Topic:
FOREIGN TRADE; TRADE REGULATION; STATE BOARDS AND COMMISSIONS;
Location:
TRADE, INTERNATIONAL;

OLR Research Report


The Connecticut General Assembly

OFFICE OF LEGISLATIVE RESEARCH




Report of the

INTERNATIONAL TRADE COUNCIL

Created Pursuant to

Public Act 94-237

96-R-0526


EXECUTIVE SUMMARY

BACKGROUND

The legislature established the International Trade Council to advise the Commerce Committee and the Department of Economic and Community Development (DECD) commissioner on ways to promote international trade (PA 94-237, Attachment 1). It did this in response to the Report of the Import-Export Task Force (1994), which found that the state's small and medium size companies did not seem to be pursuing international business opportunities. The council picked up where the task force left off and identified three factors that discourage these companies from engaging in international trade.

FINDINGS

The state has no comprehensive international trade policy. It has not identified the small and medium size companies that could, but do not, engage in international trade and the reasons for this. Such an analysis would allow the state to craft a policy that addresses real, not presumed or perceived, barriers. The state cannot afford to expend its limited resources providing services these companies neither need or want.

State agencies do little to promote international trade. This especially appears to be the case for the economic development agencies, which directly serve business clients. And other agencies do not seem to recognize how international trade can strengthen and diversify the state's economy. Nor do they seem to be aware of or promote the different public and private organizations ready to help small and medium size businesses explore international trade opportunities.

There is no system through which small and medium size firms can easily access those public and private organizations providing international trade assistance. Some of these organizations concentrate on specific stages of the international trade process while others seem to provide duplicating, sometimes overlapping, services. The lack of a mechanism to help companies access these organizations and coordinate the services they provide could discourage small and medium size companies from pursuing international trade opportunities.

RECOMMENDATIONS

Given these factors, the council recommends that the state adopt a long range international trade policy based on solid research identifying the barriers preventing small and medium size companies from engaging in international trade. The policy must set precise goals and benchmarks which the council and others can use to measure the state's progress toward achieving those goals.

It also recommends that the state establish or sponsor the establishment of an international trade center to help companies obtain and use the information they need to identify and pursue trade opportunities. The state could locate the center in the Connecticut Economic Response Center, which has already demonstrated its ability to provide one-stop information service to business customers.

The council recognizes that these recommendations need more work. But the governor and the legislature must act quickly. Connecticut companies can no longer rely solely on the U.S. market because that market is now an export market for many other nations. The marriage of computers and fiber optic cables has created a global market for goods and services, and, in the process, transformed the factors driving economic growth. A company that gains market shares today can quickly lose them tomorrow. The global economy gives the state and its businesses little time to change and adapt.

COUNCIL ADMINISTRATION AND PROCESS

PA 94-237 established the 16-member council to advise the DECD commissioner and the Commerce Committee about international trade issues. The council consists of legislators and citizens with business and international trade experience. Attachment 2 identifies the members and their appointing authorities. Representative Marilyn Hess chairs the council and Louis J. Auletta, Sr. is the vice chairman. The House Republican Research Office and the Office of Legislative Research provide administrative and research support. In preparing this report, the council gathered information by meeting with government officials and business representatives involved in international trade. Table 1 lists the council's meetings and their topics.

Date

Topics

August 18, 1995

Organizational Meeting

September 11, 1995

DECD International Trade Division and Connecticut Foreign Trade Representatives

October 2, 1995

Connecticut Exports and Creation of Council's Subcommittees

November 6, 1995

Finance and Trade Policy Subcommittee Reports

December 11, 1995

Finance and Trade Policy Subcommittee Reports

January 4, 1996

Issues Regarding State's Role in International Trade Services

February 16, 1996

Coopers and Lybrand's International Trade Services

March 18, 1996

Status of CDA's International Trade Financing Program and Review of Other Financing Sources

April 8, 1996

Foreign Trade Zones and Transportation Infrastructure

May 23, 1996

Proposed Quasi-Public International Trade Agency and Report Outline

June 3, 1996

Review Draft Report

June 10, 1996

Finalize Report and Brief DECD

FINDINGS

THE STATE HAS NO INTERNATIONAL TRADE DEVELOPMENT POLICY

The state has no policy or plan to guide DECD's efforts to boost international trade. It has not identified Connecticut products and services that could be exported but are not. Nor has it identified the kinds of foreign businesses that might be interested in locating to Connecticut, given its location, workforce, infrastructure, and other assets. This type of research would help DECD and other state agencies decide where to target their resources and how. It would also allow them to market and deliver international trade services more effectively.

Since the state has no strategic plan or policy, DECD and other state agencies have no mission statement to guide their international trade efforts and no benchmarks to track their results. Mission statements and benchmarks allow an organization to chart a course against which it can be held accountable. They specify the changes the organization is trying to effect and its success in making those changes. DECD, for example, advertises that it counsels businesses, sponsors trade shows and missions, conducts seminars, identifies and assesses markets, represents Connecticut businesses overseas, publishes a newsletter, and maintains a world trade reference library. But it has not shown how these activities benefited individual companies or the economy.

This is especially true with respect to trade shows and missions, which seem to consume considerable staff time and money and involve a relatively small number of companies. In the past, DECD could not show whether and how these companies benefited from these activities. The costs and benefits of sponsoring trade missions should be weighed against those for other types of activities. The council is skeptical about whether state-sponsored trade missions lead to sustained business contacts and, ultimately, international trade.

STATE AGENCIES DO NOT ADDRESS INTERNATIONAL TRADE DEVELOPMENT WHEN PLANNING POLICIES, PROGRAMS, PROJECTS, AND NECESSARY FUNDING

The lack of an overall international trade development policy affects other state agencies as well, resulting in their doing little to promote international trade. For example, the Connecticut Development Authority (CDA) does not aggressively advertise its trade financing programs. PA 94-237 required it to set up an export division to make working capital loans to small businesses. As Attachment 3 explains, CDA formally established the division, but hired no new employees to staff it. Instead, it assigned existing staff to the division in addition to their other duties. The staff spends little time on trade financing, a fact which CDA acknowledged but attributed to DECD's International Trade Division's failure to market and promote CDA's trade financing program. Nor has CDA aggressively promoted the program. For example, it does not discuss the program with businesses seeking other types of CDA financing.

CDA is not the only agency that fails to make trade development part of its everyday course of business. There is no indication that DECD's other divisions use their business contacts to promote international trade services. And the same appears true for other agencies providing business assistance, such as the Department of Labor and the community-technical colleges. “In much of Europe, export development services are fully integrated with other business service programs to strengthen the management skills and technological sophistication of firms and their owner/managers. The tendency of state export promotion programs in this country to be separate and distinct from other state business development services sharply reduces their ability to help non-exporters gain the skills they need to overcome their own internal limitations” (The International State: Crafting a Statewide Trade Development System).

This failure to integrate also affects the way the state plans and develops physical infrastructure. The Department of Transportation does not consider how it can promote or develop international trade when it plans infrastructure projects. Bonded warehouses and foreign trade zones can boost international trade and help Connecticut companies cut costs, but no state agency actively promotes these concepts, which are described in attachment 5 and 6.

LACK OF COORDINATION AMONG TRADE ASSISTANCE ORGANIZATIONS IMPEDES COMPANIES FROM PURSUING INTERNATIONAL BUSINESS OPPORTUNITIES

Many public and private organizations are ready to help small and medium size companies deal with different aspects of international trade, such as market research or financing. But there is no adequate system or process for coordinating the way these organizations promote and deliver their services or helping companies access them. Many companies fail to explore international business opportunities or, if they do, fail to follow up on them.

The council bases this finding on two facts. First, international trade is an ongoing, multistage process, not a single event. The skills, information, and financing needed to complete an international transaction are different than those needed to complete a domestic one (see Attachment 6). Most small and medium size companies need information and technical assistance to pursue international business opportunities.

Second, over 200 government and nongovernmental organizations in Connecticut provide trade assistance, but each focuses on a particular stage of the process (see Attachment 7). Government services duplicate each other and those provided by the nongovernmental organizations. Both types of organizations tend to concentrate on the problems associated with a particular stage, leaving their clients to figure out how to get to the next one. The council found no system linking these organizations in a manner that reflects the international trade process. This flaw undermines the effectiveness of each organization and, as Figure 1 shows, confuses or discourages the companies seeking their help.

RECOMMENDATIONS

FORMULATE A COMPREHENSIVE TRADE DEVELOPMENT POLICY

Developing international trade must be the centerpiece of a state economic development plan, not a footnote. As the 1994 Report of the Import-Export Task Force stated, “Foreign trade is a matter of economic life and death in this global economy. A state that fails to recognize this imperative will become an economic backwater.” For this reason, the state must have a comprehensive international trade development policy, one that mobilizes public and private resources toward helping companies compete successfully in the global marketplace.

The state should adopt an international trade policy, and all state agencies must integrate that policy in their policies, plans, and operations.

An international trade policy would allow the state to create an infrastructure that can support and promote international trade. International trade usually falls under the bailiwick of economic development, but, even here, the state's efforts are mainly limited to sponsoring trade shows and missions. DECD's other divisions and CDA do not aggressively promote international trade financing or other tools, such as bonded warehouses and foreign trade zones.

Nor do other state agencies consider how their actions could boost international trade. The DOT, for example, does not treat the state's airports and harbors as economic assets. Its development plans do not address how this infrastructure could encourage specific companies to engage in international trade.

The Connecticut Economic Resource Center (CERC) has taken a major step toward improving this picture. CERC now includes international trade organizations as part of its one-stop marketing and information service. Its staff skillfully responds to businesses calling the center, helping them clarify their questions, assess their needs, and identify the organizations that can help them. But most companies require direct, hands-on assistance when contacting these organizations and coordinating their services. CERC does not have staff with international trade expertise needed to preform this task.

ESTABLISH A CONNECTICUT BUSINESS CENTER FOR INTERNATIONAL TRADE

Spotting international business opportunities requires matching Connecticut products and services with foreign buyers. Statistics suggest that Connecticut is already an export leader. But a closer looks shows that large companies in three industry sectors account for most of this trade (Import-Export Task Force Report, pp. 5-8). Before the state can diversify and expand its export base, it must identify those companies that sell the kinds of products and services foreign buyers want and tell them about these opportunities. This requires researching foreign markets.

The state should establish or sponsor the establishment of a center to help companies obtain and use information on international trade opportunities. The center should rely on existing data sources and organizations providing specific kinds of analyses.

Connecticut does not need a new international trade program; many public and private organizations already provide the services any company needs to exploit international business opportunities. The problem is that small companies have a hard time identifying and coordinating the services these organizations provide. The state can make it easier for them to access these services without creating a new agency.

The Connecticut Business Center for International trade should identify a small core of international trade development specialists who can help companies access the services provided by existing trade assistance organizations.

These specialists should help companies obtain the services they need to complete each stage of the international trade process. They can identify the appropriate service organizations and coordinate the way they deliver the services. As Figure 2 shows, this approach relies on a small staff to leverage existing resources:

CERC could perform this task, since its mission, organizational structure, and process are based on the principle of providing one-stop information service. It adds value to the whole array of public and private business service organizations by eliminating the need for an individual company to identify and research them. Attachment 8 provides more details.

THE INTERNATIONAL TRADE COUNCIL SHOULD ADVISE THE CERC AND THE CONNECTICUT BUSINESS CENTER FOR INTERNATIONAL TRADE

The CERC and the proposed center should take advantage of the council's expertise in international trade. Its members can help these organizations assess the needs of small and medium size companies and develop mission statements and strategic plans to address those needs. The council can also help these organizations assess their services and serve as a sounding board for new policies and services.

WORKPLAN

In its first year (1995-96), the council concentrated on international trade process and the state's role in that process. It examined the process from the perspective of a small and medium size company and the issues the company would face as it tried get through the process. This allowed the council to see the forest without getting lost in the trees. Now that it knows the forest, the council can concentrate on the trees.

In its second year, the council plans to explore these issues:

Reverse Investment: How can the state attract foreign business? Given our culture and physical and human assets, what kinds of foreign businesses could the state attract? What role, if any, should state government play in that process?

Regional Collaboration: Traditionally, state governments have relied on foreign offices and foreign trade representatives to put companies in touch with potential clients or help foreign companies pursue opportunities in their individual states. This approach is costly. Neighboring states can minimize the costs by establishing an office to represent their region. They can also collaborate in other areas affecting international trade, such as developing new infrastructure or accessing federal funds. But is this a practical approach, given the intense competition among states to attract new businesses?

Infrastructure: International trade cannot happen without roads, bridges, railroads, harbors, airports, a nd fib er optic cables. The council regards these as economic assets. But the agencies that develop these infrastructure do not squarely address the ways in which they can advance international trade. How does the state develop infrastructure and how can that process address international trade issues?

JR:pa

Attachment 6

Stages in International Trade Process and Related Trade Assistance

 

Service

Financing

Stage

Description

Type

Provider

Type

Provider

Education

Learning about international business opportunities, the trade process, and available assistance

Seminars, courses, and access to business networks

Government agencies, nonprofit organizations, business associations, banks and universities

   

Research

Identifying foreign markets and related technical and legal requirements

Trade data and regulatory information

Same as above

Seed funds

 

Marketing

Identifying foreign agents and buyers

Trade shows and missions

Government agencies, nonpofit trade promotion organizations, banks and business associations

Seed funds

Government agencies

Negotiation

Negotiating payment terms and conditions

Business and social protocol and translation services

Universities

Working capital loans and insurance

Government agencies

Production

Manufacturing products or delivering services according to foreign specifications

Quality certification information

Universities, business associations, and government agencies

Fixed asset and working capital loans

Banks and government agencies

Shipment

Delivering product or service

   

Working capital loans (to offset accounts receivable and shipping costs)

 

Payment

Receiving payment

   

Working capital loans

Government agencies