US pushes trade but trims export help

When Dan DiMase travels to China and Mexico to look for customers, he enjoys the backing of one of the biggest names in international business: the US government.

"It says a lot when you get a call from the US embassy or the US Department of Commerce looking to arrange a meeting. There's some clout," says Mr. DiMase, whose small electronic components distribution company in Warwick, R.I., now does about 15 to 17 percent of its business abroad.

DiMase attributes part of his success to the Commerce Department's "Gold Key" program – a service that, for a fee, helps businesses link up with foreign clients, research far-flung markets, and bridge yawning cultural gaps. The program is geared to small businesses, which would find it too expensive to do such work on their own.

But Gold Key and federal programs like it are threatened by budget cuts. Commerce officials have spent the last two years debating whether to stop subsidizing Gold Key, by billing client companies for the full cost of the service. While advocates for the program expect to escape funding cuts again this year, the failure of a Senate appropriations bill currently under debate could mean that small- and medium-size businesses would see some export promotion fees triple by as early as Oct. 1.

"We are staring down the barrel of a $1 trillion trade deficit, but our export promotion programs are a cut-and-paste affair," said Kathy Hill, the president of the State International Development Organizations (SIDO) during her testimony before the Congressional Committee on Small Business in April. "Why is it that trade policy, the process of negotiating trade agreements, is centrally orchestrated by a powerful White House office, while trade promotion, the process of helping our businesses take advantage of the agreements we sign, is left up to a loose constellation of agencies and institutions with no common agenda?"

Much of the immediate pressure to discover foreign export markets falls on state governments. Each year, states spend altogether about $75 million on trade and investment promotion – much of which goes toward managing more than 200 trade bureaus overseas. Another large chunk of funding goes directly into Commerce Department coffers to subsidize pay-for-service programs like its matchmaking service. It's all part of individual states' efforts to turn their businesses into global economic players.

As such, the most vocal opposition of funding cuts has come from the states, many of whom say the lack of funding represents a larger neglect on the part of the federal government for touting US products abroad. Fee increases for Gold Key might price Rhode Island out of the program, says Kathy Tufts, associate international trade director for the Rhode Island Economic Development Corporation.

"In some cases, they're proposing costs that are triple the amount they originally were," says Ms. Tufts, whose organization reimbursed 29 companies to the tune of $52,735 to pay for some 14 Gold Key missions. "With some of the larger companies, that doesn't make that much of a difference, but with the smaller ones, you're adding $2,000 to $4,000 on top of the trip for them, and that does make quite a difference."

Under the proposed fee schedule, the price for setting up a single day of meetings in a foreign nation could rise from $770 to as much as $2,500, according to SIDO.

The Office of Management and Budget (OMB), on the other hand, views Gold Key and the entire US Commercial Service as a private-sector function that should be funded as such.

"The program's services accrue benefits to a limited customer base," writes OMB spokeswoman Christin Baker in an e-mail. "We proposed that the private sector – instead of taxpayers – bear more of the costs of these services."

In 2005, the Commercial Service recovered some $1.4 million through fee charges, while the total cost of providing the service was about $2.7 million, Ms. Baker says. Even with the fee increases, government would still pay overhead costs, such as salaried employees, she adds.

But in a globalizing age, when even small businesses can face crippling foreign competition, a lack of government investment in export promotion may be keeping small businesses from getting the help they need, says Chris Whatley, director of international programs for the Council on State Governments. Small businesses employ as much as half of the private-sector workforce, according to the Small Business Administration.

"I think there definitely is a contradiction," says Wade Merritt, director of the Northeast regional office of the Maine International Trade Center. "We concentrate so heavily on getting the free trade agreements through, but our companies are watching their export assistance erode at the federal level."

Gold Key may be under the budget knife because of the firms it helps, experts say.

"Right now, in our business culture, exporting is kind of viewed as a big guy's game," says Mr. Whatley. "The assumptions of that model were that when you were the little guy in Peoria, you were only competing with companies in Peoria. Now, you face international competition from the moment you open shop."

When their budgets dipped in the red during the early part of this decade, many states depleted their export-promotion funding. The lack of state funding underscored the importance of the federal program.

Other wealthy nations, are far ahead of the United States in export promotion services. The provincial government of Quebec, for example, spends about 12 times as much as the average American state trade promotion agency to tout its products abroad, according to SIDO.

"We've got literally hundreds and thousands of companies that should be exporting. How do we get them to get their feet wet?" asks Earl Fry, a political science professor at Brigham Young University. "There's only a limited amount that can be done. But in terms of what we're doing with our embassies and consulates overseas, we're really behind the other major players. They seem to be more savvy than we are. They put in more resources than we do."