u
PROPOSALS TO REORGANIZE THE TRADt
REUTID FUNCTIONS OF THE U.S. GOVERNMENT
Y 4. IN 8/16: T 67/7
Proposals to Reorganize the Trade R. . .
Hi^AKlNG
BEFORE THE
SUBCOMMITTEE ON
INTERNATIONAL ECONOMIC POLICY AND TRADE
COMMITTEE ON
INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTH CONGRESS
FIRST SESSION
SEPTEMBER 6, 1995
Printed for the use of the Committee on International Relations
U.S. GOVERNMENT PRINTING OFFICE
44-245 CC WASHINGTON : 1997
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-055764-X
xy
PROPOSALS TO REORGANIZE THE TRADt
REUIED FUNCTIONS OF THE U.S. GOVERNMENT
Y 4. IN 8/16: T 67/7
Proposals to Reorganize tbe Trade R...
HEAKlNG
BEFORE THE
SUBCOMMITTEE ON
INTERNATIONAL ECONOMIC POLICY AND TRADE
COMMITTEE ON
INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FOURTH CONGRESS
FIRST SESSION
SEPTEMBER 6, 1995
Printed for the use of the Committee on International Relations
'**^
>/.
U.S. GOVERNMENT PRINTING OFFICE
44-245 CC WASHINGTON : 1997
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressiona] Sales Office, Washington, DC 20402
ISBN 0-16-055764-X
COMMITTEE ON INTERNATIONAL RELATIONS
BENJAMIN A. OILMAN, New York, Chairman
WILLIAM F. GOODLING, Pennsylvania
JAMES A. LEACH, Iowa
TOBY ROTH, Wisconsin
HENRY J. HYDE, Illinois
DOUG BEREUTER, Nebraska
CHRISTOPHER H. SMITH, New Jersey
DAN BURTON, Indiana
JAN MEYERS, Kansas
ELTON GALLEGLY, California
ILEANA ROS-LEHTINEN, Florida
CASS BALLENGER, North Carolina
DANA ROHRABACHER, California
DONALD A. MANZULLO, Illinois
EDWARD R. ROYCE, California
PETER T. KING, New York
JAY KIM, California
SAM BROWNBACK, Kansas
DAVID FUNDERBURK, North Carolina
STEVEN J. CHABOT, Ohio
MARSHALL "MARK" SANFORD, South
Carolina
MATT SALMON, Arizona
AMO HOUGHTON, New York
TOM CAMPBELL, California
LEE H. HAMILTON, Indiana
SAM GEJDENSON, Connecticut
TOM LANTOS, California
ROBERT G. TORRICELLI, New Jersey
HOWARD L. BERMAN, California
GARY L. ACKERMAN, New York
HARRY JOHNSTON, Florida
ENI F.H. FALEOMAVAEGA, American
Samoa
MATTHEW G. MARTINEZ, California
DONALD M. PAYNE, New Jersey
ROBERT E. ANDREWS, New Jersey
ROBERT MENENDEZ, New Jersey
SHERROD BROWN, Ohio
CYNTHIA A. McKINNEY, Georgia
ALCEE L. HASTINGS, Florida
ALBERT RUSSELL WYNN, Maryland
JAMES P. MORAN, Virginia
VICTOR O. FRAZER, Virgin Islands (Ind.)
CHARLIE ROSE, North Carolina
PAT DANNER, Missouri
Richard J. Gahon, Chief of Staff
Michael H. Van Dusen, Democratic Chief of Sta/f
Subcommittee on I^fTERNATIONAL Economic Poucy and Trade
TOBY ROTH, Wisconsin, Chairman
JAN MEYERS, Kansas
DONALD A. MANZULLO, Illinois
SAM BROWNBACK, Kansas
STEVEN J. CHABOT, Ohio
DANA
DOUG BEREUTER, Nebraska
CASS BALLENGER, North Carolina
SAM GEJDENSON, Connecticut
MATTHEW G. MARTINEZ, California
MICHAEL R. McNULTY, New York
ROBERT G. TORRICELLI, New Jersey
HARRY JOHNSTON, Florida
ELIOT L. ENGEL, New York
Edmund B. Rice, Subcommittee Staff Director
John Scheibel, Democratic Professional Staff Member
Christopher Hankin, Professional Staff Member
ALEXANDER Q. SCHMITZ, Staff Associate
(II)
CONTENTS
WITNESSES
Page
The Honorable William Brock, former United States Senator, U.S. Trade
Representative and Secretary of Labor 17
The Honorable Clayton Yeutter, former U.S. Trade Representative and Sec-
retary of Agriculture 19
The Honorable Donald Bonker, former Congressman and Chairman, Sub-
committee on International Economic Policy and Trade, House Committee
on Foreign Affairs 22
Mr. Allan Mendelowitz, Managing Director, International Trade, Finance and
Competitiveness, General Accounting Office 40
APPENDIX
Prepared statements:
The Honorable Toby Roth, Chairman, Subcommittee on International
Economic Policy and Trade 47
The Honorable Donald A. Manzullo, a Representative in Congress from
Illinois 48
The Honorable Sam Gejdenson, a Representative in Congress from Con-
necticut 52
The Honorable Doug Bereuter, a Representative in Congress from Ne-
braska 55
The Honorable John Mica, a Representative in Congress from Florida 57
The Honorable Dick Chrysler, a Representative in Congress from Michi-
gan 61
The Honorable William Brock 66
The Honorable Clayton Yeutter 71
The Honorable Donald Bonker 78
Mr. Allan I. Mendelowitz 84
Additional material submitted for the record:
Letter to the Honorable Donald A. Manzullo from Mr. Allan I.
Mendelowitz 110
Letter to the Honorable Toby Roth from U.S. Secretary of Commerce,
Barbara Hackman Franklin 129
(III)
PROPOSALS TO REORGANIZE THE TRADE-RE-
LATED FUNCTIONS OF THE U.S. GOVERN-
MENT
WEDNESDAY, SEPTEMBER 6, 1995
House of REPRESE^^^ATIVES,
Subcommittee on International Economic Policy
AND Trade,
Committee on International Relations,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:02 a.m., in
room 2172, Raybum House Office Building, Hon. Toby Roth (chair-
man of the Subcommittee) presiding.
Mr, Roth. Well, the hour of 10 a.m. has arrived and we have a
very important hearing this morning. We have a number of very
distinguished witnesses with us today. And I know all of their time
is valuable, so let us move forward expeditiously.
Our witnesses will summarize their testimony and then we will
have the question and answer period.
The focus of today's hearing is very specific: As the House moves
to dismantle the Commerce Department, the question becomes
what should be done with the trade functions. Should they simply
be transferred to the U.S. Trade Representative, as Congressman
Mica has proposed, or should we go further and reach across the
government and consolidate the dozens of trade functions and
agencies into a new department?
These questions have an added urgency because of our persistent
and worsening trade deficit. Last year, our merchandise trade defi-
cit was $160 billion, the worst in history. And this year we are
headed toward a $200 billion merchandise trade deficit, $40 billion
more than last year.
We must organize our trade programs with the clear understand-
ing that the Federal Government has a critical role in helping
American exporters compete in global markets.
Today we have with us some of the Nation's most experienced
and thoughtful trade leaders. Bill Brock has served with distinction
in the House and in the Senate and as Labor Secretary and as our
U.S. Trade Representative. And Clayton Yeutter has had a distin-
guished career in a variety of posts, including Secretary of Agri-
culture and our Trade Representative. For many years I have also
worked with him.
We also have with us Don Bonker, who was in charge of this sub-
committee for many years. I welcome his return here to Capitol
(1)
Hill, and I also well remember our 1983 ambition to create a De-
partment of Trade.
And incidentally, all three of these distinguished witnesses have
been with me to Appleton or Green Bay, Wisconsin to our Export
Conference. And we have our big Export Conference again this
year, a week from Friday, and we are expecting some 1,070 people
at the conference. So I am excited to have them here for many rea-
sons.
Also, from the Greneral Accounting Office we will have Allan
Mendelowitz who has spent years analyzing what works and what
doesn't work in trade programs. It is great to have Allan with us
as well.
To lead off, however, we have three of our distinguished col-
leagues coming back to Capitol Hill early. As you know, we will not
have votes imtil after 5 p.m., but they came back early last night
to be with us today.
Dick Chrysler is here, whose bill to dismantle the Commerce De-
partment will be marked up here next week. We also have John
Mica with us, who has introduced a very thoughtful bill to move
the Commerce Department trade functions to the Trade Represent-
ative. Don Manzullo, chairman of the Small Business Committee's
Trade Subcommittee and an active Member of this subcommittee
joins us as well.
Congressman Gejdenson should be with us shortly. He is flying
in from Connecticut for this hearing.
For those who have worked with us over the years to strengthen
the trade programs, this may be our best, and last, opportunity to
make the fundamental reforms that we have been thinking about
and debating and cogitating over for a long time. In the interests
of our exporters and our Nation's trade posture, I want to make the
most of this initiative. I have spoken with Congressman Oilman
and Speaker Gingrich and others about these initiatives. We want
this hearing to go to the big markup on September 12th. From
there we will be able to take this legislation to the floor or take
a look at how we can roll it into reconciliation.
Issues we hear about this morning at this committee are going
to be moved to the Full Committee and also to the Speaker's office.
I want the witnesses to know that their testimony this morning is
going to be very important, not only for this committee, but for the
entire Congress.
With that, I think we will start with Mr. Manzullo. Then we will
go to Mr. Mica and then Mr. Chrysler.
Chairman Manzullo, please proceed with your testimony.
Mr. Manzullo. Thank you, Mr. Roth. It is a pleasure to be here
this morning.
I represent the 16th Congressional District of Illinois, which
stretches across the top of the State from the Mississippi River all
the way over to the county that is next to the one which touches
Lake Michigan.
Rockford is the center of that congressional district. Our district
has in excess of 1,500 factories. Rockford alone has 980 factories.
It is a city of less than 150,000.
Rockford is responsible for the exporting of 15 percent of the
United State's share of tool and die. It is an incredible exporting
city. And so my interest here today is more than academic. It is
directly related to the creation of jobs not only in the district that
I represent but in this Nation.
Tne commitment of the congressional leadership to dismantle the
Department of Commerce will create an historic opportunity to re-
organize the trade functions of the Federal Government. Earlier
this spring, I began to hold a series of hearings on the Export Sub-
committee I chair on Small Business regarding the appropriate role
and function of Federal export promotion programs.
First, I brought in the principle players in the Administration
who promote commercial exports to explain and justify their pro-
grams. Because agriculture receives over half of export promotion
funding, I held a second hearing specifically focusing on farm ex-
ports. I asked several academic experts who do not participate in
any of these export promotion programs to comment on the merits
or pitfalls of these programs. This hearing included the General Ac-
counting Office.
Finally, several small- and medium-sized businesses testified at
my fourth hearing to explain how these export promotion programs
have helped to create and sustain jobs in their company. I also in-
tend to hold another hearing on private sector resources that pro-
vide export information.
What did the Subcommittee learn from these hearings? First, the
Federal Government has an information-providing and advocacy
role in export promotion. This is not corporate welfare because
these programs are open to all businesses. The government does
not pick winners and losers. The key is getting the word out that
these programs exist and making them work better.
Second, export promotion efforts of the Federal Grovernment are
a confusing mass of programs that are not fully integrated.
I submit for the record a copy of a chart prepared at my request
by the Department of Commerce of the 19 agencies involved in the
Trade Promotion Coordinating Committee.
[The information referred to appears in the appendix.]
Mr. Manzullo. This is the chart over there, Mr. Chairman. It
was the focus of an earlier hearing about 1 month ago and my con-
stituents back home refer to it as the bull's-eye. They looked at it
and said, "Do you have any idea as to how these organizations
work together?" I said, "No." I met with several of these civil serv-
ants botn in groups and individually and I am convinced that every
single one is honest, sincere, hard-working and has the best inter-
ests of this country at stake. The problem is that they are captive
of these 19 different agencies. We simply need a way to reorganize
them and make them more operational.
The GAO testified at the third hearing saying that these pro-
grams do not necessarily have to spend more money. In fact, you
can do a lot more with the proposed $3.2 billion 1996 budget re-
quest for these programs through streamlining and consolidation.
Why is it that nearly half of the Trade Development and the
International Economic Policy Office are frequently asked by the
U.S. Trade Representatives Office to focus on trade policy? Do we
need that many people in those offices?
Why do we have a separate foreign agricultural service officer
and a U.S. and foreign commercial officer serving in the same em-
bassy abroad or in the same city here at home? Why is the budget
of Agriculture's Market Promotion program at $110 milHon serving
less than 10 percent of our overall exports while the U.S. and for-
eign commercial service has a budget of $165 million serving the
other 90 percent of U.S. exporters?
It is obvious that we need to totally rethink the Federal Govern-
ment's trade promotion organization. The GAO identified five key
principles for the Exports Subcommittee in reorganizing govern-
ment: One, reorganization demands an integrated approach; two,
reorganization plans should be designed to achieve specific, identi-
fiable goals; three, once the goals are identified, the right vehicle
must be chosen for accomplishing them; four, implementation is
critical to the success of any reorganization; and five, oversight is
needed to ensure effective implementation.
I ask that the entire GAO response to my inquiry be made a part
of the record.
[The information referred to appears in the appendix.]
Mr. Manzullo. Finally, the White House Conference on Small
Business placed an unprecedented emphasis on trade, focusing on
the creation of a one-stop-shop for all government trade informa-
tion and assistance, especially for small business. That was the
11th top recommendation out of 60 from that conference.
You asked a series of questions, Mr. Chairman, in preparation
for this hearing, asking my recommendations for a restructured
Federal Trade if^ency. Like you, Mr. Chairman, I support the trade
reorganization bill introduced by my colleague, John Mica.
However, it does not go as far as I would. Like the small busi-
ness people who attended the White House Conference last June,
I want to see a true one-stop-shop for all Federal Government
trade resources.
Personally, I would like to see all 19 agencies, including Agri-
culture and export financing combined into a new Trade Depart-
ment. Why should the Commerce Department and the EPA both be
promoting environmental exports? Should the Agency for Inter-
national Development be involved in promoting trade? Why do we
need different international economic statistical gathering experts
at the State and Commerce Departments? Why does the USIA re-
ceive any export promotion funding at all?
Let me digress a second, Mr. Chairman. I received a commu-
nique from USIA wanting me to meet with an Italian Communist
who was brought over here, paid for by the USIA's International
Visitor's program. His name is Mr. Sergio Comparino, who is the
provincial director, Piedmont Region, oi the Democratic Party of
the left, PDS, of Turin, which is known as the former Italian Com-
munist Party. These are taxpayers' dollars that are being chan-
neled througn USIA under their "trade budget." I don't know why
bringing over an Italian politician helps our trade position. I do
know I was singled out to be with him because I am Italian (so is
John Mica), not because I am not a Communist, but he wants to
come over here.
Mr. Mica. And I am not a Communist either.
Mr. Manzullo. John is not a Communist either.
There may be some redeeming value in having somebody come
over here representing the former Italian Communist Party, speak-
ing to Members of Congress for the purpose of analyzing the struc-
tures and financing elections of the U.S. political party system.
I am not saying that this program has no merit. In fact, it prob-
ably has a tremendous amount of merit. But what has it got to do
with trade promotion? And yet it is part of the $3.2 billion that is
being spent by the Federal Government, spread out through 19 dif-
ferent agencies, on trade promotion.
I know that my proposal may be politically premature. For exam-
ple, I understand the historic resistance to removing the trade ne-
gotiator from the Executive Office of the President. But if we have
this comprehensive Trade Department with Cabinet-level status, it
makes no sense to keep them separate. The Secretary of this new
department would not have to resolve interagency disputes if every
one of the trade-related functions from these 19 agencies is com-
bined into this new department.
I also understand that there is historic resistance to remove agri-
cultural-related trade issues outside of the Department of Agri-
culture, but it doesn't make sense to separate the one agency that
receives over half of the export promotion dollars from this new
Trade Department. I am willing to make the sacrifice to make this
happen. This should not be a debate about preserving committee
jurisdictional turf but what is in the best interests of the taxpayer.
For example, as part of the reauthorization process for the Small
Business Administration, the Small Business Committee is pre-
pared to eliminate SBA's Office of International Trade. Small Busi-
ness people, though, must have a government resource for trade in-
formation that should be contained in a new Trade Department.
Finally, this new Trade Department should preserve a commer-
cial voice on export licensing decisions. The Bureau of Export Ad-
ministration must be part of any new reorganized trade bureauc-
racy. Turning export license over to the State or, God forbid, the
Defense Department, would further impede America's ability to ex-
port dual-use items for purely commercial purposes.
Thank you, Mr. Chairman, for the opportunity to testify before
you this morning. I am pleased to answer any questions you or
your Subcommittee Members may have.
[The prepared statement of Mr. Manzullo appears in the appen-
dix.]
Mr. Roth. Thank you, Mr. Manzullo, for your excellent testi-
mony. And I am going to ask you to keep your chart up because
I think that is a good focus for us to have. And I appreciate all the
work you have put into this, and not only this legislation but the
entire issue of trade. And we welcome you. You are doing a super
job.
I would like to welcome Mr. Ballenger, Mr. Rohrabacher, and Mr.
Martinez to our hearing. It is nice to have you all with us this
morning. I want to say that you are three of the most knowledge-
able Members we have in the Congress on this issue, so it is great
to have them with us this morning.
I am going to ask John Mica, chairman of the House Civil Serv-
ice Subcommittee and the real leader in this area on trade reform,
for his testimony.
And, John, I have always wondered why you didn't serve on the
International Relations Committee because you would be a super
person to have on the Committee.
Mr. Mica. Thank you, you are very kind, Mr. Chairman. And I
appreciate your leadership on this issue and the other Members
who are here today.
This is an important issue and I think it may really determine
whether the United States is able to compete in the 21st century
in the international trade arena.
Let me do a couple things, if I may.
I have a rather lengthy statement which I would like to submit
for the record, a formal statement.
Mr. Roth. Without objection.
Mr. Mica. Then, if I may, Mr. Chairman, I want to take the re-
maining few minutes and talk just informally about some of the
things.
You have an important responsibility to sort out the various ac-
tivities of the Department of Commerce and other Federal agencies
and I know you deal a great deal with the State Department in
your jurisdiction and try to find what functions fit properly. Mr.
Chrvsler started some of this debate by proposing the dismantling
of the Department of Commerce, and certainly it has become sort
of a dumping ground of all the various activities. Most people when
they think of the Department of Commerce think that 95 percent
of tne activities would be in promotion of business and trade activi-
ties, and quite frankly, the budget tells it all. There is about 5 per-
cent of the budget that is really devoted to trade promotion and di-
rect business activities. NOAA takes up the large bulk of the activi-
ties of that agency, followed by the U.S. Census Department and
then small activities, some of which have been attached on over the
years.
The real question that we have to ask ourselves is the way that
we are conducting trade assistance and promotion and financing,
at least from the Federal Government's standpoint; is it working?
And you can see from the chart that Mr. Manzullo has displayed
here, you have 19 agencies of Federal Government spending over
$3 billion in various trade promotion functions and activities and
some of them of a questionable nature. And I am glad Mr.
Manzullo pointed out one area under your jurisdiction, which the
U.S. Information Agency receives $28 million a year for export pro-
motion. And the Small Business Administration is another agency
that is in this area that also has a number of activities that could
be consolidated.
In your specific area, I think that you should also look at the Bu-
reau of Economic and Business Affairs which has over 2,000 offi-
cers working an economic trade, mostly data collection which his-
torically has grown up in the embassy mnction. Some of these need
to be retained. Some of these are good functions, but some of them
in fact may be duplicative as we consolidate some of the trade func-
tions.
One of the key areas to being successful in international trade
in commerce and business, and having done this with medium,
small, and large corporations, of course, is finance. And 1 think if
I had, you know, the best of all worlds in bringing together various
activities in a new trade agency, I would look at Eximbank activi-
ties.
You can cut any deal in business or in international trade if you
have financing, and that is the key to it. And we have for a long
time kept this activity separate and apart and it hasn't been part
and parcel to good trade activity. So that is another area that I
would highly commend to you.
But, I will tell, you the proof is in the pudding, if you look at
this. You ask yourself, is what we are doing working? The answer
is unquestionably no.
We have the largest trade deficit in the history of the United
States staring us in the eye this year. We are lag^ng in export in
almost every single area and almost every month in every year we
are losing in another area. So we do not have our trade act to-
gether.
How is it organized? It is organized in a disorganized, costly
fashion. And now we have the opportunity with Mr. Chrysler's bill
to dismantle Commerce with my proposal. We are not ending — I
want to make it clear, we are not ending sliced bread as we know
it. We are attempting to consolidate to do a better job, actually we
can do it by spending less.
We do retain a Cabinet-level status in the bill that I have pro-
posed. You still have the prestige and you have the access and you
have the status necessary to conduct and promote trade. And for
the first time we would consolidate and bring together, at least ini-
tially under my proposal, some of the functions that should be
brought together.
Again, in the best of all worlds, I would like to see other things
come in; finance and other activities that I think should be appro-
priately located in a trade office.
My proposal is an initial proposal. I also concur with Mr.
Manzullo that the Bureau of Export Administration should not be
transferred into State and it should go with the new trade agency.
But I think in the most part we concur with our goals, it is working
out the details, and I think we can do that working together and
be much more productive in the final work product if we all row
upstream together.
So with those comments, Mr. Chairman, again I thank you and
your committee for your leadership and look forward to working
with you on this important issue.
[The prepared statement of Mr. Mica appears in the appendix.]
Mr. Roth. Well, I thank you, Congressman Mica, for your valu-
able insight. I know that you have a lot of practical experience in
this area and we do have some questions for you, but I think we
will first ask Congressman Dick Chrysler for his comments.
Mr. Mica. Mr. Chairman, I am going to run in and out. I have
Mr. Brown. We are doing dueling hearings here.
Mr. Roth. I thought dueling had been outlawed.
Mr. Mica. Be right back.
Mr. Roth. Thank you.
We are going to ask Dick Chrysler, the author of the bill to dis-
mantle the Commerce Department, for his comments.
We will then go to questions.
Dick, thank you for being with us this morning.
8
Mr. Chrysler. Thank you, Mr, Chairman, for the opportunity to
appear before this committee to continue our discussion of the
Commerce Department dismantling. As the chief sponsor of the bill
which began this process, I am delighted that we have moved be-
yond the question of "should we dismantle the Department of Com-
merce," to the question of "how do we go about it?"
Mv previous testimony has focused largely on the reasons why
we believe the Commerce Department should be dismantled. I
know that you, Mr. Chairman, and Members of this committee are
interested today in how we put together a sensible and efficient ar-
rangement for trade policy and promotion in a post-Commerce De-
partment Federal Government.
One of the biggest questions before us in this discussion is status
of the current Office of the U.S, Trade Representative in any reor-
ganization of trade functions. Both our proposal and Congressman
Mica's would consolidate USTR and certain International Trade
Administration functions into one unified Cabinet-level trade agen-
cy.
We must recognize that a divided trade policy establishment —
USTR as the leader and ITA or its successor organization as the
"poor cousin" — is not the norm worldwide. It is wasteful, duplica-
tive and it reduces our effectiveness with our major trading part-
ners like Canada, Japan, France, and the United Kingdom, all of
which have unified and highly effective trade agencies. I am con-
vinced that we can learn from these countries.
Why do we have one agency that negotiates market access and
another that pursues those markets? Doesn't it make the most
sense for both functions to be under one roof? By breaking Com-
merce's trade functions out of this bureaucracy, by streamlining
those functions and by eliminating the senseless division that ex-
ists between USTR and ITA, U.S. businesses will end up with a
much more effective advocate and our trading partners will face a
much more formidable presence across the negotiating table. We
will then be able to compete effectively with anyone in the world.
By putting all trade policy functions under one roof as our major
trading partners do, we will dramatically increase the efficiency
and effectiveness of the entire process. And we can do so with
fewer people, at a greatly reduced expense to the taxpayers. We are
facing a situation in this government in which we must take a page
from the private sector's book and start working harder and smart-
er.
My written testimony goes into more detail as to what our plan
recommends for the individual ITA functions. Let me just say now
that I believe we should concentrate our limited trade promotion
resources on those activities that do the most good, like the foreign
components of the U.S, and Foreign Commercial Service.
Mr. Chairman, the private sector in this country has been under-
going a process of slimming down, which is temporarily painful but
whicn ultimately strengthens the economic competitiveness of the
United States. The voters of my district sent me here to help bring
about a similar process in the Federal Government.
We have a tremendous opportunity this year to start down that
path by dismantling the Commerce Department and consolidating
the international trade functions into a unified, small and effective
trade agency. Not only do we end up with a more efficient trade
policy process, but the Congressional Budget Office has indicated
that our plan would save American taxpayers almost $8 billion
over the next 5 years.
As a result of this process, I am confident that we will end up
with a trade policy and trade promotion structure which speaks
with one voice, is less costly to the taxpavers and is more effective
in responding to the complexities of today s trading environment.
Thank you.
[The prepared statement of Mr. Chrysler appears in the appen-
dix.]
Mr. Roth. Well, thank you, Con^essman Chrysler, and we want
to commend you for the leadership that you have shown in this
area and for being the real vanguard.
We have talked a lot about cutting back the size of government
agencies and so on, but this is the first real initiative, so we tip
our hat to you for that.
Mr. Chrysler. Thank you, Mr. Chairman.
Mr. Roth. And I have a number of questions, but I think what
I will do is I will go to Mr. Rohrabacher for his questions and then
we will go to Congressman Martinez for his questions and com-
ments.
Mr. Rohrabacher. Thank you, Mr. Chairman.
The first question I have is where, as you fellows have focused
on this more than I have this year, is there a difference between
encouraging exports in terms of the structure and subsidizing in-
vestments?
Just a casual look at this, it seems to me we have intertwined
the concepts of investment overseas and exports overseas, which in
the end leaves the United States with a big minus if we are encour-
aging people to invest their capital overseas, which ends up creat-
ing businesses that compete with our own businesses, and in fact
cutting off markets for our goods. And isn't there some kind of
intertwining concept here that is working against the benefit of our
people?
Mr. Manzullo. Dana, when I started analyzing the different
functions in this chart, I guess one of the things that really bothers
me is I am beginning to understand it. And I didn't think my mind
was that complex.
Mr. Rohrabacher. That is what you live in, the chart.
Mr. Manzullo. What is interesting about it is the fact that the
people that prepared the chart know up here mentally how they
want to work within these boundaries. We talk about the difference
between encouraging and subsidizing exports. Take one of those or-
ganizations. Take the TDA, the Trade Development Administra-
tion. It has a very small budget, about $50 million. It only has
about 35 employees. And what they do is they go into areas in the
world where we are invited as "the U.S. Government" and draw up
plans and specifications for projects which conveniently can only be
fulfilled by American manufacturers. It is very professional and
they know what they are doing.
And I believe there is a tremendous role for the Federal Govern-
ment. This is the type of area where you cannot privatize because
the background and the culture of many foreign countries is they
10
want to deal on a country-to-countrv basis. It is extremely impor-
tant that economic matters rise to the highest level of cooperation.
And in the area of subsidizing, take OPIC, the Overseas Private
Investment Corporation, which actually makes money. OPIC
makes anywhere between $96 and $132 million a year. It is a
money-maker. I don't see how that could be privatized, and you see
it shows up in the budget. The budget request for this year, budget
request, is minus $96,500,000.
So, you know, the United States does have an integral and active
role in trade promotion. And I think these two types of examples
show. No. 1, we are not talking about corporate welfare; No. 2, we
are not talking about any type of a subsidy. What we are talking
about is utilizing the prestige, the power, and the reputation of the
Government of tne United States of America to become actively in-
volved, and in the case of TDA, at the request of foreign govern-
ments.
Mr. ROHRABACHER. You see, I don't think there is anything
wrong with the U.S. Government — after all, these businesses pay
a lot of taxes — ^helping them open up markets and perhaps going
into a country and helping them set standards that would facilitate
the sale of U.S. products.
I am going to take a much closer look at this than I have so far.
But it seems to me just the look that I have taken, it appears that
we are actually encouraging not someone to invest in order to set
up a company to sell American products, but instead we are actu-
ally in a situation where we are encouraging American manufac-
turers to invest in the country not to set up the sale of American
goods but instead to set up a manufacturing.
Mr. Manzullo. That is fine, because one of the reasons for doing
that is for many companies, unless they manufacture overseas, it
doesn't pay for them to export, and you still maintain mostly the
research and development here stateside.
Mr. ROHRABACHER. I don't think the American worker who is
being taxed to pay for that thinks that is a good deal. The Amer-
ican people are the ones that are paying the taxes and end up pro-
viding that service. I don't think providing the service to create a
new manufacturing unit in order to compete with American jobs
here is a wise use of our tax dollars.
Mr. Chrysler, You are absolutely right on the money here. This
is exactly why we need these 19 different Federal agencies consoli-
dated into an Office of Trade, because the right hand doesn't know
what the left hand is doing and we are doing this on one side and
doing this on the other — and certainly Don is absolutely correct, ex-
cept we need to go a little step further. You know, we need to make
this Office of Trade the most dynamic trade organization that the
world has ever known so we can compete with our trading part-
ners, which means we need to be in these countries earlier than
we are. We need to be writing the specifications for the infi-astruc-
ture so maybe only American companies can bid on those things
because they are written with American specifications.
Mr. ROHRABACHER. Let's take a look at infrastructure, which you
just mentioned. I am a little bit concerned. I wouldn't mind at all
if the American Government gets involved with these other coun-
tries and help set up specifications so that American companies
11
could go in and help build the infrastructure. But why should we
have government agencies using tax dollars to subsidize?
Am I going over my time?
Mr. Roth. Go ahead and finish your question.
Mr. ROHRABACHER. Why should we have the taxpayers of this
country basically ofiFering Federal guarantees for our own compa-
nies to go in and build the infrastructure of another country? That
is basically not reallv an export. That is really a gift. If we are pro-
viding a guarantee for a loan, we are providing that infrastructure
in that country. Well, I don't know if anybody has looked around,
but we need a lot of infrastructure improvement in our own coun-
try.
Mr. Manzullo. Dana, if I may answer that?
OPIC has a mandate that it cannot lead to any U.S. job loss.
They are in the business of guaranteeing these investments abroad.
OPIC cannot lend to any type of a situation that would result in
a U.S. job loss.
Mr. RoHRABACHER. But see, you know, if we have a government
agency providing either direct mnds or loan guarantees in order to
build a bridge or an electric plant or a sewer system in, let's say,
some wonderful country like Vietnam, or other countries — it could
be any other country in the world as far as I am concerned, but
Vietnam is probably the best example of where we shouldn't build
their infrastructure. We have a lot of infrastructure needs in our
country and is this considered — Dick, is that considered an export
that — should we be promoting that? We are building other coun-
try's infrastructures and basically taking on all the risks ourselves,
is that a legitimate use of our dollars?
Mr. Chrysler. Especially the major companies that have, quite
frankly, major departments within those companies that can go in
and assess the risks of them doing that and, you know, if they as-
sess the risk, as any good business should — go in and assess the
risk and if they can say we can spend, you know, $2 million over
here putting their infrastructure in or, as you indicate, do it right
here in our own country, then let's make the right business deci-
sion and let's do it right here in our own country.
Mr, RoHRABACHER. Mr. Chairman, I don't want anyone to get the
impression that I am against American companies going over and
working on building infrastructure in other countries. That is not
what I am suggesting. But what I am suggesting is it is not an ex-
port unless those companies are doing so at their own risk and
those other countries are actually picking up the bill. Otherwise,
we are just talking about foreign aid and giving away money that
should be used building our own infrastructure.
Mr. Chrysler. Dana, I will just say that it is not a big govern-
ment and/or big government programs and/or big government regu-
lation that built this into the greatest country in the world. It is
free enterprise, capitalism, entrepreneurship, rugged individuals
taking those risks is what built this country into being the greatest
country in the world.
Mr. ROHRABACHER. Thank you, Mr. Chairman.
Mr. Roth. Thank you, Mr. Rohrabacher, for your excellent ques-
tions. All of your questions focused on what will be discussed on
September 12th.
12
I am going to ask Mr. Martinez for his questions, and it is inter-
esting that both Members here this morning are from CaHfomia.
Mr. Martinez. I am going to suggest that is the reason why I
agree so much with what Mr. Rohrabacher has just said, because
we are both from California and we have seen a tremendous down-
turn in our economy in Cahfornia. It doesn't look like it is going
to rectify itself anytime soon.
I am going to take off on what he said, but before I do that, I
agree with the idea of consolidating all of the different trade situa-
tions under one roof and having one Trade Representative. I al-
ways believed that when you divide them up that way and you
don't have someone at the head of it that is really a hard bar-
gainer, we end up with lousy trade agreements, and it is our fault
for ending up with trade agreements that are disadvantageous for
us.
He mentioned the idea of investments of the United States going
to foreign countries and investing in their infrastructure when our
infrastructure is decaying badly, investing in their economy by cre-
ating jobs there, building products. And you mentioned that OPIC
has this guarantee that anything they are involved in will not cre-
ate job loss. Well, maybe OPIC isn't involved in anything, but I will
tell you — take Procter & Gamble, for example, they go to Mexico
and build their products down there.
They do sell in Mexico, but they ship a lot of what they sell back
here, and we don't get a reduction in the price of goods that they
ship back here because they got a reduction in the wage scales and
the benefit packages down there which allows them to produce
cheaper. They just widen their margin of profit, that is all, and bal-
ance their books that way.
The same thing with Van Heusen, Van Heusen in Hong Kong.
One thing about Hong Kong is I am not going to complain too
greatly about them because they buy most of their raw materials
from us and their trade imbalance is one of the smallest that we
have in the Pacific Asian Rim, and so I am not too unhappy about
that. But it is still their products and their labor that controls the
price of the product which causes Van Heusen to make that much
more money when they send those same Van Heusen shirts and ev-
erything else into this country and are sold here at that top pre-
mium price, because that name and that label mandates that they
can get that price.
The problem here is that we don't have enough control. I do not
agree with abolishing the Department of Commerce. There are a
lot of activities in the Department of Commerce that are important,
including the coordination of anything that they do to encourage
exports from U.S. business, because they are really representing
U.S. business and they should have somebody in the White House
that has a voice for that U.S. business here, especially in those re-
lated areas.
Now, if you want to coordinate that with one of those agencies
that you consolidate into one U.S. Trade Agency, fine, but I still
think that the Department of Commerce is going to need some role
in there, and that the Department of Commerce, for all of the other
functions it does that are domestic in nature, still needs to be
there. And I don't think it is a good idea to abolish it.
13
But the fact is that I think that some help has to be given, I
agree with that, that tries to protect those investments by provid-
ing insurance for them so that when they go into governments that
are unstable — ^because governments in most of these countries are
unstable that we are trying to help and you don't know what is
going to happen.
I will give you a good example. In Chile, you know, AT&T went
in there and developed all their networks of telephone systems, and
then they nationalized and took it all away from them and they
didn't get a penny. They are suing in the Federal courts to try to
recoup the loss. There are other situations like that. So I think that
we really need to look very closely at what we are doing there in
that regard and what we do invest.
But I am like Mr. Rohrabacher, I don't believe that American tax
dollars should be used to subsidize businesses that are going to
send those products back to the United States to compete with
these products, and they are doing it.
Toys "R" Us. Toys "R" Us moved from the United States to Can-
ada. It didn't work out for them in Canada because their labor
market wasn't suited to their style of production. They moved to
Mexico. That was even worse. And then they moved to Hong Kong.
Now, after all of this movement, they in the last go-around with
the Free Trade Agreement decide that, hey, they will move back to
Mexico if they make a Free Trade Agreement. Now, look what has
happened with that Free Trade Agreement with Mexico with the
kinds of corrupt government — immediately after the Free Trade
Agreement and the new President took over, there was a collapse
ot the peso, which they knew was coming before. They knew it was
coming when they were entering into this Free Trade Agreement.
Meanwhile, they are not honoring the Free Trade Agreement in
both ways.
UPS still has to go to the Mexican border and change from their
big semi's into the Mexican semi's to deliver their point-of-origin
and point-of-delivery in Mexico. The only thing they can operate is
a small truck. This was supposed to open it up. Now the Mexican
trucks can come across and deliver. That is not free trade and that
is not working both ways.
So I think there is a lot of work we need to do, and rather than
worry about micromanaging the Department of Commerce and dis-
turbing that balance that is there, we ought to maybe be con-
centrating on this one bill that Mr. Mica has that will consolidate
this and give the power to one person that will report right directly
to the President.
I think I talked to you, Mr. Roth, some time ago about the need
to do something about our trade and trade agreements and the way
we cause trade from our companies with otner countries, because
we are getting the short end of the stick.
Mr. Manzullo. Matt, I agree with you. And what your state-
ments all indicate is the fact that there has to be some type of a
coordinated policy. You can't do that when it is fractured through-
out 19 different agencies.
Let me also add this. We are in a war with the Brits, with the
French, the Germans, and the Japanese in the technological revolu-
tion going on around the world. Sure, we have infrastructure needs
14
here in our country but, in terms of subsidizing infrastructure, I
think it would be a good investment for us to get involved in build-
ing bridges in Vietnam. If anything, we are going to be using
American engineers, technology and prowess to export that type of
technology. That will help out our trade balance.
The areas that I would like to see the U.S. Government involved
in is in areas such as TDA and OPIC. I voted against the Market
Promotion Program, and I represent an area that has a heavy agri-
cultural base. Stephenson County is the No. 1 dairy county in the
State of Illinois. That is in the district that I represent.
I oppose those types of direct subsidies. But on the other hand,
we have to recognize to the extent that we have statistics and tech-
nology and the power, the name and the prestige of the U.S. Gov-
ernment available, we have to be actively involved on every front
whatsoever.
Now, Vietnam, I realize that there are philosophical problems
there. My understanding is that is the eighth largest worldwide
market. China has 300 cities in excess of 1 million people. Only 25
percent of those cities have airports. And when the Consular Gen-
eral from China came to Rockford last year, he said it is the goal
of the Chinese Government to build 300 airports.
That should make your mind blow up. To think of the extent of
the U.S. commerce that can be involved in that, we have to get our
trade agencies in order to be on the cutting edge to be able to move
in and help China with the infrastructure, not through subsidies.
Mr. Roth. Mr. Chrysler, were you going to add something?
Mr. Chrysler. I was going to invite Matt to join us and help us
in our effort certainly to create the Office of Trade and dismantle
the Department of Commerce. Less than 4 percent of the Depart-
ment of Commerce has to do with trade. The major lead role in
that is the USTR, and the major dollar component is agriculture
with about 74 percent of the trade dollars. In getting that consoli-
dated and certainly from the Department of Commerce standpoint,
60 percent of the Department of Commerce has absolutely nothing
to do with commerce. It is kind of like your hall closet where you
throw everything that doesn't have anyplace else to go. And it real-
ly has become a burden to the American taxpayers, producing very
little results.
And as we look at these belt-tightening times, as we look at try-
ing to get our American taxpayers a better bang for their buck, cer-
tainly we can save about $8 billion for them by dismantling the De-
partment of Commerce and still do a very effective job in the area
that Commerce does help. And I think that is what the American
taxpayers are looking for, for all of us here in Congress to do a bet-
ter job and spend their money a little more wisely.
Mr. Martinez. Just let me respond.
Mr. Chrysler, I have been here a while now and I have dealt
with the Department of Commerce before Ron Brown was ever
there or anybody else — and he may be the target of this, I don't
know — ^but the fact is that there are agencies within that Depart-
ment of Commerce that do do a lot of good and I have seen it, espe-
cially in the communities like I represent, a great part of L.A., and
probably in the district that Mr. Rohrabacher represents, too, there
15
is a lot of good that has been done that you evidently are not aware
of.
I would invite you to join me to have a meeting with the Sec-
retary to show some of those things that have been done in those
areas in the way of economic development, in the way of minority
development in businesses, and a lot of the advance in the tech-
nology and administration which has launched a lot of things.
I think there is a lot there that has to be saved and should be
saved. I think as you move this through, you find people, whether
it is imder that kind of structure that we are talking about now
or some other, who want to save those particular projects that are
worthwhile saving.
Mr. Chrysler. And we have been looking into those and find
that less than 25 percent of the Department of Commerce's budget
is really spent in an area that really does do some good; 75 percent
does not. And I think that is what the American taxpayers are tell-
ing us to take a long, hard look at.
Mr. Roth. Let me just sort of piggyback on what Mr.
Rohrabacher and Mr, Martinez have asked. I see this debate com-
ing down to one of three approaches.
Mr. Manzullo, because you are experienced in Small Business
and have looked at the chart, in your view, what is the best way
to organize these trade functions? One, should we fold them all into
the USTR; two, shall we keep the USTR separate and set up a sep-
arate trade agency; or three, set up the Department of Trade which
includes everything?
Mr. Manzullo. Toby, I believe the last option is the best. It is
extremely important to keep the U.S. Trade Office at a Cabinet-
level position. It is absolutely essential not only for the recruitment
and retention of high civil service workers but also in terms of
overseas prestige. Every major country makes sure that there is a
trade representative that sits at the equivalent of a Cabinet level.
Second, maybe I don't share the zeal to "dismantle" a department
that some of my Republican colleagues do. But I do share the zeal
with Mr. Chrysler to save money and to make our trade promotion
activities more beneficial, not only to the taxpayers but also to the
companies and individuals that are served.
I think we need one trade organization folded into what would
be four functions: first would be the trade promotion, streamlined;
second would be the USTR's office; and third would be financing.
And, fourth, licensing controls.
So I think we can make it a lot more simplified. Whenever an
issue comes up, for example, the Department of Transportation or
Department of Energy or EPA get involved in something overseas,
they can either borrow an employee or use the expertise available
from the Trade Department in order to accommodate that mission.
I just think it is going to make things a lot easier for trade in this
country.
Mr. Roth. Congressman Chrysler, how would you respond to the
trade functions, and are they badly disorganized? Would you sup-
port consolidating these functions into one agency or should that
agency be run by the USTR? Should they be kept separate? What
is your view on that?
16
Mr. Chrysler. Well, there are 19 different agencies in the Fed-
eral Government that currently deal with trade, and what I would
see is creating one Office of Trade with a negotiating arm, an ex-
port arm, and an import arm. And under the export and import
arm there could be the advocacy groups and the financing groups —
I think that is what we really need to do in this government, is just
create one agency with one head, three different areas of expertise,
and certainly again under the export and import arm there would
be the licensing requirement.
Mr. Roth. Well, I want to thank our panel for their excellent tes-
timony and their frank and candid responses to the questions. I
think that we just have to answer one question that was brought
up by our good friend. Matt Martinez, when he had mentioned why
are we doing this.
This is no vendetta. We are doing this because on the campaign
trail we Republicans said that our government has gotten too big
and the government costs too much. In the past, we have empha-
sized downsize and we are now following through on that commit-
ment. That is, as I see it, the real underlying philosophy of this
particular legislation.
Is that correct, Mr. Chrysler?
Mr. Chrysler. That is absolutely right on the money.
Mr. Roth. Thank you very much.
Mr. Bereuter. Mr. Chairman, would you yield?
Mr. Roth. We are joined by Congressman Bereuter. I am sorry.
Let me defer to you.
Mr. Bereuter. I'm sorry to be late. I just returned from my dis-
trict. I want to commend Mr. Manzullo, Mr. Mica, and Mr. Chrys-
ler for their testimony. I will try to catch up on what has been said
and the questions here, and thank you very much for your special
interest.
I look forward to the next two panels as well and, Mr. Chairman,
I ask unanimous consent that my opening statement be made a
part of the record.
Mr. Roth. Without objection.
[The prepared statement of Mr. Bereuter appears in the appen-
dix.]
Mr. Bereuter. And I yield back.
Mr. Roth. It is good to have you with us this morning. Mr. Be-
reuter.
Let me call our next panel of three verv distinguished witnesses:
Bill Brock, Clayton Yeutter, and Donald Bonker. I can't think of
three more able, experienced and insightful people to advise us on
what we should do in this situation.
Bill Brock is a friend of mine. He was one of the first people to
come with me to Green Bay when we had our meeting on the Ex-
port Conference. He served in the House and Senate and with dis-
tinction as President Reagan's Trade Representative and Secretary
of Labor. He now heads his own firm as an international trade con-
sultant and he has talked a great deal about these issues and how
to reorganize this government. It is great to have him with us.
Mr. Roth. Clayton Yeutter, who has also been with us at our ex-
ports conference, is here with us this morning. He has served as
Agriculture Secretary and it is great to have him up in Wisconsin
17
with our great dairy farmers. He has been a Trade Representative
and counselor to the President in the Reagan and Bush Adminis-
trations, and he knows more about these issues than anyone I can
think or, and Don Bonker, who also, incidentally, was in Appleton,
Wisconsin, with Bob Dole for our trade conference a number of
years ago, is here as well. He served in the House for 7 years and
he was chairman of this subcommittee. I was privileged to serve
with him. He now manages a leading international business con-
sultant firm.
Don, it is great to have you with us here this morning, I think
what we will do, like in the last panel, we will ask the witnesses
to give us their testimony, then we will move to the questions. We
will start with Mr. Bill Brock.
STATEMENT OF HONORABLE WILLIAM BROCK, FORMER UNIT-
ED STATES SENATOR, U.S. TRADE REPRESENTATIVE AND
SECRETARY OF LABOR
Mr. Brock. Thank you, Mr. Chairman. I am going to summarize
my prepared text, but let me begin by expressing my gratitude for
your willingness to take on a tough subject. It isn't easy. Govern-
ment reorganization draws more yawns per hour than almost any
subject in Washington, and yet it is important, it is really impor-
tant, so I appreciate the fact that you are doing it. I am going to
try to do two or three things today.
First, I want to talk about trying to put this conversation in a
larger context of government re-organization; second, to discuss the
department; third, look at it in the context of trade policy, and last,
I would like to make a suggestion about the economic functioning
of government, and I want to just kick off that by responding be-
fore I get to this subject of reorganization to something that was
said earlier today.
The question was asked by an earlier panel member, "Is what we
are doing working?" The answer given was obviously no. And then
the conversation sounded as if what we are doing is not working
because of the trade organization or the trade policy of government,
and I want to vigorously disagree. I think that is fundamentally
wrong.
It is important that we organize government to be as effective as
we can, but it is also important to imderstand the underlying pred-
icate of our competitive strength in the world. We are not competi-
tive in some areas. We have a trade deficit primarily because we
don't save enough money in this country because of our tax policy
and our regulatory policy and the intervention of government be-
tween market forces that would otherwise operate with greater effi-
ciency.
We don't educate our children adequately, and until we do, we
are not going to have a work force that is able to compete on the
basis of cognitive skills instead of muscles. So I want to just lay
that out as a beginning predicate. This conversation is important,
but trade policy is not going to save this country from a trade defi-
cit unless we deal with tax reform, regulatory reform, and edu-
cation reform, because those are fundamentals.
I have testified earlier before another committee on merging the
Departments of Education and Labor. I would say essentially the
18
same thing today, that I would say there. It is difficult to look at
organizing or changing the character or eliminating one depart-
ment unless you look at the whole context of government.
Back in the early days of President Nixon, back in the early
1970's, we were looking at the reorganization of government along
functional lines, the substantial reduction in Cabinet level depart-
ments, not just to save money but to make sure that we were not
trying to create a government that was not organized under con-
stituency groups, but rather on functioning.
Today we have the Department of Commerce for business, the
Department of Education for Educators, the Department of Agri-
culture for agriculture. Veterans Affairs for veterans. Is that really
the way you should organize a government today in a world in
which all business is having to move to a decentralized process and
moving to a horizontal management? I don't think so, so I would
first note my dissent with trying to reorganize on the basis of one
department at a time. I know the mandates you have, Mr. Chair-
man, and I am going to respond to that, but I don't think it is wise
to stop with just looking at it in this narrow sense.
Second, let me look at this Department of Commerce as it exists.
It is a hodgepodge. It is the catch place for everything that people
didn't know where else to put a particular approach or a program.
There is no reason you can't spin off organizations like NOAA, the
statistical functions under Census, agencies like that. If you do
that, then you really are diminished down to the trade function. If
you get to the trade function, I want to draw back from Commerce
a minute and look at the trade policy as it is described in law
under the act that was passed in 1962 and recall for you why we
created the department, the shop, not a department, the U.S.
Trade Office, the U.S. Trade Representative.
We did it because Treasury was running some aspects of trade
policy. State was running others. Everybody had a hand in the
thing. Nobody was coordinating, and it was not well done. The rea-
son the Congress decided to create a trade policy is because we, the
Congress, have a constitutional prerogative.
Congress does control trade, it doesn't come under the executive.
And to give it to the executive you have to delegate it to somebody.
If you delegate it to a department, you diminish it. What the Con-
gress decided to do was to put it in the Office of the President at
Cabinet level, at least later on at Cabinet level, so that the policy
coordination could span across individual Cabinets and Cabinet de-
partments and not be subject to the bias or the prejudice or the
focus of one of those departments. I think that logic applies here.
If you are going to reorganize the trade function, I would urge
you to do so by keeping it in the Office of the President. You want
to assign the trade functions present in the Commerce Department
to the USTR, fine. I question that you are not going to get to some-
what of a cumbersome operation, but I don't know how else to do
it. I would argue strongly that having it created as a department
would tend to create the sort of constituency-based organization we
have in Commerce today. I don't think that serves the national in-
terest well.
19
Mr. Roth. Mr. Brock, would you pull that mike just a little bit
closer? It would be easier to hear you. It is voice-activated. Thank
you.
Mr. Brock. Let me try to wrap up very quickly by noting, and
emphasizing what I said just a moment ago, about the way busi-
ness is reorganizing. American enterprise today is the most produc-
tive in the world. It is the most competitive in the world.
Its burden is imposed more by Washington than by overseas
competitors. We have got to understand that. If we do and if we
think about what we really need in government and don't have
today, it is a shop, an agency, a department that would advocate
the cause of American competitiveness in a future-oriented sense.
The problem of departments is they tend to get captured by con-
stituency groups, and those constituency groups are the people who
have, therefore they represent what was, not what can be.
I would love to see in the Office of the President or in a depart-
ment a group, an organization which would argue for the competi-
tive energy of this society, which means for a tax policy that was
competitive-based, not socially policy-based. A tax policy that un-
derstood that we have the dumbest tax system in the world in
terms of international competition. It is absolutely irrational.
It would argue for deregulation because only by freeing up the
competitive energy of the marketplace are we going to be competi-
tive overseas. If we can have a government that looked at the com-
petitive strengths of this country not in terms of controlling them,
but freeing them, I think you could get a very exciting process
going.
Whether you create a Department of Science and Technology or
just have a place in the department, in the Office of the President
that focused on freeing up the energy of this country, I think it
would be an extraordinary contribution. We are linked economi-
cally, we are linked electronically. The pace of change is accelerat-
ing. Government is going to be a heizard to our goals as a country,
not a contributor.
The subsidies we provide reduce our competitive strength, they
raise taxes, but they also make us dependent on government. We
ought to be getting rid of those things. Do that, free this country
up.
As I said in my text, we can't protect, but we can prepare. Focus
on education, focus on fundamentals like tax reform and regulatory
reform, and let this country compete, and we would be eating ev-
erybody for lunch. It is a much better way to go than what we are
doing right now.
[The prepared statement of Mr. Brock appears in the appendix.]
Mr. Roth. Thank you very much, Mr. Secretary.
STATEMENT OF CLAYTON YEUTTER, FORMER U.S. TRADE
REPRESENTATIVE AND SECRETARY OF AGRICULTURE
Mr. Yeutter. Thank you, Mr. Chairman. It is nice to be here
this morning, and a special pleasure to have my own Congressman,
Doug Bereuter, joining in as well.
I will summarize my prepared comments and seek to supplement
what Ambassador Brock has had to say. I would, first of all, second
his fundamental conclusion, that reorganizing the trade functions
20
of the government is not going to appreciably alter the magnitude
of our trade deficit.
If we want to appreciably alter our trade deficit, that has to be
done through macroeconomic policies — ^fiscal, monetary, tax, regu-
latory and even educational policies. At the same time, as Ambas-
sador Brock recognizes, we can do a much better job of organizing
the trade functions of the U.S. Government than we do today.
Trade reorganization is a worthwhile objective for the Congress.
As you know, Mr. Chairman, this subject has been under discus-
sion for years and years, but we have never gotten far with the ef-
fort. Typically, we have overreached a bit, trying too do too much
in the way of reorganization, and things have gotten bogged down.
This has usually occurred through jurisdictional conflicts among
congressional committees, a matter that you all are going to have
to sort out if anvthing is going to happen on this subject in 1995
(in contrast to what hasn't nappened in prior years).
Before commenting on what we might do in trade organization,
Mr. Chairman, I would like to provide a bit of historical perspec-
tive. In economic terms what we have focused on in the United
States over the last 200 years has related primarily to developing
this g^eat domestic economv of ours — our wonderful resources,
human and physical that we have between the Atlantic and the Pa-
cific, and that effort has served our country well.
But I submit to you, Mr, Chairman, that over the next 200 years
we will have to devote a lot more attention to matters outside the
borders of the United States than inside, as important as the latter
will be. Why? Because far more of our challenges and opportunities
will lie outside our borders rather than inside. That is one of the
reasons why we need to effectively organize government. Our goal
must be to facilitate and foster that "beyond the borders" effort,
and in particular the effort to expand American exports, whether
they be of goods or services. Now what does that mean in terms
of trade reorganization?
First of all, I would suggest that whatever you do, for heaven's
sakes, retain Cabinet status for whomever is in charge of this func-
tion within the U.S. Grovernment. I am a proponent of a Depart-
ment of Trade (or whatever you wish to call it), in contrast to Am-
bassador Brock's views, because I believe we need to give this func-
tion as much clout as we possibly can, domestically vis-a-vis other
departments of government and internationally vis-a-vis other
trade ministries. All major trade ministries in the world are headed
by a Cabinet member. (They are typically called ministers rather
than secretaries.) In my judgment U.S. trade will gain a bit of
extra clout, at least in terms of perception which sometimes is as
important as reality, by having it served by a Cabinet department.
Mr, Chairman, I know this is a problem for you because you are
tiying to reduce the number of Cabinet departments, but frankly
I hope you don't get too hung up on that obiective. Although it may
be conceptually important, I really think what the people of Amer-
ica are most interested in is whether or not government runs well.
Most Americans, unless they stop and add up the number of de-
partments, have no idea whether the number is 5, 10, 15 or 20. So
let's organize the government properly; I agree with Ambassador
Brock that we needdto focus on more than just trade as that is
21
done. But if one is to re-organize our trade functions, I would start
with the frontline agencies which do battle around the world, with
USTR being first and foremost in that group.
I don't see how you can have an effective Department of Trade
or an effective Office of International Trade in the United States
unless USTR is a part thereof.
Now, you will hear the valid argument that it would be a mis-
take to lose the lean, mean characteristics, and what I would call
the strike force mentality of the USTR office, and its great prestige
around the world by placing it in a Department of Trade. But I see
no reason for that to occur.
A properly designed trade re-organization should be able to pre-
serve those laudable USTR characteristics within a Department of
Trade. I would add the Eximbank and OPIC as other "front line
entities" in the new department, if you choose not to privatize
OPIC. I personally believe that one could privatize that function
and, if so, whatever it does today can be done in the private sector.
If the Congress decides not to privatize OPIC, then it ou^ht to
be part of a trade department in the U.S. Government. Eximbank
would, of course, be a critical part of our frontline activity.
Then we must have a "delivery organization" around the world
to support USTR, Eximbank, and OPIC. That entity, now in Com-
merce, is called the U.S. and Foreign Commercial Service. I would
eliminate the domestic elements of this agency, for that will save
money and those functions can be performed by State governments
or the private sector. I would retain the "foreign" part of the agency
and place it within the new Trade Department.
Then, in addition to the frontline and delivery organizations, Mr.
Chairman, we need certain support entities within a Trade Depart-
ment here in Washington, DC if it is to perform well.
From where shall they come, how large shall they be, and can
they be made effective? You already have proposals before you, by
Congressman Mica on the House side and Senator Roth on the
Senate side, that put most of the essential boxes together. I am not
terribly concerned about how you arrange those boxes; that can be
done in a variety of ways.
I am more concerned about making sure we have the boxes that
are essential. In that group I would include what is now the Bu-
reau of Export Administration, which has export licensing and en-
forcement functions. I would also include the Import Administra-
tion personnel who administer our anti-dumping and countervail-
ing duty laws. Some would say that these functions should not be
part of a trade department because of the difficult tradeoffs be-
tween negotiating open markets and the more protective activities
of import administration. I do not agree.
All departments of government have those kinds of tradeoffs. The
State Department does every day of the week. So does the Agri-
culture, a department with which I am familiar. So do other trade
ministries around the world.
Then I would put a "knowledge base" in this department, to sup-
port USTR, and perhaps the Eximbank as well. Some segments of
the International Trade Administration in Commerce would fit that
need, as might some of the staff of the U.S. International Trade
Commission. There hasn't been much discussion of that in the con-
22
text of trade reorganization, but as you know, Mr. Chairman, we
have given the USITC a lot of functions through the years that are
unrelated to its fundamental task of dealing with safeguard actions
under Section 201 of the Trade Act.
Many of these functions, it seems to me, could either be elimi-
nated, saving tax dollars, or could be moved into a trade depart-
ment to become a part of the knowledge base and support base for
that department.
I have heard arguments by Ambassador Kantor and others as to
why a trade department isn't a good idea. I have already com-
mented on having import administration in a trade department
and the tradeoffs that are involved in doing so. Those tradeoffs
exist today under the present structure, so that is not a relevant
argument against consolidation.
As to the question of USTR being an honest broker, there are all
kinds of ways to handle the interagency (brokerage) function. I
don't see that as a problem. Although Ambassador Brock makes
the point that placing interagency coordination within the White
House complex has some particular advantages, it can be done out-
side that complex too.
We had the Secretary of the Treasury chairing what we used to
call the Economic Policy Council for a good number of years, and
that worked well, even though Treasury is outside the White
house.
Putting export promotion in with trade negotiating functions is
also objectionable to some, but that is done in lots of trade min-
istries around the world. I don't see that that is a problem at all.
Ambassador Kantor said he wouldn't have time to do this job if
he were Secretary of Trade rather than USTR. I don't agree with
that either. Of course, he is busy. Ambassador Brock and I were
mighty busy when we were USTRs, too. But executive management
is a question of skill and style, and prioritization of time. So that
is not a valid argument against a trade department either.
All in all, it seems to me that there is merit in having a power-
ful, effective trade department in the United States, one that can
compete with any trade ministry anywhere in the world. If I were
in the Congress that is what I would try to create during this pro-
pitious time to do so. Thank you, Mr. Chairman.
[The prepared statement of Mr. Yeutter appears in the appen-
dix.]
Mr. Roth. Thank you very much, Secretary Yeutter, for your
comments. We are going to ask Don Bonker to present us his testi-
mony, and then we will go to some questions.
Don, it is great to have you here back in this committee room
where you were chairman for so many years.
STATEMENT OF DONALD BONKER, FORMER CONGRESSMAN
AND CHAIRMAN, SUBCOMMITTEE ON INTERNATIONAL ECO-
NOMIC POLICY AND TRADE, HOUSE COMMITTEE ON FOR-
EIGN AFFAIRS
Mr. Bonker. Thank you, Mr. Chairman, and thank you for the
invitation to be here this morning. I believe that it has been 12
years now since I sat as chairman of this committee and conducted
hearings on the subject of trade reorganization. Indeed, at that
23
time you and Congressman Bereuter were the two key people on
this committee who demonstrated a lot of leadership then, and I
am certain are doing so today, and I am pleased to see, Mr. Chair-
man, that you are now presiding and that vou will play a major
role on how Congress attempts to deal witn this very important
issue.
You will recall that in 1983 this debate was sparked within the
Reagan Administration by a colleague of these two gentlemen, Mal-
colm Baldrige, whom I believe is one of the best Secretaries of
Commerce this Nation has ever had. It was his crusade to bring
this issue, which he called the Department of International Trade
and Industry, to the public's attention. It parallels a lot of what we
have been discussing here today.
Senator Roth also introduced a trade reorganization plan, which
became known as the Roth-Bonker-Roth bill. That was the subject
of our hearings at the time but, unfortunately, the issue seemed to
disappear with the tragic death of Secretary Baldrige. It was also
unlikely that a Democratic Congress, with its myriad of jurisdic-
tions and jealousies, would ever act favorably upon such an ambi-
tious plan, so it went nowhere.
To those who now advocate reorganization of the government's
trade functions, I would like to say that there are three distinct
and separate functions that I hope will be respected in this debate.
First is in the area of trade negotiations. We have had two of the
preeminent people testify on that subject, but this is a unique office
in the White House, and indeed must be so because of the politics
of the issue and the necessary brokering that takes place in deter-
mining the U.S. position of trade negotiations.
Second, trade promotion. This is an area that is administered by
the Commerce Department, the State Department and the Agri-
culture Department. True, it is possible to reshuffle these programs
and agencies, but we should not undermine those that are perform-
ing well.
Last, what has been referred to as import administration. How
do we deal with countries that dump or subsidize to a point that
brings injury to U.S. companies and an inability to compete even
in our own domestic market? Now, to randomly disperse these re-
sponsibilities without regard to their impact on U.S. trade policy
could jeopardize America's competitive position at a time when we
are being challenged as never before.
Mr. Chairman, there is a principle I would like to pass on — that
we not try to fix something that isn't broken. We do have good per-
formers in the executive branch, and we should respect and sup-
port those programs and those agencies that are doing well. I refer
specifically to USTR and that is due in large measure because of
the leadership of the two former USTR representatives who are
here. I would also put Bob Strauss and Mickey Kantor in that cat-
egory. They have been outstanding in their respective times in that
position and I think have helped to advance America's trade posi-
tion in international negotiations.
OPIC and the Trade and Development Agency of the State De-
partment have been the unsung heroes of the U.S. trade promotion
and programs. At one time I thought we should put those two
agencies in the Department of Commerce because of the principle
24
of consolidating all trade promotion programs. That would have
been a great mistake 12 years ago, and I think it would be a mis-
take todav.
Last, the Eximbank. I remember 10 years ago it was liberal
Democrats who were trying to terminate the Eximbank and had
they succeeded, I think our trade deficit would be much higher
today.
Now, Mr. Chairman, you have been a champion of export trade,
and you have demonstrated that commitment by way of your ten-
ure on this committee, your export conferences in your aistrict is
one of the best events of this kind anywhere in the country. I hope
you will do everything in your power to convince your colleagues
to not tamper with those agencies and programs referred to above
which are doing well to keep America strong and competitive in
international markets.
Now, I would like to say just a few things about the Department
of Commerce. Indeed, NOAA and some of the other functions in
that department should be removed to make it possible for that de-
partment to focus on matters that are far more important. The Bu-
reau of Export Administration is a relic of the cold war days, but
export licensing is still needed for proliferation and foreign policv
purposes. However, it remains a major impediment to U.S. hign
tech exporters because of shared jurisdiction and the intense ri-
valry among departments that have that responsibility.
The late Senator John Heinz, I think, was right on target. An
independent agency with a board comprised of the Commerce De-
partment, State Department, DOD, maybe the National Security
Agency, should develop the policy, but have an appointed person
oversee and administer the agency.
Now, last. Commerce Department trade programs. When I was
chairman of this committee I was really frustrated with how the
Commerce Department administered these programs, and I think
it serves today as a classic example of why certain programs do not
work. For whatever reason, these programs have been pretty inef-
fective, except for Secretary Brown's high profile Buy America pro-
motional campaigns. At the ground level the Department of Com-
merce still is of negligible value to small and midsized companies
who do need assistance at times, especially when they are compet-
ing with foreign companies that enjoy government assistance.
Now, why is this so? Why are OPIC and TDA so effective, but
the programs of the Department of Commerce are not effective? I
think it is because Commerce is too large. It is too institutional-
ized. It is too bureaucratized. It lacks accountability. When the Sec-
retaries used to appear before this committee I would pose the
question— -you get |l66 million, Mr. Chairman, for trade pro-
motion. Where does it go? How effective are these export programs?
When TDA and OPIC came before this committee we saw the
track record. TDA did far more with a $3 million budget — it is now
at about $35 million — than the Commerce Department did with
$166 million.
When I left Congress I formed an export trading company in Se-
attle and have been actively engaged in trade promotion in the pri-
vate sector. Never once have I urged a client or a company to go
to the Commerce Department. So the question I pose to this com-
25
mittee is this. Are we going to make American export trade pro-
grams more effective by putting them into a super trade agency?
I think not. I think the answer is to keep them lean, to keep them
sharply focused, and to keep them accountable to the Congress,
specifically to the committees that have the jurisdiction.
Mr. Chairman, in summary, I recommend the following: That we
not eliminate the Department of Commerce; but drastically over-
haul its functional responsibilities in the trade area; that we keep
USTR an independent entity, especially apart from trade pro-
motion and trade mitigation functions; that we avoid setting up a
super trade department.
I might add that not much has been said about Agriculture, but
we haven't heard from Mr. Bereuter, either. Remember the big
issue in this earlier debate was how do you factor in Agriculture.
If the USTR is to balance the competing interests within the gov-
ernment. Agriculture must have a strong voice. And if you put
trade promotion in the same department as trade negotiation. Agri-
culture is going to be the loser.
Finally, I recommend supporting Senator Roth's new drafl pro-
posal that calls for setting up a commission that would offer rec-
ommendations by June 1, 1996, on how to restructure the executive
branch. Thank you, Mr. Chairman,
Mr. Roth. Well, thank you, Mr. Bonker. I want to thank our
three panelists this morning for their excellent testimony. I can't
remember when we had better testimony than we have nad here
this morning. I think one of the reasons is because you have actu-
ally lived through this legislation, and that is why it is so impor-
tant to have you here. You have gone through tnis. You bring a
real historical perspective.
I am going to call on the Members here in the order of their ar-
rival. Let me ask Don Bonker this question. The Chrysler bill, and
I wish Mr. Chrysler would have a chance to stay, is something that
is going to take place because of a political decision that has been
made. We are going to take up the Chrysler bill. We are going to
have a markup on September 12th.
The reason I am asking you this question, is because you and I
worked on this for so many years. In this bill, everything that deals
with export control and licensing will fall under tne jurisdiction of
the State Department. What is your opinion?
Mr. Bonker. Well, my opinion is rather mixed because the two
agencies that do best are in the State Department, but I think
again it is because they are small and they are focused. I think if
you have to transfer them somewhere, I would pick the one or two
that have a good track record and put them over there and make
them accountable to this committee, as they would be because of
the jurisdiction, but my biggest fear is that we develop a super de-
partment and allow the institutionalization of these programs.
I think that is what has happened in Commerce. Commerce has
good programs, good people, but somehow it is not getting the job
done.
Mr. Roth. Thank you.
Mr, Yeutter, if we do have a Department of Trade, who should
administer the Section 301 trade sanctions, the new Secretary or
the USTR?
26
Mr. Yeutter. Ultimately, everything that would be dealt with in
the trade arena ought to come under the aegis of the Secretary. In
other words, like any other department, whether it be Treasury or
State or Agriculture, the Secretary is ultimately responsible. He or
she would be the "trade minister" and would be the final partici-
pant in section 301 negotiations or any others that go to the min-
isterial level. But if IJSTR is part of a trade department, and if
Congress maintains its semi-autonomy within the department, we
will have one or more deputy USTRs with ambassadorial ranking
as we do today. One of those deputies will be responsible for much
of the negotiations, at subcabinet level, involving section 301 and
other issues. I don't see that situation changing from its present ar-
rangement except that we would have a Secretary of Trade rather
than a USTR at the top of that heap.
Mr. Roth. I like having vou three on the panel to talk to us
about this because you understand this. Mr. Yeutter, when you
gave your testimony, I had to chuckle to myself because you men-
tioned the House committees. Ways and Means is definitely going
to want USTR as a separate agency. Well, how is that going to
work if we keep USTR separate? What kind of advice can you give
us? This is going to be one of the nubs of this issue here.
Mr. Yeutter. Well, obviously that is going to alter congressional
jurisdiction, which means that you will quickly run into vested in-
terests in the status quo. Any changes that you make in trade reor-
ganization are going to run into the same thing within the execu-
tive branch, and even in the private sector.
What I hope Congress will do is ask: "How should we do this to
best serve the U.S. business community and the American public
over the next half century or so?"
Mr. Roth. Mr. Brock, maybe I could ask you for your comments
also.
Mr. Brock. Well, Clayton Yeutter is one of the world's great peo-
ple, and I have enormous respect for him, even when he is thor-
oughly wrong, as he is on this subject. I never lacked the authority
to act. I never lacked prestige. I was representing the United
States. I didn't have to worry about prestige.
We are the heavy in the world. We are strong. We can do most
anything we want to do, and it isn't a matter of titles. It is a mat-
ter of who we reflect and who we represent. The thought that we
would take an inept department and just simply recreate it doesn't
make sense to me, so I think putting USTR, keeping it in the Of-
fice of the President is important because I think that makes it a
super Cabinet, not a diminished Cabinet position, and it does give
it the authority as the law does to coordinate and oversee trade
Eolicy. That is important that that be in the Office of the President
ecause that is the one office in the whole executive branch that
really does reflect the broad panoply of the American people. But
what bothers me I guess more than anything else, when you create
a department that is based on constituencies, and that is what this
department would be, it will be based on those groups who have
something now who want to keep it.
The potential for this to become a department of protection is ex-
traordinary, and I don't think that works. I can't imagine this Con-
gress not reducing the number of departments and I think that is
27
one good way to do it is to do away with Commerce, keep USTR,
give it those supportive mechanisms that will enhance its ability to
negotiate, and you have done the job.
Mr. Yeutter. May I have 30 seconds of rebuttal?
Mr. Roth. Yes. We would ask Mr. Yeutter to respond for 30 sec-
onds.
Mr. Yeutter. The mutual admiration society goes both ways be-
cause I have the highest regard for Ambassador Brock, too. I would
simply say that whether or not this turns out to be an effective de-
partment depends very much on the leadership it is given. With re-
spect to the constituency arguments, we have been able to over-
come those in Treasury, and the finance ministry of this govern-
ment. If we can do it in their ministry, why cannot we do essen-
tially the same thing in a trade ministry?
Finally, for a long time, as USTR, I had the same viewpoint as
Ambassador Brock is articulating today. It was only toward the end
of my tenure, Mr. Chairman, mat I changed my mind and con-
cluded we would be better off with a trade department. Bob
Strauss incidentally went through a similar evaluation and came
to a similar conclusion, as we discussed over lunch a few years ago.
We both concluded then that even though it wasn't going to happen
soon, if we had our druthers, we would rather have a trade depart-
ment than only a USTR office.
Mr. Roth. Thank you very much. We are going to move on in
order of arrival. I am going to ask Mr. Manzullo if he has any ques-
tions. He was here first.
Mr. Manzullo. One intri^^ng question is, and I am not sure
who brought it up, was why it would be disastrous to put TDA into
the Department of Commerce. Was that you, Secretary Brock, who
made that statement?
Mr. Brock. That was Don Bonker.
Mr. Manzullo. Congressman Bonker?
Mr. Bonker. Yes, and the question?
Mr. Manzullo. The question was why would it be improper or
unwise to put TDA in with the Department of Commerce?
Mr. Bonker. The Trade Development Agency?
Mr. Manzullo. That is correct.
Mr. Bonker. Yes, because when I chaired this committee I had
jurisdiction over all these export trade agencies, and I was amazed
at the success and the effectiveness of TDA, I think because it en-
joyed some independence within the State Department. It used to
be part of AID, and this committee more or less removed it from
the Agency for International Development to give it a little more
insulation so it could be more entrepreneurial, and it is one of the
stellar performers in the government.
If you put that over in the Commerce Department, I think it
would get lost in the bowels of the — I am trying to figure out what
is wrong at Commerce because I like Commerce — but it is so large
and it is so institutional and there are so many layers that I don't
think the agency could function with the same freedom and effec-
tiveness that it now enjoys at State.
Mr. Manzullo. Maybe that should be the basis for a complete
reorganization of any trade function. Maybe all we need is OPIC
and TDA and nobody else.
28
Mr. BONKER. Well, given all the work I have had in the private
sector it comes down to three — OPIC, TDA, and the Eximbank.
Mr. Manzullo. You said, Congressman, that in your new life
after Congress as a consultant in international trade that you don't
refer any of your clients to the Department of Commerce. Could
you give us some real live examples that explain why you don't do
that?
Mr. BoNKER. Well, because in the private sector vou have got to
come through with results, and my experience has been that given
the particular needs of that client, whether they needed a feasibil-
ity study on a runway in Romania or a technical sjrmposium where
they could display what their capabilities are to a foreign buyer or
if they needed to look at foreign investment possibilities with
OPIC, they are very specific mandates that I think fit well within
what small and midsized companies need today to be competitive.
But when it comes to the Commerce Department I know the For-
eign Commercial Service does a very good job in the embassies, and
we need that because other countries do a lot more to support their
companies. One of the best things this Congress did was to take
the Foreign Commercial Service out of the State Department in
this case and put it in the Commerce Department because they
went out and hired business people to assume these positions rath-
er than foreign service officers who came up with a different set of
values, if you will. So the Foreign Commercial Service, I think,
should remain, but the Domestic Foreign Commercial Service I
don't think offers much value.
It is just that they haven't been able to develop the programs
that have value to the companies who need government assistance.
Mr. Manzullo. So if you don't turn to the Department of Com-
merce, where do you turn to for help for your clients?
Mr. BoNKER. Again, depending on its need, if it is exporting
products, mostly TDA, if it is a country where TDA has eligibility
to provide assistance. If it is investment, then it is OPIC. If it is
loan guarantees to support the export of products and services,
then it is the Eximbank.
You see, each one has a clear mandate that is easy for companies
to understand, but when we come to the Department of Commerce,
where is the mandate other than the Foreign Commercial Service?
Where is the mandate? This committee adopted the Export Trading
Company Act. Remember that, Toby?
Mr. Roth. Yes.
Mr. BoNKER. President Reagan said the Export Trading Com-
pany Act would revolutionize exports for America. For the first
time small and midsized companies could collaborate without worry
of antitrust suits to collectively market their goods. It has been a
failure. Now, I don't know if it is the concept or it is the Commerce
Department, but the program has never gotten off the ground.
Mr. Brock. Can I just respond? Why do we need all these
things? What is wrong with the marketplace? When you say where
does somebody go? Why don't you go to Chase Manhattan Bank or
Bank of America or one of our support firms that do extraordinary
consulting around the world for American business? Why is it that
somebody has to come to Washington for help to compete inter-
29
nationally? I think you can eliminate these functions and be well
served.
Mr. Manzullo. One of the hearings that we are going to have
in our Small Business Committee is going to be examining private
sector U.S. export assistance. Dun & Bradstreet has a service plus
there is Bryant College in Rhode Island that have exhaustive com-
puter banks so that on a fee basis people who wish to export have
the ability to access markets through those data bases.
Have any of you gentlemen been familiar with those types of fa-
cilities? Dun & Bradstreet also? Mr. Bonker, have you used any of
those facilities?
Mr. Bonker. I have not, and I know that the Commerce Depart-
ment wanted to establish regional export assistance centers, but I
don't think it ever got off the ground.
Mr. Manzullo. They did. There are three or four now, one of
which is in Chicago.
Mr. Brock. We have had no experience with them in our firm.
The one area where I don't think we paid enough attention or rec-
ognition to some good work that is going on, and Don mentioned
it is the Foreign Commercial Service. The people we have hired out
of business to go into embassies overseas are now doing a much
better job than we were doing 10 years ago. They are providing in-
formation, data, market analysis. Those are the things that people
really can use, laut coming to Washington for some form of subsidy
is, I think, a waste of time.
Mr. Yeutter. I would agree with that. Let me just supplement
that by saying I refer people to the Foreign Commercial Service
around the world regularly, as I do to the Foreign Agriculture
Service, because those folks often can be very, very helpful. Also,
I sit on the board of a number of companies that are major export-
ers from this country. Basically those folks can do this job on their
own. They don't really need government help at all. It is only the
small- and medium-sized companies that may be able to use gov-
ernment help, but only if it is high quality help. As these gentle-
men have been saying to you, the problem is that a lot of what we
have tried to do with small- and medium-sized firms just hasn't
been very good, hasn't been very successful.
Mr. Roth. Thank you, Mr. Manzullo. We are going to ask Mr.
Martinez for his questions. Mr. Bonker, you had mentioned in an
answer that in the private sector you have to find results, and that
is what we are trying to get the government to do, Mr. Martinez.
Mr. Martinez. Thank you, Mr. Chairman. Really, I don't know
if I have that many questions. I would say, and I would echo what
the Chairman has said, that you have provided us with a lot of in-
sight from your past experience and your present thought.
The one thing that I am concerned about that you touched on
here at the end, and Mr. Manzullo touched on here is the ability
of small- and middle-sized businesses, like in my district to some-
how find a way to export their products because I see them compet-
ing here on a local level with foreign products for that market that
is here without ever thinking about foreign markets extending, and
where the foreign commercial services are doing probably a fine job
in the embassies overseas there, there is not a link between them
30
and the information and the data base they find back to those local
communities. What is the answer?
Mr, Yeutter. If I may take one crack at that, I think most
small- and medium-sized firms, Mr. Martinez, will get more help
fi-om State government programs than they will from the U.S. Grov-
emment. Most States today that have major economies have offices
in msmy countries around the world. Those offices are there to help
exporters from their States, and many States will even provide ex-
port assistance at home if it is requested. So to the degree you need
government help, it is better off coming from the State level than
from the Federal level in most cases.
Whether the private sector is going to fill this need remains to
be seen. Perhaps it can with some of the new technology of today.
In other words, maybe somebody can make a buck by helping those
small- and medium-sized firms.
Mr. Martinez. Here again in the State of California we have ex-
actly what you are talking about. In fact, jointly with Taiwan they
opened an office in the International Trade Office, a building in
Taiwan. Still, that only covers that one country, and it may be that
the State is developed with larger trading partners where there are
viable markets for, say like California trades a lot of wine, had a
rough time breaking into the Taiwan wine market, but they did
and they export a lot of wine, and that is good for the people that
have vineyards and for the people that make wine, but the fact is
that there are a lot of little widgets being made in my district that
probably could be sold overseas to some other countries, to some of
these smaller underdeveloped countries that need some of these
products.
The only way they are ever going to be able to do that is by some
link being created between those offices of Foreign Commercial
Service and the offices maybe through congressional offices, but
somehow through an agency like Commerce, and I always imagine
that Commerce would be a good place to do that since Commerce
is supposed to be promoting U.S. business.
Mr. Bonker.
Mr. Bonker. You are on target, but the point I have tried to
make is that for whatever reason and however good the intentions,
the Commerce Department has been unable to fashion programs,
unlike the Foreign Agriculture Service which has been highly suc-
cessful to help the smaller people compete.
To the question that Senator Brock raised just a minute ago
about why should we even have these programs, I think for basi-
cally two reasons. One is that we want to level the playing field,
and insofar as our competitors, Japan, France, and others do help
their companies compete. Often that is an added advantage or that
is an advantage that makes it difficult for our people to stay in
that international market, and we should intensify our negotiations
to make sure other countries don't subsidize or support their indus-
tries and give them an unfair advantage.
Second, I think we have gone through a transition here. In the
1980's when the trade deficit all of a sudden was upon us, it was
soaring. There was a perceived inability of U.S. companies to com-
pete. We were getting our socks knocked off by the likes of Taiwan
and Korea, and there is a great rallying call, if you will, that land-
31
ed right here in the halls of Congress on how can we help make
our companies more competitive. But hopefully we are now beyond
that.
That was a 10-year period to more or less help facilitate U.S.
companies engaging international markets, but it shouldn't be a
permanent phenomenon, just so long as we can reduce the unfair-
ness that exists out there and help our companies get better estab-
lished in these markets.
Mr. Martinez. I just want to say the thing that you focused on,
Senator Brock, tax reform and regulatory reform, I think, are im-
portant. I find a lot of businesses in my area being stifled by bur-
densome taxes and licensing and requirements with OSHA and the
Air Quality Board and everything else that make it impossible even
to compete here, much less compete with some product from
abroad, so I think that is part of this whole equation that I don't
think we have concentrated on prior to this.
I hope upon your advice we could start concentrating this whole
scheme of things with all of the advice that you all have given us.
I think your testimony has been outstanding. It has been inform-
ative to me and I hope it has been informative to the rest of the
Members. As we move forward, I would almost want to substitute
you for some of the Members up here.
Mr. Roth. Easy, easy.
Mr. BoNKER. I have been there. I'm happier where I am.
Mr. Yeutter. I don't think you are getting any volunteers from
here.
Mr. Brock. It is like the man who has been run out of town on
a rail who said, "If it weren't for the honor of the thing, I would
just as soon walk."
Mr. ROHRABACHER. They had their turn, now it is our turn.
Thank you very much, Mr. Yeutter. I think that your comment
on privatizing OPIC went to the heart of the issue that I was focus-
ing on, and it is something I am going to be seriously considering
and looking at, and I would appreciate your guidance in that.
Mr. Yeutter. OK.
Mr. RoHRABACHER. Mr. Brock, why don't we go to the market-
place. I think what has happened is that American business has
become involved or encompassed in a — what is the word I am look-
ing for? Anyway, there seems to be a welfare mentality, the same
way it is when you put an individual who is a hard-working person
on a guaranteed income from the government, you destroy that in-
dividual's incentive and you destroy the individual ultimately, and
it seems to me that we have been taking on the risk for American
business and doing business overseas, and we have been taking on
that risk so much — American business feels today that they can't
invest overseas and they can't get involved overseas unless it deals
with the government with some sort of government guarantee or at
least a government subsidy of the interest on the loans that they
are receiving in order to put the business together.
So I think we have got a welfare mentality to deal with and un-
less we start dealing with that we are going to get our pants beat
off of us by foreign competition, which doesn't have that same type
of welfare mentality.
32
Mr. Yeutter. Can I make just one quick comment following up
on that, Mr. Rohrabacher? We do need to be very careful that we
do not create that kind of mentality in American business. There
is no reason for that because, as Ambassador Brock suggested ear-
lier, we are the most competitive Nation in the world today — ^by
far, in many cases.
American businesses don't need that kind of help. I sit on boards
of companies that have a lot of investment in other countries, but
which are also selling almost all of their product outside the bor-
ders of the United States. They aren't sending it back, creating the
kind of problem you were posing. They are moving it into world
markets, doing so very effectively, and doing it without any help
from the U.S. Government. I also sit on the boards of some compa-
nies that are receiving help through this administration's indus-
trial policy. They are using taxpayers' money simply because it is
available to them, and one cannot blame them for taking advan-
tage of such programs. But this does constitute corporate welfare,
for these companies would still be very competitive without such
help.
Mr. Rohrabacher. Mr. Brock, did you have a comment on it?
Mr. Brock. Take a chainsaw to it. I really do not understand
why we continue to subsidize American enterprise. They are the
best in the world, they are the most productive. We have the most
productive work force in the world. We don't need it. I made an ex-
ception in my statement on a temporary basis, and it is a reluctant
exception for Eximbank because I think the only way you are going
to negotiate an elimination of that practice in other countries is by
having an ability to meet, but I would not allow that to be done
unless it were just to meet the competitive subsidy of another coun-
try and why did we create things like the World Trade Organiza-
tion?
The whole purpose of that is to get rid of these subsidies. We
can't be hypocrites. Let's use the organization, go after the unfair
trade practice, eliminate it, and then compete without anv welfare
at all.
Mr. Rohrabacher. Often, as you know, when something starts
out with a specific purpose, bureaucracy and the special interest
groups get involved and you end up not meeting that purpose but
instead it becomes a permanent fixture.
I think your points early on about instead of having a subsidy,
providing subsidy for American businesses to do business overseas,
that we instead focus on making sure our businesses are competi-
tive through the right tax policies, regulatory policies, et cetera.
Mr. Brock. Absolutely.
Mr. Rohrabacher. We can do more good by that, and I noted
that in your testimony and agree with it totally.
Mr. Brock. All day long.
Mr. Rohrabacher. One last thing, Mr. Bonker, iust to let you
know, the 1980's was a time when there was certainly a trade defi-
cit developed but it was also a time of great expansion of American
exports, if I remember correctly. American exports incredibly ex-
panded in the 1980's, but what was the problem is that also Amer-
ican imports expanded at a higher rate and I happen to believe
that what we should then focus on necessarily is try to make — as
as
Mr. Brock was saying, let's make sure our exporters have those
regulatory policies and those tax policies that will permit them to
expand.
Mr. Brock. But the reason our imports exploded was because we
were healthy. We had the booming economy, the most booming
economy in the world and we didn't save enough money to allow
Americans to grow as fast as we should have grown in terms of our
export policy.
You can't continue to have the deficit we have got in Washington
and the low rate of savings and not expect to have a trade deficit.
It is automatic. It is going to happen. There is no way you are
going to avoid it.
Mr. RoHRABACHER. It might help then if we had, for example, a
tax system that gave benefits to people who save.
Mr. Brock. Absolutely. Yes.
Mr. Yeutter. Amen.
Mr. BONKER. This is becoming a revival. One reason that we
weren't saving a lot, we were buying all those Asian imports com-
ing into the country and I am not a defender or proponent of sub-
sidies per se, but I just want to make a couple of points. One is
that our trade deficit in 1987 was $160 billion. That was a high
watermark. And there was much written about, at the time, how
that was going to jeopardize America's economic well-being over
the long term.
Today, if you look at the projections based on current reports, our
trade deficit for this year is going to be about $160 billion. So we
are exporting more, but we are also still importing a lot more than
we should. And we can deal with this trade deficit in one of two
ways. We can either limit imports like we did in the old Smoot-
Hawley days in order to protect U.S. industries or we can export
more.
So how do we export more? One way is to follow what has been
stated here about making it possible for companies to be more com-
petitive. But we are still dealing with a world out there that is not
always fair. And the fact is that Japanese load up their embassies
with commercial specialists, if you will, to help their companies.
And the French, of course, have been using finance subsidies in
various ways to help their companies.
And the question is do we just ignore that? Do we try to match
it? Do we intensify negotiations as the Reagan Administration did
to put an end to those subsidies?
And if we don't, that trade deficit will continue to go up and it
is going to jeopardize this country's job base and economic well-
being in the future.
Mr. ROHRABACHER. Thank vou, Mr. Chairman.
Mr. Roth. Now I would like to call on Doug Bereuter who cer-
tainly has put a lot of time and energy into this area.
And, Doug, we would like to have your questions.
Mr. Bereuter. Thank you very much, Mr. Chairman.
I would say, without danger of hyperbole, the three gentlemen
before us today constitute through experience and expertise the
most knowledgeable panel we could possibly assemble on the sub-
ject of the Subcommittee today. And a special welcome to my con-
stituent and long-time friend, Clayton Yeutter, and to Bill Brock,
34
who came to Nebraska in the final 2 weeks of my campaign in 1978
and probably made the difference.
And you are responsible to some extent for my performance for
better or worse, and to Don Bonker, who I always thought of as one
of the Members of Congress who has been most knowledgeable and
thoughtful on trade issues.
Thank you for your exceptional testimony. I do have a couple of
questions before I proceed to the first, though, I wanted to just pig-
gyback on something that has been said veryr favorably about the
foreign commercial service and our Agriculture attaches. While
there are some weak people in those areas, of course, since they are
a human institution, I think by and large the only problem is we
don't have enough of these people. They are spread too thin.
I just came back from seeing some good examples of their work
lately. Mv Virginia neighbor, Dawson Ahault, for example, was in
Buenos Aires. Really, no matter how good he was, and he was,
could he reach out and serve in Uruguay also. And I think he had
Paraguay in addition to Argentina. That is just spreading our re-
sources too thin to get maximum results out of it.
Clayton, my understanding of your testimony is that you are now
in support of a Trade Department, the creation of a proper Trade
Department, and I gather that you would move the trade negotia-
tion function to that. I think all of you testified to your concerns
that whoever is responsible for trade negotiations must have Cabi-
net-level status.
Within the new Department, as you would see it, if we could get
beyond congressional jurisdictional problems, would you expect the
Secretary of Trade or Trade and Commerce or whatever it might
be called to be, in effect, the trade negotiator?
Mr. Yeutter. I would expect, Mr. Bereuter, for that person to be-
come personally involved where that is essential. An example
might be a negotiation like the one we have just completed with
the Japanese over automobiles.
In the final stages of such a negotiation, the ministerial-level
person is going to have to be involved, just as Ambassador Brock
and I were on a good many occasions when we were USTRs. So
that person is going to have to carve out some time for that pur-
pose. But as I said earlier, that is a question of time priorities.
Mr. Bereuter. Now, if in fact we do have some reorganization,
the most likely result would be that we leave the USTR as a Cabi-
net level — ^headed by a Cabinet-level individual in the Executive
Office of the President and have a newly constituted trade organi-
zation which may or may not have Cabinet status.
If you have, perhaps, a trade administrator of a new super entity
that comes largely out of Commerce but some other components —
what does that do to the effectiveness and the prestige of the USTR
knowing that in that scenario he doesn't have the full trade func-
tion behind him, it is in an administration or perhaps in a Depart-
ment?
What does that do to his effectiveness in negotiating with other
trade ministers? I would ask any of the three of you to respond to
that question.
Mr. Yeutter. Well, in my judgment, there is value in having it
all consolidated.
35
Mr. Bereuter. If that doesn't happen, then what?
Mr. Yeutter. If that doesn't happen, then it seems to me that
you clearly have to leave the USTR as your principal trade nego-
tiating official, as is the case today. If you don't consolidate, I
would keep that person in the Executive Office of the President as
he or she is today (as the USTR). In other words, don't fundamen-
tally mess with the present structure unless you go to a full-scale
Trade Department.
On the point of having the USTR personally involved, let me just
add that we shouldn't have everything coming to the ministerial
level in negotiations. My personal view is that one of the short-
comings of the present administration is that too many of their ne-
gotiations have been too high-profile. Had more of the negotiating
been done below the ministerial level, they probably would have
gotten more accomplished. That is just personal opinion, of course,
but one must always decide what is important enough to bring to
the ministerial level or, if necessary, even higher. Moving trade dis-
putes to a very high level may be good politics, but it may not al-
ways be good negotiating.
Mr. Bereuter. Either of you two gentlemen wish to comment?
Mr. Brock. I don't think. Congressman, that you would have any
diminishment. I think that is where we are today and my sense is
if you dismantle portions of the Commerce Department, which I
think the Congress is clearly going to do at least in some degree,
and leave at least the trade aspects in some shop other than under
USTR, I think that is pretty much where you are today and I am
not sure it would make much difference.
I don't think it strengthens the USTR to have them under him.
I don't think it weakens to not have it under it. The question with
USTR is how much authority does the President give to that per-
son? How much confidence does he have in that person? And if he
really does support him, as I think all Presidents have of late, you
are going to do fine.
Mr. Bonker. I think Bill Brock expresses my sentiments except
I would add that if you put USTR into a Commerce Department
or revamped or reconstituted the Department, I think Agriculture
would be left out because of the inherent biases that would come
with trying to be a promoter of manufactured goods, electronics
and so forth, while still trying to negotiate — because often these ne-
gotiations involve tradeoffs among agricultural and manufacturing
sectors, so I would keep USTR independent.
And I would say to Mr. Mica, for whom I have respect and am
pleased to see engaged in this subject — I would like to see a Com-
merce Department revamped or scaled down considerably, take all
these extraneous things out and the programs in trade that work,
like the Commercial Foreign Service, strengthen them. Those that
don't, get rid of them.
Mr. Bereuter. Thank you, Don. I certainly have the concerns
you expressed about the agricultural function and what might hap-
pen.
I have one more question I would like to pursue, Mr. Chairman,
if I might, to address to any of the three, and it relates to the dis-
cussion about export assistance to our businesses, small to large.
36
I am not very enthused about the performance I see of the re-
g^ional offices of the Commerce Department that are supposed to
provide assistance and I am not at this point able to make any
judgment about the three new regional centers, but I have low ex-
pectations about their ability, frankly.
Now, some of our competitors from export-driven economies, like
Hong Kong and Taiwan and Korea and Germany, as I understand
it, do a vaiying degree but a si^ificant amount of their economic
counseling function through quasi-private foundations.
How about turning over some of the export counseling assistance
that Commerce is now attempting to pursue to something like
these organizations? Do you have any experience that you could
bring to the table on that subject?
Mr. Yeutter. I would just start with it. Congressman Bereuter.
There is some of that going on in these other countries with some
modicum of success, I tnink, I don't see that as a big factor one way
or another. I agree with you that the domestic side of the U.S. and
Foreign Commercial Service is of dubious merit in the overall
scheme of how we spend our taxpayers' money.
I believe most companies either have figured out how to do
things on their own internationally, or they have gotten help over-
seas through the Foreign Commercial Service or the agricultural
attaches. Or they have gotten help from State Government officials,
or from business forms of other countries that are in the export
business. I think we twiddle our thumbs too much on export assist-
ance and probably ought not be spending a lot of time or money
on it.
Mr. Brock. I want to strongly agree with that. The kind of as-
sistance that we provide with the Foreign Agricultural Service and
the Foreign Commercial Service is informational. That is good and
it is important. Most of our small businesses don't know they exist,
maybe more so in the Agriculture area than they do in the business
area. But most of us don't know that is available and can be used
as a resource.
The problem with regional centers is that there are only three of
them instead of one in every town. What have you got in every
town? You have a bank. You have Andersen Consulting. You have
Baker-McKenzie. You have KPMG. You have all of these firms
whose life is in giving that kind of advice and support.
If we don't get people thinking that they have to spend 6 months
trying to find out that they are not going to get what they want
out of the Department of Commerce, maybe they will go to the peo-
ple that really can give them the support. There is a marketplace
out there and it works and I don't think we have to try to replace
it with some new function of government. I just don't think the
government is competent and I think it is increasingly less so.
Mr. BoNKER. Mr. Bereuter, I think you are on the right track.
I think what the Committee should do is an analysis of Commerce
Department export trade programs and see which merit your sup-
port and which ought to be turned over to a semiprivate or quasi-
public entity, if they have merit. And those that don't, get rid of
them.
And you have sat on this committee many years along with
Chairman Roth. And I remember when TDA and OPIC came before
37
our committees, there was a track record. There were results. We
could look at what they were doing almost project by project.
I don't think — at least I don't recall in my days as chairman —
ever having anything like this from the Commerce Department,
aside from the Foreign Commercial Service which sometimes is
hard to assess. But in terms of its domestic programs, I have never
seen anjdhing that says we have results. And my suspicion has
been, and I can't say anything about the current administration be-
cause I haven't been following it, but in past times, all that money
went internally for regional meetings and conferences rather than
external, by providing direct assistance to exporters.
Mr. Yeutter. Just one more point to supplement that. As is the
case with most things, the private sector by and large is way out
ahead of government in all of this. Much of our private sector is
advanced in its knowledge of what is going on around the world,
though not everybody is in that situation.
Finally, I would add the point that technology is going to alter
all of this in a major way. So whatever you do in the Congress, rec-
ognize that the technology of computerization, telecommunications,
and other fields of effort, is going to make most everything we have
done in the past obsolete in any case.
Mr. Bereuter. Thank you very much for your time and testi-
mony. It is very valuable.
And, Mr. Chairman, thank you for extending my time.
Mr. Roth. Thank you, Mr. Bereuter, for your good questions. We
are going to ask Mr. Mica for his questions. Of course, he is a key
player in this because we are discussing his piece of legislation.
Mr. Mica. I thank you, Mr. Chairman. It is great to get down
there and testify and then come up here and get a chance to ques-
tion.
Mr. BoNKER. It is great to see another Mica on this panel.
Mr. Mica. Just temporarily, but I appreciate all of your leader-
ship and your input today.
You all know the way this process works, and trying to do ex-
actly what is right and needs to be done is very difficult, but we
do have a situation where we have got a pretty good commitment
to dismantle the Department of Commerce. So what I did in my
proposal, Don, was to take all of the trade functions that we
thought were essential or at least at this time justifiable and viable
and put them into an Office of Trade because there will not be a
Department of Commerce as we know it, at least under the agree-
ment between the House and the Senate budget conferees.
In the best of all worlds, as you heard my testimony, I would like
to bring in finance because finance is so important and that levels
the playing field. I mean, if you get out there, you have been out
there representing folks, if you represent a U.S. firm or manufac-
turer that cannot meet the financing when the French come in and
through indirect or direct subsidy blow you out of the water as far
as financing, you are dead. You can't cut the deal. So that is one
area that I would like to see brought in if we, in fact, do this. The
other thing, too, is in the promotion.
Mr. Bereuter just got back it sounds like from a visit and saw,
I guess in South America — ^Argentina, and China and Korea, wher-
ever. First thing, I always do is go to the Foreign Commercial Serv-
38
ice office and see how inadequately they are suppHed with person-
nel and resources and how vast some of the other activities at the
embassy are, and we all know that these embassies have turned
now into trade centers. These are trade promotion centers and that
is what we are competing against.
So, Don, in fact, we do want to enhance those activities.
I think former Secretary Brock, maybe you pointed out, or one
of you did — maybe it was you, Clayton — ^that technology will catch
up. We should be able to instantaneously from our consul in St. Pe-
tersburg to have on the screens of every Chamber of Commerce, for
example, or at your home to pull up what the product opportunities
are, what the service opportunities are immediately, and I rep-
resented companies that transmit data in huge proportions in far
greater than anything we are talking about and you can have that
instantaneously.
Now we publish the information in some journal and the oppor-
tunity is lost by the time somebody in Sheboygan, Wisconsin, gets
an opportunity to participate. So what we are trjang to do is bring
together these functions in some coordinated fashion.
My bill has been sort of a catalyst. It is not the end-all, and in
fact could be altered to bring in any of those other functions. So
I wanted to just point those things out.
The other thing too is, the United States has traditionally been
reliant on domestic markets and in the next decades we see that
the opportunities aren't just here, they are all over the world.
And I think. Secretary Brock, you also pointed out most Amer-
ican businesses have no idea that Foreign Commercial Service of-
fices are available or even that the domestic components, so we
have got a lot of work to do.
And right now I think the statistics, correct me if I am wrong,
are about 95 percent of the U.S. trade is done by about 3 percent
of the U.S. corporations, so turning that around is going to take
some time. ^
My only question is in my proposal, and I am not that familiar
with your role as USTR, I have read what other countries have
done. I have seen some of what they have done, but to me, we are
the only ones that really have the negotiator out separate, most of
them appear to be like the Minister of Trade, or Minister of Trade
and Industry, or Minister of Commerce, whatever. In the proposal
that I have made, we keep Cabinet-level status, not department.
Some call it a super agency.
Do you see a problem with that structure or must it be a depart-
ment or ministerial level to be effective?
Mr. Brock. Well, there is some disagreement among the panel.
I don't see any problem at all with what you are proposing. I think
you do have a super status if you are in the Office of the President
and I don't think you lose a thing by being there. What worries me
about being in a department is that you do get then somewhat cap-
tured by the negative forces.
Your affirmative opportunity as U.S. Trade Representative to ne-
gotiate the opening of markets overseas is very clear. It is statu-
tory. But it is also almost theological in terms of this country and
the way we are looking at the world these days. I don't see that
there is any disadvantage in keeping it in that particular frame.
39
I would, if I can, just add one thought on what you were saying
earher, all of the information that is now gathering dust in some-
body's portfolio on their desk in the Commerce Department, ought
to be on Internet. So Sheboygan or Chattanooga or Memphis or Ap-
pleton business people should be able to access that just like they
can pick up the telephone. And there isn't any reason to make
these people important by saying you can't get information if you
don't go to them. That is what is wrong with trying to have re-
gional officers on all these things. All this information is there now.
Put it out on Internet. Access it through American Online or what-
ever you want and go and do your business.
Mr. Yeutter. Mr. Mica, I would simply say I like your bill. You
have done a nice job of pulling all of this together. It is generally
compatible with the testimony I gave here and also to Senator
Roth's committee. It is very compatible with Senator Roth's own
proposal. You are getting close to what would be a very meaningful
improvement in trade organization in this country.
Mr. Mica. Thank you and, Don, the first thing when I got to
Congress 2V2 years ago was cosponsor the Roth bill with minor
variations, so I took up your banner. That doesn't seem to be a pos-
sibility at this point.
Mr. BONKER. I retain boxes of files on this subject. You are free
to have them if you want. This was Secretary Baldrige's proposed
Department of International Trade and Industry versus the Roth-
Bonker-Roth proposal.
And I might add that the Baldrige proposal is concise, clearly
stated and on a chart it looks excellent. The Roth-Bonker-Roth is
a monstrous looking thing with cubicles and boxes and lines, and
I am trying to figure out why this is so. I conclude that Baldrige
btarted from a level of idealism about how to construct it where we
tried to deal with the politics of it.
Mr. Roth. That is exactly it. That is exactly right.
Mr. Bo^^KER. But I got a separate thing over here for Agriculture
and I will bet you anything that was Bereuter.
Mr. Roth. You had USTR for Ways and Means.
Mr. Mica. Thank you, Mr. Chairman.
I yield back and appreciate your courtesy.
Mr. Roth. Thank you, Mr. Mica.
And again as has been said before by many Members, this has
been an excellent panel, we want you to know we appreciate your
testimony very much. Thank you.
Mr. Brock. Thank you very much, Mr. Chairman.
Mr. Roth. Now I would like to call on Allan Mendelowitz. He is
the managing director of the Trade Division of GAO. In his capac-
ity, Mr. Mendelowitz has studied every aspect of the trade program
and has a thorough understanding of what works and what does
not work in these programs.
So we are delighted, Mr. Mendelowitz, to have you here today
with us to review this legislation that will be marked up next
Wednesday,
40
STATEMENT OF ALLAN MENDELOWITZ, MANAGING DIRECTOR,
INTERNATIONAL TRADE, FINANCE AND COMPETITIVENESS,
GENERAL ACCOUNTING OFFICE
Mr. MENDELOWITZ. Thank you very much, Mr. Chairman.
With your permission, I will submit my full statement for the
record and make a few brief oral comments.
Mr. Roth. We will put your full statement in the record and you
may proceed as you see fit.
Mr. MENDELOWITZ. I want to thank you for the opportunity to
testify today and I want to wish you well as the Committee moves
into markup on this extremely important issue.
Proposals to eliminate the Commerce Department provide Con-
gress with both an opportunity and a challenge. The opportunity
lies in the ability to take a fresh look at all of the government's
trade programs, agencies and activities. The challenge is to deter-
mine if the programs and activities can be better organized in a
manner that does not harm the government's ability to carry out
necessary functions and permits it to achieve congressionally man-
dated goals in an efficient manner.
These government trade responsibilities include trade policy,
which of course includes formulating trade policy objectives, nego-
tiating and monitoring trade agreements; export promotion; trade
regulation, including administering export controls and licensing,
and import programs, such as antidumping and countervailing
duty investigations; and last, trade and investment data collection,
analysis and dissemination.
Several early proposals to dismantle Commerce led us to raise is-
sues as to how some trade functions could be adversely affected by
the proposed changes. H.R. 2124 introduced by Congressman Mica
addresses many of the issues we raised about earlier legislative
proposals. However, I still do have some issues for consideration
about how some provisions in their present form could affect the
conduct of certain trade responsibilities.
In light of the importance that Congress has attached to trade,
an issue to consider is whether creating a trade administration
that lacks Cabinet-level department status could lead to a percep-
tion that the new agency does not have the status of either the
U.S. Trade Representative, who is currently in the Office of Presi-
dent, or the Department of Commerce, which is a Cabinet depart-
ment. The same issue arises with respect to the proposed role and
title of the head of the agency, the U.S. Trade Representative/Ad-
ministrator.
The proposed legislation combines trade functions of only three
U.S. Grovernment agencies and does not address opportunities for
consolidating the functions of other U.S. Grovemment agencies that
carry out significant trade responsibilities.
One approach Congress could use to explore other opportunities
would be to task the President to report to Congress on opportuni-
ties to improve the cost-effectiveness of Federal programs and
achieve budgetary savings through additional consolidation. Alter-
natively, the Committee could consider such additional agencies
and programs within the context of the markup.
Agency trade functions that might be submitted to such review
include: the State Department's Bureau of Economic and Business
41
Affairs; Trade functions and programs at the Small Business Ad-
ministration; trade functions and programs at the U.S. Department
of Agriculture; the International Trade Commission; and possibly
the international credit agencies and their programs.
Additionally, the proposed legislation appears to eliminate Com-
merce's U.S. Commercial Service's domestic network, which would
have the effect of severing the link between U.S. businesses in the
United States and commercial officers overseas without creating an
alternative mechanism to provide this function. We believe explicit
consideration should be given to either preserving the domestic op-
eration or developing alternative ways of achieving this function.
And last, placement of Commerce's Bureau of Export Administra-
tion in the new entity would diminish the office's status relative to
the Departments of State and Defense for purposes of interagency
coordination for export control issues. Licensing dual-use commer-
cial products has always involved the careful balance of national
security, foreign policy, and commercial interests. Congress recog-
nized this over a decade ago when it elevated the Commerce De-
partment official responsible for export controls to the status of an
Undersecretary.
The status of the Export Control Administration in the new
agency raises the issue of whether placing this authority on a lower
level would alter the necessary balancing of the interests I have
identified. In addition, we make several additional observations,
but with this I would like to end my summary comments and re-
spond to any questions you might have.
[The prepared statement of Mr. Mendelowitz appears in the ap-
pendix.]
Mr. Roth. Thank you very much, Mr. Mendelowitz.
As I had mentioned before, you are a person who has looked at
these issues in great depth and we appreciate your help.
If we do a broad reorganization, what should we do with
Eximbank and OPIC? Do we leave them where they are, fold them
into a new agency? What is your best recommendation?
Mr. Mendelowitz. I have to be very honest. With respect to roll-
ing the Eximbank into the new agency, I am undecided and I will
explain my reasons why. Agencies like the Eximbank and the Com-
modity Credit Corporation, through their direct loans and credit
guarantee programs, expose taxpayers to the potential for very sub-
stantial economic losses. This responsibility has to be carried out
in a very, very sober and careful way.
During the decade of the 1980's, after the United States decided
to tilt toward Iraq in the Iran-Iraq conflict, an effort was made to
tiy to find ways to give substance to that tilt. And that decision,
after looking across programs in the government and ways of pro-
viding additional assistance, focused on the provision of export
credits. And, both the CCC and the Eximbank were encouraged to
finance exports to Iraq during the Iran-Iraq War.
Iraq at this time represented a very significant risk. Obviously,
any time the government gets involved in providing export credits,
the risk is going to be higher than merely commercial risk — that
is why the government is involved.
However, the risk presented by Iraq was so significant that there
were serious questions within the government's interagency forums
42
as to how much credit to extend to Iraq. Both CCC, which is in the
Department of Agriculture, and Eximbank were encouraged to pro-
vide support to Iraq. Extensive assistance was provided by CCC;
limited assistance was provided by the Eximbank.
The assistance provided by Eximbank was monitored carefully.
When Iraq fell into arrears on payments, the window of coverage
was closed until the arrearages were made up. The end result was
that when Iraq invaded Kuwait in 1990 and Iraq ceased servicing
its debt obligations guaranteed by the Federal Government, there
was about $2 billion in export credit guarantees that the CCC had
to make good on for agricultural exports, and I believe the
Eximbank was left with obligations somewhere on the order of only
$30 or $35 milHon.
It is because of that track record of dealing with the difficult re-
sponsibility of balancing policy directives from the President with
financial responsibility and assessments of risk that I am unde-
cided on the issue. Eximbank has done a good job of protecting the
taxpayer in the past while providing support to exporters. My pri-
mary concern would be that if the Eximbank were folded into this
new Trade Department, its careful fulfillment of its fiduciary re-
sponsibility to the taxpayer doesn't get diminished.
Mr. Roth. OK. I thank you very much. I appreciate that.
Congressman Bereuter, do you have any questions?
Mr. Bereuter. Yes, thank you, Mr. Chairman.
Mr. Mendelowitz, thank you for your work and your agency's
work on this subject.
The Institute for International Economics has argued that the
current division of labor between the USTR and Commerce asks for
trouble and specifically the Institute says, "Assigning policy coordi-
nation negotiations to one official and nonagricultural operational
trade responsibilities to a Cabinet colleague invites competition
and conflict."
Do you agree? Do you have any thoughts about that subject?
It relates very specifically to the possibility that we might create
a new trade agency, whatever level, and still keep the USTR in the
Executive Office of the President. And of course that is not too dis-
similar now but if we enhance and augment a trade component,
consolidate at least the nonagricultural components there, that
gives that agency and its head, whether it is a Cabinet-level de-
partment or administrator, a higher profile.
Mr. Mendelowitz. I used to joke when Mac Baldrige was Sec-
retary of Commerce, that 5 percent of his budget was trade and 95
percent of his time was spent on trade.
I think that what you have identified in the quote from the HE
is a legitimate concern. If you have a department whose sole re-
sponsibility is international trade, and in addition to that you have
an official in the Office of the President who is a spokesman on
trade, I think conflict is inevitable.
I think it is important, though, when we consider what to do
with USTR, what to do with Commerce, what to do with various
other trade agencies, to keep in mind how the current organization
was developed. The current trade organization structure — with the
U.S. Trade Representative in the Office of the President and the
43
International Trade Administration in Commerce, was created as
a result of the President's Reorganization Plan #3 of 1979.
There was considerable dissatisfaction with the way the govern-
ment was organized in the 1970's to handle the trade issue. There
were proposals at that time, as you well know, to create a Depart-
ment of Trade. There were also proposals to change nothing, and
the resolution of the debate was a middle-ground solution. The so-
lution was the structure that we have today.
If you do create a Cabinet-level Department of Trade, it is un-
clear to me why you would need or want to have the U.S. Trade
Representative, and I say that with the recognition that USTR has
done really an outstanding job. And I think of all the government
agencies that I am familiar with, I think it probably has fewer crit-
ics in the Congress and the community at large than any of the
other agencies that I work with.
Mr. Bereuter. The one thing that is sometimes forgotten is ap-
parently the statute. As I recall, the statutes that created the
USTR gave a very special relationship to the Congress, not just to
the President.
Mr. Mendelowitz. That is right.
Mr. Bereuter. And that has always been something that Ways
and Means Members particularly cite as a reason not to make
changes.
Mr. Mendelowitz. If I can pick up on that observation, I think
you are absolutely correct there is a special status for the Finance
Committee in the Senate and the Ways and Means Committee in
the House with respect to the U.S. Trade Representative's Office.
It certainly, I believe, is a reflection of the constitutional respon-
sibility Congress has for international trade, but I would also like
to point out that the fact that Ways and Means and Finance have
a very good relationship with USTR doesn't mean that all the Con-
gress necessarily does.
I remember in the Trade Act of 1988, Title VII, the BUy Amer-
ican Act, required special actions and reporting by the U.S. Trade
Representative. That particular title in the 1988 Omnibus Trade
bill had come out of the Government Operations Committee in the
House of Representatives.
Following passage of the act, the Government Operations Com-
mittee asked us, the General Accounting Office, to look at the im-
plementation of Title VII. I arrived at USTR for the opening con-
ference with my staff to alert them to what we were going to do
and why we were going to do it. What I found was that while I had
assigned an evaluator-in-charge to the assignment and I had given
him a staff member, USTR had only one person working halftime
assigned to implement the new law. Furthermore, this person had
not yet done anything. When I asked why there was so little activ-
ity, the response I got was, "We did not know that this was an im-
portant issue for the Congress." I responded, "Well, it was in legis-
lation." And I added, "You should be alert to the fact that while
you have really good relations with Finance and Ways and Means,
trade has become such a broad issue with respect to congressional
interest that everybody is going to be asking for trade-related
things, and one of the ways that the Government Operations Com-
44
mittee tells an agency that they are interested in something is they
ask GAO to do an audit. That is why we are here."
Mr. Bereuter. USTR has been focused on their primary rela-
tionship and the Congress, as they see it, perhaps to the neglect
of other committees.
Just one observation, and then two quick questions. We have
heard a lot about USTR in a favorable sense being lean and mean,
and while I appreciate meanness in the USTR, I am not sure that
leanness has always served us well because it seems to me we are
stretched very thin in some areas. Now, they do call upon the com-
ponents and assets of the rest of the government, including some
in Commerce, I gather, to a major extent which isn't always em-
phasized. I think the leanness is perhaps carried to an extreme.
That is pretty unusual for me to say that about a government
agency, but I do make an exception here.
Mr. Mendelowitz. I think you are absolutely correct on that
score. However, I am a firm believer you get more work out of one
person who is overworked than two people who are underworked,
so leanness has its benefits.
Mr. Bereuter. I will remember that.
Mr. Mendelowitz. And my staff believes that, too, because they
were in the office on Labor Day working on this testimony.
Mr. Bereuter. First of two questions. Dual-use export controls,
do you believe it should be maintained in State or should, if we re-
organize, move it elsewhere?
Mr. Mendelowitz. I do not believe that dual-use export controls
should be in either State or the Department of Defense. Having li-
censing responsibility in the Department of Commerce or in a suc-
cessor trade agency I believe is important to maintaining the bal-
ance between foreign policy, national security, and commercial in-
terests. We are dealing with civilian commercial products, we are
not dealing with armaments.
Mr. Bereuter. Would you then put it in the new trade entity?
Mr. Mendelowitz. Yes, I would.
Mr. Bereuter. Second, and finally, we have had some comments
from our witnesses favorable to the concept of consolidating trade
promotional activities. What are your suggestions?
Mr. Mendelowitz. I am glad you asked about this issue of trade
promotion. How the government handles export promotion is a
problem which we have identified in recent years. We testified be-
fore this committee on the problem, and this committee took action
in response to it with the writing of the Export Enhancement Act
of 1992, Title H, which put the TPCC into law and tasked it with
the responsibility to bring order and improved efficiency to the ex-
port promotion programs.
It required an annual report, national priorities, and an annual
budget from the President that would rationalize export promotion
efforts. There has been progress in this area: the creation of one-
stop-shops, the integration of working capital guarantee programs
between SBA and the Eximbank, and a number of other measures,
which represent improvement in the delivery of the programs.
However, we think there are still lots of other opportunities for im-
provement.
45
Our view is that you also have to keep some kind of link between
the small- and medium-sized business community and the overseas
commercial presence that the Foreign Commercial Service rep-
resents. Currently Commerce has the district offices. We are not
wedded to the current structure as the only way of doing this job,
but we are concerned that the function itself not be lost. The func-
tion could be altered, for example, by having the Federal Govern-
ment play a wholesale role and support local Chambers of Com-
merce or State agencies in undertaking this particular function, as
one alternative.
You had asked about Germany, for example. The domestic export
counseling function in Germany is done almost entirely by local
Chambers of Commerce. However, it is important to note that Ger-
man business by law is required to join these Chambers of Com-
merce and pay dues that support the functions they provide. And
so they are able to do it through a sort of a quasi-public-private en-
tity because the force of law is behind it and assures a source of
funding from the business community.
Mr. Bereuter. Thank you very much, Mr. Mendelowitz.
Thank you, Mr. Chairman.
Mr. Roth. Thank you, Mr. Bereuter.
Thank you, Allan Mendelowitz, for being with us this morning
and giving us the benefit of your testimony. Let's move forward
and see what we do on the 12th and what happens later on.
Mr. Mendelowitz, Thank you very much.
Mr. Roth. Thank you.
[Whereupon, at 12:42 p.m., the Subcommittee was adjourned.]
APPENDIX
Committee on Bntemational Helations
SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY AND TRADE
Opening Statement by Chairman Toby Roth
Hearing on Reorganizing Federal Trade Agencies
September 6, 1995
THE FOCUS OF TODAY'S HEARING IS VERY SPECIFIC: AS THE HOUSE MOVES TO
DISMANTLE THE COMMERCE DEPARTMENT. WHAT SHOULD BE DONE WITH THE TRADE
FUNCTIONS? SHOULD THEY SIMPLY BE TRANSFERRED TO THE U.S. TRADE REPRESENTATIVE.
AS CONGRESSMAN MICA HAS PROPOSED? OR SHOULD WE GO FURTHER, AND REACH ACROSS
THE GOVERNMENT TO CONSOLIDATE THE DOZENS OF TRADE FUNCTIONS AND AGENCIES INTO
A NEW DEPARTMENT?
THESE QUESTIONS HAVE AN ADDED URGENCY BECAUSE OF OUR PERSISTENT AND
WORSENING TRADE DEFICIT. LAST YEAR, OUR MERCHANDISE TRADE DEFICIT WAS OVER $160
BILLION THE WORST IN HISTORY. THIS YEAR WE ARE HEADED TOWARD A $200 BILLION
MERCHANDISE DEFICIT, $40 BILLION WORSE THAN LAST YEAR.
WE MUST ORGANIZE OUR TRADE PROGRAMS WITH A CLEAR UNDERSTANDING THAT
THE FEDERAL GOVERNMENT HAS A CRITICAL ROLE IN HELPING AMERICAN EXPORTERS
COMPETE IN GLOBAL MARKETS.
TODAY WE HAVE WITH US SOME OF THE NATION'S MOST EXPERIENCED AND
THOUGHTFUL LEADERS IN THE TRADE FIELD. BILL BROCK SERVED WITH DISTINCTION IN THE
HOUSE, IN THE SENATE, AS LABOR SECRETARY AND AS OUR TRADE REPRESENTATIVE.
CLAYTON YEUTTER ALSO HAS HAD A DISTINGUISHED CAREER IN A VARIETY OF POSTS,
INCLUDING SECRETARY OF AGRICULTURE AND OUR TRADE REPRESENTATIVE. FOR MANY
YEARS I WORKED WITH DON BONKER ON TRADE ISSUES WHEN HE CHAIRED THIS
SUBCOMMITTEE. DON, I WELL REMEMBER OUR BILL IN 1983 TO CREATE A DEPARTMENT OF
TRADE. FROM THE GENERAL ACCOUNTING OFFICE, WE HAVE ALAN MENDELOWITZ, WHO IIAS
SPENT YEARS ANALYZING WHAT WORKS AND WHAT DOESN'T WORK IN OUR TRADE
PROGRAMS.
TO LEAD OFF, WE WELCOME THREE OF OUR COLLEAGUES WHO ARE EACH PLAYING A
LEADING ROLE IN THIS AREA: DICK CHRYSLER, WHOSE BILL TO DISMANTLE THE COMMERCE
DEPARTMENT WILL BE MARKED UP NEXT WEEK; JOHN MICA, WHO HAS INTRODUCED A VERY
THOUGHTFUL BILL TO MOVE THE COMMERCE DEPARTMENT'S TRADE FUNCTIONS TO THE
TRADE REPRESENTATIVE; AND DON MANZULLO, CHAIRMAN OF THE SMALL BUSINESS
COMMITTEE'S TRADE SUBCOMMITTEE. AND AN ACTIVE MEMBER OF THIS SUBCOMMITTEE AS
VfBLL.
"" B^RE ttt&^Smm e<»K3R&SSMAN,GE^pS9N„LET ME MAKEiWE CilBSERVATiON.
PQR THOSE OF US WHO«AVE WORKED.jpj^p(EA»g.|P,STREN^^ ©yM^^ PROGRiWS.
THIS MA¥ pe OUR BEST OPPORTUNITY TQMAK^fB^J^Ei^LWEFf'''-^ "'-^
BE OUR tA5T CHA^JCE. FO* THE INTEREST Cf,q«RJi>(POR'P^/>fb (
p6^irt3*^ I Want foi maiob the most op it>o ;i' " "
(47)
(.1*UTH, it MAY
KW'S.TMDE
48
STATEMENT OF THE HONORABLE DONALD MANZULLO
BEFORE THE SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY
AND TRADE
HOUSE INTERNATIONAL RELATIONS COMMITTEE
ON TRADE REORGANIZATION
September 6, 1995 10:00AM in Room 2172 RHOB
Mr. Chairman, it is an honor to appear before you this
morning. Even though I am a Member of this Subcommittee, thank
you for the opportunity to testify before you this morning.
With the commitment of the Congressional leadership to
dismantle the Department of Commerce, we are at an historic
opportunity to reorganize the trade functions of the federal
government .
Earlier this spring, I began to hold a series of hearings on
the Export Subcommittee I chair on Small Business regarding the
appropriate role and function of federal export promotion
programs.
First, I brought in the principle players in the
Administration who promote commercial exports to explain and
justify their programs. Because agriculture receives over half
of export promotion funding, I held a second hearing specifically
focusing on farm exports. To get more at the unvarnished truth,
I asked several academic experts who do not participate in any of
these export promotion programs to comment on the merits or
pitfalls of these programs. This hearing included the General
Accounting Office. Finally, several small- and medium-size
businesses testified at my fourth hearing to explain how these
export promotion programs have helped to create and sustain jobs
in their company. I also intend to hold another hearing on
private sector resources that provide export information.
What did the subcommittee learn from these hearings? First,
the federal government has an information providing and advocacy
role in export promotion. This is not corporate welfare because
these programs are open to all businesses. The government does
not pick "winners and losers." The key is getting the word out
that these programs exist and making them work better.
Second, export promotion efforts of the federal government
are a confusing mass of programs that are not fully integrated.
I submit for the record a copy of a chart prepared at my request
by the Department of Commerce of the 19 agencies involved in the
Trade Promotion Coordinating Committee (TPCC) process. If it is
hard for us to understand, can you imagine a business person
trying to figure this out?
49
PAGE 2
Third, as the GAO testified, keeping these programs does not
necessarily mean having to spend more money. In fact, you can do
a lot more with the proposed $3.2 billion 1996 budget request for
these programs through streamlining and consolidation. Why is it
that nearly half of the Trade Development and the International
Economic Policy office are frequently asked by the Unj.ted States
Trade Representative's office to focus on trade policy? Do we
need that many people in those offices?
Why do we have a separate Foreign Agricultural Service
officer and a U.S. and Foreign Commercial officer serving in the
same embassy abroad or in the same city here at home? Why is the
budget of Agriculture's Market Promotion Program at $110 million,
serving less than 10 percent of our overall exports, while the
U.S. & Foreign Commercial Service has a budget of $165 million,
serving the other 90 percent of U.S. exporters?
It is obvious that we need to totally rethink the federal
government's trade promotion organization. The GAO identified
five key principles for the Exports Subcommittee in reorganizing
government:
1) Reorganization demands an integrated approach;
2) Reorganization plans should be designed to achieve
specific, identifiable goals;
3) Once the goals are identified, the right vehicle must be
chosen for accomplishing them;
4) Implementation is critical to the success of any
reorganization; and
5) Oversight is needed to ensure effective implementation.
I ask that the entire GAO response to my inquiry be made a
part of the record.
And, finally, the White House Conference on Small Business
placed an unprecedented emphasis on trade. The creation of a
"one-stop-shop" for all government trade information and
assistance, especially focusing on small business, was the 11th
top recommendation out of 60 from that conference.
Mr. Chairman, you asked a series of questions in preparation
for this hearing asking my recommendations for a restructured
federal trade agency. Like you, Mr. Chairman, I support the
trade reorganization bill introduced by good friend, John Mica.
50
PAGE 3
However, it does not go as far as I would. Like the small
business people who attended the White House Conference last
June, I want to see a true "one-stop shop" for all federal
government trade resources. Personally, I would like to see all
19 agencies, including agriculture and export financing, combined
into a new trade department. Why should the Commerce Department
and the Environmental Protection Agency both be promoting
environmental exports? Why should the Agency for International
Development be involved in promoting trade? Why do we need
different international economic statistical gathering experts at
the State and Commerce Departments? Why does the United States
Information Agency receive any export promotion funding? All
these, and more, can be consolidated, combined, or eliminated
altogether.
I know that my proposal may be politically premature. For
example, I understand the historic resistance to removing the
trade negotiator from the Executive Office of the President. But
if we have this comprehensive Trade Department, with Cabinet-
level status, it makes no sense to keep them separate. The
Secretary of this new department would not have to resolve inter-
agency disputes if every one of the trade-related functions from
the 19 agencies is combined into this new department.
I also understand that there is historic resistance to
remove agricultural-related trade issues outside of the
Department of Agriculture. But it doesn't make sense to separate
the one agency that receives over half of the export promotion
dollars from this new Trade Department.
And, I am willing to make the sacrifice to make this happen.
This should not be a debate about preserving committee
jurisdictional turf but what is in the best interest of the
taxpayer. For example, as part of the reauthorization process
for the Small Business Administration, the Small Business
Committee is prepared to eliminate SBA's Office of International
Trade. Small business people, though, must have a government
resource for trade information, and it should be contained in a
new Trade Department.
Finally, this new Trade Department should preserve a
commercial voice on export licensing decisions. The Bureau of
Export Administration must be part of any new reorganized trade
bureaucracy. Turning over export licensing to the State or
Defense Department would further impede America's ability to
export dual-use items for purely commercial purposes.
Thank you, Mr. Chairman, for the opportunity to testify
before you this morning, and I would be pleased to answer any
questions you or subcommittee Members may have.
51
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52
STATEMENT OF REPRESENTATIVE SAN OEJDENSON
HEARING ON DEPARTMENT OF COMMERCE
I would like to compliment Chairman Roth for calling
this hearing in such a timely fashion. No one in
Congress has a better understanding than Chairmcui Roth of
the direct relationship between international trade and
jobs for American working people.
I have very serious doubts about any proposal to
dismantle the Commerce Department. Even H.R. 2124, the
Mica bill, while well-intentioned, diminishes the stature
of trade in the U.S. Government. As Secretary Ron Brown
testified before this Committee, the only problem that
the Mica bill solves is the Chrysler bill.
The net effect of the Mica bill is to place greater
iinportauice on eliminating a cabinet department for its
own sake, without a demonstrated cost savings, than on
protecting the interests of Amerlceui business and the
jobs of American workers. I say this for three basic
reasons. First, the new Trade Administration will not be
cabinet level and business Interests will lose a seat at
the table at the highest levels of our government.
Second, in the ed^sence of demonstrated cost savings, this
is a shell game of replacing a department with an agency
and sending the other functions elsewhere within the
bureaucracy. Third, by trying to fix something that is
not broken, the bill will severely hanger the trade
function within the U.S. Government. The folks at MITI
in Japsm must be licking their chops. Let's look at each
of these points in turn.
First, once you eliminate the Department of Commerce,
any non- department entity that you replace it with will
not have the same stature. H.R. 2124 does not give the
new U.S. Trade Administration Ced>lnet level rank. And it
can not. Only the secretaries of the 14 departments have
been permanently part of the President's cabinet. Each
President can decide who else he w£uits to make part of
this non-legal body known as the Cabinet, and Presidents
have exercised that discretion in different ways. But
clearly there is a distinction drawn between the
secretaries of the departments and everyone else.
As a result, under H.R. 2124, the one department in
53
govenunent whose core mission it is to enhance economic
opportiinlty for Americans would lose a seat at the table.
We would be eliminating the department that is the only
voice £or U.S. business in the President's cabinet.
Under this diminished status, the Trade Administration
would also not have the ability of the Commerce
Department to lead on trade issues. So, while H.R. 2124
would theoretically put the new Trade Administrator as
Chair of the Trade Promotion Coordinating Committee, it
is (questionable whether this non- department entity could
really lead cabinet departments. I am not even certain
that the head of this agency would always get his or her
calls returned. The same is true in export controls. Do
the proponents of this bill really believe that the Trade
Administration will continue to be the lead agency in
this contentious area?
Second, this bill has no demonstrated cost savings.
By its own acknowledgment, CBO has not yet Issued
reliable numbers. As one senior Republican Senator said;
"If all we're going to do is pick and choose and shift
personnel from one department to euiother, I'm not sure I
\inderstand the purpose of this exercise". What do we
save by eliminating a department, creating a new agency,
cuid transferring some other functions to other agencies?
I am one who thinks that there might be opportxanities
for cost savings in the Department of Commerce. If our
objective is to reduce government waste and to save
money, then let's focus our efforts on doing just that
and not on playing some shell game and moving boxes.
Third, this bill would try to fix two trade entities,
neither of which is broken. And in the process. It would
place the, U.S. at a disadvantage in international trade.
Since January 1993, Secretary Brown and the Commerce
Department have made a difference in creating 300,000
American jobs, by virtue of exports alone. For its part,
the U.S. Trade Representative has been a superb
negotiator on behalf of U.S. business. This bill would
upset what has proven to be a vexy efficient operation at
the Department of Commerce and saddle an equally
effective U.S. Trade Representative with extensive
functions that would hanger its ed>ility to negotiate.
54
The engine of export promotion at the Commerce
Department has generated 4,000 export success stories
with small and medluun-slzed businesses In 1994 alone.
For every dollar Commerce spends on export promotion,
$10.40 Is returned to the U.S. Treasury. It Is not
surprising then, that over the last 7 years, U.S. exports
have accoiinted for over one third of our economic growth.
It makes no sense to upset an operation that Is working
so well and transfer this fxinctlon to an agency unsulted
to administering a large trade operation.
The nSTR Is a negotiator. It Is a lean organization
capable of moving quickly to address the Issues that
arise In con^lex negotiations. It has also been part of
the White House structure, providing It with access to
the President It would not otherwise have. Moving the
trade functions xinder the USTR would mcuclmlze the
limitations of USTR while minimizing Its strengths.
Let's stop the shell game. Let's not eliminate a
department for Its own sake. Let's not make ourselves
the laughingstock of the trade world. Let's make the
cuts necessary at Commerce to save money and Increase
efficiency, without diminishing our trade operation.
55
STATEMENT BY THE HONORABLE
DOUG BEREUTER
September 5, 1995
Mr. Chairman, let me commend you for holding this important
hearing today and for inviting a vast array of very knowledgeable
witnesses, including current Congressional leaders on this
reorganization initiative, our former distinguished colleague, Don
Bonker, two other distinguished Americans who served as both United
States Trade Representatives and as department secretaries,
Ambassador Bill Brock and Ambassador Clayton Yeutter, as well as
Mr. Mendelowitz of the GAO.
I would like to take just a few minutes to place this
dismantlement of Commerce and the reorganization of our trade
functions in some historical perspective.
With respect to trade coordination, Mr. Chairman, it appears
we have been trying to reorganize, reinvent, streamline, and
rationalize our trade functions since 1950. At that time the
Department of State headed the Trade Agreements Committee which
originally included eight agencies. Around 1962, we gave the
United States Trade Representative cabinet level status and trade
coordination responsibilities. Then in 1975, we turned the Trade
Agreements Committee into the Trade Policy Committee and named two
subordinating groups, the Trade Policy Review Group (TPRG) and the
Trade Policy Staff Committee (TPSC) . In subsequent legislative
acts of 1979, 1984, and 1988 we further expanded the authorities of
the USTR to among other things, make it vice-chair of the Overseas
Private Investment Corporation, make the USTR responsible for
services negotiations, and gave it the primary responsibility for
enforcing our unfair trade laws .
Mr. Chairman, as you know, this subcommittee over the years
and under your leadership and that of Don Bonker has been extremely
involved in the ongoing battle to better coordinate the Federal
government's trade promotion. Since 1988, we have passed two
Export Enhancement Acts and the Jobs Through Export Expansion Act
to establish, among other things, the Trade Policy Coordinating
Committee and give it the authority to identify euid eliminate
duplication among our programs.
Mr. Chairman, I have cited this historical chronology of our
actions not to discourage our efforts today, but to place some
important context around what we are trying to do. Throughout all
of these endeavors, I have witnessed more and more government
agencies get involved in the business of promoting U.S. exports.
In its second annual report to Congress, the TPCC identified
fourteen government agencies involved in this government activity
of export promotion. For example, the United States Information
Agency received nearly three times the entire budget of the USTR in
1994. Is that an appropriate allocation of our export promotion
and trade negotiation dollars?
56
This member suspects, Mr. Chairman, that we are partially to
blame for the proliferation in the number of government agencies
who claim to promote U.S. exports. When the Agency for
International Development came under serious attack in the last
decade, they saw fit to claim that they were promoting exports and
creating jobs in the United States. Perhaps that is why AID is
providing $20,000 grants to U.S. business people to fly to Asia and
attempt to sell their environmental technologies. This Member
questions whether this is an appropriate expenditure of our
precious export promotion dollars and at a more basic level,
whether AID should be in this business of flying U.S. business
people at all.
Mr. Chairman, this Member strongly believes that we need to
focus on getting many U.S. government agencies out of the business
of promoting exports -- not just shifting boxes and tasks -- and
centralizing that task in one place. Making one person ultimately
responsible and accountable so we, Congress, can bring that person
up before this subcommittee and evaluate his/her performance^ If
we can get this process moving in that direction, then I think we
will have accomplished something that we have failed to accomplish
in over forty years.
Finally, let me make one comment about our U.S. agricultural
export promotion efforts. Now I anticipate to hear today a lot of
comments about how the United States spends a disproportionate
amount of Federal export promotion dollars on agricultural exports,
a fraction of our total exports. While there can be no doubt that
we do spend a significant disproportionate amount of our resources
on this function, let me remind everyone that we have been engaged
in am all-out subsidy war in the last forty years with the European
Union for agricultural export markets. (Even today they outspend
us nearly 10-1 in processed food export subsidies) .
Now economists will tell us (and I expect our friends from the
General Accounting Office to do the same) that it is extremely
inefficient to subsidize agricultural exports. But that is like
telling the small town gas station in a two gas station town not to
meet his competitors prices because he cannot afford to sell his
gas below cost.
Mr. Chairman, we are trying to get ourselves in the
agricultural industry out of the business of subsidizing our
exports. That is what the Blair House Accord and the Uruguay Round
Trade Agreement were all about. But in the mean time, it is not
helpful to say that manufactured exports do not get enough of our
Federal government export promotion dollars vis a vis agriculture.
I don't think we want to start another subsidy war in that
industry.
57
THE HONORABLE JOHN L. MICA
Testimony before the Subcommittee on International Economic Policy &
Trade
September 6, 1995
INTRODUCTTON & CASE FOR A UNTFTED TRADE OFFICE
It is a privilege to testify today before your Committees on the issue of the elimination of
the Commerce Department and the implications for our U.S. trade programs. Let me start by
saying that for seven years in the private sector I served as an international business trade
consultant. Having represented both large and small business interests I believe I had a good
vantage point and opportunity to view U.S. trade assistance to American concerns in the U.S. and
abroad.
First, let me say that our trade promotion and assistance programs are at best a
disorganized mess.
We have 19 agencies with separate missions each going their own way. In the process we
spend billions of taxpayers dollars often in an uncoordinated and ineffective manner. We have a
hodge podge of trade activities tacked on to various agencies over the years that must be
reorganized.
As you may know, in the last decade, the U.S. has lagged behind in exporting in nearly
every category. For the month of May, our trade deficit reached a staggering all-time record high
of $11.4 BILLION.
Unfortunately we have depended and relied on a domestic market for trade while our
international competitors have existed and survived only by competing in foreign markets.
Only a small percent of U.S. firms account for neariy all our foreign exports.
The ideal solution would be to combine most of our 19 agencies that deal with trade and
export promotion, negotiations, finance, and assistance.
At the very least it is critical that as we dismantle and reorganize trade and export
functions in the Department of Commerce, State and other agencies, and that we establish a
coherent basis for an OflBce of Trade with cabinet-level status.
While I concur with current efforts to dismantle certain agencies, it would be a dramatic
error to leave trade promotion and assistance in its disorganized state.
58
EXPLANATION OF LEGISLATIVE PROPOSAL HR 2124
That is why I have been joined by several of my colleagues in introducing legislation which
will be the first step in doing a better job promoting trade with limited resources. The bill lays the
groundwork for a United States Office of Trade with cabinet level status.
The Office will integrate the trade and economic functions of the United States Trade
Representative, the Commerce Department, and the Trade and Development Agency.
The United States Trade Representative will head the restructured Office and will
continue to perform the role of the nation's chief negotiator and will additionally be responsible
for trade promotion, policy, and administration. The Administration will be at cabinet-level and
removed firom the Executive Office of the President.
The USTR will be supported by a Deputy United States Trade Representative (with
ambassador status) who will be responsible for all trade negotiations, a Deputy USTR to the
World Trade Organization, and a Deputy Administrator, who will serve as the agency's chief
operating officer responsible for non-USTR functions, including administration of trade laws,
promotion of exports, and trade policy analysis. The Office will integrate the trade and economic
functions of the Commerce Department, the Trade and Development Agency.
The organizational structure will be flat and designed so that each function will maintain
its own functional autonomy. This will ensure that the negotiation function can still be
performed effectively. The USTR will be the Chair of the Trade Promotion Coordinating
Committee, and will be responsible for developing and coordinating U.S. trade policy.
In addition, my proposal elevates the current International Trade Administrator by giving
that position in the US Trade Office ambassadorial status.
This plan accomplishes several important objectives:
First, we preserve the functions in the Department of Commerce that actually create
exports and therefore jobs.
Second, business keeps a seat at the cabinet table. It is critical that business be
represented at the cabinet level in order for our international economic interests to be weighed in
the executive decision making process. Otherwise, the diplomatic and security concerns of the
Department of State and Department of Defense might overpower our economic concerns. It is
critical that in this post-Cold War era, we recognize that our economic interests are really of
utmost importance in international relations.
59
One key provision in my proposal which recognizes the importance of the commercial
interests retains the licensing of dual-use and enforcement functions in this United States Trade
Office, instead of transferring this function to the State Department. The placement of this
function IS critical. Again, as we restructure, we must do so in a way which ensures that our
international competitiveness is enhanced. Having BXA in the Office of Txade ensures that the
proper balance between competitive and national security interests will be struck in licensing dual-
use technologies.
Third, we have a nucleus for a more comprehensive Trade Office which will be able to
more effectively coordinate our trade policy. This proposal specifically assigns the USTR as the
Chairperson of the Trade Promotion Coordinating Committee. Fmally, we will have one person
who not only has that title, but has the authority as the head of the US Trade Office to implement
this coordination. Eventually, I would like to see other important trade functions folded into this
Office for a more unified trade effort.
EXAMPLES OF INEFFICIENCIES
In order to compete in the international arena, large and small businesses need every bit of
assistance and aid to succeed. The embassies of other nations have become trade and business
centers.
The United States has twice the number of economic officers in its embassies gathering
statistics than Foreign Commercial Service officers. I was pleased to see that Chairman Rogers'
Commerce, State, Judiciary appropriations bill committee report identified the State Department
economic officers as a duplicative of the Foreign Commercial Service officers. That report
directed the State Department rectify that duplication by eliminating the State Department
economics officer positions that are duplicative.
For example, with trade delegations and in visits I found in Moscow that the Foreign
Commercial Service officers I could count on one hand, while AID had an entire building filled
with hundreds of employees.
Last year in Brataslava, in the capital of the emerging Slovak former eastern bloc nation, I
found an AID office that exists which is larger than our embassy office with 1 part time U.S.
Foreign Commercial Service officer commuting fi'om Vienna.
To make matters worse and justify their existence, AID is now opening U.S. commercial
offices with limited cooperation and coordination with our Foreign Commercial Service.
60
I attached language to the Foreign Aid authorization bill which proposes a study for how
we can accomplish true consolidation and streamlining which would impact all of the 19 dififering
agencies. This language will also be part of the Senate bill. For now, however, my proposal
simply starts with the trade functions of the Commerce Department.
CASE FOR COMBINING THE USTR & COMMERCE FUNCTIONS
Finally, let me address one of the concerns that might be raised regarding my bill. First,
some might argue that the USTR's office is lean and mean and should be lefl out of any trade
office. Let me suggest that the federal government should play two roles relating to trade:
First, we should negotiate for open and free markets.
Second, we should assist U.S. business exploit those open and free markets.
Let me just say, if these two functions aren't coordinated or compatible, then those two
goals will never be achieved. All of our major trading partners like Canada, Japan, France and the
U.K. have a single, unified agency.
In addition, it should be noted that one of the reasons we have only 170 people at the
USTR's office is because most of their analysis and technical support comes from the Commerce
Department. I believe the effectiveness of both of these functions could be enhanced if they
worked in a single, coordinated unit.
Again, it is critical that we provide all Americans with the capability of competing in the
international marketplace with the tools and resources to be successful.
Only then will the U.S. create jobs and opportunities for the future.
61
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DICK CHRYSLER
Testimony of
The Honorable Dick Chrysler
United States House of Representatives
8th District, Michigan
before the
Committee on International Relations
Subcommittee on International Economic Policy and Trade
Seplemher d. I'J95
Mr Chairman, thank you for the opportunity to appear before this Committee to continue our
discussion of Commerce Department dismantling As the chief sponsor of the bill which began
this process, I am dehghted that we have moved beyond the question oi "Should v/e dismantle the
Commerce Department''" to the question "How do we go about it''"
And, of course, I am deeply gratified by the House leadership's commitment to moving forward
with a budget reconciliation bill that achieves the objective of eliminating an agency which
exemplifies the kind of overreaching government that our constituents sent us here to correct
My previous testimony has focussed largely on the reasons why I believe the Commerce
Department should be dismantled I know that you, Mr Chairman and Members of this
Committee, are interested today in moving beyond those arguments to the details of how we put
together a sensible and efficient arrangement for trade policy and promotion in a post-Commerce
Department federal government.
Consolidation: The Need for a Single Trade Agency
One of the biggest questions in this discussion is the status of the current Office of the United
States Trade Representative (USTR) in any reorganization of trade functions Both our proposal
and Congressman Mica's would - in somewhat different ways - consolidate USTR and certain
International Trade Administration (ITA) functions, into one unified, cabinet-level trade agency.
62
Some have argued that USTR should remain a part of the Executive Office of the President, as a
sort of "honest broker" on trade issues Yet the idea that USTR is currently an "honest broker" is
not credible As part of the White House, USTR has become - especially under the current
Administration - simply another part of the White House's political operation, and trade policy is
being advanced as a means of achieving the President's political objectives. Today's ceremony
touting the seriously-flawed auto pact with Japan is a case in point.
Moreover, I think we must recognize that a divided trade policy establishment — USTR as the
leader, ITA (or a successor organization) as the "poor cousin" ~ is a global anomaly. Right now
we have two cabinet officials at the table advocating for US trade It is wasteful, duplicative,
and it reduces our effectiveness vis-a-vis our major trading partners, like Canada, Japan, France,
and the UK, all of which have unified — and highly effective ~ trade agencies I am absolutely
convinced that we can learn a lesson from these countries
Why do we have one agency that negotiates market access and another that pursues those
markets'' Does it not make the most sense for both functions to be under one roof? By breaking
Commerce's trade fijnctions out of a hidebound bureaucracy, by streamlining those functions, by
taking trade policy out of the politicized environment of the White House, and by eliminating the
senseless division that exists between USTR and ITA, US business will end up with a much
more effective advocate, and our trading partners will face a much more formidable presence
across the negotiating table
When Ambassador Kantor appeared before the full International Relations Committee last month,
he complained that consolidating USTR and ITA trade fijnctions simply would not work, that it
would pose too great an administrative burden on the U.S. Trade Representative, and that it
would detract from USTR's ability to focus on trade negotiations.
Simple logic, however, persuades me that by putting all trade policy fiinctions under one roof— as
our major trading partners do — we will dramatically increase the efficiency and effectiveness of
the entire process And we can do so with fewer people and at a greatly reduced expense to
taxpayers We are facing a situation in this government in which we have got to take a page from
the private sector's book and start working harder and smarter
The argument that "it can't be done" can no longer be acceptable We need bold new thinking and
innovative ideas to radically transform this federal government, and that is what this Congress is
all about Once and for all, we need to get away from the notion that success is measured by the
number of agreements negotiated, the number of employees at work, and the number of dollars
spent. This is Washington at its worst, and it has to change This Congress, with your
Committee's help, will help bring about that change.
63
3
Examining Particular Trade Functions
1 would like to turn now to the particular fate of each of the current International Trade
Administration functions as part of any consolidation of trade functions.
Trade Development - (FY95 spending: $67 6 million): The area known as "Trade Development"
is one agency that would be terminated under our proposal Trade Development (TD) is a
collection of so-called industry experts that are in the business of developing industry-specific
positions on various trade policy issues. However, the US electronics or automotive industries
are much better equipped and more capable than any bureaucrat sitting at 14th and Constitution
when it comes to developing trade policy positions that advance their interests. In some areas,
notably textiles and apparel. TD effectively acts as a taxpayer-fmanced lobby for narrowly defined
segments of a particular US industry
Our job in government is to fmd mechanisms that allow these industries to communicate their
positions directly to US trade policy makers without the unnecessary mediation of government
middlemen I am confident that even some of the industries that have complained of "losing a seat
at the Cabinet table" would agree that eliminating TD will result in a more direct - and much more
productive -interaction between the private sector and trade policy oflficials. Our legislation
provides for the creation of Industry Advisory Boards to facilitate this direct interaction
In just about every case of which I know, business community support for ITA is based on
support for the US & Foreign Commercial Service - I have not heard a single voice defending
the need for the industry analysis provided by TD
Inh'iiialional Economic Policy - (FY95 spending $27 8 million) I believe that any
consolidation of ITA's current flinctions should lead to a significant reduction in the current part
of ITA known as International Economic Policy (lEP) lEP is oflen described as the country-
specific support staff for USTR's trade negotiators, and a certain portion of lEP might need to be
folded into a consolidated trade agency in order to maintain an effective trade policy
A large amount of lEP's current work, however, is strictly duplication of effort. For instance, the
Central Intelligence Agency maintains a very good database on international economies By
eliminating the inefficient division between USTR and lEP. a great deal of this duplication could
be done away with Again, no private sector representatives have told me that they rely on lEP's
country analysis in order to move forward with international trade and investment decisions
United Stales rf- Foreign Commercial Service - (FY95 spending: $158.3 million): Our plan to
restructure trade functions would eliminate the domestic arm of the United States Foreign &
Commercial Service (US&FCS) Instead, we would concentrate our limited trade promotion
resources on beefing up the "foreign" part of the Commercial Service.
64
Several of my colleagues in the House and a number of business representatives have defended
the work that domestic US&FCS offices have done to promote trade. I am not questioning those
assertions — I am sure these offices are doing fine work in many cases.
But clearly we have a budget resolution which requires us to make tough choices. For me, the
most useful guide to making those choices is the following question: Is the U.S. Government the
only entity which can perform these functions'' In the case of domestic US&FCS offices, the
answer is clearly no, especially in the age of fax machines and the Internet.
I recently learned that up to 90% of the questions received in the Salt Lake City, Utah, office are
routine, repeat questions - questions that can be answered effectively using today's modem
technology We should consider concentrating resources on strengthening the presence of
commercial officers in our embassies abroad, where they are doing the most good, and where
US companies have the greatest need for "eyes and ears "
In all this, of course, we need to keep in mind that 92 cents of every dollar spent in this country
on trade promotion is spent by the private sector, and 95 cents of every dollar in the Commerce
Department's budget has nothing to do with trade We should strengthen government's trade
promotion role where it is most needed, keeping in mind that the private sector is already the
major force behind export promotion
Import AJministralion - (FY95 spending: $30 3 million) The Import Administration arm of ITA
should be consolidated into a new trade agency, as proposed in both my legislation and that of
Congressman Mica.
Export Administration I know that there has been some concern about our proposal to transfer
Commerce's export licensing functions to the State Department, and I have heard a great deal
about this from the business community This is a sensitive and difficult issue from a number of
different angles — trade competitiveness, national security, and foreign relations.
I do not accept the notion that the Commerce Department is the only agency where this work can
be done effectively, and I certainly do not accept the notion that the Commerce Department
should be maintained "as is" in order to preserve a home for the Bureau of Export Administration
I continue to believe that the State Department can administer export licensing in a way which
balances national security and commercial interests I also think that Congressman Mica's
proposal to house export licensing within a small, streamlined United States Trade Administration
gives us another good option to consider as we move towards a budget reconciliation bill
The entire issue of export controls is not so much a problem of bureaucratic organization as it is
one of ensuring that the laws governing this process are brought into line with our current
national interest So I hope that your committee and others will continue to work on modernizing
our export control statutes
65
Conclusion
Mr Chairman, the private sector in this country has been undergoing a process of slimming down
which is temporarily painful but which ultimately strengthens the economic competitiveness of the
United States. The voters of my district sent me here to help bring about a similar process in the
federal government
It is time for the public sector to start working harder and smarter, setting clearer priorities, and
eliminating ineflficient duplication of effort Our constituents expect nothing less than a federal
government that is as lean and efficient as this country's most successful businesses — small,
medium, and large
We have a tremendous opportunity this year to start down that path by dismantling the Commerce
Department and consolidating international trade functions into a unified, small, and effective
trade agency The Congressional Budget Office has indicated that our plan would save American
taxpayers almost $8 billion over the next five years I believe that we will see even greater
savings from the added efficiency we will generate from streamlining federal trade functions and
other Commerce activities
I think this effort will provide us with the momentum to take a good, hard look at other US
government trade and investment fijnctions which could be done better and more effectively by
the private sector In particular, I hope that we can examine OPIC, whose investment guarantee
functions duplicate those provided by private companies like AJG Always, the question should
be Should the US government be involved in this business''
As a result of this process, I am confident that we will end up with a trade policy and trade
promotion structure which speaks with one voice, is less costly to taxpayers, and is more effective
in responding to the complexities of today's trading environment
Thank you. Mr Chairman
66
William E. Brock Testimony
before the
International Economic Policy and Trade House Subcommittee
ofthe
House International Relations Committee
September 6, 1995
Mr. Qiairman, Members ofthe Committee, let me begin by expressing my
gratitude for the opportunity to think out loud with you on a subject of real
consequence. Let me also express my gratitude for your willingness to take on a
largely thankless task. Despite its obvious importance, the organization of
government as a subject for conversation can usually draw ihore yawns per hour
than almost anything we discuss in the nation's capital, but I repeat, it is
fundamentally important, and I appreciate the initiative you have taken.
I'd like to do three or four things in this brief appearance. First, I'd like to try
to place this entire conversation about die Commerce Department in a larger
context of govenmient reorganization in total. Second, I'd like to discuss the
department itself. Third, I'd like to look at its relationship with other function areas
such as those encompassed under the United States Trade Representative, and
lastly. I'd like to make a suggestion for your consideration iil terms of how we
restructure this government in the economic area.
On the matter of governmental reorganization writ large, I'd like to express a
concern about considering either the abolishment or the re-creation of an individual
department, whatever that department is, without evaluating the entire organization
of the Executive Branch. A few weeks ago, I testified before another House
conunittee on the possible merger of the Department of Education and the
Department of Labor. My problem widi looking at these issues on a department by
department basis lies in the fact that we need to have a complete rethinking of the
organization of the Executive Branch. Trying to do this piece by piece is just about
die worst way that it can be done. I respect the mandates ydu have been given and
understand that, given the present organization of the Congress, it would be hard to
proceed in any other fashion. But, I strongly feel you are illogically constrained
WEB September 6. 1995
67
unless you could look in a larger context, and I think it is important to say at the
outset.
Over the years, we have developed departments on the basis of constituency
demand rather than function. Simplistically, if you think about- it that way.
Education serves the public education community, Conmier^e serves business,
Agriculture serves farmers. Veterans serves veterans, and so on. What we have
done is to set up government to maximize the influence of pressure groups by
giving each of these major groups their own advocate in the Executive Branch at
the Cabinet table. No wonder most citizens feel they have lost their voice.
Better than twenty years ago, early in the days of the Administration of
President Nixon, serious proposals were made to reduce substantially the number
of Cabinet positions and make the Cabinet itself more workable. Equally
important, the intent was to design the Executive Branch around function areas
needed to have a coherent approach to governance. Thus, there would have been a
Department of Human Resources, one of Natural Resources, and so on.
I'd like to argue strenuously that we need to take another look at that
approach. Government is not working. Business is moving to horizontal
management and decentralized responsibility-the imperative of a global economy.
Government has to keep pace-get radical, change, or get out of the way.
Well, I've gotten that off my chest. That's not the matter before us today.
You have a specific responsibility, and you have asked me to testify on the
particular imperative of reorganizing the Commerce Departqient. I'll try to do that
It has been said that this Department is the place wher^ everybody threw
programs that had no other logical home. Whether that is true or not, it is obvious
that there are a number of disparate functions in the Depaitinent that have litde or
no relationship to one another. Many of these could be spun: off, to advantage.
Let me give you an example. I have long thought and said that there should
be a totally independent agency of government that engaged in the absolutely
crucial function of statistical development and analysis. It should be under no
political control. It should be treated as the General Accounting Office or the
WEB September 6. 199S 2
68
Federal Reserve System and given real independence from day to day political
intervention. This would encompass offices like the Census Bureau in the
Department of Commerce, and the Bureau of Labor Statistics now in the
Department of Labor as well. Throughout government we have statistical shops
that could be combined. Not only would efficiencies occur, and very substantial '
efSciencies in terms of savings in money and man power, but we could actually
improve the quality of the product itself.
I don't want to go line by line through the Department of Commerce's
organization chart. One other example would suffice. I see no reason for NOAA
to be part of the Department, and would suggest that it too can well be organized as
an independent agency. Its functions are absolutely important, but they really do
not require the political control inherent in a Cabinet department.
This brings me to an area in the Department that I think shouldn't exist at all,
and that is export promotion. We have cut defense to the bone. We're doing the
same thing with a number of social programs that in many cases serve a useful
purpose. The thought that our government needs to subsidize the promotion of
American products overseas, or even their marketing and distribution, is to me
unconscionable. Cut it out. Use a chain saw if you have to, but if we are going to
reform welfare, we might as well start with corporate welfare. There is no excuse
for these taxpayer-financed supports of competitive free enterprise.
Let me reluctantly make one exception. The import-export bank—not
because it is a logical application of government, but because we have to date
failed to stop the practice of governmental credit subsidies by other nations. Once
we do stop them, then this too should cease to exist.
It must be obvious by now that I have left unaddressed one area that is of
extraordinary importance and consuming personal interest to me-die area of
international trade. Before I look at the role of the Department of Commerce either
now or in prospect, let me draw back and look at the trade function witfi you just
for a moment.
Presently, trade policy has been assigned by a congressional act to the office
of die President in the person of the United States Trade Representative (USTR).
WEB Sepieiid)er6.199S 3
69
This has been the case for a quarter of a century, and throughout that time the
decision has caused wailing and gnashing of teeth in departments as disparate as
the State Department, Treasury, Agriculture, and, yes, the Commerce Department.
Each of these has felt that they could do a better job, a more forceful or more
effective or more responsive job than the U.S. Trade Representative.
Yet, there is a reason for this assignment of responsibility. The Constitution
gives the Congress, not the President, authority to make decisions affecting
international trade, particularly in the use of tariffs.
The Congress then delegated its authority to the President for good and
obvious reasons. No Congress composed of 535 members could engage in the day
to day conduct of international trade policy. But, neither did the Congress want to
give up its authority totaUy. Thus, the assignment to the office of the President,
and not a department. They've had experience with the State Department trying to
run trade policy, with the Treasury trying to run trade policy. Each Department
brought its own bias and focus to the task. We were not well served. Thus, the
USTR was created in 1962 with the clear purpose of keeping it out of any one
Department. In placing this responsibility in the office of the President, the
Congress exercised a remarkable degree of wisdom, one that I would be loath to
see changed.
It would be my suggestion then that those fimctions of the present
Department of Commerce which support the negotiation of liberalizing accords
with other nations be assigned to the U.S. Trade Representative. Once this was
done, and having removed the functions previously mentioned, the present
Conmierce Department would have no further reason for existence.
I don't want to leave the matter there. If there is a void in the U.S.
government today, it is in the absence of any place for the advocacy for a future
vision for our nation in a global economy. My concern with the present Commerce
Department is it is captive of those forces who want to keep what they've got
That's true of other agencies like the Department of Agriculture or Transportation,
but it is particularly so in this sense.
WEB Sqjtetnber 6, 199S
70
In a global economy, those who prevail are going to be those who are fastest
on the feet, most flexible, those who live in a nation whose focus is <m human
development, research, motivation, incentives, and freedom. Wouldn't it be
interesting to have one aspect of government whose sole task was to facilitate
change to constantly try to remove the impediments to competitive enterprise
imposed by government, one department whose task was to work towards
deregulation, competitive tax policies, incentives for human development,
research, and new technologies. Such a function, as a department or as a part of
the office of the President might deserve some thought. The Commerce
Department is no such shop.
If I can for just one final thought return to my beginning point As you enter
into this conversation Mr. Chairman, members of this distinguished committee, I
plead with you to look at this reorganization as a part of a larger whole, to engage
your colleagues on other committees in a conversation to do so as well, and to
abjure the temptation to limit your change to such marginal improvements as the
elimination of a few programs or even a department.
The world today is linked electronically and economically. The pace of
change is accelerating. It will not slow down. It may be the principal task of
government to limit its activities to the development of our human skills and
personal freedoms so as to maximize the capacity for adaptive response to that
change. That will be extraordinarily difficult
In a period such as this, die pressures for resistance to change will be almost
irresistible. People are going to feel increasingly vulnerable in a global economy,
and they're going to ask you to slow down the pace of change, to resist it, to protect
them. We do so at our peril. We can't protect, we can prepare. The imperative of
radical improvement in public education, in training, in tax and regulatory policies
is absolute. I pray this will be a part of your conversation.
Thank you very much.
WEB September 6. 199S
71
TESTIMONY BEFORE THE
U.S. HOUSE OF REPRESENTATIVES
SUBCOMMITTEE ON INTERNATIONAL ECONOMIC POLICY AND TRADE
By Ambassador Clayton Yeutter^
September 6, 1995
Mr. Chairman, thank you for inviting me to comment on the functions of
the Department of Commerce and other trade related entities of the U.S. govern-
ment. I am pleased that you and your subcommittee have exhibited such a strong
interest in this important subject.
Since serious consideration is being given to streamlining government by
eliminating Commerce and certain other cabinet departments, I will comment only
in a cursory way today on the non-trade functions of that department. I leave a
more thorough analysis of those functions to others who are more familiar with
them than I.
I have noted, however, that some Executive Branch spokesmen seem to be
defending all elements of the Commerce Department and its present overall
structure. Those views should be rejected, for no government department is
sacrosanct. Needs and priorities change over time, and there is no government
entity that cannot be improved through timely restructuring. In almost every case,
downsizing will also yield efficiencies, as has been demonstrated over and over
again in the U.S. private sector during the past decade.
Therefore, Mr. Chairman, I applaud your leadership in seeking to downsize
and reshape the Federal government. Over the last three decades, government has
intruded arrogantly into American life. Through the years there has been plenty of
talk about reorganizing and downsizing government, but these efforts have been
half-hearted and have achieved only limited success. With strong leadership, Mr.
Chairman, I am confident Congress can accomphsh what should have been done
ages ago.
Our goal should be to downsize smartly, so that government becomes leaner
and meaner, but still effective-hopefully more effective than when it was larger and
more cumbersome. It means rewarding those functions that are superior per-
formers, i.e., those that provide more bang for the buck. It is an ongoing challenge
1 Former United States Trade Representative, Secretary of Agriculture, and
Counselor to the President.
that will never be fiilly met, but one where vigorous engagement by both the
Executive and Legislative Branches will always be worthwhile.
As a more specific objective for the Congress, I would strongly recommend
the consolidation of all major trade functions into what 1 would call a trade
ministry, the term that is used by most other countries.* Debate over the future of
the Commerce Department provides a iinique opportunity to deal with this issue in
decisive fashion, for the first time ever.
Your first question might well be: "Are you recommending that we emulate
MITI, the Japanese Trade Ministry?" My answer is "no" for there is a lot not to like
about MITI! It has far too much government infi:ingement in the operations of
Japanese business, and its industrial development efforts have been more bust than
boom. But I do like what some of the other trade ministries of the world are doing,
and we ought to pick the best and avoid the worst of each if we axe to estabUsh a
trade ministry here in the U.S.
U.S. trade poUcy has produced some incredible achievements over the past
decade-among them the Uruguay Round, NAFTA, and the U.S.-Canada Free Trade
Agreement. USTR has been an outstanding performer, but we do not now have, nor
have we ever had, anything approaching a full-scale trade ministry. We can do
better. With exports becoming ever more important to our economy, the absence of
a coordinated, cohesive U.S. trade ministry which brings the same weapons into
battle that are available to our foreign competitors is a travesty.
Furthermore, a powerfiU trade ministry is what the non-agricultural sector
needs most from the U.S. government. Our manufacturing sector and other
elements of what we tj^pically call "industry" can take care of themselves on the
domestic scene. So can our burgeoning services sector. It is in the international
arena where they still need the "presence" of an active Federal government. That
presence should be provided by a trade ministry that would vigorously represent
the interests of American business and workers.
What should one call this entity? I leave that to you, but possibilities might
include: a Department of International Trade (DIT); a Department of Commerce &
Trade (DCT); or a Department of Trade & Industry (DTI). Obviously there are an
infinite number of other possibihties.
Almost every trade ministry throughout the world is now at Cabinet level,
so ours should be as well. To do otherwise would be to reduce the stature of our
* We'd have to give it a different name, because we do not use the ministerial
structure, but this is a meaningful description of what is intended.
2-
73
minister (Secretary) among his or her counterparts, and that would clearly be
harmful to our own interests. Our goal should be to underscore, not undermine, the
clout and prestige of a U.S. trade ministry.
Of greater importance is what this ministry contains, and how it would
function within the Executive Branch. So let's turn now to those questions.
In estabUshing a trade ministry, I'd start with one of my former entities,
the Office of the U.S. Trade Representative. USTR, a superlative performer, will
probably always be at the heart of U.S. trade activity, no matter where it is placed
in the hierarchy of government. It fits comfortably where it now resides, in the
Executive Office of the President, which gives it great prestige. But that position-
ing is also the source of innumerable turf battles with the present Department of
Commerce, and USTR's support network is "voluntary," and not at its behest and
command.
The other departments of government are typically supportive of USTR,
particularly at critical points in our trade negotiations, but this is never a given.
Other departments have their own priorities, and they are not always the same as
USTR's. In addition, we'll never have a trade ministry with the clout this testimony
visuaHzes until and unless we consolidate the principal trade functions of the U.S.
government in one cabinet department. Most of the Congressional proposals I've
seen thus far this year do too httle consolidating.
USTR is akin to a strike force in nature and in modus operandi, and many
fear that those special attributes will be lost were it to be combined with other
entities and functions in a larger cabinet department. That is a risk, of course, but
it need not occur. Congress can preclude it fi"om occurring by preserving USTR's
lean, flexible, semi-autonomous status within a new trade ministry. That is a
question of legislative language, and foUow-up organizational execution.
I'd also put the Export-Import Bank (Ex-Im) in a new trade ministry.' It
too would lose some of its independence and autonomy were this to occur, though I'd
make it "semi-autonomous" in much the same way as USTR. To exclude it would be
to leave out a lot of global horsepower. And if a trade ministry is to carry out the
mission I've outlined today, the Secretary wiU need all the horsepower he or she can
possibly command. If this Department is to effectively serve the American business
community outside the borders of the U.S., Congress has to give it the tools to do so.
' The Overseas Private Investment Corporation logically would be included as
well, but I have not done so on the assumption that Congress may wish to privatize
it.
74
Placing the U.S. and Foreign Commercial Service (FCS) in a trade ministry
should be an easy decision. Agricultural exports have been one of this nation's
great success stories, and the Foreign Agriculture Service (FAS) within the Depart-
ment of Agriculture has had a lot to do with that. FCS is now attempting to repeat
those successes in the non-agricultural arena, so it deserves to be one of the prin-
cipal entities of a consoUdated trade ministry. I would, however, eliminate the U.S.
(domestic) part of that organization. That would reduce the size of the program,
save considerable money, and there is no reason why such functions cannot be
performed by a combination of state agencies and private sector associations.*
USTR and Ex-Im give a trade ministry excellent front line trade weapons,
and FCS has the potential of being a first class "dehvery" organization. But these
entities must have professional support, and that's where some of the present
Commerce Department functions become relevant. For example. Secretary Brown
has skillfully used the U.S. and Foreign Commercial Service, backed up by trade
development support, in promoting the export of American products in overseas
markets. I'd dramatically downsize the Trade Development of&ce, but pick the best
of it for inclusion in what I would call the Export Promotion arm of a new trade
ministry. In addition to the kind of efforts undertaken by Secretary Brown, I'd also
use this new office to provide background support for USTR, and perhaps even some
for Ex-Im.
I would also put the Office of Import Administration, which handles
antidumping and countervailing duty cases, into the trade ministry because that is
an important function with major poUcy imphcations. It shoidd be located within a
cabinet department, not in an independent agency such as the U.S. International
Trade Commission. Moving it to the USITC might reduce what is perceived to be
the size of the Executive Branch, but it would not be a sound move in terms of how
trade poUcy is carried out in the U.S.^
* In my view it would be a mistake to put FAS in a new trade ministry. Today
FAS has a proven record of achievement; an overall trade ministry does not. When
the latter has demonstrated its competence, consideration might be given to adding
FAS programs to the trade ministry-and perhaps certain programs from other
departments as well.
6 Some have advocated moving the USITC itself, an independent body whose
principal function is to determine "injury" in antidumping, countervailing duty, and
Section 201 cases, to a new trade ministry. I do not concur; this is the one major
trade function of the U.S. government that should not be encompassed in a
consoUdated trade ministry. Injxuy determinations are tremendously sensitive
pohticedly, for there is huge financial benefit to a petitioning domestic industry if an
injury finding can be obtained. Furthermore, there is often no one in the private
sector to articulate the cost of such a determination to consxuners of the affected
4-
76
Import Administration, deservedly or undeservedly, has a reputation for
being protectionist. Some, therefore, suggest that it should not be a part of a
dep£irtment whose orientation is one of opening markets, promoting U.S. exports,
etc. Others suggest it should not be combined with USTR, lest U.S. domestic
interests be traded off during negotiations. In my opinion these are fallacious
concerns; they are all red herrings. One of the most important duties of a Cabinet
Secretary is to balance interests. The Secretary of every major cabinet department
must make these kinds of tradeoffs every day of the week. Trade ministers in other
countries do so, and there is no reason why ours cannot and should not carry out
those same responsibihties.
Some legislative proposals that are before the Congress, Mr. Chairman,
suggest placing the licensing functions of the present Bureau of Export Administra-
tion in the State Department and the enforcement functions of that program in
Customs (i.e., within the Treasury Department). I have no views on the latter, but I
believe it would be a mistake to move hcensing responsibilities to State, a depart-
ment which sometimes has difficulty accepting arguments of American self-interest.
I'd put export hcensing in our trade ministry and, since these programs require
relatively few people, it might be simpler to keep the enforcement function there as
well.
I'd also put a dramatically downsized version of the present Technology
Administration in the Office of Export Promotion. Let's get out of the industry
policy business, which is too complex and impredictable for any government
bureaucracy, and save a lot of taxpayer money in the process. But we should
maintain a highly select, specialized capability in technology poUcy and advocacy
for this will be the key to American competitiveness in the next century.
product. Hence, it is the USITC itself that must objectively balance those interests,
a task that it can perform much more comfortably if it is independent of the
Executive Branch of government.
Nevertheless, suggesting that the USITC should not be poUticized is not
synonymous with suggesting that it remain unchanged. Congress has through the
years given this agency numerous tasks that go well beyond injury determinations.
So this is a good time to assess whether there is a compelling need for the USITC,
or anyone else in government, to carry out those tasks. If so, the Congress should
also assess whether they can best be done by the Commission, or whether they
could be absorbed by staff of a new trade ministry, at a considerable saving in
personnel and other costs. I would hypothesize that significant savings could be
achieved through a comprehensive analysis of this agency's peripheral functions.
5-
76
That leaves a need for policy expertise and analytical capability in what I
earher defined as the Office of Export Promotion. It can come firom the inter-
national economic policy office of the present International Trade Administration
and/or firom the present Bureau of Economic Ansdysis (supplemented perhaps by
some personnel who are now at the USITC), but only in numbers that are truly
required.
As to everything else in Commerce (what I've often referred to as the
"miscellaneous department"), I'd move it, downsize it while doing so, or eliminate it.
That too should save substantial sums of taxpayer money.
Where does that leave us? With a new trade ministry composed of: (a) two
fi-ont line agencies to provide expanded export opportunities--USTR and the Ex-Im
Bank; (b) support entities in Export Promotion, Export Administration, and Import
Administration; and (c) an overseas field organization, the Foreign Commercial
Service (FCS).
How would it look on an organizational chart? Here is one possibiUty:
Ex-Im Bank
Export
Promotion
Secretary
Deputy Secretary
Foreign
Commercial
Service
Import
Administration
USTR
Export
Administration
Some might still see this as a downgrading of USTR (and perhaps Ex-Im as
well), but I would not concur. This would be a strong, vital trade ministry, at least
comparable to any other in the world. Therefore, it ought to attract highly com-
petent, energetic individuals to the position as Secretary. Can that person do the
jobs we've now assigned to two cabinet officers, the Secretary of Commerce and the
USTR? Of course, for as any good executive knows, that is a question of priorities
and organizational and managerial skills. It is being done successfully elsewhere in
the world; why not here?
6-
77
Under this arrangement the Office of the U.S. Trade Representative would
be headed by the principal Deputy, who would report to the Secretary just as he or
she now reports to the USTR. Having our trade minister be a "Secretary," rather
than an "Ambassador," is also advantageous. Many people in the U.S. and else-
where do not now realize that the USTR is a member of the Cabinet.
Finally, what about the interagency coordinating role, the "honest broker"
role that is usually played by USTR as an organization? In the trade ministry I've
outlined, that role can continue to be played by the Office of the USTR as sub-
cabinet level and below, just as it has for many years. At the cabinet level, there
are at least two options, Mr. Chairman, from which Congress may choose. One is
simply to leave that decision to the President of the United States, as has been done
in recent years. The cabinet level coordinating role might well be assigned to the
trade ministry (Secretary), or perhaps to the chairman of an interagency
coordinating group, who might be a top White House official or even another cabinet
Secretary (such as the Secretary of the Treasury, who has often filled that role in
the past). The second option is to legislate how this is to be done by prescribing the
trade minister as the official who shall carry out that responsibiUty. That would
obviously give the minister clearly defined clout, but it would also be perceived as
an infiringement on the President's executive prerogatives.^
I am persuaded that an organization of this type would work, and work
well. It would give international trade its rightful place within the hierarchy of the
U.S. government for the first time, and would demonstrate to the rest of the world
that the United States is really serious about opening markets and competing on a
level plasdng field.
This restructuring would eliminate one Cabinet department (Commerce), as
you had hoped. It would replace it with another, an outcome you had hoped to
avoid. But a new trade ministry organized in this manner will be more focused,
more effective, and more efficient than the cobbled-together arrangement we now
have. And it will do its job with far fewer people and far less taxpayer money. It is
the kind of framework that can help lead us into the 21st century as the most
competitive nation in the world, a status we now have and one which we should
vigorously maintain.
Mr. Chairman, I'd be pleased to respond to any questions you may have.
* The legislation might also specify that the trade minister should be part of
the U.S. team to the G-7 Ekx)nomic Summit and other major international meetings
where trade is discussed.
7-
78
STATEMENT BY:
THE HONORABLE DON BONKER
Former Member of Congress
and
President,
International Management and Development Institute
on
TRADE REORGANIZATION
September 6, 1995
79
Statement on trade reorganization proposals
By: Former U. S. Representative Don Bonker
Mr. Chairman, it has been twelve years since I sat as chairman of this
subconunittee and conducted hearings on trade reorganization propibsals. You
took a keen interest in the subject at the time and I am a pleased to see that
you are presiding today and will play a major role in how this Congress
determines the future of the Department of Commerce and implementation of
U.S. trade policy.
Let me state for the record I am opposed to elimination of the
Department of Commerce. I also would caution against any plan that would
compromise the independence of the Office of the U. S. Trade Representative.
With that said, Congress can and should overhaul the Department of
Commerce with an eye towards streamlining and eliminating needless and
redundant programs.
You will recall, Mr. Chairman, in May, 1983, Malcom Baldridge, then
Secretary of Commerce (I might add possibly the best Cabinet Secretary to
ever hold that position), sparked a national debate on trade reorganization.
His advocacy of a plan to create a new Department of International Trade and
Industry (DITI) was timely given our soaring trade deficits and America's
perceived inability to compete during the 1980s. While the Secretary
succeeded in coaxing the Reagan Administration to back his plan, his crusade
ended when a tragic accident took his life.
The only other voice came from Senator Bill Roth (R. Del), whose
leadership in the Senate led to the introduction of a bi-partisan trade
reorganization bill, which you, Mr. Chairman, and I both endorsed. This
became known as the Roth-Bonker-Roth trade reorganization bill. In July,
1983 we conducted hearings on these proposals and a great deal was written in
the press, but ultimately the issue lost its greatest advocate in Secretary
Baldridge and it was also unlikely a Democratic Congress with its myriad of
jurisdictions and jealousies would have gone along with such an ambitious
plan.
That was twelve years ago. Little has changed, except the trade deficit
continues at unacceptable levels. Indeed the merchandise trade deficit is
headed toward a new high this year, probably exceeding by a wide margin the
record $152 million deficit of 1987. Accumulating trade deficits — the last
surplus was in 1975 ~ render the United States increasingly dependent on
foreign investors and threatens U. S. living standards in the long term.
80
Eliminating the one Department whose principal mandate is export promotion
would be ill-advised.
To those who wish to eliminate the Department of Congress or
reorganize the trade functions of the U. S. Government, I wish to make the
following points:
1. The three essential areas of trade policy and implementation
that must remain separate and distinct are:
a. Trade Negotiations. This is USTR's principal task
and it should not be incorporated into another department,
nor should it be the dumping ground for export promotion
programs.
b. Trade Promotion. This responsibility is shared by
several Departments (Commerce, State, Agriculture) and
independent entities (Export-Import Bank, OPIC). It is
possible to move these agencies around but needless
reshuffling may undermine the viability of those that are
performing well.
c. Trade Mitigation. Commerce and the International
Trade Commission (ITC) jointly preside over the hundreds of •
trade cases that require governmental action. If not
Commerce, I frankly don't know where you place this
responsibility.
Commerce presently plays an indispensable role in all the above
functions, and to eliminate the Department or randomly disperse these
responsibilities without regard to their impact on the U. S. trade
position could jeopardize America's competitive position at a time
when we are being challenged as never before. It would be tantamount to
dismantling DOD at the height of the Cold War.
2. There is an imderlying principle, which I am certain you can
appreciate, and it is this: Don't try to fix something that isn't
broken. I apply this to the following government agencies that
are, if anything, super-performers in the trade field:
a. U.S. Trade Representative. Pursuant to a 1962 act,
John Kennedy created the Trade Representative's Office to be the
President's in-house chief trade adviser, to coordinate trade
policies that cut across the conflicting jurisdictions and warring
81
views of multiple agencies, and to be the nation's chief trade
negotiator. This small office has proved effective and always
well managed under the tutorship of pre-eminent people (notably
Bill Brock, Clayton Yeutter, Bob Strauss and Mickey Kantor). To
load it up with export promotion activities from other agencies (H.R.
1756) or merge within a bulky revamped Commerce Department
(H.R. 2124) would be a travesty, in my judgement. Trade
negotiations is a delicate task and necessarily involves brokering
among other departments and agencies and the Congress, and the
chief negotiator must enjoy unique and direct access to the
President. To mix that responsibility with mandates to champion
U.S. exports or presiding over trade disputes will most certainly
compromise, if not undermine, the negotiator's traditional role.
b. Overseas Private Investment Corporation and Trade &
Development Agency. These Department of State agencies
are the unsung heroes of America's trade promotion efforts.
At one time, I thought they should be transferred to the Depart-
ment of Commerce to, of course, consolidate all trade-related
functions in a single department. That would be a monumental
mistake — then, as well as now.
c. Export-Import Bank. The attached article in last month's
Journal of Conmierce ("Ex-Im Bank Wins Rousing Applause for
Range of Successful Initiatives") says volumes about this agency.
Twelve years ago, liberal Democrats were trying to eliminate
the agency and did succeed in terminating some of its programs.
Had they succeeded, the U. S. trade deficit would be much higher
today.
Mr. Chairman, I know you are a champion of export trade and have
demonstrated your commitment both as a leader on this subcommittee and in
your own district. I have attended your highly successful export con-
ference which you host every year. I hope you will do everything in your
power to convince your colleagues to not tamper with those agencies and
programs, referred to above, which are doing so much to keep America strong
and competitive in international markets.
Now for the Department of Commerce. While I do not support its
elimination as proposed by Rep. Chrysler, I also do not feel it can be made
more effective by transforming it into a super trade department, which is the
purpose of Rep. Mica's bill. I would suggest the following:
82
a. NOAA. as we know, compromises one-half of the Commerce
Department budget. It should be set up quasi-public entity, similar
to the Export-Import Bank.
b. Bureau of Export Administration (BXAV This is a relic of
the Cold War days, but export licensing is still needed for
proliferation and foreign policy control purposes. However, it
remains as a major impediment to U. S. high-tech exporters because
of shared jurisdictions and the intense rivalry among departments.
The late Senator Heinz was right. An independent agency should
be established, with state, DOD, Commerce, the NSA, all serving on
a Board to set policy and administered by an appointed person
confirmed by the Senate.
c. International Trade Administration (ITA) and the U. S. Foreign
Commercial Service (USFCS).
In all my years on this committee and in the past six years in the
private sector, I have found Commerce Department export trade programs to
be the least effective. While Secretary Ron Brown deserves credit for his high
profile, non-stop, buy -American promotional campaigns involving the captains
of industry, the fact remains that at the groimd level, where it counts, the ITA
is of negligible value to small and mid-size companies. It has been my
experience, especially in the private sector, that U. S. companies who seek
government help go to the Ex-Im Bank, OPIC or TDA to get assistance.
Commerce is seen as too bureaucratized and removed to be of any value to
exporters.
Frankly, I do not know why this is so. On the surface the programs
and people who administer them seem fine. When I chaired this
subcommittee, I remember that the Commerce Department trade programs
received $166 million in appropriations and OPIC with no authorizations and
TDA with a then-budget of $3 million were doing a great deal more to
promote U. S. exports. I do feel the USFCS proves valuable services aboard,
in the U.S. Embassies, especially since Congress reassigned this agency to the
Department of Commerce. But I question the value of it domestic counterpart,
especially since it has little presence in regions of the coimtry where
businessmen can use its services.
To summarize, I recommend the following:
1. Don't eliminate the Department of Commerce, but remove
agencies, like NOAA, so the department can be more focused on
83
economic and trade activities. Export trade functions must be
revamped to be more effective or dismantled. The Bureau of Export
Administration should be removed from Commerce, State and DOD
and made an independent entity.
2. Keep USTR independent and definitely apart from export
promotion and trade mitigation functions Its mandate as chief trade
negotiator will be undermined if it has multiple mandates and
responsibilities.
3. Avoid trying to set up super trade department. It seems
to me that the rush to eliminate the Department of Conmierce
was a means to slim down government not expand it. I believe
the evidence will show that smaller, keenly focused agencies
perform much better than large institutions.
4. Support Sen. William Roth Jr.'s draft bill that calls for
setting up a commission that would offer recommendations by June 1,
1996, on how to restructure the executive branch.
Senator Roth's proposal is a prudent one given the enormnity of the
issue. I understand the sentiments of newly elected Congressmen who want
radical changes. I was elected in 1974 with a similar mandate to overhawl the
seniority system in the House of Representatives. But what should not be
sacrificed here is America's competitive position and persistent trade
imbalances that may threaten jobs and even our standard of living in the
fiimre.
84
United States General Accounting Office
GAO
Testimony
Before the Subcommittee on International Economic Policy and
Trade, Committee on International Relations,
House of Representatives
For Release on Delivery
Expected at
10:00 a.m., EDT
Wednesday,
September 6. 1995
GOVERNMENT
REORGANIZATION
Observations About Creating a
U.S. Trade Administration
Statement of Allan I. Mendelowitz, Managing Director
International Trade, Finance, and Competitiveness Issues
General Government Division
GAO/T.GGD-95-234
85
GOVERNMENT REORGANIZATION:
OBSERVATIONS ABOUT CREATING A U.S. TRADE ADMINISTRATION
SUMMARY OF STATEMENT BY ALLAN I. MENDELOWTTZ, MANAGING DIRECTOR
INTERNATIONAL TRADE, FINANCE, AND COMPETITIVENESS ISSUES
GENERAL GOVERNMENT DIVISION
To assist Congress in its deliberations on the Trade Reorganization Act of 1995
(H.R. 2124), GAO reviewed the potential effects of certain provisions on federal trade-
related activities. The act would merge the Office of the U.S. Trade Representative
(USTR) with several Department of Commerce offices and the U.S. Trade and
Development Agency to create a U.S. Trade Administration (USTA).
The proposal addresses many of the issues GAO raised about earlier legislative proposals.
However, GAO discusses several issues for consideration about how some provisions, in
their present form, could affect the conduct of certain trade responsibilities.
In light of the importance that Congress has attached to trade, an issue for
consideration is whether creating a trade "administration" that lacks cabinet-level
department status could lead to a perception that the new agency does not have
the status of either USTR or the Department of Commerce. The same issue arises
with respect to the proposed role and tide of the head of the agency, "U.S. Trade
Representative/Administrator. "
The proposed legislation combines the trade functions of only three U.S.
government agencies and does not address opportunities for consolidating the
functions of other U.S. government agencies that carry out significant trade
responsibilities. One approach Congress could use to explore other opportunities
would be to task the ft-esident to report to Congress on opportunities to improve
the cost-effectiveness of federal programs and achieve budgetary savings through
additional consolidation.
The proposed legislation appears to eliminate Commerce's U.S. Commercial
Service's domestic network, which would have the effect of severing the link
between U.S. businesses and commercial officers overseas without creating an
alternative mechanism to provide this function.
Placement of Commerce's Bureau of Ebcport Administration in the new entity
would diminish the office's status relative to the Departments of Defer\se and State
for purposes of interagency coordination of export control issues. Administering
the export licensing of dual-use commercial products has always involved a careful
balancing of national security, foreign policy, and commercial interests. This raises
the issue of whether placing this authority at a lower level would alter the
necessary balancing of these interests.
GAO makes several other additional observations about this proposal as weU.
86
Mr. Chairman and Members of the Committee:
I am pleased to be here today to discuss a proposal to establish a U.S. Trade
Administration (USTA) by combining the Office of the U.S. Trade Representative (USTR),
various offices in the Department of Commerce, and the U.S. Trade and Development
Agency (TDA).
My testimony today will address several broad trade-related issues. The first part of my
statement will provide some context by discussing (1) the basis for the federal role in
international trade, (2) the various roles that USTR and Commerce play in international
trade activities, and (3) the interagency mechanisms that help integrate federal trade
activities. I will then address issues related to the current proposal in H.R. 2124, The
Trade Reorganization Act of 1995," to create a U.S. Trade Administration.
My remarks today are based on over a decade of our work covering a wide variety of
trade-related issues. These involved export promotion, including the programs of the
Commerce Department, as well as the U.S. Department of Agriculture (USDA), the U.S.
Export-Import Bank (Eximbank), the Small Business Administration (SBA), and TDA;
major trade negotiations and agreements, such as the North American Free Trade
Agreement (NAFTA) and the General Agreement on Tariffs and Trade (GATT); trade
regulation, including antidumping and counterviiiling duty matters; export licensing; and
other issues.
THE FEDERAL GOVERNMENT'S
ROLE IN INTERNATIONAL TRADE
The role of the federal government in international trade originates firom the U.S.
Constitution, which grants to Congress broad, comprehensive, and exclusive authority to
regulate commerce with foreign nations. Article I, section 8, of the Constitution lists
specific powers of Congress, including the power to "lay and collect taxes, duties, imposts
and excises . . . [and] to regulate commerce with foreign nations." While Congress has
clearly retained a prime role in international trade policy, it has delegated significant
authority to the executive branch. For example, since 1934, Congress has delegated to
the President authority to negotiate international trade agreements for the reduction of
tarifGs. In further delegation of their responsibilities. Congress and the President have
tasked numerous federal agencies with administering a wide variety of trade laws and
programs.
Federal activities in international trade can be divided into four m^yor areas: trade policy;
export promotion; trade regulation; and trade data collection, analysis, and dissemination.
(See app. I for a discussion of federal trade responsibilities.) The number of agencies
involved and the need for and use of interagency coordination mechanisms differ among
the four areas. (See app. n for a Ust of federal agencies significantly involved in
international trade.)
87
USTR AND COMMERCE ARE AT THE
CENTER OF FEDERAL TRADE ACTiyiTIES
USTR and Commerce share msyor responsibilities in U.S. government efforts to formulate,
coordinate, and implement U.S. trade policy and programs in all four areas. Roles and
responsibilities vary depending on the area and the particular circumstances involved.
While USTR and Commerce are at the center of federal trade activities, they have
different characteristics as organizations. USTR is a relatively small agency located in the
Executive OfBce of the President USTR had a 1994 budget of about $22 million and a
staff of about 170 people. The office is led by the U.S. Trade Representative, a cabinet-
level official with the rank of ambassador. The U.S. Trade Representative acts as the
principal trade adviser, negotiator, and spokesperson for the President on trade and
related investment matters. USTR is responsible for developing and coordinating U.S.
international trade, commodity, and direct investment policy, and leading or directing
negotiations with other countries on such matters.
On the other hand. Commerce is a much larger and more complex organization, led by a
cabinet secretary with a variety of responsibilities. The activities of several agencies
within Commerce focus on international trade matters.' Together, these trade-related
Commerce agencies had a 1994 budget of about $350 million and a stafif of around 2,800
people.
Formulating Trade Policy
USTR shepherds the formulation of U.S. trade policy through an interagency process from
its location in the Elxecutive Office of the President Trade i>olicy deliberations largely
take place in the cabinet-level National Economic Council (NEC), sub-cabinet-level Trade
Policy Review Group (TPRG), and staff-level Trade Policy Staff Committee (TPSC).
These interagency forums have a combined membership of 24 agencies and other
members. They are supported by a congressiorudly mandated private sector advisory
system of about 1,000 advisers organized into about 40 committees that provide the U.S.
government with advice from the private sector on international trade matters. Through
these forums, USTR seeks to blend their many views into one coherent policy and
implementation strategy. (See apps. m and IV for lists of member agencies to NEC, and
TPRG and TPSC, respectively.)
As an advocate for commercial interests, with which it interacts on a daily basis as part
of its broad trade re^onsibilities. Commerce participates in federal trade policy
deliberations, trade negotiations, and monitoring implementation of trade agreements.
Staff of Commerce's International Trade Administration (TTA) provide much of the
infcmnation and analysis that support the formulation of trade policy and the U.S. strategy
for trade negotiations. For example, USTR relied heavily on Commerce's country desk
'These specific activities are discussed in the foUowing sections.
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88
officers to provide region-specific analysis for use in negotiating NAFTA. Commerce staff
also work with the advisory committees representing exporter and industry sector
concerns that contribute to the formulation of trade policy. In addition, Commerce staff
participate in some negotiations and help to monitor other countries' compliance with
trade agreements.
Promoting U.S. Exports
The Commerce Department does not finance exports but plays a lead role in federal
efforts to promote exports. Commerce's ITA had a 1994 budget of about $287 million and
a staff of around 2,400 people. Three of ITA's foiu- organizational units-the U.S.
Commercial Service (USCS),^ International Economic Policy ("country desks"), and Trade
Development ("industry desks")-provide a variety of export information and facilitation
services for exporters of manufactured goods and services.' In particular, USCS is
composed of overseas and domestic offices. Its worldwide network has 134 overseas
offices in 69 countries that provide a variety of services to U.S. business. Commerce's
domestic network of 73 district offices and export centers serves as a key link between
U.S. businesses and the overseas offices. In addition to ITA, Commerce's U.S. Travel and
Tourism Administration is involved in a specific type of export promotion activity-
promoting foreign tourism in the United States, with a budget of about $20 million and
staff of about 90 people.
The Secretary of Commerce chairs the Trade Promotion Coordinating Committee (TPCC),
an interagency group that, since 1992, has been required by statute to develop a
govemmentwide strategy for rationalizing the federal government's nearly $3 billion in
federal export programs. (See app. V for a list of TPCC member agencies, which includes
USTR). These programs involve efforts to provide export financing; export-related
information, such as market research and trade leads; export "facilitation" services, such
as business coimseling; and other support services, such as trade missions and advocacy
(i.e., support by top-level federal officials) on behalf of U.S. exporters.
In May 1995 testimony,* we reviewed various rationales that have been put forward as a
basis for the federal government's role in promoting the sale of U.S. exports. Supporters
of govenunent assistance to exporters hold that "real world" deviations fi-om the
conditions necessary to make markets work efficiently (Le., "market failures") provide a
strong justification for such programs. Supporters also cite trade policy objectives, such
as combating foreign export price subsidies, as justification for govenunent support for
^Formerly the U.S. and Foreign Commercial Service.
'Commerce's export promotion programs involve offering business counseling, training,
and help with finding overseas representation, as well as providing market research
information, trade mission, and trade fair opporturuties.
*See Export Promotion: Rationales for and Against Government Programs and
Expenditures (GAO/T-GGD-95-169, May 23, 1995).
89
exporters. Opponents hold that the government cannot do better than the market and
that government intervention can make a bad situation even worse.
Of TPCC's 19 members, 3 agencies-USDA, Commerce, and the Ebdmbank-represented
over 90 percent of federal spending on export promotion in fiscal year 1994. USDA is the
most prominent of the export promotion agencies, having spent about $2 billion in fiscal
year 1994 for export information and export facilitation services and financing exports of
agricultural products. The Eximbank obligated about $980 million during fiscal year 1994
for its export loan, loan guarantee, and insurance programs, and related administrative
costs. Commerce spent the least of the three agencies-about $233 million in fiscal year
1994-on export promotion-related activities, mostly through ITA.
Regulating Trade
Commerce's responsibilities in regulating trade include licensing exports, administering
countervailing duty and antidumping laws, and implementing import restrictions, under
various trade statutes. Similarly, under other trade statutes USTR investigates unfair
foreign trade practices (with the help of Commerce) that can result in sanctions against
foreign suppbers.
Commerce shares responsibility for export control licensing with the Department of State.
Commerce's Bureau of Export Administration (BXA) licenses the export of civilian
products that may have military applications (so-called "dual-use" goods), while the State
Department licenses the export of military goods. For dual-use items. Commerce is
responsible for receiving applications, reviewing them, referring them to other agencies
when appropriate (such as tiie Departments of Defense and State), receiving advice back
fi'om them, and conducting dispute resolution proceedings if there is no consensus.
Disagreements between agencies on export control Issues are to be dealt with through an
interagency process. BXA also has a staff responsible for investigating violations of
export control laws. BXA had a 1994 budget of about $37 million and a staff of around
375 people.
Commerce shares responsibility with the International Trade Commission (TTC) for
administering countervailing duty and antidimiping laws that protect the U.S. market fi-om
ui\fair Imports. Under these laws, the U.S. government can place a duty on Imports of
goods that are being unfairly subsidized or "dumped" (l.e., unfairly sold below market
prices) in the Uixited States to the detriment of U.S. firms. ITA's Import Administration*
is responsible for determining whether subsidization or dumping has taken place while, in
a parallel proceeding, ITC seeks to determine whether Iryury or the threat of ii\jury has
occurred to U.S. firms as a result of the subsidies or dumping. If subsidization or
dumping and iivjury exist, then duties are to be imposed on the importers.
^Commerce's Import Administration unit also administers other import programs, such as
those under the machine tool and semiconductor agreements with Js4;>an.
90
Another form of trade regulation is other import restrictions. For example, Commerce
chairs the interagency Committee for the Implementation of Textile Agreements (CITA),
which includes USTR as well as the Departments of State, the Treasury, and Labor. ITA's
OfBce of Textiles and Apparel has a staff of about 40 that supports CITA's operations,
including monitoring textile imports and domestic production data. Since its
establishment in 1972, CITA has supervised the implementation of textile agreements and
proposed and implemented textile and apparel import restraints. It currently is charged
with overseeing the GATT Uruguay Round Agreement on Textiles and Clothing, which
provides for the integration of textile and apparel products into normal trade rules by
2005 and allows the Imposition of Interim Import restraints.
USTR has a role In regulating Imports as well. USTR performs Investigations into other
unfair trade practices, such as those that restrict U.S. business access to foreign markets.
Under section 301 of the Trade Act of 1974 (Public Law 93^18, Jan. 3, 1975), as amended,
USTR can Investigate alleged unfair trade practices and recommend Imposing import
restrictions on the goods and services of foreign countries that are using unfair practices
that are foimd to harm U.S. Interests. USTR looks to Commerce to generate much of the
information and analyses that serve as the basis for these investigations and, in some
cases, to administer resulting sanctions.
Trade and Investment Data Collection-
Analysis, and Dissemination
Several federal agencies collect, analyze, and disseminate international trade and
Investment data that serve as input both for federal decisions on trade matters and
business decisions on exporting and importing. The Treasury Department's Customs
Service generates basic trade data from documents provided by Importers and exporters.
Within Commerce, the Bureau of the Census, the National Technical Information Service,
and the Bureau of Economic Analysis (BEIA) compUe current statistics on exports.
Imports, shipping, and investment. Several agencies, including the Departments of
A^culture, Commerce, Labor, the Treasury, and ITC, analyze and disseminate this
information. USTR issues reports that use Information from these and other sources.
INTERAGENCY MECHANISMS ARE USED
TO COORDINATE TRADE ACTIVITIES
Federal agencies execute U.S. trade responsibilities through an extensive network of
formal and Informal interagency relationships. In trade policy, federal agencies have used
a long-standing Interagency process to reach consensus on trade issues. In export
promotion, federal agencies use a fairly new and, as a result, still evolving interagency
process to integrate their export strategies and coordinate their activities. In trade
regulation (e.g., antidumping and countervailing duties and export controls) and trade
data collection and dissemination, fewer agencies are Involved and, with regard to the
former, the laws and regulations more clearly delineate responsibilities.
91
On the basis of recent work in three of these areas-trade policy; export promotion; and
trade data collection, analysis, and dissemination-I would like to share with you our
views on these interagency mechaiusms.
Trade Policy
In the area of trade policy, the interagency decision-making process has evolved over a
20-year period into a sophisticated mechanism for transforming the often-disparate views
of multiple agencies into a uniform U.S. trade policy. The primary agencies involved in
this process are USTR, COmmerce, State, Treasury, USDA, and Labor.
Our work on international trade agreements also highlighted the importance of monitoring
and enforcing foreign government compliance with their commitments in order to ensure
that U.S. firms obtain anticipated benefits. Despite negotiating successes, our past work
demonstrates that the federal agencies responsible for monitoring and enforcing trade
agreements-primarily USTR, Commerce, and State-often experienced difficulty with their
implementation, which can require substantial investments of resources and coordination
among agencies. For example, we reported on monitoring and enforcement problems
with respect to the GATT Tokyo Round Government Procurement Agreement, Voluntary
Restraint Agreements on steel and machine tool imports, and the U.S.-European Union
Civil Aircraft agreement.* The need to improve enforcement was recently recognized by
the executive branch when earlier this year the Under Secretary of Commerce for
International Trade proposed creating a new office to monitor trade agreements and
strengthen this function.
Export Promotion
In export promotion, the interagency decision-making mechanism remains in its formative
stages. During 1991-92, we reported that the federal export promotion effort was
fi:agmented among numerous agencies and lacked any govemmentwide strategy or
priorities. We stated' that federal efforts in this area suffered fi-om inefficiency, overlap,
duplication, and apparent funding anomalies that increased costs and undermined the
effectiveness of export promotion activities. For example, the federal government at the
®See, for ii^tance. The International Agreement on Government Procurement: An
Assessment of Its Commercial Value and U.S. Government Implementation (GAO/NSIAD-
84-117, July 16, 1984); International Procurement: Problems in Identifying Foreign
Discrimination Against U.S. Companies (GAO/NSIAD-90-127, Apr. 5, 1990); IntematJonsl
Trade: Administration of Short SuppIv in Steel Import Restraint Agreements
(GAO/NSIAD-89-166, June 5, 1989); and International Trade: Long-Term Viability of U.S.-
European Union Aircraft Agreement Uncertain (GAO/GGD-9545, Dec. 19, 1994).
^See, for example. Export Promotion: Federal Programs Lack Organizational and Funding
Cohesiveness (GAO/NSIAD-92-49, Jan. 10, 1992); and our August 1992 testimony. Export
Promotion: Federal Approach Is Fragmented (GAO/GGD-92-68, Aug. 10, 1992).
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92
time maintained a fragmented and inefficient service delivery network that likely
confused and discouraged U.S. firms that were seeking export assistance.
In October 1992, Congress passed legislation to address these problems. Title II of the
Export Enhancement Act of 1992 (Public Law 102-429, Oct 21, 1992) created an
interagency mechanism through which the admiiustration, working closely with Congress,
might strengthen federal efforts to promote exports. This legislation codified the
interagency TPCC and tasked it to issue a report by September 30, 1993, (and aiuiually
thereafter) describing a govemmentwide strategic plan for federal export promotion
activities and its implementation. The strategy was to articulate govemmentwide federal
export promotion priorities and present a imified budget proposal to the President based
on those priorities.
We have monitored TPCC activities since passage of the legislation. USDA, which
commands by far the largest portion of the federal export promotion budget, at least
initially withheld full participation in TPCC deliberations. Even those agencies fuUy
participating are experiencing difficulty blending their separate views into a unified
export promotion strategy. In testimony,' we characterized the TPCC's first annual
report, issued September 30, 1993, as a work in progress. This annual report, as weU as
the 1994 update, did not establish govemmentwide export promotion priorities nor a
imified export promotion budget proposal. We believe that both are necessary to move
the interagency coordination process forward as a vehicle for improving the effectiveness
and efficiency of federal export promotion efforts.
Despite the absence of govemmentwide priorities and a unified budget proposal, the
TPCC reports contained 65 recommendations for improving federal export promotion
efforts. These included several recommendations for msuor improvements, as well as
many others that called for incremental iimovations that, if taken together, would add to
meaningful change. Several are well into implementation, such as (1) establishment of a
federal advocacy center and network through which high-level federal officials can
intercede on behalf of U.S. firms seeking export contracts and (2) creation of a network
of U.S. Export Assistance Centers, which combines the domestic service delivery
networks of Commerce, the Elximbank, and SBA into "one-stop shops."
Trade and Investment Data CoUection.
Analysis, and Dissemination
A number of federal agencies are responsible for collecting international trade and
investment data. Laws and regulations to protect confidentiality restrict sharing of data,
both within and among agencies. A recent initiative to create interagency ties has
*See Export Promotion Strategic Plan: Will It Be a Vehicle for Change? (GAO/T-GGD-93-
43, July 26, 1993); Export Promotion: Initial Assessment of Govemmentwide Strategic
Elan (GAO/T-GGD-93^, Sept 29, 1993); and Export Promotion: Cxovemmentwide Plan
Contributes to Improvements (GAO/T-GGD-94-35, Oct 26, 1993).
93
improved the quality of federal information on foreign direct investment in the United
States (FDIUS). Commerce is the principal federal agency responsible for collecting data
on FDIUS. To improve the quality of these data and enhance analysts' ability to assess
the impact of that investment on the U.S. economy, the Foreign Direct Investment and
International Data Improvements Act of 1990 (Public Law 101-533, Nov. 7, 1990) was
enacted. This legislation authorized Commerce's BEA to share confidential data on
FDIUS with Commerce's Bureau of the Census and the Department of Labor's Bureau of
Labor Statistics (BLS), and authorized Census to share data with BEA.
Without imposing any additional reporting burdens on survey respondents,® the agencies
involved have generated new data that provide a richer description of the characteristics
and operations of affiliates of foreign firms operating in the United States and should
enable analysts to draw more meaningful comparisons between such affiliates' operations
and those of U.S. firms. For example, by comparing the market and employment shares
of foreign-owned establishments with those of U.S. establishments, Commerce has been
able to respond to concerns about the possibility that foreign investors might be acquiring
a disproportionate amount of ownership in certain U.S. industries.
ISSUES CONCERNING THE IMPACT
OF CREATING A U.S. TRADE ADMINISTRATION
I would like to make a few general comments about the current process before I
comment on specific provisions in the proposed bill. The system I have just described
does work. For example, trade agencies have used the current interagency decision-
making process to attain several major achievements. Chief among these achievements
has been the successful conclusion of the negotiations leading to NAFTA and the GATT
Uruguay Round agreements. We have reported" that, while these accords were extremely
complex and difficult to negotiate, both can be expected to benefit the United States.
Recent proposals calling for the elimination of the Commerce Department and creating a
U.S. Trade Administration provide Congress and the administration with both a challenge
and an opportunity. The challenge is to determine if the programs and activities can be
reorganized in a maimer that does not harm the government's ability to carry out
necessary functions and achieve congressionally mandated policy goals. The opportunity
lies in the chance to take a fresh look at all of the government's trade programs and
activities and to enhance their efficiency and cost-effectivenes^.
"Data provided by Commerce and BLS officials show that fi-om 1991 to 1995, the BEIA-
Census and BEIA-BLS data link projects have been conducted at an average annual cost of
about $1.2 million.
■"See North American Free Trade Agreement: A Focus on the Substantive Issues (GAO/T-
GGD-9344, Sept 21, 1993); and International Trade: Observations on the Urueuav Round
Agreement (GAOyT-GGD-94-98, Feb. 22, 1994).
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94
We have previously raised issues for consideration about how some provisions of other
legislation could affect the conduct of certain trade respoitsibilities. For example, we
raised the issue about how the Department of Commerce Dismantling Act (H.R. 1756,
104th Cong.) would affect trade policy-making and negotiating by eliminating a part of
Commerce that helps USTR. It would deprive USTR of much of the analytic support that
it needs to formulate trade policy and negotiating strategies." Similarly, we raised the
issue about how that proposed legislation could alter the current balance between foreign
policy, national security, and commercial interests in the administration of export
controls for dual-use civilian products.
Presents Opportunities
The Trade Reorganization Act of 1995, introduced by Congressman John Mica, addresses
many of the issues we raised about earlier legislative proposals. The bill consolidates
existing trade functions into a USTA, whose head would have cabinet-level status. The
new organization would be an independent, executive branch agency but not a cabinet
department The bill combines the responsibilities of the Office of the U.S. Trade
Representative; Commerce's ITA and BXA; functions related to the National Trade Data
Bank (from the Economic and Statistical Administration); and the now-independent TDA.
The proposal presents new opportunities for managing U.S. government trade
responsibilities more efficientiy. Combining the trade functions of three existing agencies
(USTR, parts of Commerce, and TDA) under one new orgaixization could help rationalize
the current fragmented organizational approach and may reduce the difficulties associated
with establishing and implementing uniform policies sicross different U.S. government
organizations. For example, imder the current system Commerce's overseas commercial
officers provide most of the field support for TDA (which has no overseas staff) and
USTR (which only has staff in two overseas posts). Furthermore, Commerce's staff in
the Office of International Economic Policy and Office of Trade Development devote
nearly one half of their time to supporting USTR's trade policy activities, according to a
1993 report by Commerce's Inspector General.'^ In addition. Commerce helps administer
the private-sector industry advisory groups that are part of the trade policy process. In
sum, combining Commerce, TDA, and USTR within a single organization could yield
benefits from the closer integration of the staff currently responsible for trade policy and
trade promotion.
Some policymakers have expressed concern about combining disparate functions of USTR
and Conunerce in one agency. Specifically, they are concerned about whether one agency
"See Commence's Trade Functions (GAO/GGD-95-195R, June 26, 1995).
"Assessment of Commerce's Efforts in Helping U.S. Firms Meet the Export Challenges of
the 1990s. U.S. Department of Commerce, Office of Inspector General, IRM-4523
(Washington, D.C.: U.S. Government Printing Office, Mar. 17, 1993), pp. 31-7.
9
95
can both negotiate trade agreements and promote U.S. exports without detriment from
competing and conflicting interests. Past experience has shown that one agency can
successfully do both. Commerce and Agriculture currently promote U.S. exports and
participate in, and even lead, trade negotiations. However, the new organization would
change how policy differences between interests currently represented by USTR and
Commerce would be resolved in the future. Some differences that have been addressed
in inlfir-agency forums in the past would now be addressed in an intra-agencv forum.
However, where responsibilities and policies conflict, as they have in the past, we see no
reason these could not be resolved within USTA.
HR. 2124 Also
Raises Issues
While we believe that H.R. 2124 addresses many of the issues we identified in earlier
proposals, some issues still remain. First, in light of the importance that Congress has
attached to trade. Congress may wish to consider whether the new agency should be a
cabinet-level department. Creation of a trade "administration" could lead to a perception
that the new agency does not have the status of either USTR, which is in the Executive
Office of the President, nor of the cabinet-level Department of Commerce. Similarly, the
same issue arises with respect to the proposed position and title of the head of the
agency, "U.S. Trade Representative/Administrator." This title may create a perception
among foreign officials that the head of the new agency does not have the same clout as
either the current U.S. Trade Representative (because he/she would no longer be part of
the Elxecutive Office of the President) or the Secretary of Commerce. Furthermore,
carrying over the title of the U.S. Trade Representative from the former office to the new
organization does not convey the full range of responsibilities with which the new
position has been charged, including those related to export promotion, export controls,
and import administration programs and issues.
Second, the proposal combines the trade functions of only three U.S. government
agencies-Commerce, USTR, and TDA-and does not address opportunities for
consolidating the functions of the other U.S. government agencies that carry out
significant trade responsibilities. One approach Congress might consider for exploring
such opportunities would be to task the President to report to the Congress on
opportunities to improve the cost-effectiveness of federal government trade programs
through further consolidation of trade agencies and programs, such as those of USDA,
SBA, and State.
For example, such a report could address the following questions:
- Can the overseas operations of the USDA's Foreign Agricultural Service and
Commerce's USCS, both of which promote U.S. exports, be combined into a single
service that would be more cost-effective?
- - Can the U.S. government's various international credit, insurance, and guarantee
programs be consolidated into one agency? Currently these services^are provided
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96
by several agencies (the Eximbank, SBA, USDA's Commodity Credit Corporation,
and the Overseas Private Investment Corporation).
- - To what extent do the activities of the State Department's Bureau of Economic
and Business Affairs overlap and duplicate USCS activities, and how can any
identified duplication be eliminated?
- - Are there opportunities to improve the effectiveness of the congressionally
mandated public and private sector advisory committees?
Third, sec. 222(1)(A) of the bill transfers those functions exercised by USCS in foreign
nations fi-om Commerce to USTR but does not transfer the functions of the USCS'
domestic network. An issue for consideration raised by this provision stems from the
fact that the domestic office staff serve as an important link between U.S. businesses
seeking information and analysis on foreign country markets and overseas Commerce
posts. Domestic offices (as well as the country and industry experts in Washington) also
help organize and recruit companies for overseas trade missions and trade events. Thus,
by not transferring the USCS' domestic network to the new agency, the bill appears to
sever the link between U.S. businesses and Commerce's foreign posts without providing
an alternative mechanism for performing these functions.
Additional Observations
Finally, we have several additional observations about the organizational structure that
would be created under H.R. 2124. The bill (sec. 211(c)) creates a Deputy Adrnirustrator
responsible for all USTA functions except for those exercised by the Deputy U.S. Trade
Representatives, the Inspector General, and the General Counsel. We interpret this to
mean that the Deputy Adrnirustrator and the Deputy U.S. Trade Representatives would
have direct access to the head of the agency. Furthermore, the bill (sec. 213) provides
for three Assistant Admmistrators reporting to the Deputy Adrnirustrator. Thus, the
Deputy Administrator would supervise many of the current functions performed by the
Under Secretary for International Trade. These changes prompt the following issues.
The bill would demote the head of BXA fi-om the current Under Secretary level by
making the position one of the three Assistant Administrators. This would
diminish the office's status relative to the Departments of Deferise and State for
purposes of interagency coordination of export control issues. Administering the
export licensing of dual-use commercial products has always involved a careful
balancing of national security, foreign policy, and commercial interests. TTierefore,
an issue for consideration is whether placing this authority at a lower level would
alter the necessary balancing of interests. In the Ebcport Administration
Amendments Act of 1985 (50 U.S.C. jq)p. 2401), Congress sought to increase the
competitiveness of U.S. exports and to lessen the burden fi-om export licensing on
U.S. business. As part of this effort, BXA was removed from ITA, and its chief was
elevated to the level of Commerce Department Under Secretary.
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The role and responsibilities of the Deputy Administrator position are unclear. The
Deputy Administrator position could have responsibilities largely management in
nature, serving as a "Chief Operating OfBcer" for USTA; this would allow the U.S.
Trade Representative to continue to focus on policy issues." However, if the
Deputy Administrator is to be the Chief Operating OfBcer, he/she does not appear
to have clear authority over and responsibility for the staff of the Deputy U.S.
Trade Representatives. Alternatively, if the Deputy Administrator is to be primarily
in a policy-making role, the position may be redundant Options for consideration
include clarifying the Deputy Administrator's responsibilities or making the planned
organizational structure flatter by eliminating the Deputy Administrator position
and having the Assistant Administrators for Elxport Administration, Import
Administration, and Trade Policy and Analysis, and the Director General for Export
Promotion" all report directly to the U.S. Trade Representative/Administrator.
The bill (sec 202(f)) would make the U.S. Trade Representative chairperson of
TPCC. Thus, Congress could, if it so chooses, use this legislation to strengthen the
TPCC interagency process we discussed earlier. For example, the authority given
the new USTA could be made stronger to help ensure that all members fully
participate and that the committee establishes a set of govemmentwide priorities
and a unified export promotion budget proposal.
CONCLUSIONS
The Trade Reorganization Act of 1995 presents new opportunities for managing U.S.
government trade responsibilities more efficiently by combining the trade functions of
USTR, parts of Commerce, and TDA imder one new organization. However, the proposal
combines the trade functions of only three U.S. government agencies and does not
address opportuiuties for consolidating the functions of the many other U.S. government
agencies thai carry out significant trade responsibilities. Congress may wish to explore
'*rhe bill does not assign administrative functions like budget, personnel, and information
resource management The bill does create a Chief Financial Officer that reports to the
Deputy Admirustrator, but as noted previously, the Deputy Administrator £^pears to have
no responsibilities for functions under the Deputy U.S. Trade Representatives, the
Inspector General, and the General Counsel. The Assistant Administrators, Director
General, and Deputy U.S. Trade Representatives would have responsibilities for budgets,
staff, and field networks that currently vary significantly in size. Administrative functions
could be centralized or decentralized.
'*Sec. 211(c) places all USTA functions with the Deputy Administrator except for those
exercised by the Deputy U.S. Trade Representatives, the Inspector General, and the
General Counsel. Thus, the section s^pears to place the Director General under the
Deputy Administrator. However, sec. 214(b) places the Director General for Export
Promotion directly under USTR, with the status and rank of ambassador, similar to the
Deputy U.S. Trade Representatives.
12
98
additional opportunities for consolidation to reduce costs and to improve the formulation
and implementation of U.S. government trade programs. As one approach to this end,
Congress could task the President in legislation like H.R. 2124 to report to Congress
within a specified deadline on what other possible opportunities exist for further
consolidation that could improve program effectiveness and achieve budgetary savings.
Mr. Chairman, this concludes my prepared statement I would be pleased to try to
answer any questions you or other Members of the Committee may have.
13
99
APPENDIX I APPENDIX I
TRADE-RELATED FUNCTIONS
OF THE FEDERAL GOVERNMENT
One way to categorize the federal govenunent's international trade-related activities is to
divide them into four primary groups: trade policy; export promotion; trade regulation;
and trade and investment data collection, analysis, and dissemination.
1. Trade Policy
Agencies involved include the U.S. Trade Representative (USTR); and the Departments of
Agriculture, Commerce, Treasury, State, and Labor. Activities include the following:
A. Working through an interagency process to formulate and coordinate international
trade or investment policies, and coordinating those policies with domestic policies
and with U.S. business and consumer interests and state and local governments.
B. Negotiating international trade or international investment agreements.
C. Funding and representing U.S. interests in trade-related international organizations.
D. Monitoring and enforcing other countries' compliance with trade agreements.
2. Export Promotion
Agencies involved include the Departments of Agriculture (USDA), Commerce, Energy,
and State; the U.S. Export-Import Bank (Eximbank), the Overseas Private Investment
Corporation; the Trade and Development Agency (TDA); and the Small Business
Adrninistration (SBA). Activities include the following:
A. Formulating and coordinating export promotion policy.
B. Combating foreign export subsidies.
C. Financing and insuring U.S. trade or U.S. investments in other countries, or funding
feasibility studies on msyor infirastructure and development projects.
D. Providing "trade facilitation" services to the public, such as export counseling,
foreign market analyses, or trade missions or trade fairs.
E. Providing govemment-to-govemment advocacy on behalf of U.S. businesses.
F. Developing foreign markets for U.S. goods and services.
14
100
APPENDIX I APPENDIX I
G. Providing tourism promotion services and formulating and coordinating tourism
policy.
3. Trade and Investment Regulation
Agencies involved include USDA, Commerce, Defense, Justice, Labor, State, and the
Treasury; and the International Trade Commission (TTC). Activities include the
foUowing:
A. Licensing and restricting exports, imports, or foreign investments in the Uiuted
States for national security, foreign policy, or short supply reasons.
B. Inspecting exports or imports for health, safety, or certain other reasons.
C. Enforcing U.S. laws on iUegal drugs, money laundering, counterfeit goods, and other
cross-border activities.
D. Enforcing U.S. laws that seek to protect U.S. companies or workers from "unfair" or
harmful foreign trade practices, such as antidumping and countervailing duties laws;
and providing financiaJ assistance to offset such harm, such as trade ac^ustment
assistance.
E. Enforcing U.S. rights under trade agreements and responding to certain foreign
practices (sees. 301-310 of the Trade Act of 1974, as amended.)
F. Enforcing U.S. antiboycott laws and the Foreign Corrupt Practices Act of 1977, as
amended (15 U.S.C. sec. 78dd-l).
G. Administering foreigners' blocked assets in the United States or acUudicating U.S.
citizens' claims against foreigners.
4. Trade and Investment Data Collection, Analysis, and Dissemination
Agencies involved include USDA, Commerce, Labor, and the Treasury; and ITC.
Activities include the following:
A. Documenting and tracking trade and investment transactions and maintaining U.S.
tariff schedules.
B. Analyzing or distributing trade and investment data to government decisioiunakers
or to the public.
15
101
APPENDIX I APPENDIX I
5. Other Trade-Related Functions
Agencies involved include the Departments of Commerce, Justice, State, and the
Treasury; and the Federal Reserve System. Activities include the following:
A. Issuing patents and registering trademarks.
B. Developing and maintaining information on U.S. product standards.
C. Regulating the banking activities of subsidiaries of foreign comparues in the United
States and subsidiaries of U.S. companies located abroad.
D. Enforcing U.S. antitrust laws that affect U.S. companies' ability to trade or invest
abroad.
E. A^udicating disputes over traded goods (e.g., ITC's "section 337" cases).
F. Collecting customs duties and fees.
G. Taxing U.S. persons or corporations overseas or foreign persons or corporations
that owe U.S. taxes.
Sources: Budget of the U.S. Government for Fiscal Year 1996 fWashineton. D.C.: U.S.
Government Printing Office, 1995); Federal Staff Directorv 1993/1 (Mount Vernon, Virgirua:
Staff Directories, Ltd., 1993); Export Programs: A Business Directorv of U.S. Government
Services. Trade Promotion Coordinating Committee (Washington, D.C.: U.S. Government
Printing Office, 1995).
16
102
APPENDIX n APPENDIX n
OTHER U.S. GOVERNMENT AGENCIES INVOLVED IN INTERNATIONAL TRADE
We discuss in the following paragraphs the major trade agencies other than USTR and
(Commerce, and some of their responsibilities. We have not undertaken to catalogue
the tasks or offices within each agency that deal in some way with international trade
issues.
1. USDA administers a number of trade programs that are intended to enhance the
competitiveness of U.S. exporters of agricultural products. These programs include the
concessional (i.e., below market interest rate) sales program, export credit guarantee
programs, and export promotion programs. The agency also provides input and
expertise to U.S. negotiators and policymakers on matters of agricultural trade.
2. The Department of State participates in the formulation of U.S. trade policy by
bringing its foreign policy perspective to bear on trade issues. The State Department
also licer\ses the export of military goods.
3. The Department of the Treasury has responsibility for international monetary
affairs, international finance and investment, and coordination of U.S. policies
regarding international financial institutions such as the International Monetary Fund
and the World Bank. Within the Department, the U.S. Customs Service is charged
with collecting import duties and enforcing the himdreds of laws or regulations
relating to international trade.
4. The Departments of Labor, Defense, Transportation, Energy, and Justice, and the
Environmental Protection Agency offer support and expertise that are used to
formulate and coordinate international trade policies or negotiations. For example,
the Department of Labor conducts research on trade-related employment issues. A
provision of the Omnibus Trade and Competitiveness Act of 1988 (Public Law 100-418,
Aug. 23, 1988) requires the Secretary of Commerce, in consultation with the Secretary
of Energy, to undertake a comprehensive review to assess whether existing statutory
restrictions on the export of crude oil produced in the United States are adequate to
protect the energy and national security interests of the Uruted States.
5. Eximbank is an export credit agency responsible for promoting and facilitating U.S.
exports. Eximbank provides fiiumcing assistance for exporters through direct loans,
loan guarantees, and export insurance. In addition, the agency administers a tied-aid
capital projects fund to match export subsidies provided for foreign competitors.
6. rrC conducts studies and investigations relatiixg to international trade, including
determining whether U.S. industries have been iryured or threatened with ii\jury by
reason of imports alleged to have been supported by subsidies or to have been
'dumped' on the U.S. market ITC determinations parallel the subsidies or dumping
investigations conducted by the Department of Commerce.
17
103
7. The Overseas Private Investment Corporation was created to mobilize and facilitate
the participation of U.S. private capita] and skills in the economic and social
development of developing countries, thereby complementing the development
assistance objectives of the United States. The agency indirectly promotes U.S.
exports by providing insurance and guarantees for U.S. investment in the markets of
developing countries.
8. SBA, in cooperation with the Department of Commerce and other relevant federal
agencies, engages in export promotion on behalf of small businesses. SBA provides
export-financing assistance to small businesses.
9. TDA was established as a separate agency in 1988 to promote U.S. private sector
participation in development projects in developing and middle-income countries.
TDA provides grants for U.S. firms to prepare engineering and design studies of
bilateral and multilateral development projects in foreign markets.
18
104
APPENDIX m APPENDIX ffl
MEMBERS OF THE NATIONAL ECONOMIC COUNCIL
The President, Chair
The Vice President
Secretary of Agriculture
Secretary of Commerce
Secretary of Energy
Secretary of Housing and Urban Development
Secretary of Labor
Secretary of State
Secretary of Transportation
Secretary of the Treasury
Administrator, Environmental Protection Agency
Chair, Council of Economic Advisers
Director, Office of Management and Budget
USTR
Assistant to the President for Domestic Policy
Assistant to the President for Economic Policy
Assistant to the President for Science and Technology Policy
National Security Advisers
19
105
APPENDIX IV APPENDIX IV
MEMBERS OF THE TRADE POLICY REVIEW GROUP (TPRO AND
TRADE POLICY STAFF COMMITTEE fTPSC^
Office of the U.S. Trade Representative, Chair
Department of Agriculture
Department of Commerce
Department of Defense
Department of Energy
Department of Health and Human Services
Department of the Interior
Department of Justice
Department of Labor
Department of State
Department of Transportation
Department of the Treasury
Coimcil of Economic Advisers
Environmental Protection Agency
International Development Cooperation Agency
National Economic Council/National Security Council
OfBce of Management and Budget
U.S. rrC (as an observer at TPRG
meetings and a nonvoting member of TPSC)
20
106
APPENDIX V APPENDIX V
MEMBERS OF THE TRADE PROMOTION COORDINATTNG COMMnTRF.
Department of Ck)inmerce, Chair
Department of State
Department of the Treasury
Department of Defense
Department of the Interior
Department of Agriculture
Department of Labor
Department of Transportation
Department of Energy
OfBce of Management and Budget
OfBce of the U.S. Trade Representative
Council of Economic Advisers
Envirorunental Protection Agency
SBA
Agency for International Development
Eximbank
Overseas Private Investment Corporation
U.S. TDA
U.S. Information Agency
(280149)
21
107
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ALLAN I. MENDELOWITZ
Allan I. Mendelowltz is an official of the U.S. General Accounting
Office and has been with GAO since 1976. He is the Managing
Director for International Trade, Finance, and Competitiveness
Issues, and is responsible for all of GAO's work on international
trade, finance and competitiveness programs, policies, and
agencies. Work in this area includes, by way of exeunple, reviews
of U.S. participation in bilateral and multilateral trade
agreements, export promotion programs, foreign direct investment,
administration of countervailing duty and antidumping laws,
analysis of foreign exchange markets, issues in industrial policy
and competitiveness. Previously, Dr. Mendelowltz was the
representative of the Comptroller General on the staff of the
Chrysler Corporation Loan Guarantee Board, and Assistant Director
of the Program Analysis Division working on government regulation.
Prior to joining GAO, Dr. Mendelowltz was a Brookings Institution
Economic Policy Fellow (1975-1976), and on the faculty of the
economics department of Rutgers University (1970-1975).
Dr. Mendelowltz received his B.A. degree in economics from Columbia
University in 1966 and his Ph.D. in economics from Northwestern
University in 1971. Articles by him have appeared in the Journal
of Policy Analysis and Management, the National Tax Journal, the
Journal of Business, the GAO Journal, and others. In addition. Dr.
Mendelowltz has been a frequent witness before congressional
committees testifying on the findings and conclusions of the work
of the General Accounting Office on international trade and finance
issues and programs .
Dr. Mendelowltz is married and has two children.
Telephone No: (H) (301) 279-0744
(0) (202) 512-4812
(FAX) (202) 512-5351
no
GAO
United States
General Accoanting Office
Washington, D.C. 20548
General Government Division
B-261618
June 26, 1995
The Honorable Donald A. Nanzullo
Chairman
Subconunittee on Procurement, Exports,
and Business Opportunities
Committee on Small Business
House of Representatives
Dear Mr. Chairman:
As Congress considers how to downsize the federal
government, many of the proposals being reviewed would
involve terminating federal functions and agencies.
Several proposals would abolish the Department of Commerce
and, in the process, eliminate some of its component parts
and relocate others to various parts of the government.
Abolishing the Commerce Department would have significant
implications for the operations of the federal government's
trade programs and responsibilities, even if all of
Commerce's trade operations were to be removed to other
agencies.
You asked us to provide some insights into how Congress
could consolidate federal trade activities were the
Commerce Department to be abolished. This letter responds
to your reguest by ( 1 ) reviewing the role that Commerce
plays in trade, (2) discussing two past efforts to
reorganize federal trade activities and their implications
for today's debate, (3) commenting on some of the proposals
that have been made for reorganizing Commerce's trade
functions, and (4) presenting some principles that Congress
may wish to use to guide it in this debate.
This letter is based on more than a decade of GAO work
covering a wide variety of trade-related issues. These
involved export promotion, including the programs of the
Commerce Department and the U.S. Department of Agriculture
(USDA); major trade negotiations and agreements, such as
GAO/GGD-95-195R Commerce's Trade Functions
Ill
B-261618
the North American Free Trade Agreement (NAFTA) and the
General Agreement on Tariffs and Trade (GATT); trade
regulation. Including antidumping and countervailing duty
matters; and other issues. Because this letter is based on
prior work, we did not obtain agency comments.
COMMERCE'S ROLE IN FEDERAL TRADE ACTIVITIES
The Commerce Department is a major participant In many of
the federal government's trade activities. (See enclosure
for a listing of federal trade functions.) Specifically,
Commerce plays a significant role in trade policymaking and
negotiating, export promotion, trade regulation, and trade
data collection and analysis.
The Commerce Department is at the center of federal efforts
to promote exports. The Secretary of Commerce chairs the
Trade Promotion Coordinating Committee (TPCC), an
interagency group that is responsible for developing and
coordinating U.S. export promotion programs. This strategy
alms to rationalize the federal government's $3.3 billion
in federal export promotion expenditures, which include
efforts to provide export financing; export-related
Information; and export "facilitation" services, such as
business counseling and training.
Three agencies represented over 90 percent of federal
spending on export promotion In fiscal year 1994. USDA
spent most of these funds, about $2 billion. USDA provides
both export Information and export facilitation services,
as well as financing to exporters of agricultural products.
The Export- Import Bank of the United States (Eximbank)
spent about $774 million, on export loans, guarantees, and
insurance. The Commerce Department spent about $233
million. Most of this was expended by Commerce's
International Trade Administration (ITA). Three of the
four organizational units of ITA- -the U.S. Commercial
Service (USCS),' International Economic Policy (IEP--the
"country desks"), and Trade Development (TD — the "Industry
desks") --provide a range of export information and export
^Formerly the U.S. & Foreign Commercial Service.
2 GAO/GGD-95-195R Commerce's Trade Functions
112
B-261618
facilitation services for exporters of manufactured goods
and services.^ Commerce has no authority to finance
exports. Other federal organizations have smaller export
promotion programs: the Trade and Development Agency; the
U.S. Infoxrmation Agency; the Small Business Administration;
the Overseas Private Investment Corporation (OPIC); and the
Departments of State, Transportation, Energy, Labor, and
the Treasury.
Commerce also participates in coordinating, formulating,
and implementing U.S. trade policy. Much of U.S. trade
policy is developed through a decision-making mechanism
comprised of several interlocking interagency committees
and related subcommittees, chaired by the U.S. Trade
Representative (USTR); and a large number of advisory
committees composed of business, labor, and other
representatives of the private sector. Commerce staff play
important roles on the cabinet- level Trade Policy
Committee, sub-cabinet-level Trade Policy Review Group, and
staff -level Trade Policy Staff Committee. Also, ITA staff
provide much of the information and analysis that support
the formulation of trade policy and U.S. strategies for
trade negotiations. For example, USTR relied heavily on
Commerce's country desk officers to provide region-specific
policy analysis support for NAFTA. These staff also
participate in some negotiations, coordinate with the
private sector advisory committees, and help to monitor
other countries' compliance with trade agreements.
Commerce has major responsibilities in trade regulation as
well. Commerce shares export control licensing
responsibility with the State Department. Commerce's
Bureau of Export Administration (BXA) licenses the export
of civilian products that may have military applications
(so-called "dual use" goods), while the State Department
licenses the export of military goods. For dual use items.
Commerce is responsible for receiving applications,
referring them to other agencies when appropriate (such as
^Although it is not a part of ITA, Commerce's U.S. Travel
and Tourism Administration is involved in another type of
export promotion activity — promoting foreign tourism in the
United States.
3 GAO/GGD-95-195R Commerce's Trade Functions
113
B-261618
the Departments of Defense and Energy) , receiving advice
back from them, and conducting dispute resolution
procedures If there Is no consensus. Disagreements between
agencies on export control Issues are to be dealt with
through an Interagency process.
Commerce shares responsibility with the International Trade
Commission (ITC) for administering countervailing duty and
antidumping laws. The U.S. government can place an
additional duty on Imports of goods that are being unfairly
subsidized or "dumped" (i.e., unfairly sold below market
prices) in the United States to the detriment of U.S.
firms. ITA's Import Administration (lA) unit is
responsible for making these determinations. In a parallel
proceeding, ITC is to determine whether Injury or the
threat of Injury has occurred to U.S. firms as a result of
the subsidies or dumping. If subsidization or dumping and
injury exist, then duties are to be Imposed on the
importers. Commerce's lA unit also administers other
import progreuns, such as those under the machine tool and
semiconductor agreements with Japan.
Several organizations in the Commerce Department collect,
analyze, and disseminate trade or International investment
data. The Census Bureau compiles current statistics on
exports, imports, and shipping. Census also prepares and
analyzes estimates of U.S. direct Investment abroad and
foreign direct investment in the United States. Commerce's
National Technical Information Service and Bureau of
Economic Analysis also work with trade data.
TWO PAST EFFORTS TO REORGANIZE AND REFOCUS
TRADE FUNCTIONS
There have been two efforts made in the last 15 years to
reorganize and/or refocus federal trade functions. The
experience with these efforts is relevant for today's
debate on rearranging these activities. The first effort,
in 1980, was a major restructuring involving the trade
policymaking, export promotion, and trade regulation
bureaucracies. The other endeavor, in 1992, was an attempt
to sharpen the strategic focus of federal export promotion
efforts without resorting to a reorganization.
GAO/GGD-95-195R Commerce's Trade Functions
114
B-261618
1980 Trade Reorganization
During the latter part of the 1970s, the U.S. business
conununlty expressed concern about the Implementation of
specific federal trade functions. One concern was over the
quality of the State Department's commercial activities
overseas. Until 1980, the State Department had primary
responsibility for this function. State Department
commercial officers at U.S. embassies Implemented programs
that the Commerce Department In Washington, D.C., designed,
managed, and offered to U.S. businesses nationwide.
However, as we reported In 1982,' when State had primary
responsibility for commercial work abroad the agency
accorded It a very low priority, as compared with foreign
policy, economic, and consular work. The State Department
devoted fewer resources to commercial activities than to
other functions and failed to recruit employees with strong
commercial experience. State Department employees
performing commercial work suffered from low career status
and fewer promotions and were often encouraged to work on
noncommercial affairs that State considered to be higher
priority matters. The State Department's disinterest
resulted in poor commercial service for U.S. businesses.
At the same time, the U.S. business community and some
Members of Congress questioned the ability of State's
commercial officers to vigorously monitor and enforce
foreign government compliance with agreements resulting
from the Tokyo Round of multilateral trade negotiations
under GATT.* They expressed concern about potential
conflicts of responsibility Inherent in having State
monitor foreign government compliance with trade agreements
as well as maintain diplomatic relations with these
governments. They also maintained that the Treasury
'Problems Hamper Foreign Commercial Service's Progress
(GAO/ID-83-10, Oct. 18, 1982).
*See The International Agreement on Government Procurement;
An Assessment of Its Co"""«»r<^<al Value and U.S. Government
Implementation (GAO/NSIAD-84-117, July 16, 1984).
5 GAO/GGD-9S-195R Commerce's Trade Functions
115
B-261618
Department, which at the time administered U.S. antidumping
and countervailing duty laws, was not, In practice,
fulfilling these responsibilities.
Also, there were concerns that the Office of the Special
Trade Representative, as USTR was then known, did not have
sufficient authority over trade policymaking within the
government to function effectively In all International
trade-related negotiations. At the time, for example, the
State Department had primary responsibility for several
areas of trade negotiations. Including commodity and
East/West trade negotiations.
Consequently, Congress Included In the Trade Agreements Act
of 1979 (P.L. 96-39) a provision requiring the President to
submit a proposal to reorganize the federal trade
bureaucracy. The reorganization was to result In the
upgrading of commercial programs and commercial attaches
overseas to ensure that U.S. trading partners were meeting
their trade agreement obligations. The act also required
the President to "consider" strengthening the coordination
and functional responsibilities of the Special Trade
Representative's Office. The administration responded with
Reorganization Plan No. 3 of 1979.
The Administration's Plan Reorganized
Multiple Trade Functions
Reorganization Plan No. 3 made three major changes to the
structure and functioning of the federal trade bureaucracy.
First, It transferred from the State Department to the
Commerce Department primary responsibility for overseas
commercial work. Second, It moved responsibility for
administering antidumping and countervailing duty laws from
the Treasury Department to Commerce. Third, the plan
renamed the Office of the Special Trade Representative the
Office of the U.S. Trade Representative, and enhanced Its
status. Under the plan, USTR was made responsible for
developing and coordinating U.S. International trade
policy, including commodity and trade-related investment
matters. The plan further provided that USTR should have
lead responsibility for conducting international trade
negotiations, including representing the United States in
GATT matters, trade and commodity matters considered in the
6 GAO/GGD-95-195R Commerce's Trade Functions
U4
B-261618
Organization for Economic Cooperation and Development and
the United Nations Conference on Trade and Development, and
East-West trade negotiations. Moreover, the plan
designated USTR as the principal adviser to the President
on International trade policy, as vice chairman of OPIC,
and as a nonvoting member of the Board of Directors of the
Exlmbank .
1992 Creation of the Trade Promotion
Coordinating Committee
Twelve years after the 1980 reorganization. Congress acted
to change the operations of one of the government's trade
functions. However, the concerns Involved only one trade
function — export promotion- -and the solution that was
attempted stopped short of a major reorganization.
Congressional concerns In this area were sparked. In part,
by a January 1992 GAO report.' This report said that
federal export promotion activities were fragmented among
numerous agencies and lacked any governmentwlde strategy or
priorities. The report, and subsequent GAO work, found
that this fragmentation resulted In Inefficiency, overlap,
duplication, and apparent funding anomalies that Increased
costs and undermined the potential success of export
promotion activities. For example, we found that In fiscal
year 1991 almost 75 percent of export promotion funds went
to USDA, even though agricultural exports accounted for
only about 10 percent of U.S. exports. Also, three federal
agencies maintained separate networks of field offices that
provided export assistance, which likely confused and
discouraged some U.S. firms from seeking such assistance.
The Export Enhancement Act of 1992
In October 1992, Congress acted to correct this situation.
Title II of the Export Enhancement Act of 1992 (P.L. 102-
429) statutorily authorized the TPCC and required It to
Issue an annual report containing "a governmentwlde
strategic plan for federal trade promotion efforts" and
See Export Promotion; Federal Programs Lack Organizational
and Funding Coheslveness (GAO/NSIAD-92-49, Jan. 10, 1992).
7 GAO/GGD-9S-195R Commerce's Trade Functions
117
B-261618
describing the plan's implementation. The act mandated
that this strategy be based on a set of governmentwide
priorities and Include a unified budget proposal that
reflected those priorities.
Both Efforts Addressed Specific Problems
Through a Minimally Disruptive Approach
Both the 1980 and 1992 efforts addressed specific problems
with the trade bureaucracy in a minimally disruptive way.
The 1980 reorganization represented a compromise between
those who wanted to create a cabinet-level Department of
Trade and those who believed that no such reorganization
was needed. Participants debated whether creation of a new
cabinet agency was necessary to highlight and symbolize the
importance of trade to the United States and strengthen the
management of trade activities or whether such a department
would only lead to more protectionist trade policies. It
was left to the administration to devise a new bureaucratic
structure that would realize the objectives of the Trade
Agreements Act of 1979.
Similarly, the 1992 statutory authorization of TPCC and the
requirement that it develop a governmentwide strategy for
export promotion represented an attempt to find a minimally
disruptive solution to the problems caused by this
function's organizational fragmentation. The Export
Enhancement Act did not require the administration to
reorganize, or to consider reorganizing, the export
promotion function. A key issue, therefore, was whether,
with such a mandate, TPCC could overcome interagency
disagreements over priorities and funding requirements and
bring a true strategic focus to the federal export
promotion effort.
COMMENTS ON PROPOSALS TO REORGANIZE
COMMERCE'S TRADE OPERATIONS
Proposals calling for the elimination of the Commerce
Department provide Congress and the administration with
both an opportunity and a challenge. The opportunity lies
In the ability to take a fresh look at all of the
government's trade programs and activities. The challenge
is to determine if the programs and activities can be
8 GAO/GGD-95-195R Commerce's Trade Functions
118
8-261618
better organized In a manner that does not harm the
government's ability to carry out necessary functions and
permits congresslonally mandated policy goals to be
achieved in a more administratively efficient manner.
Trade Policy Functions
Formulating trade policy and negotiating trade agreements
are core international functions of the federal government.
Any reorganization of Commerce's trade apparatus needs to
be sensitive to how it might affect the government's
abilities to carry out these activities.
We are concerned that one proposal, contained in the
Department of Commerce Dismantling Act (H.R. 1756, 104th
Cong.), could have a deleterious impact on trade
policymaking and negotiating. This proposal would
eliminate ITA's country and industry desks. He are
concerned that eliminating these offices — lEP and TD — would
deprive USTR of much of the analytic support that it needs
to formulate trade policy and negotiating strategies for
trade agreements. Presently USTR has fewer than 170
people. If it remains this size, it will need to continue
to rely on others for this support. lEP and TD staff
devote nearly one-half of their time to supporting trade
policy activities, according to a 1993 report by Commerce's
Inspector General.' Were these two organizations to be
abolished, it is not clear who would be able to perform
this work, including the work that may be required for
future trade negotiations, such as expanding HAFTA to other
Latin American countries.
Others have proposed transferring the overseas component of
uses to the State Department. This could' affect the
government's ability to monitor and enforce other
countries' compliance with trade agreements. USCS staff
'Assessment of Commerce's Efforts in Helping U.S. Firms
Meet the Export Challenges of the 19908. U.S. Department of
Commerce, Office of Inspector General, IRM-4523
(Washington, D.C.: U.S. Government Printing Office, Mar.
17, 1993), pp. 31-7. «
9 GAO/GGD-95-195R CoBHerce's Trade Functions
119
B-261618
overseas, in particular, help with this monitoring.
However, as in 1980, a concern may be raised that State
would experience a conflict of responsibility between
maintaining good diplomatic relations and monitoring
foreign government compliance with trade agreements.
Export Promotion
Last month we testified before this Subcommittee on the
rationales that generally are used to justify export
promotion programs.^ We said that there Is no definitive
empirical work that demonstrates unequivocally the net
Impact on the natlon--posltlve or negatlve--of these
programs. Consequently, debates over government assistance
to exporting rely heavily on qualitative arguments.
Proponents have justified export promotion activities using
mlcroeconomlc and trade policy arguments. For example,
ITA's export facilitation and Information services have
been justified by reference to "market failures," which can
occur when certain key conditions In markets are not met.
One such market failure can occur If U.S. producers of
competitive products do not export because they lack
Information about foreign markets and lack the economies of
scale to justify expenditures for such information. ITA
has progreuns to collect and distribute commercially
valuable Information on foreign markets that the private
sector may not otherwise be able to acquire.
Similarly, proponents also use trade policy arguments to
make a case for U.S. government "advocacy" efforts.
Advocacy refers to U.S. government representation on behalf
of a U.S. firm competing for a potential foreign sale. To
the extent that U.S. officials can counter the advocacy of
foreign government officials, U.S. firms with competitive
products can be made better off by such efforts. TPCC
maintains an advocacy center in the Commerce Department to
^See Export Promotion; Rationales for and Against
Government Programs and Expenditures (GAO/T-GGD-95-169, May
23, 1995).
10 GAO/GGD-9S-195R Commerce's Trade Functions
120
B-261618
Identify circumstances when high-level advocacy is
appropriate and to initiate such advocacy.
Because Commerce is the lead agency for export promotion,
proposals to eliminate the Commerce Department would have a
major effect on this function. Thus, were Commerce to be
abolished. Congress would need to consider who, if anyone,
should chair and provide leadership for TPCC.
Proposals to relocate Commerce's USCS also could have major
consequences for export promotion. H.R. 1756 would move
the foreign operations of USCS to USTR. Although this
might result in better integration of export promotion with
trade policy, it would be important to consider whether
USTR has the resources to manage USCS. In addition to
having fewer than 170 staff, USTR has a minimal
administrative support system. Overseas, USCS employs in a
hierarchical structure about 800 foreign commercial and
foreign national employees in over 130 markets. Managing
this network is a complex logistical responsibility,
especially considering that the foreign commercial staff
tend to relocate every few years. In our 1982 report,' we
found that the Commerce Department, with considerably
greater administrative capability than USTR, experienced
great difficulty administering the newly created Foreign
Commercial Service.
In addition, by eliminating ITA's industry and country desk
staff, as well as the domestic component of USCS, H.R. 1756
would abolish staff who provide much of the tasking for
USCS officials stationed overseas. These industry and
country experts and domestic office staff help organize and
recruit companies for overseas trade missions and trade
fairs. USCS officials abroad help support the firms'
participation in these events. In addition, these Commerce
staff in the United States refer many companies to overseas
USCS officials for expert advice and help arrange
itineraries for overseas business travel.
•GAO/ID-83-10.
11 GAO/GGD-95-195R Commerce's Trade Functions
121
B-261618
Compared to transferring USCS to USTR, relocating It to the
State Department would not present such an obvious
management challenge. Furthermore, doing so could Infuse a
more commercial orientation Into State. On the other hand,
such a move could cause the export promotion mission to be
subordinated to other foreign policy priorities, as was the
case before commercial work was transferred from State to
Commerce just 15 years ago.
Reorganizing Trade Regulation
Currently, most of Commerce's trade regulation functions
are mandated by law. This Includes licensing the export of
dual use goods and administering countervailing duties,
antidumping Investigations, and other Import programs.
Therefore, the government will need to retain the capacity
to carry out Commerce's trade regulation activities as long
as those laws apply.
The Department of Commerce Dismantling Act would split
Commerce's trade regulation activities among several
government agencies. Commerce's export-licensing authority
would transfer to the State Department, thus consolidating
all export-licensing authority in one agency. BXA's
enforcement operations would go to the Treasury
Department's Customs Service, further centralizing those
activities. H.R. 1756 would move Commerce's import
administration unit to USTR.
Administering the export licensing of dual use commercial
products has always Involved a balancing of national
security, foreign policy, and commercial Interests.
Therefore, consideration should be given to whether placing
licensing authority for such products in the State
Department could alter the necessary balancing of
interests. Further, placing the Import administration
function in USTR could create a considerable administrative
burden on USTR and thus could harm the efficiency with
which the function would be implemented.
12 GAO/GGD-95-195R Commerce's Trade Functions
122
B-261618
PRINCIPLES FOR REORGANIZING
GOVERNMENT
With any government reorganization, difficult decisions
have to be made In terms of defining both the appropriate
role for government and the right organizational structures
for delivering services to the public. In recent
testimony, the Comptroller General presented the following
five principles that could be used to guide efforts to
reorganize the government, based upon GAO's work across the
government.' These principles are as follows:
1. Reorganization Demands an Integrated Approach
The Interconnectedness of government structures and
activities cannot be underestimated. Reorganizations that
do not consider the broader picture could create new,
unintended consequences for the future. For this reason,
it is important that Congress and the administration form
an effective working relationship on restructuring
initiatives and regulatory changes .
2. Reorganization Plans Should Be Designed to Achieve
Specific, Identifiable Goals
Reorganization efforts can be better served if specific
goals are identified. However, decisionmakers may find it
difficult to reach a shared understanding of the goals.
Regardless of what the specific objectives are, certain
overarching goals should be kept In mind. These would
include a government that serves the public efficiently and
economically, one that is run in a business-like fashion
with full accountability, and one that is flexible enough
to respond to change.
3. Once the Goals Are Identified, the Right Vehicle(s)
Must Be Chosen for Accomplishing Them
Discussions involving government reorganization often
Include a debate about the role of the federal government.
'Government Reorganization! Issues and Principles (GAO/T-
GGD/AIMD-95-166, May 17, 1995).
13 GAO/GGD-95-195R Commerce's Trade Functions
123
B-261618
Even when decisions are reached that the government should
play a role, questions will remain about how that role
should be exercised. For example, should the government
act directly or through another level of government? If
the government is to act directly, should agencies or
departments be organized, for example, around national
missions or around customers or users of the programs?
4. Implementation Is Critical to the Success of any
Reorganization
No matter what decisions are made about how to reorganize
the government, fulfilling the promise of any new plan will
depend on its implementation. For example, our work over
the past decade has shown how many federal agencies have
lacked the basic progreun and financial information needed
to gauge progress, improve performance, and establish
accountability." Moving to a smaller, more efficient
federal government that stresses accountability and
managing for results will require better processes and
information technology.
5. Oversight Is Needed to Ensure Effective Implementation
The process of reorganizing government should not stop when
a plan is adopted. Although agencies will have the primary
responsibility for ensuring that their programs are well
managed and any changes are having their intended results,
it is important that Congress continue to play a
significant role in both its legislative and oversight
capacities to establish, monitor, and maintain both
governmentwide and agency-specific management reforms.
'"See GAP High Risk Series (GAO/HR-95-1 through GAO/HR-95-
12, Feb. 1995). For examples of work stemming from our
management reviews, see U.S. Department of Agriculture;
Revitalizing and Streamlining Structure. Systems, and
Strategies (GAO/RCED-91-168, Sept. 3, 1991); Tax
Administration; Opportunities to Further Improve IRS'
Business Review Process (GAO/GGD-92-125, Aug. 12, 1992);
and Department of Transportation: Enhancing Policy and
Program Effectiveness Through Improved Management
(GAO/RCED-87-3 and 87-3S, Apr. 13, 1987).
14 GAO/GGD-95-195R Commerce's Trade Functions
124
B-261618
CONCLUSIONS
Federal trade functions are Important government
responsibilities. The debate on closing the Commerce
Department presents an opportunity to revisit the Issue of
how best to organize trade responsibilities and progreuns
across the government. The Comptroller General's five
principles for reorganizing government can be applied to
such an endeavor.
If you or your staff have any questions concerning this
letter, please call me at (202) 512-4812. The Information
in this letter was developed by John Button, Assistant
Director; Joseph Natallcchlo, Senior Evaluator; and David
Genser, Senior Evaluator.
Sincerely yours.
\.\V.4^^i
Allan I. Mendelowltz, Managing Director
International Trade, Finance, and Competitiveness
15 GAO/GGD-95-195R Commerce's Trade Functions
125
ENCLOSURE ENCLOSURE
TRADE-RELATED FUNCTIONS
OF THE FEDERAL GOVERNMENT
One way to categorize the federal government's
international trade-related activities is to divide them
into six groups: trade policy, export promotion, trade
regulation, trade and investment data collection and
analysis, taxation, and other functions.
Trade Policy
Agencies involved Include the U.S. Trade
Representative; and the Departments of Agriculture,
Commerce, State, and Transportation. Activities
include:
A. Working through an interagency process to formulate
and coordinate international trade or investment
policies; and coordinating those policies with
domestic policies, and with U.S. business and
consumer interests and state and local governments.
B. Negotiating international trade or international
Investment agreements.
C. Funding and representing U.S. interests in trade-
related international organizations .
Export Promotion
Agencies involved include the Departments of
Agriculture, Commerce, Energy, and State; the Export -
Import Bank of the United States, the Overseas Private
Investment Corporation; the Trade and Development
Agency; and the Small Business Administration.
Activities Include:
A. Formulating and coordinating export promotion
policy.
16 GAO/GGO-95-195R Commerce's Trade Functions
126
ENCLOSURE ENCLOSURE
B. Combating foreign export subsidies.
C. Financing and insuring U.S. trade or U.S.
Investments In other countries, or funding
feasibility studies on major infrastructure and
development projects.
D. Providing "trade facilitation" services to the
public, such as export counseling, foreign market
analyses, or trade missions or trade fairs.
E. Providing government-to-government advocacy on
behalf of U.S. businesses.
F. Developing foreign markets for U.S. goods and
services .
G. Providing tourism promotion services and
formulating and coordinating tourism policy.
Trade and Investment Regulation
Agencies Involved Include the Departments of
Agriculture, Commerce, Defense, Justice, Labor, State,
and the Treasury; and the International Trade
Commission. Activities Include:
A. Licensing and restricting exports. Imports, or
foreign investments In the United States for
national security, foreign policy, or short supply
reasons .
B. Inspecting exports or Imports for health, safety,
or certain other reasons.
C. Enforcing U.S. laws on illegal dmigs, money
laundering, counterfeit goods, and other cross-
border activities.
D. Enforcing U.S. laws that seek to protect U.S.
companies or workers from "unfair" or harmful
foreign trade practices, such as antidumping and
17 GAO/GGD-95-195R Commerce's Trade Functions
127
ENCLOSURE ENCLOSURE
countervailing duties laws; and providing financial
assistance to offset such harm, such as trade
adjustment assistance.
E. Enforcing U.S. rights under trade agreements and
responding to certain foreign practices (sees. 301-
310 of the Trade Act of 1974, as amended.)
F. Enforcing U.S. antlboycott laws and the Foreign
Corrupt Practices Act.
G. Administering foreigners' blocked assets In the
United States or adjudicating U.S. citizens' claims
against foreigners.
4. Trade and Investment Data Collection and Analysis
Agencies Involved Include the Departments of
Agriculture, Commerce, and the Treasury; and the
International Trade Commission. Activities Include;
A. Documenting and tracking trade and investment
transactions and maintaining U.S. tariff schedules.
B. Analyzing or distributing trade and Investment data
to government decisionmakers or to the public.
5 . Taxation
Agencies involved Include the Department of the
Treasury. Activities Include:
A. Collecting customs duties and fees.
B. Taxing U.S. persons or corporations overseas or
foreign persons or corporations that owe U.S.
taxes .
IB GAO/GGD-95-195R Conmrce's Trad* Functions
128
ENCLOSURE ENCLOSURE
Other Trade-Related Functions
Agencies involved Include the Departments of Conunerce,
Justice, State, and the Treasury; and the Federal
Reserve System. Activities include:
A. Issuing patents and registering trademarks.
B. Developing and maintaining information on U.S.
product standards .
C. Regulating the banking activities of subsidiaries
of foreign companies in the United States and
subsidiaries of U.S. companies located abroad.
D. Enforcing U.S. antitrust laws that affect U.S.
companies' ability to trade or invest abroad.
E. Adjudicating disputes over traded goods; e.g., the
International Trade Commission's "Section 337"
cases) .
Budget of the U.S. Government for Fiscal Year
1996 (Washington, D.C.: U.S. Government
Printing Office, 1995); Federal Staff
Directory 1993/1 (Mount Vernon, Virginia:
Staff Directories, Ltd., 1993); Export
Programs: A Business Directory of U.S.
Government Services . Trade Promotion
Coordinating Committee (Washington, D.C.: U.S.
Government Printing Office, 1995); GAO.
(280134)
19 GAO/GGD-95-195R Commerce's Trade Functions
129
Oarbara rranKlin bnierprises
2600 VirgtnU Avenue. N.W
SvKe 506
Barsana Hackmam Franklin \.7 I H ^ Tcikfhonc iot-M7-«<oe
Pntnotm WdsKlBgton. U.Kj. 20037 Facsimiii aot-M7-*io«
Septeniberll.l99S
Die HonofaUe Toby Rodi
Chainnan
Stdxxmunittee on htemational
Economic Polity and Trade
Committee en Intemational Rdations
Ifouse of Representatives
Washington, DC 20515
Dear Mr. Chaimian:
I qjpreciaie your invitation to testify at the subcommittee's September 6 hearing on proposals to
dismantle tfw Department of Commerce and regret that business out of the country precluded me from
appearirtg. However, I am pleased to submit the following comments for the record.
As a former Seaetaiy of Commerce, I have given much though - bodi during my tenure in office
and since leaving the post at the end of the Bush Administration - to ways in which the unwieldy
con^xxients that comprised the Department of Commerce could be dismantled and/or restructured to be
nwre efficient, productive, and cost-effective. Long ago I concluded that the taxpayers of the United States
wouldbebetterservedif many of die Department's functions were eliminated or r^rouped In particular, I
believe that die economy ot die United States would benefit greatly from a restructuring of the trade
functions now spread across die Commerce Department and several odier government agencies.
Specifically, my recommendation is this: The trade functions of die Department rf Commerce
should be kept topedier and brought into a 'Super USTR' that could be called die US Trade Office or
AdminislialiorL
I believe die time has come for our country to have a highly focused and strong international trade
presence at die Federal Government level. Current trade policy and activity is diffijsed widi responsibilities
spread among 19 different agencies which sometimes have competing agendas. This organizational
structure - or radier lack thereof - is a holdover fiom years ago when international trade was not such an
important part odati US economy.
Today, die US economy is inextricably and increasingly linked widi trade. One out of every five
jobs depends on it We are die worids largest exporter. The US sent about $700 billion in goods and
services abroad last year - about $500 billion in goods and $200 billion in services, comprising about 1 1
percent c^our GDP. In contrast, exports account for a range of 15 to 30 percent of die GDP of our major
trading partners. Thus, the US has plenty ofroom to grow. I am firmly convinced that the only way to keep
die US economy - and diat of die world - expanding is to increase fi«e trade among nations. Tbere is
simply no odier way to do it, and the US must lead die way.
J30 BOSTON PUBLIC LIBRARY
TTieHonorableTobyRod, 3 9999 05983 922 3
Septembo-l 1,1995
Page 2
The Federal Government has a Intimate and necessaiy role to play here. Certainly, it must do tfie
n^otiadng with foreign governments to open markets and remove impediments to trade. Businesses cannot
do this for themselves. In addition, the Federal Government has a role to play in export promotion - along
with state governments and private seclor groups - as long as otfier governments around tfie world are doing
the same. Most governments buttress tfteir businesses in export matters fiir more than we do. So, as we
push for less government involvement around the world, tfie US government needs to keep certain export
promotion activity going It is a way to keep tfie playing field more level than it would otherwise be.
This is why I believe tfiat it is essential to strengthen US trade policies, strat^es and processes by
groq)ing them togedier. We should start by widi the four trade activities currently housed in the
International Trade Administration at the Department of Commerce. These agencies are very important to
the trade policy negotiating process and to expanding US e^qxxts. But their roles are not weU understood
Two of these entities - International Economic Policy and Trade Devekipment - provide much of
the data and analysis which underpin US negotiating strategy. They also often provide people. For example,
during the last year of tfie NAFTA negotiations. Commerce Department staff members devoted an estimated
50,000 hours to the process. Of the 20 or so NAFTA negotiating teams working at USTR's direction, six
were chaired by ITA staff members.
A third agency - the US and Foreign Commercial Service - is engaged in export promotion,
working mostly out of our embassies around the world and primarily assisting smaDer businesses. A fourth
- the Import Administration - enforces our anti-dumping and countervailing duty statutes.
I would add to this grouping two other agencies now within the Dqjartment of Commerce - the
Bureau of Export Administration aiKl die Patent and Trademark Office.
The Export Administration Bureau issues licenses for sensitive technok)gy that is expcxted The
decision to grant or deny a license results fixxn an interagency decision process that iiKludes the Departments
of State and Defense as well as several odier dq>artments and agencies. This decision process was a real
wrestling match at the height of the Cold War, but considerable progress has been made in recent years in
decontrolling many technologies previously regarded as too sensitive for export This progress could be
turned back quickly if Export Administration were sent to the Departments of State or Defense where die
paramount concerns are dipbmacy and security raAKtr dian economic. Jobs and opportunities for US
businesses could be lost
Intellectual property protection has become a critical component of international trade activity and
dierefore, die Patent and Trademark Office probably has more synergy with trade fonctions dian widi aiiy
odier government activity. Tod^, PTO is largely privatized and funded mainly fifom user fees.
Finally, consideration might also be given to grouping with these Commerce Department trade
functions die export promotion activities currently housed in odier departments and agencies. At least 19
different departments and agencies are engaged in trade promotioa
Pulling all diese international trade-related functions togedier will make diem stronger and more
efficient
131
The Honorable Toby Roth
September 11. 199S
Page 3
Thefe is anodter major concern that must be &ctored in when wei^iing the best way to restructure
the trade responsibilities of tfie US government That is the need to maintain parity in the executive branch
decision-making process between diplomatic and security matters and international economic needs.
Diplomacy and security, represented by die Departments of State and Defense, have traditionally
overwhdmed our economic interests in that process. Many people, mysdf included, have worked hard over
the past IS to 20 years to redress the imbalance, and in recent years, we have had some real success, b
would be most unfortunate if we turned back the ckxk on this progress. This means that international trade
needs a strong Cabinet voice.
Therefore, my recommendation is that die US Trade Representative - who has Cabinet status - be
joined organizationaUy with the grouping of other trade fimctioos I have enumerated. Thus, a 'Super
USTR.'- or whatever we call it - leading an enhanced trade function would have an even stronger and more
forceful voice in the executive branch process. It would send a clearer message to the rest of our ^obal
trading partners as welL
This recommendation assumes diat die USTR would move out (rf* die Executive Office c€ die
President I do not believe diat its ability to coordinate and pull togedier trade interests across government
would be substantially hampered by diat move.
However, diere is one odier question to be considered will 'Super USTR* - whidi has bodi trade
negotiating and export promotion widiin it - be able to perform the export promotion role well enough? The
reason for diis concern is diat our trade negotiating posture has become so confrontational in recent years that
it may be difficult for die Cabinet Officer to be confrontational on the one hand and promote the sale (rf^US
goods and services abroad on die odier. I diink it is possible to do bodi - even desirable. That is why I urge
our government to review its overiy confrontational trade negotiating posture and move toward a consensus-
building approach, which is more in keeping widi die world situation today. We are now in a world where
die US typically has multifaceted relationships widi many countries and where diere are many odier linkages
among countries as well. A consensus-building leadership style is likely to gain more for die US dian is die
st)4e of too many simultaneous unilateral confrontations.
I diank you for die opportunity to share ray dioughts and ideas widi diis esteemed, subcommittae.
We have a great opportunity before us to introduce new force and vigor into US trade functions. I am
confident that the Members of diis subcommittee will take eveiy advantage of diis chance.
Sincerdy,
Barbara Hackman Franklin
Former US Secretary of Commerce
o
44-245 (136)
ISBN 0-16-055764-X
9 780160"557644
90000
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