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Search Terms: Permanent Normal Trade Relations, House or Senate or Joint

Document 96 of 374.

May 16, 2000, Tuesday

SECTION: PREPARED TESTIMONY

LENGTH: 1725 words

HEADLINE: PREPARED STATEMENT OF SHARON K. DEDONCKER AQUA-AEROBIC SYSTEMS, INC.

BEFORE THE HOUSE COMMITTEE ON SMALL BUSINESS SUBCOMMITTEE ON TAX, FINANCE, AND EXPORTS

BODY:
Introduction

My name is Sharon DeDoncker, and I am Vice President/International Sales for AquaAerobic Systems, Inc. Aqua is a privately owned company that manufactures and markets water and wastewater treatment equipment and systems used by both municipalities in their sewage treatment plants and by industries for treatment of their process or waste water. I am here in Washington, D.C., to participate in the release of a report by the U.S. Chamber of Commerce on U.S. small and medium- sized businesses in China. Aqua is one of the companies profiled.

Aqua has been in business since 1969 and employs about 135. We sell worldwide from our office in Rockford, Illinois. The company established an international department early in our history. With the maturing of the U.S. wastewater treatment market, we have increasingly recognized the importance of the international market for company growth and profitability. In the last two years, we have increased the number of personnel and the resources allotted to expanding sales internationally. There are now eight full time employees in our international department with an annual budget exceeding $750,000. In addition to the allocated department employees, staff support is provided from other areas of the company.

Traditionally, Aqua's international sales have represented 10 - 15% of company sales. That percentage has been growing, with a target of 20% within the next two years. Business in China

Although China is one of the best markets for U.S. environmental technology products China spent an estimated $7.2B on the environment in 1997 - Aqua did not actively enter the China market until 1999. Prior to then, Aqua sales to China were limited to work with U.S. or European companies who in turn supplied the equipment to end users in China. Our first significant sale to China was through Armstrong World Industries in 1995 when they placed an order with us for a plant they were building in the Shanghai area.

In 1999, we realized the China market was too large for us to ignore and we began aggressive sales efforts. We engaged a full-time commissioned representative with extensive knowledge of our equipment and systems. We participated in a Technology Exchange programs, meeting decision makers throughout China. I personally made three trips to China in 1999 to meet with key industry figures and begin the relationship building so essential in this area. Our technical staff has visited China and worked with local project engineers as they developed designs and specifications. In addition, we have entertained numerous groups of Chinese engineers and officials at our plant.Rockford has a Sister City in China, Changzhou, and we have met government officials from Changhouz in both Rockford and China. In short, we believe the China market is essential to our company growth and have invested accordingly.

Working the China market has not been an easy one. Relationships are very important to the Chinese, and our international competitors have been there longer than us. We are working hard to overcome this obstacle through frequent visits to China, hosting visitors to the U.S., regular contacts through correspondence and phone contact, and technology training sessions conducted by our representative in China.

We are a typical mid-size U.S. company. We don't have endless resources. Our staff of six covers the world and does everything from filing and making copies to traveling across the world to negotiate multimillion dollar contracts. We are stretched very thin from both a people and financial standpoint. When we enter a new market, we take advantage of all the government services available to us. The Rockford Export Assistance Off.ice, US-AEP, and U.S. Department of Commerce have been extremely helpful and instrumental in the progress we have made internationally. We have received grants from the US-AEP that have helped us with our market development in South America and Asia, but the US-AEP is not active in China and probably will not be unless trade relations are established on a permanent basis. We have used market analyses from the U.S. Department of Commerce in doing our market studies and have used their services in finding local representatives. I believe this support will continue to be available if PNTR is granted, but will diminish if the bill does not pass. Small companies like Aqua need this type of government support to enter and maintain efforts in a foreign country.

The majority of our competitors in China are Asian or European companies. These companies get strong support from their government. The European and Japanese governments are aggressive in putting together financing packages for large projects. Frequently these funding packages are announced in connection with a visit by high ranking officials from the foreign government which adds a political influence. These financing packages usually come with the understanding that the majority of the financed goods must come from the financing countries. The U.S. has been a nonplayer when it comes to providing project funding, which is a major obstacle for U.S. direct participation on many projects. In order to participate on these projects, we are forced to find a European partner rather than form a partnership with other U.S. companies.

The systems we sell normally take two years from concept to order. International jobs generally take a year longer to develop, and we believe the average China job will take three years from concept to order. However, we are seeing some early successes. Last year we booked a $2.8M order for a sewage treatment system to be installed in Shenzhen, a special economic zone. That order represents 6% of total company shipments for this year. We have four smaller projects totaling $3M that could book yet this year. With passage of PNTR, we feel our sales to China can grow at a rate of 20%/year, and sales to this area could account for almost 50% of our international sales. One attraction of the China market is that the large population causes the projects to be large. As our base in China grows, not only will we be working on a greater number of jobs, but they will also get larger and larger. Each $1M of sales probably equates to an additional hire, and the projects we see coming up tend to be $500,000 and larger.

The importance of the China PNTR vote

The passage of the China PNTR vote is crucial to our continued work in China. If the vote does not pass, we will have to seriously consider suspending sales activity in China. Not only will we lose out on the largest market for our products, we will also lose the time and money already invested.

The market is there, but to be successful against competitors from other countries we have to have a level playing field. This is a country where face and relationships are extremely important. The decision makers are politically aware. When they have to choose between a seller from a country that supports China or a seller from a country that discriminates against China, we are going to come out the losers. If PNTR is rejected, U.S. manufacturers can expect discriminatory treatment relative to suppliers from other WTO member countries.

As a sales person, I recognize that no matter how good a product, price is still the number one consideration.

The Chinese are the same as everyone else when it comes to wanting a competitive price. China has agreed to significantly reduce tariffs on industrial products like ours as a condition of WTO membership. However, without PNTR, China can deny tariff reductions to U.S. companies, while granting it to other WTO members. I've heard reports that the tariff difference can be as much as 10 15%. No matter how good our products and sales efforts are, a 10 - 15% price disadvantage is almost impossible to overcome. We need equitable tariffs to maintain price competitiveness with other international companies. We can only get this is PNTR is granted. Without an equal playing field, we cannot be a viable participant in this market.

The U.S. is the largest producer of water and wastewater equipment in the world. China has a tremendous need for this equipment, and their government is developing and enforcing pollution regulations. With passage of the PNTR bill, Aqua and U.S. companies can take advantage of China's growing need. Without passage of this bill, other countries will benefit.

The biggest objection I hear to granting favored nation status to China is the human rights issue. I believe the U.S. can have greater influence on China by building economic ties, not by putting barriers between our countries. Cuba is a good example of how economic sanctions have not worked. And since China will most likely become a member of the WTO regardless of how the PNTR vote goes, there will be no significant economic incentive for China to improve on its human rights issues.Another fear is that passage of this bill will result in our market being flooded with goods from China, with a resulting loss in jobs. This is not the case. The U.S. market is already open to China goods. The PNTR does not give China any special access to our market. Once China joins the WTO, it will receive the same trade treatment as other WTO members.

Conclusion

U.S. businesses need your vote for passage of the PNTR. The passage of this bill gives U.S. exporters like Aqua-Aerobic Systems access to the world's most populous market. Without this measure, we are virtually denied entry to the largest water and wastewater treatment market in the world.

We know this market will be a complicated one for us even if PNTR status is granted, but we are prepared to continue to invest our resources towards the development of the market. However, if permanent normal trade relations is not granted to China, there is a strong chance we will abandon this market as the obstacles will be too difficult to overcome.

Our company is typical of mid-size companies throughout the U.S. We need the China market in order to grow, and we need to be able to compete on an equal basis with our international competitors. Passage of the PNTR will give us this opportunity.

Thank you for giving me this opportunity to testify in support of granting permanent normal trading rights to China.

END

LOAD-DATE: May 17, 2000

Document 96 of 374.


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