LegiStorm

Summary:

According to Census Bureau data, approximately 1% of small businesses in the United States currently export. With roughly three-quarters of world purchasing power and almost 95% of world consumers living outside U.S. borders, more attention is being paid to the potential of small business export promotion programs to grow small businesses and contribute to national economic output. In addition, some Members of Congress believe the contributions of small businesses to commercial innovation and economic opportunities for firms and workers could be enhanced through greater access to growing international markets. Consistent with these policy goals, the Small Business Administration (SBA) provides export promotion and financing services to small businesses through its loan guaranty programs, management and training programs, and other initiatives. SBA's Office of International Trade (OIT) coordinates these activities as it assists with four stages of export promotion: (1) identifying small businesses interested in export promotion; (2) preparing small businesses to export; (3) connecting small businesses to export opportunities; and (4) supporting small businesses once they find export opportunities. The Small Business Jobs Act of 2010 (P.L. 111-240) elevated trade within SBA by establishing an assistant administrator to lead OIT and report directly to the SBA administrator. The act also first authorized the precursor to what is now known as the "State Trade Expansion Program" (STEP), which provides grants to states and territories to assist small businesses based on a trade promotion plan developed by the applicant state. The STEP program was appropriated $18.0 million for FY2016. In FY2016, SBA's export-related loans amounted to approximately $1.5 billion (approximately 5.0% of the value of SBA's annual loan portfolio). Although SBA has three loan programs that are specifically targeted toward exporters, most of SBA's lending support for export-related activities occurred through its broader loan programs. Surveys indicate that relatively few clients of SBA's management and training programs request trade-related counseling. This report begins with the history, role, and scope of SBA's export promotion activities and the creation of OIT. Next, it uses quantitative and qualitative data from SBA to provide performance analysis of SBA's international programs. This report concludes with a discussion of three policy issues for Congress. First, export promotion programs could have a policy rationale if barriers to entry are indicative of a market failure to efficiently allocate investment toward small exporters (e.g., because of disproportionately high costs to comply with trading regulations or insufficient information about the net benefits of trade). Many of these conditions, though, could be due to higher risk profiles for small exporters instead of a market failure. Second, export promotion is sometimes viewed as important to U.S. trade "competitiveness," by boosting U.S. exports in sectors that are cutting-edge, or have become displaced by lower-cost producers overseas. Some critique this theory by arguing that these policies are economically inefficient, if they distort capital from flowing to activities with the highest economic return. Third, the range of federal export promotion programs has led to administrative challenges among some small-business clients and potentially led to the duplication of services using taxpayer money. The Trade Facilitation and Trade Enforcement Act of 2015 (P.L. 114-125) enacted reforms intended to address some of these concerns. The 115th Congress might consider progress made toward these reforms as part of its small business policy agenda.