade processing at inland ports, necessitating an incremental
approach; and, (3) a lack of enthusiasm from shippers and carriers as
potential users of the system caused by incomplete information, no
national inland trade processing infrastructure and the fear that such
a system, once developed, would be paid for on the backs of the
transportation industry. These barriers, coupled with a robust domestic
economy and a perception of a weak international economy have stifled
any sense of urgency or passion for developing a trade system that
works better.
Meanwhile, the U.S. government has authorized and spent hundreds of
millions--even billions of dollars to add capacity at overwhelmed
border crossings and deepwater ports, even agreeing to landfill part of
the Pacific Ocean at Long Beach. All this has been pursued while
relatively inexpensive technological solutions using existing and paid-
for infrastructure at inland cities has been underdeveloped.
federal response to inland trade processing concept
The federal government has spoken much of developing a national
freight infrastructure, an intelligent transportation system, and
pursuing the notion of international trade corridors and inland ports.
The true test of its resolve, however, is shown in the funding and
implementation of such systems. The National Highway System is rarely
discussed as a planning tool and is underfunded. Intelligent
transportation systems technology is trickling out to the metro areas
and includes no common architecture. International Trade Data Systems
technology, developed jointly by the governments of Canada, the U.S.
and Mexico, needed a small sum of $19 million for full deployment. It
received no funding recommendation initially and currently stands to
receive somewhere between zero and $5 million, when $13 million is the
minimum amount necessary to gain any benefit from the system for inland
cities.
The final demonstration of the lack of any priority for development
of non-traditional approaches to facilitating trade may be seen in
implementation of TEA-21. For the first time, the nation's
transportation program included a category for border crossings and
international trade corridors. In its first year less than $100 million
was made available for all the states after the rest of the funding was
taken off the top for traditional projects. In setting up its field
hearings to determine how to spend even this small amount, FHWA held
all of its hearings at border crossings or coastal cities, specifically
canceling its one inland hearing originally planned in Kansas City. Not
surprising, most of the projects identified in the hearings support a
status quo approach, as does the final list of recommended projects.
needs of inland cities generally and kansas city specifically
First, there needs to be a mandate from policy makers to the
agencies stressing and rewarding innovations in developing the nation's
trade processing system. If lawmakers continue to slant the playing
field in favor of incremental and traditional approaches to dealing
with the increased flow of trade, bureaucrats will do likewise.
Second, adequate resources and development of demonstration
projects need to be made a priority in the pursuit of non-traditional
and more efficient ways to maximize previous infrastructure investments
in a holistic approach to the national and intercontinental trade
systems. How can any rational person expect to see meaningful changes
that would spur private industry to take risks on system innovations
like ITDS that are funded with less than $5 million for the entire
nation? That is not a commitment to improvement as much as it is a
token allocation to defer meaningful action.
Kansas City's needs include deployment of ITDS technology that is
sufficiently funded. We will require additional allocations of funds to
assist with development of what amounts to a pilot program and model
for other cities for the implementation of a full-service international
trade processing center capable of assisting inland traders as well as
relieving and complementing the traditional border crossing systems.
And we will need sufficient federal personnel from relevant agencies
such as Commerce and Customs to ensure the success of our virtual
processing center and other amenities. Finally, we will need champions
in Washington committed to the success of inland trade processing and
the proliferation of such a system on a national basis.
companies have been disadvantaged by lack of u.s. participation in
various trade agreements
While specific numbers are difficult to obtain because of the
competitive nature of various companies and industries, we believe area
companies of all sizes have been disadvantaged. In a recent survey of
thousands of large and small businesses, as well as freight carriers in
our 5-state region (MO, KS, IA, NE, OK), no fewer than 50 percent were
engaged in international trade, while nearly 80 percent would like to
be so. More than 73 percent of those not pursuing international trade
cited reasons related to the complexity of such trading and their
inability to decipher the system. There has got to be an easier way to
facilitate trade. Also, with Kansas City's reliance on an agriculture-
rich economy, it has been clear that other agricultural powerhouses
such as Canada and certain South American countries have benefited by
the inequities faced by U.S. businesses trying to compete in numerous
markets without the benefit of trade agreements. Farmland's written
testimony addresses the impact on its business and its industry of the
numerous trade sanctions being enforced by the U.S. government. It is
ironic that we are engaged in more trade sanctions than trade
agreements, even in our own hemisphere.
Unfortunately for regions like Kansas City, where more than 90
percent of all businesses employ fewer than 100 people, it is the small
businesses that suffer as they lack the resources to overcome hurdles
placed in international trade.
kansas city would not be the only inland trade-processing center
We believe Kansas City is ideally situated and prepared to
demonstrate that such a center can work and provide greater
efficiencies in the nation's trade infrastructure. If Kansas City is
the only one for long, however, it only demonstrates a lack of will and
commitment to fully develop the potential of the nation's tremendous
inland infrastructure, ignoring the vast potential of cities like
Dallas/Fort Worth, Oklahoma City, Des Moines, Minneapolis, Columbus,
Memphis and others. There must be a national architecture for trade
processing and a network of cities that provide the greatest efficiency
for shippers.
the need for traditional operations at borders and deepwater ports
remains
The Chamber does not view inland facilities as competitors for
business and growth at traditional ports. Rather, we see inland
facilities relieving the stresses of ever-increasing imports and
exports as the global economy expands. At ports like Long Beach, for
instance, only about 60 percent of the goods entering the U.S. there
have a regional distribution. The other 40 percent could be processed
further inland, eliminating congestion, added expense and worsening
traffic and environmental impacts. Similar statistics exist for most
other ports. Still, the bulk of goods entering and leaving various
ports and border crossings need to be processed at those points. Also,
the traditional borders and ports provide an important front in the
battle against the shipping of illegal drugs and illegal aliens.
Without maintaining the discretion of agents at the borders to seize
and inspect goods there, the nation would lose an important deterrent.
There is no expectation nor is there a desire to eliminate the
important processes that occur at the borders.
greatest beneficiaries
The Chamber believes small manufacturers and shippers will be the
greatest beneficiaries of the trade-processing center being advocated
for Kansas City. These entrepreneurs have few options relative to how
their goods must be shipped and pay a substantially higher percentage
of the cost of transporting their goods across borders. According to
Bob Ehinger, director of the U.S. Treasury Department's ITDS office,
about 6 percent of the cost of shipping goods internationally is
consumed at the border crossings. Six percent can make or break a small
business with slim margins. By eliminating much of the paperwork,
duplication and uncertainty surrounding the import and export of goods,
we will help the small businesses that comprise the vast majority of
businesses in the middle part of the U.S.
Senator Ashcroft. Ms. Tiffany Newsom is the Executive
Director of the North American Superhighway Coalition. I am
delighted that she would come to share with us information on
the way in which the right understanding of the potentials
related to our highways and other modes of transportation can
be integrated, so that we can have an improved trading
capacity.
Ms. Newsom.
STATEMENT OF TIFFANY NEWSOM, EXECUTIVE DIRECTOR, NORTH
AMERICA'S SUPERHIGHWAY COALITION, INC.
Ms. Newsom. Good morning, Senator Ashcroft and all esteemed
guests.
I appreciate the opportunity to be here today to tell you
about North America's Superhighway Coalition, or NASCO, and
this incredible trade and transportation corridor which
encompasses I-35, I-29, and I-94 to the Ambassador Bridge at
the Detroit-Windsor border crossing. We call it North America's
International Trade Corridor, and it is the only existing
central artery that connects all of the NAFTA partners, as well
as connecting to all major east-west interstate routes in the
U.S.
NASCO is a non-profit, public-private corporation founded
in 1994, whose membership has grown to include representatives
from Missouri, Kansas, Texas, Oklahoma, Iowa, North and South
Dakota, Minnesota, Canada, and Mexico. NASCO is headquartered
in Kansas City because of its central geographic location and
because of the international trade and transportation
opportunities here.
NASCO's mission is to maximize economic opportunity and
investment along the North American International Trade
Corridor through advocacy and development of a seamless,
efficient, intermodal trade and transportation system. NASCO is
working very hard to build and promote our corridor as North
America's premier trade and transportation corridor, and we
have accomplished much toward this end.
NASCO was largely responsible for the creation of two new
international trade corridor categories under the
Transportation Equity Act for the 21st Century, the national
corridor planning and development program and the Border
Infrastructure Program. Those categories combined will receive
$700 million in funding over the next 5 years.
Last month, U.S. Department of Transportation announced
that a project application facilitated by NASCO and submitted
by the Missouri Department of Transportation would receive
$800,000 in Federal funding through the two new categories.
This project, which is a $1 million study involving intelligent
transportation systems and commercial vehicle operations, will
examine ways to apply and harmonize cutting-edge technology to
improve the flow of people and goods along the corridor, which
is from Laredo, Texas, to our northern borders in Detroit,
Michigan, and Pembina, North Dakota.
NASCO strongly supports increased Federal funding for
implementing ITDS technology. Turning the corridor into a smart
highway will increase safety and efficiency and help minimize
congestion at checkpoints and international borders.
It is important to note that this study will focus on ways
that transportation technology can be harmonized corridor-wide
so that international trade processing centers and intermodal
systems in one city can easily interface with systems that will
be online in other cities along the corridor. It is also
critical that data for import and export movement be harmonized
so that governments, carriers, and businesses alike can be
assured that commodities are moving efficiently while
maintaining a high level of security.
This is why NASCO supports the full funding of
International Trade Data Systems, or ITDS, the only system that
truly promises to reduce the time and effort it takes to get
products to international markets safely and efficiently. NASCO
urges Congress to fully fund and support the ITDS program.
As you will hear later, ITDS is a U.S. Government
information technology initiative, creating an integrated
government-wide system of electronic collection, use, and
dissemination of international trade data. ITDS will
standardize commercial based data, eliminate redundant and
confusing processing, improve risk assessment, and create an
integrated, inter-operable electronic environment. NASCO
supports the use of ITDS technology at all international border
crossings and at future inland international trade processing
centers.
Plans for these processing centers are being developed in
Kansas City, San Antonio, Dallas-Ft. Worth, Oklahoma City, and
Des Moines. These centers will utilize an intermodal approach
that takes advantage of rail, air, and highway facilities to
move people, vehicles, and goods more efficiently than ever
before.
NASCO supports making transportation infrastructure and
technology improvements through environmentally sustainable
policies. We currently have a memorandum of understanding with
the Department of Energy, the U.S. Postal Service, the Texas
General Land Office, and our coalition to work on the promotion
of alternative fuels along the corridor and to develop
alternative fuels refueling stations along the corridor.
NASCO is working to ensure that our corridor is improved in
a way that suits those who use it as well as those who live on
it. The coalition urges Congress to increase funding for the
National Corridor Planning and Development and coordinated
Border Infrastructure programs when the next Federal
transportation bill is crafted in 2004. NASCO supports fast-
track authority for the president as well as the full
implementation of the North American Free Trade Agreement,
particularly the provisions relating to transportation and
trucking.
An aggressive approach to planning and coordinating
corridor improvements is needed. The increase in export and
import traffic resulting from growing trade between Canada, the
U.S., and Mexico is placing our infrastructure under increasing
stress. Highways, bridges, rail hubs and other facilities
require expansion and increased maintenance. North America's
Superhighway is a strong coalition of forward-looking leaders
behind it working for these improvements. NASCO exists to
convince government and business leaders at the highest levels
that the I-35/I-29/I-94 trade corridor is this country's
transportation backbone.
I want to thank you again for giving me the opportunity to
speak here today.
[The prepared statement of Ms. Newsom follows:]
Prepared Statement of Tiffany Newsom, Executive Director,
North America's Superhighway Coalition, Inc.
Good Morning, Senators Ashcroft and McCain and all esteemed guests.
I am Tiffany Newsom, Executive Director of North America's Superhighway
Coalition, Inc. (NASCO). I appreciate the opportunity to stand before
you today to tell you about our coalition and this incredible trade and
transportation corridor which encompasses I-35, I-29 and I-94.
NASCO is a non-profit, public/private corporation founded in 1994
whose membership has grown to include representatives from Missouri,
Kansas, Texas, Oklahoma, Iowa, North and South Dakota, Minnesota,
Canada and Mexico. NASCO moved it's headquarters to Kansas City,
Missouri, last year because of the city's central geographic location
and to take advantage of international trade and transportation
opportunities here.
Originally, NASCO's main focus was to create some type of
International Trade Corridor category in the ISTEA Reauthorization.
With the passage of the Transportation Equity Act for the 21st Century,
we accomplished that goal. Two new categories were created--the
National Corridor Planning and Development program and the Border
Infrastructure program--and those categories (combined) received $700
million in funding over the next five years.
Now, our mission is to maximize economic opportunity and investment
along the North American international trade corridor by promoting the
I-35/I-29/I-94 Corridor as a seamless, efficient intermodal trade and
transportation system. In other words, we want as much of the $700
million as possible to go towards infrastructure and technology
improvements along this critical corridor--a large portion of which is
located in Missouri and Kansas.
As we stand together today at this facility it is critical that a
cooperative effort continues to build and promote this corridor for the
benefit of all. NASCO is a leader in this effort. Statistics indicate
that unprecedented growth is continuing because of NAFTA and the
general strength of our economy. The States of Missouri and Kansas are
beneficiaries of this growth.
In 1997, the value of Missouri exports to Mexico grew by more than
19 percent compared to the previous year. Missouri's exports to Canada
rose by 31.5 percent. Since 1994, Missouri's exports to NAFTA partners
has increased 92.6 percent overall.
Today, Canada and Mexico are Missouri's leading and second-leading
export markets, accounting for 53.5 percent of Missouri's total exports
to the world.
In Missouri, approximately 57,900 people held jobs related to North
American exports in 1996. In the year 2000, the number of people with
export-related jobs is expected to reach almost 67,000.
In 1996, an estimated 33,821 Kansans had jobs that were directly
tied to export trade with Canada and Mexico. In 2000, that number is
expected to grow to more than 38,000.
Statistics like these are why NASCO is working so hard to build and
promote North America's premier trade and transportation corridor.
NASCO is involved with numerous major initiatives.
NASCO and a group of eight states (including Missouri and Kansas),
the Canadian province of Manitoba and numerous private entities are now
enjoying some of the success we've worked so hard to achieve. Last
month the U.S. Department of Transportation announced that a project
application facilitated by NASCO and submitted by the Missouri
Department of Transportation would receive $800,000 in Federal funding.
This project--a one million dollar study involving Intelligent
Transportation Systems/Commercial Vehicle Operations--will examine ways
to apply and harmonize cutting edge technology to improve the flow of
people and goods along I-35, I-29 and I-94 from Laredo, Texas to our
northern borders in Detroit and Pembina, North Dakota. NASCO strongly
supports increased Federal funding for implementing ITS technology--
turning the corridor into a ``smart highway'' will increase safety and
efficiency. Implementation of ITS items including ramp metering, HOV
lanes, Traffic Operations Centers, etc. will help to partially
alleviate congestion problems when adding lane capacity isn't feasible.
Truck tracking while the transport vehicle is moving will also help
minimize congestion at checkpoints.
It is important to note that this study will focus on ways that
transportation technology can be harmonized corridor-wide so that
international trade processing centers and intermodal systems in (for
example) Kansas City can easily interface with systems that will be
online in Dallas, Winnipeg and Monterrey, Mexico. It is also critical
that data for import and export movement be harmonized so that
governments, carriers and businesses alike can be assured that
commodities are moving efficiently while maintaining a high level of
security.
This is why NASCO supports the full funding of International Trade
Data Systems (ITDS), the only system that truly promises to reduce the
time and effort it takes to get products to international markets
safely and efficiently. NASCO urges Congress to fully fund and support
ITDS.
ITDS is a U.S. Government information technology initiative
creating an integrated government-wide system of electronic collection,
use and dissemination of international trade data. ITDS seeks to reduce
cost and burden, enhance enforcement and compliance and improve the
quality of international trade data. These goals can be achieved
through standardization of commercial-based data, elimination of
redundant and confusing processing, improvement of risk assessment,
more convenient access to requirements information, improved data
editing and validation, and creating an integrated electronic
environment. NASCO supports the use of ITDS technology at all
international border crossings and at future inland international trade
processing centers. Delays at the border or at the processing center
for clearance of goods and customs will be drastically reduced, as
processing can be done while trucks and trains are moving. NASCO
advocates development of a plan for ITPCs in each country--in the U.S.,
plans for international trade processing centers in Kansas City, San
Antonio, Dallas/Ft. Worth, Oklahoma City, and Des Moines are at various
stages of development. These centers will utilize an intermodal
approach that takes advantage of rail, air and highway facilities to
move people, vehicles and goods more efficiently than ever before.
NASCO supports making transportation infrastructure and technology
improvements through environmentally sustainable policies.
We have a Memorandum of Understanding with the U.S. Department of
Energy, the Environmental Protection Agency, and the U.S. Postal
Service to develop an environmentally-conscious ``clean'' corridor and
explore the potential use of alternative fuels.
To summarize, NASCO is working to ensure that this transportation
and trade corridor is improved in a way that suits those who use it as
well as those who live on it. The coalition urges Congress to increase
funding for the National Corridor Planning and Development and
Coordinated Border Infrastructure programs when the next Federal
transportation bill is crafted in 2004.
The increasing amount of trade between the United States, Canada
and Mexico is great for the economy. Businesses are growing and
creating thousands of new, good jobs.
But the increase in export/import ``traffic'' is placing our
infrastructure under increasing stress. Highways, bridges, rail hubs,
airports and other facilities require expansion and increased
maintenance.
The I-35/I-29/I-94 Trade Corridor is the only existing main,
central artery that connects all of the NAFTA partners. No other Trade
Corridor Route can boast the prime routing and strategically-located
terminus points that the I-35/I-29/I-94 Corridor can. It connects to
all major east/west interstate routes in the U.S. We must do all we can
to promote the efficient use of this corridor.
It is a proven fact that highway construction and other types of
transportation development boost local economies and create new, good
jobs.
An aggressive approach to planning and coordinating corridor
improvements is needed. North America's Superhighway has a strong
coalition of forward-looking leaders behind it working for these
improvements.
The economy is good now. But to keep the economy moving in the
right direction, markets must be grown. Just as important is making
sure that commodities can get to those markets safely and efficiently.
NASCO exists to convince government and business leaders at the highest
levels that the I-35/I-29/I-94 corridor is this country's
transportation backbone.
I want to thank you again for giving me the opportunity to speak
here today.
Senator Ashcroft. I am very pleased to have your testimony.
The subcommittee on trade of the U.S. Commerce Committee,
U.S. Senate, needs to work closely together with the committees
on surface transportation. They are not distinct and separate
or segregated areas of inquiry and understanding, and we need
to have the right surface transportation and the right waterway
transportation, right rail transportation. The whole package
has to be right. Our understanding of these issues needs to be
thorough and complete in order for us to work well with these
other entities.
I thank you.
Ms. Newsom: Thank you.
Senator Ashcroft. Mike Cook is the President of Necco Seeds
and exports his farm output from his farm to the rest of the
world. As a farmer, he has an ability to talk about the most
fundamental level of production and sees both the opportunities
and the barriers as they exist and as he encounters them in his
particular endeavor. I am very pleased to have him bring his
first-hand awareness of this situation to me.
Before you begin, let me indicate to all of you who are a
panelist that the record of this hearing will be maintained as
open for a couple of days into early next week, and if you want
to supplement--it probably never happens to you, but frequently
to me, as I am leaving the hearing, I am saying, Oh, I should
have said-- well, if that happens to you and you want to take
the time to write it up and let us know about it. We are eager
to include it in the record of the hearing.
I do not mean that to suggest any of you have left anything
out, but if you come up with that kind of a thought, you should
feel free to supplement with written remarks your oral
testimony.
Mr. Cook.
STATEMENT OF MIKE COOK, PRESIDENT,
MARKETING DIVISION OF NECCO SEEDS
Mr. Cook. Yes. Thank you, Senator Ashcroft, for this
opportunity to testify this morning.
I am with Necco Seeds. I am the president of our marketing
division and also a swimming producer and one of 2,000 members
of the Missouri Swimming Association. I would like to give a
brief description of our company's activities to give you an
idea of my own and our company's perspective.
We work with U.S. producers and growers and what we call
POCOs, producer owned and controlled organizations, throughout
the Midwest, primarily in Kansas and Missouri. We preserve the
identity of our crops we grow in order to turn them into
products, whether it is a seed product our neighbor is planting
or a tofu bean a Japanese tofu processor will be using to make
tofu.
With commodity prices at all-time lows and the increase in
competition in agriculture production from other countries
around the globe, for the U.S. farmer to survive, they have to
think in terms of, how can I differentiate my product from
others?
It is the same concept we have all learned in Marketing 101
or Ag Econ 50. Can we differentiate our products? Definitely.
Can we compete globally? Definitely. How can we better compete
globally? That is why we are here today, to answer that
question, how can we better compete globally?
Here are some points to consider in order to better compete
globally. No. 1, like you said earlier, Senator, 96 percent of
the world's population lives outside our borders. Moreover,
global population 5.9 billion is projected to reach 8.5 billion
by 2030. In order to share in this growth, U.S. agriculture
producers must maintain and increase access to foreign markets.
This can only be done through negotiating trade agreements, and
we cannot negotiate these trade agreements unless the
administration has fast-tracked negotiating authority.
No. 2, it is a very basic statement. Open markets--keep
them open and let U.S. private enterprise do what they do best:
provide value. No. 3, to always push for a fair playing field
and to know the rules of play. Four, the accountability for
commitments made, whether it be private companies or
governments who made those commitments. We must know the deals
that we make will be kept, regardless.
That is a fairly short testimony I gave this morning. I
have left some time for any questions you might have, Senator.
I want to thank you again for having me here this morning.
Senator Ashcroft. Thank you for your testimony. I kind of
like the way you got to the bottom bean right there: fast-track
authority, open markets, and accountability. Those are very,
very important items.
Before we just have a few minutes for questions, I would
like to invite testimony from an outstanding small family
manufacturer businessman who employs about three dozen
Missourians or more and competes with the Canadians and other
individuals for business abroad. Jan Klestinec is the president
of the Dollins Tool and Die Company, I believe in Independence.
Mr. Klestinec. That is correct.
Senator Ashcroft. Is interested in the world as a
marketplace, and that is indicative of the kind of interest
that has been shown by a number of Kansas City enterprises. It
is my pleasure now to call upon Mr. Klestinec for his remarks.
STATEMENT OF JAN KLESTINEC, PRESIDENT,
DOLLINS TOOL, INC.
Mr. Klestinec. Thank you very much and good morning,
Senator Ashcroft.
Senator Ashcroft. Good morning.
Mr. Klestinec. Thank you for the opportunity of being here,
and I just want you to know that your leadership is very,
important to small business, not only in Kansas City but I
believe all over the United States.
For more than four decades, Dollins Tool has been
manufacturing high speed, thin wall plastic injection molds.
The primary industries we supply is the houseware items and
food packaging. Since the company started in 1952, we have been
in the same location in Independence, Missouri, and as you
stated, we currently employ about 35 very highly skilled
people, and put about $2 million back into the Kansas City
economy.
Middle America is small business and in order for this
business to survive, they need to be exposed to international
trade. Today our lives are exposed to so many different avenues
of communications. These avenues should allow us to do business
with companies all over the world. The difficult task is not
communications, but of making yourself visible. This I believe
is the biggest task in obtaining a market share in
international trade.
As you are aware, Senator, the South American economy was
on the rise and doing very well for quite a while. With the
population of the people that many of these countries have, the
opportunity for the plastic industry has been growing rapidly
over the last three or four years.
Over 90 percent of our competition is north of the border
in Canada. Our main competitor has been involved in the South
American market now for almost three years. The Canadian
government has been very involved for the past several years
with helping Canadian businesses get their foot in the door.
This definitely gives our competitors a step up on the
competition in this particular market. For example, our main
competitor from Canada claims publicly that one-third of their
business is being done in South America today.
So therefore, by the time a company such as ours, Dollins
Tool, makes itself visible, companies such as our competitors
have already established themselves through the help of its
government.
Our molds have created some of the most popular food
containers found on grocery store shelves throughout North
America but our market as well as many other markets are
becoming globalized. In order for companies of our size to stay
competitive, we must also venture into international markets.
In order to do this, an established plan needs to be developed
to help companies access these markets.
Last year, I had the opportunity to go on the Governor's
Business Mission to South America. This was a small step in the
right direction, but the experiences I had on this mission,
were sometimes not as pleasant as others. Basically we found
out that even the State of Missouri needs a better
understanding of all the people who work abroad so they can
represent us better when the time comes. I believe that there
were also a few participants on this trip who believed our trip
to Brazil was very poorly organized.
Middle America needs to establish a plan to help the small
business of our areas secure a foothold in this ever-growing
global market. In order for Kansas City to remain and grow as a
city, we need to bring international trade to Middle America.
America was founded on small business. It is the backbone
of this country and it has made this country what it is today.
We are in an age where small businesses are in danger of
disappearing. Please take the next couple of weeks and look at
our President, Governor, and see how many articles, newspaper
articles or television news, and see how many pictures of them
you see with small businessmen.
Nothing against big business, but we small business people,
work just as hard, and I believe we deserve some recognition.
Thank you very much.
Senator Ashcroft. I want to thank you very much for being
an eager competitor and a producer who represents the United
States and Missouri very well.
We are running a little bit late, so let me just see if I
can summarize some of the things that I have been hearing from
you. I seem to have heard from many of you that we need to have
the kind of access to markets that would be accommodated if we
were to have fast-track authority. We try to sell some
agricultural products in South America, to Chile for example, I
believe they have an 11 percent tariff against U.S. goods. They
have a zero tariff against Canadian goods. It is kind of hard
for us to sell American goods when we pay 11 percent penalty
going into the country and Canadian farmers have a zero penalty
to pay.
That would make it hard for you to compete, would it not?
Mr. Klestinec. That is correct.
Senator Ashcroft. So fast-track--is that a common
denominator in terms of all of your recommendations?
Mr. Klestinec. Yes.
Senator Ashcroft. In some of the hearings we held in
Washington, we found out when we did the grain embargoes
against Russia we ended up saving Russia about $250 million,
when we released them from their contracts to go buy grain on
the world market and hurt American farmers substantially in the
late seventies. It appeared to be that some of our sanctions
efforts really hurt us more than they hurt our enemies. It
seems as though this understanding would make us inclined to
reverse such policy?
Mr. Klestinec. Yes.
Senator Ashcroft. Finally we have this very serious problem
with certain trading partners, especially the European
Community, and I am glad the President has agreed to raise some
of these issues at the G8 meeting. But I guess Blake mentioned
it most aggressively, that even when the (EU) European Union
loses the case in the GATT, the General Agreement on Trade and
Tariffs, and they lose in the WTO, they still refused to live
by the agreements.
Would all of you support the concept that we need to look
carefully at the dispute resolution mechanisms so that when
they are finally resolved we actually get compliance with the
final order?
[A chorus of ayes.]
[The prepared statement of Jan Klestinec follows:]
Prepared Statement of Jan Klestinec, President, Dollins Tool, Inc.
Good morning Senator: Thank you for the opportunity of being here,
and I just want you to know that your leadership is very important to
small business, not only in Kansas City but I believe all over the
United States.
For more than four decades, Dollins has been manufacturing high
speed, thin wall plastic injection molds. The primary industries we
supply is the houseware items and food packaging. Since the company
started in 1952, we have been in the same location in Independence,
Missouri, and as you stated, we currently employ 35 very highly skilled
people, and put over $2,000,000 back into the Kansas City economy.
Middle America is small business and in order for these businesses
to survive they need to be exposed to international trade. Today, our
lives are exposed to so many different avenues of communication. These
avenues should allow us to be able to do business with companies all
over the world. The difficult task is not the communication, but of
making yourself visible. This I believe is the biggest task in
obtaining a market share of international trade.
As you are aware, Senator, the South American economy was on the
rise and doing well for quite a while. With the populations of people
that many of these countries have, the opportunity for the plastic
industry has been growing rapidly over the years.
Over 90% of our competition lies north of the border in Canada. Our
main competitor has been involved in the South American market now for
almost three years. The Canadian Government has been very involved for
the past several years with helping many businesses get their foot in
the door. This definitely gives our competitors a step up on its
competition in this particular market. For example, our main competitor
from Canada claims publicly that \1/3\ of their business is being done
in South America today.
So therefore, by the time a company such as ours, Dollins Tool,
makes itself visible, companies such as our competitors have already
established themselves through the help of its government.
Our molds have created some of the most popular food containers
found on grocery store shelves throughout North America but our market
as well as many other markets are becoming globalized. In order for
companies our size to stay competitive we must also venture into
international markets. In order to do this an established plan needs to
be developed to help companies access these markets.
Last year I had an opportunity to go on the ``Governor's Business
Mission to South America.'' This was a small step in the right
direction, but the experiences that I had on this mission, were
sometimes not as pleasant as others. Basically we found out that even
the State of Missouri needs a better understanding of all the people
who work abroad so they can represent us better when the time comes. I
believe that there were also a few participants on this trip who
believed our trip to Brazil was very poorly organized.
Middle America needs to establish a plan to help the small
businesses of our areas secure a foothold in this every-growing global
market. In order for Kansas City, to remain and grow as a city, we need
to bring international trade to middle America.
America was founded on small business. It is the backbone of this
country and has helped make this country what it is today. We are in an
age were small businesses are in danger of disappearing. Please take
the next couple of weeks and look at our President and Governor and see
how many newspaper articles or television news shows have these
gentleman with any small businessman.
And nothing against big business, but we small business people,
work just as hard, and I believe we deserve some recognition.
Thank you very much.
Senator Ashcroft. Well, we are going to take a short break.
When we come back from that break we are going to hear from the
Federal authorities. I wanted to hear from the Missouri
interests first, but the individuals from the Washington side
of things are going to be here to talk about their ideas to try
and address some of these challenges.
Again, let me indicate to you that if you have additional
items that you would like to submit, if this light went on and
intimidated you, do not hesitate to provide it in writing,
because we want to get the full wisdom before the Senate
Commerce Committee's subcommittee on trade which I chair. We
need that information and would look forward to hearing it from
you.
With that in mind, I think we will take about a 10-minute
break and come back and be eager to hear from those authorities
and individuals who have come from the administration in
Washington.
(Whereupon, a short recess was taken.)
Senator Ashcroft. I apologize for my having to extend the
break a little bit, but the news industry has expressed
substantial interest in what you are here to talk about, and I
wanted to make sure the people of Kansas City knew that you had
come to be a part of this, and I am grateful. So the meeting
will now be resumed.
I want to express my appreciation, again, publicly, to
these officials of the U.S. Government whose interest and
commitment to the capacity of America to be an effective
competitor in the world marketplace has been reflected in
outstanding service in the development of ways to facilitate
trade. So I will call upon these individuals, and then we will
have a chance to discuss their testimony.
First is Mr. Bob Ehinger. He is the director of the
International Trade Data System project office in the
Department of Treasury. The International Trade Data System is
new to many Americans, and it is a system about which I need to
learn more. The idea of integrating the information and the
requirements and the ability of individuals to comply with the
trading system is an idea whose time has at least come, if it
is not overdue. Some of the members of the first panel
indicated such a need.
So I am very pleased that Mr. Bob Ehinger, who is the
director of that International Trade Data System project
office, has come to Kansas City, and I would call upon him to
outline briefly what the International Trade Data System is and
to give us his assessment about the potential of such a system
assisting in an arena of trade opportunity like the heartland
of the United States.
Mr. Ehinger.
STATEMENT OF ROBERT EHINGER, DIRECTOR,
INTERNATIONAL TRADE DATA SYSTEM, U.S. DEPARTMENT OF THE
TREASURY
Mr. Ehinger. Thank you, Senator Ashcroft.
I especially want to recognize your leadership in this
area. Your team here, Tonya McLarty particularly, and others
have been very helpful to us, as well as Senator Bond's office.
Tracey Hinkey has been very effective in helping us along the
way, and the MARC organization, Ron Achelpohl and David Warm,
and Doug Luciani and Mary Pyle of the Chamber of Commerce, as
well as Tiffany Newsom from NASCO.
This is the kind of Federal, state, and local cooperation
that it is going to take to help us get into the 21st century
and have effective and efficient trade.
I have offered a statement to Mr. Latham for the record and
hope it can be added there.
Senator Ashcroft. It will be added and as with the other
panel, if at any time you come to the conclusion during this
proceeding that you want to offer additional statements, we
will keep the record open until say, Tuesday evening, so that
you can add additional information.
Mr. Ehinger. Here in the heartland of America as well as
throughout our country, international trade, no question about
it, is the growth engine of the late 20th century economy, and
as we approach the 21st, it is not the growth engine, it is the
lifeblood. It will be our survival or our failure.
From 1997, international trade grew nearly four times
faster than the GDP, when measured in 1992 dollars. Exports and
imports have increased from 11 percent of GDP in 1970 to now 25
percent.
If we intend to maintain our lifestyle--and we have heard
this so eloquently from our first panel--all businesses need to
board the trade train. That trade train better operate in the
most effective and efficient way that we can find to have it
operate. That does not happen to be the case today. Why is
that?
Well, we have 225 years nearly under our belt of
administrative history in international trade. We do not have a
central authority in our government as many governments do have
for international trade. It is spread among, as we have found
in our work, over 100 entities of the Federal Government: the
departments, the agencies, the commissions, and boards. There
are that many different institutions that touch, feel, smell,
affect, put regulations and requirements on, establish data,
and so forth for how international trade is handled.
I am not suggesting in any way, Senator, that we take on
the job of trying to create a new department of international
trade. One of the worst possible results of what we are doing
here is creating another bureaucracy. Let us not do that.
However, we can make the ones that we have work more
efficiently.
These people are well-intentioned, but if left to their own
devices, they create what my dad would call, back in the days
when we were farming together--a dog's breakfast of
requirements. There is every kind of new requirement, form,
manual, procedure, and in many cases what we have done is add
automated systems on top of these requirements without ever
streamlining the original procedures that have accumulated over
these many years.
Indeed, it has been said and was quoted recently in the New
York papers that the Federal Government regulation in the
international trade process is probably one of the greatest
untapped sources of productivity improvements we have left.
Producers, farm producers, manufacturers, and so forth have
wrung essentially every dime and dollar and half cent that they
can out of the process. Most of them feel totally helpless when
it comes to changing, as individual organizations, the way
government does business.
So what is the problem here? We have totally non-standard
data among these agencies and commissions of the government.
They all feel as if they are entitled to create them
individually. We have redundant forms, most of which ask the
same questions over and over. We find in many cases that
indeed, these requirements are just growing and growing.
When we went to do the evaluation of the requirements for
international trade that exist today on the books, paper
reduction acts and so forth, we had over 602 forms in the
Federal Government for registering data on international trade,
and they comprise 10,000 fields of separate information. That
is a stunning and unacceptable conclusion that we have reached
in developing these systems.
What do businesses say about this? Well, in evaluating
these processes, as was done recently in the trade study here
in Kansas City, the ETC Institute asked traders, mostly small
traders, what they thought was the importance of international
trade and why they did or did not participate. Most of them
said the processes are too time-consuming. They have tried it.
But it is just something they could not possibly address in
their day to day business. It was too expensive to compete
overseas. There was excessive paperwork, inconsistency of
regulations from one department and agency to the other, and
too much risk was involved in addition to the bottlenecks they
put up with at the borders.
What we are proposing here is in fact a very simple vision.
We are simply saying it is time for the government to reinvent
itself. We have heard that term over and over again. It is time
to stop talking about it, and in fact do it in an area that is
most vital to our economic future in the 21st Century.
The vision is very simple. Mary Pyle laid it out for you.
There was not a clearer way to state it than she stated it. We
ought to be able to have one set of information. We ought to be
able to operate electronically from our businesses, our farms,
our factories, and our locations of business. We ought to be
able to give this to the government. The government agencies
ought to be able to share this information. They ought to be
able to reduce the number of individual and repetitive pieces
of information they require and the time it takes them to
process them. We ought to get this down to as cheap and as
efficient a process as possible.
The United Nations and the University of Pennsylvania and
other organizations studying the effect of government
regulation and requirements on international trade estimate
that between 4 and 6 percent, a very conservative estimate, is
consumed on the value of international trade on an annual basis
in satisfying government regulations. That is mostly a
processing burden.
That 4 to 6 percent, if applied against 1.6 trillion in
trade, in the latest estimates, is a staggering figure. We need
that money put on the profit line of businesses and taken off
from the cost line. That is what ITDS is about. This will
require cooperation among government agencies. We are beginning
this process and I sit with two gentlemen here at the table who
represent departments that are cooperating fully with this
effort as it exists today.
It is, however, getting minimal resources and minimal
attention. We need essentially three things: we need more
visibility. Efforts as you are extending today, Senator, are
helping us achieve that. The visibility of raising these issues
up top--we need persistent and consistent work between the
Administration and the Congress to address issues such as
information sharing among departments. There are probably
statutory changes we estimate that will be necessary for this,
and some realignment of authority for some of the organizations
in government.
There are competitive forces. I am not going to sit here
and tell you that everybody gets along well on the
Administration side among the departments and agencies on this
business. It does take a lot of arm-twisting and a lot of
consideration. But we do not have a lot of time left. We really
do not. Either the United States is going to develop a model
for this and we are going to show the rest of the world how to
trade more efficiently, or we are going to follow along in some
halting, expensive way, or wait for someone else to develop the
model that we will be expected to follow.
I suggest that we take this up now as the world's largest
trading nation. We could do this, we estimate--in our cost
benefit analysis and our implementation plan, within 3 to 4
years, nationwide. Develop a fully electronic means so that the
button maker that Mary was talking about could sit at her
dining room table with her PC and through e-commerce and one
set of information she could satisfy the government's
requirements. More than anything else, she'd be able to move
her goods efficiently, rapidly, and with the greatest
productivity and with the greatest profit to an American
business.
That is what we are trying to achieve here. I very much
welcome your support and efforts that the Senate might make to
consider our resources that we have asked for in the budget, as
well as some additional resources that if available, could be
useful. In addition, I ask you to address some of the issues of
contention that sometimes arise among the organizations of the
government.
Thank you for your time.
[The prepared statement of Robert Ehinger follows.]
Prepared Statement of Robert Ehinger, Director, International Trade
Data System, U.S. Department of the Treasury
International trade will be the most significant economic driver of
growth and prosperity for the United States in the 21st Century. This
is true even for areas that traditionally have not participated in
international trade, and have thus not experienced trade's benefits--
areas such as Kansas City in the heartland of America. However, the
full potential of these benefits and prospects will not be realized
unless Government changes in some very fundamental, yet feasible, ways.
Government can and should be doing more to open up, expand and simplify
international trade.
International Trade is an area of opportunity and growth for
American business--especially for small & medium enterprises (SMEs).
Trade agreements and free trade policies have reduced duties and
eliminated some of the barriers to international trade, but government
processes have largely remained the same. In 1996, for example, 43% of
all imports into the United States were duty-free. Through April of
1999, that number is now 58% duty-free.\1\ However, the Government has
failed to keep pace with the shift from revenue collection to non-
revenue collection goals and interests such as health and safety.
---------------------------------------------------------------------------
\1\ United States Customs, Office of Information Technology Briefs,
June 4, 1999.
---------------------------------------------------------------------------
Old, paper-based non-coordinated processes impose what amount to
non-tariff barriers on importers and exporters. Imposing barriers of
any kind on exporters is counterintuitive and counterproductive. A
study performed in 1994 by the United Nations Conference on Trade and
Development (UNCTAD) showed that the estimated total cost to the trade
community of meeting Government's international trade regulations
requirements was 4% to 6% of the value of traded goods. This cannot
continue if the United States wishes to remain competitive in the
global marketplace. Reduction of the costs associated with Government
processing in international trade is one of the only remaining untapped
sources for productivity gain for U.S. businesses.
Here in Kansas City, as in other areas in the heartland of America,
there are several organizations and individuals who are working very
hard to realize the potential of ``free trade.'' Despite the enormous
efforts of organizations such as the North America Superhighway
Coalition (NASCO), the Mid-America Regional Council (MARC), the Kansas
City Chamber of Commerce, and individuals and the people of Kansas
City, the positive effects of free trade will be greatly reduced by one
single overarching feature--that is, the Government continues to
process international trade as if modern communications measures and
practices did not exist.
A study in July of 1998, conducted by the ETC Institute, in
association with TranSystems Corporation, documented some compelling
reasons for the lack of participation of Kansas City Area companies in
international trade. The survey determined that, ``a majority of
freight carriers and large and small businesses surveyed would like to
increase their international trade.'' The survey identified some of the
chief reasons for not participating in international trade.\2\ These
are:
---------------------------------------------------------------------------
\2\ Kansas City International Trade Processing Center Study
Stakeholder Interview Summary Report, Conducted for Mid-America
Regional Council and The Greater Kansas City Area Chamber of Commerce
by ETC Institute, in association with TranSystems Corporation, July 24,
1998.
Processes are too time consuming
Too expensive to compete overseas
Excessive paperwork
Inconsistency of Customs regulations
Too much risk is involved
The bottleneck at the border crossing in Laredo, Texas
A program that directly addressed these and other similar
impediments was the North American Trade Automation Prototype (NATAP).
NATAP endeavored to standardize the data collected for international
transactions, and to collect that data electronically. NATAP also made
use of leading edge technology, such as dedicated short-range
communications technology (DSRC) to provide arrival and departure
notification for trucks. NATAP was the proof of concept for the
International Trade Data System (ITDS).
ITDS
ITDS is an inter-agency initiative designed to standardize and
streamline international trade data processes within U.S. government
agencies, at our borders, with our two North American trading partners
(Canada & Mexico), and eventually to standardize and expand the trade
process internationally. ITDS is an innovative, cross-agency initiative
that aims to bring Government procedures more in line with current
actual business practices, without compromising the need to enforce
laws and collect duties.
More specifically, the ITDS concept is very simple. Traders will
submit one commercially-based, standard electronic data record to the
ITDS for imports, exports and in-transits. ITDS will distribute this
standard record to the concerned federal trade agencies for their
selectivity and risk assessment. Through one electronic message from
ITDS, the trader and the port will be advised of the status of the
shipment. ITDS simplifies trade. Imports and exports will be handled in
the same manner and with the same data. ITDS eliminates the need to
submit redundant information to multiple agencies so that businesses
will no longer need to maintain complex, redundant systems for
reporting trade activities and statistics to the Government. In
standardizing the process, ITDS removes the confusion and complexity of
international trade enabling more U.S. businesses to broaden their
markets to buy and sell globally. For the Government, ITDS will provide
more current and accurate information for revenue, public health and
safety, enforcement activities, and statistical analysis.
The reality is that the current Government processing environment
for international trade does not support the vision of a seamless
global economy. It is a barrier to trade and effectively a tax on
international trade that costs consumers, businesses, and government
billions. Our ``system'' of processing goods at U.S. borders presents
importers and exporters with a gauntlet of complex, confusing, and
redundant requirements, forms, and reporting systems. For example:
Traders are required to send the same data
electronically or via paper forms (or both) to multiple
government agencies
Traders are often unable to determine which agencies
require data for a given import or export transaction
Traders are often confounded by incompatible data
exchange methods, where electronic processing exists
ITDS is an integrated, government-wide system solution to these and
other problems. It would standardize trade data requirements and
processes, clarify and streamline reporting requirements, and implement
the centralized electronic collection, use and dissemination of
international trade data within government. ITDS would be implemented
first within the United States, and over time, could serve as a
worldwide model, and as a new standard through which ``digital
government'' facilitates international trade and e-commerce, and
provides reliable international trade service at our borders.
Implementation of ITDS would result in tremendous savings for
multinational traders and the consumers they serve. It would eliminate
many of the inefficiencies in the current system; improve the speed of
clearance processes; and improve compliance with import and export laws
and regulations. It is estimated that by 2005, net benefits of ITDS for
the United States could reach $2 billion, a return of $9 for every
dollar spent.\3\
---------------------------------------------------------------------------
\3\ Cost Benefit Analysis for the International Trade Data System,
September, 1998.
---------------------------------------------------------------------------
INTERNATIONAL TRADE PROCESSES ARE IMPORTANT BECAUSE GLOBALIZATION AND
INTERNATIONAL TRADE ARE INCREASINGLY IMPORTANT FACTORS IN THE U.S.
ECONOMY
In the United States international trade is growing faster than the
domestic economy. Competition in global markets will be stiff and those
countries, industries, and companies that have developed the
infrastructure to support global trade will prosper while those that
have not will suffer economically. Winners and losers in the global
economy will be determined by success in establishing an environment
that builds international competitive advantage through better and more
efficient supply chains. This requires investment in transportation
infrastructure (ports, harbors, roads, and rail), information
technology, and financial systems, and supportive government policies
which encourage trade and reduce risk, thereby driving costs down.
Governments have tremendous influence over the competitiveness of
their economies and companies--they make the investment decisions in
transportation, technology, and communications infrastructures; define
the domestic policies that shape financial and banking systems; and
define the rules that control imports and exports. Collectively, those
decisions and policies determine whether or not a country is a
desirable locale for trade and investment and affect the success of
their firms in the global marketplace. Governments are in the middle of
all international supply chains, with opportunities to facilitate or
disrupt, or sever supply chains on either side of every international
border.
U.S.-based multinationals recognize the increased importance of
improving global supply chains and reducing international logistics
costs. There are four major impediments to improving the free flow of
commerce among trading nations:
1. Inefficient processes and antiquated systems.
2. Increasing regulations related to health, safety, food, and
environmental issues.
3. Deliberately protectionist policies.
4. Inconsistent and non-standard data (information)
requirements
FAILURE TO INVEST IN MODERNIZED, 21st CENTURY STANDARDS, PROCESSES AND
SYSTEMS
While the capabilities of modern information systems have been
exploding in recent years, governments have failed to invest
sufficiently in information technology, and upgrade business processes.
In the U.S., between 1986 and 1996, business and consumer computer
purchases increased by 22% and 38% per year, respectively. In that same
period, government computer expenditures increased only 9.4% per year.
Further, over the next decade, government computer purchases are
expected to increase at an annual rate of only 1.2%, a rate that is 12
times slower than that predicted for business and 25 times slower than
that for consumers.
Failure to invest in government information technology to support
processing of goods at the nation's borders has a direct impact on
business, consumers, and government. For businesses, complex, slow,
redundant, or manual processing substantially increases supply chain
and transaction costs and inhibits the development of just-in-time
inventory and lean manufacturing systems. For consumers, it means less
choice and higher costs for products. For government, it means higher
costs, lower compliance, and missed opportunities for capturing better
information about the international trade in which our country is
engaged.
The cost of catching up and rebuilding infrastructure, and the
danger of failure of the existing systems is increasing each year. The
existing system that serves U.S. importers is 15 years old, has
exceeded its life expectancy, and is in danger of collapse if it is not
upgraded or replaced. Work on systems modernization and replacement is
not enough.
In today's digital world, government and industry, manufacturers
and suppliers, and buyers and sellers, are connected and
interdependent. Witness the Y2K concerns, and the need for governments
and businesses to ensure that not only are their own systems Y2K
compliant, but that those of their partners are as well. Failure to
recognize this interdependency and to act now to invest in the future
will jeopardize U.S. leadership and competitiveness, increase costs for
consumers, and raise the bill for repair in the future.
WORTHWHILE BUT INEFFICIENT BORDER REGULATION
Global trade and uncertain international conditions have raised an
array of new national concerns about the quality and use of imported
goods in developed as well as developing economies. These concerns have
led governments, industry, consumers, and special interest groups to
press for enforcement of a growing array of restrictions on goods for
export and import. These requirements involve many different federal
agencies that have the potential and ability to disrupt supply chains
and to increase transaction costs for exports and imports. The national
interests involved are broad in scope, and great in diversity and
number.
These national interests are legitimate issues of sovereign
governments. But if not implemented efficiently, the regulatory
environment deployed to protect these interests can become a
significant burden on the global trading system. Moreover, these
burdens are even greater in countries with governments that simply
cannot cope with the increasing volume of trade and the need for
safeguards without disruption in the flow of legitimate commerce.
Historically, even the most conscientious of Government agencies
have believed that a choice must be made between facilitation of trade
and enforcement of laws at the borders. Some governments will use the
growing volume of trade and concerns over relatively recent issues such
as the environment, food safety, genetically engineered agricultural
products, and hormones in beef products as a cover for deliberately
protectionist policies. The reality is that the only way to cope with
exponentially increasing workloads and achieve improvements in
compliance with the laws at the borders is by adopting modern business
practices and the new tools of information technology. ITDS will use
these new tools to collect a standardized and streamlined set of
information while satisfying the needs of the various agencies.
ITDS will improve the enforcement of each agency's trade-related
mission by providing data in advance that will allow for the use of
sophisticated, agency-specified risk assessment techniques. Using the
standard data set, ITDS will facilitate information sharing among
Federal agencies. Many of the federal agencies have no automated
capabilities today. With ITDS, agencies will be able to access
virtually all the transaction information necessary to assess
compliance with legal requirements in one place, ITDS.
In short, ITDS can significantly reduce barriers to trade while
protecting government's legitimate interests at international borders.
The principles under which ITDS was developed (standardized
international data elements, universal communications protocols, common
practice business processes, single interface to meet all government
requirements, and the substitution of information for intrusive
inspections) are equally applicable to developed and developing
economies. Indeed, increased efficiencies achieved through closer
collaboration and electronic sharing of standardized data will enhance
the Government's abilities to carry out its critical missions with a
minimum of disruption to legitimate trade flows.
IMPLEMENTING ITDS DOMESTICALLY WOULD CREATE A MODEL FOR DIGITAL
GOVERNMENT THAT IS BOTH EFFICIENT AND EFFECTIVE
ITDS will redefine the trade environment at U.S. borders for
industry and the government by enabling the vision of a seamless
international buy/sell transaction. This transaction is conducted
electronically between importer and exporter, and government
requirements on both sides of the international border are satisfied by
an integrated electronic transaction. ITDS will accomplish this by:
providing a single electronic access point for
industry with government through which to meet all requirements
for international trade
standardizing and eliminating the duplication of data
requirements to support all government agencies involved in
international trade
linking all government processes with international
exporters and carriers upstream, and brokers and importers
downstream, to create an integrated international supply chain
for complying traders in which electronic government processes
are transparent to the trading community
reducing the cost of processing international trade
transactions for both the trade community and the government
improving the enforcement of and compliance with
government trade requirements, despite an ever-increasing
volume of trade
providing access to more accurate, thorough and timely
statistics and data about international trade for government
and business
providing a basis for expanding the same approach to
U.S. trading partners and other countries around the world
TDS is an enabling system and approach that will transform
government agencies into information-based organizations, fundamentally
transforming their basic processes, linking government systems to those
of international traders and governments around the world, and shifting
performance expectations higher.
EXTENDING ITDS INTERNATIONALLY
As American businesses trade among more and more countries, the
problems encountered when importing and exporting compound. Companies
trading in a dozen or more countries may think globally, but soon learn
that ``all customs is local.'' Seamless international supply chain
management is exposed as a myth when the problems found at U.S. borders
are mirrored by the different, unusual, and non-standard requirements
and systems at each foreign border crossed. In each country, the
multinational trader will encounter systems, forms, data elements, and
requirements that are unique to that country. The multinational trader
soon discovers that there is no ``system of international trade'' but
rather a patchwork of similar but unique border barriers that must be
addressed individually rather than through the application of a global
solution. Due to their resources, multinational companies have better
adapted to this environment but at a high cost that is passed on to
consumers.
Among the problems faced by companies engaged in international
trade are:
An inability to institute integrated international
supply chain management systems and the associated impact on
just-in-time, lean manufacturing, and enterprise resource
planning systems
An inability to substitute information for inventory
Billions of dollars in annual unnecessary transaction
costs caused by unique and inefficient customs and government
formalities at international borders
Reform will require a partnership of world organizations, such as
the World Trade Organization (WTO) and the World Customs Organization
(WCO), international financial institutions, and global business
organizations such as the International Chamber of Commerce (ICC),
working with governments and business to effect change and standardize
the process. Changing deeply embedded and culturally based systems will
be difficult. In addition to a high level coalition of international
organizations, these changes will require leadership, leverage, and a
model.
ITDS can provide the model, and the United States the leadership.
But we should start at home--carefully consolidating and downsizing our
own government requirements, and applying experiences and successes in
improving government services.
WHAT NEEDS TO BE DONE TO MAKE ITDS A REALITY
The development of ITDS is based upon concepts proven under NATAP,
and updated and improved in ITDS. There are three key priorities for
action, to move from concept to implementation.
Leadership. We need focused, effective, and sustained leadership--
from leaders in the Administration and Congress. ITDS depends on major
change in the way government does business, which hasn't come easily
and ultimately will not happen without clear, effective, and sustained
leadership--from leaders in the Administration and in Congress.
The government has created, reinforced, and perpetuated these
problems, and it is only the government that can resolve and overcome
them. (Neither the business community nor taxpayers can change
stovepipe approaches of multiple government organizations and systems.
Legislative action will also eventually be required to sanction and
institutionalize more efficient government information collection and
sharing processes.)
Focused leadership is also important because the challenge of
changing government's approach is especially great. ITDS depends on
transforming our government's approach from that of multiple stove-
piped agencies, to a single, coordinated approach--managed on behalf of
all agencies by an independent, interagency Board of Directors. This is
new, cheaper, and more effective government.
Leadership is also justified because the US has traditionally been
a leader in reducing barriers to international trade, and as the
largest trader in the world, has the most to gain from further reducing
barriers for our companies to export into foreign markets.
Urgency. This leadership is needed now, because the costs of the
current environment are big, and the opportunities to build exports and
competitive advantage for our country and businesses of all sizes, is
great.
The cost of the current environment on American business,
consumers, and taxpayers is so great that it demands immediate
attention. The current environment is a big, frequently fatal, barrier
for SME's that want to export to foreign markets. It is a major tax on
all trade. It presents the risk that our country and our businesses
will lose our position of leadership in international trade, ceding
opportunities to build trade processing centers and provide intermodal
transportation services to our neighbors to the north and south, and
losing our opportunity to gain competitive advantage in global markets.
It is equally clear that the principal challenge here is not
technology. The technology can be done quickly, as we see from business
operating at internet speed--where the progress of new systems and
companies is measured in months, not years and decades. Although much
progress has been made in ITDS over the past 5 years, and we are on the
brink of beginning operational pilots with Canada and Mexico, these
won't happen without leadership. It would be unfortunate (and
completely unnecessary) for us to let the timeframe for completing this
work drift into years and possibly another decade.
Resources. Finally, resources are also needed to complete
development of the pilot and implementation of the program.
Fortunately, the required funding is tiny compared with the
opportunities--the cost benefit analysis shows a minimum 10:1 return on
every dollar invested. The Administration has supported resources of
$5.4 million, which is sufficient to maintain the project office, but
not to complete development and begin implementation of the pilot. For
these purposes, an additional $7.6 million is required in FY-2000, for
a total of $13 million.
CONCLUSION
ITDS represents an important innovation in government and
technology support for global trade. It will speed and improve
government performance, reduce burden, and cut costs. It will offer
major operating and competitive advantages to those countries and
governments that embrace it, benefiting consumers and industry. For
consumers, it will remove layers of government inefficiency that amount
to a significant tax on international goods, reducing sources of supply
and raising prices. For international traders, ITDS will significantly
lower barriers to importing and exporting, by simplifying
identification of and compliance with international trade requirements,
and enabling effective global supply chain management.
Senator Ashcroft. Thank you, Mr. Ehinger, from the U.S.
Treasury Department. It is a pleasure to have you here.
Vision is the thing we really need in this country, and the
vision of a trading system that will release and enhance the
capacity of our producers to do well is very important. I
appreciate the fact that you are looking down the road to see
how it can be done.
I am glad, as well, that you are joined by Michael Copps--
that is the correct pronunciation?
Mr. Copps: Yes, sir.
Senator Ashcroft: --from the U.S. Department of Commerce. I
am very pleased to welcome you to the state of Missouri.
Obviously, the Department of Commerce links up with the
Commerce Committee in the U.S. Senate, and as the chair of the
subcommittee, jurisdiction over which I have of trade, I am
very pleased that you would be with us here and pleased to know
of the Secretary's interest in the state of Missouri and in
expanding trade. I hope that he will some day in the near
future be able to visit Missouri, and I think we would love to
be able to help him plan a day here to see what the potentials
are in our great state.
But thank you for coming, and I would invite you to make
your remarks at this time.
STATEMENT OF MICHAEL J. COPPS, ASSISTANT SECRETARY FOR TRADE
DEVELOPMENT, INTERNATIONAL TRADE ADMINISTRATION, U.S.
DEPARTMENT OF COMMERCE
Mr. Copps. Mr. Chairman, thank you for inviting me here
today to talk about the need to encourage American exports and
about how working together, we can grow those exports for
Missouri, for America. I am going to take a line from your
presentation earlier and abbreviate my statement. I have
already thought of something I want to add at the end, so I am
going to cut out some of the material from the formal
statement, but I would ask that it be included in the record.
Senator Ashcroft. Sure. The entire statement--written
statement will be included in the record.
Mr. Copps. Thank you. Let me thank you, at the outset, on
behalf of Secretary Daley, for your leadership in our trade
efforts, and particularly your very active participation in the
President's Export Council, which I think is one of the higher
visibility and more effective forums that we have going.
In the past 6 years, America's role in global trade has
grown very dramatically. Since 1993, Missouri's exports have
grown by more than 44 percent, to over $7 billion. Its
industrial and high-tech and service industry exports go to
diverse destinations such as Canada, the EU, Australia, Brazil;
even China is among your top 10 markets. Here in Missouri the
number of firms exporting has shot up by a phenomenal 76
percent since 1992, from 2,674 in 1992 to 4,702 in 1997.
Let me use the few precious minutes I have to tell you a
little bit about how we at the International Trade
Administration of the Department of Commerce are trying to
promote and grow U.S. exports and suggest some ways how all of
us might work together. ITA, I think, is very well organized to
help Missouri exporters sell their goods and services overseas.
I often liken ITA to four legs supporting a table. One leg is
the U.S. and Foreign Commercial Service--I will just call it
the Commercial Service--which is a globe-spanning operation
dedicated to helping U.S. businesses, particularly small and
medium-sized enterprises, export.
Here at home, the Commercial Service has 105 export
assistance centers around the country. There is one right here,
as you know very well, in Kansas City. There is another one in
St. Louis. Their job is to reach out, primarily to small and
medium-sized enterprises, tell them about the resources
available--and there are substantial resources in the Federal
Government to help them export. Often they partner up with USDA
or the Small Business Administration, or the U.S. Export-Import
Bank.
Overseas, the Commercial Service has 140 offices, and they
can help arrange visits for small business men and women who do
not have a lot of time to go globe-trotting when they are
looking for business. They have businesses to run right here in
Kansas City, so any way we can facilitate their overseas
setting up meetings, by giving them market analysis, by
providing interpreters for meetings, by going with them to
meetings: that is the function of the Foreign Commercial
Service overseas.
My shop, Trade Development, is the second leg of the ITA
table, and it is a unique place in government. We are the
industry sector experts, running the gamut from basic industry
through high-tech through increasingly important service
industries. When Ms. Barshefsky, our U.S. Trade Representative,
goes out to negotiate a trade agreement on aerospace or
automobiles, she looks to us to support those negotiations. So
that is one of the very important things we do.
Our primary clientele and our constituency is the private
sector. We work with the companies. We work with the trade
associations. We work with the private sector to grow exports.
We are also the home of the Advocacy Center--and maybe we can
talk about that a little bit more in the question and answer
period--but I am proud of the work that the Advocacy Center
does. This is something the government never did before, and I
say that in a non-partisan way.
I have been in Washington for 30 years and I have seen
Republican administrations come and go and Democratic
administrations come and go, and maybe it was the Cold War--I
do not know what it was--but we never wanted to get into doing
what other governments were doing, supporting their businesses
overseas.
That is all changed now. We have an Advocacy Center that
coordinates the work of all the different agencies of
government. When a Cabinet member--not just Secretary Daley,
but any Cabinet member goes out, they have a list of commercial
projects, private-sector projects that they are supposed to
advocate for. Other governments have long stood shoulder-to-
shoulder their business, Now we, too, fight for our businesses
and level the field of play. In the 6 years of the existence of
that little Advocacy Center, business credits us with being a
decisive influence in 450 competitions, translating into $60
billion of U.S. content and hundreds of thousands of U.S. jobs.
We also run, in our Trade Development shop, the Trade
Information Center. If a small or medium-sized businessman has
no idea of where to go, they hear me come through and say how
wonderful international trade is, then they say, What do I do
now? If they do not know where their export Assistance Center
is or if they do not know where to turn, they can dial up 1-
800-USATRADE. They will get a bright young person who can
answer their questions or put them on the road to where they
need to go to get those questions answered.
We have a third ITA unit called Market Access and
Compliance. There has been a good bit of talk here this morning
about the necessity of enforcing trade agreements. Nothing is a
higher priority for Secretary Daley or Under Secretary Aaron.
They have set up a new Compliance Center whose job is, first of
all, to put on-line all of the trade agreements of the United
States, to work with the private sector, identify instances
when those trade agreements are not being lived up to and then
to work through our own resources and if necessary, with those
of the United States Trade Representative, to get those
problems fixed.
The fourth leg of ITA is the Import Administration. I will
not go into that a lot today, but it is kind of like the
traffic cop on the beat. They are the folks who are involved in
administrating our anti-dumping, countervailing duty laws. They
have been front-and-center in the steel cases. You have all
heard about these cases. They assist domestic industries in
determining whether there is sufficient evidence to petition
for anti-dumping or countervailing duty actions.
At the core of what ITA does is a commitment to involve
small and medium-sized business in the world of global
commerce, and there is some good news.
We have used for years the figure that there are 112,000
firms in the United States that export. Those were 1992
figures. A couple of weeks ago the 1997 figures, which we were
eagerly awaiting, came out, and they show that that 112,000
U.S. firms exporting has shot up to 209,000. That is a 97,000
increase. Ninety-four thousand of those 97,000 are small and
medium-sized enterprises. Ninety seven percent of the firms who
export in this country can be categorized as small and medium-
sized enterprises.
That is impressive, but it is only a trickle of what we
need to have if we are to really succeed for small business in
the global economy. It is not a question of whether we are
going to participate in the global economy or not, it is
whether we are going to do it well or do it poorly.
I want to conclude with two thoughts. One, I want to
emphasize public sector-private sector partnership. There are
so many opportunities out there in the world of exports and in
the world of trade development, but neither the public sector
nor the private sector working alone can take full advantage of
those. I have worked in government for 20 years and I know that
without the expertise and the creativity and the good judgment
of the private sector, government cannot get the job done.
I have worked in the private sector also, running a
Washington office for a large corporation and as a senior
executive of a leading trade association, and I know that in a
world where market access decisions are often made by foreign
governments, commercial climates are determined by foreign
governments, foreign governments are backing their business,
the private sector cannot get the job done by itself either. So
if we are going to succeed in the global marketplace, it is
going to be because we find more innovative and creative ways
to work together. My job is to work with the private sector to
get that done.
My final thought--I applaud you for taking those few extra
minutes to talk to the press outside. They are gone now, but I
think you got the message across. But you know, we are all in
this room, and we are talking to one another, and we all pretty
much believe the same thing. A lot of Americans do not. All the
polls are going south on this issue. I go around and talk and
say exports and someone will say, Yes, I know what you want to
export. You want to export my job.
It is frustrating to see the consensus for trade eroding.
We have to work--everybody in this room has to work so that we
educate our employees, that we educate our communities. I
applaud you for the outstanding job you do in this, but I think
our private sector and all of us as government spokesmen really
have a tremendous challenge here to turn America around on
this. Our future is, as you said, in the global marketplace.
Small and medium-sized businesses future is in the global
marketplace.
But we have got to reach the American people on the
importance of trade so that they understand how important
exports are to them.
At the Commerce Department, we are in the arena. We are
knocking down trade barriers and opening the way for U.S.
business, and I think we are beginning to win more than our
fair share of competitions. We have got a lot of problems but a
lot of opportunities out there, and we look forward to working
with you, working with the Subcommittee, the full Committee,
and the Congress. This has got to be a collective effort:
public sector, private sector, and all of us pulling together.
If we do that, I think we can get the job done.
Again, my thanks for the opportunity to be out here today
with you.
[The prepared statement of Mr. Copps follow:]
Prepared Statement of Michael J. Copps, Assistant Secretary for Trade
Development, International Trade Administration, U.S. Department of
Commerce
Mr. Chairman, Thank you for inviting me here today to talk about
the compelling necessity to encourage American exports and about how,
working together, we can grow those exports. And let me thank you, at
the outset, for your leadership in this effort, and for your active
participation as a member of the President's Export Council.
In its early days, the Clinton Administration developed and began
implementing a coordinated National Export Strategy in pursuit of
increased exports. The National Export Strategy is continuously updated
by the interagency Trade Promotion Coordinating Committee, which was
given new life and vitality by the Clinton Administration to improve
coordination and consistency among government export programs.
Secretary of Commerce William Daley chairs this important group. The
TPCC combines the resources of some 20 Cabinet, independent and White
House organizations to initiate new export promotion programs. This
effort is not just desirable, it is imperative to counter the
aggressive export promotion programs of other countries, programs
targeted to put U.S. exporters--here in Missouri and across the
country--at significant disadvantage and put U.S. workers out of jobs.
This National Export Strategy is working for America; it is working
for Missouri. Since 1993, Missouri exports have grown by more than 44
percent, to nearly $7 billion last year. Its industrial, high tech and
service exports go around the world, and its top ten markets include
such diverse destinations as Canada, the European Union, Australia,
Brazil and even China. Here in Missouri, the number of firms exporting
has shot up by a phenomenal 75.8 percent since 1992--from 2674
businesses to 4702 last year.
Let me use the few precious minutes that I have to tell you about
how we at the International Trade Administration of the U.S. Department
of Commerce are trying to promote and grow U.S. exports, in the process
suggesting ways in which your exporters and our Department can expand
an already productive relationship. The Commerce Department is the lead
agency in carrying out most of the export promotion elements of the
National Export Strategy, with the notable exception of the large
agricultural export program.
I believe ITA is well-organized to help Missouri exporters sell
their goods and services overseas. I often liken the Commerce
Department's International Trade Administration to four legs holding up
a table. One leg is our U.S. and Foreign Commercial Service--a globe-
spanning operation dedicated to helping U.S. businesses, particularly
small and medium-sized businesses, export. Here at home, the Commercial
Service's 105 Export Assistance Centers counsel U.S. firms on the steps
needed to enter the export market and to succeed in it. These are
``one-stop shops''--that is, they offer access not only to the
resources of the Department of Commerce, but to those of the Small
Business Administration, the U.S. Export-Import Bank, and a range of
other U.S. government agencies. They work with, and often are located
near, state and private groups with the same mission. In Missouri,
there are U.S. Export Assistance Centers located in both St. Louis and
right here in Kansas City.
Overseas, the Commercial Service has 140 international offices,
strategically located in markets that account for 95 percent of
American exports. The commercial officers stationed abroad advise U.S.
companies on opportunities; help them in project bidding and trade
disputes; collect valuable market information; set up meetings with
foreign government and business officials whose decisions may be key to
the success of a proposed venture; and even locate distributors and
other contacts.
My shop, Trade Development--a second leg of the ITA table--is a
unique place in our government that deals day-in, day-out with the
private sector--with U.S. companies and trade associations--to identify
opportunities for the full range of U.S. businesses and to develop and
implement strategies to grow U.S. exports. We make sure that America is
putting its best foot forward--the coordinated strength of the private
and public sectors--in a world where other countries seem to have
learned this lesson long before we did.
Trade Development's industry expertise, found nowhere else in
government, covers the spectrum from basic industries to high tech to
services and e-commerce. We are also home to the Advocacy Center, which
is really a hallmark of the National Export Strategy. Your government
and mine, far more than ever before, is directly and aggressively
advocating for U.S. exports in the face of foreign government
competition. This Administration realized early-on that the
international business lost to American firms was far too important to
write-off and that our traditional non-interventionist policy was
equivalent to unilateral disarmament in the global competition. The job
of our Advocacy Center is to deploy the power and prestige of the U.S.
government to help U.S. businesses win contracts overseas. The Center
works continuously with the private sector and with the other agencies
of the TPCC to ensure that American firms have full support in their
bids on global competitions.
Make no mistake: the Advocacy Center represents a dramatic change
in attitude. For years, Administration after stood blithely off on the
sidelines while government leaders from other nations aggressively
promoted their home companies and walked off with the deals. U.S.
business suffered; U.S. jobs were lost. No more. Nowadays, from the
President on down through the Cabinet and ambassadors, everyone is
hitting the advocacy road, and the results are plain to see. Over the
five years of its existence, the Advocacy Center counts some 450
competitions in which our efforts assisted U.S. bidders to win contract
awards. These awards represent $60 billion in U.S. content and hundreds
thousands of U.S. jobs. In this time of soaring trade deficits,
deploying the strongest possible advocacy effort makes more sense than
ever. Again, it's not just desirable--it's essential.
Also located in Trade Development is our Trade Information Center,
whose mission is to improve small companies' access to both general and
country-specific counseling and information. The TIC, as we call it,
features both an 800 number and newly-upgraded websites. During FY
1998, TIC trade specialists responded personally to about 85,000
telephone, e-mail, letter, fax or visitor inquiries, 86 percent of
which were from small businesses, and we responded to nearly half a
million inquiries. The TIC's number is 1-800-USA-TRADE.
Market Access and Compliance is another leg supporting the ITA
table. This is where the Department focuses on identifying and
eliminating trade barriers. Its mission is to see that market obstacles
holding back U.S. exports are removed, and that the benefits of U.S.
trade agreements are actually made available to U.S. firms and workers.
Its regional and country focus on barriers is unique in the U.S.
government, and its understanding of the policies and tactics behind
foreign barriers is an essential component of the National Export
Strategy.
A cardinal tenet of the National Export Strategy is that trade
agreements exist to be observed and enforced. This Administration is
proud of the more than 240 trade agreements it has negotiated--but the
success of these agreements hinges upon their implementation. As long
as our markets are open to others, their markets must be open to us. We
have also made it abundantly clear that we will not stand by and allow
U.S. workers, communities and companies to bear the brunt of other
nations' unfair trade practices.
Secretary Daley and ITA's Under Secretary David Aaron have made
compliance with trade agreements their high priority. Whenever we
discover restrictions on our access to a foreign market, the
Administration moves aggressively. Our new Trade Compliance Center at
Commerce is charged with tracking our trading partners' compliance.
This Trade Compliance Center works closely and carefully with the
Department's industry analysts and country specialists, as well as with
the Trade Enforcement Unit at the office of the U.S. Trade
Representative, and with numerous industries. We try to achieve trade
compliance and market access short of dispute settlement wherever
possible, and we strongly support USTR efforts when dispute settlement
cases become necessary. Nor do we hesitate to seek enforcement either
through the World Trade Organization or through the use of U.S. trade
laws.
The fourth leg of the ITA table is the Import Administration, and
its purpose is to keep the playing field of international commerce
level for America's industries. IA enforces laws and agreements to
prevent unfairly traded imports. The most prominent recent example has
been the determination that certain countries were dumping rolled steel
products, and that countervailing duties should be imposed to safeguard
the U.S. steel industry.
The Import Administration not only makes those determinations, but
assists domestic industries, especially small businesses, in
determining whether there is sufficient evidence to petition for anti-
dumping and countervailing duty investigations. IA also works with the
USTR in negotiating fair and transparent international rules for such
investigations; participates in negotiations to promote fair trade in
specific sectors such as steel, aircraft and shipbuilding; and
implements the laws concerning foreign trade zones.
At the core of the National Export Strategy, and at the heart of
ITA's organization, is a commitment to involve America's small and
medium-sized businesses in the world of global commerce. Small and
medium-sized firms are central to building economic opportunity, and
involving them more in global commerce is central to our strategy. This
is as it should be. SMEs are the lead engine in creating jobs, and if
America's future is in the global marketplace, we must make sure that
our small businesses are competing and prospering in that marketplace.
There is some good news. The number of U.S. exporting companies
grew from 112,000 in 1992 to 209,000 in 1997, the last year for which
the figures are complete. Of this 97,000 increase, 94,000 were small
and medium-sized firms. SMEs comprise 97% of our exporting companies.
Nearly 30 million Americans work for firms that export. But we must
involve many, many more such businesses in global commerce. We know
that America is destined to live in a world of global business. It is
not a question of whether we will participate or not. It is a question
of whether we will participate well or poorly.
Our commercial officers, our industry specialists, our mission
organizers and trade promoters, our advocates, our Trade Information
specialists, our compliance experts are, all of them, dedicated to this
important mission of growing exports for America's small business
exporters and the millions of workers dependent upon these firms for
their livelihood. More than half of the U.S. companies that have
received direct support from the Advocacy Center that I described
earlier are small or medium-sized businesses. Hundreds more have
benefitted from its services as subcontractors and suppliers on large-
scale infrastructure projects.
Mr. Chairman, I want to ``talk up'' public sector-private sector
partnering. I want to talk it up because it works. Neither sector can
get the job of trade development done alone. I have worked in
government and I know that without the expertise and creativity and
good judgment of the private sector, government cannot get the job done
by itself. But I have worked in the private sector, too, running a
Washington office for a major U.S. business, and as a senior executive
of a major trade association, and I know that the private sector cannot
open the doors of global commerce by itself in a world where market
access and procurement decisions and commercial climates are so often
determined by governments, and wherein our competitors combine all
their resources, public and private, to win the competition. I am a
believer that if we are to develop America's tremendous trade
potential, it will be because we find constantly more creative ways to
work together and to leverage off each other's particular strengths and
access. My job is to work with the private sector to make it happen.
There are many opportunities out there, even given the troubled
global financial climate we have encountered over the past two years.
And we--this Administration, the TPCC, the Department of Commerce--are
developing new ways to accomplish our goals. In this era we can video-
conference, we can use the Internet, we can help U.S. exporters
understand and take advantage of such developments as the creation of
the Euro. We are also enhancing the TPCC's cooperative activities with
state and regional export development groups and with the National
Governors' Association.
Time precludes my going on, but I think you get the flavor. I hope
you can tell that I am a believer, a true believer, in what we are
doing. We do have a strategy--a National Export Strategy--and we are
implementing it in a way that makes sense and makes progress. Surely I
am not here to suggest that the implementation is perfect. We depend
upon constant review and upon the oversight of Subcommittees such as
this, and on the creative input of our private sector partners, to
critique our performance on an ongoing basis.
In the meantime, we are, as Teddy Roosevelt said, in the arena--
knocking down trade barriers and opening the way for U.S. businesses as
they venture out into the world, always looking to reach agreement, but
ready to protect and fight for their interests if necessary--and
winning more than our share of confrontations.
I believe we have, in all, mounted a strong, vigorous and effective
program. We are a committed group of people doing an increasingly
effective job--day by day, month by month, year by year--of advancing
the cause of U.S. commerce in the world arena. Working together, the
Executive Branch, the Legislative Branch, our states, cities and
localities, and the private sector, we can, and we will, ensure
America's continued leadership in global commerce.
I thank the Chairman and the Subcommittee for your attention, and I
would be pleased to respond to your questions.
Senator Ashcroft. Well, Mr. Secretary, I appreciate it. It
is an honor to have the Assistant Secretary for Trade
Development in the Department of Commerce come to Missouri. You
are right about the fact that we need to work together. I liked
what Mr. Ehinger said, that if the growth engine of the
nineties was international trade, it will be the life blood of
the next century. That maybe means, though, that for Mr.
Grueff, our next participant, is that we will be able to do
everything except export turnips, because we know that you
cannot get blood out of a turnip.
But I think that when we look at all the sectors of
America's great economic engine. There is a sector that is very
distressed, the agriculture sector, but it is also a sector
that relies heavily on the international markets.
So I am very pleased to welcome to our discussion this
morning the Assistant Deputy Administrator for International
Trade Policy at the Department of Agriculture, and to say how
much I appreciate the fact that you have taken time to come. I
do not know of any more qualified or talented individuals to
speak and address these very issues than those of you who have
been willing to come. I thank you.
Mr. Grueff, if you would at this time, share your remarks
with us.
STATEMENT OF JAMES GRUEFF, ASSISTANT DEPUTY
ADMINISTRATOR FOR INTERNATIONAL TRADE POLICY,
FOREIGN AGRICULTURAL SERVICE, U.S. DEPARTMENT OF AGRICULTURE
Mr. Grueff. Thank you, Mr. Chairman. It is a pleasure to
appear before you on the theme of ``Markets for a New
Millennium'' to discuss U.S. trade policy that will make our
farmers and ranchers more competitive. I would like to focus my
brief remarks today on a crucial challenge and opportunity that
lies before U.S. agriculture. That is the upcoming negotiations
of the World Trade Organization, the WTO, beginning in Seattle
later this year.
The previous negotiations at the WTO, the Uruguay Round,
have illustrated what a successful negotiation can do for U.S.
agriculture. Every WTO member agreed in the Uruguay Round to
reduce the import tariffs on every agricultural product. In
addition, the United States was able to achieve specific
agreements, such as persuading the Japanese to lower their
protection against pork imports. This particular agreement has
resulted in a significant increase in U.S. pork exports to
Japan.
We used the Uruguay Round negotiations to achieve the
first-ever limits on the use of agricultural export subsidies
by the European Union, which is by far the world's largest user
of these subsidies. Our current estimates are that the European
Union currently uses at least 90 percent of all the
agricultural export subsidies that are expended around the
world today.
Also, we were able to institute for the first time into
international trade rules the principle that countries can
prohibit or hinder agricultural imports if they have health-
related concerns, but they must have a sound, scientific basis
for doing so. This principle, as embodied in the WTO sanitary
and phyto-sanitary agreement allowed us to successfully
challenge the European ban on imports of U.S. beef.
Now, let me say, Senator, I very much understand and share
the frustration expressed here today about the fact that the
European Union has not rescinded their ban on our exports of
U.S. beef. However, I guess it is good to keep in mind that
before the Uruguay round results, we did not even have a means
for challenging the European Union on this ban and on similar
issues at the World Trade Organization. We are now at least in
a situation where if they continue to maintain the ban, we will
be able to at least take some measure of retaliation against
them.
This sanitary and phyto-sanitary agreement has proved to be
particularly important for trade in livestock products and
other high value products.
The Uruguay Round also gave us a trade dispute settlement
process that works. Now again, let me say, based on today's
discussion, that I understand the frustration expressed here
today about this process. The process, as it currently exists,
is slow. It has its deficiencies. But again, before the Uruguay
Round results, we essentially had no process. It was so easy
for other countries to block any challenge that we would make
on an agricultural issue. But the process, from our point of
view, was completely ineffective.
So now the new negotiations--they give us the opportunity
to go further. This time we want to completely eliminate the
use of agricultural export subsidies. This would be a very
important step in moving toward a level playing field with the
European Union. We also will insist on disciplines on
agricultural state trading enterprises, the foremost example of
which is probably the Canadian Wheat Board.
We want to see significant further reduction in
agricultural import tariffs, and we want to again specifically
pursue U.S. interests, as we did with Japan on pork, in markets
of particular importance to us. We will strive to achieve
further reductions in the levels of domestic subsidies that
distort production and trade. In fact, our 1996 farm
legislation has put us in an excellent position to pursue this
particular issue because of the decoupling of support from
production.
We want to address the issue of trade in agricultural
products produced through biotechnology. This is likely to be
one of the most important and most difficult sectors of the
negotiations. We will need to deal with the question of food
security in the sense that many importing countries will
probably not be willing to agree to open their markets further
unless they are sure that the major agricultural exporters of
the world are going to be reliable suppliers. We believe that
the United States will be in a position to do this.
In conclusion, the upcoming WTO negotiations are much too
important to U.S. agriculture to not take full advantage of
this opportunity. Yourself, Senator, and a number of others
have pointed various statistics to show the importance of
exports to U.S. agriculture. One other way to look at it is
according to our data for the non-agricultural sectors of the
economy, of total revenues, about 11 percent come from exports.
For agriculture, we see that as about 26 percent coming from
exports.
Private sector, as Mike Copps was saying--private sector
input is very important in this process. We are using our
private sector advisory group structure at the Department of
Agriculture to get this. We are also in the midst of a series
of 12 outreach sessions around the country where we are
explaining to audiences what we want to do in the negotiations,
and we are listening to their statements about what their
interests are and what their objectives are for the
negotiations. But we already know that the growth and
prosperity of U.S. agriculture clearly depends on exports.
We must be ambitious in this negotiation and we intend to
be ambitious. Thank you.
[The prepared statement of Mr. Grueff follows:]
Prepared Statement of James Grueff, Assistant Deputy Administrator for
International Trade Policy, Foreign Agricultural Service,
U.S. Department of Agriculture
Mr. Chairman, members of the subcommittee, it is a pleasure to
appear before you with Assistant Secretary for Trade Development
Michael Copps of the Commerce Department and Director of the
International Trade Data Systems Project Office Bob Ehinger of the
Treasury Department to discuss U.S. trade policy that will make our
farmers and ranchers more competitive in the new millennium.
the world trade organization
Last year, in Geneva, at the 50th anniversary of the world trading
system, President Clinton commented on the importance of open and fair
trade for all nations. He also highlighted the need for the World Trade
Organization (WTO) to provide a transparent and open forum where
business, labor, environment, and consumer groups can provide regular
and continuous input to help guide further evolution of the WTO. The
United States Department of Agriculture (USDA), in conjunction with
several other federal agencies, is doing just that through a series of
listening sessions around the country and consultations with private
sector advisory members from the agriculture industry. In doing this,
USDA will use industry's valuable input to shape our agricultural trade
policies for the new round of negotiations under the WTO as we enter
the new millennium.
As you are fully aware, while our national economy has been
booming, it has been a year of struggle and hardship in many parts of
rural America. We at USDA recognize that much of agriculture is going
through a very difficult period right now. At USDA we are marshaling
all of our resources to address this economic situation. We are making
sure that emergency economic relief gets to producers as soon as
possible, that strengthening the farm safety net is at the top of the
agenda, that the consolidations and mergers sweeping agriculture are
subject to proper scrutiny and that we continue to press to open new
markets for our exports in the new millennium. In order to address
these issues, we need to focus on: (1) the critical role that exports
already play for agriculture; (2) the role that trade agreements have
played in obtaining the current level of agricultural exports; and (3)
our goals for the upcoming WTO round of negotiations.
exports are critical for agriculture
U.S. agricultural exports reached $53.6 billion in 1998.
Agricultural exports support nearly 750,000 jobs here in the United
States. Products of nearly 1 of 3 harvested acres are destined for
overseas. Even in the current economic downturn, about 25% of
agricultural sales are export sales, compared with 10% on average for
the rest of the economy. The vast majority--96%--of potential customers
for U.S. products, including agricultural products, live outside the
United States. We must work to increase our opportunities to sell into
these global markets in the new millennium. Access to customers in
foreign markets is a key factor to the health of U.S. agriculture.
Compared to the general economy, U.S. agriculture's reliance on export
markets is higher and projected to grow faster. Agriculture is already
more reliant on exports than the economy as a whole.
trends in agricultural exports
Other factors point to the increasing importance of exports. First,
the overall trend has been one of increasing exports for American
agriculture. U.S. agricultural exports climbed to nearly $60 billion in
1996 up from $40 billion at the beginning of the 1990s. Exports were
down last year and will likely be slightly down for 1999 as well, due
to record world-wide crop production, the Asian financial crisis, and
the strong dollar--agricultural exports in 1998 were $53.6 billion, and
we project exports of $49 billion in 1999. However, when the global
economy rebounds as we are beginning to see in the Asian economies, the
trend of increasing exports is predicted to continue, and exports will
account for a larger percentage of farm income.
Second, the 1996 Farm Bill increased the market orientation of
agriculture and so to be prosperous in an increasingly competitive
market, we must increase our exports in those areas where we have the
comparative advantage. A number of agricultural sectors are already
exporting more than 60% of production with export sales over the $1
billion threshold annually for a number of food and agricultural
products.
Third, U.S. agricultural productivity is increasing while domestic
demand for agricultural products is growing slowly. We must therefore
develop new overseas markets for our products now and in the new
millennium. Another factor pointing to the importance of exports to
agriculture is how closely the level of our farm equity has tracked the
level of exports over time. Expanding export markets, while certainly
not the only tool, is a very important resource for leading us out of
the slump in agriculture. We must however be realistic, exports are
projected to decline again in 1999 to $49 billion. It is estimated that
45% of the world economy outside the United States that is now
suffering recession or depression is just showing signs of
revitalization-until the global economy turns around we will not
immediately increase our global customer base. But as a long-term
strategy, expanding our export markets in the new millennium is
critical.
trade agreements that open markets increase exports
A key to expanding export markets for the new millennium and
increasing our access to customers outside the United States is through
trade agreements that are good for American agriculture. We would not
be at the level of exports we are at today if we had not negotiated
trade agreements such as the WTO or the North American Free Trade
Agreement (NAFTA). Trade agreements such as these have boosted exports.
Soon after the implementation of the Uruguay Round, U.S. agricultural
exports reached their highest levels. Now many factors, including
exchange rates, factor into rises in exports. But almost all economists
agree that lowering trade barriers through trade agreements has been a
critical factor to boosting U.S. agricultural exports.
Of course, trade agreements are a two-way street and we must reduce
our own barriers as well. However, because the U.S. already has one of
the more liberalized markets, we have very little to fear and much to
gain from a new international agreement reducing trade barriers. We are
an efficient, competitive agricultural producer both domestically and
abroad. It is estimated that in 2005 exports including agriculture will
be $5 billion more annually than they would have been without the
Uruguay Round agreement. Other trade agreements will provide similar
benefits. It is estimated that in 1994 we sold $1.29 billion more beef
and citrus to Japan than we would have without the trade agreement we
successfully negotiated with the Japanese. For export growth to
continue, we must move forward with our strategy for opening markets
through trade agreements in the new millennium.
NAFTA is also fulfilling its promise for agriculture. Our NAFTA
partners, Canada and Mexico, have become more important destinations
for U.S. products, now accounting for over 25% of U.S. exports sales,
surpassing our sales to the European Union (EU). We estimate that in
the first three years, NAFTA can take credit for 3% additional exports
to Mexico and 7% additional exports to Canada. The 10% growth from 1997
to 1998 in exports to Mexico and Canada was especially welcome as
overall exports fell 6%, thus helping to offset the sales declines to
several of our leading Asian markets during the economic downturn in
that region.
We recognize that although we have achieved many benefits for
agriculture from recent trade agreements, the playing field is far from
level and there is much work to be done. The U.S. tariffs, on average,
are much lower than those of our major trading partners. When it comes
to export subsidies, we must work to eliminate the high EU export
subsidies. Further, we must continue to work for adequate and accurate
health and safety measures that do not act as disguised protection, but
are based on science. A major part of our strategy to level the playing
field for agriculture is to be successful in the upcoming WTO round of
negotiations. The U.S. wants both a free and fair global trading
system, and we will continue to pursue that goal in the upcoming WTO
and new millennium.
uruguay round and the wto
The most important existing trade agreement for agriculture--
because it covers trade among 134 member countries--is the Uruguay
Round Agreement. The upcoming round of talks must continue and improve
on the progress made in the Uruguay Round. While we in the
Administration are engaged in many market opening endeavors, now and in
the new millennium, the upcoming WTO Round is the centerpiece of our
efforts.
To understand where we are going in the WTO, it is important to
understand where we have been. The General Agreement on Tariffs and
Trade, the GATT, was established in 1948 and set the basic rules for
international trade. A number of multilateral GATT negotiations, or
``rounds'', took place between 1948 and the present, with the most
recent round--the Uruguay Round--concluded in 1994. The Uruguay Round
established the World Trade Organization, or WTO, which is basically a
continuation of the GATT system. The Uruguay Round Agreements opened a
new chapter in agricultural trade policy, committing countries around
the world to new rules and specific commitments to reduce levels of
protection and support that were barriers to trade. Agriculture finally
became a full partner in the multilateral trading system.
For the first time, countries had to make across-the-board cuts in
agricultural tariffs. For the first time, export subsidies had to be
reduced, and internal support policies that distort trade were capped
and/or reduced. New rules set a scientific standard for measures that
restrict imports on the basis of human, animal, or plant health and
safety. And a new dispute-settlement process was adopted--one that the
U.S. has successfully used in a number of cases. The option that the
WTO provides for solving disputes in a formal, legal setting has been
valuable in achieving tangible gains for U.S. agriculture and has also
acted as a deterrent--our trading partners know that we have this
option if they do not live up to their agreements. For example, we
recently won dispute-settlement panels against the EU's ban on beef
from cattle treated with growth hormones, against the EU's banana
import licensing regime, against Japan's restrictive quarantine
requirements for fresh fruit, and Canada's dairy policy on subsidies.
We now must maintain a firm line to ensure that the banana and hormones
decisions are carried out so that U.S. exporters have the access
determined to be their legal right.
The Uruguay Round agreement was a good start. It has already
contributed to increased U.S. agricultural exports and higher farm
incomes as American producers have taken advantage of newly opened
markets and new opportunities. But the Uruguay Round was just a start,
the first important steps in global agricultural trade reform. We are
now planning for the next major step--the round of WTO agricultural
trade negotiations.
next round of multilateral agriculture trade negotiations
The next round of WTO negotiations will be kicked off at a
ministerial meeting in Seattle, Washington from November 30-December
3rd of this year. The ministerial meeting will be a major event with
representation by most of the 134 WTO-member countries. We also expect
and encourage strong private sector attendance. The actual negotiations
will start early in 2000. The final scope of coverage of the
negotiations is yet to be determined, but agriculture and services will
undoubtedly be included. The general expectation is that the
negotiations should last 3 years with implementation of the agreement
beginning in 2004. In setting the agenda for the agriculture
negotiations, we will build on the Uruguay Round accomplishments that
yield substantial benefits to our nation's farmers and ranchers.
Tariffs were reduced in the Uruguay Round, but they are still too high.
Some countries maintain average agriculture tariffs of 50%, while the
U.S. tariffs average about 8% on all agricultural products. It is our
goal to negotiate the further reduction of tariffs. We also want to
expand market access under tariff-rate quotas by increasing the quota
amount and decreasing the tariff outside the quota. We also want to see
the reduction or elimination of export subsidies, especially for the
EU. The EU has outspent the U.S. by more than 20 to 1 on export
subsidies $7 billion to $100 million in 96/97).
Another problem in agricultural markets are state trading
enterprises or STEs, government entities that act as monopolies. When a
STE has government authority and monopoly power they are able to price-
pool by pricing their products artificially low and unfairly increasing
their market share. It is important that we develop stricter WTO rules
to ensure that STEs operate in a fair and transparent manner. Trade
distorting domestic support is being reduced under the WTO rules, but
the job is not yet complete. A comparison of the levels of such support
shows that globally, including the United States, but particularly in
Europe and Japan, domestic support remains high. Our goal for the next
round is to make sure that the assistance other governments give to
agriculture is provided in ways that do not interfere and/or displace
commercial sales of agricultural commodities in world markets.
goals for the next wto agriculture negotiations
Trade reform through the WTO provides the biggest bang for the
buck. In one agreement, for example, we can get 134 countries to cut
tariff barriers on exports. But getting all these countries to agree on
major reforms will take a lot more time and effort. It clearly won't be
easy. The United States has already completed much preparatory work in
Geneva, where the WTO is located. We are using the WTO Committee on
Agriculture to identify places where current rules and commitments
don't go far enough to open up markets for our exports. At the same
time, we are using a less formal process to build a consensus and
prepare the ground for the tough negotiations to come.
The Administration is working with industry to make sure their
concerns are met as well, as they are critical both at this early stage
and in the long-term of the negotiating process. The views and concerns
addressed by local farms groups to state government representatives in
the legislature or the executive branch is just one of our means to
obtain such advice. Other sources of industry information come from our
Agricultural Trade Advisory Committees and producer panels at trade
hearings on Capitol Hill. In all our activities, we want to send a
clear message to the rest of the world that agriculture is a top
priority for the United States and that we remain fully committed to
fair trade and open markets both now and in the new millennium. The
Administration will continue to seek support and advise from the
American farmers and ranchers to ensure that trade agreements continue
to work for them and for U.S. agribusiness as a whole.
Mr. Chairman, everyone in this room knows the importance of trade
to U.S. agriculture. In the past year, we've been sobered by a global
financial crisis that devastated many of the emerging Asian economies
and thus softened demand in other countries, many of which are
important markets for U.S. agriculture. While we now see some
strengthening in the Asian economies we continue to face a global
oversupply of many commodities that sent prices plunging to their
lowest levels in years. We have learned that our efforts to reform
world agricultural trade must continue if our exports are to expand in
world markets in the new millennium.
As President Clinton said earlier this month in Chicago, ``We ought
to continue to expand trade. We ought to enforce our agreements more
vigorously. But I do not believe that a country with 4.5 percent of the
world's people can maintain its standard of living if we don't have
more customers. We did it for a year last year, but we can't do it over
the long run.''
To realize the potential of the global marketplace, we have a lot
of work ahead of us. We must construct a world trading system where
every producer gets a fair shake, where all products, goods and
services are traded freely across oceans and continents.
The next round of WTO negotiations later this year will be a
turning point in this effort and we will be working hard to help
American agriculture realize that potential. This concludes my
statement, Mr. Chairman. I will be happy to answer any questions.
Senator Ashcroft. If you do not mind, I would like to ask
several questions. I was struck by the idea that our 1996 Farm
Bill puts us in a better position to argue against European
subsidies. I think that would be clearly the case. And you say
it is your ambition in the Seattle Round to abolish export
subsidies.
If you were successful, what impact would that have on U.S.
farm exports and prices, and what would happen in the United
States if the Europeans were to end their subsidies?
Mr. Grueff. Yes. We do not really have any quantitative
analysis now that could put a good number on that. The most
direct impact would come if we can agree to a complete phase-
out of export subsidies. We think there would be--it would put
us in a significantly better position in many markets around
the world.
On the use of domestic subsidies, perhaps less of a direct
impact, but the--we are in such a strong position because we
have de-linked production from support. The European Union is
still very much dependent on it. So we are in a--we have a lot
of leverage on that issue and we expect, later this year, to
have some good quantitative analyses of what exactly this would
mean in terms of--certainly we know it will be in the billions
of dollars of additional trade, but we have agencies such as
the Economic Research Services who are now focusing on this
particular question.
Senator Ashcroft. Yes. I was struck by Secretary Copps'
statement that people are distrustful of trade and of trade
negotiations. I think part of it is that we negotiate
agreements, we have the enforcement procedures, and we win the
dispute resolution, but then we get sort of stiffed on the
remedy.
We have gone through such a history with GATT and WTO
dispute settlement. Some of our trade partners discriminate
against our products for one reason and then they lose all the
dispute resolution procedures. As soon as the U.S. wins, they
run to get another reason to discriminate against our goods.
Would you agree that we must try and to find ways that give the
American people a basis for believing that we can get some
enforcement that makes a difference?
Mr. Copps. I agree 100 percent. Right in our own house, as
I indicated, at the Department of Commerce, we have organized
the Compliance Center so that business has a responsive place
to go and American workers have a responsive place to go to
remedy infractions or violations of our trade agreements. We do
need to increase the comfort level of the American people with
the WTO. There has always been historically in this country a
suspicion of international organizations.
So these procedures have to be open. They have to be
transparent. We have to know what is going on in those dispute
resolution panels, so that there is not the feeling in the
American people's mind that this is all being done behind
closed doors. So I agree very strongly with that, but I also
think there is this other dimension.
When those who are perhaps being adversely impacted by
trade--and there are some who have been adversely impacted by
trade--they seem to have a little easier time of getting the
attention of the media, or they seem to know how to go about it
better than we do.
I was in a state the other day giving a talk and all the
headlines of the newspaper were filled with one sector that was
encountering a problem. Now, it was a real problem with
imports, but yet this was a state whose exports had grown 45 or
50 percent in the last 4 or 5 years. Their people were
benefiting enormously from trade, but they were not being told.
Now, the media does not rush out and tell a story by itself
unless someone tells them.
Big business has to do a better job of talking to its
suppliers, and talking to their employees about trade. Many
workers in this country make components that go into cars or
airplanes or computers that are exported. A lot of people
making those parts do not have the foggiest idea that what they
are building is going into an export.
So I think if we can figure out a way to inform the
American people of the facts of life and the reality of trade,
then we can turn this around, but that is going to take a
proactive and a very extensive effort. As I say, Secretary
Daley, who is very much hopeful that he can come out here and
be with you very soon, is trying to do this around the country.
Senator Ashcroft. Very good. Part of what we are up against
is the bad news is more news than good news is.
Mr. Copps. Right.
Senator Ashcroft. You just cannot imagine seeing a headline
that says, ``X number of workers keep their jobs this week.''
Mr. Ehinger, we heard about the International Trade Data
System. We heard that you are sort of an architect of it.
Would you just give me a thumbnail sketch of that system
and could you give an idea of whether you think that system is
border specific. Or could that system be made to work at an
inland, heartland site, if we were to have new thinking about
trade. It seems as though inland sites--those not on the
borders and not susceptible to some of the jam-ups of the
borders--are being accessed for trade.
Mr. Ehinger. As a matter of fact, that is exactly why I
mentioned the working relationship we have with your
constituents here in Kansas City. Part of the concept of the
International Trade Processing Center, an absolutely essential
part of that concept, is that you must have sites and centers
of activity that are actually processing locations. In these
places, information, electronic processing and electronic
systems can be integrated to draw the information from the
businesses in that area, bring it into the system, create the
transactions and the information necessary for the government.
Take Mary's example of the button-maker. I love it. She did a
beautiful job with this--that in fact, the transit time between
Kansas City and the border going to Mexico can be used to
interface, through this one electronic process with the
government. We are not going to continue to do business agency
by agency and duplicate all this anymore. It is going to be a
fully e-commerce process.
We can get the information to the government agencies. They
can decide what they want to do with these shipments, what
additional information they may need, or whatever the situation
is so that by the time the goods reach the border, we do not
have 5, 7, and 8 mile back-ups at the border waiting for goods
to enter another country.
Through negotiations, particularly with our contiguous
neighbors, Canada and Mexico, which comprise such a huge
portion of our trade, we are rationalizing the requirements for
international trade, so that it is less difficult to get your
goods into Mexico. They will use the same data that we use in
this country. They will accept an electronic transfer of
information, and the goods can flow more freely. This is where
we will pick up 4 to 6 percent of the cost of doing business
and move that to the profit line.
Senator Ashcroft. I am interested--the study you said was
UN/UPIN.
Mr. Ehinger. Right.
Senator Ashcroft. --four to 6 percent? Was that the
transactional cost, or was that the amount of our trade deal
that is surplus cost that we can squeeze out if we were to do
things properly?
Mr. Ehinger. That is the amount that we could squeeze out--
--
Senator Ashcroft. Oh, my goodness.
Mr. Ehinger. --if we were able to do this.
Senator Ashcroft. So beneath that is some rational cost of
doing things right?
Mr. Ehinger. Absolutely.
Senator Ashcroft. So we are actually penalizing companies.
Do you know what the rational cost of doing things right is?
Mr. Ehinger. The rational cost of is somewhere around 1 to
1\1/2\ percent----
Senator Ashcroft. Wait a second. Then you are telling me
that if we have got 6 percent over--even if we went to 2
percent, if we have 6 percent more than that, we are paying a
300 percent penalty?
Mr. Ehinger. That is right.
Senator Ashcroft. When I say we are paying it, that means
that our producers are, and that kind of penalty is attached to
every job----
Mr. Ehinger. That is right.
Senator Ashcroft. --that is designed for export.
Mr. Ehinger. That is right. 10,000 fields of data is a lot
of information.
Senator Ashcroft. Yes. Does that mean--I wrote that down
here because I was afraid it might be on the quiz at the end of
the day.
Now, when you say 10,000 fields of data, does that mean
that you have to make 10,000 answers?
Mr. Ehinger. Yes.
Senator Ashcroft. So on the 602 forms, there must be about
1,500 answers per form?
Mr. Ehinger. Fifteen hundred separate pieces of information
that go into comprising it.
Senator Ashcroft. Per form?
Mr. Ehinger. That is right.
Senator Ashcroft. That takes you to 10,000?
Mr. Ehinger. That is right.
Senator Ashcroft. Wow. Now, what occurs to me is that we
have this penalty of about 300 percent that accommodates an
inefficient governmental system--with 100 plus boards and
agencies. You have described the savings to the culture and to
the business community of going from a total of say 7.5 percent
of the total cost of exports to a transactional cost of 1.2
percent.
Is the amount of money that government spends in doing all
this stuff repeatedly wasteful to the government as well?
Mr. Ehinger. Yes.
Senator Ashcroft. Are there long-term savings both to the
culture at large and to the private sector, and are there a
long-term savings for government in moving away from its old
processes to a new process? That is where I am going.
Mr. Ehinger. We have a cost-benefit analysis that I will be
glad to offer to you as an amendment to my submission for the
record. And that is the area where we have done most of our
work because it is the most easily quantifiable, and we did in
the cost-benefit analysis to this process. We have estimated
that it is somewhere around $2.5 billion to $3 billion a year
that the government would save alone, in its own costs.
Senator Ashcroft. Now, in moving to that annual savings,
are there costs greater than that are the startup costs that
get you to the point of the savings?
Mr. Ehinger. Yes--no, not greater than this. Certainly not
greater than this, because----
Senator Ashcroft. So it takes less than $2.5 billion to
implement the changes?
Mr. Ehinger. The total cost of constructing this
environment and making the government systems interfaceable,
reducing the amount of information that is duplicated in the
system is somewhere around $268 million----
Senator Ashcroft. So basically, over----
Mr. Ehinger. --over 5 years.
Senator Ashcroft. OK. So that is 1/100 of the first year's
savings to government----
Mr. Ehinger. That is right.
Senator Ashcroft. --is the first year cost to government?
Mr. Ehinger. That is right.
Senator Ashcroft. That really argues strongly in favor of
considering this very seriously. Win-win is usually the matrix
we look for, to win in the private sector, to win in the public
sector. It is a win big on both fronts.
Mr. Ehinger. I am afraid you are right.
Senator Ashcroft. --and----
Mr. Ehinger. These people would like to get rid of this
burden, I am sure.
Senator Ashcroft. Well, I am very eager to--this has been a
very important learning experience for me. I had a remote
awareness of this, but this argues very strongly--now, when you
talk about the savings to the private sector, you are talking
about how much is saved when you can just simply go into your
computer instead of driving to one of these centers or to some
other place.
Mr. Ehinger. That is right. What happens here is, this is a
simplification on consolidation process. We actually took these
10,000 fields of information and reduced it to what we find to
be 138 pieces of information, total on a transaction, from
10,000. Senator, it is very simple. Each one of these folks
asked the same questions.
If you are the button-maker and I am the buyer in Mexico,
you know who you are as the shipper and seller, I know who I am
as the buyer. We know how many buttons there were, what we
called them as a definition, how much each they were, what the
total was, and so forth. It is the same information produced
over and over and over for each agency, only they ask for it in
a little different context. So it has to be adjusted. It has to
be corrected.
We have huge numbers of people just repeating information
over and over again. Basically, the cost saving here is just
the destruction of duplication of government requirements.
Senator Ashcroft. Yes. Reduction and redundancy.
Mr. Ehinger. Absolutely.
Senator Ashcroft. I really thank you all for your kindness
to come and to participate in this hearing. I always have a
fear that I will, in my questioning, not be as fair as I should
be to what you have said. So I would like to offer each of you
120 seconds to summarize, correct some misstatement, or
whatever I have done. So if you all take your time in 6
minutes, this hearing will be over.
But I just want to do that to make sure I have not
prejudiced in some way what you have meant to say or prejudiced
the truth in something that I have said.
Mr. Ehinger. Well, for me, Senator, this has been a very
worthwhile experience. I do not normally like to spend my
Saturday away from home. However, this has been very useful and
I thank you again and your staff for their leadership and for
your attention to these details.
It does make a difference, but we do have to get going and
I think that is what has been expressed here today, and so much
better by your own constituents than I could, that I do not
think I need to take more of your time.
Thank you.
Senator Ashcroft. Thank you.
Secretary Copps.
Mr. Copps. The only dimension I would add that I gleaned
from our experience earlier this morning and our tour, is to
compliment the exceptional teamwork that I see in Kansas City,
and I surmise that is a characteristic of the state and I know
it is from the work that we have done with the state. That is
the most important element, when you look to growing exports.
Can we get the Federal Government, the state government, the
export development agencies, the private sector, everybody
working together? I saw an enthusiasm in Missouri's sense of
teamwork this morning, which I think is laudable and stands
this city and this state in good shape.
I think Missouri is about 24th or thereabouts in exports. I
think working together, we can build that up considerably.
Senator Ashcroft. Good. Thank you very much for coming.
Mr. Grueff. It was quite interesting for me, Senator, to
hear the comments of some of the panelists on the first panel
about their frustrations with WTO, dispute settlement, and so
on. I would like to tie this in with something that Mike Copps
said.
I think that in agriculture, one of our foremost challenges
is informing and educating that trade agreements have done a
lot for U.S. agriculture in terms of exports. There is the
potential to achieve a lot more through trade agreements and as
you said, often people focus on the bad news and what is not
working. But we really have to make sure that people understand
what has been done and what is at stake through these trade
agreements that we are involved in.
Thank you for the opportunity.
Senator Ashcroft. Well, my appreciation goes not only to
these excellent servants of the public from the departments,
but to all of you who care enough about promoting tomorrow and
making sure we approach it properly to do it effectively.
My staff has indicated to me that I should announce that
the record will remain open for 10 days. We should be able to
get some encyclopedic comments from you all in 10 days, and
that strikes a little note of fear in me. But just to prove
that--well, I think that is a good idea, and we will maintain
the record as open for that period of time, and welcome
anyone's contribution to this record who wants to be heard.
I want the record to be complete, because, frankly, I have
learned something from every participant here today, and it is
helpful to me. I look forward to working with you.
Thank you very much.
[Whereupon, at 12:55 p.m., the hearing was concluded.]