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



 
                 DEPARTMENTS OF COMMERCE, JUSTICE, AND
                   STATE, THE JUDICIARY, 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 THE DEPARTMENTS OF COMMERCE, JUSTICE, AND STATE, THE 
                    JUDICIARY, AND RELATED AGENCIES

                    HAROLD ROGERS, Kentucky, Chairman

JIM KOLBE, Arizona                 ALAN B. MOLLOHAN, West Virginia
CHARLES H. TAYLOR, North Carolina  DAVID E. SKAGGS, Colorado
RALPH REGULA, Ohio                 JULIAN C. DIXON, California
MICHAEL P. FORBES, New York        
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.

           Jim Kulikowski, Therese McAuliffe, Jennifer Miller,
                     Mike Ringler, and Cordia Strom,
                           Subcommittee Staff
                                ________

                                 PART 5
                                                                   Page
 Secretary of Commerce............................................   1
 Commerce Science and Technology Programs......................... 235
 United States Trade Representative............................... 389
 International Trade Administration............................... 427
 Commerce Statistical Programs.................................... 501
 National Oceanic and Atmospheric Administration.................. 579
 Bureau of Export Administration.................................. 647
 Economic Development Administration.............................. 659
 National Telecommunications and Information Administration....... 667
 International Trade Commission................................... 672
                                ________

         Printed for the use of the Committee on Appropriations
                                ________

                     U.S. GOVERNMENT PRINTING OFFICE
49-025 O                    WASHINGTON : 1998
------------------------------------------------------------------------

             For sale by the U.S. Government Printing Office            
        Superintendent of Documents, Congressional Sales Office,        
                          Washington, DC 20402                          











                       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














DEPARTMENTS OF COMMERCE, JUSTICE, AND STATE, THE JUDICIARY, AND RELATED 
                    AGENCIES APPROPRIATIONS FOR 1999

                              ----------                              

                                           Thursday, March 5, 1998.

                         DEPARTMENT OF COMMERCE

                                WITNESS

HON. WILLIAM DALEY, SECRETARY OF COMMERCE
    Mr. Rogers. We are pleased to welcome this afternoon 
William Daley, the Secretary of Commerce, who will testify on 
behalf of the programs in the 1999 budget request of the 
Commerce Department.
    Your budget request for 1999 for discretionary spending 
totals $4.893 billion, an increase of $637 million, 15 percent 
above the amount the Congress provided for 1998. A good portion 
of this requested increase, $466 million, in fact, is to ramp 
up for the 2000 census.
    With that in mind, we are pleased to have with us as a 
guest of this subcommittee Mr. Miller of Florida, who is the 
chairman of the Census Oversight Subcommittee of the House, who 
is here to listen and take notes, I am sure.
    As we continue to honor the commitment to balance the 
budget, the Subcommittee, as it has in the past, will be 
looking for you to assist us in developing priorities for the 
Commerce Department and finding ways to most efficiently 
allocate the limited resources the Subcommittee will have this 
year, and we are looking forward to working with you again this 
year, Mr. Secretary.
    At this point, we will insert your written statement in the 
record and the Department's fiscal year 1999 budget in brief 
will go in the record.
    You are welcome to make any remarks you would like in 
summary of your statement.

                  Opening Statement of Secretary Daley

    Mr. Daley. Great. Thanks very much, Mr. Chairman. As you 
have stated, we have given you a longer version of the 
statement and I have before me a statement that probably runs 
about eight or ten minutes. I would like to cut that down, Mr. 
Chairman, because I know how busy you and the Committee are and 
I appreciate the time that you, your staff and the staff of the 
other members have taken in previous meetings with me and in 
the time you have spent on helping us through this process.
    Let me just make a couple of comments. First of all, I do 
appreciate, after being here one year, the relationship which 
the Department and the Subcommittee has had. We think we have 
worked well together. We look forward to this year. This is my 
first real budget that I have put forward and, therefore, has a 
mark of mine, for good or for bad, as we go forward, and I am 
very proud of that. I am proud of the fact that many of the 
promises that we made to the Subcommittee last year in my 
testimony, we have followed through on and we have lived up to, 
whether it was the issues of the trade missions or security or 
political hirings and a few other issues. So we are extremely 
proud of that record.
    The challenges facing the Department of Commerce are 
basically in three or four different areas. One, of course, is 
the census, and we are happy to see the Congressman with us 
today. That is going to be an enormous challenge for all of us. 
It is the largest peacetime mobilization that the country does. 
It presents an enormous challenge, forgetting the controversial 
issue of sampling that hopefully we will solve within the next 
year, and tremendous management challenge for all of us and we 
look forward to that challenge and making this the most 
accurate census in the history of the United States and in a 
cost-efficient manner.
    We continue to make trade and the development of our 
economy the most important piece of the Department. I had the 
opportunity to come back from Asia ten days ago and the 
troubles in Asia obviously present new challenges for us, but 
we are prepared. The ITA is now headed by David Aaron, former 
Ambassador to the OECD, and he is doing a terrific job.
    In the area of sustainable development, NOAA and all of our 
pieces of the Department work well together and we look forward 
to a continuing strengthening of that to protect the economy in 
so many parts of our country.
    So, Mr. Chairman, I would cut short my testimony at this 
point and once again thank you for the interest and the 
enthusiasm which you have given our Department.
    [The information follows:]


[Pages 3 - 154--The official Committee record contains additional material here.]



    Mr. Rogers. Thank you, Mr. Secretary. I have to agree with 
you that we have developed, I think, a respectable and 
agreeable working relationship and I find that you have been 
cooperative and you lay things on the top of the table where we 
can all see them. We may not agree on things, but we at least 
do it in an honest and open manner, which is what I appreciate.

                       advance technology program

    As you know, the President's fiscal year 1999 budget 
assumes that the Advanced Technology Program will do $92 
million in new awards this year, fiscal year 1998, instead of 
the $82 million that we provided for in the Appropriations Act. 
Has that changed?
    Mr. Daley. No, it has not, Mr. Chairman. We will do $82 
million and that was a misstatement in the budget. We will live 
up to the agreement that was reached, and that is $82 million, 
in spite of the fact that we have carryover of about $10 
million.
    Mr. Rogers. And you are still only requesting $94 million 
in new awards for fiscal year 1999, correct?
    Mr. Daley. Yes, sir.
    Mr. Rogers. And you will not try to increase that?
    Mr. Daley. No.
    Mr. Rogers. As a result, based on my calculations, there is 
at least $22 million in excess in the ATP program in your 
budget request. Given our budget constraints, what are the 
highest priority areas that this excess could be directed 
toward?
    Mr. Daley. Let me just mention, I have been told, Mr. 
Chairman, that today we have about $13.4 million in the bank 
and about $6 million more to be gotten later. So we, at this 
point, have $13.4 million. Exactly what we would do with the 
additional funds would be determined later. I am not quite sure 
at this point what decision would be made as to where we would 
spend it.

                            decennial census

    Mr. Rogers. Well, let us get to the census, which will be 
the big bone of contention or has been. I hope we can get that 
behind us.
    Mr. Daley. The political issue of whether or not to sample 
has got to get behind us, but the challenges of the census and 
doing it are enormous and they will be with us all the way 
through the census.
    Mr. Rogers. I have some concerns about your budget request 
in light of the agreement last year for this dual track 
approach, sampling and the more traditional approach. As per 
the agreement, the 1998 Appropriations Act mandates that the 
Census Bureau devote sufficient resources in fiscal year 1999 
to ``become prepared to implement a 2000 Decennial Census 
without using statistical methods which shall result in the 
percentage of the total population being enumerated as close to 
100 percent as possible.'' How much did you request of OMB for 
planning, testing, and preparing for a full enumeration that 
does not use statistical methods and how much did OMB give you?
    Mr. Daley. We had put to them a figure of about $128 
million. After discussions and consultations with OMB, the 
Department came back to a figure of about $36 million. It is 
broken down the following ways: $4 million to complete and 
evaluate the dress rehearsal site in Columbia, South Carolina, 
in the spring of 1998 using the traditional method; about $15 
million to develop operational plans for a non-sampling 
traditional census; and about $17 million to open up 130 local 
census offices a year earlier than originally planned.
    Quite honestly, after discussions, we feel strongly that 
sampling will be upheld by the courts and will be implemented. 
It provides us, in our opinion, the most accurate and cost-
effective manner to do the census in the year 2000, and to 
expand the taxpayers' money to the level of $128 million or 
beyond. After consultations with OMB, we thought it was not the 
best way to move forward in these tight budget days.

                    omb changes to decennial budget

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

                        full enumeration census

    Mr. Rogers. And the personnel would be required to do a 
full enumeration. That is what that personnel request would 
have been for, right?
    Mr. Daley. Yes. They would have come on if we were planning 
to do the traditional census then those rather large number of 
people--I am not quite sure of the exact number--would have to 
be brought on much earlier.
    Mr. Rogers. And they denied you that, so does that mean 
that you cannot prepare for the dual track? You have got to 
only prepare for a sampling census?
    Mr. Daley. We are preparing for a dual track, also. Are we 
expending all of the sums that one would require at this point 
or at the point if we thought that the traditional census would 
be used? No. But quite frankly, it got down to a point in 
negotiations with OMB that we think that if, by chance, the 
Congress or the courts rule that we cannot use sampling and we 
have to go forward with the traditional census, then we have 
expended in the $36 million enough to have ourselves ready.
    No doubt about it, we would then have to move aggressively 
in the middle of 1999, and we all know that if we do not use 
sampling, the census would cost us, the traditional method 
would cost us, in our opinion, substantially more than the 
sampling and we would have to address that obviously in 1999 
with the Subcommittee.
    Mr. Rogers. So if the Supreme Court rules that sampling is 
unconstitutional or illegal, you will not have had sufficient 
monies with which to prepare to conduct the traditional census, 
then, minus sampling, would you?
    Mr. Daley. Well, we would have sufficient funds to do the 
minimum amount to prepare ourselves in keeping that as a viable 
option. But we would be before the Subcommittee requesting a 
substantial amount more. Exactly what that amount is, I could 
not tell you right now, Mr. Chairman. But no doubt, we would be 
back for a rather substantial amount more.
    Mr. Rogers. Can you assure me today that you could do that 
if it comes to that, that you could do the traditional census 
if the Court says you must?
    Mr. Daley. Yes. We have done it over the years. That is the 
method we have used before. Will it be as accurate and as cost 
effective? In our opinion, no, it would not. But the census 
will take place in the year 2000, whatever method we use. So I 
can assure you that it will cost us more and we will give up 
some accuracy, but we will have a census in the year 2000 based 
upon either method.
    Mr. Rogers. It looks to me like that probably what is going 
to have to take place is we are going to have to look at this 
thing again March 1, 1999, to see where the Court is and where 
the dress rehearsals indicate we should go. Do you agree with 
that?
    Mr. Daley. Well, I think we will have to look at this 
sometime very early in March in 1999. As we go through the 
dress rehearsal, much of the information that we will receive 
on what works and what does not and what changes we may want to 
make will have an impact, plus or minus, to the cost of the 
census. We will definitely be back around March 1, 1999, to 
request additional and probably rather substantial funding, 
depending on which way we go.
    Mr. Rogers. It looks like we are going to have to do a mid-
course correction in March of 1999 either up or down on 
funding, which is very rare for us, depending on which way the 
indicators indicate we should go.
    Mr. Daley. I think this is also a result, Mr. Chairman, of 
the fact that the agreement that was reached last fall called 
for this agreement between the leadership, the Congress and the 
White House in trying to address this situation in early March 
or late February of 1999. So we will have a brief period of 
some question, butit will give us time to look at the dress 
rehearsal, and look at the results. We will have the one number 
available from those dress rehearsals on December 31 and then we will 
have some time to make judgments.

                   costs for enumeration vs. sampling

    Mr. Rogers. I wish you could provide us a full and complete 
breakout of the costs to implement a full enumeration, should 
it come to that, so that we have some time to prepare, as well, 
money-wise. We need to know what you anticipate that it would 
cost to do the full enumeration, if that is the way you go, 
versus sampling.
    Mr. Daley. The full enumeration through 2000?
    Mr. Rogers. Yes.
    Mr. Daley. That is a figure that, quite honestly, will 
depend as to what sort of accuracy one wants. If we want to get 
the accuracy in our opinion that sampling gives to the process, 
then that number is one that we have been unable to get anyone 
at this point, inside or outside of the Department, to be able 
to really put a finger on and say, this is the amount that we 
estimate it would be. But we will attempt to do that for you 
and give you the variables that would impact that.
    Mr. Rogers. All right.
    Mr. Mollohan.
    Mr. Mollohan. Thank you, Mr. Chairman.
    I am pleased to welcome the distinguished Secretary of 
Commerce, Secretary Daley. Secretary Daley has had some 
impressive accomplishments in his tenure at the Department of 
Commerce. I would like to mention just a few.

                   accomplishments of secretary daley

    He has overhauled the Department's trade mission policy, 
and although we believe there is more work to be done in this 
area, he has made efforts to include more small and medium-
sized businesses the Departments trade missions, which we 
appreciate particularly. Additionally, he has been responsive 
to the concerns raised by my Republican colleagues regarding 
the ATP program and his efforts have resulted in a better, 
stronger ATP. He has worked to address the concerns of the 
Commerce Inspector General. In fact, four items out of the ten 
on the IG's top ten list when Bill Daley began as Secretary are 
no longer on the list. And finally, Secretary Daley lived up to 
his word and eliminated 100 political positions at the 
Department of Commerce.
    These are just a few of the Secretary's accomplishments and 
I commend him for his hard work and his straightforward 
approach to this job. He has dealt with tough issues head on 
and I think every member of the subcommittee appreciates that.
    All this said, the Department of Commerce's budget for 
fiscal year 1999 represents some serious challenges. The 
savings the administration claims from various budget gimmicks 
will have to be made up in this subcommittee and we will have 
to deal with such tough issues as the census and AWIPS. I have 
confidence in Secretary Daley's ability to face these 
challenges and look forward to working with him as the 
appropriations process moves forward. Finally, I appreciate his 
attitude in being candid on these issues.

                      defense economic conversion

    Mr. Secretary, last year when we were considering fast 
track legislation, there was a lot of concern from Members 
representing basic industry America, that the country's trade 
policy does not take into consideration enough the adverse 
impact on particular sectors of the economy.
    Fast track became a lightning rod, if you will, for this 
issue. There were an awful lot of members who might be inclined 
to support the administration for a lot of reasons who were not 
inclined to go along with fast track. They felt that by 
supporting fast track they would be disempowered, and voting no 
was the only leverage they had to get the administration to 
address their concerns.
    So we suggested to the administration that they, before 
they come back with another cut at fast track, that they deal 
with this issue and come forward with some proposals that would 
address, at least in part, these concerns. To this end, I note 
that you have requested some increases in the EDA budget. I 
wonder if any of those proposals are recommended in response to 
this concern, and if so, will you speak to them.

          trade adjustment assistance for impacted communities

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

                       defense conversion program

    Mr. Mollohan. Let us look at the numbers a little bit, 
because I want to sensitize you to something here. We know that 
the administration is extremely concerned with base closures 
and its defense conversion program addresses that. This 
subcommittee has provided millions and millions of dollars to 
the Defense Conversion Program, and this year you are 
requesting an additional $84.8 million.
    And you say here that you are requesting $50 million, 
almost $50 million, for the economic adjustment program, which 
is supposed to address my concerns and the concerns of my 
colleagues representing basic industry America.
    Let me point out that this economic adjustment program is 
at least partially offset by proposed cuts to the public works 
grant program. In other words, you are requesting an amount for 
public works grants which is $17.8 million less than last year. 
At the same time, you are requesting a $50 million increase for 
the economic adjustment initiative. It is not lost on this 
committee, on either side, that the public works grant programs 
are very important to the same areas which will benefit from 
increases to economic adjustment. The areas that benefit from 
the public works grant program are the same areas we are 
talking about, the basic and the traditional economy sectors of 
this country.
    So what you are doing here is cutting that program, in 
order to fund this economic adjustment program. That is just a 
statement of fact. I point it out to you. Do you have a 
response?
    Mr. Daley. The one response I would have, Congressman, is 
the fact that the amount that we are requesting for the public 
works portion is the same amount that the President has 
requested the last three years. So we have not reduced what we 
have asked for, you are right. Congress enacted $17.8 million 
more than what we had requested.
    Mr. Mollohan. We are a little more generous than the 
President. [Laughter.]
    And OMB is less sympathetic to our concerns, so you have to 
be in there fighting for us a little bit with OMB if you want 
this program to mean anything.
    Mr. Daley. Well, obviously, there are many funds in the new 
programs which will go to many of the communities affected by 
trade dislocation, which would be similar to some of the public 
works projects that were enacted last year.
    Mr. Mollohan. Let me tell you, talking about public works, 
if you are going to help these communities that are traditional 
economies, if that means something to you, you have got to do 
the exact same things that you are doing with the base closure 
communities. You are diversifying. You are providing, really, 
programs. You are going in there and you are talking about 
economic diversification. And they start from a base in terms 
of the composition of the people in the community. They start 
at a level that probably makes it easier for them to do that. 
There are probably better people resources that appreciate 
different sectors of the economy.
    But if you are going to address those same concerns, if you 
are going to achieve the same kind of systemic economic reform 
and really create diversification within the economies, you are 
going to have to do the same things that you are doing in the 
defense conversion communities. And you are going to have to 
include advice, counsel, and those kind of programs that 
probably you do not need in the defense conversion communities.
    How much longer are we going to be putting a 
disproportionate--compared to the public works and to this 
economic adjustment program--amount of money into the defense 
conversion program? There is another $84 million. This goes 
into California, it goes into all of those--and I am all for 
doing all that. That is terrific. I mean, I voted for it last 
year. But just in terms of the scale of the program, it 
reflects that you are not concerned as much with the economic 
dislocation that is caused by trade as you reflect technology. 
But right now, it is trade, and we have talked about the steel 
industry and it is not technology, it is trade, and it is going 
to be, with the Asian financial crisis, it is going to be more.
    How much longer are you going to continue to request this 
amount of money for defense conversion and a disproportionately 
low amount for economic adjustment?
    Mr. Daley. My understanding, Congressman, is that two-
thirds of the base closures have been accomplished. So over the 
next three years, these funds will continue to diminish. There 
has been speculation of another round of base closures at some 
point. I have heard Secretary Cohen speak of this. That is 
obviously a whole different area that you will have to deal 
with. But as of right now, my understanding is that we only 
have a third to go, and so over the next couple of years, 
hopefully, that amount will continue to diminish.
    Mr. Mollohan. Thank you, Mr. Chairman.
    Mr. Rogers. Mr. Skaggs.

                      encryption standards policy

    Mr. Skaggs. Thank you, Mr. Chairman.
    Good afternoon, Mr. Secretary. I have inquired this morning 
of the FBI Director and last week of the Attorney General and 
now will ask you how things are going in the development of a 
single administration policy, as opposed to several 
administration policies, on encryption.
    Mr. Daley. Well, they are obviously not going as well as we 
had hoped. We are intensely, involved in trying to come up with 
a policy. There are real concerns on all sides of this issue. 
We hear constantly from U.S. industry that their opinion is 
that they are being disadvantaged at this point and there is 
plenty of evidence that they are and that the technologies 
which our companies have developed and have been very 
successful at, are being challenged by competitors in other 
parts of the world.
    So from the Commerce Department's perspective, it is 
extremely important that we move forward. We have spent a lot 
of time in trying to deal with industry to get them to help us 
and to help get law enforcement better equipped to deal with 
these new technologies. I am hopeful that by sometime late in 
the spring we will have developed such a policy. But it is very 
difficult, as you know.
    Mr. Skaggs. Mr. Chairman, I might note for the record that 
after this morning's hearing, one of Director Freeh's 
assistants followed me out into the hallway in order to clarify 
the Director's comment about his having suspended temporarily, 
as opposed to having changed, his position with regard to the 
need for some domestic access provision in our encryption 
policy. He wanted to make sure we did not misunderstand where 
the FBI was on that.
    Mr. Daley. If I could add one point, Congressman, we have 
over the last couple of days strongly encouraged that, and are 
in the process of putting together industry leaders along with 
law enforcement to get an honest and very complete dialogue 
going between the two of them. They seem to have been off in 
different corners of a room and we are trying very strongly to 
bring them all together over the next couple of months.
    Mr. Skaggs. Do you or your people have any estimate of what 
we are losing in terms of market share in this area while our 
encryption efforts are in play?
    Mr. Daley. No, we do not, Congressman, but I think from a 
lot of anecdotal information, there is no doubt that our 
competitors, and specifically Germany and some other European 
countries, are moving rather rapidly. At the same time, the 
Under Secretary for International Trade, David Aaron, who was 
Ambassador to the OECD, has been the ambassador for the 
President in dealing with other countries and in trying to work 
a settlement on this issue so that we can get some cooperation 
with other countries. He has pointed out repeatedly the same 
sort of concerns that our lawenforcement and our national 
security people have had are shared in other countries. So this is a 
worldwide problem right now, but it is one that we are sincere about 
our attempt to try to get it to some resolution over the next couple of 
months.
    Mr. Skaggs. I am glad you mentioned the Ambassador's work, 
and if I could request for the record either your statement or 
his on the current status of those negotiations, particularly 
with the OECD countries, about some kind of consensus approach 
to the issue.
    Mr. Daley. We will provide that.
    [The information follows:]


[Pages 163 - 209--The official Committee record contains additional material here.]



                       international trade trends

    Mr. Skaggs. I would also like to discuss just a little bit 
of the Department's work as it affects the trade issue for the 
United States, maybe a little different aspect of it than Mr. 
Mollohan was discussing with you. It seems to me that one of 
the other things that made the fast track debate and trade 
policy debate less than what they might have been is the 
somewhat shaky status of the database that we have about 
exactly what the pluses and minuses are to the American economy 
of trade.
    I am just wondering what you may be proposing in your 
budget or what we might force upon you to improve your budget 
that would give us a better handle. We hear much more of the 
compelling anecdotes on the downside of the impacts of trade. 
The upside data tends to be more diffused and less able to be 
pointed to in an equally compelling fashion. Maybe it is not 
there, but I think we need more factual grounding for this 
debate and hopefully your Department is the place where that 
can happen.
    Mr. Daley. I would agree with you, Congressman, and let me 
see if one of my colleagues has some information with them that 
would address this specific concern of yours as far as the 
breadth of our information that we give on trade numbers, and I 
will get back to you on that.
    Mr. Skaggs. I would particularly appreciate your submission 
for the record on that, some estimation of what we might gain 
for additional increments of funding and what we can buy in 
terms of better trade impact data on the U.S. economy for an 
additional $10 million or $20 million, so we can have some 
sense of an informed policy judgment here when we put the 
budget together.
    [The information follows:]

                            Trade Statistics

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

    Mr. Daley. One area that we do know has been difficult to 
get a real handle on as far as numbers is in the service 
sector. It is very difficult because today's society is growing 
tremendously. So we are trying to review exactly how to get a 
better handle on exactly what services are being performed by 
U.S. businesses around the world and that is very difficult 
right now.
    Mr. Skaggs. I might just observe, Mr. Chairman, I am not 
sure what the right amount is, but I think making some 
additional investment in this area is likely to be very well 
justified in terms of the return that we will get for it in a 
better informed and better grounded trade policy.
    Finally, the uptick in your request for NOAA, as I 
understand it, has to do a lot with satellite procurement and I 
wondered if you could brief us a little bit on that.
    Mr. Daley. Hold on a minute, Congressman.
    Mr. Skaggs. Are we going to have a separate NOAA hearing, 
Mr. Chairman?
    Mr. Rogers. Yes.
    Mr. Skaggs. Why do we not hold, then, until we get to that. 
We can deal with that at that time, I think.

    Public Telecommunications and Facilities Planning Program (PTFP)

    I do not believe we are going to have an NTIA hearing, so I 
did want to ask you to sketch out for us what you think will be 
the consequences of, as I understand your budget, essentially 
eliminating funding for the traditional PTFP grants under NTIA.
    Mr. Daley. Now, last year, as you know, Congressman, we did 
not seek any funding for PTFP, and that was based upon our 
belief that since 95 percent of the public had already been 
reached by public broadcasting, that there was no need to do 
that.
    In 1997, the FCC mandated that all public stations be able 
to transmit in digital by 2003. Recognizing that, we 
haverequested in the President's budget over five years $450 million 
for this conversion, including $65 million in Fiscal Year 1999 for the 
PTFP and the Corporation for Public Broadcasting programs. Our request 
for digital conversion is $15 million in 1999, but this will not be 
limited to television stations' conversion costs but can also be used 
for funding equipment replacements, both for public television and also 
radio stations.
    So we obviously recognize the strong support for public 
broadcasting and public television that has been stated by the 
Congress and we would look forward to working with you and 
other Members of the Committee, the Subcommittee, and the 
Congress to address the future needs of the public 
broadcasters.
    Mr. Skaggs. Thank you, Mr. Chairman.
    Mr. Rogers. Mr. Latham.
    Mr. Latham. Thank you, Mr. Chairman.
    I guess I had some questions kind of in the same vein of 
thought there. First of all, I want to welcome you. It is good 
to see you again.
    Mr. Daley. Thanks.
    Mr. Latham. At the funding level for the PTFP, how do you 
see the program assisting radio stations, and to a lesser 
degree, television stations that continue to broadcast in 
analog during the transition and how do you see it assisting 
the purchase of digital TV equipment with other costs rising 
from TV conversion, such as tower dislocation?
    Mr. Daley. Let me, if I could, Congressman, ask Larry 
Irving as head of the NTIA if he could comment on that. Larry?
    Mr. Irving. Congressman, Mr. Chairman, it is our 
understanding with regard to radio stations, they would still 
continue to be eligible while they are transmitting in analog. 
With regard to television stations, because of the urgent need 
of public television stations to move to a digital format, our 
priority would be for digital conversion equipment. But under 
the new OMB administration proposal with regard to PTFP, we 
would still make funding available to stations, even radio 
stations still providing analog signals.
    Mr. Latham. Is this the way, if OMB was not calling the 
shots, is this the way you would break it down? [Laughter.]
    Mr. Irving. Well, we work with OMB.
    Mr. Latham. I have heard that before. I do not think that 
was my question. [Laughter.]
    Mr. Irving. We will----
    Mr. Latham. You can turn that one back to the Secretary.
    Mr. Irving. I appreciate that. [Laughter.]
    Mr. Daley. That is after consultation with OMB, 
Congressman. So how we would break it out left, to our own 
devices, we would probably want to keep to ourselves.

                            asia initiative

    Mr. Latham. You recently returned from a trip to Asia and 
announced a new Asia initiative. Would you tell me more about 
the program and which agencies within the Department that would 
be involved?
    Mr. Daley. Obviously, these are difficult times in Asia for 
the Asian economies and the Asian people and it has the 
potential to have a serious impact on our export numbers and 
import figures, which will rise later this year.
    Three things that we attempted to do on the trip were one, 
to reinforce the view that not only are these difficult times 
in the region, but that we must, in the ITA and the Department 
of Commerce, stay extremely involved on behalf of U.S. 
businesses throughout Asia. So I have asked Under Secretary 
David Aaron to lead a trade mission of U.S. businesses to China 
specifically, and possibly in other parts of Asia, later this 
Spring to try to look for further opportunities for U.S. 
businesses to expand.
    Two, we are having a comprehensive reporting system put 
together in our commercial units by our commercial service 
people throughout Asia to assemble market information. This 
information is to be made available to companies on a very 
rapid basis and is being constantly updated during this crisis. 
We will try to give them the most up-to-date information to 
help them make judgments over the next number of months. It was 
extremely important during my visit. We spent a lot of time 
with U.S. company representatives in Asia and they were very 
pleased with that effort.
    We are also asking the Trade Promotion Coordinating 
Committee on Monday to discuss a report which we prepared on 
the trade implications of this and what further recommendations 
they may make regarding trade promotion activities. Those 
include finance initiatives which may be increased. Export-
Import has been very active in putting together a package for 
U.S. businesses, I think about $750 million as part of the G7 
initiative two weeks ago in London. So we think that is an 
important way to help our companies.
    Third, we are doing a nationwide series of conferences and 
seminars for businesses to provide them up-to-date information 
on what exactly is going on in Asia and how we can help them 
arrange financing to keep their customers and otherwise deal 
with this difficult situation.
    Fourth, we will be establishing within the Trade 
Information Center an 800 number, which will provide special 
information on what is going on in Asia, and specify what 
programs we in the Department may have and other agencies may 
have as part of the TPCC so that companies can call in. We will 
hopefully make ourselves more available and have more rapid and 
current information than they are able to get either from any 
other Federal agency or from any business sources. So we 
understand the importance of Asia to our exports and to our 
economy and we are putting a lot of emphasis into what we need 
to do to help U.S. businesses in Asia during this crisis.

                             Trade Missions

    Mr. Latham. On the trade mission to China, and you, I am 
sure, may be somewhat aware that Iowa is a very agricultural 
State and has tremendous interest as far as exports, on the 
trade mission, is that going to include any kind of 
agricultural commodity interests or is this----
    Mr. Daley. Traditionally, I believe that the Commerce 
Department has not included on our trade missions major 
agricultural interests. The Department of Agriculture does 
their own trade missions and they do a lot of promotion 
activities, and that has been one area that we have not brought 
into the trade missions in an active way. We picked different 
sectors for each mission. Whether we will on that, I will 
consult with the Under Secretary.
    Mr. Latham. Do you think that is, I would not say 
counterproductive, I guess, but as efficient a method as 
possible? Should we not be coordinating with USDA and with the 
Commerce Department? I mean, we are all in----
    Mr. Daley. We are trying to, and we are using the TPCCto 
coordinate much better. One of the things that I have asked David Aaron 
to do is exactly what you are suggesting, and that is to have a 
coordinated effort of trade missions among all the participants of the 
TPCC.
    Generally, what we do, when I am going to do a trade 
mission, is look at what sectors are really of immediate 
concern to U.S. businesses, and what sectors are important with 
the country we are visiting. There are plenty of times that I 
will raise agriculture issues before my counterparts. 
Generally, they are not the agriculture ministers. But I have 
met with some of them just to raise a specific issue and 
advocate at times on behalf of the U.S. agriculture interests. 
But a better coordinating job is, obviously, possible.
    Mr. Latham. You would think that a lot of businesses, if 
they are in the restaurant business or some kind of 
manufacturing, food stuffs, so maybe their overall business 
would be with you but their supply would come from, say, 
agricultural exports, you would think there would be some. 
There should be some coordination, you would think. I mean, if 
you do not have a reliable source of the products to begin 
with, it is hard to manufacture.
    Mr. Daley. I think I will take your comment that there 
needs to be better cooperation and we will try to do that 
through the TPCC and other entities.
    Mr. Latham. Are you going to talk about the census more?
    Mr. Rogers. Yes.
    Mr. Latham. Thank you.
    Mr. Rogers. We already have and we shall again.
    Mr. Latham. Good.
    Mr. Rogers. Back briefly to the census, and before we do 
that, let me say this. I hope we can be out of here no later 
than 3:15. I know the Secretary has pressing matters and I 
think all Members do as well. So if that is agreeable, we will 
shoot toward that goal.
    Mr. Daley. That is agreeable with me. [Laughter.]
    Mr. Rogers. With respect to your census plan, under the 
agreement, the Census Bureau is supposed to be developing a 
plan to be ready to implement either a sample or non-sample 
census. The question is, what are the detailed plans and do 
they work.

            Risks Associated with Plans for a Sampled Census

    With respect to your plan, with all due respect to you, it 
is a mess. It is too complex, it is untested, and likely cannot 
be executed in the time that you assume without huge cost 
overruns and/or quality being degraded. In fact, both GAO and 
the Inspector General of the Department continue to raise 
serious questions about those issues and they question whether 
the Bureau could even pull off its own plan, even if Congress 
agrees to it.
    In fact, on December 30, the Commerce Inspector General 
issued a report to the Senate Commerce Committee with very 
disturbing conclusions. Basically, the IG found that every 
major component of the census' own plan is at risk, either for 
cost growth and/or quality problems, and mostly due to the fact 
that, one, the Bureau has not made major decisions on design; 
two, plans they did have, such as address list development, are 
not working; and the plan has such a tight time schedule that 
the plan may not be executable without major cost growth and/or 
degradation in quality.
    The IG found, one, the census' own design is risky.
    Two, there is not sufficient time for the Bureau to plan 
and implement their plan. I am quoting, ``The Bureau's 
fundamental problem is that it simply may not have enough time 
to plan and implement a design that achieves its dual goals of 
containing costs and increasing accuracy.''
    Three, the lack of time is caused by the Bureau's own 
indecision and lack of progress.
    And four, the method being used to statistically adjust the 
census numbers is rife with the potential for error. The 
methodology is, and I am quoting the IG, ``long, complex, and 
operating under a tight schedule, so there will be many 
opportunities for operational and statistical errors.''
    None of those are very ringing endorsements for that plan, 
and I might point out that the IG earlier last year had said 
sampling, he thought, was a good thing. He is saying now that 
your plan is really very, very risky and probably cannot be 
carried out.
    At the same time, you are only now preparing a contingency 
plan for a full enumeration, despite the fact that we have 
directed that for the last three years.
    Finally, given that the Bureau's own plan has so many 
problems, the cost estimate of $4 billion to conduct a census 
cannot possibly be holding true because costs are going up. In 
fact, your own budget asks for $109 million more than you had 
planned to fix problems with address list development. So how 
can the $4 billion estimate remain unchanged?
    I wanted to know, can you honestly tell us that this plan 
can be implemented successfully and that the IG's concerns are 
misplaced?
    Mr. Daley. Let me respond, Mr. Chairman, in this manner. 
Number one, we welcome the scrutiny of the IG and the GAO in 
this endeavor. We think we have had a good relationship with 
both entities. We appreciate the interest which they have taken 
in the census.
    We do not by any stretch underestimate the magnitude and 
the complexity of the challenge before us to do this census. It 
is an extremely complex endeavor that gets more difficult every 
ten years. We are talking about accounting for almost a quarter 
of a billion people in a very short period and a people who no 
longer respond to mail as they used to, no longer care to be 
contacted by government as much as they used to.
    On top of that, we are, as each census does, testing new 
technologies and try to do it differently and better than we 
did the last time. This is not a static process. It is one that 
moves along and is very difficult. We could not put a plan 
together in 1997 and not have it being continually and 
continuously reviewed and improved upon.
    You mentioned the one item of the mailing list and our 
thoughts as to how that would work and how successful that 
would be. Two years ago or three years ago when the idea was 
developed, it did not hold up because of the scrutiny we gave 
it.

                      Plan for Actual Enumeration

    Mr. Rogers. The question is, do you have a plan for an 
actual enumeration, ready in case you have to have it?
    Mr. Daley. Well, we have done that forever, so we know how 
to do that. Would we be prepared to do it better than we did in 
1990? Yes, we would. There is no doubt that we know how to do 
that. Will it be as accurate as we believe sampling would be? 
No. But we have proven we can do those and we would do it once 
again.
    Mr. Rogers. We have never seen your plan. We have paidfor 
it and we have not seen it. We are two years out. We are running out of 
time. We have not seen your plan to actually enumerate. You have a 
plan. We want to see it. If you do not have a plan, we have already 
paid for it. Where is it?
    Mr. Daley. Our plan, the administration's plan, is to 
provide for sampling. That is the plan we are developing.
    Mr. Rogers. We paid you to develop an enumeration plan in 
case sampling is ruled out of order by the courts. Now, you say 
you can do it if you have to, that you have got a plan. We want 
to see your plan.
    Mr. Daley. Mr. Chairman, let me just say the plan of the 
census overall, putting sampling and the question of the 
traditional census method on the side for a moment, is one that 
is being worked on as we go through this process. The dress 
rehearsals will hopefully give us greater information as to 
what has worked, what has not, and then how to proceed into 
1999 as we finalize our plans for the 2000 Census.
    Mr. Rogers. I have a simple question. Do you have an actual 
enumeration plan in case sampling is ruled unconstitutional? 
Now, I know you are going to do a dress rehearsal. That is for 
sampling. I am talking about, do you have a plan to take the 
census by actual count in case the court says you cannot 
sample?
    Mr. Daley. We could go back to the 1990 plan and improve 
it.
    Mr. Rogers. You do not have a plan?
    Mr. Daley. The Census Bureau has the plan from 1990, which 
was a traditional method of carrying out the census.
    Mr. Rogers. Which was a louse. We are not going to do 1990 
over again, I guarantee that.
    Mr. Daley. I hope not.
    Mr. Rogers. Because it was a mess from day one, and I was 
here at the time and it was our administration that did it and 
they screwed it up. We are not going to do that again. Now, 
have you got a plan to actually count in case sampling is ruled 
out of order by the courts?
    Mr. Daley. There is not a plan right now that says to you, 
here is a document that gives you the exact costs and the exact 
details of the plan that would take place in 2000.
    Mr. Rogers. We paid for that and I want that plan 
forthwith. Now, you say that you can come up with something at 
the last second in case sampling is ruled out of order in 
March. I am saying to you, I want to see that plan now. We paid 
for it. What has happened to the money?
    Mr. Daley. Let me say, Mr. Chairman, that the plan for the 
census in 2000 is what is being worked and is being worked on 
through the dress rehearsals. We have not laid out a plan two 
years in advance and said this is it and it is not going to 
change. These things are works in progress. We do believe that 
sampling is going to be the method to move forward on. The 
Congress has not given us the money to lay out for either plan 
all the way through with exact costs through the year 2000.

           implementation plan for a full enumeration census

    Mr. Rogers. We gave you $15 million for this year 
specifically to prepare the enumeration plan and I want to know 
when we are going to get it. We paid for it. We bought it. It 
is ours. We want it.
    Mr. Daley. As I understand it, the $15 million was given in 
November to develop and work on pieces of a traditional census 
method.
    Mr. Rogers. I have been hammering the Commerce Department 
ever since the last census. Develop a plan for 2000. For the 
last three years, I have said, give us your plan. Last year, we 
gave you $15 million. Give us your plan. And here we are today, 
two years out, ready for the dress rehearsal, no plan. I want 
the plan forthwith. We paid for it. If you cannot do it, we 
will find somebody that will.
    Mr. Secretary, how can I be more plain to you? I want to 
work with you. We have worked with you in the past. I will 
continue to work with you. But when we pay for something, you 
have to understand, it is the Congress that rules. It is not 
the Executive Branch. The people have spoken on this question. 
They want their plan that passed the Congress, signed by the 
President. Where is our plan?
    Mr. Daley. Mr. Chairman, if I was to give you a plan today 
for something that is going to take place in two years, I would 
assume one would not expect it to be as accurate a plan as we 
would get after we conducted a dress rehearsal.
    Mr. Rogers. I understand dress rehearsals. The dress 
rehearsal is going to try out the plan, including sampling, and 
that is fine. I am just saying to you that I am unwilling to 
sit here and take your assurance that if sampling is ruled 
unconstitutional, that at the last second you will come up with 
the plan to count by actual enumeration. I want to see it up 
front. We have been asking for this for ten years. We have been 
paying for it for the last several, and you are here at the 
last second saying it does not exist. Why not?
    Mr. Daley. Well, the bulk of what we are doing in 
preparation for 2000 is done with whatever method is used, 
between sampling or traditional.
    Mr. Rogers. Give me the plan, then. It sounds like you have 
got a plan. We just want to see it, for a full enumeration and/
or sampling. It is not a complicated matter. I mean, you are 
going to actually, by mail, are you not, going to send out 
questionnaires? Then you are going to try to follow up those 
that do not answer, and you are going to follow up again. Then 
you are going to do, as you suggest, sampling in the final 
analysis and so forth. I know it exists out there. Why can we 
not see it?
    Mr. Daley. Excuse me, Mr. Chairman. Mr. Chairman, we will 
continue to work with you to develop this plan and provide you 
all the information that you may need.
    Mr. Rogers. I want the copy of the plan. I do not want to 
work with you on developing a plan. I want your plan. I want to 
be nice to you. I want to be agreeable. I want to be 
forthcoming. But I want your plan.
    Mr. Daley. We will provide you the assurance that the 
census that will be taken in 2000 will be the most accurate and 
most effective, and that plan as it is developed will be given 
to you and your staff.
    Mr. Rogers. When will we get it?
    Mr. Daley. Well, if you are looking for a document today 
that says this is A to Z in the census and how it is going to 
operate in the year 2000 we cannot provide that at this time.
    Mr. Rogers. Yes. That is what I paid for.
    Mr. Daley. That is not available.
    Mr. Rogers. When is it going to be available? We paid for 
it.
    Mr. Daley. I will give you a time on when that will be 
available and a response, if you would like a further response 
in writing, shortly after this hearing.
    Mr. Rogers. Well, the fiscal year is up on September 30 and 
your dress rehearsals start next month. Surely you have a plan. 
Surely you have a timetable. You know what you are doing, I 
hope. So is there some scheme that you are following in the 
sampling dress rehearsals next month and the like?
    Mr. Daley. We can lay out to you and to your staff the 
dress rehearsal plans and how they are going to proceed and 
what the entire operation, as we have put it forward, is going 
to operate in the three locations.
    Mr. Rogers. You had better have a plan for actual 
enumeration that you have in place now in the event you have to 
do an actual enumeration. Now, if you do not have a plan, then 
we paid $15 million for nothing and you will have been derelict 
in your duties. If you have got a plan, you had better deliver 
it forthwith. Now, where are we?
    Mr. Daley. If you are saying we gave you $15 million in 
November and we want A to Z in a plan for the total 
enumeration, traditional census for the year 2000 and we, 
therefore, were expecting a package of a plan to be given to 
you, that is not----
    Mr. Rogers. We have been giving you money for the last 
several years. I mean, we started giving you decennial 2000 
census monies in 1993, I guess, to develop a plan, and here we 
are and you cannot tell us if there is a plan or when you are 
going to get it to us. I just find that to be absolutely 
incredible. Now, when can we get your plan? I know you have got 
one.
    Mr. Daley. We will give you the information that you are 
requesting and what the other committees who are dealing with 
the census will request as to where we are at on our process 
and we will move forward through the dress rehearsal and then 
prepare ourselves for the 2000 census. We can obviously lay out 
what was done in 1990.
    Mr. Rogers. Let me get this straight. Your plan is to 
repeat the 1990 effort?
    Mr. Daley. It is not to repeat the results of the 1990 
effort, for sure. The basics of doing a census and accounting 
for people are the same. We have to reach the people by mail 
and we have to visit their homes. The basics are there. The 
cost of this census and the program would primarily be the 
same, but we have looked at improvements that have to take 
place, whether it is spending $100 million in advertising to 
affect people's awareness of the census coming about. So we 
have tried to look at the 1990 census and improve upon it, but 
at the same time, understand that the basics of doing a census 
probably remain the same no matter when they are done.
    Mr. Rogers. We want your plans by April 15. When we recess 
this hearing, we are going to recess until April 15 and we will 
ask you to come back and bring your plan. If you have sent the 
plan over, then you do not need to come back, but I am not 
going to turn loose of this. I want your plan. I want to know 
what you are going to do in the event the court says you cannot 
sample. I think you should be prepared for that. The court very 
well may--I think they will--rule that way. You obviously 
disagree, but we have to be prepared for both and I do not 
think you are prepared for a full enumeration, and if you are, 
I want to see your plan. If you are not, I want you to get a 
plan because we are not going to turn loose of you until those 
things are done.
    Now, AWIPS, another fun subject. [Laughter.]

         advanced weather interactive processing system (awips)

    I cannot believe it. Here we are again. We have to talk 
about the National Weather Service's AWIPS program. We have 
grappled with problems in this program for years. We were told 
they were solved, but they are not. We have had monthly 
assurances for the past year by the National Weather Service, 
NOAA, and the Department that the program was on schedule and 
on budget. We now learn that this is not the case. How can this 
happen? Have we been misled by somebody or where are we, Mr. 
Secretary?
    Mr. Daley. Well, Mr. Chairman, I agree with you. I think we 
may have both been misled last year. We have had significant 
management failure in the AWIPS program and I have been as 
surprised as you and others in learning some of the depth of 
those failures. Our program managers were more focused on near-
term issues than they were about the realistic estimates of 
what may be the actual cost. We brought in an outside analyst 
to determine whether we could live up to the certification 
which was required under last year's appropriations.
    As you may know, the Director of the Weather Service was 
changed. General Kelly just arrived last week as the new 
Director of the Weather Service. He has taken charge of not 
only the Weather Service but this issue specifically and we 
will be making continuing management changes to get control of 
the situation.
    He is going to give me very shortly, and we will transmit 
immediately to you, a list of options if we cannot meet the 
target of $550 million. If we do meet the target of $550 
million, what does that mean, if anything, in the diminution of 
the actual plan that was laid out? This has been long. It has 
been a year for me, seemingly much longer than a year process 
in dealing with AWIPS, and for you, much longer. There is no 
doubt that there has been a failure here and it is not 
something that will continue.
    Mr. Rogers. It has been seven years. It has been seven 
years. We have been misled all the way. We all had an agreement 
last year to cap this program at $550 million and we were told 
it could be done for that. I am just saying to you now, that is 
the cap and if it takes more to do a full AWIPS, and we want a 
full AWIPS, as was agreed, then somebody has got to come up 
with the money out of their budget. I do not know how you are 
going to deal with that, but we have already said $550 million 
is it.
    Mr. Daley. Well, that is what we are dealing with right 
now. My discussions with General Kelly would be to see where we 
are actually at and what options there are to stay at the $550 
million or go beyond, if we can. The fact of the matter is, I 
gave the assurance also last year, shortly after I was here, 
that the $550 million was a number that we could meet and I 
have been terribly disappointed that that is not the case.
    Mr. Rogers. You will get back with us?
    Mr. Daley. Yes, sir.
    Mr. Rogers. Mr. Mollohan.
    Mr. Mollohan. Thank you, Mr. Chairman.
    Mr. Secretary, with regard to this issue, you finally got 
to the one word that Ithink perhaps is the answer when you said 
this is a process. Well, indeed, is that not the answer to the 
chairman's questions, that this is a process, not an event, that you 
have a base procedure for doing a traditional sampling and you have 
identified all kinds of concerns associated with the 1990 census, 
addresses, recontacting, double mailings.

                   issues concerning the 2000 census

    You have addressed all these concerns that the IG 
identified as risks and you are working on those risks, but the 
base process is a model established by previous censuses. What 
you are trying to do is improve on those, in order to make the 
2000 census far superior to the 1990 census if you do have to 
proceed with what we are calling a traditional census. The 
process of looking at the elements of that model is just that, 
a process, and that is what you are looking at. Is the answer 
to that yes or no or sort of?
    Mr. Daley. Yes, that is basically what we are doing. We are 
not scrapping all of what has been done in the past. The census 
is not just 1990 but beyond that and starting all anew. So it 
is a process that very much is in the works.
    Mr. Mollohan. And is not a part of the process of 
addressing those, what the IG identifies as risks, going 
through these two test sites, the dress----
    Mr. Daley. The dress rehearsals, three of them. There are 
three.
    Mr. Mollohan. Part of the answers to these questions and 
developing protocols and processes and procedures will be 
answered in these dress rehearsals. Is that correct or not 
correct?
    Mr. Daley. That is correct. We would hope that we would 
learn quite a bit from the dress rehearsals to improve what we 
may have thought was the best way to conduct these.
    Mr. Mollohan. Do the dress rehearsals include traditional 
sampling issues?
    Mr. Daley. Yes.
    Mr. Mollohan. Okay. So you are not going through it just to 
spend the money. You are going through it to learn something, 
are you not?
    Mr. Daley. Yes, sir.
    Mr. Mollohan. When are the dress rehearsals finished?
    Mr. Daley. Well, the dress rehearsals take place beginning 
the 18th of April. The actual number that we will have to 
present and all of the data out of those will be at the end of 
the year, which would be duplicative of the 2000 period.
    Mr. Mollohan. So I think you need to be clear about what 
you can get the chairman on the date he has given you, April 
the----
    Mr. Daley. Fifteenth.
    Mr. Mollohan [continuing]. The 15th. You are going to be 
learning answers to the questions you have to address the 
functions in this model as time goes on. The dress rehearsals 
will address a number of them and hopefully give you some 
answers and allow you to adjust the methods that will be a part 
of tweaking the model, if you will, is that correct?
    Mr. Daley. That is correct.
    Mr. Mollohan. I mean, really, is that correct?
    Mr. Daley. Yes, it really is. The bottom line is to give 
him a plan that is not going to be changed or modified or 
developed as we go forward would not probably be possible.
    Mr. Mollohan. Because this is a process.
    Mr. Rogers. Will you yield on that?
    Mr. Mollohan. Yes, sir.
    Mr. Rogers. What we are looking for is your base plan for 
an actual enumeration. I know you are going to tweak it with 
the dress rehearsals. That is what they are for. But we do not 
even have your basic plan of what you basically intend to do, 
elementary things to start out with. We have nothing. If what 
you are going to give us is 1990, I am going to throw it back 
at you. I want to see it. I want to see your basic plan that 
you are going to work from. I understand you may change as you 
go along, but we want the starting plan. Thank you.
    Mr. Mollohan. Of course, Mr. Chairman.
    Also, we have a trigger here, do we not, this Supreme Court 
decision, which we hope will be timely, and that will, as I 
look at it, determine whether sampling will be allowed to be 
carried forward or not allowed to be carried forward. So if the 
Supreme Court decision comes down and says, you cannot do 
sampling. That answers the question, does it not? If it comes 
down and says, you can do sampling, then that answers the 
question likewise and you will move forward with the sampling. 
And all of the results--is that the way you understand the 
agreement?
    Mr. Daley. That is the way we would hope. Obviously, if the 
Court comes down and rules that it is unconstitutional, then 
one could not proceed.
    Mr. Mollohan. If the Court comes down and says it is 
constitutional, as I understand the agreement with the 
majority, then you would move forward with sampling.
    Mr. Daley. Our decision is to move forward with sampling 
unless we are told by the Court that it is unconstitutional.
    Mr. Mollohan. Right. Now, this March 1999 date, that is the 
date on which you expect to have all the results from the dress 
rehearsals in and be able to have a full understanding of what 
your resource needs are going to be to carry forward, with 
sampling or a traditional method, is that correct?
    Mr. Daley. We would have the results from the dress 
rehearsals much earlier than that. We should have them in very 
early January. The agreement that was reached in the fall was 
for a five-month period in which a determination could be made 
as to how to move forward and which method to use if the Court 
did not rule and make a clear decision.
    Mr. Mollohan. That is not the way I understand it. They are 
saying, if the sampling is okay, you go forward with it, but 
maybe there is a detailed agreement that I do not appreciate. 
But nevertheless, it is that date which you will be giving the 
committee detailed requests, and you are asking for a 
supplemental, I suppose, at that time, to fund your exact needs 
to carry on the census. So you will not even have that until a 
year from now.
    Mr. Daley. Yes, sir.
    Mr. Mollohan. Thank you, Mr. Chairman.
    Mr. Rogers. Mr. Skaggs.
    Mr. Skaggs. I think I will pass, Mr. Chairman. Thank you.
    Mr. Rogers. Mr. Secretary, thank you very much. We will 
recess today until April 22. That is, I think, a Wednesday and 
that is the first time after April 15 that we can find. So we 
will expect your report on the non-sampling enumeration plan on 
or before that date. If we get the plan before that time, we 
could always excuse the hearing. But in the meantime, we will 
recess until that date.
    Mr. Daley. Thanks, Mr. Chairman.
    Mr. Rogers. Thank you, Mr. Secretary.
    Mr. Daley. Thank you, members.




[Pages 223 - 234--The official Committee record contains additional material here.]





                                         Wednesday, March 11, 1998.

                COMMERCE SCIENCE AND TECHNOLOGY PROGRAMS

                               WITNESSES

GARY R. BACHULA, ACTING UNDER SECRETARY FOR TECHNOLOGY
RAYMOND KAMMER, DIRECTOR, NATIONAL INSTITUTE OF STANDARDS AND 
    TECHNOLOGY
BRUCE A. LEHMAN, ASSISTANT SECRETARY OF COMMERCE AND COMMISSIONER OF 
    PATENTS AND TRADEMARKS
    Mr. Rogers. The meeting will come to order. This afternoon 
we welcome representatives from the Commerce Department to 
discuss programs related to science and technology in the area 
of industrial competitiveness.
    With us today we have: Gary Bachula, Acting Under Secretary 
for Technology, testifying on the budget for the Technology 
Administration; and Ray Kammer, Director of the National 
Institute of Standards and Technology, to discuss the request 
for the NIST programs. Also joining us is the Assistant 
Secretary of Commerce and Commissioner of Patents and 
Trademarks, Bruce Lehman, to testify on behalf of the Patent 
and Trademark Office.
    The Fiscal Year 1999 budget request for the Technology 
Administration, National Institute of Standards and Technology 
totals $715 million, a $42.2 million increase over '98. In 
addition, the budget also requests advance appropriations for 
NIST for Fiscal Years 2000, 2001, 2002 totalling $115 million. 
At the same time, you request a total operating level of $785.5 
million for the Patent and Trademark Office in Fiscal Year 1999 
funded for the first time entirely through offsetting fee 
collections and a $94.5 million increase over Fiscal '98.
    Fiscal '99 will bring with it another year of budget 
constraints, despite what you read in the newspapers about a 
surplus, because the caps in the budget agreement are still in 
place. We want to know what your priorities are and what 
actions you are taking to streamline, consolidate, become more 
efficient.
    We will begin with your oral remarks. We will insert your 
written statements into the record. We hope that you can keep 
your summaries to five minutes or so apiece. We will start with 
the Acting Under Secretary, followed by the Director, and 
finish with the Assistant Secretary. And so, Mr. Bachula, you 
may commence.

                    Opening Statement of Mr. Bachula

    Mr. Bachula. Thank you, Mr. Chairman, members of the 
Committee. I appreciate the opportunity to meet with you today 
to discuss the Technology Administration's Fiscal Year 1999 
budget request. In addition to Director Kammer, I am 
accompanied by Kelly Carnes, the Deputy Assistant Secretary for 
Technology Policy, as well as other members of the NIST team.
    The various components of the Technology Administration are 
all fundamentally concerned with the health of civilian 
technology in the United States. And if civilian technology is 
healthy in the U.S., so will be our economy.
    The President's statement in 1993 that technology is the 
engine of economic growth is clearly obvious today. Leading 
economists calculate that half of economic growth since World 
War II is a result of technological progress. The eight most 
R&D-intensive industries in this Nation have been growing at 
twice the rate of the rest of the economy.
    A Commerce Department study shows that individual firms 
that adopt new technologies grow faster, are more profitable, 
export more, hire more people, and pay higher wages than 
companies that do not adopt new technologies.
    Today's economy is a product of innovation taking place at 
breathtaking speed. Technology is not only creating new 
products and services but whole new industries. And technology, 
particularly information technology, is rewriting the rules for 
all of the old industries.
    The result of all of that innovation is 14 million new jobs 
in the past 5 years, real GDP that grew 3.8 percent last year, 
unemployment at a 24-year low, and inflation at its lowest 
level since 1965. Perhaps most importantly, our Nation's 
investments in science and technology, some of those 
investments going back 10 or 20 or 30 years, are paying off in 
terms of productivity increases in the past 2 years, 1.9 
percent and 1.7 percent, respectively, a recipe for higher 
incomes, better wages, and more economic growth.
    This record of prosperity has not gone unnoticed around the 
world. Nations in every corner of the globe have embraced 
technology for economic growth strategies. Like us, they 
recognize that sustained economic growth requires a consistent 
long-term investment in science and technology. They are 
rapidly expanding their scientific and technological 
capabilities, establishing an array of sophisticated technology 
policies, and expanding their public investments in R&D in 
order to retain and grow their domestic industries while 
attracting the engines of economic growth to their shores.
    So we must not be lulled into a false sense of economic 
security. Unlike in sports, there is no finish line in this 
race. Those that rest on their past successes will soon be 
passed, then supplanted by fierce, fast-rising competitors 
hungry for the economic benefits of market success. A failure 
to adequately invest in the emerging and enabling technologies 
that will underpin global commerce in the 21st Century might 
not be felt for years, but they inevitably would be felt. We 
must continue to invest to secure our future.
    Let me turn briefly to our Fiscal 1999 budget request. The 
National Technical Information Service, NTIS, requests no 
appropriations again this year. As you know, NTIS is entirely 
funded from the sale of documents and services.
    The Office of the Under Secretary, which includes the 
Office of Air and Space Commercialization and the Office of 
Technology Policy, requests $10 million this year. Our core 
internal activities will stay flat at $7 million.
    The increase of $1.4 million will all go to expand the new 
EPSCoT Program. We thank the Subcommittee for providing$1.6 
million in Fiscal '98 appropriations to start up EPSCoT.
    We are completing an internal review of a proposed request 
for proposals for the Federal Register and an accompanying 
implementation plan that the report language requires we bring 
to you before we move forward. It is my hope to bring this 
implementation plan to the Subcommittee within the next few 
weeks.
    In this budget, NIST represents $715 million, 98.6 percent, 
of all of the Technology Administration's request. And I will 
let Director Kammer elaborate on the components of that 
request.
    Mr. Chairman, the American economy today is a gold medal 
winner. But, unlike the Olympics, the competition never ends. 
The competition among nations is to attract and retain the 
engines of wealth creation that increasingly skip around the 
globe looking for the best opportunities. At its core, this is 
a competition for investment capital, technology, business 
activity, and the jobs that come with them. In today's global 
marketplace, technological leadership means the difference 
between success and failure for companies and countries alike.
    Our challenge is to prepare ourselves to seize the 
opportunities and create fertile ground for economic growth 
with a healthy business climate, a modern infrastructure, a 
world class workforce, and a strong base in science and 
technology. We believe that the Technology Administration makes 
an important contribution to that vital base.
    Thank you very much.
    Mr. Rogers. Mr. Kammer.

                    opening statement of mr. kammer

    Mr. Kammer. Thank you. Chairman Rogers, Mr. Mollohan, Mr. 
Skaggs, it is an honor to appear before you today.
    I have testified before this Committee before but never as 
Director of NIST. I am immensely proud of NIST and immensely 
proud of the new job that I now have.
    In order to keep NIST the high-quality institution which 
indeed it is today, I see five challenges that NIST needs to 
address. The first of these is to maintain our world leadership 
in measurement and standards in order to support the U.S. 
economy. The second is to ensure that product standards and 
practices are in place to support full U.S. participation in 
global markets. The third is to continue to build a consensus 
on ATP. The fourth is to expand the Manufacturing Extension 
Partnership services so that more small and medium-sized 
companies have access and also to remove the sixth year sunset 
on MEP. And then, finally, the fifth is to secure permission to 
begin Malcolm Baldrige quality awards in health care and 
education.
    As the Chairman pointed out, we are requesting a total of 
$715 million, which is a net increase of $42 million. Of that, 
$291 million is for the Measurement and Standards Labs and the 
Quality Program, $367 million is for ATP and MEP, and $57 
million is for construction.
    Within the Measurement and Standards Labs, we are asking 
for $5.9 million in adjustments to base; $2 million in 
semiconductor metrology to continue to respond to the merciless 
demand for better and better measurements in the electronics 
industry; $7 million for climate change to aid U.S. industry in 
reducing the consumption of energy, which would have a benefit 
on the climate but would also have an enormous economic 
benefit; $3 million for disaster mitigation to help identify 
and spread technologies that would allow the U.S. 
infrastructure to better survive disasters, such as floods and 
earthquakes; $4 million for international measurements and 
standards to aid U.S. industry in more successfully seeing 
their technology reflected in international standards; and then 
$57 million for construction and maintenance.
    As the Chairman pointed out, we are requesting advance 
appropriations language that would allow us to commit to build 
an Advanced Measurement Laboratory that would cost $218 million 
and take 44 months to build.
    In addition $2.3 million also would be the cost of 
initiating the health care and education awards. At the same 
time, a private foundation would raise $15 million as an 
endowment to support those 2 areas; and then for ATP, an 
increase of $67 million, for a total of almost $260 million 
over a base of $192.5. This would allow $94 million in new 
program awards as well as pay the mortgages on previously 
committed program awards.
    Finally, in the MEP Program, we actually have a reduction 
in money of $6.7 million from $113.5 to $106.8 million. That is 
not actually a reduction in level of effort. We continue to 
support the same number of centers. However, as the centers 
mature under the legislation, the U.S. Government support is 
envisioned to go from half down to a third. This is just simply 
the natural maturation of those centers as they go down to a 
third support for the Government.
    So thank you all for your attention.
    Mr. Rogers. You may proceed.

                    opening statement of mr. lehman

    Mr. Lehman. Thank you very much, Mr. Chairman and Mr. 
Mollohan and Mr. Skaggs.
    First, I would just like to put our request this year in 
context and remind the Committee of a few points that I am sure 
you are well aware. That is that the Patent and Trademark 
Office is really not what I would call a programmatic agency. 
In other words, I do not think anybody questions whether we 
should have the Government issue patents and examine and 
register trademarks. It is not really a discretionary question.
    The real question is: Are we going to do this job well, and 
are we going to give the fee payers, since we receive no tax 
revenue, appropriate services for their money?
    I like to think of the Patent and Trademark Office as a 
vital organ of the U.S. economy. If you think about it, it is 
like the stock exchange. We would not be able to have the 
market economy if we did not have a stock exchange. We would 
not be able to have a market in technology, and we would not be 
able to transfer the technology to the private sector that Mr. 
Bachula talked about and get private sector investment in new 
technology if we did not have a patent system. We would not be 
able to have businesses that can present products to the 
customers if we did not have a trademark system. So our doing 
that job in a timely manner and in a quality manner is a very, 
very important predicate to business growth and opportunity in 
the United States.
    So, with that in mind, we have presented requests to you 
this year for total operating costs of $785.5 million. That is 
an increase of $94.5 million over the enacted 1998 budget, but 
that is going to be $116 million less than the fees we receive.
    So, getting back to your opening statement, Mr. Chairman, 
where you talked about the fact that we are not completely out 
of the woods budget-wise and everything, we are proposing to 
help contribute to that goal of keeping the U.S. budget in 
balance and more than in balance by contributing $116 million 
of our fee revenue to balance the budget for 1999.
    Now, I do want to make a very important point, though. That 
is only a request for 1999. And we get back to another point as 
to how we will treat this in future years. I am notsure that we 
can promise that we will always have $116 million as we continue to 
serve our customers, but we believe we can make that contribution in 
1999.
    Now, with the budget that we have requested, we will be 
able to reduce the processing time for patents for original 
inventions to 12 months processing time. And that is extremely 
important because in the last couple of years, we have seen the 
pendency for patents go up. In fact, it has gone up from about 
19 months to about 22 and some months.
    That is not catastrophic, but if it starts to get more than 
that, we are going to have a problem. That means three months 
between when an inventor gets a patent and he can go out to the 
commercial financial marketplace and get financing to make his 
invention into reality in the marketplace. So we have to always 
watch that figure, and we have a program to bring that down in 
1999.
    Also, we are going to test reengineered processes and 
automated systems. And we are going to prototype a system that 
we believe will be able to deliver electronic processing of 
patent applications in the Year 2003. That is a very important 
project for us because a lot of the problems that we have right 
now and a lot of the mistakes we make in the Patent Office are 
because when you have volumes and volumes and volumes of paper, 
it is easy to make a lot of mistakes. Applicants do not get the 
right information to us, information gets lost, and so on. It 
is a big management problem.
    When you move to an automated patent examining system, you 
will build a lot more efficiencies into the system. You will 
eliminate mistakes. And we will give the U.S. high technology 
community much, much better service. In order to keep up with 
just the growing volume of our work, we are going to have to do 
it anyway. So that is a very important project for us.
    Also, in 1999 we intend to reduce trademark processing time 
to three months for a first action, and we will offer 
electronic filing capabilities to our customers. We have 
actually already begun to do that, and we want to expand that 
program and get more people filing electronically.
    We are also going to be partnering with the World 
Intellectual Property Organization, the international 
organization in Geneva that administers the world patent 
system, to achieve electronic filing of Patent Cooperation 
Treaty applications. That is where you want to file in other 
countries and get patent protection there. You can file in our 
office. The application goes to Geneva. And then it is shipped 
out to all the rest of the countries that you want to file for 
a patent in. Right now that is a paper process. It is very 
slow, very cumbersome. We want to speed that up.
    You all read in the papers a lot about piracy. One of our 
most important trade assets is our intellectual property. If we 
do not get patents issued in a timely manner in other 
countries, we have piracy. So the predicate is to improve that 
system.
    Now that we have gotten most other countries in the world 
to introduce patent systems as a result of the WTO Treaty and 
so-called TRAIPs provisions, Trade-Regulated Aspects of 
Intellectual Property, it is very important just to follow up 
and get these international patent systems working properly.
    We also want to enable our customers to make use of the 
internet to deal with us. And so we are including in the 1999 
budget funds so that patent applicants and trademark applicants 
will be able to request the status of their applications on the 
Internet. They will be able to place orders and receive 
information products, and they will be able to access our 
patent and trademark data when they are in a Patent and 
Trademark Depository Library.
    And, finally, we want to offer our PTO employees better 
training programs to enable them to transition from a paper-
based system--and that is a big management problem that we are 
facing right now--to a technology-based work environment.
    I want to just bring two other issues to your attention, 
other than these programmatic issues, Mr. Chairman and Members. 
One is, as you may know, our leases on our facilities in 
Crystal City have started expiring. We are on month-to-month 
tenancies. And so we have got to do something about that. We 
have issued an RFP, and we have people applying to meet that 
need for new space for the PTO.
    There is a lot of, I think, misinformation about this. We 
are not building a new building. We are in rented space. Our 
leases are expiring. We have to get new space. The goal is that 
that space will be less expensive than the current space.
    Finally, I just want to make a point about the so-called 
surcharge fund. As you know, in 1990, when the Patent Office 
was placed on full-fee funding, the taxpayer contribution was 
completely eliminated. The portion that was to have been 
ultimately the taxpayer contribution to the PTO was called the 
Surcharge Fund.
    Since that was, at the time, thought to be perhaps a 
temporary move, there was a termination date on the fund of the 
end of 1998. And so the Surcharge Fund will be eliminated 
unless it is reinstated by the Congress.
     We think it is absolutely vital to do that. We have enough 
money probably to see us through in 1999. As I said, we are 
giving money back to the Treasury. But if we go beyond that, we 
will start to have very serious problems because it was always 
contemplated that there would be this money. It was originally 
going to be a taxpayer share. It is now not going to be a 
taxpayer share.
    And I do not think I need to go into the merits or lack 
thereof of that, Mr. Chairman. We are all sensitive to the need 
to keep the burden on the taxpayers very low.
    I am sure you may have some questions about some of those 
individual things that I discussed. And I would be happy to 
follow up with you on any of those.
    [The following information was submitted:]


[Pages 242 - 287--The official Committee record contains additional material here.]



                          nist budget request

    Mr. Rogers. Yes. Now, Mr. Kammer, your whole budget request 
is a gimmick. Yes, the President's budget proposes increases 
for NIST programs, but you propose to pay for those increases 
with money from the tobacco settlement and other mandatory 
changes.
    Suppose for a moment that tobacco settlement monies do not 
show up. How do you expect us to pay for those increases you 
are asking?
    Mr. Kammer. Sir, I am not an expert on this, but my 
understanding is that, even in the absence of the tobacco 
taxes, there would still be $9 billion available in surplus. 
The priority-setting challenge would be significantly fiercer, 
obviously.
    Mr. Rogers. Are you talking about the money we are saving 
for a Social Security fix?
    Mr. Kammer. That is my understanding, yes sir. I am not an 
expert on this, though. I am very reluctant to comment. 
Macrobudgeting is not something I know a lot about.
    Mr. Rogers. But the money you are talking about, if we do 
not do the tobacco settlement, the only other monies you could 
be talking about are the monies the President wants to save for 
Social Security; right?
    Mr. Kammer. I do not know enough to answer that, sir.
    Mr. Rogers. Well, where do you propose we get the money? 
Just give me a source. I mean, believe me, I would love to know 
about it.
    Mr. Kammer. You are above my pay grade, sir. I really do 
not understand that well enough to comment intelligently.
    Mr. Rogers. Well, the proposed offsets that you are 
proposing are not within the power of this Committee or 
Subcommittee to make happen.
    I do not think we are likely to see the kind of revenue you 
are talking about coming out of the proposed tobacco 
settlement. And so your budget is already shredded if that does 
not happen. So what are we to do?
    Mr. Kammer. Sir, the policy for the overall budget is set 
by the President, folks in OMB, folks in Treasury, not by me.
    Mr. Rogers. So these are not your numbers? These are the 
finance numbers?
    Mr. Kammer. Well, they come from the leadership of the 
Executive Branch, yes sir. I do not know whether that is the 
White House or OMB or what.
    Mr. Rogers. Yes. They are not your figures?
    Mr. Kammer. Not the offset, sir. I am not knowledgeable 
about that.
    Mr. Rogers. You just know how to spend it? You do not know 
how to get it?
    Mr. Kammer. Well, it is my job as a program manager to 
operate programs, yes sir.
    Mr. Rogers. Well, I mean, we are facing huge money crunches 
in our Subcommittee this year. We have got to find hundreds of 
millions of new dollars just for the Census Bureau. So we 
either have to deny all of the increases that you have 
requested or we have got to cut some other programs to find the 
money to make it happen.
    So what do you suggest we cut in order to fund the 
increases?
    Mr. Kammer. Again, sir, we are now talking about strategy 
either in the Department or across the Government. And I just 
do not have any governance over that.
    Mr. Rogers. Well, within NIST, what can we cut in NIST, 
then, to make up for what you want to increase?
    Mr. Kammer. The actual programmatic expansion, as I am sure 
you know, that we are proposing is $92 million. And we have 
proposed offsets of $50 million, primarily from a reduction in 
the construction program that would be possible if you all see 
your way clear to the advanced appropriations.
    There are also $4.5 million in reductions in STRS and about 
$6.7 million in MEP. Those were the result of careful thought 
on our part to provide some offsets.
    Mr. Rogers. I do not know when OMB or whoever writes up 
your budget will learn how to do their job. I mean, they send 
up these crazy schemes up here that are dependent three times 
deep on things happening that never happen around here.
    And then they have to at the last second go somewhere and 
try to scratch around and find the dollars to fund whatever 
they want to do. It is just a process that is 
counterproductive, finally winds up at markup time that we have 
to just toss out all of your requests and start from scratch 
and do it ourselves. And you lose all input in the process.
    I do not understand why you want to do that. Give me some 
help.
    Mr. Kammer. Again, sir, I am simply not knowledgeable about 
the macroeconomic policies.

                  construction of research facilities

    Mr. Rogers. Well, NIST construction. Again, I think they 
are trying to get us. NIST construction. If all of us have told 
you all one time, we have told you 100 times--we do not do 
advance appropriations here. We are not going to appropriate 
monies two, three, four years down the pike this year. We just 
do not do that.
    And you continue to come up here and make your plea based 
on advance appropriations. And you are doing it again this year 
on Construction. You are proposing $92 million in program 
increases for NIST, not a single penny for construction. In 
fact, you are proposing to cut money out of the Construction 
account in order to fund increases in other NIST programs, 
primarily the ATP Program.
    And so the Advanced Metrology Lab obviously is not as high 
a priority as NIST claims because you are taking that money. 
What have you got to say about that?
    Mr. Kammer. The notion of our proposal was that it will 
take 44 months to build the Advanced Measurement Lab. And our 
thought was if we got the money in increments as we went along, 
along with the authority to start, that it would be easier on 
everybody.
    The truth to be told, if we were given the whole $218 
million today, most of it would not spend for several years. So 
that was our notion. We may need----
    Mr. Rogers. Well, you know we have never done that on 
anything. And I have told you that. We have told you that we do 
not do advance appropriations. We always appropriate enough 
money year to year until you get enough to get started.
    You knew we would not do that, did you not?
    Mr. Kammer. There are quite a few proposals I think in this 
year's budget across Government to try and use this concept, 
which I hoped there might be a dialogue and we might be 
persuasive.
    Mr. Rogers. Well, you have not. We can have a dialogue, but 
you are not going to be persuasive. You may be persuasive, but 
you are not going to persuade successfully for advance 
appropriations. We do not do that, cannot do it.
    You have to make choices. You are hiding behind a gimmick 
that allows you to not make hard choices. You have got to 
choose. If you want something, you have got to pay for it. And 
you have got to give up something for that. So we want your 
priorities.
    Funding for NIST facilities has got to compete with funding 
for other NIST programs, simple. You have got to give us a 
realistic and fiscally sound plan for meeting your facilities' 
needs, no budget gimmicks. If you want it, you have got to pay 
for it. But I do not think you get it.
    Last year we gave you $95 million, $78 million more than 
you requested, and a chance to redeem yourself after the fiasco 
of the previous years where we were knowingly misled by NIST 
about your programs.
    All we asked for was a sound plan that reflected your 
priorities. That is not what we got. So what can we do?
    Mr. Kammer. Well, the current set of priorities in our 
budget was formulated obviously in consultation with the 
Secretary of Commerce and the folks at OMB and others. And this 
would be a pretty fundamental change to not have thenotion of 
advance appropriation language, and I would need to consult with my 
bosses before I could articulate any other priorities.
    Mr. Rogers. We have been telling this for years. This is 
not a new item. There is no headline to say ``Congress Changes 
Mind on Advance Appropriations, Will Now Allow It.'' The 
headline is ``Congress Again Says No to Advance 
Appropriations.'' I mean, it is not going to happen.
    You have known that for years. The Secretary's office has 
known that for years, as has OMB. And they insist upon 
gimmicking up their budget request. It just means that we are 
going to have to toss the whole thing in the wastebasket and 
come up with our own scheme and lose the expertise that we are 
paying for to have. I think that is tragic.
    Mr. Mollohan. Maybe you can solve this problem.

                         advance appropriations

    Mr. Mollohan. All right, sir. Why are you asking for an 
advance appropriations?
    Mr. Kammer. Because we do not need all of the money at 
once, but we need authority to enter into the full contract. If 
we were to----
    Mr. Mollohan. The authority is tied to the money?
    Mr. Kammer. Yes, definitely. In the Federal system----
    Mr. Mollohan. Do you have to have the money banked in order 
to be able to move forward to construction? You would have to 
collect the money over a number of years, as the Chairman 
indicated?
    Mr. Kammer. Yes, sir.
    Mr. Mollohan. So why do you not do that?
    Mr. Kammer. Well, that is the alternative. It is an 
enormous----
    Mr. Mollohan. Would that not answer the Chairman's 
question, then?
    Mr. Kammer. It would certainly be consistent with the 
approach that he prefers, which is not to have an advance 
appropriation. I do not know of a third alternative.
    Mr. Mollohan. Who in the Congress advocates advance 
appropriations?
    Mr. Kammer. There is one instance, I believe, in the 104th 
Congress where NIH I think got advance appropriations. The 
reason I am saying ``I think'' is we just found it this 
morning, and it has a complicated legal citation. And we did 
not have time to follow the citation out.
    Mr. Mollohan. You were trying to get prepared for this line 
of questioning here today?
    Mr. Kammer. Yes, yes.
    Mr. Mollohan. So if you are not going to get advance 
appropriations for this purpose, it does not sound like you 
are----
    Mr. Kammer. I think the alternative at this point is 
probably to----
    Mr. Mollohan. You are going to have to come----
    Mr. Kammer. Well, we have got about $70 million from the 
'98 appropriation, but that would still require an additional 
appropriation of $108 million, which is an awful lot. So it 
would probably be over a couple of years.

                      advanced technology program

    Mr. Mollohan. I do not know whether that helps or not, Mr. 
Chairman.
    Why do you have a $13.1 million unobligated ATP balance?
    Mr. Kammer. The $13.1 million all arises from cases where 
we have obligated money to a grant and then in the course of 
the execution of the grant, either there was good news and they 
finished early or there was bad news and we concluded they were 
never going to finish and we thought we ought to stop it.
    Mr. Mollohan. So it is not that you did not attempt to 
obligate the money?
    Mr. Kammer. No. The money was actually obligated. And then 
we deobligated when we either were very satisfied with the 
performance, they did it cheaper than they promised, but the 
more likely case is ``Gee, we just do not think this is going 
to work'' or ``You are not reaching your milestones, and we had 
better stop.''

                  focused versis general competitions

    Mr. Mollohan. Last year the Secretary proposed some changes 
in the way ATP awards were considered. I am essentially 
referring to the focused approach versus a general approach. 
Could you discuss those changes, what they mean? And have they 
been implemented?
    Mr. Kammer. To give you the short answer first, yes, they 
have all been implemented, but let me tell you what they are. 
Secretary Daley instructed us to do a full review of the 
program. He then personally deliberated on possible changes and 
concluded that we should do more to encourage state 
participation in ATP, both planning and possible awards.
    We want to emphasize joint ventures and consortium awards 
and individual vendors less. The large single company 
applicants go from a 50 percent match to a 60 percent match so 
that they are bringing up the majority of the money, by some 
extent at least. Large companies were defined as the Fortune 
500 and build better links with the venture capital community. 
We also require each applicant, when they make their 
application, to disclose what efforts they have made to secure 
private venture capital in order to reduce the likelihood that 
we are competing inappropriately with the private venture 
capital world. Then, finally, a program that Mr. Bachula is 
actually responsible for his studies concluded that it would be 
a good idea to proceed with the experimental programs and 
experimental technology, which is outside----
    Mr. Mollohan. I did not hear that. I am sorry.
    Mr. Kammer. The final conclusion of the study was to decide 
to proceed with EPSCoT, which is the program that is managed in 
Mr. Bachula's office.

             general competition versus focused competition

    Mr. Mollohan. What about this general competition versus 
focused competition?
    Mr. Kammer. That was considered in the course. The question 
was posed: Should we just do general? Should we just do 
focused? Should we proceed as we currently are and do one or 
two general programs a year?
    Mr. Mollohan. And that was not a part of the Secretary's 
recommendation for----
    Mr. Kammer. But he did consider it in the study, and it was 
in the documentation itself. The conclusion was let us stay 
where we are, keep doing it the way we are doing it.
    Mr. Mollohan. Will you stick to this way of considering 
these proposals, the general competitions and the focused 
competitions?
    Mr. Kammer. Sure. A general competition is a competition 
that anybody can enter. And their ideas compete according to a 
set of pre-stated criteria. The results are, we hope, that the 
best, the most economically potential, high potential, projects 
are selected.
    In the case of a focused competition, what we do is we 
consult with private sector groups. We get their ideas. And 
eventually we put some boundaries on what might be proposed.
    A recent interesting focused program was tissue 
engineering. In this case, it was technologies that would 
facilitate replacement of human body parts from artificial 
sources, as opposed to from other bodies, from donors. Within 
that set of boundaries, then, anybody could make any proposal 
that they wanted.
    The notion was that if you advertised once and you got some 
proposals, you might wait a few years. Advertise again in that 
same area, readjusting the boundaries a little bit based on 
what you have learned, and you might be able to push ahead the 
technology a lot more successfully than you can when you are 
just sort of taking everybody's proposal.
    I do not today know which is the superior approach. I view 
it as an experiment.
    Mr. Mollohan. When did you start, with this fiscal year?
    Mr. Kammer. No.
    Mr. Mollohan. '98 or----
    Mr. Kammer. No. The first time there were focused programs 
was 1994, the end of '94.
    Mr. Mollohan. So you have had an experience with them.
    Mr. Kammer. Right, from '90 to '93 those were all generals. 
And starting in '94, we have done typically $20 million to $25 
million general and the remaining money available to us for new 
programs and focused programs. So our oldest focused programs 
are about three and a half years old at this point.
    Mr. Mollohan. Do you have an opinion on which approach 
yields the better result?
    Mr. Kammer. I think that the focused programs so far have 
worked well in the sense that I like what I am seeing, but I 
cannot give you outputs the typical run of time because we are 
focusing on pre-competitive technologies, rather than 
technologies that would create a product right away. You would 
expect that you are seven years, perhaps more, away from the 
results.
    Mr. Mollohan. You are judging it in terms of outcome.
    Mr. Kammer. Yes.
    Mr. Mollohan. That is my next question.
    Mr. Kammer. Yes. I think you measure process as much as you 
can because it is what you have got to measure, but you really 
have to judge by output in my opinion.
    Mr. Mollohan. Yes. I think you do, but there are also some 
serious process issues here, too. The focused concept sounds a 
little elitist to me. Who gets invited to participate?
    Mr. Kammer. We do public notices. We then go around the 
country because we are worried about geography. You know, you 
do not want only an East Coast Program. So we will hold 
workshops on a focused program as we are thinking about it.
    Mr. Mollohan. How do you choose the topic?
    Mr. Kammer. We invite proposals. And often industry 
associations will coalesce the views of members of their 
association and try and make a proposal and try and interest 
the community. The kinds of arguments they have to make are 
``It would not happen without ATP,'' ``economic potential,'' 
``pre-competitive,'' ``a lot of technical opportunity.''
    Mr. Mollohan. You mean the kind of arguments they make to 
get the particular----
    Mr. Kammer. Right. And it is sort of a competition at that 
level, too. And you do not even then know who is going to win 
if we even chose that. Maybe none of the firms that advocated 
it would win. You just do not know.
    Mr. Mollohan. The focused versus the general, what effect 
does either approach have on the participation of smaller 
companies in the process?
    Mr. Kammer. We are finding that in both general and 
focused, the participation is 41 percent for smalll individual 
companies. Another 13 percent of the consortia are led by small 
companies. So it is 54 percent of the endeavor, if you will, of 
the number of awards we have made. We have made 352 awards at 
this point. So a little over half are led by small companies or 
consortia.
    Mr. Mollohan. Thank you, Mr. Chairman.
    Mr. Rogers. Mr. Latham.

       Manufacturing Extension Partnership and Year 2000 problems

    Mr. Latham. I was just curious. Under the Manufacturing 
Extension Partnership, you had assisted 22,000 companies. Do 
they look to you for any expertise as far as the Year 2000 
problem or is there any----
    Mr. Kammer. One of the things that we like to talk about 
with small companies is Year 2000. We have quite a bit of 
information at NIST. We actually first created the technical 
methods for addressing the Year 2000 problem and made them 
public in 1985.
    A lot of small companies are not particularly automated, 
which in a sense I guess is good because it means they are not 
going to be subject to much harm in the Year 2000, but they are 
also fairly naive about it.
    I was talking with another representative recently, and 
that individual told me that she had asked at a Chamber of 
Commerce meeting in her district what they were doing about 
Year 2000. The answer was ``Not much.'' She then asked us to go 
in, as we are doing, and familiarize them with the issue.
    NIST has created two public domain tools for Year 2000, one 
of which will identify places in your software if you have 
elaborate software, where the date is stated and also the 
dependencies on that, and when you encounter a date, what do 
you do? And it will give you a map, even if your software is 
not documented.
    We have another tool that if you have done a fix it will go 
in and test. What we do not have is a tool that will fix it 
because everybody runs their software differently. And there is 
no generic tool. We can help a lot.
    Mr. Latham. How has your agency done?
    Mr. Kammer. With respect to Year 2000, we have identified 
all of our critical systems. And we either have fixes underway 
or they are fixed. And I am feeling very comfortable that we 
will be done by the end of this calendar year. I would like to 
make sure that it is done early. One little known fact is that 
people used to not only use the 00 for other things. They use 
the 99 for other things sometimes, too.
    Mr. Latham. Like what?
    Mr. Kammer. Well, the reason why this problem arises is in 
the '50s and '60s and even somewhat in the '70s, memory was 
short. So nobody thought their software was going to live 40 
years or something. So they would use 00 for some other 
purpose. Well, they sometimes would use the field 99 for 
another purpose, too, just to save a little bit of memory. Our 
software goes back to the '50s for our accounting system, and I 
want to make sure everybody gets paid. So I want to get it done 
before '99.
    Mr. Bachula. In fact, September 9th, '99, 9-9-99, is 
another place where apparently codes have been put 
intocomputers that would cause some significant problems.
    Mr. Latham. So we are going to have an early test?
    Mr. Bachula. We may have an early test.
    Mr. Kammer. And not necessarily a welcome one.
    Mr. Bachula. I would just hope that is not a payday for any 
of us.
    Mr. Latham. You have not come from Agriculture. Of course, 
they have got one agency over there that just took delivery the 
past year or so of a system that is not Year 2000-compliant. 
Hopefully you have not done the same.
    Mr. Kammer. Now, at NIST, we were aware of this problem in 
the '80s and actually promulgated an ANSI standard, an actual 
standard, that was approved in 1985. So it was really started 
earlier than that.
    It is not that easy right now to buy a system that is not 
2000-compliant unless you are buying something out of a 
warehouse at a real bargain so it is kind of old.
     Mr. Latham. I think we have a huge problem in Government, 
the same as with a lot of small business out there----
    Mr. Kammer. Oh, yes.
    Mr. Latham [continuing]. That is going to be a disaster.
    Thank you, Mr. Chairman.
    Mr. Rogers. We are going to crash up against the resistor 
ceiling in 9-9-99. And we will all in a flash be back with the 
advocates trying to count our way back out of this thing.
    Mr. Kammer. I personally am planning my travel to not be in 
an airplane on certain selected dates.
    Mr. Rogers. Mr. Skaggs.
    Mr. Skaggs. Thank you, Mr. Chairman.

          u.s. patent system relative to foreign competitions

    Mr. Lehman, we have touched on sort of the international 
competitive environment that is particularly pertinent to your 
work. I am just wondering: How do we stack up with the system 
that you administer relative to our nearest international 
competitors in the maintenance of intellectual property 
protection? What can we learn, if anything, from abroad? And, 
again, what are, the biggest international challenges you face, 
and are you equipped to deal with them?
    Mr. Lehman. Well, first of all, I would say that we are, 
generally speaking, the paradigm for the world. We have had a 
Patent Office since 1790. It is part of our Constitution. And 
one of the reasons that this country has always been the 
technological powerhouse, not just now but back in the 1870s, 
1880s, is because we have a patent system.
    Long before there was a penny in Government money that went 
into research, the patent system provided the incentive for the 
private sector to invest in technology. So we have always been 
the paradigm for the world, and we still are.
    You know, you have to keep up with the times. You have to 
constantly modernize your system. We would not want the 1790 
patent system anymore. And so we have various proposals in 
Congress. The House approved legislation (H.R. 400), last year 
to modernize our patent system. But those changes in many 
respects are very minor. I would say, by and large, we have a 
very, very good system.
    American competitiveness is reflected in patent filings. 
There are only two patent offices in the world where the 
majority of patent filings come from nationals of that country. 
And you can guess. That is the United States and Japan.
    The United States is the largest single filer of patent 
applications in most of the patent offices of the world other 
than the nationals of that country. And there are only two 
major patent offices, I believe, in the world where we do not 
exceed the nationals of that country. And that is Japan and 
Germany. The European Patent Office, which is the Pan-European 
Patent Office (EPO), has the U.S. as the largest single 
national filer. We had a 15 percent share last year of patent 
applications filed with the EPO.
    One of the problems that I always have with the Committee 
is we sometimes are not totally clairvoyant about what is going 
to happen with our revenues. And that is because we are like a 
business. You know, I mean, ironically we want business to 
boom.
    Well, business boomed last year. We have a 15 percent 
increase in patent application filings. I think that is a 
statistic that goes along with all of these other economic 
statistics basically that Mr. Bachula cited at the beginning of 
his testimony.
    That boom in applications is not attributed to Japanese 
applications or German applications. These applications are 
from American citizens. It is very heavily coming out of 
Silicon Valley. It is very heavily coming out of the 
information technologies in which the United States is the 
unrivaled leader in the world.
    So I think that we in the Patent Office have a good story 
to tell because it is good for our whole economy. The problem 
that creates for us, for the Committee, and for us in the 
Commerce Department is we have to keep up with that. We do not 
want to let this good thing that we have going deteriorate 
because it is a vital, vital element of pumping private sector 
investment into the economy.
    I think we have not fully appreciated that a lot of U.S. 
technology was driven probably from 1939 to the end of the Cold 
War by direct Government investment, which was largely defense-
oriented and NASA-oriented. But we are moving away from that 
now. That is part of our getting a balanced budget.
    We are still pumping Government money. That is what the 
NIST programs are about. And, by the way, we use that patent 
system to transfer Government technology to the private sector. 
When the Government funds basic research, it is very much 
undone. That is not a product we can put on the marketplace.
    And so we use the patent policy administered by Mr. 
Bachula's office. We use Government patent policy, then, to 
send over the private sector innovations to the marketplace. 
And then people will be able to use the Government patent to 
invest in what remains to be done.
    I think the patent system is ever more important now 
because the percentage, frankly, of Government investment in 
technology is going to decline. And, therefore, we are going to 
have to have a very powerful private sector investment.

                      advanced technology program

    Mr. Skaggs. Mr. Kammer, back to the ATP Program. Even 
though I respect and understand your caution that until a few 
more years have gone by, things may not have played out in a 
way that gives you the best measure of success, I would hope 
that at this point some of the early investments might have 
produced a couple of ``Gee whiz'' kinds of stories that you can 
share with us and perhaps some ``Oh, my God'' stories that you 
can share with us, too, that will help us get a better take on 
this program, which continues to have a certain profile here. 
So I wondered if you would indulge us with that, recognizing 
that they may not have come to full maturity yet.
    Mr. Kammer. Well, I have one.
    Mr. Skaggs. And things, please, that passed the ``But for'' 
test: ``Had it not been for ATP, we can be pretty sure this 
would not have happened.''
    Mr. Kammer. There is something called the two-millimeter 
project, which was started in 1992. And the Government has put 
up about $20 million. We are matching funds from a consortium 
that had eight small companies in it, two universities, and two 
of the big three auto companies: GM and Chrysler.
    The intent here was the two-millimeter referred to fit and 
finish. Can we make a car that is very aesthetically pleasing 
that does not develop rattles and shakes and the like? And we 
will do that by a tolerance that is very tight.
    The real challenge here is to be able to project that onto 
your suppliers. I mean, the motor companies do not make most of 
their parts. They buy them from third and fourth tier 
manufacturers and small and medium-sized companies, which 
constitute most of the manufacturers in the United States.
    The project was successful. This year you can buy a two-
millimeter car from Chrysler. And it is incorporated in all of 
the GM cars as well that will come out I think next year. We 
hired some economists to go in and take a look at this and to 
talk with the motor companies because they were the best people 
to ask. They are very comfortable saying that it was the ATP 
program that caused this to happen, that they do not believe 
that they would have been successful otherwise.
    The estimated benefit in the Year 2000 in terms of quality 
improvement by the economists now--and this is a little 
prospective; this is '98, it is not 2000, but it is not too far 
off--is $3 billion.
    I take that as I have seen the product. It is in the 
product. You know, I at least know that much. I do not think it 
is irrational to expect that customers will buy a better 
product. This is certainly a characteristic I react to in a 
product, in cars. So it seems likely.
    We also have a process measurement that we did. We have got 
352 projects underway. We gathered up the first 210 and we went 
in and we said: Well, they have all been running at least three 
years. Let us see what is going on, see if they have got 
innovations.
    For these 210 projects, we identified a little over 1,000 
innovations. More importantly, there were 800 commercialization 
plans. And, striking to me--now, this is identified by the 
holders of the intellectual property, and, as Bruce said, the 
manifestation of this, how they make the money, is then they 
patent it. The holders of the intellectual property said in 29 
percent of the cases that the innovation that they were now 
intending to commercialize was an improvement over current 
practice in the marketplace by 100 to 500 percent. Now, this is 
their estimate, not mine, and may be overly sanguine.
    Again, I will feel better when I can come back and say, 
``We have increased markets, U.S. market share. We have pushed 
back foreign competition. And here is the product. I would like 
to show you one, and here is what it sells for.'' We are not 
quite at that stage yet but pretty close.
    Mr. Skaggs. What is the biggest ATP flop? And what were the 
lessons learned that improved things prospectively?
    Mr. Kammer. One of the first projects that we supported was 
a lithography company to make lithography equipment. And it was 
one of the four or five attempts that have been made by the 
United States government and by consortia to bring that 
technology back from Japan. The lithography equipment is 
Japanese, and the practice of U.S. business is to use Japanese 
equipment because it is the best.
    It was a sort of a technical success and a complete 
business failure. And the lesson there is do not get blinded by 
the technology. And when you have a bunch of technologists, 
that can happen.
    It was an elegant solution. It was appealing. I was 
actually the selecting official for that. I started the ATP 
program. I thought at the time it was just great, and I was 
just completely wrong.
    Mr. Skaggs. Thank you, sir.
    Mr. Bachula. If I might just add a couple of pieces of 
information to what Director Kammer just mentioned? In that 
auto body project, the two-millimeter project, one of the 
interesting things that I learned is that the consortium that 
was formed, which included two large auto companies and some 
suppliers and universities, ultimately most of the technical 
work was done at the University of Michigan School of 
Engineering.
    There is a little understood fact that in these consortia, 
there was a lot of attention obviously on the large companies 
that get named as part of these. Very often they are there 
because they are the ultimate customer of these technologies 
and they need to be there as the customer in that supply chain 
to define the work. The work very often gets done in the 
university lab. There are over 100 universities participating 
in ATP projects today.
    The second item is that we are now looking at the potential 
for using technology developed for a better fit for cars in 
other industrial arenas, such as the manufacture of office 
equipment because the fit and finish technology would have the 
same applicability in making other kinds of products or perhaps 
refrigerators or so on. So it is possible that the economic 
benefits may even be greater.

                       atp program budget request

    Mr. Rogers. Mr. Kammer, what is the total amount of the new 
ATP awards you plan to make in Fiscal '98?
    Mr. Kammer. Fiscal '98 is $82 million, and Fiscal '99 is 
$94 million.
    Mr. Rogers. Well, then your request for Fiscal '99 is 
wrong. The request assumes you make more new awards than we 
provided for in the Fiscal '98 Act.
    Mr. Kammer. Yes, sir. Yes, sir.
    Mr. Rogers. And as a result----
    Mr. Kammer. As a result of consultation with this Committee 
and the Senate Committee, we concluded that the appropriate 
thing to do was make $82 million in awards.
    Mr. Rogers. So you have got $20 million----
    Mr. Kammer. Yes, sir.
    Mr. Rogers [continuing]. In excess funds that you no longer 
need?
    Mr. Kammer. That is correct.
    Mr. Rogers. We seem to keep having this problem, if you 
call it a problem.
    Mr. Kammer. Well, it arises from a good thing. We are 
managing the projects. And when we are not satisfied with the 
progress, we stop. We give them a timeout and tell them to 
rethink it and come back and try again.
    Mr. Rogers. I know, but we could use that $20 million in 
other places.
    Mr. Kammer. And we have advised you of it, sir. And we 
presume that it will be used.
    Mr. Rogers. Yes, but it is always after the fact. You give 
us numbers for ATP. And then we provide you the monies. We find 
out later all the money was not needed. And there is excess 
money laying around. We have need for that excess money all of 
the time.
    Mr. Kammer. We are doing our best to apprise you when we 
know.
    Mr. Rogers. So let us talk about your Fiscal '99 request, 
then. How hard a number is that?
    Mr. Kammer. Well, in each case that we make an obligation 
for a project, the largest amount of money that we are ever 
likely to spend is the amount we say on the first day because 
we will not let them overrun that. So that is the highest it 
can be.
    If we do our job right and we manage them carefully, either 
for good reasons because we are able to cause them to finish 
early or for unfortunate reasons because we recognize that they 
are failing or not fulfilling the promises they made, it is our 
job, then, to take the money back.
    I think that is going to keep happening. It is generally a 
good thing. It is a frustrating thing from a budget management 
point of view, but it is a good thing from a public policy 
point of view.
    Mr. Rogers. Well, it just seems to me that you could 
provide better information about how much you need year to year 
and how much you need to pay for ongoing commitments. In fact, 
the entire $20 million excess is caused by that problem. It is 
not the first time we have had it. It happens every year. These 
are tight budget times, and we need to have good, solid numbers 
from you.
    Now, what actions do you plan to take to do a better job of 
estimating true funding requirements?
    Mr. Kammer. Well, my thought is with the number of projects 
that we have started now and in some cases finished, we have 
what amounts to a reasonable basis for estimating. My thought 
is to go back now retrospectively and see how many underspent 
and by what percentage and see if that will give me the ability 
to make a predictive statement.
    Mr. Rogers. Yes. Let us get that for the record.
    Mr. Kammer. Okay.
    Mr. Rogers. Let us get a hard number for the record. And I 
want that before we go to markup. So April 15th sounds like a 
good day. Is that okay?
    Mr. Kammer. April 15th is fine.
    [The information follows:]


[Pages 301 - 304--The official Committee record contains additional material here.]



                           PTO Budget Request

    Mr. Rogers. Commissioner Lehman, your budget request 
assumes that the authorizing committee of the Congress and the 
whole Congress will enact new fees, which is supposed to 
generate an additional $182 million for Fiscal '99. At the same 
time, you propose a $116 million rescission in the prior year 
funds to offset discretionary spending.
    Describe for us the Administration's proposal on fees that 
they are asking the Congress to enact.
    Mr. Lehman. Mr. Chairman, I touched on this briefly in my 
opening statement. I think that to say that we are proposing 
new fees is a little bit inaccurate. What we are proposing to 
do is continue the existing surcharge system.
    This all goes back to the Omnibus Budget Reconciliation Act 
(OBRA) of 1990. Up until 1990, the taxpayers all throughout 
history funded part of the operations of the Patent Office. And 
that varied. It actually had reached in the early 1980s, about 
1980-81, a situation in which fees were only accounting for 25 
percent of the Patent Office revenue and the taxpayers were 
footing the bill for 75 percent. That created a serious problem 
in resources.
    So our customers at that time agreed and Congress agreed to 
change that situation to substantially increase fees and move 
toward a largely fee-funded agency. And that happened in 1982 
with an omnibus patent reform bill in 1982.
    It was never contemplated in 1982, however, that we would 
be fully fee-funded. There would always be a taxpayer portion. 
And I do not need to tell you that there was a struggle for 
revenue, dealing with the problems that this Committee deals 
with every day. It was agreed both between the Administration 
at that time and the Congress that we would go to full 100 
percent fee funding.
    At that time, we had not yet abandoned that theory, at 
least, that we would have some taxpayer funding. And so the 
difference between what would have been fee funding and 
taxpayer funding was called the Surcharge Fund. That the 
surcharge is scheduled to expire at the end of '98.
    So that authorizing legislation expires. So unless new 
legislation is enacted to reset fees to their current levels, 
then automatically we will lose forever that source of revenue 
estimated to be $182 million in FY 1999.
    Now, because of the fact that this year we are not going to 
be able to spend all of the money, we will have a one-time-only 
surplus, in effect, of $116 million.
    And this gets back to a fundamental question that you asked 
my colleague, you asked Mr. Kammer before. I mean, how are we 
going to raise money for the Federal Government? It seemed very 
reasonable to us.
    We will need this surcharge in the long run to meet our 
pendency goals. If we do not get it, we will have 
catastrophically lower funding for the Patent and Trademark 
Office.
    This year because of various conditions, we will have an 
excess of revenues. And it is appropriate for that excess to go 
to the general Treasury. I really do not think there has ever 
been any question that we should not have this money.
    If you look back at the history of the authorizing 
legislation, the issue was: Would this be tax money or would it 
be fee money? And we in the Administration clearly have taken 
the position right now that there are other priorities and that 
it should be fee money.
    Our customers have not complained about the level of fees 
thus far. They have not complained about the Surcharge Fund. We 
have not seen any reduction in the patent applications as a 
result of these fees. And so it seems appropriate to continue. 
And this will give the Committee $116 million more dollars to 
deal with.
    Mr. Rogers. So what will happen in '99 if the Congress 
fails to enact these fees?
    Mr. Lehman. What will happen is that we will lose $182 
million. And we will be able to get along for 1999 because our 
budget contemplates our spending less. But if the fees are not 
reset or if we establish a precedent that the fees will not 
continue at their current level, we will use up our extra 
resources. We will then have an under-funded Patent Office. And 
we estimate that that would have the effect of increasing 
pendency time.
    Remember, I mentioned in my statement it was very critical 
that we keep pendency time low. And we have seen that creeping 
up. One reason it has crept up is because of our efforts to 
save on FTEs and so on and so forth over the last several 
years. Those were reasonable trade-offs to make. We now need to 
correct those problems.
    Pendency is now at over 22 months. We will see a pendency, 
I believe it is by 2003, of 41.8 months. Now, you can imagine 
if you are an innovator in Silicon Gulch by Dulles or Silicon 
Valley or wherever it may be in the country, if we are going to 
tell you that it is going to take you a year and a half more to 
get a patent, that is going tohave a very, very negative effect 
on your capacity to go to the capital marketplaces. So I think that 
prudence absolutely demands our fiduciary responsibility to these very 
critical people who are producing the revenue that is creating a better 
budget situation, and demands that we reset fees to their current 
level. And I am not aware of anyone of our customer base who is not 
saying that we should continue the surcharge. There are people who do 
not like the money going back into the Federal Treasury.
    Mr. Rogers. There may not be customers complaining, but 
there is a group of people called the authorizing committee of 
the Congress that is complaining. And they think that we are 
stealing patent money to pay for other spending.
    Mr. Lehman. Well, I think their concern is, Mr. Chairman, 
that they would like to see that $116 million go back to me, 
the Patent Office, so that I can spend it on the Patent Office.
    I am in exactly the same situation you are and the 
Administration is in. We are trying to be as prudent as we 
possibly can, but we have larger issues. And the Administration 
has determined that for this year, we can get along with what 
we have. And we have a good program. We are going to improve 
service, and we can afford to spend this $116 million 
elsewhere.
    Mr. Rogers. Well, we are still talking about the long-term 
problem.
    Mr. Lehman. Yes, it is a long-term problem.
    Mr. Rogers. Fiscal '99 is a short-term view when you look 
at this problem.
    Mr. Lehman. And, Mr. Chairman, I know the Appropriations 
Committee can only increase the surcharge a year at a time. We 
need a permanent solution, and that will have to come out of 
the authorizing committee. And we will work with them.

                 Patent and Trademark Office Relocation

    Mr. Rogers. Now let us talk about your move. A lot of 
questions being raised about it, everything from whether you 
need all of that space, or that it is too costly. How do you 
respond to that?
    Mr. Lehman. Well, Mr. Chairman, you know, one of the 
frustrating things that we all have to deal with in Government, 
you certainly have to deal with it, is a lot of people get 
misinformation.
    Mr. Rogers. We never encounter that.
    Mr. Lehman. So let me try to set the record straight. First 
of all, this is widely characterized as being that the Patent 
Office is purchasing a new headquarters or something like that. 
It is important to understand that in 1969, the Patent Office 
moved out of the Commerce Department, which is a Government 
building. And we started moving into high-rise buildings that 
were constructed by a developer there in Crystal City. And we 
rent space.
    Crystal City is filling up. The leases for that space are 
expiring. In fact, we are now on GSA-negotiated sole-source 
extensions. So I think you would have probably been most 
unhappy with us if several years ago we did not begin planning 
for this, for an orderly solution to the problem of expiring 
leases, not to mention the fact that our office has grown, 
which is a good thing for the economy, but that has also 
resulted in us willy-nilly getting a building here, a floor 
here, a floor there. It is not the most efficient use of our 
fee payers' money.
    So we put out a solicitation for offers (SFO) to solve this 
problem for the next 20 years and, in effect, advertised for 
developers to come along and say, ``We will rent space to you 
for 20 years.'' That SFO requires, as a condition, as a 
predicate, that the space be cheaper than the rent we are 
paying now.
    In addition, you know, I know some people have said we are 
building elaborate headquarters. I would like to just bring it 
to your attention, Mr. Chairman, that at the present time, a 
patent examiner has 150 square feet for his office. Under the 
proposed design, it will be 120 square feet. It will be less. 
Now, our patent examiners professional organization does not 
like that very much, but that is hardly a waste of money. We 
will actually have less space per examiner. Furthermore, 
supervisors will have offices exactly the same size as the 
examiners.
    The space will be cheaper, but it will be better in the 
sense that we will have buildings that will be smart-wired. 
That is a condition of this procurement for new leases. And we 
are heavily automated. It does not help our efficient use of 
fee money to have to go and back-wire 30-year-old buildings to 
deal with our new computers and so on and so forth.
    We will have a thoroughly modern infrastructure so that we 
can be more productive and ultimately save fee payers their 
fees and maybe produce situations more like we have this year, 
where we have some money for the Committee to work with, where 
we make a profit for the U.S. Government.
    Mr. Rogers. Well, you are talking about two million square 
feet. Currently you have about 1.7 million.
    Mr. Lehman. That is correct.
    Mr. Rogers. With an annual price tag of about $40 million a 
year; correct?
    Mr. Lehman. That is correct, yes.
    Mr. Rogers. A lot of people wonder whether you need all of 
that space given the fact that much of your space is used for 
in the old days paper storage. And now you are on computers, 
which does not require anywhere near that kind of space. And 
there is some suggestion that there is some gold-plating going 
on. I will ask what you think about those charges.
    Mr. Lehman. Well, I think you can just look at the figures, 
Mr. Chairman, and you will see pretty quickly that there is no 
gold-plating. First of all, as I said, business is booming. 
Patent applications went up by 15 percent.
    Now, we have really kept down hires. I mean, for the first 
Clinton Administration, we had an FTE limitation. We worked our 
people to the bone. We did not hire new patent examiners. We 
had to hire some. The Commerce Department recognized that we 
needed some more FTEs than other people, but we have been 
ringing more efficiency out of the system. So we have not had a 
lot of hires, but we have had some. And so our workforce has 
increased. We are expecting our workforce to go up, I think by 
2001, by about 35 percent. We are going to have over 7,000 
employees. Today we have only about 5,000.
    Well, it does not take a Ph.D. in mathematics to realize 
that that is going to require some more space, even though, as 
I said, each employee will have a smaller amount of space. In 
fact, we will have 37 percent more staff people, but we will 
only have 20 percent more space. So the budget contemplates 
that and that is with the impact of automation.
    You know, this has all been worked out, and it is hard togo 
over all of the details here in this setting, but I would be happy to 
send our space people up here to go over every last fact and figure 
with Ms. Miller if you would like.
    Mr. Rogers. Well, is there any independent analysis being 
done?
    Mr. Lehman. Yes, there is, Mr. Chairman. We have had four 
outside studies already. And the Secretary went over to the 
Senate Appropriations Committee last week. I know there was a 
letter that came up from the National Taxpayers' Union. It was, 
frankly, misinformed.
    But when that happens, I can imagine neither you nor 
Senator Gregg nor anybody else would not be doing your duty if 
you were not going to respond to that and try to ask the 
questions that you are asking me, that you asked the Secretary. 
So he plans on having yet another study done, in addition to 
the four we already have had, that hopefully will be completed 
within a very near-term period of time because it will only 
cost us more money if we slow down this process. And I am quite 
confident that that will confirm what the other four outside 
studies have done, outside studies, that this is an extremely 
prudent way to proceed.
    Mr. Rogers. When can we expect the results of that study?
    Mr. Lehman. Well, I was told by our Assistant Secretary for 
Administration that he hoped to get this done by the end of 
April.
    Mr. Rogers. Give us a copy of that.
    Mr. Lehman. Yes. And I certainly hope he can, Mr. Chairman, 
because it would be quite tragic if we had to slow down this 
process. You know, this has been a totally above-board RFP. You 
know, going back, it has been supervised from the beginning by 
the Public Works Committee. We have reported to this Committee. 
GSA has put out an SFO. Anyone in the country who wanted to 
develop this project could apply.
    It has been absolutely by the numbers. And it would be 
quite tragic if because of confusion and misinformation or 
perhaps people that have a vested interest in not seeing this 
project go forward it were to be delayed. And it would only 
cost the fee payers more money and result in a less efficient 
system.
    Mr. Rogers. Well, at one point you were considering buying, 
rather than leasing, at I am told a cost of over a billion 
dollars. And there was some discussion that you would ask this 
Committee to pay for all of that up front, effectively an 
advance appropriations. I trust you have discarded that idea.
    Mr. Lehman. Mr. Chairman, I do not think that was during my 
tenure in office. I think that the cost of constructing these 
buildings will be $700 million. That is what we estimate. Now, 
that is a private party who is going to spend that amount of 
money in order to build space that we will rent.
    Mr. Rogers. Who is the private party?
    Mr. Lehman. Well, we do not know yet. We have put out an 
RFP. And there are four developers that have tentatively--more 
than tentatively--that have submitted proposals. And we are in 
the process of evaluating those proposals to see which is going 
to be the best deal.
    Mr. Rogers. Well, I just want to clarify it. You have no 
plans to buy a building, and you will not come to this 
Committee asking us to pay for it?
    Mr. Lehman. No. We have no plans to buy a building. And we 
are not going to ask the taxpayers to pay for anything, and, 
secondly, we are not going to ask this Committee to pay for 
anything.
    It is a question of Government accounting. I do not think 
anybody, the Administration or here on the Hill wants to put 
out $700 million in any year for our buildings.
    We have a very reasonable plan. That plan, this SFO, the 
leased space, will meet all of our needs. There is no need to 
do anything differently than what we are doing right now.
    Mr. Rogers. Mr. Mollohan?

                             epscot program

    Mr. Mollohan. Mr. Bachula, the Senate I understand is 
currently considering authorizing legislation which would 
provide that EPSCoT grants be made through EPSCoR state 
committees. Are you aware of that? Will you comment on that 
proposal?
    Mr. Bachula. Yes, sir. The EPSCoT Program that you are----
    Mr. Mollohan. EPSCoT?
    Mr. Bachula. EPSCoT.
    Mr. Mollohan. EPSCoT. Okay.
    Mr. Bachula. The EPSCoT Program that you are funding is 
meant to be a companion program to EPSCoR. EPSCoR is a program 
started by the National Science Foundation. It is a number of 
agencies. It goes to 18 states and Puerto Rico, and it is 
designed to build the research capacity----
    Mr. Mollohan. I know what EPSCoR is.
    Mr. Bachula. Yes.
    Mr. Mollohan. What I am asking you is there a Senate 
proposal----
    Mr. Bachula. Yes.
    Mr. Mollohan [continuing]. For EPSCoT to be run through 
EPSCoR state committees? What is your opinion on that?
    Mr. Bachula. Through the committees. We would prefer not to 
have to run it through those committees. We looked for language 
that would require us to work with those committees along with 
economic development agencies, local agencies, state 
governments, and so on.
    We had two regional meetings last year attended by 
literally someone from every one of those states. We had 
representatives of governments, Secretary of Commerce, local 
businessmen, and university presidents. All of them said that 
EPSCoT could be a great organizing function in their states to 
bring together universities, economic development activities, 
state economic development entities. But that if you put the 
money in the hands of any one of those in a controlling 
fashion, any one of those without some self-organizing, it 
would be a mistake.
    So we are proposing to let each state----
    Mr. Mollohan. Who said that it would be a mistake?
    Mr. Bachula. The economic development folks, the folks that 
represented some of the state government activities, some of 
the----
    Mr. Mollohan. That was the consensus of the feedback you 
received?
    Mr. Bachula. Very much. It was very much the consensus. 
There were representatives in both of those meetings from some 
of the folks from the EPSCoR Foundation who have been active 
here in town and who would prefer the other route.
    Mr. Mollohan. What other route?
    Mr. Bachula. Putting it through the EPSCoR committees.
    Mr. Mollohan. Okay. So what you heard back in the states is 
that they would prefer that the money not be put through the 
EPSCoR committees?
    Mr. Bachula. They would prefer that states be allowed to 
self-organize, that if there is a place that a recommendation 
or a proposal has to be signed off on, that it be self-
organization. And it might be different in all 18 states.
    In a state like Montana, for example, the EPSCoR committee 
is very active. It works with the universities. But in 
Louisiana, West Virginia, or somewhere else, it may not be.
    The plan was believed to have the states have flexibility 
and not just dictate from Washington how this needs to be done.
    Mr. Mollohan. In this legislation?
    Mr. Bachula. Yes.
    Mr. Mollohan. What legislation is this recommendation 
contained in?
    Mr. Bachula. It is contained in the authorization bill for 
the Technology Administration and NIST.
    Mr. Mollohan. Do you anticipate that that will be 
inaccurate following the path?
    Mr. Bachula. There is a markup scheduled in Senator Frist's 
committee I believe next week. And as far as whether or not it 
will pass and a conference with the House takes place, we are 
just not certain.
    Mr. Mollohan. Is there companion legislation on the House 
side?
    Mr. Bachula. The House authorizing committee does not 
include authorization for EPSCoT.
    Mr. Mollohan. What happens to this program and your request 
if the authorization is not acted upon?
    Mr. Bachula. Our General Counsel has indicated that we have 
generic authority in the Technology Administration for 
experimental and demonstration projects. And so we believe with 
the appropriation that was given to us by your Subcommittee, 
the Senate, and the law that we can begin the program.
    Mr. Mollohan. Just so I more understand your attitude about 
how you think the EPSCoT funding should be handled, do you 
think it ought to be looked at on a state-by-state basis? I 
have gotten that from your testimony. How should that be 
handled?
    Mr. Bachula. What we would propose to do in the first year 
is simply just take applications from anyone that is qualified. 
But we would propose in other years that states have some sort 
of body that would look at proposals from within that state and 
forward them to us in some sort of priority action.
    Whether that body consists of EPSCoR committees or local 
economic development folks or people from wherever, that would 
be self-organizing. It is quite evident to us it would be very 
different in many of these states, that it would be different 
in Kentucky as it would be from West Virginia, Louisiana, or 
Montana.
    Mr. Mollohan. You would just invite anybody to submit these 
proposals in the first round potentially?
    Mr. Bachula. In the first round, yes. There is not time to 
organize this year the required entity that would then be able 
to pass on a variety of proposals.
    Mr. Mollohan. Then you would choose how the funding would 
flow, either through some entity maybe through the state, or 
you would directly fund the program?
    Mr. Bachula. We will be proposing an implementation plan 
coming to you shortly that will propose that these projects be 
peer-reviewed and competitive and that we use outside peer 
reviewers, probably from states that are not part of the EPSCoT 
states, and that those proposals will be rated and reviewed and 
numerically quantified and then forwarded to us for the 
selection. We will have obviously a very limited amount of 
dollars. It partly depends on what comes in.
    Mr. Mollohan. What I am interested in is then would you 
directly fund the proposal under that scenario?
    Mr. Bachula. Yes.
    Mr. Mollohan. You would not choose a state entity of any 
kind, be it state or other entity,----
    Mr. Bachula. A state entity could be a proposer.
    Mr. Mollohan [continuing]. To make the decisions, to make--
--
    Mr. Bachula. To not make the decisions, but a state entity 
could be a proposer. They could be the lead in a proposal.
    Mr. Mollohan. Yes. Okay. So, to sum up your attitude, you 
would, at least at this stage of things, want to keep more 
control and more of the funding decisions within your agency, 
rather than delegating it to somebody in the state?
    Mr. Bachula. We would like to develop a program for the 
next fiscal year where most of the control is in the states. 
The first year is probably not in time to organize an entity 
and then have them screen proposals.
    Ultimately we would like to see somebody in the state, as 
in EPSCoR, do planning and make sure the proposals sort of fit 
into that state's or that region's plan. There is a reason why 
that proposal is the highest priority for that state or for 
that region. And that is what we would propose to do in the 
second cycle.
    Mr. Mollohan. Did that answer my question?
    Mr. Bachula. Well, you implied there would be more control 
on our side.
    Mr. Mollohan. No. I asked.
    Mr. Bachula. And we are trying to send more control to the 
states.
    Mr. Mollohan. I am asking this: In the first cycle----
    Mr. Bachula. Yes.
    Mr. Mollohan [continuing]. As you describe it,----
    Mr. Bachula. Right.
    Mr. Mollohan [continuing]. Do you anticipate the funding 
decisions to be made by the agency----
    Mr. Bachula. Yes.
    Mr. Mollohan [continuing]. Here in Washington?
    Mr. Bachula. Yes.
    Mr. Mollohan. I tend to agree with that. In future years, 
you are open to the way funding might happen, and you might 
delegate that responsibility to an entity you approve in the 
states--is that correct?--or you might not.
    Mr. Bachula. Right. I think that in future years, we would 
still make the funding decisions here, but a body in the 
states, as in EPSCoR, would take a pass at the varying and 
competing proposals. You could imagine dozens of proposals.
    Mr. Mollohan. In choosing the proposals----
    Mr. Bachula. Screening.
    Mr. Mollohan [continuing]. To be funded----
    Mr. Bachula. Yes.
    Mr. Mollohan [continuing]. Such that your participation--
    Mr. Bachula. They would forward to us a priority list.
    Mr. Mollohan. Do you have this thought through in the 
detail we have talked about it and have it on a piece of paper?
    Mr. Bachula. Yes, we do. It is being internally circulated 
in the Department of Commerce amongst some lawyers and so on. 
And as soon as they will release it, it will be in your hands.
    Mr. Mollohan. That could take a long time.
    Mr. Bachula. No, no. I do not think more than another week 
or two.
    Mr. Mollohan. Okay. Would you----
    Mr. Bachula. Absolutely. Every member of the Subcommittee 
will be----
    Mr. Mollohan. All of them? Every one of them is going to 
get a chance? We would like to see it. Thank you. Thank you, 
Mr. Chairman.
    Mr. Rogers. Mr. Forbes.
    Mr. Forbes. Thank you, Mr. Chairman.

                      Proposed PTO Reorganization

    Commissioner Lehman, last year around this time, I think 
that you submitted to the Committee a proposal for 
reprogramming of funds to allow you to reorganize the Patent 
and Trademark Office industry sectors similar to the European 
model. I know that there are some patent experts who--and there 
is a great debate obviously now about--the efficiency of that 
idea. There is some fear it is less effective and less 
efficient.
    But I know that the Committee at the time turned down the 
reprogramming request because there was a feeling that maybe it 
was premature and efforts to reorganize the Patent Office were 
still very much hanging in the balance. There were some 
concerns also expressed about the effectiveness, as I said, of 
the industry sectors.
    I understand, however, that it seems that the 
reorganization proceeded anyway. I was wondering, Commissioner, 
if you could explain why you decided to go ahead, despite the 
feelings of the Committee, and if you could explain to us where 
this reorganization stands at this time, particularly the 
reshuffling of----
    Mr. Lehman. Yes. Well, Congressman, we submitted a 
reprogramming notice. And let me make it perfectly clear for 
the record I am deeply disappointed that that reprogramming 
notice was not agreed to because it has made it very difficult 
for us to meet the needs of our customers and properly manage 
the Patent and Trademark Office without having that 
reprogramming.
    The reprogramming notice had many features to it. And there 
is a threshold at which management decisions become 
reprogramming. The reprogramming notice that we sent forward, 
for example, proposed creating the position of Chief Operating 
Officer for the Patent and Trademark Office. It proposed 
abolishing and reorganizing many, many important management 
functions. And a part of that notice was that we would also 
create industry sectors.
    We abandoned what in my opinion would be critical and 
extremely important managerial reforms, largely because of your 
objections. And that has made it very hard for me to run the 
Patent and Trademark Office to meet the needs of the customers.
    Mr. Forbes. I appreciate the power you are giving to----
    Mr. Lehman. Well, you have that power, Mr. Forbes. You have 
the power to stop this from going forward, and you did just 
that.
    Mr. Forbes. You ignored the will of Congress. Is that true?
    Mr. Lehman. No, I did not.
    Mr. Forbes. The Committee made it clear----
    Mr. Lehman. I did not ignore the will of Congress. I am 
pointing out that we abandoned our reprogramming notice. And 
then we went forward with management prerogatives and 
management decisions that did not constitute reprogramming.
    What you are referring to are changes that did not 
constitute reprogramming. That is a legal decision. We could 
have the Commerce Department General Counsel look at it, and 
they did. And I do not think we have a problem.
    And I can assure you that our customers are very happy with 
this. I just returned from Silicon Valley last week. We are 
getting a lot of kudos for the changes that we are making. And 
a lot of people are very unhappy with the fact that we are not 
able to make more.
    Mr. Forbes. How much money did you spend on the 
reorganization?
    Mr. Lehman. None.
    Mr. Forbes. No dollars were expended?
    Mr. Lehman. Not to my knowledge.
    Mr. Forbes. For the reorganization?
    Mr. Lehman. That were not already authorized.
    Mr. Forbes. What about the reshuffling of personnel?
    Mr. Lehman. We reshuffle personnel all of the time, but 
that does not constitute reprogramming.
    Mr. Forbes. So you may have a different definition for 
reorganization, I suppose, than the Committee does. Is that 
what I am to infer?
    Mr. Lehman. No. We abandoned our reprogramming. There is 
absolutely no doubt about it, and I want to make it----
    Mr. Forbes. I heard you say you abandoned your 
reprogramming request, but I am asking you about your 
reorganization request.
    Mr. Lehman. We have not done any reorganizing. We have made 
management changes in the Patent and Trademark Office, which I 
do every day. And I have to tell you we would not have a patent 
system if I did not have the capacity to atleast make some 
management decisions at the Patent and Trademark Office.
    Mr. Forbes. I do not think perhaps we are using the same 
definitions. I am not talking about management prerogatives as 
much as I am talking about reorganization. But you are saying 
that the Patent Office has, in fact, not been reorganized at 
all?
    Mr. Lehman. It has not been reorganized consistent with the 
requirements of legislation that requires us to submit 
reprogramming to this Committee.
    You know, we are in a semantic area here, and we could go 
on. If you want to take the position that we reorganized 
because you do not like the way we are doing things at the 
Patent and Trademark Office, that is fine, but we have not met 
the legal test of reorganization.
    We have responded to this Committee. We specifically 
refused to create a COO at the Patent and Trademark Office. We 
still have a number of acting people in there pending the 
passage of legislation. We have not done the things that we 
should be doing because of the specific turndown of our 
reprogramming by this Committee. And, as I understand, that 
largely was something that the Chairman did at your request.
    Mr. Forbes. Well, Commissioner, the PTO seems to be the 
only agency that shows a profit, about $90 million a year. In 
your testimony, you state that the PTO will collect another $50 
million this year because of an improved allowance rate. The 
PTO also collects maintenance fees, as we know, every two 
years, on the patents it has issued.

                           quality of patents

    Yet, despite your references to how everybody is in love 
with the Patent Office and thinks everything is going great, I 
continue to get a lot of reports, frankly, about how patents 
continue to languish, some of them well over five years or more 
and, more importantly, that there are numerous occasions when 
people have to submit their paperwork not once or twice, but 
sometimes even three times because the Patent Office is losing 
the paperwork. That seems to be more of a common occurrence 
than I think any of us, I am sure even yourself, would be 
comfortable with.
    Given the cutbacks and the quality review, what assurances 
are there that the PTO is still issuing high-quality, valid 
patents?
    And, if you could, in response to that as well, I know you 
touched on training, but patent examiners apparently are not 
going to have the opportunity to get the same kind of training 
or retraining that they have had in the past. How do we deal 
with this issue based on----
    Mr. Lehman. Well, unfortunately, Mr. Forbes, you were not 
here to hear my opening statement, but I specifically----
    Mr. Forbes. I read it, Commissioner.
    Mr. Lehman. I told the Chairman that one of the items in 
our budget is a training item, and we are going to increase 
training.
    I think the PTO runs pretty well, first of all, as a 
Government organization. It could run a lot better. If we had 
some of the reforms that are in H.R. 400, if our reprogramming 
notice had gone through, we would be able to run better, but we 
run pretty well as an organization.
    One of the things that I introduced when I became the 
Commissioner was a close look at quality. In fact, I did the 
transition for President Clinton for the PTO. So before I even 
came over there, I had to talk to the various customer groups 
and see what they thought.
    One of the things that I heard was that there was concern 
about the quality of patents. Ultimately, the quality patent is 
a patent that holds up in court. And we have a pretty good 
record with that, I should say. But there was a concern about 
that.
    So one of the first things that I did was take a look at 
what really causes us to have quality patents. We set up a 
system of focus groups. We had public hearings around the 
country. And we really heard from our customers about what they 
thought quality was.
    They did not happen to think, by the way, that the Office 
of Patent Quality Review that we presently had in operation, 
and still have in operation, was giving us the quality 
improvements that we needed. So we introduced other reforms, 
and I think we see in our various feedback mechanisms a general 
recognition of an increase in quality on the part of our 
customers.
    Now, that does not mean that we cannot do better. And we 
are going to try to do better. If you have some specific 
instances that you would like to bring to my attention of where 
we have made a mistake, I will be happy to address those 
directly.

                      training of patent examiners

    Mr. Forbes. I would like to get back to the training for 
patent examiners. I understand you mention training in your 
statement. I read your statement, sir. But you still have not 
addressed my concern about the ability for patent examiners to 
get training and retraining. I would ask again: What are the 
PTO's plans for providing the technical and legal retraining 
for patent examiners? You have 86,000 hours of enhancement 
training I guess available for----
    Mr. Lehman. Well, if you would like to come over to our 
office, I would be happy to take you to the Patent Academy. We 
have as a part of our regular program for patent examiners an 
extensive training program, probably one of the best in the 
world--it is called the Patent Academy--where we train patent 
examiners and continually update their skills.
    We have a program with private industry where sometimes we 
go out on site visits to various companies where patent 
examiners need to learn about new technologies, get people to 
come in and give lectures. And, as I indicated, we are 
proposing to even increase retraining this next year.
    In addition, we have something that I think is really a 
marvelous invention in Government at the U.S. PTO. We have 
something called PTO University, where our employees can after 
hours get training under a program where George Washington 
University, Marymount College, and Northern Virginia Community 
College come in and provide training to our employees.
    That was an innovation of this Administration. It did not 
exist before, and it does not exist in very many other places 
in Government. I think, in fact, it would be very hard to point 
to another Government agency that has been more aggressive in 
retraining its employees than the U.S. Patent and Trademark 
Office.
    Mr. Forbes. Mr. Chairman, I have additional questions I 
would like to submit for the record.
    Mr. Rogers. Thank you very much, gentlemen, for your 
testimony and your time here. We appreciate it very much. We 
will stay in touch, and we will try to work some things out. 
Thank you.


[Pages 317 - 387--The official Committee record contains additional material here.]



                                           Tuesday, March 31, 1998.

                       U.S. TRADE REPRESENTATIVE

                                WITNESS

AMBASSADOR CHARLENE BARSHEFSKY, UNITED STATES TRADE REPRESENTATIVE

                            Opening Remarks

    Mr. Rogers.  The committee will come to order.
    This afternoon we are pleased to welcome to the committee 
the U.S. Trade Representative, Charlene Barshefsky. Ambassador, 
you are our trade negotiator at a critical time as we move a to 
achieve global economy. The United States will be presented 
with golden opportunities and challenges. Your office is 
critical to ensuring the global playing field is level so that 
the United States can compete.
    We look forward to hearing your thoughts on these issues. 
We are pleased to have you with us today. We are running a 
little bit behind schedule this afternoon. We will need to 
conclude as close to 3:00 p.m. as we can.
    Madam Ambassador, we will make your written statement a 
part of the record. Welcome to the subcommittee.

                           Opening Statement

    Ambassador Barshefsky.  Thank you very much, Mr. Chairman 
and Members of this Subcommittee. It is a pleasure to appear 
before you to present the fiscal year 1999 budget request for 
the Office of the United States Trade Representative.
    This Subcommittee has consistently supported USTR's mission 
to open markets, to expand trade, and to enforce our trade laws 
and trade agreements.
    I thank the Committee for its support for providing USTR 
with additional career positions and funds in fiscal year 1998.
    We look forward to your continued support this year. The 
role international trade has played in this, our seventh year 
of U.S. economic expansion, can hardly be over stated.
    Since 1992, exports have accounted for more than one-third 
of U.S. economic growth. Exports account for one in six new 
jobs and one in five manufacturing jobs in the U.S. Jobs 
supported by exports pay wages on average 13 to 16 percent 
higher than the average for all U.S. workers.
    The importance of trade to our economy is underscored by 
our shrinking share of the world's population. America now 
comprises only about 4 percent of the world's population with 
growth much more rapid than our own in other parts of the 
world.
    New middle class consumers can be found around the globe--
300 million projected in China and India alone by 2005. This 
represents a booming potential market for our goods, services, 
and agriculture.
    Whether we capture this potential will determine whether 
our economy remains on top in the next century. Our trade 
policy priorities are designed to ensure that it does.
    Under the President's leadership and with the bipartisan 
support of Congress, we have negotiated 250 trade agreements in 
the last five years; the five biggest of which are NAFTA, the 
GATT, the Information Technology Agreement, the Global 
Telecommunications Agreement, and the Global Financial Services 
Agreement.
    As we look ahead, we see an even more activist and complex 
trade agenda in order to ensure open access to the world's 
market place. Our $24.8 million budget request is designed to 
help achieve our goals.
    It is also aligned with our GPRA annual performance plan 
for fiscal year 1999 which I have submitted to Congress. Let me 
turn briefly to the specifics of our trade policy agenda, 
particularly as it impacts fiscal year 1999.
    First, our most immediate challenge is the financial crisis 
in Asia. The international effort to restore economic and 
financial stability to the region is the single most important 
trade policy objective we have.
    The reason is simple. We cannot sell to our major customers 
in the region if they cannot buy. It also offers an 
unparalleled opportunity to push for much needed and long 
delayed fundamental economic reforms; reforms of a structural 
or systemic nature that can lead to improved economic 
performances and economies more open to imports.
    Monitoring the implementation of the IMF stabilization 
packages, through the IMF, the Administration, particularly 
USTR, the Department of Commerce, U.S. industry, and the WTO 
will be a priority.
    Second, with respect to our legislative goals, restoration 
of IMF funding is key. The Asian crisis also illustrates why 
Fast Track remains a priority for the Administration. It is 
plainly to our advantage to have every tool at our disposal in 
trade negotiations.
    We are plainly disadvantaged when market opening efforts 
are stymied for lack of having the appropriate tools. We are 
continuing to consult with the Congress on fast track. We will 
work with you on the timing and scope of these decisions.
    We are also working in Congress to gain approval of the 
international ship building agreement, renewal of the GSP 
Program, and CBI legislation. Finally, the House has already 
passed the African Economic Growth and Opportunity Act. We 
intend to continue working with the Congress on this important 
initiative.
    Our third priority is monitoring and enforcement. Since 
1993, we have brought over 75 enforcement actions under our 
domestic law and under our international agreements.
    We have filed more complaints in the WTO, 35, than any 
other country. We have prevailed on 18 of the 19 American 
complaints acted upon so far. During fiscal year 1999, we 
expect to work toward completing WTO and NAFTA dispute 
settlement proceedings in many of the 41 active disputes to 
which we are either a complainant, a defendant, or a third 
party.
    We will also continue to challenge aggressively market 
access barriers abroad using all available domestic tools, 
including Section 301.
    Our fourth priority is the World Trade Organization. In May 
of this year, we will set the stage for launching in 1999 
various negotiations in the WTO, including new global talks on 
agriculture services, Government procurement, and intellectual 
property rights.
    We will also continue to work to bring non-member countries 
into the WTO, but only under the auspices of commercially 
viable agreements. Thirty-one countries are actively seeking 
accession to the WTO. We are responsible for all of these, with 
China's and Russia's accession by far the most complex and time 
consuming.
    Our fifth series of priorities are regional and bilateral 
negotiations. Our bilateral negotiations with countries around 
the world have continued at an extremely active pace. 1999 will 
be no exception.
    In recent years, we have also placed a heavy emphasis on 
regional trade relationships and on regional agreements as a 
means of further opening access for U.S. exports. Let me point 
to just a few of these efforts.
    Earlier this month, I met with my counterparts in San Jose, 
Costa Rica to set the stage for a hemispheric summit next month 
in Santiago, Chile.
    That meeting will launch formal negotiations for the Free 
Trade Area of the Americas. USTR manages that process, leading 
the negotiations. We intend to conclude interim agreements by 
the year 2000.
    Completing FTA negotiations with Chile also remain 
anAdministration priority. We also have an extensive trade agenda in 
the Asia/Pacific Economic Cooperation forum, APEC, to eliminate tarrffs 
and expand trade across $1.5 trillion in goods, including medical 
equipment, environmental services, energy equipment, and 
telecommunications. Negotiations on the initial group of sectors should 
be completed this year with the others next.
    The U.S.-EU alliance will be further strengthened as we 
look to expand areas of cooperation and achieve further market 
opening in 1998 and 1999.
    With respect to Africa, we will continue our efforts to 
implement the President's partnership for economic growth and 
opportunity. USTR is responsible for implementing many of the 
key elements of the President's partnership such as initiatives 
relating to GSP, African adherence to WTO rules, bilateral 
investment, negotiations, and increased government-to-
government dialogue on trade matters.
    In the Middle East, in addition to bringing countries like 
Saudi Arbia into the multilateral trading system, we are 
attempting to increase the level of economic integration in the 
region to foster the type of cooperation that is essential to 
the peace process.
    We took an important step in that direction earlier this 
month when I designated the first qualifying industrial zone in 
an industrial park in the city of Irbid, Jordan, where Israeli 
and Jordanian companies, working together and exporting from 
the zone, will enjoy duty-free access to the U.S. We look 
forward to building on this initiative with Israel and other 
countries in the region.
    Negotiation of trade agreements, and enforcement are the 
two central features of our bilateral trade agenda. 
Bilaterally, let me give you just two examples of what we are 
working on.
    First, with respect to Japan, a critically important goal 
this year is to see implementation by Japan of far-reaching 
deregulatory initiatives in such areas as financial services, 
telecommunications, housing, medical equipment, and 
pharmaceuticals.
    We are aiming to see decisive action on the part of the 
Japanese Government in the first half of this year. In 
addition, we are looking to Japan, the world's second largest 
economy to play a central role in resolving the crisis in Asia. 
The U.S. cannot be the only engine of global growth or the sole 
buyer of goods to absorb the tremendous productive capacity in 
the Asian region.
    With respect to China, U.S.-China trade relations involve a 
broad range of multi-lateral, regional, and bilateral 
initiatives, as well as the enforcement of existing 
arrangements.
    Of course, the multi-lateral trade relations are focused on 
China's potential accession to the WTO. We will be better able 
to determine the pace of those negotiations next week in 
Geneva.
    Bilaterally, we have a series of trade initiatives we are 
pursuing with China--whether on citrus, or wheat, or in 
services areas. We devote very substantial resources to all of 
these issues.
    Nowhere is the necessity for a strong bilateral approach 
more evident than in the case of textiles enforcement or in the 
case of intellectual property rights where we have made 
important progress; but, more needs to come.
    Last, Mr. Chairman, we will continue building on our 
initiatives regarding the relationship between trade and core 
labor standards and trade and environmental protection, as well 
as our effort to make the global trading system more open and 
transparent to the public.
    In this regard, the growth in trade also requires us to 
work much more closely with State and local governments. We are 
now doing this on a daily basis.
    With respect to our budget request, for fiscal year 1999, 
we request approximately 180 FTEs and $24.836 million in new 
budget authority. This represents an increase of $1.1 million 
and two FTEs.
    We would use the $1.1 million for three purposes. First, 
$448,000 to meet inflation and the scheduled federal employee 
pay raise.
    Second, $504,000 to complete and upgrade USTR's computer 
system and help ensure that our computer network is year 2000 
compliant.
    Last, $140,000 for two new career negotiators in fiscal 
year 1999; one trade specialist in each of our Japan and China 
offices.
    Consistent with congressional direction in the fiscal year 
1998 appropriation, USTR is reducing the number of political 
appointees to no more than 25 by May 1, 1998.
    As part of a broader and on-going management improvement 
effort to better target our resources and mission, USTR had 
started this reduction prior to enactment of the fiscal year 
1998 appropriation.
    We are committed to achieving the target of not more than 
25 appointees by May 1st of this year. All together, our budget 
policy for fiscal year 1999 is to sustain the record of 
accomplishments that the Agency has achieved in the last five 
years while containing overhead costs, realigning operations, 
and improving management effectiveness in furtherance of our 
mutual goals of a more responsive Federal Government.
    Thank you.
    [The statement of Ambassador Barshefsky follows:]


[Pages 393 - 406--The official Committee record contains additional material here.]



                        Trade Deficit with China

    Mr. Rogers.  Thank you, Ambassador Barshefsky.
    Again, last year in 1997, our trade deficit sky rocketed to 
another all-time high; almost $114 billion.
    The largest problems continued to be with the Asian 
countries, with much discussion about the impact of the Asian 
financial crisis might have on the trade deficit in 1998. Some 
would say that the deficit could increase to as much $150 
billion. What do you say about that?
    Ambassador Barshefsky.  Let me make a couple of comments if 
I could. Our export performance in 1997 was also at a record 
level of about $936 billion.
    The trade deficit as a percent of our GDP is the lowest 
that it has been in ten years--that is, 1.4-percent of GDP, 
which is about half the level of ten years ago. There is no 
question that our deficit with China is of concern and our 
growing deficit with Japan also is of concern.
    With respect to the Asian financial crisis, it is very hard 
to estimate what the increase in the deficit will be, except to 
say that our general sense is the increase in the deficit will 
occur largely through a fall-off in U.S. exports to the region, 
given the Asian countries their diminished buying power as well 
as recessionary conditions in Asia, rather than through an 
increase in imports from Asia.
    It is very difficult to predict any precise numbers because 
they depend in part on the impact of the depreciations, 
including the affected countries' ability to buy raw materials 
to make products that they then export, as well as how long the 
crisis lingers.
    Mr. Rogers.  Well, you draw attention again to China's 
trade deficit. Again, in 1997, our trade deficit with China hit 
an all-time high of almost $50 billion.
    Ambassador Barshefsky.  Yes.
    Mr. Rogers.  That is an increase from $10.2 billion in just 
one year. I know you continue to argue that Most Favored Nation 
Status with China and World Trade Organization accession for 
China will bring more U.S. exports and jobs. These 1997 trade 
numbers give us pause. China's economy continues to grow at a 
phenomenal rate of 8- to 10-percent per year. U.S. exports to 
China, however, continue to increase at a very sluggish pace, 
while U.S. imports of Chinese goods skyrocket.
    We continue to have major problems with China not abiding 
by existing trade agreements with the U.S. Based on our 
continuing problems with China, how can we believe that Most 
Favored Nation Status with China is working and that China 
deserves entrance in the WTO?
    Ambassador Barshefsky.  Well, I think that negotiation of 
China's WTO accession can help with respect to rebalancing the 
trade relationship between the two countries. Right now, 
China's goods enter the U.S. on a normal trade status. That is, 
they pay the same duties as most other countries in the world; 
all but six, including Iraq, Iran, and Libya, have this status. 
So, China's exports already enter on that basis.
    What we do not have is corresponding access into the China 
market. It is a very complicated market. It is filled with 
barriers. It is also, for that reason, very difficult for 
American firms to penetrate.
    WTO accession, as well as the continued negotiation of 
other bilateral agreements, would involve very substantial and 
enforceable commercial commitments by China, and would 
therefore help to rectify that imbalance.
    It is problematic. There is no question about it. We spend 
a lot of time at it. We will continue to do that.
    Mr. Rogers.  Well, from our vantage point, we do not seem 
to see much progress in negotiations with China. Are we making 
progress?
    Ambassador Barshefsky.  Well, yes. I think that we have 
certainly made important progress on a number of agricultural 
issues, as well as with respect to textiles and intellectual 
property rights.
    The WTO accession process itself could be faster, if China 
wished it to be faster. It has been proceeding at a slow but 
steady pace. The trend line is good. That is to say, that we 
keep making progress bit-by-bit-by-bit. We would like to see 
that obviously expand, but thus far, we have proceeded on a 
slow, but I think productive course.
    Mr. Rogers.  What measures do you view as critical in 
determining whether China has made sufficient progress on trade 
reforms to warrant their admission in the WTO?
    Ambassador Barshefsky.  There are four different kinds of 
commitments that we would need to see China make in detail. One 
has to do with market access for goods. That is, what will the 
tariff levels be? What will the non-tariff barriers be? How 
will they be phased out? So on and so forth.
    The second is access to China's services market in the full 
range of services on a phased-in basis. Again, we want to see 
these articulated in very specific and in fully enforceable 
terms.
    Third, China must expand its market opening commitments in 
agriculture, including lowering its tariffs, eliminating its 
quotas, and expanding its tariff rate quotas commodity-by-
commodity which is how these things are negotiated.
    Last, China's adherence to multilateral rules on 
nondiscrimination, national treatment, transparency, customs 
and those rules with respect to state trading enterprises is 
vital. One of the reasons these negotiations tend to proceed 
slowly and deliberately is that the process itself is very, 
very complex. They are literally in the process of agreeing to 
accede to thousands and thousands of pages of pre-written text, 
as well as negotiating bilaterally the range of market access 
commitments with its trading partners.

                          taiwan wto accession

    Mr. Rogers.  What were the critical issues in the recent 
agreement with Taiwan on their bid for accession?
    Ambassador Barshefsky.  We were very pleased with the 
Taiwan Agreement. Taiwan, as you know, will enter the WTO as a 
fully-developed economy.
    We achieved very, very substantial market openings from 
Taiwan, including substantial reductions in their tariffs, 
elimination of nontariff barriers, and special agricultural 
market access even before they accede the WTO; this access is 
for the United States only.
    Then, of course, adherence to the full range of WTO rules. 
The process is continuing. There is a large multilateral 
process that has yet to take place with respect to Taiwan. We 
concluded the market access negotiations bilaterally with 
Taiwan because the deal was that good.
    Mr. Rogers.  Mr. Regula.

                         asian financial crisis

    Mr. Regula.  Thank you, Mr. Chairman.
    Madam Ambassador, I think you do a terrific job. I was 
quite interested in your statement. I used some of that to 
inform the people back home about what is happening.
    I have just three questions. One is about Asia. Are you 
working with the Commerce Department to detect any surges in 
imports from the Asian nations?
    How will the agreements negotiated by the IMF be monitored 
to ensure that the financial reforms in the trade area are 
fully implemented?
    Ambassador Barshefsky.  With respect to the monitoring, 
there are actually several ways in which these agreements are 
monitored.
    First and foremost is through the IMF itself. As you know, 
the IMF will often withhold funds in a given period if the 
reforms agreed to have not been implemented. Even after funds 
have been provided, countries, generally speaking, tend not to 
backslide because they fear risking their relationship with the 
IMF.
    Second, in the Administration, we have set up an Inter-
Agency Task Force chaired by the Commerce Department and USTR 
to ensure that our people monitor the commitments that have 
been made and work with the embassies and with the Foreign 
Commercial Service who are on the ground in the relevant 
countries. That is a process that is now ongoing.
    Third, of course, we have asked the business community to 
let us know how they find conditions on the ground with respect 
to the commitments that have been made by the Asian countries. 
They often have very, very good and detailed sources of 
information. Last, I have spoken personally with theDirector 
General of the WTO because the WTO and the IMF have a relationship. I 
have indicated that, from the U.S. point of view, it is important for 
the WTO to work with the IMF to help ensure that commitments related to 
trade are indeed fulfilled. So, that is on the monitoring side there.
    With respect to surges from Asia, I know that Commerce will 
largely look at this question. They have the import specialists 
and the data collectors that we do not. Of course, that 
information will be examined in the interagency process.

                    fast track negotiating authority

    Mr. Regula.  The Fast Track was not terribly successful. 
Are you trying to develop bilateral agreements with some of the 
countries that might otherwise have been covered by Fast Track? 
When you mentioned it, I think of some agreements in South 
America particularly.
    Ambassador Barshefsky.  Well, we are proceeding with the 
trade agenda that the President has set out and that the 
Congress has been largely supportive of.
    That is to say that strategically, the United States simply 
must have open access to the world's markets. The rest of the 
world has very fine access.
    Mr. Regula.  That is true.
    Ambassador Barshefsky.  We need to have open access to the 
world's markets.
    Mr. Regula.  Absolutely.
    Ambassador Barshefsky.  That is the goal. The initiatives 
that we will proceed with are those initiatives that will help 
us reach that goal.
    The essence of Fast Track with respect to certain countries 
and certain types of initiatives makes it harder. We are going 
to proceed full force because the basic policy is absolutely 
the right policy for the country.

                     market access barriers in asia

    Mr. Regula.  Lastly, market access barriers in Japan and 
other Asian nations. Many of the Asian countries have copied 
the Japanese model.
    I am somewhat concerned about the well-documented 
structural market access barriers within Japan, the so-called 
nontariff barriers. Japan has not been notably good in adhering 
to bilateral agreements designed to address these barriers.
    Most recently, the failure of the WTO in the photographic 
film and paper dispute I do not think was adequately addressed 
in terms of barriers.
    Other than monitoring, what can we do to open the Japanese 
markets to foreign competition and, in effect, overcome what I 
perceive at least are nontariff barriers?
    Ambassador Barshefsky.  I think there are a couple of 
things. One, of course, is as you look at the agreements we 
have negotiated with Japan, particularly in manufacturing 
sectors, we see that our exports under those agreements through 
the first quarter of 1997 were about 2.5 times our rate of 
export growth to Japan as a whole.
    In other words, doing these individual sector-based market 
access agreements with Japan does produce results for those 
particular sectors. What you see after the first quarter of 
1997 is a fall off in U.S. exports consistent with recessionary 
conditions that are now in Japan.
    Second of all, we have a very substantial deregulation 
initiative that we are pursuing with Japan. Prime Minister 
Hashimoto has said Japan must deregulate and become more 
import-friendly.
    Well, this initiative is designed to call his bluff. It 
covers six or seven major areas, including telecommunications, 
pharmaceuticals, and so on. We are pursuing that.
    Last, we are in a very interesting situation right now. 
Typically in Japan negotiations, the United States was going 
after talks with Japan one-on-one. Often times, Europe or the 
rest of Asia would criticize the U.S. approach, giving Japan a 
comfort they should not have had.
    In light of the Asian financial crisis and Japan's 
inadequate response, we now see Asian and European nations 
joining with us, saying to Japan in unison, you have got to 
open your market; you have got to deregulate; and you have got 
to take your share of imports. You are the world's second 
largest economy; you can afford to do it. This is a very 
interesting position.
    The United States, I think, has the high ground on this and 
has full global support for its initiatives. We will use that 
to the maximum extent possible.
    Mr. Regula.  Thank you, Mr. Chairman.
    Mr. Rogers.  Mr. Mollohan.
    Mr. Mollohan.  Thank you, Mr. Chairman.
    Ambassador Barshefky, welcome. I join the Chairman.
    Ambassador Barshefsky.  Thank you.

       korean unfair trade practices against u.s. steel producers

    Mr. Mollohan.  Last year, we had a conversation about a 
matter of serious concern. It concerns the status of dispute 
settlement requests filed by a number of U.S. pipe, and tube 
producers, and three flat roll steel producers.
    Petitions filed by these firms requested that the USTR 
challenge the subsidies given by the Korean Government to Hanbo 
Steel. These subsidies are in the form of at least $5.8 billion 
in Government-directed loans. This makes Hanbo Steel the most 
subsidized single steel mill in history.
    I have a letter here from the President and Chief Executive 
Officer at Weirton Steel, which is, the largest employee owned 
steel producer in the country and certainly the largest private 
employer in my District, the letter expresses serious concerns 
about this situation which, as I say, we talked about last 
year.
    He says, and I will read just a part of his letter: ``The 
Koreans are clearly violating their commitments in the steel 
area. Hanbo Steel, which receives $5.8 billion in Government-
directed loans, despite being uncredit worthy * * *'' I 
understand they got a portion of that money even after being in 
bankruptcy * * * ``Hanbo Steel has continued to operate at full 
capacity through additional Government subsidies * * *.''
    The company has not issued a public financial report since 
June of 1996. Now, Metal-Bulletin, a magazine, reported in a 
February 1998 issue that, ``The Government controls Pohang Iron 
and Steel Company, the world's largest steel producer, which 
will undertake completion of the unfinished portion of the 
Hanbo facility, including two electric furnaces.''
    A 2.2 million ton thin slab casting facility and a 2 
million ton mill is being added. Just to give a sense of the 
size of this steel complex, this essentially means that the 
Korean Government is adding capacity equivalent to Weirton 
Steel's Mill into a mill the size of U.S. Steel's Gary Works.
    In addition, in spite of a higher home market currency cost 
per dollar, Hanbo dominates imports such as scrap, iron ore, 
and coal. The Korean Government has capped steel prices in 
Korea, resulting in hot rolled steel selling for $200 per ton, 
compared to U.S. and world market prices of approximately $350 
per metric ton.
    This has been confirmed by Paine Webber. Even other Korean 
producers are upset with the Government's continued 
subsidization of Hanbo.
    In the March 2nd Business Week, ``Four Korean steel 
companies on February 6th urged President Kim's top policy 
makers to sell off Hanbo's plant to overseas buyers or shut 
down the company completely, arguing that Hanbo is undercutting 
prices by up to 16 percent.''
    The letter from Weirton Steel goes on to express further 
complaints. Last year I inquired about the status of this 
petition. You indicated that you had sent a letter to the 
Korean Trade Minister indicating concern that nothing had been 
done with Hanbo.
    Your letter expressed that what had been done with them 
could be WTO-illegal. You had sought specific information. Yet, 
industry has not received a formal response from you or your 
staff with regard to your intention to pursue this matter with 
the WTO.
    Hanbo Steel continues to operate. There has been a complete 
fall-off of U.S. exports to Korea, of hot rolled steel?
    I would like to hear your assessment of this matter and 
would like to know specifically how you intend to proceed. Do 
you intend to file a complaint at the WTO? When do you intend 
to do it?
    Ambassador Barshefsky.  First of all, we have worked very 
closely with the industry, both my staff and the Commerce 
Department.
    Mr. Mollohan.  Okay.
    Ambassador Barshefsky.  We have worked closely with the 
industry.
    Mr. Mollohan.  Okay.
    Ambassador Barshefsky.  We have had a number of rounds of 
consultations with the Koreans on Hanbo. We have directed a 
series of questions to them, a multiple series of questions, to 
get as much information as possible.
    In order to make out a WTO case in this area, we need 
positive evidence of subsidization. This is a factual standard; 
and means more than simply showing the company was doing poorly 
but received money anyway.
    Mr. Mollohan.  What is unclear? What is not positive about 
the factual presentation that you have?
    Ambassador Barshefsky.  Let me just say that----
    Mr. Mollohan.  I know what you have to do. What I want to 
know is what you are doing.
    Ambassador Barshefsky.  Right. Where we are now is we have 
sat down with the Commerce Department, most recently, and gone 
through all of the information to get an internal view of our 
options on Hanbo.
    There will shortly be a meeting with the U.S. industry to 
examine the question of WTO litigation, and perhaps other forms 
of litigation on Hanbo.
    In addition, with respect to the IMF Program, we have 
certainly alerted the IMF as to our general concerns about 
Hanbo and other companies in Korea who have received financial 
assistance through banks in Korea or through the Government 
when those operations seemed to have been less than credit-
worthy.
    So, this is also on the radar screen in that context as 
well. We will shortly be meeting with the industry to review 
with them the range of litigation and other options in the 
case. I would be pleased to have you or your staff in this 
review.
    Mr. Mollohan.  Have you answered my question?
    Ambassador Barshefsky.  Yes. I am not prepared to say we 
are initiating the WTO case until we have consulted fully with 
the industry and until my lawyers have apprised me fully of how 
strong a case they think it will be.
    Mr. Mollohan.  Do you have personal familiarity of the 
volume of information that you have received and the numerous 
contacts you have had with industry?
    Ambassador Barshefsky.  My staff has. I am generally aware 
of what we have been doing because I do follow things 
reasonably closely in the office. But have I personally gone 
through all of the documentation, no.
    Mr. Mollohan.  All right. I would invite you to do it.
    Ambassador Barshefsky.  I will do it.
    Mr. Mollohan.  You will probably be really interested in 
this. If there is not a case here, then I cannot imagine a case 
being made.
    Do you know what other information you could possibly be 
provided with to give you a foundation for moving forward on 
this, at least making a decision on what you are going to do 
and when you are going to do it?
    Ambassador Barshefsky.  I cannot answer you specifically, 
except to say that my General Counsel's Office and my General 
Counsel will sit down with the industry.
    Mr. Mollohan.  Well, Members of this Subcommittee asked 
this question last year. I think you would have been more 
responsible and prepared to talk about it today. We look 
forward to you moving on it and letting us know.
    Ambassador Barshefsky.  I appreciate that.
    Mr. Mollohan.  Thank you, Mr. Chairman.
    Mr. Rogers.  Mr. Kolbe.

        u.s. leadership in global trade and fast track authority

    Mr. Kolbe.  Thank you, Mr. Chairman.
    Ambassador Barshefsky, welcome. It is always a pleasure to 
have you here. You and I have worked on a lot of trade issues 
on the same side of the street, generally speaking, although we 
have some specific differences.
    I am very concerned, with U.S. leadership in the area of 
trade and where we are going. There have been a lot of 
initiatives announced but I think the evidence out there is 
fairly clear that others seem to be assuming the traditonal 
U.S. leadership in trade.
    Recently, Ambassador John Weeks said that trade was at the 
top of the European agenda and that the European Union was 
going to be setting the agenda for the next round of 
negotiations at the World Trade Organization.
    The EU has announced a lot of other trade initiatives, 
including dialogue in the new Trans-Atlantic market place. I 
will be participating in a conference on that this weekend at 
Greenbriar.
    The EU has also announced a plan for a world conference to 
establish a way to resolve telecommunications or electronic 
commerce issues. They are also pushing for a comprehensive 
millennium round of WTO negotiations. The U.S. proposal for 
completion by a date certain for trade liberalization in this 
hemisphere was rejected at the recent trade ministerial in 
Costa Rica.
    Bolivia, Canada and Chile are waiting for the U.S. to take 
the lead in these areas. They are moving ahead with the 
negotiations with the European Union. In general, I am 
concerned that others are stepping into a leadership role that 
we have traditionally played.
    I think that we, as the largest trading country in the 
world, have a responsibility to lead. I think a lot of it goes 
to the failure of us to be able to have fast track authority 
for this President to negotiate trade agreements.
     I think it is damaging our credibility and our leadership 
in this area not to have Fast Track. Do you think the failure 
to have Fast Track negotiating authority is hampering the trade 
leadership role of the United States?
    Ambassador Barshefsky.  I think the U.S. remains the leader 
with respect to global trade. Our size, our economic dominance, 
the amount of work we put into it help ensure that. I do think, 
though, that our position is not necessarily assured in the 
future.
    There is no question that other countries are moving for 
trade alliances that exclude the United States. Whether it is 
Canada-MERCOSUR or MERCOSUR-EU; whether it is Mexico-Chile or 
Chile-Bolivia or any one of a number of subregional 
arrangements, particularly in our own hemisphere, we will be 
left behind.
    There is no question that the absence of Fast Track acts, 
to a certain extent, to disarm the United States at the point 
which we should be internationally most aggressive. It is 
simply a backward and confounding result.
    On the other hand, there are a number of initiatives that 
are critically important that we will proceed on, including 
launching the negotiations on the Free Trade Area of the 
Americas.
    With respect to that, there will certainly be agreements by 
2000, perhaps in the customs or other areas, and there is no 
question there will be interim agreements.
    Mr. Kolbe.  So, you see some impact, but you believe that 
overall you can proceed with most of the kinds of trade 
initiatives and openings that the Administration would seek 
without Fast Track authority?
    Ambassador Barshefsky.  We will certainly proceed. The 
question whether we can conclude certain initiatives is very 
much in doubt because of the absence of Fast Track.
    I think also as we look at the WTO and to the launch of new 
agriculture negotiations in 1999, the absence of Fast Track 
will certainly have an adverse impact.
    Mr. Kolbe.  When you say ``conclude,'' does the absence of 
Fast Track make some of the partners you are negotiating with 
not want to go too far forward with negotiations?
    Ambassador Barshefsky.  Yes. Let me sort of parcel that. 
One, we have a concern about the launch of agriculture talks in 
the WTO at--that is to say the impact of not having Fast Track 
at that launch.
    Number two, there is a concern, especially in our own 
hemisphere, with the proliferation of sub-regional arrangements 
from which we are excluded. Fast Track obviously is necessary 
there.
    Number three, there are some other shorter-term initiatives 
in which we are engaged in which the absence of fast track 
might have an impact. I think there is no question, as 20 years 
of Presidents have demonstrated, that it is best to have Fast 
Track.
    I think there is no question that at this time of economic 
strength in the United States, our trading partners are simply 
confused that we do not seem to have Fast Track. This, to them, 
seems a rather absurd result.
    There is no question that the goal of this Administration, 
and I think that of this Congress, has been to open access to 
the world's markets for U.S. goods and services. In that 
context, why we would not have a critical market-opening tool 
like Fast Track is simply a silly result.
    Mr. Kolbe.  Can you tell me, does the Administration have 
any plans to seek Fast Track authority from the Congress this 
year? Is there going to be any move to come back to Congress 
and say, let us make another push at this?
    Ambassador Barshefsky.  We are consulting with the 
Congress, including with the leadership of both Houses to 
determine the timing with respect to Fast Track and its scope.
    Mr. Kolbe.  In the absence of that, what can you do that 
will keep the U.S. leadership role front and center in trade?
    Ambassador Barshefsky.  Well, I think there are a number of 
things. They are outlined in my testimony. We will proceed in 
the WTO. As you know, we will launch global talks in 
agriculture in 1999, and in services in 2000.
    Also, this year and next year, we will launch new 
negotiations on intellectual property rights and government 
procurement. We will also proceed regionally with the Free 
Trade Area of the Americas, and with the APEC sectors for 
market opening.
    We will proceed further on a U.S.-EU initiative with 
respect to market opening, and also with respect to Middle East 
trade. We, of course, will continue a very activist bilateral 
agenda. There is no question that Fast Track would be extremely 
advantageous.

        labor and environmental provisions in trade negotiations

    Mr. Kolbe.  Madam Ambassador, turning to another subject. 
In 1996 at the first WTO ministerial meeting, and I was there 
with you, you urged the establishment of a working group of 
nations on worker rights under the auspices of the WTO.
    That proposal was pushed against the opposition of the vast 
majority of our trading partners. Again, in Costa Rica, you 
asked for the same kind of study groups; one on labor and one 
on the environment, which would be charged with making 
recommendations to trade negotiators.
    Again, I think it is safe to say, this proposal faced some 
stiff opposition. Could you comment on whether or not the 
insistence by this Administration of including labor and 
environmental provisions in trade negotiations, something which 
the vast majority of our trading partners rejected as something 
that ought to be included; is having an impact on our ability 
to achieve quick and effective market openings for American 
exporters?
    Ambassador Barshefsky.  I think we actually had a very 
interesting result in San Jose, Costa Rica. We have established 
a committee within the FTAA itself at the ministerial level, 
which is to say at the political level.
    This committee is designed to receive directly the views of 
business, labor, environment, consumers, academics, and other 
interested parties who are stakeholders in the process so that 
their ministers can review that material, and determine what 
ideas are good and what ideas are not good, and how we should 
proceed from there.
    There is, I think, a growing recognition that the biggest 
threat to the multilateral system, that is the biggest threat 
toinitiatives like the FTAA, is the inability of governments to 
persuade their own domestic publics that opening up is good for them, 
good for their economy, good for their job prospects, good for their 
wages, and good for their future.
    There is a skepticism about the benefits of trade that 
pervades not just some elements in the U.S., but in France, 
India, Germany, the U.K., and in most of our hemisphere by way 
of example.
    There was a growing recognition in Costa Rica, I think 
really the first time, that if the public feels excluded from 
the process, the process will ultimately fail. That is why in 
this forum and in the WTO we have urged the creation of 
committees so that those who believe they are affected by trade 
agreements have a means of participating.
    That does not necessarily mean we are negotiating a labor 
agreement in the context of a trade negotiation. It does mean 
that all stakeholders must be involved. The process has to be 
transparent.
    We ought to make decisions as to what should or should not 
be negotiated on the basis of the best ideas, not on the basis 
of ideology.
    Mr. Kolbe.  I appreciate the comment, your response, but I 
have to tell you that some of us who view, hear, and see what 
goes on sees it a little differently.
    The concern that I have is at least domestically that this 
insistence on including labor and the environment continues to 
drive a wedge between what I see as a rather fragile and a 
somewhat narrow pro-trade coalition that exist here in the 
United States.
    It is making it more difficult for us to achieve the things 
that we want. Thank you very much, Mr. Chairman.
    Mr. Rogers.  Mr. Latham.
    Mr. Latham.  Thank you, Mr. Chairman.
    Welcome, Ambassador Barshefsky.
    Ambassador Barshefsky.  Thank you.

                mexican tariffs on agricultural products

    Mr. Latham.  First of all, I want to commend you. Last year 
we talked about some agricultural issues. You said you were 
going to move them to the forefront and bring in someone at a 
higher level.
    Apparently, Mr. Scheer has been appointed the Ambassador of 
Special Trade Negotiations for Agriculture. I appreciate that 
very much. Keep it up.
    Recently, I wrote you along with a number of my colleagues 
from the midwest regarding ongoing negotiations with Mexico 
over the punitive tariffs being levied on high fructose corn 
syrup.
    Ambassador Barshefsky.  Yes.
    Mr. Latham.  In fact, Mexico threatened to cut off imports 
of corn syrup. We cannot afford to lose that market. I just 
wanted to know what is your plan as far as the Section 301 
trade investigation? Where are we?
    Ambassador Barshefsky.  We are very disappointed and 
concerned by the actions of the Mexican Government in the case 
of high fructose corn syrup. We have been working very closely 
with the U.S. industry.
    We are looking very seriously at a case that they presented 
to us. I would expect you will have some announcement on that, 
maybe this week.
    Mr. Latham.  Later this week?
    Ambassador Barshefsky.  Yes.

             european union treatment of u.s. beef exports

    Mr. Latham.  Could you give me some kind of update also on 
how the European Union is regressing, I guess you could call it 
that, in fulfilling its WTO obligations regarding American beef 
exports and what you are doing to ensure that there is 
compliance?
    I see in one press release here about the impractical--it 
says it proves to be impractical for the WTO member to comply 
immediately with the recommendations. A reasonable period of 
time shall be given. What is that and where are we?
    Ambassador Barshefsky.  Right. I assume you are talking 
about the formal dispute with Europe?
    Mr. Latham.  Yes.
    Ambassador Barshefsky.  As you know, we won a panel ruling 
to the effect that the EU's ban on hormone-treated beef from 
the U.S. is WTO-inconsistent.
    We recently were equally successful at the appellate level. 
That means the EU must now comply. This is the way dispute 
settlement rules operate, and we were largely responsible for 
this. By ``we'' I mean the United States.
    In giving parties a reasonable period of time in which to 
comply with the findings of panels or appellate bodies we 
wanted to assure ourselves that we would never have to make any 
rapid changes without considering all our options, including 
the possibility that we would make no change and that we would 
simply compensate the foreign party by way of some other 
concession on a different good or service. The reasonable 
period of time has generally been held to be not in excess of 
15 months, and significantly shorter if in fact a shorter 
period of time would be sufficient.
    We have said to Europe, and we will be having meetings with 
them next week, that plainly, the ruling of the panel and the 
appellate body is that you have no justification for 
maintaining this ban on hormone-treated beef.
    The only question then is how quickly are they going to 
lift the ban? Europe has not given us a response. They would 
like to conduct another ``scientific risk assessment.'' They 
have been spending ten years doing that and they still gin-up 
the science on the other side.
    So, we will be having discussions with them next week. 
Depending on their response as to how quickly the ban will be 
lifted, we will look at all of our options.

                      u.s. access to asian markets

    Mr. Latham.  Very good. I encourage you to keep the 
pressure up. I am just curious about the situation in Asia. I 
know that you have talked a little bit about it. We have got--
and maybe we have some leverage to open up the access for the 
pork industry.
    Ambassador Barshefsky.  Yes.
    Mr. Latham.  Hopefully, we will find some way in our 
efforts to help stabilize their economies too. Also, maybe get 
some concessions and open up those markets.
    Ambassador Barshefsky.  Right. You know in our bilateral 
trade agreement with Taiwan, which we recently concluded, we 
have some very good access for pork.
    Even in advance of their acceding to the WTO, they have 
given the U.S. a special concessions with respect to pork as 
well as with respect to pork by-products.
    We were very pleased about that. The value of that 
concession is about $18 million annually. That is simply up-
front only for the U.S. Once they are in the WTO, in the first 
year of accession, the value of their further barrier 
reductions will be almost $23 million. That number in addition 
to the $18 million. That number will grow every year as their 
restrictions are phased out.
    So, we were very, very pleased with the outcome there.We 
have a very hard time in China on pork, as you know. That is something 
that we are working on with China as well as with Hong Kong.
    Mr. Latham.  Thank you very much. Thank you, Mr. Chairman.

                        trade policy with africa

    Mr. Rogers.  We just passed the new African Trade Bill. The 
President is currently visiting the region. It is my 
understanding that the Administration's trade policy and the 
recently passed bill came up against some criticisms, most 
notably from South Africa's President Nelson Mandela.
    What were those specific criticisms? How does the 
Administration plan to address those criticisms?
    Ambassador Barshefsky.  I think the criticisms came largely 
from something of a lack of understanding, first of all, about 
the bill itself, and second, about the interplay between the 
bill and foreign aid.
    As I understand it, the South Africans were very concerned 
that the bill would serve as a substitute for foreign aid, 
which is not the case. The bill was viewed as a complement to 
foreign aid, but also as a recognition that foreign aid, 
unaccompanied by economic reform, does not produce the desired 
results in these countries. With respect to the bill itself, I 
think there was a misunderstanding that the U.S. would be 
setting a series of mandatory immutable conditions that African 
nations would have to meet, when in fact the range of 
conditions is quite broadly described and is much more 
discretionary so that different countries can be looked at 
individually to ensure that they are reforming in the manner 
that is suited to them and in the manner that best is able to 
comport with their own capability.
    We have worked and the congressional staffs have worked 
very closely with many of the African embassies and many of the 
African leaders who have quite enthusiastically endorsed this 
initiative.
    So, the comments made in South Africa, I think, are 
evidence more of a full understanding of the bill and its 
parameters and the interplay with foreign aid, than a dislike 
necessarily of the overall approach.
    Mr. Rogers.  As I understand it, one of the concerns 
expressed by President Mandela was the impact that such 
increased trade with the U.S. would have on their ability to 
interact with countries that we consider a threat. What impact 
would the Administration's trade policy have on interactions 
with those states by South Africa?
    Ambassador Barshefsky.  That is something that we would 
have to look at, in part, with respect to Iran. I am not sure 
that the South African economic activity even arises under the 
threshold of the bill. Likewise, with respect to Cuba, I would 
have to look pretty carefully at what the level of South 
African interaction is.
    I cannot answer you specifically, but I will say that there 
is no restriction in the bill that would suggest that dealings 
with these countries are prohibited in any way. The dealings 
with those countries would be handled under the legislation 
that pertains to those countries, but not under the Africa 
Bill.
    Mr. Rogers.  Well, I have a number of questions I can 
submit for the record.
    Chairman Callahan and other Members also want to submit 
questions for the record. We would like for you to respond to 
those.
    Ambassador Barshefsky.  Of course.
    Mr. Rogers.  We thank you very much for your testimony. We 
wish you well.
    Ambassador Barshefsky.  Thank you so much.
    Mr. Rogers.  We will take a 5-minute recess.


[Pages 420 - 426--The official Committee record contains additional material here.]



                                           Tuesday, March 31, 1998.

                   INTERNATIONAL TRADE ADMINISTRATION

                                WITNESS

AMBASSADOR DAVID AARON, UNDER SECRETARY FOR INTERNATIONAL TRADE

                            Opening Remarks

    Mr. Rogers.  The Committee will come to order.
    This afternoon, we welcome the Department of Commerce's 
Under Secretary for International Trade, David Aaron in his 
first appearance before the Subcommittee.
    While this is Ambassador Aaron's first appearance before 
this Subcommittee, he comes to us with a strong background in 
international trade. He has most recently served as the U.S. 
Permanent Representative to the Organization for Economic 
Cooperation and Development.
    We welcome you and look forward to working with you. Today, 
we will discuss the Department of Commerce's trade promotion 
activities. As our businesses struggle to compete and thrive in 
an ever-increasing global marketplace, Commerce's trade 
promotion programs are critical to that success.
    You are our global salesmen, helping our industries succeed 
and we want to help you. At the same time, fiscal year 1999 
will bring another year of resource constraints. So, we will be 
looking to you to help us prioritize and find ways to maximize 
our efforts.
    The fiscal year 1999 budget request for the ITA totals 
$286.5 million, a $3.4 million increase over fiscal year 1998. 
Ambassador Aaron, we will insert your written statement into 
the record. We ask you to summarize your statement.

                 Opening Statement of Ambassador Aaron

    Ambassador Aaron.  Thank you very much, Mr. Chairman and 
Members of this Subcommittee. I appreciate the opportunity to 
appear before you in support of ITA's fiscal year 1999 budget 
request.
    Joining me at the table today is ITA's Deputy Under 
Secretary Timothy Houser. On my left is our Chief Financial 
Officer and Director of Administration, Alan Neuschatz on my 
right.
    As you noted, ITA's budget request is for $286.5 million 
and 2,299 FTEs; net increases of $1.3 million or 0.44 percent 
in funding and 59 FTEs or 2.6-percent increase over the fiscal 
year 1999 base.
    This is the fifth year for which we are requesting a nearly 
steady level of resources. In the State of the Union Address, 
the President spoke at length about trade. Today, the record 
high exports account for one-third of this country's economic 
growth.
    The President wants to keep it that way. Given the 
situation in Asia, from which I have recently returned, 
promotion and policy efforts are all the more important. We 
have been able to retain a flat line budget in these times of 
budget constraints and fiscal austerity.
    This reflects this Administration's commitment to promoting 
exports as an engine for economic and job growth. It also 
demonstrates the active support that we have enjoyed from this 
Committee. For that, we thank you, Mr. Chairman.
    By sustaining our funding at current levels, you will 
beable to enable us to continue our full service global network of 
resources through our Commercial Service and to effectively analyze 
U.S. competitiveness on an industry-by-industry basis in our Trade 
development-unit.
    Through our Market Access and Compliance unit, we will 
continue to concentrate on monitoring compliance with trade 
agreements and overcoming market access obstacles.
    Our Import Administration group can continue to ensure a 
level playing field for American business through enforcement 
of the antidumping and countervailing duty laws.
    Since ITA is requesting only a very modest budget increase, 
our budget plan is aimed at focusing as many resources as 
possible from within the base towards ITA's highest priority 
activities.
    These are first, to strengthen compliance. Second, to open 
markets. Third, to promote exports. Our highest priority is on 
compliance with trade agreements and the enforcement of U.S. 
trade laws.
    Our Trade Compliance Center monitors foreign compliance 
with international trade agreements and provides an on-line 
Trade Complaint Center. That is a place where U.S. business can 
seek help at identifying and eliminating market access 
barriers.
    Illegal foreign trade practices will be targeted through 
the enforcement of antidumping and countervailing duty laws 
administered by ITA.
    Second, we must continue to break down trade barriers and 
provide U.S. business greater access to global markets. We must 
examine traditional tariff and non-tariff barriers and, 
together with USTR, find new innovative ways of lowering or 
removing them.
    Last year, we achieved a remarkable breakthrough with the 
conclusion of the U.S.-EU Mutual Recognition Agreements 
covering more than $50 billion in trade in key competitive 
areas such as computers, pharmaceutical, and medical devices.
    This has been a priority of ITA. We look to expand these 
agreements to other key sectors like pressure equipment and 
marine safety equipment. Despite past success in the area of 
export promotion advocacy, we need to continue to strengthen 
these efforts.
    The Secretary and I plan to strengthen the role of the 
Trade Promotion Coordinating Committee. Our goal is to provide 
a seamless web of Government services from technical 
assistance, to advocacy, to trade finance, to help for small 
business; all to support our exporters at every phase of the 
contract and transaction process.
    We are engaged in the Government-wide effort to address the 
Asian financial crisis. We have put forward a four-point Asian 
initiative which is aimed at, first of all, providing analysis 
and information of what is going on in the region.
    Secondly, conducting visits to the area to ensure that this 
information is up-to-date, and to encourage keeping the markets 
open.
    Third, to conduct a series of seminars throughout the 
country with business and our domestic Commercial Service to 
share experiences, and to help them cope with this situation.
    Finally, to put all of this information available at the 
Trade Information Center.
    Trade missions will also continue to be important. In 
addition to supporting Secretary Daley in his trade missions, I 
will lead as many trade missions as I can to promote U.S. 
exports. I will be leaving in ten days for such a mission, my 
first mission, which will be to China. Advocacy is also 
essential. In less than four years, our Advocacy Center has 
helped over 200 U.S. companies win more than 350 overseas 
contracts worth more than $50 billion in U.S. exports over the 
life of these contracts. Small- and medium-sized enterprises 
won $1 billion of these contracts with $650 million in U.S. 
export content.
    Small- and medium-sized enterprises are in fact the basis 
clientele of the International Trade Administration. I will 
work more closely with the small business community, with the 
Small Business Administration, and the EX-IM Bank to encourage 
participation in international trade.
    Small- and medium-sized enterprises account for 28 percent 
of all manufacturing output in the United States, but only 13 
percent of total manufacturing exports.
    Since most of the growth of employment over the last 
several years is attributable to small- and medium-sized 
enterprises, it is vital for our economic future that these 
businesses look beyond our borders for new growth 
opportunities.
    I have created a new Small- and Medium-Sized Enterprise 
Task Force to coordinate and stimulate our multi-faceted 
activities to assist small- and medium-sized enterprises.
    Finally, I believe that the International Trade 
Administration has a special responsibility to promote economic 
policies which will continue to support our country's foreign 
policy.
    United State foreign economic policy must continue to 
support the peace process in the Middle East, Bosnia, and 
Northern Ireland and the ongoing democratic transitions in 
Africa, the Newly Independent States in Central and Eastern 
Europe. Fair trade and open markets create stable economies in 
which democracy can take root and flourish. Let me now turn to 
ITA's budget request for fiscal year 1999.
    ITA is requesting a half-dozen modest budget increases to 
help us in implementing the priorities as I have stated them. 
First, we request $1.6 million and 25 FTEs to enhance the 
vigorous enforcement of antidumping and countervailing of duty 
laws.
    This will enable the Import Administration to implement 
critical provisions contained in the recently enacted Uruguay 
Round Agreements Act, such as the processing of sunset reviews, 
the establishment of a subsidies enforcement effort, and the 
processing of regular administrative reviews now under strict 
statutory deadlines.
    We request $1.6 million and 18 FTEs to enable MAC to deal 
effectively with the large increase in market access cases in 
China, to implement the U.S.-European Mutual Recognition 
Agreements, to help open markets in Asia, to implement the 
various agreements with Japan, and to begin negotiating market 
access issues in the upcoming Free Trade of the Americas 
Agreement and possibly the new Transatlantic Marketplace 
Initiative with Europe.
    We request $1.1 million and 6 FTEs to continue the proven 
and highly successful Central and Eastern European Business 
Information Center, or CEEBIC, program which generates exports 
to Central and Eastern Europe, including Bosnia and 
significantly expands the U.S. commercial presence in those 
regions. It was previously funded by USAID.
    We proposed an initiative totaling $1.8 million and 10 FTEs 
to enable our U.S. and FCS unit to continue to focus on field 
export development planning and initiatives in majorBig 
emerging markets. It builds on the fiscal year 1998 base, selectively 
staffing overseas offices with the personnel required to fulfill ITA's 
TPCC mandate as the lead U.S. agency for the promotion of U.S. 
manufacturers, exports, and services.
    We request an increase of $1 million to allow us to gather 
more data issues, statistical reports, and prepare economic 
analysis on international travel to the United States. The 
travel and tourism industry, in concert with State and local 
governments, can use this information to generate jobs, to 
increase international visits to the U.S.
    We have also included a request for $250,000 to fund an 
evaluation study on our U.S. and FCS field network. We would 
like to undertake a client survey which will help determine the 
most productive means of delivering service in the domestic 
field.
    Finally, the budget calls for a decrease of $6 million in 
base resources to be offset by increased fee collections. The 
increase in fee collections will allow for a shifting of the 
cost of producing trade information products and performing 
trade promotion services from appropriated funds to fees paid 
by those directly benefitting from the products and the 
services.
    We have retained the services of a contractor to help us 
develop a successful approach to this. Preliminary analysis 
indicates additional fee collections are feasible, but would 
take several years to phase in. We will advise this Committee 
as to the contractor's final recommendations once the report is 
completed within the next few weeks.
    Looking ahead to the next century and to the new challenges 
we will face, ITA will use all of its resources in more 
efficient ways to help promote American business interests 
abroad and ensure that international trade creates more and 
better jobs for all Americans.
    Once again, Mr. Chairman, I want to thank you personally, 
Mr. Mollohan, and Members of this Subcommittee for your help 
over the past year in sustaining the level of resources for 
ITA. This enables us to increase U.S. exports and to support 
more high-paying U.S. jobs. With your guidance and continued 
support of this Subcommittee, ITA will continue to focus on 
those objectives that are so critical to the Nation's economic 
future.
    This concludes my prepared statement. I will be pleased to 
answer any questions or respond to any concerns.
    [The statement of Ambassador Aaron follows:]


[Pages 432 - 442--The official Committee record contains additional material here.]



                         proposed new user fees

    Mr. Rogers.  While your budget indicates you are requesting 
an increase for the Foreign Commercial Service for additional 
overseas staff, that is not the whole story.
    In fact, the budget proposes to cut that appropriation by 
$6 million and then to rely upon fees that U.S. and FCS would 
charge clients for what they now do for free to make up the 
difference.
    What specific fee increases are you talking about? Which 
users of your services would be impacted by these new fees?
    Ambassador Aaron.  The specific information products and 
services for which we would increase fees have not been 
determined.
    Mr. Rogers.  We will not know this beforehand.
    Ambassador Aaron.  Yes, we do. This is the reason why Booz-
Allen has come in to examine this situation and do an 
assessment of the areas in which it seems that fee increases 
would be feasible and those where it would be unwise.
    I have to admit, Mr. Chairman, there is no question that 
this is a departure which requires addressing and facing some 
important policy issues, not the least of which is the question 
of the basic role and mission of the U.S. and Foreign 
Commercial Service in supporting small and medium-sized 
enterprises.
    Mr. Rogers.  This is a ploy that we see throughout this 
budget submission this year that the Administration is cutting 
things like this and expecting us to authorize you to raise 
fees to make up the difference, hoping that the Foreign 
Commercial Service's customers will have to pay a fee for vital 
services.
    They know we are not going to go along with that. It is 
OMB's trick, another sham trick to come within a balanced 
budget. They have to come up with a balanced budget by charging 
for services that small business now get for nothing.
    That is what the Government is for. That is what we are 
paying you for is to provide new services, not to charge them 
for providing new services. So, you are going to have to change 
this. How can you change this?
    Ambassador Aaron.  Well, Mr. Chairman, the only way that we 
have known to try to deal with this situation is, as I say, is 
to get this study which would give us the best information we 
have for being able to raise fees.
    Mr. Rogers.  I did not ask you that. I said, how are you 
going to get by without charging these fees?
    Ambassador Aaron.  Well, then we will be faced with having 
to take certain reductions. Those reductions, $6 million could 
have a significant impact on our operation.
    Mr. Rogers.  We have fought for years on this Subcommittee, 
and I have myself, personally, and most all of the other 
Members of this Subcommittee, have fought for years to build up 
the Foreign Commercial Service because it is a way for us to 
have salesmen abroad to sell American products.
    We are not about to let you or anybody else tear that down. 
Now, just get that through your head and arrange your business 
accordingly. We are going to properly fund the Foreign 
Commercial Service.

                             user fee study

    They are not going to charge fees to business people 
selling products overseas. It is contrary to our goal. So, just 
figure out a way to do it. We do not need a study. You can save 
that money. How much are you going to pay somebody to go out 
and make a study?
    Ambassador Aaron.  About $50,000.
    Mr. Rogers.  Have you already contracted with them?
    Ambassador Aaron.  Yes, sir.
    Mr. Rogers.  You paid good money to get these services?
    Ambassador Aaron.  Yes, sir.
    Mr. Rogers.  Well, it is going to be a useless product 
because it is not going to happen here.
    Ambassador Aaron.  Well, I do not think it will be entirely 
useless for one reason. That is that they have come up with, I 
think, some very good recommendations on new products that we 
ought to be providing to small- and medium-sized enterprises.
    I think at least that part of their study, no matter what 
the determination on this particular issue. It will be helpful 
on giving us guidance as we move forward.

                             ita priorities

    Mr. Rogers.  That is fine. As far as initiating new fees to 
charge American business people for your services overseas, 
forget it.
    We will properly fund the Foreign Commercial Service, even 
though you propose to cut them. I am alarmed and surprised, and 
chagrined that the Administration, again, is striking at the 
small business people.
    These are small business promoters overseas. These are not 
the GMs and GEs that you are helping. These are the small 
businesses that we represent. We fought for years to get these 
personnel on board.
    We are not about to let you tear them down, I do not care 
what the OMB says. I have got to question where your priorities 
are.
    At the same time you requesting fees on users of the 
Foreign Commercial Service, small- and medium-sized businesses, 
you are requesting a $6.2 million for other program increases 
which I have to believe are not oriented toward small- and 
medium-sized businesses What are they for?
    Ambassador Aaron.  I guess, I am not sure what you might be 
referring to. These would be for the Trade Development unit, 
the Import Administration, and the Market Access and Compliance 
unit. For each of these units, we have a particular basis on 
which we would present these to you.
    First of all, for the enforcement of our trade laws, we are 
requesting $1.6 million and 25 FTEs for implementing the 
critical provisions contained in the Uruguay Round Agreements 
Act. This is aimed at dealing with the problems of the sunset 
provisions, that Act, which requires us to review some 400 
orders. That is in addition, of course, to our regular work 
load.
    Mr. Rogers.  Is a part of the $6.2 million increase that 
you are requesting, does a part of that go to Market Access and 
Compliance?
    Ambassador Aaron.  Yes, it does.
    Mr. Rogers.  How much?
    Ambassador Aaron.  $1.6 million and 18 FTEs. Then there is 
a portion that is supporting Central and Eastern European 
Business Information Centers, CEEBIC, which is aimed at 
supporting our commercial presence in Eastern Europe, Eastern 
and Central Europe, including Bosnia.
    Mr. Rogers.  Well, Market Access and Compliance is 
headquartered here in Washington. We have cut that program over 
the last three years believing that the Foreign Commercial 
Service, our front line, will continue helping our small and 
medium-sized businesses, not the trade policy analysts in 
Washington. That is the reason why I will not let you whack the 
Foreign Commercial Service in favor of Washington bureaucracy.

                            ita realignment

    Ambassador Aaron.  Well, I can appreciate that, Mr. 
Chairman. May I suggest that this particular allocation also 
has to be seen in the context of the realignment in ITA, which 
we are proceeding with at the same time that this budget for 
1999 is going forward.
    In that realignment, we are looking forward to producing up 
to 50 FTEs which would go to the U.S. and FCS to provide 
additional resources for the field, but this would be in this 
year's budget.
    Mr. Rogers.  What realignment are you talking about?
    Ambassador Aaron.  This is not part of the budget 
submission for this year, but it is taking place at this time. 
We have briefed the staff on the general outlines of this and 
will be coming forward in due course with the normal 
reprogramming efforts.
    Mr. Rogers.  We have not seen your reorganization report.
    Ambassador Aaron.  That is true, Mr. Chairman.
    Mr. Rogers.  So, we will need to see that before we decide 
how much to spend.
    Ambassador Aaron.  That is true.
    Mr. Rogers.  And for what purposes. It is things like this 
that we have to look at very carefully.
    Ambassador Aaron.  In fact, the effort is to try to be 
responsive to the message that I believe this Subcommittee has 
been sending us for the last several years, that you would like 
to do precisely the reverse. We get that message.
    Mr. Rogers.  You are not doing that with this budget 
submission.
    Ambassador Aaron.  Well, I am doing the best I can, given 
the constraints that are on us, Mr. Chairman.
    Mr. Rogers.  What constraints?

            fee proposals in the president's budget request

    Ambassador Aaron.  I have to defend the President's budget.
    Mr. Rogers.  I see. So, what you are telling me is that 
this is not your doing. This is what OMB is telling you to do.
    Ambassador Aaron.  I think that I have to defend the 
President's budget, Mr. Chairman.
    Mr. Rogers.  I see. What did your request to OMB contain?
    Ambassador Aaron.  Our request to OMB did not contain this 
provision.
    Mr. Rogers.  This provision came down to you from on high.
    Ambassador Aaron.  As you noted, this is a general 
Administration effort to charge more fees in different areas. 
This is our share.
    Mr. Rogers.  Since they cannot spend appropriated funds 
because of budget caps, they are proposing fees all over the 
place. They have got fees on everything that you can imagine 
submitted to us this year, trying to get under the spending 
caps.
    It is a sham. It is a fraud. I will not put up with it. 
They wanted to increase for the SBA. This does not concern you 
at all, but the SBA Administrator came in here and said they 
want to double the interest rate that is charged to people who 
need loans because they have been wiped out by floods, 
tornadoes, or other disasters. Their only access is to an 
emergency disaster loan from the U.S. Government and the 
Administration wants to double the interest rate charged on 
those poor people. They have no other access and they are 
absolutely prostrate and destitute on the floor. They want to 
double their interest rate. We ran the Administrator out of the 
room.
    Now, you do not want to increase these fees; do you?
    Ambassador Aaron.  As I say, Mr. Chairman, I will do all in 
my power to both defend the President's budget and also serve 
the small business community.
    Mr. Rogers.  Well, we want you to do the latter; whatever 
it takes.

                             mac resources

    Ambassador Aaron.  Could I volunteer a comment, by the way, 
concerning MAC?
    Mr. Rogers.  Yes.
    Ambassador Aaron.  I recognize the view that you have 
expressed as an important one and have taken it to heart. I 
think it is very important to recognize that the desk officers 
in MAC are not sort of some thumb-sucking analysts who are just 
sitting around thinking about what might be nice in the trade 
world.
    These people are essential to our compliance efforts, for 
example. The Trade Compliance Center, which you have very 
generously funded and which is up and running, and in fact has 
even got a higher level of staffing than you have proposed. 
This group is expert in our trade agreements. They analyze 
economic data to find out whether there might be some problems 
of compliance. But when it comes to a particular country, they 
do not know about that.
    They are not expert in that. If we were to build that 
expertise into the Trade Compliance Center, we will simply be 
duplicating the desk officers we have already got. Now, we 
reduced, at your direction, the number of desk officers that 
were available to MAC.
    We have done it by getting rid of people who did business 
counseling and who did a number of other things that should not 
be done in Market Access and Compliance.
    We have a series of market access problems. There are only 
three people working on China. We have half as many people 
working on Japan as we had just a few years ago.
    We may have these new negotiations beginning with Europe. 
We have the Free Trade for the Americas Agreement where we have 
half as many people working on that in Latin America as we did 
when we were negotiating NAFTA.
    We now have to negotiate with 33 other countries. In order 
for the business community to provide its input so that our 
negotiators are really negotiating on behalf of the business 
community. We need these people because that is what they do. 
They bring that perspective to the table, both on our 
compliance efforts and on our negotiations.
    Mr. Rogers.  Well, I mean, I have got nothing against MAC. 
It is obviously a necessary entity and it does good work as you 
have described. However, given our tight budget constraints, if 
it is a choice we it will FCS rather than Market Access and 
Compliance.
    Ambassador Aaron.  I appreciate that.
    Mr. Rogers.  And that is about where we are with tight 
money. We are asking you to look at this very carefully and 
recognize that we cannot go on with the fees that you wanted to 
charge the Foreign Commercial Service's clients overseas and 
our constituents. They think they are paying their taxes. Mr. 
Mollohan.
    Mr. Mollohan.  Thank you, Mr. Chairman.
    Ambassador Aaron, welcome to the hearing, you and your 
colleagues. I just want to express my appreciation for the good 
work you do, the trade development, and the market access 
compliance group, and for the administration of the U.S. and 
Foreign Commercial Service.
    You do valuable work with businesses. We appreciate that. I 
am interested in your expanded comments on MAC and justifying 
it and expressing disappointment maybe in having to reduce 
personnel in that function.

                              hanbo steel

    Do you have anybody who does Korea?
    Ambassador Aaron.  Yes.
    Mr. Mollohan.  What do they say about Hanbo Steel?
    Ambassador Aaron.  We are working with both the desk 
officer there and with the Import Administration on the Hanbo 
Steel Case.
    Mr. Mollohan.  What does that mean?
    Ambassador Aaron.  What it means in this particular case is 
we have been developing information from industry, from the 
concerned U.S. industry people. We have been discussing with 
the Korean Government the problems that we have with Hanbo 
Steel.
    We have, of course, as you know put them on the special 301 
list last October. We have been discussing with the Korean 
Government the circumstances. I have personally discussed with 
some Korean officials, when we were there a few weeks ago, a 
somewhat mysterious situation in which a bankrupt company 
continues to operate pretty much at full blast.
    Due to these circumstances, we are now looking very 
carefully at the possibility of whether there is a case here 
under our countervailing duty laws.
    Mr. Mollohan.  If there is not a case here, I would like to 
know a set of facts that constitutes a case. Reading from an 
excerpt of the testimony of the President of IPSCO Steel before 
the House Banking Committee.
    He said, ``Between 1992, a long time ago, and 1996, Korean 
banks, lead by the Government-owned Korean Development Bank, 
loaned almost $5.8 billion to Hanbo Steel to build a green 
field 9 million ton steel complex on Asin Bay in Tangin, Korea.
    At the start of this period, Hanbo's debt equity ratio was 
already 5 to 1. By the time the company declared bankruptcy in 
January of 1997, the debt equity ratio had ballooned to over 22 
to 1.
    Hanbo, a clearly uncredit-worthy company, obtained these 
loans because of Government-directed lending practices and the 
Korean Government policy to expand the steel industry. Even 
after the company filed for bankruptcy, the Government 
continued with subsidies.
    It's Trade Minister, Soon, stated on February 4, 1997, 
``The priority is to finish the construction of Hanbo's steel 
mill by the end of this year through additional financing and 
commissioned management by Po Hang Iron and Steel.''
    Another Finance Minister official, Young, said, ``For the 
benefit of the national economy, we must keep the plant 
operating.''
    February 18, 1997, the Committee on Pipe and Tube Steel 
Imports and three U.S. flat roll steel producers, including 
Weirton Steel--filed a request with the USTR and the Department 
of Commerce to pursue a dispute settlement case with WTO for 
the Korean Government subsidies code violations with regard to 
Hanbo subsidies.
    The industry has submitted an awful lot of material to you. 
One of your Korean desk officers in MAC would not have to work 
real hard to put it together. As I understand it, your 
responsibility is to assimilate the facts and submit them to 
the USTR. Have you done that yet?
    Ambassador Aaron.  It is being assembled and it is being 
assimilated. Let me, if I can, just explain the situation as it 
stands.
    Our principle work has been with U.S. industry to get all 
of the facts, as you have pointed out, that they have available 
to them. We are encouraging them to do that as expeditiously as 
possible. The rules under which we are operating require that 
we show a serious prejudice. In other words, we have to show 
that there has to be injury to the domestic industry.
    They have to have lost exports. We will demonstrate that. 
We have to demonstrate lost sales and financial harm. Secondly, 
we have to analyze the actual subsidiaries that are alleged; 
the type of subsidies, and are they prohibitive.
    We need enough information, despite the amount that has 
been given. I think the conclusion is that we are now digesting 
this enormous amount of information, but trying to prove our 
case. There is no foot-dragging here. There is no inattention. 
We do know this is an important case.
    Mr. Mollohan.  Excuse me, Mr. Ambassador. You do not prove 
a case at this stage. You are assimilating facts and turning 
them over to trade representatives; are you not?
    Ambassador Aaron.  Well, we are trying to build a case 
though.
    Mr. Mollohan.  You are assimilating facts. Then the 
decision lies with the USTR of whether to bring the case to the 
International Interagency Task Force.
    Ambassador Aaron.  That is their decision.
    Mr. Mollohan.  So, that is down the road. You are not 
trying to decide the case now. You are assimilating facts.
    Ambassador Aaron.  Well, I think we are trying to build a 
case so that when USTR gets it, they can see from this basis 
whether there is a case or not. They are not in a position 
really to do much else.
    Mr. Mollohan.  The point is that this is really taking a 
long time. If you take that long assimilating facts togive to 
USTR, you are not in the business of helping American companies.
    Then it goes to this agency task force. Then we are going 
to have all of the conflicting foreign policy issues that are 
going to be raised. This is demonstratable, obviously a prima 
face subsidy situation.
    The harm that is being created is significant. It is pretty 
evident also. Given the Asian financial crisis that we are 
facing, we really are very concerned about what impact it is 
going to have on the domestic steel industry.
    Korea is already, as I understand it, shutting down imports 
of steel into Korea. Did you know that? Am I right about that?
    Ambassador Aaron.  Our exports to Korea. They shut down 
imports into Korea.
    Mr. Mollohan.  Yes. That is my understanding.
    Ambassador Aaron.  Our understanding is that they have shut 
down almost all imports from every direction. This has been 
principally a result, not a customs action, or a tariff action, 
or anything like that. It is the result of the lack of credit 
to do any importing.
    Mr. Mollohan.  Well, perhaps true. I am advised also that 
the steel they are producing is going at $200 per ton and it is 
about $350 on the world market.
    Anyway, it is a very difficult situation. It is certainly a 
constituent issue with me. It is also a national policy issue.
    I just would encourage you to do your part and get the case 
moving as quickly as possible. I do understand it is in your 
lap, if I am advised correctly.
    Ambassador Aaron.  That is correct and I will get it out of 
my lap as soon as I possibly can.
    Mr. Mollohan.  Thank you, Mr. Ambassador.
    Thank you, Mr. Chairman.
    Mr. Rogers.  Mr. Kolbe.

                            trade statistics

    Mr. Kolbe.  Thank you very much, Mr. Chairman.
    Ambassador, thank you for being with us this afternoon.
    I wanted to ask first a general question on some of the 
trade data statistics that we get and the adequacy or the 
inadequacy of them.
    In a recent book, Work of Nations, Robert Reich refers to 
our trade statistics as almost being bankrupt, I think he says. 
In fact, here is the quote. He says our trade statistics are 
``notoriously imprecise, subject to widespread seemingly 
inexplicable corrections.
    The truth is these days that no one knows exactly at any 
given time whether America's international trade is in or out 
of balance and by how much.''
    Paul Risten in Twilight of Sovereignty said that, ``The 
current trade accounting system is totally inadequate.'' First 
of all, I would like to know whether you think it is as bad as 
they have suggested it is? If so, what are we doing to enhance 
our trade data system?
    Ambassador Aaron.  Well, first of all, if our trade deficit 
was not as large as it is, Mr. Reich's comments might be 
correct. The uncertaintities in it might make it difficult for 
us.
    Unfortunately, our trade deficit is so substantial that I 
do not think the question of this precise number is as salient 
as the fact that the number is growing, and is large, and, from 
my point of view, unacceptable.
    On the question of the data itself, let me say that there 
are three areas where we could improve our trading data in my 
judgment. Well, let me make it four areas. First of all, we 
used to have a program that provided for State-level export-
related job data. That information was extremely important 
because it gave us the sense of how many jobs were being 
created by the exports and helped us enormously in ITA because 
we could see whether our work from the Foreign Commercial 
Service was in fact supporting jobs, or it was not supporting 
jobs.
    It gave us an efficiency mark. This program was canceled in 
1996 because of budget stringencies. There is no data on this 
since 1991. In other words, the delay in getting this data was 
so great that, by the time we got it, it was substantially out 
of date.
    There was a four-year lag. These were the only defensible 
statistics that we had on export support of jobs and production 
in each State of the Union, which obviously is extremely 
important both to States and to the Federal Government.
    We have talked to Census about this. They say they could 
restart this program for a half a million dollars, and that it 
would cost about $250,000 annually to keep it up to date.
    The second thing is the exporter database. These are the 
statistics on the number of exporting companies broken down by 
size, industry type, type of company, state location, metro 
location, and so forth.
    It provides the share of exports that are attributable to 
small- and medium-sized enterprises. We do not know that number 
without this database. The problem is that we only have data 
for 1992. Here we are in 1998.
    We have no funding for an update. Census has told us that 
they can produce this data on an annual basis. We could have it 
every year with only a one-year delay for about $680,000.
    This would be a critical input to our measurement of the 
effectiveness of our own programs. Third, there are State and 
metropolitan area export statistics. Here we have significant 
limitations in the data.
    A major problem is that over $58 billion in exports cannot 
be allocated to any State due to faulty reporting by exporters, 
the quality of the data, and inadequate staff frankly to try to 
overcome these problems.
    Right at the moment, we have annual data only. The report 
lag is nine months. We have the problem of $44 billion in 
exports that cannot be assigned to any metropolitan area.
    So, we have the numbers, but we do not have the ability to 
allocate them property to the places where they are supposed to 
be.

                trade statistics and the budget request

    Mr. Kolbe.  Excuse me for interrupting, but in your budget 
request, I do not see any of that listed as one of your 
priorities for any of those programs. Am I wrong?
    Ambassador Aaron.  No, you are not wrong.
    Mr. Kolbe.  Those are not priorities for you?
    Ambassador Aaron.  Well, they would be priorities if we had 
a little more money.
    Mr. Kolbe.  Thank you for the non answer.
    These are not priorities in this year's budget?
    Ambassador Aaron.  Well, let me put it differently. They 
are priorities of ours, but they would be in the Census 
budget.So, they would not be reflected in our budget.
    Mr. Kolbe.  Wait, wait, wait, wait. Census collects the raw 
data now. You would have to pay to get the information in the 
form that you needed it. It should be in your budget. Is that 
not correct?
    Ambassador Aaron.  Well, in fact, it could be in either 
budget. You are correct.
    Mr. Kolbe.  The Census Bureau has testified that they have 
the data. They have no way to manipulate it or make any use for 
it because they do not have the resources to do it. So here we 
collect the raw data.
    I would argue that it is more for the specific use, the 
trade use of trade statistics falls more in your budget. This 
sounds like a classic falling between the cracks kind of thing.
    The data is collected. You say, well, Census does not have 
it in their budget. The Census says, well we collected the 
data. All we have is the raw data here, but nobody is making 
any use of it. It strikes me that somebody needs to be talking 
about this.
    I think census and ITA are both within the same Commerce 
Department, the last time I checked. Maybe the two parts need 
to talk to each other about this. I had not really attempted to 
pursue this.
    I find this a little shocking that you are telling me that 
it is possible to do these things with a pretty small amount of 
money and they are not in your priorities for you.
    Ambassador Aaron.  Well, as I say, they are in our 
priorities, but the budget cut did not come in at a place that 
allowed us to put this in our budget. I mean if I had more 
money, I would be doing this. I think it is very important.
    Mr. Kolbe.  You did ask for $1 million to gather data 
issues and prepare economic analysis on international travel. 
Is that more critical than all of our manufacturing and 
services? I am not saying that travel data is not important, 
but I think frankly you have your priorities a little wrong.
    We are going to have to go here. So, let me follow, if I 
might with another line of questioning. I come at this from a 
different point of view than some of my colleagues here.

                antidumping and countervailing duty laws

    It has to do with the issue of dumping. You talked about 
the anti-dumping and countervailing duty laws. You talked about 
in fact your very first priority was $1.6 million and 25 FTEs 
for vigorous enforcement of anti-dumping and countervailing 
duty laws.
    I just have a couple of questions in that area. The Uruguay 
Round Agreements recognizes that U.S. industrial users and 
consumer organizations ought to have a right to participate in 
the proceedings relating to anti-dumping and countervailing 
duties.
    That is also recognized I think in your Department's 
regulations. What role do these groups play now in this 
process?
    Ambassador Aaron.  Could I use this opportunity to ask our 
Assistant Secretary for Import Administration to comment on 
this?
    Mr. Kolbe.  Fine. All of my questions are in this area, so 
you might as well pull the chair right up there and identify 
yourself for the record.
    Mr. Larussa.  Congressman, my name is Robert Larussa. I am 
the Assistant Secretary for Import Administration. In answer to 
your question, industrial users do in fact participate in 
antidumping cases.
    Our regulations do give them the right to comment, to 
submit information for the record. I think your question 
probably is focused on whether they can actually bring a case 
or whether they can actually ask, let us say, for a changed 
circumstances review. We have said in our regulations that we 
have the right to self-initiate a change circumstances review 
and would do so if there is information on the record submitted 
by industrial users that we thought could be enough to go 
ahead.
    Mr. Kolbe.  You have said that you have the right to self-
initiate if you have a basis, if you have factual data which 
suggest that you should self-initiate?
    Mr. Larussa.  Yes, sir. It is just like a legal case.
    Mr. Kolbe.  Would you provide for the record the number of 
self-initiated proceedings that you have undertaken?
    Mr. Larussa.  We will come back and do that.
    [The information follows:]

          The Number of Self-Initiated Proceedings Undertaken

    There have been three self-initiated proceedings undertaken 
by ITA's Import Administration unit.

    Mr. Kolbe.  Can you tell me right now how many you have 
done?
    Mr. Larussa.  I could not tell you right now. As you know, 
for example, we initiated a changed circumstances review in 
Korean color televisions last summer. I know we have several 
others. I can get you a list for the record and submit it to 
you.
    Mr. Kolbe.  Now, do you do these when they are not 
requested by the industrial users who file the antidumping case 
in the first place?
    Mr. Larussa.  Yes. We can self-initiate.
    Mr. Kolbe.  Have you ever made a change, the determination 
of a change, over the objections of the organization or the 
industrial user that initiated the original antidumping case?
    Mr. Larussa.  Well, there are probably two ways to answer 
that. I just want to be clear. We initiate changed 
circumstances review when we see something has in fact changed 
in a case.
    Very often the petitioners in the case will not agree with 
us that something has changed and it is something that we go 
back on. We make a decision based upon information submitted by 
petitioners and respondents.
    So, in fact, we have done changed circumstances reviews in 
which petitioners have not agreed with our ultimate decision to 
either revoke or change the order.
    Mr. Kolbe.  You have revoked orders over the objections of 
the individual, or the organization, or the company, or the 
association that filed the original antidumping case?
    Mr. Larussa.  We have a situation and I will give you an 
example. We have a situation in Korean color televisions, for 
example, in which we initiated a changed circumstances review 
last year.
    We made a preliminary decision to revoke the order in that 
case. That was over the strong objection of the petitioners.
    Mr. Kolbe.  Without the petitioner, and in this case, the 
petitioner did not file a statement of no objection to-- I 
cannot think of a different phrase, but they did not agree that 
they had no interest in the case any longer. They specifically 
said they did not want it revoked and you revoked it.
    Mr. Larussa.  I do not want an unanswered question because 
I think what you are referring to is the short supply
    Mr. Kolbe. Yes. I am getting around to that short supply, 
but I thought it was also true in the changed circumstances.
    Mr. Larussa. Well, the changed circumstances really is just 
a procedural vehicle that we could use in a short 
supplysituation. Again, to answer your question, in fact we have 
testified on a number of occasions that we do believe it would be 
difficult for us to revoke over the objection of petitioners in short 
supply situations.
    I think that is what you are getting at. There were two 
different things. I did not want to not answer your question.
    Mr. Kolbe.  What does the Commerce Department do concerning 
products that are in short supply, but are nevertheless subject 
to antidumping and countervailing duty orders?
    Is it not true that Commerce does not take action to 
relieve the burden unless the petitioners specifically consent 
to the change? That is what I was trying to get at in my 
earlier question.
    Mr. Larussa.  I understand. We have addressed this in our 
regulations that we put out last June. What we did is we put 
two procedures in, in which we would very early in the case go 
to the petitioners and say, is there in fact a short supply 
situation here?
    Do you in fact not make the product? If so, that we would 
initiate a scope proceeding, which is a way we can change the 
scope of the order that the products cover. So, the answer is 
we go to the petitioners and we try to work with them.
    We have found, from our experience, that the petitioners 
and the domestic industry do not. Usually they have a problem 
with us revoking that part of the order.
    Mr. Kolbe.  It is not true that you very frequently do. Do 
you require them to state a reason for their objecting to 
removal when you find a changed circumstance?
    I am told that they simply put a statement in saying, we 
object. That is it period. They supply no reason and that is 
the other thing. The hearing is finished. The review is over 
and that is it.
    Mr. Larussa.  Well, again, not to get into procedural 
niceties here, but if we had in fact initiated a changed 
circumstances review, petitioners and respondents would put 
their information on the record.
    We would make a decision based upon that. I think, sir, 
what you are asking is whether we revoke orders or parts of 
orders in cases where there is short supply. The truth is, 
again, that we would go to the petitioner and try to work with 
them.
    If in fact, the petitioner objects to it, meaning they are 
making those goods in question, we generally will not revoke 
the order of the objecting petitioner.
    Mr. Kolbe.  I have to go cast my vote. I have a series of 
specific questions dealing with finished drill pipe, not 
produced in my state, not used in my state, not a parochial 
interest. But, I think it is a classic example of the way in 
which this whole process has broken down.
    I will submit these specific questions for the record and 
ask for a response for them. It is a classic example of an 
industry that is in desperate trouble. As the oil prices are 
falling, we need to do everything we can to try to maintain 
domestic production of drill pipe.
    We have a critical shortage of finished drill pipe. We have 
an antidumping order against it. We do not produce it here but 
we can import it. It cannot be provided because of an order. It 
has now gone to a 300-percent price increase and an 18-month 
delay in delivery.
    So, we basically have shut down all drilling in this 
country because of these stupid orders that we have in place 
which remain in place with no attempt to make any change to it.
    I will submit these questions for the record.
    Thank you, Mr. Chairman.
    Mr. Rogers.  Mr. Skaggs.
    Mr. Skaggs.  Thank you, Mr. Chairman.

                            trade statistics

    Jim, it turns out, we are on largely the same course having 
to do with the trade statistics matter. I hope we can 
collaborate when we get to mark-up.
    Mr. Kolbe.  We will.
    Mr. Skaggs.  With that warning, let me continue the 
dialogue you were having with Mr. Kolbe for a minute, 
Ambassador.
    I apologize for not being here when you made your opening 
statement and had discussions with the Chairman. There was 
something on the House floor that I was involved in at the 
time.
    The entity that did not come up in your conversation with 
Mr. Kolbe was the Bureau of Economic Analysis, which I thought 
from my scanning of the job descriptions within the Department 
was a kind of intermediary that scrubbed the raw data that 
Census obtains for your use and for others. How would you 
describe their role?
    Ambassador Aaron.  I think that is a fair way to put it. 
Indeed we work very closely with them. They bear much of the 
analytical burden.
    Mr. Skaggs.  In fact, if we were to try to develop more 
discrete and precise measures, both on the export and the 
impact of import statistics, would it be done by the Bureau at 
your direction? What is the relationship between data 
gathering, data analysis, and data use?
    Ambassador Aaron.  It is done in different ways. Census is 
an important player in the development of the information to 
begin with.
    Secondly, the Customs Service is another important source 
of information. The more fine grained you get as to who is 
actually doing the importing, who is actually doing the 
exporting, that is essentially the Customs Service.
    Mr. Skaggs.  Is that data now collected, but just not able 
to be analyzed?
    Ambassador Aaron.  It depends on the circumstances. For 
example, we are now in the process of monitoring, because of 
the Asian crisis, we are going to be monitoring imports; 
particularly, in sensitive industries both for the purpose of 
being able to enter into an appropriate dialogue with industry, 
if they come up with anecdotal concerns of the sort that we 
have heard here already today. We will have a firm database 
from which to discuss it.
    Secondly, to get, if you will, a jump on the issues of the 
kind that have been discussed here today. In that particular 
case, we are going to the Customs Service to get them to 
collect this information in a way that is more usable for us.
    In a sense, they collect the information, but I think itis 
fair to say that it is not really in a handy form. So, we will have to 
work together to put this in a form that is really useful to us.
    Mr. Skaggs.  I think one of the things that was on Mr. 
Kolbe's mind and certainly is on mine is that, when we have had 
the debates on trade policy, Fast Track, or whatever here in 
the last several years, there has been a surplus of anecdote 
and rhetoric masquerading as fact.
    That is something that applies to both sides. We have a 
deficiency in terms of real hard discrete data that can help 
inform our policy judgment. Given how much is at stake here and 
how much this Administration believes in an aggressive trade 
policy, I would think that it would not require a lot of forced 
feeding to get resources put to this task.
    One, I would like a comment on that. Two, I would like to 
have for the record your best cut at what we could expect to 
get for some specific additional increments of funding; and 
whether it would go to you, or whether it would go to the 
Bureau of Economic Analysis, or to Census--or even whether we 
should be talking to our colleagues on the Treasury Postal 
Subcommittee about what funding Customs may need.
    Ambassador Aaron.  I will be delighted to provide that.
    [The information follows:]

   What Occurs at Different Incremental Funding Increases for Trade 
                               Statistics

    The Department has for some time been examining how we can 
improve our overall statistics on U.S. trade and the impact of 
trade on our economy, particularly at the state and local 
levels. We have concluded that many improvements are 
technically feasible in the area of merchandise trade 
statistics.
    For approximately $1.2 million annually we can revive the 
State-Level Export-Related Jobs data program which provides, 
for each state, defensible statistics on export-related jobs 
and production. We can also update and produce annually the 
Exporter Data Base (EDB), which provides statistics on the 
number of exporting companies, broken down by size, industry, 
type of company, state location, metro location, and the share 
of exports attributable to small- and medium-sized businesses.
    Preliminary calculations indicate that additional, 
substantial data enhancements can be achieved for about another 
$1.7-$3.2 million annually, depending on the extent of measures 
adopted.
    A $1.7 million additional annual investment would permit 
the Department to make limited improvements in the quality of 
state and metropolitan export data, as well as permit ITA to 
significantly expand its program for publishing data and 
reports on state and metropolitan export performance. 
Additional funding at this level would permit ITA to issue, for 
each state, annual reports on state export performance. It 
would also permit the Department to issue metropolitan export 
statistics every six months, instead of once yearly is now the 
case. ITA would also be able to issue detailed yearly reports 
profiling export trends in individual metro areas throughout 
the nation. Finally, ITA would take steps to monitor each 
state's export situation on a quarterly basis, so as to provide 
early warning of problems caused by major international 
developments such as the Asian financial crisis.
    An annual investment of $3.2 million (which includes the 
above $1.7 million) would permit all of the enhancements 
described in the previous paragraph, plus major improvements in 
the quality and timeliness of our merchandise trade data at all 
geographic levels--national, state, and metropolitan. The added 
resources would permit a significant expansion of the 
department's effort to computerize the filing of export 
declarations. This would substantially reduce the error rate 
and shrink the value of exports (currently about $58 billion) 
which cannot now be allocated to any state due to filing errors 
by exporters.
    In sum, for a total annual price tag of about $4.4 million, 
many of the most critical weaknesses in the nation's 
merchandise trade data system can be effectively addressed.
    Compared with merchandise trade statistics, improving U.S 
data on services trade poses special challenges.
    The analysis of the effect of international trade on the 
U.S. economy is increasingly hampered by inadequate data on 
trade in services. Services constitute a rapidly growing, 
volatile component of U.S. trade. Our Bureau of Economic 
Analysis (BEA) estimates for 1997 indicate a U.S. current-
account surplus on services of $102 billion for the year. The 
1997 current-account balance on goods and services combined for 
that year was a deficit of $97 billion.
    BEA has expanded the coverage of international services in 
recent years in an attempt to keep up with the increasing 
importance of services, but timely data on a quarterly basis 
and data in sufficient detail for expanded analysis remain 
lacking. To close that gap, BEA's FY 1999 budget request 
includes a proposal to improve coverage of trade in services by 
(1) establishing a pilot quarterly survey of the most important 
services now covered by the existing annual service survey, and 
(2) integrating into data collection for trade in 
``affiliated'' services new information from BEA's revised 
surveys of U.S. direct investment abroad.

    Ambassador Aaron.  I might just say that the main thing we 
need from the Census Bureau is not that they do not collect the 
numbers, it is that they have to do specialized computer runs 
which are not inexpensive.
    So, that kind of sorting of the data is always the most 
difficult part. The actual collection, as you have said, takes 
place.
    Mr. Skaggs.  Well, I did not know whether you had 
additional amounts that you did not have a chance to mention 
when you were discussing this with Mr. Kolbe. I was taking 
notes. It looked as though we were in the roughly $1.5 million 
range to get from where we are to something that would be 
significantly more useful, both for congressional policy 
purposes and for administering all kinds of programs that 
Commerce and other agencies of the Government are involved in.

                             services data

    Ambassador Aaron.  Yes. I think that is about right. The 
only exception to that is, and this is a big exception, is 
services data. We have a much more difficult time measuring 
services to begin with and then reflecting it appropriately in 
our statistics.
    We have had conversations with Census and BEA about this. 
There is some really hard work that needs to be done to get a 
better handle on it. I think that is reflected in the numbers 
that came back to us when I asked them about this, which was 
someplace between $2 million and $10 million. That gives you a 
feeling that maybe there is some conceptual work that needs to 
be done, not merely turning the spigot on and turning it off.

                       tourism export statistics

    That is where we are in that particular area. I might add 
finally that reference was made to the tourism numbers. Again, 
tourism is the largest service export that we have; $90 billion 
per year.
    So, it is not a trivial thing from our standpoint. The data 
is okay, but not great. What this will do is provide two 
specific things. One, it will provide us with a specific 
satellite account in our set of national accounts that will 
identify the tourism area.
    The second thing it will do is that it will increase the 
accuracy of the information that we get by increasing the 
sampling that we do. This will be very helpful, not just to the 
industry, but even more importantly to cities and States who 
are engaged in tourism promotion.
    About $20 million is spent by these States in trying to 
entice foreign visitors to come to the United States for 
various reasons. This information is extremely important to 
them in figuring out who their target markets are.
    Mr. Skaggs.  Well, I do not want to suggest that is not 
important and valuable. I think compared to the improvement in 
the public dialogue about trade generally that I would hope 
would result from improvement in that other category of data, 
we are talking about something that is much more important for 
the country, or certainly as important as the tourism data.

                            advocacy center

    I'd like to bring up just one other thing, if I may, Mr. 
Chairman, the Advocacy Center. A small architectural firm in 
Colorado used the Advocacy Center, and it was really critical 
in getting them into the finals, even though the firm didn't 
get the contract. I think there is a perception that somehow 
the Advocacy Center is for the big boys only.
    I just wanted to get more of a flavor of what kind of work 
the Advocacy Center is able to do for medium and small-sized 
firms that are trying to break into the export world.
    Ambassador Aaron.  Between 1996 and 1997, the Advocacy 
Center supported 39 projects and succeeded. They were 39 
projects in small- and medium-sized enterprises and produced $1 
billion worth of business; about half of which was U.S. content 
as a result.
    Obviously when advocating on behalf of smaller companies, 
you are going to need more manpower. It is more labor-
intensive, more letters and all of the rest of it. We think 
that is a pretty good show for that period of time.
    I would make two observations, if I could. First of all, 
when we advocated on behalf of Boeing, which is one of our 
biggest advocacy projects, we were also advocating on behalf of 
roughly 1,000 subcontractors that support Boeing.
    Now, if you go to those subcontractors and ask them does 
the Commerce Department help you in any way or are you even in 
the export business, they might well say no. But the fact of 
the matter is, we are really advocating on behalf of that 
entire trade of suppliers, contractors, and subcontractors for 
these large groups.
    The second point I would make is this, since we had a 
$400,000 hit last year from the Congress in the Advocacy 
Center, we therefore had to reduce the number of people working 
in the Advocacy Center by one-third.
    This makes it much more difficult for us to do the kind of 
retail advocacy that is required for small- and medium-sized 
enterprises. The smaller group you have, the less people you 
have to work with small- and medium-sized enterprises.
    So, this is the reality of the situation. We have, 
nonetheless, placed even more emphasis in the work that we are 
doing now on small- and medium-sized enterprises within the 
context of the resources we have available to us. I think that 
will be reflected in the numbers as we go forward.
    Mr. Skaggs.  Thank you, Mr. Chairman.
    Mr. Rogers.  Mr. Latham.
    Mr. Latham.  Thank you, Mr. Chairman.

                    climate global change agreement

    You are not the first Department that has a difficulty 
defending these user fees. I have not found one yet that 
actually submitted a request for user fees and got it.
    One real concern that I have and maybe you can help me is 
with what I believe to be a tremendous increase in energy costs 
for American businesses, and excluding a lot of foreign 
countries from the Kyoto treaty.
    Do you have any idea of what kind of an impact that will 
have on the small and medium-sized businesses here in the U.S.?
    Ambassador Aaron.  We do not have any numbers on that at 
the present time. I will be happy to talk to my staff and see 
if there is some analysis that could let them respond to your 
question.
    [The information follows:]

 Impact of Energy Cost Increases on Small and Medium-sized Enterprises

    The impact on small and medium-sized enterprises of 
possible cost increases associated with the signing of the 
Climate Change Treaty will be minimal. Only the small number of 
highly energy intensive firms will feel any real impact, but 
their major competition will not come from abroad, but from 
less energy intensive firms producing the same or similar 
products or services within the U.S.

    Mr. Latham.  Tell me if you would agree or disagree I 
guess. It would certainly put us at a severe disadvantage as 
far as being competitive. A lot of businesses, are very energy-
dependent, huge consumers of energy, and obviously that would 
put us at a real disadvantage. Would you agree with that?
    Ambassador Aaron.  Well, I think that is the reason why we 
have objections to a number of the facets of this Global Change 
Agreement and why we were only prepared to look at it as a 
framework and thought the developing countries had to be a part 
of it.
    We object to the European bubble because it has inequities 
in it. All of these things would be to the disadvantage of U.S. 
industries, large and small.
    Mr. Latham.  Are there any other objections outside of the 
European bubble you are talking about in specific terms?
    Ambassador Aaron.  Well, we are concerned about having real 
commitments from the developing countries.

                 trade promotion coordinating committee

    Mr. Latham.  I just have one other question. Mr. Eisenstat, 
last year, in the testimony answered a question I had about 
coordination with the Trade Promotion Coordinating Committee; 
obviously from Iowa, agricultural interests.
    He said, I do not believe that the Department of 
Agriculture is as integrated in the efforts of the TPCC as I 
think they ought to be. Have you seen any improvement from the 
Department of Agriculture as far as coordination and 
involvement?
    Ambassador Aaron.  I think so, yes. In fact, they have been 
particularly helpful in working with us in the areas of 
replacing machinery, food processing equipment, this sort of 
general area in which we are responsible, but it is really, in 
effect, their part of the country and their customers who are 
knowledgeable about it.
    Mr. Latham. So, you are saying machinery and equipment. 
What about agricultural products themselves?
    Ambassador Aaron.  In agricultural commodities, I think the 
Agricultural Department's view, which I happen to agree with, 
is that they have both the resources and the expertise to 
pursue those projects when it comes to trade missions.
    Let us just take an example, the recent crisis in Asia. The 
Agricultural Department, while this was not a case in the 
context of TPCC, the Agricultural Department worked very 
closely with other agencies to move quickly to make 
agricultural credit available to Indonesia and to some other 
countries where they had not been operating as they had been in 
the past.
    They moved very quickly with a lot of initiatives and a lot 
of support in a general effort to stabilize the situation and 
rectify the financial difficulties as far as providing credit 
for agriculture. So, I would say that the Agriculture 
Department is cooperating quite substantially with the general 
trade communities.
    Mr. Latham.  It does not sound from your answer that you 
have the concerns that Mr. Eisenstat expressed. Also, maybe you 
do not think it is as important for them to be as involved as 
other agencies.
    Ambassador Aaron.  Well, you know, the issue to be 
perfectly frank about it is I think that there is a frustration 
on the part of some other parts of the economy that the 
financial resources available among agricultural exports are 
greater than are available to other exports of other kinds such 
as manufacturing, services, and the rest.
    Now, this is a basic decision that the Government has made, 
both the Administration and the Congress together, to set that 
priority. I do not think it is very useful to express 
frustration about that sort of thing. I think the important 
thing to do is to get on with the job.
    Mr. Latham.  Who has expressed frustration that agriculture 
gets more help than others?
    Ambassador Aaron.  Oh, you will hear it around.
    Mr. Latham.  Like whom?
    Ambassador Aaron.  The GAO, for example, has looked at the 
issue. I think the reality of it is that this is a set of 
priorities that we have established for export promotion and we 
ought to work with them.
    Mr. Latham.  Okay. Thank you, Mr. Chairman.

              impact of reductions to the advocacy center

    Mr. Rogers.  Given the reduction of Advocacy Center funding 
in 1998, how have you been able to realize a 10 percent 
increase in the number of government-to-government advocacy 
projects?
    Ambassador Aaron.  Well, they work really hard. We have 
placed an enormous emphasis on it. Secretary Daley has 
personally gotten involved on a number of occasions. He has set 
aside time to include advocacy efforts during his travels 
abroad.
    He is now committed to five trade missions a year. At every 
stop he makes, he raises advocacy issues. I will be taking a 
long list of $13 billion worth of advocacy efforts to China on 
my visit there. So, we just make it a top priority and just 
push as hard as we can.
    I might just also say it is not just a question of the 
Advocacy Center here in Washington or top-level work. Advocacy 
is a job of the U.S. and Foreign Commercial Service.
    They work very hard day-after-day out in the field pushing 
U.S. contracts trying to help our contractors get the job and 
talking with their counterparts in foreign governments to 
realize the successes that we have had.
    Mr. Rogers.  Mr. Forbes.
    Mr. Forbes.  Thank you, Mr. Chairman.
    Ambassador, thank you, again, for being here today.

                         kodak exports to japan

    I am going to turn a little bit to a parochial issue, but 
it is an all-American company and something I think the ITA is 
all too familiar with. That is the issue of Kodak and Japan.
    For over ten years Kodak has not been able to sell it's 
film through the Japanese distribution network. I know that the 
U.S. Trade Representative and the Secretary have expressed 
great empathy for the situation there.
    The WTO, I think, came up with a bad decision, but I know 
that the Secretary particularly said that you folks would be 
monitoring the market. There is a report that is due in July.
    The Japanese made certain claims about access to their 
distribution system. I guess my concern here is, is the 
Department closely monitoring and attempting to validate the 
claims that were made before the WTO about the so-called or 
supposed openness of their market?
    I mean, again, Kodak has been there for ten years. They 
have done over $1 billion worth of marketing and advertising in 
the Japanese market. They have created products for that 
market. Yet, this American company is having a heck of a time, 
and I hope the Department recognizes that and the USTR 
recognizes that.
    As a New Yorker, I am particularly frustrated that one of 
the bellwether companies in my State is still having a 
nightmare of a time cracking into that market, while the 
Japanese are having at it here in our market and having a great 
time of it, as a matter of fact.
    Maybe you could comment, Ambassador, a little bit about 
what might be going on at ITA and the progress towards that 
report and when that report will be. Is it fair to assume that 
we are going to see some information relative to the validity 
of what the Japanese claimed before the WTO or not?
    Ambassador Aaron.  Yes. This is a very important monitoring 
assignment that we have for both the Compliance Center, and for 
the Japanese Desk in Washington, and for our people in Tokyo; 
both the Commercial Service and the Embassy Economic Officers.
    We believe that the stipulations and assertions made by the 
Japanese during this WTO case need to be looked at extremely 
carefully. We intend to do that. We are cooperating with USTR 
in this process. I think the principal burden has been falling 
on the United States Department of Commerce.
    We are also working closely with Kodak in this regard. They 
are giving us good assistance in directing our energies in the 
right direction. If I am not mistaken, I believe that we are 
supposed to report back on this thing in July of this year. So, 
we would hope to have an initial assessment available at that 
time. Then we will see from there whether there are more things 
that can be done about it.
    Mr. Forbes.  Is the Administration prepared to go back 
before the WTO if you uncover information that shows not what 
the Japanese asserted in their previous visit before the WTO, 
but in fact what Kodak has said and what the United States has 
basically said before the WTO, that there is not appropriate 
access for an American company or a reciprocal of a race 
relationship in that industry? Are we prepared to go before the 
WTO?
    Ambassador Aaron.  This would be USTR's call once they see 
the information that we have developed.
    Mr. Forbes.  Would you folks be making a recommendation?
    Ambassador Aaron.  I think we will probably want to look at 
the information at the time and see if that is the best thing 
to do or if maybe there are some other approaches that we need 
to do.
    Mr. Forbes.  Because you will be gathering the data as 
opposed to the USTR basically; is that right? I mean you have 
the manpower. You have the capability to gather the information 
and establish, if you will, through documentation if in fact 
what the Japanese testified to is in fact accurate.
    Ambassador Aaron.  Yes.
    Mr. Forbes.  So, would you be making a recommendation to 
the Secretary on how to proceed?
    Ambassador Aaron.  I guess formally that would be the right 
thing. I will be recommending to the Secretary. He will be 
expressing the views of the Department to USTR in the formal 
sense. I can tell you, I will not be shy, but I cannot tell you 
right now what my recommendation will be.
    Mr. Forbes.  I think it begs the question in a larger 
sense. I would not want to go down that road, but that the WTO 
is making decisions based on documentation, good solid 
documentation, such as you might find in any judicial 
proceeding as opposed to on an emotional basis based on 
politics if you will.
    I do not expect you to respond to that, but certainly that 
is lodged in the back of my mind. I would hope that this 
report--I have seen some of the information over the last three 
years. It seems to me that there is going to be ample 
documentation to suggest what Kodak has been saying for almost 
a decade now, and what I think this Administration and the 
previous Administrations have contended in regard to the Kodak 
case.
    I would hope that perhaps you could share that report with 
this Committee and with me. I would be very interested to see 
what those findings were, Ambassador.
    [The information follows:]

              Copy of the Report on the WTO Kodak Decision

    This report is being prepared by the Office of the United 
States Trade Representative. We have not obtained a copy as 
yet.

                             trade missions

    Mr. Forbes.  I have a second question, if I might, Mr. 
Chairman; begging your indulgence.
    Ambassador, there was great media attention and attention 
here on Capitol Hill to the trade missions that were initiated 
by the Commerce Department over the last several years.
    I understand that the Secretary, since he came in about a 
year ago, has addressed some of the concerns that have been 
raised. I would appreciate if you could answer some of these 
questions now. If you cannot, if you could provide to the 
Committee some answers, I would be most appreciative.
    I would like to know how many trade missions that the 
Department has undertaken in the last three years. 
Particularly, how many individuals or corporations in the 
private sector have participated? What criteria has the 
Department used to judge who should be invited on those trade 
missions and participate?
    Most specifically, if you could, to the extent the 
Department can do this, I would appreciate knowing what kind of 
dollars have been expended to run these trade missions, and 
even more important, how many dollars have been generated for 
the U.S. economy? If we can do that, as a result of these trade 
missions. It would be very, very helpful to me and I think the 
Members of this Subcommittee.
    Ambassador Aaron.  We can and will provide all of that 
information.
    [The information follows:]

         Trade Missions Costs and Their Benefits to the Economy

    During the past three years the number of Trade Missions 
has increased from 672 in FY 1995, to 745 in FY 1996 and 790 in 
FY 1997. The cost of specific missions varies widely based on 
location, length and complexity. The direct cost of missions 
over these three years has been approximately $11.5 million per 
year. We do not have complete data on the amount of export 
which are generated as a direct result of trade missions. We 
are working to improve data collection in this area.

    Ambassador Aaron.  I might just make two points in 
commentary. First of all, the missions are run on a cost 
recovery basis. So that the businesses pay their own way and 
cover the overhead for the conduct of the mission. So, from 
that standpoint, I think----
    Mr. Forbes.  If I may just ask, when you say they cover 
their own overhead, are you saying that assessments are made to 
individuals or private corporations based on the expense of the 
trip and then they are divvied up amongst the private sector to 
fully pay for that trip or just the per capita, if you will, 
cost or the cost that those individuals alone would weigh in on 
the overall cost of the trip?
    Ambassador Aaron.  The trade promotion part of the trip, as 
opposed to some policy dimension of the trip, that portion of 
the trip is allocated equally among the participants in the 
trade mission.
    Mr. Forbes.  Including the cost of Government employees who 
might be on that trip?
    Ambassador Aaron.  It depends. If they are doing policy 
functions. In other words, if they are advocating some business 
or some project that is not represented by the people on the 
trip, then no, they would not be covered by that.
    The second point is that I might just say that the process 
that the Secretary has put in place has several dimensions to 
it. I think the critical one is that it is a fully transparent 
process. All of the documentation is available to the public.
    The criteria for the trips is public. The recruitment of 
the members of the trade mission is done openly and publicly. 
The qualifications of the business for a particular trade 
mission is weighed against the mission statement that is 
prepared in advance and is public.
    This assessment is done either by committee and 
professionals or a committee in which the professional 
Commercial Service is in the preponderant majority.
    All of the documentation related to the trips, including a 
final trip report on the results of the trip is made public as 
well. So, there is a strong effort here to be as transparent as 
possible.
    Mr. Forbes.  Those who are invited to participate in these 
trips, are the names that are accumulated for that purpose are 
recommendations made by the Democratic National Committee or 
the White House?
    Ambassador Aaron.  Absolutely not. There is an expressed 
prohibition against the consideration of political activities 
or taking recommendations for political activities.
    Indeed, we do not invite people on the trip in the sense of 
inviting individuals. This is a little awkward sometimes 
because there are often some people that you really would like 
to have on the trip, but we scrupulously do not do that. These 
are posted in a Federal Register Notice. They are put on our 
Web site. It is all done in an arm's-length way.
    Mr. Forbes.  I realize that you are fairly new to the 
position, but if you cannot answer it now, I would appreciate 
knowing if in the last three years, particularly, if members 
have been invited based on recommendations made by the 
Democratic National Committee or by the White House.
    Ambassador Aaron.  I will be happy to provide that.
    [The information follows:]

  Three Year History of Trade Mission Participation and Any Political 
                Decisions Used in Choosing Participants

    The attached documents indicate the policies under which 
trade mission participation is determined. [Please see 
attached.]


[Pages 465 - 486--The official Committee record contains additional material here.]



    Mr. Forbes.  Thank you very much, Ambassador.
    Thank you, Mr. Chairman.
    Mr. Rogers.  Thank you.
    Mr. Ambassador, we appreciate your testimony here today. We 
will look over your budget request. We will do the best we can. 
We are under spending constraints this year as well. So, we 
will do our best.
    Ambassador Aaron.  Thank you very much, Mr. Chairman. I 
appreciate your support.
    Mr. Rogers.  Thank you.


[Pages 488 - 500--The official Committee record contains additional material here.]



                                         Wednesday, March 25, 1998.

                     COMMERCE STATISTICAL PROGRAMS

                               WITNESSES

LEE PRICE, ACTING UNDER SECRETARY FOR ECONOMIC AFFAIRS, DEPARTMENT OF 
    COMMERCE
JAMES F. HOLMES, ACTING DIRECTOR, BUREAU OF THE CENSUS

                    Chairman Rogers' Opening Remarks

    Mr. Rogers. The Committee will be in order.
    We are pleased to welcome our witnesses for this 
afternoon's hearing on the Commerce Department's statistical 
programs. Appearing today for the first time before this 
Committee are two representatives of the Department, the Acting 
Under Secretary for Economic Affairs, Lee Price, and the acting 
director of the Census Bureau, James Holmes.
    This afternoon we hear about the economic and statistical 
programs of the Department of Commerce with a primary focus 
being the 2000 decennial census.
    The Fiscal Year 1999 budget request for the Department's 
economic and statistical programs totals $1.19 billion for the 
Census Bureau, of which $856 million of this request is for the 
ramp-up for the decennial census, a $495 million increase over 
Fiscal Year 1998. In addition, the budget requests $53.7 
million for the programs of the Bureau of Economic Analysis.
    We are two years out from the conduct of the decennial 
census, and there are still enormous questions and issues to be 
resolved about how the census will be conducted and what it 
will cost. We will be able to explore these issues in more 
detail this afternoon.
    Before starting, I would like to mention that this is the 
second year we have the pleasure of welcoming a member of the 
Full Committee to the hearing. Last year Ms. Meek, from the 
17th District of Florida, joined us and was a tremendous asset.
    Today, we have Dan Miller from the 13th District of Florida 
joining us. We are pleased to have him here, and we look 
forward to his participation after the members of the 
subcommittee have completed their questions.
    Mr. Price and Mr. Holmes, we will insert your written 
statements into this record at this point. We will also insert 
a written statement from Dr. Steven Landefeld of the Bureau of 
Economic Analysis into the record, and he is also available 
today to answer any questions.
    So we would now welcome any summary of your statements that 
you would like to make, and we ask you to try to keep that 
within five minutes, if you can.

                    Opening Statement of Mr. Holmes

    Mr. Holmes. Yes, sir. Mr. Chairman and members of the 
subcommittee.
    This is a new experience for me but, more importantly, it 
is a great honor and a privilege to testify before the 
Subcommittee today.
    Although I did not expect to be here when I started my 
career with the Census Bureau 30 years ago, I am very delighted 
to have the opportunity to present the Bureau's budget to the 
Subcommittee.
    During my 30 years with the Census Bureau, I have served, 
unfortunately, not in hearing rooms but in the trenches for the 
last three decades, working on three decennial censuses as a 
survey statistician and regional manager, and most recently as 
the director of our Atlanta office.
    During that time, I have had the opportunity and the 
experience of viewing the Census Bureau from a number of 
vantage points. I will only take a few minutes for my oral 
statement and, as you suggested, Mr. Chairman, submit a more 
detailed statement for the record.
    I expect that most of our discussion today will concentrate 
on Census 2000 activities. Therefore, in the interest of time, 
I will limit most of my remarks to the decennial census.
    The Bureau is requesting appropriations of $1.188 billion 
for domestic discretionary spending, of which $160 million is 
for current statistical programs and $1.028 billion is for 
periodic census programs. This request, as the Chairman noted 
earlier, is $495 million more than was appropriated in Fiscal 
Year 1998.
    The lion's share of this increase, of course, is for 
funding activities for preparation of Census 2000. We have 
requested $849 million in total budget authority to conduct the 
final preparatory activities for Census 2000. This is 
approximately $460 million above the funding provided for the 
current year.
    The biggest investment in Fiscal Year 1999 will be for the 
following: Complete the master address file, which is critical 
to ensure that we can get a questionnaire to each and every 
household in this country; second, to evaluate the 1988 dress 
rehearsal; third, to begin setting up the field office 
infrastructure for Census 2000; also, to complete software 
development and testing to begin the initial system deployment, 
such as the DCS 2000 system. We will also be printing 
questionnaires, letters, and other public use forms and, last 
but not least, to hire staff to complete the Master Address 
File development.
    Even as the Census Bureau is concentrating on these final 
preparations for the decennial census, we are requesting funds 
for advancing five key initiatives in the demographic and 
economic area.
    The first is to broaden coverage of the continuous 
measurement program; also, to begin research to improve the 
poverty measures; third, to improve the gross domestic product 
sources of data; to implement the new industry classification; 
and to implement an international trade data system.
    I will not go into any specific details about those 
particular programs. What I would like to do is to close my 
oral statement talking about innovation.
    One of the things we would also like to do is to continue 
to seek ways to improve how to conduct business by taking 
advantage of modern and efficient technology.
    In Fiscal Year 1999, our request includes $2.8 million to 
implement the new international trade data system. This system 
will facilitate the electronic interchange of trade data among 
Federal agencies and significantly reduce the reporting burden 
imposed upon the business community by reducing or eliminating 
redundant data collection.
    In closing, I would like to reiterate how much I appreciate 
this opportunity to speak to you today on the Fiscal Year 1999 
budget request. This is certainly one of the most gratifying 
experiences that I have had during my 30 years with the Census 
Bureau.
    After Mr. Price speaks, I will be pleased to answer any 
questions of you, Mr. Chairman, or other Members of the 
Committee.
    Thank you very much.

                     Opening Statement of Mr. Price

    Mr. Price. Chairman Rogers and Members of the Committee. 
Thank you for the opportunity to appear before you today to 
discuss the Census Bureau appropriations issues.
    I would like to discuss, briefly, several budget 
initiatives before turning to providing some context on the 
proposed budget for the decennial census.
    One of the most vexing statistical issues facing economics 
today is the fact that for five years we have had a divergence 
between our measure of income gains and our measure of output 
growth. This divergence is not just an economics profession 
issue, it is a practical political problem.
    As you may recall, a year ago the CBO came up with a 
different estimate of what revenues were going to be in the 
middle of the budget negotiations. That was derived from the 
problem we are having in estimating how fast the economy is 
growing.
    On the income side, our estimate is growing about 0.5 
percent faster than on the output side when, in truth, they are 
growing the same amount. To solve this problem, to have better 
budget forecasts, to have a better understanding of 
productivity and the possibility for future real wage growth, 
to determine whether long-run growth is now faster than we have 
had for most of the last 25 years, we need to provide funding 
for our GDP initiative. The Census Bureau and its data 
gathering and the BEA in its analysis of that data can do a 
better job of solving this problem of the divergence.
    Second, we are long overdue for modernizing our measures of 
income and poverty that were devised 35 years ago when low-
income people largely depended on pretax income, and our best 
survey of their economic conditions focused on pretax cash 
income.
    We now have a new survey that captures things like in-kind 
benefits, earned income tax credit, and we know that those have 
grown in importance in the last 35 years. Many of them did not 
exist 35 years ago. We should be expanding the Survey of Income 
and Program Participation, which provides better measures of 
in-kind benefits, taxes, tax credits, and we should also be 
pursuing research to find the best way to measure the changing 
economic circumstances of low-income families and the effects 
of Government programs on those families.
    Third, we are at a critical stage for the Continuous 
Measurement program. In our fast-changing economy, businesses 
and Government should not have to wait ten years at a stretch 
to obtain new information on local conditions for housing, 
transportation, education, and income that they now wait 
between decennial censuses.
    To succeed, the Continuous Measurement program must be 
ramped up in the next year and in succeeding years to allow a 
bench-marking of the data from the Continuous Measurement 
surveys to the 2000 decennial long form.
    Fourth, we need to apply the new industrial classification 
system that we have developed with Mexico and Canada, the North 
American Industrial Classification System. We need to apply 
that not just to the economic census, but to all of the Census 
Bureau's economic statistics programs. If we can do that with 
your funding, then we will bring our industrial statistics up 
to date for the first time in six decades.
    Fifth, we need to modernize our collection of trade data 
for the International Trade Data System. This electronic system 
will reduce the reporting burden imposed on the business 
community, while facilitating data exchange among Federal 
agencies and reducing a burden on that export data.
    Now, I would like to turn to some of the issues surrounding 
the decennial census, which is not just the biggest item in the 
budget we are presenting for the Census Bureau, but it is also 
the most politically watched for policy issues.
    Almost everyone agrees that the results of the 1990 census 
were unacceptable. Although that 1990 census was much more 
expensive than the 1980 census, it was much less accurate. The 
national undercount was 50 percent larger in 1990 than it was 
in 1980. 8.4 million people were not counted at all, not 
included in that census; another 4.4 million were miscounted, 
counted twice or incorrectly counted when they should not have 
been counted.
    We had a net undercount of 4 million people. We had a large 
net undercount of minorities and children. In the wake of that 
unacceptable census, there is strong bipartisan support by the 
Congress for legislation that was passed and signed by 
President Bush, that asked the National Academy of Sciences to 
review how we could improve the accuracy of the census and do 
it cost-effectively.
    After several years of study, the National Academy of 
Sciences panel created by that legislation came to this 
conclusion, and I quote, ``It is fruitless to continue trying 
to count every last person with traditional census methods of 
physical enumeration. Simply providing additional funds to 
enable the Census Bureau to carry out the 2000 Census using 
traditional methods, as it has in previous censuses, will not 
lead to improved coverage or data quality.''
    And they otherwise concluded, ``It is possible to improve 
the accuracy of the census count with respect to its most 
important attributes by supplementing a reduced intensity of 
traditional enumeration with statistical estimates of the 
number and characteristics of those not directly enumerated.''
    The Census Bureau plan that has developed since that time 
is consistent with those conclusions of the National Academy of 
Sciences that was created by the Congress.
    Virtually, every other statistical estimate that the 
Government gives today, whether it is the Census Bureau or the 
Bureau of Economic Analysis or the Bureau of Labor Statistics 
or the other statistical agencies, makes use of modern 
statistical methods.
    We know that we cannot count on everyone responding and 
everyone who responds to respond completely. It is because of 
that, that the National Academy and the Bureau have concluded 
that it is important to try to be more scientific.
    Previous decennial censuses have not used scientific 
sampling, and they have not included everybody. But in a 
certain sense, because the censuses in the past have not 
included everybody they meet the dictionary definition a 
sample--where we have obtained information with less than 
complete coverage and said that this characterizes the whole 
population.
    The issue is not whether we are going to sample in that 
dictionary sense or whether we are going to sample 
scientifically. Under the Bureau's plan, we are going to gather 
information in a scientific way so that we can try to be as 
accurate as possible because we know we are not going to get 
full and complete information from everyone.
    We face a very tight labor market today. There areplaces 
with high employment. Many parts of this country have high employment 
to population ratios, and it is harder to find people to take the jobs 
that we need to fill--close to 300,000 people in the spring of 2000. If 
we are not allowed to do sampling, it will take another 100,000 or so 
more people, and that will be even harder to do.
    A report coming out by the General Accounting Office says 
that there are limitations on how effective you can be with 
outreach and getting everybody counted. Well, we recognize that 
and that is another reason that sampling is necessary; to get 
the accuracy you cannot get just by outreach, and promotion, 
and partnership activities.
    $4 billion in the ten-year cycle for a census is a huge 
undertaking. In fact, we call it the largest peacetime 
mobilization our country does. But it is important to recognize 
that most of the work is still to be done. In fact, in the $4 
billion to be spent, about $1.5 billion is spent prior to 
Fiscal Year 2000. Of that $1.5 billion, we have spent about a 
quarter of it. In the next year-and-a-half, we will be spending 
three-quarters of the preparatory work to be done before 2000.
    So we recognize that there are big challenges ahead. The 
IG's report and the GAO's report say there are big challenges. 
We know that, and we are convinced that, if the Congress 
provides the necessary funds, the Bureau will be prepared to 
conduct the most accurate census ever. I am happy to answer any 
questions.
    [The following statements were submitted:]


[Pages 506 - 539--The official Committee record contains additional material here.]



                           general discussion

    Mr. Rogers. Thank you both for your statements.
    This is a pitched battle that we are into here. It has been 
for several years now. After the 1990 census, as you say, no 
one was happy with it, and here we are on the verge of I think 
another disaster in the making.
    You two gentlemen are not new at the Department, but you 
are new in the positions that you are holding. You are acting 
personnel. So it is going to be hard for us to blame you for 
what is happening.
    You are a little bit like the old fellow that was hauled 
into court, charged with setting his bed on fire at the rooming 
house where he was staying and, also, being drunk. He came into 
court and he pled guilty to being drunk. The judge was trying 
to find him also guilty of arson for setting the bed on fire, 
but he had this excuse.
    He said, ``Now, wait a minute, Judge.'' He said, ``I admit 
I was drinking, but that bed was on fire when I got into it.'' 
[Laughter.]
    Mr. Holmes. Your point is well taken, Mr. Chairman. Well 
taken. [Laughter.]
    Mr. Price. There was heat before I got there.
    Mr. Rogers. You knew what a hot seat you were getting ready 
to sit down in, though, didn't you?
    Mr. Price. I did.

              vulnerabilities in current census 2000 plan

    Mr. Rogers. We have got the IG report, as of December 30, 
1997, essentially saying that every major component of the 
Census' own plan is at risk because the Bureau had not made 
major decisions on design. The plans they did have, such as the 
address list development were not working, and the plan had 
such a tight time schedule that it probably would not be 
executable without major cost growth and/or degradation in 
quality.
    And then, just yesterday, the GAO issued their report, and 
they came to many of the same conclusions, identified the same 
areas and issues. However, the GAO report is even more 
important because, while the IG recommended trying to fix and 
then test the problems in the dress rehearsal, the GAO report 
looked at how the Bureau was fixing and testing these problems 
in the dress rehearsal, and they said--in fact, the title of 
their report is, ``Preparations for the Dress Rehearsal Leave 
Many Unanswered Questions.''
    GAO said that the dress rehearsal is, ``The last 
opportunity for an operational test of its overall design of 
the 2000 Census and to demonstrate to Congress and other 
stakeholders the feasibility of its plans.''
    They found problems in every key activity of the census 
plan, including address list development, local outreach and 
promotion, staffing, and statistical sampling.
    They said, ``All of these activities are still facing the 
developmental and/or implementation challenges that led GAO in 
1997 to raise concerns about the high risk of a failed census 
in 2000.'' And the dress rehearsal is one month away.
    GAO concluded, they said, ``With the decennial census just 
two years away, we find it troubling that the Bureau finds 
itself facing several ongoing and newly emerging operational 
challenges.''
    Here are some of the areas they say are vulnerable:
    One, they say, ``The accuracy of the Bureau's address lists 
and maps is uncertain and local reviews may be too sporadic to 
greatly improve them.'' GAO essentially questioned whether the 
Bureau's fixes for its address list problems will work and 
notes they will not even be tested in the dress rehearsal.
    Two, quote, they say, ``The Bureau's outreach and promotion 
efforts face obstacles that could impede its ability to achieve 
its mail response rate objective.'' They found that in the 
preparations for the dress rehearsal key components of the 
Bureau's plan to increase mail response rates were not working 
as planned.
    Three, quote, ``The Bureau's sampling and statistical 
estimation design faces methodological, technological, and 
quality control challenges.''
    ``Most disturbing, like the IG, the GAO found the Bureau's 
plans and procedures to `adjust' the census numbersface serious 
questions and may not be able to effectively be implemented'' and found 
that the Bureau was already running into serious problems in preparing 
to conduct the adjustment procedure; that is, the integrated coverage 
measurement program in the dress rehearsal.
    GAO found, ``The Bureau has made several missteps in 
drawing the ICM sample because these errors went undetected 
until relatively late in the sample selection process. GAO is 
concerned about the Bureau's ability to catch and correct 
problems.''
    All of that is calculated to cause me, at least, a good 
deal of nervousness.
    Now, the IG recommended that you do five things 
immediately. This was in December 1997.
    One, prioritize and access the readiness of its major 
design components; two, simplify the design; three, 
realistically reassess costs; four, communicate the results 
both internally and externally; and, five, redirect the dress 
rehearsal.
    Have you done any of those things and what has changed?
    Mr. Holmes. I guess, first and foremost, Mr. Chairman, the 
challenges that are detailed in both of those reports are 
challenges that most of us are aware of. I think, as Lee Price 
mentioned, that this is the largest peacetime activity that 
this country gets involved in. I can say, from a personal 
perspective, having lived at the end of the food chain on three 
of those, there is absolutely nothing as large and as complex 
as doing a census.
    But I think it is also important to keep in mind that, 
while there is an enormous amount of criticism associated with 
things that we do not know about the dress rehearsal or things 
that we do not know about the plan, it is important to keep in 
mind that we have been doing dress rehearsals since the 1930s, 
and the whole idea behind doing a dress rehearsal is to get 
some idea what components of the plan are working and which 
ones are not working and to make adjustments accordingly.
    Yes, we recognize that there are some problems with the 
address list. That was the main reason that back last year the 
Census Bureau decided to re-engineer the process and came to 
the Congress and asked for $108 million more to do that because 
it became very clear that the route that we were traveling to 
get the address list ready for the Year 2000 was not going to 
get us the level of quality that we wanted. So it would have 
been irresponsible on our part to continue down a path that we 
knew was going to fail. Again, that is the main reason for 
doing that.
    The GAO expressed some concerns about local involvement in 
the address list. That has always been a problem. If my memory 
serves me correctly, in the dress rehearsal, roughly, 50 
percent of the Governments, at least in the South Carolina 
area, participated in the program. That is a tremendous 
increase from what we had in 1990, where it was around 30 
percent.
    It is not mandatory for Governments to participate, but we 
do ask them to participate because it is important to them----

                 census' response to ig recommendations

    Mr. Rogers. I understand. But my question was did you 
follow the IG's five things that he recommended you do?
    Mr. Holmes. Well, in terms of the address list, yes, we 
did.
    Mr. Rogers. How about all of the others that I have 
mentioned, the five that I mentioned to you.
    Mr. Holmes. Would you mind repeating the five again, sir.
    Mr. Rogers. Prioritize and access the readiness of its 
major design components, simplify the design, realistically 
reassess costs, communicate the results both internally and 
externally, and redirect the dress rehearsal. The IG told you 
to do that in December 1997, about three months ago.
    Mr. Holmes. One of the things, if I am not mistaken, that 
was done to prioritize the activities was the development of 
the master activity schedule, which lists some 3,000 or so 
discrete activities that, essentially, spell out all of the 
major activities that are associated with the census and their 
interconnection. So if something goes wrong on one, it plays 
out through the----
    Mr. Rogers. Well, that was done before the IG told you to 
fix things, what you just described.
    Mr. Holmes. The master activity schedule?

                          gao recommendations

    Mr. Rogers. That was being done before the IG's report.
    Well, let me go on. Have you studied the GAO report as of 
yesterday?
    Mr. Holmes. No, sir, I got a copy of it this morning, and I 
was trying to get myself prepared for this hearing today.
    Mr. Price. I did look at it. It looks very similar to the 
draft that we had a couple of weeks ago, and I have read that.
    Mr. Rogers. Have you taken into account what they suggest 
and recommended?
    Mr. Price. Well, yes. There are really four main categories 
that they raise in each of their long chapters. The one that 
overlaps with several issues you raised of the IG about 
statistical design, prioritizing, and simplifying it, the 
Census Bureau staff, I am told, is working on that, has been 
simplifying and prioritizing. They did complete, since that 
December 30th report to Senator McCain, they have completed the 
design for the dress rehearsal, and they will soon be 
completing the proposed design for 2000.
    As committed last July, that will be completed this summer 
for public review and peer professional scrutiny over the 
course of the next year before it is actually finalized for 
2000.
    GAO raised several issues that are really serious 
challenges in any kind of census we do. One of them is the 
employment challenge. They are saying it is going to be hard to 
hire enough people to do it----
    Mr. Rogers. No, I am talking about they have severe 
criticisms of your methodology and even statistical sampling. 
This is a harsh report, and you are not responding to what they 
are suggesting in there.
    GAO in their report raised the same problems that were 
raised by the Inspector General four months ago, that are still 
around and still not being addressed, and here we go again.
    I was here for the 1990 census on this Subcommittee, and 
that was under the Bush Administration, and it was botched, and 
I swore at that time that I would do everything I needed to do 
not to have it happen again in 2000 and here we go again. I 
think this is going to be worse than 1990, to be frank with 
you. And you are aware of the problems and you will not address 
them, and I do not know what else we can do.
    Address list development, for example. Everybody in the 
world will tell you that when you mail that firstquestionnaire 
out that the best way to get response from the non-responders is to 
mail a second letter out. It is the most cost-effective way, right or 
wrong?

                        address list development

    Mr. Price. Yes. That is what we found in our tests and that 
is what we plan to do in the dress rehearsal and 2000.
    Mr. Rogers. And, apparently, now you are dropping the idea 
of mailing the second letter.
    Mr. Holmes. No, sir, that is not the case. What we are 
doing is we are mailing an initial questionnaire. There is a 
letter that actually goes out before that, and there is a 
reminder card. What we are not doing is we are not blanket 
mailing a second questionnaire to everyone, at least that is 
not the plan for 2000 at this point, but we are testing that in 
the dress rehearsal.
    If it works, then I think it is safe to say that we will 
come back to the Congress and ask for additional funds to do 
that, but we did not think that it was appropriate to spend I 
think it is $42 million to have questionnaires printed up when 
there are some concerns about whether or not that could cause 
additional problems for us in terms of duplication or people 
may just have a less-than-positive reaction to it.
    So what we are doing is, again, testing it in the dress 
rehearsal.
    Mr. Rogers. You are testing what in the dress rehearsal?
    Mr. Holmes. We are testing the concept of doing just what 
you were just asking us to do; mailing a second questionnaire, 
yes, sir.
    Mr. Price. The address list is a very serious issue, and I 
would like to respond, if I could, on that.
    We have done a mail-back census since 1970. So the three 
previous census' we have had a mail-out census. We have also 
done a canvass, where we send people door-to-door to get the 
addresses, so we have the addresses to do the mailing.
    This time we were hopeful, with today's modern digital 
information, you passed legislation that allowed us to start 
with the 1990 information on addresses, to share data with the 
Postal Service on a confidential basis; that they would share 
with us their data, and we would match their data on addresses, 
and we would also work with the local governments and their 
address lists hoping that many of them would have digital 
information.
    We could combine all three of those sources and have a 
good, thorough address list and save the money of doing 
canvassing, which we have done in the past.
    What we found last year was that there were too many holes 
in that. There are places in the country that have very good 
Postal Service address lists, and there are other places that 
do not. We could not rely on that information, and many 
governments have very good address lists for who their 
taxpayers are, but they do not have the mailing addresses for 
everybody.
    So we have to go back to what we have done in the past, 
which is to send somebody to every address. They will have a 
head start because they will have a good digital information-
based listing of what the addresses we think there are, and 
then they take that list and go door-to-door to see whether 
those actually are addresses or there are new addresses that 
need to be added. That would be similar to what we have always 
done and plan to do for the rural areas, except we actually are 
going to be more thorough in the rural areas.
    Mr. Rogers. I do not want to do what we have always done 
because we have been screwing up lately, the 1990 census. In 
fact, GAO found this: ``While some components of the new 
approach * * *'' that is, on address list development ``* * * 
have been used and tested in the past, the Bureau has not used 
or tested them in concert with each other, nor in the sequence 
as presently designed for use in the 2000 Census, and does not 
plan to do so in the dress rehearsal. Consequently, it will not 
be known until the 2000 Census whether the Bureau's redesign 
procedures will allow it to meet its goals.''
    What do you say about that?
    Mr. Holmes. That you are absolutely correct and that the 
re-engineered MAF or the updated address list will not be used 
in the dress rehearsal because there was no time to do that, 
given the schedule that we were up against. But one of the 
things that we are doing is we have an evaluation program in 
place to evaluate that Master Address File and that, obviously, 
we will not be able to test it in the dress rehearsal, but we 
will have some sense of the quality of that.
    And, again, those evaluations will let us know what things 
we need to do to make corrections to make sure that that 
address list yields a level of quality that we think we will 
need to do a census.
    Mr. Price. The dress rehearsal is not designed to test an 
address list.
    Mr. Rogers. I know.
    Mr. Price. It is designed to do a lot of other testing, but 
its primary purpose is not to test----

                        inaccurate address list

    Mr. Rogers. But you know one of the biggest problems in the 
1990 census was a faulty address list, inaccurate and 
incomplete address list, out of which everything else flows. We 
spent $182 million to develop that list. We still miscounted 
5.5 million households.
    We sent enumerators to 13.4 million housing units that were 
either vacant or did not exist to the tune of $317 million. 39 
percent of the total spent on nonresponse follow-up because of 
a faulty address list.
    Clearly, a good address list is the fundamental behind any 
sort of attempt to count people. We thought we had the problem 
solved. We thought we were on track, but GAO tells us, no, you 
are not.
    Mr. Price. What GAO says is we cannot test in the dress 
rehearsal our new design. When we asked GAO, do you have any 
recommendations for anything else we should be trying, to 
improve that address list, they had no recommendations.
    We are doing the best we can possibly do. We are taking all 
of the information we know is available, compiling it, and then 
giving it to people to go door-to-door to check. And if 
somebody else has a better way that we can get even better 
information, we would be very interested in hearing it.
    Mr. Rogers. Is this an area where we could face both huge 
cost and accuracy problems in Fiscal Year 1999 and 2000?
    Mr. Price. There are costs that we have put in the budget 
before you. $98 million extra has been added to the Fiscal Year 
1999 budget to get this canvassing done in the city-style 
areas.
    Mr. Rogers. Is a good address list even more critical when 
you are doing sampling and statistical adjustment?
    Mr. Price. No, it is not. It is just as critical in both 
ways. If you are not doing sampling, then you are totally 
dependent on what you have from this address list. If you are 
doing sampling, you at least have some cases where you have got 
an independent address list for the Integrated Coverage 
Measurement (ICM) that does some correction.
    So if you are making a decision on whether to do sampling 
or not based on the address lists, then you are better off 
doing sampling than not doing sampling because you have no way 
to correct for it without sampling.
    Mr. Rogers. Well, GAO said because you are not going to 
deal with the address list in the dress rehearsal, they say, 
``Consequently, it will not be known until the 2000 census 
whether the Bureau's redesigned procedures will allow it to 
meet its goals.''
    What do you think about that?
    Mr. Price. Well, we have set very ambitious goals for how 
accurate the address list should be. We do not want to have the 
kind of extra addresses that cost money to find housing units 
that are not there.
    Mr. Rogers. The question is they say you will not know 
until the 2000 census whether it works or not. What do you say 
to that?
    Mr. Holmes. I think that is probably not a correct 
statement, Mr. Chairman, because the evaluations will give us 
some sense of the quality of that address list before the 2000 
census. I mean, that is the whole purpose of doing----
    Mr. Rogers. How will it do that?
    Mr. Holmes. That is the whole purpose of doing the 
evaluations. What you do is you measure the quality of 
theaddress list, and those evaluations and, to be honest, I cannot give 
you the date that those evaluations will be available.
    Mr. Rogers. How will they be conducted, the evaluations?
    Mr. Holmes. To be honest, I cannot give you that. I do not 
know the details of the evaluation program, but I can get them 
for you.
    Mr. Rogers. Well, how do you know that they are going to be 
really reliable if you do not know what they are going to be 
doing?
    Mr. Holmes. Well, my assumption is that we have some of the 
best statisticians in this country----

                     evaluation of the address list

    Mr. Rogers. I understand that. I am just saying you may 
know that. We do not know that. We do not know what you are 
doing to evaluate your address list. All we know is, GAO, the 
investigators, say you are not going to have any way to know 
anything about it until the actual census takes place.
    We are not going to listen any more to you say, ``Believe 
us, we will do it the right way.'' We did that in 1990, and you 
have used that bullet up.
    Mr. Holmes. I am not suggesting that that is what you do, 
Mr. Chairman. What I said we would do is provide those 
evaluations to you.
    Mr. Rogers. When?
    Mr. Holmes. I can find out when that information will be 
available, and you will have access to the same information we 
have, but I can assure you----
    Mr. Rogers. When will we have that? GAO says you will not 
have it until the census itself.
    Mr. Price. GAO says we cannot be confident how good the 
information is until we actually put it in the field, but we 
will also have, as our redesign, something we did not do in 
1990, and legislation passed in the middle of the decade allows 
us to do, is to share information with local governments, and 
they will have a good part of next year to evaluate it.
    Mr. Rogers. All I want to know is how you are going to 
evaluate your address list and are you going to do it before we 
get into the actual 2000 census?
    Mr. Holmes. Yes, sir, and the staff tells me that those 
plans are available now, and we will make sure that you get 
them.
    Mr. Rogers. Where are they and what are they?
    Mr. Holmes. The evaluation plans for the address list. That 
is what they are. We will provide those evaluation plans to 
you.
    Mr. Rogers. Do you have them?
    Mr. Holmes. Yes, sir. I do not have them here with me, but 
we have them at the Census Bureau.
    Mr. Rogers. I cannot believe you did not come here, after I 
ran the Secretary of Commerce out of this hearing the other day 
until he brought us the plan, you appear here without a plan.
    Mr. Holmes. I recognize the seat was hot, Mr. Chairman, but 
I did not realize it was quite that hot.
    Mr. Rogers. It is pretty damn hot.
    Mr. Holmes. As I said, the plans are in place, and I can 
make sure that you get those.
    Mr. Rogers. Well, surely you know when those evaluations of 
the most basic component of the census, the address list, will 
take place. Surely, you know when that is going to be tested or 
evaluated. Does anybody here know on your staff? Somebody pipe 
up, for gosh sakes.
    Mr. Holmes. Again, unfortunately, I cannot answer that 
question because I do not have the evaluation plans in front of 
me, but I have been assured that we have them, and we will get 
them to you.
    Mr. Rogers. Well, I mean, are you going to review them/
evaluate them in Fiscal Year 1998 or 1999 or 2000?
    Mr. Price. We are going to be working in Fiscal Year 1999 
to do both the noncity-style and the city-style canvassing that 
will bring them, as best we can, accurate. Then we will share 
them with the local governments, so that they can improve those 
lists, delete things that are not actually housing units and 
add those that are. It will be late next near before we have 
the completion of that process, and then we will be able to 
evaluate where we are at that point.
    We have never had the involvement of the local governments 
to the extent we are going to be able to have in the next year.
    Mr. Rogers. So you are saying that the evaluation of the 
accuracy and completeness of the address list, from which you 
will mail the questionnaires in the 2000 Census, you will 
evaluate that at the end of 1999?
    Mr. Holmes. No. Some of it will be done this year, Mr. 
Chairman.
    Mr. Rogers. 1998.
    Mr. Holmes. Yes,sir.
    Mr. Rogers. Some of it.
    Mr. Holmes. Yes, sir.
    Mr. Rogers. What of it?
    Mr. Price. We would not be asking for $98 million next year 
to do canvassing if we thought we were finished this year. We 
know we are going to need to do improvements that also will 
have to be evaluated.
    Mr. Rogers. I am not getting anywhere with you.
    Mr. Holmes. Mr. Chairman, one of the things that will 
happen that is probably not reflected in that report is that 
the evaluations from the dress rehearsal, which, again, is a 
different address list, but there will be some evaluation on 
that, comparing that to the updated Master Address File, and 
that information will be available by the end of the year with 
benchmarks prior to that.
    But the plan that I was talking about was a long-term plan 
for the evaluation of the entire Master Address File. That plan 
is available now.
    Mr. Rogers. The plan to do what?
    Mr. Price. To evaluate----
    Mr. Holmes. To evaluate the new Master Address File that we 
are working with right now.
    Mr. Rogers. All I am driving for, trying to find out is 
when does that plan call for you to evaluate your address list 
previous to going to battle on the census?
    Mr. Holmes. Some of it will start again this year with the 
work that we are doing for the dress rehearsal.
    Mr. Price. The thing to keep in mind about address lists is 
that this is a booming economy. We are building millions of 
houses every year. We want, when we go into sending the mail 
out in March of 2000, to have the most up-to-date address list 
we can, and we know that it is a moving target. There are not 
perfect address lists you can do today that will be the address 
list that you need two years from now.
    We have a process to try to keep up with the changes, but 
it is never a finished product until near the end. We actually 
have aprocess to work with the Postal Service in February of 
2000 to get the most up-to-date information we can from them on where 
the new addresses are that we need to mail to.
    Mr. Rogers. Well, I have other questions, and I will get to 
you on the second round.

                        problems in 1990 census

    Mr. Mollohan. Thank you, Mr. Chairman.
    I think it is important, as the Chairman develops his line 
of questioning, that you all be able to speak to the concerns 
that these reports have raised. I think you need to assure the 
committee that you have studied these reports, and that you 
take both the GAO report and the IG's report seriously.
    I, also, think it would be helpful if you would elaborate 
on the characterizations of some of the problems you face in 
the reports as being risky. That word suggests that your 
methodologies are, perhaps, reckless and, therefore, creating 
risk. I do not think that is what the GAO report or the IG 
report meant to convey. I think that meant risk in a way of 
saying that there are statistical sampling methodology problems 
here that make any method a risk of achieving a better result 
than 1990.
    Let me start by asking you to not elaborate, but to just 
affirm the problems that arose out of the 1990 census, which I 
would note was an enumeration census. What were the problems 
associated with that enumeration census?
    Mr. Holmes. First and foremost, Mr. Mollohan, was that we 
had the highest undercount rate that we had in any previous 
censuses, especially as it relates to the minority population.
    Mr. Mollohan. And why did you have that undercount?
    Mr. Holmes. Primarily, because people did not want to be 
bothered. People did not want to participate in the process.
    Mr. Mollohan. And why could you not get to those people, 
regardless of their attitude about participating in the 
process?
    Mr. Holmes. Because we could not count them.
    Mr. Mollohan. Through that method.
    Mr. Holmes. Precisely.
    Mr. Mollohan. I know that the Congress is dissatisfied with 
the results because they called for the National Academy of 
Sciences, the supreme scientific body that we call upon in the 
country, to look at the situation and make recommendations. You 
are familiar with that study?
    Mr. Holmes. Yes, sir.

         national academy of sciences review of the 1990 census

    Mr. Mollohan. What were the recommendations coming out of 
the National Academy of Sciences Review of the 1990 census?
    Mr. Holmes. That to continue to use the traditional census-
taking methods would not improve the process; that the best 
method to improve that process was the use of statistical 
sampling, and in order to do it in the most cost-efficient 
fashion.
    Mr. Mollohan. When it said it would not improve the 
process, did it assume an application of resources similar to 
those that were applied in 1990 or did it assume an increase in 
the application of resources?
    Mr. Holmes. I do not remember the direct quote, sir, but I 
do vaguely remember something to the effect that no amount of 
money thrown at the problem would resolve it. Now, that is a 
paraphrase on my part. But adding additional enumerators, 
adding more money, would not solve the problem.
    Mr. Mollohan. So your testimony here today is consistent 
with testimony you have had in the past. You have taken 
seriously the problems that were associated with the 1990 
census, of which there was a consensus, and the recommendations 
coming out of the National Academy of Science study, as well as 
a whole bunch of expert opinion on the subject.
    Mr. Holmes. Yes, sir. That is absolutely correct.
    Mr. Mollohan. And you have come up with a plan that would 
incorporate those recommendations and best methodologies, which 
we refer to as employing sampling techniques.
    Mr. Holmes. That is correct.

                           use of enumerators

    Mr. Mollohan. I would like for you to get at what I 
consider to be the core question or certainly one of the core 
questions here.
    This notion/premise that we can do it more accurately if we 
employ an actual enumeration. That seems to be at the heart of 
the Majority's position; that premise that if we just do more 
of the traditional techniques, throw more enumerators at the 
job, that we will get a better result than in 1990 and we will 
get a better result than if we were to employ sampling 
techniques.
    So I would like you to respond to that issue, discuss it, 
and then if you do not get at it in a way that we understand it 
up here, I want to talk a little bit about the Milwaukee 
experience that is often cited by the Majority as the good 
example of enumeration, which I do not think is such a good 
example in a final analysis.
    Mr. Holmes. I guess I will start with the premise, sir, 
that if you continue to do things the same way you have always 
done them, then the outcomes are much, much more predictable. 
Again, having done this kind of work for 30 years and having 
worked on three censuses, it is clear to me that, if someone 
does not want to be bothered, because there are really two ways 
that people are missed; they are missed because we miss housing 
units, but more importantly----
    Mr. Mollohan. Miss individuals.
    Mr. Holmes. Exactly, within household coverage. If we come 
to your household, no matter how many people we send there, if 
you decide that you are not going to tell the truth, 
traditional knock on the door methods will not resolve that 
problem. There is no way to do that.
    It is also important to understand that the environment in 
which we collect data now has changed radically over the past 
20 or 30 years. As an example, the window of opportunity that 
you have to catch people at home now has probably dropped to 
maybe a couple of hours during the week and on Saturdays.
    I can remember 20 years ago when there was no such thing as 
doing an interview on Sunday. That is the most productive time 
to do interviews now, if you plan to catch people at home.
    It is clear to me, just from a layman's standpoint, this 
has nothing to do with statistics, but if you take a look at 
the direction with which voter participation has gone and 
responses to census forms or censuses themselves, both of them 
are going in the same direction, and that includes, not only 
that segment of the population that does not want to be 
counted, but your average American citizen, that, for whatever 
reason, they have no interest in doing it.
    So going back doing the same thing over and over again, no 
matter how much money you throw at it, does not change their 
behavior.
    Mr. Price. If I can just add to that a bit. The populations 
that had high undercounts in 1990 have grown faster. The 
Hispanic population, the black population, the Asian population 
have grown faster than the average. On that basis and the 
general growth of the population, we think the undercount, if 
we just do 1990 kind of methods, again, since the Bureau has 
estimated that we would have five million people undercount, 
instead of four million undercount in 1990 because of the two 
added together, the population and the relative population. It 
assumes that there is not a social change problem, which Jim 
just referred to.
    The American people, since 1990, continuously get more 
mail. They are busier. They are not at home as much. They do 
not want people to be asking them questions, particularly from 
the Government. They are less responsive, and they are more 
likely than 1990 not to be giving us answers or complete 
answers.
    Sampling in the ICM allows us to do more intensive data 
collection on a limited basis. For these 750,000 housing units, 
it is more expensive to send somebody to every one of those 
houses. If we do not do the mail, this is $3 a visit. If we do 
a more intensive process, we cannot afford to do that in every 
place in the country.
    But if we go there and we find out through the ICM not just 
the undercount, but the overcount, because people who have two 
residences often fill it out in Florida, and they fill it out 
in Michigan. They fill it out in the Ann Arbor college dorm, 
and they fill it out in their parents home. We have got a 
problem of both the overcount and the undercount that can get 
addressed on a sampling basis. It is expensive to do everywhere 
nationwide. But if we do it on a sampling basis, we can get a 
better overall count.
    Mr. Mollohan. So what you are telling us is that, no matter 
what resources you apply to this issue, apply to the task, in 
traditional census-taking methods, putting more census 
enumerators on the job, you still are going to end up with an 
undercount that is greater and less accurate [sic] than using 
sampling techniques.
    Mr. Price. Yes, Congressman. People do not go around with 
badges saying, ``I was undercounted'' or ``I was overcounted.''
    Mr. Mollohan. I understand.
    Mr. Price. You do not know who they are.
    Mr. Mollohan. I understand. So what you are saying is, and 
the National Academy of Sciences agrees with that; is that 
correct?
    Mr. Price. Yes.
    Mr. Holmes. That is correct.
    Mr. Mollohan. Can you give us some sense of the 
professional statistical community, what their attitude is with 
regard to that proposition?
    Mr. Price. There is a letter signed by a number of former 
presidents of the American Statistical Association that 
endorsed the use of sampling. The American Statistical 
Association had a Blue Ribbon Panel on the census that has 
supported the use of statistical methods to improve the count.

                   milwaukee complete count campaign

    Mr. Mollohan. Are you familiar with the Milwaukee Complete 
Count Campaign?
    Mr. Price. Yes.
    Mr. Mollohan. Are you conversant with it, if I asked you 
some questions about it?
    Mr. Price. Yes. I, unfortunately, became an expert on it 
last July in response to the congressional request for a 
report.
    Mr. Mollohan. Let me ask you what that demonstrated, and 
let me maybe lead you a little bit here.
    The publicity campaign that they had did achieve a better 
response rate than the national average, did it not?
    Mr. Price. Mail response was higher for that city than for 
similar cities elsewhere.
    Mr. Mollohan. Let me finish answering [sic] the question. I 
mean, I know you know more about this, but just so I can hear 
myself and you give the answer, let me finish.
    So there was a better response rate to the questionnaire in 
Milwaukee than the national average; is that correct?
    Mr. Price. That is correct.
    Mr. Mollohan. How much better? See, you just were not that 
conversant with it. [Laughter.]
    Mr. Price. I wrote it here in the report we gave.
    Mr. Mollohan. Would it be accurate, to refresh your memory 
here, if Milwaukee's response rate was 76 percent?
    Mr. Price. And the national average is 74 percent.
    Mr. Mollohan. And the national average was 74. So with 
their big publicity effort, they got a 2 percent increase in 
the response rate; is that correct? The national average 
response rate; is that correct?
    Mr. Price. They were above average, but not much.
    Mr. Mollohan. They were above average, which means, if it 
is average, somebody else was above average, too.
    Mr. Price. Right.
    Mr. Mollohan. And they did not, arguably, at least they do 
not have the reputation for putting on this kind of a program.
    And that Milwaukee, with its tremendous campaign, ranked 
third, not first, in mail return rates; is that correct?
    Mr. Price. That is correct.
    Mr. Mollohan. And it still left 24 percent of the occupied 
units in the city to be counted by door-to-door enumerators; is 
that correct?
    Mr. Price. Yes.
    Mr. Mollohan. So, at the end of all of that effort did they 
put more enumerators on the job? I know they used civic 
organizations and all of that. What did they do with regard to 
enumerators?
    Mr. Price. The unique thing about Milwaukee was what the 
city and the State put resources into to trying to raise public 
awareness of the census and to make forms available in the 
``Were You Counted?'' campaign later on.
    But the Bureau's efforts, in terms of following up on those 
24 percent, were comparable, the enumerators to follow-up those 
24 percent were comparable to other places with 24 percent of 
the housing units that did not reply by mail.
    Mr. Mollohan. At the end of the day, the post-enumeration 
survey indicated that approximately 2.3 percent of the city's 
residents were missed; is that correct?
    Mr. Price. Yes.
    Mr. Mollohan. Was that higher or lower than the national 
average?
    Mr. Price. The national average was 1.6 percent.
    Mr. Mollohan. Is not the point here that there is just a 
ceiling that cannot really be raised by traditional methods 
that you bump up against here in terms of achieving accuracy? 
Perhaps it is 2.3 percent of the population you are going to 
miss or perhaps it is 2.1 or 1.9, but everything we know about 
it that through traditional enumeration methods you are going 
to be inaccurate and have an undercount of approximately that 
percentage. Am I----
    Mr. Price. Yes. That is Census Bureau's view. That is the 
view of the statistical experts on this.
    Mr. Mollohan. So that is really the bottom line, is it not? 
No matter how much money we spend on additional enumerators and 
publicity advertising, questionnaires, we are still going to 
have those people, that percentage of people that do not want 
to be counted or just fall through the cracks some way, and the 
only way to get them is through these sampling techniques to 
get a more accurate result.
    Mr. Price. And we used those methods in the agricultural 
census. We used exactly the same kinds of methods. The way it 
is proposed to be done by the Census Bureau is now done by the 
agricultural statistics operation, but they do a sampling for 
people who do not respond by mail and they do a sampling to 
correct for those who had systematic undercounting, and they 
get better results because they use statistics.
    The question really is are we going to be banned from using 
statistical methods?

                 cost of census compared to 1990 census

    Mr. Mollohan. And there is one more question, too. How much 
is it going to cost to increase these enumerators and inthe end 
result achieve, a less accurate result? Do you have any estimates?
    Mr. Price. We estimated in a different context before the 
Fiscal Year 1998 and Fiscal Year 1999 dual track funds came 
along. Last spring we gave estimates, if you recall, $675 
million to $800 million extra above $4.0 billion to do a design 
very similar to 1990 that excluded sampling--over and above the 
sampling design that we had in mind in the prior plan.
    Mr. Mollohan. Okay. Could you talk about the attempt to do 
the 2000 Census through enumeration methods in terms of how 
much it would cost. We have already I hope in my line of 
questioning at least established that.
    Mr. Price. No. Our full cycle cost is on the order of $4 
billion with the sampling plan. It would cost on the order of 
$600 to $800 million more to do the 1990 style but that still 
leaves you with 5 million people undercounted. And the cost of 
trying to reduce that 5 million--because you do not know who is 
undercounted, you just know that there is an undercount--to try 
to go and find the needles in the haystacks, to go find the 
houses with the tenant for which they do not have everybody 
actually living in that residence on their completed form, is 
very expensive.
    Mr. Mollohan. All right. Can you give us an estimate of how 
expensive?
    Mr. Price. We will be working on trying to do some kinds of 
estimates but it is very hard to do because we do not----
    Mr. Mollohan. So, it is your testimony that if you were to 
do a 1990 census it would cost you $500, $600, $700 million 
more in 2000 than it would a sampling census?
    Mr. Price. That is correct.
    Mr. Mollohan. Just off the top, to do what you did in 1990?
    Mr. Price. Right.
    Mr. Mollohan. And then to try and improve the accuracy of 
that count by applying additional enumerators you are coming up 
with a number and you do not have a number of what that might 
be?
    Mr. Price. No. And it would depend on what techniques were 
used. We think that it is--we have not spent a lot of time 
investigating that up until November because we thought it was 
so exorbitantly expensive for so little an amount of return. 
But since November, we are operating under a different mandate 
so we are supposed to get as close to 100 percent as possible, 
using non-sampling techniques, and we are prepared to do that 
and we are doing studies to try and do that.
    It will show very expensive costs for very little 
additional return to accuracy but we are now starting to work 
on that.
    Mr. Mollohan. Is not a way to say that, an exorbitant cost 
for a less accurate census than sampling?
    Mr. Price. Yes.
    Mr. Mollohan. An exorbitant cost for a less accurate 
census.
    Thank you, Mr. Chairman.
    Mr. Rogers. We will have a second round. I want to make 
sure that everyone has a chance.

                     dual-track approach to census

    Mr. Kolbe. Thank you, Mr. Chairman.
    It seems me listening to Mr. Price and Mr. Holmes' 
responses, particularly Mr. Price's response to Mr. Mollohan's 
questions about whether or not in the end, we cannot get as 
accurate a count that you are setting yourself up with a self-
fulfilling prophecy that, indeed, we have decided that we 
cannot get a more accurate count by actually counting people, 
that we can do it better by--we can only get it by sampling. 
And, so, you have guaranteed that you will not get the more 
accurate count.
    Now, it seems to me like you have set it up in a circular 
fashion to guarantee that you would fail to get the most 
accurate possible count.
    That is just a comment. Let me begin by asking this, the 
Public Law 105-119 says, and I am quoting, ``Sufficient funds 
appropriated in this Act or under any other Act for purposes of 
the 2000 Decennial Census shall be used by the Bureau of the 
Census to plan tests and become prepared to implement a 2000 
decennial census without using statistical methods which shall 
result in a percentage of the population actually being as 
close to 100 percent as possible.''
    The purpose of this is very clear. In the compromise we had 
last year, the idea was to set you up on a two-track approach 
for the 2000 Decennial Census. Can you assure this Subcommittee 
that you are doing everything possible to comply with that law 
today?
    Mr. Price. We are complying with that law today.
    Mr. Kolbe. Everything possible to make sure that you are 
prepared for a census in the year 2000 if necessary, a census 
that does not use statistical sampling?
    Mr. Price. We are in the 1999 budget that we have 
submitted. It has the funds to keep open the option for 
decision next February on whether to use sampling or not.
    Mr. Kolbe. And everything in your budget includes 
preparations for a census that would not use sampling?
    Mr. Price. We asked for Fiscal Year 1998 and we were 
approved by this committee when you did your conference report 
for an additional $31 million to prepare for that. It was 
approved in November and our budget for next year asked for 
another $36 million across five months that is intended to 
maintain this dual track, until a decision in February.
    Mr. Kolbe. About $36 million for the planning for a non-
statistical?
    Mr. Price. Yes, sir, that is correct. That is over and 
above what we would have planned if we were only going with----
    Mr. Kolbe. Going with one.
    Mr. Price [continuing]. Planned to do sampling alone.
    Mr. Kolbe. Yeah. The Chairman suggested as a followup to 
that, how much did you ask for from OMB? Was that $36 million, 
million what you requested or did you ask for a different 
amount?
    Mr. Price. No. As Secretary Daley indicated at the hearing 
earlier this month, the request to OMB initially was for $128 
million.
    Mr. Kolbe. And you got $36 million, one-fourth?
    Mr. Price. That is right. We got $92 million less.
    Mr. Kolbe. So, $36 million, in other words, by your own 
estimation unless you were really padding it is not going to be 
anywhere near sufficient?
    Mr. Price. Well, the big difference between those two--
almost all of the $92 million difference was to hire people 
either to begin the recruitment process to get people involved 
so they could do more recruiting or to do outreach.
    Mr. Kolbe. Well, then you are really not preparing for it.
    Mr. Price. Well, a decision made in February of 1999 could 
permit--it would cost more after February of 1999. But we are 
saving the taxpayers $92 million, let us not forget that.
    Mr. Kolbe. No, no, by your statement you just made it will 
cost you more if we go on a non-statistical basis.
    Mr. Price. It will cost more but we think----
    Mr. Kolbe. You are going on the gamble that you are going 
to be using statistical----
    Mr. Price. Not the gamble. The----

                possibility of a non-statistical census

    Mr. Kolbe. Well, I am talking about a political gamble here 
as to what Congress and the courts and everything will allow 
you to do. The answer to my question is you are not preparing 
for a non-statistical census?
    Mr. Price. We are keeping the option open.
    Mr. Kolbe. But, thank you, you are keeping the option open 
but you are not preparing for it. Well, go ahead with your 
answer but I think it is very clear when you get $36 million as 
opposed to $128 that you said you needed, that you are not 
preparing for it, and that you did not get the money. You 
obviously have said to this Committee that you do not have the 
money to prepare for it.
    Mr. Holmes. What I would like to do is give you some idea 
of how that $36 million is being spent, as an example. Four 
million is to complete the evaluation of the dress rehearsal in 
South Carolina which is a traditional census taking method. 
That will provide information for us to move ahead to do a non-
sampling census.
    Secondly, $15 million to develop operational plans for a 
non-sampling census. Seventeen million to open up 130 local 
census offices early and as Lee Price said the only component 
that is missing is roughly some part of that $92 million for 
staffing. But I think it is unfair to say that we are not doing 
anything.
    Mr. Kolbe. I did not say you were not doing anything. I did 
not say that. You are not doing, in my view, and what I think 
an objective analysis would say would be complying with the law 
which says that you are to prepare adequately on both tracks 
for a statistical and a sampling census to be done in the year 
2000.
    So, I am just going to leave it at that. I want to go on 
with some other questions here.
    Mr. Price. There are 13 months from March 1, 1999 and April 
1, 2000 and in that 13 months you can make up that $92 million.
    Mr. Kolbe. Okay. But, please, do not try to tell the 
Subcommittee you are saving us $92 million.
    Mr. Price. If the decision is made to stay with sampling, 
you are saving $92 million.
    Mr. Kolbe. The law told you to prepare for both. It did not 
tell you to make the decision you think you are going to not 
have to do, the non-statistical or the non-sampling 
methodology.
    Mr. Price. We are preparing in a minimum way towards a 
possible decision and we can make up.

                     design review of the 2000 plan

    Mr. Kolbe. The IG's report in December said that you were 
completing a comprehensive design review of your 2000 plan in 
January, has that been completed?
    Mr. Price. There was a design review in January. It did 
not----
    Mr. Kolbe. It has been completed?
    Mr. Price. There was a design review. It did not result in 
a specific document out of that review but----
    Mr. Kolbe. Why did on the IG's letter of March 16th say 
that it had been completed?
    Mr. Price. It had been, there was a review.
    Mr. Kolbe. No document though out of it? No document was 
prepared out of this thing?
    Mr. Price. Not to my knowledge.
    Mr. Kolbe. It was what, an oral review?
    Mr. Price. There are meetings all the time in the Census 
Bureau that do not, as a result of the meeting, have a document 
come out. A lot of work results from it that changes what 
happens but not every time there is a meeting, do you have a 
specific report that results from that meeting.
    Mr. Kolbe. I do not think that is what the IG meant when 
they said a comprehensive design review is being completed. I 
think they did indeed believe that a document would be 
produced.
    Mr. Price. Are you talking about the December 30th?
    Mr. Kolbe. Yes, their December 31st letter.
    Mr. Price. They could not have known what was going to 
happen in January on December 30th, it had not happened yet.
    Mr. Kolbe. No, it had not happened. It said you were 
completing a comprehensive design review and I am sure they 
expected some kind of a document which somebody would be able 
to review coming out of that. So, you have meetings, minutes of 
meetings?
    Mr. Price. The Committee staff had asked for the results of 
that review earlier this week and when I checked to see whether 
a document was available I was told it was not.
    Mr. Kolbe. Well, okay. We do not have it and, yet, you want 
us to appropriate some money for you. The IG suggested several 
areas of problems that they saw. You complete a design review, 
we do not know what that design review did, you cannot tell us, 
there is no document to tell us and we are supposed to 
appropriate money for you to follow-up on these things that 
come out of this design review?
    Mr. Price. We have--there are--all of the problems that are 
identified by the IG in his report and the GAO in the current 
report are things that we have talked about with them. They did 
not find out about it out of the ether. We have talked to them. 
We acknowledged those as problems. Those are all things that we 
are working on in addition to others.
    As Secretary Daley said in his testimony earlier this 
month, we welcome the scrutiny of those two agencies because 
that means we identify and understand, get their insights and 
we can fix problems sooner.
    Mr. Kolbe. Well, it seems very hard to me for us to be 
asked to appropriate this money when we do not have a report, a 
written report that tells us, that identifies some of the 
problems that the IG sees. I guess we also have the GAO report. 
We understand there is a comprehensive review but we are not 
able to see it. We do not have any documents that come from 
that and we are supposed to appropriate the money for you to 
follow-up.
    Mr. Price. Congressman, I have just been passed a note from 
staff who is much more familiar with the details of this than I 
that says they will be putting out an analysis within six weeks 
that results from that.
    Mr. Kolbe. From that comprehensive review?
    Mr. Price. Right.
    Mr. Kolbe. In other words, it is a written document?
    Mr. Price. There will be a written document.

                      political use of census data

    Mr. Kolbe. Well, thank you. I certainly know that this 
Subcommittee will look forward to getting that so that we can 
consider the budget request.
    Mr. Chairman, a final question on the philosophical issue 
here. I have a question, but it is really more of a statement. 
I know that we will never, never agree on this issue of whether 
the statistical sampling or the non-statistical sampling or the 
non-statistical count is a better way to do it.
    But it seems to me that we have a fundamental political 
problem and it is one that no number of scientists or 
committees of the National Academy of Sciences can possibly 
address in the recommendations that they make. It is one that 
occurs to me when you talked about the agricultural census. 
That is the fundamentally different use that is made of the 
census when it comes to its political and I underscore that, 
political uses for deciding on districts, not just 
congressional districts, legislative districts, school board 
districts, county commissioner districts, junior college 
districts, hospitals, all kinds of things that it is used for.
    In my State of Arizona in the last census where the 
legislature could not agree on a plan for congressional 
redistricting and the courts took charge, they said to their 
two, one Republican, one Democrat experts that they hired to do 
this--I happen to be friends of both of them--they said,look, 
we got the data from the Census to do this as precisely as we want, we 
want you to draw not congressional districts that are close, we want 
them to be exact.
    And, so, they took the State of Arizona and they divided it 
by six. Unfortunately it did not divide evenly. As we used to 
say in fourth grade math, there was a carryover of one. I am 
sure these two gentlemen tried to figure out how to divide that 
person into six parts, but they could not. And, so, we have 
five congressional districts that are exactly the same and one 
congressional district that has one more person in it, in 
Arizona.
    Now, you get that degree of precision and then you get down 
to all the other lesser districts that are being used. You 
cannot tell me with sampling with any assurances that when you 
go in the end and you have to place these people not just in 
the aggregate, if you were using statistical sampling. I would 
agree that you can get more accurate count if you are talking 
about the United States of America, if you are talking about 
the State of Arizona and probably even Pima County where most 
of my district Tucson is located. But you have to use this 
census and you have to then take the people from the sample and 
place them in an exact location in order to make it work 
politically. They have to be placed in the house here on this 
side of the street, as opposed to that side of the street. And 
that is where you cannot tell me that you have accuracy with 
the sampling methodology. And that is the problem we get in the 
end with this.
    Mr. Price. Unfortunately, Congressman, what has been the 
case of having five districts with the same population and one 
district with one extra person, that is totally false 
precision.
    If you had six districts of about 600,000 people, the State 
must be around 3.5 million people with the 2.5 percent 
undercount that your State is estimated to have, much higher 
than the national average--that is about 90,000 people. 90,000 
people in those six districts that are missing, that we have 
every reason to believe live in that State.
    Barbara Bryant was asked this question--she was the Census 
Director appointed by President Bush. She was asked this 
question by reporters last fall, what about these districts 
because they are used in lots of smaller districts, not just 
States for apportionment. And she said that she was heavily 
involved in districting before she came to the Census.
    And that when you are drawing districts you are not drawing 
blocks at a time. You do not have representatives by block, you 
have representatives by larger populations. For those larger 
populations, sampling gives you better, more accurate results. 
When you have got 600,000 people, you have got much more 
accurate--those 90,000 are going to be assigned to those six 
congressional districts more accurately with sampling than 
without.
    We are very confident that in a State like Arizona, with 
large populations of Hispanics population and large Indians on 
reservations we are missing a lot of people, more than the 
national average. If you are missing 90,000 people, they belong 
in one of those districts and the people there by the 
Constitution are supposed to be counted. The Constitution 
expects us to be accurate and count residents.
    Mr. Kolbe. But counted, not estimated.
    Mr. Price. No. It says we are counting.
    Mr. Kolbe. Enumerated.
    Mr. Price. It does not say we do a head count. When we get 
a form, we may get one person filling it out for six. We do not 
count heads.
    Mr. Kolbe. I appreciate your comment. And I knew you would 
make that reply to me that, indeed, those congressional 
districts in 1990 were not accurate if they were not accurate. 
But at least they were not based knowingly on a fiction and 
that is what you do with statistical sampling, you base it 
knowingly on a fiction.
    Mr. Price. I think it is a fiction to think it was 
accurate. I think what we have is a sample that is 2.5 percent 
shy.
    Mr. Rogers. But the essential question that Mr. Kolbe asked 
at the end, the point he was making was that, yes, the sampling 
may give accuracy in a large body which is what you agreed to. 
But the point I think he was making on the block versus across 
the street is when you are making up that larger area that you 
are sampling from you have to confront the question of where is 
the boundary? What side of the street do you draw the boundary 
line on? And you cannot assure anybody from sampling, you 
cannot place everybody in that sample in a physical location, 
can you?
    Mr. Price. We place them close enough to be in districts so 
that district population is more accurate.
    Mr. Rogers. Suppose you find yourself short 50 people, 
where do you draw the geographical boundary line to bring in 50 
more people, some of whom are imagined in your sampling 
process.
    Mr. Price. When you draw the line you have got hundreds of 
blocks on any given district's border. And one of those blocks 
may be a little bit high and one of them low but the errors 
come close to zero once you get enough blocks together.
    And, so, it is not just one block, it is the whole set of 
blocks not just along the border but inside that gets you 
600,000 people in a congressional district and some of those 
districts, some of those parts of the State have a higher 
undercount than other parts do. And with sampling, you can 
better place those people than without sampling.
    Mr. Rogers. Well, you are asking us to trust you.
    Mr. Price. Well, we have very clear evidence that Indians 
on reservations in 1990 were badly undercounted. And there are 
areas of the State that have large populations on reservations 
had actually more people in those districts than the official 
number said.

                      Trust in the Administration

    Mr. Rogers. You are asking us to trust you and we did that, 
for example, in the Immigration Service, trust us, we will only 
naturalize people who have had their criminal records checked. 
We trusted them and they naturalized tens of thousands of 
felons and never even checked their records. So, you are 
suffering here, I think, a good deal from the mistrust that a 
lot of us have with the promises of this Administration. I will 
be frank with you. And it is mistrust well placed because my 
gosh we have been misled so many times that we are having 
trouble building up confidence in your promises.
    Mr. Price. In this case, as we committed last summer, the 
entire statistical design will be available for public view 
this summer for a year of debate. Anybody who sees any 
machinations in those can come forward with them, we are ready 
to have a debate.
    There has been no political person at all involved in this 
scientific research to design that.
    Mr. Rogers. There was nobody involved in the Immigration 
Service in politics until the last minute.
    Mr. Price. And this will be open to anybody who will be 
able to see for a year to see about this design and then it 
will be finalized. And anybody who sees a tilt one way or the 
another and knows that statistical design, we should hear 
about.
    Mr. Rogers. Before recognizing Mr. Skaggs, let me just say 
this. For all the folks at the Census Bureau and the 
Department, career employees like yourselves, and I assume most 
of the folks here with you, I am not worried about you. I mean 
I think you are going to do the very best honest job that you 
can, irrespective of politics or anything else. So, I want to 
be sure that you understand that.
    What I am worried about is that at the last minute some 
politician comes in and tries to manipulate your honest figures 
or your honest work, that has happened before in other 
agencies. That is what I think all of us have this fear of. 
And, so, I just wanted to let you know it is not you we are 
talking about here.
    Mr. Price. If people need assurance on that then maybe that 
can be committed to but the Census Bureau's plan is to have a 
statistical design that does not change. It will be in place 
before any data is collected and it will stay there until the 
numbers are produced.
    Mr. Rogers. Well, I will get back to you on the oversight 
board which is supposed to keep politics out of this after a 
while. But now it is Mr. Skaggs turn.

   Accuracy using statistical methodology vs. Traditional enumeration

    Mr. Skaggs. Thank you, Mr. Chairman.
    Is there any level of political subdivision, however small, 
to which as a practical matter the application of statistical 
methodology will give a less accurate count than the 
application of traditional enumeration?
    Mr. Price. I am not sure how small that gets. When we did 
the analysis last----
    Mr. Skaggs. The real world that we are dealing with the 
school board districts, the county commissioner district, any 
political subdivision in which we have to apportion people for 
purposes of getting as nearly equal as possible representation, 
enumeration will give you a better, traditional enumeration 
will give you a better result than statistical methodology.
    Mr. Price. We know that the error rate is larger for the 
block level when you do sampling but it is smaller once you get 
to the tract level and that averages about 4,000 people and in 
between that I have not seen an analysis done.
    But by the time you get as large as a tract and on beyond, 
it is notably a smaller error rate with sampling.
    Mr. Skaggs. Then I guess the best way of putting this is 
will we have a greater number of more precisely counted 
political subdivisions in the country from the school board on 
up with a statistically adjusted method or with a traditional 
method?
    Mr. Holmes. Statistical method.
    Mr. Skaggs. So more people will be more accurately counted 
for more purposes with a statistical methodology?
    Mr. Holmes. Yes, sir.
    Mr. Price. Another thing where the numbers are used is for 
funds allocation, about $180 billion a year are spent with 
population as part of the formula. And those funds are 
generally given to larger units, as well.

                     Completion of the Address list

    Mr. Skaggs. Now, I wanted to make one observation about 
your exchange with the Chairman having to do with when we will 
have the address list really ready? My sense was that what you 
were saying is that as in so many other areas of current 
business practice, you want a just-in-time approach to your 
address list, is that one way of looking at it? Because the 
later in time you have it ready, the better it is going to be?
    Mr. Holmes. That's correct. The longer we can hold out for 
closing out the address list, saying that this is the final one 
we use, will obviously will be better. But in terms of the 
evaluation part, that is ongoing.

                         IG and GAO Criticisms

    Mr. Skaggs. Now, I think somebody conceivably could get the 
impression from some of the earlier exchanges that you all were 
sort of brushing off the IG and GAO criticisms and I want to 
give you an opportunity to counter that impression if someone 
may have gotten it.
    Mr. Holmes. Well, from my perspective and I am sure Lee 
would agree, under no conditions are we brushing those off or 
suggesting that they are not serious things that we should not 
pay attention to. While some of us feel a little bit of the 
pain that is associated with the pricks that are provided by 
those agencies, they do provide an opportunity for us to really 
take a serious look at some things that we may or may not have 
taken a look at in the past and we use them to try and develop 
the best practices and the best processes that we can to get 
the work done that the taxpayers are paying for and the 
Congress is instructing us to do so.
    Mr. Price. As I pointed out more in detail in my written 
statement, these are big challenges. We know it is a big 
challenge. And mostly they talk about challenge and 
occasionally they refer to risk but getting an address list, 
getting the employment done, getting the local governments 
involved, getting the statistical design, all are big 
challenges. We know that they are big challenges and they are 
not completed. We know that out of the $1.5 billion we expect 
to spend before Fiscal Year 2000, through Fiscal Year 1999, out 
of that we have only spent a quarter of it.
    Most of the preparation, even going back to 1993, still 
lies in the future. Last year we spent $84 million on the 
decennial census. This year we are spending $390 million, next 
year it is on the order of $850 million. We know that most of 
the work is ahead of us. Most of that work is going to be 
fixing the kinds of problems that the GAO and the IG have 
identified. And if we continue to be goaded by them on where we 
have got a bigger problem to make sure we deal with it, but we 
need to get the funds and get organized to do it and we will be 
ready in 2000.

        Traditional Enumeration/Judicial and political judgments

    Mr. Skaggs. Well, I wanted to pick up a little bit on the 
characterization of whether your approach to the traditional 
enumeration option and the point in time in which you will 
either proceed with that or not, depending on both judicial and 
political judgments, is prudent or fool hardy.
     I think the default position would be that saving 
something close to $100 million sounds like a pretty good idea 
to me absent compelling arguments to the contrary. But I think 
it turns perhaps on whether the balance of direction in the 
current legislative directions you have been given is equal 
treatment of sampling and traditional enumeration or contingent 
treatment of one or the other.
    My sense was that what we have is contingent treatment of 
traditional enumeration and so you are planning for that as a 
contingency not as an equally likely outcome, is thatcorrect?
    Mr. Price. That is quite accurate. We think and we wanted 
to see if we could get it, an expedited judicial review but 
that decision will not be made before next winter and the 
political decision was talked about for next February. We need 
to be prepared for that contingency, either of those 
contingencies. We are confident that, at the end of the day, 
the courts will say that it is legal, constitutional, at the 
end of the day when the Congress looks at the facts in their 
entirety about what the tradeoffs are in terms of costs and 
accuracy that they will say, go ahead, and you can continue to 
use statistical scientific methods.

                         costs of improvements

    Mr. Skaggs. Now, I may be off on a wild goose chase here 
but it strikes me that it might help inform this debate if we 
could somehow quantify the costs of the increments of 
improvement that can be accomplished in the census by one 
alternative versus the other.
    And I am not sure what the right X, Y and Z numbers are 
here but assuming that your first phases of sending out the 
questionnaire and following up on that gets you to X, which is 
less than 100 percent; then how much per percentage point, if 
you will, is it going to cost us to get from X to 90-whatever, 
whatever the max is that you think you can accomplish through a 
statistical methodology so that we have a sense of what 
additional level of accuracy we are buying for each additional 
$100 million in one path versus the other. Is that a plausible 
method of looking at this public policy problem we have got?
    Mr. Price. It is intuitively plausible. It is very hard to 
do in practice. I mean we did some, what I call, thought 
experiments last fall when people were asking for this, and as 
I said earlier the biggest part of the undercount are people 
who live in a house where we got the form and we just did not 
get everybody in the house.
    And those houses are not marked, the people who are not 
included are not marked. How do you find those houses? And one 
way we thought of doing it, well, let us just go to the places 
that had the highest undercount in 1990. Got to the tract's 
that had those. But even going to those, it is very, very 
expensive to go knock on the doors to do this expensive kind of 
interview. It is very expensive for very low return, other than 
that it is very hard to identify those people that are missed 
by the traditional methods.
    You can go to a lot of houses and find the same information 
you got the first time.

                        international trade data

    Mr. Skaggs. Well, there has been some allusion to the fact 
that we should be afraid of possible political manipulation. I 
think there is, if you will, political fraud implicit in the 
traditional approach, which we do not talk about because it is 
just sort of there in the undercount but it is equally 
fraudulent relative to our goal of fair representation in the 
elected bodies of this country as is any potential, that 
somehow the statistical correction methodology might be 
susceptible to some manipulation which I think is a much 
smaller one.
    I would like to have one additional question that has 
nothing to do with the census. I think Mr. Price, you mentioned 
in your opening, the responsibilities in your area of 
developing international trade data. And I would just like for 
the record you to let us know how much better we could do by 
way of understanding both the pluses and minuses in terms of 
the economic impact of trade on the U.S. economy if we devoted 
another increment of resource to refining our understanding on 
a sector-by-sector basis, in particular, because I think the 
trade debate around this place takes place at a pretty macro 
level and with a lot of rhetoric that could be better informed 
by a real sense of impacts.
    Mr. Price. Well, the Census Bureau collects the trade data, 
both the export and import side, and it processes it in great 
detail. It is actually one of the few statistics that we do on 
a complete count basis rather than a sampling basis and some 
people think we underestimate exports by 10 percent because of 
that, because we rely on administrative data alone.
    But we do have very detailed information up to that amount. 
And we have had a number of programs with another part of the 
Commerce Department, the International Trade Administration, on 
various occasions where they have financed research on specific 
items that were of interest to better understand those things 
and that could be done again.
    Mostly it has not been on a sectoral basis but on a 
regional, State or metropolitan, trade basis. But there is an 
awful lot of data that could be mined and better analyzed if 
resources were there to do it.
    Resources have not been there to do it in recent times. We 
have been scrimping just to get the basic accounting job done.
    Mr. Skaggs. Thank you, Mr. Chairman.
    Mr. Rogers. Mr. Latham.

                      trust in the administration

    Mr. Latham. Thank you, Mr. Chairman.
    I just wanted to say I think you hit the nail right on the 
head earlier when you talk about the problem that I have and I 
think that many of us have is that the problem of trust. I mean 
when you have people who have given away the most precious 
thing any American could have, their citizenship, to convicted 
felons for the purpose of politicizing an election or getting 
more people registered to vote, 30-some-thousand people, you 
have no trust in the people, because you know they will do 
anything for political reasons.
    When you have people who will take personal FBI files and 
use them for political reasons, only, you have no trust at all. 
I can assure you. And what we have here is a question that 
really is not about the census, it is totally about money and 
power. And you, yourself, I think said there was $180 billion 
as far as distribution here. How can we trust anybody to guess 
at numbers when they continually will lie, will do things like 
give away citizenship to felons, not even check 200,000 people 
on their backgrounds for political reasons only. How can you 
expect us to trust that?
    Mr. Price. Well, I think you can trust it because the 
Census Bureau has an impeccable reputation for its independence 
and its statistical----
    Mr. Latham. So did the FBI, so did the INS, before this and 
it became a political tool for them to use for political 
purposes only.
    Mr. Price. In this instance, whatever the statistical 
design that is going to be used in 2000, it will be open for 
public review for a year in the next year. There will be no 
changes after that is done.

                            use of sampling

    Mr. Latham. There are laws on the books having to do with 
privacy and also with citizenship and they were totally ignored 
and I would not expect, because of the character of people 
involved, for any change to happen here. And I am just telling 
you it is not directed at you but I am justtelling you that it 
will be used--we have no reason to believe it will not be, because of 
past experience and a track record. There is no question about it.
    I have, to get more to the sampling question, my 
understanding is that in the proposal that when you get to 90 
percent, you will sample for the last ten percent, is that 
about right or is that the plan?
    Mr. Price. The plan is for the 60,000 tracts in the country 
that each of those we will get a mailed response, let us say at 
70 percent. Then for the 30 percent that did not send their 
forms back, we will sample two-thirds of that to get up to, so 
that we will have information on 90 percent. The combination of 
the mail response and the sample will assure you of the 
information on 90 percent of the housing units in each tract.
    Mr. Rogers. Would the gentleman yield on that?
    Mr. Latham. Yes.
    Mr. Rogers. How will you know when you have gotten to 90 
percent since you do not know what 100 percent is?
    Mr. Price. It is based on, as you say, the crucial Master 
Address File. To the extent that you have got so many housing 
units, when you draw your sample you eliminate, in effect, 10 
percent of the tract's housing units from the housing units 
that have not responded by mail.
    And then, for all of those remaining housing units, you go 
to send the enumerators out, to go collect information as if 
they were doing 100 percent in the old methods.
    Mr. Rogers. Thank you.
    Mr. Latham. That is the question I had, how do you know 
when you are at 70 percent if you do not know what 100 percent 
is, unless you actually count them.
    Mr. Price. It is 100 percent of the mailing of----
    Mr. Latham. Right, which you cannot show us. You have not 
got it ready yet and it is going to be right up to the 12th 
hour when that is finally available and if it is wrong then we 
are done.
    Mr. Price. We need the best possible mailing addresses 
whether we do sampling or not, but we really need it if we are 
not going to do sampling.

                 integrated coverage measurement (icm)

    Mr. Latham. I would suggest there is some level of 
confidence that needs to be a part of the equation. And I have 
not heard anything to give me confidence.
    How do you know in a household if they say there are four 
people in there and there are actually 20, how do you know 
there are 20, if you are guessing?
    Mr. Price. We are not guessing. When we do the ICM----
    Mr. Latham. What do you do, surveillance or something?
    Mr. Price. No, no. We use only information we actually 
collect in the sample. The ICM is an independent sampling 
operation, it is called, Integrated Coverage Measurement, and 
we go to 750,000 housing units. We pick up some missing housing 
units that are not in the standard MAF, so we can get some 
correction there. But we also send people to every housing unit 
in the ICM and if we do not get mail back on those we send 
somebody there. They ask more questions, and spend more time 
there and they find out more often that there is a college 
student that may have been registered twice, or there is a 
person who was there but was not put on the first form.
    That information is compared to the first set of 
information and reconciled. To the extent that people then 
admit that there was somebody there that they did not admit to 
the first time, that is information that we then use.
    Mr. Latham. Well, the example you used was they may say 
there are four people but there may be 20 people there.
    Mr. Price. If they do not say----
    Mr. Latham. I mean how do you know that there are 20 people 
there for your guessing?
    Mr. Price. We do not know. All we know is that the first 
time we went and they told us there were two people, and the 
second time we go and they say there are four people. And then 
we go back and try to reconcile, well, you said two and then 
you said four, which is it? And we get sometimes, often enough, 
that it was four but that is evidence that we use that there 
are more people there than the two that we would get in the 
old-fashioned method.
    Mr. Latham. So, with your guessing, you could say because 
they said there were two and there were four, that actually 
there were 20 in there?
    Mr. Price. No, we say there are four.
    Mr. Latham. Where did you get the example before about 20 
people in the house?
    Mr. Price. We would only calculate 20 people when we got 
some solid information that there were 20 people. We do not--in 
the sample survey we only use the data that is collected.
    Mr. Latham. I had a personal experience just in January. I 
was in my apartment with my wife here in the District and a 
census person came by and we were moving out at the end of the 
month and she went through the question, put it in her 
computer, and she was going to check back in three weeks and we 
were going to be out the next week. In her computer system she 
could not do that. She had to know how she could get a hold of 
me at that address with my phone number here when we had told 
her five times we were moving the next week.
    There is something in the system that is not taking into 
account the realities of life here.
    Mr. Holmes. Well, I guess I will try and address that one, 
sir. What you are referring to is one of our sample surveys.
    Mr. Latham. That is why I have no real confidence in the 
sampling.
    Mr. Holmes. Well, but again, the sample, doing a sample 
survey is radically different from doing a census using 
statistical methods. The reason it is different is that in a 
census we make an attempt or provide an opportunity for 
everybody to participate. Only after you have gone through all 
kinds of efforts to get everyone to participate, do you at that 
point apply a sample.
    Now, what you have described in terms of the survey is just 
the opposite. Rather than making an attempt to get in touch 
with everyone we select a small group and each of those 
particular addresses are the ones that are part of the sample 
and it is the responsibility of that person to make sure that 
they get the information from the person that is there.
    I do not question the fact that there may have been a 
problem with the instrument and she could not go forward or she 
could not go backwards to get some information but that 
situation that you described is a little bit different than the 
census.
    Mr. Latham. You are saying that that was part of sampling.
    Mr. Holmes. No, sir.
    Mr. Latham. Well, that is what you just said.
    Mr. Price. There are two different kinds of surveys.
    Mr. Latham. You are sampling the population.
    Mr. Price. Some surveys the sample is based on the address, 
where you just come back and survey whoever is living there.
    Mr. Latham. Right.
    Mr. Price. Other surveys, you are supposed to follow the 
person. This apparently was a survey where they were directed 
to try to follow the person.

                          Hiring Census Takers

    Mr. Latham. Let me just make my point and that is that the 
results would not have any validity based on my personal 
experience.
    We have virtually zero, in reality, unemployment. Where are 
you going to get the people, say in Sioux City, Iowa, to do the 
sampling? Are they going to be competent?
    Mr. Price. They will have to hire many more people if we do 
not do sampling. If we have to get 100 percent of housing units 
instead of 90 percent of housing units, the difference between 
70 percent and 90 percent is two-thirds as much as the 
difference between 70 and 100.
    So, the number of people who have to be hired is going to 
be much tougher to meet in those Sioux City areas that have low 
unemployment.
    Mr. Latham. I think your results are going to be skewed, if 
you do not have competent people to begin with. I do not know 
where you are going to find them. It is critical to accuracy if 
you are using the basis of sampling whether the results at 70 
percent are wrong or at 90 percent are wrong. I do not know 
where you are going to find the people to ensure accuracy in 
this process.
    Mr. Price. That is, as the GAO has said in its report, that 
is one of the biggest challenges we face and when you have to 
find 100,000 more people in the country not only is it going to 
be hard to find the people but their ability to do the work may 
be not as good as the first 250,000 people. So, to the extent 
that there is a problem in the labor market it tilts our 
decision in favor of sampling.

                         2000 Computer Problem

    Mr. Latham. One question I have asked virtually every panel 
that we have had through the process this year is regarding the 
year 2000 computer problem, obviously, we are looking at 
something that is very important in the year 2000. What if the 
computers implode here?
    Mr. Price. One of the things the IG talks about is all the 
new software design we are doing. But when you are doing new 
software design then you can avoid that problem. In large part, 
the Census Bureau and the BEA, which is another part of the 
ESA, are well ahead of most other Government agencies and they 
are aware of these problems. They have inventoried them and 
they are confident that by next year, early next year, we will 
have replaced those programs that are a problem and we will be 
able to test them and be ready well in advance of January 2000.
    But we are creating whole new software that will not have 
that problem.
    Mr. Latham. You can assure us of that.
    Thank you, Mr. Chairman.
    Mr Rogers. Mr. Dixon?

                    Political Environment of Census

    Mr. Dixon. Thank you, Mr. Chairman.
    I would like to welcome both of you gentlemen here today 
and as the Chairman has indicated, it certainly is a hot seat. 
It is probably a hot seat, in my opinion, because as I 
understand, from both of your backgrounds and the people that 
are here, that you have spent considerable time in developing 
the science of how to count people. And on this side, it is the 
politics of the issue. And, so, when the science and politics 
hit together there is always some kind of clash.
    But I really do not think, Mr. Price, that you get it. I 
think you are beating your head against the wall and I only 
speak for myself on this. You have been challenged this 
afternoon as to the accuracy of sampling, notwithstanding what 
other scientists and professionals in the area say about 
sampling. You have been accused of not being prepared today and 
the strong inference from reports is that you will never be 
prepared to do the job of enumeration.
    You have been told directly that the Committee or at least 
some Members of the Committee are concerned about political 
influence. In fact, one Member, Mr. Kolbe said, this is a 
political issue. So, I do not think you get it because, unless 
there is some drastic change you are not going to be allowed to 
sample. If the courts say that it is constitutional that moves 
you no further forward.
    Because, as you said, the under count involves, in the 
main, Latinos and African-Americans. The perception is that 
they would be inclined to vote Democratic. There are other 
concerns about States that know they have had declining 
population, losing representation. So, you do not get it.
    You are not going to be able to do sampling, one. And two, 
when it comes out and is disclosed that a lot of people were 
not counted, you are already being set up to say that you were 
inefficient and not prepared. That message is very clear today. 
Now, my interest, coming from a State that has gained 
population, is that we have the most accurate census available. 
But, in the real world, we will not be able to get that. So, 
rather than enumeration being a contingent issue, for my 
interest I want it to be your main interest.
    And I want you to realize that when you come before this 
Committee, in the main, you come to a very hostile environment 
on what is a political question. And from that perspective, I 
do not think you are prepared today.
    Because I think, not as a professional, but in the real 
world you have your head in the sand. You are still under the 
belief that if a 1,000 scientists demonstrated the accurate way 
to count that you can turn this Congress around on the issue.
    Now, unless there is a drastic change in the next two 
years, you are not going to be able to do that. So, setting 
that issue aside, I still want the most accurate count, Mr. 
Holmes, that you can make. I suggest to you that you get busy 
because it is going to be a short count and you are going to 
get blamed for it and there are going to be a lot of reports 
waived around and a lot of testimony about forecasting. I tell 
you what happened in 1990 will happen in the year 2000 and you 
have heard that here today.
    I do not mean to lecture to you at all, but you must see in 
the real world what is happening. And you are trying to fight 
back without a sword. You are trying to fight back with the 
logic of the science, you know, that is who are you going to 
believe me or your lying eyes?
    Now, that is what is occurring in this room. And I am not 
suggesting that there is anything evil about it; it is a 
political issue. You are not prepared today. These reports say 
you are not prepared. I remember 1990 and the disaster there 
suggests to you it is coming for 2000, you are going to take 
the heat for it.
    And, although, we are not challenging your integrity, we 
areconcerned with somebody out there in politics at the last 
minute changing the numbers. The handwriting is on the wall. So, I do 
not have any questions for you except get busy with the enumeration 
process. Do not look at it as a contingency. Look at it as a reality 
because that is what is going to happen and notwithstanding that we 
still want you to do the best job you can with one hand behind your 
back.
    Thank you, Mr. Chairman.
    Mr. Price. Can I respond briefly?
    Mr. Dixon. Please.
    Mr. Price. You raised a couple of important issues. One is 
that you said that these reports said that not only are we not 
prepared now but that we will never be prepared or that was the 
inference. I ask specifically to the authors of both of those 
reports if that was the case because I read the same inference 
as you did. And they did not, they said, no, that was not what 
their position was. There position was that as of today there 
are these risks that have to be dealt with. They can be dealt 
with they said. And the reason they have those reports, the 
reason we welcome those reports is we expect people to identify 
where there are risks and we want to work with them and work 
with you so that we can resolve those risks.
    But they did not say and I pressed them very hard on just 
what you said because the inference to the naive reader is that 
we will never be prepared, that we are so far behind we will 
never be prepared. And the authors of both of those reports 
said that was not their intention to say that.
    They intended to identify risks that needed to be dealt 
with if we were going to succeed, but they did not mean to 
imply that in the two years that we have remaining and the 
resources we have asked for that we could not get there.
    And I agree entirely with your reading of that inference 
but that is not what I was told by the authors to be the case 
of what their, those authors' intentions were.

                      Use of Statistical Sampling

    Mr. Dixon. What about the Chairman's comments here? He goes 
back to the inadequacy of the 1990 census and he uses the 
report and he foresees disaster on the year 2000 census. When 
you put these reports together and you put his utterances 
together, can you not see that you are not going to be able to 
use statistical sampling?
    Mr. Price. Well, I do not accept your pessimistic forecast 
for this.
    Mr. Dixon. Well, the reason I am pessimistic is because I 
think there may be more you can do to gear up for the 
enumeration. Now, if you can assure me that there is not 
anything else to do--see, I would transfer my time and energy 
because it is not going to happen. It has nothing to do with 
the merits of it. This is a political issue and you are 
treating it as a scientific issue.
    Mr. Price. Well, it is very clear, as Congressman Skaggs 
pointed out, we have not clarified how difficult it is to do 
any better than 1990. Extremely difficult and extremely 
expensive.
    Mr. Dixon. Do you think you are going to embarrass them 
into changing their political posture on this, the majority of 
this House?
    Mr. Price. I think that there are people who can be 
persuaded and I think there will be a lot of discussion in the 
next year. People will be better informed in a year's time than 
they are today.

                    Controlling Political Influences

    Mr. Dixon. How can you control the political influence that 
is going to come in, or has been suggested that it is going to 
come in at the last moment?
    Now, he shows you something you have no control over and I 
do not believe it is real but he says what I am concerned 
about----
    Mr. Price. Well, there are ways to deal with it.
    Mr. Dixon. It is the political influence.
    Mr. Price. There are ways to deal with that. As ranking 
member Mollohan proposed last summer, if people are interested 
in having a monitoring board--that really was to prevent that 
we would be happy to see that and that can be done. If people 
are interested, if that is the problem, that can be dealt with.
    Mr. Dixon. Mr. Price, we cannot trust you. You heard Mr. 
Latham, how can we trust you when all these felons were 
registered to vote? How can we trust you?
    Mr. Price. We think that if that is the concern----
    Mr. Dixon. Do you think you will turn his attitude around 
about this, with the issues that he threw out? You think if you 
can just show him the light, he will walk down the path.
    Mr. Price. We are prepared to have any scrutiny by people 
who are professionals to check any kind of problem. This is not 
something after the fact that is discovered, this is two years 
in advance. We can set up something in advance that can have 
all the scrutiny that is necessary to make sure that does not 
happen.
    Mr. Dixon. I know I have taken a long time, Mr. Chairman, 
so I will just conclude. Was there not, in fact, a group set up 
to make an evaluation as to how to improve the accuracy of the 
census?

              National Academy of Sciences Recommendation

    Mr. Price. Well, this Congress was very disappointed with 
the 1990 census. They commissioned a National Academy of 
Science panel.
    Mr. Dixon. And what did they recommend?
    Mr. Price. They recommended that the only way to get a 
satisfactorily accurate census was to include some statistical 
sampling.
    Mr. Dixon. Has that changed any attitudes around here? Has 
that made anybody a believer? No. Mr. Mollohan said he was 
convinced, I was convinced. [Laughter.]
    Mr. Skaggs was convinced. It is not that I do not believe 
in it, but I want the most accurate count under the 
circumstances. And the circumstances are that it is a political 
issue and there are reasons why people do not want to use 
sampling and I just want you to do the best job you can with 
one hand behind your back.
    Mr. Price. Well, we are committed. That is why we have 
asked for the $15 million for this year to do the best planning 
we can to see what can be done to try to find those people who 
otherwise were overcounted or undercounted without using the 
statistical methods that allow you do it.
    We are committed to do that because we are committed to the 
most accurate census in 2000 with or without sampling as the 
decision is made. It is very, very difficult to do much 
improvement on accuracy, on the overcount or the undercount 
without sampling.
    Mr. Dixon. Well, do the best job you can for California. 
[Laughter.]
    Thank you, Mr. Chairman.

                            Contingency Plan

    Mr Rogers. Thank you.
    And as usual, Mr. Dixon, has pierced through the veil tothe 
real truth of things and that is the reason that we have been peppering 
you pretty hard today about your preparations for in case the court 
rules that you cannot use sampling. I think that is a realistic 
possibility. No one knows how it will turn out. But if they rule you 
cannot do sampling you are up against the time crunch at that time, 
March or whenever that takes place.
    And we want to know, and I asked the Secretary the other 
day when he testified, we want to know and we want to see your 
plan for that contingency and we want to see that plan. And we 
want to know how you are preparing for that actual enumeration 
survey because we may have a couple of ideas ourselves about 
how you do it or we may not fund a certain part or we may want 
to add some money for such and so part.
    That is just what we are all about here. This is the 
oversight committee. And is that a----
    Mr. Price. We are absolutely committed to fulfilling your 
request to the Secretary and next month we will provide you 
with our plans for how we would do a census without sampling as 
far as they have been developed at that point. As the Secretary 
said, this is a work in progress so we intend to improve on it. 
There may be things that we can develop after April that would 
be worthwhile doing and we cannot today or within the next 
month be as well developed in the fine details of how we would 
operationalize the non-sampling plan.
    But we are committed by the time that decision is made next 
winter to be every bit as operationally prepared for non-
sampling as we are with sampling. We are not there today and we 
will not be there in April but we will be there by the decision 
next winter.
    And we will give you as much information as we can next 
month to satisfy you that we are working as hard as we can on 
this.
    Mr. Rogers. I do not want that. I do not want you working 
as hard as you can on it. I want the product. I mean, I want 
you working as hard as you can, but that is only half of what 
we want. [Laughter.]
    What we want is, we want to see what you have got and 
whether we think you can get there or not. That is altogether 
critical because after all we are investing over $4 billion in 
this.
    Mr. Price. At least $4 billion.
    Mr. Rogers. And as somebody said, you know you add a few 
dollars here and there, a few million, billion, you have 
spent--you run into money. We are running into money here. We 
want to see what the product is before we leave the store.
    Mr. Price. And you should.

                        census monitoring board

    Mr. Rogers. Now speaking of the possible political 
manipulation, which is the big fear that our side of the aisle, 
frankly, as Mr. Dixon has said, because of previous actions of 
this Administration, the level of trust is really low and that 
is what is fueling this whole problem here I think.
    As an attempt to neutralize that, the Congress picked up on 
an idea that Mr. Mollohan proposed to create a monitoring 
board. We included that in the fiscal 1998 appropriations act, 
a bipartisan, independent Census monitoring board. We 
authorized spending at $4 million for each fiscal year. I do 
not know whether the Administration agreed to the creation of 
the board. I think they did.
    Mr. Price. Yes, they have, yes. The President has selected 
four people and they are in the process of being vetted by the 
IRS and the FBI.
    Mr. Rogers. How come you did not ask for some money for it?
    Mr. Price. I guess it did not cost enough to come ask for 
us. But that is the President's responsibility.
    Mr. Rogers. What is?
    Mr. Price. To get the people vetted.
    Mr. Rogers. No, I mean, you did not ask for any money for 
the operation of that board.
    Mr. Price. We were told by those who are more expert than 
we in how budgets are put together that this is considered a 
legislative item and not a Commerce Department item.
    Mr. Rogers. Why did you not ask for money for this? You are 
asking $856 million for the decennial census. The board could 
cost no more than $4 million a year. It does not operate on 
nothing. It has to have some money for telephones, what have 
you. You did not ask for any money. You were in the room when 
the budgets were put together, were you not?
    Mr. Price. Yes, I was.
    Mr. Rogers. How come you did not ask for money for the 
board, the oversight board? That is the most important part of 
the whole budget, frankly.
    Mr. Price. Well, there are two things that come into play 
here. One is, we are told that that category of spending 
belongs in the legislative branch appropriation, not in the 
Commerce appropriation.
    Secondly, while they were appropriated--the authorization 
is $4 million through 2001, each year. I would expect in 2000 a 
much bigger effort to monitor things than in 1998. They are 
going to be staffing up in 1998. They probably will have some 
carryover into next year. How much should be done for 1999 is 
unclear.
    Mr. Rogers. I think I need to let Mr. Dixon talk to you 
again. I think he is right. I do not think you all are seeing 
the problem. The problem is trust, and the trust building phase 
of this is the monitoring board. That is where we get people 
from both sides and we let them assure people like me that, 
hey, this thing is on the up and up, and no one can manipulate 
this system; it is a fair thing. I cannot believe how trivially 
you are treating this subject.
    Mr. Dixon. If the Chairman would yield on this?
    Mr. Rogers. I yield.
    Mr. Dixon. I do not think that Mr. Price is saying that he 
is not for the funding of the board and would not make those 
requests. I think he is saying that when he made the request he 
was told that the appropriate vehicle was the legislative 
branch bill that would pass through the Congress.
    Mr. Price. That is what we were told, yes, sir.
    Mr. Dixon. So if we put it in your budget you would not 
have any problem with that, would you?
    Mr. Price. No.
    Mr. Holmes. Also, Mr. Chairman, I would like to mention 
that it is my understanding too that the monitoring board is 
not part of the Department of Commerce, so that also impacts 
the process, too.
    Mr. Dixon. But you are in no way opposed to it.
    Mr. Holmes. No.
    Mr. Price. The way I understand it is, this was the last--
you know better than I do, but this was the last train out of 
the station. We created this board, and the vehicle to find the 
money for fiscal year 1998 was Commerce, Justice, State because 
that was the train that was there that night.
    Mr. Rogers. This was a key part of the compromise that was 
reached on the census, the monitoring board. In fiscal 1998, 
the current year, this Committee funded the monitoring board. 
You have got money now in your account for fiscal 1998 for the 
operation of the board. You did not request any funds to do it 
for 1999, which is what we are here for, and I just want to 
know why.
    Mr. Price. We were told----
    Mr. Rogers. By whom?
    Mr. Price. By the Office of Management and Budget that that 
kind of funding should be done in the legislative branch and 
not in Commerce.
    Mr. Rogers. This is the legislative branch----
    Mr. Price. No, in the legislative branch appropriations 
process, not in the Commerce budget process.
    Mr. Rogers. Did you ask for it in the legislative branch 
appropriations bill?
    Mr. Price. I do not know.
    Mr. Rogers. The answer to that question is no, you did not. 
How come?
    Mr. Price. I was not party to that decision.

                    second mailing of questionnaires

    Mr. Rogers. That is what they all say.
    Every time we try to bend over backwards to try to find 
some common ground, we find it turns out to be quicksand. That 
is what is wrong--that is the process with this Administration. 
We cannot trust them on anything we do. It is a frustrating 
experience, and it forces us to play hardball. And if that is 
the way they want to play it, so be it; we can do that, too.
    Now let us get back to the process then. On the response 
rates on the mail-outs in your proposal, the Bureau's plan for 
the census assumes that the mail response is 67 percent. That 
is 2 percent better than you did in 1990, 12 percent higher 
than your own original response rate estimate for the 2000 
census of 55 percent. Reaching that 67 percent level was 
contingent on you making key changes and improvements.
    One of the major key improvements was mailing a second, 
replacement questionnaire to people who did not respond to the 
first one. As your February 1996 plan stated, the Census Bureau 
also learned ``a valuable lesson from the direct mail industry, 
that repeated contacts and reminders pay big dividends. We will 
send a replacement, user-friendly questionnaire to most 
addressees from which no responses arrive. Delivering a second 
form is a major change in approach,'' in a quote from your own 
bureau.
    This was to be a targeted mailing to those who had not 
responded. Last year you told us you were changing that. You 
were not going to target it because it was not technically 
feasible. Why did you abandon the targeted mail strategy, that 
second mailing?
    Mr. Holmes. It has not been abandoned, Mr. Chairman. We are 
using that in the dress rehearsal. We are using a second 
mailing. We are also sending a letter in advance of the 
questionnaire and a reminder card. Depending upon----
    Mr. Rogers. No, the question is, did you abandon the 
targeted second mailing?
    Mr. Price. Yes, we did.
    Mr. Holmes. Yes, we did.
    Mr. Rogers. That is what I am saying. Why did you abandon 
the targeted second mailing?
    Mr. Holmes. As you said, it is not technically feasible to 
do that.
    Mr. Rogers. I did not say that. You said it.
    Mr. Holmes. I assume that based on the comment you read, 
that is correct, it is not technically feasible.
    Mr. Price. In the tests that were done in the 1995-1996 
smaller geographic areas, we were able to do targeted mailings. 
We were able to process the addresses that had mailed back, 
cull those out and only send to those who had not sent it in.
    The Bureau was told by experts who process these kinds of 
things that to do it for 100 million addresses would take a 
month. From the time we cut off the addresses that had mailed 
back to the time you got back into the mail of those who had 
not got it back, it would be a month. And that month is a long 
period of time of blackness from not being able to process 
information.
    Mr. Rogers. What is a month got to do with it? That is not 
an unreasonable delay, is it?
    Mr. Holmes. Yes, sir, it is when you are up against a 
clock.
    Mr. Rogers. Assuming you are going to do sampling.
    Mr. Holmes. No, sir, this has very little to do with 
sampling. Because as of December 31st we have the 
responsibility for delivering the counts, and I think you 
mentioned that there were some 13, 14 million housing units 
that we have to follow up on. If you have to take a month out 
of that schedule to decide which of those you are going to mail 
questionnaires back to, that limits the amount of time that you 
have to follow up on them. And it is difficult enough under the 
best of circumstances to----
    Mr. Rogers. Let me just quote you from the letter of Mr. 
Marx, Associate Director for the Decennial Census of March 25, 
1997, memorandum for Marx from John Thompson, Acting Chief. 
``The Census Bureau is modifying the mail treatment strategy 
for Census 2000 as outlined in this decision memorandum. This 
modification is based on an assessment on risks inherent in the 
original schedule for completing data collection and processing 
activities for both the census and the quality check''--that is 
the integrated coverage measurement--``programs in time to 
produce apportionment and Public Law 94-171 counts by statutory 
deadlines.''
    ``In assessing the risks associated with the original 
schedule it became apparent that the non-response followup 
operation presented the greatest vulnerability in terms of our 
ability to complete subsequent key activities necessary to 
deliver the census totals by the required dates.''
    In other words, I think he is saying there, we cannot 
afford the time involved with the followup mail because it is 
going to interfere with our statistical sampling.
    Mr. Price. No, it is nonresponse.
    Mr. Holmes. No, that is actual followup, and that was the 
point I was trying to make. That if you take a month out of the 
schedule to decide specifically which households to mail the 
questionnaire back to, what that does is reduce the amount of 
time that you have for people to go out and knock on doors. 
Hence, the December 31st deadline of reapportionment data and a 
whole series of other things.
    Mr. Price. You send out first one mailing. You wait fora 
period of time for most of those people to mail back a questionnaire 
and to close out the address of who mailed back. Then if you have a 
month of blackness before you send another mailing, and then you have 
to wait for a period of time for that to be mailed back. And then you 
figure out who has not mailed back yet and get those people's names and 
addresses----
    Mr. Rogers. Look, you are going to spend 13 weeks on your 
statistical sampling, and you are going to spend six weeks on 
nonresponse followup.
    Mr. Holmes. Again, the piece I think you are missing, Mr. 
Chairman, is even in the traditional census-taking method there 
is a PES which does not take as much time, it is not quite as 
labor intensive as the ICM, but it is still a quality check 
that goes on after the nonresponse followup is done. So it is 
not like you just go out and do the count and that is the end 
of it.
    Mr. Rogers. Are you going to do a second mailing at all 
now?
    Mr. Price. We will be testing a second mailing in the dress 
rehearsal. If it turns out that we get a big response from it--
--
    Mr. Rogers. It has been zeroed out in your budget request.
    Mr. Price. Because of serious questions that have been 
raised about it, both in terms of the problems that would be 
raised for unduplication--because these are supposed to be 
mandatory forms. It says they are supposed to return these. If 
a substantial number, 15, 20 percent of people look at that, 
the husband fills out one time, the wife fills it out the 
other, they send in two. That is a major unduplication problem.
    There is also the public credibility problem of getting two 
forms. Why are they sending me two forms?
    Mr. Rogers. Are you going to do a second mailing?
    Mr. Price. We are going to test it. If it does not cause 
problems and it gets a big response then we would do it. But 
our inclination now is----
    Mr. Rogers. But you are not requesting money for that in 
your budget?
    Mr. Price. Because we think that it will cause 
unduplication problems and not have as big--money-saving 
benefits to plan for right now. But it may save enough so we 
can test for it.
    Mr. Rogers. I have other questions for the record that I 
will ask that you respond to for the record. We could spend the 
rest of the week I guess, but we do have votes on the floor 
right away.
    Mr. Mollohan, do you want to----

                  reduced opportunity for manipulation

    Mr. Mollohan. I have a couple questions. Gentlemen, let me 
first of all compliment the Census Bureau for its long history 
of having a reputation of political independence. I think it is 
one that you should be proud of and one that you should lead 
with in response to any questions about your credibility. 
Citing history is good precedent, and I think it is a tradition 
that you can assure people that you will uphold.
    Secondly, with regard to this question of political 
manipulations, is it not true that experts agree that the use 
of sampling in the Census 2000 should minimize the opportunity 
for political manipulation, not increase it?
    Mr. Price. Yes, that is correct.
    Mr. Mollohan. Why is that?
    Mr. Price. There are opportunities for discretion whether 
you do non-sampling or sampling. But if you have designed it 
and have scientific review of it, then that discretion will not 
be there and you will have the accuracy that comes from 
scientific efforts. But if you are doing your efforts based on 
discretion of where you send out people, and when you send out 
people, and which neighborhoods you put the most effort into--
--
    Mr. Mollohan. Then it is ripe for manipulation, is it not?
    Mr. Price. There is some risk.
    Mr. Mollohan. And with sampling, you build in objective 
properties that are looked at by experts, looked at by the 
public and they operate automatically.
    Mr. Price. That is the way we are designing it.
    Mr. Mollohan. Which works against the opportunity for 
manipulation.
    Mr. Price. Yes.
    Mr. Mollohan. I think that is something that you want to 
emphasize when you get that kind of question.
    In addition, you are committed to developing these 
protocols, formulas in a very open process subject to all kinds 
of public scrutiny; is that not correct?
    Mr. Holmes. That is correct.

                   national academy of sciences panel

    Mr. Mollohan. So that the formulas that you do end up 
putting in place are going to have been developed in the real 
light of day.
    Finally, have you not invited the National Academy of 
Sciences Committee on National Statistics to convene a fourth 
expert panel to guide your work in the development of the 2000 
Census?
    Mr. Holmes. Yes, we have.
    Mr. Mollohan. I think you should cite that because that 
gives people I think a level of confidence. The National 
Academy has great credibility. So on that issue of political 
manipulation, I think those are some really good responses that 
you can give.
    If the constitutionality of statistical sampling is 
considered by the Supreme Court and the Supreme Court decides 
that sampling is constitutional, I frankly believe that that 
will be a very powerful force and create a lot of momentum for 
allowing you to go forward with sampling. That was a critical 
piece of the agreement which was hashed out between the 
Administration and the majority in Congress. I, frankly, 
believe that the way that decision goes will probably be the 
way that we end up proceeding with the 2000 Census.
    Mr. Rogers. I hate to interrupt, but we do have votes on 
the floor that we will have to run to get to. I appreciate the 
time that you have spent with us and the grilling that we put 
you through. We appreciate the work that you are doing and we 
wish you well.
    Mr. Skaggs. Mr. Chairman, I just would like to leave the 
record open so we can clarify what I think is still a dangling 
question about this legislative branch appropriations issue for 
the oversight board. If there is some communication you can 
supply, and if we can find out anything.
    Mr. Rogers. Good.
    Mr. Holmes. Thank you very much.
    Mr. Rogers. The hearing is adjourned.
                                          Thursday, March 19, 1998.

            NATIONAL OCEANIC AND ATMOSPHERIC ADMINISTRATION

                                WITNESS

D. JAMES BAKER, UNDER SECRETARY FOR OCEANS AND ATMOSPHERE
    Mr. Rogers.  The Committee will come to order.
    We are pleased to welcome this afternoon, Dr. James Baker, 
the Under Secretary for Oceans and Atmosphere at the Department 
of Commerce.
    He will testify on behalf of the programs in the 1999 
budget request of the National Oceanic and Atmospheric 
Administration.
    The budget request for NOAA totals $2.117 billion, which is 
an increase of $123 million or 6.4 percent above the amount 
that Congress provided in 1998.
    Unlike other programs at the Department of Commerce, NOAA's 
appropriation has not been reduced, even though NOAA represents 
over 52 percent of the total of the Department of Commerce's 
budget, exclusive of the Bureau of the Census.
    In order to meet our allocation levels, that means NOAA has 
increased at the expense of other Commerce agencies, which have 
had to take even larger reductions.
    This year is likely to be a very, very tight budget year, 
given our commitment to meet the budget caps of last year.
    We will be looking for you to assist us in finding 
budgetary savings as we develop priorities. We will insert your 
written statement in the record.
    If you would like to proceed with a summary, we will be 
happy to hear from you.

                                Overview

    Dr. Baker.  Thank you, Mr. Chairman, for this opportunity 
to testify on the NOAA budget. Let me say that because of the 
investments that this Committee has supported, NOAA is a leader 
in weather and climate research and forecast, environmental 
monitoring and research, fisheries management, and sustainable 
use of the coast.
    We believe that our proposed budget represents an 
appropriate balance among the environmental assessment, 
prediction, and stewardship needs of the Nation. Most recently 
we successfully demonstrated the value of these investments by 
the forecast of the 1997-1998 El Nino.
    We first announced in June 1997 that El Nino would be an 
event of a century in the intensity, and that major impacts 
could be expected in the United States and globally during the 
coming fall and winter. The subsequent weather patterns for 
October 1997 through January 1998 have matched well with the 
forecast. A number of regions around the country have recorded 
hundred-year departures from normal rainfall or temperature. 
Providing this type of information to Government industry users 
as well as the public more than six months in advance is 
precedent-setting. Based on current forecasts, hundreds of 
Federal, State, and local agencies as well as private groups 
have been able to take steps to prepare and mitigate the 
impacts.
    El Nino reminds us of the importance of the ocean to the 
weather and climate system. In recognition of this importance, 
the United Nations has declared 1998 as the Year of the Ocean. 
We have planned a year-long series of events to remind us of 
the value of the oceans in our daily lives. We are leading the 
Federal inter-agency effort to review the status of ocean-
related programs. Legislation, the Oceans Act, has been 
introduced in Congress and it highlights the importance of the 
ocean. It sets up a commission to review future oceans policy. 
The Year of the Ocean presents NOAA with a chance to educate 
more Americans than ever before on the tremendous importance 
and virility of our Nation's ocean, coastal, and Great Lakes 
resources.
    Other ocean issues have been in the news this year. For 
example, the biological consequences of polluted run-off is 
increasingly being seen in many coastal areas. We have seen the 
effects through last year's outbreak of Pfiesteria in the 
Chesapeake Bay, the increase in harmful algal blooms, red 
tides, brown tides, as well as hypoxia in the Gulf of Mexico. 
All of these have significant economic consequences.
    Another important success is NOAA has pioneered the use of 
the Endangered Species Act flexibility to work cooperatively 
with the States of Oregon and Maine to develop conservation 
plans for salmon that avoid Federal listing of the species.
    We will continue to work with States to find innovative 
approaches in carrying out our trustee responsibilities. The 
total 1999 NOAA request, as you have said, Mr. Chairman, is 
$2.117 billion in new budget authority.
    It is a net increase of $123 million over the 1998 enacted 
level. This request allows NOAA to perform an essential role in 
a number of interagency and Presidential initiatives, including 
the Natural Disaster Reduction Initiative, the President's 
Clean Water Initiative, the South Florida Ecosystem Restoration 
Initiative, and the National Oceanographic Partnership Program.
    Significant changes in our 1999 budget include $33.6 
million to implement statutory requirements to restore 
America's fisheries, protect marine species faced with 
extinction, and conserve habitat important to living marine 
resources.
    No new funds are requested for new ships in fiscal year 
1999, but funds to acquire replacement fisheries vessel 
capacity are planned for future budget requests, fiscal years 
2000 through 2003.
    We have $22 million for the Clean Water Initiative which 
will provide research and management to address polluted run-
off, the major source of pollution of coastal waterstoday. New 
funding will allow NOAA to help coastal states monitor, maintain, and 
improve coastal water quality by addressing run-off pollution.
    A total increase to $5 million is requested to support the 
Administration's South Florida Ecosystem Restoration 
Initiative.
    We will also continue to chart the Nation's coastal waters, 
including the continued reduction of the critical backlog for 
hydrographic surveys, and providing precise positioning 
information to mariners.
    We are preparing a report on our hydrographic services as 
requested in the 1998 Conference Report. That report has been 
finished and is currently under review.
    In addition, $55 million is requested as part of the 
Interagency Natural Disaster Reduction Initiatives.
    Of that amount, $28.3 million is to maintain National 
Weather Service operations and ensure the provision of weather 
warnings and forecasts to the public consistent with the 
recommendations contained in the study conducted by General 
Kelly.
    The remainder of the budget request will support advanced 
hydrologic forecasts, improve regional scale weather prediction 
models, replacement of the obsolete radiosonde upper air 
monitoring network, research into scientific questions relating 
to ozone and air particulate standards under consideration by 
EPA, as well as coastal hazards including development of risk 
atlases for coastal areas.
    We continue to experience the benefits associated with 
Weather Service modernization in Fiscal Year 1997. Improvements 
in the accuracy and timeliness of severe weather, natural 
hazards, event warnings, and forecasts are directly linked to 
modernized technology such as the Next Generation Weather 
Radar, new and improved weather satellites, and the Advanced 
Weather Interactive Processing System being deployed.
    These improvements have been attributed to saving lives and 
reducing the impacts of natural disasters. We are nearing the 
completion of Weather Service modernization. One of the 
remaining challenges, as you are well-aware, is the completion, 
development, and deployment of the AWIPS system, the 
cornerstone of the modernization. AWIPS has performed superbly 
in its initial deployment. Offices without it are demanding it.
    As you are aware, we are currently working with the 
Subcommittee to review plans and cost estimates for the AWIPS 
Program, including an independent cost review.
    For our environmental satellites, 1999 funding will ensure 
that our continuous GOES and Polar-orbiting satellites are 
continued. The increase of $153 million from the enacted level 
is requested primarily for acquisition of GOES N through Q, the 
contract which was awarded to Hughes in February 1998.
    The competition in that contract lead us to savings close 
to half a billion over the original estimates. The new series 
of geostationary satellites began with the launch of GOES 8 in 
April 1994. GOES 10 was launched in April 1997 as a back-up in 
case of a failure in one of the operational satellites. That 
satellite is working fine at the moment.
    An additional $65 million is required to meet NOAA's 
commitment to share development costs with the Department of 
Defense for the National Polar-orbiting Operational 
Environmental Satellite System; an increase of $31 million.
    We will continue to study and document long-term climate 
changes and provide scientific input to international 
scientific and policy organizations as we did at the U.N. 
Climate Conference in Kyoto.
    Mr. Chairman, I would like to note in conclusion that more 
than in most years, we see the dramatic impact of weather and 
climate changes on the economy and safety of the world.
    Our contributions for water, climate, and fisheries 
management issues have been more in the news than ever. Our 
technology, services, resource management capabilities, and 
dedicated people have performed well.
    Our 1999 request will help ensure the continued delivery of 
these essential services. Thank you for the opportunity to 
testify.
    [The statement of Dr. Baker follows:]


[Pages 583 - 621--The official Committee record contains additional material here.]



                           fish fee proposals

    Mr. Rogers.  Now, for fisheries you are asking for $30 
million in program increases of which $20 million would be paid 
for by new fish fees. Now, we have seen these fish fee 
proposals before. They have always been rejected.
    Dr. Baker.  Yes, sir.
    Mr. Rogers.  What makes you think that you have a chance 
this time?
    Dr. Baker.  Mr. Chairman, we were directed by OMB to 
request fees for both fisheries and for navigation services. I 
have to tell you that we passed on that message to OMB, the 
message we have received from Congress.
    I have to say that there has been experience in the Coast 
Guard. The Coast Guard was also told to develop fees for 
navigation. The Coast Guard has had a very hard time 
implementing such fees as they have gone through the courts by 
trying to make that happen.
    In fact, the budget does include the fees. We have agreed 
to work with Congress to see if we can find legislation to make 
that happen.
    Mr. Rogers.  What specific fisheries increases are tied to 
these fees that would thus have to be foregone if the fees are 
not enacted?
    Dr. Baker.  Mr. Chairman, as we worked with OMB to develop 
the budget, we asked that there not be any specific ties 
between fees and specific fisheries. So, there was nospecific 
link. It is a general offset to the overall NOAA budget.
    Mr. Rogers.  You say you want all of your increases. You 
want us to pay for it. That is typical of all of the agencies 
this year. There are zillions of dollars worth of fees proposed 
by the Administration in all of these submissions.
    The Coast Guard fees are not going to happen. Your fees are 
not going to happen. The disaster loans--SBA wants us to raise 
the rate of interest charged to people who had been wiped out 
with no access to loans from financial institutions.
    They want us to double their interest paid on disaster 
loans to people who are absolutely down and out. They know that 
we are not going to do that. Yet, we have got to find some 
extra money somewhere to make up for the disaster loans 
account.
    The same thing here. It is just an absolutely sham budget. 
It is not a balanced budget. It is a budget proposal from the 
White House that would require the Congress to enact inordinate 
numbers of fees and charges which we are not going to do.
    It is outrageous. You know we have been very generous to 
the fisheries programs in the last three years. Almost every 
other program in the entire Commerce Department, outside of 
NOAA, has been cut.
    We have increased funding to fisheries by 37 percent. So, 
we have been very generous to those programs. Surely you are 
not suggesting that we cut other NOAA programs, such as the 
Weather Service, to pay for these increases if the fees are not 
adopted; are you?
    Dr. Baker.  No, sir.
    Mr. Rogers.  What shall we cut?
    Dr. Baker.  I think if it turns out that fees cannot be 
enacted, we will have to work with you to find ways that we can 
work within the lesser amount in the budget.
    Mr. Rogers.  That is what I thought we were here today for. 
I would like to know what you want us to cut since we are not 
going to do the fees?
    Dr. Baker.  We are certainly prepared to sit down and work 
with the committee to try to make that identification.

                      navigational safety programs

    Mr. Rogers.  Now, we have been concerned for a number of 
years that the navigation safety programs, particularly mapping 
and charting, were often overlooked by NOAA. This, despite the 
fact that we have a ridiculous backlog and the number of old 
charts.
    Three years ago, we were told that it would take 40 years 
to make our charts current. Thanks to Congress' efforts, which 
for the last three years, has increased funding for these 
programs. We have been able to drop that to a 30-year backlog.
    Just as we are making some strides, you propose to cut them 
by 13 percent in these critical navigation safety programs. 
And, you are proposing new fees on navigation programs in order 
to pay for other NOS programs. How can you justify cutting 
critical navigation safety programs?
    Dr. Baker.  Mr. Chairman, this has been a difficult issue 
for us because we have identified the critical backlog. It is 
something that we have pushed hard for every year. The 
Administration is proposing more in the 1999 budget than we did 
propose in the 1998 budget.
    You are absolutely correct. It is a substantial amount less 
than Congress provided. Congress has been, I think, much more 
responsive to this than our overall budget.
    We are continuing to work it. In the end, this is what may 
happen, but we are fully in agreement that this is a problem 
that we have got to address.
    Mr. Rogers.  Well, if your budget cuts are enacted, will 
that not mean that we will have an increase in the current 30-
year backlog?
    Dr. Baker.  It will certainly be an increase in the backlog 
that we would have had if we had the congressional level 
enacted. That is correct.
    Mr. Rogers.  Now, at the same time, you are cutting NOS 
core functions, it appears we are seeing some new missions. NOS 
is taking on functions previously done by OAR and making these 
new functions their top priority. At a time when you are 
proposing to cut the most important safety programs in NOS. How 
can you justify NOS taking on new functions with proposed huge 
increases for those functions?
    Dr. Baker.  Mr. Chairman, one of the things we felt was 
important was to try to have a more efficient agency. I think 
we have been directed to do that. We have been very concerned 
about it.
    The reorganization, moving some of the functions that were 
outside of the National Ocean Service into the National Ocean 
Service, we believe will give us a more efficient and more 
effective operation.
    Now, it is true that we proposed some increases, but the 
increases, for example, coastal ocean programs and Pfiesteria 
research, are for areas that we think are programmatically 
important for the country.
    Mr. Rogers.  Now, you are requesting increases totalling 
$36.3 million for the National Weather Service operations. How 
much of those increases are for base requirements and how much 
are for new programs?
    Dr. Baker.  The base requirement, as identified by General 
Kelly's report, is $28.3 million. I do not have the breakdown 
of the other numbers. The base requirement is $28.3 million. He 
identified that as a need. That is what we have put in the 
budget.
    Mr. Rogers.  That would be $8 million for new programs. Is 
that correct?
    Dr. Baker.  That is correct.

                  national weather service priorities

    Mr. Rogers.  Given the continuing problems that we are 
having with AWIPS which we will come to later and the overall 
fiscal constraints, what is your highest priority; new programs 
or base funding?
    Dr. Baker.  Mr. Chairman, our number one priority for 
Weather Service this year was the restoration of the base. That 
is what the Kelly Report said. That is what we have put in 
there.
    Mr. Rogers.  As I understand it, a portion of your base 
increase is to continue to keep staffing due to the delay in 
the AWIPS deployment. Are some of those temporary costs while 
you get AWIPS deployed next year? Will some of the staff levels 
be reduced in fiscal 2000 once AWIPS Build 4.2 is deployed?
    Dr. Baker.  Yes, sir. In fact, we are currently working the 
exact number that keep the numbers to 106 people that we think 
can be sustainably reduced by the accomplishment of Build 4.2.
    To the extent we can achieve additional parts of AWIPS, we 
would have additional reductions. In our discussions we have 
agreed that we would have both a requirements and budget review 
for both Build 5 and Build 6.
    Mr. Rogers.  What is your estimated cost savings in fiscal 
2000 once AWIPS Build 4.2 is deployed?
    Dr. Baker.  It would be the cost savings associated with 
106 people. I do not know the number. It would be approximately 
$17 million.
    Mr. Rogers.  Now, one-third of your requested increase is 
for non-labor costs. Even the Kelly Report raises questions 
about non-labor costs which account for over 40 percent of the 
Weather Service's operations budget.
    In fact, the Kelly Report admits some of its ability to 
realistically evaluate and determine budget levels was limited 
due to faulty Weather Service budget practices.
    How can we have real confidence that all of the $10 million 
increase is critical and necessary?
    Dr. Baker.  Well, Mr. Chairman, a large fraction of that 
funding is for equipment and maintenance supplies. We are 
looking at that. We are taking a very careful look. Now, we 
have a changed management in the Weather Service. General Kelly 
has agreed that we will do a real scrub of all of those 
requirements and the costs.
    Mr. Rogers.  Well, the Kelly Report further states that, 
one, there are huge variances among the regions in spending in 
non-labor costs, and, two, getting a handle on these 
discrepancies could result in substantial non-labor regional 
budget savings. Three, it is essential for NOAA to analyze this 
problem.
    Do you plan to review this? When can we see the results of 
that?
    Dr. Baker.  Mr. Chairman, it is my understanding that we do 
plan to do that as soon as we can hire a new CFO, which is one 
of our management changes that we are proposing for the Weather 
Service.
    Mr. Rogers.  Okay. I have further questions that I will 
defer to the second round. Mr. Mollohan.

                            Goddard Facility

    Mr. Mollohan.  Thank you, Mr. Chairman.
    Welcome Ladies and Gentlemen. Dr. Baker, you requested 
funding in last year's budget to construct a facility at 
Goddard. This Committee rejected your request and instructed 
you to consider other options.
    Your budget for fiscal year 1999 does not request any 
funding for this project. I ran across an article in the 
Washington Post in February which is entitled, ``NOAA Plans New 
Facility at Goddard.''
    NOAA's program director was quoted as saying, ``We have 
discussed it with Congress through the . . . budget process. We 
will try all the avenues we can to keep the project going and 
moving as quickly as we can with it.'' What does that mean?
    Dr. Baker.  Well, Congressman Mollohan, that article was a 
surprise to me too. I have to say that we did take the 
direction from this Committee last year that said that whatever 
facilities we should construct should be the most cost-
effective possible.
    That we should look broadly across. The Committee said that 
it would not provide any funding for the Goddard building. 
There are a number of studies that have been slowly winding 
down there.
    This is, as I understand it, a reference to an 
environmental assessment that was going on. We have directed 
that the ongoing planning for that Goddard building be stopped 
and that we look broadly at all of the possibilities.
    Mr. Mollohan.  Who have you directed that to?
    Dr. Baker.  To our facilities management activity. We have 
in place a new Deputy Under Secretary who will take that on.
    Mr. Mollohan.  Who is that?
    Dr. Baker.  That is Bill Mehuron.
    Mr. Mollohan.  So, you directed him to cease and desist 
with regard to this project.
    Dr. Baker.  That is right.
    Mr. Mollohan.  Has he?
    Dr. Baker.  Yes, sir, as far as I know.
    Mr. Mollohan.  Who is the Goddard official quoted in the 
paper?
    Dr. Baker.  I believe that was a NOAA Weather Service 
person.
    Mr. Mollohan.  I am sorry. Who is the NOAA person?
    Dr. Baker.  As far as I know, it was John Sokich from the 
Weather Service.
    Mr. Mollohan.  What basis did he have to make that 
representation?
    Dr. Baker.  I do not know, Congressman. That was not 
something that we had authorized.
    Mr. Mollohan.  What are your plans with regard to the 
facility, the purposes, and the functions that will not go into 
the facility?
    Dr. Baker.  We would like to find the most cost-effective 
way to manage our facilities that we currently have in Suitland 
and Camp Springs.
    We are looking for ways to either put people together or 
put them into a cooperative and synergistic way with other 
parts of NOAA or other related agencies. We are looking at 
areas around the Washington area to see how we can do that.
    Mr. Mollohan.  Do you have any request in the budget for--
--
    Dr. Baker.  There is a request in the budget for $735,000 
for NOAA-wide space planning to look at the consolidation of 
offices, both in the Washington, D.C. area and also in Norman, 
Oklahoma. We have some old space.
    Mr. Mollohan.  That is a lot of money to look at that.
    Dr. Baker.  Well, I think it is not an unreasonable amount 
when you are looking NOAA-wide space planning.
    Mr. Mollohan.  Did you request money for that purpose last 
year?
    Dr. Baker.  I do not know.
    Mr. Moxam.  No, sir. We requested money beginning the 
design of the building last year of $12 million.
    Mr. Mollohan.  Of the building we have just spoken of. So, 
this $735,000 is not money for that building, it is money for 
overall studying of NOAA's space needs.
    Mr. Moxam.  Consolidation options, both in the Washington, 
D.C. metropolitan area and the Norman, Oklahoma area, sir, 
where we have a large NOAA population.
    Mr. Mollohan.  This is for studies.
    Mr. Moxam.  Yes, sir.
    Mr. Mollohan.  Thank you, Mr. Chairman.
    Mr. Rogers.  Who is John Sokich?
    Dr. Baker.  John Sokich works for the Weather Service. I do 
not know his specific title.
    Mr. Moxam.  Mr. Sokich was also appointed to be the program 
manager for the NOAA consolidation effort in the Washington, 
D.C. area as a collateral duty.
    Mr. Rogers.  Even though there is no consolidation effort 
authorized by Congress.
    Mr. Moxam.  Yes, sir. We had started this planning. A part 
of the planning is to be able to prepare estimates and budgets 
to explain that both to OMB and to the Congress on how much it 
would cost.
    Mr. Rogers.  I want specifically to know how come this 
program manager had the authority to announce at a press 
conference apparently that you are going ahead with the 
building that we specifically said do not do? How?
    Dr. Baker.  Mr. Chairman, we had another interview where we 
had that corrected in another publication. We believe that all 
we did at that time was roll out the environmental assessment. 
Part of the environmental assessment process is to make it 
public. When they picked up the article, they did announce it 
as done deal. I do believe we tried to correct that.
    Mr. Rogers.  Well, somebody called the press to get the 
story out in the paper. It was not just an accidental effort. 
This was a planned effort. I would like to know how it came 
about. Now, is it the National Weather Service that did this?
    Dr. Baker.  I believe we were contacted by the press, Mr. 
Chairman, but I certainly can get back to you on that one.
    Mr. Rogers.  No. Let us get with it right now.
    Dr. Baker.  Okay.
    Mr. Rogers.  We know the answer. Tell us.
    Dr. Baker.  I believe we were contacted by the press oncewe 
sent out the environmental assessment. They asked for some more 
information on the project, what the plan was. Then they wrote that 
article based on the discussions.
    Mr. Rogers.  Well, Sokich is pretty plain about it. He says 
it is going to be done. We discussed it with Congress. They 
discussed it with Congress and we said no. We read a press 
release saying, we are going to build a $100 million center.
    Now, either NOAA is going to respond to the Congress or 
there will be further dues to pay. Which is it?
    Dr. Baker.  Well, sir, this press statement was a surprise 
to me. We have corrected that by directing that there will be 
no further action on planning for a Goddard building.
    Mr. Rogers.  This is not the only thing. There is a whole 
host of items that you and I have talked about that we find the 
NOAA and the National Weather Service unresponsive. In fact, 
contradictory to the will of the Congress.
    It is the only agency that we appropriate for that has such 
an attitude. I just have to tell you, it ain't going to last 
that way. That is not the way this government is built.
    This agency, like all others is responsive to the Congress. 
If you cannot get that done, then we will have to take the next 
step, which you will not like. Can we talk?
    Dr. Baker.  Yes, sir.
    Mr. Rogers.  Can we have an assurance from all of your 
department heads? Sometimes I think the problem is not with 
you, that it is just below you. You have got, I think, most of 
the department heads here today; do you not?
    Dr. Baker.  Yes, sir. I think they are hearing your 
message.
    Mr. Rogers.  Those who have not heard my message, raise 
your hand.
    [No response.]
    Mr. Rogers.  That goes for all of you. We will not tolerate 
this agency or any division of it thwarting the will of the 
Congress, particularly on money issues that this Subcommittee 
deals with. It just will not happen.
    You have done more to destroy your chances for a new 
building than you can ever imagine. It is going to be really 
tough for you to get that building now. You had an even chance 
going in, but you ain't got an even chance now.
    So, let it be a lesson. We will not be thwarted, publicly, 
openly thwarted. Mr. Skaggs.

                              Boulder Lab

    Mr. Skaggs.  Thank you, Mr. Chairman.
    It is with some trepidation that I ask about another NOAA 
building. Are you going to get the new lab in Boulder open this 
year?
    Dr. Baker.  I think we will be very close by December, 
Congressman Skaggs.
    Mr. Skaggs.  When in December?
    Dr. Baker.  December 11th is our current official projected 
completion date.
    Mr. Skaggs.  Any show stoppers between here and there that 
we need to be aware of?
    Dr. Baker.  I do not think we have any show stoppers. There 
is a contract option that allows the contractor to delay 
completion until February 5, 1999. He could wait until December 
10th before exercising the option.
    The contractor has not exercised the option or told us that 
he will do that. We have requested the contractor to give us 
early warning if this would happen. We do not have a response 
back yet. We are also very concerned about this and we will 
continue to monitor it.
    Mr. Skaggs.  This was built into the contract by GSA, at 
the contractor's option?
    Dr. Baker.  Yes, sir.
    Mr. Skaggs.  Obviously there are an awful lot of logistics 
that go into getting the people that now are scattered around 
in other places into the new facility in an efficient and least 
cost way. So, I hope you will keep me and my folks in Colorado 
advised on real time basis in case I may be able to be helpful 
with the contractor in getting things cleared up quickly.
    Dr. Baker.  Okay.
    Mr. Skaggs.  Related to that possible delay, I am told 
that, that could then force some rent problem for you in your 
current facilities. I do not need to get into details about 
that. We will need to know about that sooner rather than later 
here at the Committee.
    I noticed, getting to some of the science that you do, 
which is really pretty fantastic, some modest increase in 
proposed funding for the Space Environment Center. Does that 
flow from anything happening in the solar cycle or is it other 
program activities that you are going to be undertaking?

                              Solar Cycle

    Dr. Baker.  Well, Congressman, as you know we are just 
starting the beginning of a solar cycle, one of solar maximum 
cycles, Solar Cycle No. 23. It started in late 1996. It is 
expected to peak in early 2000 and decline for two years after 
that.
    We felt it was important that we get some critical base 
funding into the Space Environmental Center to make sure that 
we could continue that 24-hour, 7 day a week monitoring. As you 
know, when you go into the higher solar activity, there is a 
possibility of particles coming from the sun and destroying 
utility generators. Right now, the forecast is that this solar 
cycle would be one of the ten most intense solar cycles on 
record.
    So, we expect the storms, the solar flares, to be more 
intense than ever. As you know and thanks to this Committee, we 
have a joint activity with NASA and the Air Force that has put 
a satellite out far enough so we can get one-hour warnings of 
these geomagnetic storms.
    The extra base funding that we provided for the Space 
Environment Center will help us make sure that we have a 
continuous and ongoing warning event.
    Mr. Skaggs.  I think here, as with so many things that you 
do, it may not be self-evident to those of us who are not 
trained in the field exactly what the costs of avoided benefits 
are of these kinds of activities.
    If you could flesh out for the record a little bit what we 
think we will buy in savings to the power industry, or 
communications, or astronauts, or whatever it may be from 
having that additional warning capability. That would be 
helpful.
    Dr. Baker.  Just in a nutshell, the impact of solar 
activity ranges all the way from saving lives, that is 
astronauts who are in orbit because of a highly radioactive 
particles that come from the sun. You used to get a warning 
about what is going to happen down to power grids. In fact, the 
last really big outburst caused a power outage all across 
northern Canada and was close to $1 billion in impact. I cannot 
remember how long that was ago.
    It was in 1989. We have a bigger power structure across the 
United States and Canada. There is the potential for that order 
magnitude, hundreds of millions of dollars' impact upon power 
grids.
    If there is a warning, even a half an hour to an hour 
warning, you can shut down those power grids and you can avoid 
that loss to the generators. So, it could have an enormous 
impact. That is why we have a 24-hour day warning in our Space 
Environment Center.
    Mr. Skaggs.  I know you are asking for some additional 
funds to increase capability and high performance computing. 
Will that have some affect on the level of specificity in your 
forecasting?
    If so, what is the practical significance of that. Are we 
on our way toward ten meter resolution instead of one mile 
resolution? What is involved in all of that?
    Dr. Baker.  This is a very important activity for us to 
have the best possible computing power. Right now, we are 
trying to do as good a job as possible in forecasting the 
landfall of hurricanes. That is probably the most important and 
biggest impact, economic impact, for weather events. Every mile 
that we can forecast that the hurricane will hit or will not 
hit is about $1 million of impact. We are doing better. Every 
year we do a little better. The new computer will help us 
improve and continue that improvement.
    It is not just hurricanes. One of the things that we are 
looking for is a better job of forecasting very intense 
weather. Explosive storms is something that we do not 
understand very well.
    Occasionally we get these. Did not know they were going to 
happen and suddenly they are there. Why do we get in a certain 
part of the country many tornados occurring all at once?
    Right now we are giving 15 to 45 minutes' warning on 
tornados. What we would like to do is to forecast these 
ensembles of tornados. It is this explosive weather that has 
the big impact on people and property.
    It is not just the short term. It is also the long term. 
Better computers allow us to do a better job of understanding 
what happens in the ocean. We can then couple those models to 
the atmosphere.
    We can do an even better job of forecasting things like the 
El Nino or longer term climate changes to give people a month's 
warning or maybe a season's warning of what the next season is 
going to be like.
    Mr. Skaggs.  Let me just mention one thing, Mr. Chairman, 
that I have been trying to do fairly coherently on my other 
subcommittee which is Interior, which is to ask all of our 
public lands agencies that come to the Interior Subcommittee 
for money, to submit for the record both their general 
description and any specific examples that they can come upwith 
in which better weather information, in-hand, enables them to save 
money.
    If they have been able to get a warning that would have 
enabled them to avoid weather-related costs or incurred; 
figuring that it might help us justify what we do on this 
Subcommittee to have a sense of its impact on your sister 
agencies elsewhere in the government.
    I am sure you talk with these folks anyway. It might serve 
your own enlightened self-interest to assist them in responding 
to those requests, BLM, Forest, Park Service, et cetera. Thank 
you.
    Mr. Rogers.  Mr. Latham.

                          el nino predictions

    Mr. Latham.  Thank you, Mr. Chairman. First of all, last 
August you revealed your predictions about El Nino and what the 
nation could expect.
    Being from the Midwest, it really has not had a negative 
impact. It has been positive as far as moderate wheater for 
winter wheat. What has historically happened is that when La 
Nina comes in, that will really affect us.
    Dr. Baker.  Yes, sir.
    Mr. Latham.  Do you have a prediction as far as when La 
Nina will come in?
    Dr. Baker.  I wish we could. Right now, we are forecasting 
a return to normal conditions in the summer. Whether we go to a 
La Nina situation next year or not I think is very much an open 
question.
    I think there are some people, some researchers, who are 
willing to take a risk and say maybe you would see this. I 
think our official forecast at the moment is return to normal 
by summer.
    We really cannot say what is going to happen next fall or 
winter. In the summer, we should be able to give you a three-
month forecast about what we are going to see. There is 
obviously intense interest on that.
    Mr. Latham.  Do you think that we will normalize by the 
summer?
    Dr. Baker.  That is what everything shows. That is what the 
system is doing. The additional warm water that has been in the 
Pacific is being reduced as the Pacific warms up, generally as 
we move into summer.
    Mr. Latham.  Maybe the INS, Mr. Chairman, will take care of 
this El Nino, La Nina situation. One question I have been 
curious most every hearing we have had is the year 2000 problem 
and how it may affect you and the Weather Service. Your systems 
interface with a lot of others. What affect will that have as 
far as satellites, AWIPS? Any problems there?
    Dr. Baker.  Congressman, this is a problem that we have 
been concerned about for a long time. Bill Mehuron, who is the 
head of our Systems Acquisition Office and now the Acting 
Deputy Under Secretary, took this on about three years ago.
    We started looking very carefully at our total systems. We 
have about 130 mission-critical systems in NOAA that would have 
some year 2000 impact. At the moment, 92 of those 130 are fully 
compliant; 14 are being replaced; and 24 are being repaired.
    We are on schedule with the replacement and repair systems. 
We expect that we will be able to meet the OMB dates of March. 
All of the work on our non-critical missions systems is 
proceeding on schedule as well.
    We have some similar problems to other agencies. We have 
some very old software. We have new software. We are trying to 
make sure that we replace, or retire, or repair all of the 
legacy software, the software that we built.
    We are trying to make sure that all the software that we 
buy is compliant. There have been some problems with new 
software being sold that is not compliant, something that we 
have been concerned about. I would have to say also, 
Congressman Latham, that in the course of discussing this, we 
discovered there is also a 9-9-99 problem.
    Mr. Latham.  Right.
    Dr. Baker.  So, we have instructed everybody not to fly on 
that day.
    Mr. Latham.  Are you issuing that warning to the general 
public?
    Dr. Baker.  That is not our department.
    Mr. Latham.  This is an interagency thing.
    Mr. Baker.  Yes, that is right. It is not a weather issue.

                             globe program

    Mr. Latham.  It is the airplanes and systems. I also see 
that there is $1 million for the Globe program. What are you 
going to do with the $1 million?
    Dr. Baker.  The million, Mr. Congressman, is aimed at 
training teachers in the protocols to be used in the program. 
We found this to be a very effective way to reach school 
children about the importance of understanding science in the 
environment. I think it helps our populous to understand the 
science that should be used for making decisions. We believe 
this is a useful and important program.
    Mr. Latham.  You are going to do all of that with $1 
million?
    Mr. Baker.  Well, we have--I have not been asked that 
question. I do think it is important that we use science to 
make decisions though. As NOAA provides science to the EPA and 
other agencies, we hope that their decisions are science based. 
I think this is a way of making that point.
    Mr. Latham.  I think that is all, Mr. Chairman. Thank you.
    Mr. Rogers.  Thank you. I have been asked to read the 
following statement on behalf of my good friend and colleague 
from the State of Alabama, Congressman Sonny Callahan, who had 
an interest in being here. He was called back to Alabama.

    I would like to go on record and state that there is a 
growing dark cloud on the horizon with regard to the National 
Marine Fisheries Services management of resources in the Gulf 
of Mexico.
    This agency under your jurisdiction and that of the 
Secretary of Commerce has continued to promulgate regulations 
based on questionable science which jeopardize the livelihood 
of my constituents and hundreds of others Delta-wide.
    At every step, the National Marine Fisheries Service has 
ignored or failed to fully comply with the congressional 
directives included in this Subcommittee's bill.
    Currently, there are grave concerns among my constituents 
that the National Marine Fisheries Service will ignore the 
congressionally authorized Gulf of Mexico Fisheries Council's 
recent decision to maintain the status quo with regard to the 
total allowable catch.
    Another issue of grave concern to myself and other Members 
of the Appropriations Committee regards the enormous amount of 
money they apportion of these fisheries cost the U.S. Coast 
Guard.
    I would like to go on record, Dr. Baker, that I and other 
Members of Congress are thoroughly displeased with the 
continued lack of cooperation and the environmental zealotry 
which the National Marine Fisheries Service has displayed.
    If the National Marine Fisheries Service continues in its 
reckless disregard for the livelihood of hundreds of my 
constituents, there will be serious consequences.
    I wish to thank Chairman Rogers for this opportunity. We 
will submit additional questions for the record.

    Mr. Rogers.  Any comment?
    Dr. Baker.  Only, Mr. Chairman, that we are currently 
reviewing that Gulf Council's decision to maintain the red 
snapper total allowable catch. It was the Council's own 
scientific assessment panel that recommended a number that was 
lower than the Council itself recommended. So, we are now 
looking at this because the Secretary of Commerce has to make 
the final decision. We will be back with a discussion about 
that. That is currently under review.

                                 awips

    Mr. Rogers.  All right. Now, let us turn to AWIPS, as we 
always do. AWIPS was here at creation and will be here when 
eternity comes.
    Dr. Baker.  I hope not, sir.
    Mr. Rogers.  And over budget. Last year, you told us we 
were on track. We thought we were on track. We gave you the 
money. We were told all year we were on track. At the last 
second before this hearing we learned we were not on track. Why 
has this happened? What are you doing about it?
    Dr. Baker.  Sir, this is a problem that I share your 
concern about. AWIPS, I know you have been involved with it 
longer than I have. When I first came in to NOAA, we made major 
changes in the way the program was being managed.
    We have tried working with the Secretary's office to put 
more discipline and control in the program. I thought, as you 
did, that we had agreement that we would come in. The Weather 
Service would be able to come in and certify completion at the 
$550 million gap.
    Otherwise, I would not have agreed to that. I had 
assurances from Weather Service management that, that was the 
case. We continued to operate under those assurances. About 
several months ago, our new Deputy Under Secretary, Bill 
Mehuron, suggested that although we had very good program 
reviews on this program, it was delivering what it said it 
would deliver in terms of technology.
    We did not have an independent cost and should we not do 
that. We, at that point, convened an independent cost review 
which in fact showed us that we are not going to be able to 
come under the $550 million cap.
    We put people to work to make that happen to find out what 
in fact we could do and how we were going to get this program 
under control. Mr. Chairman, I can say, as you know, we have 
changed a number of or made a number of management changes in 
the Weather Service.
    We have a new Deputy Under Secretary. We have a new 
Director of the Weather Service. The two deputies, former 
deputies of the Weather Service, have now moved to other 
positions.
    So, we are going to bring in a Chief Financial Officer. So, 
we have made management changes. I think we have now got an 
independent cost review process in place. I believe that we 
should be able to come to an agreement about how we can keep 
this program under control.
    Mr. Rogers.  Is it a problem of poor management on the part 
of the Weather Service?
    Dr. Baker.  I think it is a combination of things with 
AWIPS. I think there is a very strong sense among all of the 
people who had been involved in modernization. AWIPS is a 
critical aspect of modernization.
    It is the centerpiece because it brings together the 
ability to look at the data, and to do the communications, and 
to have the necessary hardware.
    I think there has been an underestimate of the difficulty 
of developing the software. As a consequence, an underestimate 
of the cost. That is what our independent cost reviews are now 
showing.
    Mr. Rogers.  Well, all I can say is it took an outside 
review team to tell the Weather Service that they were not on 
track. The Weather Service did not even know they were not on 
track. Do you call that poor management?
    Dr. Baker.  Well, it is obviously a problem.
    Mr. Rogers.  Do you call that poor management?
    Dr. Baker.  Well, I call that poor management; yes, sir.
    Mr. Rogers.  The review team, it only took them one month 
to conclude that AWIPS was out of whack. Now, as I understand 
it, the Weather Service wants to fully deploy AWIPS with 
certain capabilities by next year; AWIPS so-called 4.2.
    Mr. Baker.  Yes, sir.
    Mr. Rogers.  What would be the benefit of deploying AWIPS 
4.2 out to the field?
    Dr. Baker.  Mr. Chairman, it is absolutely critical that we 
have a fully modernized system of hardware for communicating 
and collecting data. We must replace the old systems which are 
now out of date. We believe that it is critical that we get 
this new hardware. We have it at about 30 locations at the 
moment to get it out to all of the Weather Service offices. 
That is what the proposal is for 4.2--to put in the minimal 
functions that are necessary to make this work and get the same 
hardware out to each of our modernized offices.
    Mr. Rogers.  What is the benefit of that? What improved 
efficiencies would you see?
    Dr. Baker.  Well, there are really two things. One is that 
we will not have to worry about replacing the old software 
which in fact cannot give us the full capabilities of the 
observing systems. For example, you cannot get the high 
resolution satellite data with our older systems. You can only 
get it with the AWIPS system. It gives us the initial 
capabilities tosupport public and aviation terminal forecasts. 
It gives us the hydrologic prediction system, river basins. It gives us 
the steps that we need toward service back-up and system monitoring 
local data acquisition; the first steps on each of these important 
aspects.
    Mr. Rogers.  What about staff reductions? Will this enable 
some?
    Dr. Baker.  This enables us to take a good step towards the 
staff reductions that were promised with the full AWIPS. At the 
moment, we believe that the 4.2 would allow us to reduce by 
106. I think the total that was originally proposed was 239.
    Mr. Rogers.  What impact has NOAA and the Weather Services 
inability to deliver the AWIPS system on a reasonable schedule 
and budget, what impact has that had on your ability to benefit 
from the $4.5 billion investment we have made in modernization?
    Dr. Baker.  We have been able to take advantage of the 
system in the 30 offices that we have. It has been working very 
well. If the original plan had taken place, we would have AWIPS 
out there right now.
    In fact, I do not even know what the original proposal was 
that AWIPS would be in place. Today, we have 30 operating and 
in every office where we do not have it operating, we have 
lower quality satellite data. We have older systems operating. 
We cannot take full advantage of the system.
    Primarily, we have to look at many different screens, the 
Weather Service forecasters, as opposed to having everything on 
a single screen. So, it can all be integrated.
    Mr. Rogers.  Well, as I understand it, theoretically we 
would build AWIPS to what you call Build 6 which is the 
ultimate nth degree nirvana. That getting to that level may not 
be worth the zillions of dollars it would take for the last two 
or three percentage points to get there.
    Am I sort of on the right track here that if we eventually 
get up through Build 5 and into the Build 6 category, with not 
necessarily 1,00 percent of Build 6, that we would be 99 
percent as close as we could get? Is that a generally fair 
statement?
    Dr. Baker.  I think that is a generally fair statement. 
What we get at each level, once we have AWIPS deployed 
throughout the system, then each improvement in AWIPS allows us 
to reduce people.
    In other words, we can have functions handled by computer 
software as opposed to handling it by people. So, what the 
Build 5 does, what Build 6 does, is it allows us to do the same 
things we are doing now, but to do it with fewer people.
    I think there is a hope that we also might be able to do 
some new and different things. This needs to be validated. 
Those requirements and statements need to be validated.
    At the moment 4.2 gets the system out everywhere and 5 and 
6 allow you to replace people who are currently doing various 
kinds of forecasts.
    Mr. Rogers.  Well, am I correct that the science is just 
not even there to possibly build Build 6 at this point, is it?
    Dr. Baker.  I think at the moment, we are not ready to come 
forward with requirements and costs for Build 6. We have asked 
the Weather Service whether they would be willing to do that. 
Their statement is no, they are not prepared to do that.
    Mr. Rogers.  So, the best we can do this year is Build 4.2.
    Dr. Baker.  Yes; 4.2 which means deployment out to all of 
the offices and a staff reduction of 106.
    Mr. Rogers.  That is technically all you can do next year.
    Dr. Baker.  Correct.
    Mr. Rogers.  All right. Now, I guess we will talk about 
this again next year, and the year after, and the year after. 
One of these days, we will have an AWIPS complete.
    Let me switch to satellites. You are asking for a $182 
million increase. As you know, we struggled with finding the 
money you wanted for satellite procurements. Often times, later 
finding out that you overestimated your funding needs.
    Last year, we uncovered major problems with NOAA hiding 
unobligated balances from the Committee. I hope we have put 
that behind us.
    Dr. Baker.  Yes, sir.
    Mr. Rogers.  I must say that I am a little puzzled as to 
why you still carried over about $92 million in the satellites 
account from the prior year's funds into 1998.
    Given the huge unobligated balances again this year, is it 
not possible there is some excess in your satellites request?
    Dr. Baker.  Mr. Chairman, this is a problem that we greatly 
appreciate the Committee's help on. I think it has been an 
important aspect of trying to get a handle on the satellite 
budget.
    It is my understanding that the for monies that we have in 
the budget we understand fully where all of those funding will 
go. We are going to look very carefully at this new GOES 
contract to make sure that we fully understand how that will be 
funded.
    The President's budget, the 1999 budget, includes all of 
the savings that were identified and the funds not obligated in 
1997 as a reduction to the amount of funds that were requested 
for 1999.
    Mr. Rogers.  Well, as I understand it, you were successful 
at saving almost $500 million from your original estimates of 
the GOES for the series of GOES satellites. Is that savings 
reflected in your request?
    Dr. Baker.  No, sir. That is not yet reflected in the 
budget because that happened after the budget had been 
prepared.
    Mr. Rogers.  When will that be reflected?
    Dr. Baker.  Mid-April is when we expect to have those 
numbers.
    Mr. Rogers.  So, we will have those before we mark-up.
    Dr. Baker.  Yes, sir.
    Mr. Rogers.  We want to have that.
    Dr. Baker.  Yes.
    Mr. Rogers.  Because it is substantial. Can you tell me 
that your satellite numbers are good or can we scrub them some 
more to get down to bare bones requirements?
    Dr. Baker.  I think the satellite numbers are very good. 
Over the past two or three years, I think we have done a much 
better job of scrubbing those numbers. That is not to say that 
the last little bit could not be scrubbed out.
    Last year, you know, we looked at the National Polar 
Orbital Environmental Satellite System, the end host program, 
and came back to you. We will do the same thing with the 
numbers this year.
    Mr. Rogers.  All right. Mr. Mollohan.

                         clean water initiative

    Mr. Mollohan.  Thank you, Mr. Chairman.
    You have come forward with two major initiatives, the 
Natural Disaster Reduction Initiative with a request of a $55 
million increase and a $22 million increase you are requesting 
for the Clean Water Initiative which I think is $16 million.
    Dr. Baker.  I think about $5 million was identified in your 
ongoing funds last year.
    Mr. Mollohan.  So, that is about a $16 million or $17 
million increase. As I understand the President's Clean Water 
Initiative, it is an initiative to look more broadly at these 
non-point source problems.
    I have not read your justification in-depth. That is why I 
am asking you. It sounds to me like you are really spending 
most of this money to increase spending on current programs, 
including research.
    I was wondering to what extent you see it in your 
jurisdiction to look beyond the immediate geographical area of 
the post. How far back do you look? How does this new 
initiative, if at all, impact that thinking?
    Dr. Baker.  Congressman, this is an area that we are very 
concerned about. The dead zone in the Gulf of Mexico is largely 
caused by run-off in the Northern United States. It reaches way 
back.
    So, I think it is critical that we look very broadly at the 
watersheds, the effect in changing chemistry around the coast. 
It is not just the watersheds. In the Chesapeake Bay, about 
one-third of its pollution comes from air pollution.
    It comes up from cars, and manufacturing rains out into the 
Bay. So, there is the airshed and there is the watershed that 
causes this changing chemistry. We have $9 million of the 22 as 
identified toward looking at the changing chemistry and 
changing Harmful Algal Blooms of which there are many different 
types. And 12 million under the initiative is providing states 
with the technical assistance to look at non-point source 
pollution and to do research on non-point source pollution. A 
large fraction of which is trying to understand what is the 
size of the watershed.
    What is the impact. How can we understand what is causing 
the change in chemistry that we see around the coasts.
    Mr. Mollohan.  I guess the other part of my question is 
what kind of geography? You alluded to it when you said that 
these watersheds go all the way back, I guess, to the source of 
the mighty rivers that empty into the oceans.
    So far as your responsibility is concerned, how far back do 
you think? I mean, you have scarce resources here obviously. A 
fairly big increase may not be near enough. How far back do you 
consider your jurisdiction to looking at, studying, doing 
research on the whole ecosystem?
    The non-point source, I guess, is something we are 
beginning to look at. Where does your jurisdiction stop in your 
mind or according to statute? Where does EPA's pick-up or some 
other agency's responsibility, if any?
    Dr. Baker.  Well, there are two ways to look at this. One 
is we have a jurisdiction in the Coastal Zone Management Act 
where we look at the coastal zone which is near areas right at 
the shore. The research that we do will extend out to anywhere 
that makes sense. Researchers are not bound by statute or a 
limitation about what an agency should say. We do have joint 
research programs that we carry out.
    There is an interagency activity carried out under the 
auspices of the Federal Committee on Environment and Natural 
Resources where we share our information about what we are 
doing so that we do not have overlapping studies. I think what 
our scientists are finding is that it is very important to look 
at the broad watershed and the broad airshed to looking at 
coastal pollution issues.
    I think that although we do not spend a lot of money doing 
research on the interior of the U.S. on land problems, that is 
really more of a National Science Foundation or Department of 
Interior activity.
    I think our scientists would say that this is a very 
important part of that. That the work that they do needs to be 
fed into the work that we do.
    Mr. Mollohan.  Thank you, Mr. Chairman.
    Mr. Rogers.  Thank you, Mr. Mollohan.
    Thank you, Dr. Baker and your staff.
    Dr. Baker.  Thank you, Mr. Chairman.
    Mr. Rogers.  We are adjourned.


[Pages 638 - 679--The official Committee record contains additional material here.]



[Pages i - vii--The official Committee record contains additional material here.]