Statement of Neil E. Gambow, Jr., President
Post Glover Resistors Inc., Erlanger, Kentucky

Testimony Before the Subcommittee on Trade
of the House Committee on Ways and Means

Hearing on United States-China Trade Relations and the
Possible Accession of China to the World Trade Organization

June 8, 1999

Thank you, Mr. Chairman, for allowing me to place this testimony before this Subcommittee on Trade. I am Neil Gambow, President of Post Glover Resistors Inc. Today I am appearing on behalf of our company in support of annual renewal of normal trade relations (NTR) with China, and eventually permanent NTR with China.

History Of Post Glover Resistors Inc. (PGR) And The Development Of The Heavy Duty Power Resistor Market In China

Post Glover Resistors Inc., established in 1892, is a small company located in Erlanger, KY employing 110 people in the design and manufacture of heavy duty power resistors for industrial power distribution and other electric power management markets. While our products are used throughout the world, we find countries with emerging infrastructure the best candidates for market penetration.

In 1989, we recognized the infrastructure building going on in the ASEAN countries as a great opportunity to expand our export sales. That year we began serving the ASEAN market with Neutral Grounding Resistors which sell for prices in the range of $5,000 - $30,000 per unit. This sales success of this business endeavor led to the establishment of Post Glover Sdn. Bhd. in 1993. It is an assembly operation located in Johore Bahru, Malaysia employing 10 people. As this business developed, we began to look at the market for Neutral Grounding Resistor products in China. After evaluating investment goals put forth by the Chinese government for developing the electrical power generation and distribution systems, we concluded that China represented a significant market opportunity for this product line. Entry into the market, however, seemed to be very difficult especially for a small company with limited resources. Some of the barriers we saw included language, vague import regulations, lack of knowledgeable market contacts, identification of a potential customer base, definition of the exact product for the local market, difficult banking arrangements and so on.

In 1995, while studying market entry strategies, we were approached by the Shenzhen Farad Complete Equipment Company located in Shenzhen, China. Their engineering staff had need for our Neutral Grounding Resistors and were not satisfied with local products. A key engineer had heard about us through a technical article we published on the subject in a regional trade journal.

We quickly agreed to a meeting in Shenzhen where it became obvious very quickly that there was a good match of skills for a successful business venture. PGR had the technical know how and product quality. Shenzhen Farad had the market knowledge and product definition background. Our partnership began with an initial order for a number of units placed during that first meeting. As our relationship grew, we agreed to jointly manufacture products. PGR now manufactures the resistor components in the USA and sells them to Shenzhen Farad who, in turn, manufactures enclosures, assembles the final product and sells the finished product to the Chinese power authorities. Members of my staff and I have made about 20 trips to China to support our market penetration in these last four years.

Our joint effort has grown to the point where sales in China through Shenzhen Farad will represent 3-4% of our USA volume this year. These sales provide employment for 4 people here and at least 10 people at Shenzhen Farad.

The Importance Of Maintaining A Solid Trade Relationship With China.

Our trading experience in China over the last four years has demonstrated the value of a solid trading relationship. China presents many challenges to companies wishing to access the market there. In addition to language barriers, many of the challenges stem from radically different cultural paradigms. To be successful in a foreign company, a healthy respect and understanding of cultural differences is critical. This is not something that can be learned by reading books and playing tapes. You must visit and form personal relationships. These relationships will transcend any trade or political problems that ebb and flow over time.

The relationship with Mr. Tu Fankui, Managing Director, and his associates at Shenzhen Farad have smoothed over the inevitable bumps in the road. Open and frank communications have overcome disparities in technical knowledge, slow sales times, differing views of cost sharing and so on. We trust one other to look out for individual interests while respecting and accommodating the other's interest. Much should be applied from this in dealing with the accidental bombing of the Chinese Embassy in Yugoslavia and the Cox report. Understanding and communication get participants much further than confrontation and aggressive retaliation.

An example of improving understanding and communication is our support for technical seminars demonstrating the use of Neutral Grounding Resistors. Mr. Tu values of having a representative from our company at these seminars and feels that his company's credibility is significantly enhanced by our presence. At the same time he recognizes the impact on a small company of the high cost of travel from the USA to China so we work out the most effective travel schedule to help control our costs and get the most impact from our visits. This means his people handle many of the local seminars and we support him at large regional and national seminars where our presence will result in orders which help pay for a trip.

We have also found out just what it means to have an American product that is in demand. Compared to like products produced in China, American products are generally perceived as high quality with a premium price especially with freight and duty added. However, the Chinese market will pay these prices to get the quality where local products are deemed to be of a significantly lesser quality. There is an underlying desire for high quality products which minimize service problems. It is our opinion that China as a whole is moving towards higher quality products and is willing to pay for them. This is a solid opportunity for both small and large US companies.

Many companies are afraid to try the Chinese market because of the perceived barriers to overcome. Good trade relations at top levels help minimize these barriers and encourage companies to jump in. The markets are huge and ready for American products.

What Would Unconditional Normal Trade Relations Status and WTO Membership For China Mean To PGR?

It appears to us now that Ambassador Barshefsky has hammered out a good initial position towards an expansive bilateral market access agreement. This is the time to press hard in Congress to get approval to endorse China for full membership in the WTO. Again, we would not have gotten this far in penetrating the market without solid personal relationships in China. We cannot afford to have our efforts to establish these relationships squander this even in the harsh light of the accidental bombing of the Chinese Embassy in Yugoslavia and the Cox report.

Of particular interest to PGR are the WTO issues of technology transfer, protection of intellectual property and dropping of import duties. Currently, we are offering product technology that is one generation behind that of current US products. We fear that we will see our products copied and coming back to the US as a competing product. With more protection of intellectual property, we will be able to offer our latest technology with some assurance our investments would yield an acceptable return.

Our sales growth in China has been slow but steady. With China having full WTO membership, the import duties would be reduced and make us even more competitive. This would be true for many US products. We have supported admission of China to the WTO since we became involved there and view this as a solid step to allow further penetration of the market with our products. In fact, we estimate that our business in China would double in a year with this approval.

The job impact on our company is obvious. Not only will our employment increase but we would be in a position to offer more of our products to the China market. But the impact on Shenzhen Farad and its employees may not be so obvious. Employment is an important element of raising living standards for Chinese citizens. Each time we help employ a local Chinese citizen, we make human rights issues that much smaller. And, believe me, we are happy to do our part in this.

For other small companies, any improvements which would make it more affordable to enter the market would be advantageous to trade growth. The emphasis is on the word "affordable". Small companies often have good products for the China markets but cannot afford to enter the market. WTO membership would lower market entry expense reducing the costs of paperwork to get goods into the country, enable banking relationships to be established to insure prompt payment for goods. Many small companies cannot afford to wait 60-90 days to be paid. I believe WTO membership for China would open the doors for more small companies to enter the China market.

I am also concerned about the huge trade imbalance between our countries. Lack of permanent long-term trade relationships keeps our exports to China artificially low. If we are to improve this, WTO membership for China and a stable, long-term trade policy must be in place. Without them, we is doomed to relive each year the same as the prior one much like in the movie "Groundhog Day" in which the main character relives the same day every day until he finally decides to make a big change. This is the time for Congress to make the big change.

PGR and many other small US companies have product ready to serve the market and anything Congress can do to facilitate the movement of our products into China helps reduce this trade imbalance and facilitates progress on many fronts including Human Rights discussions..

Conclusion:

I urge you to push as hard as you can for unconditional normal trade relations (NTR) status and full WTO membership for China. I know we are in a difficult time with the bombing of the Chinese Embassy in Yugoslavia and the Cox report. But these fences will, no doubt, be mended by people who know we cannot afford a poor relations between our countries for any length of time. Let's allow the politicians solve these problems within a framework of support based on solid trade relationships. I believe this works.

China is the largest single market in the world outside the USA. By maximizing access to the China markets, we give our respective countries and business sectors the opportunity to grow and prosper. This, in turn, provides a solid foundation for nurturing the necessary mutual trust and respect needed between China and the USA.

Thank you for your time and attention.