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Thursday, March 5, 1998.




    Mr. ROGERS. We are pleased to welcome this afternoon William Daley, the Secretary of Commerce, who will testify on behalf of the programs in the 1999 budget request of the Commerce Department.

    Your budget request for 1999 for discretionary spending totals $4.893 billion, an increase of $637 million, 15 percent above the amount the Congress provided for 1998. A good portion of this requested increase, $466 million, in fact, is to ramp up for the 2000 census.

    With that in mind, we are pleased to have with us as a guest of this subcommittee Mr. Miller of Florida, who is the chairman of the Census Oversight Subcommittee of the House, who is here to listen and take notes, I am sure.

    As we continue to honor the commitment to balance the budget, the Subcommittee, as it has in the past, will be looking for you to assist us in developing priorities for the Commerce Department and finding ways to most efficiently allocate the limited resources the Subcommittee will have this year, and we are looking forward to working with you again this year, Mr. Secretary.
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    At this point, we will insert your written statement in the record and the Department's fiscal year 1999 budget in brief will go in the record.

    You are welcome to make any remarks you would like in summary of your statement.

Opening Statement of Secretary Daley

    Mr. DALEY. Great. Thanks very much, Mr. Chairman. As you have stated, we have given you a longer version of the statement and I have before me a statement that probably runs about eight or ten minutes. I would like to cut that down, Mr. Chairman, because I know how busy you and the Committee are and I appreciate the time that you, your staff and the staff of the other members have taken in previous meetings with me and in the time you have spent on helping us through this process.

    Let me just make a couple of comments. First of all, I do appreciate, after being here one year, the relationship which the Department and the Subcommittee has had. We think we have worked well together. We look forward to this year. This is my first real budget that I have put forward and, therefore, has a mark of mine, for good or for bad, as we go forward, and I am very proud of that. I am proud of the fact that many of the promises that we made to the Subcommittee last year in my testimony, we have followed through on and we have lived up to, whether it was the issues of the trade missions or security or political hirings and a few other issues. So we are extremely proud of that record.

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    The challenges facing the Department of Commerce are basically in three or four different areas. One, of course, is the census, and we are happy to see the Congressman with us today. That is going to be an enormous challenge for all of us. It is the largest peacetime mobilization that the country does. It presents an enormous challenge, forgetting the controversial issue of sampling that hopefully we will solve within the next year, and tremendous management challenge for all of us and we look forward to that challenge and making this the most accurate census in the history of the United States and in a cost-efficient manner.

    We continue to make trade and the development of our economy the most important piece of the Department. I had the opportunity to come back from Asia ten days ago and the troubles in Asia obviously present new challenges for us, but we are prepared. The ITA is now headed by David Aaron, former Ambassador to the OECD, and he is doing a terrific job.

    In the area of sustainable development, NOAA and all of our pieces of the Department work well together and we look forward to a continuing strengthening of that to protect the economy in so many parts of our country.

    So, Mr. Chairman, I would cut short my testimony at this point and once again thank you for the interest and the enthusiasm which you have given our Department.

    [The information follows:]

    Offset folios 6 to 157 insert here

    Mr. ROGERS. Thank you, Mr. Secretary. I have to agree with you that we have developed, I think, a respectable and agreeable working relationship and I find that you have been cooperative and you lay things on the top of the table where we can all see them. We may not agree on things, but we at least do it in an honest and open manner, which is what I appreciate.
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    As you know, the President's fiscal year 1999 budget assumes that the Advanced Technology Program will do $92 million in new awards this year, fiscal year 1998, instead of the $82 million that we provided for in the Appropriations Act. Has that changed?

    Mr. DALEY. No, it has not, Mr. Chairman. We will do $82 million and that was a misstatement in the budget. We will live up to the agreement that was reached, and that is $82 million, in spite of the fact that we have carryover of about $10 million.

    Mr. ROGERS. And you are still only requesting $94 million in new awards for fiscal year 1999, correct?

    Mr. DALEY. Yes, sir.

    Mr. ROGERS. And you will not try to increase that?

    Mr. DALEY. No.

    Mr. ROGERS. As a result, based on my calculations, there is at least $22 million in excess in the ATP program in your budget request. Given our budget constraints, what are the highest priority areas that this excess could be directed toward?

    Mr. DALEY. Let me just mention, I have been told, Mr. Chairman, that today we have about $13.4 million in the bank and about $6 million more to be gotten later. So we, at this point, have $13.4 million. Exactly what we would do with the additional funds would be determined later. I am not quite sure at this point what decision would be made as to where we would spend it.
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    Mr. ROGERS. Well, let us get to the census, which will be the big bone of contention or has been. I hope we can get that behind us.

    Mr. DALEY. The political issue of whether or not to sample has got to get behind us, but the challenges of the census and doing it are enormous and they will be with us all the way through the census.

    Mr. ROGERS. I have some concerns about your budget request in light of the agreement last year for this dual track approach, sampling and the more traditional approach. As per the agreement, the 1998 Appropriations Act mandates that the Census Bureau devote sufficient resources in fiscal year 1999 to ''become prepared to implement a 2000 Decennial Census without using statistical methods which shall result in the percentage of the total population being enumerated as close to 100 percent as possible.'' How much did you request of OMB for planning, testing, and preparing for a full enumeration that does not use statistical methods and how much did OMB give you?

    Mr. DALEY. We had put to them a figure of about $128 million. After discussions and consultations with OMB, the Department came back to a figure of about $36 million. It is broken down the following ways: $4 million to complete and evaluate the dress rehearsal site in Columbia, South Carolina, in the spring of 1998 using the traditional method; about $15 million to develop operational plans for a non-sampling traditional census; and about $17 million to open up 130 local census offices a year earlier than originally planned.
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    Quite honestly, after discussions, we feel strongly that sampling will be upheld by the courts and will be implemented. It provides us, in our opinion, the most accurate and cost-effective manner to do the census in the year 2000, and to expand the taxpayers' money to the level of $128 million or beyond. After consultations with OMB, we thought it was not the best way to move forward in these tight budget days.


    Mr. ROGERS. What specific items and activities did OMB deny to you?

    Mr. DALEY. Primarily, the difference is staffing, hiring people much earlier than would need to be hired in the sampling method, and then in partnershipping with local governments, local agencies, and community groups at a much earlier pace than we would plan to if we were to use the method which we hope to be able to use. The overwhelming majority of that is in staffing, bringing people onto the payroll much earlier than we believe we have to.


    Mr. ROGERS. And the personnel would be required to do a full enumeration. That is what that personnel request would have been for, right?

    Mr. DALEY. Yes. They would have come on if we were planning to do the traditional census then those rather large number of people—I am not quite sure of the exact number—would have to be brought on much earlier.
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    Mr. ROGERS. And they denied you that, so does that mean that you cannot prepare for the dual track? You have got to only prepare for a sampling census?

    Mr. DALEY. We are preparing for a dual track, also. Are we expending all of the sums that one would require at this point or at the point if we thought that the traditional census would be used? No. But quite frankly, it got down to a point in negotiations with OMB that we think that if, by chance, the Congress or the courts rule that we cannot use sampling and we have to go forward with the traditional census, then we have expended in the $36 million enough to have ourselves ready.

    No doubt about it, we would then have to move aggressively in the middle of 1999, and we all know that if we do not use sampling, the census would cost us, the traditional method would cost us, in our opinion, substantially more than the sampling and we would have to address that obviously in 1999 with the Subcommittee.

    Mr. ROGERS. So if the Supreme Court rules that sampling is unconstitutional or illegal, you will not have had sufficient monies with which to prepare to conduct the traditional census, then, minus sampling, would you?

    Mr. DALEY. Well, we would have sufficient funds to do the minimum amount to prepare ourselves in keeping that as a viable option. But we would be before the Subcommittee requesting a substantial amount more. Exactly what that amount is, I could not tell you right now, Mr. Chairman. But no doubt, we would be back for a rather substantial amount more.

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    Mr. ROGERS. Can you assure me today that you could do that if it comes to that, that you could do the traditional census if the Court says you must?

    Mr. DALEY. Yes. We have done it over the years. That is the method we have used before. Will it be as accurate and as cost effective? In our opinion, no, it would not. But the census will take place in the year 2000, whatever method we use. So I can assure you that it will cost us more and we will give up some accuracy, but we will have a census in the year 2000 based upon either method.

    Mr. ROGERS. It looks to me like that probably what is going to have to take place is we are going to have to look at this thing again March 1, 1999, to see where the Court is and where the dress rehearsals indicate we should go. Do you agree with that?

    Mr. DALEY. Well, I think we will have to look at this sometime very early in March in 1999. As we go through the dress rehearsal, much of the information that we will receive on what works and what does not and what changes we may want to make will have an impact, plus or minus, to the cost of the census. We will definitely be back around March 1, 1999, to request additional and probably rather substantial funding, depending on which way we go.

    Mr. ROGERS. It looks like we are going to have to do a mid-course correction in March of 1999 either up or down on funding, which is very rare for us, depending on which way the indicators indicate we should go.

    Mr. DALEY. I think this is also a result, Mr. Chairman, of the fact that the agreement that was reached last fall called for this agreement between the leadership, the Congress and the White House in trying to address this situation in early March or late February of 1999. So we will have a brief period of some question, but it will give us time to look at the dress rehearsal, and look at the results. We will have the one number available from those dress rehearsals on December 31 and then we will have some time to make judgments.
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    Mr. ROGERS. I wish you could provide us a full and complete breakout of the costs to implement a full enumeration, should it come to that, so that we have some time to prepare, as well, money-wise. We need to know what you anticipate that it would cost to do the full enumeration, if that is the way you go, versus sampling.

    Mr. DALEY. The full enumeration through 2000?

    Mr. ROGERS. Yes.

    Mr. DALEY. That is a figure that, quite honestly, will depend as to what sort of accuracy one wants. If we want to get the accuracy in our opinion that sampling gives to the process, then that number is one that we have been unable to get anyone at this point, inside or outside of the Department, to be able to really put a finger on and say, this is the amount that we estimate it would be. But we will attempt to do that for you and give you the variables that would impact that.

    Mr. ROGERS. All right.

    Mr. Mollohan.

    Mr. MOLLOHAN. Thank you, Mr. Chairman.

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    I am pleased to welcome the distinguished Secretary of Commerce, Secretary Daley. Secretary Daley has had some impressive accomplishments in his tenure at the Department of Commerce. I would like to mention just a few.


    He has overhauled the Department's trade mission policy, and although we believe there is more work to be done in this area, he has made efforts to include more small and medium-sized businesses the Departments trade missions, which we appreciate particularly. Additionally, he has been responsive to the concerns raised by my Republican colleagues regarding the ATP program and his efforts have resulted in a better, stronger ATP. He has worked to address the concerns of the Commerce Inspector General. In fact, four items out of the ten on the IG's top ten list when Bill Daley began as Secretary are no longer on the list. And finally, Secretary Daley lived up to his word and eliminated 100 political positions at the Department of Commerce.

    These are just a few of the Secretary's accomplishments and I commend him for his hard work and his straightforward approach to this job. He has dealt with tough issues head on and I think every member of the subcommittee appreciates that.

    All this said, the Department of Commerce's budget for fiscal year 1999 represents some serious challenges. The savings the administration claims from various budget gimmicks will have to be made up in this subcommittee and we will have to deal with such tough issues as the census and AWIPS. I have confidence in Secretary Daley's ability to face these challenges and look forward to working with him as the appropriations process moves forward. Finally, I appreciate his attitude in being candid on these issues.
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    Mr. Secretary, last year when we were considering fast track legislation, there was a lot of concern from Members representing basic industry America, that the country's trade policy does not take into consideration enough the adverse impact on particular sectors of the economy.

    Fast track became a lightning rod, if you will, for this issue. There were an awful lot of members who might be inclined to support the administration for a lot of reasons who were not inclined to go along with fast track. They felt that by supporting fast track they would be disempowered, and voting no was the only leverage they had to get the administration to address their concerns.

    So we suggested to the administration that they, before they come back with another cut at fast track, that they deal with this issue and come forward with some proposals that would address, at least in part, these concerns. To this end, I note that you have requested some increases in the EDA budget. I wonder if any of those proposals are recommended in response to this concern, and if so, will you speak to them.


    Mr. DALEY. We have requested, Congressman, about $50 million a year—$250 million over five years. The $50 million in 1999 is to address just the issue that you mentioned. The President did hear from a number of Members last year about their concerns about the impact of trade, and technology advances that have caused dislocation in different parts of the country. Trade is one area, but technology advances have probably been a greater reason for the fact that there have been dislocations in certain parts of the country.
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    He has put forward a plan and announced it last October to try to duplicate what was done in EDA with base closures, and that is a specific plan put together to work with communities in a very intensive manner. We have requested $50 million in 1999 and we will work with the local agencies, economic development agencies, to try to address ways to alleviate the fear and concerns of citizens about dislocations that may occur. So we have what we think will be a very good program if it gets going in 1999.


    Mr. MOLLOHAN. Let us look at the numbers a little bit, because I want to sensitize you to something here. We know that the administration is extremely concerned with base closures and its defense conversion program addresses that. This subcommittee has provided millions and millions of dollars to the Defense Conversion Program, and this year you are requesting an additional $84.8 million.

    And you say here that you are requesting $50 million, almost $50 million, for the economic adjustment program, which is supposed to address my concerns and the concerns of my colleagues representing basic industry America.

    Let me point out that this economic adjustment program is at least partially offset by proposed cuts to the public works grant program. In other words, you are requesting an amount for public works grants which is $17.8 million less than last year. At the same time, you are requesting a $50 million increase for the economic adjustment initiative. It is not lost on this committee, on either side, that the public works grant programs are very important to the same areas which will benefit from increases to economic adjustment. The areas that benefit from the public works grant program are the same areas we are talking about, the basic and the traditional economy sectors of this country.
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    So what you are doing here is cutting that program, in order to fund this economic adjustment program. That is just a statement of fact. I point it out to you. Do you have a response?

    Mr. DALEY. The one response I would have, Congressman, is the fact that the amount that we are requesting for the public works portion is the same amount that the President has requested the last three years. So we have not reduced what we have asked for, you are right. Congress enacted $17.8 million more than what we had requested.

    Mr. MOLLOHAN. We are a little more generous than the President. [Laughter.]

    And OMB is less sympathetic to our concerns, so you have to be in there fighting for us a little bit with OMB if you want this program to mean anything.

    Mr. DALEY. Well, obviously, there are many funds in the new programs which will go to many of the communities affected by trade dislocation, which would be similar to some of the public works projects that were enacted last year.

    Mr. MOLLOHAN. Let me tell you, talking about public works, if you are going to help these communities that are traditional economies, if that means something to you, you have got to do the exact same things that you are doing with the base closure communities. You are diversifying. You are providing, really, programs. You are going in there and you are talking about economic diversification. And they start from a base in terms of the composition of the people in the community. They start at a level that probably makes it easier for them to do that. There are probably better people resources that appreciate different sectors of the economy.
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    But if you are going to address those same concerns, if you are going to achieve the same kind of systemic economic reform and really create diversification within the economies, you are going to have to do the same things that you are doing in the defense conversion communities. And you are going to have to include advice, counsel, and those kind of programs that probably you do not need in the defense conversion communities.

    How much longer are we going to be putting a disproportionate—compared to the public works and to this economic adjustment program—amount of money into the defense conversion program? There is another $84 million. This goes into California, it goes into all of those—and I am all for doing all that. That is terrific. I mean, I voted for it last year. But just in terms of the scale of the program, it reflects that you are not concerned as much with the economic dislocation that is caused by trade as you reflect technology. But right now, it is trade, and we have talked about the steel industry and it is not technology, it is trade, and it is going to be, with the Asian financial crisis, it is going to be more.

    How much longer are you going to continue to request this amount of money for defense conversion and a disproportionately low amount for economic adjustment?

    Mr. DALEY. My understanding, Congressman, is that two-thirds of the base closures have been accomplished. So over the next three years, these funds will continue to diminish. There has been speculation of another round of base closures at some point. I have heard Secretary Cohen speak of this. That is obviously a whole different area that you will have to deal with. But as of right now, my understanding is that we only have a third to go, and so over the next couple of years, hopefully, that amount will continue to diminish.
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    Mr. MOLLOHAN. Thank you, Mr. Chairman.

    Mr. ROGERS. Mr. Skaggs.


    Mr. SKAGGS. Thank you, Mr. Chairman.

    Good afternoon, Mr. Secretary. I have inquired this morning of the FBI Director and last week of the Attorney General and now will ask you how things are going in the development of a single administration policy, as opposed to several administration policies, on encryption.

    Mr. DALEY. Well, they are obviously not going as well as we had hoped. We are intensely, involved in trying to come up with a policy. There are real concerns on all sides of this issue. We hear constantly from U.S. industry that their opinion is that they are being disadvantaged at this point and there is plenty of evidence that they are and that the technologies which our companies have developed and have been very successful at, are being challenged by competitors in other parts of the world.

    So from the Commerce Department's perspective, it is extremely important that we move forward. We have spent a lot of time in trying to deal with industry to get them to help us and to help get law enforcement better equipped to deal with these new technologies. I am hopeful that by sometime late in the spring we will have developed such a policy. But it is very difficult, as you know.
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    Mr. SKAGGS. Mr. Chairman, I might note for the record that after this morning's hearing, one of Director Freeh's assistants followed me out into the hallway in order to clarify the Director's comment about his having suspended temporarily, as opposed to having changed, his position with regard to the need for some domestic access provision in our encryption policy. He wanted to make sure we did not misunderstand where the FBI was on that.

    Mr. DALEY. If I could add one point, Congressman, we have over the last couple of days strongly encouraged that, and are in the process of putting together industry leaders along with law enforcement to get an honest and very complete dialogue going between the two of them. They seem to have been off in different corners of a room and we are trying very strongly to bring them all together over the next couple of months.

    Mr. SKAGGS. Do you or your people have any estimate of what we are losing in terms of market share in this area while our encryption efforts are in play?

    Mr. DALEY. No, we do not, Congressman, but I think from a lot of anecdotal information, there is no doubt that our competitors, and specifically Germany and some other European countries, are moving rather rapidly. At the same time, the Under Secretary for International Trade, David Aaron, who was Ambassador to the OECD, has been the ambassador for the President in dealing with other countries and in trying to work a settlement on this issue so that we can get some cooperation with other countries. He has pointed out repeatedly the same sort of concerns that our law enforcement and our national security people have had are shared in other countries. So this is a worldwide problem right now, but it is one that we are sincere about our attempt to try to get it to some resolution over the next couple of months.
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    Mr. SKAGGS. I am glad you mentioned the Ambassador's work, and if I could request for the record either your statement or his on the current status of those negotiations, particularly with the OECD countries, about some kind of consensus approach to the issue.

    Mr. DALEY. We will provide that.

    [The information follows:]



    Mr. SKAGGS. I would also like to discuss just a little bit of the Department's work as it affects the trade issue for the United States, maybe a little different aspect of it than Mr. Mollohan was discussing with you. It seems to me that one of the other things that made the fast track debate and trade policy debate less than what they might have been is the somewhat shaky status of the database that we have about exactly what the pluses and minuses are to the American economy of trade.

    I am just wondering what you may be proposing in your budget or what we might force upon you to improve your budget that would give us a better handle. We hear much more of the compelling anecdotes on the downside of the impacts of trade. The upside data tends to be more diffused and less able to be pointed to in an equally compelling fashion. Maybe it is not there, but I think we need more factual grounding for this debate and hopefully your Department is the place where that can happen.
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    Mr. DALEY. I would agree with you, Congressman, and let me see if one of my colleagues has some information with them that would address this specific concern of yours as far as the breadth of our information that we give on trade numbers, and I will get back to you on that.

    Mr. SKAGGS. I would particularly appreciate your submission for the record on that, some estimation of what we might gain for additional increments of funding and what we can buy in terms of better trade impact data on the U.S. economy for an additional $10 million or $20 million, so we can have some sense of an informed policy judgment here when we put the budget together.

    [The information follows:]


    The Department has for some time been examining how we can improve our overall statistics on U.S. trade and the impact of trade on our economy, particularly at the state and local levels. We have concluded that many improvements are technically feasible in the area of merchandise trade statistics. To this end, the FY 1999 President's Budget requests funds for several initiatives designed to improve the Nation's international economic statistics. Specifically, $4.3M to incorporate the North American Industry Classification System (NAICS) into the Census Bureau's current economic surveys, $2.8M to implement the new International Trade Data System (ITDS), and $1.1M to improve the National Accounts. The Census Bureau will begin implementing NAICS in their current economic surveys. NAICS is the first-ever uniform system of North American industry classification. NAICS will enable the NAFTA partners to better compare economic and financial statistics and ensure that such statistics keep pace with the changing economy. ITDS is an interagency initiative that will facilitate electronic interchange of trade data among Federal agencies and eliminate redundant data collections, significantly reducing the reporting burden imposed on the business community. Increased economic integration in world markets and advances in communication technologies have resulted in gaps in the Bureau of Economic Analysis (BEA's) coverage of international transactions. These gaps pose difficulties for the analysis of trade, monetary, and regulatory policy. Therefore, BEA has requested increased funding of $1.1M to improve measures of international transactions involving volatile and growing services and new financial instruments.
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    Mr. DALEY. One area that we do know has been difficult to get a real handle on as far as numbers is in the service sector. It is very difficult because today's society is growing tremendously. So we are trying to review exactly how to get a better handle on exactly what services are being performed by U.S. businesses around the world and that is very difficult right now.

    Mr. SKAGGS. I might just observe, Mr. Chairman, I am not sure what the right amount is, but I think making some additional investment in this area is likely to be very well justified in terms of the return that we will get for it in a better informed and better grounded trade policy.

    Finally, the uptick in your request for NOAA, as I understand it, has to do a lot with satellite procurement and I wondered if you could brief us a little bit on that.

    Mr. DALEY. Hold on a minute, Congressman.

    Mr. SKAGGS. Are we going to have a separate NOAA hearing, Mr. Chairman?

    Mr. ROGERS. Yes.

    Mr. SKAGGS. Why do we not hold, then, until we get to that. We can deal with that at that time, I think.

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    I do not believe we are going to have an NTIA hearing, so I did want to ask you to sketch out for us what you think will be the consequences of, as I understand your budget, essentially eliminating funding for the traditional PTFP grants under NTIA.

    Mr. DALEY. Now, last year, as you know, Congressman, we did not seek any funding for PTFP, and that was based upon our belief that since 95 percent of the public had already been reached by public broadcasting, that there was no need to do that.

    In 1997, the FCC mandated that all public stations be able to transmit in digital by 2003. Recognizing that, we have requested in the President's budget over five years $450 million for this conversion, including $65 million in Fiscal Year 1999 for the PTFP and the Corporation for Public Broadcasting programs. Our request for digital conversion is $15 million in 1999, but this will not be limited to television stations' conversion costs but can also be used for funding equipment replacements, both for public television and also radio stations.

    So we obviously recognize the strong support for public broadcasting and public television that has been stated by the Congress and we would look forward to working with you and other Members of the Committee, the Subcommittee, and the Congress to address the future needs of the public broadcasters.

    Mr. SKAGGS. Thank you, Mr. Chairman.

    Mr. ROGERS. Mr. Latham.
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    Mr. LATHAM. Thank you, Mr. Chairman.

    I guess I had some questions kind of in the same vein of thought there. First of all, I want to welcome you. It is good to see you again.

    Mr. DALEY. Thanks.

    Mr. LATHAM. At the funding level for the PTFP, how do you see the program assisting radio stations, and to a lesser degree, television stations that continue to broadcast in analog during the transition and how do you see it assisting the purchase of digital TV equipment with other costs rising from TV conversion, such as tower dislocation?

    Mr. DALEY. Let me, if I could, Congressman, ask Larry Irving as head of the NTIA if he could comment on that. Larry?

    Mr. IRVING. Congressman, Mr. Chairman, it is our understanding with regard to radio stations, they would still continue to be eligible while they are transmitting in analog. With regard to television stations, because of the urgent need of public television stations to move to a digital format, our priority would be for digital conversion equipment. But under the new OMB administration proposal with regard to PTFP, we would still make funding available to stations, even radio stations still providing analog signals.

    Mr. LATHAM. Is this the way, if OMB was not calling the shots, is this the way you would break it down? [Laughter.]
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    Mr. IRVING. Well, we work with OMB.

    Mr. LATHAM. I have heard that before. I do not think that was my question. [Laughter.]

    Mr. IRVING. We will——

    Mr. LATHAM. You can turn that one back to the Secretary.

    Mr. IRVING. I appreciate that. [Laughter.]

    Mr. DALEY. That is after consultation with OMB, Congressman. So how we would break it out left, to our own devices, we would probably want to keep to ourselves.


    Mr. LATHAM. You recently returned from a trip to Asia and announced a new Asia initiative. Would you tell me more about the program and which agencies within the Department that would be involved?

    Mr. DALEY. Obviously, these are difficult times in Asia for the Asian economies and the Asian people and it has the potential to have a serious impact on our export numbers and import figures, which will rise later this year.

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    Three things that we attempted to do on the trip were one, to reinforce the view that not only are these difficult times in the region, but that we must, in the ITA and the Department of Commerce, stay extremely involved on behalf of U.S. businesses throughout Asia. So I have asked Under Secretary David Aaron to lead a trade mission of U.S. businesses to China specifically, and possibly in other parts of Asia, later this Spring to try to look for further opportunities for U.S. businesses to expand.

    Two, we are having a comprehensive reporting system put together in our commercial units by our commercial service people throughout Asia to assemble market information. This information is to be made available to companies on a very rapid basis and is being constantly updated during this crisis. We will try to give them the most up-to-date information to help them make judgments over the next number of months. It was extremely important during my visit. We spent a lot of time with U.S. company representatives in Asia and they were very pleased with that effort.

    We are also asking the Trade Promotion Coordinating Committee on Monday to discuss a report which we prepared on the trade implications of this and what further recommendations they may make regarding trade promotion activities. Those include finance initiatives which may be increased. Export-Import has been very active in putting together a package for U.S. businesses, I think about $750 million as part of the G7 initiative two weeks ago in London. So we think that is an important way to help our companies.

    Third, we are doing a nationwide series of conferences and seminars for businesses to provide them up-to-date information on what exactly is going on in Asia and how we can help them arrange financing to keep their customers and otherwise deal with this difficult situation.
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    Fourth, we will be establishing within the Trade Information Center an 800 number, which will provide special information on what is going on in Asia, and specify what programs we in the Department may have and other agencies may have as part of the TPCC so that companies can call in. We will hopefully make ourselves more available and have more rapid and current information than they are able to get either from any other Federal agency or from any business sources. So we understand the importance of Asia to our exports and to our economy and we are putting a lot of emphasis into what we need to do to help U.S. businesses in Asia during this crisis.


    Mr. LATHAM. On the trade mission to China, and you, I am sure, may be somewhat aware that Iowa is a very agricultural State and has tremendous interest as far as exports, on the trade mission, is that going to include any kind of agricultural commodity interests or is this——

    Mr. DALEY. Traditionally, I believe that the Commerce Department has not included on our trade missions major agricultural interests. The Department of Agriculture does their own trade missions and they do a lot of promotion activities, and that has been one area that we have not brought into the trade missions in an active way. We picked different sectors for each mission. Whether we will on that, I will consult with the Under Secretary.

    Mr. LATHAM. Do you think that is, I would not say counterproductive, I guess, but as efficient a method as possible? Should we not be coordinating with USDA and with the Commerce Department? I mean, we are all in——
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    Mr. DALEY. We are trying to, and we are using the TPCC to coordinate much better. One of the things that I have asked David Aaron to do is exactly what you are suggesting, and that is to have a coordinated effort of trade missions among all the participants of the TPCC.

    Generally, what we do, when I am going to do a trade mission, is look at what sectors are really of immediate concern to U.S. businesses, and what sectors are important with the country we are visiting. There are plenty of times that I will raise agriculture issues before my counterparts. Generally, they are not the agriculture ministers. But I have met with some of them just to raise a specific issue and advocate at times on behalf of the U.S. agriculture interests. But a better coordinating job is, obviously, possible.

    Mr. LATHAM. You would think that a lot of businesses, if they are in the restaurant business or some kind of manufacturing, food stuffs, so maybe their overall business would be with you but their supply would come from, say, agricultural exports, you would think there would be some. There should be some coordination, you would think. I mean, if you do not have a reliable source of the products to begin with, it is hard to manufacture.

    Mr. DALEY. I think I will take your comment that there needs to be better cooperation and we will try to do that through the TPCC and other entities.

    Mr. LATHAM. Are you going to talk about the census more?

    Mr. ROGERS. Yes.
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    Mr. LATHAM. Thank you.

    Mr. ROGERS. We already have and we shall again.

    Mr. LATHAM. Good.

    Mr. ROGERS. Back briefly to the census, and before we do that, let me say this. I hope we can be out of here no later than 3:15. I know the Secretary has pressing matters and I think all Members do as well. So if that is agreeable, we will shoot toward that goal.

    Mr. DALEY. That is agreeable with me. [Laughter.]

    Mr. ROGERS. With respect to your census plan, under the agreement, the Census Bureau is supposed to be developing a plan to be ready to implement either a sample or non-sample census. The question is, what are the detailed plans and do they work.


    With respect to your plan, with all due respect to you, it is a mess. It is too complex, it is untested, and likely cannot be executed in the time that you assume without huge cost overruns and/or quality being degraded. In fact, both GAO and the Inspector General of the Department continue to raise serious questions about those issues and they question whether the Bureau could even pull off its own plan, even if Congress agrees to it.
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    In fact, on December 30, the Commerce Inspector General issued a report to the Senate Commerce Committee with very disturbing conclusions. Basically, the IG found that every major component of the census' own plan is at risk, either for cost growth and/or quality problems, and mostly due to the fact that, one, the Bureau has not made major decisions on design; two, plans they did have, such as address list development, are not working; and the plan has such a tight time schedule that the plan may not be executable without major cost growth and/or degradation in quality.

    The IG found, one, the census' own design is risky.

    Two, there is not sufficient time for the Bureau to plan and implement their plan. I am quoting, ''The Bureau's fundamental problem is that it simply may not have enough time to plan and implement a design that achieves its dual goals of containing costs and increasing accuracy.''

    Three, the lack of time is caused by the Bureau's own indecision and lack of progress.

    And four, the method being used to statistically adjust the census numbers is rife with the potential for error. The methodology is, and I am quoting the IG, ''long, complex, and operating under a tight schedule, so there will be many opportunities for operational and statistical errors.''

    None of those are very ringing endorsements for that plan, and I might point out that the IG earlier last year had said sampling, he thought, was a good thing. He is saying now that your plan is really very, very risky and probably cannot be carried out.
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    At the same time, you are only now preparing a contingency plan for a full enumeration, despite the fact that we have directed that for the last three years.

    Finally, given that the Bureau's own plan has so many problems, the cost estimate of $4 billion to conduct a census cannot possibly be holding true because costs are going up. In fact, your own budget asks for $109 million more than you had planned to fix problems with address list development. So how can the $4 billion estimate remain unchanged?

    I wanted to know, can you honestly tell us that this plan can be implemented successfully and that the IG's concerns are misplaced?

    Mr. DALEY. Let me respond, Mr. Chairman, in this manner. Number one, we welcome the scrutiny of the IG and the GAO in this endeavor. We think we have had a good relationship with both entities. We appreciate the interest which they have taken in the census.

    We do not by any stretch underestimate the magnitude and the complexity of the challenge before us to do this census. It is an extremely complex endeavor that gets more difficult every ten years. We are talking about accounting for almost a quarter of a billion people in a very short period and a people who no longer respond to mail as they used to, no longer care to be contacted by government as much as they used to.

    On top of that, we are, as each census does, testing new technologies and try to do it differently and better than we did the last time. This is not a static process. It is one that moves along and is very difficult. We could not put a plan together in 1997 and not have it being continually and continuously reviewed and improved upon.
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    You mentioned the one item of the mailing list and our thoughts as to how that would work and how successful that would be. Two years ago or three years ago when the idea was developed, it did not hold up because of the scrutiny we gave it.


    Mr. ROGERS. The question is, do you have a plan for an actual enumeration, ready in case you have to have it?

    Mr. DALEY. Well, we have done that forever, so we know how to do that. Would we be prepared to do it better than we did in 1990? Yes, we would. There is no doubt that we know how to do that. Will it be as accurate as we believe sampling would be? No. But we have proven we can do those and we would do it once again.

    Mr. ROGERS. We have never seen your plan. We have paid for it and we have not seen it. We are two years out. We are running out of time. We have not seen your plan to actually enumerate. You have a plan. We want to see it. If you do not have a plan, we have already paid for it. Where is it?

    Mr. DALEY. Our plan, the administration's plan, is to provide for sampling. That is the plan we are developing.

    Mr. ROGERS. We paid you to develop an enumeration plan in case sampling is ruled out of order by the courts. Now, you say you can do it if you have to, that you have got a plan. We want to see your plan.
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    Mr. DALEY. Mr. Chairman, let me just say the plan of the census overall, putting sampling and the question of the traditional census method on the side for a moment, is one that is being worked on as we go through this process. The dress rehearsals will hopefully give us greater information as to what has worked, what has not, and then how to proceed into 1999 as we finalize our plans for the 2000 Census.

    Mr. ROGERS. I have a simple question. Do you have an actual enumeration plan in case sampling is ruled unconstitutional? Now, I know you are going to do a dress rehearsal. That is for sampling. I am talking about, do you have a plan to take the census by actual count in case the court says you cannot sample?

    Mr. DALEY. We could go back to the 1990 plan and improve it.

    Mr. ROGERS. You do not have a plan?

    Mr. DALEY. The Census Bureau has the plan from 1990, which was a traditional method of carrying out the census.

    Mr. ROGERS. Which was a louse. We are not going to do 1990 over again, I guarantee that.

    Mr. DALEY. I hope not.

    Mr. ROGERS. Because it was a mess from day one, and I was here at the time and it was our administration that did it and they screwed it up. We are not going to do that again. Now, have you got a plan to actually count in case sampling is ruled out of order by the courts?
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    Mr. DALEY. There is not a plan right now that says to you, here is a document that gives you the exact costs and the exact details of the plan that would take place in 2000.

    Mr. ROGERS. We paid for that and I want that plan forthwith. Now, you say that you can come up with something at the last second in case sampling is ruled out of order in March. I am saying to you, I want to see that plan now. We paid for it. What has happened to the money?

    Mr. DALEY. Let me say, Mr. Chairman, that the plan for the census in 2000 is what is being worked and is being worked on through the dress rehearsals. We have not laid out a plan two years in advance and said this is it and it is not going to change. These things are works in progress. We do believe that sampling is going to be the method to move forward on. The Congress has not given us the money to lay out for either plan all the way through with exact costs through the year 2000.


    Mr. ROGERS. We gave you $15 million for this year specifically to prepare the enumeration plan and I want to know when we are going to get it. We paid for it. We bought it. It is ours. We want it.

    Mr. DALEY. As I understand it, the $15 million was given in November to develop and work on pieces of a traditional census method.
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    Mr. ROGERS. I have been hammering the Commerce Department ever since the last census. Develop a plan for 2000. For the last three years, I have said, give us your plan. Last year, we gave you $15 million. Give us your plan. And here we are today, two years out, ready for the dress rehearsal, no plan. I want the plan forthwith. We paid for it. If you cannot do it, we will find somebody that will.

    Mr. Secretary, how can I be more plain to you? I want to work with you. We have worked with you in the past. I will continue to work with you. But when we pay for something, you have to understand, it is the Congress that rules. It is not the Executive Branch. The people have spoken on this question. They want their plan that passed the Congress, signed by the President. Where is our plan?

    Mr. DALEY. Mr. Chairman, if I was to give you a plan today for something that is going to take place in two years, I would assume one would not expect it to be as accurate a plan as we would get after we conducted a dress rehearsal.

    Mr. ROGERS. I understand dress rehearsals. The dress rehearsal is going to try out the plan, including sampling, and that is fine. I am just saying to you that I am unwilling to sit here and take your assurance that if sampling is ruled unconstitutional, that at the last second you will come up with the plan to count by actual enumeration. I want to see it up front. We have been asking for this for ten years. We have been paying for it for the last several, and you are here at the last second saying it does not exist. Why not?

    Mr. DALEY. Well, the bulk of what we are doing in preparation for 2000 is done with whatever method is used, between sampling or traditional.
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    Mr. ROGERS. Give me the plan, then. It sounds like you have got a plan. We just want to see it, for a full enumeration and/or sampling. It is not a complicated matter. I mean, you are going to actually, by mail, are you not, going to send out questionnaires? Then you are going to try to follow up those that do not answer, and you are going to follow up again. Then you are going to do, as you suggest, sampling in the final analysis and so forth. I know it exists out there. Why can we not see it?

    Mr. DALEY. Excuse me, Mr. Chairman. Mr. Chairman, we will continue to work with you to develop this plan and provide you all the information that you may need.

    Mr. ROGERS. I want the copy of the plan. I do not want to work with you on developing a plan. I want your plan. I want to be nice to you. I want to be agreeable. I want to be forthcoming. But I want your plan.

    Mr. DALEY. We will provide you the assurance that the census that will be taken in 2000 will be the most accurate and most effective, and that plan as it is developed will be given to you and your staff.

    Mr. ROGERS. When will we get it?

    Mr. DALEY. Well, if you are looking for a document today that says this is A to Z in the census and how it is going to operate in the year 2000 we cannot provide that at this time.
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    Mr. ROGERS. Yes. That is what I paid for.

    Mr. DALEY. That is not available.

    Mr. ROGERS. When is it going to be available? We paid for it.

    Mr. DALEY. I will give you a time on when that will be available and a response, if you would like a further response in writing, shortly after this hearing.

    Mr. ROGERS. Well, the fiscal year is up on September 30 and your dress rehearsals start next month. Surely you have a plan. Surely you have a timetable. You know what you are doing, I hope. So is there some scheme that you are following in the sampling dress rehearsals next month and the like?

    Mr. DALEY. We can lay out to you and to your staff the dress rehearsal plans and how they are going to proceed and what the entire operation, as we have put it forward, is going to operate in the three locations.

    Mr. ROGERS. You had better have a plan for actual enumeration that you have in place now in the event you have to do an actual enumeration. Now, if you do not have a plan, then we paid $15 million for nothing and you will have been derelict in your duties. If you have got a plan, you had better deliver it forthwith. Now, where are we?

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    Mr. DALEY. If you are saying we gave you $15 million in November and we want A to Z in a plan for the total enumeration, traditional census for the year 2000 and we, therefore, were expecting a package of a plan to be given to you, that is not——

    Mr. ROGERS. We have been giving you money for the last several years. I mean, we started giving you decennial 2000 census monies in 1993, I guess, to develop a plan, and here we are and you cannot tell us if there is a plan or when you are going to get it to us. I just find that to be absolutely incredible. Now, when can we get your plan? I know you have got one.

    Mr. DALEY. We will give you the information that you are requesting and what the other committees who are dealing with the census will request as to where we are at on our process and we will move forward through the dress rehearsal and then prepare ourselves for the 2000 census. We can obviously lay out what was done in 1990.

    Mr. ROGERS. Let me get this straight. Your plan is to repeat the 1990 effort?

    Mr. DALEY. It is not to repeat the results of the 1990 effort, for sure. The basics of doing a census and accounting for people are the same. We have to reach the people by mail and we have to visit their homes. The basics are there. The cost of this census and the program would primarily be the same, but we have looked at improvements that have to take place, whether it is spending $100 million in advertising to affect people's awareness of the census coming about. So we have tried to look at the 1990 census and improve upon it, but at the same time, understand that the basics of doing a census probably remain the same no matter when they are done.
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    Mr. ROGERS. We want your plans by April 15. When we recess this hearing, we are going to recess until April 15 and we will ask you to come back and bring your plan. If you have sent the plan over, then you do not need to come back, but I am not going to turn loose of this. I want your plan. I want to know what you are going to do in the event the court says you cannot sample. I think you should be prepared for that. The court very well may—I think they will—rule that way. You obviously disagree, but we have to be prepared for both and I do not think you are prepared for a full enumeration, and if you are, I want to see your plan. If you are not, I want you to get a plan because we are not going to turn loose of you until those things are done.

    Now, AWIPS, another fun subject. [Laughter.]


    I cannot believe it. Here we are again. We have to talk about the National Weather Service's AWIPS program. We have grappled with problems in this program for years. We were told they were solved, but they are not. We have had monthly assurances for the past year by the National Weather Service, NOAA, and the Department that the program was on schedule and on budget. We now learn that this is not the case. How can this happen? Have we been misled by somebody or where are we, Mr. Secretary?

    Mr. DALEY. Well, Mr. Chairman, I agree with you. I think we may have both been misled last year. We have had significant management failure in the AWIPS program and I have been as surprised as you and others in learning some of the depth of those failures. Our program managers were more focused on near-term issues than they were about the realistic estimates of what may be the actual cost. We brought in an outside analyst to determine whether we could live up to the certification which was required under last year's appropriations.
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    As you may know, the Director of the Weather Service was changed. General Kelly just arrived last week as the new Director of the Weather Service. He has taken charge of not only the Weather Service but this issue specifically and we will be making continuing management changes to get control of the situation.

    He is going to give me very shortly, and we will transmit immediately to you, a list of options if we cannot meet the target of $550 million. If we do meet the target of $550 million, what does that mean, if anything, in the diminution of the actual plan that was laid out? This has been long. It has been a year for me, seemingly much longer than a year process in dealing with AWIPS, and for you, much longer. There is no doubt that there has been a failure here and it is not something that will continue.

    Mr. ROGERS. It has been seven years. It has been seven years. We have been misled all the way. We all had an agreement last year to cap this program at $550 million and we were told it could be done for that. I am just saying to you now, that is the cap and if it takes more to do a full AWIPS, and we want a full AWIPS, as was agreed, then somebody has got to come up with the money out of their budget. I do not know how you are going to deal with that, but we have already said $550 million is it.

    Mr. DALEY. Well, that is what we are dealing with right now. My discussions with General Kelly would be to see where we are actually at and what options there are to stay at the $550 million or go beyond, if we can. The fact of the matter is, I gave the assurance also last year, shortly after I was here, that the $550 million was a number that we could meet and I have been terribly disappointed that that is not the case.
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    Mr. ROGERS. You will get back with us?

    Mr. DALEY. Yes, sir.

    Mr. ROGERS. Mr. Mollohan.

    Mr. MOLLOHAN. Thank you, Mr. Chairman.

    Mr. Secretary, with regard to this issue, you finally got to the one word that I think perhaps is the answer when you said this is a process. Well, indeed, is that not the answer to the chairman's questions, that this is a process, not an event, that you have a base procedure for doing a traditional sampling and you have identified all kinds of concerns associated with the 1990 census, addresses, recontacting, double mailings.


    You have addressed all these concerns that the IG identified as risks and you are working on those risks, but the base process is a model established by previous censuses. What you are trying to do is improve on those, in order to make the 2000 census far superior to the 1990 census if you do have to proceed with what we are calling a traditional census. The process of looking at the elements of that model is just that, a process, and that is what you are looking at. Is the answer to that yes or no or sort of?

    Mr. DALEY. Yes, that is basically what we are doing. We are not scrapping all of what has been done in the past. The census is not just 1990 but beyond that and starting all anew. So it is a process that very much is in the works.
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    Mr. MOLLOHAN. And is not a part of the process of addressing those, what the IG identifies as risks, going through these two test sites, the dress——

    Mr. DALEY. The dress rehearsals, three of them. There are three.

    Mr. MOLLOHAN. Part of the answers to these questions and developing protocols and processes and procedures will be answered in these dress rehearsals. Is that correct or not correct?

    Mr. DALEY. That is correct. We would hope that we would learn quite a bit from the dress rehearsals to improve what we may have thought was the best way to conduct these.

    Mr. MOLLOHAN. Do the dress rehearsals include traditional sampling issues?

    Mr. DALEY. Yes.

    Mr. MOLLOHAN. Okay. So you are not going through it just to spend the money. You are going through it to learn something, are you not?

    Mr. DALEY. Yes, sir.

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    Mr. MOLLOHAN. When are the dress rehearsals finished?

    Mr. DALEY. Well, the dress rehearsals take place beginning the 18th of April. The actual number that we will have to present and all of the data out of those will be at the end of the year, which would be duplicative of the 2000 period.

    Mr. MOLLOHAN. So I think you need to be clear about what you can get the chairman on the date he has given you, April the——

    Mr. DALEY. Fifteenth.

    Mr. MOLLOHAN [continuing]. The 15th. You are going to be learning answers to the questions you have to address the functions in this model as time goes on. The dress rehearsals will address a number of them and hopefully give you some answers and allow you to adjust the methods that will be a part of tweaking the model, if you will, is that correct?

    Mr. DALEY. That is correct.

    Mr. MOLLOHAN. I mean, really, is that correct?

    Mr. DALEY. Yes, it really is. The bottom line is to give him a plan that is not going to be changed or modified or developed as we go forward would not probably be possible.

    Mr. MOLLOHAN. Because this is a process.
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    Mr. ROGERS. Will you yield on that?

    Mr. MOLLOHAN. Yes, sir.

    Mr. ROGERS. What we are looking for is your base plan for an actual enumeration. I know you are going to tweak it with the dress rehearsals. That is what they are for. But we do not even have your basic plan of what you basically intend to do, elementary things to start out with. We have nothing. If what you are going to give us is 1990, I am going to throw it back at you. I want to see it. I want to see your basic plan that you are going to work from. I understand you may change as you go along, but we want the starting plan. Thank you.

    Mr. MOLLOHAN. Of course, Mr. Chairman.

    Also, we have a trigger here, do we not, this Supreme Court decision, which we hope will be timely, and that will, as I look at it, determine whether sampling will be allowed to be carried forward or not allowed to be carried forward. So if the Supreme Court decision comes down and says, you cannot do sampling. That answers the question, does it not? If it comes down and says, you can do sampling, then that answers the question likewise and you will move forward with the sampling. And all of the results—is that the way you understand the agreement?

    Mr. DALEY. That is the way we would hope. Obviously, if the Court comes down and rules that it is unconstitutional, then one could not proceed.

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    Mr. MOLLOHAN. If the Court comes down and says it is constitutional, as I understand the agreement with the majority, then you would move forward with sampling.

    Mr. DALEY. Our decision is to move forward with sampling unless we are told by the Court that it is unconstitutional.

    Mr. MOLLOHAN. Right. Now, this March 1999 date, that is the date on which you expect to have all the results from the dress rehearsals in and be able to have a full understanding of what your resource needs are going to be to carry forward, with sampling or a traditional method, is that correct?

    Mr. DALEY. We would have the results from the dress rehearsals much earlier than that. We should have them in very early January. The agreement that was reached in the fall was for a five-month period in which a determination could be made as to how to move forward and which method to use if the Court did not rule and make a clear decision.

    Mr. MOLLOHAN. That is not the way I understand it. They are saying, if the sampling is okay, you go forward with it, but maybe there is a detailed agreement that I do not appreciate. But nevertheless, it is that date which you will be giving the committee detailed requests, and you are asking for a supplemental, I suppose, at that time, to fund your exact needs to carry on the census. So you will not even have that until a year from now.

    Mr. DALEY. Yes, sir.

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    Mr. MOLLOHAN. Thank you, Mr. Chairman.

    Mr. ROGERS. Mr. Skaggs.

    Mr. SKAGGS. I think I will pass, Mr. Chairman. Thank you.

    Mr. ROGERS. Mr. Secretary, thank you very much. We will recess today until April 22. That is, I think, a Wednesday and that is the first time after April 15 that we can find. So we will expect your report on the non-sampling enumeration plan on or before that date. If we get the plan before that time, we could always excuse the hearing. But in the meantime, we will recess until that date.

    Mr. DALEY. Thanks, Mr. Chairman.

    Mr. ROGERS. Thank you, Mr. Secretary.

    Mr. DALEY. Thank you, members.

    "The Official Committee record contains additional material here."

Wednesday, March 11, 1998.


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    Mr. ROGERS. The meeting will come to order. This afternoon we welcome representatives from the Commerce Department to discuss programs related to science and technology in the area of industrial competitiveness.

    With us today we have: Gary Bachula, Acting Under Secretary for Technology, testifying on the budget for the Technology Administration; and Ray Kammer, Director of the National Institute of Standards and Technology, to discuss the request for the NIST programs. Also joining us is the Assistant Secretary of Commerce and Commissioner of Patents and Trademarks, Bruce Lehman, to testify on behalf of the Patent and Trademark Office.

    The Fiscal Year 1999 budget request for the Technology Administration, National Institute of Standards and Technology totals $715 million, a $42.2 million increase over '98. In addition, the budget also requests advance appropriations for NIST for Fiscal Years 2000, 2001, 2002 totalling $115 million. At the same time, you request a total operating level of $785.5 million for the Patent and Trademark Office in Fiscal Year 1999 funded for the first time entirely through offsetting fee collections and a $94.5 million increase over Fiscal '98.

    Fiscal '99 will bring with it another year of budget constraints, despite what you read in the newspapers about a surplus, because the caps in the budget agreement are still in place. We want to know what your priorities are and what actions you are taking to streamline, consolidate, become more efficient.
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    We will begin with your oral remarks. We will insert your written statements into the record. We hope that you can keep your summaries to five minutes or so apiece. We will start with the Acting Under Secretary, followed by the Director, and finish with the Assistant Secretary. And so, Mr. Bachula, you may commence.

Opening Statement of Mr. Bachula

    Mr. BACHULA. Thank you, Mr. Chairman, members of the Committee. I appreciate the opportunity to meet with you today to discuss the Technology Administration's Fiscal Year 1999 budget request. In addition to Director Kammer, I am accompanied by Kelly Carnes, the Deputy Assistant Secretary for Technology Policy, as well as other members of the NIST team.

    The various components of the Technology Administration are all fundamentally concerned with the health of civilian technology in the United States. And if civilian technology is healthy in the U.S., so will be our economy.

    The President's statement in 1993 that technology is the engine of economic growth is clearly obvious today. Leading economists calculate that half of economic growth since World War II is a result of technological progress. The eight most R&D-intensive industries in this Nation have been growing at twice the rate of the rest of the economy.

    A Commerce Department study shows that individual firms that adopt new technologies grow faster, are more profitable, export more, hire more people, and pay higher wages than companies that do not adopt new technologies.
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    Today's economy is a product of innovation taking place at breathtaking speed. Technology is not only creating new products and services but whole new industries. And technology, particularly information technology, is rewriting the rules for all of the old industries.

    The result of all of that innovation is 14 million new jobs in the past 5 years, real GDP that grew 3.8 percent last year, unemployment at a 24-year low, and inflation at its lowest level since 1965. Perhaps most importantly, our Nation's investments in science and technology, some of those investments going back 10 or 20 or 30 years, are paying off in terms of productivity increases in the past 2 years, 1.9 percent and 1.7 percent, respectively, a recipe for higher incomes, better wages, and more economic growth.

    This record of prosperity has not gone unnoticed around the world. Nations in every corner of the globe have embraced technology for economic growth strategies. Like us, they recognize that sustained economic growth requires a consistent long-term investment in science and technology. They are rapidly expanding their scientific and technological capabilities, establishing an array of sophisticated technology policies, and expanding their public investments in R&D in order to retain and grow their domestic industries while attracting the engines of economic growth to their shores.

    So we must not be lulled into a false sense of economic security. Unlike in sports, there is no finish line in this race. Those that rest on their past successes will soon be passed, then supplanted by fierce, fast-rising competitors hungry for the economic benefits of market success. A failure to adequately invest in the emerging and enabling technologies that will underpin global commerce in the 21st Century might not be felt for years, but they inevitably would be felt. We must continue to invest to secure our future.
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    Let me turn briefly to our Fiscal 1999 budget request. The National Technical Information Service, NTIS, requests no appropriations again this year. As you know, NTIS is entirely funded from the sale of documents and services.

    The Office of the Under Secretary, which includes the Office of Air and Space Commercialization and the Office of Technology Policy, requests $10 million this year. Our core internal activities will stay flat at $7 million.

    The increase of $1.4 million will all go to expand the new EPSCoT Program. We thank the Subcommittee for providing $1.6 million in Fiscal '98 appropriations to start up EPSCoT.

    We are completing an internal review of a proposed request for proposals for the Federal Register and an accompanying implementation plan that the report language requires we bring to you before we move forward. It is my hope to bring this implementation plan to the Subcommittee within the next few weeks.

    In this budget, NIST represents $715 million, 98.6 percent, of all of the Technology Administration's request. And I will let Director Kammer elaborate on the components of that request.

    Mr. Chairman, the American economy today is a gold medal winner. But, unlike the Olympics, the competition never ends. The competition among nations is to attract and retain the engines of wealth creation that increasingly skip around the globe looking for the best opportunities. At its core, this is a competition for investment capital, technology, business activity, and the jobs that come with them. In today's global marketplace, technological leadership means the difference between success and failure for companies and countries alike.
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    Our challenge is to prepare ourselves to seize the opportunities and create fertile ground for economic growth with a healthy business climate, a modern infrastructure, a world class workforce, and a strong base in science and technology. We believe that the Technology Administration makes an important contribution to that vital base.

    Thank you very much.

    Mr. ROGERS. Mr. Kammer.

opening statement of mr. kammer

    Mr. KAMMER. Thank you. Chairman Rogers, Mr. Mollohan, Mr. Skaggs, it is an honor to appear before you today.

    I have testified before this Committee before but never as Director of NIST. I am immensely proud of NIST and immensely proud of the new job that I now have.

    In order to keep NIST the high-quality institution which indeed it is today, I see five challenges that NIST needs to address. The first of these is to maintain our world leadership in measurement and standards in order to support the U.S. economy. The second is to ensure that product standards and practices are in place to support full U.S. participation in global markets. The third is to continue to build a consensus on ATP. The fourth is to expand the Manufacturing Extension Partnership services so that more small and medium-sized companies have access and also to remove the sixth year sunset on MEP. And then, finally, the fifth is to secure permission to begin Malcolm Baldrige quality awards in health care and education.
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    As the Chairman pointed out, we are requesting a total of $715 million, which is a net increase of $42 million. Of that, $291 million is for the Measurement and Standards Labs and the Quality Program, $367 million is for ATP and MEP, and $57 million is for construction.

    Within the Measurement and Standards Labs, we are asking for $5.9 million in adjustments to base; $2 million in semiconductor metrology to continue to respond to the merciless demand for better and better measurements in the electronics industry; $7 million for climate change to aid U.S. industry in reducing the consumption of energy, which would have a benefit on the climate but would also have an enormous economic benefit; $3 million for disaster mitigation to help identify and spread technologies that would allow the U.S. infrastructure to better survive disasters, such as floods and earthquakes; $4 million for international measurements and standards to aid U.S. industry in more successfully seeing their technology reflected in international standards; and then $57 million for construction and maintenance.

    As the Chairman pointed out, we are requesting advance appropriations language that would allow us to commit to build an Advanced Measurement Laboratory that would cost $218 million and take 44 months to build.

    In addition $2.3 million also would be the cost of initiating the health care and education awards. At the same time, a private foundation would raise $15 million as an endowment to support those 2 areas; and then for ATP, an increase of $67 million, for a total of almost $260 million over a base of $192.5. This would allow $94 million in new program awards as well as pay the mortgages on previously committed program awards.
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    Finally, in the MEP Program, we actually have a reduction in money of $6.7 million from $113.5 to $106.8 million. That is not actually a reduction in level of effort. We continue to support the same number of centers. However, as the centers mature under the legislation, the U.S. Government support is envisioned to go from half down to a third. This is just simply the natural maturation of those centers as they go down to a third support for the Government.

    So thank you all for your attention.

    Mr. ROGERS. You may proceed.

opening statement of mr. lehman

    Mr. LEHMAN. Thank you very much, Mr. Chairman and Mr. Mollohan and Mr. Skaggs.

    First, I would just like to put our request this year in context and remind the Committee of a few points that I am sure you are well aware. That is that the Patent and Trademark Office is really not what I would call a programmatic agency. In other words, I do not think anybody questions whether we should have the Government issue patents and examine and register trademarks. It is not really a discretionary question.

    The real question is: Are we going to do this job well, and are we going to give the fee payers, since we receive no tax revenue, appropriate services for their money?
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    I like to think of the Patent and Trademark Office as a vital organ of the U.S. economy. If you think about it, it is like the stock exchange. We would not be able to have the market economy if we did not have a stock exchange. We would not be able to have a market in technology, and we would not be able to transfer the technology to the private sector that Mr. Bachula talked about and get private sector investment in new technology if we did not have a patent system. We would not be able to have businesses that can present products to the customers if we did not have a trademark system. So our doing that job in a timely manner and in a quality manner is a very, very important predicate to business growth and opportunity in the United States.

    So, with that in mind, we have presented requests to you this year for total operating costs of $785.5 million. That is an increase of $94.5 million over the enacted 1998 budget, but that is going to be $116 million less than the fees we receive.

    So, getting back to your opening statement, Mr. Chairman, where you talked about the fact that we are not completely out of the woods budget-wise and everything, we are proposing to help contribute to that goal of keeping the U.S. budget in balance and more than in balance by contributing $116 million of our fee revenue to balance the budget for 1999.

    Now, I do want to make a very important point, though. That is only a request for 1999. And we get back to another point as to how we will treat this in future years. I am not sure that we can promise that we will always have $116 million as we continue to serve our customers, but we believe we can make that contribution in 1999.

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    Now, with the budget that we have requested, we will be able to reduce the processing time for patents for original inventions to 12 months processing time. And that is extremely important because in the last couple of years, we have seen the pendency for patents go up. In fact, it has gone up from about 19 months to about 22 and some months.

    That is not catastrophic, but if it starts to get more than that, we are going to have a problem. That means three months between when an inventor gets a patent and he can go out to the commercial financial marketplace and get financing to make his invention into reality in the marketplace. So we have to always watch that figure, and we have a program to bring that down in 1999.

    Also, we are going to test reengineered processes and automated systems. And we are going to prototype a system that we believe will be able to deliver electronic processing of patent applications in the Year 2003. That is a very important project for us because a lot of the problems that we have right now and a lot of the mistakes we make in the Patent Office are because when you have volumes and volumes and volumes of paper, it is easy to make a lot of mistakes. Applicants do not get the right information to us, information gets lost, and so on. It is a big management problem.

    When you move to an automated patent examining system, you will build a lot more efficiencies into the system. You will eliminate mistakes. And we will give the U.S. high technology community much, much better service. In order to keep up with just the growing volume of our work, we are going to have to do it anyway. So that is a very important project for us.

    Also, in 1999 we intend to reduce trademark processing time to three months for a first action, and we will offer electronic filing capabilities to our customers. We have actually already begun to do that, and we want to expand that program and get more people filing electronically.
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    We are also going to be partnering with the World Intellectual Property Organization, the international organization in Geneva that administers the world patent system, to achieve electronic filing of Patent Cooperation Treaty applications. That is where you want to file in other countries and get patent protection there. You can file in our office. The application goes to Geneva. And then it is shipped out to all the rest of the countries that you want to file for a patent in. Right now that is a paper process. It is very slow, very cumbersome. We want to speed that up.

    You all read in the papers a lot about piracy. One of our most important trade assets is our intellectual property. If we do not get patents issued in a timely manner in other countries, we have piracy. So the predicate is to improve that system.

    Now that we have gotten most other countries in the world to introduce patent systems as a result of the WTO Treaty and so-called TRAIPs provisions, Trade-Regulated Aspects of Intellectual Property, it is very important just to follow up and get these international patent systems working properly.

    We also want to enable our customers to make use of the internet to deal with us. And so we are including in the 1999 budget funds so that patent applicants and trademark applicants will be able to request the status of their applications on the Internet. They will be able to place orders and receive information products, and they will be able to access our patent and trademark data when they are in a Patent and Trademark Depository Library.

    And, finally, we want to offer our PTO employees better training programs to enable them to transition from a paper-based system—and that is a big management problem that we are facing right now—to a technology-based work environment.
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    I want to just bring two other issues to your attention, other than these programmatic issues, Mr. Chairman and Members. One is, as you may know, our leases on our facilities in Crystal City have started expiring. We are on month-to-month tenancies. And so we have got to do something about that. We have issued an RFP, and we have people applying to meet that need for new space for the PTO.

    There is a lot of, I think, misinformation about this. We are not building a new building. We are in rented space. Our leases are expiring. We have to get new space. The goal is that that space will be less expensive than the current space.

    Finally, I just want to make a point about the so-called surcharge fund. As you know, in 1990, when the Patent Office was placed on full-fee funding, the taxpayer contribution was completely eliminated. The portion that was to have been ultimately the taxpayer contribution to the PTO was called the Surcharge Fund.

    Since that was, at the time, thought to be perhaps a temporary move, there was a termination date on the fund of the end of 1998. And so the Surcharge Fund will be eliminated unless it is reinstated by the Congress.

     We think it is absolutely vital to do that. We have enough money probably to see us through in 1999. As I said, we are giving money back to the Treasury. But if we go beyond that, we will start to have very serious problems because it was always contemplated that there would be this money. It was originally going to be a taxpayer share. It is now not going to be a taxpayer share.
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    And I do not think I need to go into the merits or lack thereof of that, Mr. Chairman. We are all sensitive to the need to keep the burden on the taxpayers very low.

    I am sure you may have some questions about some of those individual things that I discussed. And I would be happy to follow up with you on any of those.

    [The following information was submitted:]

    "The Official Committee record contains additional material here."


    Mr. ROGERS. Yes. Now, Mr. Kammer, your whole budget request is a gimmick. Yes, the President's budget proposes increases for NIST programs, but you propose to pay for those increases with money from the tobacco settlement and other mandatory changes.

    Suppose for a moment that tobacco settlement monies do not show up. How do you expect us to pay for those increases you are asking?

    Mr. KAMMER. Sir, I am not an expert on this, but my understanding is that, even in the absence of the tobacco taxes, there would still be $9 billion available in surplus. The priority-setting challenge would be significantly fiercer, obviously.

    Mr. ROGERS. Are you talking about the money we are saving for a Social Security fix?
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    Mr. KAMMER. That is my understanding, yes sir. I am not an expert on this, though. I am very reluctant to comment. Macro budgeting is not something I know a lot about.

    Mr. ROGERS. But the money you are talking about, if we do not do the tobacco settlement, the only other monies you could be talking about are the monies the President wants to save for Social Security; right?

    Mr. KAMMER. I do not know enough to answer that, sir.

    Mr. ROGERS. Well, where do you propose we get the money? Just give me a source. I mean, believe me, I would love to know about it.

    Mr. KAMMER. You are above my pay grade, sir. I really do not understand that well enough to comment intelligently.

    Mr. ROGERS. Well, the proposed offsets that you are proposing are not within the power of this Committee or Subcommittee to make happen.

    I do not think we are likely to see the kind of revenue you are talking about coming out of the proposed tobacco settlement. And so your budget is already shredded if that does not happen. So what are we to do?

    Mr. KAMMER. Sir, the policy for the overall budget is set by the President, folks in OMB, folks in Treasury, not by me.
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    Mr. ROGERS. So these are not your numbers? These are the finance numbers?

    Mr. KAMMER. Well, they come from the leadership of the Executive Branch, yes sir. I do not know whether that is the White House or OMB or what.

    Mr. ROGERS. Yes. They are not your figures?

    Mr. KAMMER. Not the offset, sir. I am not knowledgeable about that.

    Mr. ROGERS. You just know how to spend it? You do not know how to get it?

    Mr. KAMMER. Well, it is my job as a program manager to operate programs, yes sir.

    Mr. ROGERS. Well, I mean, we are facing huge money crunches in our Subcommittee this year. We have got to find hundreds of millions of new dollars just for the Census Bureau. So we either have to deny all of the increases that you have requested or we have got to cut some other programs to find the money to make it happen.

    So what do you suggest we cut in order to fund the increases?

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    Mr. KAMMER. Again, sir, we are now talking about strategy either in the Department or across the Government. And I just do not have any governance over that.

    Mr. ROGERS. Well, within NIST, what can we cut in NIST, then, to make up for what you want to increase?

    Mr. KAMMER. The actual programmatic expansion, as I am sure you know, that we are proposing is $92 million. And we have proposed offsets of $50 million, primarily from a reduction in the construction program that would be possible if you all see your way clear to the advanced appropriations.

    There are also $4.5 million in reductions in STRS and about $6.7 million in MEP. Those were the result of careful thought on our part to provide some offsets.

    Mr. ROGERS. I do not know when OMB or whoever writes up your budget will learn how to do their job. I mean, they send up these crazy schemes up here that are dependent three times deep on things happening that never happen around here.

    And then they have to at the last second go somewhere and try to scratch around and find the dollars to fund whatever they want to do. It is just a process that is counterproductive, finally winds up at markup time that we have to just toss out all of your requests and start from scratch and do it ourselves. And you lose all input in the process.

    I do not understand why you want to do that. Give me some help.
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    Mr. KAMMER. Again, sir, I am simply not knowledgeable about the macroeconomic policies.


    Mr. ROGERS. Well, NIST construction. Again, I think they are trying to get us. NIST construction. If all of us have told you all one time, we have told you 100 times—we do not do advance appropriations here. We are not going to appropriate monies two, three, four years down the pike this year. We just do not do that.

    And you continue to come up here and make your plea based on advance appropriations. And you are doing it again this year on Construction. You are proposing $92 million in program increases for NIST, not a single penny for construction. In fact, you are proposing to cut money out of the Construction account in order to fund increases in other NIST programs, primarily the ATP Program.

    And so the Advanced Metrology Lab obviously is not as high a priority as NIST claims because you are taking that money. What have you got to say about that?

    Mr. KAMMER. The notion of our proposal was that it will take 44 months to build the Advanced Measurement Lab. And our thought was if we got the money in increments as we went along, along with the authority to start, that it would be easier on everybody.

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    The truth to be told, if we were given the whole $218 million today, most of it would not spend for several years. So that was our notion. We may need——

    Mr. ROGERS. Well, you know we have never done that on anything. And I have told you that. We have told you that we do not do advance appropriations. We always appropriate enough money year to year until you get enough to get started.

    You knew we would not do that, did you not?

    Mr. KAMMER. There are quite a few proposals I think in this year's budget across Government to try and use this concept, which I hoped there might be a dialogue and we might be persuasive.

    Mr. ROGERS. Well, you have not. We can have a dialogue, but you are not going to be persuasive. You may be persuasive, but you are not going to persuade successfully for advance appropriations. We do not do that, cannot do it.

    You have to make choices. You are hiding behind a gimmick that allows you to not make hard choices. You have got to choose. If you want something, you have got to pay for it. And you have got to give up something for that. So we want your priorities.

    Funding for NIST facilities has got to compete with funding for other NIST programs, simple. You have got to give us a realistic and fiscally sound plan for meeting your facilities' needs, no budget gimmicks. If you want it, you have got to pay for it. But I do not think you get it.
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    Last year we gave you $95 million, $78 million more than you requested, and a chance to redeem yourself after the fiasco of the previous years where we were knowingly misled by NIST about your programs.

    All we asked for was a sound plan that reflected your priorities. That is not what we got. So what can we do?

    Mr. KAMMER. Well, the current set of priorities in our budget was formulated obviously in consultation with the Secretary of Commerce and the folks at OMB and others. And this would be a pretty fundamental change to not have the notion of advance appropriation language, and I would need to consult with my bosses before I could articulate any other priorities.

    Mr. ROGERS. We have been telling this for years. This is not a new item. There is no headline to say ''Congress Changes Mind on Advance Appropriations, Will Now Allow It.'' The headline is ''Congress Again Says No to Advance Appropriations.'' I mean, it is not going to happen.

    You have known that for years. The Secretary's office has known that for years, as has OMB. And they insist upon gimmicking up their budget request. It just means that we are going to have to toss the whole thing in the wastebasket and come up with our own scheme and lose the expertise that we are paying for to have. I think that is tragic.

    Mr. Mollohan. Maybe you can solve this problem.
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    Mr. MOLLOHAN. All right, sir. Why are you asking for an advance appropriations?

    Mr. KAMMER. Because we do not need all of the money at once, but we need authority to enter into the full contract. If we were to——

    Mr. MOLLOHAN. The authority is tied to the money?

    Mr. KAMMER. Yes, definitely. In the Federal system——

    Mr. MOLLOHAN. Do you have to have the money banked in order to be able to move forward to construction? You would have to collect the money over a number of years, as the Chairman indicated?

    Mr. KAMMER. Yes, sir.

    Mr. MOLLOHAN. So why do you not do that?

    Mr. KAMMER. Well, that is the alternative. It is an enormous——

    Mr. MOLLOHAN. Would that not answer the Chairman's question, then?
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    Mr. KAMMER. It would certainly be consistent with the approach that he prefers, which is not to have an advance appropriation. I do not know of a third alternative.

    Mr. MOLLOHAN. Who in the Congress advocates advance appropriations?

    Mr. KAMMER. There is one instance, I believe, in the 104th Congress where NIH I think got advance appropriations. The reason I am saying ''I think'' is we just found it this morning, and it has a complicated legal citation. And we did not have time to follow the citation out.

    Mr. MOLLOHAN. You were trying to get prepared for this line of questioning here today?

    Mr. KAMMER. Yes, yes.

    Mr. MOLLOHAN. So if you are not going to get advance appropriations for this purpose, it does not sound like you are——

    Mr. KAMMER. I think the alternative at this point is probably to——

    Mr. MOLLOHAN. You are going to have to come——
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    Mr. KAMMER. Well, we have got about $70 million from the '98 appropriation, but that would still require an additional appropriation of $108 million, which is an awful lot. So it would probably be over a couple of years.


    Mr. MOLLOHAN. I do not know whether that helps or not, Mr. Chairman.

    Why do you have a $13.1 million unobligated ATP balance?

    Mr. KAMMER. The $13.1 million all arises from cases where we have obligated money to a grant and then in the course of the execution of the grant, either there was good news and they finished early or there was bad news and we concluded they were never going to finish and we thought we ought to stop it.

    Mr. MOLLOHAN. So it is not that you did not attempt to obligate the money?

    Mr. KAMMER. No. The money was actually obligated. And then we deobligated when we either were very satisfied with the performance, they did it cheaper than they promised, but the more likely case is ''Gee, we just do not think this is going to work'' or ''You are not reaching your milestones, and we had better stop.''

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    Mr. MOLLOHAN. Last year the Secretary proposed some changes in the way ATP awards were considered. I am essentially referring to the focused approach versus a general approach. Could you discuss those changes, what they mean? And have they been implemented?

    Mr. KAMMER. To give you the short answer first, yes, they have all been implemented, but let me tell you what they are. Secretary Daley instructed us to do a full review of the program. He then personally deliberated on possible changes and concluded that we should do more to encourage state participation in ATP, both planning and possible awards.

    We want to emphasize joint ventures and consortium awards and individual vendors less. The large single company applicants go from a 50 percent match to a 60 percent match so that they are bringing up the majority of the money, by some extent at least. Large companies were defined as the Fortune 500 and build better links with the venture capital community. We also require each applicant, when they make their application, to disclose what efforts they have made to secure private venture capital in order to reduce the likelihood that we are competing inappropriately with the private venture capital world. Then, finally, a program that Mr. Bachula is actually responsible for his studies concluded that it would be a good idea to proceed with the experimental programs and experimental technology, which is outside——

    Mr. MOLLOHAN. I did not hear that. I am sorry.

    Mr. KAMMER. The final conclusion of the study was to decide to proceed with EPSCoT, which is the program that is managed in Mr. Bachula's office.
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    Mr. MOLLOHAN. What about this general competition versus focused competition?

    Mr. KAMMER. That was considered in the course. The question was posed: Should we just do general? Should we just do focused? Should we proceed as we currently are and do one or two general programs a year?

    Mr. MOLLOHAN. And that was not a part of the Secretary's recommendation for——

    Mr. KAMMER. But he did consider it in the study, and it was in the documentation itself. The conclusion was let us stay where we are, keep doing it the way we are doing it.

    Mr. MOLLOHAN. Will you stick to this way of considering these proposals, the general competitions and the focused competitions?

    Mr. KAMMER. Sure. A general competition is a competition that anybody can enter. And their ideas compete according to a set of pre-stated criteria. The results are, we hope, that the best, the most economically potential, high potential, projects are selected.

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    In the case of a focused competition, what we do is we consult with private sector groups. We get their ideas. And eventually we put some boundaries on what might be proposed.

    A recent interesting focused program was tissue engineering. In this case, it was technologies that would facilitate replacement of human body parts from artificial sources, as opposed to from other bodies, from donors. Within that set of boundaries, then, anybody could make any proposal that they wanted.

    The notion was that if you advertised once and you got some proposals, you might wait a few years. Advertise again in that same area, readjusting the boundaries a little bit based on what you have learned, and you might be able to push ahead the technology a lot more successfully than you can when you are just sort of taking everybody's proposal.

    I do not today know which is the superior approach. I view it as an experiment.

    Mr. MOLLOHAN. When did you start, with this fiscal year?

    Mr. KAMMER. No.

    Mr. MOLLOHAN. '98 or——

    Mr. KAMMER. No. The first time there were focused programs was 1994, the end of '94.
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    Mr. MOLLOHAN. So you have had an experience with them.

    Mr. KAMMER. Right, from '90 to '93 those were all generals. And starting in '94, we have done typically $20 million to $25 million general and the remaining money available to us for new programs and focused programs. So our oldest focused programs are about three and a half years old at this point.

    Mr. MOLLOHAN. Do you have an opinion on which approach yields the better result?

    Mr. KAMMER. I think that the focused programs so far have worked well in the sense that I like what I am seeing, but I cannot give you outputs the typical run of time because we are focusing on pre-competitive technologies, rather than technologies that would create a product right away. You would expect that you are seven years, perhaps more, away from the results.

    Mr. MOLLOHAN. You are judging it in terms of outcome.

    Mr. KAMMER. Yes.

    Mr. MOLLOHAN. That is my next question.

    Mr. KAMMER. Yes. I think you measure process as much as you can because it is what you have got to measure, but you really have to judge by output in my opinion.
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    Mr. MOLLOHAN. Yes. I think you do, but there are also some serious process issues here, too. The focused concept sounds a little elitist to me. Who gets invited to participate?

    Mr. KAMMER. We do public notices. We then go around the country because we are worried about geography. You know, you do not want only an East Coast Program. So we will hold workshops on a focused program as we are thinking about it.

    Mr. MOLLOHAN. How do you choose the topic?

    Mr. KAMMER. We invite proposals. And often industry associations will coalesce the views of members of their association and try and make a proposal and try and interest the community. The kinds of arguments they have to make are ''It would not happen without ATP,'' ''economic potential,'' ''pre-competitive,'' ''a lot of technical opportunity.''

    Mr. MOLLOHAN. You mean the kind of arguments they make to get the particular——

    Mr. KAMMER. Right. And it is sort of a competition at that level, too. And you do not even then know who is going to win if we even chose that. Maybe none of the firms that advocated it would win. You just do not know.

    Mr. MOLLOHAN. The focused versus the general, what effect does either approach have on the participation of smaller companies in the process?
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    Mr. KAMMER. We are finding that in both general and focused, the participation is 41 percent for smalll individual companies. Another 13 percent of the consortia are led by small companies. So it is 54 percent of the endeavor, if you will, of the number of awards we have made. We have made 352 awards at this point. So a little over half are led by small companies or consortia.

    Mr. MOLLOHAN. Thank you, Mr. Chairman.

    Mr. ROGERS. Mr. Latham.


    Mr. LATHAM. I was just curious. Under the Manufacturing Extension Partnership, you had assisted 22,000 companies. Do they look to you for any expertise as far as the Year 2000 problem or is there any——

    Mr. KAMMER. One of the things that we like to talk about with small companies is Year 2000. We have quite a bit of information at NIST. We actually first created the technical methods for addressing the Year 2000 problem and made them public in 1985.

    A lot of small companies are not particularly automated, which in a sense I guess is good because it means they are not going to be subject to much harm in the Year 2000, but they are also fairly naive about it.

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    I was talking with another representative recently, and that individual told me that she had asked at a Chamber of Commerce meeting in her district what they were doing about Year 2000. The answer was ''Not much.'' She then asked us to go in, as we are doing, and familiarize them with the issue.

    NIST has created two public domain tools for Year 2000, one of which will identify places in your software if you have elaborate software, where the date is stated and also the dependencies on that, and when you encounter a date, what do you do? And it will give you a map, even if your software is not documented.

    We have another tool that if you have done a fix it will go in and test. What we do not have is a tool that will fix it because everybody runs their software differently. And there is no generic tool. We can help a lot.

    Mr. LATHAM. How has your agency done?

    Mr. KAMMER. With respect to Year 2000, we have identified all of our critical systems. And we either have fixes underway or they are fixed. And I am feeling very comfortable that we will be done by the end of this calendar year. I would like to make sure that it is done early. One little known fact is that people used to not only use the 00 for other things. They use the 99 for other things sometimes, too.

    Mr. LATHAM. Like what?

    Mr. KAMMER. Well, the reason why this problem arises is in the '50s and '60s and even somewhat in the '70s, memory was short. So nobody thought their software was going to live 40 years or something. So they would use 00 for some other purpose. Well, they sometimes would use the field 99 for another purpose, too, just to save a little bit of memory. Our software goes back to the '50s for our accounting system, and I want to make sure everybody gets paid. So I want to get it done before '99.
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    Mr. BACHULA. In fact, September 9th, '99, 9–9–99, is another place where apparently codes have been put into computers that would cause some significant problems.

    Mr. LATHAM. So we are going to have an early test?

    Mr. BACHULA. We may have an early test.

    Mr. KAMMER. And not necessarily a welcome one.

    Mr. BACHULA. I would just hope that is not a payday for any of us.

    Mr. LATHAM. You have not come from Agriculture. Of course, they have got one agency over there that just took delivery the past year or so of a system that is not Year 2000-compliant. Hopefully you have not done the same.

    Mr. KAMMER. Now, at NIST, we were aware of this problem in the '80s and actually promulgated an ANSI standard, an actual standard, that was approved in 1985. So it was really started earlier than that.

    It is not that easy right now to buy a system that is not 2000-compliant unless you are buying something out of a warehouse at a real bargain so it is kind of old.

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     Mr. LATHAM. I think we have a huge problem in Government, the same as with a lot of small business out there——

    Mr. KAMMER. Oh, yes.

    Mr. LATHAM [continuing]. That is going to be a disaster.

    Thank you, Mr. Chairman.

    Mr. ROGERS. We are going to crash up against the resistor ceiling in 9–9–99. And we will all in a flash be back with the advocates trying to count our way back out of this thing.

    Mr. KAMMER. I personally am planning my travel to not be in an airplane on certain selected dates.

    Mr. ROGERS. Mr. Skaggs.

    Mr. SKAGGS. Thank you, Mr. Chairman.


    Mr. Lehman, we have touched on sort of the international competitive environment that is particularly pertinent to your work. I am just wondering: How do we stack up with the system that you administer relative to our nearest international competitors in the maintenance of intellectual property protection? What can we learn, if anything, from abroad? And, again, what are, the biggest international challenges you face, and are you equipped to deal with them?
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    Mr. LEHMAN. Well, first of all, I would say that we are, generally speaking, the paradigm for the world. We have had a Patent Office since 1790. It is part of our Constitution. And one of the reasons that this country has always been the technological powerhouse, not just now but back in the 1870s, 1880s, is because we have a patent system.

    Long before there was a penny in Government money that went into research, the patent system provided the incentive for the private sector to invest in technology. So we have always been the paradigm for the world, and we still are.

    You know, you have to keep up with the times. You have to constantly modernize your system. We would not want the 1790 patent system anymore. And so we have various proposals in Congress. The House approved legislation (H.R. 400), last year to modernize our patent system. But those changes in many respects are very minor. I would say, by and large, we have a very, very good system.

    American competitiveness is reflected in patent filings. There are only two patent offices in the world where the majority of patent filings come from nationals of that country. And you can guess. That is the United States and Japan.

    The United States is the largest single filer of patent applications in most of the patent offices of the world other than the nationals of that country. And there are only two major patent offices, I believe, in the world where we do not exceed the nationals of that country. And that is Japan and Germany. The European Patent Office, which is the Pan-European Patent Office (EPO), has the U.S. as the largest single national filer. We had a 15 percent share last year of patent applications filed with the EPO.
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    One of the problems that I always have with the Committee is we sometimes are not totally clairvoyant about what is going to happen with our revenues. And that is because we are like a business. You know, I mean, ironically we want business to boom.

    Well, business boomed last year. We have a 15 percent increase in patent application filings. I think that is a statistic that goes along with all of these other economic statistics basically that Mr. Bachula cited at the beginning of his testimony.

    That boom in applications is not attributed to Japanese applications or German applications. These applications are from American citizens. It is very heavily coming out of Silicon Valley. It is very heavily coming out of the information technologies in which the United States is the unrivaled leader in the world.

    So I think that we in the Patent Office have a good story to tell because it is good for our whole economy. The problem that creates for us, for the Committee, and for us in the Commerce Department is we have to keep up with that. We do not want to let this good thing that we have going deteriorate because it is a vital, vital element of pumping private sector investment into the economy.

    I think we have not fully appreciated that a lot of U.S. technology was driven probably from 1939 to the end of the Cold War by direct Government investment, which was largely defense-oriented and NASA-oriented. But we are moving away from that now. That is part of our getting a balanced budget.

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    We are still pumping Government money. That is what the NIST programs are about. And, by the way, we use that patent system to transfer Government technology to the private sector. When the Government funds basic research, it is very much undone. That is not a product we can put on the marketplace.

    And so we use the patent policy administered by Mr. Bachula's office. We use Government patent policy, then, to send over the private sector innovations to the marketplace. And then people will be able to use the Government patent to invest in what remains to be done.

    I think the patent system is ever more important now because the percentage, frankly, of Government investment in technology is going to decline. And, therefore, we are going to have to have a very powerful private sector investment.


    Mr. SKAGGS. Mr. Kammer, back to the ATP Program. Even though I respect and understand your caution that until a few more years have gone by, things may not have played out in a way that gives you the best measure of success, I would hope that at this point some of the early investments might have produced a couple of ''Gee whiz'' kinds of stories that you can share with us and perhaps some ''Oh, my God'' stories that you can share with us, too, that will help us get a better take on this program, which continues to have a certain profile here. So I wondered if you would indulge us with that, recognizing that they may not have come to full maturity yet.

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    Mr. KAMMER. Well, I have one.

    Mr. SKAGGS. And things, please, that passed the ''But for'' test: ''Had it not been for ATP, we can be pretty sure this would not have happened.''

    Mr. KAMMER. There is something called the two-millimeter project, which was started in 1992. And the Government has put up about $20 million. We are matching funds from a consortium that had eight small companies in it, two universities, and two of the big three auto companies: GM and Chrysler.

    The intent here was the two-millimeter referred to fit and finish. Can we make a car that is very aesthetically pleasing that does not develop rattles and shakes and the like? And we will do that by a tolerance that is very tight.

    The real challenge here is to be able to project that onto your suppliers. I mean, the motor companies do not make most of their parts. They buy them from third and fourth tier manufacturers and small and medium-sized companies, which constitute most of the manufacturers in the United States.

    The project was successful. This year you can buy a two-millimeter car from Chrysler. And it is incorporated in all of the GM cars as well that will come out I think next year. We hired some economists to go in and take a look at this and to talk with the motor companies because they were the best people to ask. They are very comfortable saying that it was the ATP program that caused this to happen, that they do not believe that they would have been successful otherwise.
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    The estimated benefit in the Year 2000 in terms of quality improvement by the economists now—and this is a little prospective; this is '98, it is not 2000, but it is not too far off—is $3 billion.

    I take that as I have seen the product. It is in the product. You know, I at least know that much. I do not think it is irrational to expect that customers will buy a better product. This is certainly a characteristic I react to in a product, in cars. So it seems likely.

    We also have a process measurement that we did. We have got 352 projects underway. We gathered up the first 210 and we went in and we said: Well, they have all been running at least three years. Let us see what is going on, see if they have got innovations.

    For these 210 projects, we identified a little over 1,000 innovations. More importantly, there were 800 commercialization plans. And, striking to me—now, this is identified by the holders of the intellectual property, and, as Bruce said, the manifestation of this, how they make the money, is then they patent it. The holders of the intellectual property said in 29 percent of the cases that the innovation that they were now intending to commercialize was an improvement over current practice in the marketplace by 100 to 500 percent. Now, this is their estimate, not mine, and may be overly sanguine.

    Again, I will feel better when I can come back and say, ''We have increased markets, U.S. market share. We have pushed back foreign competition. And here is the product. I would like to show you one, and here is what it sells for.'' We are not quite at that stage yet but pretty close.
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    Mr. SKAGGS. What is the biggest ATP flop? And what were the lessons learned that improved things prospectively?

    Mr. KAMMER. One of the first projects that we supported was a lithography company to make lithography equipment. And it was one of the four or five attempts that have been made by the United States government and by consortia to bring that technology back from Japan. The lithography equipment is Japanese, and the practice of U.S. business is to use Japanese equipment because it is the best.

    It was a sort of a technical success and a complete business failure. And the lesson there is do not get blinded by the technology. And when you have a bunch of technologists, that can happen.

    It was an elegant solution. It was appealing. I was actually the selecting official for that. I started the ATP program. I thought at the time it was just great, and I was just completely wrong.

    Mr. SKAGGS. Thank you, sir.

    Mr. BACHULA. If I might just add a couple of pieces of information to what Director Kammer just mentioned? In that auto body project, the two-millimeter project, one of the interesting things that I learned is that the consortium that was formed, which included two large auto companies and some suppliers and universities, ultimately most of the technical work was done at the University of Michigan School of Engineering.
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    There is a little understood fact that in these consortia, there was a lot of attention obviously on the large companies that get named as part of these. Very often they are there because they are the ultimate customer of these technologies and they need to be there as the customer in that supply chain to define the work. The work very often gets done in the university lab. There are over 100 universities participating in ATP projects today.

    The second item is that we are now looking at the potential for using technology developed for a better fit for cars in other industrial arenas, such as the manufacture of office equipment because the fit and finish technology would have the same applicability in making other kinds of products or perhaps refrigerators or so on. So it is possible that the economic benefits may even be greater.


    Mr. ROGERS. Mr. Kammer, what is the total amount of the new ATP awards you plan to make in Fiscal '98?

    Mr. KAMMER. Fiscal '98 is $82 million, and Fiscal '99 is $94 million.

    Mr. ROGERS. Well, then your request for Fiscal '99 is wrong. The request assumes you make more new awards than we provided for in the Fiscal '98 Act.

    Mr. KAMMER. Yes, sir. Yes, sir.
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    Mr. ROGERS. And as a result——

    Mr. KAMMER. As a result of consultation with this Committee and the Senate Committee, we concluded that the appropriate thing to do was make $82 million in awards.

    Mr. ROGERS. So you have got $20 million——

    Mr. KAMMER. Yes, sir.

    Mr. ROGERS [continuing]. In excess funds that you no longer need?

    Mr. KAMMER. That is correct.

    Mr. ROGERS. We seem to keep having this problem, if you call it a problem.

    Mr. KAMMER. Well, it arises from a good thing. We are managing the projects. And when we are not satisfied with the progress, we stop. We give them a timeout and tell them to rethink it and come back and try again.

    Mr. ROGERS. I know, but we could use that $20 million in other places.
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    Mr. KAMMER. And we have advised you of it, sir. And we presume that it will be used.

    Mr. ROGERS. Yes, but it is always after the fact. You give us numbers for ATP. And then we provide you the monies. We find out later all the money was not needed. And there is excess money laying around. We have need for that excess money all of the time.

    Mr. KAMMER. We are doing our best to apprise you when we know.

    Mr. ROGERS. So let us talk about your Fiscal '99 request, then. How hard a number is that?

    Mr. KAMMER. Well, in each case that we make an obligation for a project, the largest amount of money that we are ever likely to spend is the amount we say on the first day because we will not let them overrun that. So that is the highest it can be.

    If we do our job right and we manage them carefully, either for good reasons because we are able to cause them to finish early or for unfortunate reasons because we recognize that they are failing or not fulfilling the promises they made, it is our job, then, to take the money back.

    I think that is going to keep happening. It is generally a good thing. It is a frustrating thing from a budget management point of view, but it is a good thing from a public policy point of view.
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    Mr. ROGERS. Well, it just seems to me that you could provide better information about how much you need year to year and how much you need to pay for ongoing commitments. In fact, the entire $20 million excess is caused by that problem. It is not the first time we have had it. It happens every year. These are tight budget times, and we need to have good, solid numbers from you.

    Now, what actions do you plan to take to do a better job of estimating true funding requirements?

    Mr. KAMMER. Well, my thought is with the number of projects that we have started now and in some cases finished, we have what amounts to a reasonable basis for estimating. My thought is to go back now retrospectively and see how many underspent and by what percentage and see if that will give me the ability to make a predictive statement.

    Mr. ROGERS. Yes. Let us get that for the record.

    Mr. KAMMER. Okay.

    Mr. ROGERS. Let us get a hard number for the record. And I want that before we go to markup. So April 15th sounds like a good day. Is that okay?

    Mr. KAMMER. April 15th is fine.

    [The information follows:]
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    "The Official Committee record contains additional material here."


    Mr. ROGERS. Commissioner Lehman, your budget request assumes that the authorizing committee of the Congress and the whole Congress will enact new fees, which is supposed to generate an additional $182 million for Fiscal '99. At the same time, you propose a $116 million rescission in the prior year funds to offset discretionary spending.

    Describe for us the Administration's proposal on fees that they are asking the Congress to enact.

    Mr. LEHMAN. Mr. Chairman, I touched on this briefly in my opening statement. I think that to say that we are proposing new fees is a little bit inaccurate. What we are proposing to do is continue the existing surcharge system.

    This all goes back to the Omnibus Budget Reconciliation Act (OBRA) of 1990. Up until 1990, the taxpayers all throughout history funded part of the operations of the Patent Office. And that varied. It actually had reached in the early 1980s, about 1980–81, a situation in which fees were only accounting for 25 percent of the Patent Office revenue and the taxpayers were footing the bill for 75 percent. That created a serious problem in resources.

    So our customers at that time agreed and Congress agreed to change that situation to substantially increase fees and move toward a largely fee-funded agency. And that happened in 1982 with an omnibus patent reform bill in 1982.
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    It was never contemplated in 1982, however, that we would be fully fee-funded. There would always be a taxpayer portion. And I do not need to tell you that there was a struggle for revenue, dealing with the problems that this Committee deals with every day. It was agreed both between the Administration at that time and the Congress that we would go to full 100 percent fee funding.

    At that time, we had not yet abandoned that theory, at least, that we would have some taxpayer funding. And so the difference between what would have been fee funding and taxpayer funding was called the Surcharge Fund. That the surcharge is scheduled to expire at the end of '98.

    So that authorizing legislation expires. So unless new legislation is enacted to reset fees to their current levels, then automatically we will lose forever that source of revenue estimated to be $182 million in FY 1999.

    Now, because of the fact that this year we are not going to be able to spend all of the money, we will have a one-time-only surplus, in effect, of $116 million.

    And this gets back to a fundamental question that you asked my colleague, you asked Mr. Kammer before. I mean, how are we going to raise money for the Federal Government? It seemed very reasonable to us.

    We will need this surcharge in the long run to meet our pendency goals. If we do not get it, we will have catastrophically lower funding for the Patent and Trademark Office.
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    This year because of various conditions, we will have an excess of revenues. And it is appropriate for that excess to go to the general Treasury. I really do not think there has ever been any question that we should not have this money.

    If you look back at the history of the authorizing legislation, the issue was: Would this be tax money or would it be fee money? And we in the Administration clearly have taken the position right now that there are other priorities and that it should be fee money.

    Our customers have not complained about the level of fees thus far. They have not complained about the Surcharge Fund. We have not seen any reduction in the patent applications as a result of these fees. And so it seems appropriate to continue. And this will give the Committee $116 million more dollars to deal with.

    Mr. ROGERS. So what will happen in '99 if the Congress fails to enact these fees?

    Mr. LEHMAN. What will happen is that we will lose $182 million. And we will be able to get along for 1999 because our budget contemplates our spending less. But if the fees are not reset or if we establish a precedent that the fees will not continue at their current level, we will use up our extra resources. We will then have an under-funded Patent Office. And we estimate that that would have the effect of increasing pendency time.

    Remember, I mentioned in my statement it was very critical that we keep pendency time low. And we have seen that creeping up. One reason it has crept up is because of our efforts to save on FTEs and so on and so forth over the last several years. Those were reasonable trade-offs to make. We now need to correct those problems.
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    Pendency is now at over 22 months. We will see a pendency, I believe it is by 2003, of 41.8 months. Now, you can imagine if you are an innovator in Silicon Gulch by Dulles or Silicon Valley or wherever it may be in the country, if we are going to tell you that it is going to take you a year and a half more to get a patent, that is going to have a very, very negative effect on your capacity to go to the capital marketplaces. So I think that prudence absolutely demands our fiduciary responsibility to these very critical people who are producing the revenue that is creating a better budget situation, and demands that we reset fees to their current level. And I am not aware of anyone of our customer base who is not saying that we should continue the surcharge. There are people who do not like the money going back into the Federal Treasury.

    Mr. ROGERS. There may not be customers complaining, but there is a group of people called the authorizing committee of the Congress that is complaining. And they think that we are stealing patent money to pay for other spending.

    Mr. LEHMAN. Well, I think their concern is, Mr. Chairman, that they would like to see that $116 million go back to me, the Patent Office, so that I can spend it on the Patent Office.

    I am in exactly the same situation you are and the Administration is in. We are trying to be as prudent as we possibly can, but we have larger issues. And the Administration has determined that for this year, we can get along with what we have. And we have a good program. We are going to improve service, and we can afford to spend this $116 million elsewhere.
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    Mr. ROGERS. Well, we are still talking about the long-term problem.

    Mr. LEHMAN. Yes, it is a long-term problem.

    Mr. ROGERS. Fiscal '99 is a short-term view when you look at this problem.

    Mr. LEHMAN. And, Mr. Chairman, I know the Appropriations Committee can only increase the surcharge a year at a time. We need a permanent solution, and that will have to come out of the authorizing committee. And we will work with them.


    Mr. ROGERS. Now let us talk about your move. A lot of questions being raised about it, everything from whether you need all of that space, or that it is too costly. How do you respond to that?

    Mr. LEHMAN. Well, Mr. Chairman, you know, one of the frustrating things that we all have to deal with in Government, you certainly have to deal with it, is a lot of people get misinformation.

    Mr. ROGERS. We never encounter that.

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    Mr. LEHMAN. So let me try to set the record straight. First of all, this is widely characterized as being that the Patent Office is purchasing a new headquarters or something like that. It is important to understand that in 1969, the Patent Office moved out of the Commerce Department, which is a Government building. And we started moving into high-rise buildings that were constructed by a developer there in Crystal City. And we rent space.

    Crystal City is filling up. The leases for that space are expiring. In fact, we are now on GSA-negotiated sole-source extensions. So I think you would have probably been most unhappy with us if several years ago we did not begin planning for this, for an orderly solution to the problem of expiring leases, not to mention the fact that our office has grown, which is a good thing for the economy, but that has also resulted in us willy-nilly getting a building here, a floor here, a floor there. It is not the most efficient use of our fee payers' money.

    So we put out a solicitation for offers (SFO) to solve this problem for the next 20 years and, in effect, advertised for developers to come along and say, ''We will rent space to you for 20 years.'' That SFO requires, as a condition, as a predicate, that the space be cheaper than the rent we are paying now.

    In addition, you know, I know some people have said we are building elaborate headquarters. I would like to just bring it to your attention, Mr. Chairman, that at the present time, a patent examiner has 150 square feet for his office. Under the proposed design, it will be 120 square feet. It will be less. Now, our patent examiners professional organization does not like that very much, but that is hardly a waste of money. We will actually have less space per examiner. Furthermore, supervisors will have offices exactly the same size as the examiners.
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    The space will be cheaper, but it will be better in the sense that we will have buildings that will be smart-wired. That is a condition of this procurement for new leases. And we are heavily automated. It does not help our efficient use of fee money to have to go and back-wire 30-year-old buildings to deal with our new computers and so on and so forth.

    We will have a thoroughly modern infrastructure so that we can be more productive and ultimately save fee payers their fees and maybe produce situations more like we have this year, where we have some money for the Committee to work with, where we make a profit for the U.S. Government.

    Mr. ROGERS. Well, you are talking about two million square feet. Currently you have about 1.7 million.

    Mr. LEHMAN. That is correct.

    Mr. ROGERS. With an annual price tag of about $40 million a year; correct?

    Mr. LEHMAN. That is correct, yes.

    Mr. ROGERS. A lot of people wonder whether you need all of that space given the fact that much of your space is used for in the old days paper storage. And now you are on computers, which does not require anywhere near that kind of space. And there is some suggestion that there is some gold-plating going on. I will ask what you think about those charges.
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    Mr. LEHMAN. Well, I think you can just look at the figures, Mr. Chairman, and you will see pretty quickly that there is no gold-plating. First of all, as I said, business is booming. Patent applications went up by 15 percent.

    Now, we have really kept down hires. I mean, for the first Clinton Administration, we had an FTE limitation. We worked our people to the bone. We did not hire new patent examiners. We had to hire some. The Commerce Department recognized that we needed some more FTEs than other people, but we have been ringing more efficiency out of the system. So we have not had a lot of hires, but we have had some. And so our workforce has increased. We are expecting our workforce to go up, I think by 2001, by about 35 percent. We are going to have over 7,000 employees. Today we have only about 5,000.

    Well, it does not take a Ph.D. in mathematics to realize that that is going to require some more space, even though, as I said, each employee will have a smaller amount of space. In fact, we will have 37 percent more staff people, but we will only have 20 percent more space. So the budget contemplates that and that is with the impact of automation.

    You know, this has all been worked out, and it is hard to go over all of the details here in this setting, but I would be happy to send our space people up here to go over every last fact and figure with Ms. Miller if you would like.

    Mr. ROGERS. Well, is there any independent analysis being done?

    Mr. LEHMAN. Yes, there is, Mr. Chairman. We have had four outside studies already. And the Secretary went over to the Senate Appropriations Committee last week. I know there was a letter that came up from the National Taxpayers' Union. It was, frankly, misinformed.
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    But when that happens, I can imagine neither you nor Senator Gregg nor anybody else would not be doing your duty if you were not going to respond to that and try to ask the questions that you are asking me, that you asked the Secretary. So he plans on having yet another study done, in addition to the four we already have had, that hopefully will be completed within a very near-term period of time because it will only cost us more money if we slow down this process. And I am quite confident that that will confirm what the other four outside studies have done, outside studies, that this is an extremely prudent way to proceed.

    Mr. ROGERS. When can we expect the results of that study?

    Mr. LEHMAN. Well, I was told by our Assistant Secretary for Administration that he hoped to get this done by the end of April.

    Mr. ROGERS. Give us a copy of that.

    Mr. LEHMAN. Yes. And I certainly hope he can, Mr. Chairman, because it would be quite tragic if we had to slow down this process. You know, this has been a totally above-board RFP. You know, going back, it has been supervised from the beginning by the Public Works Committee. We have reported to this Committee. GSA has put out an SFO. Anyone in the country who wanted to develop this project could apply.

    It has been absolutely by the numbers. And it would be quite tragic if because of confusion and misinformation or perhaps people that have a vested interest in not seeing this project go forward it were to be delayed. And it would only cost the fee payers more money and result in a less efficient system.
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    Mr. ROGERS. Well, at one point you were considering buying, rather than leasing, at I am told a cost of over a billion dollars. And there was some discussion that you would ask this Committee to pay for all of that up front, effectively an advance appropriations. I trust you have discarded that idea.

    Mr. LEHMAN. Mr. Chairman, I do not think that was during my tenure in office. I think that the cost of constructing these buildings will be $700 million. That is what we estimate. Now, that is a private party who is going to spend that amount of money in order to build space that we will rent.

    Mr. ROGERS. Who is the private party?

    Mr. LEHMAN. Well, we do not know yet. We have put out an RFP. And there are four developers that have tentatively—more than tentatively—that have submitted proposals. And we are in the process of evaluating those proposals to see which is going to be the best deal.

    Mr. ROGERS. Well, I just want to clarify it. You have no plans to buy a building, and you will not come to this Committee asking us to pay for it?

    Mr. LEHMAN. No. We have no plans to buy a building. And we are not going to ask the taxpayers to pay for anything, and, secondly, we are not going to ask this Committee to pay for anything.

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    It is a question of Government accounting. I do not think anybody, the Administration or here on the Hill wants to put out $700 million in any year for our buildings.

    We have a very reasonable plan. That plan, this SFO, the leased space, will meet all of our needs. There is no need to do anything differently than what we are doing right now.

    Mr. ROGERS. Mr. Mollohan?


    Mr. MOLLOHAN. Mr. Bachula, the Senate I understand is currently considering authorizing legislation which would provide that EPSCoT grants be made through EPSCoR state committees. Are you aware of that? Will you comment on that proposal?

    Mr. BACHULA. Yes, sir. The EPSCoT Program that you are——



    Mr. MOLLOHAN. EPSCoT. Okay.

    Mr. BACHULA. The EPSCoT Program that you are funding is meant to be a companion program to EPSCoR. EPSCoR is a program started by the National Science Foundation. It is a number of agencies. It goes to 18 states and Puerto Rico, and it is designed to build the research capacity——
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    Mr. MOLLOHAN. I know what EPSCoR is.

    Mr. BACHULA. Yes.

    Mr. MOLLOHAN. What I am asking you is there a Senate proposal——

    Mr. BACHULA. Yes.

    Mr. MOLLOHAN [continuing]. For EPSCoT to be run through EPSCoR state committees? What is your opinion on that?

    Mr. BACHULA. Through the committees. We would prefer not to have to run it through those committees. We looked for language that would require us to work with those committees along with economic development agencies, local agencies, state governments, and so on.

    We had two regional meetings last year attended by literally someone from every one of those states. We had representatives of governments, Secretary of Commerce, local businessmen, and university presidents. All of them said that EPSCoT could be a great organizing function in their states to bring together universities, economic development activities, state economic development entities. But that if you put the money in the hands of any one of those in a controlling fashion, any one of those without some self-organizing, it would be a mistake.

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    So we are proposing to let each state——

    Mr. MOLLOHAN. Who said that it would be a mistake?

    Mr. BACHULA. The economic development folks, the folks that represented some of the state government activities, some of the——

    Mr. MOLLOHAN. That was the consensus of the feedback you received?

    Mr. BACHULA. Very much. It was very much the consensus. There were representatives in both of those meetings from some of the folks from the EPSCoR Foundation who have been active here in town and who would prefer the other route.

    Mr. MOLLOHAN. What other route?

    Mr. BACHULA. Putting it through the EPSCoR committees.

    Mr. MOLLOHAN. Okay. So what you heard back in the states is that they would prefer that the money not be put through the EPSCoR committees?

    Mr. BACHULA. They would prefer that states be allowed to self-organize, that if there is a place that a recommendation or a proposal has to be signed off on, that it be self-organization. And it might be different in all 18 states.

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    In a state like Montana, for example, the EPSCoR committee is very active. It works with the universities. But in Louisiana, West Virginia, or somewhere else, it may not be.

    The plan was believed to have the states have flexibility and not just dictate from Washington how this needs to be done.

    Mr. MOLLOHAN. In this legislation?

    Mr. BACHULA. Yes.

    Mr. MOLLOHAN. What legislation is this recommendation contained in?

    Mr. BACHULA. It is contained in the authorization bill for the Technology Administration and NIST.

    Mr. MOLLOHAN. Do you anticipate that that will be inaccurate following the path?

    Mr. BACHULA. There is a markup scheduled in Senator Frist's committee I believe next week. And as far as whether or not it will pass and a conference with the House takes place, we are just not certain.

    Mr. MOLLOHAN. Is there companion legislation on the House side?

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    Mr. BACHULA. The House authorizing committee does not include authorization for EPSCoT.

    Mr. MOLLOHAN. What happens to this program and your request if the authorization is not acted upon?

    Mr. BACHULA. Our General Counsel has indicated that we have generic authority in the Technology Administration for experimental and demonstration projects. And so we believe with the appropriation that was given to us by your Subcommittee, the Senate, and the law that we can begin the program.

    Mr. MOLLOHAN. Just so I more understand your attitude about how you think the EPSCoT funding should be handled, do you think it ought to be looked at on a state-by-state basis? I have gotten that from your testimony. How should that be handled?

    Mr. BACHULA. What we would propose to do in the first year is simply just take applications from anyone that is qualified. But we would propose in other years that states have some sort of body that would look at proposals from within that state and forward them to us in some sort of priority action.

    Whether that body consists of EPSCoR committees or local economic development folks or people from wherever, that would be self-organizing. It is quite evident to us it would be very different in many of these states, that it would be different in Kentucky as it would be from West Virginia, Louisiana, or Montana.

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    Mr. MOLLOHAN. You would just invite anybody to submit these proposals in the first round potentially?

    Mr. BACHULA. In the first round, yes. There is not time to organize this year the required entity that would then be able to pass on a variety of proposals.

    Mr. MOLLOHAN. Then you would choose how the funding would flow, either through some entity maybe through the state, or you would directly fund the program?

    Mr. BACHULA. We will be proposing an implementation plan coming to you shortly that will propose that these projects be peer-reviewed and competitive and that we use outside peer reviewers, probably from states that are not part of the EPSCoT states, and that those proposals will be rated and reviewed and numerically quantified and then forwarded to us for the selection. We will have obviously a very limited amount of dollars. It partly depends on what comes in.

    Mr. MOLLOHAN. What I am interested in is then would you directly fund the proposal under that scenario?

    Mr. BACHULA. Yes.

    Mr. MOLLOHAN. You would not choose a state entity of any kind, be it state or other entity,——

    Mr. BACHULA. A state entity could be a proposer.
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    Mr. MOLLOHAN [continuing]. To make the decisions, to make——

    Mr. BACHULA. To not make the decisions, but a state entity could be a proposer. They could be the lead in a proposal.

    Mr. MOLLOHAN. Yes. Okay. So, to sum up your attitude, you would, at least at this stage of things, want to keep more control and more of the funding decisions within your agency, rather than delegating it to somebody in the state?

    Mr. BACHULA. We would like to develop a program for the next fiscal year where most of the control is in the states. The first year is probably not in time to organize an entity and then have them screen proposals.

    Ultimately we would like to see somebody in the state, as in EPSCoR, do planning and make sure the proposals sort of fit into that state's or that region's plan. There is a reason why that proposal is the highest priority for that state or for that region. And that is what we would propose to do in the second cycle.

    Mr. MOLLOHAN. Did that answer my question?

    Mr. BACHULA. Well, you implied there would be more control on our side.

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    Mr. MOLLOHAN. No. I asked.

    Mr. BACHULA. And we are trying to send more control to the states.

    Mr. MOLLOHAN. I am asking this: In the first cycle——

    Mr. BACHULA. Yes.

    Mr. MOLLOHAN [continuing]. As you describe it,——

    Mr. BACHULA. Right.

    Mr. MOLLOHAN [continuing]. Do you anticipate the funding decisions to be made by the agency——

    Mr. BACHULA. Yes.

    Mr. MOLLOHAN [continuing]. Here in Washington?

    Mr. BACHULA. Yes.

    Mr. MOLLOHAN. I tend to agree with that. In future years, you are open to the way funding might happen, and you might delegate that responsibility to an entity you approve in the states—is that correct?—or you might not.
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    Mr. BACHULA. Right. I think that in future years, we would still make the funding decisions here, but a body in the states, as in EPSCoR, would take a pass at the varying and competing proposals. You could imagine dozens of proposals.

    Mr. MOLLOHAN. In choosing the proposals——

    Mr. BACHULA. Screening.

    Mr. MOLLOHAN [continuing]. To be funded——

    Mr. BACHULA. Yes.

    Mr. MOLLOHAN [continuing]. Such that your participation—

    Mr. BACHULA. They would forward to us a priority list.

    Mr. MOLLOHAN. Do you have this thought through in the detail we have talked about it and have it on a piece of paper?

    Mr. BACHULA. Yes, we do. It is being internally circulated in the Department of Commerce amongst some lawyers and so on. And as soon as they will release it, it will be in your hands.

    Mr. MOLLOHAN. That could take a long time.
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    Mr. BACHULA. No, no. I do not think more than another week or two.

    Mr. MOLLOHAN. Okay. Would you——

    Mr. BACHULA. Absolutely. Every member of the Subcommittee will be——

    Mr. MOLLOHAN. All of them? Every one of them is going to get a chance? We would like to see it. Thank you. Thank you, Mr. Chairman.

    Mr. ROGERS. Mr. Forbes.

    Mr. FORBES. Thank you, Mr. Chairman.


    Commissioner Lehman, last year around this time, I think that you submitted to the Committee a proposal for reprogramming of funds to allow you to reorganize the Patent and Trademark Office industry sectors similar to the European model. I know that there are some patent experts who—and there is a great debate obviously now about—the efficiency of that idea. There is some fear it is less effective and less efficient.

    But I know that the Committee at the time turned down the reprogramming request because there was a feeling that maybe it was premature and efforts to reorganize the Patent Office were still very much hanging in the balance. There were some concerns also expressed about the effectiveness, as I said, of the industry sectors.
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    I understand, however, that it seems that the reorganization proceeded anyway. I was wondering, Commissioner, if you could explain why you decided to go ahead, despite the feelings of the Committee, and if you could explain to us where this reorganization stands at this time, particularly the reshuffling of——

    Mr. LEHMAN. Yes. Well, Congressman, we submitted a reprogramming notice. And let me make it perfectly clear for the record I am deeply disappointed that that reprogramming notice was not agreed to because it has made it very difficult for us to meet the needs of our customers and properly manage the Patent and Trademark Office without having that reprogramming.

    The reprogramming notice had many features to it. And there is a threshold at which management decisions become reprogramming. The reprogramming notice that we sent forward, for example, proposed creating the position of Chief Operating Officer for the Patent and Trademark Office. It proposed abolishing and reorganizing many, many important management functions. And a part of that notice was that we would also create industry sectors.

    We abandoned what in my opinion would be critical and extremely important managerial reforms, largely because of your objections. And that has made it very hard for me to run the Patent and Trademark Office to meet the needs of the customers.

    Mr. FORBES. I appreciate the power you are giving to——

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    Mr. LEHMAN. Well, you have that power, Mr. Forbes. You have the power to stop this from going forward, and you did just that.

    Mr. FORBES. You ignored the will of Congress. Is that true?

    Mr. LEHMAN. No, I did not.

    Mr. FORBES. The Committee made it clear——

    Mr. LEHMAN. I did not ignore the will of Congress. I am pointing out that we abandoned our reprogramming notice. And then we went forward with management prerogatives and management decisions that did not constitute reprogramming.

    What you are referring to are changes that did not constitute reprogramming. That is a legal decision. We could have the Commerce Department General Counsel look at it, and they did. And I do not think we have a problem.

    And I can assure you that our customers are very happy with this. I just returned from Silicon Valley last week. We are getting a lot of kudos for the changes that we are making. And a lot of people are very unhappy with the fact that we are not able to make more.

    Mr. FORBES. How much money did you spend on the reorganization?

    Mr. LEHMAN. None.

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    Mr. FORBES. No dollars were expended?

    Mr. LEHMAN. Not to my knowledge.

    Mr. FORBES. For the reorganization?

    Mr. LEHMAN. That were not already authorized.

    Mr. FORBES. What about the reshuffling of personnel?

    Mr. LEHMAN. We reshuffle personnel all of the time, but that does not constitute reprogramming.

    Mr. FORBES. So you may have a different definition for reorganization, I suppose, than the Committee does. Is that what I am to infer?

    Mr. LEHMAN. No. We abandoned our reprogramming. There is absolutely no doubt about it, and I want to make it——

    Mr. FORBES. I heard you say you abandoned your reprogramming request, but I am asking you about your reorganization request.

    Mr. LEHMAN. We have not done any reorganizing. We have made management changes in the Patent and Trademark Office, which I do every day. And I have to tell you we would not have a patent system if I did not have the capacity to at least make some management decisions at the Patent and Trademark Office.
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    Mr. FORBES. I do not think perhaps we are using the same definitions. I am not talking about management prerogatives as much as I am talking about reorganization. But you are saying that the Patent Office has, in fact, not been reorganized at all?

    Mr. LEHMAN. It has not been reorganized consistent with the requirements of legislation that requires us to submit reprogramming to this Committee.

    You know, we are in a semantic area here, and we could go on. If you want to take the position that we reorganized because you do not like the way we are doing things at the Patent and Trademark Office, that is fine, but we have not met the legal test of reorganization.

    We have responded to this Committee. We specifically refused to create a COO at the Patent and Trademark Office. We still have a number of acting people in there pending the passage of legislation. We have not done the things that we should be doing because of the specific turndown of our reprogramming by this Committee. And, as I understand, that largely was something that the Chairman did at your request.

    Mr. FORBES. Well, Commissioner, the PTO seems to be the only agency that shows a profit, about $90 million a year. In your testimony, you state that the PTO will collect another $50 million this year because of an improved allowance rate. The PTO also collects maintenance fees, as we know, every two years, on the patents it has issued.

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    Yet, despite your references to how everybody is in love with the Patent Office and thinks everything is going great, I continue to get a lot of reports, frankly, about how patents continue to languish, some of them well over five years or more and, more importantly, that there are numerous occasions when people have to submit their paperwork not once or twice, but sometimes even three times because the Patent Office is losing the paperwork. That seems to be more of a common occurrence than I think any of us, I am sure even yourself, would be comfortable with.

    Given the cutbacks and the quality review, what assurances are there that the PTO is still issuing high-quality, valid patents?

    And, if you could, in response to that as well, I know you touched on training, but patent examiners apparently are not going to have the opportunity to get the same kind of training or retraining that they have had in the past. How do we deal with this issue based on——

    Mr. LEHMAN. Well, unfortunately, Mr. Forbes, you were not here to hear my opening statement, but I specifically——

    Mr. FORBES. I read it, Commissioner.

    Mr. LEHMAN. I told the Chairman that one of the items in our budget is a training item, and we are going to increase training.
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    I think the PTO runs pretty well, first of all, as a Government organization. It could run a lot better. If we had some of the reforms that are in H.R. 400, if our reprogramming notice had gone through, we would be able to run better, but we run pretty well as an organization.

    One of the things that I introduced when I became the Commissioner was a close look at quality. In fact, I did the transition for President Clinton for the PTO. So before I even came over there, I had to talk to the various customer groups and see what they thought.

    One of the things that I heard was that there was concern about the quality of patents. Ultimately, the quality patent is a patent that holds up in court. And we have a pretty good record with that, I should say. But there was a concern about that.

    So one of the first things that I did was take a look at what really causes us to have quality patents. We set up a system of focus groups. We had public hearings around the country. And we really heard from our customers about what they thought quality was.

    They did not happen to think, by the way, that the Office of Patent Quality Review that we presently had in operation, and still have in operation, was giving us the quality improvements that we needed. So we introduced other reforms, and I think we see in our various feedback mechanisms a general recognition of an increase in quality on the part of our customers.

    Now, that does not mean that we cannot do better. And we are going to try to do better. If you have some specific instances that you would like to bring to my attention of where we have made a mistake, I will be happy to address those directly.
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    Mr. FORBES. I would like to get back to the training for patent examiners. I understand you mention training in your statement. I read your statement, sir. But you still have not addressed my concern about the ability for patent examiners to get training and retraining. I would ask again: What are the PTO's plans for providing the technical and legal retraining for patent examiners? You have 86,000 hours of enhancement training I guess available for——

    Mr. LEHMAN. Well, if you would like to come over to our office, I would be happy to take you to the Patent Academy. We have as a part of our regular program for patent examiners an extensive training program, probably one of the best in the world—it is called the Patent Academy—where we train patent examiners and continually update their skills.

    We have a program with private industry where sometimes we go out on site visits to various companies where patent examiners need to learn about new technologies, get people to come in and give lectures. And, as I indicated, we are proposing to even increase retraining this next year.

    In addition, we have something that I think is really a marvelous invention in Government at the U.S. PTO. We have something called PTO University, where our employees can after hours get training under a program where George Washington University, Marymount College, and Northern Virginia Community College come in and provide training to our employees.
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    That was an innovation of this Administration. It did not exist before, and it does not exist in very many other places in Government. I think, in fact, it would be very hard to point to another Government agency that has been more aggressive in retraining its employees than the U.S. Patent and Trademark Office.

    Mr. FORBES. Mr. Chairman, I have additional questions I would like to submit for the record.

    Mr. ROGERS. Thank you very much, gentlemen, for your testimony and your time here. We appreciate it very much. We will stay in touch, and we will try to work some things out. Thank you.

    "The Official Committee record contains additional material here."

Tuesday, March 31, 1998.




Opening Remarks

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    Mr. ROGERS. The committee will come to order.

    This afternoon we are pleased to welcome to the committee the U.S. Trade Representative, Charlene Barshefsky. Ambassador, you are our trade negotiator at a critical time as we move a to achieve global economy. The United States will be presented with golden opportunities and challenges. Your office is critical to ensuring the global playing field is level so that the United States can compete.

    We look forward to hearing your thoughts on these issues. We are pleased to have you with us today. We are running a little bit behind schedule this afternoon. We will need to conclude as close to 3:00 p.m. as we can.

    Madam Ambassador, we will make your written statement a part of the record. Welcome to the subcommittee.

Opening Statement

    Ambassador BARSHEFSKY. Thank you very much, Mr. Chairman and Members of this Subcommittee. It is a pleasure to appear before you to present the fiscal year 1999 budget request for the Office of the United States Trade Representative.

    This Subcommittee has consistently supported USTR's mission to open markets, to expand trade, and to enforce our trade laws and trade agreements.

    I thank the Committee for its support for providing USTR with additional career positions and funds in fiscal year 1998.
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    We look forward to your continued support this year. The role international trade has played in this, our seventh year of U.S. economic expansion, can hardly be over stated.

    Since 1992, exports have accounted for more than one-third of U.S. economic growth. Exports account for one in six new jobs and one in five manufacturing jobs in the U.S. Jobs supported by exports pay wages on average 13 to 16 percent higher than the average for all U.S. workers.

    The importance of trade to our economy is underscored by our shrinking share of the world's population. America now comprises only about 4 percent of the world's population with growth much more rapid than our own in other parts of the world.

    New middle class consumers can be found around the globe—300 million projected in China and India alone by 2005. This represents a booming potential market for our goods, services, and agriculture.

    Whether we capture this potential will determine whether our economy remains on top in the next century. Our trade policy priorities are designed to ensure that it does.

    Under the President's leadership and with the bipartisan support of Congress, we have negotiated 250 trade agreements in the last five years; the five biggest of which are NAFTA, the GATT, the Information Technology Agreement, the Global Telecommunications Agreement, and the Global Financial Services Agreement.
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    As we look ahead, we see an even more activist and complex trade agenda in order to ensure open access to the world's market place. Our $24.8 million budget request is designed to help achieve our goals.

    It is also aligned with our GPRA annual performance plan for fiscal year 1999 which I have submitted to Congress. Let me turn briefly to the specifics of our trade policy agenda, particularly as it impacts fiscal year 1999.

    First, our most immediate challenge is the financial crisis in Asia. The international effort to restore economic and financial stability to the region is the single most important trade policy objective we have.

    The reason is simple. We cannot sell to our major customers in the region if they cannot buy. It also offers an unparalleled opportunity to push for much needed and long delayed fundamental economic reforms; reforms of a structural or systemic nature that can lead to improved economic performances and economies more open to imports.

    Monitoring the implementation of the IMF stabilization packages, through the IMF, the Administration, particularly USTR, the Department of Commerce, U.S. industry, and the WTO will be a priority.

    Second, with respect to our legislative goals, restoration of IMF funding is key. The Asian crisis also illustrates why Fast Track remains a priority for the Administration. It is plainly to our advantage to have every tool at our disposal in trade negotiations.
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    We are plainly disadvantaged when market opening efforts are stymied for lack of having the appropriate tools. We are continuing to consult with the Congress on fast track. We will work with you on the timing and scope of these decisions.

    We are also working in Congress to gain approval of the international ship building agreement, renewal of the GSP Program, and CBI legislation. Finally, the House has already passed the African Economic Growth and Opportunity Act. We intend to continue working with the Congress on this important initiative.

    Our third priority is monitoring and enforcement. Since 1993, we have brought over 75 enforcement actions under our domestic law and under our international agreements.

    We have filed more complaints in the WTO, 35, than any other country. We have prevailed on 18 of the 19 American complaints acted upon so far. During fiscal year 1999, we expect to work toward completing WTO and NAFTA dispute settlement proceedings in many of the 41 active disputes to which we are either a complainant, a defendant, or a third party.

    We will also continue to challenge aggressively market access barriers abroad using all available domestic tools, including Section 301.

    Our fourth priority is the World Trade Organization. In May of this year, we will set the stage for launching in 1999 various negotiations in the WTO, including new global talks on agriculture services, Government procurement, and intellectual property rights.
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    We will also continue to work to bring non-member countries into the WTO, but only under the auspices of commercially viable agreements. Thirty-one countries are actively seeking accession to the WTO. We are responsible for all of these, with China's and Russia's accession by far the most complex and time consuming.

    Our fifth series of priorities are regional and bilateral negotiations. Our bilateral negotiations with countries around the world have continued at an extremely active pace. 1999 will be no exception.

    In recent years, we have also placed a heavy emphasis on regional trade relationships and on regional agreements as a means of further opening access for U.S. exports. Let me point to just a few of these efforts.

    Earlier this month, I met with my counterparts in San Jose, Costa Rica to set the stage for a hemispheric summit next month in Santiago, Chile.

    That meeting will launch formal negotiations for the Free Trade Area of the Americas. USTR manages that process, leading the negotiations. We intend to conclude interim agreements by the year 2000.

    Completing FTA negotiations with Chile also remain an Administration priority. We also have an extensive trade agenda in the Asia/Pacific Economic Cooperation forum, APEC, to eliminate tarrffs and expand trade across $1.5 trillion in goods, including medical equipment, environmental services, energy equipment, and telecommunications. Negotiations on the initial group of sectors should be completed this year with the others next.
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    The U.S.-EU alliance will be further strengthened as we look to expand areas of cooperation and achieve further market opening in 1998 and 1999.

    With respect to Africa, we will continue our efforts to implement the President's partnership for economic growth and opportunity. USTR is responsible for implementing many of the key elements of the President's partnership such as initiatives relating to GSP, African adherence to WTO rules, bilateral investment, negotiations, and increased government-to-government dialogue on trade matters.

    In the Middle East, in addition to bringing countries like Saudi Arbia into the multilateral trading system, we are attempting to increase the level of economic integration in the region to foster the type of cooperation that is essential to the peace process.

    We took an important step in that direction earlier this month when I designated the first qualifying industrial zone in an industrial park in the city of Irbid, Jordan, where Israeli and Jordanian companies, working together and exporting from the zone, will enjoy duty-free access to the U.S. We look forward to building on this initiative with Israel and other countries in the region.

    Negotiation of trade agreements, and enforcement are the two central features of our bilateral trade agenda. Bilaterally, let me give you just two examples of what we are working on.

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    First, with respect to Japan, a critically important goal this year is to see implementation by Japan of far-reaching deregulatory initiatives in such areas as financial services, telecommunications, housing, medical equipment, and pharmaceuticals.

    We are aiming to see decisive action on the part of the Japanese Government in the first half of this year. In addition, we are looking to Japan, the world's second largest economy to play a central role in resolving the crisis in Asia. The U.S. cannot be the only engine of global growth or the sole buyer of goods to absorb the tremendous productive capacity in the Asian region.

    With respect to China, U.S.-China trade relations involve a broad range of multi-lateral, regional, and bilateral initiatives, as well as the enforcement of existing arrangements.

    Of course, the multi-lateral trade relations are focused on China's potential accession to the WTO. We will be better able to determine the pace of those negotiations next week in Geneva.

    Bilaterally, we have a series of trade initiatives we are pursuing with China—whether on citrus, or wheat, or in services areas. We devote very substantial resources to all of these issues.

    Nowhere is the necessity for a strong bilateral approach more evident than in the case of textiles enforcement or in the case of intellectual property rights where we have made important progress; but, more needs to come.
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    Last, Mr. Chairman, we will continue building on our initiatives regarding the relationship between trade and core labor standards and trade and environmental protection, as well as our effort to make the global trading system more open and transparent to the public.

    In this regard, the growth in trade also requires us to work much more closely with State and local governments. We are now doing this on a daily basis.

    With respect to our budget request, for fiscal year 1999, we request approximately 180 FTEs and $24.836 million in new budget authority. This represents an increase of $1.1 million and two FTEs.

    We would use the $1.1 million for three purposes. First, $448,000 to meet inflation and the scheduled federal employee pay raise.

    Second, $504,000 to complete and upgrade USTR's computer system and help ensure that our computer network is year 2000 compliant.

    Last, $140,000 for two new career negotiators in fiscal year 1999; one trade specialist in each of our Japan and China offices.

    Consistent with congressional direction in the fiscal year 1998 appropriation, USTR is reducing the number of political appointees to no more than 25 by May 1, 1998.

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    As part of a broader and on-going management improvement effort to better target our resources and mission, USTR had started this reduction prior to enactment of the fiscal year 1998 appropriation.

    We are committed to achieving the target of not more than 25 appointees by May 1st of this year. All together, our budget policy for fiscal year 1999 is to sustain the record of accomplishments that the Agency has achieved in the last five years while containing overhead costs, realigning operations, and improving management effectiveness in furtherance of our mutual goals of a more responsive Federal Government.

    Thank you.

    [The statement of Ambassador Barshefsky follows:]

    "The Official Committee record contains additional material here."


    Mr. ROGERS. Thank you, Ambassador Barshefsky.

    Again, last year in 1997, our trade deficit sky rocketed to another all-time high; almost $114 billion.

    The largest problems continued to be with the Asian countries, with much discussion about the impact of the Asian financial crisis might have on the trade deficit in 1998. Some would say that the deficit could increase to as much $150 billion. What do you say about that?
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    Ambassador BARSHEFSKY. Let me make a couple of comments if I could. Our export performance in 1997 was also at a record level of about $936 billion.

    The trade deficit as a percent of our GDP is the lowest that it has been in ten years—that is, 1.4-percent of GDP, which is about half the level of ten years ago. There is no question that our deficit with China is of concern and our growing deficit with Japan also is of concern.

    With respect to the Asian financial crisis, it is very hard to estimate what the increase in the deficit will be, except to say that our general sense is the increase in the deficit will occur largely through a fall-off in U.S. exports to the region, given the Asian countries their diminished buying power as well as recessionary conditions in Asia, rather than through an increase in imports from Asia.

    It is very difficult to predict any precise numbers because they depend in part on the impact of the depreciations, including the affected countries' ability to buy raw materials to make products that they then export, as well as how long the crisis lingers.

    Mr. ROGERS. Well, you draw attention again to China's trade deficit. Again, in 1997, our trade deficit with China hit an all-time high of almost $50 billion.

    Ambassador BARSHEFSKY. Yes.

    Mr. ROGERS. That is an increase from $10.2 billion in just one year. I know you continue to argue that Most Favored Nation Status with China and World Trade Organization accession for China will bring more U.S. exports and jobs. These 1997 trade numbers give us pause. China's economy continues to grow at a phenomenal rate of 8- to 10-percent per year. U.S. exports to China, however, continue to increase at a very sluggish pace, while U.S. imports of Chinese goods skyrocket.
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    We continue to have major problems with China not abiding by existing trade agreements with the U.S. Based on our continuing problems with China, how can we believe that Most Favored Nation Status with China is working and that China deserves entrance in the WTO?

    Ambassador BARSHEFSKY. Well, I think that negotiation of China's WTO accession can help with respect to rebalancing the trade relationship between the two countries. Right now, China's goods enter the U.S. on a normal trade status. That is, they pay the same duties as most other countries in the world; all but six, including Iraq, Iran, and Libya, have this status. So, China's exports already enter on that basis.

    What we do not have is corresponding access into the China market. It is a very complicated market. It is filled with barriers. It is also, for that reason, very difficult for American firms to penetrate.

    WTO accession, as well as the continued negotiation of other bilateral agreements, would involve very substantial and enforceable commercial commitments by China, and would therefore help to rectify that imbalance.

    It is problematic. There is no question about it. We spend a lot of time at it. We will continue to do that.

    Mr. ROGERS. Well, from our vantage point, we do not seem to see much progress in negotiations with China. Are we making progress?
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    Ambassador BARSHEFSKY. Well, yes. I think that we have certainly made important progress on a number of agricultural issues, as well as with respect to textiles and intellectual property rights.

    The WTO accession process itself could be faster, if China wished it to be faster. It has been proceeding at a slow but steady pace. The trend line is good. That is to say, that we keep making progress bit-by-bit-by-bit. We would like to see that obviously expand, but thus far, we have proceeded on a slow, but I think productive course.

    Mr. ROGERS. What measures do you view as critical in determining whether China has made sufficient progress on trade reforms to warrant their admission in the WTO?

    Ambassador BARSHEFSKY. There are four different kinds of commitments that we would need to see China make in detail. One has to do with market access for goods. That is, what will the tariff levels be? What will the non-tariff barriers be? How will they be phased out? So on and so forth.

    The second is access to China's services market in the full range of services on a phased-in basis. Again, we want to see these articulated in very specific and in fully enforceable terms.

    Third, China must expand its market opening commitments in agriculture, including lowering its tariffs, eliminating its quotas, and expanding its tariff rate quotas commodity-by-commodity which is how these things are negotiated.
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    Last, China's adherence to multilateral rules on nondiscrimination, national treatment, transparency, customs and those rules with respect to state trading enterprises is vital. One of the reasons these negotiations tend to proceed slowly and deliberately is that the process itself is very, very complex. They are literally in the process of agreeing to accede to thousands and thousands of pages of pre-written text, as well as negotiating bilaterally the range of market access commitments with its trading partners.


    Mr. ROGERS. What were the critical issues in the recent agreement with Taiwan on their bid for accession?

    Ambassador BARSHEFSKY. We were very pleased with the Taiwan Agreement. Taiwan, as you know, will enter the WTO as a fully-developed economy.

    We achieved very, very substantial market openings from Taiwan, including substantial reductions in their tariffs, elimination of nontariff barriers, and special agricultural market access even before they accede the WTO; this access is for the United States only.

    Then, of course, adherence to the full range of WTO rules. The process is continuing. There is a large multilateral process that has yet to take place with respect to Taiwan. We concluded the market access negotiations bilaterally with Taiwan because the deal was that good.
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    Mr. ROGERS. Mr. Regula.


    Mr. REGULA. Thank you, Mr. Chairman.

    Madam Ambassador, I think you do a terrific job. I was quite interested in your statement. I used some of that to inform the people back home about what is happening.

    I have just three questions. One is about Asia. Are you working with the Commerce Department to detect any surges in imports from the Asian nations?

    How will the agreements negotiated by the IMF be monitored to ensure that the financial reforms in the trade area are fully implemented?

    Ambassador BARSHEFSKY. With respect to the monitoring, there are actually several ways in which these agreements are monitored.

    First and foremost is through the IMF itself. As you know, the IMF will often withhold funds in a given period if the reforms agreed to have not been implemented. Even after funds have been provided, countries, generally speaking, tend not to backslide because they fear risking their relationship with the IMF.

    Second, in the Administration, we have set up an Inter-Agency Task Force chaired by the Commerce Department and USTR to ensure that our people monitor the commitments that have been made and work with the embassies and with the Foreign Commercial Service who are on the ground in the relevant countries. That is a process that is now ongoing.
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    Third, of course, we have asked the business community to let us know how they find conditions on the ground with respect to the commitments that have been made by the Asian countries. They often have very, very good and detailed sources of information. Last, I have spoken personally with the Director General of the WTO because the WTO and the IMF have a relationship. I have indicated that, from the U.S. point of view, it is important for the WTO to work with the IMF to help ensure that commitments related to trade are indeed fulfilled. So, that is on the monitoring side there.

    With respect to surges from Asia, I know that Commerce will largely look at this question. They have the import specialists and the data collectors that we do not. Of course, that information will be examined in the interagency process.


    Mr. REGULA. The Fast Track was not terribly successful. Are you trying to develop bilateral agreements with some of the countries that might otherwise have been covered by Fast Track? When you mentioned it, I think of some agreements in South America particularly.

    Ambassador BARSHEFSKY. Well, we are proceeding with the trade agenda that the President has set out and that the Congress has been largely supportive of.

    That is to say that strategically, the United States simply must have open access to the world's markets. The rest of the world has very fine access.
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    Mr. REGULA. That is true.

    Ambassador BARSHEFSKY. We need to have open access to the world's markets.

    Mr. REGULA. Absolutely.

    Ambassador BARSHEFSKY. That is the goal. The initiatives that we will proceed with are those initiatives that will help us reach that goal.

    The essence of Fast Track with respect to certain countries and certain types of initiatives makes it harder. We are going to proceed full force because the basic policy is absolutely the right policy for the country.


    Mr. REGULA. Lastly, market access barriers in Japan and other Asian nations. Many of the Asian countries have copied the Japanese model.

    I am somewhat concerned about the well-documented structural market access barriers within Japan, the so-called nontariff barriers. Japan has not been notably good in adhering to bilateral agreements designed to address these barriers.

    Most recently, the failure of the WTO in the photographic film and paper dispute I do not think was adequately addressed in terms of barriers.
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    Other than monitoring, what can we do to open the Japanese markets to foreign competition and, in effect, overcome what I perceive at least are nontariff barriers?

    Ambassador BARSHEFSKY. I think there are a couple of things. One, of course, is as you look at the agreements we have negotiated with Japan, particularly in manufacturing sectors, we see that our exports under those agreements through the first quarter of 1997 were about 2.5 times our rate of export growth to Japan as a whole.

    In other words, doing these individual sector-based market access agreements with Japan does produce results for those particular sectors. What you see after the first quarter of 1997 is a fall off in U.S. exports consistent with recessionary conditions that are now in Japan.

    Second of all, we have a very substantial deregulation initiative that we are pursuing with Japan. Prime Minister Hashimoto has said Japan must deregulate and become more import-friendly.

    Well, this initiative is designed to call his bluff. It covers six or seven major areas, including telecommunications, pharmaceuticals, and so on. We are pursuing that.

    Last, we are in a very interesting situation right now. Typically in Japan negotiations, the United States was going after talks with Japan one-on-one. Often times, Europe or the rest of Asia would criticize the U.S. approach, giving Japan a comfort they should not have had.
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    In light of the Asian financial crisis and Japan's inadequate response, we now see Asian and European nations joining with us, saying to Japan in unison, you have got to open your market; you have got to deregulate; and you have got to take your share of imports. You are the world's second largest economy; you can afford to do it. This is a very interesting position.

    The United States, I think, has the high ground on this and has full global support for its initiatives. We will use that to the maximum extent possible.

    Mr. REGULA. Thank you, Mr. Chairman.

    Mr. ROGERS. Mr. Mollohan.

    Mr. MOLLOHAN. Thank you, Mr. Chairman.

    Ambassador Barshefky, welcome. I join the Chairman.

    Ambassador BARSHEFSKY. Thank you.


    Mr. MOLLOHAN. Last year, we had a conversation about a matter of serious concern. It concerns the status of dispute settlement requests filed by a number of U.S. pipe, and tube producers, and three flat roll steel producers.
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    Petitions filed by these firms requested that the USTR challenge the subsidies given by the Korean Government to Hanbo Steel. These subsidies are in the form of at least $5.8 billion in Government-directed loans. This makes Hanbo Steel the most subsidized single steel mill in history.

    I have a letter here from the President and Chief Executive Officer at Weirton Steel, which is, the largest employee owned steel producer in the country and certainly the largest private employer in my District, the letter expresses serious concerns about this situation which, as I say, we talked about last year.

    He says, and I will read just a part of his letter: ''The Koreans are clearly violating their commitments in the steel area. Hanbo Steel, which receives $5.8 billion in Government-directed loans, despite being uncredit worthy * * *'' I understand they got a portion of that money even after being in bankruptcy * * * ''Hanbo Steel has continued to operate at full capacity through additional Government subsidies * * *.''

    The company has not issued a public financial report since June of 1996. Now, Metal-Bulletin, a magazine, reported in a February 1998 issue that, ''The Government controls Pohang Iron and Steel Company, the world's largest steel producer, which will undertake completion of the unfinished portion of the Hanbo facility, including two electric furnaces.''

    A 2.2 million ton thin slab casting facility and a 2 million ton mill is being added. Just to give a sense of the size of this steel complex, this essentially means that the Korean Government is adding capacity equivalent to Weirton Steel's Mill into a mill the size of U.S. Steel's Gary Works.
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    In addition, in spite of a higher home market currency cost per dollar, Hanbo dominates imports such as scrap, iron ore, and coal. The Korean Government has capped steel prices in Korea, resulting in hot rolled steel selling for $200 per ton, compared to U.S. and world market prices of approximately $350 per metric ton.

    This has been confirmed by Paine Webber. Even other Korean producers are upset with the Government's continued subsidization of Hanbo.

    In the March 2nd Business Week, ''Four Korean steel companies on February 6th urged President Kim's top policy makers to sell off Hanbo's plant to overseas buyers or shut down the company completely, arguing that Hanbo is undercutting prices by up to 16 percent.''

    The letter from Weirton Steel goes on to express further complaints. Last year I inquired about the status of this petition. You indicated that you had sent a letter to the Korean Trade Minister indicating concern that nothing had been done with Hanbo.

    Your letter expressed that what had been done with them could be WTO-illegal. You had sought specific information. Yet, industry has not received a formal response from you or your staff with regard to your intention to pursue this matter with the WTO.

    Hanbo Steel continues to operate. There has been a complete fall-off of U.S. exports to Korea, of hot rolled steel?

    I would like to hear your assessment of this matter and would like to know specifically how you intend to proceed. Do you intend to file a complaint at the WTO? When do you intend to do it?
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    Ambassador BARSHEFSKY. First of all, we have worked very closely with the industry, both my staff and the Commerce Department.

    Mr. MOLLOHAN. Okay.

    Ambassador BARSHEFSKY. We have worked closely with the industry.

    Mr. MOLLOHAN. Okay.

    Ambassador BARSHEFSKY. We have had a number of rounds of consultations with the Koreans on Hanbo. We have directed a series of questions to them, a multiple series of questions, to get as much information as possible.

    In order to make out a WTO case in this area, we need positive evidence of subsidization. This is a factual standard; and means more than simply showing the company was doing poorly but received money anyway.

    Mr. MOLLOHAN. What is unclear? What is not positive about the factual presentation that you have?

    Ambassador BARSHEFSKY. Let me just say that——

    Mr. MOLLOHAN. I know what you have to do. What I want to know is what you are doing.
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    Ambassador BARSHEFSKY. Right. Where we are now is we have sat down with the Commerce Department, most recently, and gone through all of the information to get an internal view of our options on Hanbo.

    There will shortly be a meeting with the U.S. industry to examine the question of WTO litigation, and perhaps other forms of litigation on Hanbo.

    In addition, with respect to the IMF Program, we have certainly alerted the IMF as to our general concerns about Hanbo and other companies in Korea who have received financial assistance through banks in Korea or through the Government when those operations seemed to have been less than credit-worthy.

    So, this is also on the radar screen in that context as well. We will shortly be meeting with the industry to review with them the range of litigation and other options in the case. I would be pleased to have you or your staff in this review.

    Mr. MOLLOHAN. Have you answered my question?

    Ambassador BARSHEFSKY. Yes. I am not prepared to say we are initiating the WTO case until we have consulted fully with the industry and until my lawyers have apprised me fully of how strong a case they think it will be.

    Mr. MOLLOHAN. Do you have personal familiarity of the volume of information that you have received and the numerous contacts you have had with industry?
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    Ambassador BARSHEFSKY. My staff has. I am generally aware of what we have been doing because I do follow things reasonably closely in the office. But have I personally gone through all of the documentation, no.

    Mr. MOLLOHAN. All right. I would invite you to do it.

    Ambassador BARSHEFSKY. I will do it.

    Mr. MOLLOHAN. You will probably be really interested in this. If there is not a case here, then I cannot imagine a case being made.

    Do you know what other information you could possibly be provided with to give you a foundation for moving forward on this, at least making a decision on what you are going to do and when you are going to do it?

    Ambassador BARSHEFSKY. I cannot answer you specifically, except to say that my General Counsel's Office and my General Counsel will sit down with the industry.

    Mr. MOLLOHAN. Well, Members of this Subcommittee asked this question last year. I think you would have been more responsible and prepared to talk about it today. We look forward to you moving on it and letting us know.

    Ambassador BARSHEFSKY. I appreciate that.
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    Mr. MOLLOHAN. Thank you, Mr. Chairman.

    Mr. ROGERS. Mr. Kolbe.


    Mr. KOLBE. Thank you, Mr. Chairman.

    Ambassador Barshefsky, welcome. It is always a pleasure to have you here. You and I have worked on a lot of trade issues on the same side of the street, generally speaking, although we have some specific differences.

    I am very concerned, with U.S. leadership in the area of trade and where we are going. There have been a lot of initiatives announced but I think the evidence out there is fairly clear that others seem to be assuming the traditonal U.S. leadership in trade.

    Recently, Ambassador John Weeks said that trade was at the top of the European agenda and that the European Union was going to be setting the agenda for the next round of negotiations at the World Trade Organization.

    The EU has announced a lot of other trade initiatives, including dialogue in the new Trans-Atlantic market place. I will be participating in a conference on that this weekend at Greenbriar.

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    The EU has also announced a plan for a world conference to establish a way to resolve telecommunications or electronic commerce issues. They are also pushing for a comprehensive millennium round of WTO negotiations. The U.S. proposal for completion by a date certain for trade liberalization in this hemisphere was rejected at the recent trade ministerial in Costa Rica.

    Bolivia, Canada and Chile are waiting for the U.S. to take the lead in these areas. They are moving ahead with the negotiations with the European Union. In general, I am concerned that others are stepping into a leadership role that we have traditionally played.

    I think that we, as the largest trading country in the world, have a responsibility to lead. I think a lot of it goes to the failure of us to be able to have fast track authority for this President to negotiate trade agreements.

     I think it is damaging our credibility and our leadership in this area not to have Fast Track. Do you think the failure to have Fast Track negotiating authority is hampering the trade leadership role of the United States?

    Ambassador BARSHEFSKY. I think the U.S. remains the leader with respect to global trade. Our size, our economic dominance, the amount of work we put into it help ensure that. I do think, though, that our position is not necessarily assured in the future.

    There is no question that other countries are moving for trade alliances that exclude the United States. Whether it is Canada-MERCOSUR or MERCOSUR–EU; whether it is Mexico-Chile or Chile-Bolivia or any one of a number of subregional arrangements, particularly in our own hemisphere, we will be left behind.
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    There is no question that the absence of Fast Track acts, to a certain extent, to disarm the United States at the point which we should be internationally most aggressive. It is simply a backward and confounding result.

    On the other hand, there are a number of initiatives that are critically important that we will proceed on, including launching the negotiations on the Free Trade Area of the Americas.

    With respect to that, there will certainly be agreements by 2000, perhaps in the customs or other areas, and there is no question there will be interim agreements.

    Mr. KOLBE. So, you see some impact, but you believe that overall you can proceed with most of the kinds of trade initiatives and openings that the Administration would seek without Fast Track authority?

    Ambassador BARSHEFSKY. We will certainly proceed. The question whether we can conclude certain initiatives is very much in doubt because of the absence of Fast Track.

    I think also as we look at the WTO and to the launch of new agriculture negotiations in 1999, the absence of Fast Track will certainly have an adverse impact.

    Mr. KOLBE. When you say ''conclude,'' does the absence of Fast Track make some of the partners you are negotiating with not want to go too far forward with negotiations?
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    Ambassador BARSHEFSKY. Yes. Let me sort of parcel that. One, we have a concern about the launch of agriculture talks in the WTO at—that is to say the impact of not having Fast Track at that launch.

    Number two, there is a concern, especially in our own hemisphere, with the proliferation of sub-regional arrangements from which we are excluded. Fast Track obviously is necessary there.

    Number three, there are some other shorter-term initiatives in which we are engaged in which the absence of fast track might have an impact. I think there is no question, as 20 years of Presidents have demonstrated, that it is best to have Fast Track.

    I think there is no question that at this time of economic strength in the United States, our trading partners are simply confused that we do not seem to have Fast Track. This, to them, seems a rather absurd result.

    There is no question that the goal of this Administration, and I think that of this Congress, has been to open access to the world's markets for U.S. goods and services. In that context, why we would not have a critical

market-opening tool like Fast Track is simply a silly result.

    Mr. KOLBE. Can you tell me, does the Administration have any plans to seek Fast Track authority from the Congress this year? Is there going to be any move to come back to Congress and say, let us make another push at this?
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    Ambassador BARSHEFSKY. We are consulting with the Congress, including with the leadership of both Houses to determine the timing with respect to Fast Track and its scope.

    Mr. KOLBE. In the absence of that, what can you do that will keep the U.S. leadership role front and center in trade?

    Ambassador BARSHEFSKY. Well, I think there are a number of things. They are outlined in my testimony. We will proceed in the WTO. As you know, we will launch global talks in agriculture in 1999, and in services in 2000.

    Also, this year and next year, we will launch new negotiations on intellectual property rights and government procurement. We will also proceed regionally with the Free Trade Area of the Americas, and with the APEC sectors for market opening.

    We will proceed further on a U.S.–EU initiative with respect to market opening, and also with respect to Middle East trade. We, of course, will continue a very activist bilateral agenda. There is no question that Fast Track would be extremely advantageous.


    Mr. KOLBE. Madam Ambassador, turning to another subject. In 1996 at the first WTO ministerial meeting, and I was there with you, you urged the establishment of a working group of nations on worker rights under the auspices of the WTO.
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    That proposal was pushed against the opposition of the vast majority of our trading partners. Again, in Costa Rica, you asked for the same kind of study groups; one on labor and one on the environment, which would be charged with making recommendations to trade negotiators.

    Again, I think it is safe to say, this proposal faced some stiff opposition. Could you comment on whether or not the insistence by this Administration of including labor and environmental provisions in trade negotiations, something which the vast majority of our trading partners rejected as something that ought to be included; is having an impact on our ability to achieve quick and effective market openings for American exporters?

    Ambassador BARSHEFSKY. I think we actually had a very interesting result in San Jose, Costa Rica. We have established a committee within the FTAA itself at the ministerial level, which is to say at the political level.

    This committee is designed to receive directly the views of business, labor, environment, consumers, academics, and other interested parties who are stakeholders in the process so that their ministers can review that material, and determine what ideas are good and what ideas are not good, and how we should proceed from there.

    There is, I think, a growing recognition that the biggest threat to the multilateral system, that is the biggest threat to initiatives like the FTAA, is the inability of governments to persuade their own domestic publics that opening up is good for them, good for their economy, good for their job prospects, good for their wages, and good for their future.
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    There is a skepticism about the benefits of trade that pervades not just some elements in the U.S., but in France, India, Germany, the U.K., and in most of our hemisphere by way of example.

    There was a growing recognition in Costa Rica, I think really the first time, that if the public feels excluded from the process, the process will ultimately fail. That is why in this forum and in the WTO we have urged the creation of committees so that those who believe they are affected by trade agreements have a means of participating.

    That does not necessarily mean we are negotiating a labor agreement in the context of a trade negotiation. It does mean that all stakeholders must be involved. The process has to be transparent.

    We ought to make decisions as to what should or should not be negotiated on the basis of the best ideas, not on the basis of ideology.

    Mr. KOLBE. I appreciate the comment, your response, but I have to tell you that some of us who view, hear, and see what goes on sees it a little differently.

    The concern that I have is at least domestically that this insistence on including labor and the environment continues to drive a wedge between what I see as a rather fragile and a somewhat narrow pro-trade coalition that exist here in the United States.

    It is making it more difficult for us to achieve the things that we want. Thank you very much, Mr. Chairman.
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    Mr. ROGERS. Mr. Latham.

    Mr. LATHAM. Thank you, Mr. Chairman.

    Welcome, Ambassador Barshefsky.

    Ambassador BARSHEFSKY. Thank you.


    Mr. LATHAM. First of all, I want to commend you. Last year we talked about some agricultural issues. You said you were going to move them to the forefront and bring in someone at a higher level.

    Apparently, Mr. Scheer has been appointed the Ambassador of Special Trade Negotiations for Agriculture. I appreciate that very much. Keep it up.

    Recently, I wrote you along with a number of my colleagues from the midwest regarding ongoing negotiations with Mexico over the punitive tariffs being levied on high fructose corn syrup.

    Ambassador BARSHEFSKY. Yes.

    Mr. LATHAM. In fact, Mexico threatened to cut off imports of corn syrup. We cannot afford to lose that market. I just wanted to know what is your plan as far as the Section 301 trade investigation? Where are we?
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    Ambassador BARSHEFSKY. We are very disappointed and concerned by the actions of the Mexican Government in the case of high fructose corn syrup. We have been working very closely with the U.S. industry.

    We are looking very seriously at a case that they presented to us. I would expect you will have some announcement on that, maybe this week.

    Mr. LATHAM. Later this week?

    Ambassador BARSHEFSKY. Yes.


    Mr. LATHAM. Could you give me some kind of update also on how the European Union is regressing, I guess you could call it that, in fulfilling its WTO obligations regarding American beef exports and what you are doing to ensure that there is compliance?

    I see in one press release here about the impractical—it says it proves to be impractical for the WTO member to comply immediately with the recommendations. A reasonable period of time shall be given. What is that and where are we?

    Ambassador BARSHEFSKY. Right. I assume you are talking about the formal dispute with Europe?
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    Mr. LATHAM. Yes.

    Ambassador BARSHEFSKY. As you know, we won a panel ruling to the effect that the EU's ban on hormone-treated beef from the U.S. is WTO-inconsistent.

    We recently were equally successful at the appellate level. That means the EU must now comply. This is the way dispute settlement rules operate, and we were largely responsible for this. By ''we'' I mean the United States.

    In giving parties a reasonable period of time in which to comply with the findings of panels or appellate bodies we wanted to assure ourselves that we would never have to make any rapid changes without considering all our options, including the possibility that we would make no change and that we would simply compensate the foreign party by way of some other concession on a different good or service. The reasonable period of time has generally been held to be not in excess of 15 months, and significantly shorter if in fact a shorter period of time would be sufficient.

    We have said to Europe, and we will be having meetings with them next week, that plainly, the ruling of the panel and the appellate body is that you have no justification for maintaining this ban on hormone-treated beef.

    The only question then is how quickly are they going to lift the ban? Europe has not given us a response. They would like to conduct another ''scientific risk assessment.'' They have been spending ten years doing that and they still gin-up the science on the other side.
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    So, we will be having discussions with them next week. Depending on their response as to how quickly the ban will be lifted, we will look at all of our options.


    Mr. LATHAM. Very good. I encourage you to keep the pressure up. I am just curious about the situation in Asia. I know that you have talked a little bit about it. We have got—and maybe we have some leverage to open up the access for the pork industry.

    Ambassador BARSHEFSKY. Yes.

    Mr. LATHAM. Hopefully, we will find some way in our efforts to help stabilize their economies too. Also, maybe get some concessions and open up those markets.

    Ambassador BARSHEFSKY. Right. You know in our bilateral trade agreement with Taiwan, which we recently concluded, we have some very good access for pork.

    Even in advance of their acceding to the WTO, they have given the U.S. a special concessions with respect to pork as well as with respect to pork by-products.

    We were very pleased about that. The value of that concession is about $18 million annually. That is simply up-front only for the U.S. Once they are in the WTO, in the first year of accession, the value of their further barrier reductions will be almost $23 million. That number in addition to the $18 million. That number will grow every year as their restrictions are phased out.
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    So, we were very, very pleased with the outcome there. We have a very hard time in China on pork, as you know. That is something that we are working on with China as well as with Hong Kong.

    Mr. LATHAM. Thank you very much. Thank you, Mr. Chairman.


    Mr. ROGERS. We just passed the new African Trade Bill. The President is currently visiting the region. It is my understanding that the Administration's trade policy and the recently passed bill came up against some criticisms, most notably from South Africa's President Nelson Mandela.

    What were those specific criticisms? How does the Administration plan to address those criticisms?

    Ambassador BARSHEFSKY. I think the criticisms came largely from something of a lack of understanding, first of all, about the bill itself, and second, about the interplay between the bill and foreign aid.

    As I understand it, the South Africans were very concerned that the bill would serve as a substitute for foreign aid, which is not the case. The bill was viewed as a complement to foreign aid, but also as a recognition that foreign aid, unaccompanied by economic reform, does not produce the desired results in these countries. With respect to the bill itself, I think there was a misunderstanding that the U.S. would be setting a series of mandatory immutable conditions that African nations would have to meet, when in fact the range of conditions is quite broadly described and is much more discretionary so that different countries can be looked at individually to ensure that they are reforming in the manner that is suited to them and in the manner that best is able to comport with their own capability.
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    We have worked and the congressional staffs have worked very closely with many of the African embassies and many of the African leaders who have quite enthusiastically endorsed this initiative.

    So, the comments made in South Africa, I think, are evidence more of a full understanding of the bill and its parameters and the interplay with foreign aid, than a dislike necessarily of the overall approach.

    Mr. ROGERS. As I understand it, one of the concerns expressed by President Mandela was the impact that such increased trade with the U.S. would have on their ability to interact with countries that we consider a threat. What impact would the Administration's trade policy have on interactions with those states by South Africa?

    Ambassador BARSHEFSKY. That is something that we would have to look at, in part, with respect to Iran. I am not sure that the South African economic activity even arises under the threshold of the bill. Likewise, with respect to Cuba, I would have to look pretty carefully at what the level of South African interaction is.

    I cannot answer you specifically, but I will say that there is no restriction in the bill that would suggest that dealings with these countries are prohibited in any way. The dealings with those countries would be handled under the legislation that pertains to those countries, but not under the Africa Bill.

    Mr. ROGERS. Well, I have a number of questions I can submit for the record.
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    Chairman Callahan and other Members also want to submit questions for the record. We would like for you to respond to those.

    Ambassador BARSHEFSKY. Of course.

    Mr. ROGERS. We thank you very much for your testimony. We wish you well.

    Ambassador BARSHEFSKY. Thank you so much.

    Mr. ROGERS. We will take a 5-minute recess.

    "The Official Committee record contains additional material here."

Tuesday, March 31, 1998.




Opening Remarks

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    Mr. ROGERS. The Committee will come to order.

    This afternoon, we welcome the Department of Commerce's Under Secretary for International Trade, David Aaron in his first appearance before the Subcommittee.

    While this is Ambassador Aaron's first appearance before this Subcommittee, he comes to us with a strong background in international trade. He has most recently served as the U.S. Permanent Representative to the Organization for Economic Cooperation and Development.

    We welcome you and look forward to working with you. Today, we will discuss the Department of Commerce's trade promotion activities. As our businesses struggle to compete and thrive in an ever-increasing global marketplace, Commerce's trade promotion programs are critical to that success.

    You are our global salesmen, helping our industries succeed and we want to help you. At the same time, fiscal year 1999 will bring another year of resource constraints. So, we will be looking to you to help us prioritize and find ways to maximize our efforts.

    The fiscal year 1999 budget request for the ITA totals $286.5 million, a $3.4 million increase over fiscal year 1998. Ambassador Aaron, we will insert your written statement into the record. We ask you to summarize your statement.

Opening Statement of Ambassador Aaron

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    Ambassador AARON. Thank you very much, Mr. Chairman and Members of this Subcommittee. I appreciate the opportunity to appear before you in support of ITA's fiscal year 1999 budget request.

    Joining me at the table today is ITA's Deputy Under Secretary Timothy Houser. On my left is our Chief Financial Officer and Director of Administration, Alan Neuschatz on my right.

    As you noted, ITA's budget request is for $286.5 million and 2,299 FTEs; net increases of $1.3 million or 0.44 percent in funding and 59 FTEs or 2.6-percent increase over the fiscal year 1999 base.

    This is the fifth year for which we are requesting a nearly steady level of resources. In the State of the Union Address, the President spoke at length about trade. Today, the record high exports account for one-third of this country's economic growth.

    The President wants to keep it that way. Given the situation in Asia, from which I have recently returned, promotion and policy efforts are all the more important. We have been able to retain a flat line budget in these times of budget constraints and fiscal austerity.

    This reflects this Administration's commitment to promoting exports as an engine for economic and job growth. It also demonstrates the active support that we have enjoyed from this Committee. For that, we thank you, Mr. Chairman.

    By sustaining our funding at current levels, you will be able to enable us to continue our full service global network of resources through our Commercial Service and to effectively analyze U.S. competitiveness on an industry-by-industry basis in our Trade development-unit.
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    Through our Market Access and Compliance unit, we will continue to concentrate on monitoring compliance with trade agreements and overcoming market access obstacles.

    Our Import Administration group can continue to ensure a level playing field for American business through enforcement of the antidumping and countervailing duty laws.

    Since ITA is requesting only a very modest budget increase, our budget plan is aimed at focusing as many resources as possible from within the base towards ITA's highest priority activities.

    These are first, to strengthen compliance. Second, to open markets. Third, to promote exports. Our highest priority is on compliance with trade agreements and the enforcement of U.S. trade laws.

    Our Trade Compliance Center monitors foreign compliance with international trade agreements and provides an on-line Trade Complaint Center. That is a place where U.S. business can seek help at identifying and eliminating market access barriers.

    Illegal foreign trade practices will be targeted through the enforcement of antidumping and countervailing duty laws administered by ITA.

    Second, we must continue to break down trade barriers and provide U.S. business greater access to global markets. We must examine traditional tariff and non-tariff barriers and, together with USTR, find new innovative ways of lowering or removing them.
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    Last year, we achieved a remarkable breakthrough with the conclusion of the U.S.–EU Mutual Recognition Agreements covering more than $50 billion in trade in key competitive areas such as computers, pharmaceutical, and medical devices.

    This has been a priority of ITA. We look to expand these agreements to other key sectors like pressure equipment and marine safety equipment. Despite past success in the area of export promotion advocacy, we need to continue to strengthen these efforts.

    The Secretary and I plan to strengthen the role of the Trade Promotion Coordinating Committee. Our goal is to provide a seamless web of Government services from technical assistance, to advocacy, to trade finance, to help for small business; all to support our exporters at every phase of the contract and transaction process.

    We are engaged in the Government-wide effort to address the Asian financial crisis. We have put forward a four-point Asian initiative which is aimed at, first of all, providing analysis and information of what is going on in the region.

    Secondly, conducting visits to the area to ensure that this information is up-to-date, and to encourage keeping the markets open.

    Third, to conduct a series of seminars throughout the country with business and our domestic Commercial Service to share experiences, and to help them cope with this situation.

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    Finally, to put all of this information available at the Trade Information Center.

    Trade missions will also continue to be important. In addition to supporting Secretary Daley in his trade missions, I will lead as many trade missions as I can to promote U.S. exports. I will be leaving in ten days for such a mission, my first mission, which will be to China. Advocacy is also essential. In less than four years, our Advocacy Center has helped over 200 U.S. companies win more than 350 overseas contracts worth more than $50 billion in U.S. exports over the life of these contracts. Small- and medium-sized enterprises won $1 billion of these contracts with $650 million in U.S. export content.

    Small- and medium-sized enterprises are in fact the basis clientele of the International Trade Administration. I will work more closely with the small business community, with the Small Business Administration, and the EX–IM Bank to encourage participation in international trade.

    Small- and medium-sized enterprises account for 28 percent of all manufacturing output in the United States, but only 13 percent of total manufacturing exports.

    Since most of the growth of employment over the last several years is attributable to small- and medium-sized enterprises, it is vital for our economic future that these businesses look beyond our borders for new growth opportunities.

    I have created a new Small- and Medium-Sized Enterprise Task Force to coordinate and stimulate our multi-faceted activities to assist small- and medium-sized enterprises.
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    Finally, I believe that the International Trade Administration has a special responsibility to promote economic policies which will continue to support our country's foreign policy.

    United State foreign economic policy must continue to support the peace process in the Middle East, Bosnia, and Northern Ireland and the ongoing democratic transitions in Africa, the Newly Independent States in Central and Eastern Europe. Fair trade and open markets create stable economies in which democracy can take root and flourish. Let me now turn to ITA's budget request for fiscal year 1999.

    ITA is requesting a half-dozen modest budget increases to help us in implementing the priorities as I have stated them. First, we request $1.6 million and 25 FTEs to enhance the vigorous enforcement of antidumping and countervailing of duty laws.

    This will enable the Import Administration to implement critical provisions contained in the recently enacted Uruguay Round Agreements Act, such as the processing of sunset reviews, the establishment of a subsidies enforcement effort, and the processing of regular administrative reviews now under strict statutory deadlines.

    We request $1.6 million and 18 FTEs to enable MAC to deal effectively with the large increase in market access cases in China, to implement the U.S.-European Mutual Recognition Agreements, to help open markets in Asia, to implement the various agreements with Japan, and to begin negotiating market access issues in the upcoming Free Trade of the Americas Agreement and possibly the new Transatlantic Marketplace Initiative with Europe.
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    We request $1.1 million and 6 FTEs to continue the proven and highly successful Central and Eastern European Business Information Center, or CEEBIC, program which generates exports to Central and Eastern Europe, including Bosnia and significantly expands the U.S. commercial presence in those regions. It was previously funded by USAID.

    We proposed an initiative totaling $1.8 million and 10 FTEs to enable our U.S. and FCS unit to continue to focus on field export development planning and initiatives in major Big emerging markets. It builds on the fiscal year 1998 base, selectively staffing overseas offices with the personnel required to fulfill ITA's TPCC mandate as the lead U.S. agency for the promotion of U.S. manufacturers, exports, and services.

    We request an increase of $1 million to allow us to gather more data issues, statistical reports, and prepare economic analysis on international travel to the United States. The travel and tourism industry, in concert with State and local governments, can use this information to generate jobs, to increase international visits to the U.S.

    We have also included a request for $250,000 to fund an evaluation study on our U.S. and FCS field network. We would like to undertake a client survey which will help determine the most productive means of delivering service in the domestic field.

    Finally, the budget calls for a decrease of $6 million in base resources to be offset by increased fee collections. The increase in fee collections will allow for a shifting of the cost of producing trade information products and performing trade promotion services from appropriated funds to fees paid by those directly benefitting from the products and the services.
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    We have retained the services of a contractor to help us develop a successful approach to this. Preliminary analysis indicates additional fee collections are feasible, but would take several years to phase in. We will advise this Committee as to the contractor's final recommendations once the report is completed within the next few weeks.

    Looking ahead to the next century and to the new challenges we will face, ITA will use all of its resources in more efficient ways to help promote American business interests abroad and ensure that international trade creates more and better jobs for all Americans.

    Once again, Mr. Chairman, I want to thank you personally, Mr. Mollohan, and Members of this Subcommittee for your help over the past year in sustaining the level of resources for ITA. This enables us to increase U.S. exports and to support more high-paying U.S. jobs. With your guidance and continued support of this Subcommittee, ITA will continue to focus on those objectives that are so critical to the Nation's economic future.

    This concludes my prepared statement. I will be pleased to answer any questions or respond to any concerns.

    [The statement of Ambassador Aaron follows:]

    "The Official Committee record contains additional material here."

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    Mr. ROGERS. While your budget indicates you are requesting an increase for the Foreign Commercial Service for additional overseas staff, that is not the whole story.

    In fact, the budget proposes to cut that appropriation by $6 million and then to rely upon fees that U.S. and FCS would charge clients for what they now do for free to make up the difference.

    What specific fee increases are you talking about? Which users of your services would be impacted by these new fees?

    Ambassador AARON. The specific information products and services for which we would increase fees have not been determined.

    Mr. ROGERS. We will not know this beforehand.

    Ambassador AARON. Yes, we do. This is the reason why Booz-Allen has come in to examine this situation and do an assessment of the areas in which it seems that fee increases would be feasible and those where it would be unwise.

    I have to admit, Mr. Chairman, there is no question that this is a departure which requires addressing and facing some important policy issues, not the least of which is the question of the basic role and mission of the U.S. and Foreign Commercial Service in supporting small and medium-sized enterprises.
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    Mr. ROGERS. This is a ploy that we see throughout this budget submission this year that the Administration is cutting things like this and expecting us to authorize you to raise fees to make up the difference, hoping that the Foreign Commercial Service's customers will have to pay a fee for vital services.

    They know we are not going to go along with that. It is OMB's trick, another sham trick to come within a balanced budget. They have to come up with a balanced budget by charging for services that small business now get for nothing.

    That is what the Government is for. That is what we are paying you for is to provide new services, not to charge them for providing new services. So, you are going to have to change this. How can you change this?

    Ambassador AARON. Well, Mr. Chairman, the only way that we have known to try to deal with this situation is, as I say, is to get this study which would give us the best information we have for being able to raise fees.

    Mr. ROGERS. I did not ask you that. I said, how are you going to get by without charging these fees?

    Ambassador AARON. Well, then we will be faced with having to take certain reductions. Those reductions, $6 million could have a significant impact on our operation.

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    Mr. ROGERS. We have fought for years on this Subcommittee, and I have myself, personally, and most all of the other Members of this Subcommittee, have fought for years to build up the Foreign Commercial Service because it is a way for us to have salesmen abroad to sell American products.

    We are not about to let you or anybody else tear that down. Now, just get that through your head and arrange your business accordingly. We are going to properly fund the Foreign Commercial Service.


    They are not going to charge fees to business people selling products overseas. It is contrary to our goal. So, just figure out a way to do it. We do not need a study. You can save that money. How much are you going to pay somebody to go out and make a study?

    Ambassador AARON. About $50,000.

    Mr. ROGERS. Have you already contracted with them?

    Ambassador AARON. Yes, sir.

    Mr. ROGERS. You paid good money to get these services?

    Ambassador AARON. Yes, sir.

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    Mr. ROGERS. Well, it is going to be a useless product because it is not going to happen here.

    Ambassador AARON. Well, I do not think it will be entirely useless for one reason. That is that they have come up with, I think, some very good recommendations on new products that we ought to be providing to small- and medium-sized enterprises.

    I think at least that part of their study, no matter what the determination on this particular issue. It will be helpful on giving us guidance as we move forward.


    Mr. ROGERS. That is fine. As far as initiating new fees to charge American business people for your services overseas, forget it.

    We will properly fund the Foreign Commercial Service, even though you propose to cut them. I am alarmed and surprised, and chagrined that the Administration, again, is striking at the small business people.

    These are small business promoters overseas. These are not the GMs and GEs that you are helping. These are the small businesses that we represent. We fought for years to get these personnel on board.

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    We are not about to let you tear them down, I do not care what the OMB says. I have got to question where your priorities are.

    At the same time you requesting fees on users of the Foreign Commercial Service, small- and medium-sized businesses, you are requesting a $6.2 million for other program increases which I have to believe are not oriented toward small- and medium-sized businesses What are they for?

    Ambassador AARON. I guess, I am not sure what you might be referring to. These would be for the Trade Development unit, the Import Administration, and the Market Access and Compliance unit. For each of these units, we have a particular basis on which we would present these to you.

    First of all, for the enforcement of our trade laws, we are requesting $1.6 million and 25 FTEs for implementing the critical provisions contained in the Uruguay Round Agreements Act. This is aimed at dealing with the problems of the sunset provisions, that Act, which requires us to review some 400 orders. That is in addition, of course, to our regular work load.

    Mr. ROGERS. Is a part of the $6.2 million increase that you are requesting, does a part of that go to Market Access and Compliance?

    Ambassador AARON. Yes, it does.

    Mr. ROGERS. How much?
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    Ambassador AARON. $1.6 million and 18 FTEs. Then there is a portion that is supporting Central and Eastern European Business Information Centers, CEEBIC, which is aimed at supporting our commercial presence in Eastern Europe, Eastern and Central Europe, including Bosnia.

    Mr. ROGERS. Well, Market Access and Compliance is headquartered here in Washington. We have cut that program over the last three years believing that the Foreign Commercial Service, our front line, will continue helping our small and medium-sized businesses, not the trade policy analysts in Washington. That is the reason why I will not let you whack the Foreign Commercial Service in favor of Washington bureaucracy.


    Ambassador AARON. Well, I can appreciate that, Mr. Chairman. May I suggest that this particular allocation also has to be seen in the context of the realignment in ITA, which we are proceeding with at the same time that this budget for 1999 is going forward.

    In that realignment, we are looking forward to producing up to 50 FTEs which would go to the U.S. and FCS to provide additional resources for the field, but this would be in this year's budget.

    Mr. ROGERS. What realignment are you talking about?

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    Ambassador AARON. This is not part of the budget submission for this year, but it is taking place at this time. We have briefed the staff on the general outlines of this and will be coming forward in due course with the normal reprogramming efforts.

    Mr. ROGERS. We have not seen your reorganization report.

    Ambassador AARON. That is true, Mr. Chairman.

    Mr. ROGERS. So, we will need to see that before we decide how much to spend.

    Ambassador AARON. That is true.

    Mr. ROGERS. And for what purposes. It is things like this that we have to look at very carefully.

    Ambassador AARON. In fact, the effort is to try to be responsive to the message that I believe this Subcommittee has been sending us for the last several years, that you would like to do precisely the reverse. We get that message.

    Mr. ROGERS. You are not doing that with this budget submission.

    Ambassador AARON. Well, I am doing the best I can, given the constraints that are on us, Mr. Chairman.
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    Mr. ROGERS. What constraints?


    Ambassador AARON. I have to defend the President's budget.

    Mr. ROGERS. I see. So, what you are telling me is that this is not your doing. This is what OMB is telling you to do.

    Ambassador AARON. I think that I have to defend the President's budget, Mr. Chairman.

    Mr. ROGERS. I see. What did your request to OMB contain?

    Ambassador AARON. Our request to OMB did not contain this provision.

    Mr. ROGERS. This provision came down to you from on high.

    Ambassador AARON. As you noted, this is a general Administration effort to charge more fees in different areas. This is our share.

    Mr. ROGERS. Since they cannot spend appropriated funds because of budget caps, they are proposing fees all over the place. They have got fees on everything that you can imagine submitted to us this year, trying to get under the spending caps.
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    It is a sham. It is a fraud. I will not put up with it. They wanted to increase for the SBA. This does not concern you at all, but the SBA Administrator came in here and said they want to double the interest rate that is charged to people who need loans because they have been wiped out by floods, tornadoes, or other disasters. Their only access is to an emergency disaster loan from the U.S. Government and the Administration wants to double the interest rate charged on those poor people. They have no other access and they are absolutely prostrate and destitute on the floor. They want to double their interest rate. We ran the Administrator out of the room.

    Now, you do not want to increase these fees; do you?

    Ambassador AARON. As I say, Mr. Chairman, I will do all in my power to both defend the President's budget and also serve the small business community.

    Mr. ROGERS. Well, we want you to do the latter; whatever it takes.


    Ambassador AARON. Could I volunteer a comment, by the way, concerning MAC?

    Mr. ROGERS. Yes.

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    Ambassador AARON. I recognize the view that you have expressed as an important one and have taken it to heart. I think it is very important to recognize that the desk officers in MAC are not sort of some thumb-sucking analysts who are just sitting around thinking about what might be nice in the trade world.

    These people are essential to our compliance efforts, for example. The Trade Compliance Center, which you have very generously funded and which is up and running, and in fact has even got a higher level of staffing than you have proposed. This group is expert in our trade agreements. They analyze economic data to find out whether there might be some problems of compliance. But when it comes to a particular country, they do not know about that.

    They are not expert in that. If we were to build that expertise into the Trade Compliance Center, we will simply be duplicating the desk officers we have already got. Now, we reduced, at your direction, the number of desk officers that were available to MAC.

    We have done it by getting rid of people who did business counseling and who did a number of other things that should not be done in Market Access and Compliance.

    We have a series of market access problems. There are only three people working on China. We have half as many people working on Japan as we had just a few years ago.

    We may have these new negotiations beginning with Europe. We have the Free Trade for the Americas Agreement where we have half as many people working on that in Latin America as we did when we were negotiating NAFTA.

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    We now have to negotiate with 33 other countries. In order for the business community to provide its input so that our negotiators are really negotiating on behalf of the business community. We need these people because that is what they do. They bring that perspective to the table, both on our compliance efforts and on our negotiations.

    Mr. ROGERS. Well, I mean, I have got nothing against MAC. It is obviously a necessary entity and it does good work as you have described. However, given our tight budget constraints, if it is a choice we it will FCS rather than Market Access and Compliance.

    Ambassador AARON. I appreciate that.

    Mr. ROGERS. And that is about where we are with tight money. We are asking you to look at this very carefully and recognize that we cannot go on with the fees that you wanted to charge the Foreign Commercial Service's clients overseas and our constituents. They think they are paying their taxes. Mr. Mollohan.

    Mr. MOLLOHAN. Thank you, Mr. Chairman.

    Ambassador Aaron, welcome to the hearing, you and your colleagues. I just want to express my appreciation for the good work you do, the trade development, and the market access compliance group, and for the administration of the U.S. and Foreign Commercial Service.

    You do valuable work with businesses. We appreciate that. I am interested in your expanded comments on MAC and justifying it and expressing disappointment maybe in having to reduce personnel in that function.
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    Do you have anybody who does Korea?

    Ambassador AARON. Yes.

    Mr. MOLLOHAN. What do they say about Hanbo Steel?

    Ambassador AARON. We are working with both the desk officer there and with the Import Administration on the Hanbo Steel Case.

    Mr. MOLLOHAN. What does that mean?

    Ambassador AARON. What it means in this particular case is we have been developing information from industry, from the concerned U.S. industry people. We have been discussing with the Korean Government the problems that we have with Hanbo Steel.

    We have, of course, as you know put them on the special 301 list last October. We have been discussing with the Korean Government the circumstances. I have personally discussed with some Korean officials, when we were there a few weeks ago, a somewhat mysterious situation in which a bankrupt company continues to operate pretty much at full blast.

    Due to these circumstances, we are now looking very carefully at the possibility of whether there is a case here under our countervailing duty laws.
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    Mr. MOLLOHAN. If there is not a case here, I would like to know a set of facts that constitutes a case. Reading from an excerpt of the testimony of the President of IPSCO Steel before the House Banking Committee.

    He said, ''Between 1992, a long time ago, and 1996, Korean banks, lead by the Government-owned Korean Development Bank, loaned almost $5.8 billion to Hanbo Steel to build a green field 9 million ton steel complex on Asin Bay in Tangin, Korea.

    At the start of this period, Hanbo's debt equity ratio was already 5 to 1. By the time the company declared bankruptcy in January of 1997, the debt equity ratio had ballooned to over 22 to 1.

    Hanbo, a clearly uncredit-worthy company, obtained these loans because of Government-directed lending practices and the Korean Government policy to expand the steel industry. Even after the company filed for bankruptcy, the Government continued with subsidies.

    It's Trade Minister, Soon, stated on February 4, 1997, ''The priority is to finish the construction of Hanbo's steel mill by the end of this year through additional financing and commissioned management by Po Hang Iron and Steel.''

    Another Finance Minister official, Young, said, ''For the benefit of the national economy, we must keep the plant operating.''

    February 18, 1997, the Committee on Pipe and Tube Steel Imports and three U.S. flat roll steel producers, including Weirton Steel—filed a request with the USTR and the Department of Commerce to pursue a dispute settlement case with WTO for the Korean Government subsidies code violations with regard to Hanbo subsidies.
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    The industry has submitted an awful lot of material to you. One of your Korean desk officers in MAC would not have to work real hard to put it together. As I understand it, your responsibility is to assimilate the facts and submit them to the USTR. Have you done that yet?

    Ambassador AARON. It is being assembled and it is being assimilated. Let me, if I can, just explain the situation as it stands.

    Our principle work has been with U.S. industry to get all of the facts, as you have pointed out, that they have available to them. We are encouraging them to do that as expeditiously as possible. The rules under which we are operating require that we show a serious prejudice. In other words, we have to show that there has to be injury to the domestic industry.

    They have to have lost exports. We will demonstrate that. We have to demonstrate lost sales and financial harm. Secondly, we have to analyze the actual subsidiaries that are alleged; the type of subsidies, and are they prohibitive.

    We need enough information, despite the amount that has been given. I think the conclusion is that we are now digesting this enormous amount of information, but trying to prove our case. There is no foot-dragging here. There is no inattention. We do know this is an important case.

    Mr. MOLLOHAN. Excuse me, Mr. Ambassador. You do not prove a case at this stage. You are assimilating facts and turning them over to trade representatives; are you not?
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    Ambassador AARON. Well, we are trying to build a case though.

    Mr. MOLLOHAN. You are assimilating facts. Then the decision lies with the USTR of whether to bring the case to the International Interagency Task Force.

    Ambassador AARON. That is their decision.

    Mr. MOLLOHAN. So, that is down the road. You are not trying to decide the case now. You are assimilating facts.

    Ambassador AARON. Well, I think we are trying to build a case so that when USTR gets it, they can see from this basis whether there is a case or not. They are not in a position really to do much else.

    Mr. MOLLOHAN. The point is that this is really taking a long time. If you take that long assimilating facts to give to USTR, you are not in the business of helping American companies.

    Then it goes to this agency task force. Then we are going to have all of the conflicting foreign policy issues that are going to be raised. This is demonstratable, obviously a prima face subsidy situation.

    The harm that is being created is significant. It is pretty evident also. Given the Asian financial crisis that we are facing, we really are very concerned about what impact it is going to have on the domestic steel industry.
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    Korea is already, as I understand it, shutting down imports of steel into Korea. Did you know that? Am I right about that?

    Ambassador AARON. Our exports to Korea. They shut down imports into Korea.

    Mr. MOLLOHAN. Yes. That is my understanding.

    Ambassador AARON. Our understanding is that they have shut down almost all imports from every direction. This has been principally a result, not a customs action, or a tariff action, or anything like that. It is the result of the lack of credit to do any importing.

    Mr. MOLLOHAN. Well, perhaps true. I am advised also that the steel they are producing is going at $200 per ton and it is about $350 on the world market.

    Anyway, it is a very difficult situation. It is certainly a constituent issue with me. It is also a national policy issue.

    I just would encourage you to do your part and get the case moving as quickly as possible. I do understand it is in your lap, if I am advised correctly.

    Ambassador AARON. That is correct and I will get it out of my lap as soon as I possibly can.
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    Mr. MOLLOHAN. Thank you, Mr. Ambassador.

    Thank you, Mr. Chairman.

    Mr. ROGERS. Mr. Kolbe.


    Mr. KOLBE. Thank you very much, Mr. Chairman.

    Ambassador, thank you for being with us this afternoon.

    I wanted to ask first a general question on some of the trade data statistics that we get and the adequacy or the inadequacy of them.

    In a recent book, Work of Nations, Robert Reich refers to our trade statistics as almost being bankrupt, I think he says. In fact, here is the quote. He says our trade statistics are ''notoriously imprecise, subject to widespread seemingly inexplicable corrections.

    The truth is these days that no one knows exactly at any given time whether America's international trade is in or out of balance and by how much.''

    Paul Risten in Twilight of Sovereignty said that, ''The current trade accounting system is totally inadequate.'' First of all, I would like to know whether you think it is as bad as they have suggested it is? If so, what are we doing to enhance our trade data system?
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    Ambassador AARON. Well, first of all, if our trade deficit was not as large as it is, Mr. Reich's comments might be correct. The uncertaintities in it might make it difficult for us.

    Unfortunately, our trade deficit is so substantial that I do not think the question of this precise number is as salient as the fact that the number is growing, and is large, and, from my point of view, unacceptable.

    On the question of the data itself, let me say that there are three areas where we could improve our trading data in my judgment. Well, let me make it four areas. First of all, we used to have a program that provided for State-level export-related job data. That information was extremely important because it gave us the sense of how many jobs were being created by the exports and helped us enormously in ITA because we could see whether our work from the Foreign Commercial Service was in fact supporting jobs, or it was not supporting jobs.

    It gave us an efficiency mark. This program was canceled in 1996 because of budget stringencies. There is no data on this since 1991. In other words, the delay in getting this data was so great that, by the time we got it, it was substantially out of date.

    There was a four-year lag. These were the only defensible statistics that we had on export support of jobs and production in each State of the Union, which obviously is extremely important both to States and to the Federal Government.

    We have talked to Census about this. They say they could restart this program for a half a million dollars, and that it would cost about $250,000 annually to keep it up to date.
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    The second thing is the exporter database. These are the statistics on the number of exporting companies broken down by size, industry type, type of company, state location, metro location, and so forth.

    It provides the share of exports that are attributable to small- and medium-sized enterprises. We do not know that number without this database. The problem is that we only have data for 1992. Here we are in 1998.

    We have no funding for an update. Census has told us that they can produce this data on an annual basis. We could have it every year with only a one-year delay for about $680,000.

    This would be a critical input to our measurement of the effectiveness of our own programs. Third, there are State and metropolitan area export statistics. Here we have significant limitations in the data.

    A major problem is that over $58 billion in exports cannot be allocated to any State due to faulty reporting by exporters, the quality of the data, and inadequate staff frankly to try to overcome these problems.

    Right at the moment, we have annual data only. The report lag is nine months. We have the problem of $44 billion in exports that cannot be assigned to any metropolitan area.

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    So, we have the numbers, but we do not have the ability to allocate them property to the places where they are supposed to be.


    Mr. KOLBE. Excuse me for interrupting, but in your budget request, I do not see any of that listed as one of your priorities for any of those programs. Am I wrong?

    Ambassador AARON. No, you are not wrong.

    Mr. KOLBE. Those are not priorities for you?

    Ambassador AARON. Well, they would be priorities if we had a little more money.

    Mr. KOLBE. Thank you for the non answer.

    These are not priorities in this year's budget?

    Ambassador AARON. Well, let me put it differently. They are priorities of ours, but they would be in the Census budget. So, they would not be reflected in our budget.

    Mr. KOLBE. Wait, wait, wait, wait. Census collects the raw data now. You would have to pay to get the information in the form that you needed it. It should be in your budget. Is that not correct?
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    Ambassador AARON. Well, in fact, it could be in either budget. You are correct.

    Mr. KOLBE. The Census Bureau has testified that they have the data. They have no way to manipulate it or make any use for it because they do not have the resources to do it. So here we collect the raw data.

    I would argue that it is more for the specific use, the trade use of trade statistics falls more in your budget. This sounds like a classic falling between the cracks kind of thing.

    The data is collected. You say, well, Census does not have it in their budget. The Census says, well we collected the data. All we have is the raw data here, but nobody is making any use of it. It strikes me that somebody needs to be talking about this.

    I think census and ITA are both within the same Commerce Department, the last time I checked. Maybe the two parts need to talk to each other about this. I had not really attempted to pursue this.

    I find this a little shocking that you are telling me that it is possible to do these things with a pretty small amount of money and they are not in your priorities for you.

    Ambassador AARON. Well, as I say, they are in our priorities, but the budget cut did not come in at a place that allowed us to put this in our budget. I mean if I had more money, I would be doing this. I think it is very important.
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    Mr. KOLBE. You did ask for $1 million to gather data issues and prepare economic analysis on international travel. Is that more critical than all of our manufacturing and services? I am not saying that travel data is not important, but I think frankly you have your priorities a little wrong.

    We are going to have to go here. So, let me follow, if I might with another line of questioning. I come at this from a different point of view than some of my colleagues here.


    It has to do with the issue of dumping. You talked about the anti-dumping and countervailing duty laws. You talked about in fact your very first priority was $1.6 million and 25 FTEs for vigorous enforcement of anti-dumping and countervailing duty laws.

    I just have a couple of questions in that area. The Uruguay Round Agreements recognizes that U.S. industrial users and consumer organizations ought to have a right to participate in the proceedings relating to anti-dumping and countervailing duties.

    That is also recognized I think in your Department's regulations. What role do these groups play now in this process?

    Ambassador AARON. Could I use this opportunity to ask our Assistant Secretary for Import Administration to comment on this?
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    Mr. KOLBE. Fine. All of my questions are in this area, so you might as well pull the chair right up there and identify yourself for the record.

    Mr. LARUSSA. Congressman, my name is Robert Larussa. I am the Assistant Secretary for Import Administration. In answer to your question, industrial users do in fact participate in antidumping cases.

    Our regulations do give them the right to comment, to submit information for the record. I think your question probably is focused on whether they can actually bring a case or whether they can actually ask, let us say, for a changed circumstances review. We have said in our regulations that we have the right to self-initiate a change circumstances review and would do so if there is information on the record submitted by industrial users that we thought could be enough to go ahead.

    Mr. KOLBE. You have said that you have the right to self-initiate if you have a basis, if you have factual data which suggest that you should self-initiate?

    Mr. LARUSSA. Yes, sir. It is just like a legal case.

    Mr. KOLBE. Would you provide for the record the number of self-initiated proceedings that you have undertaken?

    Mr. LARUSSA. We will come back and do that.
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    [The information follows:]


    There have been three self-initiated proceedings undertaken by ITA's Import Administration unit.

    Mr. KOLBE. Can you tell me right now how many you have done?

    Mr. LARUSSA. I could not tell you right now. As you know, for example, we initiated a changed circumstances review in Korean color televisions last summer. I know we have several others. I can get you a list for the record and submit it to you.

    Mr. KOLBE. Now, do you do these when they are not requested by the industrial users who file the antidumping case in the first place?

    Mr. LARUSSA. Yes. We can self-initiate.

    Mr. KOLBE. Have you ever made a change, the determination of a change, over the objections of the organization or the industrial user that initiated the original antidumping case?

    Mr. LARUSSA. Well, there are probably two ways to answer that. I just want to be clear. We initiate changed circumstances review when we see something has in fact changed in a case.
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    Very often the petitioners in the case will not agree with us that something has changed and it is something that we go back on. We make a decision based upon information submitted by petitioners and respondents.

    So, in fact, we have done changed circumstances reviews in which petitioners have not agreed with our ultimate decision to either revoke or change the order.

    Mr. KOLBE. You have revoked orders over the objections of the individual, or the organization, or the company, or the association that filed the original antidumping case?

    Mr. LARUSSA. We have a situation and I will give you an example. We have a situation in Korean color televisions, for example, in which we initiated a changed circumstances review last year.

    We made a preliminary decision to revoke the order in that case. That was over the strong objection of the petitioners.

    Mr. KOLBE. Without the petitioner, and in this case, the petitioner did not file a statement of no objection to— I cannot think of a different phrase, but they did not agree that they had no interest in the case any longer. They specifically said they did not want it revoked and you revoked it.

    Mr. LARUSSA. I do not want an unanswered question because I think what you are referring to is the short supply
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    Mr. KOLBE. Yes. I am getting around to that short supply, but I thought it was also true in the changed circumstances.

    Mr. LARUSSA. Well, the changed circumstances really is just a procedural vehicle that we could use in a short supply situation. Again, to answer your question, in fact we have testified on a number of occasions that we do believe it would be difficult for us to revoke over the objection of petitioners in short supply situations.

    I think that is what you are getting at. There were two different things. I did not want to not answer your question.

    Mr. KOLBE. What does the Commerce Department do concerning products that are in short supply, but are nevertheless subject to antidumping and countervailing duty orders?

    Is it not true that Commerce does not take action to relieve the burden unless the petitioners specifically consent to the change? That is what I was trying to get at in my earlier question.

    Mr. LARUSSA. I understand. We have addressed this in our regulations that we put out last June. What we did is we put two procedures in, in which we would very early in the case go to the petitioners and say, is there in fact a short supply situation here?

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    Do you in fact not make the product? If so, that we would initiate a scope proceeding, which is a way we can change the scope of the order that the products cover. So, the answer is we go to the petitioners and we try to work with them.

    We have found, from our experience, that the petitioners and the domestic industry do not. Usually they have a problem with us revoking that part of the order.

    Mr. KOLBE. It is not true that you very frequently do. Do you require them to state a reason for their objecting to removal when you find a changed circumstance?

    I am told that they simply put a statement in saying, we object. That is it period. They supply no reason and that is the other thing. The hearing is finished. The review is over and that is it.

    Mr. LARUSSA. Well, again, not to get into procedural niceties here, but if we had in fact initiated a changed circumstances review, petitioners and respondents would put their information on the record.

    We would make a decision based upon that. I think, sir, what you are asking is whether we revoke orders or parts of orders in cases where there is short supply. The truth is, again, that we would go to the petitioner and try to work with them.

    If in fact, the petitioner objects to it, meaning they are making those goods in question, we generally will not revoke the order of the objecting petitioner.
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    Mr. KOLBE. I have to go cast my vote. I have a series of specific questions dealing with finished drill pipe, not produced in my state, not used in my state, not a parochial interest. But, I think it is a classic example of the way in which this whole process has broken down.

    I will submit these specific questions for the record and ask for a response for them. It is a classic example of an industry that is in desperate trouble. As the oil prices are falling, we need to do everything we can to try to maintain domestic production of drill pipe.

    We have a critical shortage of finished drill pipe. We have an antidumping order against it. We do not produce it here but we can import it. It cannot be provided because of an order. It has now gone to a 300-percent price increase and an 18-month delay in delivery.

    So, we basically have shut down all drilling in this country because of these stupid orders that we have in place which remain in place with no attempt to make any change to it.

    I will submit these questions for the record.

    Thank you, Mr. Chairman.

    Mr. ROGERS. Mr. Skaggs.

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    Mr. SKAGGS. Thank you, Mr. Chairman.


    Jim, it turns out, we are on largely the same course having to do with the trade statistics matter. I hope we can collaborate when we get to mark-up.

    Mr. KOLBE. We will.

    Mr. SKAGGS. With that warning, let me continue the dialogue you were having with Mr. Kolbe for a minute, Ambassador.

    I apologize for not being here when you made your opening statement and had discussions with the Chairman. There was something on the House floor that I was involved in at the time.

    The entity that did not come up in your conversation with Mr. Kolbe was the Bureau of Economic Analysis, which I thought from my scanning of the job descriptions within the Department was a kind of intermediary that scrubbed the raw data that Census obtains for your use and for others. How would you describe their role?

    Ambassador AARON. I think that is a fair way to put it. Indeed we work very closely with them. They bear much of the analytical burden.

    Mr. SKAGGS. In fact, if we were to try to develop more discrete and precise measures, both on the export and the impact of import statistics, would it be done by the Bureau at your direction? What is the relationship between data gathering, data analysis, and data use?
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    Ambassador AARON. It is done in different ways. Census is an important player in the development of the information to begin with.

    Secondly, the Customs Service is another important source of information. The more fine grained you get as to who is actually doing the importing, who is actually doing the exporting, that is essentially the Customs Service.

    Mr. SKAGGS. Is that data now collected, but just not able to be analyzed?

    Ambassador AARON. It depends on the circumstances. For example, we are now in the process of monitoring, because of the Asian crisis, we are going to be monitoring imports; particularly, in sensitive industries both for the purpose of being able to enter into an appropriate dialogue with industry, if they come up with anecdotal concerns of the sort that we have heard here already today. We will have a firm database from which to discuss it.

    Secondly, to get, if you will, a jump on the issues of the kind that have been discussed here today. In that particular case, we are going to the Customs Service to get them to collect this information in a way that is more usable for us.

    In a sense, they collect the information, but I think it is fair to say that it is not really in a handy form. So, we will have to work together to put this in a form that is really useful to us.

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    Mr. SKAGGS. I think one of the things that was on Mr. Kolbe's mind and certainly is on mine is that, when we have had the debates on trade policy, Fast Track, or whatever here in the last several years, there has been a surplus of anecdote and rhetoric masquerading as fact.

    That is something that applies to both sides. We have a deficiency in terms of real hard discrete data that can help inform our policy judgment. Given how much is at stake here and how much this Administration believes in an aggressive trade policy, I would think that it would not require a lot of forced feeding to get resources put to this task.

    One, I would like a comment on that. Two, I would like to have for the record your best cut at what we could expect to get for some specific additional increments of funding; and whether it would go to you, or whether it would go to the Bureau of Economic Analysis, or to Census—or even whether we should be talking to our colleagues on the Treasury Postal Subcommittee about what funding Customs may need.

    Ambassador AARON. I will be delighted to provide that.

    [The information follows:]


    The Department has for some time been examining how we can improve our overall statistics on U.S. trade and the impact of trade on our economy, particularly at the state and local levels. We have concluded that many improvements are technically feasible in the area of merchandise trade statistics.
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    For approximately $1.2 million annually we can revive the State-Level Export-Related Jobs data program which provides, for each state, defensible statistics on export-related jobs and production. We can also update and produce annually the Exporter Data Base (EDB), which provides statistics on the number of exporting companies, broken down by size, industry, type of company, state location, metro location, and the share of exports attributable to small- and medium-sized businesses.

    Preliminary calculations indicate that additional, substantial data enhancements can be achieved for about another $1.7–$3.2 million annually, depending on the extent of measures adopted.

    A $1.7 million additional annual investment would permit the Department to make limited improvements in the quality of state and metropolitan export data, as well as permit ITA to significantly expand its program for publishing data and reports on state and metropolitan export performance. Additional funding at this level would permit ITA to issue, for each state, annual reports on state export performance. It would also permit the Department to issue metropolitan export statistics every six months, instead of once yearly is now the case. ITA would also be able to issue detailed yearly reports profiling export trends in individual metro areas throughout the nation. Finally, ITA would take steps to monitor each state's export situation on a quarterly basis, so as to provide early warning of problems caused by major international developments such as the Asian financial crisis.

    An annual investment of $3.2 million (which includes the above $1.7 million) would permit all of the enhancements described in the previous paragraph, plus major improvements in the quality and timeliness of our merchandise trade data at all geographic levels—national, state, and metropolitan. The added resources would permit a significant expansion of the department's effort to computerize the filing of export declarations. This would substantially reduce the error rate and shrink the value of exports (currently about $58 billion) which cannot now be allocated to any state due to filing errors by exporters.
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    In sum, for a total annual price tag of about $4.4 million, many of the most critical weaknesses in the nation's merchandise trade data system can be effectively addressed.

    Compared with merchandise trade statistics, improving U.S data on services trade poses special challenges.

    The analysis of the effect of international trade on the U.S. economy is increasingly hampered by inadequate data on trade in services. Services constitute a rapidly growing, volatile component of U.S. trade. Our Bureau of Economic Analysis (BEA) estimates for 1997 indicate a U.S. current-account surplus on services of $102 billion for the year. The 1997 current-account balance on goods and services combined for that year was a deficit of $97 billion.

    BEA has expanded the coverage of international services in recent years in an attempt to keep up with the increasing importance of services, but timely data on a quarterly basis and data in sufficient detail for expanded analysis remain lacking. To close that gap, BEA's FY 1999 budget request includes a proposal to improve coverage of trade in services by (1) establishing a pilot quarterly survey of the most important services now covered by the existing annual service survey, and (2) integrating into data collection for trade in ''affiliated'' services new information from BEA's revised surveys of U.S. direct investment abroad.

    Ambassador AARON. I might just say that the main thing we need from the Census Bureau is not that they do not collect the numbers, it is that they have to do specialized computer runs which are not inexpensive.
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    So, that kind of sorting of the data is always the most difficult part. The actual collection, as you have said, takes place.

    Mr. SKAGGS. Well, I did not know whether you had additional amounts that you did not have a chance to mention when you were discussing this with Mr. Kolbe. I was taking notes. It looked as though we were in the roughly $1.5 million range to get from where we are to something that would be significantly more useful, both for congressional policy purposes and for administering all kinds of programs that Commerce and other agencies of the Government are involved in.


    Ambassador AARON. Yes. I think that is about right. The only exception to that is, and this is a big exception, is services data. We have a much more difficult time measuring services to begin with and then reflecting it appropriately in our statistics.

    We have had conversations with Census and BEA about this. There is some really hard work that needs to be done to get a better handle on it. I think that is reflected in the numbers that came back to us when I asked them about this, which was someplace between $2 million and $10 million. That gives you a feeling that maybe there is some conceptual work that needs to be done, not merely turning the spigot on and turning it off.


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    That is where we are in that particular area. I might add finally that reference was made to the tourism numbers. Again, tourism is the largest service export that we have; $90 billion per year.

    So, it is not a trivial thing from our standpoint. The data is okay, but not great. What this will do is provide two specific things. One, it will provide us with a specific satellite account in our set of national accounts that will identify the tourism area.

    The second thing it will do is that it will increase the accuracy of the information that we get by increasing the sampling that we do. This will be very helpful, not just to the industry, but even more importantly to cities and States who are engaged in tourism promotion.

    About $20 million is spent by these States in trying to entice foreign visitors to come to the United States for various reasons. This information is extremely important to them in figuring out who their target markets are.

    Mr. SKAGGS. Well, I do not want to suggest that is not important and valuable. I think compared to the improvement in the public dialogue about trade generally that I would hope would result from improvement in that other category of data, we are talking about something that is much more important for the country, or certainly as important as the tourism data.


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    I'd like to bring up just one other thing, if I may, Mr. Chairman, the Advocacy Center. A small architectural firm in Colorado used the Advocacy Center, and it was really critical in getting them into the finals, even though the firm didn't get the contract. I think there is a perception that somehow the Advocacy Center is for the big boys only.

    I just wanted to get more of a flavor of what kind of work the Advocacy Center is able to do for medium and small-sized firms that are trying to break into the export world.

    Ambassador AARON. Between 1996 and 1997, the Advocacy Center supported 39 projects and succeeded. They were 39 projects in small- and medium-sized enterprises and produced $1 billion worth of business; about half of which was U.S. content as a result.

    Obviously when advocating on behalf of smaller companies, you are going to need more manpower. It is more labor-intensive, more letters and all of the rest of it. We think that is a pretty good show for that period of time.

    I would make two observations, if I could. First of all, when we advocated on behalf of Boeing, which is one of our biggest advocacy projects, we were also advocating on behalf of roughly 1,000 subcontractors that support Boeing.

    Now, if you go to those subcontractors and ask them does the Commerce Department help you in any way or are you even in the export business, they might well say no. But the fact of the matter is, we are really advocating on behalf of that entire trade of suppliers, contractors, and subcontractors for these large groups.
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    The second point I would make is this, since we had a $400,000 hit last year from the Congress in the Advocacy Center, we therefore had to reduce the number of people working in the Advocacy Center by one-third.

    This makes it much more difficult for us to do the kind of retail advocacy that is required for small- and medium-sized enterprises. The smaller group you have, the less people you have to work with small- and medium-sized enterprises.

    So, this is the reality of the situation. We have, nonetheless, placed even more emphasis in the work that we are doing now on small- and medium-sized enterprises within the context of the resources we have available to us. I think that will be reflected in the numbers as we go forward.

    Mr. SKAGGS. Thank you, Mr. Chairman.

    Mr. ROGERS. Mr. Latham.

    Mr. LATHAM. Thank you, Mr. Chairman.


    You are not the first Department that has a difficulty defending these user fees. I have not found one yet that actually submitted a request for user fees and got it.

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    One real concern that I have and maybe you can help me is with what I believe to be a tremendous increase in energy costs for American businesses, and excluding a lot of foreign countries from the Kyoto treaty.

    Do you have any idea of what kind of an impact that will have on the small and medium-sized businesses here in the U.S.?

    Ambassador AARON. We do not have any numbers on that at the present time. I will be happy to talk to my staff and see if there is some analysis that could let them respond to your question.

    [The information follows:]


    The impact on small and medium-sized enterprises of possible cost increases associated with the signing of the Climate Change Treaty will be minimal. Only the small number of highly energy intensive firms will feel any real impact, but their major competition will not come from abroad, but from less energy intensive firms producing the same or similar products or services within the U.S.

    Mr. LATHAM. Tell me if you would agree or disagree I guess. It would certainly put us at a severe disadvantage as far as being competitive. A lot of businesses, are very energy-dependent, huge consumers of energy, and obviously that would put us at a real disadvantage. Would you agree with that?
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    Ambassador AARON. Well, I think that is the reason why we have objections to a number of the facets of this Global Change Agreement and why we were only prepared to look at it as a framework and thought the developing countries had to be a part of it.

    We object to the European bubble because it has inequities in it. All of these things would be to the disadvantage of U.S. industries, large and small.

    Mr. LATHAM. Are there any other objections outside of the European bubble you are talking about in specific terms?

    Ambassador AARON. Well, we are concerned about having real commitments from the developing countries.


    Mr. LATHAM. I just have one other question. Mr. Eisenstat, last year, in the testimony answered a question I had about coordination with the Trade Promotion Coordinating Committee; obviously from Iowa, agricultural interests.

    He said, I do not believe that the Department of Agriculture is as integrated in the efforts of the TPCC as I think they ought to be. Have you seen any improvement from the Department of Agriculture as far as coordination and involvement?

    Ambassador AARON. I think so, yes. In fact, they have been particularly helpful in working with us in the areas of replacing machinery, food processing equipment, this sort of general area in which we are responsible, but it is really, in effect, their part of the country and their customers who are knowledgeable about it.
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    Mr. LATHAM. So, you are saying machinery and equipment. What about agricultural products themselves?

    Ambassador AARON. In agricultural commodities, I think the Agricultural Department's view, which I happen to agree with, is that they have both the resources and the expertise to pursue those projects when it comes to trade missions.

    Let us just take an example, the recent crisis in Asia. The Agricultural Department, while this was not a case in the context of TPCC, the Agricultural Department worked very closely with other agencies to move quickly to make agricultural credit available to Indonesia and to some other countries where they had not been operating as they had been in the past.

    They moved very quickly with a lot of initiatives and a lot of support in a general effort to stabilize the situation and rectify the financial difficulties as far as providing credit for agriculture. So, I would say that the Agriculture Department is cooperating quite substantially with the general trade communities.

    Mr. LATHAM. It does not sound from your answer that you have the concerns that Mr. Eisenstat expressed. Also, maybe you do not think it is as important for them to be as involved as other agencies.

    Ambassador AARON. Well, you know, the issue to be perfectly frank about it is I think that there is a frustration on the part of some other parts of the economy that the financial resources available among agricultural exports are greater than are available to other exports of other kinds such as manufacturing, services, and the rest.
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    Now, this is a basic decision that the Government has made, both the Administration and the Congress together, to set that priority. I do not think it is very useful to express frustration about that sort of thing. I think the important thing to do is to get on with the job.

    Mr. LATHAM. Who has expressed frustration that agriculture gets more help than others?

    Ambassador AARON. Oh, you will hear it around.

    Mr. LATHAM. Like whom?

    Ambassador AARON. The GAO, for example, has looked at the issue. I think the reality of it is that this is a set of priorities that we have established for export promotion and we ought to work with them.

    Mr. LATHAM. Okay. Thank you, Mr. Chairman.


    Mr. ROGERS. Given the reduction of Advocacy Center funding in 1998, how have you been able to realize a 10 percent increase in the number of government-to-government advocacy projects?

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    Ambassador AARON. Well, they work really hard. We have placed an enormous emphasis on it. Secretary Daley has personally gotten involved on a number of occasions. He has set aside time to include advocacy efforts during his travels abroad.

    He is now committed to five trade missions a year. At every stop he makes, he raises advocacy issues. I will be taking a long list of $13 billion worth of advocacy efforts to China on my visit there. So, we just make it a top priority and just push as hard as we can.

    I might just also say it is not just a question of the Advocacy Center here in Washington or top-level work. Advocacy is a job of the U.S. and Foreign Commercial Service.

    They work very hard day-after-day out in the field pushing U.S. contracts trying to help our contractors get the job and talking with their counterparts in foreign governments to realize the successes that we have had.

    Mr. ROGERS. Mr. Forbes.

    Mr. FORBES. Thank you, Mr. Chairman.

    Ambassador, thank you, again, for being here today.


    I am going to turn a little bit to a parochial issue, but it is an all-American company and something I think the ITA is all too familiar with. That is the issue of Kodak and Japan.
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    For over ten years Kodak has not been able to sell it's film through the Japanese distribution network. I know that the U.S. Trade Representative and the Secretary have expressed great empathy for the situation there.

    The WTO, I think, came up with a bad decision, but I know that the Secretary particularly said that you folks would be monitoring the market. There is a report that is due in July.

    The Japanese made certain claims about access to their distribution system. I guess my concern here is, is the Department closely monitoring and attempting to validate the claims that were made before the WTO about the so-called or supposed openness of their market?

    I mean, again, Kodak has been there for ten years. They have done over $1 billion worth of marketing and advertising in the Japanese market. They have created products for that market. Yet, this American company is having a heck of a time, and I hope the Department recognizes that and the USTR recognizes that.

    As a New Yorker, I am particularly frustrated that one of the bellwether companies in my State is still having a nightmare of a time cracking into that market, while the Japanese are having at it here in our market and having a great time of it, as a matter of fact.

    Maybe you could comment, Ambassador, a little bit about what might be going on at ITA and the progress towards that report and when that report will be. Is it fair to assume that we are going to see some information relative to the validity of what the Japanese claimed before the WTO or not?
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    Ambassador AARON. Yes. This is a very important monitoring assignment that we have for both the Compliance Center, and for the Japanese Desk in Washington, and for our people in Tokyo; both the Commercial Service and the Embassy Economic Officers.

    We believe that the stipulations and assertions made by the Japanese during this WTO case need to be looked at extremely carefully. We intend to do that. We are cooperating with USTR in this process. I think the principal burden has been falling on the United States Department of Commerce.

    We are also working closely with Kodak in this regard. They are giving us good assistance in directing our energies in the right direction. If I am not mistaken, I believe that we are supposed to report back on this thing in July of this year. So, we would hope to have an initial assessment available at that time. Then we will see from there whether there are more things that can be done about it.

    Mr. FORBES. Is the Administration prepared to go back before the WTO if you uncover information that shows not what the Japanese asserted in their previous visit before the WTO, but in fact what Kodak has said and what the United States has basically said before the WTO, that there is not appropriate access for an American company or a reciprocal of a race relationship in that industry? Are we prepared to go before the WTO?

    Ambassador AARON. This would be USTR's call once they see the information that we have developed.

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    Mr. FORBES. Would you folks be making a recommendation?

    Ambassador AARON. I think we will probably want to look at the information at the time and see if that is the best thing to do or if maybe there are some other approaches that we need to do.

    Mr. FORBES. Because you will be gathering the data as opposed to the USTR basically; is that right? I mean you have the manpower. You have the capability to gather the information and establish, if you will, through documentation if in fact what the Japanese testified to is in fact accurate.

    Ambassador AARON. Yes.

    Mr. FORBES. So, would you be making a recommendation to the Secretary on how to proceed?

    Ambassador AARON. I guess formally that would be the right thing. I will be recommending to the Secretary. He will be expressing the views of the Department to USTR in the formal sense. I can tell you, I will not be shy, but I cannot tell you right now what my recommendation will be.

    Mr. FORBES. I think it begs the question in a larger sense. I would not want to go down that road, but that the WTO is making decisions based on documentation, good solid documentation, such as you might find in any judicial proceeding as opposed to on an emotional basis based on politics if you will.
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    I do not expect you to respond to that, but certainly that is lodged in the back of my mind. I would hope that this report—I have seen some of the information over the last three years. It seems to me that there is going to be ample documentation to suggest what Kodak has been saying for almost a decade now, and what I think this Administration and the previous Administrations have contended in regard to the Kodak case.

    I would hope that perhaps you could share that report with this Committee and with me. I would be very interested to see what those findings were, Ambassador.

    [The information follows:]


    This report is being prepared by the Office of the United States Trade Representative. We have not obtained a copy as yet.


    Mr. FORBES. I have a second question, if I might, Mr. Chairman; begging your indulgence.

    Ambassador, there was great media attention and attention here on Capitol Hill to the trade missions that were initiated by the Commerce Department over the last several years.
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    I understand that the Secretary, since he came in about a year ago, has addressed some of the concerns that have been raised. I would appreciate if you could answer some of these questions now. If you cannot, if you could provide to the Committee some answers, I would be most appreciative.

    I would like to know how many trade missions that the Department has undertaken in the last three years. Particularly, how many individuals or corporations in the private sector have participated? What criteria has the Department used to judge who should be invited on those trade missions and participate?

    Most specifically, if you could, to the extent the Department can do this, I would appreciate knowing what kind of dollars have been expended to run these trade missions, and even more important, how many dollars have been generated for the U.S. economy? If we can do that, as a result of these trade missions. It would be very, very helpful to me and I think the Members of this Subcommittee.

    Ambassador AARON. We can and will provide all of that information.

    [The information follows:]


    During the past three years the number of Trade Missions has increased from 672 in FY 1995, to 745 in FY 1996 and 790 in FY 1997. The cost of specific missions varies widely based on location, length and complexity. The direct cost of missions over these three years has been approximately $11.5 million per year. We do not have complete data on the amount of export which are generated as a direct result of trade missions. We are working to improve data collection in this area.
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    Ambassador AARON. I might just make two points in commentary. First of all, the missions are run on a cost recovery basis. So that the businesses pay their own way and cover the overhead for the conduct of the mission. So, from that standpoint, I think——

    Mr. FORBES. If I may just ask, when you say they cover their own overhead, are you saying that assessments are made to individuals or private corporations based on the expense of the trip and then they are divvied up amongst the private sector to fully pay for that trip or just the per capita, if you will, cost or the cost that those individuals alone would weigh in on the overall cost of the trip?

    Ambassador AARON. The trade promotion part of the trip, as opposed to some policy dimension of the trip, that portion of the trip is allocated equally among the participants in the trade mission.

    Mr. FORBES. Including the cost of Government employees who might be on that trip?

    Ambassador AARON. It depends. If they are doing policy functions. In other words, if they are advocating some business or some project that is not represented by the people on the trip, then no, they would not be covered by that.

    The second point is that I might just say that the process that the Secretary has put in place has several dimensions to it. I think the critical one is that it is a fully transparent process. All of the documentation is available to the public.
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    The criteria for the trips is public. The recruitment of the members of the trade mission is done openly and publicly. The qualifications of the business for a particular trade mission is weighed against the mission statement that is prepared in advance and is public.

    This assessment is done either by committee and professionals or a committee in which the professional Commercial Service is in the preponderant majority.

    All of the documentation related to the trips, including a final trip report on the results of the trip is made public as well. So, there is a strong effort here to be as transparent as possible.

    Mr. FORBES. Those who are invited to participate in these trips, are the names that are accumulated for that purpose are recommendations made by the Democratic National Committee or the White House?

    Ambassador AARON. Absolutely not. There is an expressed prohibition against the consideration of political activities or taking recommendations for political activities.

    Indeed, we do not invite people on the trip in the sense of inviting individuals. This is a little awkward sometimes because there are often some people that you really would like to have on the trip, but we scrupulously do not do that. These are posted in a Federal Register Notice. They are put on our Web site. It is all done in an arm's-length way.

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    Mr. FORBES. I realize that you are fairly new to the position, but if you cannot answer it now, I would appreciate knowing if in the last three years, particularly, if members have been invited based on recommendations made by the Democratic National Committee or by the White House.

    Ambassador AARON. I will be happy to provide that.

    [The information follows:]


    The attached documents indicate the policies under which trade mission participation is determined. [Please see attached.]

    "The Official Committee record contains additional material here."

    Mr. FORBES. Thank you very much, Ambassador.

    Thank you, Mr. Chairman.

    Mr. ROGERS. Thank you.

    Mr. Ambassador, we appreciate your testimony here today. We will look over your budget request. We will do the best we can. We are under spending constraints this year as well. So, we will do our best.
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    Ambassador AARON. Thank you very much, Mr. Chairman. I appreciate your support.

    Mr. ROGERS. Thank you.

    "The Official Committee record contains additional material here."

Wednesday, March 25, 1998.





Chairman Rogers' Opening Remarks

    Mr. ROGERS. The Committee will be in order.

    We are pleased to welcome our witnesses for this afternoon's hearing on the Commerce Department's statistical programs. Appearing today for the first time before this Committee are two representatives of the Department, the Acting Under Secretary for Economic Affairs, Lee Price, and the acting director of the Census Bureau, James Holmes.
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    This afternoon we hear about the economic and statistical programs of the Department of Commerce with a primary focus being the 2000 decennial census.

    The Fiscal Year 1999 budget request for the Department's economic and statistical programs totals $1.19 billion for the Census Bureau, of which $856 million of this request is for the ramp-up for the decennial census, a $495 million increase over Fiscal Year 1998. In addition, the budget requests $53.7 million for the programs of the Bureau of Economic Analysis.

    We are two years out from the conduct of the decennial census, and there are still enormous questions and issues to be resolved about how the census will be conducted and what it will cost. We will be able to explore these issues in more detail this afternoon.

    Before starting, I would like to mention that this is the second year we have the pleasure of welcoming a member of the Full Committee to the hearing. Last year Ms. Meek, from the 17th District of Florida, joined us and was a tremendous asset.

    Today, we have Dan Miller from the 13th District of Florida joining us. We are pleased to have him here, and we look forward to his participation after the members of the subcommittee have completed their questions.

    Mr. Price and Mr. Holmes, we will insert your written statements into this record at this point. We will also insert a written statement from Dr. Steven Landefeld of the Bureau of Economic Analysis into the record, and he is also available today to answer any questions.
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    So we would now welcome any summary of your statements that you would like to make, and we ask you to try to keep that within five minutes, if you can.

Opening Statement of Mr. Holmes

    Mr. HOLMES. Yes, sir. Mr. Chairman and members of the subcommittee.

    This is a new experience for me but, more importantly, it is a great honor and a privilege to testify before the Subcommittee today.

    Although I did not expect to be here when I started my career with the Census Bureau 30 years ago, I am very delighted to have the opportunity to present the Bureau's budget to the Subcommittee.

    During my 30 years with the Census Bureau, I have served, unfortunately, not in hearing rooms but in the trenches for the last three decades, working on three decennial censuses as a survey statistician and regional manager, and most recently as the director of our Atlanta office.

    During that time, I have had the opportunity and the experience of viewing the Census Bureau from a number of vantage points. I will only take a few minutes for my oral statement and, as you suggested, Mr. Chairman, submit a more detailed statement for the record.

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    I expect that most of our discussion today will concentrate on Census 2000 activities. Therefore, in the interest of time, I will limit most of my remarks to the decennial census.

    The Bureau is requesting appropriations of $1.188 billion for domestic discretionary spending, of which $160 million is for current statistical programs and $1.028 billion is for periodic census programs. This request, as the Chairman noted earlier, is $495 million more than was appropriated in Fiscal Year 1998.

    The lion's share of this increase, of course, is for funding activities for preparation of Census 2000. We have requested $849 million in total budget authority to conduct the final preparatory activities for Census 2000. This is approximately $460 million above the funding provided for the current year.

    The biggest investment in Fiscal Year 1999 will be for the following: Complete the master address file, which is critical to ensure that we can get a questionnaire to each and every household in this country; second, to evaluate the 1988 dress rehearsal; third, to begin setting up the field office infrastructure for Census 2000; also, to complete software development and testing to begin the initial system deployment, such as the DCS 2000 system. We will also be printing questionnaires, letters, and other public use forms and, last but not least, to hire staff to complete the Master Address File development.

    Even as the Census Bureau is concentrating on these final preparations for the decennial census, we are requesting funds for advancing five key initiatives in the demographic and economic area.
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    The first is to broaden coverage of the continuous measurement program; also, to begin research to improve the poverty measures; third, to improve the gross domestic product sources of data; to implement the new industry classification; and to implement an international trade data system.

    I will not go into any specific details about those particular programs. What I would like to do is to close my oral statement talking about innovation.

    One of the things we would also like to do is to continue to seek ways to improve how to conduct business by taking advantage of modern and efficient technology.

    In Fiscal Year 1999, our request includes $2.8 million to implement the new international trade data system. This system will facilitate the electronic interchange of trade data among Federal agencies and significantly reduce the reporting burden imposed upon the business community by reducing or eliminating redundant data collection.

    In closing, I would like to reiterate how much I appreciate this opportunity to speak to you today on the Fiscal Year 1999 budget request. This is certainly one of the most gratifying experiences that I have had during my 30 years with the Census Bureau.

    After Mr. Price speaks, I will be pleased to answer any questions of you, Mr. Chairman, or other Members of the Committee.

    Thank you very much.Opening Statement of Mr. Price
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    Mr. PRICE. Chairman Rogers and Members of the Committee. Thank you for the opportunity to appear before you today to discuss the Census Bureau appropriations issues.

    I would like to discuss, briefly, several budget initiatives before turning to providing some context on the proposed budget for the decennial census.

    One of the most vexing statistical issues facing economics today is the fact that for five years we have had a divergence between our measure of income gains and our measure of output growth. This divergence is not just an economics profession issue, it is a practical political problem.

    As you may recall, a year ago the CBO came up with a different estimate of what revenues were going to be in the middle of the budget negotiations. That was derived from the problem we are having in estimating how fast the economy is growing.

    On the income side, our estimate is growing about 0.5 percent faster than on the output side when, in truth, they are growing the same amount. To solve this problem, to have better budget forecasts, to have a better understanding of productivity and the possibility for future real wage growth, to determine whether long-run growth is now faster than we have had for most of the last 25 years, we need to provide funding for our GDP initiative. The Census Bureau and its data gathering and the BEA in its analysis of that data can do a better job of solving this problem of the divergence.

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    Second, we are long overdue for modernizing our measures of income and poverty that were devised 35 years ago when low-income people largely depended on pretax income, and our best survey of their economic conditions focused on pretax cash income.

    We now have a new survey that captures things like in-kind benefits, earned income tax credit, and we know that those have grown in importance in the last 35 years. Many of them did not exist 35 years ago. We should be expanding the Survey of Income and Program Participation, which provides better measures of in-kind benefits, taxes, tax credits, and we should also be pursuing research to find the best way to measure the changing economic circumstances of low-income families and the effects of Government programs on those families.

    Third, we are at a critical stage for the Continuous Measurement program. In our fast-changing economy, businesses and Government should not have to wait ten years at a stretch to obtain new information on local conditions for housing, transportation, education, and income that they now wait between decennial censuses.

    To succeed, the Continuous Measurement program must be ramped up in the next year and in succeeding years to allow a bench-marking of the data from the Continuous Measurement surveys to the 2000 decennial long form.

    Fourth, we need to apply the new industrial classification system that we have developed with Mexico and Canada, the North American Industrial Classification System. We need to apply that not just to the economic census, but to all of the Census Bureau's economic statistics programs. If we can do that with your funding, then we will bring our industrial statistics up to date for the first time in six decades.
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    Fifth, we need to modernize our collection of trade data for the International Trade Data System. This electronic system will reduce the reporting burden imposed on the business community, while facilitating data exchange among Federal agencies and reducing a burden on that export data.

    Now, I would like to turn to some of the issues surrounding the decennial census, which is not just the biggest item in the budget we are presenting for the Census Bureau, but it is also the most politically watched for policy issues.

    Almost everyone agrees that the results of the 1990 census were unacceptable. Although that 1990 census was much more expensive than the 1980 census, it was much less accurate. The national undercount was 50 percent larger in 1990 than it was in 1980. 8.4 million people were not counted at all, not included in that census; another 4.4 million were miscounted, counted twice or incorrectly counted when they should not have been counted.

    We had a net undercount of 4 million people. We had a large net undercount of minorities and children. In the wake of that unacceptable census, there is strong bipartisan support by the Congress for legislation that was passed and signed by President Bush, that asked the National Academy of Sciences to review how we could improve the accuracy of the census and do it cost-effectively.

    After several years of study, the National Academy of Sciences panel created by that legislation came to this conclusion, and I quote, ''It is fruitless to continue trying to count every last person with traditional census methods of physical enumeration. Simply providing additional funds to enable the Census Bureau to carry out the 2000 Census using traditional methods, as it has in previous censuses, will not lead to improved coverage or data quality.''
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    And they otherwise concluded, ''It is possible to improve the accuracy of the census count with respect to its most important attributes by supplementing a reduced intensity of traditional enumeration with statistical estimates of the number and characteristics of those not directly enumerated.''

    The Census Bureau plan that has developed since that time is consistent with those conclusions of the National Academy of Sciences that was created by the Congress.

    Virtually, every other statistical estimate that the Government gives today, whether it is the Census Bureau or the Bureau of Economic Analysis or the Bureau of Labor Statistics or the other statistical agencies, makes use of modern statistical methods.

    We know that we cannot count on everyone responding and everyone who responds to respond completely. It is because of that, that the National Academy and the Bureau have concluded that it is important to try to be more scientific.

    Previous decennial censuses have not used scientific sampling, and they have not included everybody. But in a certain sense, because the censuses in the past have not included everybody they meet the dictionary definition a sample—where we have obtained information with less than complete coverage and said that this characterizes the whole population.

    The issue is not whether we are going to sample in that dictionary sense or whether we are going to sample scientifically. Under the Bureau's plan, we are going to gather information in a scientific way so that we can try to be as accurate as possible because we know we are not going to get full and complete information from everyone.
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    We face a very tight labor market today. There are places with high employment. Many parts of this country have high employment to population ratios, and it is harder to find people to take the jobs that we need to fill—close to 300,000 people in the spring of 2000. If we are not allowed to do sampling, it will take another 100,000 or so more people, and that will be even harder to do.

    A report coming out by the General Accounting Office says that there are limitations on how effective you can be with outreach and getting everybody counted. Well, we recognize that and that is another reason that sampling is necessary; to get the accuracy you cannot get just by outreach, and promotion, and partnership activities.

    $4 billion in the ten-year cycle for a census is a huge undertaking. In fact, we call it the largest peacetime mobilization our country does. But it is important to recognize that most of the work is still to be done. In fact, in the $4 billion to be spent, about $1.5 billion is spent prior to Fiscal Year 2000. Of that $1.5 billion, we have spent about a quarter of it. In the next year-and-a-half, we will be spending three-quarters of the preparatory work to be done before 2000.

    So we recognize that there are big challenges ahead. The IG's report and the GAO's report say there are big challenges. We know that, and we are convinced that, if the Congress provides the necessary funds, the Bureau will be prepared to conduct the most accurate census ever. I am happy to answer any questions.

    [The following statements were submitted:]
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    "The Official Committee record contains additional material here."


    Mr. ROGERS. Thank you both for your statements.

    This is a pitched battle that we are into here. It has been for several years now. After the 1990 census, as you say, no one was happy with it, and here we are on the verge of I think another disaster in the making.

    You two gentlemen are not new at the Department, but you are new in the positions that you are holding. You are acting personnel. So it is going to be hard for us to blame you for what is happening.

    You are a little bit like the old fellow that was hauled into court, charged with setting his bed on fire at the rooming house where he was staying and, also, being drunk. He came into court and he pled guilty to being drunk. The judge was trying to find him also guilty of arson for setting the bed on fire, but he had this excuse.     He said, ''Now, wait a minute, Judge.'' He said, ''I admit I was drinking, but that bed was on fire when I got into it.'' [Laughter.]

    Mr. HOLMES. Your point is well taken, Mr. Chairman. Well taken. [Laughter.]

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    Mr. PRICE. There was heat before I got there.

    Mr. ROGERS. You knew what a hot seat you were getting ready to sit down in, though, didn't you?

    Mr. PRICE. I did.


    Mr. ROGERS. We have got the IG report, as of December 30, 1997, essentially saying that every major component of the Census' own plan is at risk because the Bureau had not made major decisions on design. The plans they did have, such as the address list development were not working, and the plan had such a tight time schedule that it probably would not be executable without major cost growth and/or degradation in quality.

    And then, just yesterday, the GAO issued their report, and they came to many of the same conclusions, identified the same areas and issues. However, the GAO report is even more important because, while the IG recommended trying to fix and then test the problems in the dress rehearsal, the GAO report looked at how the Bureau was fixing and testing these problems in the dress rehearsal, and they said—in fact, the title of their report is, ''Preparations for the Dress Rehearsal Leave Many Unanswered Questions.''

    GAO said that the dress rehearsal is, ''The last opportunity for an operational test of its overall design of the 2000 Census and to demonstrate to Congress and other stakeholders the feasibility of its plans.''
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    They found problems in every key activity of the census plan, including address list development, local outreach and promotion, staffing, and statistical sampling.

    They said, ''All of these activities are still facing the developmental and/or implementation challenges that led GAO in 1997 to raise concerns about the high risk of a failed census in 2000.'' And the dress rehearsal is one month away.

    GAO concluded, they said, ''With the decennial census just two years away, we find it troubling that the Bureau finds itself facing several ongoing and newly emerging operational challenges.''

    Here are some of the areas they say are vulnerable:     One, they say, ''The accuracy of the Bureau's address lists and maps is uncertain and local reviews may be too sporadic to greatly improve them.'' GAO essentially questioned whether the Bureau's fixes for its address list problems will work and notes they will not even be tested in the dress rehearsal.

    Two, quote, they say, ''The Bureau's outreach and promotion efforts face obstacles that could impede its ability to achieve its mail response rate objective.'' They found that in the preparations for the dress rehearsal key components of the Bureau's plan to increase mail response rates were not working as planned.

    Three, quote, ''The Bureau's sampling and statistical estimation design faces methodological, technological, and quality control challenges.''
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    ''Most disturbing, like the IG, the GAO found the Bureau's plans and procedures to 'adjust' the census numbers face serious questions and may not be able to effectively be implemented'' and found that the Bureau was already running into serious problems in preparing to conduct the adjustment procedure; that is, the integrated coverage measurement program in the dress rehearsal.

    GAO found, ''The Bureau has made several missteps in drawing the ICM sample because these errors went undetected until relatively late in the sample selection process. GAO is concerned about the Bureau's ability to catch and correct problems.''

    All of that is calculated to cause me, at least, a good deal of nervousness.

    Now, the IG recommended that you do five things immediately. This was in December 1997.

    One, prioritize and access the readiness of its major design components; two, simplify the design; three, realistically reassess costs; four, communicate the results both internally and externally; and, five, redirect the dress rehearsal.

    Have you done any of those things and what has changed?

    Mr. HOLMES. I guess, first and foremost, Mr. Chairman, the challenges that are detailed in both of those reports are challenges that most of us are aware of. I think, as Lee Price mentioned, that this is the largest peacetime activity that this country gets involved in. I can say, from a personal perspective, having lived at the end of the food chain on three of those, there is absolutely nothing as large and as complex as doing a census.
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    But I think it is also important to keep in mind that, while there is an enormous amount of criticism associated with things that we do not know about the dress rehearsal or things that we do not know about the plan, it is important to keep in mind that we have been doing dress rehearsals since the 1930s, and the whole idea behind doing a dress rehearsal is to get some idea what components of the plan are working and which ones are not working and to make adjustments accordingly.

    Yes, we recognize that there are some problems with the address list. That was the main reason that back last year the Census Bureau decided to re-engineer the process and came to the Congress and asked for $108 million more to do that because it became very clear that the route that we were traveling to get the address list ready for the Year 2000 was not going to get us the level of quality that we wanted. So it would have been irresponsible on our part to continue down a path that we knew was going to fail. Again, that is the main reason for doing that.

    The GAO expressed some concerns about local involvement in the address list. That has always been a problem. If my memory serves me correctly, in the dress rehearsal, roughly, 50 percent of the Governments, at least in the South Carolina area, participated in the program. That is a tremendous increase from what we had in 1990, where it was around 30 percent.

    It is not mandatory for Governments to participate, but we do ask them to participate because it is important to them——

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    Mr. ROGERS. I understand. But my question was did you follow the IG's five things that he recommended you do?

    Mr. HOLMES. Well, in terms of the address list, yes, we did.

    Mr. ROGERS. How about all of the others that I have mentioned, the five that I mentioned to you.

    Mr. HOLMES. Would you mind repeating the five again, sir.

    Mr. ROGERS. Prioritize and access the readiness of its major design components, simplify the design, realistically reassess costs, communicate the results both internally and externally, and redirect the dress rehearsal. The IG told you to do that in December 1997, about three months ago.

    Mr. HOLMES. One of the things, if I am not mistaken, that was done to prioritize the activities was the development of the master activity schedule, which lists some 3,000 or so discrete activities that, essentially, spell out all of the major activities that are associated with the census and their interconnection. So if something goes wrong on one, it plays out through the——

    Mr. ROGERS. Well, that was done before the IG told you to fix things, what you just described.

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    Mr. HOLMES. The master activity schedule?


    Mr. ROGERS. That was being done before the IG's report.

    Well, let me go on. Have you studied the GAO report as of yesterday?

    Mr. HOLMES. No, sir, I got a copy of it this morning, and I was trying to get myself prepared for this hearing today.

    Mr. PRICE. I did look at it. It looks very similar to the draft that we had a couple of weeks ago, and I have read that.

    Mr. ROGERS. Have you taken into account what they suggest and recommended?

    Mr. PRICE. Well, yes. There are really four main categories that they raise in each of their long chapters. The one that overlaps with several issues you raised of the IG about statistical design, prioritizing, and simplifying it, the Census Bureau staff, I am told, is working on that, has been simplifying and prioritizing. They did complete, since that December 30th report to Senator McCain, they have completed the design for the dress rehearsal, and they will soon be completing the proposed design for 2000.

    As committed last July, that will be completed this summer for public review and peer professional scrutiny over the course of the next year before it is actually finalized for 2000.
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    GAO raised several issues that are really serious challenges in any kind of census we do. One of them is the employment challenge. They are saying it is going to be hard to hire enough people to do it——

    Mr. ROGERS. No, I am talking about they have severe criticisms of your methodology and even statistical sampling. This is a harsh report, and you are not responding to what they are suggesting in there.

    GAO in their report raised the same problems that were raised by the Inspector General four months ago, that are still around and still not being addressed, and here we go again.

    I was here for the 1990 census on this Subcommittee, and that was under the Bush Administration, and it was botched, and I swore at that time that I would do everything I needed to do not to have it happen again in 2000 and here we go again. I think this is going to be worse than 1990, to be frank with you. And you are aware of the problems and you will not address them, and I do not know what else we can do.

    Address list development, for example. Everybody in the world will tell you that when you mail that first questionnaire out that the best way to get response from the non-responders is to mail a second letter out. It is the most cost-effective way, right or wrong?


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    Mr. PRICE. Yes. That is what we found in our tests and that is what we plan to do in the dress rehearsal and 2000.

    Mr. ROGERS. And, apparently, now you are dropping the idea of mailing the second letter.

    Mr. HOLMES. No, sir, that is not the case. What we are doing is we are mailing an initial questionnaire. There is a letter that actually goes out before that, and there is a reminder card. What we are not doing is we are not blanket mailing a second questionnaire to everyone, at least that is not the plan for 2000 at this point, but we are testing that in the dress rehearsal.

    If it works, then I think it is safe to say that we will come back to the Congress and ask for additional funds to do that, but we did not think that it was appropriate to spend I think it is $42 million to have questionnaires printed up when there are some concerns about whether or not that could cause additional problems for us in terms of duplication or people may just have a less-than-positive reaction to it.

    So what we are doing is, again, testing it in the dress rehearsal.

    Mr. ROGERS. You are testing what in the dress rehearsal?

    Mr. HOLMES. We are testing the concept of doing just what you were just asking us to do; mailing a second questionnaire, yes, sir.

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    Mr. PRICE. The address list is a very serious issue, and I would like to respond, if I could, on that.

    We have done a mail-back census since 1970. So the three previous census' we have had a mail-out census. We have also done a canvass, where we send people door-to-door to get the addresses, so we have the addresses to do the mailing.

    This time we were hopeful, with today's modern digital information, you passed legislation that allowed us to start with the 1990 information on addresses, to share data with the Postal Service on a confidential basis; that they would share with us their data, and we would match their data on addresses, and we would also work with the local governments and their address lists hoping that many of them would have digital information.

    We could combine all three of those sources and have a good, thorough address list and save the money of doing canvassing, which we have done in the past.

    What we found last year was that there were too many holes in that. There are places in the country that have very good Postal Service address lists, and there are other places that do not. We could not rely on that information, and many governments have very good address lists for who their taxpayers are, but they do not have the mailing addresses for everybody.

    So we have to go back to what we have done in the past, which is to send somebody to every address. They will have a head start because they will have a good digital information-based listing of what the addresses we think there are, and then they take that list and go door-to-door to see whether those actually are addresses or there are new addresses that need to be added. That would be similar to what we have always done and plan to do for the rural areas, except we actually are going to be more thorough in the rural areas.
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    Mr. ROGERS. I do not want to do what we have always done because we have been screwing up lately, the 1990 census. In fact, GAO found this: ''While some components of the new approach * * *'' that is, on address list development ''* * * have been used and tested in the past, the Bureau has not used or tested them in concert with each other, nor in the sequence as presently designed for use in the 2000 Census, and does not plan to do so in the dress rehearsal. Consequently, it will not be known until the 2000 Census whether the Bureau's redesign procedures will allow it to meet its goals.''

    What do you say about that?

    Mr. HOLMES. That you are absolutely correct and that the re-engineered MAF or the updated address list will not be used in the dress rehearsal because there was no time to do that, given the schedule that we were up against. But one of the things that we are doing is we have an evaluation program in place to evaluate that Master Address File and that, obviously, we will not be able to test it in the dress rehearsal, but we will have some sense of the quality of that.

    And, again, those evaluations will let us know what things we need to do to make corrections to make sure that that address list yields a level of quality that we think we will need to do a census.

    Mr. PRICE. The dress rehearsal is not designed to test an address list.

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    Mr. ROGERS. I know.

    Mr. PRICE. It is designed to do a lot of other testing, but its primary purpose is not to test——


    Mr. ROGERS. But you know one of the biggest problems in the 1990 census was a faulty address list, inaccurate and incomplete address list, out of which everything else flows. We spent $182 million to develop that list. We still miscounted 5.5 million households.

    We sent enumerators to 13.4 million housing units that were either vacant or did not exist to the tune of $317 million. 39 percent of the total spent on nonresponse follow-up because of a faulty address list.

    Clearly, a good address list is the fundamental behind any sort of attempt to count people. We thought we had the problem solved. We thought we were on track, but GAO tells us, no, you are not.

    Mr. PRICE. What GAO says is we cannot test in the dress rehearsal our new design. When we asked GAO, do you have any recommendations for anything else we should be trying, to improve that address list, they had no recommendations.

    We are doing the best we can possibly do. We are taking all of the information we know is available, compiling it, and then giving it to people to go door-to-door to check. And if somebody else has a better way that we can get even better information, we would be very interested in hearing it.
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    Mr. ROGERS. Is this an area where we could face both huge cost and accuracy problems in Fiscal Year 1999 and 2000?

    Mr. PRICE. There are costs that we have put in the budget before you. $98 million extra has been added to the Fiscal Year 1999 budget to get this canvassing done in the city-style areas.

    Mr. ROGERS. Is a good address list even more critical when you are doing sampling and statistical adjustment?

    Mr. PRICE. No, it is not. It is just as critical in both ways. If you are not doing sampling, then you are totally dependent on what you have from this address list. If you are doing sampling, you at least have some cases where you have got an independent address list for the Integrated Coverage Measurement (ICM) that does some correction.

    So if you are making a decision on whether to do sampling or not based on the address lists, then you are better off doing sampling than not doing sampling because you have no way to correct for it without sampling.

    Mr. ROGERS. Well, GAO said because you are not going to deal with the address list in the dress rehearsal, they say, ''Consequently, it will not be known until the 2000 census whether the Bureau's redesigned procedures will allow it to meet its goals.''

    What do you think about that?
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    Mr. PRICE. Well, we have set very ambitious goals for how accurate the address list should be. We do not want to have the kind of extra addresses that cost money to find housing units that are not there.

    Mr. ROGERS. The question is they say you will not know until the 2000 census whether it works or not. What do you say to that?

    Mr. HOLMES. I think that is probably not a correct statement, Mr. Chairman, because the evaluations will give us some sense of the quality of that address list before the 2000 census. I mean, that is the whole purpose of doing——

    Mr. ROGERS. How will it do that?

    Mr. HOLMES. That is the whole purpose of doing the evaluations. What you do is you measure the quality of the address list, and those evaluations and, to be honest, I cannot give you the date that those evaluations will be available.

    Mr. ROGERS. How will they be conducted, the evaluations?

    Mr. HOLMES. To be honest, I cannot give you that. I do not know the details of the evaluation program, but I can get them for you.

    Mr. ROGERS. Well, how do you know that they are going to be really reliable if you do not know what they are going to be doing?
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    Mr. HOLMES. Well, my assumption is that we have some of the best statisticians in this country——


    Mr. ROGERS. I understand that. I am just saying you may know that. We do not know that. We do not know what you are doing to evaluate your address list. All we know is, GAO, the investigators, say you are not going to have any way to know anything about it until the actual census takes place.

    We are not going to listen any more to you say, ''Believe us, we will do it the right way.'' We did that in 1990, and you have used that bullet up.

    Mr. HOLMES. I am not suggesting that that is what you do, Mr. Chairman. What I said we would do is provide those evaluations to you.

    Mr. ROGERS. When?

    Mr. HOLMES. I can find out when that information will be available, and you will have access to the same information we have, but I can assure you——

    Mr. ROGERS. When will we have that? GAO says you will not have it until the census itself.
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    Mr. PRICE. GAO says we cannot be confident how good the information is until we actually put it in the field, but we will also have, as our redesign, something we did not do in 1990, and legislation passed in the middle of the decade allows us to do, is to share information with local governments, and they will have a good part of next year to evaluate it.

    Mr. ROGERS. All I want to know is how you are going to evaluate your address list and are you going to do it before we get into the actual 2000 census?

    Mr. HOLMES. Yes, sir, and the staff tells me that those plans are available now, and we will make sure that you get them.

    Mr. ROGERS. Where are they and what are they?

    Mr. HOLMES. The evaluation plans for the address list. That is what they are. We will provide those evaluation plans to you.

    Mr. ROGERS. Do you have them?

    Mr. HOLMES. Yes, sir. I do not have them here with me, but we have them at the Census Bureau.

    Mr. ROGERS. I cannot believe you did not come here, after I ran the Secretary of Commerce out of this hearing the other day until he brought us the plan, you appear here without a plan.
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    Mr. HOLMES. I recognize the seat was hot, Mr. Chairman, but I did not realize it was quite that hot.

    Mr. ROGERS. It is pretty damn hot.

    Mr. HOLMES. As I said, the plans are in place, and I can make sure that you get those.

    Mr. ROGERS. Well, surely you know when those evaluations of the most basic component of the census, the address list, will take place. Surely, you know when that is going to be tested or evaluated. Does anybody here know on your staff? Somebody pipe up, for gosh sakes.

    Mr. HOLMES. Again, unfortunately, I cannot answer that question because I do not have the evaluation plans in front of me, but I have been assured that we have them, and we will get them to you.

    Mr. ROGERS. Well, I mean, are you going to review them/evaluate them in Fiscal Year 1998 or 1999 or 2000?

    Mr. PRICE. We are going to be working in Fiscal Year 1999 to do both the noncity-style and the city-style canvassing that will bring them, as best we can, accurate. Then we will share them with the local governments, so that they can improve those lists, delete things that are not actually housing units and add those that are. It will be late next near before we have the completion of that process, and then we will be able to evaluate where we are at that point.
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    We have never had the involvement of the local governments to the extent we are going to be able to have in the next year.

    Mr. ROGERS. So you are saying that the evaluation of the accuracy and completeness of the address list, from which you will mail the questionnaires in the 2000 Census, you will evaluate that at the end of 1999?

    Mr. HOLMES. No. Some of it will be done this year, Mr. Chairman.

    Mr. ROGERS. 1998.

    Mr. HOLMES. Yes,sir.

    Mr. ROGERS. Some of it.

    Mr. HOLMES. Yes, sir.

    Mr. ROGERS. What of it?

    Mr. PRICE. We would not be asking for $98 million next year to do canvassing if we thought we were finished this year. We know we are going to need to do improvements that also will have to be evaluated.

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    Mr. ROGERS. I am not getting anywhere with you.

    Mr. HOLMES. Mr. Chairman, one of the things that will happen that is probably not reflected in that report is that the evaluations from the dress rehearsal, which, again, is a different address list, but there will be some evaluation on that, comparing that to the updated Master Address File, and that information will be available by the end of the year with benchmarks prior to that.

    But the plan that I was talking about was a long-term plan for the evaluation of the entire Master Address File. That plan is available now.

    Mr. ROGERS. The plan to do what?

    Mr. PRICE. To evaluate——

    Mr. HOLMES. To evaluate the new Master Address File that we are working with right now.

    Mr. ROGERS. All I am driving for, trying to find out is when does that plan call for you to evaluate your address list previous to going to battle on the census?

    Mr. HOLMES. Some of it will start again this year with the work that we are doing for the dress rehearsal.

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    Mr. PRICE. The thing to keep in mind about address lists is that this is a booming economy. We are building millions of houses every year. We want, when we go into sending the mail out in March of 2000, to have the most up-to-date address list we can, and we know that it is a moving target. There are not perfect address lists you can do today that will be the address list that you need two years from now.

    We have a process to try to keep up with the changes, but it is never a finished product until near the end. We actually have a process to work with the Postal Service in February of 2000 to get the most up-to-date information we can from them on where the new addresses are that we need to mail to.

    Mr. ROGERS. Well, I have other questions, and I will get to you on the second round.


    Mr. MOLLOHAN. Thank you, Mr. Chairman.

    I think it is important, as the Chairman develops his line of questioning, that you all be able to speak to the concerns that these reports have raised. I think you need to assure the committee that you have studied these reports, and that you take both the GAO report and the IG's report seriously.

    I, also, think it would be helpful if you would elaborate on the characterizations of some of the problems you face in the reports as being risky. That word suggests that your methodologies are, perhaps, reckless and, therefore, creating risk. I do not think that is what the GAO report or the IG report meant to convey. I think that meant risk in a way of saying that there are statistical sampling methodology problems here that make any method a risk of achieving a better result than 1990.
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    Let me start by asking you to not elaborate, but to just affirm the problems that arose out of the 1990 census, which I would note was an enumeration census. What were the problems associated with that enumeration census?

    Mr. HOLMES. First and foremost, Mr. Mollohan, was that we had the highest undercount rate that we had in any previous censuses, especially as it relates to the minority population.

    Mr. MOLLOHAN. And why did you have that undercount?

    Mr. HOLMES. Primarily, because people did not want to be bothered. People did not want to participate in the process.

    Mr. MOLLOHAN. And why could you not get to those people, regardless of their attitude about participating in the process?

    Mr. HOLMES. Because we could not count them.

    Mr. MOLLOHAN. Through that method.

    Mr. HOLMES. Precisely.

    Mr. MOLLOHAN. I know that the Congress is dissatisfied with the results because they called for the National Academy of Sciences, the supreme scientific body that we call upon in the country, to look at the situation and make recommendations. You are familiar with that study?
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    Mr. HOLMES. Yes, sir.


    Mr. MOLLOHAN. What were the recommendations coming out of the National Academy of Sciences Review of the 1990 census?

    Mr. HOLMES. That to continue to use the traditional census-taking methods would not improve the process; that the best method to improve that process was the use of statistical sampling, and in order to do it in the most cost-efficient fashion.

    Mr. MOLLOHAN. When it said it would not improve the process, did it assume an application of resources similar to those that were applied in 1990 or did it assume an increase in the application of resources?

    Mr. HOLMES. I do not remember the direct quote, sir, but I do vaguely remember something to the effect that no amount of money thrown at the problem would resolve it. Now, that is a paraphrase on my part. But adding additional enumerators, adding more money, would not solve the problem.

    Mr. MOLLOHAN. So your testimony here today is consistent with testimony you have had in the past. You have taken seriously the problems that were associated with the 1990 census, of which there was a consensus, and the recommendations coming out of the National Academy of Science study, as well as a whole bunch of expert opinion on the subject.
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    Mr. HOLMES. Yes, sir. That is absolutely correct.

    Mr. MOLLOHAN. And you have come up with a plan that would incorporate those recommendations and best methodologies, which we refer to as employing sampling techniques.

    Mr. HOLMES. That is correct.


    Mr. MOLLOHAN. I would like for you to get at what I consider to be the core question or certainly one of the core questions here.

    This notion/premise that we can do it more accurately if we employ an actual enumeration. That seems to be at the heart of the Majority's position; that premise that if we just do more of the traditional techniques, throw more enumerators at the job, that we will get a better result than in 1990 and we will get a better result than if we were to employ sampling techniques.

    So I would like you to respond to that issue, discuss it, and then if you do not get at it in a way that we understand it up here, I want to talk a little bit about the Milwaukee experience that is often cited by the Majority as the good example of enumeration, which I do not think is such a good example in a final analysis.

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    Mr. HOLMES. I guess I will start with the premise, sir, that if you continue to do things the same way you have always done them, then the outcomes are much, much more predictable. Again, having done this kind of work for 30 years and having worked on three censuses, it is clear to me that, if someone does not want to be bothered, because there are really two ways that people are missed; they are missed because we miss housing units, but more importantly——

    Mr. MOLLOHAN. Miss individuals.

    Mr. HOLMES. Exactly, within household coverage. If we come to your household, no matter how many people we send there, if you decide that you are not going to tell the truth, traditional knock on the door methods will not resolve that problem. There is no way to do that.

    It is also important to understand that the environment in which we collect data now has changed radically over the past 20 or 30 years. As an example, the window of opportunity that you have to catch people at home now has probably dropped to maybe a couple of hours during the week and on Saturdays.

    I can remember 20 years ago when there was no such thing as doing an interview on Sunday. That is the most productive time to do interviews now, if you plan to catch people at home.

    It is clear to me, just from a layman's standpoint, this has nothing to do with statistics, but if you take a look at the direction with which voter participation has gone and responses to census forms or censuses themselves, both of them are going in the same direction, and that includes, not only that segment of the population that does not want to be counted, but your average American citizen, that, for whatever reason, they have no interest in doing it.
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    So going back doing the same thing over and over again, no matter how much money you throw at it, does not change their behavior.

    Mr. PRICE. If I can just add to that a bit. The populations that had high undercounts in 1990 have grown faster. The Hispanic population, the black population, the Asian population have grown faster than the average. On that basis and the general growth of the population, we think the undercount, if we just do 1990 kind of methods, again, since the Bureau has estimated that we would have five million people undercount, instead of four million undercount in 1990 because of the two added together, the population and the relative population. It assumes that there is not a social change problem, which Jim just referred to.

    The American people, since 1990, continuously get more mail. They are busier. They are not at home as much. They do not want people to be asking them questions, particularly from the Government. They are less responsive, and they are more likely than 1990 not to be giving us answers or complete answers.

    Sampling in the ICM allows us to do more intensive data collection on a limited basis. For these 750,000 housing units, it is more expensive to send somebody to every one of those houses. If we do not do the mail, this is $3 a visit. If we do a more intensive process, we cannot afford to do that in every place in the country.

    But if we go there and we find out through the ICM not just the undercount, but the overcount, because people who have two residences often fill it out in Florida, and they fill it out in Michigan. They fill it out in the Ann Arbor college dorm, and they fill it out in their parents home. We have got a problem of both the overcount and the undercount that can get addressed on a sampling basis. It is expensive to do everywhere nationwide. But if we do it on a sampling basis, we can get a better overall count.
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    Mr. MOLLOHAN. So what you are telling us is that, no matter what resources you apply to this issue, apply to the task, in traditional census-taking methods, putting more census enumerators on the job, you still are going to end up with an undercount that is greater and less accurate [sic] than using sampling techniques.

    Mr. PRICE. Yes, Congressman. People do not go around with badges saying, ''I was undercounted'' or ''I was overcounted.''

    Mr. MOLLOHAN. I understand.

    Mr. PRICE. You do not know who they are.

    Mr. MOLLOHAN. I understand. So what you are saying is, and the National Academy of Sciences agrees with that; is that correct?

    Mr. PRICE. Yes.

    Mr. HOLMES. That is correct.

    Mr. MOLLOHAN. Can you give us some sense of the professional statistical community, what their attitude is with regard to that proposition?

    Mr. PRICE. There is a letter signed by a number of former presidents of the American Statistical Association that endorsed the use of sampling. The American Statistical Association had a Blue Ribbon Panel on the census that has supported the use of statistical methods to improve the count.
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    Mr. MOLLOHAN. Are you familiar with the Milwaukee Complete Count Campaign?

    Mr. PRICE. Yes.

    Mr. MOLLOHAN. Are you conversant with it, if I asked you some questions about it?

    Mr. PRICE. Yes. I, unfortunately, became an expert on it last July in response to the congressional request for a report.

    Mr. MOLLOHAN. Let me ask you what that demonstrated, and let me maybe lead you a little bit here.

    The publicity campaign that they had did achieve a better response rate than the national average, did it not?

    Mr. PRICE. Mail response was higher for that city than for similar cities elsewhere.

    Mr. MOLLOHAN. Let me finish answering [sic] the question. I mean, I know you know more about this, but just so I can hear myself and you give the answer, let me finish.
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    So there was a better response rate to the questionnaire in Milwaukee than the national average; is that correct?

    Mr. PRICE. That is correct.

    Mr. MOLLOHAN. How much better? See, you just were not that conversant with it. [Laughter.]

    Mr. PRICE. I wrote it here in the report we gave.

    Mr. MOLLOHAN. Would it be accurate, to refresh your memory here, if Milwaukee's response rate was 76 percent?

    Mr. PRICE. And the national average is 74 percent.

    Mr. MOLLOHAN. And the national average was 74. So with their big publicity effort, they got a 2 percent increase in the response rate; is that correct? The national average response rate; is that correct?

    Mr. PRICE. They were above average, but not much.

    Mr. MOLLOHAN. They were above average, which means, if it is average, somebody else was above average, too.

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    Mr. PRICE. Right.

    Mr. MOLLOHAN. And they did not, arguably, at least they do not have the reputation for putting on this kind of a program.

    And that Milwaukee, with its tremendous campaign, ranked third, not first, in mail return rates; is that correct?

    Mr. PRICE. That is correct.

    Mr. MOLLOHAN. And it still left 24 percent of the occupied units in the city to be counted by door-to-door enumerators; is that correct?

    Mr. PRICE. Yes.

    Mr. MOLLOHAN. So, at the end of all of that effort did they put more enumerators on the job? I know they used civic organizations and all of that. What did they do with regard to enumerators?

    Mr. PRICE. The unique thing about Milwaukee was what the city and the State put resources into to trying to raise public awareness of the census and to make forms available in the ''Were You Counted?'' campaign later on.

    But the Bureau's efforts, in terms of following up on those 24 percent, were comparable, the enumerators to follow-up those 24 percent were comparable to other places with 24 percent of the housing units that did not reply by mail.
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    Mr. MOLLOHAN. At the end of the day, the post-enumeration survey indicated that approximately 2.3 percent of the city's residents were missed; is that correct?

    Mr. PRICE. Yes.

    Mr. MOLLOHAN. Was that higher or lower than the national average?

    Mr. PRICE. The national average was 1.6 percent.

    Mr. MOLLOHAN. Is not the point here that there is just a ceiling that cannot really be raised by traditional methods that you bump up against here in terms of achieving accuracy? Perhaps it is 2.3 percent of the population you are going to miss or perhaps it is 2.1 or 1.9, but everything we know about it that through traditional enumeration methods you are going to be inaccurate and have an undercount of approximately that percentage. Am I——

    Mr. PRICE. Yes. That is Census Bureau's view. That is the view of the statistical experts on this.

    Mr. MOLLOHAN. So that is really the bottom line, is it not? No matter how much money we spend on additional enumerators and publicity advertising, questionnaires, we are still going to have those people, that percentage of people that do not want to be counted or just fall through the cracks some way, and the only way to get them is through these sampling techniques to get a more accurate result.
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    Mr. PRICE. And we used those methods in the agricultural census. We used exactly the same kinds of methods. The way it is proposed to be done by the Census Bureau is now done by the agricultural statistics operation, but they do a sampling for people who do not respond by mail and they do a sampling to correct for those who had systematic undercounting, and they get better results because they use statistics.

    The question really is are we going to be banned from using statistical methods?


    Mr. MOLLOHAN. And there is one more question, too. How much is it going to cost to increase these enumerators and in the end result achieve, a less accurate result? Do you have any estimates?

    Mr. PRICE. We estimated in a different context before the Fiscal Year 1998 and Fiscal Year 1999 dual track funds came along. Last spring we gave estimates, if you recall, $675 million to $800 million extra above $4.0 billion to do a design very similar to 1990 that excluded sampling—over and above the sampling design that we had in mind in the prior plan.

    Mr. MOLLOHAN. Okay. Could you talk about the attempt to do the 2000 Census through enumeration methods in terms of how much it would cost. We have already I hope in my line of questioning at least established that.
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    Mr. PRICE. No. Our full cycle cost is on the order of $4 billion with the sampling plan. It would cost on the order of $600 to $800 million more to do the 1990 style but that still leaves you with 5 million people undercounted. And the cost of trying to reduce that 5 million—because you do not know who is undercounted, you just know that there is an undercount—to try to go and find the needles in the haystacks, to go find the houses with the tenant for which they do not have everybody actually living in that residence on their completed form, is very expensive.

    Mr. MOLLOHAN. All right. Can you give us an estimate of how expensive?

    Mr. PRICE. We will be working on trying to do some kinds of estimates but it is very hard to do because we do not——

    Mr. MOLLOHAN. So, it is your testimony that if you were to do a 1990 census it would cost you $500, $600, $700 million more in 2000 than it would a sampling census?

    Mr. PRICE. That is correct.

    Mr. MOLLOHAN. Just off the top, to do what you did in 1990?

    Mr. PRICE. Right.

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    Mr. MOLLOHAN. And then to try and improve the accuracy of that count by applying additional enumerators you are coming up with a number and you do not have a number of what that might be?

    Mr. PRICE. No. And it would depend on what techniques were used. We think that it is—we have not spent a lot of time investigating that up until November because we thought it was so exorbitantly expensive for so little an amount of return. But since November, we are operating under a different mandate so we are supposed to get as close to 100 percent as possible, using non-sampling techniques, and we are prepared to do that and we are doing studies to try and do that.

    It will show very expensive costs for very little additional return to accuracy but we are now starting to work on that.

    Mr. MOLLOHAN. Is not a way to say that, an exorbitant cost for a less accurate census than sampling?

    Mr. PRICE. Yes.

    Mr. MOLLOHAN. An exorbitant cost for a less accurate census.

    Thank you, Mr. Chairman.

    Mr. ROGERS. We will have a second round. I want to make sure that everyone has a chance.
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    Mr. KOLBE. Thank you, Mr. Chairman.

    It seems me listening to Mr. Price and Mr. Holmes' responses, particularly Mr. Price's response to Mr. Mollohan's questions about whether or not in the end, we cannot get as accurate a count that you are setting yourself up with a self-fulfilling prophecy that, indeed, we have decided that we cannot get a more accurate count by actually counting people, that we can do it better by—we can only get it by sampling. And, so, you have guaranteed that you will not get the more accurate count.

    Now, it seems to me like you have set it up in a circular fashion to guarantee that you would fail to get the most accurate possible count.

    That is just a comment. Let me begin by asking this, the Public Law 105–119 says, and I am quoting, ''Sufficient funds appropriated in this Act or under any other Act for purposes of the 2000 Decennial Census shall be used by the Bureau of the Census to plan tests and become prepared to implement a 2000 decennial census without using statistical methods which shall result in a percentage of the population actually being as close to 100 percent as possible.''

    The purpose of this is very clear. In the compromise we had last year, the idea was to set you up on a two-track approach for the 2000 Decennial Census. Can you assure this Subcommittee that you are doing everything possible to comply with that law today?
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    Mr. PRICE. We are complying with that law today.

    Mr. KOLBE. Everything possible to make sure that you are prepared for a census in the year 2000 if necessary, a census that does not use statistical sampling?

    Mr. PRICE. We are in the 1999 budget that we have submitted. It has the funds to keep open the option for decision next February on whether to use sampling or not.

    Mr. KOLBE. And everything in your budget includes preparations for a census that would not use sampling?

    Mr. PRICE. We asked for Fiscal Year 1998 and we were approved by this committee when you did your conference report for an additional $31 million to prepare for that. It was approved in November and our budget for next year asked for another $36 million across five months that is intended to maintain this dual track, until a decision in February.

    Mr. KOLBE. About $36 million for the planning for a non-statistical?

    Mr. PRICE. Yes, sir, that is correct. That is over and above what we would have planned if we were only going with——

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    Mr. KOLBE. Going with one.

    Mr. PRICE [continuing]. Planned to do sampling alone.

    Mr. KOLBE. Yeah. The Chairman suggested as a followup to that, how much did you ask for from OMB? Was that $36 million, million what you requested or did you ask for a different amount?

    Mr. PRICE. No. As Secretary Daley indicated at the hearing earlier this month, the request to OMB initially was for $128 million.

    Mr. KOLBE. And you got $36 million, one-fourth?

    Mr. PRICE. That is right. We got $92 million less.

    Mr. KOLBE. So, $36 million, in other words, by your own estimation unless you were really padding it is not going to be anywhere near sufficient?

    Mr. PRICE. Well, the big difference between those two—almost all of the $92 million difference was to hire people either to begin the recruitment process to get people involved so they could do more recruiting or to do outreach.

    Mr. KOLBE. Well, then you are really not preparing for it.

    Mr. PRICE. Well, a decision made in February of 1999 could permit—it would cost more after February of 1999. But we are saving the taxpayers $92 million, let us not forget that.
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    Mr. KOLBE. No, no, by your statement you just made it will cost you more if we go on a non-statistical basis.

    Mr. PRICE. It will cost more but we think——

    Mr. KOLBE. You are going on the gamble that you are going to be using statistical——

    Mr. PRICE. Not the gamble. The——


    Mr. KOLBE. Well, I am talking about a political gamble here as to what Congress and the courts and everything will allow you to do. The answer to my question is you are not preparing for a non-statistical census?

    Mr. PRICE. We are keeping the option open.

    Mr. KOLBE. But, thank you, you are keeping the option open but you are not preparing for it. Well, go ahead with your answer but I think it is very clear when you get $36 million as opposed to $128 that you said you needed, that you are not preparing for it, and that you did not get the money. You obviously have said to this Committee that you do not have the money to prepare for it.

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    Mr. HOLMES. What I would like to do is give you some idea of how that $36 million is being spent, as an example. Four million is to complete the evaluation of the dress rehearsal in South Carolina which is a traditional census taking method. That will provide information for us to move ahead to do a non-sampling census.

    Secondly, $15 million to develop operational plans for a non-sampling census. Seventeen million to open up 130 local census offices early and as Lee Price said the only component that is missing is roughly some part of that $92 million for staffing. But I think it is unfair to say that we are not doing anything.

    Mr. KOLBE. I did not say you were not doing anything. I did not say that. You are not doing, in my view, and what I think an objective analysis would say would be complying with the law which says that you are to prepare adequately on both tracks for a statistical and a sampling census to be done in the year 2000.

    So, I am just going to leave it at that. I want to go on with some other questions here.

    Mr. PRICE. There are 13 months from March 1, 1999 and April 1, 2000 and in that 13 months you can make up that $92 million.

    Mr. KOLBE. Okay. But, please, do not try to tell the Subcommittee you are saving us $92 million.

    Mr. PRICE. If the decision is made to stay with sampling, you are saving $92 million.
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    Mr. KOLBE. The law told you to prepare for both. It did not tell you to make the decision you think you are going to not have to do, the non-statistical or the non-sampling methodology.

    Mr. PRICE. We are preparing in a minimum way towards a possible decision and we can make up.


    Mr. KOLBE. The IG's report in December said that you were completing a comprehensive design review of your 2000 plan in January, has that been completed?

    Mr. PRICE. There was a design review in January. It did not——

    Mr. KOLBE. It has been completed?

    Mr. PRICE. There was a design review. It did not result in a specific document out of that review but——

    Mr. KOLBE. Why did on the IG's letter of March 16th say that it had been completed?

    Mr. PRICE. It had been, there was a review.
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    Mr. KOLBE. No document though out of it? No document was prepared out of this thing?

    Mr. PRICE. Not to my knowledge.

    Mr. KOLBE. It was what, an oral review?

    Mr. PRICE. There are meetings all the time in the Census Bureau that do not, as a result of the meeting, have a document come out. A lot of work results from it that changes what happens but not every time there is a meeting, do you have a specific report that results from that meeting.

    Mr. KOLBE. I do not think that is what the IG meant when they said a comprehensive design review is being completed. I think they did indeed believe that a document would be produced.

    Mr. PRICE. Are you talking about the December 30th?

    Mr. KOLBE. Yes, their December 31st letter.

    Mr. PRICE. They could not have known what was going to happen in January on December 30th, it had not happened yet.

    Mr. KOLBE. No, it had not happened. It said you were completing a comprehensive design review and I am sure they expected some kind of a document which somebody would be able to review coming out of that. So, you have meetings, minutes of meetings?
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    Mr. PRICE. The Committee staff had asked for the results of that review earlier this week and when I checked to see whether a document was available I was told it was not.

    Mr. KOLBE. Well, okay. We do not have it and, yet, you want us to appropriate some money for you. The IG suggested several areas of problems that they saw. You complete a design review, we do not know what that design review did, you cannot tell us, there is no document to tell us and we are supposed to appropriate money for you to follow-up on these things that come out of this design review?

    Mr. PRICE. We have—there are—all of the problems that are identified by the IG in his report and the GAO in the current report are things that we have talked about with them. They did not find out about it out of the ether. We have talked to them. We acknowledged those as problems. Those are all things that we are working on in addition to others.

    As Secretary Daley said in his testimony earlier this month, we welcome the scrutiny of those two agencies because that means we identify and understand, get their insights and we can fix problems sooner.

    Mr. KOLBE. Well, it seems very hard to me for us to be asked to appropriate this money when we do not have a report, a written report that tells us, that identifies some of the problems that the IG sees. I guess we also have the GAO report. We understand there is a comprehensive review but we are not able to see it. We do not have any documents that come from that and we are supposed to appropriate the money for you to follow-up.
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    Mr. PRICE. Congressman, I have just been passed a note from staff who is much more familiar with the details of this than I that says they will be putting out an analysis within six weeks that results from that.

    Mr. KOLBE. From that comprehensive review?

    Mr. PRICE. Right.

    Mr. KOLBE. In other words, it is a written document?

    Mr. PRICE. There will be a written document.


    Mr. KOLBE. Well, thank you. I certainly know that this Subcommittee will look forward to getting that so that we can consider the budget request.

    Mr. Chairman, a final question on the philosophical issue here. I have a question, but it is really more of a statement. I know that we will never, never agree on this issue of whether the statistical sampling or the non-statistical sampling or the non-statistical count is a better way to do it.

    But it seems to me that we have a fundamental political problem and it is one that no number of scientists or committees of the National Academy of Sciences can possibly address in the recommendations that they make. It is one that occurs to me when you talked about the agricultural census. That is the fundamentally different use that is made of the census when it comes to its political and I underscore that, political uses for deciding on districts, not just congressional districts, legislative districts, school board districts, county commissioner districts, junior college districts, hospitals, all kinds of things that it is used for.
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    In my State of Arizona in the last census where the legislature could not agree on a plan for congressional redistricting and the courts took charge, they said to their two, one Republican, one Democrat experts that they hired to do this—I happen to be friends of both of them—they said, look, we got the data from the Census to do this as precisely as we want, we want you to draw not congressional districts that are close, we want them to be exact.

    And, so, they took the State of Arizona and they divided it by six. Unfortunately it did not divide evenly. As we used to say in fourth grade math, there was a carryover of one. I am sure these two gentlemen tried to figure out how to divide that person into six parts, but they could not. And, so, we have five congressional districts that are exactly the same and one congressional district that has one more person in it, in Arizona.

    Now, you get that degree of precision and then you get down to all the other lesser districts that are being used. You cannot tell me with sampling with any assurances that when you go in the end and you have to place these people not just in the aggregate, if you were using statistical sampling. I would agree that you can get more accurate count if you are talking about the United States of America, if you are talking about the State of Arizona and probably even Pima County where most of my district Tucson is located. But you have to use this census and you have to then take the people from the sample and place them in an exact location in order to make it work politically. They have to be placed in the house here on this side of the street, as opposed to that side of the street. And that is where you cannot tell me that you have accuracy with the sampling methodology. And that is the problem we get in the end with this.

    Mr. PRICE. Unfortunately, Congressman, what has been the case of having five districts with the same population and one district with one extra person, that is totally false precision.
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    If you had six districts of about 600,000 people, the State must be around 3.5 million people with the 2.5 percent undercount that your State is estimated to have, much higher than the national average—that is about 90,000 people. 90,000 people in those six districts that are missing, that we have every reason to believe live in that State.

    Barbara Bryant was asked this question—she was the Census Director appointed by President Bush. She was asked this question by reporters last fall, what about these districts because they are used in lots of smaller districts, not just States for apportionment. And she said that she was heavily involved in districting before she came to the Census.

    And that when you are drawing districts you are not drawing blocks at a time. You do not have representatives by block, you have representatives by larger populations. For those larger populations, sampling gives you better, more accurate results. When you have got 600,000 people, you have got much more accurate—those 90,000 are going to be assigned to those six congressional districts more accurately with sampling than without.

    We are very confident that in a State like Arizona, with large populations of Hispanics population and large Indians on reservations we are missing a lot of people, more than the national average. If you are missing 90,000 people, they belong in one of those districts and the people there by the Constitution are supposed to be counted. The Constitution expects us to be accurate and count residents.

    Mr. KOLBE. But counted, not estimated.

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    Mr. PRICE. No. It says we are counting.

    Mr. KOLBE. Enumerated.

    Mr. PRICE. It does not say we do a head count. When we get a form, we may get one person filling it out for six. We do not count heads.

    Mr. KOLBE. I appreciate your comment. And I knew you would make that reply to me that, indeed, those congressional districts in 1990 were not accurate if they were not accurate. But at least they were not based knowingly on a fiction and that is what you do with statistical sampling, you base it knowingly on a fiction.

    Mr. PRICE. I think it is a fiction to think it was accurate. I think what we have is a sample that is 2.5 percent shy.

    Mr. ROGERS. But the essential question that Mr. Kolbe asked at the end, the point he was making was that, yes, the sampling may give accuracy in a large body which is what you agreed to. But the point I think he was making on the block versus across the street is when you are making up that larger area that you are sampling from you have to confront the question of where is the boundary? What side of the street do you draw the boundary line on? And you cannot assure anybody from sampling, you cannot place everybody in that sample in a physical location, can you?

    Mr. PRICE. We place them close enough to be in districts so that district population is more accurate.
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    Mr. ROGERS. Suppose you find yourself short 50 people, where do you draw the geographical boundary line to bring in 50 more people, some of whom are imagined in your sampling process.

    Mr. PRICE. When you draw the line you have got hundreds of blocks on any given district's border. And one of those blocks may be a little bit high and one of them low but the errors come close to zero once you get enough blocks together.

    And, so, it is not just one block, it is the whole set of blocks not just along the border but inside that gets you 600,000 people in a congressional district and some of those districts, some of those parts of the State have a higher undercount than other parts do. And with sampling, you can better place those people than without sampling.

    Mr. ROGERS. Well, you are asking us to trust you.

    Mr. PRICE. Well, we have very clear evidence that Indians on reservations in 1990 were badly undercounted. And there are areas of the State that have large populations on reservations had actually more people in those districts than the official number said.


    Mr. ROGERS. You are asking us to trust you and we did that, for example, in the Immigration Service, trust us, we will only naturalize people who have had their criminal records checked. We trusted them and they naturalized tens of thousands of felons and never even checked their records. So, you are suffering here, I think, a good deal from the mistrust that a lot of us have with the promises of this Administration. I will be frank with you. And it is mistrust well placed because my gosh we have been misled so many times that we are having trouble building up confidence in your promises.
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    Mr. PRICE. In this case, as we committed last summer, the entire statistical design will be available for public view this summer for a year of debate. Anybody who sees any machinations in those can come forward with them, we are ready to have a debate.

    There has been no political person at all involved in this scientific research to design that.

    Mr. ROGERS. There was nobody involved in the Immigration Service in politics until the last minute.

    Mr. PRICE. And this will be open to anybody who will be able to see for a year to see about this design and then it will be finalized. And anybody who sees a tilt one way or the another and knows that statistical design, we should hear about.

    Mr. ROGERS. Before recognizing Mr. Skaggs, let me just say this. For all the folks at the Census Bureau and the Department, career employees like yourselves, and I assume most of the folks here with you, I am not worried about you. I mean I think you are going to do the very best honest job that you can, irrespective of politics or anything else. So, I want to be sure that you understand that.

    What I am worried about is that at the last minute some politician comes in and tries to manipulate your honest figures or your honest work, that has happened before in other agencies. That is what I think all of us have this fear of. And, so, I just wanted to let you know it is not you we are talking about here.
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    Mr. PRICE. If people need assurance on that then maybe that can be committed to but the Census Bureau's plan is to have a statistical design that does not change. It will be in place before any data is collected and it will stay there until the numbers are produced.

    Mr. ROGERS. Well, I will get back to you on the oversight board which is supposed to keep politics out of this after a while. But now it is Mr. Skaggs turn.


    Mr. SKAGGS. Thank you, Mr. Chairman.

    Is there any level of political subdivision, however small, to which as a practical matter the application of statistical methodology will give a less accurate count than the application of traditional enumeration?

    Mr. PRICE. I am not sure how small that gets. When we did the analysis last——

    Mr. SKAGGS. The real world that we are dealing with the school board districts, the county commissioner district, any political subdivision in which we have to apportion people for purposes of getting as nearly equal as possible representation, enumeration will give you a better, traditional enumeration will give you a better result than statistical methodology.
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    Mr. PRICE. We know that the error rate is larger for the block level when you do sampling but it is smaller once you get to the tract level and that averages about 4,000 people and in between that I have not seen an analysis done.

    But by the time you get as large as a tract and on beyond, it is notably a smaller error rate with sampling.

    Mr. SKAGGS. Then I guess the best way of putting this is will we have a greater number of more precisely counted political subdivisions in the country from the school board on up with a statistically adjusted method or with a traditional method?

    Mr. HOLMES. Statistical method.

    Mr. SKAGGS. So more people will be more accurately counted for more purposes with a statistical methodology?

    Mr. HOLMES. Yes, sir.

    Mr. PRICE. Another thing where the numbers are used is for funds allocation, about $180 billion a year are spent with population as part of the formula. And those funds are generally given to larger units, as well.


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    Mr. SKAGGS. Now, I wanted to make one observation about your exchange with the Chairman having to do with when we will have the address list really ready? My sense was that what you were saying is that as in so many other areas of current business practice, you want a just-in-time approach to your address list, is that one way of looking at it? Because the later in time you have it ready, the better it is going to be?

    Mr. HOLMES. That's correct. The longer we can hold out for closing out the address list, saying that this is the final one we use, will obviously will be better. But in terms of the evaluation part, that is ongoing.


    Mr. SKAGGS. Now, I think somebody conceivably could get the impression from some of the earlier exchanges that you all were sort of brushing off the IG and GAO criticisms and I want to give you an opportunity to counter that impression if someone may have gotten it.

    Mr. HOLMES. Well, from my perspective and I am sure Lee would agree, under no conditions are we brushing those off or suggesting that they are not serious things that we should not pay attention to. While some of us feel a little bit of the pain that is associated with the pricks that are provided by those agencies, they do provide an opportunity for us to really take a serious look at some things that we may or may not have taken a look at in the past and we use them to try and develop the best practices and the best processes that we can to get the work done that the taxpayers are paying for and the Congress is instructing us to do so.

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    Mr. PRICE. As I pointed out more in detail in my written statement, these are big challenges. We know it is a big challenge. And mostly they talk about challenge and occasionally they refer to risk but getting an address list, getting the employment done, getting the local governments involved, getting the statistical design, all are big challenges. We know that they are big challenges and they are not completed. We know that out of the $1.5 billion we expect to spend before Fiscal Year 2000, through Fiscal Year 1999, out of that we have only spent a quarter of it.

    Most of the preparation, even going back to 1993, still lies in the future. Last year we spent $84 million on the decennial census. This year we are spending $390 million, next year it is on the order of $850 million. We know that most of the work is ahead of us. Most of that work is going to be fixing the kinds of problems that the GAO and the IG have identified. And if we continue to be goaded by them on where we have got a bigger problem to make sure we deal with it, but we need to get the funds and get organized to do it and we will be ready in 2000.


    Mr. SKAGGS. Well, I wanted to pick up a little bit on the characterization of whether your approach to the traditional enumeration option and the point in time in which you will either proceed with that or not, depending on both judicial and political judgments, is prudent or fool hardy.

     I think the default position would be that saving something close to $100 million sounds like a pretty good idea to me absent compelling arguments to the contrary. But I think it turns perhaps on whether the balance of direction in the current legislative directions you have been given is equal treatment of sampling and traditional enumeration or contingent treatment of one or the other.
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    My sense was that what we have is contingent treatment of traditional enumeration and so you are planning for that as a contingency not as an equally likely outcome, is that correct?

    Mr. PRICE. That is quite accurate. We think and we wanted to see if we could get it, an expedited judicial review but that decision will not be made before next winter and the political decision was talked about for next February. We need to be prepared for that contingency, either of those contingencies. We are confident that, at the end of the day, the courts will say that it is legal, constitutional, at the end of the day when the Congress looks at the facts in their entirety about what the tradeoffs are in terms of costs and accuracy that they will say, go ahead, and you can continue to use statistical scientific methods.


    Mr. SKAGGS. Now, I may be off on a wild goose chase here but it strikes me that it might help inform this debate if we could somehow quantify the costs of the increments of improvement that can be accomplished in the census by one alternative versus the other.

    And I am not sure what the right X, Y and Z numbers are here but assuming that your first phases of sending out the questionnaire and following up on that gets you to X, which is less than 100 percent; then how much per percentage point, if you will, is it going to cost us to get from X to 90-whatever, whatever the max is that you think you can accomplish through a statistical methodology so that we have a sense of what additional level of accuracy we are buying for each additional $100 million in one path versus the other. Is that a plausible method of looking at this public policy problem we have got?
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    Mr. PRICE. It is intuitively plausible. It is very hard to do in practice. I mean we did some, what I call, thought experiments last fall when people were asking for this, and as I said earlier the biggest part of the undercount are people who live in a house where we got the form and we just did not get everybody in the house.

    And those houses are not marked, the people who are not included are not marked. How do you find those houses? And one way we thought of doing it, well, let us just go to the places that had the highest undercount in 1990. Got to the tract's that had those. But even going to those, it is very, very expensive to go knock on the doors to do this expensive kind of interview. It is very expensive for very low return, other than that it is very hard to identify those people that are missed by the traditional methods.

    You can go to a lot of houses and find the same information you got the first time.


    Mr. SKAGGS. Well, there has been some allusion to the fact that we should be afraid of possible political manipulation. I think there is, if you will, political fraud implicit in the traditional approach, which we do not talk about because it is just sort of there in the undercount but it is equally fraudulent relative to our goal of fair representation in the elected bodies of this country as is any potential, that somehow the statistical correction methodology might be susceptible to some manipulation which I think is a much smaller one.

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    I would like to have one additional question that has nothing to do with the census. I think Mr. Price, you mentioned in your opening, the responsibilities in your area of developing international trade data. And I would just like for the record you to let us know how much better we could do by way of understanding both the pluses and minuses in terms of the economic impact of trade on the U.S. economy if we devoted another increment of resource to refining our understanding on a sector-by-sector basis, in particular, because I think the trade debate around this place takes place at a pretty macro level and with a lot of rhetoric that could be better informed by a real sense of impacts.

    Mr. PRICE. Well, the Census Bureau collects the trade data, both the export and import side, and it processes it in great detail. It is actually one of the few statistics that we do on a complete count basis rather than a sampling basis and some people think we underestimate exports by 10 percent because of that, because we rely on administrative data alone.

    But we do have very detailed information up to that amount. And we have had a number of programs with another part of the Commerce Department, the International Trade Administration, on various occasions where they have financed research on specific items that were of interest to better understand those things and that could be done again.

    Mostly it has not been on a sectoral basis but on a regional, State or metropolitan, trade basis. But there is an awful lot of data that could be mined and better analyzed if resources were there to do it.

    Resources have not been there to do it in recent times. We have been scrimping just to get the basic accounting job done.
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    Mr. SKAGGS. Thank you, Mr. Chairman.

    Mr. ROGERS. Mr. Latham.


    Mr. LATHAM. Thank you, Mr. Chairman.

    I just wanted to say I think you hit the nail right on the head earlier when you talk about the problem that I have and I think that many of us have is that the problem of trust. I mean when you have people who have given away the most precious thing any American could have, their citizenship, to convicted felons for the purpose of politicizing an election or getting more people registered to vote, 30-some-thousand people, you have no trust in the people, because you know they will do anything for political reasons.

    When you have people who will take personal FBI files and use them for political reasons, only, you have no trust at all. I can assure you. And what we have here is a question that really is not about the census, it is totally about money and power. And you, yourself, I think said there was $180 billion as far as distribution here. How can we trust anybody to guess at numbers when they continually will lie, will do things like give away citizenship to felons, not even check 200,000 people on their backgrounds for political reasons only. How can you expect us to trust that?

    Mr. PRICE. Well, I think you can trust it because the Census Bureau has an impeccable reputation for its independence and its statistical——
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    Mr. LATHAM. So did the FBI, so did the INS, before this and it became a political tool for them to use for political purposes only.

    Mr. PRICE. In this instance, whatever the statistical design that is going to be used in 2000, it will be open for public review for a year in the next year. There will be no changes after that is done.


    Mr. LATHAM. There are laws on the books having to do with privacy and also with citizenship and they were totally ignored and I would not expect, because of the character of people involved, for any change to happen here. And I am just telling you it is not directed at you but I am just telling you that it will be used—we have no reason to believe it will not be, because of past experience and a track record. There is no question about it.

    I have, to get more to the sampling question, my understanding is that in the proposal that when you get to 90 percent, you will sample for the last ten percent, is that about right or is that the plan?

    Mr. PRICE. The plan is for the 60,000 tracts in the country that each of those we will get a mailed response, let us say at 70 percent. Then for the 30 percent that did not send their forms back, we will sample two-thirds of that to get up to, so that we will have information on 90 percent. The combination of the mail response and the sample will assure you of the information on 90 percent of the housing units in each tract.
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    Mr. ROGERS. Would the gentleman yield on that?

    Mr. LATHAM. Yes.

    Mr. ROGERS. How will you know when you have gotten to 90 percent since you do not know what 100 percent is?

    Mr. PRICE. It is based on, as you say, the crucial Master Address File. To the extent that you have got so many housing units, when you draw your sample you eliminate, in effect, 10 percent of the tract's housing units from the housing units that have not responded by mail.

    And then, for all of those remaining housing units, you go to send the enumerators out, to go collect information as if they were doing 100 percent in the old methods.

    Mr. ROGERS. Thank you.

    Mr. LATHAM. That is the question I had, how do you know when you are at 70 percent if you do not know what 100 percent is, unless you actually count them.

    Mr. PRICE. It is 100 percent of the mailing of——

    Mr. LATHAM. Right, which you cannot show us. You have not got it ready yet and it is going to be right up to the 12th hour when that is finally available and if it is wrong then we are done.
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    Mr. PRICE. We need the best possible mailing addresses whether we do sampling or not, but we really need it if we are not going to do sampling.


    Mr. LATHAM. I would suggest there is some level of confidence that needs to be a part of the equation. And I have not heard anything to give me confidence.

    How do you know in a household if they say there are four people in there and there are actually 20, how do you know there are 20, if you are guessing?

    Mr. PRICE. We are not guessing. When we do the ICM——

    Mr. LATHAM. What do you do, surveillance or something?

    Mr. PRICE. No, no. We use only information we actually collect in the sample. The ICM is an independent sampling operation, it is called, Integrated Coverage Measurement, and we go to 750,000 housing units. We pick up some missing housing units that are not in the standard MAF, so we can get some correction there. But we also send people to every housing unit in the ICM and if we do not get mail back on those we send somebody there. They ask more questions, and spend more time there and they find out more often that there is a college student that may have been registered twice, or there is a person who was there but was not put on the first form.

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    That information is compared to the first set of information and reconciled. To the extent that people then admit that there was somebody there that they did not admit to the first time, that is information that we then use.

    Mr. LATHAM. Well, the example you used was they may say there are four people but there may be 20 people there.

    Mr. PRICE. If they do not say——

    Mr. LATHAM. I mean how do you know that there are 20 people there for your guessing?

    Mr. PRICE. We do not know. All we know is that the first time we went and they told us there were two people, and the second time we go and they say there are four people. And then we go back and try to reconcile, well, you said two and then you said four, which is it? And we get sometimes, often enough, that it was four but that is evidence that we use that there are more people there than the two that we would get in the old-fashioned method.

    Mr. LATHAM. So, with your guessing, you could say because they said there were two and there were four, that actually there were 20 in there?

    Mr. PRICE. No, we say there are four.

    Mr. LATHAM. Where did you get the example before about 20 people in the house?
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    Mr. PRICE. We would only calculate 20 people when we got some solid information that there were 20 people. We do not—in the sample survey we only use the data that is collected.

    Mr. LATHAM. I had a personal experience just in January. I was in my apartment with my wife here in the District and a census person came by and we were moving out at the end of the month and she went through the question, put it in her computer, and she was going to check back in three weeks and we were going to be out the next week. In her computer system she could not do that. She had to know how she could get a hold of me at that address with my phone number here when we had told her five times we were moving the next week.

    There is something in the system that is not taking into account the realities of life here.

    Mr. HOLMES. Well, I guess I will try and address that one, sir. What you are referring to is one of our sample surveys.

    Mr. LATHAM. That is why I have no real confidence in the sampling.

    Mr. HOLMES. Well, but again, the sample, doing a sample survey is radically different from doing a census using statistical methods. The reason it is different is that in a census we make an attempt or provide an opportunity for everybody to participate. Only after you have gone through all kinds of efforts to get everyone to participate, do you at that point apply a sample.
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    Now, what you have described in terms of the survey is just the opposite. Rather than making an attempt to get in touch with everyone we select a small group and each of those particular addresses are the ones that are part of the sample and it is the responsibility of that person to make sure that they get the information from the person that is there.

    I do not question the fact that there may have been a problem with the instrument and she could not go forward or she could not go backwards to get some information but that situation that you described is a little bit different than the census.

    Mr. LATHAM. You are saying that that was part of sampling.

    Mr. HOLMES. No, sir.

    Mr. LATHAM. Well, that is what you just said.

    Mr. PRICE. There are two different kinds of surveys.

    Mr. LATHAM. You are sampling the population.

    Mr. PRICE. Some surveys the sample is based on the address, where you just come back and survey whoever is living there.

    Mr. LATHAM. Right.

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    Mr. PRICE. Other surveys, you are supposed to follow the person. This apparently was a survey where they were directed to try to follow the person.


    Mr. LATHAM. Let me just make my point and that is that the results would not have any validity based on my personal experience.

    We have virtually zero, in reality, unemployment. Where are you going to get the people, say in Sioux City, Iowa, to do the sampling? Are they going to be competent?

    Mr. PRICE. They will have to hire many more people if we do not do sampling. If we have to get 100 percent of housing units instead of 90 percent of housing units, the difference between 70 percent and 90 percent is two-thirds as much as the difference between 70 and 100.

    So, the number of people who have to be hired is going to be much tougher to meet in those Sioux City areas that have low unemployment.

    Mr. LATHAM. I think your results are going to be skewed, if you do not have competent people to begin with. I do not know where you are going to find them. It is critical to accuracy if you are using the basis of sampling whether the results at 70 percent are wrong or at 90 percent are wrong. I do not know where you are going to find the people to ensure accuracy in this process.

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    Mr. PRICE. That is, as the GAO has said in its report, that is one of the biggest challenges we face and when you have to find 100,000 more people in the country not only is it going to be hard to find the people but their ability to do the work may be not as good as the first 250,000 people. So, to the extent that there is a problem in the labor market it tilts our decision in favor of sampling.


    Mr. LATHAM. One question I have asked virtually every panel that we have had through the process this year is regarding the year 2000 computer problem, obviously, we are looking at something that is very important in the year 2000. What if the computers implode here?

    Mr. PRICE. One of the things the IG talks about is all the new software design we are doing. But when you are doing new software design then you can avoid that problem. In large part, the Census Bureau and the BEA, which is another part of the ESA, are well ahead of most other Government agencies and they are aware of these problems. They have inventoried them and they are confident that by next year, early next year, we will have replaced those programs that are a problem and we will be able to test them and be ready well in advance of January 2000.

    But we are creating whole new software that will not have that problem.

    Mr. LATHAM. You can assure us of that.

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    Thank you, Mr. Chairman.

    Mr ROGERS. Mr. Dixon?


    Mr. DIXON. Thank you, Mr. Chairman.

    I would like to welcome both of you gentlemen here today and as the Chairman has indicated, it certainly is a hot seat. It is probably a hot seat, in my opinion, because as I understand, from both of your backgrounds and the people that are here, that you have spent considerable time in developing the science of how to count people. And on this side, it is the politics of the issue. And, so, when the science and politics hit together there is always some kind of clash.

    But I really do not think, Mr. Price, that you get it. I think you are beating your head against the wall and I only speak for myself on this. You have been challenged this afternoon as to the accuracy of sampling, notwithstanding what other scientists and professionals in the area say about sampling. You have been accused of not being prepared today and the strong inference from reports is that you will never be prepared to do the job of enumeration.

    You have been told directly that the Committee or at least some Members of the Committee are concerned about political influence. In fact, one Member, Mr. Kolbe said, this is a political issue. So, I do not think you get it because, unless there is some drastic change you are not going to be allowed to sample. If the courts say that it is constitutional that moves you no further forward.
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    Because, as you said, the under count involves, in the main, Latinos and African-Americans. The perception is that they would be inclined to vote Democratic. There are other concerns about States that know they have had declining population, losing representation. So, you do not get it.

    You are not going to be able to do sampling, one. And two, when it comes out and is disclosed that a lot of people were not counted, you are already being set up to say that you were inefficient and not prepared. That message is very clear today. Now, my interest, coming from a State that has gained population, is that we have the most accurate census available. But, in the real world, we will not be able to get that. So, rather than enumeration being a contingent issue, for my interest I want it to be your main interest.

    And I want you to realize that when you come before this Committee, in the main, you come to a very hostile environment on what is a political question. And from that perspective, I do not think you are prepared today.

    Because I think, not as a professional, but in the real world you have your head in the sand. You are still under the belief that if a 1,000 scientists demonstrated the accurate way to count that you can turn this Congress around on the issue.

    Now, unless there is a drastic change in the next two years, you are not going to be able to do that. So, setting that issue aside, I still want the most accurate count, Mr. Holmes, that you can make. I suggest to you that you get busy because it is going to be a short count and you are going to get blamed for it and there are going to be a lot of reports waived around and a lot of testimony about forecasting. I tell you what happened in 1990 will happen in the year 2000 and you have heard that here today.
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    I do not mean to lecture to you at all, but you must see in the real world what is happening. And you are trying to fight back without a sword. You are trying to fight back with the logic of the science, you know, that is who are you going to believe me or your lying eyes?

    Now, that is what is occurring in this room. And I am not suggesting that there is anything evil about it; it is a political issue. You are not prepared today. These reports say you are not prepared. I remember 1990 and the disaster there suggests to you it is coming for 2000, you are going to take the heat for it.

    And, although, we are not challenging your integrity, we are concerned with somebody out there in politics at the last minute changing the numbers. The handwriting is on the wall. So, I do not have any questions for you except get busy with the enumeration process. Do not look at it as a contingency. Look at it as a reality because that is what is going to happen and notwithstanding that we still want you to do the best job you can with one hand behind your back.

    Thank you, Mr. Chairman.

    Mr. PRICE. Can I respond briefly?

    Mr. DIXON. Please.

    Mr. PRICE. You raised a couple of important issues. One is that you said that these reports said that not only are we not prepared now but that we will never be prepared or that was the inference. I ask specifically to the authors of both of those reports if that was the case because I read the same inference as you did. And they did not, they said, no, that was not what their position was. There position was that as of today there are these risks that have to be dealt with. They can be dealt with they said. And the reason they have those reports, the reason we welcome those reports is we expect people to identify where there are risks and we want to work with them and work with you so that we can resolve those risks.
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    But they did not say and I pressed them very hard on just what you said because the inference to the naive reader is that we will never be prepared, that we are so far behind we will never be prepared. And the authors of both of those reports said that was not their intention to say that.

    They intended to identify risks that needed to be dealt with if we were going to succeed, but they did not mean to imply that in the two years that we have remaining and the resources we have asked for that we could not get there.

    And I agree entirely with your reading of that inference but that is not what I was told by the authors to be the case of what their, those authors' intentions were.


    Mr. DIXON. What about the Chairman's comments here? He goes back to the inadequacy of the 1990 census and he uses the report and he foresees disaster on the year 2000 census. When you put these reports together and you put his utterances together, can you not see that you are not going to be able to use statistical sampling?

    Mr. PRICE. Well, I do not accept your pessimistic forecast for this.

    Mr. DIXON. Well, the reason I am pessimistic is because I think there may be more you can do to gear up for the enumeration. Now, if you can assure me that there is not anything else to do—see, I would transfer my time and energy because it is not going to happen. It has nothing to do with the merits of it. This is a political issue and you are treating it as a scientific issue.
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    Mr. PRICE. Well, it is very clear, as Congressman Skaggs pointed out, we have not clarified how difficult it is to do any better than 1990. Extremely difficult and extremely expensive.

    Mr. DIXON. Do you think you are going to embarrass them into changing their political posture on this, the majority of this House?

    Mr. PRICE. I think that there are people who can be persuaded and I think there will be a lot of discussion in the next year. People will be better informed in a year's time than they are today.


    Mr. DIXON. How can you control the political influence that is going to come in, or has been suggested that it is going to come in at the last moment?

    Now, he shows you something you have no control over and I do not believe it is real but he says what I am concerned about——

    Mr. PRICE. Well, there are ways to deal with it.

    Mr. DIXON. It is the political influence.

    Mr. PRICE. There are ways to deal with that. As ranking member Mollohan proposed last summer, if people are interested in having a monitoring board—that really was to prevent that we would be happy to see that and that can be done. If people are interested, if that is the problem, that can be dealt with.
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    Mr. DIXON. Mr. Price, we cannot trust you. You heard Mr. Latham, how can we trust you when all these felons were registered to vote? How can we trust you?

    Mr. PRICE. We think that if that is the concern——

    Mr. DIXON. Do you think you will turn his attitude around about this, with the issues that he threw out? You think if you can just show him the light, he will walk down the path.

    Mr. PRICE. We are prepared to have any scrutiny by people who are professionals to check any kind of problem. This is not something after the fact that is discovered, this is two years in advance. We can set up something in advance that can have all the scrutiny that is necessary to make sure that does not happen.

    Mr. DIXON. I know I have taken a long time, Mr. Chairman, so I will just conclude. Was there not, in fact, a group set up to make an evaluation as to how to improve the accuracy of the census?


    Mr. PRICE. Well, this Congress was very disappointed with the 1990 census. They commissioned a National Academy of Science panel.

    Mr. DIXON. And what did they recommend?
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    Mr. PRICE. They recommended that the only way to get a satisfactorily accurate census was to include some statistical sampling.

    Mr. DIXON. Has that changed any attitudes around here? Has that made anybody a believer? No. Mr. Mollohan said he was convinced, I was convinced. [Laughter.]

    Mr. Skaggs was convinced. It is not that I do not believe in it, but I want the most accurate count under the circumstances. And the circumstances are that it is a political issue and there are reasons why people do not want to use sampling and I just want you to do the best job you can with one hand behind your back.

    Mr. PRICE. Well, we are committed. That is why we have asked for the $15 million for this year to do the best planning we can to see what can be done to try to find those people who otherwise were overcounted or undercounted without using the statistical methods that allow you do it.

    We are committed to do that because we are committed to the most accurate census in 2000 with or without sampling as the decision is made. It is very, very difficult to do much improvement on accuracy, on the overcount or the undercount without sampling.

    Mr. DIXON. Well, do the best job you can for California. [Laughter.]

    Thank you, Mr. Chairman.
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    Mr ROGERS. Thank you.

    And as usual, Mr. Dixon, has pierced through the veil to the real truth of things and that is the reason that we have been peppering you pretty hard today about your preparations for in case the court rules that you cannot use sampling. I think that is a realistic possibility. No one knows how it will turn out. But if they rule you cannot do sampling you are up against the time crunch at that time, March or whenever that takes place.

    And we want to know, and I asked the Secretary the other day when he testified, we want to know and we want to see your plan for that contingency and we want to see that plan. And we want to know how you are preparing for that actual enumeration survey because we may have a couple of ideas ourselves about how you do it or we may not fund a certain part or we may want to add some money for such and so part.

    That is just what we are all about here. This is the oversight committee. And is that a——

    Mr. PRICE. We are absolutely committed to fulfilling your request to the Secretary and next month we will provide you with our plans for how we would do a census without sampling as far as they have been developed at that point. As the Secretary said, this is a work in progress so we intend to improve on it. There may be things that we can develop after April that would be worthwhile doing and we cannot today or within the next month be as well developed in the fine details of how we would operationalize the non-sampling plan.
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    But we are committed by the time that decision is made next winter to be every bit as operationally prepared for non-sampling as we are with sampling. We are not there today and we will not be there in April but we will be there by the decision next winter.

    And we will give you as much information as we can next month to satisfy you that we are working as hard as we can on this.

    Mr. ROGERS. I do not want that. I do not want you working as hard as you can on it. I want the product. I mean, I want you working as hard as you can, but that is only half of what we want. [Laughter.]

    What we want is, we want to see what you have got and whether we think you can get there or not. That is altogether critical because after all we are investing over $4 billion in this.

    Mr. PRICE. At least $4 billion.

    Mr. ROGERS. And as somebody said, you know you add a few dollars here and there, a few million, billion, you have spent—you run into money. We are running into money here. We want to see what the product is before we leave the store.

    Mr. PRICE. And you should.

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    Mr. ROGERS. Now speaking of the possible political manipulation, which is the big fear that our side of the aisle, frankly, as Mr. Dixon has said, because of previous actions of this Administration, the level of trust is really low and that is what is fueling this whole problem here I think.

    As an attempt to neutralize that, the Congress picked up on an idea that Mr. Mollohan proposed to create a monitoring board. We included that in the fiscal 1998 appropriations act, a bipartisan, independent Census monitoring board. We authorized spending at $4 million for each fiscal year. I do not know whether the Administration agreed to the creation of the board. I think they did.

    Mr. PRICE. Yes, they have, yes. The President has selected four people and they are in the process of being vetted by the IRS and the FBI.

    Mr. ROGERS. How come you did not ask for some money for it?

    Mr. PRICE. I guess it did not cost enough to come ask for us. But that is the President's responsibility.

    Mr. ROGERS. What is?

    Mr. PRICE. To get the people vetted.

    Mr. ROGERS. No, I mean, you did not ask for any money for the operation of that board.
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    Mr. PRICE. We were told by those who are more expert than we in how budgets are put together that this is considered a legislative item and not a Commerce Department item.

    Mr. ROGERS. Why did you not ask for money for this? You are asking $856 million for the decennial census. The board could cost no more than $4 million a year. It does not operate on nothing. It has to have some money for telephones, what have you. You did not ask for any money. You were in the room when the budgets were put together, were you not?

    Mr. PRICE. Yes, I was.

    Mr. ROGERS. How come you did not ask for money for the board, the oversight board? That is the most important part of the whole budget, frankly.

    Mr. PRICE. Well, there are two things that come into play here. One is, we are told that that category of spending belongs in the legislative branch appropriation, not in the Commerce appropriation.

    Secondly, while they were appropriated—the authorization is $4 million through 2001, each year. I would expect in 2000 a much bigger effort to monitor things than in 1998. They are going to be staffing up in 1998. They probably will have some carryover into next year. How much should be done for 1999 is unclear.

    Mr. ROGERS. I think I need to let Mr. Dixon talk to you again. I think he is right. I do not think you all are seeing the problem. The problem is trust, and the trust building phase of this is the monitoring board. That is where we get people from both sides and we let them assure people like me that, hey, this thing is on the up and up, and no one can manipulate this system; it is a fair thing. I cannot believe how trivially you are treating this subject.
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    Mr. DIXON. If the Chairman would yield on this?

    Mr. ROGERS. I yield.

    Mr. DIXON. I do not think that Mr. Price is saying that he is not for the funding of the board and would not make those requests. I think he is saying that when he made the request he was told that the appropriate vehicle was the legislative branch bill that would pass through the Congress.

    Mr. PRICE. That is what we were told, yes, sir.

    Mr. DIXON. So if we put it in your budget you would not have any problem with that, would you?

    Mr. PRICE. No.

    Mr. HOLMES. Also, Mr. Chairman, I would like to mention that it is my understanding too that the monitoring board is not part of the Department of Commerce, so that also impacts the process, too.

    Mr. DIXON. But you are in no way opposed to it.

    Mr. HOLMES. No.

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    Mr. PRICE. The way I understand it is, this was the last—you know better than I do, but this was the last train out of the station. We created this board, and the vehicle to find the money for fiscal year 1998 was Commerce, Justice, State because that was the train that was there that night.

    Mr. ROGERS. This was a key part of the compromise that was reached on the census, the monitoring board. In fiscal 1998, the current year, this Committee funded the monitoring board. You have got money now in your account for fiscal 1998 for the operation of the board. You did not request any funds to do it for 1999, which is what we are here for, and I just want to know why.

    Mr. PRICE. We were told——

    Mr. ROGERS. By whom?

    Mr. PRICE. By the Office of Management and Budget that that kind of funding should be done in the legislative branch and not in Commerce.

    Mr. ROGERS. This is the legislative branch——

    Mr. PRICE. No, in the legislative branch appropriations process, not in the Commerce budget process.

    Mr. ROGERS. Did you ask for it in the legislative branch appropriations bill?
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    Mr. PRICE. I do not know.

    Mr. ROGERS. The answer to that question is no, you did not. How come?

    Mr. PRICE. I was not party to that decision.


    Mr. ROGERS. That is what they all say.

    Every time we try to bend over backwards to try to find some common ground, we find it turns out to be quicksand. That is what is wrong—that is the process with this Administration. We cannot trust them on anything we do. It is a frustrating experience, and it forces us to play hardball. And if that is the way they want to play it, so be it; we can do that, too.

    Now let us get back to the process then. On the response rates on the mail-outs in your proposal, the Bureau's plan for the census assumes that the mail response is 67 percent. That is 2 percent better than you did in 1990, 12 percent higher than your own original response rate estimate for the 2000 census of 55 percent. Reaching that 67 percent level was contingent on you making key changes and improvements.

    One of the major key improvements was mailing a second, replacement questionnaire to people who did not respond to the first one. As your February 1996 plan stated, the Census Bureau also learned ''a valuable lesson from the direct mail industry, that repeated contacts and reminders pay big dividends. We will send a replacement, user-friendly questionnaire to most addressees from which no responses arrive. Delivering a second form is a major change in approach,'' in a quote from your own bureau.
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    This was to be a targeted mailing to those who had not responded. Last year you told us you were changing that. You were not going to target it because it was not technically feasible. Why did you abandon the targeted mail strategy, that second mailing?

    Mr. HOLMES. It has not been abandoned, Mr. Chairman. We are using that in the dress rehearsal. We are using a second mailing. We are also sending a letter in advance of the questionnaire and a reminder card. Depending upon——

    Mr. ROGERS. No, the question is, did you abandon the targeted second mailing?

    Mr. PRICE. Yes, we did.

    Mr. HOLMES. Yes, we did.

    Mr. ROGERS. That is what I am saying. Why did you abandon the targeted second mailing?

    Mr. HOLMES. As you said, it is not technically feasible to do that.

    Mr. ROGERS. I did not say that. You said it.

    Mr. HOLMES. I assume that based on the comment you read, that is correct, it is not technically feasible.
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    Mr. PRICE. In the tests that were done in the 1995–1996 smaller geographic areas, we were able to do targeted mailings. We were able to process the addresses that had mailed back, cull those out and only send to those who had not sent it in.

    The Bureau was told by experts who process these kinds of things that to do it for 100 million addresses would take a month. From the time we cut off the addresses that had mailed back to the time you got back into the mail of those who had not got it back, it would be a month. And that month is a long period of time of blackness from not being able to process information.

    Mr. ROGERS. What is a month got to do with it? That is not an unreasonable delay, is it?

    Mr. HOLMES. Yes, sir, it is when you are up against a clock.

    Mr. ROGERS. Assuming you are going to do sampling.

    Mr. HOLMES. No, sir, this has very little to do with sampling. Because as of December 31st we have the responsibility for delivering the counts, and I think you mentioned that there were some 13, 14 million housing units that we have to follow up on. If you have to take a month out of that schedule to decide which of those you are going to mail questionnaires back to, that limits the amount of time that you have to follow up on them. And it is difficult enough under the best of circumstances to——

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    Mr. ROGERS. Let me just quote you from the letter of Mr. Marx, Associate Director for the Decennial Census of March 25, 1997, memorandum for Marx from John Thompson, Acting Chief. ''The Census Bureau is modifying the mail treatment strategy for Census 2000 as outlined in this decision memorandum. This modification is based on an assessment on risks inherent in the original schedule for completing data collection and processing activities for both the census and the quality check''—that is the integrated coverage measurement—''programs in time to produce apportionment and Public Law 94–171 counts by statutory deadlines.''

    ''In assessing the risks associated with the original schedule it became apparent that the non-response followup operation presented the greatest vulnerability in terms of our ability to complete subsequent key activities necessary to deliver the census totals by the required dates.''

    In other words, I think he is saying there, we cannot afford the time involved with the followup mail because it is going to interfere with our statistical sampling.

    Mr. PRICE. No, it is nonresponse.

    Mr. HOLMES. No, that is actual followup, and that was the point I was trying to make. That if you take a month out of the schedule to decide specifically which households to mail the questionnaire back to, what that does is reduce the amount of time that you have for people to go out and knock on doors. Hence, the December 31st deadline of reapportionment data and a whole series of other things.

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    Mr. PRICE. You send out first one mailing. You wait for a period of time for most of those people to mail back a questionnaire and to close out the address of who mailed back. Then if you have a month of blackness before you send another mailing, and then you have to wait for a period of time for that to be mailed back. And then you figure out who has not mailed back yet and get those people's names and addresses——

    Mr. ROGERS. Look, you are going to spend 13 weeks on your statistical sampling, and you are going to spend six weeks on nonresponse followup.

    Mr. HOLMES. Again, the piece I think you are missing, Mr. Chairman, is even in the traditional census-taking method there is a PES which does not take as much time, it is not quite as labor intensive as the ICM, but it is still a quality check that goes on after the nonresponse followup is done. So it is not like you just go out and do the count and that is the end of it.

    Mr. ROGERS. Are you going to do a second mailing at all now?

    Mr. PRICE. We will be testing a second mailing in the dress rehearsal. If it turns out that we get a big response from it——

    Mr. ROGERS. It has been zeroed out in your budget request.

    Mr. PRICE. Because of serious questions that have been raised about it, both in terms of the problems that would be raised for unduplication—because these are supposed to be mandatory forms. It says they are supposed to return these. If a substantial number, 15, 20 percent of people look at that, the husband fills out one time, the wife fills it out the other, they send in two. That is a major unduplication problem.
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    There is also the public credibility problem of getting two forms. Why are they sending me two forms?

    Mr. ROGERS. Are you going to do a second mailing?

    Mr. PRICE. We are going to test it. If it does not cause problems and it gets a big response then we would do it. But our inclination now is——

    Mr. ROGERS. But you are not requesting money for that in your budget?

    Mr. PRICE. Because we think that it will cause unduplication problems and not have as big—money-saving benefits to plan for right now. But it may save enough so we can test for it.

    Mr. ROGERS. I have other questions for the record that I will ask that you respond to for the record. We could spend the rest of the week I guess, but we do have votes on the floor right away.

    Mr. Mollohan, do you want to——


    Mr. MOLLOHAN. I have a couple questions. Gentlemen, let me first of all compliment the Census Bureau for its long history of having a reputation of political independence. I think it is one that you should be proud of and one that you should lead with in response to any questions about your credibility. Citing history is good precedent, and I think it is a tradition that you can assure people that you will uphold.
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    Secondly, with regard to this question of political manipulations, is it not true that experts agree that the use of sampling in the Census 2000 should minimize the opportunity for political manipulation, not increase it?

    Mr. PRICE. Yes, that is correct.

    Mr. MOLLOHAN. Why is that?

    Mr. PRICE. There are opportunities for discretion whether you do non-sampling or sampling. But if you have designed it and have scientific review of it, then that discretion will not be there and you will have the accuracy that comes from scientific efforts. But if you are doing your efforts based on discretion of where you send out people, and when you send out people, and which neighborhoods you put the most effort into——

    Mr. MOLLOHAN. Then it is ripe for manipulation, is it not?

    Mr. PRICE. There is some risk.

    Mr. MOLLOHAN. And with sampling, you build in objective properties that are looked at by experts, looked at by the public and they operate automatically.

    Mr. PRICE. That is the way we are designing it.

    Mr. MOLLOHAN. Which works against the opportunity for manipulation.
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    Mr. PRICE. Yes.

    Mr. MOLLOHAN. I think that is something that you want to emphasize when you get that kind of question.

    In addition, you are committed to developing these protocols, formulas in a very open process subject to all kinds of public scrutiny; is that not correct?

    Mr. HOLMES. That is correct.


    Mr. MOLLOHAN. So that the formulas that you do end up putting in place are going to have been developed in the real light of day.

    Finally, have you not invited the National Academy of Sciences Committee on National Statistics to convene a fourth expert panel to guide your work in the development of the 2000 Census?

    Mr. HOLMES. Yes, we have.

    Mr. MOLLOHAN. I think you should cite that because that gives people I think a level of confidence. The National Academy has great credibility. So on that issue of political manipulation, I think those are some really good responses that you can give.
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    If the constitutionality of statistical sampling is considered by the Supreme Court and the Supreme Court decides that sampling is constitutional, I frankly believe that that will be a very powerful force and create a lot of momentum for allowing you to go forward with sampling. That was a critical piece of the agreement which was hashed out between the Administration and the majority in Congress. I, frankly, believe that the way that decision goes will probably be the way that we end up proceeding with the 2000 Census.

    Mr. ROGERS. I hate to interrupt, but we do have votes on the floor that we will have to run to get to. I appreciate the time that you have spent with us and the grilling that we put you through. We appreciate the work that you are doing and we wish you well.

    Mr. SKAGGS. Mr. Chairman, I just would like to leave the record open so we can clarify what I think is still a dangling question about this legislative branch appropriations issue for the oversight board. If there is some communication you can supply, and if we can find out anything.

    Mr. ROGERS. Good.

    Mr. HOLMES. Thank you very much.

    Mr. ROGERS. The hearing is adjourned.

Thursday, March 19, 1998.
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    Mr. ROGERS. The Committee will come to order.

    We are pleased to welcome this afternoon, Dr. James Baker, the Under Secretary for Oceans and Atmosphere at the Department of Commerce.

    He will testify on behalf of the programs in the 1999 budget request of the National Oceanic and Atmospheric Administration.

    The budget request for NOAA totals $2.117 billion, which is an increase of $123 million or 6.4 percent above the amount that Congress provided in 1998.

    Unlike other programs at the Department of Commerce, NOAA's appropriation has not been reduced, even though NOAA represents over 52 percent of the total of the Department of Commerce's budget, exclusive of the Bureau of the Census.

    In order to meet our allocation levels, that means NOAA has increased at the expense of other Commerce agencies, which have had to take even larger reductions.

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    This year is likely to be a very, very tight budget year, given our commitment to meet the budget caps of last year.

    We will be looking for you to assist us in finding budgetary savings as we develop priorities. We will insert your written statement in the record.

    If you would like to proceed with a summary, we will be happy to hear from you.


    Dr. BAKER. Thank you, Mr. Chairman, for this opportunity to testify on the NOAA budget. Let me say that because of the investments that this Committee has supported, NOAA is a leader in weather and climate research and forecast, environmental monitoring and research, fisheries management, and sustainable use of the coast.

    We believe that our proposed budget represents an appropriate balance among the environmental assessment, prediction, and stewardship needs of the Nation. Most recently we successfully demonstrated the value of these investments by the forecast of the 1997–1998 El Niño.

    We first announced in June 1997 that El Niño would be an event of a century in the intensity, and that major impacts could be expected in the United States and globally during the coming fall and winter. The subsequent weather patterns for October 1997 through January 1998 have matched well with the forecast. A number of regions around the country have recorded hundred-year departures from normal rainfall or temperature. Providing this type of information to Government industry users as well as the public more than six months in advance is precedent-setting. Based on current forecasts, hundreds of Federal, State, and local agencies as well as private groups have been able to take steps to prepare and mitigate the impacts.
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    El Nino reminds us of the importance of the ocean to the weather and climate system. In recognition of this importance, the United Nations has declared 1998 as the Year of the Ocean. We have planned a year-long series of events to remind us of the value of the oceans in our daily lives. We are leading the Federal inter-agency effort to review the status of ocean-related programs. Legislation, the Oceans Act, has been introduced in Congress and it highlights the importance of the ocean. It sets up a commission to review future oceans policy. The Year of the Ocean presents NOAA with a chance to educate more Americans than ever before on the tremendous importance and virility of our Nation's ocean, coastal, and Great Lakes resources.

    Other ocean issues have been in the news this year. For example, the biological consequences of polluted run-off is increasingly being seen in many coastal areas. We have seen the effects through last year's outbreak of Pfiesteria in the Chesapeake Bay, the increase in harmful algal blooms, red tides, brown tides, as well as hypoxia in the Gulf of Mexico. All of these have significant economic consequences.

    Another important success is NOAA has pioneered the use of the Endangered Species Act flexibility to work cooperatively with the States of Oregon and Maine to develop conservation plans for salmon that avoid Federal listing of the species.

    We will continue to work with States to find innovative approaches in carrying out our trustee responsibilities. The total 1999 NOAA request, as you have said, Mr. Chairman, is $2.117 billion in new budget authority.

    It is a net increase of $123 million over the 1998 enacted level. This request allows NOAA to perform an essential role in a number of interagency and Presidential initiatives, including the Natural Disaster Reduction Initiative, the President's Clean Water Initiative, the South Florida Ecosystem Restoration Initiative, and the National Oceanographic Partnership Program.
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    Significant changes in our 1999 budget include $33.6 million to implement statutory requirements to restore America's fisheries, protect marine species faced with extinction, and conserve habitat important to living marine resources.

    No new funds are requested for new ships in fiscal year 1999, but funds to acquire replacement fisheries vessel capacity are planned for future budget requests, fiscal years 2000 through 2003.

    We have $22 million for the Clean Water Initiative which will provide research and management to address polluted run-off, the major source of pollution of coastal waters today. New funding will allow NOAA to help coastal states monitor, maintain, and improve coastal water quality by addressing run-off pollution.

    A total increase to $5 million is requested to support the Administration's South Florida Ecosystem Restoration Initiative.

    We will also continue to chart the Nation's coastal waters, including the continued reduction of the critical backlog for hydrographic surveys, and providing precise positioning information to mariners.

    We are preparing a report on our hydrographic services as requested in the 1998 Conference Report. That report has been finished and is currently under review.

    In addition, $55 million is requested as part of the Interagency Natural Disaster Reduction Initiatives.
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    Of that amount, $28.3 million is to maintain National Weather Service operations and ensure the provision of weather warnings and forecasts to the public consistent with the recommendations contained in the study conducted by General Kelly.

    The remainder of the budget request will support advanced hydrologic forecasts, improve regional scale weather prediction models, replacement of the obsolete radiosonde upper air monitoring network, research into scientific questions relating to ozone and air particulate standards under consideration by EPA, as well as coastal hazards including development of risk atlases for coastal areas.

    We continue to experience the benefits associated with Weather Service modernization in Fiscal Year 1997. Improvements in the accuracy and timeliness of severe weather, natural hazards, event warnings, and forecasts are directly linked to modernized technology such as the Next Generation Weather Radar, new and improved weather satellites, and the Advanced Weather Interactive Processing System being deployed.

    These improvements have been attributed to saving lives and reducing the impacts of natural disasters. We are nearing the completion of Weather Service modernization. One of the remaining challenges, as you are well-aware, is the completion, development, and deployment of the AWIPS system, the cornerstone of the modernization. AWIPS has performed superbly in its initial deployment.

Offices without it are demanding it.     As you are aware, we are currently working with the Subcommittee to review plans and cost estimates for the AWIPS Program, including an independent cost review.
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    For our environmental satellites, 1999 funding will ensure that our continuous GOES and Polar-orbiting satellites are continued. The increase of $153 million from the enacted level is requested primarily for acquisition of GOES N through Q, the contract which was awarded to Hughes in February 1998.

    The competition in that contract lead us to savings close to half a billion over the original estimates. The new series of geostationary satellites began with the launch of GOES 8 in April 1994. GOES 10 was launched in April 1997 as a back-up in case of a failure in one of the operational satellites. That satellite is working fine at the moment.

    An additional $65 million is required to meet NOAA's commitment to share development costs with the Department of Defense for the National Polar-orbiting Operational Environmental Satellite System; an increase of $31 million.

    We will continue to study and document long-term climate changes and provide scientific input to international scientific and policy organizations as we did at the U.N. Climate Conference in Kyoto.

    Mr. Chairman, I would like to note in conclusion that more than in most years, we see the dramatic impact of weather and climate changes on the economy and safety of the world.

    Our contributions for water, climate, and fisheries management issues have been more in the news than ever. Our technology, services, resource management capabilities, and dedicated people have performed well.
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    Our 1999 request will help ensure the continued delivery of these essential services. Thank you for the opportunity to testify.

    [The statement of Dr. Baker follows:]

    Offset folios 1346 to 1384 insert here


    Mr. ROGERS. Now, for fisheries you are asking for $30 million in program increases of which $20 million would be paid for by new fish fees. Now, we have seen these fish fee proposals before. They have always been rejected.

    Dr. BAKER. Yes, sir.

    Mr. ROGERS. What makes you think that you have a chance this time?

    Dr. BAKER. Mr. Chairman, we were directed by OMB to request fees for both fisheries and for navigation services. I have to tell you that we passed on that message to OMB, the message we have received from Congress.

    I have to say that there has been experience in the Coast Guard. The Coast Guard was also told to develop fees for navigation. The Coast Guard has had a very hard time implementing such fees as they have gone through the courts by trying to make that happen.
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    In fact, the budget does include the fees. We have agreed to work with Congress to see if we can find legislation to make that happen.

    Mr. ROGERS. What specific fisheries increases are tied to these fees that would thus have to be foregone if the fees are not enacted?

    Dr. BAKER. Mr. Chairman, as we worked with OMB to develop the budget, we asked that there not be any specific ties between fees and specific fisheries. So, there was no specific link. It is a general offset to the overall NOAA budget.

    Mr. ROGERS. You say you want all of your increases. You want us to pay for it. That is typical of all of the agencies this year. There are zillions of dollars worth of fees proposed by the Administration in all of these submissions.

    The Coast Guard fees are not going to happen. Your fees are not going to happen. The disaster loans—SBA wants us to raise the rate of interest charged to people who had been wiped out with no access to loans from financial institutions.

    They want us to double their interest paid on disaster loans to people who are absolutely down and out. They know that we are not going to do that. Yet, we have got to find some extra money somewhere to make up for the disaster loans account.

    The same thing here. It is just an absolutely sham budget. It is not a balanced budget. It is a budget proposal from the White House that would require the Congress to enact inordinate numbers of fees and charges which we are not going to do.
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    It is outrageous. You know we have been very generous to the fisheries programs in the last three years. Almost every other program in the entire Commerce Department, outside of NOAA, has been cut.

    We have increased funding to fisheries by 37 percent. So, we have been very generous to those programs. Surely you are not suggesting that we cut other NOAA programs, such as the Weather Service, to pay for these increases if the fees are not adopted; are you?

    Dr. BAKER. No, sir.

    Mr. ROGERS. What shall we cut?

    Dr. BAKER. I think if it turns out that fees cannot be enacted, we will have to work with you to find ways that we can work within the lesser amount in the budget.

    Mr. ROGERS. That is what I thought we were here today for. I would like to know what you want us to cut since we are not going to do the fees?

    Dr. BAKER. We are certainly prepared to sit down and work with the committee to try to make that identification.


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    Mr. ROGERS. Now, we have been concerned for a number of years that the navigation safety programs, particularly mapping and charting, were often overlooked by NOAA. This, despite the fact that we have a ridiculous backlog and the number of old charts.

    Three years ago, we were told that it would take 40 years to make our charts current. Thanks to Congress' efforts, which for the last three years, has increased funding for these programs. We have been able to drop that to a 30-year backlog.

    Just as we are making some strides, you propose to cut them by 13 percent in these critical navigation safety programs. And, you are proposing new fees on navigation programs in order to pay for other NOS programs. How can you justify cutting critical navigation safety programs?

    Dr. BAKER. Mr. Chairman, this has been a difficult issue for us because we have identified the critical backlog. It is something that we have pushed hard for every year. The Administration is proposing more in the 1999 budget than we did propose in the 1998 budget.

    You are absolutely correct. It is a substantial amount less than Congress provided. Congress has been, I think, much more responsive to this than our overall budget.

    We are continuing to work it. In the end, this is what may happen, but we are fully in agreement that this is a problem that we have got to address.

    Mr. ROGERS. Well, if your budget cuts are enacted, will that not mean that we will have an increase in the current 30-year backlog?
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    Dr. BAKER. It will certainly be an increase in the backlog that we would have had if we had the congressional level enacted. That is correct.

    Mr. ROGERS. Now, at the same time, you are cutting NOS core functions, it appears we are seeing some new missions. NOS is taking on functions previously done by OAR and making these new functions their top priority. At a time when you are proposing to cut the most important safety programs in NOS. How can you justify NOS taking on new functions with proposed huge increases for those functions?

    Dr. BAKER. Mr. Chairman, one of the things we felt was important was to try to have a more efficient agency. I think we have been directed to do that. We have been very concerned about it.

    The reorganization, moving some of the functions that were outside of the National Ocean Service into the National Ocean Service, we believe will give us a more efficient and more effective operation.

    Now, it is true that we proposed some increases, but the increases, for example, coastal ocean programs and Pfiesteria research, are for areas that we think are programmatically important for the country.

    Mr. ROGERS. Now, you are requesting increases totalling $36.3 million for the National Weather Service operations. How much of those increases are for base requirements and how much are for new programs?
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    Dr. BAKER. The base requirement, as identified by General Kelly's report, is $28.3 million. I do not have the breakdown of the other numbers. The base requirement is $28.3 million. He identified that as a need. That is what we have put in the budget.

    Mr. ROGERS. That would be $8 million for new programs. Is that correct?

    Dr. BAKER. That is correct.


    Mr. ROGERS. Given the continuing problems that we are having with AWIPS which we will come to later and the overall fiscal constraints, what is your highest priority; new programs or base funding?

    Dr. BAKER. Mr. Chairman, our number one priority for Weather Service this year was the restoration of the base. That is what the Kelly Report said. That is what we have put in there.

    Mr. ROGERS. As I understand it, a portion of your base increase is to continue to keep staffing due to the delay in the AWIPS deployment. Are some of those temporary costs while you get AWIPS deployed next year? Will some of the staff levels be reduced in fiscal 2000 once AWIPS Build 4.2 is deployed?
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    Dr. BAKER. Yes, sir. In fact, we are currently working the exact number that keep the numbers to 106 people that we think can be sustainably reduced by the accomplishment of Build 4.2.

    To the extent we can achieve additional parts of AWIPS, we would have additional reductions. In our discussions we have agreed that we would have both a requirements and budget review for both Build 5 and Build 6.

    Mr. ROGERS. What is your estimated cost savings in fiscal 2000 once AWIPS Build 4.2 is deployed?

    Dr. BAKER. It would be the cost savings associated with 106 people. I do not know the number. It would be approximately $17 million.

    Mr. ROGERS. Now, one-third of your requested increase is for non-labor costs. Even the Kelly Report raises questions about non-labor costs which account for over 40 percent of the Weather Service's operations budget.

    In fact, the Kelly Report admits some of its ability to realistically evaluate and determine budget levels was limited due to faulty Weather Service budget practices.

    How can we have real confidence that all of the $10 million increase is critical and necessary?

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    Dr. BAKER. Well, Mr. Chairman, a large fraction of that funding is for equipment and maintenance supplies. We are looking at that. We are taking a very careful look. Now, we have a changed management in the Weather Service. General Kelly has agreed that we will do a real scrub of all of those requirements and the costs.

    Mr. ROGERS. Well, the Kelly Report further states that, one, there are huge variances among the regions in spending in non-labor costs, and, two, getting a handle on these discrepancies could result in substantial non-labor regional budget savings. Three, it is essential for NOAA to analyze this problem.

    Do you plan to review this? When can we see the results of that?

    Dr. BAKER. Mr. Chairman, it is my understanding that we do plan to do that as soon as we can hire a new CFO, which is one of our management changes that we are proposing for the Weather Service.

    Mr. ROGERS. Okay. I have further questions that I will defer to the second round. Mr. Mollohan.


    Mr. MOLLOHAN. Thank you, Mr. Chairman.

    Welcome Ladies and Gentlemen. Dr. Baker, you requested funding in last year's budget to construct a facility at Goddard. This Committee rejected your request and instructed you to consider other options.
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    Your budget for fiscal year 1999 does not request any funding for this project. I ran across an article in the Washington Post in February which is entitled, ''NOAA Plans New Facility at Goddard.''

    NOAA's program director was quoted as saying, ''We have discussed it with Congress through the . . . budget process. We will try all the avenues we can to keep the project going and moving as quickly as we can with it.'' What does that mean?

    Dr. BAKER. Well, Congressman Mollohan, that article was a surprise to me too. I have to say that we did take the direction from this Committee last year that said that whatever facilities we should construct should be the most cost-effective possible.

    That we should look broadly across. The Committee said that it would not provide any funding for the Goddard building. There are a number of studies that have been slowly winding down there.

    This is, as I understand it, a reference to an environmental assessment that was going on. We have directed that the ongoing planning for that Goddard building be stopped and that we look broadly at all of the possibilities.

    Mr. MOLLOHAN. Who have you directed that to?

    Dr. BAKER. To our facilities management activity. We have in place a new Deputy Under Secretary who will take that on.
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    Mr. MOLLOHAN. Who is that?

    Dr. BAKER. That is Bill Mehuron.

    Mr. MOLLOHAN. So, you directed him to cease and desist with regard to this project.

    Dr. BAKER. That is right.

    Mr. MOLLOHAN. Has he?

    Dr. BAKER. Yes, sir, as far as I know.

    Mr. MOLLOHAN. Who is the Goddard official quoted in the paper?

    Dr. BAKER. I believe that was a NOAA Weather Service person.

    Mr. MOLLOHAN. I am sorry. Who is the NOAA person?

    Dr. BAKER. As far as I know, it was John Sokich from the Weather Service.

    Mr. MOLLOHAN. What basis did he have to make that representation?
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    Dr. BAKER. I do not know, Congressman. That was not something that we had authorized.

    Mr. MOLLOHAN. What are your plans with regard to the facility, the purposes, and the functions that will not go into the facility?

    Dr. BAKER. We would like to find the most cost-effective way to manage our facilities that we currently have in Suitland and Camp Springs.

    We are looking for ways to either put people together or put them into a cooperative and synergistic way with other parts of NOAA or other related agencies. We are looking at areas around the Washington area to see how we can do that.

    Mr. MOLLOHAN. Do you have any request in the budget for——

    Dr. BAKER. There is a request in the budget for $735,000 for NOAA-wide space planning to look at the consolidation of offices, both in the Washington, D.C. area and also in Norman, Oklahoma. We have some old space.

    Mr. MOLLOHAN. That is a lot of money to look at that.

    Dr. BAKER. Well, I think it is not an unreasonable amount when you are looking NOAA-wide space planning.
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    Mr. MOLLOHAN. Did you request money for that purpose last year?

    Dr. BAKER. I do not know.

    Mr. MOXAM. No, sir. We requested money beginning the design of the building last year of $12 million.

    Mr. MOLLOHAN. Of the building we have just spoken of. So, this $735,000 is not money for that building, it is money for overall studying of NOAA's space needs.

    Mr. MOXAM. Consolidation options, both in the Washington, D.C. metropolitan area and the Norman, Oklahoma area, sir, where we have a large NOAA population.

    Mr. MOLLOHAN. This is for studies.

    Mr. MOXAM. Yes, sir.

    Mr. MOLLOHAN. Thank you, Mr. Chairman.

    Mr. ROGERS. Who is John Sokich?

    Dr. BAKER. John Sokich works for the Weather Service. I do not know his specific title.
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    Mr. MOXAM. Mr. Sokich was also appointed to be the program manager for the NOAA consolidation effort in the Washington, D.C. area as a collateral duty.

    Mr. ROGERS. Even though there is no consolidation effort authorized by Congress.

    Mr. MOXAM. Yes, sir. We had started this planning. A part of the planning is to be able to prepare estimates and budgets to explain that both to OMB and to the Congress on how much it would cost.

    Mr. ROGERS. I want specifically to know how come this program manager had the authority to announce at a press conference apparently that you are going ahead with the building that we specifically said do not do? How?

    Dr. BAKER. Mr. Chairman, we had another interview where we had that corrected in another publication. We believe that all we did at that time was roll out the environmental assessment. Part of the environmental assessment process is to make it public. When they picked up the article, they did announce it as done deal. I do believe we tried to correct that.

    Mr. ROGERS. Well, somebody called the press to get the story out in the paper. It was not just an accidental effort. This was a planned effort. I would like to know how it came about. Now, is it the National Weather Service that did this?

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    Dr. BAKER. I believe we were contacted by the press, Mr. Chairman, but I certainly can get back to you on that one.

    Mr. ROGERS. No. Let us get with it right now.

    Dr. BAKER. Okay.

    Mr. ROGERS. We know the answer. Tell us.

    Dr. BAKER. I believe we were contacted by the press once we sent out the environmental assessment. They asked for some more information on the project, what the plan was. Then they wrote that article based on the discussions.

    Mr. ROGERS. Well, Sokich is pretty plain about it. He says it is going to be done. We discussed it with Congress. They discussed it with Congress and we said no. We read a press release saying, we are going to build a $100 million center.

    Now, either NOAA is going to respond to the Congress or there will be further dues to pay. Which is it?

    Dr. BAKER. Well, sir, this press statement was a surprise to me. We have corrected that by directing that there will be no further action on planning for a Goddard building.

    Mr. ROGERS. This is not the only thing. There is a whole host of items that you and I have talked about that we find the NOAA and the National Weather Service unresponsive. In fact, contradictory to the will of the Congress.
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    It is the only agency that we appropriate for that has such an attitude. I just have to tell you, it ain't going to last that way. That is not the way this government is built.

    This agency, like all others is responsive to the Congress. If you cannot get that done, then we will have to take the next step, which you will not like. Can we talk?

    Dr. BAKER. Yes, sir.

    Mr. ROGERS. Can we have an assurance from all of your department heads? Sometimes I think the problem is not with you, that it is just below you. You have got, I think, most of the department heads here today; do you not?

    Dr. BAKER. Yes, sir. I think they are hearing your message.

    Mr. ROGERS. Those who have not heard my message, raise your hand.

    [No response.]

    Mr. ROGERS. That goes for all of you. We will not tolerate this agency or any division of it thwarting the will of the Congress, particularly on money issues that this Subcommittee deals with. It just will not happen.

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    You have done more to destroy your chances for a new building than you can ever imagine. It is going to be really tough for you to get that building now. You had an even chance going in, but you ain't got an even chance now.

    So, let it be a lesson. We will not be thwarted, publicly, openly thwarted. Mr. Skaggs.


    Mr. SKAGGS. Thank you, Mr. Chairman.

    It is with some trepidation that I ask about another NOAA building. Are you going to get the new lab in Boulder open this year?

    Dr. BAKER. I think we will be very close by December, Congressman Skaggs.

    Mr. SKAGGS. When in December?

    Dr. BAKER. December 11th is our current official projected completion date.

    Mr. SKAGGS. Any show stoppers between here and there that we need to be aware of?

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    Dr. BAKER. I do not think we have any show stoppers. There is a contract option that allows the contractor to delay completion until February 5, 1999. He could wait until December 10th before exercising the option.

    The contractor has not exercised the option or told us that he will do that. We have requested the contractor to give us early warning if this would happen. We do not have a response back yet. We are also very concerned about this and we will continue to monitor it.

    Mr. SKAGGS. This was built into the contract by GSA, at the contractor's option?

    Dr. BAKER. Yes, sir.

    Mr. SKAGGS. Obviously there are an awful lot of logistics that go into getting the people that now are scattered around in other places into the new facility in an efficient and least cost way. So, I hope you will keep me and my folks in Colorado advised on real time basis in case I may be able to be helpful with the contractor in getting things cleared up quickly.

    Dr. BAKER. Okay.

    Mr. SKAGGS. Related to that possible delay, I am told that, that could then force some rent problem for you in your current facilities. I do not need to get into details about that. We will need to know about that sooner rather than later here at the Committee.
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    I noticed, getting to some of the science that you do, which is really pretty fantastic, some modest increase in proposed funding for the Space Environment Center. Does that flow from anything happening in the solar cycle or is it other program activities that you are going to be undertaking?


    Dr. BAKER. Well, Congressman, as you know we are just starting the beginning of a solar cycle, one of solar maximum cycles, Solar Cycle No. 23. It started in late 1996. It is expected to peak in early 2000 and decline for two years after that.

    We felt it was important that we get some critical base funding into the Space Environmental Center to make sure that we could continue that 24-hour, 7 day a week monitoring. As you know, when you go into the higher solar activity, there is a possibility of particles coming from the sun and destroying utility generators. Right now, the forecast is that this solar cycle would be one of the ten most intense solar cycles on record.

    So, we expect the storms, the solar flares, to be more intense than ever. As you know and thanks to this Committee, we have a joint activity with NASA and the Air Force that has put a satellite out far enough so we can get one-hour warnings of these geomagnetic storms.

    The extra base funding that we provided for the Space Environment Center will help us make sure that we have a continuous and ongoing warning event.
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    Mr. SKAGGS. I think here, as with so many things that you do, it may not be self-evident to those of us who are not trained in the field exactly what the costs of avoided benefits are of these kinds of activities.

    If you could flesh out for the record a little bit what we think we will buy in savings to the power industry, or communications, or astronauts, or whatever it may be from having that additional warning capability. That would be helpful.

    Dr. BAKER. Just in a nutshell, the impact of solar activity ranges all the way from saving lives, that is astronauts who are in orbit because of a highly radioactive particles that come from the sun. You used to get a warning about what is going to happen down to power grids. In fact, the last really big outburst caused a power outage all across northern Canada and was close to $1 billion in impact. I cannot remember how long that was ago.

    It was in 1989. We have a bigger power structure across the United States and Canada. There is the potential for that order magnitude, hundreds of millions of dollars' impact upon power grids.

    If there is a warning, even a half an hour to an hour warning, you can shut down those power grids and you can avoid that loss to the generators. So, it could have an enormous impact. That is why we have a 24-hour day warning in our Space Environment Center.

    Mr. SKAGGS. I know you are asking for some additional funds to increase capability and high performance computing. Will that have some affect on the level of specificity in your forecasting?
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    If so, what is the practical significance of that. Are we on our way toward ten meter resolution instead of one mile resolution? What is involved in all of that?

    Dr. BAKER. This is a very important activity for us to have the best possible computing power. Right now, we are trying to do as good a job as possible in forecasting the landfall of hurricanes. That is probably the most important and biggest impact, economic impact, for weather events. Every mile that we can forecast that the hurricane will hit or will not hit is about $1 million of impact. We are doing better. Every year we do a little better. The new computer will help us improve and continue that improvement.

    It is not just hurricanes. One of the things that we are looking for is a better job of forecasting very intense weather. Explosive storms is something that we do not understand very well.

    Occasionally we get these. Did not know they were going to happen and suddenly they are there. Why do we get in a certain part of the country many tornados occurring all at once?

    Right now we are giving 15 to 45 minutes' warning on tornados. What we would like to do is to forecast these ensembles of tornados. It is this explosive weather that has the big impact on people and property.

    It is not just the short term. It is also the long term. Better computers allow us to do a better job of understanding what happens in the ocean. We can then couple those models to the atmosphere.
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    We can do an even better job of forecasting things like the El Nino or longer term climate changes to give people a month's warning or maybe a season's warning of what the next season is going to be like.

    Mr. SKAGGS. Let me just mention one thing, Mr. Chairman, that I have been trying to do fairly coherently on my other subcommittee which is Interior, which is to ask all of our public lands agencies that come to the Interior Subcommittee for money, to submit for the record both their general description and any specific examples that they can come up with in which better weather information, in-hand, enables them to save money.

    If they have been able to get a warning that would have enabled them to avoid weather-related costs or incurred; figuring that it might help us justify what we do on this Subcommittee to have a sense of its impact on your sister agencies elsewhere in the government.

    I am sure you talk with these folks anyway. It might serve your own enlightened self-interest to assist them in responding to those requests, BLM, Forest, Park Service, et cetera. Thank you.

    Mr. ROGERS. Mr. Latham.


    Mr. LATHAM. Thank you, Mr. Chairman. First of all, last August you revealed your predictions about El Nino and what the nation could expect.
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    Being from the Midwest, it really has not had a negative impact. It has been positive as far as moderate wheater for winter wheat. What has historically happened is that when La Nina comes in, that will really affect us.

    Dr. BAKER. Yes, sir.

    Mr. LATHAM. Do you have a prediction as far as when La Nina will come in?

    Dr. BAKER. I wish we could. Right now, we are forecasting a return to normal conditions in the summer. Whether we go to a La Nina situation next year or not I think is very much an open question.

    I think there are some people, some researchers, who are willing to take a risk and say maybe you would see this. I think our official forecast at the moment is return to normal by summer.

    We really cannot say what is going to happen next fall or winter. In the summer, we should be able to give you a three-month forecast about what we are going to see. There is obviously intense interest on that.

    Mr. LATHAM. Do you think that we will normalize by the summer?

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    Dr. BAKER. That is what everything shows. That is what the system is doing. The additional warm water that has been in the Pacific is being reduced as the Pacific warms up, generally as we move into summer.

    Mr. LATHAM. Maybe the INS, Mr. Chairman, will take care of this El Nino, La Nina situation. One question I have been curious most every hearing we have had is the year 2000 problem and how it may affect you and the Weather Service. Your systems interface with a lot of others. What affect will that have as far as satellites, AWIPS? Any problems there?

    Dr. BAKER. Congressman, this is a problem that we have been concerned about for a long time. Bill Mehuron, who is the head of our Systems Acquisition Office and now the Acting Deputy Under Secretary, took this on about three years ago.

    We started looking very carefully at our total systems. We have about 130 mission-critical systems in NOAA that would have some year 2000 impact. At the moment, 92 of those 130 are fully compliant; 14 are being replaced; and 24 are being repaired.

    We are on schedule with the replacement and repair systems. We expect that we will be able to meet the OMB dates of March. All of the work on our non-critical missions systems is proceeding on schedule as well.

    We have some similar problems to other agencies. We have some very old software. We have new software. We are trying to make sure that we replace, or retire, or repair all of the legacy software, the software that we built.

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    We are trying to make sure that all the software that we buy is compliant. There have been some problems with new software being sold that is not compliant, something that we have been concerned about. I would have to say also, Congressman Latham, that in the course of discussing this, we discovered there is also a 9–9–99 problem.

    Mr. LATHAM. Right.

    Dr. BAKER. So, we have instructed everybody not to fly on that day.

    Mr. LATHAM. Are you issuing that warning to the general public?

    Dr. BAKER. That is not our department.

    Mr. LATHAM. This is an interagency thing.

    Mr. BAKER. Yes, that is right. It is not a weather issue.


    Mr. LATHAM. It is the airplanes and systems. I also see that there is $1 million for the Globe program. What are you going to do with the $1 million?

    Dr. BAKER. The million, Mr. Congressman, is aimed at training teachers in the protocols to be used in the program. We found this to be a very effective way to reach school children about the importance of understanding science in the environment. I think it helps our populous to understand the science that should be used for making decisions. We believe this is a useful and important program.
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    Mr. LATHAM. You are going to do all of that with $1 million?

    Mr. BAKER. Well, we have—I have not been asked that question. I do think it is important that we use science to make decisions though. As NOAA provides science to the EPA and other agencies, we hope that their decisions are science based. I think this is a way of making that point.

    Mr. LATHAM. I think that is all, Mr. Chairman. Thank you.

    Mr. ROGERS. Thank you. I have been asked to read the following statement on behalf of my good friend and colleague from the State of Alabama, Congressman Sonny Callahan, who had an interest in being here. He was called back to Alabama.

    I would like to go on record and state that there is a growing dark cloud on the horizon with regard to the National Marine Fisheries Services management of resources in the Gulf of Mexico.

    This agency under your jurisdiction and that of the Secretary of Commerce has continued to promulgate regulations based on questionable science which jeopardize the livelihood of my constituents and hundreds of others Delta-wide.

    At every step, the National Marine Fisheries Service has ignored or failed to fully comply with the congressional directives included in this Subcommittee's bill.

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    Currently, there are grave concerns among my constituents that the National Marine Fisheries Service will ignore the congressionally authorized Gulf of Mexico Fisheries Council's recent decision to maintain the status quo with regard to the total allowable catch.

    Another issue of grave concern to myself and other Members of the Appropriations Committee regards the enormous amount of money they apportion of these fisheries cost the U.S. Coast Guard.

    I would like to go on record, Dr. Baker, that I and other Members of Congress are thoroughly displeased with the continued lack of cooperation and the environmental zealotry which the National Marine Fisheries Service has displayed.

    If the National Marine Fisheries Service continues in its reckless disregard for the livelihood of hundreds of my constituents, there will be serious consequences.

    I wish to thank Chairman Rogers for this opportunity. We will submit additional questions for the record.

    Mr. ROGERS. Any comment?

    Dr. BAKER. Only, Mr. Chairman, that we are currently reviewing that Gulf Council's decision to maintain the red snapper total allowable catch. It was the Council's own scientific assessment panel that recommended a number that was lower than the Council itself recommended. So, we are now looking at this because the Secretary of Commerce has to make the final decision. We will be back with a discussion about that. That is currently under review.
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    Mr. ROGERS. All right. Now, let us turn to AWIPS, as we always do. AWIPS was here at creation and will be here when eternity comes.

    Dr. BAKER. I hope not, sir.

    Mr. ROGERS. And over budget. Last year, you told us we were on track. We thought we were on track. We gave you the money. We were told all year we were on track. At the last second before this hearing we learned we were not on track. Why has this happened? What are you doing about it?

    Dr. BAKER. Sir, this is a problem that I share your concern about. AWIPS, I know you have been involved with it longer than I have. When I first came in to NOAA, we made major changes in the way the program was being managed.

    We have tried working with the Secretary's office to put more discipline and control in the program. I thought, as you did, that we had agreement that we would come in. The Weather Service would be able to come in and certify completion at the $550 million gap.

    Otherwise, I would not have agreed to that. I had assurances from Weather Service management that, that was the case. We continued to operate under those assurances. About several months ago, our new Deputy Under Secretary, Bill Mehuron, suggested that although we had very good program reviews on this program, it was delivering what it said it would deliver in terms of technology.
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    We did not have an independent cost and should we not do that. We, at that point, convened an independent cost review which in fact showed us that we are not going to be able to come under the $550 million cap.

    We put people to work to make that happen to find out what in fact we could do and how we were going to get this program under control. Mr. Chairman, I can say, as you know, we have changed a number of or made a number of management changes in the Weather Service.

    We have a new Deputy Under Secretary. We have a new Director of the Weather Service. The two deputies, former deputies of the Weather Service, have now moved to other positions.

    So, we are going to bring in a Chief Financial Officer. So, we have made management changes. I think we have now got an independent cost review process in place. I believe that we should be able to come to an agreement about how we can keep this program under control.

    Mr. ROGERS. Is it a problem of poor management on the part of the Weather Service?

    Dr. BAKER. I think it is a combination of things with AWIPS. I think there is a very strong sense among all of the people who had been involved in modernization. AWIPS is a critical aspect of modernization.

    It is the centerpiece because it brings together the ability to look at the data, and to do the communications, and to have the necessary hardware.
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    I think there has been an underestimate of the difficulty of developing the software. As a consequence, an underestimate of the cost. That is what our independent cost reviews are now showing.

    Mr. ROGERS. Well, all I can say is it took an outside review team to tell the Weather Service that they were not on track. The Weather Service did not even know they were not on track. Do you call that poor management?

    Dr. BAKER. Well, it is obviously a problem.

    Mr. ROGERS. Do you call that poor management?

    Dr. BAKER. Well, I call that poor management; yes, sir.

    Mr. ROGERS. The review team, it only took them one month to conclude that AWIPS was out of whack. Now, as I understand it, the Weather Service wants to fully deploy AWIPS with certain capabilities by next year; AWIPS so-called 4.2.

    Mr. BAKER. Yes, sir.

    Mr. ROGERS. What would be the benefit of deploying AWIPS 4.2 out to the field?

    Dr. BAKER. Mr. Chairman, it is absolutely critical that we have a fully modernized system of hardware for communicating and collecting data. We must replace the old systems which are now out of date. We believe that it is critical that we get this new hardware. We have it at about 30 locations at the moment to get it out to all of the Weather Service offices. That is what the proposal is for 4.2—to put in the minimal functions that are necessary to make this work and get the same hardware out to each of our modernized offices.
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    Mr. ROGERS. What is the benefit of that? What improved efficiencies would you see?

    Dr. BAKER. Well, there are really two things. One is that we will not have to worry about replacing the old software which in fact cannot give us the full capabilities of the observing systems. For example, you cannot get the high resolution satellite data with our older systems. You can only get it with the AWIPS system. It gives us the initial capabilities to support public and aviation terminal forecasts. It gives us the hydrologic prediction system, river basins. It gives us the steps that we need toward service back-up and system monitoring local data acquisition; the first steps on each of these important aspects.

    Mr. ROGERS. What about staff reductions? Will this enable some?

    Dr. BAKER. This enables us to take a good step towards the staff reductions that were promised with the full AWIPS. At the moment, we believe that the 4.2 would allow us to reduce by 106. I think the total that was originally proposed was 239.

    Mr. ROGERS. What impact has NOAA and the Weather Services inability to deliver the AWIPS system on a reasonable schedule and budget, what impact has that had on your ability to benefit from the $4.5 billion investment we have made in modernization?

    Dr. BAKER. We have been able to take advantage of the system in the 30 offices that we have. It has been working very well. If the original plan had taken place, we would have AWIPS out there right now.
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    In fact, I do not even know what the original proposal was that AWIPS would be in place. Today, we have 30 operating and in every office where we do not have it operating, we have lower quality satellite data. We have older systems operating. We cannot take full advantage of the system.

    Primarily, we have to look at many different screens, the Weather Service forecasters, as opposed to having everything on a single screen. So, it can all be integrated.

    Mr. ROGERS. Well, as I understand it, theoretically we would build AWIPS to what you call Build 6 which is the ultimate nth degree nirvana. That getting to that level may not be worth the zillions of dollars it would take for the last two or three percentage points to get there.

    Am I sort of on the right track here that if we eventually get up through Build 5 and into the Build 6 category, with not necessarily 1,00 percent of Build 6, that we would be 99 percent as close as we could get? Is that a generally fair statement?

    Dr. BAKER. I think that is a generally fair statement. What we get at each level, once we have AWIPS deployed throughout the system, then each improvement in AWIPS allows us to reduce people.

    In other words, we can have functions handled by computer software as opposed to handling it by people. So, what the Build 5 does, what Build 6 does, is it allows us to do the same things we are doing now, but to do it with fewer people.
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    I think there is a hope that we also might be able to do some new and different things. This needs to be validated. Those requirements and statements need to be validated.

    At the moment 4.2 gets the system out everywhere and 5 and 6 allow you to replace people who are currently doing various kinds of forecasts.

    Mr. ROGERS. Well, am I correct that the science is just not even there to possibly build Build 6 at this point, is it?

    Dr. BAKER. I think at the moment, we are not ready to come forward with requirements and costs for Build 6. We have asked the Weather Service whether they would be willing to do that. Their statement is no, they are not prepared to do that.

    Mr. ROGERS. So, the best we can do this year is Build 4.2.

    Dr. BAKER. Yes; 4.2 which means deployment out to all of the offices and a staff reduction of 106.

    Mr. ROGERS. That is technically all you can do next year.

    Dr. BAKER. Correct.

    Mr. ROGERS. All right. Now, I guess we will talk about this again next year, and the year after, and the year after. One of these days, we will have an AWIPS complete.
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    Let me switch to satellites. You are asking for a $182 million increase. As you know, we struggled with finding the money you wanted for satellite procurements. Often times, later finding out that you overestimated your funding needs.

    Last year, we uncovered major problems with NOAA hiding unobligated balances from the Committee. I hope we have put that behind us.

    Dr. BAKER. Yes, sir.

    Mr. ROGERS. I must say that I am a little puzzled as to why you still carried over about $92 million in the satellites account from the prior year's funds into 1998.

    Given the huge unobligated balances again this year, is it not possible there is some excess in your satellites request?

    Dr. BAKER. Mr. Chairman, this is a problem that we greatly appreciate the Committee's help on. I think it has been an important aspect of trying to get a handle on the satellite budget.

    It is my understanding that the for monies that we have in the budget we understand fully where all of those funding will go. We are going to look very carefully at this new GOES contract to make sure that we fully understand how that will be funded.

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    The President's budget, the 1999 budget, includes all of the savings that were identified and the funds not obligated in 1997 as a reduction to the amount of funds that were requested for 1999.

    Mr. ROGERS. Well, as I understand it, you were successful at saving almost $500 million from your original estimates of the GOES for the series of GOES satellites. Is that savings reflected in your request?

    Dr. BAKER. No, sir. That is not yet reflected in the budget because that happened after the budget had been prepared.

    Mr. ROGERS. When will that be reflected?

    Dr. BAKER. Mid-April is when we expect to have those numbers.

    Mr. ROGERS. So, we will have those before we mark-up.

    Dr. BAKER. Yes, sir.

    Mr. ROGERS. We want to have that.

    Dr. BAKER. Yes.

    Mr. ROGERS. Because it is substantial. Can you tell me that your satellite numbers are good or can we scrub them some more to get down to bare bones requirements?
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    Dr. BAKER. I think the satellite numbers are very good. Over the past two or three years, I think we have done a much better job of scrubbing those numbers. That is not to say that the last little bit could not be scrubbed out.

    Last year, you know, we looked at the National Polar Orbital Environmental Satellite System, the end host program, and came back to you. We will do the same thing with the numbers this year.

    Mr. ROGERS. All right. Mr. Mollohan.


    Mr. MOLLOHAN. Thank you, Mr. Chairman.

    You have come forward with two major initiatives, the Natural Disaster Reduction Initiative with a request of a $55 million increase and a $22 million increase you are requesting for the Clean Water Initiative which I think is $16 million.

    Dr. BAKER. I think about $5 million was identified in your ongoing funds last year.

    Mr. MOLLOHAN. So, that is about a $16 million or $17 million increase. As I understand the President's Clean Water Initiative, it is an initiative to look more broadly at these non-point source problems.
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    I have not read your justification in-depth. That is why I am asking you. It sounds to me like you are really spending most of this money to increase spending on current programs, including research.

    I was wondering to what extent you see it in your jurisdiction to look beyond the immediate geographical area of the post. How far back do you look? How does this new initiative, if at all, impact that thinking?

    Dr. BAKER. Congressman, this is an area that we are very concerned about. The dead zone in the Gulf of Mexico is largely caused by run-off in the Northern United States. It reaches way back.

    So, I think it is critical that we look very broadly at the watersheds, the effect in changing chemistry around the coast. It is not just the watersheds. In the Chesapeake Bay, about one-third of its pollution comes from air pollution.

    It comes up from cars, and manufacturing rains out into the Bay. So, there is the airshed and there is the watershed that causes this changing chemistry. We have $9 million of the 22 as identified toward looking at the changing chemistry and changing Harmful Algal Blooms of which there are many different types. And 12 million under the initiative is providing states with the technical assistance to look at non-point source pollution and to do research on non-point source pollution. A large fraction of which is trying to understand what is the size of the watershed.

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    What is the impact. How can we understand what is causing the change in chemistry that we see around the coasts.

    Mr. MOLLOHAN. I guess the other part of my question is what kind of geography? You alluded to it when you said that these watersheds go all the way back, I guess, to the source of the mighty rivers that empty into the oceans.

    So far as your responsibility is concerned, how far back do you think? I mean, you have scarce resources here obviously. A fairly big increase may not be near enough. How far back do you consider your jurisdiction to looking at, studying, doing research on the whole ecosystem?

    The non-point source, I guess, is something we are beginning to look at. Where does your jurisdiction stop in your mind or according to statute? Where does EPA's pick-up or some other agency's responsibility, if any?

    Dr. BAKER. Well, there are two ways to look at this. One is we have a jurisdiction in the Coastal Zone Management Act where we look at the coastal zone which is near areas right at the shore. The research that we do will extend out to anywhere that makes sense. Researchers are not bound by statute or a limitation about what an agency should say. We do have joint research programs that we carry out.

    There is an interagency activity carried out under the auspices of the Federal Committee on Environment and Natural Resources where we share our information about what we are doing so that we do not have overlapping studies. I think what our scientists are finding is that it is very important to look at the broad watershed and the broad airshed to looking at coastal pollution issues.
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    I think that although we do not spend a lot of money doing research on the interior of the U.S. on land problems, that is really more of a National Science Foundation or Department of Interior activity.

    I think our scientists would say that this is a very important part of that. That the work that they do needs to be fed into the work that we do.

    Mr. MOLLOHAN. Thank you, Mr. Chairman.

    Mr. ROGERS. Thank you, Mr. Mollohan.

    Thank you, Dr. Baker and your staff.

    Dr. BAKER. Thank you, Mr. Chairman.

    Mr. ROGERS. We are adjourned.

    "The Official Committee record contains additional material here."