[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
THE STATE OF TRADE FOR AMERICA'S SMALL BUSINESSES
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
APRIL 11, 2018
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 115-065
Available via the GPO Website: www.govinfo.gov
_________
U.S. GOVERNMENT PUBLISHING OFFICE
29-518 WASHINGTON : 2018
HOUSE COMMITTEE ON SMALL BUSINESS
STEVE CHABOT, Ohio, Chairman
STEVE KING, Iowa
BLAINE LUETKEMEYER, Missouri
DAVE BRAT, Virginia
AUMUA AMATA COLEMAN RADEWAGEN, American Samoa
STEVE KNIGHT, California
TRENT KELLY, Mississippi
ROD BLUM, Iowa
JAMES COMER, Kentucky
JENNIFFER GONZALEZ-COLON, Puerto Rico
BRIAN FITZPATRICK, Pennsylvania
ROGER MARSHALL, Kansas
RALPH NORMAN, South Carolina
JOHN CURTIS, Utah
NYDIA VELAZQUEZ, New York, Ranking Member
DWIGHT EVANS, Pennsylvania
STEPHANIE MURPHY, Florida
AL LAWSON, JR., Florida
YVETTE CLARK, New York
JUDY CHU, California
ALMA ADAMS, North Carolina
ADRIANO ESPAILLAT, New York
BRAD SCHNEIDER, Illinois
VACANT
Kevin Fitzpatrick, Majority Staff Director
Jan Oliver, Majority Deputy Staff Director and Chief Counsel
Adam Minehardt, Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Steve Chabot................................................ 1
Hon. Alma Adams.................................................. 2
WITNESSES
Mr. Charles Wetherington, President, BTE Technologies, Inc.,
Hanover, MD, testifying on behalf of National Association of
Manufacturers.................................................. 4
Mr. Ken Couch, Director of Product Management and International
Business Development, ComSonics, Inc., Harrisonburg, VA,
testifying on behalf of State International Development
Organizations, Inc............................................. 5
Mr. Raymond J. Keating, Chief Economist, Small Business &
Entrepreneurship Council, Vienna, VA........................... 7
APPENDIX
Prepared Statements:
Mr. Charles Wetherington, President, BTE Technologies, Inc.,
Hanover, MD, testifying on behalf of National Association
of Manufacturers........................................... 21
Mr. Ken Couch, Director of Product Management and
International Business Development, ComSonics, Inc.,
Harrisonburg, VA, testifying on behalf of State
International Development Organizations, Inc............... 28
Mr. Raymond J. Keating, Chief Economist, Small Business &
Entrepreneurship Council, Vienna, VA....................... 33
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
THE STATE OF TRADE FOR AMERICA'S SMALL BUSINESSES
----------
WEDNESDAY, APRIL 11, 2018
House of Representatives,
Committee on Small Business,
Washington, DC.
The Committee met, pursuant to call, at 11:00 a.m., in Room
2360, Rayburn House Office Building, Hon. Steve Chabot
[chairman of the Committee] presiding.
Present: Representatives Chabot, Leutkemeyer, Knight,
Kelly, Blum, Gonzalez-Colon, Fitzpatrick, Marshall, Norman,
Curtis, Evans, Adams, and Schneider.
Chairman CHABOT. Good morning. The Committee will come to
order. We thank everyone for joining with us this morning.
This Committee has held countless hearings on the
importance of increasing small business exports, and one thing
is clear, we must do more to make it easier for small
businesses to engage in foreign markets. About 1 percent of
U.S. small businesses export, around 300,000 of them, and in
2016, exports reached $2.2 trillion and supported nearly 11.5
million jobs.
Simply put, trade means opportunity for small business.
After all, 95 percent of the world's consumers live outside our
borders, and I have long believed that if we tear down trade
barriers, we can make it easier for small businesses to
participate in the global marketplace and unleash one of the
largest sectors of the American economy.
However, that also means we must enforce the trade
agreements that we do have. There is little question that we
need better trade deals, agreements that not only make
America's small businesses more competitive but are also fair
to American workers.
For too long, China has exploited weaknesses in the global
trading system. Whether China exports products through other
countries to skirt tariffs or requires our most innovative and
entrepreneurial companies to share their trade secrets in an
effort to obtain American technology, American businesses in
those cases lose. Stronger and more easily enforceable trade
agreements mean small businesses will be able to access
international customers and offer their products at a more
competitive cost. It also means that businesses will create
more and well more, driving up wages and benefits and job
creation. In short, increased access to international markets
strengthens the American economy.
Trade is also an inherently American value, bolstering the
importance of economic freedom and individual liberty across
the globe. Furthermore, as we have seen earlier this week, the
administration has gone to great lengths to level the economic
playing field with China, and it appears to be having at least
some impact.
I have said before, and will say it again, that trade is
not a choice or luxury in our modern world; it is a necessity.
If the United States wants to continue to be a global economic
leader, we must ensure that small businesses have every
opportunity to engage in global commerce.
Today, we will hear from small exporters, who will be
directly impacted by the administration's ongoing trade policy
negotiations. Additionally, our small business witnesses will
share their stories about entering the world marketplace and
the resources and policies that have made this possible.
I want to again thank the witnesses for being here, and I
would now like to yield to the acting Ranking Member today, Ms.
Adams, for her opening statement.
Ms. ADAMS. Thank you, Mr. Chairman, for holding this timely
hearing. And I want to thank all of the witnesses for being
here today.
Small and medium-size businesses make up 97 percent of
American exporting companies, making exports critical to our
nation's overall economic health. Not only are small businesses
active in the export market, but many of them rely on important
materials to manufacture products and deliver services to
consumers.
I am troubled at the President's recent announcements
related to tariffs represent an erratic economic policy that
could jeopardize small firms' participation in the global
economy. The unpredictable and ad hoc nature of President
Trump's tariff announcements are raising concerns about how
these changes and threats of other changes might harm
entrepreneurs.
Instead of creating a thoughtful plan to address some of
the harmful effects trade agreements have had on our economy
and middle class, the Trump administration has launched
retaliatory attack after attack that brings our country
perilously close to an international trade ware. And it is
necessary to clarify, trade wars are not good and they are not
easy to win.
Setting aside recent developments, small businesses already
face enormous challenges when attempting to enter foreign
markets. These firms often lack the resources to identify
opportunities abroad and develop contacts overseas. Moreover,
small businesses that export products are often unaware that
they are at risk for intellectual property theft. One study
even found that only 15 percent of small businesses that
conduct business overseas know that they need to file for IP
protection abroad.
Perhaps the most prohibitive factors small companies face
in exporting are costs and resources. In fact, nearly all small
business exporters spend a minimum of a few months preparing to
export. Fully one-third spend over 5 percent of their annual
operating revenue to start exporting.
The Federal government operates a range of programs aimed
at minimizing these barriers and facilitating small firms'
entry into world markets. The State Trade and Export Promotion
Grant Program administered by SBA are partners with state
government organizations to help small companies access tools
that they need to begin exporting. It is important that
initiatives like these operate as effectively as possible to
promote small business growth.
To that end, I look forward to hearing from today's
witnesses about how programs like these are meeting the needs
of entrepreneurs and what improvements can be made either by
the agency or by Congress to better serve small firms. While
ensuring the smooth functioning of export promotion initiatives
must be a priority for this Committee, it is equally important
that we have an open, frank discussion about how the
administration's recent tariff announcements are impacting
global markets and American small business. Rapid, ill-
conceived changes to trade agreements could result in small
business supply chain disruptions, price increases, and costs
shifted to consumers.
Equally important is the President's economic rhetoric and
rattling. Trade wars initiated by tweets certainly cannot be
beneficial to small firms, whether they rely on imports or for
products made domestically, or if they are hoping to expand
their international footprint.
And while our Committee should rightfully focus on ensuring
SBA trade-oriented programs are functioning well, I also hope
today's discussion takes a meaningful look at what the
administration's broad trade action means for small business.
In that regard, I would like to thank our witnesses again
in advance for your testimony. I look forward to hearing your
perspectives on these timely issues.
Thank you, Mr. Chairman. I yield back.
Chairman CHABOT. Thank you very much. The gentlelady yields
back.
If Committee members have opening statements prepared, we
ask that they be submitted for the record.
And I would like to take just a moment to explain our
timing and lights here. We operate under the 5-minute rule. You
will each get 5 minutes. The lighting system will kind of
assist you in that effort. The green light will be on for 4
minutes. When the yellow light comes on, it will be on for a
minute, and then the red light comes on, which means your 5
minutes is up. So if you can stay within those parameters we
would greatly appreciate it.
And I would now like to introduce our very distinguished
panel.
Our first witness today is Mr. Charles Wetherington. He is
the President of BTE Technologies, Inc., a medical device
manufacturer and workers' compensation professional services
business. He is an experienced business leader with expertise
in global business development, engineering, and manufacturing.
He is testifying on behalf of National Association of
Manufacturers. We thank you for being here today.
Our next witness will be Mr. Ken Couch, who serves as the
Director of Product Management and International Business
Development of ComSonics, Inc. He has over 30 years of
leadership and business experience, including engineering,
information technology, and business development work. Mr.
Couch is testifying on behalf of the State International
Development Organizations, Inc., and we thank you also for
being here.
And I would now like to yield to Ms. Adams for the purpose
of introducing our final witness.
Ms. ADAMS. Thank you, Mr. Chairman.
It is my pleasure to introduce Mr. Raymond Keating, Chief
Economist at the Small Business and Entrepreneurship Council, a
nonpartisan small business advocacy research and training
organization. He also served as an adjunct professor in the MBA
program at Townsend School of Business at Dowling College for
over a decade.
Welcome, Mr. Keating, and thank you for testifying today.
Chairman CHABOT. Thank you very much.
And Mr. Wetherington, you are recognized for 5 minutes.
STATEMENTS OF CHARLES WETHERINGTON, PRESIDENT, BTE
TECHNOLOGIES, INC.; KEN COUCH, DIRECTOR OF PRODUCT MANAGEMENT
AND INTERNATIONAL BUSINESS DEVELOPMENT, COMSONICS, INC.;
RAYMOND J. KEATING, CHIEF ECONOMIST, SMALL BUSINESS &
ENTREPRENEURSHIP COUNCIL
STATEMENT OF CHARLES WETHERINGTON
Mr. WETHERINGTON. Thank you very much, Chairman Chabot,
Acting Ranking Member Adams, and members of the Committee on
Small Business. I thank you for the opportunity to testify
today.
My name is Chuck Wetherington, and as said, I am the
President of BTE Technologies. BTE is based in Hanover,
Maryland, and is widely regarded as the leading provider of
advanced solutions for physical therapy and rehabilitation,
manufacturing advanced physical therapy equipment. In addition,
our professional services business provides world-class
workplace injury avoidance solution for Fortune 500 companies.
I am pleased to testify today as a member of the board of
directors on behalf of the National Association of
Manufacturers, the largest manufacturing association in the
United States, which represents more than 14,000 manufacturers
in every industrial sector and in all 50 states. Manufacturing
employs 12.6 million men and women across the country, and
contributes over $2 trillion to the U.S. economy annually. More
than 90 percent of NAM members are small and medium-sized
businesses like BTE.
Our success, like that of many other small businesses, is
due in significant part to our ability to sell to foreign
consumers. Global economic growth over the past quarter century
has created record levels of demand for advanced and high-
quality consumer and durable manufactured goods, including the
products we manufacture at our facilities in Maryland and
Colorado.
Overall the United States quadrupled U.S. manufacturing
good exports over the last quarter century, representing more
than half of U.S. output and supporting about 6 million
American manufacturing jobs. Ninety-six percent of exporting
manufacturers are small and medium enterprises.
At BTE, we have consistently focused on expanding into new
markets, the latest being our work in the Gulf Cooperation
Council of six Middle East countries where in the past 3 years
we have been able to grow from virtually no sales at all to
over 20 percent of our exports.
However, small manufacturers in the United States face
fierce challenges overseas imposed by barriers imposed by
foreign countries and by foreign competitors that are
advantaged when their home countries ratify more free trade
agreements or provide more robust export credit assistance and
promotion activities than the United States.
Let me give a couple of examples. When the European Union
completed its free trade agreement with Korea before the United
States, our company lost significant sales. Once we did
negotiate and ratified the FTA with Korea and that went into
full force, our sales rebounded and we grew by over 130
percent. FTAs work.
Another example is as a medical device manufacturer, we
confront a myriad of regulatory regimes globally, which are
often accompanied by conflicting guidelines and requirements.
This makes it harder to sell and compete in foreign markets,
for example, China, which is just now rolling out brand new or
major overhauls in their medical device regime.
Negotiating additional trade agreements to eliminate
foreign barriers, including regulatory barriers and providing
strong enforcement tools would better enable companies like BTE
to expand overseas and thereby help support manufacturing and
grow jobs in the United States.
There are other things that would help small businesses
like BTE. First, SMEs need a positive outcome on NAFTA talks.
The NAM put forth a 10-point plan on June 2017 to modernize
NAFTA in a manner that will eliminate barriers, raise
standards, and strengthen enforcement to grow manufacturing and
jobs in the United States. We simply have to avoid outcomes
that would increase uncertainty, raise costs, or undermine
enforcement tools.
In addition, we also need the Senate to confirm the pending
board nominees for the return of the EXIM Bank, which plays a
critical role in the ability of companies like BTE to win
foreign contracts and level the playing field. We need the EXIM
Bank to be in full functionality. This would help us compete
with companies overseas that benefit substantially from their
own export credit agencies.
And then finally, more export promotion assistance
programs. Over the past 3 years, my company has benefitted
directly from the Small Business Administration's STEP program
that has helped us offset costs associated with participating
in trade events both in Europe and in the Middle East. And
we've had very strong returns on those investments.
In summary, many strong and enforceable agreements, export
credit and export promotion are critical tools to level the
playing field so that our small business manufacturers can
compete and succeed in markets around the world. I request and
urge the Committee to support these initiatives. Thank you.
Chairman CHABOT. Thank you very much.
Mr. Couch, you are recognized for 5 minutes.
STATEMENT OF KEN COUCH
Mr. COUCH. All right. Thank you, Chairman Chabot and Acting
Ranking Member Adams and members of the Committee.
First, I want to thank you for the opportunity to testify.
My name is Ken Couch, obviously. I work for a very small
company called ComSonics. We manufacture products for the cable
TV industry. More specifically, to put it in context, we
provide test equipment that actually helps the cable TV
industry identify problems in the network in your home to help
your Internet actually work better.
We have been in business for about 45 years. We actually
helped start the first cable TV industry companies here in the
U.S. We have about 250 employees, $47 million in revenue. We
actually are located in four states across the U.S., so we are
in Virginia, California, Georgia, and Indiana.
To put things in perspective from an international
perspective, I started working international about 4 years ago.
We had about $100,000 in revenue, which was not much, and in
just a couple countries. This year, we predict that we should
make about $2.4 million in over 26 different countries. So I
wanted to briefly share with you how that came about and what
we did to get there.
Basically, we utilized two major programs, the Virginia
Economic Development Partnership, as I refer to as VEDP, and
the State Trade Expansion Program (STEP). Both are managed by
the U.S. Small Business Administration.
When you start out from ground zero, you do not know which
country to approach. You do not even know if your product is
marketable. You do not know how big the market is. You do not
have any contacts. You do not speak the language. You do not
know the legal risks. You do not even know how to get paid. So
as a small company, how do you overcome these barriers?
What both the VEDP and STEP programs do, they
systematically bring all of the experts together for you in
kind of a one-stop shop format. So they bring legal counsel
that is familiar with international. They bring banking. They
bring shipping consultants. They bring in-country consultants.
So they bring everyone you need together to answer all of your
questions and to get you going.
In addition, STEP helps provide the funding you need. All
these resources they bring are not free. Unfortunately you have
got to pay them, so the funding comes--it is very useful
because a lot of companies that are small either do not have
the funding or they are too risk averse. Why would I invest in
something that I have no idea if it is going to go anywhere,
especially with these huge barriers.
The third thing that they do, which is probably my favorite
part is they do something called trade missions, and basically
what that is is they have in-country experts that help you
target which countries you want to go after and they actually
go into the country prior to you going and they find customers
for you, they actually set up meetings for you. All you have to
do is show up. I mean, there could not be a better way. It is
like handing you a customer on a silver platter. So they even
provide a translator. They provide transportation, everything
you need to get in front of that international customer. So it
is just, in my opinion, one of the best programs out there. If
you are a small business and you feel like it is too daunting,
these programs will significantly help you to get in the game.
ComSonics is just but one of many success stories. Not
every company can make it. It does take a lot of dedication on
the part of each company. It takes resources that you have to
commit. I personally can attest that I have about 700,000
frequent flyer miles now over the last 4 years, so it did take
a toll, but we have the results to show for it.
Quickly, with respect to tariffs, with the proposed
tariffs, our company would be impacted in three major ways. One
is even though our products are made here in the U.S., we
proudly say our products are made in the USA, here in Virginia.
However, we buy a lot of components overseas. Drone components
largely are sourced from Asia, so if they are tariffed and
those costs go up, it will impact our ability to compete
globally. In the same context, if we have to export and
retaliatory tariffs are imposed on our products, that will also
impede our ability to compete internationally.
So in summary, there are three thoughts I want to leave
with you. One, small businesses typically do not have the
resources or expertise to build an international business from
ground zero. It is just really tough. Small businesses tend to
be risk averse when they have to invest in international
markets because they are untested and unknown. Why would I put
forward dollars when I have no idea if there is a return? So
without the support of programs like VEDP and STEP, the
barriers into international markets are almost insurmountable.
These programs are vital to cultivate the success of small
businesses and to start and grow international sales.
I want to thank you for your time and support and
leadership on this issue. I believe that continued funding and
support for these programs are crucial to helping small
businesses compete in the global marketplace, and in turn, grow
our domestic economy.
Thank you again for your time, and I certainly welcome any
questions.
Chairman CHABOT. Thank you very much.
Mr. Keating, you are recognized for 5 minutes.
STATEMENT OF RAYMOND J. KEATING
Mr. KEATING. Chairman Chabot, Acting Ranking Member Adams,
members of the Committee, thank you for hosting this important
hearing on the state of international trade and small business.
I serve as the Chief Economist for the Small Business and
Entrepreneurship Council, which is a nonpartisan, nonprofit
advocacy, research, and training organization dedicated to
protecting small business and promoting entrepreneurship.
In the summary of my written testimony, I would like to
highlight some key points on trade, small business, and the
economy. A critical foundational point is that free
international trade amounts to a significant plus for the
economy, for consumers, and for small businesses. This is one
of the rare cases where we economists, almost all of us
actually agree. Thanks to lower trade barriers, competition has
expanded and resources are allocated more efficiently. In turn,
consumers experience a wider choice of products and lower
prices. The same goes for small businesses regarding acquiring,
for example, intermediate and capital goods. Entrepreneurs,
businesses, and workers also experience greater opportunity as
more markets are opened for their goods and services.
In terms of the overall economy, international trade is
deeply integrated in and vital to the U.S. economy. Consider
that real total trade exports plus imports in 1955 equal just 6
percent of real U.S. GDP. Today that is almost 30 percent. And
growth in trade equals a significant portion of U.S. economic
growth, at least 40 percent in recent times.
Combine the importance of trade in the economy with the
fact that our economy largely is a small business economy,
meaning that most U.S. businesses are small and mid-sized
enterprises, then it is still surprising that most people
assume that trade is overwhelmingly about large businesses. In
reality, in terms of the number of employer firms involved,
international trade is largely about smaller businesses. For
example, 76 percent of U.S. exporters have fewer than 20
employees; 87 percent fewer than 50 workers.
On the import side, the same thing goes. Seventy-five
percent of U.S. employers have fewer than 20 workers, and 86
percent have fewer than 50 workers.
As for the current issues confronting small businesses on
trade, the U.S. has benefitted tremendously from NAFTA, which,
of course, is now undergoing some renegotiation. The growth in
U.S. trade with both Mexico and Canada has been robust, and the
role of small business again has been critical with 75 percent
of firms exporting to Canada and 73 percent of firms exporting
to Mexico have fewer than 50 employees. For good measure, the
growth in the number of U.S. firms exporting to both Canada and
Mexico has been dramatic.
As for trade with China, which also we know is coming under
scrutiny, consider that U.S. goods exports to China from 2001,
the year that China was admitted to the WTO, to 2017, they grew
by 579 percent. In addition, 54 percent of U.S. exporters to
China have less than 20 workers; 69 percent less than 50
workers. So again, this is about small business. Also, from
2001 to 2015, the number of U.S. firms exporting to China grew
by over 600 percent.
In my written testimony, I also note the importance of
lower governmental barriers and the small business role in
trade in key sectors of our economy. I highlight the energy
sector, railroads, agriculture. Again, when you look at the
businesses involved there in trade, it is overwhelmingly small
firms.
Finally, regarding the best trade policy agenda for small
business going forward, it should be focused on policymakers
working to reduce barriers to trade by entering into and
expanding free trade agreements. That includes strengthening,
such as via enhanced intellectual property protections and not
weakening NAFTA. NAFTA, by the way, was the first trade
agreement where you had intellectual property protections in
the agreement.
Also, the U.S. needs to lead by example, and hopefully
through negotiations with the goal of entering into,
ultimately, a trade agreement or trade agreements with China.
That, I think, is going to be the real way where we can get in
there, roll up our sleeves, and in a constructive way hopefully
make some changes and really teach China about the benefits of
property rights and free trade and so on.
And, of course, we need to reclaim a global leadership role
in advancing free trade. We had that for decades. We need to
reclaim that role. It is vital.
Thank you for our time and attention. I look forward to
your questions and to further discussion.
Chairman CHABOT. Thank you very much. And we thank all the
panel members for their testimony.
And I will recognize myself for 5 minutes to begin the
questioning. And Mr. Wetherington, I will start with you.
How can NAFTA be strengthened for America's small
businesses? If you have one or two suggestions, or more if you
would like.
Mr. WETHERINGTON. Certainly.
As a small business owner, the biggest thing that we need
is predictability. So the longer that we drag this out, the
more time that it takes to get to solutions creates
uncertainty, and with uncertainty creates problems that are
very difficult for any business to deal with, let alone a small
business. We are not resourced in a way to be able to do that.
So the things that I would personally be a strongest
proponent for, and I think ISDS has kind of gotten over the
hurdle, but that is a very critical thing for us to make sure
that we have methods for remediating problems if problems do
occur. It is a very near and dear point to my business because
I both import subcomponents from Canada and I sell finished
products back to Canada. I also have a Canadian sub on my
professional services business. So really for us, the key is
let's get it done. It has been very important for us. Let's not
throw the baby out with the bathwater, but let's get this
through so we can get rid of the uncertainty.
Chairman CHABOT. Thank you very much.
Mr. Couch, I will turn to you next.
Many trade policy experts urge us to improve protections
for intellectual property rights and stronger enforcement
mechanisms is part of that, of course. Can you discuss the
importance of IP for small businesses? And do you believe that
a lack of IP protections in other countries has discouraged
many small businesses from engaging in trade-related activities
there?
Mr. COUCH. I am going to give you a very different
perspective on IP based on my experience.
So as a small company, we definitely have IP. When we
started to first engage in countries, particularly like Asia
and China, we looked into IP protection. Part of the issue is,
one, it is difficult to navigate. As a small company, there is
a lot involved, and in particular, there are rules like if you
have not filed for IP I think a year prior to, you know, going
to market, then you are disqualified. So I do not know the
exact rules. I just know that they were cumbersome and
difficult.
The other issue is that even if we went through the process
of getting IP protection, particularly with China, I do not
think they would adhere to or honor the policy. So in other
words, our ability to protect the IP would be limited. Because
we are a small company, we cannot really afford to really put a
lot of money into the legal system to protect the IP. So we
would just be run over, essentially. So it is a choice that a
lot of small businesses need to make, which I think is
difficult. One, being the process is difficult, and two, can
the IP regulations really be upheld?
So in our case, we chose to forego it mainly because we
were in a niche market and we felt like the chances of the IP
being exploited was minimal. But that is my experience.
Chairman CHABOT. Thank you very much.
Mr. Keating, let me turn to you then. There is no question
that small business trade with China, both imports and exports,
have grown significantly over the past, say, 15 years. Do you
have any sense of the value small businesses have lost due to
China's theft of intellectual property or state-backed firms
undercutting America's small manufacturers and service
providers? And do you believe that the United States should
take a stronger stance on China's predatory trade practices in
an effort to strengthen the competitiveness of American small
businesses?
Mr. KEATING. Yes. Well, I wrote a book on intellectual
property, how important it is to small businesses. So it is
vital that we get China pointed in the right direction on this.
I do not have the numbers off the top of my head but I will
certainly provide some numbers in terms of estimates on losses.
They are significant without a doubt, and understand what we
just heard, small firms do not have the legal department.
Right? They have got to, you know, this is why having
agreements and structures and policies that are enforced are
critical for small firms in terms of reaching into these
markets.
So this is, if not the number one issue, then in the top
two when dealing with China. The question is how do we go about
it? And my own view as an economist is not to go the route of
tariffs, which ultimately hurt U.S. consumers and small
businesses, but you have to engage with them and make it clear
to them that if they want the long-term growth in their own
economy, you know, they are looking now to move from low cost
producer to a high value economy. They are not going to do
that, quite frankly, if they do not enforce and protect
property rights, including intellectual property.
Chairman CHABOT. Thank you very much. My time is expired.
Ms. Adams is recognized for 5 minutes.
Ms. ADAMS. Thank you, Mr. Chairman.
Free trade agreements inevitably create winners and losers
in our economy. Some small businesses are able to recap the
benefits of trade through access to new markets and lower
prices, yet in other sectors, the textile industry in North
Carolina comes to mind, trade leads to displaced jobs from
increased competition and offshoring. North Carolina's textile
industry lost 82 percent of its workforce since the mid-1990s.
How can we balance these competing needs to maximize the
benefits for small business exporters while minimizing harm to
important industries? And anyone can answer that if you would
like to.
Mr. WETHERINGTON. I will take the first swipe at this.
I believe that free trade agreements--let's start with what
trade is and how trade works. And my mind, trade is like water.
It is going to find the path of least resistance. It will be
there and it will find a way to exist, whether you have
tariffs, free trade agreements or not. The beauty of the free
trade agreement is you are getting some knowns into the
process. You are getting a rule of law. You are getting
agreements on how you are going to work together, how you are
going to resolve disputes, and I think that the United States
is well behind in where we should be as a leader in having
these kinds of talks.
And I agree with Mr. Keating. I believe that the most
important way that we can work with China, for example, is
through the negotiating table and working towards a free trade
agreement.
Ms. ADAMS. Okay. Mr. Keating?
Mr. KEATING. I would agree. Mr. Wetherington pointed out
that trade is going to find a way, if you will. And he is
right. Understand, these free trade agreements that we have
entered into--NAFTA. Actually, when you look at the list, in
most cases we already had pretty low barriers to trade. It was
the other countries that have high barriers. So when you look
at these free trade agreements, the big beneficiaries have been
U.S. firms in the U.S. because the barriers, you know, tariffs
and quotas have come down on the other end. So I think that is
part of the answer.
The other thing that you are going to have inevitably in a
dynamic economy, you are going to have shifts like this. You
know, we saw it in our own country over the years where certain
manufacturing went from the northeast to the south and so on
and so on. These things are going to happen. While you can
certainly address it in terms of education programs and so on
that can be beneficial, but also, I think quite frankly, having
the best environment for free enterprise to flourish is the
best answer. You mentioned North Carolina. North Carolina has
lost textile jobs, but it has added so many other areas and
become quite a diverse economy, high tech economy to their
credit. So this is kind of the dynamic economy that we are
dealing with and we always will deal with.
Ms. ADAMS. You know, we frequently hear that small
businesses make up more than 9 out of every 10 businesses that
export goods from the U.S., but when it comes to the
negotiating process for trade agreements, the interests of the
small business community often take a back seat to that of
large multinational corporations.
So what do you think can be done to alleviate the concerns
of small businesses in ongoing trade negotiations?
Mr. Couch?
Mr. COUCH. That is a great question. I wish I had a great
answer.
Again, I can only speak from my company's perspective. And
we do do business with countries that have extremely high
tariffs. I mean, in some cases 300 percent. So you question how
can you compete in a market where we have to raise our price
300 percent just to sell into the countries? But again,
probably because we are in a niche market, what we see is that
everyone pays the tariff. So as long as they do not have in-
country competition, everyone pays the duty. Everyone pays the
tariff. And so a lot of our customers are just used to paying
an exorbitant amount for products from the U.S., for example.
So I do not have a good answer for you in terms of how can
we be better represented. It would certainly be nice not to
have to pay 300 percent tariffs in these countries, and I do
not know how those get lowered.
Ms. ADAMS. Okay. I have got 30 seconds. Anybody else want
to take that? Twenty-three now.
Mr. WETHERINGTON. If I could take a swipe at that question
as well. I think things like today is a perfect example of how
we get our voice across. We come, we talk to you. You can help
us carry the voice. My membership in the National Association
of Manufacturers, we have a very strong small and medium
enterprise membership there and that amplifies our voice. It is
one of the key reasons why I do that, so we can get our voice
out there.
Ms. ADAMS. Great. Thanks very much, Mr. Chairman. I yield
back.
Chairman CHABOT. Thank you very much. The gentlelady yields
back.
And the gentleman from Missouri, Mr. Luetkemeyer, who is
the Vice Chairman of this Committee is recognized for 5
minutes.
Mr. LUETKEMEYER. Thank you, Mr. Chairman. Thank all of you
for being here today.
Mr. Wetherington, in your testimony you talk about
harmonization of regulations between countries. To me that is
very important because it puts everybody on a level playing
field. And it would seem to me that you need to do those in
trade agreements. Is that basically where you do that or do you
have other negotiating opportunities to level that?
Mr. WETHERINGTON. I cannot see another place where you
would do it other than through free trade agreements. It is
critical for us. In the medical world, every single country
seems to want to have their own regime, and oftentimes it is
used as a barrier to entry. It is a business tariff. It is not
a cost directly but it is a cost we have to pay in order to get
our products certified for those countries.
Mr. LUETKEMEYER. So when you see an opportunity in another
country, when you want to open up another country and you see
that there is a barrier there and we do not have a free trade
agreement with them or any sort of agreement, do you go to the
administration and ask them to help you with breaking down the
barriers? And if you do, are they receptive? Do they work with
you? Or do you have to do this on your own? How does that work?
Mr. WETHERINGTON. The choice we have to make is an economic
choice of what is the cost for entering into that country and
do we think there will be a payback? I do not feel like there
is a path currently for us to go get our voice heard to say
harmonization needs to be a factor here. I have been out
staying that for years and years inside the beltway. I still
have hope, but within the short term I have got to make the
decisions for the company and that is based off of can I get
the return after I do the investment to get certified for that
country?
Mr. LUETKEMEYER. Okay, great.
One of you, I think Mr. Wetherington, maybe you were the
one that talked about the ability to finance stuff that you are
going to be able to export. Would you elaborate on that just a
little bit more? And if you cannot find financing through the
Export-Import Bank, where do you go to get that? Is it
available? Do you just not do it? Your competition is getting
it and you are not?
Mr. WETHERINGTON. Right.
Mr. LUETKEMEYER. Can you explain a little bit of that, how
that works?
Mr. WETHERINGTON. We bought our company in 2001, and at the
time we were doing less than 2 percent of our sales in exports.
We focused hard. We worked with commerce to try to get through
the Gold Key program, identifying ways in countries like your
mission, trade missions. Got it up to 15 percent, but we were
not able to find financing anyplace. We were having to put our
products onto ships or onto airplanes at risk, and we did not
want to do that because the value of our products are too
great. So we required everybody to pay cash upfront or an
irrevocable letter of credit, which is kind of an onerous way
to do business. And it was not until we started working with
Export-Import Bank with their accounts receivable insurance
that we were able to get the financing we need. During the
period of time when EXIM lost its certification, we went to our
bank. We tried to get financing for those deals and we could
not. Fortunately, we had enough experience with most of our
distributors we could absorb the risk. But if I was going to
new markets, it would have been very difficult at that time.
Mr. LUETKEMEYER. So what kind of impact did that have on
your business by not being able to--I mean, did the amount of
your sales go down 10 percent, 20 percent?
Mr. WETHERINGTON. It did not last long enough to have an
impact on the business, but it certainly impacted our ability
to go expand into new markets. So we lost opportunity.
Mr. LUETKEMEYER. Okay. Did that allow other companies from
other countries to take your----
Mr. WETHERINGTON. Of course.
Mr. LUETKEMEYER. You get a toehold and keep you out that
way?
Mr. WETHERINGTON. Of course. Of course. The world loves
American medical devices, but they also love German medical
devices or Swiss medical devices. And the vacuum will get
filled.
Mr. LUETKEMEYER. We talked about NAFTA a little bit today.
I know that it is being renegotiated, and I read something I
think Monday where the Canadian Prime Minister was excited
about where the agreement is going to go to. Apparently, they
are down to one issue, which is Mexico's minimum wage for
autoworkers is the hang-up apparently right now. Do any of you
know what is in the agreement? Have you seen the agreement or
heard things about it? Do you know where it is at? I am just
kind of curious if it is a good deal, bad deal, irrelevant?
Mr. Keating?
Mr. KEATING. The only thing that I have heard that
concerned me a little bit was that intellectual property, they
were kind of getting around to it, so I would have liked to
have heard that that was kind of number one on the hit parade,
but that is all.
Mr. LUETKEMEYER. Well, it brings up a great question. How
do you enforce the laws on intellectual property? I have only
got 30 seconds here but if you can.
Mr. KEATING. Extremely difficult when you think about
China, what we are talking about here, it is a massive
undertaking, and that is where you need----
Mr. LUETKEMEYER. Do you not really have to do it upfront
just to make sure they do not get it, period, because you
really cannot enforce it on the other end?
Mr. KEATING. Well, you have to make sure it is in the
agreement. You get as many checks and balances and everything
and resolution mechanisms and so on. You need all of that in
there. But you really need to have the other country understand
why property rights and intellectual property matters. If they
do not, they are going to find ways around it.
Chairman CHABOT. The gentleman's time has expired.
Mr. LUETKEMEYER. I yield back the balance of my time.
Chairman CHABOT. Thank you.
The gentleman from Pennsylvania, Mr. Evans, who is the
Ranking Member of the Subcommittee on Economic Growth, Tax, and
Capital Access is recognized for 5 minutes.
Mr. EVANS. Thank you, Mr. Chairman.
Mr. Keating, you stated in your testimony that one of the
few points that economists can agree on are the net benefits of
free trade. The representative of Pennsylvania Pork Industry
just dropped by my office to drive home the point that they are
targets of China's retaliation. And since China is
Pennsylvania's third largest export market after Canada and
Mexico, the pain will be felt. Can you address this?
Mr. KEATING. Well, from an economist's perspective, it is
predictable. I mean, when we talk about fears of a trade war,
you know, if you are going to down the path of imposing or
threatening tariffs, your hope is that it comes out okay in the
end, but the real risk, obviously, is that you are going to see
retaliation. So this is the standoff that we are at. It is not
a productive way to go about trade policy in the end because
you are creating such uncertainty. You met with pork people
today; right? Go down industry after industry and look at what
happens in the market. So it would be much more constructive to
sit down at the table and move in the right direction.
I mean, think about if U.S. and China sat down and said,
you know what? We are going to start talking with the goal
ultimately, we do not know when, of reaching a free trade
agreement. Think about how entrepreneurs and markets and so on
would react to that? That would be a tremendous positive.
Mr. EVANS. In your testimony you stated that trade deficits
are not necessarily economic negatives. Could you talk a little
about that, please?
Mr. KEATING. Trade deficits, yes. Well, this is the problem
that we run into with trade deficits. We automatically think
they are economic negatives, but again, when you look at number
one U.S. economic history, when our economy is growing fast,
our trade deficit tends to expand. Why does that happen?
Well, number one is we have increased demand for imports,
both consumer goods, capital goods, intermediate goods. So that
is one side of it. And then the other side of it is we have a
current account and a capital account. If the current account
is in deficit, the capital account is going to be in surplus.
Okay? Now, to understand what is going on here, if you have a
trade deficit, it balances out with the capital account. That
means people are investing. Foreigners are investing into the
United States. That is another plus. That is a positive.
I always tell people, I tell my students, when you look at
trade, ignore the deficit or the surplus. Look at what is going
on with exports and imports. And if they are both growing, that
is good news. That is the bottom line.
Mr. EVANS. Mr. Wetherington, I want to follow up a little
bit because I saw you kind of nodding your head, going back to
something you said earlier about predictability. So do you want
to speak to kind of what Mr. Keating just expressed? Because I
think that is the message you were sending to us, and also, you
were raising the aspect of this hearing could be helpful to
this process.
Mr. WETHERINGTON. Absolutely. I applaud the idea of what it
would be like for the markets to have us talking instead of
tariffs talking about sitting down and beginning the
conversation. I think that, even heading in the right
direction, is going to provide a level of predictability and
kill the uncertainty that I think is going to help bolster both
the markets and bolster those small and medium enterprises that
are not trading today for whatever reason, to get them to feel
much more comfortable about the idea of going into some of
these markets that they may have fears of losing IP today, but
I think that would help them in that ability to make the
decisions to go.
Mr. EVANS. Interesting you said it because the consulate
general from China was in Philadelphia last week and the first
thing she said to me is, can you talk to the White House?
So Mr. Chairman, I just want to let you know that is what
the consulate general of China said to me as we were talking
about as the airport was talking about direct flights to China.
So I just want to carry the message there. You may have a
hotline phone number there.
I yield back the balance of my time, Mr. Chairman.
Chairman CHABOT. The gentleman yields back. I will make
that call right after this meeting.
The gentleman from Utah, Mr. Curtis, is recognized for 5
minutes.
Mr. CURTIS. Thank you, Mr. Chairman.
I feel during your testimonies a lot of pain that I have
experience as a small business owner and manufacturer. And I
want to go back to a couple of these points that we have kind
of gone over and over.
Let me start with you, Mr. Couch. The world of exporting
overseas is just what I would call a big gray cloud, right, to
most small businesses. Can you look the camera in the eye and
give some advice to all those thousands of businesses out there
that want to do what you have done and tell them where to start
and what you have learned that could be helpful to them.
Mr. COUCH. Sure. Again, I am going to refer back to you
need help to do it. It is difficult to do it on your own. So
there are in my case the VEDP program and the STEP program are
exactly what we needed, and there were many other companies
inside Virginia, for example, that leveraged the same programs
that got the help they needed to be successful.
So I think the first step is find whatever available help
and resources, funding, you can come by to get you going
because going it on your own is a tough road. And you may be
successful, but I think your chances are severely diminished.
Mr. CURTIS. Does that start with a call to the chamber? A
call to the state? Where does that start to tap into those
resources?
Mr. COUCH. Well, it does start with a call, obviously. In
my case, they called me, so that made it a little easier. But I
would encourage them to check into whatever state programs and
federal programs are available, and with a little internet
search and a few calls you could be able to narrow it down.
Mr. CURTIS. Thank you.
Mr. Wetherington, you look like you are ready to answer
that question.
Mr. WETHERINGTON. No, I would just say for us it was
commerce and SBA. So those were the two big pushes. We had
already had a plan. And that is the key, is to develop a plan.
Do not be too shy about the plan, but also make sure that you
have got checks and balances and points where you are looking
back at it, assessing how you are performing against what your
expansion plan was. And recognize that being there is
important. You cannot go and export and not go there. You need
to go, meet the people, be on the ground.
Mr. CURTIS. I cannot remember if it was you or somebody
referred to risk. Can you address just the risk of going into a
new market and what they need to be prepared for?
Mr. WETHERINGTON. We have hammered the IP. That is clearly
one of the risks. But you have to think, too, the lifeline or
the life cycle of your products as well. How am I going to
support the product? How am I going to support with training?
How am I going to support with service? You know, consider all
of the aspects. If you have a serviceable product, it is not a
commodity, what would all the aspects of how am I going to go
do business in that country, and then start thinking about are
there ways I can do it where I am lumping regions together to
gain efficiencies.
Mr. CURTIS. You said we have hammered through the IP and I
am going to hammer it a little bit more. I once made an
international trip and it was to the Mid-East. Visited a
facility that had taken my logo, changed the color on it, and
manufactured our equipment there and they did not care. They
did not care that I was there to visit them, to see them. And I
would just like to add my voice to your voice today in this
call for help, this call for predictability, and ask you for
resources in calming the markets and calming discussions that
will help you be successful.
And then finally, I would just like to add my voice of
appreciation to those of you who fight the good fight, who
provide manufacturing jobs in this country. We do not have
enough of them. To those of you who take risk and invest in
these markets, I want you to know from my perspective how much
that is appreciated.
I yield my time.
Chairman CHABOT. Thank you. The gentleman yields back.
The gentlelady from Puerto Rico, Ms. Gonzalez-Colon is
recognized for 5 minutes.
Ms. GONZALEZ-COLON. Thank you, Mr. Chairman. And thank you
all the panel for being here.
I think this is one of the biggest issues for our whole
nation in terms of how do we create more jobs, not just in the
mainland but going abroad with our products. In the case of
Puerto Rico, it is the same thing. Thirty-two percent of our
manufacturing is actually medical devices and pharmaceuticals.
So a lot of our products are going abroad. And one of my
questions will be to the Association of Manufacturers. Are you
either considered to promote the territories as part of the
economic development through the inclusion and free trade
agreements?
Mr. WETHERINGTON. So I do not know that I am involved
enough with the association to know specifics there. I do know
I am on the executive committee as well. Pfizer is on the
executive committee. I know that the pharmaceutical companies
have done a great job not only with placing the plants there
but in the support with recent tragedies. So I know that the
members of the NAM aver very involved with that process.
Ms. GONZALEZ-COLON. The reason I make this question is
because when NAFTA was approved, a lot of the businesses in
areas of Puerto Rico lost a leading source in the Caribbean and
the eastern part were not considered at the time. So it was a
big impact in the region at that time. So we are now trying to
get involved in those trade agreements before, as part of the
United States as it should be. But that is the reason I am
asking you directly to consider that as part of the promotion
of the Manufacturers Association, including all the
territories, because I do know that some territories in the
Pacific got their own areas to export.
You were talking about to ease access to credit assistance.
In our case, I was hearing to go to Small Business and other
agencies. We just face the same situation, but add to that we
are on an island so it is more difficult to ship those goods.
One of the areas that we are looking to have more partnerships
is how do we include those imports and exports as part of the
U.S. agenda, not just Puerto Rico as a sole territory but as
part of a whole agenda. So that will be one of the areas of
promotion of Made in USA products, that we do have that seal,
that we should include that.
And during your testimony you were saying that the
regulations medical devices confront around the world, how can
those agreements solve that situation now? Do you have any
specific recommendation on those in terms of medical devices?
Because that is an industry we are very committed to that.
Mr. WETHERINGTON. Harmonization is the key. You have to
come up with agreements on how you are going to provide those
regulations. Manufacturers, especially small manufacturers, we
are tenacious. We will deal with change. We will figure out a
way to survive. But that uncertainty and things moving
dramatically and moving rapidly are things that cause problems.
I would take a higher level of regulation--please, I almost do
not want to go on record with that.
Ms. GONZALEZ-COLON. Do not say it louder.
Mr. WETHERINGTON. I would almost take a higher level of
regulation if it were harmonized. Then, we could figure out how
to deal with it. But having to deal with different standards in
every single country I go to where, again, it is used as a
whipping post in many cases, that is what makes that difficult.
Ms. GONZALEZ-COLON. Mr. Couch, I have to say that you
represent what is going on in the whole small business
industry. All those challenges. We receive calls from our
constituents every time regarding how can we direct them to
Small Business or other agencies just to get credit, to get
promotion on how to manage those commercial missions to
different countries. And that is the most difficult, how to get
them together to send them abroad. Which countries are being
the most helpful in that commercial missions in your
experience?
Mr. COUCH. Well, like I said, we have, in the last 4 years,
kind of expanded our portfolio into 26 countries. It is
certainly easier to remember the most difficult versus the
easiest. The easiest I would say are the European countries
just because the shipping and the trade barriers are pretty low
there. Methods of payment are pretty standard. So we do
business in most of the European countries now, and that was
certainly almost like doing business inside the United States.
So South America, Latin America would have been my second most
easiest. There are some challenges in certain countries within
that so it is not across the board, but I would say Asia is by
far the most challenging. So if I were to kind of step rank it
in that way.
Ms. GONZALEZ-COLON. With that I yield back the balance.
Chairman CHABOT. Thank you. The gentlelady's time has
expired. Thank you very much.
And the gentleman from Iowa, Mr. Blum, who is the Chairman
of the Subcommittee on Agriculture, Energy, and Trade is
recognized for 5 minutes.
Mr. BLUM. Thank you, Chairman Chabot. Thank you to our
panelists for being here today.
I think the statistic is 97 percent of the world's
consumers--95 percent, let's say, of the world's consumers are
outside the United States. So we need access. We need access to
those buyers. And I think we all agree, we do not want it to be
a race to the bottom in terms of wages. I would guess that
American wages are probably higher. Not probably the highest,
but maybe higher than almost all of our trading partners
companies' workers' wages. So first question I have, and I
particularly am interested in hearing from the economist, Mr.
Keating. You know what Harry Truman famously said about
economists; right? He said he opined for a one-armed economist
because he was tired of economists saying ``on the other
hand.''
Mr. KEATING. Yes. The profession deserved it.
Mr. BLUM. My first question is does the United States need
tariffs to compete?
Mr. KEATING. No. Why would we need tariffs to compete? I
mean, you mentioned wages. It is almost important to understand
that what is income tied to? Income ultimately is about
productivity. And the reason that we have among the highest
paid workers on the face of the planet is because they are
among the most productive workers on the face of the planet. So
that is number one. And that is key to keep in mind when we
talk about, oh, what are workers making in Mexico compared to
the United States, or China versus the United States? But
understand, it is all about productivity now. That is how those
wages and incomes are determined.
We do not need tariffs to compete. We need just the
opposite. We need to engage in more free trade agreements so
that other countries lower their tariffs and we can get out
there and do business.
Mr. BLUM. I agree with you about productivity. I have two
questions on that.
First of all, what types of things lead to increased
productivity?
Mr. KEATING. Private sector investment and
entrepreneurship. Those are the two critical things. And right,
private sector investment and entrepreneurship lead to
innovation. This is the package. And we are usually pretty darn
good at that. You know, entrepreneurship has suffered in recent
times. It is something that we are concerned about at the Small
Business and Entrepreneurship Council, not just because they
are our members but because that is the lifeblood of our
economy. When you go into the international marketplace, one of
the big edges, if you will, that the United States has is our
entrepreneurship. So, and we have also had, you know, until the
past year or so coming out of the last recession, our private
sector investment lagged terribly. So we are still trying to
catch up on that front.
Mr. BLUM. What can government do on that front? On both
those fronts, private sector investment and entrepreneurship?
Are we helping or are we hurting?
Mr. KEATING. I always talk about five steps. Tax relief. So
we had some good business tax reform. Regulatory relief. We
have seen that happening, and at the very least we put the
brakes on a more egregious regulation. Free trade, that is
critical, so we have to be lowering barriers to trade. And
then, of course, sound money and, you know, reigning in the
size of government, other things like property rights that we
have talked about and so on. But that is the package. So if you
get all that moving in the right direction, we are going to do
a heck of a lot better.
Mr. BLUM. So are we moving in the right direction in your
opinion over the last 18 months?
Mr. KEATING. We are moving in the right direction in taxes.
I think we are moving in the right direction on regulation. I
am very concerned, obviously, on the trade front in terms of
what we are doing there. And I think we still have a lot of
work to do in terms of reigning in government. And we will see
what the new Fed Chairman does in terms of sound money. So
there you go.
Mr. BLUM. Gentlemen, answer to can we compete without
tariffs? And if we can, how can we encourage increased
productivity, entrepreneurship, private sector capital
investment?
Mr. WETHERINGTON. I agree that tariffs are a hindrance to
our growth and improvement, not an assist. My company, we were
ready to open up a new market in Vietnam when TPP was going
through. My products receive about a 23 percent tariff when we
go there. My German competitors have none. The tariffs on
products from Vietnam coming to the United States were
miniscule, you know, 2 percent maybe. So that is the example of
we do not have very high barriers for doing trade in the United
States. Most of the free trade agreements that we would be
looking at are lowering other countries' barriers, which are
only going to help with the exports.
Mr. BLUM. Mr. Couch?
Mr. COUCH. I am trying to think through what we could do to
spur innovation entrepreneurship. That is obviously something a
lot of small businesses--it is high on their list and it is a
struggle. I wish I had a good answer. We, as a small company,
just prioritize it. I do not know if additional funding or some
sort of, again, external help would be of value, but it is one
of the highest priorities a company can have because that is
their longevity. That is how you move forward in the future. So
I do not have a good answer, but if somebody does, please let
me know.
Mr. BLUM. I am a small businessman myself.
Mr. COUCH. We are trying to figure that out.
Mr. BLUM. My answer to that would be get off my back with
excessive regulations so I am not spending time and money on
that. Get out of my back pocket with excessive taxes so I am
not spending time and money on that. And we would have some
time and money to spend then on innovating being creative would
be my answer to it.
But thank you so much. My time is expired and I yield back.
Chairman CHABOT. Thank you very much. The gentleman's time
has expired.
And we want to thank all the members here. We want to thank
our distinguished panel here this morning and now into this
afternoon for your testimony and your response to all the
questions.
There is no question that strong trade agreements make
America's small businesses more competitive and they just
continue to be a fundamental component of the United States'
trade agenda. And so thank you for helping us to better
understand this and to act on this in all different ways that
we have the ability to do that and to talk to other members who
are involved in this and the administration as well. So thank
you.
With that, I would like to ask unanimous consent that
members have 5 legislative days to submit statements and
supporting materials for the record.
Without objection, so ordered.
And if there is no further business to come before the
Committee, we are adjourned.
We are adjourned. Thank you very much.
[Whereupon, at 12:06 p.m., the Committee was adjourned.]
A P P E N D I X
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairmen Chabot, Ranking Member Velazquez, and Members of
the Committee, thank you for the opportunity to testify before
you today.
My name is Ken Couch; I am the Director of Product
Management for ComSonics and have also been the International
Business Development Director for the past four years. My
objectives as the Director of International Business
Development was to identify and cultivate new international
business opportunities for ComSonics.
ComSonics is a test equipment provider to the cable TV
industry. We helped start the first cable TV network in the
United States some 45 years ago. More specifically, our
equipment is focused on a sector called ``Proactive Network
Maintenance'' which can be summarized as equipment and services
that help cable TV operators proactively find network and in-
home cable faults that cause your TV and Internet services to
perform poorly. Our primary customers in the United States are
companies like Comcast, Charter, and Altice. In addition to
test equipment sales, ComSonics also has several other business
units. These include contract manufacturing which enables
ComSonics to produce our own equipment as well as products for
a multitude of other industries. We are proud to say that our
products are ``Made in America''. We are also a leading
services provider to the cable TV operators by providing repair
services for all types of equipment that make up the cable TV
network. ComSonics currently employs about 250 employees across
the United States with locations in Virginia, Georgia, Indiana,
and California.
ComSonics annual revenue for 2017 was $47 million. Our
revenue for international sales four years ago was hovering
around $100,000. In 2018, we expect to generate about $2.4
million in international sales. This is a 2,300% increase. Over
the last four years, we have grown our international customer
base from a few countries to over 26 countries spanning Latin
America, Europe, and Asia.
I would like to take this opportunity to testify about the
vital role that international trade programs of the Virginia
Economic Development Partnership (VEDP) and the State Trade and
Expansion Program (STEP) managed by the U.S. Small Business
Administration (SBA) have played in helping ComSonics and many
other companies achieve success in growing our international
business.
As a typical representative of a small business and one who
has been through the process, I feel like I have a very good
understanding of the barriers to starting international
business. I would summarize these barriers into the following
categories:
1. Where to start? Is there a market for our
products? How big?
2. Which countries should I target? How many? Which
ones?
3. How can I uncover business contacts in other
countries?
4. Are there any cultural differences that can impact
the business relationship?
5. What are the risks and investment requirements for
our company?
6. What are the trade barriers such as shipping and
customs?
7. What are the legal risks associated with
exporting?
8. What are best practices for getting paid,
especially from Asian companies?
9. What level of financial resources are necessary to
be successful in international business development?
Each of these barriers are specifically and systematically
addressed through the VEDP and STEP programs. Once our company
was prepared to travel based on research provided by the VEDP,
our company then was funded to be able to travel through the
STEP grant. ComSonics is proof of what can be achieved if all
of the resources are effectively used. Without the assistance
of the VEDP and STEP, I would venture to say that ComSonics
would not have been successful. The barriers listed above would
have been insurmountable if ComSonics attempted to build our
international business without governmental help.
How specifically does VEDP and STEP help a company overcome
these barriers? The general answer is that they bring all of
the needed experts and resources together in the context of
regular meetings to assist, in our case, a Virginia company
seeking to enter foreign markets. In addition, through STEP,
they provide the funding needed to help pay for these resources
that a company could otherwise not afford or would consider too
high of an investment risk. However, I believe the most
meaningful form of support comes in the form of the trade
missions that are offered to small and medium enterprises
(SMEs). These missions are the cornerstone that provide
companies with a chance to meet with perspective international
customers. While the VEDP coordinates the mission itself, STEP
is an essential part by providing funds for travel on these
missions. The VEDP international trade missions help companies
by:
Identifying prospective target markets
Providing access to in-country experts and
consultants
Identifying prospective customers within
those targeted countries
Setting up meetings with the prospective
customers
Providing translation services if needed
Arranging in country transportation
Providing funding needed for the trip
All a company must do is show up and pitch its products
and/or services to the prospective customers. I could not
conceive of a better program to help companies jump start their
international business. It is highly unlikely that any small
business could overcome these barriers without the assistance
that is provided through the VEDP program and STEP grant.
The other strength of these programs is that they bring all
of the need resources together and make them available to
companies in a one-stop shopping fashion. VEDP brings experts
and resources together that cover all aspects of trade
barriers: legal, banking, shipping, consulting. I have also
learned from other companies enrolled in these programs as they
share their experiences. Each company is assigned a VEDP
advisor who consults with them on a regular basis and helps
track their progress.
One of the most significant barriers to success in
international business is the investment of resources without
any known return. Companies often do not have the needed funds
or they are unwilling to take the investment risk. This is
where both the VEDP and STEP programs play a crucial role. For
example, China has the lure of being a very large market.
However, it is also one of the most challenging markets to
enter. Without the funding and in-country resources made
available to ComSonics, we would have never attempted to enter
this untapped market. We now have in roads to many of the cable
TV operators in China and have developed a very strong
relationship with local distributors.
The STEP grant program is also valuable in the assistance
it provided in funding companies' participation in
international trade shows. This has helped ComSonics continue
our international market growth. It is my understanding that
Virginia has been able to assist hundreds of SME's via the STEP
grants that it has received over the past five (5) years.
I do not want to leave you with the impression that every
company who works with the VEDP and STEP will be successful.
One of the key ingredients for success is that a company must
be willing to dedicate full time resources to international
business development. I have seen companies fail because they
were unwilling to ante up to compete in a global market. It
takes dedication and perseverance. I can attest that after
flying some 700,000 miles around the globe, it does take extra
effort to succeed. These elements are not under the direct
control of VEDP and STEP as they cannot do everything to help a
company be successful. However, if a company is willing to
invest dedicated resources to exporting, success can certainly
be attained. Of course, it also helps if you have a product or
service that has demand in other countries.
With respect to the changes to NAFTA and trade tariffs,
ComSonics' concerns are twofold:
- While our products are manufactured in Virginia and
do not contain large amounts of steel or aluminum, many
of our electrical components are sourced from China and
other parts of Asia. If import tariffs are placed on
these electrical components, this will increase the
cost of our products and potentially impact our ability
to compete in a global market.
- If Asia or Europe decide to raise import tariffs on
electronic equipment in response to our tariff policy,
this will also decrease our ability to compete with
international competitors.
In addition, some of our new product lines could be
affected. Much of the telecommunications and cable TV industry
are moving towards a fiber optic type infrastructure. In order
to be competitive in the fiber optics test equipment arena,
ComSonics has elected to OEM products from China for both time-
to-market and cost reasons. Our primary competitive advantage
to enter this new market is price. However, if import and
reciprocal export tariffs are imposed on these products, it is
unclear as to whether we can maintain a pricing competitive
advantage.
In summary, I would like to leave the Committee with the
following key points to consider:
1. Small businesses typically do not have the
resources or expertise to build an international
business from ground zero.
2. Small businesses tend to be risk adverse to invest
money into international markets that are untested and
unknown.
3. Without the support of programs like the VEDP and
STEP, the barriers to entry into international markets
are almost insurmountable. These programs are vital to
cultivate the success of small business to start and
grow international sales.
I want to thank the Committee again for your time, support,
and leadership on this issue. I believe that continued funding
and support of these programs are a crucial part of helping
small businesses compete in the global marketplace and, in
turn, grow our domestic economy.
Again, thank you and the Committee for the opportunity to
appear before you today, and I look forward to your questions.
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