March 03,2004

Baucus Focuses on Sharpening America's Competitive Edge, Addresses "Offshoring"

Senator Outlines Proposal at Brooking Institute, Promotes Engagement and Job Growth

(WASHINGTON, D.C.) U.S. Senator Max Baucus today spoke at the Brookings Institute toaddress the issue of "offshoring" - the practice of U.S. companies using resources or employeesoutside of the United States - and laid out a legislative agenda to ensure that America remainscompetitive and internationally connected.

"Open any newspaper these days and you’ll likely see a story about U.S. services jobsmoving overseas," Baucus said. "Offshoring has become the issue of the day and it's our firstinstinct to want to throw up barriers and hold our jobs tight."

"But that's not how to succeed in this interconnected, international world. We need a visionfor America based on embracing open markets, rewarding innovation and risk-taking, while at thesame time preparing our workforce to take advantage of the opportunities of the future," Baucusadded.

Baucus's strategy for addressing the issue of offshoring includes introducing a legislativepackage that will help create new jobs through provisions such as: expanding the R&D tax credit,increasing federal spending on research, and promoting educational programs to prepare today'schildren for tomorrow's economy. The proposal also focuses on the rising costs of health care andways to help small employers provide health coverage to their employees.

A key component of Baucus's proposal focuses on helping out people who have already losttheir jobs due to outsourcing by expanding the Trade Adjustment Assistance (TAA) program toservice workers. The current TAA program has helped thousands of manufacturing workers getretraining and maintain their health insurance while looking for a new job. In addition, Baucustoday highlighted the need to enforce existing trade agreements and negotiate future tradeagreements with countries that will provide true economic benefits for America's economy."Trade can be an amazing stimulus for economic growth and is one of the best ways we cancreate jobs, especially those in manufacturing," Baucus said. "But we must be smart about trade.We must enforce our trade laws and our trade agreements, and we must continue to stay strong onlabor and environment protections."

In addition to Baucus's legislative proposal to address offshoring, he also urged immediatepassage of the "Jumpstart Our Business Strength" (JOBS) bill that is currently being debated on theSenate floor. The Baucus-Grassley JOBS bill will provide tax relief to domestic manufacturers andwill repeal the Foreign Sales Corporation/ Extraterritorial Income (FSC/ETI) tax regime, which hadbeen ruled against by the World Trade Organization. On March 1, the European Union (EU)imposed sanctions on U.S. goods and will continue sanctions until FSC/ETI is repealed.

Full text of Baucus's Brookings Institute Speech follows:
Speech of U.S. Senator Max Baucus
“Preparing America to Compete in the 21st Century and Beyond”
Brookings Institution

March 3, 2004

INTRODUCTION

I would like to talk today about a matter of some concern to many of us in Congress: the movementof American jobs offshore. Open any newspaper these days and you’ll likely see a story about U.S.service jobs moving overseas. Offshoring has become the issue of the day.

Dramatic improvements in communications technology have allowed workers in India and China toprovide services that before had to be provided by workers in America. This has resulted in costsavings for businesses, but dislocation and anxiety for American working men and women.Those who support trade have long argued that trade eliminates some jobs but creates other, betterpaying jobs. Economists said that we needed to move up the value-added ladder from agriculture tomanufacturing, and from manufacturing to services. We did, and it worked. Our economy grew.

But now that we’re losing service jobs, some wonder whether we have run out of rungs on theladder. Where will the jobs of the future come from?

The Administration is wholly out of touch with these concerns. It offers no comprehensiveapproach to cope with the real fear that exists among working Americans. Instead, theAdministration assures us grimly that offshoring is good for the economy, and that we shouldencourage – even accelerate – the movement of U.S. jobs overseas.In the absence of any Administration strategy to respond to the concerns created by offshoring,some argue for raising trade barriers. They want to make it more difficult for U.S. companies tohire foreign workers.

I have a different vision. I believe in an America that remains strong not because we have isolatedourselves from the world, but because we have re- made ourselves to meet the challenges that arisein an interconnected world.

No nation has ever become stronger through economic isolation. But Americans have built thestrongest nation in the world by embracing open trade and successfully confronting the challenges itbrings. We should respond to offshoring as we have always responded to economic challenges. Weshould reward innovation and risk-taking. We should keep our market open, and fight to open newmarkets for U.S. goods and services. And perhaps most importantly, we must prepare ourworkforce to take advantage of the opportunities of the future.

Today I announce that I will introduce a package of legislative proposals to address the economicchallenges that offshoring poses. We must focus on three broad goals.We must advance policies to help create new jobs here in the United States. We must undertakemeasures designed to keep good-paying jobs in the United States. And finally, when jobs are lost totrade, we need to retrain people and help them get back into the workforce as quickly as possible.

CREATE NEW JOBS IN THE UNITED STATES

R&D Tax Credit

Let me begin with job creation. One of the best ways to help create jobs here at home is to expandthe research and development tax credit, and make it permanent.For more than twenty years, this tax credit has helped stimulate innovation and kept high-skill,high-wage jobs in the United States. It rewards precisely the sort of risk-taking and innovation thatwe should encourage.

This is important – in many information technology companies, for example, as much as fiftypercent of revenues come from newly released products and services. We must continue toinnovate to succeed.

Increase Federal Spending on Research

Much of the most innovative research is done at U.S. universities and research institutes, whichattract students from across the globe. But over the last 20 years, federal research funding in thephysical sciences and engine ering, as a percentage of GDP, has actually declined by nearly onethird.We should reverse this trend and dramatically increase federal spending on basic research. Themoney we spend will come back to us many times over in the creation of new jobs in new industriesmaking products yet to be invented.

MAKE IT EASIER TO KEEP JOBS IN THE U.S.

Creating new jobs is critical. But we must also make it easier to keep jobs that we already have. Todo that, we must create a better environment for companies operating in the United States.JOBS Bill

This week, we’re taking a critical step. We must pass the JOBS bill currently being considered inthe Senate, and pass it quickly.

The JOBS bill provides a 9 percent tax cut for all companies manufacturing products here in theUnited States. It also contains a variety of provisions to help American companies compete moreeffectively. This will give a needed boost to ailing U.S. manufacturers and provide an incentive tokeep U.S. manufacturing jobs in the United States.

Health Care

We also need to do something about health care costs. From the smallest family owned businessesin Montana to the largest multinationals, companies have told me the rising cost of health coverageis among their greatest concerns.

That’s because in America, not only do employers pay much of the cost of health care, but costs arehigher and rising faster than in other countries. Last year, employers paid an average of nearly$2900 for single employee coverage and over $6500 for family coverage.

Employers in America also bear much of the cost of the rising number of uninsured through costshiftingby hospitals and other health care providers. This places U.S. corporations at a disadvantageto their foreign competitors, whose employees are often covered under a government-sponsoreduniversal health program. These costs are a real disincentive for companies to hire more workers. Ifwe want to increase employment in America, we can’t ignore this growing problem.

Over the course of the next several months, I will convene a number of briefings with nationalhealth policy experts to explore possible large-scale health reform strategies, including theproposals put forth by the Democratic Presidential candidates and alternative approaches to reform.And in the short-term, I will continue to support and work toward passing more modest,incrementalsteps. These include offering small employer tax credits, funding for employer-basedgroup purchasing pools, increased funding for high-risk pools, building on Medicaid and the State

Children’s Health Insurance Program, and permitting a Medicare buy- in for the near-elderly. Theseincremental steps will help ease the cost of health care for American employers and encourage morehiring.

Trade

When people talk about jobs moving overseas, they frequently talk about trade. Too often, theproposed solution is to retreat into isolationism and raise barriers to trade. In my view, that’sexactly the wrong approach. We should engage in more trade, not less.But we must be smart about trade. We must enforce our trade laws and our trade agreements. Wemust ensure that markets remain open to U.S. companies, and that U.S. companies can compete ona level playing field.

We should reject the notion that we must lower standards in this country to compete. Instead, wemust look to raise standards in the countries we trade with. The Trade Act of 2002 madetremendous progress in this regard, but we must continue to “race to the top.”

When it comes to standards on labor and the environment, the debate in the last three years has beenabout what this Administration and this Congress – not our trading partners – will accept. Ourtrading partners will accept higher standards in order to gain the prestige and access that a tradeagreement with the United States gives them. But we’ve been negotiating with ourselves instead ofwith them. We’ve got to do better.

I also believe we need to refocus our efforts more on enforcement. Should we spend our limitedresources negotiating trade agreements with countries with miniscule economies, or should we beworking to break down tough trade barriers in much bigger markets like Japan, India, and China?India in particular maintains a variety of trade barriers against U.S. products. You hear a lot aboutU.S. call centers moving to India, but you don’t hear much about U.S. companies increasing theirsales to India. In fact, last year, we exported to India’s one billion people only half of what weexported to Switzerland’s seven million people. We’ve got to do more to open up India and othercountries to U.S. products. That would have a real positive impact on creating new jobs inAmerica.

Education

Tax incentives, more affordable health care, smarter trade policy – these are things that can help inthe short term. But creating and keeping jobs in America requires a long-term vision.The most important thing we can do is to support education. This is the key to America’s continuedprosperity. Education provides the skills necessary to unleash the creativity of our citizens and helpsprepare them for the jobs of the future. The education of our working men and women can beAmerica’s most powerful competitive advantage.

We should improve, consolidate, and expand the multitude of education tax incentives that alreadyexist to make them more effective. In particular, we should increase scholarships and loanforgiveness for engineering students to entice more people to study engineering.We train only half as many engineers as Japan and Europe, and less than a third as many as China.Engineers play a critical role in the development of new jobs and new industries. America needsmore engineers.

We also need to ensure that American students are prepared for college. When states have to slasheducation spending to balance their budgets, it’s not just the students who are hurt. It’s all of us –our economy, and our future. We should fully fund the No Child Left Behind Act and take othermeasures to ensure our young people are prepared for college. Like supporting communitycolleges. Community colleges not only prepare some students for university, they allow workers tolearn new skills. And they play a critical role helping to retrain those who lose their jobs due totrade.

RETRAINING FOR THOSE WHO LOSE THEIR JOBS DUE TO TRADE

This leads me to my last point. Changes in the economy due to trade cause real hardship to a lot ofpeople, even if we’re all better off in the long run. We need to help workers re-enter the workforceas soon as possible.

Trade Adjustment Assistance

That was the impetus behind the expansion of the Trade Adjustment Assistance program in theTrade Act of 2002. That program has helped thousands of manufacturing workers to get retraining,keep their health insurance, and make a new start.

Despite the obvious benefits of this program, the Administration fought tooth and nail against everypenny, and against every provision. I fought to extend TAA to service workers, but that provisionwas struck in the final version of the bill. As we read about service jobs moving overseas, we cannow see that was a mistake.

People should get retraining whether they work in services or manufacturing. Workers, employers,and the American economy all benefit when we equip our workers with the skills they need to filljobs in growing industries. That’s why yesterday Senator Coleman and I introduced legislation toextend TAA to service workers whose jobs move overseas.

This is not just an issue of fairness, it’s common sense. If we want more people to be employed, weneed to get serious about training them for the jobs that are available.

CONCLUSION

Let me conclude with a promise and a warning. The U.S. economy is the most flexible, vibrant, anddynamic in the world. We owe that to the ingenuity of the American people and their relentlessthirst to create and to innovate.

We also owe it to the policies we have put in place to support the innovation that keeps oureconomy growing and creating jobs. That includes embracing open trade with the world. I promiseto continue to fight for those policies – including open trade – and for the improvements to them Ihave discussed here today. That’s my promise.

And now for my warning. Just as jobs can be created by innovation and trade, so too can they bedestroyed. There is no question that this is a frightening process. In the short run, there will belosers as well as winners. It is perfectly understandable why workers whose jobs are lost due totrade would believe that they are worse off because of trade.

But in the long run, all of us are better off. If we forget that, and raise barriers to trade to cope withoffshoring, we will only be hurting ourselves. We will hinder the ability of companies to innovateand our economy to create jobs.

We should act not out of fear, but out of purpose. No country in the world is better positioned totake advantage of the opportunities of the future than is America. With the right policies, and withfaith in ourselves, America will continue to grow and prosper in the 21st century and beyond.Thank you.

Preparing America to Compete in the 21st Century and Beyond:

A Positive Response to Offshoring

As American companies have moved manufacturing and service jobs overseas, some policymakers have argued for raisingtrade barriers and ma king it more difficult for U.S. companies to hire foreign workers.

Senator Max Baucus has a different vision. He believes in an America that remains strong not because we have isolated ourselves from the world, but because we have re-made ourselves to meet the challenges that arise in an interconnected world. No nation has ever become stronger by isolating itself. But Americans have built the strongest nation the world has ever known by embracing open trade and successfully confronting the challenges it brings.

To confront the challenge of offshoring, Senator Baucus will introduce a legislative package that will:

Create New Jobs :

• Expand the R&D Tax Credit. For twenty years, the R&D tax credit has helped stimulate innovation and kept high-skill, high-wage jobs in the United States. Senator Baucus proposes to expand the R&D tax credit and make it permanent to reward further the risk-taking and innovation that keep our economy growing.

• Increase Federal Spending on Research. Federal research funding in the physical sciences and engineering as apercentage of GDP has declined since 1985 by nearly one-third. Senator Baucus proposes to reverse this trend anddramatically increase federal spending on basic research. The money we spend will come back to us many times over inthe creation of new jobs in new industries making products yet to be invented.Keep Jobs in the United States:

• Pass the JOBS Act The JOBS Act provides a tax cut for all companies manufacturing products in the United States. It also contains a variety of provisions to help U.S. companies compete more effectively against their foreign rivals. Senator Baucus helped draft this bill to give a needed boost to ailing U.S. manufacturers and provide an incentive to keep U.S. manufacturing jobs in the United States.

• Deal with Rising Health Expenses. Senator Baucus will convene in the next few months a number of briefings withnational health policy experts to explore possible large-scale health reform strategies. In the interim, he will work toward offering small employer tax credits, funding for employer-based group purchasing pools, increased funding for high-risk pools, building on Medicaid and the State Children’s Health Insurance Program, and permitting a Medicare buy-in for the near-elderly.

• Enforce Trade Agreements. Keeping markets open and opening new markets for U.S. goods and services will also helpincrease employment in America. In particular, opening up India’s largely closed market – with its one billion people –would have a strong positive impact on creating new jobs. Senator Baucus will push for better enforcement of ourexisting trade agreements, and for negotiating trade agreements with countries that offer lucrative markets where U.S.companies could increase their sales.

• Support Lifelong Education. Education provides the skills necessary to unleash Americans’ creativity and helpsprepare them for the jobs of the future. Senator Baucus proposes to improve, consolidate, and expand education taxincentives; to increase scholarships for engineering students; to fund the No Child Left Behind Act fully; and to support community colleges.

Retrain Workers Displaced by Trade:

• Trade Adjustment Assistance. TAA has helped thousands of manufacturing workers get retraining, keep their healthinsurance, and make a new start. Senator Baucus has introduced legislation to improve TAA and expand it to coverservice workers who lose their jobs to offshoring. People should get retraining whether they work in services ormanufacturing. Workers, employers, and the American economy all benefit when we equip our workers with the skillsthey need to fill jobs in growing industries.