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APEC and OECD : international focus on small business : hearing before the Committee on Small Business, House of Representatives, One Hundred Third Congress, second session, Washington, DC, February 23, 1994 online

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\ / APEC AND OECD: INTERNATIONAL FOCUS ON
\^ SMALL BUSINESS



Y4.SH 1:103-67

APEC and DECO: International Focus...

HEARING

BEFORE THE

COMMITTEE ON SMA1.L BUSINESS
HOUSE OF REPRESENTATIVES

ONE HUNDRED THIRD CONGRESS

SECOND SESSION



WASHINGTON, DC, FEBRUARY 23, 1994



Printed for the use of the Committee on Small Business



Serial No. 103-67




Nov 2



■^-"^W



U.S. GOVERNMENT PRINTING OFFICE
76-851 CC WASHINGTON : 1994

For sale by the U.S. Government Printing Office
Superintendent of Documents. Congressional Sales Office. Washington. DC 20402
ISBN 0-16-045881-1



/ APEC AND OECD: INTERNATIONAL FOCUS ON

SMALL BUSINESS



Y4.BH 1:103-67

APEC and DECD: International Focus...

HEARING

BEFORE THE

COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATTV^S

ONE HUNDRED THIRD CONGRESS

SECOND SESSION



WASHINGTON, DC. FEBRUARY 23, 1994



Printed for the use of the Committee on Small Business

Serial No. 103-67







U.S. GOVERNMENT PRI.NTING OFFICE
76-851 CC WASHINGTON : 1994



For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-045881-1



COMMITTEE ON SMALL BUSINESS

JOHN J. LaFALCE, New York, Chairman



NEAL SMITH, Iowa

IKE SKELTON, Missouri

ROMANO L. MAZZOLI, Kentucky

RON WYDEN, Oregon

NORMAN SISISKY, Virginia

JOHN CONYERS, JR., Michigan

JAMES H. BILBRAY, Nevada

KWEISI MFUME, Maryland

FLOYD H. FLAKE, New York

BILL SARPALIUS, Texas

GLENN POSHARD, Illinois

EVA M. CLAYTON, North Carolina

MARTIN T. MEEHAN, Massachusetts

PAT DANNER, Missouri

TED STRICKLAND, Ohio

NYDIA M. VELAZQUEZ, New York

CLEO FIELDS, Louisiana

MARJORIE MARGOLIES-MEZVINSKY,

Pennsylvania
WALTER R. TUCKER III, California
RON KLINK, Pennsylvania
LUCILLE ROYBAL-ALLARD, California
EARL F. HILLIARD, Alabama
H. MARTIN LANCASTER, North Carolina
THOMAS H. ANDREWS, Maine
MAXINE WATERS, California
BENNIE G. THOMPSON, Mississippi

Jeanne M. Rosi
Jenifer Loon,



JAN MEYERS, Kansas

LARRY COM BEST, Texas

RICHARD H. BAKER, Louisiana

JOEL HEFLEY, Colorado

RONALD K. MACHTLEY, Rhode Island

JIM RAMSTAD, Minnesota

SAM JOHNSON, Texas

WILLIAM H. ZELIFF, JR., New Hampshire

MICHAEL A. "MAC" COLLINS, Geoi^gia

SCOTT McINNIS, Colorado

MICHAEL HUFFINGTON, California

JAMES M. TALENT, Missouri

JOE KNOLLENBERG, Michigan

JAY DICKEY, Arkansas

JAY KIM, California

DONALD A. MANZULLO, Illinois

PETER G. TORKILDSEN, Massachusetts

ROB PORTMAN, Ohio



.ANOWICK, Sta/T Director
Minority Staff Director



(II)



CONTENTS



Page
Hearing held on February 23, 1994 1

WITNESSES

February 23, 1994

Bergsten, C. Fred, director. Institute for International Economics, and chair-
man, APEC Eminent Persons Group 4

Chiaruttini, Giordano A., Deputy Director, Office of International Trade,
Small Business Administration, and Vice Chairman, OECD Working Party
on Small and Medium Enterprises; Adams, Nancy J., Assistant U.S. Trade
Representative for Asia Pacific Economic Cooperation Affairs, Office of the
U.S. Trade Representative, U.S. Senior OfTicial to AJ-'EC; Cashman, Peter
A., Acting Deputy Assistant Secretary for Asia and Pacific, Department
of Commerce 32

O'Leaiy, Sandra B., Deputy Assistant Secretary for East Asian and Pacific

Affairs, Department 01 State 28

APPENDIX

Opening statements:

LaFalce, Hon. John J 39

Meyers, Hon. Jan 43

Poshard, Hon. Glenn 45

Ramstad, Hon. Jim 47

Roybal-Allard, Hon. Lucille 48

Prepared statements:

Bergsten, C. Fred 49

Chiaruttini, Giordano A 70

O'Leary, Sandra B 82



(III)



APEC AND OECD: INTERNATIONAL FOCUS ON
SMALL BUSINESS



WEDNESDAY, FEBRUARY 23, 1994

House of Representatives,
Committee on Small Business,

Washington, DC.

The committee met, pursuant to notice at 10:15 a.m., in room
2359-A, Rayburn House Office Building, Hon. John J. LaFalce
(chairman of the committee) presiding.

Chairman LaFalce. The Small Business Committee will come to
order. First, let me apologize for being late. I had my annual phys-
ical this morning. Doctor assured me we would finish by 9:45, but
that was in error.

Ms. Danner. We hope you are well and healthy, Mr. Chairman.

Chairman LaFalce. So far, we will see. I hate to be late and I
hate to keep the Members and witnesses waiting. Again, I apolo-
gize very much. But let us begin.

During the past year, we have witnessed heavy policy and media
attention directed to international economic issues: Amongst these
the GATT Uruguay Round, NAFTA, G-7 Economic Summit in
Tokyo, the European Monetary Union, bilateral trade negotiations
with Japan, et cetera. The concerns, role, and importance of small-
and medium-size business and issues that affect it are inevitably
limited to domestic policy discussions.

This perspective, however, changed in two international organi-
zations last fall. In November at the Asia Pacific Economic Co-
operation Ministerial Meeting hosted by the United States in Se-
attle, referred to by Dr. Berstgen as Sunrise in Seattle, ministers
agreed to a 1994 work program for the APEC Committee on Trade
and Investment. This newly established committee has included
small-medium enterprises in its work program for this year.

The program states that the committee will "examine the APEC
environment for small- and medium-enterprises and possible
means to enhance their trade and investment activity in the re-
gion."

Almost simultaneously, halfway around the globe in Paris, a
newly established working party of the OECD, or Organization for
Economic Cooperation and Development, convened for the first
time to consider policies related to small business. Specifically, the
Working Party on Small and Medium Enterprises, was character-
ized as "a unique forum for policymakers that will provide an inter-
national perspective and will assist in analyzing and assessing is-
sues and policies related to the SME sector in the short and long
term."

(1)



The first session of the Working Party, according to the OECD
delegates, confirmed the need for the OECD to play a larger and
more active role in the area of policies for small- and medium-en-
terprises.

The United States is uniquely positioned to actively participate
and lead when appropriate in these international initiatives. Small
and medium businesses in the United States have been central to
policy development and decisions on a range of issues. Small and
medium businesses have enjoyed legislative provisions in authoriz-
ing legislation for many traae and investment programs such as
those in Eximbank, the Overseas Private Investment Corp. and the
Agency for International Development.

We nave an opportunity to not only share our expertise and ex-
perience with other nations, but also to create new avenues of eco-
nomic opportunity for U.S. small and medium businesses in the
international arena. The time is propitious to do so.

Asia provides an excellent potential for U.S. small business ac-
tivities. At the same time that the increase in personal income and
creation of manufacturing jobs in the U.S. depends on exports,
Asia's share of world economic output has increased to over 25 per-
cent. Asian economies are growing three times faster than those of
the established industrialized nations. No wonder the Clinton ad-
ministration sees such great potential for trade growth in this re-
gion.

Moreover, more than 40 percent of U.S. total trade exports and
imports is conducted within the Asia Pacific region. In 1992, nearly
50 percent of U.S. exports went to APEC members, while 59 per-
cent of U.S. imports came from APEC members. The largest U.S.
trade deficits are with Japan, $58 billion; China, $20 billion, and
Taiwan, $10 billion.

It is clear that the Asia Pacific region has a bright economic fu-
ture in which U.S. small- and medium-size businesses can partici-
pate. It is also clear that cooperation in concrete ways on small
business policy issues with our industrial country partners in the
OECD can offer considerable potential benefit to our small busi-
nesses. So, we convene this morning to explore these possible bene-
fits, to clarify the potential avenues of cooperation, and to help illu-
minate the policy paths the United States might take in both
APEC and the OECD.

[Chairman LaFalce's statement may be found in the appendix.]

We begin this morning with Dr. C. Fred Bergsten, director of the
Institute for International Economics. Dr. Bergsten testifies this
morning as chairman of the Eminent Persons Group to APEC Min-
isters, a body of 11 individuals from 11 APEC countries.

Each of the APEC countries has a person who is designated as
an eminent person. The eminent persons have a chairman, the
most eminent of all the eminent persons is our own Dr. C. Fred
Bergsten. Don't let that go to your head, Fred. The group was
tasked to develop and define a vision for APEC. This it did in the
report entitled, appropriately, "A Vision for APEC, Toward an Asia
Pacific Economic Community."

The APEC ministers welcomed the challenge presented in the re-
port with its 10 recommendations and asked the Eminent Persons
Group to continue its work this year.



Dr. Bergsten, we welcome you and look forward to your presen-
tation and analysis of, as you recently described it, the Sunrise in
Seattle.

The panel following Dr. Bergsten will give us the nuts and bolts
of the APEC and OECD initiatives for small business. We will hear
testimony from Ms. Sandra O'Leary, the State Department's Dep-
uty Assistant Secretary for East Asian and Pacific Affairs, who is
a United States Senior Official to APEC. Next we will hear from
Mr. Giordano Chiaruttini, Deputy Director of the Office of Inter-
national Trade with the SBA, who will describe the fledgling work
of the OECD on small business. Mr. Chiaruttini is not only the
U.S. representative, but also the vice chairman of the Working
Party on Small and Medium Enterprises. A Canadian, Mr. Ian
Donald, was elected the chairman of that working party.

Also representing the administration to answer questions and
provide their agency's perspective are Ms. Nancy J. Adams, Assist-
ant U.S. Trade Representative for Asia Pacific Economic Coopera-
tion at USTR, as well as U.S. Senior Official for APEC. Mr. Peter
Cashman is Acting Deputy Assistant Secretary for Asia and Pacific
at the Department of Commerce.

We welcome you all this morning and look forward to your testi-
mony. Before I call on Dr. Bergsten, is there any opening state-
ment, Mr. Manzullo?

Mr. Manzullo. I have written statements on behalf of Ms. Mey-
ers of Kansas and Mr. Ramstad. I would like permission to insert
those into the record.

Chairman LaFalce. Without objection so ordered.

[Ms. Meyers' statement may be found in the appendix.]

[Mr. Ramstad's statement may be found in the appendix.]

Chairman LaFalce. Anything else? Mr. Sarpalius.

Mr. Sarpalius. Thank you, Mr. Chairman. I want to thank you
for holding this hearing today. I, too, have considerable interest in
this subject and have held hearings in the subcommittee which I
chair relating to exports.

During my subcommittee's investigation we found some startling
statistics regarding our competitors in the global market. For in-
stance, in the Pacific Rim where growth rates are 6 to 7 percent
per year, these countries now control a bigger share of the world
exports. By 1998 the Pacific Rim countries will export $23 of mer-
chandise for every $100 exported by their competitors in industri-
alized nations. This will equal about $100 billion in additional ex-
ports or roughly the export volume of Canada.

I am interested to hear how these agencies are working together
to secure a foothold in foreign markets for our small businesses, al-
though we must remember if we don't have the players to play on
the field, our efforts will be in vain. I strongly believe that as we
open up markets we need to make sure we have the small busi-
nesses that can fill the void.

We must remember that for every $1 billion we increase in trade,
it will generate 20,000 jobs here at home. Again, Mr. Chairman, I
commend you for your insight to hold this hearing and I look for-
ward to the testimony.

Chairman LaFalce. Are there any other opening statements?

Mr. Knollenberg.



Mr. Knollenberg. Thank you, Mr. Chairman. I thank you for
holding this meeting this morning. I will be anxious to hear the
testimony of the participants.

As dynamic enterprises, small businesses continue to drive our
economy, as has been stated, creating all the new jobs in the last
10 or 12 years, developing innovative products and means of pro-
duction. I am pleased that the international community through
APEC and the OECD has recognized the importance of these busi-
nesses. Through their working groups on small enterprise they
have shown a desire to work toward a mutually beneficial goal of
expanding cooperation creating free trade and sharing experiences
of both opportunities and pitfalls. But I think Congress has to do
something more than that. We have to ensure that small busi-
nesses have the opportunity to prosper in this new era of inter-
national cooperation.

Congressional efforts shouldn't be just style. They should be sub-
stance. There should be something that small business can derive
from the process that is being developed and discussed today. Most
importantly, we must lessen the regulatory burden on American
small business in order to maximize their ability to operate and
compete internationally.

I just cite a couple of items that I think are significant. Reputa-
ble academic studies say that regulation imposes anywhere from
$300 to $510 billion in annual costs on the private sector economy.
We are talking about small business. In addition to that, local gov-
ernments spend somewhere between $30 billion to $40 billion a
year simply trying to comply with the Federal regulations. So,
what we do today and what we hear from these folks today is sig-
nificant, but let's hope that we can channel it into something mean-
ingful where we can see small business benefiting by virtue of what
seems to be a new open door to expanding trade.

I look forward, again, to hearing the testimony of the various in-
dividuals and I thank you, Mr. Chairman, for the opportunity to
hear their testimony.

Chairman LaFalce. Are there any other opening statements?

Dr. Bergsten, we look forward to hearing from you.

TESTIMONY OF C. FRED BERGSTEN, DIRECTOR, INSTITUTE
FOR INTERNATIONAL ECONOMICS, AND CHAIRMAN, APEC
EMINENT PERSONS GROUP

Dr. Bergsten Thank you very much, Mr. Chairman. I appreciate
another opportunity to appear before the committee and particu-
larly to focus with you again on the potential of expanding the
international opportunities for small and medium business, which
as you say, is one of the most dynamic forces in our own economy
and, as we are learning from our discussions with other countries,
an increasingly dynamic element of other economies as well.

Right off the bat, I will assure you that in the APEC context you
have a lot of allies. Japan has taken the initiative to convene a
meeting of ministers of the APEC countries that are responsible for
small and medium business to talk about the opportunities that
could exist on the regional level.

The Indonesians are now the fourth largest country in the world
in terms of population and have taken over from the United States



1



the chair of APEC for this year. They will be hosting this year's
ministerial and summit meetings in Indonesia. They have put on
their very top priority list the issue of small and medium business
and, with Indonesia as the chair, you can be assured that there is
going to be a great deal of attention paid to these issues this year.

So right off the top, before I even talk about my own work and
the vision oif the Eminent Persons Group, I assure you that you are
in good company. You have many allies in other key countries
around the APEC region, and I think it is fair to say that the issue
you are considering will be getting a lot of attention and receive
very high priority in the Asia Pacific Economic Cooperation context
not just this year but in the years ahead as well.

The Eminent Persons Group that I chair was created by the
APEC ministers in late 1992. They felt the time had come to con-
vert APEC from an organization that had one meeting a year and
some fairly low level working groups into something much more
meaningful and to at least consider seriously converting the APEC
into a substantive, effective, operational international economic or-
ganization.

One of the paradoxes that my group identified very early in our
work was that the Asia Pacific has been at the same time the most
dynamic area of the world economy for the last two or three dec-
ades and the only area of the world that has not had any meaning-
ful regional economic organization.

The Asia Pacific region has been shielded or provided an um-
brella by the global institutions— the GATT, the International Mon-
etary Fund and the like. The Asia Pacific has not until now seen
the need for a regional institution to preserve its dynamic economic
integration and rapid growth. But the APEC ministers judged in
late 1992 that there might well be a need to create a meaningful
economic institution in the region.

Therefore, doubting that their bureaucrats would come up with
anything very imaginative, they decided to create a group ap-
pointed oy governments, but not representing governments, to pro-
vide a vision for the region. That was the origin of this Eminent
Persons Group. We were named early in 1993, began our work
about a year ago, met intensively through the course of the year
and produced the document called, "A Vision for APEC," which we
transmitted to the ministers last fall, and which I presented orally
to the ministers in Seattle last November. I am delighted to say the
report was both the focus of most of the discussion in the ministe-
rial meeting and much of the discussion at the summit meeting
subsequently chaired by President Clinton, and that it also led to
a series of actions already coming out of Seattle — the "Sunrise at
Seattle," as I called it in my review article — which I think does set
the APEC on the path toward becoming a meaningful international
economic institution.

It is still going to be quite a while until APEC even begins to
rephcate the GATT or the NAFTA, let alone the European Union
or any of the more far-reaching efforts to generate deep economic
integration. Nevertheless, it has already achieved, in my view,
some important concrete successes and it is clearly on tne way
down this path. So, what I thought I would do in just a few min-
utes is summarize very briefiy the vision that we laid out for the



APEC community last year and the results to date. In other words,
I hope to provide the framework within which your more specific
concerns can be addressed.

I want to make clear that I personally and all members of the
Eminent Persons Group, while appointed by governments, do not
represent governments. In fact, the intention of our group was to
avoid the usual constraints that affect government officials as we
try to push the envelope and lay out a vision for the direction of
APEC and what it could become.

Chairman LaFalce. When were you appointed, Fred?

Mr. Bergsten. In January 1993.

Most of the other members were appointed about the same time.
We began meeting in early March, a year ago. We had a series of
meetings through the year and, as I said, presented our report to
and met with the ministers in Seattle in November. That was the
origin of the process.

Coming out of Seattle, incidentally, was an extensive additional
mandate for our group. So, we are an ongoing group not a one-shot
operation.

I don't know how long we will continue. I told the ministers we
were happy to keep working as long as we meet the market test.
As long as they find our work useful, we are happy to stay in busi-
ness.

They, in fact, gave us an extensive new mandate in Seattle: To
flesh out in more detail the broad vision that we had laid out for
them in our first report and that will begin to address exactly the
issues you are talking about, small and medium enterprise. We did
not devote a lot of attention to that issue in our initial report be-
cause we were laying out a broad vision. We didn't go into much
operational detail.

Now, we have been asked to go into those issues more exten-
sively. I do, though, want to make a very clear distinction between
what our Eminent Persons Group does and what the Government
officials do. It is our mandate to essentially lay out visions, goals,
and strategies, and we, of course, not being Government officials,
are not in the business of trying to implement them.

So the panel that follows, quite appropriately, includes the peo-
ple who are on the firing line, are developing the detailed plans
and are the implementors of all that has been agreed at the min-
isterial and summit level. They are the ones who are working out
the details of the issues that you are focusing on here.

Nevertheless, our group has been asked to now lay out a detailed
program for implementing the long-term vision that we suggest.
We are doing that now, and a number of those things relate di-
rectly to the questions you have in mind.

We were asked essentially to do three things to assess the cur-
rent position and outlook in economic terms for the Asia Pacific re-
gion: To lay out a vision for the long-term evolution of the region
and possible intergovernmental mechanisms to support and
strengthen its dynamism and growth, ultimately to propose a pro-
gram of initiatives to begin the realization of that vision and, very
importantly, to start developing a process and habit of effective eco-
nomic cooperation in the region.



I would like to share with you a vivid personal memory I had
from attending the dinner held by the heads of government in Se-
attle.

You are probably aware, at least vaguely, that there is a big de-
bate in the international community about the so-called "clash of
civilizations" thesis by a Harvard professor named Sam Huntington
who has suggested that the clashes in the world in the future, in
the absence of the cold war, will be based on differences in civiliza-
tions. He describes seven major civilizations and hypothesizes that
conflict among them will be a major feature of the global scene.

As I sat at that dinner of the heads of government in Seattle, I
noticed that around the table of the 14 heads of State, five of those
seven civilizations were represented. In other words, far from hav-
ing clashes, far from fighting each other, they were sitting around
a table trying to develop not only personal links but institutional
ties to bond cooperation among a very disparate group of countries
and even civilizations, in a sense implying that these economic ties
and the impact of global interdependence were able to overcome
civilization and socio-ethnic differences. At least that was implicit
in what they were trying to do.

Our goal in the ERG was to come up with a vision and suggest
ways to realize it. We identified a number of positive reasons we
thought intergovernmental cooperation in the Asia Pacific made a
lot of sense. There are still many high trade barriers in the region:
Tariff barriers, nontariff barriers, internal governmental restric-
tions and regulations that impede trade. There is enormous poten-
tial for further gains for trade through trade liberalization, reduc-
tion of barriers and the like.

We also were worried about some threats that jeopardize the con-
tinued economic dynamism of the region. One was the erosion of
the global trading system. That threatened to undermine the insti-
tutional basis on which much of the outward-oriented trade-led
growth in the Pacific has succeeded over the last two or three gen-
erations. We were doing our report at a time when the outlook for
the Uruguay Round in the GATT was still quite uncertain and in-
deed one of our recommendations to the APEC countries was that
they make every possible initiative to ensure a successful outcome
for the Uruguay Round.

They, in fact, did that at Seattle. That was one of the major suc-
cesses. I will come back and mention that in a minute.

Chairman LaFalce. The very existence of the meeting was sig-
nificant to the success of that.

Mr. Bergsten. It would interest you to know I have talked sub-
sequently, now that there is a successful outcome of the Uruguay
Round, to a number of the European trade policy officials and lead-


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Online LibraryUnited States. Congress. House. Committee on SmallAPEC and OECD : international focus on small business : hearing before the Committee on Small Business, House of Representatives, One Hundred Third Congress, second session, Washington, DC, February 23, 1994 → online text (page 1 of 9)