Mr.A. Steven Ledger, President, ROTEC Industries, Elmhurst, Illinois

Statement of Mr. A. Steven Ledger, President, ROTEC Industries, Elmhurst, Illinois

Testimony Before the Subcommittee on on Tax, Finance, and Exports
of the House Small Business Committee

"Do Unilateral Economic Trade Sanctions Unfairly Penalize Small Business?"

June 24, 1999

Introduction

Rotec Industries, Inc., is a privately owned company located in Elmhurst, Illinois. Since it’s establishment in 1967, Rotec has, in the best entrepreneurial American spirit, offered unique and innovative equipment for the international construction market. Rotec’s specialty and focus has been to invent, develop and market high-speed conveyor systems for transporting and placing concrete on large or unique construction projects.

A majority of Rotec’s business – some years as much as 90 per-cent – is exported outside of the United States. Many of our customers are developing foreign countries or contractors working on projects in such countries.

Development and marketing costs account for a significant portion of Rotec’s gross revenue. Protecting our inventions and other intellectual property through patents, copyrights and other means has always been a priority. However, it is impossible to completely protect such property in all of our foreign markets.

General Applications of Rotec’s Products

Rotec’s equipment is typically used for construction of large civil projects, usually dams. Such projects provide many benefits to the surrounding region and its general population.

Benefits include water supply, navigation, protection from floods and cheap, clean hydroelectric energy. Such infrastructure development is necessary to improve the standard of living of the general population. This need should be appropriately considered before wide-ranging embargoes are enacted.

China Three Gorges Project

Summarizing the international procurement of construction, generating and power transmission equipment for the Three Gorges Project:

Total International Expenditures: $1,500

Million Portion awarded to U.S. companies: $85 Million

Orders received by Rotec Industries accounted for approximately $65 million of the total received by U.S. companies. Rotec’s unique product line was a key reason it was the only U.S. company with significant success at Three Gorges. But, even Rotec had hoped for greater success.

Rotec’s China Three Gorges Project Experience

Early 1990’s Rotec began work on proposals for the Three Gorges Project in the early 1990’s. Initially this consisted mostly of sales and engineering trips to China by Rotec representatives to educate the customer and their engineers and to develop preliminary application proposals.

Late 1993 – The owner’s and designer’s engineers worked with Rotec’s engineers and consultants in Rotec’s offices to study and develop more detailed proposals for all three phases of the project.

December 1994 – Following nearly a year of negotiations and several trips to China, Rotec received its first order from Three Gorges. The order was for equipment, which would be evaluated during the first phase of construction. The order amount was $13 million.

January 1996 – Responding to a request for international bids, Rotec submitted its proposals and quotation for over $130 million worth of U.S. manufactured equipment for the second phase of construction. Several other companies also submitted quotations based on their own proposals.

1996 – The United States Export-Import Bank decided not to support the Three Gorges Project. Caterpillar, Voight-Hydro and Rotec had worked together, hoping to receive Ex-Im’s support.

November 1996 – Rotec received an order from Three Gorges for only $31 million of equipment.

December 1996 – A Japanese-French consortium received an order for "Rotec-equivalent" equipment. Until this time, only Rotec had ever sold or built such equipment. The foreign competition had never designed, manufactured or sold any similar product. Now they have and Rotec has a new foreign competitor, which they must face on future projects.

May 1998 – Rotec received an additional $22 million equipment order from Three Gorges.

1997 – 1999 – Rotec sub-contracted over $15 million of manufacturing orders to companies in South Korea.

No Ex-Im financing meant no made-in-the-USA requirements or price premiums. During negotiations, the Three Gorges Corporation demanded a price discount because "Rotec can subcontract manufacturing in China or a third country." Rotec was facing serious competition from foreign manufacturers and without Ex-Im’s help. For the first time in its 32-year history, Rotec subcontracted manufacturing to fabrication companies in South Korea. With Ex-Im financing, this work would have been subcontracted in the United States.

Iran

An embargo currently exists, which prevents Rotec from selling or leasing equipment in Iran. Had this embargo not been in place last year, Rotec likely would have received at least one order for approximately $6 million of equipment.

The Iran embargo continues to prevent Rotec form pursuing other business in that country. Additional projects are underway or are being planned for the near future in Iran. Owners and designers of these projects recently expressed a strong interest in Rotec’s products and their hope that the embargo would soon be lifted.

India and Pakistan

During the past three years, Rotec has supplied equipment to both India and Pakistan. We anticipate continuing good prospects in both countries in the coming years. An embargo like that on business with Iran would certainly cause a loss of business for Rotec.

General Risks from Embargoes

Rotec typically requires six to fifteen months to ship equipment after an order is received. Such a long development and manufacturing cycle means that there is significant risk involved due to the possibility that an embargo would prevent shipment of products in which Rotec had invested heavily. Specially designed and made-to-order equipment is often of little value to anyone except the intended customer. An embargo that prevented shipment of such equipment would certainly be painful and could be devastating to Rotec.

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