COMMITTEE ON SMALL BUSINESS
UNITED STATES HOUSE OF REPRESENTATIVES

HEARING OF NOVEMBER 20, 2003

TESTIMONY OF ROBERT A. KAPP, PRESIDENT
THE US-CHINA BUSINESS COUNCIL

Chairman Manzullo, members of the Committee:

Thank you for inviting me to appear before you today for a continuation of an important Committee review of the situation regarding American visa policies and processes and the impact of those policies and processes on working Americans.

I am Robert A. Kapp, president of the US-China Business Council. Founded in 1973, the Council is the principal organization of American companies engaged in trade and investment with China. Primarily a provider of business services to our 200 member firms, the Council also engages frequently and productively with both US government figures and Chinese government agencies on questions of concern to our members. The Council often serves Members of Congress and staff members with advice, information, referrals, and other forms of assistance. A snapshot of the Council's many activities can be gained at our web site, www.uschina.org. The Council also publishes the principal analytical publication on US-China business, the bimonthly China Business Review, of which portions may be viewed online at www.chinabusinessreview.com

In that regard, I hope the Committee will permit me to pay special tribute to Chairman Manzullo and his staff for investing heavily of their time and ideas in the strengthening of mutual exchanges between the United States Congress and the National People's Congress of China. We have watched with admiration as the US-China Interparliamentary Exchange has grown under the Chairman's leadership, involving larger and larger numbers of American legislators. Our Council is very strongly supportive of this effort, and looks forward to future opportunities to work closely with the Interparliamentary Exchange--a project which we know the Chinese participants take very seriously as well. We encourage all Members to respond to the Chairman's invitations to involvement in future activities of the US-China Interparliamentary Exchange.

I appreciate the opportunity to appear before you today for another round of discussion of an persistent and serious problem: the economic and political costs to the United States arising from current inadequacies in the system governing the issuance of visas to foreign citizens seeking to come to the United States for activities directly connected to the interests of American companies, their employees, and their communities.

I. The problem at the most general level: The US visa system, as experienced by many US companies, is dysfunctional.

A fundamental imbalance today informs the process by which visa applications are reviewed. The consideration of economic and political costs arising from the current malfunctioning--indeed, dysfunctional--visa system appears to have vanished. Procedurally, institutionally, there appears to be no channel for the introduction of concerns over collateral damage arising from the current design and implementation of the US visa review process. While the inter-agency process in this area remains opaque, it appears that those agencies most capable of speaking to the question of collateral economic damage arising from present practice are external to the design of visa review processes. Further, it appears that the economic impact of current practices plays little or no role either in the design or the implementation of the visa review process itself. Furthermore, with the exception of this Committee, there appears to be little concern in the Congress over the deleterious unintended consequences, whether economic or political, of current visa procedures. In the vernacular, the visa mess does not have "legs."

II. Institutional Problems

What this means is that the costs to the United States of this dysfunctionality--the economic losses, the evaporation of commercial and employment opportunities for US firms, the loss of international goodwill and cooperation, the disruption of our higher educational institutions, the diversion of beneficial flows of trade and persons from the US to other countries, etc.--appear to be beyond the pale of US visa policy and practice. We feel that this fundamental imbalance, if not addressed, will cause increasing economic damage to American firms large and small, their employees, and their communities. It will also inflict needless and even dangerous damage on US relations with other countries, at least some of whom are vitally important to the US pursuit of basic national objectives.

Let me take the experience of the business community that I know best as an example.

Since the summer of 2002, when the disruption of normal visa processes descended without warning, and in spite of unending efforts by larger and larger groups of companies and trade associations to find effective channels of communication with those in government responsible for policy design and administrative execution, the voice of the affected constituency--in this case international business, but the point applies to education, tourism, and others equally--has failed to penetrate the curtain of vagueness and secrecy surrounding our failing visa system.

We know that what we see as "the problem" is a) of an inter-agency nature; but b) not regarded as a "problem" by some of the agencies involved. We have had 16 months of quiet meetings, and occasional larger meetings, with a variety of US government agencies, each of them unfailingly gracious. But the end result has been, to the affected parties' eyes, nothing.

Instead, we find horizontal bureaucratic insularity ("Not our bureau's responsibility," "Not our Department's legislatively mandated role"); vertical paralysis ("That came from higher up," "There's nothing we can do; that came down from the top"); superficial sympathy with no follow up ("Our door is always open"); and of course, secrecy ("We can't discuss with you where the hang-ups are, and of course we cannot discuss cases with you.")

The problem, I say most respectfully, also involves the Congress. Ultimately, the executive agencies carry out the laws established by the Congress, and their financial sustenance comes from the Congress. With the praiseworthy exception of this Committee's hearings on this subject, and one or two other hearings, we have seen few if any public indications from the Congress of recognition of the severity of the problems arising from our dysfunctional visa system. Indeed, it seems to be common coin of the realm that any expression of concern over the costs to America, let alone to American business, of the current malfunctioning visa system, in the post-September 11 context, would be politically unacceptable, given the manifest threats to US national security that have burst upon us since September 11.

In my view, on this subject as on many others, the power of the Congress to "shock and awe" the executive branch agencies is enormous--far greater, frankly, than I understood until recently. The understandable sense of urgency in the Congress in the aftermath of September 11, and the crucial responsibility borne by all in national public service to prevent any recurrence of the September 11 tragedy, engendered intense Congressional interest as to how foreigners are admitted to the United States. Executive Branch agencies were called to account. Some senior officials lost their positions. In the wake of this furor, the bureaucrats posted abroad and assigned the responsibility of deciding who may and may not enter the United States have understandably moved even more fully in the direction of risk avoidance, especially after the summer of 2002, as revisions of US visa procedures made available a wider array of options for referral, scrutiny, or outright denial.

III. The Case of China

Mr. Chairman, we meet at a time of simmering tension between the US and China in the area of trade relations. Much of the brooding animosity resides in the Congress. I have no illusions that, in this Committee or in the House as a whole, a deep current of support for cordial and productive US-China relations is flowing at this time.

Yet no one in Congress, surely, is unaware that the PRC, whose economy continues to grow at 8 or 9 percent a year, is America's fastest-growing overseas market. Few will be unaware that US exports to China have grown more than 20 percent a year in each of the last two years. Many will have read of the rapid expansion of China's domestic market; of the emergence of hundreds of millions of Chinese people from poverty into the first stages of a life of disposable income; of China's large purchases of US agricultural commodities such as soybeans and cotton; of the reduction of China's tariffs on many important US export products under the terms of its WTO obligations; of China's receptivity both to foreign products and to foreign investments. Most will be aware of China's rapid ascent from a position of commercial insignificance to the upper ranks of the world's trading nations in a mere two decades.

The US and China are both large continental nations, with economies that span the full spectrum of human economic activity. US companies therefore are actively developing business opportunities in China in every sector, from the primary extractive industries through the energy sector, heavy infrastructure, a vast range of manufacturing opportunities, agricultural commodities and agricultural machinery, and increasingly the services sector--transportation, banking, insurance, tourism, software, engineering and construction, and many other fields--which China is progressively opening to foreign participation under the terms of its WTO agreements.

In the process, China has developed a very strong export sector, particularly in products involving the "processing" by Chinese workers of imported raw materials and components. China exports heavily to the world, and to the United States. Indeed, the growth of Chinese exports to the United States has reflected the diversion into China of massive production capacity formerly located in such Asian supplier locations as Taiwan, Hong Kong, Korea, and Japan.

The short of this is that China is three things to US business: a large and growing market for our products and services, a provider of imports to the US (particularly to the retail sector serving Americans of modest means), and--very importantly--a participant in the complex "supply chains" that increasingly characterize the organization of global production.

This large and growing economic interaction--really, integration--inevitably is reflected in the flow of human beings between the US and China. Short of trained personnel capable of functioning in the 21st century global business and technical environment, China sends thousands of its brightest young minds to the United States for training, whether in universities or in American companies, after which many find opportunities with US firms in China urgently seeking scarce managerial personnel. US companies participating in giant infrastructure projects in China work intensely, day in and day out, with their counterparts. American manufacturers send their technical and sales people to China and bring their Chinese customers to the US for negotiations, inspections of purchased products, technical training, and contract signings. US companies maintaining joint ventures with Chinese counterpart companies work to build seamless cooperation with Chinese executives, sales people, engineers and others. American companies bring their China teams to the US for global strategy sessions, executive training programs, sales meetings, and all the other kinds of gatherings that bring global teams together in the US under US corporate leadership. And international professional meetings, trade shows, and conventions bring Chinese participants--often potential buyers--to the United States for direct contact with US firms.

All of this entails the movement of large numbers of Chinese people to the United States. The sheer magnitude of the flow of business people from China to the United States, by comparison with the flow from most other nations, meant that, when the axe fell on normal visa procedures in the summer of 2002, the number of disruptions inflicted on US companies would, inevitably, be very high.

The US-China Business Council has worked hard on the "visa mess" since the summer of 2002, when the impact of unannounced changes in US visa procedures suddenly burst upon this massive cross-Pacific business flow. My first letter to Secretary Powell on the subject dates from August 16. Since that time, our Council has tried to play an active role in the evolution of a much broader coalition of business organizations and non-business groups working on the dysfunctional visa system. Singly, however, our organization focuses on the difficulties facing US companies seeking to maximize business opportunities with China.

At the outset, and even now, the great accumulation of visa mishaps--delays, unexplained refusals, disappearances of applications, disruption of urgent business travel, and so on--has occurred in the area the government refers to as VISA MANTIS, a program established long before September 11 and focused on the goal of preventing the misappropriation by foreign nationals of sensitive US technologies, particularly those with potential significance to US national security and nonproliferation concerns.

As we understand it, at the heart of the MANTIS process lies the Technology Alert List--the "TAL," literally a list of technological and scientific fields deemed sensitive. A visa application from someone whose work lay within one of the many sensitive TAL fields was liable to the requirement of an "SAO"--a Security Advisory Opinion, arrived at through a complex Stateside inter-agency consultation involving, at a minimum according to our understanding, the Departments of State and Commerce, certain intelligence agencies, the Federal Bureau of Investigation, and perhaps other bodies.

Before the summer of 2002, the SAO process meant a longer processing time than a routine visa application might require, but there was, for the applicant, a saving grace: the "clock." The "clock" required that, if a verdict on an SAO'ed visa application was not reached in 10 days, the visa would be approved. The "clock" was a critical piece of insurance against utter randomness and unpredictability, and against inordinate delay resulting from inter-agency communications failures or other bureaucratic breakdowns.

It is worth stopping here to point out that, from the outset, the problems of dysfunctionality in visa processing relating to China have NOT stemmed principally from the response to the terrorist threat. The last two years have seen other border control programs erected to scrutinize visa applications by visitors from countries deemed to pose higher risks on the terrorism front; the best known of these programs is called "VISA CONDOR." I will not detail that here, because it does not apply to China. China is not regarded as a high-risk source of visa applicants from the standpoint of terrorism.

With September 11 and its aftermath, however, two very different streams flowed together, in ways that to this day we in the business community cannot fully perceive.

On the one hand, the Security Advisory Opinion inter-agency review process got new rules. In particular, the ten-day "clock," the bulwark against interminable and inexplicable delay in the processing of visa applications, was, eliminated on grounds of national security. At the same time, new guidelines were issued to the visa officers on the front lines, in the US embassies and consulates in China and elsewhere, which raised very rapidly the number of visa applications shunted back to Washington for the SAO process, no longer bounded by the 10-day "clock" guarantee.

On the other hand, as I noted earlier, the tremendous political furor that focused on the US visa-granting system after September 11 took its toll, and left the visa staffs of US posts in China and elsewhere not only overburdened as never before, but personally risk-averse as never before, given the clear encouragement to push visa decisions back to the interagency SAO process in the interests of national--and bureaucratic--security.

Other developments have followed. The requirement, for example, that each and every applicant for a visa in China appear for a personal interview with a US visa officer, introduced months after the elimination of the "clock" and the expansion of the TAL/SAO process, has imposed often onerous requirements of travel and expense (there are, after all, only five US consular locations in all of China) for applicants ranging from students to senior government officials, lengthened the time necessary for the initial review of each visa application, and has resulted in waiting lists--simply for three-minute visa interviews--of anything from a couple of weeks to over a month..

Meanwhile, the elimination of a longstanding program providing for the expedited issuance of visas to a large number of Chinese citizens carrying so-called "public affairs" passports, apparently in light of evidence of falsification of information on many visa applications, brought large numbers of new applicants into the waiting lines at US consular posts in the PRC.

In all of this, note that the system plays no favorites: the Chinese engineer employed by a US company who needs to race back to the States for a consultation with his colleagues, or the Chinese infrastructure project manager who needs to head for the US to inspect heavy machinery in production at a US plant in time for scheduled delivery to the work site in China, stands in the same waiting line with the student, the tourist, and the father-in-law. There may be a certain brute equity in that; Americans don't play favorites. But if we are here concerned with the economic damage wrought by the current visa handling process, there may be merit in focusing separately on the problems affecting commercial visitors, on the one hand, and on non-commercial applicants on the other.

In any event, the system yields results: dozens and dozens of cases, large and small, of business deals scotched; transactions delayed, foreign competitors chosen over American producers, trade shows relocated to non-US locations; products sourced from overseas affiliates of US-headquartered firms because it's just too difficult to source the products in the USA.

Ironies abound. Many of our friends and colleagues in the US China Business community would observe that while we berate China for its alleged manipulation of its currency to the detriment of American exporters, our disheveled visa system stymies US companies seeking to conduct normal operations in the pursuit of export sales, market development, and other core elements of any successful international business.

IV. Hopeful Signs?

The hopeful signs that I personally discern in all of this are very faint, but they are there. We hear occasionally, and have heard recently, of inter-agency discussions of technical aspects of the visa-processing problem, and of attempts at technological improvement aimed at facilitating inter-agency technical communication, consultation, and decision-making. We occasionally hear, from government sources, gross worldwide figures suggesting that SAO times are down, visa processing times are down, and so forth. While all such scraps of information are welcome, I must say again, from the perspective of our Council's members, any internal improvements that may have been achieved have yet to show up decisively in the actual experiences of our companies, whether on the ground in China or working in the US to bring vitally important Chinese customers, company personnel, and others to the United States on company business.

At a more "philosophical" level, we have all seen, over and over again, a familiar pattern of policy-making in the United States. An emergency occurs. The political system responds rapidly, sometimes very very bluntly. The media leap into the fray, driving the political system even further to extremes. The "ship" heels way over under the force of the original emergency and then of the political system's response. All seems black and white; nuance and complexity are banished. Then, slowly, the pluralism of American life reasserts itself. The voices of the affected begin to speak. The free media begins to notice. Once the media are engaged, the few in the political system begin to see a more subtle challenge. Civil society, in the form of organized communities and interested groups, begins to assert itself. In due course, from the original emergency and the ensuing political and bureaucratic counter-blast, a better policy emerges and at least some of the damage that resulted from the first response to emergency is curtailed or undone.

The hopeful signs, as of now, are thin.

V. Beyond Complaint

Mr. Chairman, thanks to your and your Committee's rare willingness to spend time on the dysfunctional visa system, this is not our first conversation here. I sit before you today, not to introduce a problem to you that you and your colleagues have not heard of before, but to update you on a problem that is not going away.

Our purpose is emphatically NOT to cast blame on individuals, on agencies, or on any Members or Committees in the Congress. On the contrary, we in the international business community sympathize powerfully with understaffed and at times badly equipped US Government agencies struggling to fulfill the most elemental responsibilities for the security of our nation.

Our purpose is even more emphatically NOT to suggest any diminution in the nation's ongoing efforts to protect its citizens by protecting its borders. None of us, as Americans, forgets for a moment the horrific experience of September 11 and the daily realities of terrorism and lethal violence directed against our country and our fellow citizens.

But, Mr. Chairman, let me say as a personal matter that I reject the notion that any criticism of current law, policy or regulation in the area of this dysfunctional visa system is tantamount to tampering with our national security.

It is not enough to content oneself with throwing out the baby with the bath, on the grounds that at least no waterborne pests were allowed to remain in the house. We must do better than that. Permit me to close with a few recommendations.

1. Mandate the immediate establishment of an institutionalized dialogue between the makers and executors of US visa policies, on the one hand, and key representatives of the critically affected constituencies, on the other. At present there is nothing of this kind. After fifteen months, those most affected by this "visa mess" continue to poke the pillow, essentially without effect, unable even to discover where responsibility for improving the system lies, let alone to have a sustained and results-oriented dialogue with responsible parties on how to minimize the damage from present policies. I cannot even tell you, Mr. Chairman, who should do the "mandating;" I hope you and your Committee will help us even to navigate that basic question.
2. Work for steady, step-by-step, improvement of a failing system, not for the elimination of all problems at a single stroke. For example, work toward the liberalization of visa procedures for key segments of the travelling population, and by so doing, eliminate some of the overwhelming workload imposed on US visa offices abroad. This means that, probably on a bilateral basis, the United States should find common ground with other countries--very much including China, given the large numbers of Chinese applicants for visas--to provide visas of longer effective duration for travelers moving repeatedly in and out of the United States. This will affect large numbers of business travelers, whose required re-applications for visas after unnecessarily short intervals clogs the visa system.

   It is my understanding, from an anecdotal conversation, that over the life of the program the rejection rate from all "Technology Alert List" visa reviews is approximately .04%. Surely the possibility of increasing the "yield" of the TAL/SAO process--by exploring ways of diminishing the SAO work load, thus eliminating unnecessary disruptions of legitimate business travel benefiting US companies and workers--is worth exploring, is it not?

3. Restore the "clock," at a meaningful level. While I am sure that many in the business community would dearly like to see the "clock" restored as it existed before September 11, no one believes for a minute that the world has not changed deeply as a result of that tragedy and ensuing global developments. We understand, moreover, that there may be extremely vigorous resistance to any restoration of a fixed time limit for the processing of visa applications, on the grounds that in some cases absolutely NO time limit should be imposed on the investigative process lest an unforeseeable breach of security result.

   We would respectfully suggest, however, that even on this matter, the belief in 100% certainty is misplaced, and the matter must be seen in terms of probabilities, costs and benefits. The conduct of international business depends both on speed and on predictability. Even if speed must be sacrificed to some degree, predictability remains utterly important. A four-month process to acquire a visa to come to the US on business (i.e., a month's wait for an interview, then a three-month wait for SAO approval) is, in many cases, a commercial death sentence. Balance needs to be restored to this process.

4. Bring the Congress back into this picture. The more we labor in this visa labyrinth, the more clearly we sense that the Congress, whose initial reactions to the emergency of 2001 impelled the reworking of the US visa system, must return to the subject and deal with the unintended collateral damage growing from its decisions.

Clearly, Congress cannot micromanage the infinitely complex processes, whether administrative or technological, that response to the stark daily challenge to American national security has posed, and it must approach the work of the Executive Branch agencies as a partner in a great national effort.

But we find it increasingly hard to escape the conclusion: there seems to be little effective incentive among the executive branch agencies to assign to the norms and requirements of the commercial sector a legitimate place in the operation of the visa system, or to positively support America's engagement with the world through the medium of a more effective visa system. From outside the government, our impression is that incentives are keyed to closure, to exclusion, to prevention, with no balancing considerations.

They will remain that way until, and unless, the Congress ordains otherwise. If the Congress is too busy, or is unwilling, to recognize that US national interests are multiple; that the multiple costs and benefits of any visa strategy must be identified and balanced; that the ability of Americans to compete and succeed in the global marketplace is inseparable from the ability of foreign citizens to visit the United States on legitimate business; that discontinuities among government agencies must be ironed out and irrationalities eliminated -- if the Congress is unable to grapple with these complexities, we might as well all go home. It is my personal impression that the agencies will not grasp this nettle on their own, because the agency-transcending incentives are lacking. We hear again and again: "We're really with you on this, but you have to understand that there are parties to this visa process who have absolutely no time for the needs of American businesses, and until they do, you will get nowhere on this."

Mr. Chairman, I don't see how hard-working American companies, large AND small, can get out from behind the eight ball on this problem unless the Congress, led by dedicated Members such as those serving on this Committee, can make progress happen.

Thank you.

Attachments: I have attached a small number of documents here that illustrate a) the situations facing American companies struggling with the business consequences of the current visa situation; and b) some of the forms of engagement that I and the US-China Business Council have had with representatives of the US Government. These materials are illustrative, not comprehensive. Through our "Visa Incident Report Form" on the US-China Business Council web site, the Council has amassed in standardized forms numerous examples of commercially disruptive visa situations among member companies, and on occasion has shared them with public officials. Singly and in combination with other groups, the Council has participated in numerous meetings with executive and legislative branch representatives and has corresponded at far greater length with public officials than this small sample indicates.