Copyright 2000 Federal News Service, Inc.
Federal News Service
March 30, 2000, Thursday
SECTION: PREPARED TESTIMONY
LENGTH: 2840 words
HEADLINE:
PREPARED STATEMENT OF DALE GROGAN PRESIDENT, LEAPFROG SMART PRODUCTS, INC. ON
BEHALF OF THE U.S. CHAMBER OF COMMERCE
BEFORE THE
HOUSE COMMITTEE ON WAYS AND MEANS
SUBJECT - THE
FUTURE OF THE WORLD TRADE ORGANIZATION
BODY:
I am Dale Grogan, President of Leapfrog Smart Products, from Orlando,
Florida and a new member of the US Chamber of Commerce. Thank you for the
opportunity to express the viewpoint of small business as it relates to U.S.
membership in the WTO and the implications of U.S. membership on trade with
China, particularly in light of the expected accession of China and Taiwan into
the WTO this year.
Leapfrog Smart Products is a software application
development firm that creates solutions for Smart cards. Smart cards are
mini-computers embedded in plastic the size and shape of a credit card. Just
like Microsoft creates software for personal computers, Leapfrog creates
software for computers called Smart cards.
We are proud to testify on
behalf of the U.S. Chamber of Commerce and likewise believe the Chamber speaks
on our behalf on this and other issues. The U.S. Chamber is the world's largest
business federation, representing more than three million businesses and
professional organizations of every size, sector and region in the country. In
keeping with the Committee's March 20 hearing advisory, my comments today will
focus on four topics: (1) the importance of PNTR status and WTO
membership for China as it benefits our technology-based business, (2)
the overall results of U.S. membership in the WTO and the General Agreement on
Tariffs and Trade (GATT), (3) whether future participation of the United States
in the WTO and the multilateral trading system can be expected to benefit
Americans, and (4) prospects for increased economic opportunities for U.S.
businesses and workers associated with Chinese membership in the WTO and the
normalization of trade relations between the United States and China.
Point 1: "PNTR status and WTO membership for China as
it benefits our business:"
From a technology perspective, China is no
longer the sleeping giant she is awake. The time gap between the Industrial
Revolution and the Technology Revolution in the U.S. was about 80 years; in
China, it is about 8 years. Infrastructure is being built faster than you can
possibly imagine and the marketplace is ready for Western goods and services, in
particular, technology - any kind of consumer-based technology. Whatever the
"western consumer" has, the Chinese want and need.
China's greatest
resource today is its collective buying power. China recognizes this and
rightfully protects that resource. To effectively do business in China, having a
strong in-country partner is absolutely elemental. Without a partner who is
motivated by profits, you're dead. Fortunately the business climate in China has
changed over the past decade. It used to be that a Chinese joint venture meant
that the Chinese would "contribute" land (or a factory) and labor. That was easy
to do for the Chinese, because both were, and are, abundant. The joint venture
that Leapfrog just completed with our Chinese partners is the new model (we
think) for Sino-American business. The objective of the joint venture is to
manufacture a Smart card reader for worldwide distribution, including China.
Also, we expect to sell our software solutions into China - soon to be the
world's largest purchaser of Smart card technology.
Under the parameters
of our joint venture, our Chinese partners not only contribute the factory and
skilled labor force required to manufacture our new fingerprint reader, they
also are bona fide investors into the deal with capital of their own at risk.
Not only that, our partners will be responsible for business development within
China. An American company without a Chinese partner is a rudderless boat. The
third leg of the stool is that we have a local Chinese businessman as an
investor. Because our joint venture is privately owned, we all share the same
capitalistic goal of profits.
The key to making deals like we have with
our Chinese partners is having PNTR and WTO membership for
China. The Chinese business people want this. Normalization and WTO status only
re-affirms the rules of the game. For us, WTO status in effect forces Chinese
businesses to "play by the rules." The WTO protections, specifically of
intellectual property, give hi-tech companies such as Leapfrog the comfort and
ability to extend our business reach into the global market, a necessary
ingredient in the Internet-driven information age.
For a small company
like Leapfrog (we have about 50 employees now), having the ability to sell our
software into China is critical to our success. The fact of the matter is that
the U.S. market lags Asia dramatically. For example, over the next five years,
U.S. market for Smart card software will be about $200 million.
China alone will be over $2.0 billion. Companies in our
industry simply cannot ignore the Chinese market. The harsh reality of business
is that isolationism would simply kill our company.
Point 2: "Overall
Results of U.S. Membership in the WTO and the GATT"
During the pre-World
War II period, the United States and other nations learned the hard way that
protectionism and other forms of isolationism were self-defeating. The
collective destinies of all of the countries are inseparable and interlocked. As
the notorious Smoot- Hawley tariffs in the U.S. and other mirror measures around
the world aggravated an already severe depression, many nations eventually
realized that protectionism could not be the answer. Thus a global trading
system was conceived and eventually embodied in the GATT. Founded in 1947, the
GATT system, had as its underlying premise that protectionist policies were
inimical to nations' economic well-being. GATT established international ground
rules for a process of economic integration that continues to this day. In sharp
contrast to earlier practices, nations agreed to treat any one nation's commerce
the same as that of (almost) all other nations ("most-favored-nation" treatment
or, in U.S. law more recently, "normal trade relations"), as well as how they
would treat their own commerce (national treatment).
Since that time,
the world economy has evolved into a very different and much more complex state.
As nations struggle to cope with these new realities, official efforts at
economic integration are continuing around the world. The Uruguay Round
Agreements represent by far the most ambitious of these efforts. Those
agreements committed over 135 nations to adherence to the following principles:
Trade without discrimination. This means WTO members agree to give equal
treatment to commerce from other member countries ("most- favored-nation") as to
domestic commerce ("national treatment"). Predictable and growing access to
markets. This is of particular importance to our company and includes a
continuing commitment by WTO members to reduction of tariff and nontariff
barriers to trade, as well as transparency in domestic laws, regulations, and
practices.
-- Fair competition. Where conditions and restrictions on
free trade remain, applicable rules and procedures enforced by WTO members must
be fair and, again, non-discriminatory. Economic development and reform.
Over three quarters of the 135-plus members of the WTO are developing
countries, in the process of reform from non-market systems. Accelerated trade
concessions and extra flexibility in required adherence to WTO rules are
provided in a number of areas.
While the GATT Uruguay Round Agreements
are historic for the ground and the number of signatory nations they cover, they
also represent - through the WTO's dispute-settlement processes - an
unprecedented application of a rule-enforcement mechanism to the conduct of
trading nations. While the WTO is not in a position to directly force individual
nations to change their trade laws, it can provide an international "stamp of
approval" for other nations' responses to trade barriers and distortions that
they and the WTO have deemed improper. As a result, under the WTO we have better
enforcement of U.S. rights and greater assurances that our trading partners will
abide by the rules and open their markets to American exports.
More
broadly, participating in the WTO also permits us to advance our democratic
values. Countries that subscribe to WTO rules - rules we had a disproportionate
role in shaping - are obliged to adhere to these rules in commercial
transactions. In short, the WTO reinforces the rule of law. As I mentioned
earlier, this is critical for a software company where our intellectual property
can be reverse engineered or pirated. WTO rules creates new barriers against
piracy that benefit both small and large businesses.
Point 3: "Whether
Future Participation of the US in The WTO and the Multilateral Trading System
can benefit Americans"
Trade's importance to the U.S. economy has grown
enormously over the past forty years. The share of U.S. exports purchased by
foreigners has grown almost three-fold since then - as has the share of U.S.
income used to purchase foreign goods and services. Over 95% of the world's
population lives outside of the United States. It should make common sense not
only to trade with them, but also to lead and work with other nations to solve
international crises and promote expanding trade and sustained economic growth.
As the world changes, continuing U.S. engagement is becoming more
important to the national interest, not less. The world is becoming more
multipolar in political and economic terms. New players are emerging on economic
and political fronts. Economic and trade "blocs"
such as the North
American Free Trade Agreement (NAFTA), the European Union, the Asia-Pacific
Economic Cooperation area (APEC), and others continue to gain prominence.
There is no question that, if the U.S. is to successfully reassert its
leadership in world economic affairs, it must not only resume its place at the
head of the trade negotiating table, but also demonstrate its willingness to
lead at that table. Historically, such U.S. leadership has led to strengthened
trade rules that have allowed American businesses, farmers and workers to find
new opportunities, create new jobs, and raise living standards. In other words,
to enjoy the benefits that increased trade has on our lives.
Notwithstanding the debacle of the WTO ministerial conference in
Seattle, global trade continues to expand with attendant benefits for consumers,
workers and business. Continued progress toward trade liberalization requires
that we recognize the WTO's continuing value to U.S. interests. We must
therefore continue efforts to build upon and improve upon the system as it now
stands.
The structure of rules governing trade in goods and services
remains in place within the WTO. We should work vigorously in the coming year to
insure rapid and full implementation of all existing commitments by WTO members.
The WTO's less advanced members, especially the lesser developed
countries, must obtain a deeper stake in the WTO system through additional trade
liberalization initiatives and through understanding the benefits of global
trade for their economies.
The rapid pace of global economic integration
will insure that continuing delays in further trade liberalization pose serious
risks and burdens for global trade. Every attempt should be made to move forward
as much as feasible in the already mandated negotiations on agriculture and
services. Opportunities for limited progress, such as sectoral initiatives,
should be pursued wherever feasible.
There are those who, during the
struggle to implement the North American Free Trade Agreement (NAFTA), argued
that NAFTA's implementation would be followed by the "giant sucking sound" of
U.S. jobs heading south to Mexico. But what has really happened? Since NAFTA's
implementation - and also since the subsequent implementation of the Uruguay
Round Agreements - the U.S. economy has enjoyed record employment. It is clearly
in our national interest to replicate this success wherever and whenever
possible.
Point 4: "Prospects for increased opportunities for the U.S.
associated with Chinese membership in the WTO and the PNTR between the United
States and China"
In its single most important vote this session,
Congress will soon decide whether to extend permanent normal trade relations
(PNTR) status to China as part of the recently-negotiated China-U.S.
agreement on China's pending WTO accession. Once China concludes the
requisite additional agreements with the European Union and others, it will
enter the WTO - whether or not Congress grants PNTR. If Congress votes not to
grant PNTR, we will forfeit to our competitors in Asia, Europe and elsewhere the
benefits of improved access to China's market that we negotiated for ourselves
last year - with the big losers being American farmers, American manufacturers,
American technology firms like Leapfrog, American service providers, and
American workers.
China has some of the most restrictive trade barriers
in the world. But in stark contrast to the Chinese market, the U.S. market is
wide open to imports. U.S. families already benefit from increased choices and
price competition brought about by Chinese imports. By tearing down thousands of
Chinese trade barriers, the US-China WTO agreement will help level the playing
field between our two countries and give U.S. companies an opportunity to
increase their share of the Chinese market.
U.S. exporters will not be
the sole beneficiaries of the U.S.-China WTO agreement. More business for U.S.
exporters means more business for their vendors and suppliers. Thus, even
companies with no international sales will be able to attribute some increase in
business to the agreement by virtue of their supplier relationship with
companies that sell to China.
In short, the agreement is one-sided in
our favor. In exchange for Chinese concessions, the United States is not
required to open its markets wider to Chinese imports. These concessions are the
price of admission China must pay to become a WTO member. With the exception of
the annual "normal trade relations" (NTR) renewal process, the United States in
effect already treats China as if it was a WTO member. We must end the annual
NTR renewal process and grant China permanent status in order to insure that we
receive the benefits of this landmark agreement.
The U.S has an historic
opportunity to secure broader and more consistent access to China's markets.
While China must still complete its WTO negotiations with other nations, the
U.S. should not delay its final approval. The US-China WTO agreement contains
most of the major components that will be in China's final access protocol. Any
additional market-opening measures negotiated by these other countries must be
extended to the United States as well. Thus, the final terms of China's
accession to the WTO can only be improved over the already impressive US-China
agreement.
In conclusion:
The China WTO Agreement will:
Eliminate import duties on high-technology goods by 2005. Permit foreign
investment in the Chinese Internet, and liberalize Internet services.
--
Permit provision of telecommunications services via satellite. Allow foreign
investment in all types of telecom services and phase out most geographic
restrictions. Protect intellectual property rights through adherence to the WTO
TRIPS Agreement.
We have just become a public company, and so we are
scrutinized by Wall Street every day. I can tell you that when we announced our
Chinese joint venture, our stock jumped 28%. The market recognizes business
opportunities and responds accordingly. We believe that what we are doing is
right and benefits our shareholders, our employees, and their families. The
positive fall-out from doing business with China is simple: jobs. High-tech
engineering jobs, service jobs, support jobs, production jobs, the list goes on.
In the hi-tech business we provide full solutions. This means that we buy
component goods, such as Smart cards, computers, and readers. Additionally,
there is a host of support services that are provided from back-office
processing to infrastructure support to telecommunications efforts. The point is
for every solution sold in China, bunches of jobs are created here in the US.
The jobs fuel the economy.
On a personal level, in my many trips to
China, I have found the people interesting, humble, honest, and hard working.
The business issues they face on a daily basis are the same as we have here in
the U.S.: soaring costs, shrinking margins and global competition. Like it or
not, China is on the way to becoming a capitalist juggernaut. We have a simple
choice to make in business. We can either embrace and profit from China as a
trading partner or stick our heads in the sand and hope they go away. I am
responsible for the livelihood of fifty families now; the choice is simple for
me. We need PNTR and WTO for China. On behalf of the U.S. Chamber of Commerce
and its members, I urge you to follow our lead.
This concludes my
testimony. I will be glad to answer any questions.
END
LOAD-DATE: March 31, 2000 
