ysis capabilities would put U.S. trade policy entirely in the hands of interested parties both foreign and domestic.

Because the overall economy is comprised of sectors, sectoral capabilities are also essential for sound domestic policy. Individual industries can be profoundly—and differentially-affected by domestic policy actions on a wide variety of fronts-tax policy, regulatory policy, anti-trust policy. But sound policy can't be made in an information vacuum. It would be irresponsible to deprive the government of the ability to tell Presidents and other decision-makers how their actions would affect sectors for good or for ill.

All of these factors militate not only for maintaining these capabilities in the public sector, but for keeping them together administratively. Moreover, the highly integrated nature of our biggest global economic challenges-captured in the expression that domestic and international economic policy can no longer be separated-means that many of the "strange bedfellow" arrangements cited by critics of the Commerce Department make more sense than is immediately apparent.

Take the U.S. Patent Office. Perhaps it could be run by the Justice Department. But when Commerce Department and U.S. Trade Representative officials negotiate intellectual property issues with Japan, they face counterparts from the Ministry of International Trade and Industry with control over Japan's patent office. Protecting intellectual property rights will continue to figure so prominently in trade talks that bureaucratically isolating our patent system from our trade policy-making nexus can only disadvantage U.S. negotiators-and therefore American innovators.

Careful examination of the entities and forces that combine to shape American commercial policy and the world economy also yields strong arguments for preserving the technology development capabilities found at Commerce and other agencies, notably the Defense Department. Savings are surely possible. But from the Homestead Act to the Pentagon-spawned Internet, collaboration between entrepreneurs and government has been a source of economic dynamism and technological leadership for America.

This collaborative system has been instrumental in fostering many of the most spectacular recent American technology breakthroughs—not only the Internet but the Worldwide Web, parallel computing, and "smart" telecommunications networks, to cite a few examples. Today it is coming under pressure—not only from general budget austerity but from declining defense R&D spending and from the understandable reluctance sometimes displayed by capital markets to fund high-risk research with uncertain, long-term payoffs.

As we rightly re-examine government's proper technology development role in a period of public sector retrenchment, we must carefully consider how to solve the public goods and other problems that led both Democrats and Republicans to support a significant government role for most of this century.

In my judgment, we have long needed a Department of International Trade and Industry that combines parts of the Commerce Department and the U.S. Trade Representative's office, and possibly the Export-Import Bank and the Overseas Private Investment Corporation. Certainly, the current Commerce Department can be shrunken and streamlined. Certainly some of its functions could be put in other agencies. At a minimum, however, adequately serving U.S. commercial interests requires combining the integrated functions of the Department's International Trade Administration with USTR. It is also critical that the resulting entity retain Cabinet rank. Otherwise, commercial interests are unlikely to be fully considered when major policy initiatives are conceived, and the proper balance between economic and non-economic objectives rarely struck.

Chairman ROTH. Thank you. We will have a number of questions we would like to submit to you in writing. If you gentlemen can wait, I will be back in just a few minutes, hopefully. The Committee is in recess.

[Recess.]

Chairman ROTH. Once again, the Committee will please come to order. Gentlemen, I apologize, but we look forward to hearing from you. Mr. Huard?

TESTIMONY OF PAUL HUARD, SENIOR VICE PRESIDENT FOR POLICY, NATIONAL ASSOCIATION OF MANUFACTURERS

Mr. HUARD. Thank you, Mr. Chairman. I will submit my written. statement for the record and, since we have a third panel stacked up behind us, try to engage in extreme summarization here.

The focus of NAM's testimony largely relates to the trade and export related functions of the Department of Commerce. The trade and export issue is clearly of great importance to the manufactur ing sector. Over 84 percent of both exports and imports are manufactured products.

In this context, I would like to call to the Committee's attention a new study which was co-sponsored by our educational affiliate, the Manufacturing Institute, called Why Exports Really Matter. It has a number of interesting conclusion in it, with regard to the ef fects of getting into exports. Among the more prominent ones are that workers in exporting industries are better paid than in nonexporting industries, that they enjoy better benefits, that they are considerably more productive, that they use more modern technologies and processes, and that exporting businesses have a lower failure rate than non-exporting businesses.

Getting back to the principal thrust of our testimony, it is that the type of approach to restructuring Commerce taken in S. 929, the Dismantling Act, is we believe the wrong approach. To do away with some of the vital export related functions of the Commerce Department is, in our view, not advisable. To scatter those that remain across four or five other different agencies in the Government is equally inadvisable.

I think, frankly, our basic position on this issue can be summarized in a single sentence, and that is that the core elements of the Commerce Department's trade and export function should remain. together under the leadership of a cabinet rank official.

I think with that, I will yield back the balance of my time and maybe leave some time for questions. Thank you. [The prepared statement of Mr. Huard follows:]

PREPARED STATEMENT OF PAUL R. HUARD

Mr. Chairman and members of the Committee, my name is Paul Huard. I am Senior Vice President for Policy and Communications at the National Association of Manufacturers (NAM).

We appreciate the invitation to testify in today's hearings on the Department of Commerce. I am obviously discussing this matter against the backdrop of proposals to dismantle the Commerce Department altogether-eliminating a few of its functions and moving the rest to other government agencies. This would have enormous implications for U.S. trade and export policy, which is the subject I would like to address in my testimony.

U.S. industry has a major stake in anything that is done to change the trade and export functions now carried out by Commerce. No other part of the U.S. economy is as affected by trade flows as the manufacturing sector. Nearly 84 percent of U.S. merchandise exports and 84 percent of merchandise imports are manufactured prod

ucts.

I would like to call the Committee's attention to a new report, Why Exports Really Matter!, published by the Institute for International Economics and The Manufacturing Institute, an educational and research affiliate of the NAM. The report shows that exporters and their workers are far better off than non-exporters across a broad range of criteria:

• workers in exporting plants on average earn 15 percent more, but in some cases this difference is as much as 25 percent;

• benefit levels are between 25 percent and 45 percent higher;

• exporting plants are 30 to 50 percent more productive than non-exporting plants;

• out of a list of 15 modern manufacturing technologies, exporters employ 40 percent more of these in their plants; and

• failure rates in exporting plants may be 30 percent less.

That's not all. These benefits seem to show up once a firm makes a commitment to exporting, not after it reaches a certain level (or intensity) of exporting. And the benefits show up across the board in small companies as well as large. Benefits of exporting don't just go to the big, multinational firms.

A copy of this report was sent last week to every member of Congress. I would like to submit a copy for the record of today's hearings.

This leads me back to the subject of my testimony-the trade and export functions of Commerce. The NAM's position on this matter can be stated succinctly: We believe that the core elements of Commerce's trade and export functions should remain together under the leadership of a Cabinet rank official.

Legislation (S. 929, Department of Commerce Dismantling Act) has been introduced in the Senate which heads in the opposite direction from our recommendation. This legislation would move Commerce's trade and export functions to at least five different agencies and eliminate some functions that we cannot afford to lose. Mr. Chairman, you as well as other members of the Senate have long supported greater consolidation of the trade and export functions of the government. We appreciate the work you have done on this issue. Indeed, in 1983, the last time this issue was really under serious consideration, the NAM supported the trade reorganization legislation reported out of this committee under your leadership. At the time, the Committee stated that the United States needed “a forward-looking_response to the increasing importance of international trade to our economy." This was true in 1983 and it is even more so today.

We know that serious consideration is being given in the Senate to alternative legislation to S. 929, at least in terms of trade and exports. Senator Bond, for example, has stated on the Senate floor that he is prepared to offer an amendment to S. 929, which would keep the trade and export functions of Commerce together. You yourself, Mr. Chairman, compellingly set out the case for combining the functions of the Commerce Department with those of the U.S. Trade Representative's office in your floor statement of June 29. The ideas expressed in both of these statements are clearly in line with the NAM approach I have just mentioned.

Obviously, we would need to discuss any new reorganization legislation with our members before taking a formal position on it, but here is what we will be looking at in any plan:

First, we must preserve the ability of the U.S. to participate in international trade negotiations.

Roughly 40-45 percent of the work done by Commerce's International Trade Administration (ITA) outside of trade law implementation goes to conducting international negotiations or supporting the United States Trade Representative (USTR) in such negotiations. S. 929 would eliminate this vital activity, without providing any feasible means for USTR or any other part of the government to pick it up.

ITA is not the only part of Commerce to play an important role in international negotiations. The National Institute for Standards and Technology (NIST) assumes a similar role in the area of international standards, which is one of the most important non-tariff barriers confronting U.S. companies today. S. 929 would eliminate NIST capabilities in this field.

The NAM believes that ITA and NIST functions that are critical to the ability to carry out international negotiations must be maintained.

Second, we need to make sure that U.S. trade laws are effectively implemented. Any reorganization plan involving the administration of U.S. import laws will have major policy consequences. One alternative under consideration is to move import law administration to the USTR. This is what would happen, for example, under S. 929. It is not clear to us how the 300-person import administration could be moved into the 180-person USTR without completely transforming the USTR from a presidential trade staff into a line agency. Nor is it clear how a clear line of demarcation between trade policy negotiations and trade law administration will be maintained under such a plan.

Third, we need to make sure that the export control system governing U.S. commercial exports functions properly.

It is important to remember that no commercial export leaves this country without a license (general or validated). S. 929 gives the responsibility for export licensing to the Defense Department and export enforcement to the Customs Service. Reform of the current export control system is badly needed (see attached chart) and

long overdue, but not this way. Eliminating the central role that Commerce currently plays in this system would be a step backward. It would give us a system more regressive than the one that we had in place at the height of the Cold War. The NAM cannot support any plan that turns control of licensing of commercial products over to departments such as State, Customs or Defense. This function must remain together within a department that is primarily responsible for trade, export policies and the competitiveness of American firms.

Fourth, we need to pay attention to providing appropriate support to U.S. export

ers.

Though functionally the job of export promotion is different from the job of trade negotiation, they both depend on a cadre of experts who know the strengths of U.S. business and who are familiar with the diplomatic and commercial opportunities for U.S. business. Commerce today is the principal source of this type of expertise, which we cannot afford to lose.

Before closing, I would like to comment briefly on the current system of private sector advisory committees on trade and export matters that are run by Commerce. Congress created this system in 1974 to ensure systematic private sector input for U.S. trade negotiations rather than the ad hoc approach that existed before that time. It has worked well and at virtually no cost. We believe it should be retained. Mr. Chairman, this concludes my testimony. I would be glad to answer any questions.