[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



 
                  AGRICULTURE, RURAL DEVELOPMENT, FOOD
                  AND DRUG ADMINISTRATION, AND RELATED
                    AGENCIES APPROPRIATIONS FOR 1999

========================================================================

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             SECOND SESSION
                                ________

     SUBCOMMITTEE ON AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG 
                  ADMINISTRATION, AND RELATED AGENCIES

                     JOE SKEEN, New Mexico, Chairman

JAMES T. WALSH, New York               MARCY KAPTUR, Ohio
JAY DICKEY, Arkansas                   VIC FAZIO, California
JACK KINGSTON, Georgia                 JOSE E. SERRANO, New York
GEORGE R. NETHERCUTT, Jr., Washington  ROSA L. DeLAURO, Connecticut
HENRY BONILLA, Texas                   
TOM LATHAM, Iowa                       

NOTE: Under Committee Rules, Mr. Livingston, as Chairman of the Full 
Committee, and Mr. Obey, as Ranking Minority Member of the Full 
Committee, are authorized to sit as Members of all Subcommittees.

Timothy K. Sanders, John J. Ziolkowski, Martin Delgado, and Joanne L.
                        Orndorff, Staff Assistants
                                ________

                                 PART 2

                          AGRICULTURAL PROGRAMS
                                                                   Page
 Farm Credit Administration.......................................    1
 Commodity Futures Trading Commission.............................  121
 Food and Drug Administration.....................................  513

                              

                                ________

         Printed for the use of the Committee on Appropriations
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                     U.S. GOVERNMENT PRINTING OFFICE
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                       COMMITTEE ON APPROPRIATIONS                      

                   BOB LIVINGSTON, Louisiana, Chairman                  

JOSEPH M. McDADE, Pennsylvania         DAVID R. OBEY, Wisconsin            
C. W. BILL YOUNG, Florida              SIDNEY R. YATES, Illinois           
RALPH REGULA, Ohio                     LOUIS STOKES, Ohio                  
JERRY LEWIS, California                JOHN P. MURTHA, Pennsylvania        
JOHN EDWARD PORTER, Illinois           NORMAN D. DICKS, Washington         
HAROLD ROGERS, Kentucky                MARTIN OLAV SABO, Minnesota         
JOE SKEEN, New Mexico                  JULIAN C. DIXON, California         
FRANK R. WOLF, Virginia                VIC FAZIO, California               
TOM DeLAY, Texas                       W. G. (BILL) HEFNER, North Carolina 
JIM KOLBE, Arizona                     STENY H. HOYER, Maryland            
RON PACKARD, California                ALAN B. MOLLOHAN, West Virginia     
SONNY CALLAHAN, Alabama                MARCY KAPTUR, Ohio                  
JAMES T. WALSH, New York               DAVID E. SKAGGS, Colorado           
CHARLES H. TAYLOR, North Carolina      NANCY PELOSI, California            
DAVID L. HOBSON, Ohio                  PETER J. VISCLOSKY, Indiana         
ERNEST J. ISTOOK, Jr., Oklahoma        ESTEBAN EDWARD TORRES, California   
HENRY BONILLA, Texas                   NITA M. LOWEY, New York             
JOE KNOLLENBERG, Michigan              JOSE E. SERRANO, New York           
DAN MILLER, Florida                    ROSA L. DeLAURO, Connecticut        
JAY DICKEY, Arkansas                   JAMES P. MORAN, Virginia            
JACK KINGSTON, Georgia                 JOHN W. OLVER, Massachusetts        
MIKE PARKER, Mississippi               ED PASTOR, Arizona                  
RODNEY P. FRELINGHUYSEN, New Jersey    CARRIE P. MEEK, Florida             
ROGER F. WICKER, Mississippi           DAVID E. PRICE, North Carolina      
MICHAEL P. FORBES, New York            CHET EDWARDS, Texas                 
GEORGE R. NETHERCUTT, Jr., Washington  ROBERT E. (BUD) CRAMER, Jr., Alabama
MARK W. NEUMANN, Wisconsin             
RANDY ``DUKE'' CUNNINGHAM, California  
TODD TIAHRT, Kansas                    
ZACH WAMP, Tennessee                   
TOM LATHAM, Iowa                       
ANNE M. NORTHUP, Kentucky              
ROBERT B. ADERHOLT, Alabama            

                 James W. Dyer, Clerk and Staff Director










   AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND 
                RELATED AGENCIES APPROPRIATIONS FOR 1999

                              ----------                              

                                          Thursday, March 12, 1998.

                       FARM CREDIT ADMINISTRATION

                               WITNESSES

MARSHA PYLE MARTIN, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, FARM CREDIT 
    ADMINISTRATION
DOYLE L. COOK, BOARD MEMBER, FARM CREDIT ADMINISTRATION, AND CHAIRMAN 
    OF THE BOARD, FARM CREDIT SYSTEM INSURANCE CORPORATION

                            Opening Remarks

    Mr. Skeen. The committee will come to order. We're on the 
record.
    Good afternoon.
    Ms. Martin. Good afternoon.
    Mr. Skeen. Today we have with us two familiar faces and 
good friends of the subcommittee and American farmers and 
ranchers. You said you'd take a check? [Laughter.]
    The Honorable Marsha Martin is Chairman and CEO of the Farm 
Credit Administration. Doyle Cook is also a Board Member of the 
Farm Credit Administration. Ms. Martin has a master's degree 
from Texas A&M, so we know she's qualified for just about any 
job there is.
    Ms. Martin. Exactly.
    Mr. Skeen. Is that a fair statement?
    Ms. Martin. That's a very fair statement.
    Mr. Skeen. We Aggies have got to stick together.
    Credit is just as important to agriculture as good weather. 
And Ms. Martin and her colleagues can't do much about the 
weather, but they do work to make sure that we have a sound and 
reliable credit system.
    The Farm Credit Administration does not use appropriated 
funds, but is supported by assessments on member institutions. 
This subcommittee is responsible for the oversight of FCA and 
its related institutions to make sure that they are operating 
in the best interests of American agriculture.
    With that, Madam Chairman, I'll invite you to make your 
statement for the record, and then we'll have some questions, 
if we can hold off on a vote for just a little while.
    Ms. Martin. Okay, fine.
    Mr. Skeen. Go ahead, Marsha.
    Ms. Martin. Thank you very much.
    Mr. Chairman, it is my pleasure to be here today with my 
colleague, Doyle Cook. I'd like to share with you our other 
Board Member, Ann Jorgensen, who joined us last year, is not 
here due to a longstanding commitment. She sends her regrets, 
but she also sends the message that she is supportive of the 
budget that we'll present here today.

               Mission of the Farm Credit Administration

    Today I'll highlight FCA's accomplishments during the past 
year, report briefly on the condition of the Farm Credit 
System, and present our Fiscal Year 1999 budget request. The 
FCA, as you know, is charged with a highly challenging mission 
to promote a safe and sound, competitive Farm Credit System 
that serves rural America as a dependable source of credit and 
financial services within the authorities established by 
Congress. We take this mission seriously. It is one we take 
great pride in fulfilling.
    To support this mission, we operate under a dynamic and 
recently-revitalized strategic plan. Embedded throughout our 
plan are improved customer service, effecting clear and candid 
communication with our customers, producing quality products, 
and ensuring sound financial institutions exist to better serve 
agriculture.
    Mr. Chairman, some of the agency's more notable 
accomplishments during Fiscal Year 1997 follow:

                    EXAMINATION PROCESS IMPROVEMENTS

    We place a high priority on efficient and innovative 
examination programs that not only ensure our evaluation 
requirements are met, but also result in minimal disruption to 
the vital business activities of our customers. We continue to 
conduct examinations according to risk-based examination 
principles.
    During Fiscal Year 1997, we further enhanced our electronic 
access to System information systems and developed a standard 
method to electronically warehouse critical examination and 
System information. We are confident we have accurately 
identified current risk, but we remain vigilant, so we can 
respond with timely and appropriate action to warning clouds 
that could mushroom into a systemic problem.

                        ANNUAL PERFORMANCE PLAN

    This year we developed our first annual performance plan, 
in accordance with good business practices and the Government 
Performance and Results Act of 1993. Our plan includes specific 
performance criteria that communicate clearly what we intend to 
do and how we will measure the effectiveness of our 
performance.

                         YEAR 2000 PREPAREDNESS

    The most pervasive technological change that will take 
place over the next several years will involve the efforts of 
FCA and the Farm Credit System to ensure computer systems 
correctly interpret dates associated with the year 2000. The 
agency has placed a high priority on remediation of the 
problem. We require each System institution to develop an 
action plan that will ensure business continuity for critical 
systems when the next millennium begins.
    The FCA Board last month approved a plan that details how 
the agency will assess potential year 2000 problems. This year 
we will run the final tests to assure ourselves and others that 
systems and applications will function in the next century 
without problems.

                  CONDITION OF THE FARM CREDIT SYSTEM

    Mr. Chairman, I am pleased to report that the Farm Credit 
System continues to operate on a safe and sound basis. During 
1997, System earnings reached $1.3 billion, and total capital 
climbed to $11.6 billion, which represented nearly 15 percent 
of total assets.
    The quality of System assets also improved. Nonperforming 
assets comprised only 1.4 percent of total loans at the end of 
1997. In addition, the Federal Agricultural Mortgage 
Corporation recorded a net profit of $4.6 million for the year 
ended 1997, and after a successful stock subscription, 
increased its capital to nearly double the $25 million required 
by law.
    We are very proud of our accomplishments as the safety and 
soundness regulator of the Farm Credit System, and of our 
ability to contain cost while fulfilling our mission. Before I 
present the budget request, I respectfully bring to the 
committee's attention, as you have done, that FCA's 
administrative expenses are paid for by the Farm Credit System 
institutions FCA regulates. We do not receive a Federal 
appropriation. I also point out that FCA has not requested a 
budget increase in the prior four years, achieving a total 
reduction of almost 15 percent since 1995.

                    FISCAL YEAR 1999 BUDGET REQUEST

    For Fiscal Year 1999, I propose a budget of $35.8 million. 
This is a $1.4 million increase, or about 4 percent above the 
$34.4 million requested for Fiscal Year 1998 operations. The 
increase will be used primarily to compensate our increasingly 
tenured staff consistent with other Federal financial 
regulators. In addition, our plan calls for seven additional 
examiners in the field. Our Fiscal Year 1999 budget request 
supports a staffing level of 318 full-time equivalents. This 
proposed staffing level will maintain a ratio of 4.3 staff per 
billion dollars of System average earning assets and give FCA 
the right mix of positions and skills, so that we can implement 
our strategic plan and accomplish the agency's mission.
    Please note, Mr. Chairman, the proposed FTE level remains 
substantially below the Office of Management and Budget's 
established target of 408 FTEs for the agency by Fiscal Year 
1999, and represents nearly a 30 percent reduction from the 450 
FTEs we were authorized for Fiscal Year 1993.
    Mr. Chairman, on behalf of my fellow board members and 
myself, I thank you for this opportunity to appear before the 
Subcommittee, and we would welcome any questions at this time.
    [Clerk's Note.--Ms. Martin's written testimony appears on 
pages 67 through 77. Biographical sketches appear on pages 64 
through 66. Farm Credit Administration's budget justificaions 
appear on pages 78 through 119.]
    Mr. Skeen. First of all, would you excuse me and let me go 
vote?
    Ms. Martin. Please do.
    Mr. Skeen. I appreciate it. We'll be back. So we'll recess 
then until that time.
    [Recess.]
    Mr. Skeen. The hearing will continue.
    Ms. Martin, you're asking for a small increase for the next 
year, after several years of declining budgets. Part of that 
increase is for seven new examiners. Are these examiners needed 
for any particular purpose or are they for the general 
examination function?
    Ms. Martin. About three years ago--and I believe I've 
mentioned this in hearings before, I asked for a staffing plan 
for the agency. This was delivered to us a couple of years ago. 
At that time, we did not anticipate a couple of things, and one 
is the year 2000 issue. We have 11 examiners that are dedicated 
to looking at the impact of year 2000 issues on the financial 
institutions that we regulate.
    The other thing is that last year we lost, through 
attrition, 18 examiners. What we're replacing, essentially, is 
a cadre to help us shore-up what our staffing plan calls for in 
terms of an examination force. So it's a little bit misleading 
when we talk about there being seven new examiners, but I 
wanted the Subcommittee to know what most of the money was 
for--that and increases in salary.

                           BUDGET LIMITATION

    Mr. Skeen. For a number of years, the committee has put a 
limitation on your budget, in effect, making your request a cap 
on spending. I notice you'd like to have that removed. For our 
part, although your budget doesn't come from appropriated 
funds, the amount you spend ultimately affects the cost of 
credit to the farmer. You've been living within the cap for 
several years; in fact, returning money to the System. What are 
your main reasons for wanting the limitation removed?
    Ms. Martin. Mr. Chairman, it's a matter of confidence. The 
FCA Board would like to have a vote of confidence from the 
Subcommittee. We're the only financial regulator that does have 
a cap. We have been very budget-conscious in the three-and-a-
half years I have been at the agency; I know that, and with my 
fellow Board member here, Mr. Cook, we have sent back money to 
the System each year. We have never approached that cap, but we 
would consider it a vote of confidence from the Subcommittee to 
express to us your confidence in us by removal of that cap.

                farm credit system insurance corporation

    Mr. Skeen. Mr. Cook, I understand that you brought up some 
of the material on the Farm Credit System Insurance 
Corporation, and we appreciate your efforts to keep us 
informed. Could you please summarize for the record what's 
happening at FCSIC?
    Mr. Cook. Thank you, Mr. Chairman. We did bring that 
information.
    I will report to you today that the Farm Credit Insurance 
Fund is at the secure base amount. By legislation, Congress 
required the Insurance Corporation to move to a secure base 
amount of 2 percent, and we are at the 2 percent level at the 
present time. In fact----
    Mr. Skeen. Two percent of your total assets?
    Mr. Cook. The debts outstanding of the System.
    Mr. Skeen. Oh, I see. All right.
    Mr. Cook. The System is approximately $62 billion. So we're 
at the 2 percent level of the securities that are outstanding.
    Mr. Skeen. That gives you a better picture.
    Mr. Cook. Right.
    Mr. Skeen. Thank you.

                          year 2000 compliance

    Ms. Martin and Mr. Cook, you discussed the year 2000 
computer problem, and obviously, FCA and FCSIC have to address 
that issue for their own sake, but you also have to be 
concerned about the Farm Credit System institutions. Are the 
System institutions also working together on this particular 
program? Is there a common plan? What's your role in these 
programs?
    Ms. Martin. There is not a common plan among System 
institutions, other than by district, and they are linked 
together, networked together by district. From our standpoint, 
we have evaluated the district computer systems and the 
individual computer systems. We do have a good feel for those 
that are well on the road to compliance and those that need 
help. We are requiring action plans from those that we do not 
feel come up to the standard, and by the end of the year we 
will require that all System institutions be ready to test 
their computer systems for compliance. So we'll be well into a 
plan, and they will have one year to correct the problem, if, 
indeed, there are problems.
    Mr. Skeen. So at least you're standing out in front of the 
problem and working on it?
    Ms. Martin. Absolutely, and we have a task force formed to 
make sure that monitoring and oversight for the System 
institutions is there, right on top of the issue.
    Mr. Skeen. So you won't look for any big bumps in the road 
then?
    Ms. Martin. Well, we're looking for the big bumps, but we 
hope that we will smooth those out before the year 2000.
    Mr. Skeen. That's good planning.
    Ms. Kaptur.

                          freedom to farm bill

    Ms. Kaptur. Thank you, Mr. Chairman.
    And I'd like to welcome the Chair of the Farm Credit 
Administration back to our committee today, and thank you very 
much for your full testimony.
    I wanted to ask you, in general, since Freedom to Farm was 
passed, whether you note in your portfolio any difference in 
the average level of debt versus equity for our farm families 
that do business with your System? Can you comment on any 
differences you see since that act was passed?
    Ms. Martin. I can certainly comment in general, and I would 
invite Mr. Cook to comment also, if he has anything to add.
    Certainly, from the standpoint of Freedom to Farm, we'll be 
watching very closely the portfolio of each Farm Credit System 
institution this year, because I think it will just begin to 
show up this year. As you know, the past two years have been 
rather stable in terms of what had happened in the past, but we 
will be looking very critically at portfolios this next year to 
see if Freedom to Farm, indeed, is going to make a difference.
    The options that the farmers have should certainly begin to 
show up this year. One concern I have, and I think it's come 
from my tours around the country, is the amount of dependence 
that agriculture has on exports. You well know that from your 
part of the country many of the products produced are exported, 
and that's something else we're going to be looking at, because 
I think the exports, what's happening in the foreign markets, 
and the Freedom to Farm certainly will all have implications 
for the Farm Credit System's portfolio.
    Doyle, do you have any comments you'd like to add to that?
    Mr. Cook. I think you've done a good job. The Freedom to 
Farm has helped increase the equity position of the farmers 
over the past three to four years, because the subsidies have 
been there, and at the same time they've had high prices. Now 
when the subsidies start to phase out and if prices were to 
drop, you would see a detrimental change in that position, but 
it has been good for farmers the past three years.

                  young, beginning, and small farmers

    Ms. Kaptur. It was very interesting, we had the Commodity 
Futures Trading Corporation Chair up here this morning, and one 
of the issues is the greater use of the futures market in 
Chicago, going from about 8 percent up to, I think she said, 18 
percent in agricultural trades, which was very interesting to 
me--basically, a measure of risk. I'm curious about what's 
happening on the credit side.
    I thank you very much for that, and any insights youhave 
along the way. We'll be interested in your observations.
    The average age of farmers in our country is still about 
the mid-fifties. Is there anything that the Farm Credit System 
is doing, or anything you might recommend that we do, to 
encourage younger farmers to pursue agriculture as a 
profession?
    Ms. Martin. I know Mr. Skeen has some comments on that. I 
would say from our standpoint, however, we are very interested 
in the Farm Credit System financing the next generation of 
farmers, because we know that's where the future of agriculture 
is. We are involved right now in an assessment of the young, 
beginning, and small farmers that are being financed by the 
Farm Credit System. We're working with System institutions to 
identify more precisely whether or not--and I do believe that 
they are--the Farm Credit System is financing that next 
generation. So, yes, indeed, we're very interested, and we will 
be working diligently on that issue.
    Ms. Kaptur. Do you think that you represent a larger share 
of credit extended to young farmers compared to the commercial 
sector?
    Ms. Martin. That's a very difficult question--you're 
talking about in farming alone? We know that about--at least 
the preliminary figures we have is about 13 percent of the 
volume of the Farm Credit System goes to young and beginning 
farmers. That represents about 19 percent of the total loans. 
But I'd like to point out also that our definition for small 
farmer may be, and we think it is, very different from what's 
used by commercial banks. To us, a small loan is one around 
$40,000, and my understanding is that the bankers use a much 
higher de minimis. So, we're working very diligently to get 
some consistency, so the figures that you, as Congress, see in 
terms of young, beginning farmers are consistent across 
financial institutions.

                   farm credit system loan portfolio

    Ms. Kaptur. What is the average debt level of U.S. farmers 
today, however you measure it, by small, medium, or large.
    Ms. Martin. I can't tell you the average debt level. I 
could tell you what's outstanding for Farm Credit. We're 
looking at around a $62,000 average loan in the Farm Credit 
System. I don't know if that would be consistent with what the 
commercial bankers provide or not. We do know that there are 
lenders that like to have larger loans, but the Farm Credit 
System is committed to providing credit for all farmers and not 
just certain niches.

                        credit for cooperatives

    Ms. Kaptur. What role does the Farm Credit System play in 
providing credit to farmer-owned cooperatives?
    Ms. Martin. It plays a very large part in financing 
cooperatives. In fact, I looked at the numbers this week, and 
about $14 billion is outstanding to domestic cooperatives. In 
terms of comparison, I think you will find the large majority 
of cooperatives are financed by Farm Credit System 
institutions.
    Ms. Kaptur. What percent of your portfolio would that be?
    Ms. Martin. About one-fourth.
    Ms. Kaptur. About one-fourth? And are you taking 
initiatives to encourage the growth of farmer-owned 
cooperatives in any way?
    Ms. Martin. That would be done by the banks that provide 
that credit. We look at what they loan from the standpoint of 
safety and soundness, and appropriately would not be involved 
in encouraging more cooperative business.
    Ms. Kaptur. Do you see that as a growth area in general 
through the System or is it flat?
    Ms. Martin. There has been tremendous growth in that area 
in the last five years. Loans to cooperatives have gone from 
about $10 billion to about $14 billion. That has leveled off 
somewhat, but a great amount of the system growth did come 
through cooperatives in the past five years.

                    farm credit system market share

    Ms. Kaptur. And my final question on this first round is: 
What is your market share in farm mortgage debt versus non-
mortgage farm debt?
    Ms. Martin. You're talking about land loans, right? The 
Farm Credit System has about 31 percent of the market in long-
term debt, which would be mortgage loans.
    Ms. Kaptur. Thirty percent? All right. And do you continue 
to be the dominant leader in that market?
    Ms. Martin. Yes, right now, but commercial bankers are 
gaining on the Farm Credit System----
    Ms. Kaptur. I wanted you to comment on that.
    Ms. Martin. Yes. Doyle, do you want to respond to that one?
    Ms. Kaptur. The role of the commercial banks.
    Mr. Cook. Well, the Farm Credit System has about 25 percent 
of the entire farm debt. The past two years, the Farm Credit 
System has been gaining on the commercial banks. However, in 
the prior 10 years, the commercial banks were gaining. The Farm 
Credit System is experiencing about a 4 percent growth at the 
present time, and so are the commercial bankers. So we're 
growing at about the same rate at the present time.
    Ms. Kaptur. Is that because you've come through your own 
resolution of some of the situations that were faced in 
different regions of the country, and you're in a 
firmerposition to grow now?
    Mr. Cook. Right.
    Ms. Kaptur. All right.
    Ms. Martin. Another aspect of that is that the System has 
capitalized itself quite well, and it's now at a point where it 
can accept more risk, and consequently, you'll be seeing 
probably more efforts to increase market share.
    Ms. Kaptur. Thank you very much. Thanks, Mr. Chairman.
    Mr. Skeen. Mr. Dickey.
    Mr. Dickey. No, Mr. Chairman.
    Mr. Skeen. Mr. Fazio.
    Mr. Fazio. Thank you, Mr. Chairman.
    Following up on some of Ms. Kaptur's questions, I'd like 
to, first of all, welcome you, Madam Chairman, Mr. Cook.
    Ms. Martin. Thank you.

                  young, beginning, and small farmers

    Mr. Fazio. We have a lot of people dependent on your system 
in my region, and we appreciate the good work you do in helping 
to hold up our economy.
    Could you define for us what the young, beginning, and 
small farmers are? You indicated you thought the banks had a 
different definition. Maybe we could benefit from just knowing 
what your definition of that market is.
    Ms. Martin. Well, our definition, as I indicated, was a 
$40,000 loan and $100,000 in assets. I think I'll be in the 
ballpark here, but I understand that, at least from the 
standpoint of a small loan, that $250,000 is what the 
commercial banks consider a small loan. But, as you can tell 
from the average size loan of the Farm Credit System, if the 
average size is somewhere between $60,000 and $70,000, we look 
at a $250,000 loan a little differently.
    Mr. Fazio. Yes. What about young? How do you define 
``young'' these days?
    Ms. Martin. Oh, let's see----
    Mr. Fazio. You and I are obviously among them, but----
    [Laughter.]
    Ms. Martin [continuing]. What do the Jaycees say? I don't 
know that we have a definition for young. We look at it more in 
terms of beginning farmers. Our definition in terms of 
beginning would be someone five years or less. I understand, 
though, that there are other lenders that look at this from the 
standpoint of 10 years or less. So, again, we're a little bit 
more conservative in terms of beginning, and that's probably 
the better definition, not wanting to discriminate between 
young and old.
    Mr. Fazio. We stay away from that, and we talk about how 
long they've been in farming?
    Ms. Martin. Right.
    Mr. Fazio. And we have to reach some sort of balance 
between people who are at the beginning of their farming 
career, but also knowledgeable and experienced enough to be 
bankable, for want of a better term. Is that how you would--how 
do you really evaluate whether somebody can cut it?
    Ms. Martin. Are you asking whether or not they're 
creditworthy?
    Mr. Fazio. Yes.
    Ms. Martin. Each of the lending institutions in the Farm 
Credit System have their own underwriting standards. We look at 
those from the standpoint of the risk they're able to assume, 
at least based on what we know is a good capital level. So in 
terms of creditworthiness, that's pretty well-defined by the 
individual institutions, and there are so many variables, as 
you can well imagine--what the commodity is, what part of the 
country, what size of operation. But I have a fellow Board 
member here who is an old credit man--no, a young credit man, 
right? [Laughter.]
    Mr. Fazio. By our definition.
    Ms. Martin. Yes. Would you like to comment, Mr. Cook?
    Mr. Cook. I think we have something in common when I look 
at your grey hair. [Laughter.]
    But, anyway, when I was in the field making loans, I always 
looked at the individual to see, first of all whether they are 
from a family that's been involved in farming? I think the 
first thing I want to know is, do they really want to farm? Are 
they willing to work hard? Because that's important.
    And then, as they move into farming, you try to get the 
father or the grandfather as part of the security, which, 
incidentally, is another problem with the definition, because 
in some cases, you might consider that the father rather than 
the son is the primary borrower. But I want to know that they 
really want to be farming.
    Mr. Fazio. Yes. We do make a distinction between family 
members who may be trying to qualify as beginning farmers, who 
are really just trying to help the family survive on the farm?
    Mr. Cook. Yes.
    Mr. Fazio. We do make that distinction? I guess I was 
intrigued by your response that indicated that we may have 
different standards from one region to another. I guess this 
would become a little sensitive when we get to the point of 
moving money from one region of the system to another, because 
the degree to which we may absorb risk in one place versus 
another might have led to success or failure, not only by the 
individual farmers, but also by the banks that lend to them. Is 
there any truth to that assertion on my part? Oram I going down 
a blind alley here?
    Ms. Martin. Doyle?
    Mr. Fazio. Having been from a region that has at times been 
asked to send money to other regions of the country to help----
    Ms. Martin. You're sensitive to that, I can tell.
    Mr. Fazio [continuing]. I'm sensitive to that, yes. And I 
really wasn't intending to get into this, but it did strike me 
as perhaps an issue that we should look at.
    Mr. Cook. Well, it is a very good question, because they do 
set their own underwriting standards. And you and I know that 
there are some people who are more conservative than others, as 
they look at credit. But I'm not sure that it's that 
significant. I don't think they're that significant because I 
think all of our institutions want to make sure that the 
farmers are taken care of, and they want to finance every one 
that they possibly can. They have a very strong desire to 
finance anyone who wants to farm.
    Mr. Fazio. You indicate that you are drafting a policy 
statement on providing services to these folks. Could you tell 
us what you have in mind in that regard?
    Ms. Martin. From the standpoint of the System financing the 
next generation of farmers, we know that this is the future. We 
feel very dedicated to our mission, and that is to ensure a 
continuing source of credit for agriculture. And in order to do 
this, we think it's appropriate that we encourage the Farm 
Credit System to make sure they are financing that next 
generation.
    Mr. Fazio. So your service in this sense is you're saying 
service this category of people; that's what you're talking 
about?
    Ms. Martin. Right, exactly.
    Mr. Fazio. And try to increase to what percentage overall? 
Do you have a goal in mind?
    Ms. Martin. We have no standard. And, again, we have 203 
associations out there, each with their own philosophy in terms 
of credit to farmers, and a lot of variables enter into that.
    Mr. Fazio. You would want them all to increase it, whatever 
it was they were doing?
    Ms. Martin. Appropriately, right.
    Mr. Fazio. And there isn't any----
    Ms. Martin. And certainly with risk in mind.
    Mr. Fazio. Could you comment--and I'm not looking to start 
trouble, but I'm interested in your thoughts about the Farmers 
Home Administration. [Laughter.]
    Every once in a while I stray from the straight and narrow. 
[Laughter.]
    The Farmers Home Administration, I'm hearing increasingly, 
isn't meeting the needs of this kind of borrower who we've just 
been talking about. What is your assessment of their ability to 
help with part of this responsibility versus the role you're 
taking?
    Ms. Martin. Let me make an observation, if you will. In 
looking at or working with the financial institutions we 
regulate, we find some who are adamant about the fact that all 
the money that's allocated to the States under the Farmers Home 
programs, that they want every dime they can get in terms of 
the guarantee; we have other institutions that have very little 
in terms of guaranteed loans. So as far as their serving the 
needs of the farmers, the type farmers we're talking about, I 
think, again, that varies by State and by individual Farm 
Credit System territory, and Farmers Home territory.
    Mr. Fazio. Could you elaborate further? I'm interested in 
getting--I appreciate your comment, and I'd like to know what 
some of those distinctions are, and where it matters and where 
it doesn't seem to enter into the equation, where the 
administration, Farmers Home, is, therefore, providing more 
assistance and where it might not be.
    Ms. Martin. I can give you one indication where I know it's 
providing the service, and that's in the State of Alabama. I 
happen to know very well the financial institutions there in 
terms of the Federal Land Bank Associations and the people 
responsible for Farmers Home, and I know they work closely and 
carefully together to make sure that this type of credit is 
provided to the farming community in Alabama. So that is one 
that is certainly doing the job.
    Mr. Fazio. Is there any way I could get any material from 
you that would give me a more comprehensive assessment and 
State by State or region by region?
    Ms. Martin. We certainly could provide what we have. We 
also work very closely with USDA.
    Mr. Fazio. Sure.
    Ms. Martin. So we'll certainly----
    Mr. Fazio. With the Rural Development Administration.
    Ms. Martin. Right.
    Mr. Fazio. Yes, that's really where I'm looking at.
    Ms. Martin. We will provide what we can.
    Mr. Fazio. I'm trying to get some correlation, some 
interpretation of where this is working and where it isn't. At 
some point I might even be able to find out why. The first 
thing I need to know is that maybe some of the hunches I have 
may be actually true.
    Ms. Martin. Well, we'll certainly be glad to provide 
whatever we can.
    Mr. Fazio. Okay.
    Ms. Martin. We welcome that opportunity.
    [The information follows:]

[Pages 12 - 19--The official Committee record contains additional material here.]


         capital adequacy and customer eligibility regulations

    Mr. Fazio. You cite customer rule, combined with new 
capital standards, as the most significant accomplishments of 
the decade. Could you tell me what that means really?
    Ms. Martin. Yes, I'll comment on the customer rule, and 
then, Doyle, I know that you have a particular interest in 
capital, so you can comment on that.
    From the standpoint of the customer rule, the eligibility 
requirements for Farm Credit System institutions had not been 
updated for 25 years. The regulations drafted in 1972 were very 
narrowly defined from the standpoint of, let's let the Farm 
Credit System walk before it runs. The agricultural community 
changed significantly in the next 25 years, and so two years 
ago, the FCA Board, Doyle and myself, updated those regulations 
and proposed them, and finalized them last March. They are now 
well within the confines of the law, but they reflect more what 
has happened in the agricultural community, and they reflect 
also more what we believe Congress intended when they 
established the law in 1971.
    Doyle, do you want to comment on the capital rule?
    Mr. Cook. Well, at the same time we were working on the 
scope and eligibility side of it, we also worked on the capital 
side, which was to create an unencumbered pool of capital in 
each of the institutions. In other words, we went to the core 
surplus-type capital, so that the associations themselves had 
the ability to cover losses, if they had any.
    Mr. Fazio. Mr. Chairman, given the bells, I'll put my other 
questions in the record, and let Ms. Kaptur ask any she may 
have or you, Mr. Chairman.
    Mr. Skeen. Actually, I have one question I'd like to----
    Mr. Fazio. Mr. Serrano doesn't have any questions.
    Mr. Skeen. Mr. Serrano wants to--well, let me ask this 
question. Is this a five-minute vote?
    The commercial bankers recently filed a lawsuit challenging 
your new rules for making those, which is now under appeal. 
Does the Justice Department represent you in this lawsuit or do 
you have your own counsel?
    Ms. Martin. The Justice Department represents us, and we 
work with them in terms of providing information and help for 
the defense.
    Mr. Skeen. So you have your in-house folks?
    Ms. Martin. Well, our in-house folks provide information to 
the Justice Department, but Justice actually represents us in 
the court.

                  young, beginning, and small farmers

    Mr. Skeen. Let me go back to the line of questioning that 
Mr. Fazio entered into. It's been of great concern to me, and 
many of us who are in agriculture, the aspect of who's going to 
take this over and how do young people get into it. Because 
inheritance tax, for one thing, splits up existing operations. 
The major operator passes away or something like that, and it's 
hard to pass it on down to their heirs. I think we're going to 
change some of this inheritance tax situation because it's 
really been a really bad hit on agricultural enterprises, and 
so forth.
    But I'm glad that your program at least recognizes the fact 
that we're going to have some young farmers replace this 2 
percent that's producing now, and that you're one of the lead 
elements in doing that. I hope that the system works, and I'd 
sure like to know more about it because I think it's vital for 
protecting and upholding the kind of farm produce that we've 
been used to getting. I don't want to see any derailment of 
that thing or lessened or a decline in the percentage in the 
country of producers.
    Anybody else? Ms. Kaptur, go ahead.

                  women-owned agricultural enterprises

    Ms. Kaptur. Thanks, Mr. Chairman.
    I just wanted to thank Chairwoman Martin. I hear many 
witnesses in not just this subcommittee, but many other ones, 
and I have to tell you, I just asked John here, I said, she's 
not a lawyer, is she? [Laughter.]
    He said no. I said, this woman really speaks to me. She's 
so clear. You are such an excellent appointment; I just had to 
say that. And your experience shows. You answer questions. You 
know the business. It's wonderful, and it isn't Washington-ese.
    I did want to ask you, as far as the future goes, what 
about trends that you see in women-owned agricultural 
enterprises? This is one of the fastest-growing areas in my 
region. All of our conferences that deal with women in 
agriculture are wall-to-wall, packed. Is that reflected in the 
loan portfolio at all?
    Ms. Martin. I don't know that we would have the numbers to 
show that. Of course, I personally would be interested in that, 
and we're also very interested in defining better who these 
loans are going to. So I would think in terms of women owners 
and managers, we do know that it has increased. We, like you, 
are seeing an increase, but as far as the exact numbers, I'm 
not able to share those with you, because I don't know and I 
don't think the Farm Credit System knows.

               technical assistance to foreign countries

    Ms. Kaptur. Two questions and I'll be finished: Does the 
Farm Credit Administration give technical assistance or are you 
called upon to talk with leaders in other countries that are 
trying to develop the beginnings of a free enterprise farm 
credit system, or is that left to AID and other agencies?
    Ms. Martin. Many of our people have gone on assignments. In 
fact, Mr. Cook has--to Russia in the past two years.
    Ms. Kaptur. Oh.
    Ms. Martin. We have not done that in about the past year, 
but we're now looking very closely at what an appropriate level 
of involvement is for the agency, because we do feel that we 
have an expertise to contribute, and we do recognize that we're 
operating in a very global economy. So that is very much on our 
agenda.

                          agricultural trends

    Ms. Kaptur. All right. I am personally interested inthat. I 
know the record of the Farm Credit System in this country, and so many 
of these places don't know how to start. To the extent I can be helpful 
and encourage you along those lines, please let me know.
    My final question is, based on everything you know, all the 
years that you've spent working in the Farm Credit System, 
could you tell us a little about the trends in agriculture that 
you see, based on the business that comes from the system? Is 
there anything you can tell us, reflections you've had, looking 
at the past, present, and future? What do you see happening out 
there?
    Ms. Martin. In terms of agriculture?
    Ms. Kaptur. Yes.
    Ms. Martin. One of the largest things looming on the 
horizon is the export aspect, the dependence on foreign 
markets. You know, you're looking at 45 percent of your rice 
and your wheat being shipped abroad. What does that mean to 
your part of the country if those foreign markets dry up? I 
think that certainly could affect the domestic aspect also, 
because it affects the pocketbook of the farmer. So, to me, 
that is one of the biggest things I see on the horizon.
    Doyle, I'd certainly invite you to comment, because I know 
you follow that also.
    Mr. Cook. I think one of the greatest changes will come in 
technology. The Farm Credit System is just about to go through 
some major changes, in my opinion, as they work with the 
farmer. I think we're going to see the farmer with his own 
computer, inputting information into the Farm Credit System's 
computer. It will be transmitted from their home into the 
office. It's going to change the way the loan officer works 
with the farmer, because they may not even sit down and talk 
about it. In the past, that's been very important, and it may 
be in the future, but I think you'll see dramatic changes in 
technology, especially with young farmers.
    Ms. Kaptur. Thank you both very much. On the export side of 
the equation, other witnesses that have come before us through 
USDA--we've been talking here in the committee about $60 
billion of exports, but $30 billion of imports, the imports 
rising faster, that line, than the exports going out. And that 
includes these recent years. But, also, the vast majority of 
those imports directly in competition--they're not quiche and 
sort of kiwi fruit imports; they're very directly in 
competition with production here at home.
    We've had the USDA separate out for us the competitive 
imports versus the noncompetitive imports here in our country. 
It's been very interesting to look at that, and we'd be happy 
to share that information with you, because obviously there's 
greater pressure on those producers here at home.
    Thank you.
    Mr. Fazio. Ms. Kaptur, would you yield for a second?
    Ms. Kaptur. I'd be happy to yield.
    Mr. Fazio. We grow a lot of kiwis and even Belgium endive 
in my district. So we'd better be careful about how we talk. 
[Laughter.]
    Ms. Martin. Watch your commodity.
    Ms. Kaptur. You grow kiwi, do you? Oh, I thought they all 
came from Australia.
    Mr. Fazio. I represent the kiwi capital of the United 
States.
    Ms. Martin. Well, they're doing a good job.
    Mr. Skeen. Well, before we get into the chili business--
[laughter]--have you got anything else? Mr. Serrano? Mr. Fazio?
    So then that brings us to a close, and we want to thank you 
very much.
    Ms. Martin. Thank you so very much.
    Mr. Skeen. We like the way you do your business.
    Ms. Martin. Thank you.
    [Clerk's Note.--The following questions were submitted to 
be answered for the record:]

[Pages 24 - 119--The official Committee record contains additional material here.]


                                          Thursday, March 12, 1998.

                  COMMODITY FUTURES TRADING COMMISSION

                               WITNESSES

BROOKSLEY BORN, CHAIRPERSON, COMMODITY FUTURES TRADING COMMISSION
MADGE BOLINGER, DIRECTOR, OFFICE OF FINANCIAL MANAGEMENT
SUSAN LEE, CHIEF OF STAFF
LINDA FERREN, EXECUTIVE DIRECTOR
EMORY BEVILL, BUDGET OFFICER
TOM ERICKSON, DIRECTOR, OFFICE OF LEGISLATIVE AND INTERGOVERNMENTAL 
    AFFAIRS
JOHN PHILLIPS, DIRECTOR, OFFICE OF PUBLIC AFFAIRS
    Mr. Skeen [presiding]. The committee will come to order, 
and we're on the record.
    I want to say good morning to all of you, a frosty morning, 
that is, for this time of the year; it's a very unusual 
situation. Everybody's blaming El Nino, but I think we've just 
run out of hot air around here. [Laughter.]
    This subcommittee has the jurisdiction over the Commodity 
Futures Trading Commission, and this morning we have the honor 
and the pleasure of hearing the testimony from the Honorable 
Brooksley Born, who is the chairperson of the CFTC.
    Welcome to you and your staff and your associates.
    It's a small agency with a great importance to American 
agriculture and American business. As our farmers and ranchers 
move toward free markets, global markets, they must have the 
confidence that the trading systems that we want them to use 
are stable, honest, and well-regulated. Ms. Born and her fellow 
Commissioners and colleagues at CFTC are responsible for that 
mission, and I think that they have done an excellent job of 
taking that responsibility.
    Today is a double hearing day for the subcommittee. So, Ms. 
Born, I'll invite you to make any necessary introductions and a 
statement for the record, and then we'll have some questions.
    Ms. Born. Thank you very much, Mr. Chairman.
    Mr. Skeen. Welcome to all of you.
    Ms. Born. Thank you very much. Let me first introduce the 
Commission staff who are here with me today. Madge Bolinger, 
who is the Director of the Commission's Office of Financial 
Management, is sitting at the table with me, and behind me are: 
Susan Lee, who's my Chief of Staff; Linda Ferren, who is----
    Mr. Skeen. I can hear the power hum from here. [Laughter.]
    Ms. Born. Linda Ferren, who is our new Executive Director, 
started at the first of the year; Emory Bevill, who works with 
Madge in Financial Management.
    Mr. Skeen. That's a pleasant job.
    Ms. Born. Indeed, and they both do a wonderful job. Tom 
Erickson, who is the head of our Office of Legislative Affairs, 
and down at the end is John Phillips, who is the head of our 
Public Affairs Office.
    Mr. Skeen. Is he being punished? [Laughter.]
    Or in isolation?
    Ms. Born. He's there near the press table, I think.
    Mr. Skeen. We'll start this off with an old Indian axiom in 
my part of the country. That is, if you want a job done well, 
get a woman to do it, but, remember this: that men always get 
the last word, and that's, ``Yes, ma'am.'' [Laughter.]
    So, with that, we'll let you commence your testimony. 
Welcome to all of you.
    Ms. Born. Well, Mr. Chairman and members of the 
subcommittee, thank you very much for the opportunity to 
discuss the President's Fiscal Year 1999 budget request for the 
Commodity Futures Trading Commission.
    The Commission is a small agency with an important mission. 
It oversees the Nation's futures and option markets and the 
over-the-counter derivatives market. These markets have 
experienced explosive growth in the last decade. The Commission 
also supervises 64,000 commodity professionals who trade on the 
floor of the exchanges and who represent customers.
    The President's Fiscal Year 1999 budget request for the 
Commission is $63.4 million with a staffing level of 600. This 
request represents an increase of $5.3 million, or 9 percent, 
over Fiscal Year 1998. It calls for an additional 20 full-time 
equivalent staff-years over the Fiscal Year 1998 appropriation, 
or a 3 percent increase in staff.
    Approximately $3.9 million of the increase is required by 
the Commission to sustain its current level of operations, and 
the remaining $1.4 million would support the additional 20 
staff-years. The staff increase would raise the Commission's 
staffing level back to the staffing level we enjoyed in 1992.
    The Commission is responsible for ensuring the integrity of 
the Nation's futures and option markets, protecting customers 
from fraud and other trading abuses, monitoring the markets to 
detect and prevent price manipulation and price distortion, and 
encouraging the competitiveness and efficiency of the Nation's 
futures exchanges.
    Through effective oversight regulation, the Commission 
enables the commodity futures markets better to serve the price 
discovery and hedging functions which are vital to the Nation's 
economy. The requested appropriations increase will be used to 
enhance the Commission's enforcement, surveillance, and 
oversight presence in a rapidly-changing and growing on-and-off 
exchange market. The largest portion of the requested dollar 
increase will be dedicated to the Division of Enforcement, 
which will receive an additional allocation of ten staff-years. 
The addition of these staff-years would complete the 
reorganization of the Division which was begun in 1995. The 
Division's new flexible organizational structure, which will be 
enhanced by the 10 additional staff-years, will allow the 
enforcement program to devote necessary staff to special 
matters such as quick-strike cases and large, complex fraud and 
manipulation cases, without detracting from the Commission's 
strong enforcement presence throughout the industry.
    The increase will also enhance the Commission's market 
surveillance program. Five additional staff-years will be used 
to implement the Commission's new integrated market 
surveillance system and to maintain effective surveillance over 
our growing markets. A strong surveillance program is critical 
for the Commission to carry out its mission of detecting and 
deterring price manipulation and other major market abuses.
    The final five additional staff-years will provide the 
resources necessary to sustain our oversight over contract 
market practices and standards. The increase will also provide 
the Commission with the resources necessary to address new 
product developments, market linkages, trading developments, 
and other innovations, and to streamline Commission 
regulations.
    As part of the Commission's commitment to maintaining 
strong futures and option markets, one of our top priorities 
during Fiscal Year 1997, and continuing into Fiscal Year 1998, 
has been to modernize and to streamline our regulatory 
framework. The growth and change in our markets, as well as 
revolutionary technological developments, have necessitated a 
comprehensive review of the Commission's regulations. The 
Commission is seeking to eliminate undue regulatory burdens 
while continuing to provide an effective level of protection to 
our markets and their users. Toward that end, theCommission has 
proposed or adopted a number of regulatory reform initiatives in the 
last year relating to exchange markets and commodity professionals, 
many of which are described in my written testimony.
    An additional area of regulatory reform efforts involves a 
review of our regulatory framework for the over-the-counter 
derivatives market. It has been five years since the Commission 
exempted some types of OTC instruments entered into by 
sophisticated parties from provisions of the Commodity Exchange 
Act other than fraud and manipulation prohibitions.
    Since that time, the OTC market has grown dramatically. The 
kinds of instruments traded have proliferated, and the nature 
of the trading has evolved. These developments have prompted 
the Commission to examine its approach to the market. The 
Commission plans to issue shortly a concept release which will 
invite comment on whether our regulatory regime needs to be 
updated or whether it has achieved an appropriate balance 
between the need to ensure that U.S. entities have the 
opportunity to remain competitive in a global financial 
marketplace and the need to maintain adequate regulatory 
safeguards.
    We look forward to the input of the industry, users of OTC 
derivatives instruments, relevant regulatory authorities, and 
other interested persons, including members of this 
subcommittee, as we go forward with our concept release and 
other regulatory reform measures.
    In conclusion, the Commission believes that the increase 
the President has requested for Fiscal Year 1999 is important 
for the Commission to fulfill its congressional mandate, to 
keep pace with growing, complex, and dynamic markets, and to 
continue our regulatory reform efforts.
    Thank you very much, and I would be happy to answer any 
questions that you may have, Mr. Chairman, or other members of 
the subcommittee may have.
    [Clerk's Note.--Ms. Born's written testimony appears on 
pages ______ through ______. Biographical sketches appear on 
pages ______ through ______. Commodity Futures Trading 
Commission budget justification appears on pages ______ through 
______.]
    Mr. Skeen. Thank you, Ms. Born.
    You mentioned the legislation that was introduced last year 
that would have restricted your oversight ability, and that 
issue seems to have gone away for now. Are there any particular 
factors that caused this to happen?
    Ms. Born. I would like to think that part of the reason 
that the legislation is currently quiescent is that the 
Commission has taken the initiative to work with the regulated 
industry to modernize and streamline our own regulations. We 
have adopted some of the provisions in the proposed legislation 
as regulations, and have taken other actions during the past 
year to meet the concerns that that proposed legislation was 
based on.
    Mr. Skeen. Well, you managed your way out of that 
particular problem. I want to commend you on doing exactly 
that.
    Ms. Born. Thank you very much.
    Mr. Skeen. I wish we had more agencies that would also, 
when they had a problem, take care of it rather than try to buy 
our way out of it.
    Your agency has the year 2000 problem to deal with, and so 
do the people whose activities you regulate. Does the CFTC have 
any role in the private sector's work on the year 2000 problem?
    Ms. Born. We certainly do. Early last year, we sent an 
advisory out to all of our regulated people alerting them to 
the problem and the necessity that they bring their own systems 
into compliance. Since then, the Commission staff has worked 
very closely with other financial regulators, with our futures 
exchanges, the National Futures Association and with the 
Futures Industry Association, which represents the futures 
commission merchants (FCMs), in an industrywide effort to 
assure compliance with the year 2000 in the computer systems.
    At the present time, and at our request all the exchanges, 
and the National Futures Association have sent a questionnaire 
to all registered futures commission merchants asking them for 
a report on how the FCMs are testing for compliance with the 
year 2000 and what efforts each has undertaken in that respect. 
The exchanges and NFA have assured us that they will be 
auditing all the regulated people this year and next year for 
year 2000 compliance. The Futures Industry Association is also 
taking the initiative to undertake testing of the industry, and 
we are working very closely with them on that effort.
    Mr. Skeen. Do you have an adequate level of computerization 
that you effectively use now?
    Ms. Born. Internally----
    Mr. Skeen. It took us a long time to get you that 
equipment.
    Ms. Born. Yes.
    Mr. Skeen. Is it adequate now?
    Ms. Born. We are still in the process of putting that 
equipment into place. Remember, it was----
    Mr. Skeen. So you're still expanding it?
    Ms. Born. It was funded in 1996, and the effort will 
continue through the end of Fiscal Year 1999, and it will be 
completely in place at that time.
    Mr. Skeen. After funding it in 1996, and getting ready for 
2000, we hope that you don't have to start all over again.
    Ms. Born. I certainly hope not. I have no expectation 
that----
    Mr. Skeen. It took us a long time to get to where we are 
today.
    Ms. Born. Indeed.
    Mr. Skeen. This year the administration proposed user fees 
throughout all of the subcommittee's jurisdiction, about $800 
million in all. Your agency was an exception, although it has 
been a candidate for user fees in the past. Your testimony 
mentions the growth in volume of business, which would seem to 
be a basis for assessing these kinds of fees. Was there any 
thought of user fees for CFTC next year, and can you give us 
your assessment of how they might be developed and assessed to 
pay for your budget or to reflect positively on your budget?
    Ms. Born. Well, a year ago, the Office of Management and 
Budget raised the possibility of user fees with me.
    Mr. Skeen. That's become part of their lexicon.
    Ms. Born. And they informed us at that time that they 
planned to ask the Department of the Treasury to do a study on 
the feasibility of user fees in our industry. I think, but I'm 
not positive, that the Department of the Treasury's budget 
request for Fiscal Year 1998 had a line item for that study.
    The Commission has no Commission position on user fees. We 
feel that it's up to Congress and the administration to decide 
the source of the resources that we need.
    Mr. Skeen. You're so kind to us. [Laughter.]
    We appreciate that.
    Ms. Kaptur?
    Ms. Kaptur. Thank you, Mr. Chairman.
    I wanted to welcome Chairwoman Born to our committee this 
morning and thank her for always visiting with us and spending 
time with the members of this subcommittee. We thank you for 
your testimony.
    I just thought I'd ask this question because you deal in a 
rather arcane world. If you look at the whole Nation, you have 
about 250 million people in this country. What percent of those 
people do you think have any working knowledge of the industry 
that you regulate? Fifty percent? Ten percent?
    Ms. Born. I would assume less than----
    Ms. Kaptur. Five percent? Less than 1 percent? What do you 
think?
    Ms. Born. I would say no more than 1 or 2 percent. There 
are many, many commercial users of our markets. Obviously, 
there were 555 million contracts traded on our exchanges last 
year, and that represents a lot of people who are in commercial 
enterprises that are managing that; plus, we have 64,000 
commodity professionals registered, who I assume know something 
about our markets as well. But, you're correct, it is not an 
area that is widely understood by the population as a whole.
    Ms. Kaptur. I think with that fact stated, it puts a 
tremendous burden on your Commission, because you don't have 
lots of knowledgeable eyes helping you, in the sense of, oh, in 
food stamp fraud, for example, which is something else this 
committee worries about, you have millions of eyes out there in 
the country in different ways looking and reporting and working 
with county prosecutors, and you have State governments and 
attorneys general. In this situation you have an enormously 
powerful set of exchanges understood by very, very, very few 
people. And in my judgment, therefore, you could have the 
possibility of greater manipulation, significant fraud and 
abuse, because you just don't have the extra help and the 
oversight that you get with other financial transactions that 
occur in our marketplace.
    In that regard, I wanted to ask you--now in your testimony 
you document the number of trades, and so forth. Take over-the-
counter derivatives, for example. You talk about the enormous 
market of $27 trillion worldwide. Now if you were to look at 
just that piece of what you regulate, what would be some 
examples of fraud and abuse that have been discovered in that 
arena? Could you explain it in layperson's terms for the 
record?
    Ms. Born. Well, in this particular market, the over-the-
counter derivatives market, virtually all the participants in 
that market are large, sophisticated, institutional traders. 
Very few individual retail people get involved in that market. 
There have been large institutional trades involving 
allegations of fraud. For example, several years ago, Bankers 
Trust was accused of fraudulent behavior with respect to 
transactions with Proctor and Gamble and with Gibson Greeting 
Cards, and those are some examples of that.
    Ms. Kaptur. I think that the possibility for white collar 
crime in these markets, and our ability to provide the kind of 
regulation by providing you the proper staff, and sophisticated 
staff--this is like the top graduate students from MIT's 
business school. I mean, you're looking for people with a lot 
of experience. This is percent of a percent of a percent of 
people that you are looking for.
    What would be the compensation of the top person in 
enforcement or investigations at the Commission? What would be 
the top level that this individual could earn?
    Ms. Born. I think our Division Director earns about 
$125,900. He is an SES level 6.
    Ms. Kaptur. Now in Toledo that's a lot of money. However, 
compared to what a person working for one of the derivative 
trading entities--what would one of those individuals make, 
just from your common knowledge of people with those large 
institutions that trade----
    Ms. Born. It could be a very large amount.
    Ms. Kaptur. It could be millions, yes. I just wanted to ask 
a little bit about that.
    You mentioned growing managed funds--since the 1980's I 
guess have grown from 115 million to 35 billion, and that 
includes a growing number of pension and mutual funds. What 
exactly is being done through the exchanges with pension and 
mutual funds?
    Ms. Born. Well, one of the things that they do is to hedge 
their financial risk in the markets. If a pension fund feels 
that it has exposure because of its equity securities, it can 
hedge that risk by going into the futures market on equity 
futures, equity index futures. If they feel that they have 
interest rate exposure which they would like to hedge,they can 
go onto the futures markets and buy futures or options in, for example, 
the T-bond future, which is an interest rate future. If they feel that 
they have currency exposure, foreign currency exposure, they can hedge 
that risk with investments in the futures or options on currencies.
    There are also financial institutions who use the futures 
markets as a supplemental investment vehicle; that is, rather 
than buying all the stocks in the S&P 500 Index, they can go 
and take a position on the Chicago Mercantile Exchange in the 
S&P 500 futures contract.
    Ms. Kaptur. What are your biggest areas of concern in this 
area or any other areas for your enforcement staff?
    Ms. Born. I think our biggest areas of concern are fraud 
and manipulation. In order to keep these markets operating the 
way they should, and being a good vehicle for hedging and for 
price discovery, we have to make sure that the price that is 
reflected by the markets is based on supply-and-demand factors 
and not on price manipulation schemes. So that is a very top 
priority.
    We try to prevent manipulation before it reaches its full 
extent, and that's why we have a significant market 
surveillance effort that includes getting reports from our FCMs 
of all large positions on the market, so we can test those 
large positions to see whether there are commercial reasons for 
the positions or whether there may be a manipulation scheme in 
its incipiency.
    Fraud is also extremely risky for these markets. We try to 
prevent fraud from occurring, both by commodity professionals 
and by unregistered, unscrupulous people who are defrauding the 
general public.
    Ms. Kaptur. About one-third of your total staff is involved 
in the enforcement area?
    Ms. Born. That's correct.
    Ms. Kaptur. Knowing the magnitude of what you have to 
regulate, if you could actually run this--let's say you were 
running a corporation privately, a private investigative 
agency. How many enforcement officers are really needed to 
investigate and regulate these markets?
    Ms. Born. Well, one thing you need to realize is we make 
heavy use of the exchanges and the National Futures Association 
in being our first line of regulation of the markets. They help 
us a lot. It is true, ideally, we could have many times our 
current staff level, but we mustn't look merely to the 159 
enforcement officials that the Commission has. Each of the 
exchanges has line responsibility to watch for manipulation on 
its markets, to conduct surveillance of its markets, to insist 
that its members comply with their rules and with the law in 
their dealing with customers and their dealing with each other 
on the floor of the exchange.
    So the exchanges are a police force in and of themselves. 
We're a layer on top of that. We watch what the exchanges do to 
make sure that their efforts at enforcement and surveillance 
are effective, and we also take our own enforcement actions and 
conduct our own surveillance and compliance work.
    Ms. Kaptur. I know that we have a vote on, and I want to 
give Mr. Bonilla a chance to ask questions, but I will say, 
coming from Toledo, Ohio, where I watched SIPAC, the securities 
industry so-called professional association, as the first line 
of defense in their own industry, and then I saw the collapse 
of Bell and Beckwith, I have very little confidence in 
industry-led surveillance. I watched what's happened to all 
those people who had holdings within that one company, and so I 
have legitimate doubts about the ability of some of these 
industries to self-regulate.
    Therefore, I think it's essential that your Commission, and 
that the staff that you have, be the best in the country, and 
that white collar crime not be permitted to prevail, only 
because it's too complicated for the general public to 
understand.
    I will have a second round of questions. Thank you, Mr. 
Chairman.
    Mr. Skeen. Yes, ma'am. We will ask that we be recessed for 
a few minutes and let us get our votes out of the way. We'll be 
right back with you.
    Ms. Born. Certainly.
    Mr. Kingston. Mr. Chairman, may I have a few minutes to ask 
Ms. Born questions?
    Mr. Skeen. No. [Laughter.]
    [Recess.]
    Mr. Skeen. To preserve our time, I think I'll just go ahead 
and ask you a couple of questions as long as you don't mind 
doing that.
    Ms. Born. Not at all.
    Mr. Skeen. Of the 20 new FTEs that you're requesting, do 
you have a priority for some over others, if they cannot all be 
funded? Give us some kind of idea of where you are on the 
funding.
    Ms. Born. Well, I think they are all very important. I 
think that in enforcement, where we're asking for 10, it's 
critically important, for many of the reasons that 
Congresswoman Kaptur indicated. The staff levels in that 
Division had eroded when our appropriations were kept flat or 
almost flat for several years. So that, with this increase in 
10 FTEs, they will only now come back to the level they were at 
in Fiscal Year 1992.
    Mr. Skeen. To reinvigorate that part of your personnel 
complement?
    Ms. Born. Yes, it's very important. But the other 10 are 
for market surveillance efforts, and also oversight of the 
markets and of commodity professionals. With the growth in our 
markets--the markets have grown by 100 percent in the last 10 
years in terms of volume--it's really, I think, critically 
important to have enough staff to keep on top of those markets. 
It is also important to keep on top of all the technological 
and other developments in the markets that are making for very 
complex, new kinds of instruments, including proposals for 
international linkages and new kinds of trading systems.
    Mr. Skeen. You're involved in all of that, or you have to 
be involved in all that?
    Ms. Born. Yes.
    Mr. Skeen. And it also requires a certain expertise for 
these individuals that you're trying to hire?
    Ms. Born. Indeed.
    Mr. Skeen. You expanded your requirement for more personnel 
because of the growth in the commodities trading that we've 
enjoyed with this Commission.
    I don't know why everybody seems to think that this is a 
popular exercise--that once you start one of these agencies, or 
something like that, you just proliferate, and everybody should 
know about it. It isn't well-known, but this is the one agency 
I think that really benefits agriculture, mostly because it 
puts us on the worldwide market.
    Ms. Born. That's correct.
    Mr. Skeen. Is that a fair assumption?
    Ms. Born. I think we do benefit agriculture by making sure 
that the prices that are established on our nine futures 
exchanges accurately reflect the supply-and-demand factors, and 
therefore, can be relied on by the producers and everybody in 
the change of distribution for agricultural products.
    Mr. Skeen. When do you expect to establish the pilot 
programs to lift the ban on certain agricultural trade options? 
Do you have some now that are banned or that you don't oversee? 
Explain that situation.
    Ms. Born. Yes. Agricultural options are not permitted 
currently off-exchange, and the Commission----
    Mr. Skeen. What do you mean ``off-exchange?''
    Ms. Born. They are permitted to be traded on-exchange.
    Mr. Skeen. On-exchange?
    Ms. Born. Yes. We have----
    Mr. Skeen. I see.
    Ms. Born [continuing]. Options on futures on agricultural 
products that are being traded on the exchanges, but no off-
exchange options in agricultural products are permitted. The 
Commission, last May, came out with a study by our Economic 
Analysis Division of the possibility of permitting certain 
kinds of agricultural options, called agricultural trade 
options--that is, agricultural options by commercial interests 
in the agricultural industry--and we've put out a request for 
views on that from the public. We held two public meetings, one 
in Tennessee and one in Illinois, on the issue, so that we 
could get producers' views on the issue. Then, late last fall, 
we put out a proposed rulemaking that encompassed a pilot 
program for agricultural trade options with certain kinds of 
regulatory protections.
    We got a number of comments on that program, about equally 
divided between people who thought we shouldn't do it and 
people who thought we should do it. Our staff is currently 
analyzing those comments, and trying to formulate a proposal 
for a final rulemaking for the Commission. I think we'll be 
dealing with that shortly, within the next month or two.
    Mr. Skeen. Well, as I assess this, and from what 
experiences I've had in the past, the money markets, the 
financial side of the commodities business, the financial 
interests, was probably the bulk of the business, the major 
options business. Aren't we now expanding more into just 
agricultural products, agricultural crops, and various kinds of 
produce, rather than just trading on the money market?
    Ms. Born. Well, there have been some new contracts in 
agricultural products in the last year or two, and agricultural 
products represent currently about 17 percent of the futures 
and option markets. But, still, the great bulk of the trading 
is--over 70 percent, I believe--financial products.
    Mr. Skeen. It's the financial.
    Ms. Born. Seventy-three percent, Mr. Chairman, in 1997, 
calendar year 1997.
    Mr. Skeen. Seventeen, and what was it?
    Ms. Born. Seventy-three percent.
    Mr. Skeen. Seventy-three percent are still in financial----
    Ms. Born. Yes, financial; 17 percent, agriculture.
    Mr. Skeen. Mr. Walsh?
    Mr. Walsh. I'm not ready yet, Mr. Chairman. [Laughter.]
    Mr. Skeen. I'll stall for a while. [Laughter.]
    Mr. Walsh. Hello.
    Ms. Born. Hello.
    Mr. Skeen. That expansion--do you have people on overseas 
markets such as in the Orient, where it would be interesting to 
be right now? Do you have people under your jurisdiction at 
those marketplaces, trading places?
    Ms. Born. We don't have people located at those foreign 
markets.
    Mr. Skeen. But you monitor them?
    Ms. Born. We do watch them from afar, and we also have very 
close relationships with their own domestic regulators in that 
foreign country.
    I just came back from----
    Mr. Skeen. Well, you can task them for oversight.
    Ms. Born. Yes, those foreign regulators are regulating the 
foreign markets, but we work closely with them. I was in Hong 
Kong last week meeting with about 15 commodity and securities 
regulators who oversee foreign markets, and we work with them 
to make sure that there's close information-sharing between the 
foreign regulators and ourselves. We have a number of 
agreements with them for information-sharing, so that we can 
find out what is happening on the Hong Kong market in detail, 
if we need that information, from their regulator.
    We also are working with the regulators of foreign 
commodity markets to arrive at best practice standards that are 
internationally accepted for how to regulate and how to conduct 
market surveillance over these markets.
    In October of last year, we entered into the first 
agreement, international agreement, on how commodity futures 
markets should be surveyed, and also how contracts should be 
designed and approved. Those were entered into by 18 different 
regulators, including ourselves, from around the world.
    Mr. Skeen. Well, haven't you initiated, too, a new 
international office?
    Ms. Born. Yes. In July, we established an Office of 
International Affairs which is to further and improve these 
international relationships. Also, just in the past week, we've 
announced that we've created an advisory committee called the 
Global Markets Advisory Committee, which is an effort to bring 
together members of the domestic industry to advise us on how 
we can better represent their interests in our international 
activities.
    The Commission feels it's very important to improve the 
level of market regulation abroad, partly because bad things 
that happen on foreign markets have impact on our markets----
    Mr. Skeen. They certainly do.
    Ms. Born [continuing]. As, for example, the turmoil in Asia 
has demonstrated very vividly. But, beyond that, we think that 
there should be a level regulatory playing field where foreign 
markets are subject to the same kinds of regulation and 
oversight that our markets are.
    Mr. Skeen. This particular office, the International one, 
also covers all of the various agricultural markets of Europe, 
Britain, France, Germany, and things of that kind, and of 
course, I know probably the most volatile has been the Asian 
market.
    Ms. Born. They cover all the----
    Mr. Skeen. Does one office cover all these international--
--
    Ms. Born. They interrelate and follow developments on the 
foreign futures, as long as their futures are----
    Mr. Skeen. They're active around the clock then?
    Ms. Born. Well, we get reports and information----
    Mr. Skeen. I see staff down here shaking heads. [Laughter.]
    They stay up all night.
    Ms. Born. Luckily, CNBC reports on markets around the 
world.
    Mr. Skeen. But this has been the growth in this department, 
is that we're finally covering almost all the world markets in 
agriculture, because we're getting ourselves back into position 
for the next----
    Ms. Born. Well, we had been doing that through our Division 
of Trading and Markets, and what I've done is essentially take 
eight people from Trading and Markets, put them together as an 
Office of International Affairs.
    Mr. Skeen. I see.
    Ms. Born. The separate Office of International Affairs is 
intended to make it clear to foreign regulators and foreign 
markets, and also to our own industry, what priority we put on 
this and what our efforts are in the area.
    Mr. Skeen. Thank you.
    Mr. Walsh, are you about ready?
    Mr. Walsh. I'm getting there, Mr. Chairman.
    Mr. Skeen. You're very adaptable. [Laughter.]
    Mr. Walsh. Thank you for waiting for me to catch up to you.
    Thank you for your testimony. I'm sorry I'm late. I had a 
VA/HUD Subcommittee at the same time. It's that time of year.
    I would like to ask a question or two about the dairy 
options pilot program. As I understand it--first of all, my 
State, New York State, is one of the largest dairy-producing 
states in the country. So it's an issue for our industry. It's 
about 70 percent of New York State's agricultural output. This 
dairy options pilot program gives farmers some alternatives 
that they haven't had in the past. I understand that there is a 
dispute over who will manage this program, whether it's the 
Coffee, Cocoa, and Sugar Exchange, which apparently has done a 
lot of the spade work on this, and Chicago Mercantile.
    Again, my knowledge is sketchy. Maybe you can fill in a 
little bit, but the Risk Management Agency is responsible for 
this decision. Could you tell us what your involvement is, and 
will be, in this decision and this process?
    Ms. Born. We don't play any role in the decision.That's 
USDA's decision to make. We have offered technical assistance and 
advice to USDA's Risk Management Agency in making available some of our 
economists who understand the options markets and also the milk options 
and futures that are currently being traded. That's the role we've 
played to date.
    Mr. Walsh. So the decision is with the Risk Management 
Agency. You are sort of a consultant to them----
    Ms. Born. That's correct.
    Mr. Walsh [continuing]. In this decision? Okay.
    Ms. Born. They have not asked for our advice, I don't 
believe, on whether either or both of the two exchanges that 
currently trade milk options should be approved for 
participation in the pilot program that USDA is designing.
    Mr. Walsh. Can you, to a layman, explain how this milk 
options works?
    Ms. Born. I can try. Both the Coffee, Sugar, and Cocoa 
Exchange and the Chicago Mercantile Exchange have options on 
milk that are called BFP options, I believe, and you can go in 
and buy an option or sell an option for a certain price that 
can be exercised during a certain period of time.
    Mr. Walsh. Like any other option?
    Ms. Born. Yes. We can give you a detailed description of 
the terms of both CME and Coffee, Sugar, and Cocoa's contracts.
    [The information follows:]

[Pages 133 - 134--The official Committee record contains additional material here.]


    Mr. Walsh. Now we look at dairy in terms of fluid milk and 
there are different classes of milk. Does this encompass all 
the classes of milk or are these separate options?
    Ms. Born. No, I think they are options based on the basic 
formula price (BFP) index, which I think is for bulk fluid 
milk, but I'm not sure. I guess I don't have anybody from 
Economic Analysis that understands this stuff. [Laughter.]
    Mr. Walsh. He's nodding yes [referring to a member of Ms. 
Born's staff]. I think you got it right, yes.
    Okay, but you're a consultant? It's not your decision?
    Ms. Born. That's correct.
    Mr. Walsh. Okay, thank you, Mr. Chairman. That's it for 
now.
    Mr. Skeen. Ms. Kaptur.
    Ms. Kaptur. Thank you, Mr. Chairman, very much.
    I would like to ask several questions related to the 
delivery point issue that will currently be before the 
Commission before long again, and I wanted to ask you 
specifically about my own community, Toledo, which has served 
as the only functioning point for delivery and for price 
discovery in the eastern cornbelt. There's no question that the 
Commission has an obligation to regulate the Chicago markets, 
but what are your obligations to the farmers in a region of the 
country who could stand to lose 10 to 15 cents per bushel if 
the delivery point in this region of the country, in the 
eastern part of the country, is eliminated? What is the 
obligation to agricultural interests that use the markets?
    Ms. Born. Well, of course, a very basic reason for the 
Commission's existence is to assure to producers that the 
prices that are reflected and discovered on the futures 
exchanges are the result of basic supply-and-demand factors, 
and not price manipulation or price distortion from this 
behavior of participants in those markets. Therefore, we have a 
very basic responsibility to the producers to make sure that 
they can use these markets for discovering the price of their 
cash product and hedging against price risk for the sale of 
their cash products.
    In terms of location of a delivery point, theoretically, 
the fact that a futures exchange has a delivery point in a 
particular area should not impact the throughput volume or 
price paid for the cash product in that area. There is very 
little cash product that's actually delivered pursuant to the 
corn or soybean contracts on these markets, and so the vast 
majority of corn and soybeans that is currently being sold in 
Toledo is purely cash market and unrelated to futures contract 
deliveries on the markets.
    Ms. Kaptur. The Board of Trade proposal relies heavily on 
the export market, and is the Commission at all concerned with 
the Board of Trade's overreliance on exports in creating its 
case?
    Ms. Born. The statute that we administer does not have any 
provision that a market must reflect a certain kind of price 
for the product. In fact, we have some exchange contracts that 
are purely an international price for a product, rather than a 
domestic price. For example, the Coffee, Sugar, and Cocoa sugar 
No. 11 contract is based on the international market for sugar, 
not on the domestic market for sugar that comes in under our 
quota system, and there the delivery points are something like 
26 different locations around the world.
    So it is permissible historically, and there is nothing in 
the act that prohibits the use of an export pricing mechanism 
for pricing a futures contract.
    Ms. Kaptur. Mrs. Born, as you look at the history of the 
Commission, and some of the successful, let's say, the 
successful discovery of fraud and abuse, could you document one 
or two of those for the record?
    Ms. Born. Certainly. I'd be happy to submit a list of our 
recent cases, but we do have a number of cases that our 
Enforcement Division brings in the Federal courts of this 
country and also as administrative proceedings before the 
Commission itself. I could submit for the record, for example, 
our final orders in cases involving fraud in the last, say, 
Fiscal Year or something like that, for your information.
    [The information follows:]

[Pages 137 - 140--The official Committee record contains additional material here.]


    Ms. Kaptur. Do you have to use your own internal staff for 
all investigations or can you rely on other investigatory arms 
of the Government of the United States to help you develop your 
case?
    Ms. Born. We certainly cooperate closely in enforcement 
investigations with a number of other Federal agencies, the 
U.S. Attorneys' offices in various areas, the Justice 
Department and the SEC. We've also recently cooperated with the 
Federal Reserve Board of Governors' staff. We actively 
cooperate with a number of State enforcement agencies as well, 
particularly relating to fraudulent schemes that may be located 
in the State and targeting State citizens.
    In addition, we work very closely with the compliance 
staffs of the exchanges and with the National Futures 
Association staff, which acts as an enforcement body as well. 
They enforce their own rules, and they also investigate 
violations of law.
    Ms. Kaptur. What would be the most, of all of those, what 
would be the most independent investigative unit that you 
either oversee or work with?
    Ms. Born. Independent of the industry?
    Ms. Kaptur. Yes.
    Ms. Born. Well, I think all the government agencies are 
quite independent of the industry.
    Ms. Kaptur. And which would be the most sophisticated in 
terms of financial analysis?
    Ms. Born. I think we and the other financial regulators are 
the most sophisticated in terms of investigation of 
sophisticated financial fraud and manipulation cases, because 
we have the experience.
    Ms. Kaptur. All right. I would ask you, again for the 
record, if you could provide, let's say over the last five 
years, some of the most significant cases that have been 
investigated and what type of penalty resulted from that, it 
would be appreciated.
    [The information follows:]

[Pages 142 - 148--The official Committee record contains additional material here.]


    Ms. Kaptur. I think, also for the record, it might be 
interesting for the other members to hear a summary of how the 
exchanges have actually changed in terms of what's being traded 
over the last 15 years, let's say. I was very surprised--at one 
point, agricultural trades had gone down to about 8 percent, 
but since Freedom to Farm, we've seen a tripling of the 
agricultural trades presence on the markets. That did surprise 
me a bit. I hadn't expected it would have gone up that much, 
but perhaps you could talk a little bit about the composition 
of that, and that will be my final request.
    [The information follows:]

[Page 150--The official Committee record contains additional material here.]


    Ms. Born. Very good. We'd be happy to provide information 
on the changes of the contracts that are being traded. In fact, 
in the last five years there's been a 96 percent increase in 
the number of different kinds of contracts that are traded on 
our markets.
    Right now, about 17 percent of the volume of our markets in 
1997 were for agricultural futures and options, and about 73 
percent were for financial futures and options. I think metals 
represented about half a percent of the volume, and energy was 
10.5 percent of the volume.
    Ms. Kaptur. Thank you.
    Mr. Skeen. Mr. Latham.
    Mr. Latham. Thank you very much, Mr. Chairman.
    I guess to kind of follow up what Ms. Kaptur was talking 
about on the grain delivery point proposal, there are 
revisions, I guess, that you're going to be looking at for 
final approval, I think, on March 19. Do you see any big 
problems with any of the revisions that they've put forth?
    Ms. Born. Well, we haven't received the revisions yet. 
They're going to be voted on on March 19 by the Chicago Board 
of Trade members, and thereafter, they would be submitted to 
the Commission, if the CBOT's membership approved them, for 
analysis.
    In the meantime, our Division of Economic Analysis has been 
actively, analyzing the proposals that are going toCBOT's 
membership, so that they can make a recommendation to the Commission 
fairly swiftly after they get the submission from CBOT. We have not yet 
at the Commission level received any recommendation on that yet.
    Mr. Latham. Okay, but you have been studying the revisions 
as they're proposed?
    Ms. Born. The staff has been, yes.
    Mr. Latham. Right. You don't know what kind of timetable 
you would be on, then, as far as your approval?
    Ms. Born. I certainly hope that we will deal with this 
expeditiously. The issue has really been before us in one form 
or another for more than a year, and I would hope that we could 
bring this to final resolution.
    Mr. Latham. Are the revisions just technical nature? Are 
there any major----
    Ms. Born. Well, I think they're quite substantive.
    Mr. Latham. You can't talk about any of those now?
    Ms. Born. Well, we've had two different proposals from 
CBOT. The first proposal we amended and supplemented, and as 
amended and supplemented, approved it in November. A new 
proposal was submitted to us, in December, and that was 
analyzed, but the Commission didn't act on it because we 
learned from CBOT that they planned to revise it.
    I understand that the revisions relate to the locational 
differentials that will be applied in the contract between 
different locations along the Illinois River. It also changes a 
provision that impacted on the net worth of eligible issuers to 
reduce that requirement to $5 million net worth. The 
requirement in the proposal we received in December was stated 
in terms of barge load-out capabilities and required that 
companies seeking to participate in the delivery process must 
register to deliver a minimum of 30 barges.
    Mr. Latham. But as far as the point of delivery, that's not 
part of the revisions?
    Ms. Born. I understand that what is going to CBOT's 
membership does not change the proposal that we received in 
December with respect to the locations.
    Mr. Latham. Okay. In your written testimony, you cite, 
quote, ``expanded congressionally-mandated responsibilities,'' 
as a justification for part of the increase in your budget. You 
say that, in 1992, Congress gave the CFTC a number of 
responsibilities and then reauthorized the act in 1995. What 
new responsibilities did Congress give you in 1995 that are now 
requiring you, three years after the authorization, to need 
more staff?
    Ms. Born. In 1995, we did not get any increased 
responsibilities. That was merely a reauthorization. There were 
a number of new responsibilities that were given to us in 1992. 
However, because our appropriations for three years thereafter 
were kept flat, we lost staff between 1992 and 1996, even 
though we had additional responsibilities we were mandated to 
carry. The request that we are now making for Fiscal Year 1999 
would restore the staff to the 1992 level. In fact, we would be 
1 percent above the 1992 level in staff, assuming that we get 
the authorization.
    Mr. Latham. Have you not been able to accomplish or fulfill 
the responsibilities that were mandated in 1992 with your 
current level of staff?
    Ms. Born. We have been attempting to do so, although some 
of those responsibilities are only now being acted upon by the 
Commission. In the last year, for example, we acted on dual 
trading exemption petitions that had been filed by the 
exchanges in 1993, as mandated by the 1992 Act, but the 
Commission only acted on them last year.
    Part of the reason for that was the diminution of staff. 
Part of it, quite candidly, was that we were not up to full 
staff on the Commission level. There was not a confirmed Chair 
for most of that period of time. For much of that period of 
time, we were down to three members who, under the Government 
in the Sunshine Act, could not speak to one another except in a 
public meeting, and it inhibited the ability to deal with 
particularly some very controversial issues, like dual trading, 
that were part of the 1992 Act.
    Mr. Latham. Thank you very much.
    Mr. Skeen. Ms. Kaptur.
    Ms. Kaptur. I have one final round of questions.
    Madam Commissioner, as I listened to you, I think I heard 
you say today on the Chicago Board of Trade delivery point 
issue, at least I'm interpreting what you say, as the delivery 
system itself having no relationship to grain prices. In other 
words, the structure of the system that we establish in this 
country, if we are to have one major corridor with the loading 
facilities there, irrespective of the fact that there are 
current ways of delivering product to locations today in other 
parts of the country, that basically the Commission is of the 
opinion, as expressed by you, that the delivery point has 
absolutely, and the manner in which we deliver in this country, 
has no relationship to the establishment of grain price. Am I 
hearing you correctly?
    Ms. Born. No. Certainly, the manner in which delivery is 
made is a very significant issue that we look at very 
carefully. The statute requires that delivery be made in such a 
way that it tends to prevent or diminish price manipulation, 
market congestion, or the abnormal movement of product in 
interstate commerce. So what we look to is whether the delivery 
point or points, wherever the exchange has chosen to set them, 
have adequate deliverable supplies of the cash commodity, such 
that product will not be distortedin terms of the distribution 
flow or prices will not be distorted because of squeezes. At least we 
try to make sure that the probability of squeezes or the probability of 
distortion of the cash market is minimized.
    The theory of the futures market is that it should not have 
a direct impact on the flow of the cash product or the price of 
the cash product. It reflects the price of the cash product at 
the delivery point. It does not reflect the price of the cash 
product throughout the country. But the price of the product in 
other locations is adjusted for by the basis, which is the 
difference, for example, between the price of corn in the 
nearest futures contract month and the price of corn on the 
local cash market.
    Ms. Kaptur. Would you agree that there is a difference in 
price in the value of grain at points south as you move from 
Chicago?
    Ms. Born. Yes.
    Ms. Kaptur. And would it be your opinion that those taking 
delivery would have priority ahead of commercial business for 
loadout, which skews the economics toward the high through-put 
facilities?
    Ms. Born. That is why there are price differentials for the 
location. That is one of the changes that was made by CBOT in 
its December proposal. It has changed those even further in the 
proposal that's going to the membership next week.
    It was our economists' opinion, and the Commission found in 
its order of November 7, 1997, that with product delivered into 
barges along the Illinois River, which is what CBOT was 
proposing, the value of the product varies depending on the 
price of the freight to get that product to New Orleans, which 
is the port at which the exports are occurring.
    Ms. Kaptur. Do you think that the proposed terms of 
delivery reflect the cash market adequately?
    Ms. Born. That's the issue that's currently pending before 
us, and I think it would be inappropriate for me to express an 
opinion on that until I get the proposal and get our staff 
analysis of that very issue.
    Ms. Kaptur. I think that, as you analyze that, I hope that 
whoever does the econometrics of this really takes a look at 
the discouragement of delivery at certain points, if given 
proposals were to be adopted, and then, in fact, the market 
will be skewed, and that certain entities will be extremely 
advantaged in this system and other regions will be extremely 
disadvantaged. I would hope that, though I doubt this will 
happen, that somewhere the concerns of farmers will be talked 
about, because generally when you get into this kind of a 
debate, what happens is that--I mean, it's the big traders and 
it's the big entities that have the money to get the lawyers to 
represent a point of view. But the people that are going to be 
affected at the ground level are those who are going to end up 
getting so much per bushel.
    I know in our area, for example, not all farmers hedge in 
the market, and you say, ``Shame on them,'' but the point is 
that you have to be a pretty sophisticated farmer to be able to 
use those markets. And so there are people down there who may 
have an impact, but they have no voice in this system. They 
have no ability to make their voices heard in the 
deliberations. So you have to represent them, too. And I just 
want to encourage you to please do that.
    In the kind of the analysis that's done also, I heard you 
say this morning that, because your legislation doesn't cover 
export, it sounds like the import--the effect that the export 
market has on price won't be considered in the analysis. Well, 
though your legislation doesn't cover it, we all know it's a 
global market, and I would hope that the impact of price 
related to dependence on exports--somebody over there will 
think about that. Even though the legislation doesn't say it, 
the economics dictates it. So somebody's got to be thinking 
about that in this analysis. I hope it doesn't fall off the 
table because the legislation doesn't cover it.
    Ms. Born. Two points in response. One is that we, of 
course, have had this issue out for public comment on a number 
of occasions during the last year and a quarter, and in fact, 
we have gotten more public comment on this issue, more than 700 
comments, than the Commission ever has on any issue before us. 
I personally have read all those comments, and our staff has 
analyzed those comments, and many of them are from producers.
    Secondly, our legislation does cover all futures and option 
contracts in this country, whether they're based on domestic 
market prices, whether they're based on export market prices, 
whether they're based on international market prices. 
Therefore, our legislation quite clearly covers export market-
priced contracts.
    Ms. Kaptur. I think that the users of the system in 
whatever form have to have confidence that the delivery system 
will be balanced and that the cash prices that they receive are 
based on a futures market that both has that balanced delivery 
system and reflects both the domestic and the export inputs, 
and real market price relationships resulting therefrom.
    So I'm glad you clarified that, because that isn't what I 
heard on the second round of questioning. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Skeen. Thank you.
    Just one word--oh, Mr. Latham, go ahead.
    Mr. Latham. I would just say, the business of any market is 
to discover price, correct?
    Ms. Born. Correct.
    Mr. Latham. And----
    Ms. Born. Well, certainly of our markets.
    Mr. Latham. Right. Well, and the fact of the matter is 
that, whether it's export market or domestic market, it is 
priced--it's a supply-and-demand situation, and those are both 
factors in the discovery of the price. I mean, it's very clear 
that regionally there are areas that have in the past not had a 
delivery point, because of the freight differential, have not 
had a delivery point that is close enough to maybe have the 
advantage of other areas. I mean, if you're in Chicago, you've 
had a higher price than you have in northwest Iowa. It's a 
reflection of the cost of transporting the product to a 
delivery point.
    I just look forward to the changes that are going to be 
made. I think it should help as far as being more equitable to 
a huge grain-producing part of this country, but, obviously, 
exports or domestic use make the price. I mean, it isn't like 
you control the price on exports and that's different from the 
price on domestic use. I would hope that we could continue--I 
think export dependence, or whatever you want to call it, is 
very, very positive. The future, that's where our future is 
going to be in agriculture. We don't have the people to eat all 
we produce. We've got to move it someplace, and I would 
certainly hope that the exports would play a large part in 
making the price in the future.
    Just a couple of comments; I guess no real question, but if 
we're talking about a true market that discovers price, 
obviously, it incorporates all aspects, whether it's 
transportation, whether it goes to export market or domestic 
use, and usage, where areas of usage are.
    Thank you, Mr. Chairman.
    Mr. Skeen. Thank you.
    I think we've had a very good discussion, and I think the 
questions have been excellent. But it brings to my mind kind of 
a vacuum area that I think, in the main, agricultural 
producers, even as sophisticated as they may be in the United 
States, do not use the markets, trading markets, as well as 
they could because they don't understand them. And I talk to 
members of the Chicago Board of Trade and some of the rest. 
They used to handle some of these with an outreach program, 
because only 2 percent of our population is doing most of the 
agricultural production. It's an area that's ignored, but also 
they're so busy taking care of things and fighting weather, and 
all those other things, that they don't get in the position 
where they understand markets as well as they should.
    Of course, everything's computerized now, but it gives us 
access. What you might consider, too, at the agency is some 
kind of an outreach program to agricultural producers about 
delivery points and about all these other questions, and how 
they--maybe some of these younger farmers that are coming up 
will take advantage of the thing and tend to use these markets 
to their advantage. I think there is an extreme advantage for 
primary producers, if they understood the markets better.
    I think that you, you're well-versed; you've handled your 
questions very well, and your agency is doing a good job. I'm 
glad to see that it's expanding, and I hope that it reflects on 
the price of agricultural products.
    Mr. Walsh was talking about New York, a great dairy-
producing State. Californians have known that if they can sell 
their land, property, that they have in California for 10 times 
what it would take to replace it in New Mexico, and so as cheap 
as we are, 10 to 1, but now it's our No. 1 agricultural product 
coming from the State of New Mexico. It's all--they're all 
alfalfa-fed, and so forth, and you can't even afford to buy 
alfalfa for your horses nowadays because, at $178 a ton, it's 
pretty tough.
    But it's a very intriguing challenge. You can't do all 
things at one time. You do the best you can, and we appreciate 
the fact that you have real talent.
    Ms. Born. Mr. Chairman, let me just assure you that we are 
trying to participate in some efforts to educate producers. 
Under the FAIR Act of 1996, Congress mandatedUSDA to have an 
educational program in Risk Management for producers. It also required 
the CFTC to cooperate with USDA in that effort. We are actively 
cooperating in that effort----
    Mr. Skeen. Very good.
    Ms. Born [continuing]. With the USDA. We also have a number 
of brochures and other informational booklets available for 
producers, and have an Agricultural Advisory Committee of the 
Commission on which many producer organizations are 
represented.
    Mr. Skeen. Very good. I think we just need to give some of 
that information to some of the producers.
    Ms. Born. Absolutely.
    Mr. Skeen. Thank you all.
    Ms. Kaptur.
    Ms. Kaptur. I just want to thank the Chairwoman for coming 
today and for her staff, and for being very responsive when we 
sought information. We will appreciate receiving the items we 
asked for the record.
    Thank you very much.
    Ms. Born. Certainly.
    Mr. Skeen. Thank you all very much.
    We're adjourned.
    [Clerk's Note.--The following questions were submitted to 
be answered for the record:]

[Pages 157 - 511--The official Committee record contains additional material here.]


                                      Wednesday, February 25, 1998.

                      FOOD AND DRUG ADMINISTRATION

                               WITNESSES

MICHAEL A. FRIEDMAN, M.D., LEAD DEPUTY COMMISSIONER
ROBERT J. BYRD, DEPUTY COMMISSIONER FOR MANAGEMENT AND SYSTEMS
WILLIAM B. SCHULTZ, DEPUTY COMMISSIONER FOR POLICY
DENNIS P. WILLIAMS, DEPUTY ASSISTANT SECRETARY, BUDGET, DEPARTMENT OF 
    HEALTH AND HUMAN SERVICES
SHARON SMITH HOLSTON, DEPUTY COMMISSIONER FOR EXTERNAL AFFAIRS
MARGARET JANE PORTER, CHIEF COUNSEL, FOOD AND DRUG DIVISION, OFFICE OF 
    GENERAL COUNSEL
RONALD G. CHESEMORE, ASSOCIATE COMMISSIONER FOR REGULATORY AFFAIRS
BRUCE BURLINGTON, M.D., DIRECTOR, CENTER FOR DEVICES AND RADIOLOGICAL 
    HEALTH
JOSEPH A. LEVITT, DIRECTOR, CENTER FOR FOOD SAFETY AND APPLIED 
    NUTRITION
BERNARD SCHWETZ, D.V.M., PH.D., DIRECTOR, NATIONAL CENTER FOR 
    TOXOLOGICAL RESEARCH
STEPHEN SUNDLOF, D.V.M., PH.D., DIRECTOR, CENTER FOR VETERINARY 
    MEDICINE
JANET WOODCOCK, M.D., DIRECTOR, CENTER FOR DRUG EVALUATION AND RESEARCH
KATHRYN C. ZOON, PH.D., DIRECTOR, CENTER FOR BIOLOGICS EVALUATION AND 
    RESEARCH
DIANE E. THOMPSON, ASSOCIATE COMMISSIONER FOR LEGISLATIVE AFFAIRS
MITCHELL R. ZELLER, ASSOCIATE COMMISSIONER
JANICE OLIVER, DEPUTY DIRECTOR, CENTER FOR FOOD SAFETY AND APPLIED 
    NUTRITION
JAMES DONAHUE, DIRECTOR, OFFICE OF FINANCIAL MANAGEMENT

                            Opening Remarks

    Mr. Skeen. The hearing will come to order. We're on the 
record.
    Today we have a most important agency, the Food and Drug 
Administration. Dr. Friedman, welcome. It's an honor to see 
you. The witnesses that are with you there, welcome to you all 
as well.
    I believe that FDA has made many improvements in the last 
few years, and I think you personally have been a factor in 
those improvements. Not everything is perfect, but in general, 
review time for many products is down. This saves lives, 
suffering, and money for all involved. Let me also say that 
things can get better, and that's what we're striving to do 
through this process, and I appreciate you being here.
    I think the area of foods is one that needs some attention, 
and I'm not sure that inspections or reviews of food additives 
is all that it should be. I'm still concerned about review 
times for medical devices, among other things.
    So having said that, I'll turn it over to you, and let you 
introduce your associates, and make your comments.
    Welcome to all of you, and it's been pleasant working with 
you.
    Dr. Friedman. Thank you, sir.
    Mr. Chairman, Committee, as the Lead Deputy Commissioner 
for the Food and Drug Administration, it's my privilege to be 
here today to present FDA's proposed budget for fiscal year 
1999. With me at the table are Mr. William Schultz, our Deputy 
Commissioner for Policy; Mr. Robert Byrd, Deputy Commissioner 
for Management and Systems, both from the Food and Drug 
Administration; and Mr. Dennis Williams, Deputy Assistant 
Secretary for Budget at the Department of Health and Human 
Services. They and other senior staff who have accompanied me 
today are here to help respond to your questions.
    As you pointed out, sir, FDA is an agency that serves a 
vital and unique role in promoting and protecting the public 
health. The public demands a great deal from the Food and Drug 
Administration. All Americans expect that the food they eat 
will be safe and wholesome; that the medical products they use-
drugs, biologicals, and devices-will be safe and effective; 
that children will be protected from the harmful effects of 
tobacco; and that information on the products regulated by FDA 
will be useful and understandable. These are important public 
health responsibilities, and we take them very seriously.
    Our commitment is an enduring one, and our high level of 
performance in the past year demonstrates our ability to make 
good on that commitment. As you know, sir, one of our most 
visible activities is the review of new products before they go 
to market. I'm proud to say that the agency has performed at 
historically high levels during this past year.
    For example, FDA reviewed and approved 144 new drugs and 
biologic products last year, a record number, as well as 125 
therapeutic supplements. FDA was 100 percent on time in meeting 
its pharmaceutical review deadlines. We conducted the reviews 
in a median time of 12.2 months. We also reviewed a record 
number of generic products, 416.
    The Center for Devices and Radiological Health approved 48 
major new devices, 5 more than the previous year, even as it 
continued to cut review time, this time by as much as a third. 
Eighteen of these devices presented important diagnostic or 
therapeutic advances, such as the first surgical implant to 
restore partial hand movement in quadriplegic patients; or deep 
brain stimulators to help control tremors in people with 
Parkinson's disease.
    Overall, FDA's output, as measured by the number of annual 
approvals for all new products reviewed by the agency, has 
improved 17 percent per year for each of the last 4 years. This 
level of performance is even more noteworthy, since in each of 
the last 4 years, FDA's workload, as measured by the number of 
all types of applications we receive, has steadily risen at a 
rate of 12 percent per year. What that means of course, is our 
workload is doubling every 6 years. We fully expect the number 
of new applications to continue to rise perhaps even more 
steeply.
    The engine of practical scientific progress is fueled by 
increased support for biomedical research at the National 
Institutes of Health--now at $13.6 billion--and substantial 
investments by private industry--more than $25 billion this 
current year--working to turn scientific discoveries into 
marketable, practicable therapeutics. As a result we foresee a 
medical product pipeline, filled with novel and promising 
remedies for years to come.
    The very uniqueness of these products challenges FDA's own 
scientists to remain on the cutting edge. We must improve our 
intramural scientific and research programs and foster better 
linkages with external scientific bodies in order to be able to 
understand and appropriately evaluate and regulate the very 
newest products.
    In addition, FDA manages important new responsibilities, 
such as the expanded food safety programs and tobacco 
regulation. Moreover, the agency must be prepared for the 
unexpected. The next outbreak of a novel food-borne pathogen, 
such as E. coli O157:H7, or unexpected problems with 
therapeutics already on the market, such as the diet drugs 
fenfluramine and dexfenfluramine, which were recalled last 
year.
    Lastly, let me say a few words, if I may, about the 
challenge presented by the FDA Modernization Act of 1997. This 
was a major piece of legislation, intended to furtherimprove 
the regulation of medical products, foods, and cosmetics. The timely 
implementation of this ambitious law will be a substantial challenge to 
FDA. The Act directs FDA to publish 42 regulations, 23 guidances, 13 
other publications in the Federal Register, as well as 25 other tasks, 
such as post-marketing approval studies, and electronic applications 
and submissions, and seven reports.
    This will consume a considerable amount of FDA resources, 
for which there is no specific budget allocation. Of course, we 
are committed to carrying out the congressional directives 
delineated in the Act, even though many FDA programs have not 
benefitted from increased funding over the last several years.
    To address these expectations and to support the Agency's 
activities, FDA requires $1.26 billion in fiscal year 1999. The 
appropriation request includes $970 million in budget 
authority, and $281 million in user fees, and $13 million in 
other reimbursable activities.
    I really want to acknowledge that the proposed budget is a 
complicated one, and I'm sure you will have questions that we 
will do our very best to answer. Before I close, however, I 
want to do one other thing, if I may; and that's to thank the 
committee, Mr. Chairman, for its past commitment to bettering 
the health of our citizens.
    Last year this committee authorized $24 million for the 
President's Food Safety Initiative. We're using that money to 
take several specific steps to improve the safety of the 
nation's food supply. These include increasing surveillance for 
potential outbreaks, improving consumer education, increasing 
research aimed at detecting and eliminating pathogens, 
developing strategies to prevent microbial contamination of 
food, developing microbial risk assessment techniques, and 
strengthening the coordination between federal, state, and 
local governments.
    These are important steps, but the road to food safety is 
long and difficult. In our fiscal 1999 proposal in which we are 
requesting an additional $50 million, we plan to further 
enhance food-borne illness surveillance, as well as expand our 
coverage of imported products.
    Our research will focus on developing improved methods for 
detecting microbial contaminants in food, technologies to 
eliminate or prevent food contamination, and enhance our 
understanding of microbial resistance to food preservation 
techniques and antibiotics.
    I also want to acknowledge the committee's support of our 
efforts to reduce tobacco use by youngsters. With the $34 
million the committee provided last year, we have taken 
important first steps towards protecting the nation's youth 
from tobacco products. We've established compliance programs in 
10 states already, and are negotiating with another 10. North 
Carolina signed its first contract for this year, and we expect 
to have compliance programs in all 50 states by the end of the 
year.
    With the substantial budget increase proposed for the next 
fiscal year, FDA will more successfully implement the 
enforcement program, and expand the current outreach efforts, 
designed to help retailers and customers obey the law on 
tobacco sales.
    Mr. Chairman, I believe it is clear that the investment of 
each American taxpayer dollar in the Food and Drug 
Administration is a solid investment in promoting and 
protecting the public health. Americans expect their FDA to be 
caring, to remain vigilant, to promote their health and well-
being, and to protect them from all types of health hazards. 
This is an important trust. It is a trust this agency will do 
its very best to keep.
    I thank you for this opportunity to give these remarks, and 
we certainly are available to answer all of your questions. 
Thank you, sir.
    [Clerk's Note.--Dr. Friedman's written testimony appears on 
pages ______ through ______. Biographical sketches appear on 
pages ______ through ______. Food and Drug Administration's 
budget justification appears on pages ______ through ______.]

                               User Fees

    Mr. Skeen. Well, thank you, Doctor. And I wanted to start 
off by noting that the FDA has $128 million in proposed user 
fees. I think that this proposal has been given to us in years 
gone by, and they've come to nothing, so I think that we ought 
to quit talking about user fees, because it's just not going to 
happen. I figure we can start withthat as a base, and what 
we're going to do.

                              food safety

    Let's talk about food safety. We like to think that we've 
got the safest food supply anywhere in the world, and I think 
we have the reputation for doing just exactly that, and we've 
done a lot of good. But then also, we hear on television almost 
every day something related to food safety. Last year the 
administration announced its food safety initiative.
    Congress provided the funds for the program in 1998. In 
addition to last year's funding, the administration is asking 
for an additional $100 million for this initiative this year, 
and your share of that is about $50 million, I believe.
    Is there any way to quantify what we are going to get for 
that, and how much safer can we make our food supply? What else 
should we be doing to impress upon the people of this country 
that the food supply is the safest we can make it?
    Dr. Friedman. I think it's a very appropriate question. Our 
citizens feel that our food supply is safe, but they recognize 
that there are further steps we can take to make the food even 
safer.
    It's a very important set of responsibilities that we have 
in this regard. We want to optimize every component of the food 
system, from where the food is grown, produced, or caught, to 
where it's actually consumed. That means responsibility for 
each segment of, not only industry, but the consuming community 
also.
    Mr. Skeen. Let me interrupt you there.
    Dr. Friedman. Yes, sir?
    Mr. Skeen. You indicate in your testimony that you feel 
like we ought to carry this to the consumer, and also the 
consumer's responsibility for safe handling of foods.
    Dr. Friedman. I think that's exactly right, sir. Because 
even with the very best programs for production, and shipment, 
and retail sales, if good, appropriate food handling techniques 
aren't practiced in the home or the restaurant, then all that's 
gone before is for naught. And so we feel the responsibility is 
really a global one, and we feel if we optimize each portion of 
it, the consumer will in fact have the best benefits that he or 
she can expect.
    It's a complicated issue. So many things are changing. 
First of all, our population is changing. There are more 
elderly people in our population than ever before, and they're 
more sensitive. We also have more people who are surviving 
serious diseases, who are immuno-compromised. They represent a 
particularly susceptible population, as do children and other 
groups.
    In addition to that, our habits are changing. We're eating 
more often in restaurants, in different kinds of environments. 
The foods we want are different and changing. The American 
consumer wants food from all over the world, all during the 
year, and therefore there are brand new opportunities for risks 
to be introduced.
    And last but not least, I would mention that the organisms 
that can cause these infections are also changing. We see that 
bacteria and other kinds of microbial contaminants are very 
dynamic, and in fact they become resistant to antibiotics, they 
change their biology, and can have impacts on us.
    So even if we said we had the best program we can envision 
today, I think we have a responsibility to the consumer to 
upgrade that, make it even more flexible for the risks that 
will exist in the future. In a sense, sir, it's a never-ending 
responsibility that we have.
    Mr. Skeen. How do you incorporate that into your program?
    Dr. Friedman. Well, we do it in a couple of ways. One, is 
to base all of our activities on the best science possible, 
which is fundamental to all our decisions. We want to use the 
best science from within the agency, but we recognize the 
considerable talents that exist at our sister agencies as well. 
The U.S. Department of Agriculture is a major example, but the 
Center for Disease Control and Prevention, NIH, and others play 
equally well here. The Environmental Protection Agency has been 
an important sister agency, working with us on these 
activities. We want to work with academic institutions, with 
industry, and virtually every component to try and bring the 
best minds to bear on these issues.
    Then what we need to do, is to make sure that there's no 
unnecessary; redundancy that there's no overlap unnecessary. We 
need to carefully integrate our research programs, education 
programs, enforcement programs, and surveillance programs. We 
need to make sure that we work very closely together, not just 
at the federal level--that's terribly important--but also at 
the state and local level.

                       foreign inspections issues

    Mr. Skeen. I note that in the section of your testimony 
devoted to international issues, it doesn't mention the 
proposal to allow FDA inspectors to visit overseas production 
areas.
    Two weeks ago, we had Secretary Glickman here, and Mr. 
Fazio asked him about your proposal. He expressed some concern 
about reciprocity--that is, foreign governments asking for 
inspection of U.S. farms. What are your plans for this program 
and do you see a problem with reciprocity?
    On our travels overseas, we run into the fact that a lot of 
folks have an aversion to importing food stuffs from our part 
of the country, because our standards aren't highenough. We 
think that we have the very best. What can we do to improve that 
situation, because we'd like to get this foreign trade business?
    Dr. Friedman. Absolutely. And what I'll do is ask Mr. 
Levitt if he has any additional remarks. He's the director of 
our Center for Food Safety. But let me begin, if I may----
    Mr. Skeen. You can bring anybody you want.
    Dr. Friedman. Thank you, sir, I appreciate that. I'm not 
sure they do, but I certainly do, sir.
    Let me make a couple of comments, if I may. Public health 
issues are the basis of our proposals and not trade issues. 
We're talking about having systems that ensure safety, that are 
comparable, and equitable. Our primary desire is to have the 
American consumer have access to the very safest, most 
nutritious food.
    We believe that the way in which we will be acting upon 
this produce initiative is to have very thoughtful, 
scientifically-based, not burdensome activities, whether we're 
talking about farms in the United States or farms in other 
countries. Right now we know that we're taking certain actions 
against food coming in from abroad that we have concerns about, 
and we've successfully limited the access of those substances 
to the United States.
    Probably the best example is the outbreaks of illnesses 
associated with Guatemalan raspberries over the past two 
seasons. This year, pending information from them saying that 
their products are safe, we're not allowing these products in. 
Other food coming from Guatemala that has never been associated 
with illness is being allowed to be imported. We think that 
when we establish thoughtful, reasonable, scientifically-based 
proposals, the chance of trade retaliation is minimized.
    Is there anything that you'd like to add to that, Mr. 
Levitt?
    Mr. Levitt. Thank you. Again, my name is Joseph Levitt, and 
I'm the new director of Center of Food Safety and Applied 
Nutrition. I'm pleased to be here.
    Mr. Skeen. You're just the person we're looking for.
    Mr. Levitt. The main goal of the program we propose next 
year with the added funds, is that we want to have a 
substantially increased, what I'll call inspectional presence 
overseas, which is not the same thing as going, conducting a 
lot of inspections just to see how many we can do. We want to 
get a more broad-based preventative approach. We want to work 
with foreign countries, work with major suppliers and producers 
there, to be sure that the general standards that are being 
used; the general measures that they have in place for food 
safety, are they of the same quality that exist in this 
country.
    The goal is that the American consumer should have the same 
level of assurance, whether their food comes from the U.S. or 
comes from overseas. We're looking for preventiveness. We're 
looking for going over and working with countries, and 
providing technical assistance, providing know-how, and be sure 
we're on a level playing field. That is what we're trying to 
get to. And on the basis of that, we don't see the concern 
about countries doing something much more targeted here, 
because we're looking at a very broad-based cooperative 
program.
    Mr. Skeen. Well, let's put the word reciprocity in there. 
Is there any way that we can enhance that profile? While they 
accuse us of not having the kind of standards they have, but 
also when we set up this inspection system, either overseas or 
whatever, that we get some reciprocity going?
    Mr. Levitt. Well, we already have--the government already 
has in place, through the WTO agreements, agreements whereby 
there would be equivalent systems, so that the systems are 
producing the same level of assurance in each country. So all 
we're ready trying to do, is find a feasible and effective way 
to implement that. And the more we can do that up front, the 
more we can take a prevention approach, the more effective we 
will be. Every time we're chasing individual outbreaks after 
the fact, we clearly need to do that; we need to get in there 
early. But the more we can be preventative up front, the more 
effective the whole system will be.
    Mr. Skeen. Well, the budget is asking for $28 million to 
expand the inspection and compliance efforts. How much of this 
would be dedicated to the border crossings into the United 
States?
    Mr. Levitt. Only a small portion would be devoted to the 
border. We will enhance that to some degree, but the real 
benefit--we are seeing such an increase in the level of imports 
that the capacity to review each import on a case-by-case basis 
just isn't feasible. It isn't feasible by volume and it isn't 
feasible, because so much more food is coming in that is 
perishable, and simply the time it would take to do testing, 
would be too long for the food to still be usable and saleable.
    And so, while we want to sure up, to some degree, our look 
at the border, the real benefit is going to be getting at the 
source. Just like in this country, we try to get to the source 
of the production. As Dr. Friedman said, startingat the 
production end, and going all the way through to consumer use.
    Mr. Skeen. Well, is it not true that you're dependent 
mostly now on inspections for pesticide residues, rather than 
microbiological contamination?
    Mr. Levitt. We are responsible for both. Historically, a 
lot of the program has been devoted to pesticide residues and 
chemical contaminants, but a lot of the program, both for this 
year and for next year in the research and the risk assessment, 
is really devoted to enhancing our capabilities in the 
microbiology area. We need to have good test methods, we need 
to have good risk assessment methods, we need to be able to 
identify the pathogens that are out there, so that we are 
state-of-the-art and state-of-the-science, so that we are 
providing the most benefit to consumers that we possibly can. 
So, yes, we are in the process of converting and enhancing that 
part of our program.
    Dr. Friedman. But you're quite right, Mr. Chairman, a small 
fraction of samples are actually sampled, and for the reasons 
that Mr. Levitt has said, it wouldn't be feasible to sample 
each entry, because of the time it takes to do some of the 
assays. A preventative approach--not HACCP per se, but 
guidances about what good practices are, seems a much more 
effective system.
    I think Mr. Schultz wanted to add something as well.
    Mr. Schultz. I just wanted to add that, this is not such a 
new idea. This is essentially the way USDA has been operating 
for years, and they've done it very successfully. They have a 
presence abroad, and they're able to inspect the facilities. 
That's a very important part of their program in ensuring the 
safety of imports.
    It's understandable that when you start in a new area, 
there's going to be this kind of nervousness, but hopefully we 
can be as successful as USDA has been in doing it in a way that 
the foreign countries are comfortable with.
    Mr. Skeen. Well, as a result of visiting places like 
Australia, and New Zealand, and so forth, we've been chiding 
them about, why don't you just take some more of our chickens 
and hogs, if you've got the wheat market sewed up in southeast 
Asia, and this that, and the other? And they said, well your 
inspection systems are not as good. This is not so, our 
inspection systems are as good, if not better than theirs but 
then this has been used as a method of fencing off these trade 
agreements.
    So I just wanted to say for the record that we have a 
testing system that covers most of the spectrum that you're 
concerned about, and will also take care of those imports and 
exports. I think Australians ought to eat a few chickens once 
in a while--raised in the United States. They've been eating 
that kangaroo long enough.
    Let me talk to you about tobacco for just a second.
    Dr. Friedman. Yes, sir.
    Mr. Skeen. You're [tobacco] asking for an increase of $100 
million. That's quite a bit of money. I don't think anyone 
disagrees with the concept of the initiative, which is to keep 
our kids from smoking, if we can. But I want to let you know 
that the chances of finding that much money for that particular 
project is going to be pretty tough to come by.
    Dr. Friedman. I understand exactly what you're saying, sir.
    Mr. Skeen. I'd appreciate your comments on how you 
implement this.
    Dr. Friedman. Thank you. I do recognize how many worthy 
competing interests there are before this committee.
    Mr. Skeen. We even take a few unworthies.
    Dr. Friedman. I'm sure you only deal with the worthy ones. 
But I really would like to underscore in the strongest terms 
why I think the additional $100 million investment is such an 
important one.
    You know the statistics very well, sir, the number of 
children who start smoking; the fact that the vast majority of 
adults who end up smoking has started as underage users. The 
costs of smoking have been estimated to be $100 billion a year, 
some in direct cost for illness, some in lost wages, time, and 
productivity. Approximately 80 percent of youths who begin 
smoking then go on to adult smoking. 80 percent of the costs 
associated with smoking compared to the budget request is a 
tiny fractional investment per year, something around a 
thousandth.
    So, I do recognize the very difficult choices that you all 
are confronted with, but in the strongest terms, I'd like to 
make the best case that we can for the value of this investment 
to the average American, and to the American economy.
    Mr. Skeen. Well, I think your statement is well placed, and 
that's the responsibility that we have. It's very difficult to 
find the money, but we're going to have to find it.
    Dr. Friedman. Thank you, sir.
    Mr. Skeen. We'll do the best that we can with it.
    Dr. Friedman. Thank you.
    Mr. Skeen. Thank you for your testimony.
    Ms. Kaptur.
    Ms. Kaptur. Thank you, Mr. Chairman. Welcome, Doctor.
    Dr. Friedman. Thank you.

                             food labeling

    Ms. Kaptur. It's good to have you and all of your 
associates before the committee.
    When I'm here in Washington, my brother doesn't like to 
cook, so I find myself sort of stocking him up before I leave 
the house to come here. And what's so great is that this past 
weekend--and I was looking through the frozen food counter, 
because he can basically use the microwave--and it was so nice 
to have the nutritional labeling. And I thought, how did we get 
along without this? Why did we have such a long fight? Why did 
we have, all this trouble?
    While I was in that store, I went to buy strawberries, and 
I looked everywhere for where they were from, and there was no 
labeling anywhere. And I looked pretty well. I mean, I looked 
at the cases and everywhere to try to find out. I wouldn't want 
to say there was a direct intent to deceive, however, with the 
great capability that we have to label, I am constantly 
amazed--and I hope we have some industry representatives in the 
audience--how unable we seem to be in the fresh produce and 
vegetable area, of having people claim responsibility for what 
they grow and package.
    So my first question to you is, is your agency looking at 
country of origin labeling, or better labeling, of fresh fruits 
and vegetables, since you've admitted here to us today that 
it's impossible to test everything that's coming over our 
borders? Do the people who are responsible for that, claim 
their responsibility?
    Dr. Friedman. Thank you for your remarks about food 
labeling. Let me say a couple of things, and then perhaps Mr. 
Schultz would want to add some other things as well, because 
he's intimately familiar with this.
    As you know, our basic approach to labeling has been to 
provide information about nutritional and health issues, either 
risks or benefits, on products, and that's been the subject of 
our most intense work. I believe the agency still feels that is 
the most valuable contribution we can make, and we're 
constantly being challenged with new questions about how to 
further improve and refine our food labeling. That is a 
fundamental responsibility of ours.
    I would ask Mr. Schultz if he has particular comments about 
country of origin.
    Ms. Kaptur. May I ask you, Mr. Schultz, do I have a right 
to know where the strawberries that I am eating and preparing 
for my family come from? Do I as an American citizen have a 
right to know that?
    Mr. Schultz. I guess that today you don't have a legal 
right. I guess that's an issue.
    Ms. Kaptur. Do you ever think about that when you shop for 
your family?
    Mr. Schultz. Well----
    Ms. Kaptur. You probably don't shop for your family? It 
helps to have a spouse.
    Mr. Schultz. I actually do shop for my family, and I read 
the food label.
    I would like to tell you that the issue of the food label 
on strawberries and fruits and vegetables was an issue that 
held that bill up. It was the last issue to be resolved before 
the bill went to the floor. As long as 50 percent or more of 
the stores in this country--either through signs or through 
brochures--give nutritional information about fruits and 
vegetables, there's no regulatory requirement that requires 
everybody to do it.
    You know, a lot of the chains do provide nutritional 
information. It's not nearly as effective, but there's a 
practical problem; you can't put the label on the strawberry.
    Ms. Kaptur. Oh, but you can certainly put it on the little 
carton that it comes in. We certainly know--I mean, that store 
knows where it got it. I'm interested in your trace-back 
authority. I'm seeing all this fidgeting going on in the 
audience, you know, and people taking notes.
    It's always very interesting to me, because our family 
always in the food business. My father was very proud of what 
he made. And you know what? He wanted his name and address on 
the tape that we would put on the meat, when you'd wrap it up.
    And now when you go to the store, if I go to buy frozen 
fruit, it sort of says--always very nice art work on the front; 
a lot of money spent on art work, right? Half the money goes 
into the packaging; very cleverly done, on the frozen stuff. 
But it's labelled in very small print, ``distributed by.'' 
We've now moved into a ``distributed by'' age, not a ``produced 
in, and processed by'' age.
    And I really think there's an attempt at deception here. I 
don't think it has anything to do with the internationalization 
of the food supplier or anything else. I think someone doesn't 
want us to know. Now who would those someones be?
    Mr. Schultz. Our job is to keep the food supply safe, 
whether it's an imported product or a domestic product; that's 
our job. If we can't do that, then we should request additional 
money for the import program. Congress can decide what else 
needs to be on the label, but our focus is in making it safe.
    Ms. Kaptur. Now when it was rejected 2 years ago, you said 
approximately--what was the big restraint, not allowing better 
labeling in the food and vegetable area? You said that they 
didn't want labeling.
    Mr. Schultz. The grocers----
    Ms. Kaptur. The grocers.
    Mr. Schultz [continuing]. Were very concerned about the 
burden on them of managing this. That's why it was done in 
terms of a brochure or a sign.
    Ms. Kaptur. I'm glad you said that, because I have a 
message for the grocers of this country, being the daughter of 
an independent grocer. And that is, I'm ashamed of them. 
Because when I look at the bar coding, and the sophistication 
that we have at the register to take the public's money, but we 
don't use our great abilities in printing and labeling, to give 
our consumers the information about what they're purchasing, 
we're dumbing down this country, and the ability of people to 
know exactly what they are buying.
    And if we didn't have these food outbreaks growing at an 
exponential level--maybe I shouldn't care. But even yesterday 
there was a big story in ``USA Today'' about Consumers Union 
and consumer reports on the chicken. The chicken inspections. I 
hope somebody from that group is in the audience. 
Congratulations. Eighty some percent of that stuff had 
contaminants on it. I won't get into my whole problem with the 
poultry industry. But, we have a right to know who has grown 
that and who has processed that. And with the sophistication 
that we have in bar coding and everything else, please do not 
try to argue to me, that we don't have the ability to label, at 
least at the counter where its sold, in a way that people can 
actually read it.
    So, I understand political pressures up here, but I'm 
saying to you, we have to do a better job. We're moving into 
the 21st century. There's going to be more of this stuff coming 
on to our shelves. Our people have a right, not just to know 
the nutrition--I could put the 53 percent saturated stuff back 
in the freezer case, so my brother doesn't eat it while I'm 
gone, but he has just as much right to know where those 
strawberries come from.
    Dr. Friedman. I do understand your point, ma'am. Obviously, 
the ability to identify where a product comes from is very 
worthy of discussion. I think our point is that, right now our 
concern is to make sure that the food supply, no matter where 
it comes from, be it domestic or foreign, is as safe and as 
wholesome as we can possibly make it.
    I think that is going to be a responsibility that is going 
to be so engaging and challenging for us, that it's really what 
we're focusing on in the near term. The points that you're 
making are perfectly valid points, and worth discussion. It's 
going to be a tremendous challenge for us to do as much as we 
would like to do, and, frankly, as much as the American 
consumer would like us to do for the safety and the 
wholesomeness of the food supply.
    Ms. Kaptur. I'll just end with this, and I'll wait for the 
second round. But, Doctor, isn't it true that all of the 
illnesses that have occurred of late, in the last 8 years, in 
the fruit and vegetable area, we could never trace back to 
their source, where the contamination occurred, partly because 
of poor labeling?
    Dr. Friedman. The challenge that you identify is absolutely 
correct. It is very hard to trace back produce, because of its 
fragile nature; it spoils or it's consumed. We have had 
examples of food-borne illness, that we think are 
epidemiologically linked to domestic products. We've had some 
that we think are linked to imported products. I suggest to 
you, that even knowing that it's imported is not sufficient, 
because the question I think you're asking is, can we then 
identify a farm, or a region, or a certain practice that's 
associated. Even country of origin labeling wouldn't provide 
that epidemiologic trace-back. It's a tremendously challenging 
issue, and we, the CDC, USDA, we're all working to try to think 
of better ways to do it.
    Ms. Kaptur. I believe people should take responsibility for 
their actions, even if they are growers, if they are 
processors, if they are grocers; each of us must take 
responsibility for our actions, and to try to subvert that, I 
think is outright deception. Thank you.
    Dr. Friedman. Thank you, ma'am.
    Mr. Skeen. Mr. Nethercutt.
    Mr. Nethercutt. Thank you, Mr. Chairman. I hope my 
colleague doesn't mind my going ahead. I've got to chair a 
hearing at 2:00, and I'll go quickly through my questions.
    Mr. Skeen. He's an amiable fellow.
    Mr. Nethercutt. He is.
    Doctor, welcome, and all of you gentlemen, thank you for 
being here.
    Dr. Friedman. Thank you, sir.

                     medical device adverse events

    Mr. Nethercutt. I come from the Pacific northwest, in a 
region that has a lot of small companies, medical device 
manufacturers that we have on the west side and east side. 
Small companies are trying to make it in this country, to 
enhance technology relative to medical devices.
    I want to talk to you, and get some testimony from you 
about the medical device reporting system that you have. You've 
mentioned this in your testimony, Doctor. And specifically, as 
it relates to malfunctions of medical devices that are reported 
to FDA, and then--I'm trying to understand clearly what you do 
with that information after you might be notified of it.
    It's my understanding that a sort of definition of device 
malfunction has gone beyond the death and injury standard. I'm 
wondering how you all look at a so called event when there is a 
malfunction of a medical device. What triggers any action by 
the part of FDA?
    Dr. Friedman. I'd ask if Dr. Burlington can please join us. 
While he does so, may I just give a couple of overview remarks.
    I appreciate your focusing on medical devices, and I think 
it's a valid point. My concern is certainly for how we evaluate 
medical device adverse events, but it's larger than that for 
the entire agency. The adverse event reports coming in to us 
have trippled over the past several years. Our ability to 
quickly and properly analyze and detect serious problems is 
complicated from the fact that ill patients often have local 
complicating factors. It's a very complicated area, and yet I 
think it's one of the most very important things that we do as 
an agency.
    Just this last year, and I'll take the example of drugs, 
products that had been on the market, some for more than 2 
decades, we learned something about the toxicity of diet 
medications. We learned that there are serious toxicities that 
are so subtle, they had never been picked up before. We were 
able to act quickly once the signal was recognized. But the 
sheer volume of what's coming in, and our ability to analyze 
it, is a tremendous challenge for us in the future.
    Having said that as general remarks, I'll turn to Dr. 
Burlington.
    Mr. Nethercutt. Before we get to Dr. Burlington, let me 
just follow up on your comment.
    You say the reporting has tripled thereabouts.
    Dr. Friedman. Yes, sir.
    Mr. Nethercutt. What's the ratio between medical device 
reporting events and pharmaceutical events?
    Dr. Friedman. I can give you some of that information. 
Between 1990 and 1997, adverse event reports increased from 
117,000 to 361,000. That's for everything. So that's the 
universe, or the denominator. Between 1991 and 1997 for device 
reporting workload, it's roughly 37,000 in 1991 and roughly 
94,000 in 1997.
    Mr. Nethercutt. So roughly 25 percent is devices, and the 
rest is pharmaceuticals. I'm not pinning you down, just 
roughly.
    Dr. Friedman. Roughly, yes, sir.
    Mr. Nethercutt. Just a quick math.
    But roughly--I think that's correct. Dr. Burlington.
    In about a three time--still 3 to 1, roughly 3 to 1 
increase. A little less than in medical devices.
    Dr. Burlington. That is correct, Mr. Nethercutt. You had 
asked about malfunction reporting. The device portion of the 
law is designed to anticipate problems and prevent injuries. 
And where a medical device malfunctions in such a way that if 
that malfunction were to reoccur, there is a probability of 
injury, there's an obligation to report it, so preventative 
action can be taken.
    Just last week, we put out a health advisory, based on such 
a malfunction. A gamma camera, that is big nuclear medicine 
device with a heavy front on it, apparently--well, we don't 
know why it fell, but we know part of it fell in such a way 
that it landed on the gantry. Had there been a patient lying 
there, that patient would have been very seriously injured. 
Fortunately, nobody was injured. But that's a report we want, 
so we go back to everybody else that has one of those gamma 
cameras, and say, you guys better take a look at this, and make 
sure it doesn't happen when there's a patient lying there.
    Mr. Nethercutt. Do you do that?
    Dr. Burlington. We did.
    Mr. Nethercutt. And how quickly?
    Dr. Burlington. It took us a couple weeks.
    Mr. Nethercutt. Okay. I'm just wondering if the--because my 
sense of it is, some of these medical devices are short-lived 
in terms of their--maybe 2 or 3 years they can be used, and 
then maybe they go on to some other development of a medical 
device. I'm just wondering who you get the information out to. 
Do you report it to doctors, to hospitals, to patients, or just 
back to the manufacturer. What do you do?
    Dr. Burlington. Well, we certainly go back to the 
manufacturers, and they have an obligation to contact their 
customers with such information. In this particular instance, 
the FDA went directly to the customers, using lists that 
actually the Nuclear Regulatory Commission had--because they 
regulate the use of isotopes--because there was no longer a 
manufacturer in existence.
    We do screen the reports. We analyze them. Figure out which 
ones contain the meaningful information for the medical public, 
the risk managers and hospitals to know about. We use a variety 
of techniques. Health alerts, which may be very targeted, or 
they may go to everybody in the medical profession. We publish 
them in the FDA medical bulletin, and in a column in the 
``Journal of the American Medical Association''.
    Mr. Nethercutt. You do that on every single event, 
reporting?
    Dr. Burlington. Oh, no. We do that on the ones that are 
screened, and where it looks like there is a preventable cause 
of injury, something that looks like it's rising as a signal, 
of a problem that people need to know about. We don't want to 
over-saturate the system; we want to target it to the place 
where there's something that needs to be fixed.
    Mr. Nethercutt. Out of the roughly 90,000 and some odd--
that occurred in 1997, how many would you say you----
    Dr. Burlington. Ten health alerts and health notices went 
out in fiscal year 1997.
    Mr. Nethercutt. Ten total?
    Dr. Burlington. Right. Which represented a substantially 
larger number of events, of course. Often you get several 
events that you're collecting into one notice of hazard.
    Mr. Nethercutt. Is there a cost? How much does it cost to 
do that, to have that office function in the reporting side and 
the analysis side? What's the budget for that particular part 
of your agency?
    Dr. Burlington. We can certainly get you the information, 
but it's roughly 100 people that are in that office.
    [Additional information follows:]

    Dr. Burlington. CDRH spends approximately $2.8 million in 
non-salary operating funds and 145 FTEs on postmarket 
activities. These activities enable us to analyze, detect, and 
react to safety alerts and health notices to manufacturers and 
the medical community. These funds are also used to develop and 
direct systems that track and monitor CDRH's postmarket 
surveillance issues and represent CDRH's postmarketing and 
surveillance concerns at industry, trade, professional, and 
international meetings. These postmarket activities involve 
personnel from all of the Center's offices, of which our Office 
of Surveillance and Biometrics has the largest responsiblity.

                                tobacco

    Mr. Nethercutt. Okay. If I could just ask one more 
question. I don't want to overtake my time here.
    I heard your response, Doctor, to Chairman Skeen's comment 
about the tobacco initiative and the additional $100 million 
you're looking at. In your budget request, or the 
administration's budget request, do you look at the amount of 
contribution and action that's being taken by states, in terms 
of meeting the challenge of stopping--preventing young people 
from smoking? And if so, I'm just wondering why the extra $100 
million if the states are doing hopefully a good job in 
checking people, and doing some preventive work.
    And second part of my question, if you can answer maybe all 
at once is, are you taking away from any other agency 
responsibilities as you look at this $100 million or the 
allocation that was provided last year for the tobacco 
initiative and prevention effort?
    Dr. Friedman. Mr. Zeller has joined us, and I'm going to 
ask him to address your remarks, because he knows the state 
systems extremely well.
    Let me just say, that for each portion of our budget 
request, there is a lot of internal scrutiny, evaluation, and 
debate. The problem we have as an agency is that there are so 
very many opportunities to enhance the public health that we 
have to scrutinize and be critical about each thing that we put 
forward.
    I am very confident and very supportive of the tobacco 
allocation that has been made here, for the reasons that I 
mentioned to you, but we have to be very careful. We have to 
pick and choose. It requires a lot of discipline. We have to be 
critically analytic and say, for each dollar and each FTE and 
each hour that's invested, does the public get the maximum 
benefit they ask us for? So we try to make those assessments.
    With respect to the State activities, the thing I'm 
proudest of--and I'd like Mr. Zeller to deal with--is how 
little of this activity that we're asking for actually resides 
within the Food and Drug Administration. The leverage is 
perfectly enormous with outside State activities, and the kind 
of cooperation that we have been able to achieve.
    Let me ask Mr. Zeller to please speak a little more about 
that.
    Mr. Nethercutt. As you answer, sir, just clarify for me, 
too, what was the magic in the age 27 standard? Why wasn't it 
26 or 28 or 21? I've not understood that.
    Mr. Zeller. The magic was one of principle, and that is, 
there were two important examples that we worked off of when we 
came up with the age of 27. The principle is, you have to set 
the age for carding significantly higher than the age for sale, 
because if you don't, if you're the retailer, you will 
inadvertently sell to a mature-looking 16- or 17-year-old.
    And the two examples that we worked off of--one came from 
the industry itself. Tobacco retailers had a voluntary program 
called ``We Card,'' where they were encouraging all of their 
members to card everybody under the age of 26. The second 
example that we worked off of was a report that had been done, 
I believe in 1994--I might be wrong on the year--by 20 or so 
State attorneys general who had made the recommendation on the 
principle that you had to have a carding component, and the age 
for carding had to be significantly higher than the age of 
sale.
    The industry said under 26; we said under 27, but the 
principle is the same. Unless there's a big difference between 
the age of sale and the age of carding, you will inadvertently, 
and then illegally, sell to the mature-looking 16- or 17-year-
old.
    Mr. Nethercutt. Interesting that it doesn't apply to 
alcohol products. That's a different issue, I know, but----
    Mr. Zeller. Different----
    Dr. Friedman. Different agency, different issue.
    Mr. Nethercutt. Right.
    Mr. Zeller. On the question of States and the relationship 
between our program and State activities, that's a very 
important question, and we have designed what is a Federal 
regulatory enforcement program to complement all of the other 
ongoing activities at the State and local level that FDA could 
never be in a position at theFederal level to bring about. I'm 
thinking particularly of school-based initiatives, community-based 
initiatives, educational efforts, and then rising up to the State 
level, State-based counter advertising, which we're seeing in a number 
of the States that have raised the State excise tax on cigarettes.
    What we do is complement all of those ongoing activities 
with an increasingly robust Federal regulatory presence. And as 
Dr. Friedman said, if we only relied on FDA inspectors to do 
the inspections, we would accomplish nothing. We have about a 
thousand or so field agents. There are 500,000 tobacco 
retailers. So we are enforcing our program by training, 
commissioning, and contracting with the States, and we are 
hopeful by the end of this Fiscal Year that we will have 50 
State contracts, plus contracts with some of the territories, 
where we train them and commission them, and then pay them to 
help enforce our rule.
    Mr. Nethercutt. Thank you, Chairman. Thanks.
    Mr. Skeen. We have a vote going on, but, Mr. Fazio, you're 
up next, if you want to begin.
    Mr. Fazio. Thank you, Mr. Chairman. I know we have a bunch 
of other votes that we have deferred. I wonder if they're all 
going to be taken together here or whether we've got----
    Mr. Skeen. I'll have somebody find out for us.
    Mr. Fazio. Yes.
    Dr. Friedman, gentlemen, I have a number of questions; I'm 
sure may will go on the record, but I thought I'd pick up on 
the tobacco issue. We may or may not get a settlement through 
this Congress that would provide additional resources to fight 
youth smoking. But there is really an outstanding question of 
your jurisdiction, and I'm wondering if you would care to 
comment on what you believe to be issues that result from some 
of the arguments we've been having in the courts, et cetera, 
about FDA's responsibility, that we still need to address in 
legislation, if at all. What would require action by Congress, 
notwithstanding perhaps any agreement to implement the 
settlement? Do you think you have all the authority you need to 
move forward or are there areas that really require further 
elaboration, further legal authority?
    Dr. Friedman. As a physician, I'm only allowed to make one 
comment about this, and then I'm going to ask Mr. Schultz to 
please give much more informative remarks.
    What we're asking for in this budget is entirely supported 
by what our legal standing is today, and doesn't require 
anything further. I think that's very important with other 
legal actions that are going on simultaneously.
    Having said that, Mr. Schultz is much more knowledgeable 
about the other issues you asked about.
    Mr. Fazio. OK.
    Mr. Schultz. We're very confident that we have both the 
jurisdiction and the authority to implement the access and 
advertising pieces of the regulation. This was laid out in 
detail. It was thoroughly reviewed by our lawyers, our general 
counsel, and the Justice Department.
    Having said that, though, it's obviously true that the 
regulation has been challenged, and the district court in North 
Carolina upheld jurisdiction, for part of the rule. The 
advertising piece, which the court struck down, however, is on 
appeal in the Fourth Circuit. So, there are advantages to 
legislation that clarifies this, if only to speed along 
implementation of the regulation. We are not going to know how 
the Supreme Court will rule until it actually rules.
    The key areas, I think, if you were to legislate, are, 
first of all, clarifying that tobacco falls within the 
definition of drug and device. Second, even if it does, 
legislation should clarify that the FDA has authority to 
regulate advertising of tobacco products. Those are the core 
issues in terms of legislation.
    Mr. Fazio. They're very different legal issues. The second 
one could be a basic First Amendment commercial rights issue 
that----
    Mr. Schultz. It's both a statutory issue, which Congress 
could address, and it's a First Amendment issue for the courts. 
What I would stress is that we're talking about very narrow, 
simple changes, if Congress chose to do it.
    Mr. Fazio. If there were contracts, as I think the 
settlement would call for, between the companies and the 
Government to restrain or eliminate advertising, which they 
would argue they might have the constitutional right to do, but 
would contractually agree not to do, would that be FDA's 
responsibility to implement those contracts?
    Mr. Schultz. It would depend on how the legislation was 
written, and I have to say, there are First Amendment experts 
who have looked at this. There are issues about whether the 
Government, can by contract, change the First Amendment rights, 
and whether the manufacturers really even have the ability to 
speak for themselves.
    Mr. Fazio. A competing company that didn't contract could 
obviously get around it.
    Mr. Schultz. It's complicated. And I think the way the 
settlement did it, it's not really a contract with the 
Government. It's complicated. I mean, so much is in it----
    Mr. Fazio. Would you recommend that we provide the FDA with 
the authority to oversee those contractual obligations? Would 
that be----
    Mr. Schultz. The administration is in the process 
ofreviewing all of this, but I have to say, there is an issue about 
whether, to the extent you go further than our regulation does, that 
impedes the First Amendment right to a greater extent. But this is 
something that we're looking at, and I think the administration will be 
prepared to engage at the appropriate time.

                        consolidated food agency

    Mr. Fazio. On the consolidated food agency issue, you know 
I've been pursuing a new concept, and I wonder--well, first of 
all, I think we're all waiting for the National Academy of 
Sciences' study to come forward. This committee helped put that 
into place. I wondered if you would comment on what you believe 
might be some of the basic issues that would have to be 
resolved for that concept to be implementable. I know there are 
people concerned about phasing and implementation, as a problem 
in and of itself, but I wondered if you'd comment on efforts to 
perhaps make better use of our existing resources, particularly 
when we get away from the meat and poultry area, where we have 
far more people providing inspection than in areas you're 
responsible for, where we have far fewer.
    Dr. Friedman. Thank you.
    Mr. Skeen. You'll have four minutes.
    Dr. Friedman. Okay. I'll give you a very quick answer, and 
then we can certainly readdress this subsequently, if you wish, 
sir.
    [The information follows:]

    FDA strongly supports a coordinated interagency approach to 
food safety, as set out in the May 1997 report to the 
President, ``Food Safety from Farm to Table--A National Food 
Safety Initiative.'' That report demonstrated that FDA, CDC, 
NIH, USDA, and EPA all have important food safety roles and can 
work together in a coordinated way.
    Given the long history of statutory evolution and 
enforcement responsibility of each of these agencies, we do not 
believe it would be practical or effective to designate a 
single agency (either new or existing) as responsible for 
ensuring food safety. While a single agency may sound in the 
abstract like a simple and efficient solution, the food safety 
issues and various oversight functions involved are enormously 
varied and complex, and any effort to shift roles and 
responsibilities among agencies, or to a single agency, unless 
managed wisely, could leave American consumers less well 
protected than at present.
    The one time that the Administration has gone on record on 
this question was in Vice President Gore's National Performance 
Review report of September, 1993, in which consolidation of 
food safety responsibilities at FDA was recommended.

    Dr. Friedman. I think it's very important to define the 
characteristics of the system, whether it's a single agency, 
multiple agencies, but a system that provides effective, cost-
efficient, cost-effective food safety, and it's got to be a 
multiple-layered system. It has to include both State and 
local, as well as Federal activities. It needs to be 
coordinated, and it needs to be risk-driven, so that efforts 
are put on the highest-risk products, and that we come up with 
novel means of both assessing and managing those risks.
    We, too, look forward to the National Academy's comments on 
this. We are participating with them. We recognize that, while 
this discussion takes place, the implementation issues that you 
point out are terribly important. The cost of doing anything 
would be enormous, and we don't want to sacrifice current needs 
for future activities.
    It's our job today, while this discussion takes place, to 
optimize every single portion of the system that we have access 
to, and to work with our colleagues in the other agencies to do 
exactly that. That's what we're focusing on right now.
    Mr. Skeen. At that point let's suspend.
    Dr. Friedman. Thank you, sir.
    [Recess.]
    Mr. Skeen. Mr. Bonilla.

                              hepatitis a

    Mr. Bonilla. Thank you, Chairman.
    Welcome, gentlemen. I want to start out, if I could, today 
with questions about hepatitis A. I brought this up last year 
at our hearing, and I just want to do a little followup. 
Several Members had written to the Secretary of Agriculture, as 
well as the Secretary of HHS, Ms. Shalala, asking that 
hepatitis A be included in the new Food Safety Initiative, and 
our request was granted, and we appreciate that very much.
    We also provided $24 million in funding for the initiative. 
In a recent article back home in my area, in Bear County, which 
is where San Antonio is located, the number of hepatitis A 
cases have tripled in the past two years, and statewide the 
numbers are still being totaled, but they're already above last 
year; everyone agrees on that.
    So my question is, what specifically has been done by USDA 
and FDA to address hepatitis A under the Food Safety 
Initiative?
    Dr. Friedman. I think one of the greatest challenges we 
have in terms of identifying the epidemiology of where these 
infections come from is having techniques which allow us to 
demonstrate the presence of hepatitis A in a product. We can 
identify it in blood and in other kinds of situations, however 
the ability to demonstrate it in strawberries was a major 
stumbling block during that investigation.
    One of the methods developments, which is part of the 
research initiative that we're carrying out, is to be able to 
identify this particular virus. But there are also other 
viruses that we're interested in detecting the presence of 
other products.
    As I'm sure you realize, hepatitis A is a common infectious 
disease. The most common way in which it is spread is not 
through food, but by contact, one child with another. It's a 
very frequent infectious disease of childhood in the United 
States and worldwide.
    I don't have the exact estimates, and we should ask CDC, 
but it turns out that the vast majority of adults in the United 
States have had hepatitis A as an unknown infection when they 
were a child. They had the flu, or they were ill for a while, 
but it turned out to be hepatitis A.
    So I can't link necessarily the increased incidence in Bear 
County with a food product, but we do recognize that this is a 
potential vehicle for the virus, and that's why it's part of 
the research initiative.
    Mr. Bonilla. I appreciate that very much, that they are 
included, because it is a problem we have back home.
    Dr. Friedman. Yes, sir.

             food safety initiative duplication of efforts

    Mr. Bonilla. I have a question related to the Food Safety 
Initiative. I see that there is money for both education and 
for research activities at FDA. You've requested $3 million for 
education and $8.5 million for research. I want to make sure 
that there are procedures in place to ensure that these efforts 
will not be duplicated by some other agency within USDA.
    Dr. Friedman. That's a very good question because we 
recognize that the scope of USDA research activities is quite 
large, that we have diverse research activities, and that's why 
we've been very careful to do a couple of things. One is to 
have an internal coherence, where we bring our programs and 
their programs together, and I add to that CDC because they're 
an important component when you talk about infectious disease; 
that we're careful to make sure that there is not unnecessary 
redundancy, unnecessary duplication. I think that's an 
important activity that we're doing currently. There is also a 
steering group at the White House level looking at the 
integration of the research activities to make sure that there 
isn't any wasteful activities that are going on.
    Let me say that I think there are other opportunities, 
though, for looking at industry-sponsored research and other 
academic research that isn't sponsored either by FDA or USDA to 
make sure that, in fact, we know what's going on and all gap 
areas are filled. We're looking at this very, very carefully. 
With respect to research and education, we can't afford to 
waste money, it's too precious right now.

                                tobacco

    Mr. Bonilla. I'd like to move now, if I could, to the Youth 
Tobacco Prevention Plan, and let me say, as I've said before, 
that we all support initiatives to keep cigarettes out of the 
hands of children. In fact, in Texas the governor signed a law 
last year that implements new penalties for young people who 
buy cigarettes or tobacco, illegally.
    But I have some concerns. First, I would like to start out 
with just an overall philosophical question, if I could. I'm 
one who believes in fairness, almost to a fault. I sometimes 
get concerned because of these initiatives that have large 
dollar signs attached to them. There's nothing comparable to 
that to try to promote healthy diets with children, for 
example. We all know that heart disease and cholesterol 
problems in kids that don't eat properly or are overweight and 
that the greatest threat to human life in this country, in 
terms of health, is heart disease. I also know that smoking is 
related to that as well. But there are never initiatives that 
I'm seeing anywhere that say, hey, we've got to promote healthy 
eating habits. I'm not suggesting this; I'm only bringing it up 
as an issue of fairness--that no one's attacking people that 
serve children fatty diets, and they wind up shortening their 
lives by years because they don't eat well.
    But my concern is that tobacco has become a target 
unfairly, simply because it sounds good. They're easier targets 
or they're politically correct. You know, advertising--perhaps 
tobacco companies have had some questionable campaigns to 
attract young people, but, my gosh, every time you go by a fast 
food restaurant they're luring you in to get bacon burgers and 
pig out on French fries, but there's no effort in that area. 
Why is every Federal initiative only targeted to one area, and 
it's not even the one that causes the greatest health risks for 
young people?
    Dr. Friedman. I would respond to your question by 
underscoring that some of the very best data that I've seen 
indicates strongly the single most preventable cause of 
morbidity and mortality is smoking, among diseases such as 
heart disease, lung disease, and cancer. That makes it a very 
attractive target, not for political reasons, but because if 
we're going to have an impact, this is the place where the 
greatest impact can be realized. It has such profound effects 
on all kinds of vascular disease, lung disease, heart disease, 
and many forms of cancer, not just lung cancer and esophageal 
cancer and cancer of the airways, but many other kinds of 
cancer. Clearly, that's an important consideration.
    A second important consideration, I think, is that when 
most people become first introduced, and then addicted to 
nicotine, it's at a time when they are unable to make informed 
choices. I could argue that if I'm able to go by a fast food 
restaurant, I could exert my willpower, and as much as I may 
like that kind of food, if I choose to, I can stay away from 
it. I think that the fundamental biology of why many people, if 
not most people, need to smoke really is that it's a chemical 
one. It's not a matter of choice.
    I would certainly underscore your arguments, as I think our 
new Surgeon General will do, that exercise, diet, and leading a 
healthy lifestyle are very important components. We absolutely 
underscore that. We have a big effort that we have put forward 
for women, the take time to care initiative, which does exactly 
what you say, explaining the ways in which you can take care of 
yourself.
    But if we were going to focus on one thing, I think tobacco 
is a target of opportunity because the health benefits are so 
tangible and they're so achievable, I think. Maybe Mr. Schultz 
wants to add something else?
    Mr. Schultz. No.
    Dr. Friedman. Okay. Please.
    Mr. Bonilla. I realize, respectpeople in the health care 
industry, regardless of what level, that have a sincere desire to cut 
back on teenage smoking. I guess what sometimes troubles me is that the 
politicans that are not interested in teenage smoking--they honestly 
are not concerned, whether they're the trial lawyers or the ones 
negotiating the big deals for profit, I'm concerned that a lot of this 
agenda that's currently underway is driven by politics and not by a 
sincere desire to keep cigarettes out of the hands of kids. I think, 
quite frankly, I'm glad a lot of this is being exposed in this day and 
age. If they all shared the sincerity of health officials, I would 
respect that, but I think people have political agendas, whether it's, 
again, the attorneys or those negotiating deals that are in many cases 
seeking higher office, and that's their ultimate agenda, and I find 
that very troubling. It's a reason I bring this issue up.
    Mr. Nethercutt touched earlier on a question about whether 
or not, you don't get the $100 million increase in this area of 
youth smoking I don't know that I heard a clear enough answer, 
that if you don't get it, are you going to try to take the 
money away from other areas, like new drugs and medical devices 
and programs like that? Is there any possibility that could 
happen?
    Dr. Friedman. I think it's difficult to examine all 
scenarios. We've had a difficult time meeting all of our 
challenges in all of our areas, even with relatively small 
budget shortfalls, such as the $16 million that we reallocated 
last year. We do believe these are very important initiatives, 
but finding $100 million from other parts of the agency just 
wouldn't be possible.
    What we would want to do is to make sure that every dollar 
that we do invest has a maximum output. This is such a 
complicated set of issues, and our goal of cutting teen smoking 
by 50 percent is such an ambitious one, however we recognize 
that what we're proposing is just one part of an overall 
package. We want to optimize those steps that we're responsible 
for, and we're going to do the best we can to reach that goal 
of decreasing youth smoking.
    Mr. Bonilla. Chairman, am I out of time or do I have time 
for another followup? I'll respect the time, if I'm out.
    Mr. Skeen. We'll let you have one real quick one.
    Mr. Bonilla. Real quick, with the request for the $100 
million. This is a big chunk of money to ask for. My final 
question is, in the future do you expect to ask for increases 
of that magnitude, long term?
    Dr. Friedman. I think part of the answer to that has to do 
with how effective we see these activities being now. We 
understand this is just one component of an overall system. I 
think that the administration has laid out a set of targets for 
the future.
    Mr. Schultz, do you want to comment?
    Mr. Schultz. It is, obviously, a very--you know, it's a big 
amount of money. One thing I would point out, though, is that 
there are 500,000 retailers in the United States who sell 
tobacco, and we were very clear in the rule that our regulation 
does not impede adult access to tobacco products. But it's also 
clear that although every State has laws on the books 
prohibiting sale to kids, that those haven't worked. And so, as 
Mr. Zeller explained, we have a program that really depends on 
the States, but it depends on contracts between FDA and the 
States and money that the States will get in order to enforce 
the Federal rule.
    To have a meaningful presence, unfortunately, it costs 
money. We're talking about 500,000 retailers, and we're trying 
to change their habits. Our preliminary indications are we're 
having great success.
    Mr. Bonilla. Gentlemen, thank you. Thank you, Chairman.
    Dr. Friedman. Thank you, sir.
    Mr. Skeen. Mr. Fazio, we cut you off.
    Mr. Fazio. Thank you, Mr. Chairman. I'll just try to wrap 
up on this one point I was on and then put the rest in the 
record.

                     budget for seafood inspections

    We had the report to the President on food safety say that 
the FDA was in critical condition and it said so because it 
said that the agency regulates some 53,000 plants, and yet had 
an average inspection frequency of one every ten years on those 
facilities. I know much of what we've been trying to do in the 
last couple of years with your budget is to try to remedy some 
of those problems, but they are very hard to overcome.
    When you look at the FTEs dedicated to food safety 
inspections, it would average to abut 17 inspections per 
employee per year. That's not a great deal.
    We created in the $8 million that was provided last year as 
part of the total for food safety 80 new inspectors for 
seafood. That's $100,000 per, I'm just wondering, how--and part 
of this, obviously, is building my own case for a broader, 
integrated agency on food safety, but how can we do better? How 
can we improve? It seems that we're spending a lot of money and 
not getting perhaps as much coverage as we would like to get, 
and we need to spend more, but we also perhaps need to be more 
efficient in the way in which we allocate our resources.
    Dr. Friedman. I think the way in which we can optimize our 
food safety system really involves looking critically at what 
we do and how we do it. I think there are several areas that 
have been largely ignored,or at least underdeveloped, in the 
past, and I would say risk assessment is certainly one of those areas.
    I think the key is not to merely have more people doing 
more traditional inspections. I think that's a system that has 
limitations. Clearly, it's essential, but it's not sufficient 
to get us the system that we want.
    Being more focused, being smarter about what we do, by 
having more involvement by all the relevant parties and 
optimizing some areas, is what's going to be necessary for us 
to do in the future. I have no position on whether it's a 
single agency, or it's multiple agencies. What I care most 
about is that, whatever the activity is, it is the most 
effective and it makes the most sense.
    Do we think that there are important areas that can be 
optimized? Absolutely. And although I recognize that this is a 
sizable amount of money that USDA, FDA, and CDC are requesting 
from the various committees, I'm sure you'll be sympathetic 
when I say, this represents only part of what we all wanted to 
do.
    Mr. Fazio. Sure.
    Dr. Friedman. We had to be realistic about what we could 
achieve in a finite period of time. There are a lot of 
challenges for us, and we recognize that.
    Mr. Fazio. Sure. And, of course, you're fortunate in that 
the reaction to the series of problems we've had--Mr. Serrano 
has the list in front of him here--has created a demand on the 
part of the public that we can politically build on here to get 
these additional resources. This committee, to the chairman's 
credit, ranking member's credit, did a great deal last year.
    Dr. Friedman. Yes.
    Mr. Fazio. But there is only so much we can do on an annual 
basis--unfortunately, I guess, taking advantage of the 
perceived public threat, but when you put what USDA is 
spending, even under the new system, on meat inspection per 
employee up against what you've got, and the burgeoning 
responsibilities you have, there's obviously some rationale 
that needs to be made. They're very, very wildly different.
    Dr. Friedman. Well, I think the kinds of activities are 
very different, the kinds of food products are very different, 
and the kinds of laboratory techniques involved are very 
different. I wouldn't want to draw comparisons with anybody 
over anything, and don't intend to do so, but I think you need 
to be assured by us that what we're doing makes the most sense 
for those products that we regulate. I would argue that seafood 
is really vastly different than poultry.
    Mr. Fazio. Sure.
    Dr. Friedman. What works well in one system might not 
automatically be applied to another. What I want to do is 
optimize how we manage our set of responsibilities. I recognize 
that we have considerable advances to make and we're prepared 
to do that.
    Mr. Fazio. Well, thank you, Mr. Chairman, and I'll put the 
rest of my comments in the record.
    Dr. Friedman. Thank you, sir.
    Mr. Skeen. We thank you, and I think we'll pause and go 
vote, and try to get back. I apologize, Mr. Serrano. You've 
been very patient.
    [Recess.]
    Mr. Kingston [presiding]. Dr. Friedman, either we go ahead 
and start or you're going to be here even longer than you're 
going to be right now.
    Dr. Friedman. Please go right ahead, sir.

                                tobacco

    Mr. Kingston. Let me ask you a couple of questions on 
tobacco, which seems to be on everybody's plate. Your top 
priorities, where is tobacco? The top five?
    Dr. Friedman. Oh, certainly.
    Mr. Kingston. The top three? Or the top one? Or----
    Dr. Friedman. Well, I think it's an impossible choice to 
say at any moment what is our single top priority. If you ask, 
is it amongst the most crucial priorities for the agency, it's 
in everyone's top cohort, absolutely.
    Mr. Kingston. Okay. What is your total budget?
    Dr. Friedman. For this year?
    Mr. Kingston. Yes.
    Dr. Friedman. For 1999?
    Mr. Kingston. Yes, for--let me have both of them, actually.
    Dr. Friedman. Our request for fiscal year 1999 is $1.26 
billion.
    Mr. Kingston. Okay. Now you have said it's a top priority; 
you have a budget of $1.2 billion, but in the event that this 
tobacco deal does not go through, you can't come up with the 
money interagency, $100 million? It's really not much of a 
priority, then, is it?
    Dr. Friedman. No, sir, I would phrase it slightly 
differently.
    Mr. Kingston. It's a priority if there's new money 
available?
    Dr. Friedman. No, let me put it this way, if I may, sir: In 
the current fiscal year in which we're operating there were 
appropriations amounts that were different than the amounts 
that we needed to fully fund the Food Safety Initiative and the 
Tobacco Initiative, as those were approved the legislature. 
There was a $16 million shortfall. We looked very hard across 
the agency and asked the question, were these programs, food 
safety and tobacco, of such supreme importancethat we would 
look within the agency to reallocate money with great pain I really 
underscore ``great pain'' because these are very difficult choices for 
all of our staff and our agency. We made the commitment that they were 
that important to us, sir. So we did fully fund the $34 million for 
tobacco and the $24 million for food safety. I think that denotes a 
real commitment to having these as important priorities.
    We certainly are going to have that $34 million continuing 
for tobacco activities. I think we make a persuasive and a very 
positive case for why the additional monies would result in 
good things.
    Mr. Kingston. Well, let me ask you this: What is your view 
about the attorney fees on the tobacco settlement?
    Dr. Friedman. I wonder if I could ask Mr. Schultz to make a 
comment. [Laughter.]
    Mr. Schultz. Yes, I don't think we have a view.
    Mr. Kingston. Well, would that be kind of selective 
position, which certainly you have the right to, but we know 
that this is kind of a big government, big attorney, sweetheart 
deal. As advocates for America's children, don't you think you 
should be very concerned about overpayments to the lawyers, who 
are working on contingency fees, who are not supposed to work 
on contingency fees if their clients have the ability to pay 
without a contingency. And I would think that, using your bully 
pulpit, you would be at least to the extent that you can, 
weighting in the fact that, hey, fine, let this blue-socking 
lawyer make millions and millions of dollars, but as advocates 
for America's children, surely you see where that money's 
coming from?
    Mr. Schultz. You know, it gets very tempting. I mean, we 
all have opinions, whether it's attorney fees, or whatever, 
drug prices, and it gets very tempting to want to comment on 
all of those, but I think we have found that FDA can be most 
effective when we really stick to our core mission in public. 
Even if we have opinions on these other things, if we stick to 
safety and efficacy of drugs and medical devices and food and 
tobacco, that that's how we'll be more effective than if we 
weighed into----
    Mr. Kingston. But would you agree that a contingency fee is 
taking the money away from children?
    Mr. Schultz. I don't know.

                         food safety initiative

    Mr. Kingston. And I certainly respect that answer.
    On the $24 million for food safety, you requested this year 
$74 million?
    Dr. Friedman. Yes.
    Mr. Kingston. Does that include--okay, so----
    Dr. Friedman. Yes, sir.
    Mr. Kingston [continuing]. The $74 million includes the $20 
million, yes.
    Dr. Friedman. The $74 million includes the $24 million from 
this current year, plus the additional monies, yes, sir.
    Mr. Kingston. Okay. Now I'm confused on why that $24 
million wasn't spent. Or is it allocated?
    Dr. Friedman. It is in the process of being spent this 
year.
    Mr. Kingston. Okay.
    Dr. Friedman. That's correct.
    Mr. Kingston. Okay.
    Dr. Friedman. We're, as you recognize, midway in the fiscal 
year.
    Mr. Kingston. Okay. Last year the testimony--and Dr. 
Friedman, I think you were here, but I think it was Dr. Kessler 
at the time that--I'm not sure what the timeframe was; things 
blur. It was----
    Dr. Friedman. It depends on whether it was a good point or 
a bad point. [Laughter.]
    Mr. Kingston. It's a good point. It's neutral.
    Dr. Friedman. I think possibly I was here.
    Mr. Kingston. He was here.
    Dr. Friedman. Yes, sir. [Laughter.]

                                 pdufa

    Mr. Kingston. We were assured on the subcommittee that user 
fees would speed up the review time, and I think that's been 
the case.
    Dr. Friedman. Yes, sir.
    Mr. Kingston. Is that the case again this year, because I 
think you have some user fees in there?
    Dr. Friedman. The prescription drug user fees, which we've 
now had five years of experience with, and were reauthorized 
last year as part of the FDA Modernization Act, continue to be 
in complete conformance with all the goals and expectations 
associated with the Act. We have had shortened review times. I 
think it's fair to say that everyone who's involved in that 
activity--consumers, industry, the Government--really are 
satisfied with that.
    We're now looking to how we can improve that system further 
by focusing on the development time, which is a larger 
component of the overall time necessary to bring a new product 
to the public. As part of the new prescription drug user fee 
program, we're trying to optimize that system as well. It's too 
early to say how that's affected things, but that is our goal. 
As we reach one goal, we try and set the bar a bit higher.

                          border surveillance

    Mr. Kingston. It's very difficult for you to keep up with 
the technology out there and the capabilities; it's very 
difficult for us to keep up with the laws that need to be 
adjusted to it. So I appreciate your sensitivity to it.
    On food inspection, your budget has $28 million to 
expandinspection. How much, if any, of that money will go to a border?
    Dr. Friedman. I will ask Mr. Chesemore to please help me 
with the exact numbers on that.
    Mr. Kingston. Let me just ask----
    Dr. Friedman. Yes, sir.
    Mr. Kingston [continuing]. Kind of in general, do you have 
targeted food products that you would inspect; if you have 
``X'' number of allocation, then you have to prioritize which 
ones you're looking at and from what areas, and so forth.
    And let me say this: It's Mr. Chesemore?
    Mr. Chesemore. Yes, sir.
    Mr. Kingston. I don't need an exact. If you want to say 
roughly 40 percent, and it turns out it's 50 percent, it's not 
a problem.
    Mr. Chesemore. Well, I think it's an excellent question. We 
are trying to focus on the import program, on a strategy of at-
the-border surveillance, plus making sure that, where we have 
an opportunity to harmonize with foreign countries and get them 
to come into agreements with us, we can use that as part of our 
strategy. And the third part of the strategy is to target areas 
that we believe, either through past history or some type of 
information, will be the best use of our resources.
    So we, then, have people stationed at a variety of border 
ports, both along the Mexican and Canadian borders, plus, sea 
and airports as well as all major ports. In addition, the FDA, 
as you know, has developed an automated system to help us get 
those import entries processed, roughly, 4 million import 
entries a year, sir. It's impossible for us to look at all of 
these entries. So we are using this computerized system to help 
us get those products that we do not believe should be a 
problem into commerce, and then we can put our resources in the 
most problematic areas.
    Now that's going to vary by country; it's going to vary by 
commodity; it's going to vary by the type of hazard that we're 
looking at. I think you heard earlier we're not doing as many 
samples now as we used to for pesticides because we want to 
concentrate the resources that we do have on products that 
perhaps have a bacteriological or pathogen contamination 
problem. That's the way we try to strategize and prioritize our 
resources.
    Mr. Kingston. And it can change during the year, I 
suppose----
    Mr. Chesemore. Absolutely.
    Dr. Friedman. That is correct.
    Mr. Chesemore. And when there is a problem, we have to 
follow up on that problem, yes, sir.

                            cancer therapies

    Mr. Kingston. Okay. Last year, FDA testified that you were 
going to, as part of the cancer initiative, look at cancer 
drugs that were being used in other countries and see if we 
could expedite their approval in our country. How is that 
going?
    Dr. Friedman. We have made successful contact with the 
regulatory bodies in a number of countries, and have solicited 
from them any product not available in the United States that 
would represent important therapeutic options. The companies in 
those countries have then been contacted and invited to submit 
their product here, and also to have a compassionate program 
for that product.
    We can give you the exact numbers and the products in our 
written answers, if that would be all right, sir.
    Mr. Kingston. That would be helpful.
    [The information follows:]

[Pages 540 - 541--The official Committee record contains additional material here.]


    Mr. Kingston. I just want to say, you know, we have this 
real sore point on tobacco, and so forth, and unfortunately, 
FDA gets so much negative--you know, you're so broad and so 
involved in so many things, but if three of them tick people 
off back home, then that's what we dwell on, but this cancer 
initiative is so important. I'm looking at it from a world 
view--that I really would like to see that pushed and expanded.
    Dr. Friedman. We can supply that information to you.
    There were three other parts of that program, including the 
more rapid approval process. A number of companies have been 
very complimentary of our ability to make decisions on less 
information quickly, but still give good decisions. We'll be 
happy to supply you that.
    Mr. Kingston. Okay.
    [The information follows:]

[Pages 543 - 553--The official Committee record contains additional material here.]


    Mr. Kingston. For better or for worse, we have a series of 
votes.
    Dr. Friedman. I understand, sir.

                     delaney clause--food additives

    Mr. Kingston. I have another question on food additives as 
respects the Delaney clause and the need to perhaps update 
that, as we did with the Delaney clause on pesticides. I'll 
submit that to you for the record, and yield to Mr. Walsh 
because of the time.
    Dr. Friedman. Thank you. We'll be happy to supply that.
    Mr. Walsh. Thank you, Mr. Chairman.
    Is it safe to say that the hearing will continue after this 
series of votes or not?
    Mr. Kingston. Yes.
    Dr. Friedman. I think the answer is yes.
    Mr. Kingston. Right.

           implementation of the animal drug availability act

    Mr. Walsh. All right. Well, Dr. Friedman, thank you for 
your testimony, and all of the other participants at the panel.
    I have a couple of questions--first, on animal drug 
availability. We passed that law last year. I was an original 
co-sponsor, and I'd just be curious to know how the 
implementation of that--the implementation process of that act 
is going?
    Dr. Friedman. I would ask Dr. Sundlof if he could please 
join us. As he's approaching, let me say that there are a 
number of deadlines in order to implement the regulations. The 
Center for Veterinary Medicine has done an absolutely splendid 
job of addressing those. I think Dr. Sundlof has a very good 
story to tell.
    Dr. Sundlof. Thank you. We have been putting a great deal 
of effort into making sure that the provisions of the Animal 
Drug Availability Act are being implemented and on schedule. 
For the most part, we've been within a few weeks of meeting our 
mandatory deadlines in getting proposed rules out, getting our 
comments reviewed, and meeting with the industry to make sure 
that our expectations are matching up with theirs.
    We have another deadline of April 9, in which we will have 
some more proposed regulations out. We are already implementing 
many aspects of the Animal Drug Availability Act, even in the 
absence of regulations, and we're working with the regulated 
industry to make sure that we are communicating and that we are 
able to meet their needs. We've already approved some drugs 
under the new provisions. We have a whole new class of 
antibiotics that require a veterinarian oversight, but are 
available through feed, which have been implemented through the 
Animal Drug Availability Act. We still have one year to go to 
meet all our deadlines. For the most part, I think we're very 
much on target.
    Mr. Walsh. Are you going to be close to that one-year date?
    Dr. Sundlof. Yes, very much.
    Mr. Walsh. And you said you have the examples where you can 
point out that certain drugs have been made available in an 
expedited manner?
    Dr. Sundlof. Yes, Yes. We can provide you with that.
    Mr. Walsh. That would be very helpful.
    [The information follows:]


    The first Veterinary Feed Directive (VFD) Drug was approved 
under the Animal Drug Availability Act (ADAA) of 1996. The FD&C 
Act, as amended by the ADAA allows currently marketed animal 
drugs used in medicated animal feed to be approved as over-the-
counter drugs, prescription drugs, and VFD drugs. the VFD 
requires veterinary involvement in diagnosing the disease but 
does not require the involvement of a licensed pharmacist in 
the manufacture of the medicated feed. The first VFD drug was 
approved on December 27, 1996, under an original new animal 
drug application, for PULMOTIL 90 Type A Medicated Article 
(tilmicosin phosphate). The application approves the use of 
tilmicosin phosphate in swine feed for the control of swine 
respiratory disease associated with Actinobacillus 
pleuropneumoniae and Pasteurella multocida. This product and 
the medicated feed is restricted to use by or on the order of a 
licensed veterinarian.
    Hoechst Roussel Vet's combination of narasin, bambermycins, 
and roxarsone, used for the prevention of coccidiosis, 
increased weight gain, improved feed efficiency, and improved 
pigmentation in broiler chickens, is currently being approved 
as the first combination production drug (NADA) able to take 
advantage of the ADAA. Prior to the ADAA the effectiveness of 
each drug in a combination had to be shown effective in the 
presence of the other drugs. After passage of the ADAA the 
requirements for effectiveness were reduced, thus saving the 
sponsor money. For this combination production drug the burden 
of proof of effectiveness was reduced by two-thirds.


    Mr. Walsh. This bill, as you may remember, was bipartisan; 
it had consumer support; it had industry support.
    Dr. Sundlof. Right.
    Mr. Walsh. Has it been your experience that in this 
drafting process that that has continued?
    Dr. Sundlof. Yes. The devil is always in the details, and 
we all had expectations of what the language meant in the law 
when we wrote it.
    Mr. Walsh. Sure.
    Dr. Sundlof. As it turns out, occasionally there are areas 
where we are differing in what we thought the language meant, 
but we are meeting with the industry coalition that was so 
instrumental in forming the legislation--to try and get those 
differences ironed out before we write our final regulation. So 
we are in consultation with the industry.

                      seafood haccp implementation

    Mr. Walsh. That would be good, because I'm sure if any of 
the parties feel they're being left out or not listened to, 
we'll hear about it, and then you'll hear about it. So if it 
can managed properly, we won't be intervening in the process.
    It's similar to, somewhat similar to, the implementation of 
the HACCP program. I remember I was drawn in, as were others, 
and it did get a little messy for a while, but it seems as 
though that's moving along now, although I did see anews report 
where one of the union, public employee union members referred to HACCP 
as ``Have a cup of coffee and pray.'' Does that mean we don't have the 
confidence of the public employees' union in HACCP implementation? 
Anybody care to comment on that?
    Dr. Friedman. I believe that we'll interpret that as a 
rhetorical question, sir. [Laughter.]
    Mr. Walsh. Well, it's interesting because at the time some 
of us were being accused of having sold our soul to the 
industry, whereas the Director was accused of having sold his 
soul to the public employees' union. And I guess if you have a 
process where everybody's involved, and all the stakeholders 
have their say, then that case can't be made, and I hope that 
we all learn from that process. I think actually you've got an 
implementation date coming up on that, do you not?
    Dr. Friedman. Well, our seafood HACCP is fully implemented 
at this time, and there are major components of both our 1998 
budget and our 1999 budget which will complete that activity.
    Early as it is, I think it's fair to say that we're really 
gratified by how that is proceeding at this point. I have real 
expectations that it's going to be a successful system, and 
those expectations are not just based on hope, but on the data 
that we have to date.
    I think it's a very promising model. We recognize that our 
seafood program really serves as the vanguard for USDA programs 
and serves as the vanguard for issues that we're looking at for 
juices, and we want to think about all these areas.

              number of inspectors hired for seafood haccp

    Mr. Walsh. I think it's interesting, some of the stores 
back home, I've noticed, are using--are advertising the fact 
that the seafood is HACCP-inspected and processed, and it's an 
advantage to them, they believe, because they're advertising 
it. I think it's quite remarkable.
    We're fast running out of time, and I'm not sure if I'm 
going to be back because I do have another hearing over in VA/
HUD. Just one other point, and Mr. Fazio alluded to it--we 
appropriated $8 million last year to implement the seafood 
HACCP, and only 80 inspectors were hired. That's $100,000 a 
piece. Why?
    Dr. Friedman. Mr. Chesemore?
    Mr. Walsh. Maybe I'll let you think about that. [Laughter.]
    We'll come back.
    Dr. Friedman. Okay.
    Mr. Walsh. I'm going to try to come back. If not----
    Dr. Friedman. We'll supply it for the record.
    Mr. Walsh. Supply it for the record.
    Dr. Friedman. Absolutely.
    Mr. Walsh. Okay.
    Dr. Friedman. Thank you, sir.
    Mr. Walsh. Thank you.
    [The information follows:]


    The $8 million of Food Safety Initiative, or FSI, funds for 
fiscal year 1998 are supporting more FDA field activities than 
just the payroll and benefits costs of 80 investigators. The 
average salary and benefits per inspector is estimated at 
$70,000, for a total of about $5.6 million. In addition to 
salaries and benefits, these funds support the costs of 
training and outfitting these new FTE with equipment. FSI funds 
also pay inspectional travel costs, the costs of purchasing 
products that the agency wishes to sample, packing and shipping 
samples to laboratories, as well as the costs for analyzing 
samples and identifying pathogens, if any are found. The 
inspection activities supported include implementing the HACCP 
regulations, and applying HACCP principles to retail food 
service operations. These funds are also supporting Federal/
State Partnerships to ensure consistency in HACCP techniques, 
enhanced coordination, and communication between the FDA and 
the State regulators.


    Mr. Kingston. We'll have a five-minute vote after this, and 
members should be back. I think Ms. DeLauro and Mr. Serrano 
have questions; Mr. Latham was in here. Ms. Kaptur alluded to a 
second round. So we'll take a break, but we'll probably be 
back.
    Dr. Friedman. We're here at your convenience.
    Mr. Kingston. Thank you.
    [Recess.]
    Mr. Skeen. Sorry about all this hangup, folks, but go 
ahead.

                    scope of the food safety problem

    Mr. Serrano. Thank you very much, and thank you for waiting 
for us.
    On many occasions on the House floor and in committee, I 
preface my comments by reminding people that I live in New York 
City, and that in New York we have a continuous flow of people 
who either visit us on a daily basis or who move into the city. 
When you speak to a lot of these folks who have settled in New 
York in the last couple of years, they tell you what they 
expected in this country, and they tell you a lot about what 
they left behind, and it makes you feel very grateful that you 
live in this country.
    One interesting aspect that ties right into the work you 
folks do is that a lot of these folks that come--especially 
from Latin America and from African countries--tell us, ``we 
knew that back home one of the problems was the water was not 
safe and the food was in many cases not safe, and the open air 
markets were not safe, and even the way some foods were wrapped 
was not safe.'' And now we come here and we're hearing the same 
thing again to a larger proportion.
    And there's the sheet that Mr. Fazio spoke about, the 
partial listing of outbreaks traced to FDA-regulated foods from 
1990 to 1997. I mean, this list scares the hell out of me 
because, you know, mom told me about oysters, and she told me 
to worry about fish and stuff like that, but potatoes? Alfalfa 
sprouts? Do you know what that will do to the east side of 
Manhattan if that's a major problem? Lettuce of all kinds? 
Scallions?
    And so my question to you is: Is it that it's getting more 
coverage these days in the media, but it's been an ongoing 
problem, or are we under some sort of food assault, either 
prepared or raw, that is scaring the whole country? I mean, you 
don't know what to eat. It's horrible.
    Dr. Friedman. I think there are a number of factors at play 
here. First is a much more sophisticated recognition and 
diagnosis of disease than we've ever had before. The estimates 
provided by infectious disease experts are that anywhere from 9 
to 33 million individuals are made ill by food-borne illness 
each year. The magnitude of that spread tells you how imprecise 
the information is. There are a lot of people who get ill, but 
can't identify a food as the offending agent of that illness.
    We're getting much better at diagnosing food-borne illness 
than we've ever been able to before. The CDC has more 
surveillance sites. The sites are more sophisticated. We have 
better communication, and better epidemiology. We do better 
tracebacks and identification.
    Partly, it's due to a large number of illnesses in the past 
that were never appreciated or documented. That's the first 
thing.
    The second is that we're much more aware of this than we 
ever were. And so as we focus on it more, and as the media 
focuses on it more, people become much more knowledgeable. 
These are stories the public wants to know about. So partly 
it's that, whatever illnesses do occur are being more 
prominently displayed in the public media.
    The third is that there really are some situations in which 
there are increased incidents of food-borne illness--for the 
reasons that I mentioned earlier, having to do with either the 
bacteria changing or the food changing or the processing of 
that changing. And so we recognize that all three are at play 
here.
    I think that while the chairman made the point that many 
say we have the safest food supply in the world, we want to 
shoot for something even higher, which is to try to have the 
safest food supply possible. Those are two different things.
    Mr. Serrano. And so you would attribute a lot of it to some 
actual change and then the other part to just more information 
out to the public?
    Dr. Friedman. More information out, and really much more 
sophisticated, more accurate diagnostic techniques from all of 
us working to identify these problems better.
    Mr. Serrano. Now does the problem stop with food before it 
gets to us or to restaurants? Or do we--what percentage of the 
problems that we know of do we add ourselves, either the way we 
cook at home or the way restaurants prepare food?
    Dr. Friedman. I think it's very hard for us to give you 
precise estimates of the contribution of each component. We 
know that it's a chain that can be threatened at the point. If 
the food is not properly grown or raised or slaughtered, if the 
food isn't shipped or packaged properly, if it's not sold 
properly, if it's not prepared properly, each one of these 
components can contribute.
    I think that it's such a dynamic situation that we must try 
to address all the various levels of the food chain from farm 
to table, as the Secretaries have stated, and to try to 
optimize each one of those places. For some foods, we will be 
able to be much more precise about where the risks are, and to 
alert people to those risks. Youcan more precisely determine 
how best to minimize the risk for particular products, such as oysters, 
eggs or meat either by proper preparation or by things we can do at the 
production site.
    Mr. Serrano. I'm curious about something. You know, we 
spend a lot of time discussing foods that come from other 
countries, and what condition they're in, and what effects they 
have here. Do we know of incidents where people in other 
countries have had some major incident with something we 
shipped to them? I mean, I certainly didn't read about it in 
our papers.
    Dr. Friedman. I'd have to try to answer that question 
later. I can't think of one offhand, but that doesn't mean it 
doesn't exist. It just means I can't think of it.
    [The information follows:]

    USDA regularly consults with FDA on Sanitary/Phytosanitary 
(SPS) trade issues. Representatives from FDA's Office of Policy 
and the Center for Food Safety and Applied Nutrition (CFSAN) 
are part of the SPS team headed by the United States Trade 
Representative (USTR) to evaluate and review World Trade 
Organization (WTO) disputes. FDA also participates on the USTR 
Trade Policy Staff Committee in its routine review of potential 
WTO disputes. As a domestic consumer protection agency, FDA is 
not ordinarily made aware of foreign country requirements that 
pose barriers to U.S. exports. Nevertheless, the Agency is 
aware of its own legitimate food safety requirements, and thus, 
can advise USTR and USDA's trade agencies on whether foreign 
restrictions are likely to be science-based and in accord with 
other SPS provisions. The following cases illustrate examples 
where USDA consulted with FDA on SPS trade issues in recent 
years: problems with copper in peanut butter going to Russia, 
non-science based shelf life requirements in Korea and the just 
settled dispute with the European Union on the use of growth 
promoting hormones in beef cattle.

    Mr. Serrano. Okay. Now I get a sense from listening to all 
you gentlemen that obviously money is a problem, and I do 
understand the desire of many Members of Congress and other 
Government agencies to cut back on funding of research and 
everything, and that's a problem, I agree. Is the problem 
reaching a point where you may feel overwhelmed by what you 
have to do in order to provide us with the safety and the 
proper information that we need? They're all gone now, so you 
can tell me anything you want. [Laughter.]
    It's just between us in this room. [Laughter.]
    Dr. Friedman. Just between you and me. [Laughter.]
    Mr. Serrano. Right.
    Dr. Friedman. As a testimonial to the staff of the agency, 
these are individuals that don't get overwhelmed, and I mean 
that as the greatest compliment that I can to all of our staff. 
I would say the gap that exists between what they want for the 
American public, what the American public tells them they want, 
and what we're able to provide is real, that that gap exists, 
and we constantly work to narrow it, and we'll continue to do 
so.
    I think the construction of our budget proposal for fiscal 
year 1999 was the product of the most intense thinking and 
analysis, and that we feel these are very important 
achievements that can be made with this amount of money.
    To a certain extent, we are the servants of the public, and 
so the public has to tell us, as they have, what their 
expectations are. Our goal is to do our very best job to meet 
those expectations.
    Mr. Serrano. Well, I tell you, on one hand, I'm terrified 
of everything I read; on the other hand, I know that you guys 
are there trying to make my life a little easier--and my 
reading less horrifying. So I thank you for that.
    I have just a couple----
    Dr. Friedman. For the agency, I thank you for saying that.
    Mr. Serrano. I have just a couple more questions, and I'll 
submit the rest, Mr. Chairman, for the record.

                    sewage sludge used as fertilizer

    Mr. Serrano. I have a bill that would label food grown in 
any area where sewage sludge was used as a fertilizer or any 
kind of ingredient in that area. Do you know if there's any 
work being done elsewhere in any other State or anything to 
deal with this particular issue?
    Dr. Friedman. The answer is not that we know of, but we can 
look at that and see.
    Mr. Serrano. Please do. I'd hate to think I started 
something new, but----
    [The information follows:]

    EPA's regulation standards for the use or disposal of 
Sewage Sludge (Title 40 CFR Part 503) cover the application of 
sewage sludge to non-public sites including agricultural land. 
Part 503 requires either elimination or significant reduction 
of pathogens along with certain restrictions (such as minimum 
time between the application of sludge and the harvest of 
different crops). Some States also have their own separate 
rules. Growers must first meet the requirements of Part 503 and 
then do whatever else is required by the State.

    Dr. Friedman. If I may, let me just say that one of the 
things we're looking at as we devise guidance for good 
agricultural practices for our produce activities are issues 
like water quality and fertilizer, things such as the sludge 
that you're just talking about. Those guidances are still in 
the formative stage, and we're getting input from industry, 
from growers, from scientists, and we want that process to be a 
collaborative and useful one. But it wouldn't surprise me at 
all if those issues were addressed because those have to do 
with good agricultural practices, and I fully expect those to 
be dealt with.

                     mediguides in other languages

    Mr. Serrano. Good. In your statement you speak about the 
FDA's Mediguide Program, which would give us all information 
that is very useful to us. Are there any plans to provide that 
information--and I know it's a touchy subject--in languages 
other than English?
    Dr. Friedman. I wonder if I could call on Ms. Holston to 
answer that question. There are very clear guidelines of 
percentages of individuals who will be receiving this 
information, targeted to being useful. Ms. Holston?
    Ms. Holston. Yes, the Mediguide Program is to provide 
useful information to patients about how to use their 
prescription medicines, and it is fully the intent that in 
those areas where the population served speaks a language other 
than English predominantly, that we would expect the pharmacies 
to be prepared to provide that information in the language of 
their customer base. So, for instance, if it were in a largely 
hispanic neighborhood, and the pharmacy was providing 
information, we would want that information to be provided in 
Spanish.

                              serrano ham

    Mr. Serrano. Good. Thank you. That's very helpful.
    And just my last one: Is Serrano ham finally coming into 
the country or is that still being kept out? [Laughter.]
    Dr. Friedman. USDA.
    Mr. Serrano. No relation. [Laughter.]
    That's not you, right?
    Dr. Friedman. That's not us.
    Mr. Serrano. Okay. Just thought you could pitch in a little 
bit. Thank you very much.
    Dr. Friedman. Thank you, sir. Thank you.
    Yes, ma'am?

                           oral polio vaccine

    Ms. Kaptur [presiding]. Doctor, you must be getting a bit 
weary by now. We want to thank you very much, and all of those 
who have come with you today. I just have a few very brief, 
final questions to ask.
    One concerns an organization called Informed Parents 
Against Vaccine-Acquired Polio, an organization representing 
the parents of children who have contracted polio as the result 
of the live oral polio vaccine. The parents of many of these 
children petitioned the FDA, I think in April of last year, 
regarding labeling on the box, and informing physicians, so 
that they would explain to likely users what their options 
were, whether they would use the live or the dead viral 
vaccine. Since the parents' petition has been pending for 
almost a year, could you please tell us what the status of that 
petition is, please?
    Dr. Friedman. Certainly. I would ask that my remarks be 
embellished on by Dr. Zoon from the Center for Biologics as 
well. I know that her center and the individuals who are 
responsible for the safety and the quality of the vaccines have 
been seriously considering this. After you and I spoke about 
this issue, I actually asked Dr. Zoon for the information sheet 
that parents get to see what was written there, because I was 
interested to look at this as well. Clearly, it's listed there.
    I think the different kinds of vaccines, and the different 
ways in which they're given makes it a little bit hard to have 
a general policy, but I'd ask Dr. Zoon if she could please 
elaborate.
    Dr. Zoon. Yes. Just to elaborate a little on the polio 
vaccines, we have been working very closely with our colleagues 
at the Centers for Disease Control and Prevention and NIH on 
the issues of vaccine policies. One of the issues is for oral 
polio vaccines, which I believe is the issue that you raise, 
and vaccine-associated polio that may occur. The labeling for 
this product does include information, both to the physician, 
the caretaker, and to the parents, that this is one of the 
risks associated with the vaccine. As you know, the vaccine 
schedule last year changed to give options for oral polio 
vaccination, either alone in combination with inactivated polio 
vaccine (IPV) or IPV alone, and giving care-providers the 
option.
    The issue of the box warning is under discussion. Our plan 
at this time is to bring this to our advisory committee for 
discussion. There are issues raised, but the information is 
already on the label but not in a box warning. It is very 
important that the information be provided to the parents to 
make sure they understand clearly what the risk factors are. I 
hope that helps, and we will be responding to the petition in 
the near future, after referring it to our Vaccines and Related 
Products Advisory Committee.
    Ms. Kaptur. Does your process allow you to meet with an 
organization like Informed Parents Against Vaccine-Acquired 
Polio?
    Dr. Zoon. Yes, it does, and there are many fora in which we 
work. One is the NVP program, the National Vaccine Program. 
There are meetings for that. We have our own advisory 
committees, which is the Vaccines and Related Product Advisory 
Committee. These are open meetings. Parents could come in and 
either present at those meetings or listen to the 
deliberations. We also can meet as a center with interested 
parents' groups, and we have in the past, and will continue to 
do so in the future.
    Ms. Kaptur. How long do you think it will take you to make 
a determination as to a change in procedure, since it's already 
been before you for over a year now?
    Dr. Zoon. Yes, I think the decision is pretty much made. We 
want to vet it publicly, though, at our next advisory committee 
to make sure that we had discussions among the members with the 
pros and cons of such a decision.
    Ms. Kaptur. Thank you. Thank you very much. And if it's 
alright with you, Doctor, I may refer this organization to your 
office. You can make sure that they touch all appropriate 
bases, if they have not already prior to those public 
announcements.
    Dr. Friedman. Please do.

                      funding priorities--tobacco

    Ms. Kaptur. Coming forward.
    I wanted to ask you, if this has not already been done--and 
if it has, please tell me--in 1998, in this year's budget, 
there was quite a substantial increase in the area of funds for 
tobacco education among youth, and we fought quite hard for 
that last year. The increase this year that you're asking for 
is rather substantial, and if we are not able to meet that 
request in its entirety, are there certain priority areas that 
you could outline for us where you might concentrate activity, 
if you would not have the full additional $100 million?
    Dr. Friedman. I would ask Mr. Zeller if he would please 
help address this as well. I think one of the things that we 
mentioned when you may not have been here is that, to some 
extent, it's a volume-driven activity. As Mr. Schultz pointed 
out, there are half a million establishments selling, and the 
education and outreach to those is substantial. The more 
effectively we can do that, the more effective we think the 
program will be.
    Mr. Zeller?
    Mr. Zeller. Let me elaborate with some details. Last year, 
Fiscal Year 1997, the entire agency budget for tobacco, all the 
enforcement, all the outreach, was $4.9 million. This year, 
thanks to the Congress, it's gone up from $4.9 million to $34 
million. Of the $34 million, $10 million is for outreach, which 
includes the kind of activities that you've mentioned in your 
question.
    Using the money that we have for this year, later this week 
we will be announcing a multimedia advertising campaign that we 
will begin running in every State that we sign an enforcement 
contract with. But it's a very modest program. It's going to 
average about $100,000 a State, and that's for radio ads, 
newspaper ads, billboard ads, and in-store items. With the 
money that we're requesting for new year, we can take what is 
an important, but modest program this year, and just do a much 
more effective job of reaching the clerks, reaching the store 
managers, the owners, and the public, and explaining what's in 
the rule, explaining the retailers' responsibilities--
hopefully, getting through to customers, that they understand 
what may be a minor inconvenience, if they're asked for a photo 
ID--just to make sure that they're at least 18 years old. It 
will be a very difficult decision for the agency to pick and 
choose between priorities, but we want to have a big expansion 
of what this year is an important, but modest effort in each of 
the States.
    Dr. Friedman. If I may just add one other thing, which is 
really the thing that Mr. Zeller reminds me of, $100 million is 
a substantial amount of money, and we recognize that, but it's 
important to point out that the State of California spends that 
much each year on tobacco activities, and we're asking for this 
for the entire Nation. That provides a little perspective and 
underscores how very important that is.
    Ms. Kaptur. Many Members of Congress do public service ads 
and they do programs dealing with cable. Maybe some of them 
have had you on their programs; I don't know. But as you look 
toward 1998 and 1999, there may be informational packets for 
those of us that care about this issue that might be made 
available, and we could devote some of our time to that.
    Mr. Zeller. You will see them on Friday of this week, when 
we announce the ad launch, and there will be copies coming to 
the Hill.
    Ms. Kaptur. All right, thank you.
    Dr. Friedman. Thank you for that.

                 cost benefit analysis of seafood haccp

    Ms. Kaptur. Thank you very much.
    I wanted to ask you a question on the HACCP regulations 
that deal with seafood. This is sort of a judgment question. 
Would it be fair to say that an owner of a store that sells 
fish could say that the price has gone up to the consumer 
because these regulations have been implemented? Is there any 
aspect of what is being done in the seafood inspection system 
now that would cause the price to rise to the consumer?
    Dr. Friedman. I find that a complicated question, and 
Imight call on Mr. Chesemore to please help me. I think that the HACCP 
system is a very logical and reasonable system. What causes price 
increases on the part of retailers really reflects what additional cost 
they may encounter. Is it possible for an individual to encounter 
higher costs? Certainly it's possible. Do we anticipate that these 
overall will have modest or little effect? I think that's a fairer 
statement to say.
    Ms. Kaptur. Doctor, what piece of the process would result 
in higher costs to the distributor, to the seafood operator----
    Dr. Friedman. Oh, please.
    Ms. Kaptur [continuing]. If such cost is being shifted down 
the chain?
    Mr. Schultz. What I was going to suggest is, when we do a 
regulation like this, we have to do a cost-benefit analysis. I 
don't have it all in my head, but there's a detailed analysis, 
and it's really the cost to the producer, and also the 
benefits, and we could give that to you, and I think it would 
be a much more complete answer----
    Dr. Friedman. That's right.
    Mr. Schultz [continuing]. Than we could do here.
    Dr. Friedman. As part of the final rule, that was included 
in The Federal Register.
    Ms. Kaptur. I would be very interested in that, to see 
whether there is any argument that could be made that this 
would cause prices to go up in that industry.
    [The information follows:]

[Pages 564 - 578--The official Committee record contains additional material here.]


    Ms. Kaptur. And, finally----
    Dr. Friedman. Let me just add one thing, if I may. First of 
all, consumer confidence, which is priceless, and consumers who 
know that the product that they're buying and consuming has 
extra quality, it means everything in the retail world, and so 
that's an important contribution.
    One of the members was making the point that they were 
seeing advertisements on seafood that said HACCP-inspected. 
This was an advertising advantage to say this was a quality 
product, and they were commenting on that. And I think that's a 
valid point.
    The second is that, by having the best possible processes 
in place, that you really are looking at how your whole 
operation is performing and optimizing that. Those are just two 
additional things.

                       authorization of user fees

    Ms. Kaptur. It would be nice to put that HACCP-inspected on 
fruits and vegetables.
    My final question is: Do you intend to work with the 
authorizing committees this year on the user fee issue?
    Dr. Friedman. I think I'll ask Mr. Byrd if he will please 
comment.
    Mr. Byrd. The simple answer is yes. [Laughter.]
    We are preparing legislation; the administration--the 
Department is preparing legislation now, and presenting it to 
OMB. We expect to have that out very shortly.
    Ms. Kaptur. We will only believe that availability of funds 
when we see it in this subcommittee.
    Doctor and all your associates from FDA, we want to thank 
you very much for spending time with us this afternoon. We look 
forward to seeing you again, and to making the food and drug 
supply in this Nation even safer in the years ahead. We thank 
you for your service to our country and to the people of our 
country, and to setting a higher standard for other nations in 
the world to follow as well. Thank you very much.
    Dr. Friedman. Well, thank you for the opportunity to 
address you all. Thank you.
    Ms. Kaptur. The committee is adjourned.
    [Clerk's Note.--The following questions were submitted to 
be answered for the record:]

[Pages 580 - 1004--The official Committee record contains additional material here.]








                           W I T N E S S E S

                              ----------                              
                                                                   Page
Bevill, Emory....................................................   121
Bolinger, Madge..................................................   121
Born, Brooksley..................................................   121
Burlington, Bruce................................................   513
Byrd, R.J........................................................   513
Chesemore, R.G...................................................   513
Cook, D.L........................................................     1
Donahue, James...................................................   513
Erickson, Tom....................................................   121
Ferren, Linda....................................................   121
Friedman, M.A....................................................   513
Holston, S.S.....................................................   513
Lee, Susan.......................................................   121
Levitt, J.A......................................................   513
Martin, M.P......................................................     1
Oliver, Janice...................................................   513
Phillips, John...................................................   121
Porter, M.J......................................................   513
Schultz, W.B.....................................................   513
Schwetz, Bernard.................................................   513
Sundlof, Stephen.................................................   513
Thompson, D.E....................................................   513
Williams, D.P....................................................   513
Woodcock, Janet..................................................   513
Zeller, M.R......................................................   513
Zoon, K.C........................................................   513










                               I N D E X

                              ----------                              

                       Farm Credit Administration

                                                                   Page
Agricultural Trends..............................................    21
Annual Performance Plan..........................................     2
Audit............................................................    32
Biography--Marsha Pyle Martin....................................    64
Biography--Doyle L. Cook.........................................    65
Biography--Ann Jorgensen.........................................    66
Budget Justification.............................................    78
Budget Limitation................................................     4
Budget Supplement................................................    98
Capital Adequacy and Customer Eligibility Regulations............    20
Condition of the Farm Credit System..............................     3
Credit for Cooperatives..........................................     7
Examination Issues...............................................    30
Examination Process Improvements.................................     2
Farm Credit Leasing Services Corporation.........................    59
Farm Credit System Insurance Corporation......................... 4, 56
Farm Credit System Loan Portfolio................................     7
Farm Credit System Market Share..................................     7
Farm Credit System Senior Officer Compensation...................    54
Farm Credit System Structure.....................................    28
Farmer Mac.......................................................    58
FCA Operations...................................................    25
FCA Staffing.....................................................    24
FCS Building Association.........................................    38
FCS Loan Programs................................................    63
FCS Market Share.................................................    59
Fiscal Year 1999 Budget Request..................................     3
Freedom to Farm Bill.............................................     5
Litigation Involving FCA.........................................    53
Mission of the Farm Credit Administration........................     2
National Consumer Cooperative Bank...............................    29
Office of Inspector General......................................    59
Opening Remarks..................................................     1
Regulatory Issues................................................    36
Risk Assessment..................................................33, 62
Sole Source Contracts and Consulting Services Contracts..........    39
Technical Assistance to Foreign Countries........................    21
Testimony--Marsha Pyle Martin....................................    67
Women-Owned Agricultural Enterprises.............................    21
Year 2000 Compliance.............................................     5
Year 2000 Preparedness...........................................     2
Year 2000 Technology Issues......................................    62
Young, Beginning, and Small Farmers........................6, 8, 20, 61

                  Commodity Futures Trading Commission

Advisory Committees:
    Global Markets Advisory Committee............................   240
    List of and expenses by......................................   219
Agricultural Trade Options.......................................   162
Asian Financial Crisis...........................................   250
AUDIT............................................................   175
Born, Brooksley:
    Biography....................................................   251
    Opening Statement............................................   121
    Written testimony............................................   252
Bolinger, Madge, Biography.......................................   251
Carryover Funds..................................................   157
Changes form OMB Request.........................................   157
CBT Grain Delivery Points........................................   227
Cheese Exchange..................................................   162
Contract Market Designation:
    Applications.................................................   212
    Fast Track...................................................   237
    New Approvals................................................   214
Contracts with CFTC..............................................   220
Current Services Request.........................................   225
Dairy:
    Milk Futures Contracts.......................................   134
    Pilot Program..............................................133, 234
Derivatives, Over-the-Counter:
    Derivative Policy Group......................................   158
    Regulation of Swaps..........................................   241
    SEC proposal.................................................   233
Diversity........................................................   232
Dual Trading...................................................177, 178
Electronic Filing of Financial Reports...........................   239
Enforcement Cases:
    Administrative, Final Orders.................................   145
    Injunctive...................................................   142
    Significant..................................................   137
Enforcement, Cooperative.........................................   205
Enforcement Investigations................................182, 204, 248
Firm Failures....................................................   179
Foreign Futures Exchanges:
    Transaction Fees.............................................   173
    Volume.......................................................   170
Funding and Resources:
    Agricultural Commodities, Percentage Used for................   165
    Fraud........................................................   204
    FTEs and Annual Appropriation since 1987.....................   216
    Staffing and Funding, Historical.............................   217
    Trade Practice...............................................   204
Futures Commission Merchants, Investigations of..................   182
Hedge-to-Arrive Contracts........................................   164
Inspector General:
    Investigations and Audits....................................   159
    Reports......................................................   157
International Affairs, Office of.................................   225
International Cooperation:
    Benefits of Dialogue.........................................   222
    Contracts offered in U.S.....................................   209
    Financial Information Sharing................................   207
    Foreign Assistance...........................................   203
    Formal Arrangements for Cooperation..........................   205
    Managed funds................................................   207
    Mutual Recognition...........................................   208
    Offer and Sale of Foreign Stock Index Futures in the U.S.....   209
    Program Specific.............................................   208
    Regulation...................................................   205
    Standards....................................................   246
International Organizations:
    COSRA, Council of Securities Regulation of the Americas......   235
Introducing Brokers..............................................   221
Legislation, Pending.............................................   229
National Futures Association:
    Additional Delegations.......................................   245
    Disciplinary Actions.........................................   167
    Relationship to CFTC.........................................   167
    Service Fees.................................................   167
New Hires........................................................   247
Non-Electronic Oversight.........................................   176
Penalties, Civil Monetary......................................181, 211
Proceedings, Civil and Administrative............................   210
Questions Submitted for the Record:
    Chairman Skeen...............................................   157
    Ms. DeLauro..................................................   248
    Ms. Kaptur............................................136, 141, 149
    Mr. Walsh....................................................   132
Regional Offices.................................................   170
Regulatory Reform, CFTC Initiatives:
    Audit Trail..................................................   246
    Bunched Orders...............................................   244
    Delegation to NFA............................................   245
    Electronic Communications....................................   244
    Expedited Review.............................................   243
    Futures Style Margining for Options..........................   245
    International Standards......................................   246
    Net Capital..................................................   245
    Non-Competitive, Off-Exchange Transactions...................   245
    Professional Market Participants.............................   243
    Reporting....................................................   245
    Risk Disclosure..............................................   245
Rental Payments..................................................   226
Reparations Program..............................................   231
Risk Management Education........................................   234
Securities and Exchange Commission:
    OTC Derivatives Proposal.....................................   233
    Relationship to CFTC.........................................   174
Self-Policing....................................................   180
Surveillance:
    Information System...........................................   230
    Options, Daily versus Weekly.................................   236
Travel:
    Domestic.....................................................   203
    Foreign......................................................   182
User Fees........................................................   230
Volume of Trading:
    Agricultural...............................................165, 213
    Changes 1982-1997............................................   150
    Foreign Exchange.............................................   170
Working Group on Financial Markets, President's                     178
Year 2000 Compliance                                                242

                      Food and Drug Administration

Animal Drugs and Feeds:
    Animal Drug Applications.....................................   622
    Animal Drug Availability Act--Implementation.................   554
Biographical sketches:
    Dr. Michael A. Friedman......................................   684
    Mr. Robert J. Byrd...........................................   685
    Mr. William B. Schultz.......................................   686
    Mr. Dennis P. Williams.......................................   687
Congressional Justification......................................   726
Devices and Radiological Products:
    510(k) Applications--Backlog.................................   610
    510(k) Applications on Hand..................................   649
    Disclosure Rule for Drug and Medical Device Research.........   664
    Expenditure for Medical Devices..............................   649
    Extramural Projects..........................................   608
    Mammography Quality Standards Act............................   605
    Medical Device Activities....................................   580
    Medical Device Adverse Events................................   524
    Medical Devices Program......................................   606
    Research.....................................................   610
    Medical Devices Regulatory Actions Taken.....................   648
Dr. Friedman's Opening Remarks...................................   514
Foods:
    Cider Pasteurization.........................................   682
    Consolidated Food Agency.....................................   530
    Delaney Clause--Food Additives.............................554, 657
    Duplication of Efforts--Food Safety Initiative...............   532
    Food Additive Petitions Review...............................   665
    Food Contact Substances--Approval of.........................   661
    Food Contact Substances Notification Program--Cost of........   661
    Food Contact Substances--Resource Requirements...............   662
    Food Establishments--Regulation of...........................   673
    Food Grown with Sludge--Regulation of........................   673
    Food Labeling..............................................521, 644
    Food Safety Initiative--Inspectors...........................   663
    Food Safety Research.........................................   679
    Foodborne Disease Outbreaks..................................   619
    Foodborne Illnesses--Prevention of...........................   672
    FY 1998 Reductions in Foods Program..........................   580
    FY 1998 and FY 1999 Request for Food Safety..................   537
    Effectiveness Evaluation of the Food Safety Initiative.......   671
    Guide on Microbial Food Safety Hazards.......................   663
    Hepatitis A..................................................   531
    Inspection of Imported Food Products.........................   670
    Lebeling on Bottled Water....................................   664
    Ma Huang--Dietary Supplement.................................   658
    Microbiological food Samples.................................   618
    National Shellfish Sanitation Program........................   628
    Number of Inspectors Hired for Seafood HACCP.................   556
    Nutrition Supplements--Actions on............................   612
    Safe Handling of Foods.......................................   516
    Scope of the Food Safety Problem.............................   557
    Seafood Inspections--Budget..................................   534
    Seafood HACCP--Cost Benefit Analysis.........................   563
    Seafood HACCP Implementation.................................   555
    Seafood Safety--Resources Expended...........................   627
    Seafood Illnesses--Reported..................................   629
    Serrano Ham..................................................   560
    Sewage Sludge Used as a Fertilizer...........................   559
Human Drugs and Biologics:
    AIDS Drugs Approved..........................................   629
    AIDS Resources--Five Yyear History...........................   633
    Asthma Inhalers..............................................   668
    CBER Research..............................................660, 681
    CBER Resources...............................................   660
    Cancer Therapies.............................................   539
    Cosumer-Directed Advertising of Prescription Drugs...........   676
    Disclosure Rule for Drug and Medical Device Research.........   664
    Drug Applications............................................   634
    Generic Drug Approval Times................................617, 638
    Generic Drugs Backlog......................................617, 644
    Generic Drug Approval Program--Resources for.................   618
    FDA's Defense of Generic Drugs (ANDA's)......................   668
    MedGuides in Other Languages.................................   560
    NDA Approval times...........................................   636
    NDA Backlog..................................................   643
    Oral Polio Vaccine...........................................   560
    Oral Polio Vaccine Labeling..................................   665
    Orphan Drug Products.........................................   639
    PDUFA........................................................   538
    PDUFA Balances...............................................   617
    Pediatric Drug Labeling......................................   675
    Performance Based Goals of the Original PDUFA................   588
National Center for Toxicological Research:
    National Center for Toxicological Research Resources.........   627
Other FDA Activities:
    Advisory Committees..........................................   622
    Balancing Reduction in Review Time with Continued Safety.....   678
    Border Surveillance..........................................   538
    Buildings and Facilities.....................................   650
    Contingency Fund.............................................   644
    FDA Freedom of Information Act Requests......................   650
    FDA's Health Fraud Resources.................................   654
    FDA Resources for the Past Three Years 6.....................   613
    FDA Modernization Act--Cost of Implementation................   662
    FDA Modernization Act and Premarket Notification.............   667
    FDAMA--New Goals.............................................   592
    Field Laboratory Consolidation...............................   602
    Foreign Inspections Issues...................................   518
    Foreign Inspection Programs--Resources Expended..............   655
    Health and Safety Warnings...................................   657
    Import Inspections...........................................   669
    Long-term FDA Funding........................................   666
    OASIS........................................................   606
    Office of Criminal Investigations Resources..................   655
    Registration Fees to Regulate................................   674
    Research at FDA..............................................   659
    Statement of Revenues by Fee Category........................   606
    Tampering Complaints.........................................   649
    User Fees.........................516, 579, 584, 585, 665, 674, 675
Questions Submitted for the Record:
    Chairman Skeen...............................................   580
    Mr. Kingston.................................................   657
    Mr. Latham...................................................   658
    Ms. Kaptur...................................................   659
    Mr. Fazio....................................................   662
    Mr. Serrano..................................................   672
    Ms. DeLauro..................................................   677
Statement by Michael A. Friedman, M.D., Lead Deputy Commissioner.   688
Tobacco:
    FY 1999 Tobacco Request....................................520, 526
    Attorney Fees on the Tobacco Settlement......................   537
    Authority to Regulate Tobacco................................   528
    Funding Priorities--Tobacco..................................   562
    Future Resource Requests for Tobacco.........................   534
    How High a Priority is Tobacco...............................   536
    ID Rule......................................................   527
    Tobacco Regulation as a Priority.............................   532
    Youth Tobacco Initiative...................................581, 658
    Youth Tobacco Initiative--FTE Increase.......................   583
    Youth Tobacco Prevention Initiative--Outreach................   674
    Youth Tobacco Prevention Initiative--Proposed Legislation....   677
    Youth Tobacco Prevention Initiative--Violation Rates.........   677