Testimony of Thea Mei Lee
Policy Director
American Federation of Labor and Congress of Industrial Organizations
(AFL-CIO)
Before the
U.S. House of Representatives
Committee on Foreign Affairs
Subcommittee on Terrorism, Nonproliferation, and Trade
“U.S. Export Promotion Strategy”
April 24, 2008
Mr. Chairman, members of the Subcommittee, thank you for the invitation to speak today on behalf of the ten million working men and women of the AFL-CIO on the important topic of U.S. export promotion strategy.
Strong exports are crucial to the health of the U.S. economy, and to any strategy for creating good jobs at home. We in the labor movement would certainly prefer to close our trade deficit through export growth, rather than import reduction. But it is crucial that we be as clear as possible about what we are trying to achieve, and how best to get there.
First, what are we exporting, and to whom?
Second, what is the relationship between growth in exports, imports, and foreign direct investment flows?
Third, what is the relationship between export growth and good jobs at home? Are all exports created equal in terms of their net impact on job creation?
Finally, what is the proper role of the government in promoting exports? What is the proper role of business and the private sector? How effective is our current export promotion strategy, and how could it be improved? Should the government condition export assistance by requiring a minimum domestic content or through other means? How well enforced are current domestic content requirements and how thorough are economic impact studies?
My key point today is that the United States does not need just an export promotion strategy, but rather a coherent trade strategy that is connected to a coherent national economic strategy. Any evaluation of current U.S. government efforts to promote exports must take this into consideration. It does not make sense to focus efforts on exports, without also considering the impact of proposed policies on imports. Furthermore, we cannot treat trade strategy as separate from domestic tax and investment policies.
According to the 2007 National Export Strategy Report, the U.S. government spends between one and two billion dollars annually to promote exports. Responsibilities are shared between several agencies, notably Commerce, State, Agriculture, Energy, Treasury, the U.S. Trade Representative, the Small Business Administration, and the Trade and Development Agency, as well as the Export-Import Bank and the Overseas Private Investment Corporation. Almost half of total annual expenditures are by the Department of Agriculture.
The 2007 report paints a positive picture of U. S. export performance and competitiveness. “U.S. exports are booming and at an all-time high. International measures of competitiveness tell the same story… . All of these factors should boost the confidence of the U.S. business community that American companies can thrive in the global marketplace.”
Exports grew at a rapid rate in 2007 as well, hitting $1.6 trillion. In the end, however, the ultimate measure of competitiveness is neither growth in exports, nor profits of American companies, but rather our trade balance. Our trade deficit in goods and services remains above $700 billion, while our goods deficit in 2007 was $815 billion.
Some growth in exports can actually be connected with job loss, rather than job creation. For example, if an auto assembly plant moves out of the United States to another country, exports of capital goods and auto parts might rise. But if the finished automobiles are imported back into the United States, then imports of autos will increase faster than exports of auto parts, and the trade balance will worsen. This is why a narrow focus on export growth can be misleading.
Much of our current export promotion strategy seems to be focused on disseminating information to potential exporters, easing terms of credit, and promoting American products abroad.
There seems to be widespread agreement – across party lines, and among both labor and business constituencies – that boosting American exports is a worthwhile goal, and that the U.S. government can and should play an important role in doing so.
Yet, business and government do not always share labor’s view that the U.S. trade deficit is a problem worthy of government attention.
If the trade deficit is not a national concern, then there is no compelling reason why a dollar’s worth of exports would be superior – in a business model – to a dollar’s worth of domestic sales. It is also not entirely clear why American businesses are considered capable of exploring domestic marketing opportunities, yet in need of government assistance in locating foreign opportunities.
In fact, the AFL-CIO does believe that increasing exports is in the national interest, and that government policy is crucial in supporting the ability of domestic producers to export successfully.
But what are the key obstacles facing U.S. exporters or potential exporters?
We would argue that currency, tax, and trade policy all play a crucial role in determining the export success of U.S. producers. If the dollar is overvalued with respect to a particular trade partner or group of trade partners, then all the seminars in the world cannot overcome the basic competitive disadvantage inherent in the trade relationship.
Much of the recent net U.S. export growth has been to countries whose currencies have appreciated relative to the dollar. In contrast, our bilateral trade deficit with China continues to increase rapidly, largely because of exchange rate manipulation (via reserve accumulation) by the Chinese government.
Similarly, our corporate tax system creates a competitive disadvantage for American-based companies – both in terms of unfair import competition and a disadvantage in export markets. This is true where our trading partners use value-added or border-adjustable tax systems. Under WTO rules, those countries may rebate the V.A.T. on exports and impose it on imports. We cannot make a similar adjustment, since we tax corporate profits directly, and the system we used in the past (the Foreign Sales Corporation tax) was found to violate WTO rules.
Trade policy must also be carefully crafted to promote exports from American soil, not simply to encourage the shift of jobs and investment offshore. That is one reason why the balance between investor protections and labor and environmental standards is so important.
Effective enforcement of our trade laws against unfair trading practices is also crucial. Yet yesterday, a Government Accountability Office (GAO) report found that the office of Customs and Border Protection has failed to collect countervailing and antidumping duties amounting to more than $600 million since 2001. This is unfortunately only one of several examples of the government’s failure to adequately enforce existing trade laws designed to protect American producers.
The Export-Import Bank and the Overseas Private Investment Corporation (OPIC) currently provide loan guarantees or credit for exports or foreign investment projects. Both institutions are charged by Congress to support the creation of U.S. jobs through enhanced exports. Both OPIC and the Export-Import Bank policies could be more explicit and better administered, particularly with respect to the domestic economic impact.
OPIC is backed by the full faith and credit of the U.S. government, and as a public institution, OPIC’s role should not be to simply replicate or subsidize the activities of private insurers, financiers and investors. The only justification for OPIC is that it fills a legitimate public need that the private market is not meeting.
To fulfill the need for high-quality, job-creating, development-enhancing foreign direct investment that is currently not being met by the private market, OPIC must set the highest possible standards for investors. OPIC must ensure that the projects it supports are advancing the interests of American workers and promoting real economic and social development abroad. OPIC can do so by ensuring that each and every project it supports:
1) strengthens our trade balance and creates U.S. jobs; and
2) contributes to sustainable and equitable development abroad based on full respect for workers’ rights, human rights, and the environment.
Currently, the OPIC statute directs OPIC to “further to the greatest degree possible ... the balance of payments and employment objectives of the United States.”[1] OPIC is required to decline support to investments where it determines that the investment is likely to cause a significant reduction in the investor’s U.S. employees or a significant reduction in employment generally.[2] In addition, OPIC is directed to refuse to support any “investment subject to performance requirements which would reduce substantially the positive trade benefits likely to accrue to the United States.”[3] There is no such explicit ban on projects not subject to performance requirements that lack positive net trade benefits. Instead, OPIC is merely directed to “consider” possible adverse trade impacts of investment projects in general.[4] Finally, OPIC is supposed to report annually on the impact of OPIC-supported production on the production of similar products in the U.S. and on jobs in the U.S.
As with the workers’ rights requirements, OPIC enforcement of the jobs and trade conditions consists of a requirement that each investor fill out a short form stating whether or not it has laid off any employees as a result of its OPIC project and listing in which countries its products have been sold. These “business confidential” forms are completely inadequate for ensuring that OPIC projects do not worsen our trade balance or cost U.S. jobs.
Unless mandates for OPIC are strengthened and compliance monitoring made a top priority, OPIC will only be reinforcing the worst trends in the global economy. As a public institution, it must instead set and enforce the highest standards for investors.
The Export-Import Bank also needs to improve and make more transparent its economic impact test, and to ensure that domestic content, and local cost rules are effectively enforced.
Government programs to ensure that exporters and domestic manufacturers have adequate information to find customers and complete sales abroad are important, but they are not a substitute for addressing some of the root problems with current U.S. policies that disadvantage domestic production.
We look forward to working with Congress to develop a comprehensive and coordinated set of policies that can address unfair practices abroad; make the necessary investments at home in education, training, technology, and infrastructure; and support and nurture American workers and producers as they engage in the global economy.
Thank you for your consideration. I look forward to your questions.