Brother's firm becomes headache for Donnelly in Indiana Senate race

(CNN)Sen. Joe Donnelly stands holding an axe in his new campaign ad and bluntly accuses his GOP opponent of lying about his record in Congress.

"He ships jobs to China," Donnelly, looking into the camera, says of Republican Mike Braun. "We've got to cut that out."
But as he battles to win a second term, the Democratic senator has found himself in an uncomfortable situation that hits close to home: The company his brother Jack owns, Stewart Superior, engages in the same trade practices he has long criticized. The senator has distanced himself from the company, noting he has had no role there since 1997, recently selling stock he owned in the firm and saying he had no knowledge of the outsourcing that occurred after he stopped working there more than two decades ago.
Braun, himself, is a multi-millionaire businessman whose auto supply brand, Promaxx Automotive, sells auto products that were made in China, despite the Republican's own criticism of outsourcing and attacks on Donnelly over the issue. An Associated Press report this summer found that numerous products under Braun's brand are listed as "made in China" -- and his firm is far bigger, and revenues far exceed, those of Stewart Superior.
    Yet Donnelly's connection to Stewart Superior has continued to dog him in the race as the GOP tries to undercut his efforts to campaign against outsourcing, in large part because of Braun's ads, which are blanketing the airwaves, attacking him on the issue.
    Documents reviewed by CNN reveal a previously undisclosed detail: When he was employed at the firm in 1994, Donnelly worked to establish a European arm of his brother's company called Stewart Superior Europe Ltd., which was initially a rubber stamp manufacturer. The British arm was created to expand the US operation's foothold abroad, initially buying its raw materials from the US, manufacturing the rubber stamps in London and selling them across Europe.
    Roughly three years after Donnelly left his brother's company, it began outsourcing to China by buying products like picture frames the company would then sell in the European markets, according to the head of the company, Geoffrey Betts, who said the European firm pulls in roughly $5 million annually in revenue.
    As its European business grew and began manufacturing and selling an array of office supplies, the company increasingly purchased Chinese goods and sold them into European markets, which Betts said now accounts for roughly 45 percent of its business.
    "To get the price you need to be in the market, most of the time, you have to go to the Far East," Betts told CNN. "A lot of it isn't made anywhere else. That's one of the problems."
    Asked to comment for this story, Will Baskin-Gerwitz, communications director for the Donnelly campaign, said that the senator helped found the European company to expand US manufacturing "and create more good-paying jobs in America."
    "And as long as he had an active role in Stewart Superior or Stewart Superior Europe, that's what it did," the spokesman said. "After not having a role in the company for 20 years, Joe sold his stock in Stewart Superior and donated the profits to charity in 2017. Meanwhile his opponent Mike Braun continues to lie repeatedly about the fact that he profits every single day from Chinese labor at the expense of Hoosier workers, to the tune of $18 million a year."
    Asked to respond, Braun campaign spokesman Josh Kelley said, "Through his family business, Mexico Joe Donnelly has personally profited from Stewart Superior outsourcing jobs to Mexico and China," adding that "every job" Braun created is a US job.
    The new information shows the challenges candidates face in positioning themselves as harsh critics of outsourcing at a time when US companies are seeking to strengthen their competitive positions in the marketplace by relying on cheaper goods abroad. Railing on China and goods dumped in US markets often get crowds riled up, but in the Indiana Senate race, it's become a complicated issue for both candidates in a rural state where distrust of trade deals runs high.
    Donnelly retained stock in Stewart Superior Corp. until the AP reported that it relied on Mexican labor to produce some of its goods, showing he may have been profiting off the outsourcing practices at his brother's firm. Over the time period when the US operation also imported Chinese goods, and as the European firm relied on Chinese products to sell in its region, Donnelly reported to the Senate holding stock ranging from $15,001 to $50,000 in the corporation.
    After the initial AP report last year, Donnelly said he was unaware his brother's company engaged in such trade practices and wanted to remove a distraction from his campaign -- and sold roughly $17,000 worth of the stock he had held in the company and donated the proceeds to charity.
    As a senator and previously as a congressman, Donnelly often sharply criticized outsourcing, often pointing out his opposition to trade deals he considers unfair, like NAFTA, and even touting a bill called the End Outsourcing Act. The bill would encourage companies to stay in the US by offering tax breaks for keeping its production domestically, while forcing firms to publicly disclose if outsourcing practices caused a loss of jobs.
    "I've been against NAFTA, I thought a lot of our jobs went to China and elsewhere because of it," Donnelly said in Muncie, Indiana, last year. "I've tried to make sure we kept jobs here."
    According to records filed in the UK, Donnelly signed documents incorporating Stewart Superior Europe in 1994 where he was listed as a director for the firm. Betts, who had previously been working in the rubber stamp business, had gotten to know the Donnelly brothers over the years and they discussed opening a European operation together since major office suppliers, like Staples and Office Depot, were opening European shops.
    Betts confirmed that Donnelly left the company in 1997 and said he no longer had a role in the company decisions. Betts recalled, though, that it was him and Donnelly who were working together to get the European operation started and then off the ground.
    "He was very involved in it," Betts said. "It was an exciting time."
    Initially, Betts said, the UK-based company purchased the raw material -- ink, rubber and handles -- from the US and manufactured it in a factory in London before selling the rubber stamps to European markets. In 1996, it invested in a subsidiary in Moscow, following a similar supply chain -- purchasing raw materials in the US, making the rubber stamps in London and then distributing them to Russia.
      Asked why the company would not manufacture the goods in the US, where foreign workers wouldn't be necessary, Betts said it would make "no sense" to do that because the goods would not be delivered to customers in a timely fashion as they demand.
      Plus, he noted, "It saves a lot of money."