But I am very troubled by the abuse the technology programs are receiving because I do believe that we have established a uniquely American model here of an industry-driven program to help us take some of the breakthroughs of the laboratories of America, which remain first in the world, and commercialize them. We all make speeches and complain about the fact that we developed the ideas that the Japanese then came along and made into the fax machine and videos, VCRs, et cetera.

It is these technology programs run by the ATP folks, the Advanced Technology Program section and NIST at Commerce that put us into the competition. This is not winners and losers choosing. This is pre-commercial, pre-competitive and totally industrydriven. I think we are going to lose something if we lose these programs.

I must say the ones that are going to-I have talked to people in some of our allied countries in Asia and Europe and these kinds of programs are accepted there at about the same level as national defense programs are here. There is not partisan dispute about them because they are thought to be that critical to economic security and growth.

The second statement I want to put in the record is from William F. Paul, who is the executive vice president of the United Technologies Corporation. Mr. Chairman, I do so because I am troubled-I know it is always hard to include every part of view at these hearings. I do not think we have heard enough from American businesses. We have had one or two associations representing business, but this is their department.

Mr. Paul gives a very strong statement of advocacy for the trade and technology functions and has some cautionary notes, as somebody who heads the international operations now for UTC, about the idea of combining the functions of the USTR with the trade functions of Commerce.

So with that, I look forward to the testimony of the witnesses and I thank the chair.

[The statement from Mr. Paul follows:]

PREPARED STATEMENT OF WILLIAM F. PAUL

Mr. Chairman, members of the Senate Governmental Affairs Committee, I am William F. Paul, Executive Vice President of United Technologies Corporation, and Chairman of United Technologies International Operations. I commend you on holding these hearings and we very much appreciate the opportunity of those of us involved, to help shape our government's role and structure in international trade. We are also well aware of your efforts on this subject, Mr. Chairman, dating back to your work with a very respected Secretary of Commerce, the late Malcolm Baldrige. I am pleased to share with you and the Committee our experience and views regarding the Department of Commerce, and the excellent job which we believe Secretary Ronald Brown is doing for business.

United Technologies Corporation is truly a global company. We do business in 183 countries, or in all but six countries, and 56 percent of our business today is international, compared with about 20 percent in the 1970's. We are among the top U.S. exporters with $3.1 billion in export sales (1994). We also rank among the top ten companies in research and development spending. Our major businesses include Pratt & Whitney aircraft engines, Carrier heating and air conditioning systems, Otis elevators and escalators, Sikorsky helicopters, Hamilton Standard aerospace systems, and UT Automotive components and systems. Our revenues were $21.2 billion in 1994.

Over the past 40 years with my company, I have had a number of assignments and extensive experience involving international competitions. During my career at

Sikorsky, I had the privilege of leading the development of the Blackhawk, Sea Hawk, CH-53E and S-76 helicopters. As President of Sikorsky, I had extensive experience competing against the Europeans for helicopters and, in recent years, my experience has grown to include all products of the corporation.

From that background, I am deeply concerned that the Department of Commerce is under attack and may be abolished or debilitated. This comes at a time when the Department, under the leadership of Ron Brown, has become the most effective Commerce Department in recent time. I am also concerned that there is not enough time in the present legislative cycle to arrive at a well-thought-through approach to improving the government's ability to advocate U.S. commerce. We, in industry, understand profoundly the need to restructure and reduce costs. We are international winners because of our ability to streamline, lower our costs, and yet invest in leading edge products and equipment Nevertheless, the field is strewn with restructuring failures which were not well thought out before implementation. We have learned that there is great benefit in involving our employees in the process of planning and implementing our restructuring programs. I recommend that the government take a similar approach by involving those experienced in the process to help develop a winning government strategy and plan.

Specifically, Mr. Chairman, I urge that the Congress establish a group of informed people from government, industry and academia, to provide a thoughtful and well prepared plan to best strengthen the role of government in support of business and its ability to compete internationally. I urge that no near term decision be made by the Congress. I fear that the extremely effective support of U.S. business from the Commerce Department may be damaged irrevocably. Secretary Brown and his team have done a great job of substantially improving the department. Why not let that team lead the effort to respond to the concerns and desires of Congress?

As the future of the Commerce Department is debated, I believe that the Committee should also benchmark how other governments involve themselves in international trade matters. I believe they understand their role and they have been at it for centuries. The countries we compete with are trading countries where business and government efforts are integrated. They recognized that they lacked the internal market size and natural resources to maintain a prosperous economy. In contrast, our country has had the resources and market size to make it prosperous and until recently the role of government could remain at arm's length. It has become clear that we need a more integrated approach to be an even more powerful trading nation.

I would like to cite some specific lessons learned from aerospace competitions which might be helpful to the Committee. There are four factors involved in winning international competitions:

First, we must have HIGH LEVEL GOVERNMENT SUPPORT to offset the enormous support our trading competitors get from their governments. If there is no political reason to buy U.S. products and there is no U.S. political support for the project, we will, in the final analysis, probably lose.

Second, we must have a competitive PROJECT FINANCING package. Many of our potential international customers do not have the up front capital, require a loan, and get very favorable terms from foreign governments.

Third, we must often provide an INDUSTRIAL COOPERATIVE PROGRAM consisting of joint ventures or other forms of business alliances. The international customers want their fair share of industrial content for their investment. This is done on a commercial basis.

Fourth and last, is the PRODUCT performance, cost and schedule. Unless there is an overpowering need for U.S. products or an overwhelming product edge, the international customers look at each sale as an industrial and jobs investment

With that context, it is clear that business needs to have a strong voice of support, which we are currently getting from the Secretary of Commerce, and the ability to gain tangible support from the White House, Export Import (EXIM) Bank, Overseas Private Investment Corps (OPIC) Trade and Development Agency (TDA), and others. Furthermore, in my view, Ron Brown has been most successful because of his personal capabilities and energy; but equally important has been the recognition of those abroad that he speaks for the President, has his ear, and his support.

To illustrate the point, just 2 weeks ago our Sikorsky Blackhawk competitions in Turkey and Spain were in difficulty because of support given to Eurocopter from the highest levels of the French government. We were able to contact the Export Advocacy organization in the Commerce Department, and in a few days, letters were dispatched by Secretary Brown.

In Russia, the Ilyushin Company planned to procure its engines and avionics from European sources. Our Pratt and Whitney company was able to turn this around and the Russians now plan to buy U.S. equipment. We had crucial support from

Secretary Brown and the U.S. should reap the benefits of $1 billion of aerospace jobs.

Probably the best example of recent support was the Saudi Arabia order for new passenger aircraft. The order of over $4 billion for Boeing and McDonnell Douglas airplanes with U.S. engine manufacturers was strongly supported by Secretary Brown and President Clinton.

On the subject of the Advanced Technology Program (ATP), we support a carefully constructed commercial technology program. We have witnessed the Nation's support of basic aerospace research from new airfoils and materials, to super computers and semiconductors. These break through technological accomplishments have been of enormous help and benefit. We believe that the government's support for technology can be and should be, on a longer horizon than is typical or feasible in commercially funded technology.

I am aware that alternatives to the Commerce Department are being offered. The alternative of combining the United States Trade Representative (USTR) with Commerce does not make sense to me. We need to keep separate the functions of trade negotiations and trade advocacy. I can visualize a situation where the USTR is threatening sanctions and would not want to ask for support of a U.S. supplier involved in a competition in that country. Similarly, the State Department, when it is involved with a foreign policy decision, may not be willing to petition that country for support of a U.S. supplier. We believe that industrial cooperation is an extraordinarily important part of international relations. We need an advocate a single message with the ear and power of the President.

Mr. Chairman, I firmly believe that we need the Commerce Department to continue to support and help industry expand its exports. Alternatives are possible, but a rush to judgment in this legislative cycle could, in my view, do irrevocable damage. In the field of aerospace, it is clear that we need the help of government. Other countries correctly see the vulnerabilities of this Nation's most important export business segment which is being weakened by severe cuts in defense spending and they have targeted this market. Aerospace companies and, indeed, the broad cross section of businesses must compete and win abroad. Precipitous actions must not inadvertently play into their hands. We all need to cut costs and the government has the daunting and critical task of balancing the budget. Despite this challenge, we must continue to invest and invest well in strengthening our promotion of trade and exports.

Thank you for the opportunity to express my views.

Chairman ROTH. Thank you, Senator Lieberman.

I think we will go ahead and start with the panel. It is indeed a pleasure for me to welcome three very distinguished members of the first panel. Ambassador Yeutter, always good to see you. You, of course, have served as former Secretary of Agriculture, and as former U.S. Trade Representative. We are particularly pleased to have a former Secretary of Commerce here, Ms. Franklin, who served in that capacity. I know from having read her prepared remarks that she has many interesting observations to make. Mr. Weidenbaum, always a pleasure to see you and we appreciate you your testimony has great weight, obviously, as a former chairman of the Council of Economic Advisors.

Ambassador Yeutter, we will start with you. We would like to try to keep the opening remarks to 10 minutes, and of course, your full statement will be included as if read.

TESTIMONY OF AMBASSADOR CLAYTON YEUTTER, FORMER SECRETARY OF AGRICULTURE, AND FORMER U.S. TRADE REPRESENTATIVE

Ambassador YEUTTER. Thank you, Mr. Chairman. It is a pleasure to be here and discuss a subject about which you and I have conversed on many occasions over the last decade or so.

It is a critical time in the streamlining and restructuring of Government, as this Committee has realized, and in my view a golden opportunity to do some good things. The message of the last elec

tion very clearly was that the American public wants the Federal Government to do less than it is doing today, and they want the Federal Government to do things better than they are doing it today. That is a message, by the way, that was not just one of 1994. It has been building for quite a number of years and was simply reflected in the electoral outcomes of 1994.

Putting that in the context of this Committee's discussions today, can the Commerce Department be dismantled or eliminated as suggested by the topic of this hearing? The answer to that is certainly. It has been somewhat of a miscellaneous, catch-all department for a long period of time. No department is sacrosanct. Defenses of the status quo are just unacceptable in a world that is changing as rapidly as it is today.

But at the time I concur with some of the statements that have already been made here this morning, that dismantling is easy conceptually. It is not hard to tear things down. Of greater importance to me is what this Committee and this Congress does after it tears down, assuming that it does some of that. It is a much greater challenge to rebuild, restructure, improve, and create. We ought to take advantage of the opportunity to do that in order to make Government work better.

So let us salvage where salvage is appropriate in this situation, and rebuild where that is appropriate. That is really what this exercise should be about.

I am not going to comment on the non-trade related functions in Commerce because Secretary Franklin can do that much more adequately than I. I do want to talk about the trade related functions because, in my view, this is perhaps the most propitious opportunity this Congress has ever had to organize the trade functions of the U.S. Government properly. We have talked about it for at least a decade; since I became U.S. Trade Representative in 1986, but we have not done it.

Without question, we do not now have, and we never have had, what I would call a full-scale functioning trade ministry in the United States; one that would represent this country well internationally now and forever more. That is clearly what the business community of this country wants. In terms of representation, as Senator Lieberman indicated, the business community needs the presence of the U.S. Government primarily, if not exclusively, on the trade front. It does not need much, if any, help on the domestic front. Business can pretty much take care of itself domestically. But internationally, that is a different matter.

How would I go about doing it? My prepared testimony lays this out in detail, so I will summarize it quickly. I would start with my own former entity, the Office of the U.S. Trade Representative in creating what I would call a trade ministry for the U.S. Government. USTR has been a shining star for a long period of time in the U.S. Government. You will hear lots of objection, Mr. Chairman, to combining it with some of these other trade related functions, and you will hear lots of concerns expressed that we will lose the lean, mean "strike force" structure at USTR.

I do not agree with that. In my view, there is no reason whatsoever that we could not create a trade ministry in this country in which USTR can maintain its semi-autonomous strike force char

acter within a larger organization that can provide the support it needs.

Also on the front line, it seems to me, ought to be the ExportImport Bank. You will again hear objections, Mr. Chairman, to having Ex-Im included in a trade ministry, but I believe it ought to be there. If we expect a trade minister, whomever that may be, to effectively do his or her job around the world, we have to give that person the tools to do so. If we do not put entities with the horsepower of USTR and the Ex-Im Bank in a trade ministry then we might as well forget the whole thing and continue with the structure we have today.

So I would have as the front line organizations-the pushers and advocates opening up export opportunities for the United StatesUSTR and the Ex-Im Bank. OPIC would fit into that same category, but there are proposals that it be privatized. Those proposals are appealing to me. But if a decision were made to retain `OPIC within the U.S. Government then I would put it with the Ex-Im Bank and USTR as front line organizations to do the task that I have just outlined.

Immediately behind them I would put the support organizations. What is lacking at USTR today is support and backup. USTR is an immensely successful organization but it does not have at its command, if you will, a support structure that it can call on if and when needed. The rest of Government is typically very cooperative, but soliciting cooperation is different from having it at hand at all times.

You do not have a situation in the finance ministry of this country, the U.S. Treasury, where the Secretary of the Treasury has to seek cooperation of other departments to get his or her job done. We have a different situation within trade, and in my view that is disadvantageous to trade. When time is of essence in a trade dispute, one does not want to be "soliciting" help from other agencies!

So I would take the trade related support functions of the Commerce Department and put them in this trade ministry. This would insure the level of support that a trade minister needs to get the job done.

What would those support functions be? As I have outlined in my testimony, I would put in the export promotion trade development functions that Secretary Brown has used so well. One also needs analytic support, so I would include the analytical and policy staff of the economic entities of Commerce.

Then, getting to the technology point Senator Lieberman made, we need some people in a trade ministry who have the sophistication and highly specialized skills and knowledge that can support USTR in this area, which is going to be immensely important in the future.

I am on the board of several American corporations, one of which is Texas Instruments, which operates in the arena of high technology. From that board's experience I am fully aware of how sophisticated these products and services have become, and of how much export potential they have. Regrettably we just do not have many people in the U.S. Government with a high level of knowledge and expertise in information technology, telecommunications,