[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]



 
AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND RELATED
                    AGENCIES APPROPRIATIONS FOR 2000

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS
                              FIRST SESSION
                                ________

     SUBCOMMITTEE ON AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG 
                  ADMINISTRATION, AND RELATED AGENCIES
                     JOE SKEEN, New Mexico, Chairman

 JAMES T. WALSH, New York           MARCY KAPTUR, Ohio
 JAY DICKEY, Arkansas               ROSA L. DeLAURO, Connecticut
 JACK KINGSTON, Georgia             MAURICE D. HINCHEY, New York
 GEORGE R. NETHERCUTT, Jr.,         SAM FARR, California
Washington                          ALLEN BOYD, Florida
 HENRY BONILLA, Texas
 TOM LATHAM, Iowa
 JO ANN EMERSON, Missouri           

 NOTE: Under Committee Rules, Mr. Young, 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.
  Henry E. Moore, John J. Ziolkowski, Martin P. Delgado, and Joanne L. 
                       Orndorff, Staff Assistants
                                ________

                                 PART 2

                          AGRICULTURAL PROGRAMS
                                                                   Page
 Food and Drug Administration.....................................    1
 Farm Credit Administration.......................................  937
 Commodity Futures Trading Commission.............................  947

                              

                                ________
         Printed for the use of the Committee on Appropriations
                                ________

                     U.S. GOVERNMENT PRINTING OFFICE
 56-250                     WASHINGTON : 1999






                       COMMITTEE ON APPROPRIATIONS

                   C. W. BILL YOUNG, Florida, Chairman

 RALPH REGULA, Ohio                    DAVID R. OBEY, Wisconsin
 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               STENY H. HOYER, Maryland
 TOM DeLAY, Texas                      ALAN B. MOLLOHAN, West Virginia
 JIM KOLBE, Arizona                    MARCY KAPTUR, Ohio
 RON PACKARD, California               NANCY PELOSI, California
 SONNY CALLAHAN, Alabama               PETER J. VISCLOSKY, Indiana
 JAMES T. WALSH, New York              NITA M. LOWEY, New York
 CHARLES H. TAYLOR, North Carolina     JOSE E. SERRANO, New York
 DAVID L. HOBSON, Ohio                 ROSA L. DeLAURO, Connecticut
 ERNEST J. ISTOOK, Jr., Oklahoma       JAMES P. MORAN, Virginia
 HENRY BONILLA, Texas                  JOHN W. OLVER, Massachusetts
 JOE KNOLLENBERG, Michigan             ED PASTOR, Arizona
 DAN MILLER, Florida                   CARRIE P. MEEK, Florida
 JAY DICKEY, Arkansas                  DAVID E. PRICE, North Carolina
 JACK KINGSTON, Georgia                CHET EDWARDS, Texas
 RODNEY P. FRELINGHUYSEN, New Jersey   ROBERT E. ``BUD'' CRAMER, Jr., 
 ROGER F. WICKER, Mississippi            Alabama
 MICHAEL P. FORBES, New York           JAMES E. CLYBURN, South Carolina
 GEORGE R. NETHERCUTT, Jr.,            MAURICE D. HINCHEY, New York
Washington                             LUCILLE ROYBAL-ALLARD, California
 RANDY ``DUKE'' CUNNINGHAM,            SAM FARR, California
California                             JESSE L. JACKSON, Jr., Illinois
 TODD TIAHRT, Kansas                   CAROLYN C. KILPATRICK, Michigan
 ZACH WAMP, Tennessee                  ALLEN BOYD, Florida
 TOM LATHAM, Iowa
 ANNE M. NORTHUP, Kentucky
 ROBERT B. ADERHOLT, Alabama
 JO ANN EMERSON, Missouri
 JOHN E. SUNUNU, New Hampshire
 KAY GRANGER, Texas
 JOHN E. PETERSON, Pennsylvania     

                 James W. Dyer, Clerk and Staff Director

                                  (ii)


   AGRICULTURE, RURAL DEVELOPMENT, FOOD AND DRUG ADMINISTRATION, AND 
                RELATED AGENCIES APPROPRIATIONS FOR 2000

                              ----------                              

                                        Tuesday, February 23, 1999.

                      FOOD AND DRUG ADMINISTRATION

                               WITNESSES

JANE E. HENNEY, COMMISSIONER
MICHAEL A. FRIEDMAN, DEPUTY COMMISSIONER FOR OPERATIONS
ROBERT J. BYRD, DEPUTY COMMISSIONER FOR MANAGEMENT AND SYSTEMS
DENNIS P. WILLIAMS, DEPUTY ASSISTANT SECRETARY, DEPARTMENT OF HEALTH 
    AND HUMAN SERVICES
SHARON SMITH HOLSTON, DEPUTY COMMISSIONER FOR EXTERNAL AFFAIRS
WILLIAM HUBBARD, ACTING DEPUTY COMMISSIONER FOR POLICY
MARGARET JANE PORTER, CHIEF COUNSEL
LINDA SUYDAM, ASSOCIATE COMMISSIONER FOR STRATEGIC MANAGEMENT
GARY DYKSTRA, ACTING ASSOCIATE COMMISSIONER FOR REGULATORY AFFAIRS
BRUCE BURLINGTON, DIRECTOR, CENTER FOR DEVICES AND RADIOLOGICAL HEALTH
ELIZABETH JACOBSON, DEPUTY DIRECTOR, CENTER FOR DEVICES AND 
    RADIOLOGICAL HEALTH
JOSEPH A. LEVITT, DIRECTOR, CENTER FOR FOOD SAFETY AND APPLIED 
    NUTRITION
BERNARD SCHWETZ, DIRECTOR, NATIONAL CENTER FOR TOXOLOGICAL RESEARCH
STEPHEN SUNDLOF, DIRECTOR, CENTER FOR VETERINARY MEDICINE
KATHRYN C. ZOON, DIRECTOR, CENTER FOR BIOLOGICS EVALUATION AND RESEARCH
MURRAY LUMPKIN, DEPUTY DIRECTOR, CENTER FOR DRUG EVALUATION AND 
    RESEARCH
MITCHELL R. ZELLER, DIRECTOR, OFFICE OF TOBACCO PROGRAMS
DIANE E. THOMPSON, ASSOCIATE COMMISSIONER FOR LEGISLATIVE AFFAIRS
MELINDA PLAISIER, DEPUTY ASSOCIATE COMMISSIONER FOR LEGISLATIVE AFFAIRS
JAMES DONAHUE, DIRECTOR, OFFICE OF FINANCIAL MANAGEMENT
    Mr. Skeen. Today, we have a very important agency, the Food 
and Drug Administration. Dr. Henney, it is truly a pleasure to 
welcome you here, especially with your background in New 
Mexico, the Land of Enchantment. We keep telling them, ``Well, 
what is this enchantment business? [Laughter.]
    I am pleased to have the opportunity to chair your first 
appropriations hearing as the Commissioner of the Food and Drug 
Administration. I am certain that the FDA will benefit from 
your leadership, and I look forward to working with you. I am 
certain that our subcommittee members will be questioning you 
closely about the heavy load that you are bringing to the table 
today, the largest requested increase in the agency's history. 
But we will get into all of that in due time.
    While there is plenty of competition and some controversy 
about how FDA does its job, almost everybody agrees that the 
agency is absolutely essential. And, again, I look forward to 
working with you to further improve the agency. Having said 
that, I would now ask that you introduce your associates and 
make your statement.

                       Introduction of Witnesses

    Dr. Henney. Mr. Chairman, thank you; it is a real pleasure. 
With me at the table is the Deputy Commissioner for Operations, 
Dr. Michael Friedman. To my right is the Deputy Commissioner 
for Management and Systems, Mr. Bob Byrd, and Mr. Dennis 
Williams, Deputy Assistant Secretary of HHS.
    Mr. Skeen. You are well accompanied.
    Dr. Henney. I am very well accompanied.
    Mr. Chairman, before I make my opening statement, I would 
like to submit for the record, a statement from Secretary 
Shalala, the Secretary of the Department of Health and Human 
Services who wanted to add her words of support to the budget 
request that we are making.
    Mr. Skeen. We thank you, and it will be made a part of the 
record.
    [The information follows:]

                           Opening Statement

    Dr. Henney. Mr. Chairman, members of the committee, ladies 
and gentlemen, my name is Jane Henney. I am honored to address 
you as the Commissioner of Food and Drugs. It is a pleasure 
today to present the agency's plans and expectations as 
reflected in the Administration's proposed budget for fiscal 
year 2000.
    I also would like to take this opportunity to share with 
you my thoughts on where I hope to lead the Food and Drug 
Administration (FDA) in the coming months, both the tasks that 
I believe most urgently demand the agency's attention and, 
perhaps as important, my approach to those tasks, which 
emphasizes a commitment to heightened effectiveness and an 
openness to our constituencies.
    Let me begin by offering a few reflections on my first 
three months as Commissioner. Mr. Chairman, you know that 
making the decision to leave New Mexico, which truly is the 
Land of Enchantment, was not easy, but I returned to 
Washington, as you yourself have done, with the goal of 
providing public service. Fortunately, many of the things that 
I remembered about FDA's dedication to the health and safety of 
Americans have not changed since I left the agency several 
years ago. The FDA is filled with energetic, hardworking, 
talented people. There are strong traditions throughout the 
agency of protecting and promoting the public health. These are 
traditions that I will seek to preserve.
    I am reminded on almost a daily basis of how much has 
changed since I was last here. The FDA Modernization Act, the 
Administration's Reinventing Government initiatives, and the 
Prescription Drug User Fee Act have triggered significant 
changes in many of the agency's processes and outcomes. One of 
the most important changes that has followed the FDA 
Modernization Act is a renewed commitment to listen and learn 
from those affected by FDA regulation: consumers, patients, and 
the industry. The FDA Modernization Act specifically directs 
the agency to be in touch with all of its constituencies, and I 
firmly believe that we must seek out and listen to the views of 
all. This is critical to our ability to serve the public 
effectively. An old English proverb says, ``Only the wearer 
knows where the shoe pinches.''
    The agency has formally undertaken its statutory obligation 
to consult with stakeholders. In the same spirit, I, too, have 
undertaken in my first few months in office to meet with 
members of the regulated industry, consumers, and the academic 
community.
    My focus has also been on an issue closer to home. I know 
that the subcommittee in the past has expressed concern about 
the size and structure of the Office of the Commissioner. I 
have undertaken a formal review of the office with the goal of 
creating a more streamlined, efficient office that will provide 
leadership without compromising programmatic functions. I can 
assure you and all of those on the subcommittee that I will 
keep you informed as I make decisions about specific changes in 
the Office of the Commissioner.
    However, I am here today to request your support for a 
substantial increase in FDA's budget, indeed, the largest 
requested increase in the agency's history. This budget request 
is intended to allow us to begin to rebuild our capabilities; 
to strengthen our science base, the foundation of sound 
regulatory decisions, and to continue several long-range, high 
priority programs that are vital for the protection of the 
public health. As large as this budget request is, it provides 
only the first steps toward rebuilding an effective agency able 
to carry out its basic responsibilities and to respond to 
emerging public health problems.
    Let me emphasize, as I did in my confirmation testimony, my 
first and foremost priority, and that is being committed to the 
full and effective implementation of the FDA Modernization 
Act--both the letter and the spirit of the law. The FDA 
Modernization Act provides the agency with valuable 
opportunities to reexamine its processes and goals and 
challenges us to change. Making continual changes based on past 
performance with an eye on the goal of improvement is essential 
to FDA's effectiveness. As someone once said, ``Every time 
history repeats itself, the price goes up.'' While FDA has many 
great traditions, it can never afford to stop evolving in 
response to the diverse and changing needs of those it serves.
    As you know, the passage of the FDA Modernization Act 
imposed a daunting array of challenges on the agency. The 
agency has now completed over 80 FDA Modernization Act-related 
actions. In completing this impressive amount of work, the 
agency has met nearly all of its statutory deadlines while 
continuing to perform all of the other important tasks that the 
American people have come to expect from us.
    Section 406(b) of the FDA Modernization Act required FDA to 
consult with our stakeholders before submitting to Congress the 
agency's plan for statutory compliance with the act. We have 
done this, and we have heard consistent messages from those who 
participated in these meetings: number one, FDA should make its 
processes equitable, open, and transparent; number two, FDA 
should collaborate with other Government agencies, academia, 
and international organizations to better coordinate the 
protection of the public health; and, number three, FDA should 
be commended for reengineering its processes to make them even 
more efficient and effective and should continue these 
activities as well as efforts to reduce the burden of complying 
with regulatory processes. The agency not only listened 
carefully to theadvice it received, but allowed that advice to 
guide the development of a realistic plan for complying with our 
statutory obligations. The completed plan was published in the Federal 
Register last November.
    The FDA Modernization Act also included the reauthorization 
of the Prescription Drug User Fee Act of 1992. This was among 
the most successful agency programs in history. Within its 
first five years of implementation, the increased resources 
provided by this act allowed the agency to hire additional 
review staff and has resulted in cutting the average review 
times for new drugs in half without compromising the high 
standards that FDA has traditionally applied in weighing the 
risks and benefits of drugs and, thereby, in determining their 
safety and effectiveness.
    Although FDA product review times in programs benefitting 
from user fee expenditures have shown dramatic improvements, 
other categories of product review for which we do not receive 
user fees have seen some improvement but continue to suffer 
from unacceptably long review times. Section 406(b) of the 
Modernization Act directs the agency to find ways to meet the 
statutory deadlines for review of all product categories. While 
we will continue to undertake management initiatives to attempt 
to meet these deadlines, we believe that prospects for 
significant improvement in review times for these product areas 
are dim without additional resources, especially as technology 
yields more complex products developed at a much faster pace.
    The Administration is therefore asking for $28 million in 
both new appropriated funds and new additive user fees to 
improve review times in areas of particular concerns; that is 
food additive reviews, food contact substance reviews, and the 
most complex are the medical device reviews.
    I believe that FDA has accumulated a very impressive record 
on implementing the FDA Modernization Act especially 
considering the ambitious time frames that had to be met in the 
first year. You have my assurance that these efforts will 
continue as we fully implement the remaining portions of the 
act.
    My second priority is to strengthen the science base of the 
agency. Sound scientific principles must underpin and guide the 
critical policy decisions that we make. FDA's investigators 
must have adequate scientific training to make good decisions 
in the field. Our product review teams sit in judgment of 
applications that result from work done by the Nation's leading 
scientists, and the review teams must apply sound, often 
cutting-edge science to product reviews. This, I believe, is an 
urgent issue. The increasing investments made in both basic and 
applied research by the National Institutes of Health and the 
pharmaceutical, biotech, and medical device industries will 
result in a burgeoning growth of new products. FDA must have 
the scientific sophistication necessary to understand and 
adequately evaluate these products. We can ill-afford to have 
our staff become stagnant, for if this were to occur, our 
decisions would become risk-adverse or worse, wrong. I am 
committed to seeing that our scientific expertise matches the 
complexity of the new products moving toward the market, for 
our decisions will only be as strong as our expertise.
    The third area that I have identified as a high priority is 
the safety of the Nation's food supply. The agency received its 
first additional appropriations for food safety in Fiscal Year 
1998, and it has used these funds to lay a solid foundation for 
improving our food safety programs. Without creating a new 
bureaucracy, FDA and its Federal and State partners are 
preventing food-borne hazards more efficiently and responding 
more rapidly to food safety emergencies. Among the most 
important actions we are taking is to develop preventive 
measures to reduce levels of pathogens in foods and to develop 
the scientific tests and measures necessary to detect and 
respond to food-borne pathogens. We are convinced that our 
focus on prevention has had a significant beneficial public 
health impact.
    Much remains to be done to ensure the safety of the 
Nation's food supply. Food-borne pathogens continue to present 
a significant threat to the health of American consumers, and 
FDA's Fiscal Year 2000 budget request includes 30 million for 
food safety activities that build on the scientific base and 
expand capabilities in prevention and containment of food-borne 
outbreaks. FDA is working with other Federal, State, and local 
food safety agencies to weave the tightest safety net possible 
to avoid illness, or when not possible, then to contain it.
    The fourth area I have identified as a priority is blood 
safety. Each year, more than 3.5 million Americans receive 
blood from volunteer donors. While blood and blood derivatives 
can be life-saving, blood products can pose risks to patients. 
Among the most serious of these risks is the possibility of 
transmission of undetected, infectious diseases. At the same 
time, shortages of blood can be life-threatening. The safety 
and adequacy of the blood supply and blood products is one of 
the highest priorities of the FDA and the Department of Health 
and Human Services, and it is one my priorities as well. The 
Administration is requesting $6.2 million for the FDA's blood 
safety initiative as part of the overall increase of $52.2 
million requested for product safety assurance.
    Tobacco--the Administration recently has renewed its 
commitment to reducing young people's use of tobacco products. 
Each year, over 400,000 Americans die from tobacco-related 
illnesses. Almost all of these Americans began the use of 
tobacco as children. A program that successfully keeps tobacco 
from children has the potential for unprecedentedimprovements 
in public health. FDA's budget request includes an increase in funding 
for its tobacco programs to ensure progress in all States towards the 
President's goal. For Fiscal Year 2000, the Administration is seeking a 
$34 million increase in the Tobacco Program to increase the number of 
inspections in retail outlets that sell tobacco and to expand outreach 
efforts into new and important media--television and news weeklies.
    In conclusion, I want to thank you for the opportunity to 
testify today. It has often been said, Mr. Chairman, and 
members of the committee, that FDA is America's most important 
consumer protection agency, because it regulates one-quarter of 
all consumer spending. The products that comprise that trillion 
dollars in annual sales are ones we rely one everyday: over-
the-counter and prescription drugs, contact lenses, microwave 
ovens, most of the food we eat, and the list goes on and on. 
Americans have high expectations for the safety and reliability 
of these goods. The industries that make these products and the 
scientific advances that fuel their innovations are vigorous 
and they are growing. FDA needs the resources and scientific 
expertise to keep up with that growth or both consumers and 
industry will suffer.
    FDA is an agency that has prided itself on being a ``can 
do'' agency, but it is clear that the agency cannot do 
everything without additional resources. The funds that we are 
asking you to appropriate in this budget will make great 
strides toward achieving these goals. I make a public 
commitment to you today that if we are given these funds, we 
will spend them wisely and well and that I will report to you 
regularly on how they have made concrete improvements in the 
health of our citizens. Thank you.
    [The prepared statement and biography of Jane E. Henney, MD 
follows:]

[The official Commmittee record contains additional material here.]


                              inspections

    Mr. Skeen. Thank you, Dr. Henney. Let me start with the 
questioning, if I might. In your remarks, you highlight one of 
the statutory obligations that FDA has not been successful in 
meeting and that is to conduct biennial inspections of 
establishments that make drugs and produce medical devices. Is 
this a reasonable and prudent target?
    Dr. Henney. Mr. Chairman, I believe that the target is both 
reasonable and prudent. Reaching the target has not been 
feasible within the constraints of our resources, and the 
proposal that we bring forward to you today in terms of the 
budget, particularly in the product safety area, would allow us 
to move toward meeting these statutory obligations in terms of 
inspecting device, drug, and biotech firms with more 
regularity.
    Mr. Skeen. So, it is doable?
    Dr. Henney. Yes, it is doable.
    Mr. Skeen. Well, let us hope that it works.
    Dr. Henney. It is doable, but it does have a price.
    Mr. Skeen. It takes money.
    Dr. Henney. Yes.
    Mr. Skeen. Well, we will worry about the money last. I just 
want you to keep promising that you will do the best job you 
can, and we certainly will do that.

                          premarket approvals

    You are asking for a total of $28 million to reduce the 
time for review of food additive petitions, food contact 
substances, and medical devices. How did you decide upon the 
amount requested for direct appropriations of $11 million and 
the amount you requested for new user fees of $17 million?
    Dr. Henney. Well, as you point out, our request for pre-
market review of products is a combination of appropriated 
dollars and user fees. In the area of user fees, we seek $7 
million for devices, where we believe we should focus because 
we are still below what we believe to be optimal review times. 
We cannot, however, make much more headway without resources. 
These user fees are intended for our PMA reviews, which 
oftentimes, involve the most complex and comprehensive reviews 
that are done.
    Through management efficiencies, we have been able to 
reduce the review times in another area of devices, the 
510(k)s, but we remain less than optimal in our time for 
reviewing the PMAs. So, we have really identified the PMA area 
as where we could make more progress.
    Mr. Skeen. So, it just needs better organization as well as 
funding to do it?
    Dr. Henney. It needs both. This is an area where we believe 
industry could benefit and the agency could benefit, and we 
believe that the principles of user fees, that were really 
established with the Prescription Drug User Fee Program, should 
also be present. There also needs to be astrong consensus built 
by the Congress, by the industry, and by the agency that this is an 
area of need. We believe that the user fees need to be directed towards 
review, and we believe that the agency needs to be held to high 
performance standards. User fees essentially allow us to increase a 
critical resource; that is reviewers and to apply their expertise to 
conduct those reviews.
    Mr. Skeen. Thank you for those responses. Ms. Kaptur, and I 
apologize for not recognizing you sooner.

                          imported food safety

    Ms. Kaptur. Oh, Mr. Chairman, you recognize me all the 
time. It is a pleasure to be recognized by you.
    I wanted to welcome, officially, Commissioner Henney to our 
committee. We hope your tenure is a very successful and 
satisfying one. We thank you for bringing all of your 
associates with you and for the courtesy that you and your 
agency have always demonstrated toward our staff and this 
committee.
    My first two questions--and then I will yield to other 
members--involve food safety. First has to do with the issue of 
food inspection, especially imported safety. In the last fiscal 
year, the GAO completed a report entitled Food Safety: Federal 
Efforts to Ensure the Safety of Imported Foods, and they 
basically concluded that Federal efforts were inconsistent and 
unreliable. In the report they said that Federal agencies had 
not been managing well the problem of imported foods, and they 
specifically mentioned FDA as relying on border inspections but 
only inspecting 1.7 percent of all foreign shipments coming 
into this country. GAO concluded that the border inspections 
were ineffective, and FDA cannot realistically ensure that 
unsafe, unadulterated foods are kept out of the United States. 
I am wondering if you could comment on that and talk a little 
bit about any food safety initiatives that you have discussed 
in your testimony? How do you intend to correct this situation?
    Dr. Henney. Congresswoman Kaptur, I appreciate your concern 
in an area that is also a very high priority of mine. I think 
in response to the specific issue that you raise with respect 
to imported food, when you have a program that is only able, 
because of its resources, to inspect less than 2 percent of a 
product, it really does call its validity into question. I due 
to our resource constraints, we have tried to focus our efforts 
at the borders on what we believed to be high-risk commodities. 
We tried to apply our resources most effectively in that way. 
We also have been looking at the kinds of regulatory systems of 
other countries as well, but it is a real issue and a real 
concern. I believe that within the current budget that you have 
before you--in our food safety initiative, specifically as it 
relates to product safety--we would be able to increase what we 
do in this area.
    I would also hasten to add that the GAO report was highly 
critical of the agency in terms of our relationship with 
Customs at the border, and whether, as government agencies we 
were effectively coordinating our activities. I am pleased to 
report to you that our field operations, particularly at our 
busiest ports in Philadelphia, Los Angeles, and Miami, have 
really looked at this as a challenge, and I think that our 
relationships with Customs is now stronger than it ever has 
been. We are examining best practices and how we can jointly 
work together on this whole issue of the imported food.
    Ms. Kaptur. You know the Food Safety and Inspection Service 
has what they call an equivalency standard where they have the 
legal authority to require that imported food products be 
produced under safety conditions abroad similar to what we have 
here in this country. Are you going to be proposing legislation 
that FDA be accorded the same standard?
    Dr. Henney. Representative Kaptur, if I could, I would like 
our Director of the Center for Food Safety and Applied 
Nutrition to respond specifically to your questions, Mr. 
Levitt.
    Ms. Kaptur. Welcome back.
    Mr. Levitt. Thank you. This actually first came up last 
year, as you recall, at this hearing, and the department 
proposed legislation last year that tried to deal with the 
generalissue of maintaining a constant level of protection for 
imported products, as well as domestic products. Now, a number of 
important questions and concerns were raised from a variety of sectors 
about that proposed bill, and we are prepared this year to try learn 
lessons from last year and work with the Congress.
    As you know, Senator Collins held a series of hearings last 
year in the Senate which focused on imports, and I think our 
number one goal as regulators and consumers, should be having 
the same level of confidence in the safety of the food, 
regardless of source. And we need to have the right systems in 
place. We do feel the law needs to be strengthened.
    We also are benefitting very much, if I may add, from the 
resources provided last year by the Congress for imported 
foods, and we have developed a comprehensive import plan which 
I would like to submit for the record. Under our import plan 
for FY 1999 we are increasing the border surveillance, both the 
numbers of samples collected, the number of checks done by the 
folks at the border, and a closer working with Customs Service. 
We are also adopting a new approach which is to have a stronger 
overseas presence by conducting more inspections in areas like 
low-acid canned foods, seafood, and other commodities.
    [The information follows:]

[The official Commmittee record contains additional material here.]


    Mr. Levitt. Also, under the food safety initiative, we 
finished a good agricultural practices guide which applies both 
domestically and internationally. We are working with the 
Department of Agriculture Extension Service to roll that out 
domestically and with the Foreign Agricultural Service to roll 
that out internationally, which adds a technical assistance 
component.
    And, finally, we have what we call the foreign system 
assessment component, part of which is what you call 
equivalency. We have initiated equivalency reviews with Canada 
on the subject of seafood as well as with other countries. We 
actually have 30 requests before us from countries seeking 
equivalency determinations on seafood. We also are looking at 
Latin American countries concerning produce and other products 
where we have had problems. So, we feel we have a comprehensive 
plan in place and are beginning to make progress.
    As I said, I will be happy to share the import plan as part 
of the record for this hearing but want to assure you that we 
have taken to heart the concerns raised last year by this 
committee and are using--to use the Commissioner's terms--
wisely and well--the funds that have been provided this year. 
We have a balanced approach with increased surveillance at the 
border and just like domestically we incorporate prevention 
overseas with a combination of inspections, assessments, and 
technical assistance.

                              retail foods

    Ms. Kaptur. Mr. Levitt, I have to say I thank you very much 
for the thought that you and your colleagues have put into 
this, because it is amazing when you look at--and I am going to 
have the numbers desegregated for just the plant material that 
you inspect or that you monitor, but we import over $20 billion 
a year now of imported food product into this country, and that 
is not an insignificant amount, and it is growing.
    And as you look at some of the testing you were talking 
about and some of the probes at borders and elsewhere--one of 
my concerns in this country, if you shop around Washington, let 
us say, and you go to an inner city store, it is amazing to me 
what you find on the shelves compared to your general, huge 
supermarkets in the suburbs. I have often wondered when we have 
difficulty with product safety coming in, many times it is 
these small, vest-pocket companies that somehow come in below 
the radar screen and then move products into some of the most 
underprivileged regions of our country. I hope that some of the 
tests that you would undertake would also include those kinds 
of stores or products that would reach those kinds of stores.
    I do not quite know how the distribution chain works for 
all of that, but you see brand names, and you see the condition 
of meat and so forth that would be unacceptable in other stores 
in the suburbs. I just have a gut-level feeling that sometimes 
these shipments are going into places in our country where 
people have a lot of other things to worry about, and you do 
not have hired staff to worry about food safety. I just wanted 
to direct your attention as you do this and you conduct your 
studies and so forth, to look there as well.
    Mr. Levitt. Thank you. If I may just respond briefly to 
that. One of the areas that you mentioned--local supermarkets 
and smaller stores, especially--have all the different ethnic 
varieties of food from all over the world. Part of the request 
for this year is really to work more closely with the States, 
provide more assistance, more training, for regulation at the 
retail level. At the retail level, both in stores and in 
restaurants, as well as in institutions such as hospitals, day 
care centers, and nursing homes, the States really have the 
lead role.
    We have just put out this week the fourth edition of Food 
Code which we hope will now be adopted by a majority of States. 
It sets out the kinds of safe food handling practices and 
procedures that need to be done and enforced at the State 
level. We have followed it up with our budget requestfor a 
combination of training for State personnel on how to implement the 
code. We also request funding for training at retail establishments--
what they need to look for and safe handling practices. Further, 
inspection of supermarkets and grocery stores is planned as a state 
inspection activity and is directly germane to your issue.
    Your question also raises a question of, as you say, things 
that sneak under the general safety net. A lot of what we do is 
respond to outbreaks, and, clearly, our first goal is to try to 
prevent problems in the first place. But no matter how strong a 
safety net we have, there will be things that need to be caught 
after the fact.
    Just this past Saturday, we issued a public alert on a 
tropical fruit that comes from Central America, actually in a 
frozen form, called the Mamey--something I will confess, I had 
never even heard of before. This product was associated with an 
outbreak of typhoid fever, something that the public will very 
clearly resonate to and understand as something serious. It has 
affected a number of victims in south Florida in the Hispanic 
community. This was detected through the CDC and local State 
health departments, through the new PulseNet system, the 
science-based system of fingerprinting bacteria, allowing for a 
quicker response on outbreaks. We have issued an alert; we have 
worked with the State of Florida; we put up an import alert to 
prevent additional entries. And, so that kind of example shows 
that things are going on and we are being responsive. We are 
being, I think, more responsive than we were in the past, but 
it also shows that in food safety we have to expect the 
unexpected, and we need to have a series of safety nets: at the 
border, overseas, with the States, with our own staff, and with 
our Federal counterparts.
    Ms. Kaptur. Did you say you will be submitting a 
description of what you have been doing over the past year, for 
the record?
    Mr. Levitt. Right, I said I have our import plan for this 
year, for the record, and it really is what we are doing in the 
coming year. We also would be happy to submit our first-year 
report under the food safety initiative for all that was done 
in Fiscal Year 1998 with the first-year funds. I would be very 
pleased to submit that for the record.
    [The information follows:]

[The official Commmittee record contains additional material here.]


                                seafood

    Ms. Kaptur. On the seafood issue, will your approach be 
similar on seafood to what we have on meat on poultry under 
HACCP? Will you have an equivalency there?
    Mr. Levitt. Under Seafood HACCP, number one, it is a 
comprehensive program, so every seafood processor in this 
country was inspected this year, and we are reinspecting next 
year. In terms of imports, regulations require that either the 
importer has to take affirmative steps to show that HACCP was 
followed by the exporting processor or the exporting country 
had to have passed an equivalency determination. We have an 
either/or to be sure that the public is protected.
    In the first year, we have focused on working with the 
importers to be sure that they are taking the necessary 
affirmative steps. Also, and we have, as I said, actually 30 
countries that have asked for equivalency determination, and we 
are prioritizing those requests by volume of product, 
significance, and so forth. We are starting with Canada and 
have a number of others in process. We are trying to get to a 
system of equivalency, so that we can rely more on foreign 
governments doing the job at the same level of protection that 
we are doing. In the meantime, however, we have a safety system 
in place.
    Ms. Kaptur. Prior to this past year, what kind of a system 
was it?
    Mr. Levitt. This past year----
    Ms. Kaptur. For seafood.
    Mr. Levitt. For seafood, is a substantial increase both 
domestically and internationally, and that is why the Seafood 
HACCP Program was put into place.
    Ms. Kaptur. What reaction did you get from those involved 
in the sale and distribution of fish--the import, distribution, 
and the sale?
    Mr. Levitt. I think, number one, and this is before my 
arrival, but it is very important to note--that there was an 
extensive training program conducted in conjunction with 
industry and the States leading up to the implementation of the 
HACCP rule. Nevertheless, the first year of inspections has 
shown a lot of problems. We have sent letters out to upwards of 
70 percent of the seafood processors we inspected showing 
problems that need to be corrected in the second year. We are 
following up, and, again, we also have a separate seafood 
strategy that I will also be happy to submit for the record. 
Our approach is a combination of enforcement, renewed 
education, and a constant vigilance with those firms.
    [The information follows:]

[The official Commmittee record contains additional material here.]



    Mr. Levitt. We believe--I know from experience in other 
areas--that when you are very clear in what you need, what 
needs to be done, that the industry will respond and make those 
corrections. We are going from a system of very little 
regulation to very comprehensive regulation. We are dealing 
with large companies, medium companies, small companies, and 
very small companies, making for a very broad landscape that we 
are trying to cover here. We feel we are doing it in a 
systematic way, and we are going to keep pushing ahead with the 
industry and with the States. Above all, we want to get a safe 
product to the consumer.
    Ms. Kaptur. Well, again, thank you for submitting that, for 
the record. I am sure among our acquaintances, we can each 
think of people we know in this Congress who have gotten sick 
from eating seafood. I wanted to ask you, does your seafood 
regulation also include imported frozen product?
    Mr. Levitt. Yes.
    Ms. Kaptur. All right. Thank you very much for that 
clarification and for the information you will submit. Mr. 
Chairman, I will withhold my remaining questions for the 
moment.
    Mr. Skeen. Thank you, Ms. Kaptur, and I think we will go 
out of order for just a second and recognize Robin Tallon, a 
former member. I appreciate you being here; welcome back.
    Mr. Nethercutt.

                                insulin

    Mr. Nethercutt. Thank you, Mr. Chairman, and welcome, Dr. 
Henney, and to you and your colleagues, I appreciated having 
the opportunity to meet you a week or two ago and talk about 
your new position and the challenges you face.
    In our meeting, I mentioned my continuing interest in 
diabetes and biomedical research and raised the question with 
you about the continued availability of beef pork insulin. That 
type of insulin, as I mentioned to you, is no longer in 
production in the United States, and about 200,000 diabetics 
very soon will be without that type of insulin that they need 
to manage their health care and manage their disease.
    Phil Broadbent of your staff has been great in working with 
ours and my staff in giving us information to help ensure that 
until a new product is approved in the United States, people 
may import personal quantities of beef pork insulin from 
suppliers abroad, and I know this is a continuing work in 
progress, and I appreciate your attention to that, and if you 
have any comment for that record, that is fine, and if you do 
not, that is all right also.
    Dr. Henney. Mr. Nethercutt, I appreciate your bringing this 
issue to our attention as well as others. I think that the 
issue does, perhaps, demonstrate sort of the agency position on 
situations like this where we try to work with individuals over 
specific populations of patients who need a particular therapy; 
working with them and with industry to make sure that we do not 
stand in a position to see that their needs go unmet. We do 
this through a variety of mechanisms, and, hopefully, this will 
work out for the population that we are concerned about.

                              blood safety

    Mr. Nethercutt. Well, that is great. Our hope is that there 
can be an acceleration, assuming safety and effectiveness and 
all the guidelines that you have to go under, to be sure that 
there is some priority given so that these people who are 
affected will have the opportunity to have this kind of insulin 
that will save their lives.
    I took note of your comment about the $6.2 million that is 
provided for FDA's blood safety responsibilities, and I have 
had a chance to meet with the blood center representatives from 
my district and elsewhere around our State and our region and 
am informed that there is a new test, nucleic acid testing--and 
maybe you are familiar with it; I assume you are--that is 
fairly new technology but that analyzes the viral protein 
levels in blood and has a cost attached to it that is greater 
than other forms of testing for safety in blood. My 
understanding is the FDA is writing regulations for the nucleic 
acid testing and believe--unless maybe someone on your staff 
knows, it is about April 1st that those regulations are due. I 
say this to you with the hope that FDA would work hard on those 
regulations since there are hospitals in ourregion which are 
wanting to be sure that they are satisfied that this new testing method 
or relatively new technology is approved and acceptable and something 
that guarantees that there is safety in our blood supply through this 
new technology perhaps the regulations have not quite caught up with 
yet, so, I would ask that the FDA look carefully at making sure these 
regulations are written in a timely fashion so that this kind of 
testing with blood can be approved.
    Dr. Henney. Mr. Nethercutt, I appreciate your concerns in 
this area. Certainly, we all share the same common concern that 
any time we need blood or blood products, that they are there 
for us. And at the same, if we are in such need, that they are 
safe.
    I think with respect to blood because it is such a potent, 
if you will, carrier of viruses or other infectious agents that 
we try to do all we can to make sure that the safety net 
surrounding it is quite tight. I am familiar with the test that 
you mentioned. I think that we are trying to work closely with 
all of those in industry as we would move forward to 
implemention. But having just met with all of the people who 
are in the community blood banking business yesterday at lunch, 
I think we agree that both the agency's interest and their 
interest is to deliver the product that we can assure the 
recipient is as safe as it can be. But we will take note of 
your issue and be sure that it gets thoroughly discussed as we 
go about our deliberations.

                       food contact notifications

    Mr. Nethercutt. I appreciate that very much. I think no one 
wants to sacrifice safety in any respect in these blood 
centers. We want to have confidence that the blood supply is 
safe, but yet there seem to be some emerging technologies that 
may provide some improved methods of assuring that it is safe. 
And so to the extent that the agency is directly involved in 
emerging technologies and can provide rather responsive 
approval, that would be much appreciated. I think it would be 
to the benefit of the blood centers, many of whom have told me 
they met with you yesterday and had a good visit.
    One final question, if I may, Mr. Chairman, it will be very 
quick. The FDA appropriation for the current fiscal year 
included $500,000 for the development of regulations to 
implement the Food Contact Substance Notification Program 
established under the FDA Modernization Act of 1997. The 1997 
law also provided a $3 million authorization for this new 
program in Fiscal Year 2000. I'm wondering if you could, either 
now briefly or more completely for the record, answer what are 
the intentions and plans of the FDA in moving forward toward 
full implementation of this important regulatory streamlining 
effort?
    Dr. Henney. Mr. Nethercutt, I think that you raise a very 
important area that has had a strong consensus of support 
between the industry, the agency, and also including the 
discussions that we had with Congress as the FDA Modernization 
Act moved forward where, $500,000 was appropriated to get this 
program started. There were, I believe, discussions in an 
earlier Congress about moving towards a user-fee-like program 
for this area and that is what we have proposed in this budget, 
some $6 million and a user-fee like program for this area. I 
think industry philosophically supports this. We intend to keep 
working with them as we would develop a full piece of 
legislation that might come forward to the authorizing bodies. 
But I hope that both you and we will be in close contact with 
that committee as well.
    Mr. Nethercutt. Thank you very much. I wish you the best of 
luck in your responsibilities.
    Mr. Chairman, thank you very much.
    Mr. Skeen. Thank you, sir. Mr. Boyd.

                                ephedra

    Mr. Boyd. Thank you, Mr. Chairman. Welcome, Dr. Henney, you 
and your colleagues. I know as a new member of this committee 
how overwhelmed I am by the amount of information and the 
number of issues that we have to get up to speed on. I can't 
imagine how it would be for a new person to come and sit in 
your seat. So I know you have an awesome responsibility.
    I don't have enough knowledge to address some large picture 
issues, so I want to pick out a couple that I have a deep 
interest in. While I was serving the Small Business Committee 
in the 105th Congress, I became involved in the FDA's attempts 
to regulate Ephedra because of its potential impact on the 
thousands of small business owners who might be affected by 
those regulations. Now, it's my understanding that numerous 
congressional committees have expressed their concerns 
regarding this matter. And I would like to give you this 
opportunity to clarify some of the previous statements that 
have come from your agency.
    In the agency's January 21 response to the Commerce 
Committee, you provided a reply to an inquiry by Congressman 
Ted Strickland regarding the Ohio model law, which permits the 
sale of Ephedra, products that contain no more than 25 
milligrams of Ephedra per serving.
    If I could ask you to expound on that response by answering 
the following four questions: Number one, have any serious 
adverse events been reported in Ohio since the adoption of this 
law? Secondly, if they have, has the agency evaluated those 
reports for causality to determine if the event was related to 
consumption of the product? Thirdly, it's my understanding you 
have four FTE's working on the Ephedra rule. Have they tried to 
assess the Ohio law and what effect it might have?
    Dr. Henney. Mr. Boyd, I would be delighted to respond in a 
more elaborate way to your four specific questions for the 
record. Let me say that we are, as you know, in the middle of 
rule-making with respect to Ephedra. And there are many issues 
that I think you raise that are important ones for us to 
consider.
    I do not know off hand whether there have been specific 
adverse events related to Ephedra in Ohio and, more 
specifically, since the time period which you raise. I do know 
that we continue to receive reports about numerous adverse 
events from individuals across the country and these oftentimes 
are quite serious. I think that we will try to take all of this 
information into consideration as we go forth with the rule-
making process. Ephedra is a component of some over-the-counter 
products, but Ephedra, when it is used outside of these bounds, 
has caused problems. So we will have to be quite careful and 
deliberative as we move forward.
    Mr. Boyd. Thank you, Dr. Henney. I know that there are some 
States looking at the Ohio model and considering adopting a 
similar model. So if I could, since you don't have that 
information in front of you, I'll submit the four questions to 
you in writing.
    Dr. Henney. And, Mr. Boyd, I will be glad to do that, but 
while you were talking I remembered one other component part of 
your questions that I would like to respond to. Although the 
agency does have four dedicated members on that particular 
staff, let me assure you that as we approach some of these 
issues, we call on the expertise of many staff members from 
across the agency to engage in this kind of issue. So I am 
positive they have more than just four individuals working on 
issues like this.
    Mr. Boyd. Do you know if they are studying the Ohio law or 
if it has had any impact on your direction in the----
    Dr. Henney. Mr. Boyd, I would assume so, but I also know 
that it is not prudent to assume. So I will go back and ask.
    [The information follows:]

    The Agency has no information concerning adverse events 
reported in Ohio since the adoption of the Ohio law. The 
particular section of the law in question is Section 
3719.44(K)(2)(a) of the Revised Ohio Code. With respect to 
Adverse Event Reports, known as AERs, received by the Agency, 
the AER data base has not been organized to easily identify in 
what state particular adverse events occurred. Moreover, as 
with any voluntary reporting system, adverse events are 
significantly underreported. The Agency has no way of 
determining the number of underreported adverse events. The 
Agency is not aware of information pertaining to any studies 
that may have been conducted to rule, presented scientific 
literature suggesting that the use of 20 milligrams and above 
of ephedrine is unsafe. In addition, FDA, in its proposed rule, 
documented that life-threatening adverse events were associated 
with the use of dietary supplements containing as low as 10 
milligrams of ephedrine alkaloids per serving. To compensate 
for uncertainties, FDA proposed to require that dietary 
supplements contain no more than 8 miligrams of ephedrine 
alkaloids per serving.
    Approximately four full-time equivalents, so called FTEs, 
are reviewing and evaluating comments and other information 
related to the Agency's proposed rule on dietary supplements 
containing ephedrine alkaloids. The proposed rule was published 
in the Federal Register on June 4, 1997.

    Mr. Boyd. Thank you. Mr. Chairman, if I could shift gears 
to one other area of interest.
    Mr. Skeen. You're in second gear now. We'll go to third.

                            shellfish safety

    Mr. Boyd. All right, sir. Shell fishing, Dr. Henney, is a 
very important economic activity along the Florida coast, as 
you know. And it's my understanding that the ISSC, which is the 
Interstate Shell Fish Sanitation Conference, has worked with 
the FDA in the past to secure funding in the budget for vibrio 
vulnifieus education. As you know, that VV naturally occurs in 
bacterium found in brackish water around the world that can 
cause serious illnesses or health problems in certain 
individuals. In the past, as I've said, you've worked with them 
to provide funds and to distribute information to individuals 
who may be at risk. In this current budget, are we asking for 
funds to continue those kinds of educational programs, 
informational programs?
    Dr. Henney. Mr. Boyd, within the context of the Food Safety 
Initiative, we have several education and training initiatives, 
but I will have to turn to my colleague, Mr. Levitt again to 
answer the specific question as to the shellfish initiative.
    Mr. Levitt. As you know, we have an extensive ongoing 
relationship with the ISSC and shellfish safety. Funds have 
been provided in the past. I believe that the sum of about 
$200,000 per year for additional education and research in this 
area was included in the budget we are now implementing.
    In the budget that we have brought forward for this year, 
we have looked for gaps that have not been included in the 
past. And so rather than repeat the same thing again, in this 
year's budget we looked to areas that have not been covered. 
And so we have looked, for example, to extending food 
inspections to high-risk areas other than seafood. Seafood we 
covered in the first year of the President's initiative, so 
we're doing that annually, as I said. And shellfish is done 
through the States with assistance and oversight from us.
    We are seeking in this year's budget, the ability to have 
the same level of vigilance over a broader spectrum of what we 
consider products at high-risk of food borne pathogens. That 
includes, in addition to seafood, foods that are ready to eat, 
such as fresh fruits and vegetables; foods that you kind of 
heat and serve quickly where the temperature really is not 
enough to kill the bacteria, as well as certain dairy products, 
such as fresh cheeses where bacteria grow all too easily. And 
so we're proposing in this year's budget, as I said, to fill 
gaps that have not existed in the past. And looking to have an 
annual inspection capacity for a broader spectrum of about 
6,000 firms across the country that we believe make products 
that are especially susceptible to bacterial contamination.
    Mr. Boyd. Thank you, Mr. Chairman. If I might just wind up. 
I guess that means, no, the money is not in there. I think 
that's what I heard you say.
    Mr. Levitt. That's correct. I'll try to say that first next 
time.
    Mr. Boyd. Okay, thank you.
    Dr. Henney, I asked that question to bring to your 
attention the importance of the shell fishing industry to our 
State. We've been through some rough times in our fishing 
industry in Florida, due to a constitutional band on gill nets 
which passed in 1994. A lot of our people are trying to shift 
to fish farming and those kinds of things. And I want you to 
know that I'm ready to work as closely as possible, with you if 
needed to make sure that we develop and advance that industry 
in a safe way. There are some other issues related to that 
industry which are going on right with ISSC and your folks. So 
I appreciate very much your comments.
    Mr. Skeen. Mrs. Emerson.

                        silicone breast inplants

    Mrs. Emerson. Thanks, Mr. Chairman. Thanks, Dr. Henney, for 
being here today. And I also want to thank you very much for 
being in touch with my office about FDA's consideration of 
health claim labels on products containing soybean protein. 
Southeast Missouri, and particularly our Bootheel area, is rich 
soybean country and so your work on this issue could have a 
significant impact on the growers in our district.
    And I might add, Mr. Chairman, for the record, that 
soybeans reached a 23 year low yesterday at about $4.60 a 
bushel. They were selling for about $9 a bushel two years ago. 
So any kind of added value that we can have in this market is 
very, very critical.
    However, my question has to do with silicone breast 
implants. I had a very disturbing meeting with a constituent of 
mine the week before last, who had implants. And she talked to 
me about a lot of conflicting information about rupture rates 
of silicone implants. I also have some figures from Dr. Lou 
Jean Feng, a study at Case Western Reserve School of Medicine, 
which show that silicone implants have a rupture rate of 50 
percent within 10 years and 73 percent within 15 to 19 years. 
These are pretty alarming if, in fact, they are correct.
    Now, let me just ask you in light of these statistics and 
other studies that show high rupture rates, it's my 
understanding, and you may please correct if I'm wrong, but I'm 
under the impression that FDA allows the manufacturers of 
silicone implants to quote a 1 percent rupture rate in all of 
their educational literature. Could you please address this for 
me?
    Dr. Henney. Mrs. Emerson, let me respond to your question. 
I have not read the guidance recently, in terms of the quoted 
rupture rate that the industry is using. So I will have to ask 
one of my colleagues to respond.
    Clearly, I think that the agency has looked at this matter 
of the silicone breast implants and is still working with 
industry to make these products available under study, under 
open protocols to hopefully gain the kind of data that might 
have been needed to more thoroughly evaluate them. I think that 
the issue of the rupture rate and how often that occurs is 
something that I will have to ask for information on. Clearly, 
there's a whole lot of difference between 1 percent and 50 
percent.
    Mrs. Emerson. Indeed.
    Dr. Henney. And so we will try to clarify that for you. 
There is also a study going on right now by the National 
Academy of Sciences reviewing all of the literature with 
respect to the silicone breast implant controversy that 
hopefully will be helpful to all of us. And as that report 
comes forward, we will be glad to share it with you as well. 
But Dr. Burlington?
    Dr. Burlington. Thank you very much, Mrs. Emerson. I'm 
Bruce Burlington, director of the Center for Devices and 
Radiological Health. The Congresswoman is absolutely correct 
that the information historically quoted by the manufacturers 
is clearly not consistent with the subsequent experience.
    At present, the FDA has an informational brochure which is 
to go to every patient receiving new implants that describes 
the lack of data, but the fact that the rate is almost 
certainly higher than the 1 percent rate that had been quoted 
in the past. We've been working with manufacturers to obtain 
more factual information and to more properly label these 
products.
    I would be glad to provide a copy of that brochure.
    [The information follows:]

    The FDA Office of Consumer Affairs has a Breast Implant 
Information Package available to consumers through the FDA 
Internet site, or if consumers prefer, the package is available 
in hard copy. This is a comprehensive package, consisting of 
over sixty pages and containing the latest information about 
silicone gel-filled saline-filled breast implants. I would be 
happy to provide the entire package upon request. In response 
to your question, I am pleased to provide certain sections of 
the Breast Implant Information Package that provide an overview 
of the information available: the cover letter and the detailed 
Table of Contents. Additionally, since Congresswoman Emerson 
has specifically inquired about rupture rates, I am pleased to 
provide the section of the Breast Implant Information Package 
that is titled, Surgical Risk of Implants.
    [The information follows:]

[The official Commmittee record contains additional material here.]



                                medwatch

    Mrs. Emerson. That would be helpful because this particular 
constituent of mine is working with her doctor and she was part 
of the clinical protocol, if you will, but clearly should not 
have been because of her medical history. At least it's my 
understanding, having read what the three criteria are to be 
able to participate in that, she should never have been allowed 
to in the first place. So, I would appreciate very much your 
getting that information to me.
    Let me ask a follow-up question having to do with the 
MedWatch system, which I know has received an awful lot of 
criticism for being a wastebasket, if you will, for things the 
FDA doesn't want to deal with. It's my understanding there are 
about 170,000 adverse events that have been filed regarding the 
silicone implants in that office. Do you think the system is 
adequate to collect, file, process, and compile the public's 
complaints and allegations? Do you need us to give you more 
assistance there?
    Dr. Henney. Mrs. Emerson, specifically in our budget is a 
request to enhance our product safety assurance and also 
another request for the adverse event reporting. MedWatch is 
one of those spontaneous reporting systems. We receive 
information from many sources. What we look for in a system 
like MedWatch are strong signals, not necessarily just numbers. 
Sometimes that's important. But strong signals of something 
unexpected occurring so that we can follow-up. But the amount 
of money that we have in the budget, specifically in the device 
area, is some $3.2 million. The overall request for all 
products is around $15.3.
    But I think that would enhance our capabilities in terms of 
building a stronger, more comprehensive spontaneous system. 
What we really need to do is invest, and that's really the 
ground floor in terms of what we need in terms of adverse 
reporting. Also, what we need is also to go to a more directed 
kind of reporting, so-called sentinel systems, other kinds of 
systems that could refine and customize what we need to hear in 
this area. And so don't be surprised if I come back with a 
similar building block approach to this next year.
    Mrs. Emerson. Thank you very much. Thank you, Mr. Chairman.
    Mr. Skeen. Thank you. Ms. DeLauro?

                           seafood regulation

    Ms. DeLauro. Thank you very much, Mr. Chairman. And I want 
to welcome you, Dr. Henney, to the committee. It's a delight to 
have you here and I look forward to working with you. And as my 
colleague Ms. Kaptur said, it's always been a very substantive 
and professional relationship with this committee and the FDA, 
and we look forward to continuing that. And we welcome all the 
other folks here as well.
    I have a kind of two-part food safety question and then a 
question on tobacco if I might. Just to pursue the Food Safety 
Initiative, the Fiscal Year 2000 budget justification 
highlights the transfer of Commerce's fish inspection 
responsibilities to the FDA. Help me to understand how that 
will work in conjunction with the seafood safety initiatives? 
And, in fact, what benefit to the Nation's food safety is this 
change is likely to bring? And just what are the particulars of 
this effort?
    Dr. Henney. Well, thank you for the kind welcome. I 
appreciate that. Thank you for the privilege for being here.
    But let me explain a little bit about the intended transfer 
of the Seafood Inspection Program. Right now, this is a program 
that's under the Department of Commerce. We would intend that 
the program be transferred in whole, with the inspectors or the 
individuals that work now in this program to really become 
trained and familiarized with the FDA's approach to food 
safety. So we really see it as an enhancement to our efforts.
    Currently, this program works in inspection and 
certification on a fee-for-service kind of basis. And that is 
looking at issues within the context of food safety in terms of 
wholesomeness and quality. But we believe that with adding them 
to our force will really enhance our efforts as we deal with 
the whole issue of food safety.
    Ms. DeLauro. So just explain to me, currently Commerce does 
not have in place the same kinds of procedures and processes 
that FDA has in terms of the seafood safety effort with their 
portion of fish inspection, as you do, so that what you're 
trying to do is to take that from there, put it into your shop 
and apply a uniform standard of safety?
    Dr. Henney. Yes, you've got the concept. What they do right 
now are voluntary inspections. They are looking at the whole 
issue of certifying products. We believe that the quality of 
inspections and what they can do if they are using our 
standards will enhance our ability to look at this whole 
industry in a better and broader way.

                           single food agency

    Ms. DeLauro. A follow-on to that with regard to food 
safety, as I think I've mentioned, several of us are intending 
to introduce a piece of legislation, something called a Safe 
Food Act, which would create an independent agency for food 
safety. It combines food inspection and labeling activities of 
the FSIS and USDA's Center for Food Safety and Applied 
Nutrition, and the Center of Veterinary Medicine of the FDA, 
and Commerce's National Marine Fisheries Service. Let me just 
get to the principle here. There are a number of agencies that 
are dealing with food safety. Given what your effort is in 
terms of taking this piece of fish inspection from Commerce to 
your shop to introduce more safety precautions, I have a couple 
of questions, and these are not rhetorical, they're real.
    Would it make sense actually to have all of the food safety 
processes, regulations, inspections, all of thathoused in one 
place somewhere? And not this kind of scatter shot where. In fact, if 
I'm correct, and please interrupt if I'm not, that we then have a 
different set of regulations depending on where the jurisdiction lays. 
So if you then could initiate some uniform standards, obviously to the 
extent that you've got individual products that require nuances or 
differences, would it not be better to move forward to try to put 
together all of these functions in one place for really ultimately for 
the safety of the Nation's food supply?
    Dr. Henney. Ms. DeLauro, I believe our goal is the same, 
and that is that we all want to see the food supply of this 
country to be as safe as it possibly can be. I think it is 
extraordinarily ambitious to even contemplate the kind of thing 
that you're talking about. I think that there are strong 
upsides, which you point out. I think that the difficulties, 
however, shouldn't be minimized.
    And what we really want to go for here is perhaps stronger 
function and if we don't have to make structural changes, 
stronger function might be an easier approach. We have made 
some of these structural changes in the past when all seafood 
inspections moved to the FDA, and now this other piece as well. 
I think that to contemplate the single food agency as something 
that could be easily accomplished that might not create its own 
bureaucracy, and would require a careful evaluation of the 
scientific skills and training of all involved, would be really 
a monumental task.
    For my own part, I think that a critical portion of food 
safety needs to be tied to those departments or entities who 
live and breath health and public health issues everyday. I 
think that that is something that FDA really offer in this 
area. I think that it is also critical, as you approach food 
safety issues, that they be very much steeped, wedded, if you 
will, in an environment that is strongly science-based. And so 
those would be the kind of things that I think, you would want 
to keep in mind.
    It would be quite ambitious to do what you're thinking. 
That's not to say that you haven't taken on ambitious tasks 
before, and I think there are many things that one would have 
to take into account as we have those discussions and 
deliberations. But do we all share the same goal about a safe 
food supply, I think the answer to that is absolutely yes.
    Ms. DeLauro. I thank you. And I look forward to having 
further conversations about this obviously. I'm under no 
illusions about how difficult it is. And I frankly believe we 
ought to be science-based in what we are doing. What is a real 
concern to me is when we have a series of agencies, each of 
which each has a piece of this or that and we don't have any 
uniform--now, when I say ``uniform,'' you want to take on what 
Commerce is doing to bring a better level of science-based, of 
inspection, of quality, et cetera. I'm there. I want a quality 
product. I want kids to be able to pick up something and know 
whether it is being inspected by USDA, whether it's the FDA, 
whether it's CDC, whether it is Commerce, whatever the other 
string of agencies that are out there that are doing this. I 
don't care about that. I care about the quality of the product.
    Now, I want to figure out what is the best way to get us to 
that goal that we both share. I'm not quite sure at the moment 
of what's happening with that goal that we share given the way 
the proliferation is across all the agencies, but I'm more than 
delighted to talk that through with you and as I will with 
USDA, et cetera because I think it's critically important to 
where we want to go. And that it must, in fact, be science-
based and we need the proper people doing it. We do not need 
another bureaucracy, God help us. Anyway.
    Can I ask one final question about tobacco, Mr. Chairman.
    Mr. Skeen. You certainly may.

                                tobacco

    Ms. DeLauro. Thank you. FDA has conducted approximately 
52,000 compliance checks to ensure that stores across the 
country are not selling tobacco products to kids. What I want 
to try to find out here is what are you finding? And if you 
could provide this and tell us a little bit about what we're 
finding in terms of violations, repetitive violations? What 
does non-compliance mean? What kinds of fines? What, in fact, 
do we have as an evaluation of what is going on in results, 
given that I, for one, would like to see and I've fought in the 
past for this, the ability for FDA to continue this work with 
the States. How is that federal-state relationship going and 
what kind of cooperation are you getting from the States?
    Dr. Henney. Ms. DeLauro, let me just give you a quick 
thumbnail sketch on this, and we'll supply all of the 
information that you want for the record. I would say even 
though it is early on in this program, as you know, we started 
out with a pilot of 10 States. That's been expanded to some 43 
contracts involving 41 States, the District of Columbia, and 
the Virgin Islands, which demonstrates the comprehensiveness of 
this program. For States that don't have contracts with us, the 
FDA uses its own compliance resources to evaluate in those 
areas.
    And since the program started off small, the track record 
reflects that. However, I think we are getting excellent 
cooperation with States. We are seeing some repeat violations 
from our compliance checks. Being noncompliant meansyou are 
selling cigarettes or tobacco to minors. The first time violator gets a 
bit of a warning. The next time results in a fine that you owe. And so 
we can give you the full picture and total on that.
    But we need to go forward with the capacity to check on 
more retail outlets, which the budget request, that we have 
before you, would allow, enhance our partnerships with States 
and also enhance our outreach efforts through the media, print, 
television and radio. Our message will get out and it is a 
worthy one because we've got some 3,000 kids everyday that are 
becoming addicted to cigarettes.
    [The information follows:]

    Over 52,000 compliance checks have been completed under the 
FDA program since the first compliance checks were conducted in 
August 1997. The overall violation rate is 23 percent. The 
violation rate for second inspections is approximately 30 
percent. More than $100,000 has been collected in civil money 
penalties, including two payments of $1,500 each for third 
violations of the rule.

    Ms. DeLauro. I appreciate your work and applaud what you're 
doing in this effort. Thank you very much, Dr. Henney. Thank 
you, Mr. Chairman.
    Mr. Skeen. Thank you. Mr. Latham.
    Mr. Latham. Thank you very much, Mr. Chairman. And welcome. 
It's very nice to have you here. And the chairman really is a 
nice guy despite what you've heard about him. And the ranking 
member.
    Mr. Skeen. You said that just like I told you. [Laughter.]

                           retail food safety

    Mr. Latham. I know. Thank you, thank you, Mr. Chairman.
    I'm going to focus a lot I guess on the food and the Food 
Safety Initiative. In 1998, there was a pilot project to 
implement the HACCP controls for the retail sector of the food 
industry, including restaurants and grocery stores. Tell me, is 
this pilot project up and running? And what do you see long-
term in what has traditionally been a State and local effort as 
far as restaurants and groceries as far as inspection?
    Dr. Henney. Mr. Latham, the strongest interaction that we 
have with retail that I'm aware of, and please forgive me, but 
I'm only three months to this job, but the strongest program 
with retail restaurants and the like is really our interaction 
through the food code. And that does not necessarily deal with 
conducting inspections, but deals much more with best 
practices. If we have an inspection element, I will have to ask 
Mr. Levitt to expand upon that? The HACCP programs that we have 
in place, that I am most familiar with, deal much more in the 
seafood and juice area.
    Mr. Levitt. We did initiate a pilot on retail HACCP, as you 
indicated, this past year. As far as I know, that is still 
ongoing and will take some time for us to evaluate.
    Mr. Latham. What are you doing?
    Mr. Levitt. The specifics I'm afraid I'm not that 
conversant with myself and I would rather submit it for the 
record for it to be accurate.
    [The information follows:]

    HACCP at Retail employs multiple approaches to achieve the 
goals and objectives established for the program. Among these 
are the (1) promotion of HACCP in the Food Code, (2) FDA/Center 
representation on the Conference of Food Protection's retail 
HACCP committee, (3) distribution of draft retail HACCP 
guidance on the Internet, and (4) development of a retail HACCP 
pilot program.
    Since 1993, the Food Code has contained an appendix (Annex 
5) which describes HACCP principles and highlights the 
importance of using HACCP as a food safety management system.
    The Division of Cooperative Programs, represents the Center 
on the Conference of Food Protection's committee on retail 
HACCP. This committee provides a means for a dialogue among 
regulatory, food industry, academia, and consumers to explore 
and understand the development and implementation of HACCP for 
food retail establishments and to coordinate efforts regarding 
HACCP in retail food establishments through the Conference of 
Food Protection.
    FDA Center and ORA staff have drafted the ``Managing Food 
Safety: A HACCP Principles Guide for Operators of Food Service, 
Retail Food Stores, and other Food establishments at the Retail 
Level''. The draft Guide is intended to serve as a body of 
recommendations for the retail food industry on how to apply 
HACCP principles. The draft Guide was handed out at the 1998 
Conference of Food Protection, distributed to individuals that 
have requested a copy from the Center, and is available on the 
Internet. The Center has requested comments on the Guide and 
will update the draft Guide based upon comments received and 
information obtained through direct usage in an ongoing 
voluntary retail HACCP pilot program.
    The voluntary retail HACCP pilot program is in the process 
of complying with procedures to fulfill the legal requirements 
of the Paperwork Reduction Act (PRA) prior to officially 
announcing the program's start. The first completed PRA 
procedure involved the Federal Register announcement of the 
Agency's intent to collect information through a voluntary 
retail HACCP pilot program and to identify the burden that 
information collection will have on all participants. The 
Agency received one submission from a trade association on the 
Federal Register notice and has prepared a draft FDA response 
that is currently undergoing Center and Agency review, and will 
be subject to a 30 day comment period in the Federal Register. 
Upon completion, the Agency will move ahead with submission of 
the PRA package to the Office of Management and Budget (OMB) 
for approval to implement the voluntary retail HACCP program.
    FDA has actively promoted HACCP implementation, 
specifically the State Training Branch (STB) And ORA Regional 
Offices. Over the past 10 years, the STB has provided numerous 
on-site courses and videos to train both regulators and 
industry personnel on the application of HACCP at retail. 
Regional Food Specialists in several FDA Regional Offices have 
interacted with State, Local and Tribal regulatory agencies to 
explore how HACCP can successfully be integrated into the 
retial food industry.

    Mr. Latham. Okay. Under the President's budget request for 
the Food Safety Initiative, how many full-time 
equivalentemployees are part of that at FDA and what will they be 
doing, where are they going to be located?
    Dr. Henney. The FTE request that deals specifically in 
foods is through a number of areas. It has to do with a variety 
of activities, from educational activities to inspections. But 
the total amount of additional FTE that our budget requests is 
156. Many of them would be in the Food Center, or the field and 
some of them would be designated for our Center for Veterinary 
Medicine.

                            food irradiation

    Mr. Latham. Okay. Under the Food, Drug, and Cosmetic Act, 
irradiation of food is regulated as an additive and listed as 
an ingredient, basically, as far as on the label. Is that 
necessary in light of what we know today about technology or 
will that be necessary to continue?
    Mr. Levitt. We have just published an Advance Notice of 
Proposed Rule-making asking for public comment on the labeling 
issue. Irradiation labeling, as you know, has been required in 
the past. We have been encouraged by a number of sectors to re-
look at that. But I think given----
    Mr. Latham. What does your proposed rule say?
    Mr. Levitt. It is not a proposed rule. It is an advance 
notice. It really raises the issue----
    Mr. Latham. What does that say?
    Mr. Levitt. It explains how the labeling issue came to be, 
what the basis of that decision-making was, what are some of 
the questions and concerns that have been raised as a result of 
that, and asks for public comment on where to go from here.
    Mr. Latham. So you don't have a position?
    Mr. Levitt. So we don't have a position right now. We are 
asking input, to enable us to establish a position.

                        veterinary drug systems

    Mr. Latham. Okay. What role does the veterinary drug use 
data and the animal health monitoring surveys play in the Food 
Safety Initiative?
    Dr. Henney. Actually, one of the larger roles that they 
play, Mr. Latham, is in the whole area of antibiotic resistance 
and our concerns about development of antibiotic resistance in 
food-producing animals.

                              bioterrorism

    Mr. Latham. Okay. I guess somewhat of a different line, do 
you think the livestock industry is at risk from bio-terrorism 
attacks, and does the agency have any plans to reduce chances 
of incidence there or does the agency have a role in that?
    Dr. Sundlof. Thank you, I'm Steve Sundlof with the Center 
for Veterinary Medicine and we don't have any budget plans in 
the proposed budget for 2000 to deal with bio-terrorism as it 
applies to livestock. However, we are working with other 
agencies, including USDA, APHIS, and other agencies in dealing 
with the whole livestock bio-terrorism issue. Definite plans 
will emerge, however, we're really in the formative stages of 
identifying what are the areas that need increased attention. I 
think that in the upcoming years we will have a solid 
formulated plan that we will bring back to this committee and 
discuss.
    Mr. Latham. And so at this time, you don't know what role 
the agency would have?
    Dr. Sundlof. Well, we certainly have a role in terms of any 
drugs that might be approved for emergency treatment of animals 
that have been exposed. In terms of actually setting out an 
overall strategic plan for dealing with the bigger, broader 
picture of bio-terrorism as it applies to animals and plants 
and the insertion of toxins in plants that are then fed to 
animals, we are still in the very formative stages of trying to 
address that issue.
    Mr. Latham. I will have some questions for the record, Mr. 
Chairman. Thank you.
    Mr. Skeen. Mr. Kingston?
    Mr. Kingston. Thank you, Mr. Chairman.

                                tobacco

    Dr. Henney, I have four questions on four different areas. 
Let me ask you first, do you have any teenage kids?
    Dr. Henney. No, Mr. Kingston. I don't have children.
    Mr. Kingston. One of the things that disturbs me as a 
father of teenagers by this administration is this presumption 
that we parents of teenagers are sitting around pining waiting 
for the white knight Clinton administration to save us from 
this horrible insidious problem with tobacco like we're worried 
about it. I've spent a lot of time with other parents of 
teenagers, spent a lot of time with teenagers. Just food for 
thought. Just food for thought.
    What our big concerns are: teen pregnancy, STDs, fitting 
in, getting into college, drinking, reckless driving, DUI, 
popularity, drugs. These are things that really are more on the 
minds of the teenagers' parents that I talk to. I'm only giving 
you that food for thought because I wonder sometimes with this 
administration's obsession towards tobacco that maybe you could 
look at some of these other areas which you don't have second 
chances. A car wrapped around a telephone poll at midnight, no 
second chance. A 17-year-old gets pregnant, no second chance. 
An 18-year-old picks up a STD, no second chance. Just food for 
thought on that.
    Don't really want a response, just want to make that 
statement. If you want to respond, you're welcome to respond 
but I think I've heard enough from this administration on that 
particular subject. And I'm just saying that somebody who is 
involved with teen parents and teenagers just want you to think 
about that when you're in your policy-making decisions, okay?
    Second thing, and I do have some tobacco-related questions. 
I'll submit them for the record.
    The questions of Mr. Boyd and the UN and dietary 
supplements. The UN is going to be meeting on this March 16th, 
is that correct, considering prescription drug authority on 
dietary supplements?
    Dr. Henney. It's my understanding that the UN is going to 
be meeting on the Ephedra issue, yes.

                                ephedra

    Mr. Kingston. Do you think that we need to have the UN 
doing that in terms of general policy?
    Dr. Friedman. Sir, I can answer the question and say that 
just two days ago, we held a public meeting at the Food and 
Drug Administration to garner outside opinions as to what 
position the United States should take with respect to possible 
scheduling of products. This was widely attended and was a very 
active meeting. There were representatives there from the 
dietary supplement industry, from consumer groups, a broad 
sampling of folks. We got the information and the input from 
them and we're going to be using that to formulate our 
recommendation on what we should do vis-a-vis the 
considerations that are being considered at the UN.
    Mr. Kingston. When you are making this decision, what is 
your time frame? March 16th, what three weeks away?
    Dr. Friedman. We were actively engaged in it, sir. We will 
make a timely decision.
    Mr. Kingston. Do you feel that that's the proper role of 
the UN as opposed to say you guys coming up with a 
recommendation to a legislative body like Congress?
    Dr. Friedman. I will take that as a rhetorical question as 
well, sir.
    Mr. Kingston. Okay. Let me rephrase it. Do you think that 
the UN should be initiating this as opposed to a FDA type 
agency and then recommending it to a legislative type body, 
such as the United States Congress?
    Dr. Friedman. This is an area that I think I would prefer 
for us to get back to you in writing because I don't know the 
full history of the other considerations the U.N. body has had. 
There certainly are drugs that are scheduled where I do think 
that there's value in having an international agreement about 
how dangerous products should be monitored and controlled. But 
I don't know the answer to this specific question, sir.
    Mr. Kingston. I thought Dr. Boyd asked about the number of 
illnesses or deaths or problems that had happened because of 
this drug in Ohio, but you've called it a ``dangerous drug,'' 
so you must know of some?
    Dr. Friedman. No, sir, I'm sorry.
    Mr. Kingston. You're just saying in general danger.
    Dr. Friedman. In general. One role of the World Health 
Organization----
    [The information follows:]

    The United States is a signatory to the 1971 Convention on 
Psychotropic Substances. Under this Convention, the United 
Nations may impose controls on drug substances to address 
significant problems that affect more than one country. FDA 
believes that the Convention provides the United States with 
discretion to exempt products form some international controls, 
such as prescription requirements, while still fulfilling our 
international obligations. in addition, we believe that the 
FDA, along with other executive branch agencies, retains the 
authority to act when appropriate under domestic laws and 
regulations.

                              blood safety

    Mr. Kingston. And let me say this, I don't know this to be 
a dangerous drug at all. But what I am real surprised at is 
that the UN would be taking the lead on this as opposed to us 
in Congress or you in the agency or in the administration. It 
is somewhat disturbing to me.
    All right, switching gears. A gay person goes to give blood 
to the American Red Cross. Fills out the form: ``Have you ever 
had sex with someone of your same sex?'' Says, ``Yes.'' And 
then I think their blood is not accepted, is that correct? And, 
again, I don't know if you even have jurisdiction over it, but 
I understand this from a gay friend of mine who went to give 
blood and said that at that time he was ineligible to give it.
    Dr. Henney. Mr. Kingston, the questions about potential 
high-risk behavior are asked of all donors. An affirmation of 
established high-risk behavior may very well preclude them from 
being a blood donor.
    Mr. Kingston. So it's basically if they ``yes,'' they're 
presumed to be high-risk?
    Dr. Henney. Yes.
    Mr. Kingston. In your goal of safe blood, is that anything 
you're looking at?
    Dr. Henney. Yes, blood safety one of the five priorities 
that I've identified for this agency as a very high priority.
    Mr. Kingston. No, I mean within that priority, is that 
particular question about gay people giving blood, donating 
blood, is that anything that you're going to try to look at?
    Dr. Henney. I don't think that we give that any more 
emphasis than we would other high-risk donors in terms of 
excluding them from being donors to the blood supply.

                              regulations

    Mr. Kingston. I just don't know if that is something that 
we should consider figuring out what the answer to is or not. 
I'm only asking you that question.
    All right. Fourth question, in terms of regulation, we hear 
increasingly from constituents that the Government often 
through regulation rather than legislation is grabbing more 
power away from the private sector through regulatory control. 
Do you hear that much when you have hearings and inputs and 
comment periods, do you hear that type thing?
    Dr. Henney. Mr. Kingston, I'm back to the agency after 
being away for five years. I have had, in my time back, some 
extensive conversations with those in particular regulated 
industries, I think that what the agency has achieved over the 
past five years, they probably were able to accomplish it 
because I was absent, was a very strong dialogue with our 
regulated industry. I would say that as I measure what I see, I 
think both the industry and the agency have a high degree of 
respect for our respective roles and responsibilies, and for 
each other. And I think that our relationship with many in our 
regulated industry is very strong and very positive. And I'm 
very pleased about that, and I hope we can sustain it.
    Mr. Kingston. Do you know of any FDA regulations that you 
have modified and made more customer-friendly or even dropped 
as being superfluous or redundant with another regulatory 
agency?
    Dr. Henney. If you wouldn't have added that last phrase, I 
could have responded to you more comprehensively. I think that 
there are a number of initiatives that the agency has taken on 
in the last few years that look at decreasing the regulatory 
burden to industry. Many in the agency have received some of 
the Hammer Awards for reinventing Government, for looking at 
decreased burden, and yet maximum control in terms of the way 
we can communicate and interact with our industry. So I could 
cite many of those for you.
    In terms of interactions with other agencies, we have many. 
We have many interactions with our colleagues at the Federal 
Trade Commission, at the USDA, at Customs, a wide array. And 
what we are striving for there is to look at the panoply, if 
you will, of initiatives that we have ongoing, the right 
approach when it needs to be a regulatory approach, and to look 
for the best way to do our business.
    Mr. Kingston. I encourage you to keep that up, and I would 
love to hear more if you would submit that to us because I hear 
from food processors, such as a poultry processing plants, that 
one agency would come in, food safety, and say, ``Use more 
water.'' And then OSHA would come in and say, ``You have too 
much water. You're making a dangerous workplace.'' And so I do 
see often regulatory agencies with good intentions often giving 
conflicted signals to the regulated. And I would be interested 
in that coordination. And I applaud your efforts on that.
    When you follow up on this, I would like to know some other 
type of regulations which you have dropped or you would like to 
drop that maybe we can help you drop which are no longer 
serving their original purpose that time or technology has 
passed on. And I think that would be very helpful if we could 
work with you on that.
    Dr. Henney. We would be glad to do that. I think another 
area, if I could point it out, is not just among the 
interactions we have with our colleagues in the Federal 
Government, but we have, I believe, strong and very deep 
interactions with our partners in both the State health 
departments and agriculture departments. They're strong, 
particularly in the area of food safety. They're also strong in 
the area of what we do in mammography. When I was in 
Cincinnati, I met with the secretaries of health and 
agriculture from both Kentucky and Ohio. What they stressed to 
me was their very positive interaction with the FDA because 
they feel like they have an agency that works with a spirit of 
cooperation, not with a spirit of competition.
    [The information follows:]

    In recent years, the agency has undertaken a comprehensive 
review of its regulations with the goal of eliminating 
unnecessary regulations, reinventing those that have value but 
can be streamlined, and reducing regulatory burden on industry. 
As a result of that exercise, the agency has thus far 
eliminated hundreds of pages of regulations, such as those 
specifying precisely how insulin and antibiotic drugs are to be 
manufactured. Others that have been substantially modified to 
reduce burden on industry include those governing how a drug 
firm can make minor changes in a product without seeking FDA 
approval and those requiring manufacturers of biologic products 
to submit multiple applications to FDA for product licensing.
    We have also reached out frequently to the companies that 
make the products we regulate to get their views on where 
regulation is, in their view, unnecessary. That effort has 
resulted in both changes in the regulatory activities of our 
field staff and receipt of numerous compliments from industry 
expressing their appreciation to us for hearing and acting on 
their concerns. These streamlining efforts are continuing. For 
example, the agency has developed a ``blood action plan'' that 
will improve the safety of the blood supply. An important part 
of that plan is the reform and streamlining of the agency's 
blood regulations to focus on blood safety while eliminating 
unnecessary regulations that may obscure that focus.

    Mr. Kingston. That's great. And I hope you'll continue on 
that.
    Thank you, Mr. Chairman.
    Mr. Skeen. Thank you, Mr. Kingston. Mr. Walsh.

                            device user fees

    Mr. Walsh. Thank you, Mr. Chairman. Dr. Henney, welcome. 
Congratulations on your appointment. I wish you success. Dr. 
Friedman, thank you for filling in that interim period of time. 
You did a nice job for us.
    I have a number of questions I'll just ask you, and then I 
would just like to submit the others for the record, Mr. 
Chairman.
    Dr. Henney, you acknowledged in your confirmation hearings 
in the process and I quote: ``Historically, user-fees have 
succeeded only when they resulted from consensus among the 
Congress, the FDA, industry, and consumers. At this time, there 
is little likelihood of such a consensus.'' The budget contains 
no funding for device reviews outside of user-fees and yet you 
announce that your top priority is full implementation of the 
FDA, whose main purpose was to speed up device reviews so 
patients would be helped. So how do you justify a budget that 
contains no additional appropriated funds for one of the FDA's 
most important statutory functionswhen there's no likelihood of 
user-fees?
    Dr. Henney. Well, Mr. Walsh, I am ever the optimist and I 
hope that we can receive the consensus that we need among all 
parties because those other critical facts are there. I think 
at the time in which the original Prescription Drug User-Fee 
Act was passed, the device industry was very hesitant about 
being a partner in that grand experiment because they felt that 
the agency, and particularly the Center for Devices, had some 
ways to go in terms of bringing about better management, better 
efficiencies within the Center. I think that Dr. Burlington and 
many of our colleagues are to be congratulated for doing just 
that. Our 510(k) review time is now down at a level that is 
quite expeditious. Our PMA review times, however, are still 
lagging behind.
    And so we think that this area is an area that is ripe for 
a user-fee approach. We at least have heard from some in 
industry who support user fees, although I'm sure that we 
haven't heard from all since you've apparently heard from 
others that might not feel as positive about the approach. But 
I think that we need to keep this particular discussion alive 
because it really would be very helpful in terms improving 
review times in this critical area of device regulation.
    We are taking full advantage of the efficiencies available 
to device review within the language of the FDA Modernization 
Act. And we could give you for the record the number of 
initiatives that have happened in that regard.
    [The information follows:]

[The official Commmittee record contains additional material here.]



    Mr. Walsh. Thank you. I would appreciate that. Assuming for 
a moment that, well, for this budget anyway, that your optimism 
is not rewarded. How do you reallocate the $19 million that has 
been provided for enforcement and other post-market activities 
to ensure that device reviews do not fall further behind or 
return to the days when for instance PMAs took quadruple the 
time required by statute which is not that long ago?
    Dr. Henney. I would anticipate, Mr. Walsh, that if the 
user-fee proposal does not come about, then there are no monies 
allocated within this budget to be directed toward the review 
process. Rather, there are monies within the budget for the 
inspection of manufacturing facilities. So I would not 
anticipate that we would not see much of a change in our review 
times of PMAs. I do not believe that we are going to walk away 
from all of those other management efficiencies, however, that 
we've put in effect. And I do not believe that we will go back, 
slide back to where we were some five to six years ago.

                              food safety

    Mr. Walsh. We hope not. On food safety, what is the status 
of the President's Food Safety Council's response to the 
National Academy of Science's report?
    Dr. Henney. Mr. Walsh, I don't have an exact date. My sense 
is that the response will be coming out shortly. I know that 
they have been meeting diligently over that, but I don't have 
an exact date that I can give you.

                     integrated food safety system

    Mr. Walsh. Could you describe then the Federal-State 
vertically integrated food safety system, discussing the effort 
that is currently underway?
    Dr. Henney. Mr. Walsh, the approach that the FDA has taken 
with respect to integrating our efforts at food safety is quite 
important to this whole effort. Last year in September, we was 
convened a Conference on Food Safety that was held in Kansas 
City. It was attended not only by many in the FDA and other 
agencies of the Federal Government, but also by our 
counterparts in the State government. Arising from that meeting 
I think has been a renewed commitment to look at a baseline of 
safety, a baseline or standard that could be applied to food 
across the board. Also, we could more efficiently utilize the 
resources of the States in terms of both their inspection 
forces and their knowledge of the industry in their particular 
state.
    And I think thus far what we have seen has been a very 
positive interaction in that regard, both with departments of 
health and departments of agriculture.
    Mr. Walsh. The interaction has been between Federal and 
State levels of health and agriculture?
    Dr. Henney. Federal and State.
    Mr. Walsh. We have had I think good success by including 
outside groups for comment in these processes. Do you allow for 
that?
    Dr. Henney. Yes.
    Mr. Walsh. Is there a formalized process for comment after 
regulations might be promulgated or is there a process by which 
they can enter in at the bottom, at the sort of foundation 
level of this process?
    Dr. Henney. I can ask Mr. Levitt to give you the nuts and 
bolts of how we are putting this all together. But I think one 
principle that the agency has always worked under is to try to 
be very open in our Rule-making and we welcome input from any 
colleague.
    Mr. Levitt. Thank you. Following the September meeting in 
Kansas City, attended by all 50 States, we put together working 
groups in a number of areas that then met in December. When 
those reports are out, which should be sometime in March, we'll 
have an opportunity for broader public input. Nevertheless, 
we've already started. I, myself, have met with consumers. 
Members of my staff have met with representatives of the 
regulated industry. And we're starting to hear some of the 
legitimate concerns that are being raised.
    Just today, there's a meeting that has been convened bythe 
Department of Agriculture of all the state commissioners of agriculture 
and commissioners of public health. Actually, I'm told the first such 
meeting that has ever occurred with all of those groups. Secretary 
Shalala addressed that session this morning, in addition to Secretary 
Glickman. I was there and made a presentation of this very subject. I 
can tell you there was a lot of enthusiasm for it among the Government 
agencies. I also shared with them some of the questions and concerns 
that I've heard from consumer groups and from industry, and said we 
need to be able to convincingly respond to those concerns as we bring 
this issue forward.
    Mr. Walsh. I would urge you strongly to work closely with 
all interested parties. The more stakeholders you have at this 
part of the process, the easier it's going to be promulgate it, 
the less involvement there's going to be when we get around to 
writing laws, the less contentious it should be when we get 
around to writing laws.
    Mr. Levitt. Thank you.

                             food additives

    Mr. Walsh. Thank you. One last question, Mr. Chairman, and 
I thank you for the time. FDA issued guidance to implement 
procedures to expedite the review of food safety related food 
additives. How does the FDA feel about the need to expand the 
expedited review beyond just those food additives intended to 
decrease the incidence of food borne illness to include food 
additives that offer nutritional and health advantages over 
existing ingredients, also representing important advances in 
public safety?
    Dr. Henney. Since Joe didn't get out of the chair fast 
enough, I'll have him answer another question.
    Mr. Walsh. It's okay with me. He did well on the last one.
    Mr. Levitt. I think it's important to start somewhere, and 
we started with what we think is the most critical need for 
food safety issues. We have put under the President's Food 
Safety Initiative, a strong emphasis on research and 
development of new technologies. We have to have the process in 
place so that when those technologies are developed, we can 
move them rapidly through the system. So I think it's important 
that we start there, get that going well before we consider 
expanding it into other areas.
    Mr. Walsh. So the expedited process that you've established 
to protect our constituents' health could then conceivably be 
used as a model to bring in these other additives?
    Mr. Levitt. I think we will gain experience I think in a 
number of ways.
    Mr. Walsh. The lawyer says, ``Well,'' and the others say, 
``Sure.'' I guess that's expected. [Laughter.]
    Mr. Levitt. The Commissioner says, ``Sure, sure.'' 
[Laughter.]
    Mr. Walsh. Thank you very much.
    Mr. Skeen. Mr. Bonilla?

                       anti-microbial resistance

    Mr. Bonilla. Thank you, Chairman. Dr. Henney, I would like 
to echo the remarks from some of my colleagues about how much 
we appreciate that you come and visit with us one-on-one. And 
it really does mean a lot. And we want to keep the doors open 
both ways.
    I want to start out with a question about the National 
Antimicrobial Resistance Monitoring System, which everybody 
understands we need more research in this area to find out what 
maybe causing these problems, but you describe a lack of 
understanding about resistance. FDA is proposing a massive new 
regulatory framework that could severely restrict the 
availability of antibiotics from some of these food producing 
animals.
    My question is, your testimony makes no mention about this 
regulatory aspect. Given the fact that there's still a lack of 
a lot of information, this would seem to be a situation of 
ready, aim, fire, rather than finding out what we need to do 
and then possibly looking at regulations down the road?
    Dr. Henney. Mr. Bonilla, thank you actually for the 
question. I did not mention this in my testimony, but it is a 
very important area and one that we approach thoughtfully. I 
think the issue of antimicrobial drugs and antimicrobial drug 
resistance developing in our food supply is one half of it but 
what impact would it have for human health is really of equal 
concern to us.
    We have had a recent open advisory committee meeting on 
this issue where we heard from many. I think that we are just 
starting to get our hands around a possible approach and 
framework, if you will, for dealing with this issue. And where 
we believe we are with this is looking at resistance and 
developing threshold levels. So that if we start seeing these 
threshold levels develop in our food supply, in our animals 
that provide our food supply, that is then monitored by the 
system to then trigger an appropriate action. We are still 
taking much comment on this. It is an issue of real 
controversy, but we do believe that a thoughtful approach to 
this which takes into account when do we think that this 
problem, if you will, will have an impact into a human area. 
That is something about which we need to be thoughtful.

                        interagency cooperation

    Mr. Bonilla. We just need to be careful not to pull that 
trigger before all the research is in and that's my point of 
the question. So I just want to let you know we'll probably be 
monitoring that, and I'm sure many colleagueswill as well.
    I want to move on to some other areas because our time is 
limited in our questioning. I want to ask a question about the 
FDA's view of the coordination and cooperation that exists 
between the FDA, the CDC, and FSIS when there's a recall of 
contaminated food. Is there an established policy or memorandum 
of understanding on how these agencies will work together with 
the food companies and what is FDA's role in gathering and 
analyzing information implicated companies? And how do they 
differ from CDC? I'm asking about this because there's some 
concern that perhaps CDC is jumping the gun without 
coordinating with the appropriate agencies?
    Dr. Henney. Mr. Bonilla, I think that to the issue of 
coordination, it is exceedingly stronger than it used to be 
among all of the agencies that you list. We do have in place a 
team of people at a very high level who are notified when an 
outbreak is identified. We clearly have to have the CDC 
involved to do much of the surveillance kind of work. We try to 
work with our industries in terms of tracking source, 
distribution of product, and the like. And we have products 
where there are issues of overlapping interests between the 
FSIS and the FDA.
    So it is an area that demands very tight coordination, 
cooperation, and communication. We try to be at the highest 
level of performance in all three. I can't say from time to 
time, it might not break down. And you may have a specific 
example in mind.
    Mr. Bonilla. Is there a policy written down though or is it 
just an understanding?
    Dr. Henney. I do not know if it is a memorandum of 
understanding or a policy. I believe that it is, and if it is, 
I will supply that to you.
    Mr. Bonilla. I would appreciate that. I did ask CDC about 
this as well in my other subcommittee the other day.
    Dr. Henney. Okay. But we have had more occasions than I 
would like since we've been back in terms of food outbreaks. 
Mr. Levitt just mentioned one that we worked on that was in the 
south Florida area just this past weekend. And I believe that 
the communication is quite strong, but whether it is 
undergirded with a memorandum of understanding, I just simply 
do not know.
    [The information follows:]

    The FDA has numerous Memoranda of Understanding (MOUs) in 
effect with agencies within the Department of Health and Human 
Services, with other federal agencies outside of HHS, as well 
as with many foreign governments. The Memorandum of 
Understanding in effect that is most responsive to your 
question is titled, ``Memorandum of Understanding Among The 
United States Department of Agriculture and The United States 
Department of Defense the The United States Department of 
Health and Human Services and The Environmental Protection 
Agency.'' I am pleased to provide the MOU.
    [The information follows:]


[The official Commmittee record contains additional material here.]


                                tobacco

    Mr. Bonilla. Thank you, Dr. Henney. I want to ask a 
question about the new tobacco enforcement you're asking for, 
doubling the budget I see from $34 million to $68 million. I'm 
going to have some additional questions in this area that I'll 
submit for the record. But could you tell me, off hand, how you 
would intend to spend the 100 percent increase in funding?
    Dr. Henney. Mr. Bonilla, it really breaks down into really 
two major parts, one is in the compliance check area. And we 
envision that this money would allow us to do at least one 
compliance check in some 400,000 establishments per year. And 
the other major area of break out for this money, some $11 
million, really looks at our outreach efforts, those kind of 
messages that we are using on television and radio. Also, 
educational materials and training that we are providing to the 
retailer to explain to them why this program is important, what 
their responsibilities are, and to provide information that 
they can have at the ready as individuals might approach them 
about the purchase of cigarettes.
    Mr. Bonilla. What's puzzling to me about that aspect is 
that I don't of any American out there, whether pro-tobacco or 
anti-tobacco, that doesn't understand already. On every pack of 
cigarettes it says that it could be hazardous to your health. 
How many more times can you tell somebody that?
    Dr. Henney. I think, Mr. Bonilla, these are not intended to 
be health messages. You're correct. That is contained on the 
label of every cigarette. These are messages related to being 
carded. Messages that really have much more to do with the fact 
that an establishment does not provide cigarettes to the 
teenage or adolescent population.
    Mr. Bonilla. I know in Texas, for example, the word is out 
there loud and clear. We have a new law in Texas. A couple of 
years ago the Governor signed a law that makes it a crime for a 
minor to purchase tobacco, which was supported by the 
community. I think the word, for example, in our State is we 
wouldn't need anyone else to tell us any more. I even hear kids 
talking about it and they seem to be pretty conscious of that 
at the retail point. I was just wondering how many more times 
you could let them know about something they should know 
already. And if they don't, I don't know what else you can do 
to convince them of that.
    I have one more question, Mr. Chairman, if I could find my 
page here. It ties into what Mr. Boyd and Mr. Kingston have 
been asking. I'll also have some additional questions on the 
record on the topic of dietary supplements. Of course, next 
month, a UN Commission, as has been stated earlier, on Narcotic 
Drugs will meet to decide whether consumers would be required 
to obtain a doctor's prescription before using either dietary 
supplements that contain the herb, and I know you've pronounced 
it a couple of times, Ephedra, is that how you say it?
    Dr. Henney. Ephedra.

                                ephedra

    Mr. Bonilla. Ephedra and/or the over-the-counter drugs 
containing ephedrine. My question is what science will you be 
using to make your recommendation to the Department ofHealth 
and Human Services? And will you take into consideration the impact on 
consumers? I don't just mean the potential there might be to their 
health situation, but the fact that this would cost a fortune to go get 
a prescription. We want to make sure it is not something that is 
imposed on someone out there who wants a dietary supplement, if they 
really don't need it?
    Dr. Henney. Mr. Bonilla, I'm going to ask Dr. Friedman to 
assist me with the answer to this question since he did attend 
the recent meeting on this issue. I think that there are two 
issues wrapped into the question that you're raising. There is 
the issue of the over-the-counter drug, if you will, of 
Ephedrine and then there is the dietary supplement that may 
contain Ephedra. And I think those are perhaps two separate and 
distinct issues that I would like to respond in writing to you, 
if I could. But perhaps Dr. Friedman could give you more of a 
sense in terms of the recommendation to the UN because he was 
at the meeting?
    Mr. Bonilla. I appreciate that, Dr. Henney. Before you 
answer that question in writing, I have a couple more. So I'll 
give them to you all at once in writing and then you can answer 
me back.
    Dr. Henney. Sure, great.
    Mr. Bonilla. Doctor, did you want to add something?
    Mr. Friedman. I really think that's the best way to do it. 
We're in the process of evaluating all the comments and there 
were quite considerable comments at the recent public meeting. 
We are under a time deadline because we want to make a timely 
decision here.
    Mr. Bonilla. Absolutely.
    Mr. Friedman. What I would add is just to reiterate what 
Dr. Henney said, let us provide that information to you in 
writing.
    Mr. Bonilla. Okay. And time is of the essence----
    Mr. Friedman. Yes.
    Mr. Bonilla [continuing]. To States around the corner. 
Chairman, thank you.

                         NCTR And ARKANSAS LAB

    Mr. Skeen. Mr. Dickey.
    Mr. Dickey. Dr. Henney, hi, how you doing?
    Dr. Henney. I'm fine.
    Mr. Dickey. I want to get along with you. I'm not trying to 
pick a fight like Mr. Kingston did. [Laughter.]
    Mr. Dickey. Because I just want to talk about some things 
in my----
    Mr. Kingston. Because he's really not on the committee. 
[Laughter.]
    Mr. Skeen. That's out of order. [Laughter.]
    Mr. Dickey. There's two things about my district, two 
things concerning my district that I want to talk to you about. 
And I want to say first of all that Dr. Friedman has gotten to 
know my constituents quite well in one instance or two, and I 
hope you get to know them too. They're wonderful folks.
    The National Center for Toxicological Research and the 
Arkansas Regional Lab, are you familiar with those two?
    Dr. Henney. Mr. Dickey, I have had the privilege of 
visiting the NCTR multiple times.
    Mr. Dickey. Maybe more than I have do you think?
    Dr. Henney. Perhaps.
    Mr. Dickey. That's my hometown and I'm glad to know that. 
The total cost of phase three in getting these labs 
consolidated is $13.34 million of which $3 million has been 
allocated leaving the remaining cost of $10.34 million. The 
budget, the Fiscal Year 2000 budget, only has $3 million for 
this completion. Can you explain to me why there is that 
deficiency?
    Dr. Henney. Mr. Dickey, we believe that this would get us a 
good strong start on the completion of phase three. We know 
that we will have to, in subsequent years, come back to this 
committee, but we believe this will get us started on this last 
phase of completing the regional lab.
    Mr. Dickey. Is it possible that the problem is that there's 
not a capability of completing it? That the FDA does not have 
the capability of completing it in one year or do you know?
    Dr. Henney. In terms of the capacity to complete?
    Mr. Dickey. Yes.
    Dr. Henney. I think it is mostly related to funding 
availability.
    Mr. Dickey. Well, how will the delaying--it seems like the 
delaying of this completion is going to cost more and present a 
greater problem with overcrowding that we have there. Can you 
explain that?
    Dr. Henney. Mr. Dickey, as I understand the phase three 
completion, it primarily has to do with the renovation of a 
building that is largely used for offices and administration 
and the like. And we believe that we could approach this in a 
step-wise fashion and still do justice to the project even if 
it takes us a bit longer.
    Mr. Dickey. Well, this is my information that it's going to 
be a joint-use facility that will provide space for information 
resources management systems support and other infrastructure 
needs commensurate with the addition of the laboratory and 100-
plus staff to the NCTR campus. Well, we don't have enough room 
right now for even one of these offices, and we're having some 
difficulty seeing what we're going to do in the interim. What 
are we going to do as we delay the completion, what is going to 
happen? We don't haveenough room or maybe Dr. Friedman knows? 
We don't have enough room for the 100-plus staff members as we exist 
now. Is that your information?
    Dr. Henney. Mr. Dickey, I believe that some of those 100 
staff, not all of them, but some of them, do not reside on the 
campus right now. And we would simply have to phase their 
arrival, if you will, to a time in which we had full completion 
of that building.
    Mr. Dickey. Okay, again, how do we benefit by delaying it, 
just the funding, is that all? And there's not an offset of 
liability? Now, I'm not picking on you. You understand?
    Dr. Henney. No, it is primarily tied to the funding issue.
    Mr. Dickey. All right. So if we could find the funds 
somehow, we could complete it? Is that what you're saying, in 
one year's time? All right.
    You have spoken about increasing the science base of FDA, 
how will NCTR fit into the role of the FDA's expanded science 
bases?
    Dr. Henney. Mr. Dickey, I think the NCTR is a crucial piece 
in terms of the science base of the agency. As you're familiar 
with the NCTR, it really started as a separate national lab and 
then became housed within the agency that we know of as the 
FDA. I think that we have been, and particularly Dr. Schwetz 
and the scientists at NCTR have been working quite diligently 
over the past years in terms of making sure that their research 
that's done at the NCTR site is very much tied to the mission 
efforts of the FDA. They work on projects that are related to 
agency activities in our other centers, like the Center for 
Devices, Drugs or Biologics.
    So we believe that the NCTR is a critical component of the 
agency and its work really undergirds and goes right to the 
heart of what we're talking about when we say we want to 
strengthen the science base of the agency.
    Mr. Dickey. Let me ask you this way, and I think I 
understand what you're saying. But Dr. Kessler wrote me a 
letter once about the consolidation about he wanted to bring as 
many labs as he could into the NCTR. And he thought that the 
efficient way and he wanted to do it as soon as possible. Has 
your position changed in any respect to that goal that he said 
the FDA should have?
    Dr. Henney. Mr. Dickey, it has absolutely not changed. I 
was actually at the FDA when we began the consolidation of the 
field labs to the NCTR. And I have been privileged to be asked 
back to the NCTR a time or two even when I was not with the 
Government as we looked at progress in that area.

                              BIOTERRORISM

    Mr. Dickey. Bioterrorism, we have an unusual opportunity in 
this area with the Pine Bluff Arsenal, the space we have, the 
campus-type environment to combine a whole lot of services 
relating to counter-terrorism or bio-terrorism or however you 
want to mention it from the biological standpoint. Can you tell 
me how you see the FDA fitting into this scenario and whether 
or not you could visualize the possibility of having a 
counterterrorism center at the NCTR?
    Dr. Henney. The entire administration is very much 
concerned about the issue of bioterrorism. There are major 
budgetary requests coming forward from the emergency fund 
specifically from the Department of Health and Human Services. 
The piece of that particular budget is about $13.4 million.
    The agency's effort in that regard is much directed at 
issues related to biologics, vaccine development, review of 
similar products. But we also see part of that effort going on 
at NCTR, in that about a million dollars of programmatic 
activities will take place at NCTR.
    In terms of the designation of the whole of the facility as 
a center, I think having NCTR may play a critical piece as you 
go forward with that kind of an initiative. It is particularly 
important since we will have activities down there that will be 
directly related to the initiatives on bioterrorism.
    Mr. Dickey. When do you think that decision will be made? 
What timeframe?
    Dr. Henney. I don't know when the center decision will be 
made. I will be glad to try to find out and supply you with 
that information.
    Mr. Dickey. I would like that, please, Ma'am.
    [The information follows:]

    An issue that, to the best of our knowledge, has not yet 
been decided is the possible designation of the Pine Bluff 
Arsenal, a Department of Defense facility, as a National 
Biological and Chemical Weapons Response Center--for the 
training of first responders and EMS personnel--in response to 
the national bioterrorism initiative. FDA has been included as 
a collaborator in the plan for the Response Center. We have no 
information concerning the date for a decision on that 
designation. The NCTR, however, through its FY 2000 budget 
request, is prepared to mount a complementary program that will 
enhance the FDA's analytical chemistry and microbiological 
expertise for work in identifying substances that may be 
potential agents of bioterrorism.

    Mr. Dickey. The thing that we envision is a virtual 
training ground where scientists provide the means to combat a 
biological or chemical attack, and the Pine Bluff Arsenal 
trains the personnel to respond. Are you familiar with the 
capabilities of the Pine Bluff Arsenal and its military status?
    Dr. Henney. Well, although I have had the good fortune, Mr. 
Dickey, of visiting both Pine Bluff and the NCTR, no, I have 
never gone into the arsenal itself.
    Mr. Dickey. Okay. Maybe we can do that sometime. And I 
would like for you to come by my office, like you did with Mr. 
Bonilla, if you could do it sometime.
    Dr. Henney. I would be delighted.
    Mr. Dickey. Would you do that? And maybe we could meet at 
the NCTR.
    Dr. Henney. Actually, Mr. Dickey, I was on my way to the 
NCTR last month, and I got in Cincinnati in an icestorm and I 
couldn't make it.
    Mr. Dickey. Oh, my.
    Thank you, Ma'am.
    Mr. Skeen. Don't badger the witness. [Laughter.]
    Mr. Dickey. Okay, right.
    Mr. Skeen. Mr. Boyd.
    Mr. Boyd. Thank you, Mr. Chairman.
    Dr. Henney, I have prepared a list of the questions that we 
talked about earlier so you can respond to all areas of 
concern. They will be submitted as a part of the record through 
the chairman.

                                tobacco

    Secondly, I wanted to follow up on the tobacco issue 
although I was not in the room when Congressman Bonilla asked 
questions on this issue.
    It is my understanding that the issue of whether FDA has 
jurisdiction over tobacco products is now before the Supreme 
Court. They must decide whether or not to hear your appeal of 
the fourth circuit's recent decision which states that FDA 
lacks jurisdiction over tobacco products. Is it correct for me 
to assume, then, and this committee to assume, that pending 
this decision by the Supreme Court, the FDA will continue to 
enforce the minimum age and age I.D. regulations, but that all 
other FDA activities with respect to tobacco are on hold?
    Dr. Henney. Yes, Mr. Boyd. The access provisions remain in 
effect while we are awaiting the decision of the Court. The 
access provisions that you cite will remain in effect.
    Mr. Boyd. Thank you.
    Mr. Skeen. Ms. Kaptur.

                             imported drugs

    Ms. Kaptur. Thank you, Mr. Chairman.
    I had mentioned in the earlier questioning, Commissioner, 
that the first set of questions would deal with food; now we 
come to drugs. I wanted to ask you, our country, in addition to 
importing a great deal of food from abroad, also imports a 
large amount of bulk pharmaceutical product into our country, 
chemicals as well as finished drug products. Last year the GAO 
also commented, raising some concerns about FDA's foreign 
inspection program. Among other things, they reported there 
were delays in taking enforcement actions against foreign 
manufacturers; that where problems were found, that FDA often 
failed to conduct reinspections to verify that products had 
been corrected, and that routine surveillance inspections of 
foreign manufacturers were infrequent.
    Let me ask you if you are satisfied with FDA's efforts to 
ensure the safety and purity of imported drugs.
    Dr. Henney. Ms. Kaptur, I think in almost any area there is 
always room for improvement. I think that we have been working 
on this issue in a variety of ways. One is the possibility, 
through mutual recognition agreements with another country or 
countries, that their inspection system is equivalent, if you 
will, to ours, and we have entered such mutual recognition 
agreements with membership of the EC. Now that is in both the 
device and drug arena. I think that this effort has just 
started this past fall. We need a time period in which we get 
quite comfortable that there is an equivalent inspection 
standard, in order to assure ourselves that such agreements are 
a right approach. That is one approach that we are at least 
testing in this area.
    We don't have the resources that would be required to do 
the kind of onsite inspection of every manufacturer of either 
bulk product or finished product. So we have to look to some of 
these reasoned alternatives.
    Where we have cause for concern or where we have had 
problems in the past, we do try to direct our resources into 
those areas.
    Ms. Kaptur. Could I ask you, do you have any idea what 
percent, however you measure it, in terms of volume or dollars, 
what percent of pharmaceuticals that are consumed by the 
American public are actually coming from offshore?
    Dr. Henney. I think we will have to provide that for the 
record. I would not want to speculate.
    Ms. Kaptur. Do you think it is over 10 percent?
    Dr. Henney. I really would like to provide that for the 
record, because I don't know the answer, and I wouldn't want to 
speculate.
    [The information follows:]

    According to the US Department of Commerce Bureau of the 
Census Economics Statistics Administration, approximately 5.8% 
of US consumption of finished chemical pharmaceuticals was of 
imported origin in 1996, the last year for which official 
statistics are published. Imports of finished chemical 
pharmaceuticals have been increasing rapidly, from $1.8 billion 
in 1992, to $3.7 billion in 1996, to $7.5 billion in 1998. 
Official data are not available to estimate the current percent 
of US consumption of pharmaceuticals supplied by imports. 
However, since the imports of pharmaceuticals are increasing so 
rapidly, it is likely that imports are currently supplying more 
than 5.8% of finished pharmaceuticals consumed in the US. Trade 
data are derived from Customs entries and reflect only the 
value of those bulk chemicals declared for medicinal and 
botanical use. They do not reflect the value of other 
industrial chemicals that may be used in the pharmaceutical 
manufacturing process.

    Ms. Kaptur. It is interesting that you don't know the 
answer. That in itself is----
    Dr. Henney. Well, in three months I haven't learned 
everything.
    Ms. Kaptur. Would any members of your staff that you 
brought with you have more knowledge of that?
    Let me ask this then: If you, from just your experience, 
anecdotal experience, were to pick a region of the world from 
which you think a great deal of imported pharmaceutical product 
comes to our shores, where would that be?
    Dr. Henney. Well, both bulk drug and finished drug comes to 
this country from literally all over the world. Probably the 
greatest source of supply is from the European Community. We 
certainly have supplies from Japan, China, and India. I do not 
believe much comes up from Latin or South America.
    Ms. Kaptur. What about the Caribbean?
    Dr. Henney. I don't know.
    [The information follows:]

[The official Commmittee record contains additional material here.]



                                tobacco

    Ms. Kaptur. All right, we will be very interested on those 
replies to the record.
    I know time is running out, but let me just ask you: Do you 
believe that tobacco is a drug? As a physician, I am asking 
you.
    Dr. Henney. Ms. Kaptur, I believe that the FDA has been 
regulating a critical component of tobacco as a drug for some 
time, that being nicotine. However, I think that the documents 
that laid out the agency and administration position with 
respect to tobacco spoke to the issue of both tobacco as it 
might be interpreted as a drug or the cigarette as it might be 
related to being a drug-delivery device. So I think if you 
wanted a full and complete view on the position of tobacco, I 
would direct you to those documents. But in terms of a critical 
component of tobacco being nicotine, the agency has been 
regulating that for some years, nicotine patches, and so forth.
    Ms. Kaptur. Mr. Chairman, I know that you want to gavel 
close here, but I will say, for the record, I am going to 
submit questions relating to drugs that have been removed from 
the market after FDA approval, more clarification on that, and 
the extent of that; to what extent it has been going up as a 
percentage of approvals versus going down, those numbers of 
people affected.
    Also, you have made several references in your testimony to 
the science-based nature of what you would hope to bring to 
bear at FDA. I would like some additional clarification on what 
that means exactly.
    Dr. Henney. Okay.
    [The information follows:]

    FDA is a science-based regulatory agency. All of our 
decisions, which literally affect people's lives and 
livelihoods, must be supported by strong scientific principles. 
Our ability to make and support those decisions is our science 
base.
    The agency conducted an analysis to determine what needs to 
be done to meet our statutory requirements. The analysis 
identified three broad programmatic areas that require 
improvement: injury reporting, product safety assurance, and 
premarket application review. Within these programmatic areas, 
we identified five categories which, when viewed as a whole, 
comprise our science base: hiring capable personnel to support 
regulatory science decisions; strengthening the agency's 
participation in domestic or international standard-setting 
activities and preparing regulatory guidance; strengthening 
professional development and outreach; improving the agency's 
data collection, development, and analysis activities; and 
upgrading the agency's infrastructure, which includes 
facilities, laboratory equipment, and information technology 
systems.
    Science-based decisions are made throughout the lifespan of 
products from initial research, development and testing, 
through production, marketing and consumption. Investments made 
in both basic and applied research by NIH and the 
pharmaceutical, biotech and medical device industries, both 
foreign and domestic, will result in an overall increase in 
availability of products as well as an increase in new 
innovative products. FDA reviews these products before they 
come to the U.S. marketplace and inspects new production 
technologies when they are marketed. It is crucial that FDA's 
product review teams have a thorough understanding of new 
scientific technologies, and the ability to apply proven 
scientific principles, and often, cutting-edge scientific 
discoveries, to product reviews. Further, the agency's 
investigators and inspectors, who evaluate the manufacturing of 
products, conduct epidemiological investigations in response to 
outbreaks, and determine the veracity of marketing applications 
through the review of source documents, must have state-of-the-
art scientific expertise in a wide variety of areas--from 
quality assurance principles to software engineering--to 
effectively perform their jobs.
    Under the FDA Modernization Act, the agency is emphasizing 
expansion in science capability through access to, and 
collaboration with, sources of scientific expertise beyond the 
agency. Fostering the exchange of scientific expertise, as well 
as encouraging collaborative scientific initiatives, will 
maximize FDA's scientific capabilities thereby enabling the 
Agency to meet its statutory obligations and help improve the 
nation's public health.
    The FY 2000 budget request is intended to allow us to begin 
to strengthen each category of our science base. Our focus will 
be directed to ensuring that our scientific expertise matches 
the complexity of the stream of new products moving into the 
market and the new technologies used to produce those products.

    Ms. Kaptur. Thank you, and thank you for your statement.
    Mr. Skeen. Thank you. Mr. Kingston.

                      drug pricing and mammography

    Mr. Kingston. Dr. Henney, two quickies for the road: On 
drugs overseas, I hear from constituents that American 
manufactured drugs that cost one price here cost a lot less 
overseas, the exact same drug. I don't know if that is fact or 
fiction, but I would like you to follow up with that and let me 
know if that is true or not, and the reason why, which I 
understand probably has to do with the laws, maybe liability in 
those countries.
    [The information follows:]

    Section 704(a) of the Federal Food, Drug and Cosmetic Act--
which is Title 21 U.S.C. 374(a)--does not extend FDA's 
inspection authority to financial data, sales other than 
shipment data, or pricing data. Therefore, FDA does not collect 
information regarding comparative drug prices. The agency is 
aware that the General Accounting Office published a study in 
1994 comparing drug prices between the United States and United 
Kingdom which is titled, ``Prescription Drugs: Companies 
Typically Charge More in the United States Than in the United 
Kingdom, GAO/HEWS-94-29.'' The Principal Findings section of 
this report summarizes GAO's findings regarding the magnitude 
of US-UK price differentials and the reasons contributing to 
the differential.


[The official Commmittee record contains additional material here.]


    The second question is on mammograms; you do have some 
regulatory authority on that. If a poor innercity indigent 
healthcare clinic has problems with compliance, can you help us 
with grant programs to get new mammograms for them or new 
machinery for mammograms? Can you point us in the right 
direction for that?
    Mr. Skeen. Could we ask this----
    Mr. Kingston. For the record.
    Mr. Skeen. Answer it for the record, Doctor.
    [The information follows:]

    There is no provision in the Mammography Quality Standards 
Act, known as MQSA--or the Mammography Quality Standards 
Reauthorization Act--that would authorize FDA to provide 
assistance to the types of facilities described. There is a 
section of the MQSA--entitled Breast Cancer Screening 
Surveillance Grants--that relates to grants envisioned for 
establishing systems to study the utilization and effectiveness 
of mammography, not to providing assistance to individual 
facilities.

    Mr. Skeen. Thank you so much for your patience----
    Dr. Henney. Certainly.
    Mr. Skeen [continuing]. And your endurance and your good 
sense of humor. Thank you so much.
    Dr. Henney. You are welcome. Thank you.
    Mr. Skeen. We are adjourned.
    [The following questions were submitted to be answered for 
the record:]

[The official Commmittee record contains additional material here.]




                                           Thursday, March 4, 1999.

                  COMMODITY FUTURES TRADING COMMISSION

                                WITNESS

BROOKSLEY BORN, CHAIRPERSON

                           Opening Statement

    Mr. Skeen [presiding]. Today, we take up the Fiscal Year 
2000 budget request for the Commodities Futures Trading 
Commission. Representing the CFTC today is the Chairperson, the 
Honorable Brooksley Born. Ms. Born has announced her intention 
to leave her post at the end of the term, and we are sorry 
about that, but we wish her well. It has been a joy working 
with you.
    Ms. Born, two years ago, when you testified, I said that if 
we want to persuade farmers and ranchers to use the markets, 
they have to have confidence that there is a fair and capable 
regulator watching what has become an extremely complex 
situation. And the committee appreciates the good work that you 
have done at CFTC, and I want to thank you for your government 
service there, and wish you the best. And I hope that 
testifying here will be among the pleasant memories that you 
have of your time as a chairperson. We have tried to make it as 
pleasant as possible. I think we have done a good job.
    And before we begin with the witness statement, I would 
like to ask Ms. Kaptur if she has any opening remarks.
    Ms. Kaptur. No, Mr. Chairman, but I did want to welcome 
Chairwoman Born to the committee and to say what a wonderful, 
wonderful job I personally think she has done in her role at 
the Commission. I know she has announced that she will be 
leaving that position during this year. And I just wanted to 
say we will miss her very much, and I believe this will be the 
last time that she appears before our subcommittee, which is 
our loss and the country's loss. So I just wanted to wish her 
very well in her future endeavors and to thank you for your 
service to the country.
    Mr. Skeen. Thank you.
    Ms. Born. Well, thank you both very much.
    Mr. Skeen. Ms. Born, do you have an opening statement? 
We'll, take it at this time.
    Ms. Born. I do have a brief one, Mr. Chairman.
    Mr. Skeen. I was getting so enthused about this thing.
    Ms. Born. Time to ask questions.
    Mr. Skeen. Well, we want you to have the last shot.
    Ms. Born. Thank you very much. And let me just say what a 
great pleasure it has been to work with you and the other 
members of the subcommittee. I have found it one of the most 
pleasant duties of my office.
    Mr. Skeen. Well, thank you.
    Ms. Born. Thank you very much also for the opportunity to 
discuss the President's Fiscal Year 2000 budget request for the 
Commodity Futures Trading Commission. I would like to request 
that my written testimony be included in the record of the 
hearing.
    Mr. Skeen. So be it.

                       introduction of witnesses

    Ms. Born. With me today is Madge Bollinger, who is the 
director of the Commission's Office of Financial Management.
    Mr. Skeen. We welcome you.

                             budget request

    Ms. Born. The Commodity Futures Trading Commission is 
asmall agency with an important mission: it oversees the nation's 
futures and option exchanges and the over-the-counter derivatives 
market. It also supervises 62,000 commodity professionals who trade on 
the floor of the nation's nine futures and option exchanges, or 
represent customers in those markets.
    These markets have experienced explosive growth in the last 
decade. Trading volume has increased about 114 percent over the 
last 10 years.
    The President's Fiscal Year 2000 budget request for the 
Commission is $67.7 million, with a staffing level of 621. This 
request represents an increase of $6.7 million, or 11 percent, 
over Fiscal Year 1999. It calls for an additional 41 full-time 
equivalent, or FTE, staff years over Fiscal Year 1999, or a 
seven percent increase in staff.
    Approximately $4.7 million of the increase is required for 
the Commission to sustain its current level of services. The 
remaining $2 million would support the requested 41 additional 
staff years. The staff increase would return the Commission's 
staff to approximately the authorized staff levels for Fiscal 
Year 1992.
    The Commission is responsible for ensuring the integrity of 
the nation's futures and option markets, for protecting 
customers from fraud and trading abuses, for monitoring the 
markets to detect and prevent price distortions and 
manipulation, and for encouraging the competitiveness and 
efficiency of the nation's future exchanges.
    Through effective oversight regulation, the Commission 
enables the commodity futures markets better to serve their 
vital price discovery and hedging functions. The requested 
increase will be used to enhance the Commission's enforcement, 
surveillance, and oversight presence in the rapidly changing 
and growing derivatives market.
    A significant portion of the requested increase would be 
dedicated to the Division of Enforcement, which will receive an 
additional 16 FTE staff years. These 16 staff years would 
enable the Commission, through the Division, to meet our 
increasing enforcement demands.
    The additional resources would also enhance the Division's 
flexible organizational structure, which enables the 
enforcement program to devote necessary staff to special 
matters, such as quick strike cases and large complex cases 
involving fraud and manipulation without distracting the 
Commission's strong enforcement presence throughout the 
industry.
    The Division of Trading and Markets would receive 13 FTE 
staff years under the Fiscal Year 2000 budget request. That 
Division has taken the lead in developing many of the 
Commission's regulatory reform initiatives, discussed in detail 
in my written testimony.
    Additional resources are needed by that Division to develop 
innovative regulatory approaches to address new product 
developments, market linkages, and trading mechanisms, and to 
assure that clearing organizations, firms holding customer 
funds, and other commodity professionals operate safely and 
consistently with the public interest.
    The resources would also enhance Commission oversight of 
contract market standards and practices. The budget request 
also would add seven FTE staff years to further the 
Commission's market surveillance efforts. These FTE staff years 
are necessary to conduct the surveillance that detects 
manipulation and other price distortions on the expanding 
number of diverse and innovative futures and option markets 
being developed by our exchanges.
    The Fiscal Year 2000 budget would also add three FTE staff 
years to the Office of General Counsel, and two FTEs to the 
Commission's executive direction and support. These increases, 
combined with those previously mentioned, will strengthen the 
Commission and increase its ability to oversee the growing and 
vital futures and option markets that are a critical part of 
our nation's economy.
    The Commission continued its commitment to maintaining 
strong futures and option markets by moving forward with a 
concerted effort in Fiscal Year 1998 to modernize and 
streamline its regulatory framework. The growth and change in 
our markets, as well as revolutionary technological 
developments, have necessitated a comprehensive review and 
substantial revision of the Commission's regulations.
    The Commission is working to eliminate undue regulatory 
burdens, while, at the same time, to provide an effective level 
of regulation and public protection. Toward that end, the 
Commission has proposed or adopted a number of regulatory 
reform initiatives in the last year relating to exchange 
markets and commodity professionals, many of which are 
described in my written testimony.
    I would like to thank you again, Mr. Chairman, and I would 
be happy to respond any questions you or the other members of 
the subcommittee may have.
    [The prepared statement and biography of Brooksley Born 
follow:]

[The official Commmittee record contains additional material here.]



                              enforcement

    Mr. Skeen. Thank you once again, Ms. Born. I notice that 
you are requesting a $6.7 million increase for Fiscal Year 
2000, and, according to your testimony, the main increase is 
for enforcement. I know that has been a very important building 
situation of the work that you have done with enforcement.
    Is there any particular part of the commodities industry or 
system for which the additional enforcement would be targeted?
    Ms. Born. Well, there has been growing fraud on the part of 
unregistered people who are targeting elements in the society, 
such as retired persons or recent immigrants with futures and 
option fraud schemes, including Ponzi schemes.
    Mr. Skeen. Including, excuse me?
    Ms. Born. Ponzi schemes. Schemes where----
    Mr. Skeen. Oh, I understand.
    Ms. Born. Where the purported futures broker--these people 
are not registered with us, as they should be--accepts money 
from some investors and induces other investors to invest using 
those funds, and, in effect, steals much of the money 
contributed to them. So there have been some broad-based fraud, 
particularly in a number of areas with retirees, like Florida 
and southern California.
    Also during the past year we settled the largest 
manipulation of our markets that we have ever had, stemming 
fromSumitomo Corporation's manipulation of world copper 
markets, which was made known to the public in 1996. This was our 
enforcement division's most complex case, which the Commission settled 
last May with the imposition of the largest civil monetary penalty that 
any U.S. Government agency has ever imposed. We imposed a $125 million 
civil monetary penalty on Sumitomo Corporation and, in addition, 
required them to pay $25 million to private litigants who had been hurt 
by their artificial manipulation of the copper futures markets.
    Mr. Skeen. Did the fine actually occur? Or did they pay 
off?
    Ms. Born. Yes, they pay promptly and immediately. The $125 
million went last May or June to the Treasury, and the other 
$25 million is awaiting disbursement to private litigants upon 
the approval by the courts of settlements that Sumitomo has 
entered into with them.
    Mr. Skeen. Well, I express my gratification. You got the 
job done right. To hear that they paid off is even better.
    Ms. Born. Yes.
    Mr. Skeen. When it is usually the reverse.
    Ms. Born. Well, many of our fines do not get paid 
unfortunately because the people who are fined are insolvent, 
but that was not true of Sumitomo.

                           ban on commodities

    Mr. Skeen. That sounds like a rancher. Last year, you 
removed the ban on trade options on certain agriculture 
commodities. What has been the result of the lifting of the ban 
so far and how do you think this change is going to affect 
commodity trading for the next couple of years?
    Ms. Born. Well, we have had a lot of discussions with 
agricultural organizations who are very interested in the 
program; however, nobody has signed up for the program yet--it 
went into effect last June--because the very low prices of 
commodity, the main agricultural commodities has discouraged 
producers from seeking to lock in those prices. These options 
are a way for producers to lock in the current price for a 
future sale of their products. But when the current prices are 
at or near historic lows, there is no incentive for a producer 
to enter into that kind of activity.

                         price fixing--hedging

    Mr. Skeen. Is that known as hedging?
    Ms. Born. It is not exact----
    Mr. Skeen. All right.
    Ms. Born. It is a kind of hedging. It is----
    Mr. Skeen. Well, I have been trying to learn how to do a 
hedge for all these years, and I thought maybe----
    Ms. Born. This is a type of hedge which allows a producer 
before his or her crop is ready to go to market to enter into 
an option agreement with, for example, the grain elevator.
    Mr. Skeen. I see.
    Ms. Born. That fixes a price at which the producer has the 
right to sell to the grain elevator several months later, but 
has no obligation to see if he or she can get a better price 
from somebody else. And for that privilege, the producer pays 
the grain elevator a fee, called a premium, for the option. 
However, it is a device that is most useful when producers feel 
that the price they can get in a bargain with the grain 
elevator today is going to be an advantageous price come 
harvest time. And today's prices are not very advantageous.
    Mr. Skeen. Not conducive to that?
    Ms. Born. Yes.
    Mr. Skeen. We are not making all those deliveries into 
Ohio? We had a little conflict, a little combat over that at 
one time.
    Ms. Born. That was an issue certainly.
    Mr. Skeen. Yes.
    Ms. Born. But what the Commission is doing in the meantime 
is to try to educate producers about the use of this kind of 
instrument for hedging purposes and for price protection 
purposes. We published three brochures. One aimed at producers. 
One aimed at grain elevators or other people that might sell 
these options. And a third aimed I think at financial 
institutions that might be involved. And we are also talking 
with producer groups and grain elevator groups about whether 
there are ways that we can streamline and improve the pilot 
program, something we had promised to do when this was first 
promulgated.

                      electronic foreign exchanges

    Mr. Skeen. Your testimony mentions the possibility of 
foreign boards of trade placing computer terminals in the 
United States and without being subject to designation as a 
U.S. contract market. Could you outline the issues here in that 
regard or the pros and cons of permitting this to happen?
    Ms. Born. Well, exchanges are becoming electronic all 
around the world and we are seeing that development here. The 
Commission approved the first fully electronic exchange in the 
U.S. the last year. There is more of an emphasis on screen-
based trading. Foreign exchanges would like to be able to place 
screens in the United States for trading on their exchanges and 
our exchanges would like to place computer screens in the 
foreign countries, so that foreign market participants can 
trade on our markets.
    As I am sure you know, the Chicago Board of Trade, the 
Chicago Mercantile Exchange, and the New York Mercantile 
Exchange each have an aspect of trading that is purely 
electronic that we have approved. In order for our exchanges to 
have access and for us to be able to argue with foreign 
countries that they should provide access to our exchanges for 
these trading screens, the conventional wisdom is that we 
should be opening our markets to the screens of the foreign 
exchanges.
    Our exchanges would like us to do that, have urged us to do 
that. And we are in the midst of a rulemaking process that is 
intended to permit this. We put out a concept release on the 
issue last summer, and got broad-based comments from both our 
domestic exchanges and foreign exchanges about what the terms 
are that we should allow these screens in the United States. We 
are about to come out with a proposed rule, I hope, over the 
next two weeks for additional comment that will deal with the 
terms under which we would permit screens from foreign 
exchanges to be placed in the United States. It would require 
Commission approval ahead of time, based on an assessment that 
the foreign exchange was subject to a regulatory scheme in its 
home country that was generally comparable to our kind of 
regulatory regime, so that U.S. customers trading on that 
exchange would be protected in somewhat similar way from fraud 
and other abuses.
    Mr. Skeen. What is your determination about whether we are 
going to get this done or not?
    Ms. Born. I think so. We have been doing something similar 
in terms of authorizing foreign futures brokers to deal with 
U.S. customers. We have been making comparability comparisons 
between our regulatory regime and the regulatory regime under 
which those foreign brokers operate for about 10 years. We 
started that in the late 1980s. And I think this will be a 
somewhat similar operation for the Commission.

                            transaction fees

    Mr. Skeen. It sounds good anyway. And finally, Ms. Born, 
CFTC is a small, but important agency. It has to compete with 
other important programs for funds in the annual appropriations 
process, to go through like what we are doing today. Once 
again, this year, the Administration is proposing hundreds of 
millions of dollars in user fees to fund the budget. What are 
your thoughts on transaction fees or some other type of fee 
that would help CFTC with its budget?
    Ms. Born. Well, the CFTC's position has been for many years 
that the source of our funding is a question that is best left 
to the President and the Congress.
    Mr. Skeen. That is a deep bundle. [Laughter.]
    Ms. Born. We have traditionally, of course, gotten our 
appropriations from the general revenues. There has not been a 
user or transaction fee for futures exchanges, and the futures 
exchanges have traditionally been quite opposed to that. Some 
foreign countries fund part or all their regulatory regimes 
through transaction fees. But, in this country already, a lot 
of self-regulation on the part of the exchanges and the part of 
the National Futures Association is being paid through 
transaction fees.
    As you may know, the NFA, the National Futures Association, 
is a body, a self-regulatory private body, that like the NASD 
in the securities area, where we have statutory authority to 
delegate some of our responsibilities to them. We have 
delegated a lot of the very time intensive, labor intensive 
responsibilities we have, such as registration of the 62,000 
commodity professionals and their auditing, to the NFA. NFA 
does that, supported by fees that are essentially transaction 
fees.
    Mr. Skeen. Well, I thank you for your testimony, and I am 
going to turn this over to Ms. Kaptur.
    Ms. Born. Very well, Mr. Chairman.

                          futures market abuse

    Ms. Kaptur. Thank you, Mr. Chairman.
    Mr. Skeen. Thank you.
    Ms. Kaptur. Chairwoman Born, you have served in your 
capacity now as chair for how many years?
    Ms. Born. It is a little over two and a half years.
    Ms. Kaptur. Two and a half years. Had you served on the 
Commission itself prior to that?
    Ms. Born. No, I had always been in private practice of the 
law.
    Ms. Kaptur. Private practice. In that two and a half year 
period of time, you have discussed the civil or monetary 
penalty against Sumitomo today. How would you characterize the 
most serious abuses of the futures market that you have 
witnessed, and then as you look toward the future, where would 
you guide us as a subcommittee? Where should we particularly 
look?
    Ms. Born. Well, certainly the worst manipulation that has 
occurred during my term on the Commission is the Sumitomo 
Corporation manipulation of the copper markets. That was a very 
serious manipulation, a long-term manipulation, and it has some 
real warning signals inherent in it. The manipulation was 
effected through transactions on the London Metal Exchange and 
the over-the-counter markets. And the London Metal Exchange, of 
course, is a foreign exchange that did not have as much 
transparency or availability of information as our exchanges 
do. The over-the-counter market had no transparency at all. 
That information about the over-the-counter transactions was 
essentially secret. And yet, our cash market in copper, our 
futures market in copper on the COMEX, which is part of NYMEX, 
were both manipulated by these activities.
    I think that shows the global nature of the derivatives 
markets and the way that our domestic economy can be impacted 
by activities anywhere around the world. I think what this 
indicates is, first of all, how important international 
cooperation among regulators is. We got very good cooperation 
with the UK regulators and the Japanese authorities. They 
provided us with information as we provided them with 
information. We cooperated closely in the investigation, and 
because of that cooperation, we were able to make a very good 
case against Sumitomo that resulted in this very successful 
settlement that we entered into.
    I think that in the fraud area there is a lot of fraud in 
off-exchange instruments--confidence artists who might have 
been using other kinds of instruments to defraud retirees, 
recent immigrants, other vulnerable populations have focused on 
foreign currency options and futures, heating oil options and 
futures to systematically defraud and really steal the money of 
recipients. These transactions often never see the floor of an 
exchange. The money just goes right into the confidence 
artist's pocket and is sent abroad. In those cases, which we 
have brought a great many of, international cooperation is also 
terribly significant, among other things, to trace the assets 
of the defrauded customers.

                             sumitomo case

    Ms. Kaptur. Could I ask you the--in the Sumitomo case, in a 
nutshell--I know you talked about London and not having a 
transparency, what did Sumitomo attempt to do and how did they 
attempt to do that?
    Ms. Born. They essentially tried to squeeze the market in 
copper by acquiring very large positions in the cash market in 
copper and also very large positions in the futures market on 
the London Metal Exchange. The result of the whole episode 
includes some very beneficial developments in addition to the 
very good international cooperation that occurred.
    We and the UK and Japanese authorities called together all 
the commodity regulators of the world--the 17 or 18 primary 
countries that have commodity markets--and undertook a one-year 
effort to decide what the standards for overseeing these 
markets should be; what the standards for contract design of 
contracts for physical delivery, like the copper contract, 
should be; and how market oversight and approval of the 
contract terms can be used to prevent manipulation.
    We came up with some best practice standards for regulation 
that all the countries bought into and agreed to and agreed 
that they, to the extent they did not already have those rules 
in place, which we did, the other countries agreed that they 
would work to get them in place.
    I think that is the beginning of what can be a very 
effective development of high-quality regulation abroad 
andharmonization of other countries' approaches to derivative markets 
with our own approach.

                       trading on futures markets

    Ms. Kaptur. Thank you. There is a past--I am always 
interested in the trading portion of all the trades on the 
futures markets. Last year, did it go over 10 percent or are we 
still under 10 percent?
    Ms. Born. It was between 13 and 14 percent.
    Ms. Kaptur. Thirteen and fourteen.
    Ms. Born. It depends. I think it was about 13 percent of 
the futures trading and about 14 percent of the options 
trading.

                           agriculture trends

    Ms. Kaptur. In looking at what is happening to the trades 
on the futures market, what does it tell you about trends in 
agriculture? Can you detect anything from the nature of the 
trade?
    Ms. Born. Well, because there have been very low prices 
over the past year for many of the agricultural commodities, 
volume has tended to be relatively low in those markets. We 
find that, although volatility in prices tends to increase 
trading because it increases the need for price protection, 
when prices are going down, there is less of an incentive to 
trade on the futures markets and those particular contracts 
have been in rather low volume.
    On the other hand, the high volatility in the financial 
areas--stock index, futures, interest rate futures, foreign 
currency futures--the high volatility there has led to 
historically high volumes in trading. In fact, the futures 
exchanges overall had an increase of about 14 percent of 
trading in 1998 over 1997.

                              hog futures

    Ms. Kaptur. What is happening to hog futures pricing?
    Ms. Born. Well, they are a little bit above the lows they 
were at in December, but they are still not very high. They had 
gotten to historic lows in the early winter, mainly due to a 
great oversupply of production. Feed was very cheap because the 
grains prices were very low. It seemed like a good idea to 
raise a lot of hogs, and the export market, because of the 
Asian economic problems, was down significantly. So that with 
increased supplies and lower demand, the prices went very, very 
low.

                      over-the-counter derivatives

    Ms. Kaptur. I have one other question, then I will wait for 
a second round. The omnibus bill that we passed last year 
included a six-month moratorium in regard to actions of your 
Commission on the regulation of over-the-counter derivatives. I 
got involved in that one. And do you continue to believe that 
the Commission should have jurisdiction over those financial 
instruments?
    Ms. Born. I think the Commission does have jurisdiction 
over a number of over-the-counter derivatives. The statute 
gives us jurisdiction over all options except securities 
options and over any futures contract. I think many of the 
instruments that are being traded over-the-counter are options, 
and, in fact, a lot of them are called swaptions because they 
are swaps that are, in fact, options. And many of them have all 
the characteristics of a futures contract.

                      long term capital management

    Ms. Kaptur. What have we learned from Long Term Capital 
Management, which did not manage its capital for the long term 
obviously.
    Ms. Born. Well, we learned a lot of things. It in some 
ways, demonstrated some of the grounds for the Commission's 
concern about the OTC derivatives market. Long-Term Capital 
Management had managed to get into positions in derivatives, 
where $1.25 trillion in notional value, at a time when its 
capital, through the losses, was reduced to less than a billion 
dollars. So this was a tremendously large position that they 
had on the domestic futures markets, on the foreign futures 
exchanges and also in the OTC derivatives market. Most of this 
$1.25 trillion worth of derivatives were over-the-counter 
derivatives. The over the counter derivatives did not get 
reported to any Federal agency, because there is no reporting 
requirement for OTC derivatives.
    The Commission and the domestic exchanges, got daily 
reports of LTCM's futures positions that were large trader 
positions on our markets, on our exchange markets. But the 
information about their OTC derivatives positions was 
completely opaque.
    So I think one thing that this demonstrated for me was the 
tremendous need for more transparency in the over-the-counter 
markets. Those who had invested into this hedge fund did not 
know the positions of LTCM or what their risk exposure was, or 
how much had been borrowed. LTCM's creditors did not know that. 
Their swaps counter parties, who essentially were entering into 
credit arrangements by entering into a swaps agreement, did not 
know what the exposures were. And, in fact, the creditors and 
swaps counter parties, who were the largest commercial and 
investment banks in the United States and some of the large 
European commercial banks had no idea how much lending had 
happened in that case. They had no idea what the exposures were 
that LTCM was facing.
    This tremendous borrowing that was not known to anybody is 
very dangerous. And we do not know, no regulator knows, how 
broad-based that is in the over-the-counter derivatives 
markets, since we do not get reports.

            moratorium on over-the-counter derivatives rules

    Ms. Kaptur. Well, this goes back to my question. This was 
all going on, and then there was a proposal to suspend--to put 
a moratorium in the appropriations, in the omnibus bill, on any 
type of action by your Commission to regulate these over-the-
counter derivatives.
    Now, I really do not understand why that was done when it 
was done in view of what was happening. You stated that you 
have certain regulatory authority, but you still do not have 
regulatory over this, do you?
    Ms. Born. Well, not until March 30. I mean, under the law 
that suspended our ability to take any action, we cannot take 
action until March 30.
    Ms. Kaptur. In whose interest is that, in having you not at 
the table? Would you help enlighten me on this?
    Ms. Born. Well, let me say that we have been lucky so far 
because the markets have become less volatile, and we have not 
had another crisis like LTCM during the period of this hiatus 
in our authority. We have been able to be at the table because 
the bill that was passed allowed us to continue on with our 
study. It allowed us to participate in the President's Working 
Group on Financial Markets, which we are a member of, along 
with Treasury, the Federal Reserve Board, and the SEC. And they 
are doing, with our help, an in-depth study of hedge funds on 
the one hand, and the OTC derivatives market and its regulatory 
needs on the other hand.
    So we have participated in that.
    Ms. Kaptur. So the Administration did not propose the six-
month moratorium?
    Ms. Born. They had, but they did not extend it to our 
ability to study the issues, and we are participating with the 
Administration in the study.
    We are also involved internationally with a group called 
IOSCO, the International Organization of Securities 
Commissions, which, in December, at our recommendation, this is 
the world's securities commissioners essentially, decided to 
set up a task force on hedge funds and what the international 
regulatory standards for hedge funds should be. And we are 
working on that as well.
    Ms. Kaptur. I realize my time has expired, Mr. Chairman, 
but I am--does it not seem curious--for me as an outside person 
looking in--does it not seem odd that there would be 
legislation proposed to put a moratorium on regulation on over 
the counter derivatives at a time when we are experiencing one 
of the worst abuses in the history of the country. Do not those 
two things seem somewhat incongruous to you? Am I wrong? Am I 
not understanding what you are saying to me?
    Ms. Born. It seemed very incongruous to me.
    Ms. Kaptur. And do I gather that the--I do not know where 
that proposal came from. I mean if somebody in the audience 
knows, please----
    Ms. Born. Well, the Administration had proposed a stand-
still that would freeze our ability to take any actions. That 
came from the Treasury Department.
    Ms. Kaptur. Having served on the Banking Committee for a 
number of years before coming on this Committee, would any of 
the large New York-centered banks have been interested in that 
particular provision being inserted in the omnibus bill?
    Ms. Born. Yes, the largest OTC derivatives dealers in the 
world are our big commercial banks and the big investment banks 
that are affiliated with brokerage firms, like Goldman Sachs, 
Merrill Lynch, Lehman Brothers; on the banking side, J.P. 
Morgan, Bankers Trust, Bank of America, Chase, CitiGroup--those 
are the biggest OTC derivatives dealers in the world. They buy 
and sell these, and have entered into very extensive, very 
profitable businesses of buying and selling swaps, as dealers.

                           long term capital

    Ms. Kaptur. And I just want to say for the record, Mr. 
Chairman, you might remember and members of the Committee after 
this happened with Long Term Capital, there was a meeting held, 
I believe it was in New York, and the various financial 
institutions that had essentially lent the money to Long Term 
Capital then had to help to design a solution to bailing out 
this particular situation. There was a lot of press back then 
where they were others that were doomed to fail at the same 
time. And was Federal Reserve--did the Federal Reserve call 
that meeting?
    Ms. Born. The Federal Reserve Bank of New York had called 
together the 14 largest creditors and swaps counter parties, 
who were these big OTC derivatives dealers, who were owed the 
most money by LTCM--they called together the 14 largest 
institutions and urged them to work out a settlement. And what 
was worked out was that those 14 institutions would inject $3.6 
billion into the Long-Term Capital Management commodity pool in 
exchange for a 90 percent ownership of that pool. And that 
prevented Long Term Capital Management from defaulting on its 
margin calls on the futures exchanges and margin calls on the 
over the counter derivatives market, and other kind of loan 
obligations it had.
    Ms. Kaptur. Well, I thank you, madam chairman, and I just 
want to say it is very interesting to me as a member of this 
particular subcommittee, that we get the attention of our 
government at the very highest levels when we have some of the 
biggest banks about to go under or to lose money on a major 
deal like this. But when we have 12,000 hog farmers out there 
who are about to lose their shirts, we cannot get the attention 
of the government of the United States to do anything. And I am 
talking about the executive branch. And the people that are 
actually producing at least 13 percent of the wares that are 
sold--futures that are on sold on the futures markets. It is 
always interesting to me that there is the theory that you are 
too big to fail, but nobody pays attention if you are medium to 
small. You do not get any attention. This makes me very angry.
    But I thank you for the enlightenment. I thank you for the 
enlightenment.
    Mr. Skeen. Mr. Latham.

                               contracts

    Mr. Latham. Thank you, Mr. Chairman. And welcome. A couple 
years ago, we had a real problem with the hedge to arrive 
contracts, I just wondered what is happening there as far as 
investigations, or where we are? And kind of following what Ms. 
Kaptur was talking about, the livestock producers, they are 
the--and I do not think you are involved at all, because they 
are private contracts--but is there anything that you are 
looking at with some of these ledger contracts in the livestock 
industry also?
    Ms. Born. Let me address the hedge-to-arrive contracts 
first. We have completed our investigations of the hedge-to-
arrive contracts. We had brought four enforcement cases in 
cases involving hedge-to-arrive contracts in the fall of 1996. 
We brought two more cases, enforcement cases, during Fiscal 
Year 1998. And I think we have brought one or two more in the 
just the last few months. And that is the totality of cases I 
believe that we have investigated and decided to go forward on.
    We have entered into settlement agreements with some of the 
respondents in hedge-to-arrive contracts. Others are in 
litigation.
    Mr. Latham. How are those settled?
    Ms. Born. We can provide you with the details. They were 
settled by the respondents agreeing to cease and desist orders, 
that is, they would not sell these particular kinds of 
contracts in the future.
    Mr. Latham. Okay.
    [The information follows:]

[The official Commmittee record contains additional material here.]



    Ms. Born. And with civil monetary penalties in some cases. 
In terms of the ledger contract, I do not think I know----
    Mr. Latham. No, okay.
    Ms. Born. Anything about that----
    Mr. Latham. Right.
    Ms. Born. But I can certainly inquire with my staff.
    Mr. Latham. Well, I do not think, it is really under your 
jurisdiction. I just wondered if there was any talk of it 
coming under your jurisdiction at some time, because there are 
obviously real concerns in the livestock industry that there is 
a lot of liability out there that has been incurred recently in 
those contracts--and long-term have a real problem for a lot of 
producers.
    I think Ms. Kaptur was probably talking about it with the 
derivatives markets. A lot of it is, you know, influenced with 
international traders. What do you do as far as your work with 
international regulatory agencies orcoordination with the 
international traders?
    Ms. Born. We work very closely with a large number of 
foreign regulators of derivatives markets. We have a number of 
memoranda of understanding with other countries that we will 
cooperate in enforcement investigations and share information 
with them. We are also members of the International 
Organization of Securities Commissions, which is a coordinating 
group that, of all the securities commissions in the world and 
are very participants there, particularly, I think the 
Commission has played a real leadership role in setting 
standards for derivatives market regulation. And I had 
mentioned some best practice standards that we entered into 
with the other countries with commodity exchanges. We also 
provide technical assistance to other countries in learning how 
to regulate their markets. Most countries have come to futures 
trading a lot later than we did.
    We frequently exchange information in our enforcement 
cases. I think in the course of an average year, we probably 
get 60 or 70 requests from foreign regulators and we probably 
make at least that many requests to foreign regulators in the 
course of our enforcement program.
    Mr. Latham. Kind of somewhat, I guess in the same vein I 
think the Commission created what they call a Global Market 
Advisory Committee to examine the globalization of the futures 
markets. Has that met? Is there any proposal out as far as 
global regulations, or what is the status of it?
    Ms. Born. Well, that is a new advisory committee.
    It has met twice. It was designed by the Commission to meet 
what we consider to be the increasing global needs of the 
market and the global implications of our regulations.
    Mr. Latham. Are you talking about global regulations then?
    Ms. Born. Well, the advisory committee is made up primarily 
of domestic exchange representatives and domestic industry 
representatives from the various industries that use our 
markets and also commodities professionals to give input to the 
Commission as to how we can most effectively use our role in 
organizations like IOSCO to open up markets for the United 
States, for our exchanges, for our commodity professionals, for 
our industries. And also, they inform us about diverse 
international regulation that has the effect of being a burden 
to the free flow of investments and business so that we can 
work through IOSCO to try to harmonize our regulations and the 
foreign countries' regulations.
    I really have been--in the two and a half years that I have 
been at the Commission--extremely impressed with how dedicated 
and diligent the international regulators are to working on 
these issues, and how far they have come in the last two and a 
half years. IOSCO has just issued principles of securities 
regulation that are an outline of what every country should 
have for securities regulation. We did the same thing for 
derivatives regulation, through IOSCO. And I think that this is 
an effort that will eventually build to more and more 
harmonization of financial market regulation and also the 
regulation of capital flows around the world.
    Mr. Latham. Okay. That is all the questions I have, though 
it is unfortunate for us that we do not have any more votes 
because everybody is on their way home already. But it is 
probably fortunate for you. But anyway, thank you very much for 
the really important work you do. I appreciate it very much.
    Ms. Born. You are very welcome.
    Mr. Skeen. We will wait just a moment. Mr. Farr has gone to 
the phone over there. So let me ask a question here that 
disturbed me--it really has been a point of contention with 
these markets and so forth. The agricultural producing area, 
though, is still relatively naive about the handling of these 
kinds of transactions, even when it is to their benefit. And I 
do not know how you train anybody or teach anybody unless you 
can get them to sit down, and, of course, that is hard to do 
with most farmers and ranchers and so forth. But the producing 
community has not had a reality touch with this kind of 
transaction. We await you, Mr. Farr. Mr. Farr has no----
    Mr. Latham. Mr. Chairman, I would just--you know, the point 
you are making is extraordinarily true. I mean, we have--one 
problem we have trying to get our hands around the problem we 
have with livestock and grains today and getting any consensus 
as to what to do is the fact that some people had the best year 
of their lives last year in agriculture. And they had used a 
lot of the tools that are made available and had sold things 
they had last year and made more money than they ever have, 
plus the payments and everything else on top of it last year. 
And some of them who did not use good marketing tools and risk 
management tools are in dire straits. And it is one real 
problem that we have is there is no consensus out there as to 
what to do. I hear from pork producers that absolutely have to 
have money, and other ones say, do not do that. It is the worst 
thing in the world. I hear from grain producers that are 
struggling to stay and get credit this spring. And some of them 
that say, what are you talking about? I had the best year in my 
life. I mean, and it is just simply a matter of somehow 
educating people how to use the management and risk management 
tools that are out there.
    Mr. Latham. I do not know how we would do it.

                          education on markets

    Mr. Skeen. I think it would serve the interests of the 
general situation here in Congress, instead of waiting for a 
hazard or a disaster payment. They could avoid a lot of this 
with some of the operations on the markets, if they understood 
them well. And I have talked about educating either 
universities or somebody in agricultural fields who do all this 
research and everything. This is one of the things that we have 
let go by the board, because we do not understand what is going 
on the big board over there, where we do not hedge. We do not 
take advantage of the markets. And it has really been a 
bothersome thing, because we are losing the agricultural 
community--young people today have no reason to want to get 
into the practice of agriculture. Most young people are like my 
two grandsons. They run around on those two-wheel bikes. They 
would not know--they are not very much interested in the 
markets. But I think that somewhere along on that line, we need 
to do a better job of educating.
    Ms. Born. I could not agree more, particularly as producers 
do face greater and greater price risk with the elimination of 
various price support programs, it is critically important for 
them to learn risk management. The Commission is working with 
the U.S. Department of Agriculture and their Risk Management 
Agency, under a provision of the 1996 Farm Act, to support and 
cooperate with USDA in theireducational efforts for producers 
about risk management tools. We are working very hard on that effort.
    We also, as I mentioned to you earlier, have recently 
published a brochure. In fact, we have been asked for more than 
30,000 copies of this. We have had to suggest that we would--we 
cannot afford to print 30,000 copies but will give copies to 
the producer organizations----
    Mr. Skeen. Well, we get a user fee.
    Ms. Born. Right. But these are producer organizations who 
want copies of our brochure on agricultural trade options to 
give out to their members. We have arranged to have them 
photocopy our brochure for their members and send them out. But 
we just published that in the last couple of months to try to 
explain how options can work as price hedging instruments or a 
producer in an appropriate situation. Of course, you need to 
work until the price goes up a little bit.
    Mr. Skeen. Just so that is part of the education of this 
situation.
    Ms. Born. Right.
    Mr. Skeen. Well, I do not know--I will bet you that amongst 
the ranchers and farmers that I know of that two percent of 
them could not operate under negotiations on the markets, 
because they are not that well educated about that. There is an 
innate suspicion that there is something really wrong. This is 
gambling. But they will go to an Indian reservation and put all 
their quarters in the slot machine.
    Ms. Born. Well, it is why agricultural trade options may 
have some promise in the long run, because we have set that up 
so you do not have to deal with a futures commission merchant. 
You do not have to deal with the exchanges. It is an off-
exchange transaction that a grain producer can have with the 
elevator; that other kinds of livestock producers, for example, 
can enter into these arrangements with the packing houses or 
the feed lots or whoever. And these are people that they deal 
with on a daily basis. They already have a business 
relationship with them, and I think it may be somewhat less 
threatening for them to do their hedging operation with people 
that they know and trust.
    Mr. Skeen. I think you understand that attitude amongst the 
growers; that I think they want to deal with somebody they 
know. And they do not want to get on a phone line and call 
their broker or something. Mr. Farr, did you have a question or 
presentation?

                         regulated commodities

    Mr. Farr. I am the new kid on the block and I am kind of 
naive. I am just wondering how many different commodities do 
you oversee?
    Ms. Born. Well, right now, there are 286 different futures 
or option contracts that are traded on our exchanges, and they 
range all the way from wheat and corn and other domestic 
agricultural products to--
    Mr. Farr. Is there a list in the executive summary?
    Ms. Born. We can certainly provide you with a list.
    Mr. Farr. I would just be curious, yes.
    [The information follows:]

[The official Commmittee record contains additional material here.]



                               user fees

    Mr. Farr. I know the chairman asked or one of the members 
asked, and I wondered, because I go back to my constituents 
and, you know, why should we put taxpayer money into supporting 
the Commission? Should not it be paid for by user fees? I mean, 
you are a lawyer, and you know that when you go into court and 
file papers, you have to pay filing fees. And I do not know how 
the New York Stock Exchange works, whether the SEC gets any 
funds or whether that is totally supported? But what is wrong 
with having a user fee that would cover the cost of services?
    Ms. Born. Well, we, of course, as a Commission do not have 
any position for or against that. If Congress and the 
Administration decide that we should be funded that way. That 
is fine with us.
    Mr. Farr. Let me. Let me, okay.
    Ms. Born. But let me just make an argument that you might 
hear from the exchanges, which is that the Commission's job is 
a lot broader than protecting the large participants who 
actually trade on the exchanges. The prices that are discovered 
through trading on the exchanges in agricultural products, in 
energy products, in metals products are used for commercial 
contracts in the agricultural industry, in oil and electricity 
and natural gas, in our metals industry on the assumption that 
those are fairly determined, unmanipulated prices. A lot of the 
work we do is to keep those fairly determined, unmanipulated 
prices, that is, a substantial amount of our work is market 
surveillance on a day to day basis to make sure that we catch 
any manipulation schemes in their incipiency before they have a 
significant impact on prices, which, then, in turn, can have a 
significant impact on the prices in an entire industry.
    We also do an awful lot of protection of the general public 
from fraud.

                             budget request

    Mr. Farr. Well, without getting into the details, this is 
just sort of a public policy comment. You have asked for a 10 
percent increase in your budget. And I am supportive of that. I 
will defer to my leadership here. But that is a pretty hefty 
increase. I mean, it is above the cost of living adjustment. 
So, if we can project things like this coming along, it seems 
to me that one of the burdens that the Commissions are going to 
have is--how are you going to cut costs and stay within that 
framework? Or how are you going to find revenues to pay for it? 
And we have that pressure all the time. I mean, if we want to 
spend moreof the Federal money, we are either going to have 
raise fees and taxes or cut the program.
    Ms. Born. Well, let me point out, first of all, that our 
staffing level is below what it was in 1992, because we were, 
for a number of years, held to a very low increase that did not 
cover our level of services; and, therefore, we had to cut back 
in staff. So that this increase would take us for the first 
time to the level of services we had in 1992. Since 1992, our 
markets have grown probably 80 percent, 90 percent in size, in 
terms of the volume of trading on those markets.
    We have also had the whole over the counter derivatives 
market grow from something very small to what is now estimated 
to be $70 trillion of notional value worldwide. The Bank for 
International Settlements just came out with that estimate.
    Mr. Farr. Are the commodities professionals, the 62,000 
that you oversee that are licensed, are those a Federal license 
or a professional--I mean, are they government-licensed?
    Ms. Born. They register. They are registered under the 
Commodity Exchange Act.
    Mr. Farr. And the fees for that process, they pay for that?
    Ms. Born. Yes.
    Mr. Farr. That is not subsidized?
    Ms. Born. We have delegated most of that responsibility to 
the National Futures Association, which is a private 
organization that has statutory status under our statute that 
we may delegate parts of our responsibility to. What we have 
tried to do is to delegate to them the parts of our job that 
are really resource intensive, labor intensive, like accepting 
registration forms from 62,000 people, making sure they all 
pass their ethics training, making sure they all take their 
examination that shows that they understand the business.
    Mr. Farr. And that does not come out of your budget?
    Ms. Born. No.
    Mr. Farr. Okay.
    Ms. Born. That comes from transaction fees.
    Mr. Farr. Okay. Thank you. Thank you, Mr. Chairman.
    Mr. Skeen. Thank you. Ms. Kaptur.
    Ms. Kaptur. I was just sitting here thinking. First, I 
would love that brochure you were talking about.
    Ms. Born. We would be happy to supply it.
    [The information follows:]

[The official Commmittee record contains additional material here.]



    Ms. Kaptur. And farmers actually like reading it, did you 
say?
    Ms. Born. Well, I hope so. I suppose that having gotten a 
request for more than 30,000 of them in the last two months 
indicates that somebody likes to read them.

                     agricultural commodity trades

    Ms. Kaptur. What percent of the agricultural commodities 
that are raised and marketed in this country pass through your 
exchange in the form of a trade? I am just curious. Would you 
want to take a stab at that?
    Ms. Born. Well, in terms of deliveries, that is, 
commodities that are actually delivered as a result of futures 
and options trading on the exchange, it is something less than 
5 percent of our contracts. Almost all these contracts are 
closed out by being offset on the exchange or through cash 
settlement, so there is very little of the product that 
actually, physically gets delivered as a result of the futures 
trading.
    Ms. Kaptur. But in terms of----
    Ms. Born. On the other hand, from a theoretical 
standpoint----
    Ms. Kaptur. Yes.
    Ms. Born. I suspect that trading may at times substantially 
exceed the amount of--the entire amount of the product. We can 
see if we have those statistics. I do not know if we do.
    [The information follows:]

[The official Commmittee record contains additional material here.]



    Ms. Kaptur. But it is basically most all of the----
    Ms. Born. Yes.

                            sumitomo penalty

    Ms. Kaptur. The $125 million civil penalty against 
Sumitomo, where was that money when it was paid, if it has 
been?
    Ms. Born. The U.S. Treasury. It went right to----
    Ms. Kaptur. So it did not go to the Commission?
    Ms. Born. No.
    Ms. Kaptur. Even though you tried the case?
    Ms. Born. We do not get any of the penalties or fines or 
other fees that we charge. We have authority to charge fees for 
some things. For example, we do charge some small fees to the 
exchanges for the work we do to approve their contracts, 
approve their rules, and do rule enforcement reviews to see 
whether they are enforcing their own rules. But all that money 
goes directly to the U.S. Treasury, and into the general 
revenues.

                            transaction fees

    Ms. Kaptur. The transaction fees that the chairman talked 
about. Help me understand. If I were a trader on the futures 
exchange in Chicago, and I was going to maybe have some type of 
trade--all right--with somebody who would want to buy what I 
had to sell, what type of tax or transaction fees are placed on 
that now, of any form, either by the exchange by the State of 
Illinois if it is in Chicago, by the Federal Government. What 
type of weight does that tradecarry on it its back?
    Ms. Born. I know that the exchanges each assess some small 
fee, and that the National Futures Association also gets fees 
based on the number of transactions that occur. What 
percentages that is, I am not sure. That is something else we 
can ascertain and provide to you.
    [The information follows:]

[The official Commmittee record contains additional material here.]



                            raising revenue

    Ms. Kaptur. Right. I was just very interested. This will 
send shudders down the back of all of those organizations, but 
let us say that you wanted to raise revenue for Social Security 
and you wanted to use trading and the taxation of trading or 
the imposition of a transaction fee on each individual trade as 
one way of raising funds. I am just speaking theoretically now. 
How would one know how much that would yield if one were to 
have a fee on each trade?
    Ms. Born. Well, we know the volume of contracts traded, 
which last year was somewhat over 600,000,000 transactions.
    Ms. Kaptur. And we know the value of those? How----
    Ms. Born. Well, the value is very hard to ascertain because 
these are not securities that have an inherent value. They are 
really risk shifting instruments where the accumulation of 
value depends on price changes.
    Ms. Kaptur. Are the Chicago Board of Trade and the nine 
exchanges you talked about, are those taxed like any other 
business?
    Ms. Born. I think they are not-for-profit businesses that 
are not taxed. But I am not certain of that.
    Ms. Kaptur. Gosh, I sure have a lot to learn in this area.
    [The information follows:]

             Profit/not-for-Profit Status of the Exchanges

    While most exchanges under the jurisdiction of the 
Commission are not-for-profit entities, currently two exchanges 
operate as for-profit corporations. The two for-profit 
corporations are the Philadelphia Board of Trade and the Kansas 
City Board of Trade. Each of the other current futures 
exchanges operate as not-for-profit organizations. The 
Commission is currently considering a contract market 
designation application from FutureCom--a new exchange that 
would also operate on a for-profit basis.

    Ms. Born. Well, you ask some provocative and interesting 
questions.

                       corn and soybean contracts

    Ms. Kaptur. I also, Mr. Chairman, if you will just indulge 
me here, because this has a direct impact on Ohio. There is a 
proposed acquisition of Continental Grain by Cargill, and I am 
wondering if the Commission is concerned about the increased 
concentration that that might represent in delivery 
specifications for corn and soybean contracts?
    Ms. Born. We have certainly--our economists have conducted 
a study of the increase in concentration in delivery facilities 
for corn contracts, soybean contracts, and wheat contracts on 
the Chicago Board of Trade, and for the wheat contracts on the 
Kansas City Board of Trade and the Minneapolis Grain Exchange. 
We have been asked to provide that information to the Anti-
Trust Division of the Justice Department, which is conducting 
an investigation of whether this acquisition would violate the 
anti-trust laws. And we are providing that information to the 
Justice Department and cooperating with the Anti-Trust 
Division.

                           corn yield future

    Ms. Kaptur. Thank you. And finally, you have a new corn 
yield future that has been made operational or at least it is 
being tested, and I am wondering whether the farmers, what kind 
of reaction you have gotten on that?
    Ms. Born. I am not aware of any reaction. I can inquire 
with our division of economic analysis, and see if they have 
gotten any input from producers on that.
    [The information follows:]

[The official Commmittee record contains additional material here.]



    Ms. Kaptur. I thank you, Chairwoman Born. Thank you so much 
for your excellent testimony as always. And good luck to you.
    Ms. Born. Thank you very much.
    Mr. Skeen. Ms. Kaptur, were you talking about the delivery 
point in Toledo? [Laughter.]
    Ms. Kaptur. We lost that one.
    Mr. Skeen. I had nothing to do with it.
    Ms. Kaptur. Now, we have got a merger, a proposed merger 
between Continental and Cargill which is going to consolidate 
all of our----
    Mr. Skeen. Consolidate it even more?
    Ms. Kaptur. Yes.
    Mr. Skeen. Ms. Born, thank you very much for what you have 
done and the way that you have done it and the group that you 
have with you. It is always a joy to work with you. We 
appreciate your presentation. We wish you well on being the 
world's best attorney somewhere.
    Ms. Born. Thank you very much, Mr. Chairman.
    Mr. Skeen. Well, we certainly do thank you and thank all of 
those folks that work with you.
    Ms. Born. You are very welcome.
    Mr. Skeen. And you are welcome back any time.
    Ms. Born. Well, thank you.
    Mr. Skeen. And with that, unless we have anything else--Ms. 
Kaptur? Well, we are--we know it must be the weekend. Thank you 
all again, and we wish you well.
    Ms. Born. Thank you, Mr. Chairman.
    [Whereupon, at 2:20 p.m., the subcommittee was adjourned.]
    [The following questions were submitted to be answered for 
the record:]


[The official Commmittee record contains additional material here.]




                           W I T N E S S E S

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                                                                   Page
Born, Brooksley..................................................   947
Burlington, Bruce................................................     1
Byrd, R.J........................................................     1
Donahue, James...................................................     1
Dykstra, Gary....................................................     1
Friedman, M.A....................................................     1
Henney, J.E......................................................     1
Holston, S.S.....................................................     1
Hubbard, William.................................................     1
Jacobson, Elizabeth..............................................     1
Levitt, J.A......................................................     1
Lumpkin, Murray..................................................     1
Plaisier, Melinda................................................     1
Porter, M.J......................................................     1
Schwetz, Bernard.................................................     1
Sundlof, Stephen.................................................     1
Suydam, Linda....................................................     1
Thompson, D.E....................................................     1
Williams, D.P....................................................     1
Zeller, M.R......................................................     1
Zoon, K.C........................................................     1


                               I N D E X

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                      Food and Drug Administration

                                                                   Page
Advisory Committees..............................................   434
AIDS.............................................................   401
Buildings and Facilities:
    Arkansas Regional Laboratory.................................   420
    Cost/Benefit Analysis........................................   431
    Facilities Nationwide........................................   424
    Headquarters Facilities--White Oak, Maryland.................   456
    Labortary Consolidation......................................   432
    Los Angeles Laboratory.......................................   421
    Repairs and Improvements.....................................   428
    White Oak, Maryland..........................................   423
Biographies......................................................     9
Bioterrorism:
    Bioterrorism................................................107,130
    Bioterrorism--Biologics Program..............................   302
    Bioterrorism--NCTR Program...................................   303
    Bioterrorism--Threat..................................130, 294, 302
    Bioterrorism Funding.......................................297, 455
Blood Safety:
    Artificial Blood.............................................   454
    Blood........................................................   455
    Blood Safety......................................88, 110, 303, 472
Budget/Numbers...................................................   437
CFSAN Program Priorities.........................................   363
Citations........................................................   449
Clinical Pharmacology............................................   400
Cosmetics........................................................   387
Country of Origin Labeling.......................................   287
Current Services.................................................   447
Drug Pricing and Mammography.....................................   138
Emergency Fund...................................................   447
FDA Modernization Act (FDAMA):
    FDA Modernization Act........................................   465
    FDA Modernization Act Implementation.......................141, 175
    FDA Status Report on FDAMA Provisions........................   141
    FDAMA Deadlines..............................................   145
    FDAMA Implementation Chart...................................   150
    FDAMA Initiatives............................................   173
    Stakeholder Involvement......................................   170
Financial and Property Management................................   478
Foold Labeling...................................................   360
Food Safety:
    Antibiotic Resistance........................................   453
    Anti-Microbial Resistance..................................119, 231
    Bovine Growth Hormone........................................   495
    Education....................................................   276
    Estimates of Human Health Effects............................   453
    Food Irradiation.............................................   107
    Food Safety:
        Food Safety--Juice.....................................289, 494
        Food Safety--Response to NAS Report......................   117
        Food Safety--Scope of Program............................   452
        Food Safety Initiative--Categories.......................   198
        Food Safety Initiative--Findings.............206, 232, 236, 467
        Food Safety Initiative--FY 2000 Presentation.............   178
        Food Safety Initiative--Measuring Effectiveness of 
          Efforts................................................   201
        Food Safety Initiative--Resources.......204, 228, 234, 237, 485
    Imported Food Safety........................................50, 237
    Inspections (FSI)............................................   246
    Integrated Food Safety System................................   117
    Listeria.....................................................   499
    Nutrition Supplements........................................   359
    President's Food Safety Initiative: FDA's Accomplishments--AF 
      First Year Report..........................................    67
    Produce and Imported Foods Initiative--FY99 Plan.............    52
    Research/Risk Assessment (FSI)...............................   278
    Retail Foods................................................65, 105
    Seafood HACCP...............................................81, 273
    Seafood Regulation...........................................   102
    Shellfish Safety.............................................    91
    Single Food Agency...........................................   103
    Surveillance (FSI)...........................................   242
    Veterinary Drug Systems......................................   107
FY 2000 Performance Plan and Revised Final FY 1999 Performance 
  Plan...........................................................   771
Generic Drugs:
    Generic Drugs....................................395, 475, 497, 502
    Generic Drugs--Citizen Petitions.............................   486
    Generic Drugs (Premarket)....................................   339
Government Performance Results Act...............................   176
High Production Volume Chemical Challenge Program................   485
Hiring Rate Assumptions..........................................   448
Imported Drugs...................................................   132
Imports (OASIS)..................................................   355
Inspections--Biennial for Drug and Device Establishments.........    49
Insulin..........................................................    87
International Trade Data System..................................   356
Introduction of Witnesses........................................     2
Injury Reporting:
    Adverse Event Reporting Procedures...........................   332
    Ephedra...........................................89, 109, 127, 504
    Ephedrine....................................................   476
    Error and Accident Reports (Adverse Event Reporting).........   341
    Injury Reporting...........................................325, 334
    Product Related Injuries.....................................   450
Justification of Estimates for Appropriations Committees--Budget 
  Request........................................................   522
Latex Gloves.....................................................   475
Medical Device Review............................................   347
Medical Devices................................................102, 408
MedWatch.........................................................   478
Methadone........................................................   401
MQSA--Mammography Quality Standards Act..........................   415
Natural Antibiotics Research.....................................   287
NCTR.............................................................   416
NCTR and Arkansas Lab............................................   128
Opening Remarks--Mr. Skeen.......................................     1
Opening Statement--Dr. Henney....................................     5
Orphan Drugs.....................................................   499
Orphan Products..................................................   398
Other Activities.................................................   416
Prescription Drug User Fee Act (PDUFA):
    PDUFA--Drug Application Workload.............................   391
    PDUFA--Drug Review Times.....................................   394
    PDUFA--Prescription Drug User Fee Act........................   388
    PDUFA FTE Costs..............................................   443
Physician's Pay..................................................   444
Remarket Application Review:
    510(k) Applications..........................................   414
    Animal Drugs--Antimicrobial Regulatory Framework.............   492
    Biologics....................................................   339
    Citizen Petitions............................................   486
    Feed Mill License Applications...............................   359
    Food Additives...............................................   118
    Food Petition Review.........................................   346
    Premarket Application Reviews................................   335
    Review of Animal Drug Applications...........................   342
    Third Party Reviews..........................................   349
    Veterinary Medicine..........................................   341
    Additive User Fees...........................................   343
    Device User Fees.............................................   112
    Food Contact Notifications...................................    88
    Food Contact Substances......................................   487
    Food Contact Substances Report...............................   150
    New User Fees................................................   474
    Premarket Approvals--Proposed User Fees......................    49
Product Safety Assurance:
    Animal Drugs--Inspections..................................357, 406
    Device Inspections...........................................   357
    Food and Cosmetic Product Seizures...........................   362
    Food Recalls.................................................   360
    Human Drug Establishment Inspections.......................350, 355
    Interagency Cooperation on Food Recalls......................   119
    Product Safety Assurance.....................................   348
    Tampering....................................................   359
    Violative Inspection Rates...................................   349
Public Health Infrastructure.....................................   320
Questions Submitted for the Record:
    Chairman Skeen...............................................   141
    Ms. Kaptur...................................................   495
    Mr. Walsh....................................................   485
    Mr. Dickey...................................................   486
    Mr. Kingston.................................................   488
    Mr. Bonilla..................................................   492
    Ms. DeLauro..................................................   499
    Mr. Farr.....................................................   502
    Mr. Boyd.....................................................   504
Recruitment and Retention........................................   450
Regulations......................................................   110
Rent Activities..................................................   417
Reports..........................................................   287
Reprogramming....................................................   447
Resource Allocation..............................................   444
Science Base Research:
    Collaborative Efforts........................................   350
    Coordination of Scientific Efforts...........................   451
    FDA Collaborative Scientific Initiatives.....................   451
    FDA's Research Expenditures..................................   174
    Rebuilding FDA's Science Base..............................170, 173
    Science Base.................................................   466
 Seafood Transfer from NMFS......................................   291
 Silicone Breast Implants.......................................92, 477
 Statement of the Secretary of Health and Human Services.........     3
 Tobacco:
     Tobacco....................................108, 137, 308, 312, 474
     Tobacco--Compliance Checks..................................   315
     Tobacco--Compliance Results.................................   105
     Tobacco--Cost of Full Implementation........................   309
     Tobacco--Enforcement and Evaluation.......................314, 316
     Tobacco--Existing Authority.................................   309
     Tobacco--FDA Jurisdiction...................................   131
     Tobacco--Full Implementation................................   309
     Tobacco--Funding............................................   127
     Tobacco--Inspection.........................................   315
     Tobacco--Outreach...........................................   318
     Tobacco--Product Regulation.................................   319
     Tobacco--Scope of FDA Authority.............................   313
     Tobacco--State Contracts....................................   311
     Tobacco--Supreme Court Decision.............................   313
     Tobacco--Teen Smoking.......................................   310
     Tobacco Contracts...........................................   490
     Tobacco Education...........................................   490
     Tobacco FTE.................................................   491
     Tobacco Funding.................................311, 313, 314, 489
     Tobacco Goals...............................................   308
     Tobacco Initiative..........................................   493
     Tobacco Litigation..........................................   455
     Tobacco Office..............................................   310
     Tobacco Prevention Effort...................................   491
     Tobacco Regulation..........................................   488
     Tobacco Stakeholders........................................   312
 Witness List....................................................     1
 Written Statement by Dr. Jane Henney, Commissioner..............    16
 Y2K.............................................................   433

                       Farm Credit Administration

 Testimony of Marsha Pyle Martin.................................   937
     Mission of the Farm Credit Administration...................   938
     Fiscal Year 1998 Accomplishments and Projects...............   938
     Condition of the Farm Credit System.........................   943
     Federal Agricultural Mortgage Corporation...................   944
     Fiscal Year 2000 Budget Request.............................   945

                  Commodity Futures Trading Commission

 Advisory Committees...................................1128, 1139, 1141
 Agricultural Advisory Committee.................................  1141
 Agricultural Trade Options..................................1039, 1073
     Ban on Commodities..........................................   968
 Agricultural Trading.............................972, 1055, 1074, 1124
 Agricultural Trends.............................................   973
 Appropriation and Authorized FTEs...............................  1126
 Born, Brooksley.................................................   947
     Opening Statement...........................................   947
     Written Testimony...........................................   950
     Biography...................................................   966
 Budget:
     Appropriation...............................................   951
     CFTC Resources..............................................   954
     Highlights of Fiscal Year 1998..............................   957
     Regulatory Streamlining.....................................   958
     Contract Designation........................................   959
     Agricultural Trade Options..................................   960
     Overview of Funding Levels..................................   951
     Delivery Specifications.....................................   961
     Electronic Trading..........................................   962
     OTC Derivatives.............................................   963
     Y2K.........................................................   963
     Sexual Harassment Training..................................   964
     Legislation.................................................   964
     Request.....................................................  1038
 Bolinger, Madge:
     Biography...................................................   967
 Carryover Funds.................................................  1069
 Changes from OMB Request........................................  1069
 Charge Card Usage...............................................  1069
Civil and Administrative Proceedings.............................  1121
    Civil Penalties from Administrative Proceedings..............  1122
    Civil Monetary Penalties.....................................  1086
Contracts........................................................   976
    Hedge-to-Arrive..............................................   977
    Ledger.......................................................  1028
Contract Market Designations and Rule Reviews under Fast Track...  1136
Corn and Soybean Contracts.......................................  1065
Corn Yield Futures...............................................  1065
Derivatives Policy Group.........................................  1069
Designation Applications Pending.................................  1123
Dual Trading Fraud...............................................  1083
Dual Trading Investigations......................................  1084
Education on Markets.............................................  1030
Education--Risk Management.......................................  1135
Electronic Filing of Financial Reports...........................  1138
Electronic Foreign Exchanges.....................................   969
Enforcement....................................................957, 968
    Enforcement Investigation....................................  1116
    Cooperative Enforcement and Cooperative Regulation...........  1116
Firm Failures....................................................  1085
Fordam University Speech.........................................  1142
Foreign Assistance...............................................  1114
    Reimbursement................................................  1141
Foreign Exchange:
    Fees.........................................................  1081
    Volume.......................................................  1077
Futures Market Abuse.............................................   971
FY 2000 Budget...................................................  1143
FY 2000 Annual Performance Plan..................................  1268
Global Market Advisory Committee.................................  1139
Hedging--Price Fixing............................................   969
Historical Finding and Staffing..................................  1127
Hog Futures......................................................   973
Inspector General Investigation and Audits.......................  1070
Introducing Brokers--Registered..................................  1130
Large Trader Definition..........................................  1141
Long Term Capital Management...................................973, 975
Market Research Budgetary Resources..............................  1140
National Futures Association.....................................  1074
NFA Disciplinary Actions.........................................  1076
Non-Electronic Oversight.........................................  1083
Office of International Affairs:
    FY 1998 Activities...........................................  1130
Outside Contracts................................................  1129
Over-the-Counter Derivatives Rules...............................   973
    Moratorium...................................................   974
President's Working Group on Financial Markets...................  1084
Profit/Net for Profit Status of Exchanges........................  1065
Questions for the Record:
    Chairman Skeen...............................................  1069
Raising Revenue..................................................  1065
Regional Offices.................................................  1077
Regulated Commodities............................................  1032
Reparations Program..............................................  1132
SEC and CFTC Working Relationship................................  1082
SEC's Proposed Rule on the Regulation of Certain OTC Derivatives 
  Dealers........................................................  1133
Self-Policing Activities.........................................  1085
Service Fees.....................................................  1075
Sumitomo Case....................................................   972
Sumitomo Penalty.................................................  1058
Surveillance System..............................................  1131
Trade Practice Matters...........................................  1115
Transaction Fees..............................................970, 1058
Travel:
    Foreign......................................................  1087
    Domestic.....................................................  1114
User Fees........................................................  1038
Y2K Compliance...................................................  1072

                                
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