[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



                 DEPARTMENTS OF COMMERCE, JUSTICE, AND

                   STATE, THE JUDICIARY, AND RELATED

                    AGENCIES APPROPRIATIONS FOR 2003

_______________________________________________________________________

                                HEARINGS

                                BEFORE A

                           SUBCOMMITTEE OF THE

                       COMMITTEE ON APPROPRIATIONS

                         HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS
                             SECOND SESSION
                                ________
  SUBCOMMITTEE ON THE DEPARTMENTS OF COMMERCE, JUSTICE, AND STATE, THE 
                    JUDICIARY, AND RELATED AGENCIES
                    FRANK R. WOLF, Virginia, Chairman
 HAROLD ROGERS, Kentucky             JOSE E. SERRANO, New York
 JIM KOLBE, Arizona                  ALAN B. MOLLOHAN, West Virginia
 CHARLES H. TAYLOR, North Carolina   LUCILLE ROYBAL-ALLARD, California
 RALPH REGULA, Ohio                  ROBERT E. ``BUD'' CRAMER, Jr., 
 TOM LATHAM, Iowa                    Alabama
 DAN MILLER, Florida                 PATRICK J. KENNEDY, Rhode Island 
 DAVID VITTER, Louisiana            
                                                                        
 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.
   Mike Ringler, Christine Kojac, Leslie Albright, and John F. Martens
                           Subcommittee Staff
                                ________
                                 PART 5
                                                                   Page
 Secretary of Commerce............................................    1
 United States Trade Representative...............................  163
 National Oceanic and Atmospheric Administration..................  247
 Intellectual Property Protection.................................  353

                              

                                ________
         Printed for the use of the Committee on Appropriations
                                ________
                     U.S. GOVERNMENT PRINTING OFFICE
 81-888                     WASHINGTON : 2002





                       COMMITTEE ON APPROPRIATIONS

                   C. W. BILL YOUNG, Florida, Chairman

 RALPH REGULA, Ohio                  DAVID R. OBEY, Wisconsin
 JERRY LEWIS, California             JOHN P. MURTHA, Pennsylvania
 HAROLD ROGERS, Kentucky             NORMAN D. DICKS, Washington
 JOE SKEEN, New Mexico               MARTIN OLAV SABO, Minnesota
 FRANK R. WOLF, Virginia             STENY H. HOYER, Maryland
 TOM DeLAY, Texas                    ALAN B. MOLLOHAN, West Virginia
 JIM KOLBE, Arizona                  MARCY KAPTUR, Ohio
 SONNY CALLAHAN, Alabama             NANCY PELOSI, California
 JAMES T. WALSH, New York            PETER J. VISCLOSKY, Indiana
 CHARLES H. TAYLOR, North Carolina   NITA M. LOWEY, New York
 DAVID L. HOBSON, Ohio               JOSE E. SERRANO, New York
 ERNEST J. ISTOOK, Jr., Oklahoma     ROSA L. DeLAURO, Connecticut
 HENRY BONILLA, Texas                JAMES P. MORAN, Virginia
 JOE KNOLLENBERG, Michigan           JOHN W. OLVER, Massachusetts
 DAN MILLER, Florida                 ED PASTOR, Arizona
 JACK KINGSTON, Georgia              CARRIE P. MEEK, Florida
 RODNEY P. FRELINGHUYSEN, New Jersey DAVID E. PRICE, North Carolina
 ROGER F. WICKER, Mississippi        CHET EDWARDS, Texas
 GEORGE R. NETHERCUTT, Jr.,          ROBERT E. ``BUD'' CRAMER, Jr., 
Washington                           Alabama
 RANDY ``DUKE'' CUNNINGHAM,          PATRICK J. KENNEDY, Rhode Island
California                           JAMES E. CLYBURN, South Carolina
 TODD TIAHRT, Kansas                 MAURICE D. HINCHEY, New York
 ZACH WAMP, Tennessee                LUCILLE ROYBAL-ALLARD, California
 TOM LATHAM, Iowa                    SAM FARR, California
 ANNE M. NORTHUP, Kentucky           JESSE L. JACKSON, Jr., Illinois
 ROBERT B. ADERHOLT, Alabama         CAROLYN C. KILPATRICK, Michigan
 JO ANN EMERSON, Missouri            ALLEN BOYD, Florida
 JOHN E. SUNUNU, New Hampshire       CHAKA FATTAH, Pennsylvania
 KAY GRANGER, Texas                  STEVEN R. ROTHMAN, New Jersey    
 JOHN E. PETERSON, Pennsylvania
 JOHN T. DOOLITTLE, California
 RAY LaHOOD, Illinois
 JOHN E. SWEENEY, New York
 DAVID VITTER, Louisiana
 DON SHERWOOD, Pennsylvania
   
 VIRGIL H. GOODE, Jr., Virginia     
   
                 James W. Dyer, Clerk and Staff Director

                                  (ii)



 
DEPARTMENTS OF COMMERCE, JUSTICE, AND STATE, THE JUDICIARY, AND RELATED 
                    AGENCIES APPROPRIATIONS FOR 2003

                              ----------                              

                                      Wednesday, February 27, 2002.

                         DEPARTMENT OF COMMERCE

                               WITNESSES

HON. DONALD L. EVANS, SECRETARY OF COMMERCE
BARBARA RETZLAFF, DIRECTOR OF BUDGET
    Mr. Wolf. Mr. Secretary, welcome to the committee.
    I will not have an opening statement, and I will recognize 
Mr. Serrano in a minute. I appreciate the good job that you are 
doing and the President is doing, particularly on the battle 
and the effort with regard to terrorism and what is taking 
place around the world. I hope that the American people are not 
getting too complacent because things went so well in 
Afghanistan so quickly, and if you read today's paper, there 
are now soldiers in Soviet Georgia and other places. And this 
is going to be a long-term effort, but I appreciate the 
intensity and the diligence, the vigilance of the President and 
what the Administration is doing.
    What triggered this thought is last night going home, I 
listened to NPR. It was the press conference that Secretary 
Rumsfeld was having, and the press was just all over him, and I 
thought, don't they understand what is taking place in 
Afghanistan? They were just picking on him for every type 
thing.
    I was in Afghanistan, as you know, the first week of 
January. It is a very tough situation. Our military are doing 
an incredible job in a very tough environment, and you almost 
got the attitude by listening to them that they thought this 
thing was over and we were just putting a bow and wrapping it 
up, when actually the package is just beginning the process.
    So I just wanted to put that word in, and I thank you, and 
please thank the President, and tell Secretary Rumsfeld I 
thought he did a great job yesterday. That was the first time I 
ever listened to that back-and-forth, but he did very well.
    Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman. Let me first say how 
excited I am to be back with you. Happy new year a little late, 
and the Yankees will win the pennant again this year in the 
Bronx, and we will get a team in Virginia, I promise you that. 
Very important, too.
    And, Mr. Secretary, we welcome you back to our committee. 
We just met a little while ago in my office, and I was very 
happy with our conversation. Let me tell you that every so 
often we take a look at just how much the Commerce Department 
covers, and we are amazed. You are on the land, on the sea, in 
outer space, in the atmosphere. Hopefully this year, as I give 
all of the help that I can give you, I can finally begin to see 
that my brother at the Census Bureau gets that window that we 
have been trying to get him now for so many years, if we can 
get a new building with some windows and some sun coming in.
    We are indeed extremely happy at the way all of the 
agencies have come together after September 11th, and certainly 
as one who represents New York City, I am very grateful for all 
of the attention that has been given to my city.
    In my neighborhood we are still identifying people who were 
lost on September 11th, and the handing out of flags to 
families is still a very painful experience. I mention that, as 
the Chairman did, because it all ties into the work that we all 
have to do and the work you have to do, and we are very 
grateful for that and in every way possible look forward to 
supporting your efforts this year. Thank you.
    Secretary Evans. Thank you, Congressman.
    Mr. Wolf. Any other Members have any comments? If not, we 
will go straight to the testimony.
    You can summarize or proceed as you see fit, but your full 
statement will appear in the record.

                      Overview by Secretary Evans

    Secretary Evans. Thank you very much, Congressman. Before I 
go through my brief summary, I would like to just acknowledge 
your opening comments and say to all of you here that the 
September 11th event brought this country together in a way I 
think it has probably never been united, or ever been united in 
my lifetime, and in Commerce we focus a lot, of course, on the 
economy, and what I have seen with respect to the economy is a 
resilient economy. I see an economy that I think has stayed 
strong, primarily because consumer confidence has remained 
strong, and I think that is primarily because of the 
President's leadership and your leadership.
    I think that if this country had not seen the kind of 
leadership, response, bipartisan effort with respect to the 
war, consumer confidence could well have been breached, as 
business confidence could have also been breached, but it was 
not. And so I salute all of you and acknowledge the major role 
that you have played in leading this country in this very 
difficult time.
    Our economy is obviously getting stronger. The indicators 
look much better, and so I thank you for that, because without 
your leadership, it could have been a whole different picture, 
and without economic security, it is pretty tough to have 
national security and homeland security.
    So anyway, I wanted to acknowledge that, and, Mr. Chairman, 
let me go through a brief summary here and say to you, Mr. 
Chairman and Mr. Serrano and members of this committee, I am 
pleased to present the President's fiscal 2003 budget request 
for the Department of Commerce. With your permission, I would 
like to make my brief oral statement and submit the written 
testimony for the record, which you have acknowledged it will.
    Mr. Wolf. Yes.
    Secretary Evans. Thank you very much. The Commerce 
Department's historic mission remains constant: working for 
America to provide homeland and economic security. For fiscal 
year 2003, the President's total Commerce budget request is 
$5.3 billion. This budget was carefully crafted. It reflects 
the core functions of the Department. These include promoting 
innovation, entrepreneurship and international trade; and 
increasing knowledge and good stewardship of the natural 
environment. It also reflects the urgent needs of these 
challenging times we are in.
    It targets the diverse resources of the Department toward 
three great national goals: winning the war on terrorism, 
protecting our homeland, and strengthening economic security. 
This budget proposal provides for the continued funding of 
high-priority Commerce programs.
    An additional $33 million is requested for the Bureau of 
Export Administration. The funds will help halt the spread of 
weapons of mass destruction and combat terrorism, and they will 
be used for the new homeland security information program to 
help protect our critical infrastructure.
    Homeland security investments also will be made in the 
National Oceanic and Atmospheric Administration and in the 
Technology Administration's National Institute of Standards and 
Technology. For NOAA, we are asking for $23.1 million in 
additional funding to fix vulnerabilities in the weather and 
satellite system so we can always depend on them.
    We are also proposing a $5 million homeland security 
increase for NIST. These world-class laboratories have more 
than 75 projects under way that support law enforcement, 
military operations, emergency service personnel, airport and 
building security, and cybersecurity. For example, they are 
working on strengthening protective gear for first responders. 
NIST also will continue to research new ways to detect 
potential threats posed by chemical, biological, nuclear, 
radiological and explosive agents.
    On the economic security front, we also propose an increase 
of $237 million for the U.S. Patent and Trademark Office to 
expedite services. America's economic growth and 
competitiveness depend on sustained innovation, and as you 
know, the Patent Office is dealing with escalating numbers of 
applications, especially in the intellectual property area.
    We are proposing an $11 million program increase for the 
Bureau of Economic Analysis. This is to improve the Nation's 
key economic statistics, including the gross domestic product, 
so business and government decisionmakers have the best 
possible information in a timely fashion.
    To help ensure a level playing field for America's 
exporters, we are also proposing a $13 million increase for our 
International Trade Administration to strengthen trade 
compliance efforts. And the President is requesting $2.6 
million to open several export assistance offices in Africa. 
These will help U.S. businesses find opportunities in these 
growing markets.
    At the time we continue to help U.S. business play a 
leadership role in the global marketplace, we provide 
assistance to help communities, businesses and workers 
transition to the 21st century economy. The fiscal year 2003 
budget overall reflects streamlined economic development 
administration programs, including an additional $2.5 million 
for trade adjustment assistance.
    Lastly, let me say that this budget reflects a careful and 
professional analysis of all Department programs and sets 
priorities for our resources in a post-9/11 world.
    I look forward to hearing your comments, and I will be 
pleased to answer any questions that you have. Thank you, Mr. 
Chairman.
    Mr. Wolf. I thank you, Mr. Secretary.
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    Mr. Wolf. A couple of questions. Then I will recognize Mr. 
Serrano.

                          TECHNOLOGY SYMPOSIUM

    I had raised this with you one other time, and I want to 
get it on the record. Since 9/11, a number of companies have 
come in with new technology requests. Some companies are trying 
to approach the FBI. Some are approaching INS. There was a 
story in the paper yesterday about tracking student exit/entry 
visas; also the issue with regard to some DEA problems; also 
the new security office at the Department of Transportation 
with regard to the baggage screeners. I would hope and request 
that the administration put together a major conference or a 
forum whereby perhaps you get convention--the convention center 
and put out some stipulations as to what you are looking for 
and then give small and medium-sized companies the opportunity 
to come in to see--maybe they have something that is on the 
shelf that somebody at Commerce is looking for, someone at the 
FBI is looking for. But I think the sooner we do that, one, 
from a budgetary point of view, we have a better handle on how 
the money is being spent. You would have the Justice Department 
people there, transportation people there, but could you kind 
of comment or----
    Secretary Evans. Sure.
    Mr. Wolf. Will the administration be doing that, or can you 
tell me how you think you are going to be doing it?
    Secretary Evans. Yeah, sure, Mr. Chairman. Thank you for 
the opportunity to comment about that. We have talked about 
this before. I think it is a splendid idea. I think it is 
something indeed we should do. We, in fact, are going to move 
forward on that idea. We would love to work with your staff and 
your office to help coordinate the conference or symposium or 
forum, whatever we want to call it. Sooner rather than later is 
what I am telling our team. So we are going to meet on this 
very issue this next week. We will be contacting your office 
and ask that somebody represent your office at this meeting to 
help set a time and a place and move on with the planning.
    Now, having said that, I don't want those comments to 
discourage people that are out there from coming in and 
presenting ideas that they have. I mean, what we are talking 
throughout government----
    Mr. Wolf. Sure.
    Secretary Evans [continuing]. With all kinds of companies 
right now. We talk to a lot of small- and medium-sized 
businesses through our Technology Administration. I am 
encouraging those in the private sector having different types 
of technology who think they might apply to this homeland 
security issue to come in and talk to us, and they are indeed 
doing that. Some are talking to the Department of 
Transportation. Some might be talking to people who are in 
Homeland Security, but we are talking to quite a few also, and 
anybody that comes into our Department, and we think it is 
worthy of being considered, then we move it on in and ask 
somebody at Homeland Security to also take a look at it.
    So I don't mean to discourage people that have good ideas 
to--from coming in now.
    Mr. Wolf. No.
    Secretary Evans. In fact, I want to encourage them. But 
should we have a much larger, broader conference that puts on 
display many of these exciting technologies or--that are being 
developed out there across America? You bet we should. It would 
provide the opportunity for many more people to view the 
technologies that are out there. So, anyway, we are going to 
move forward, and that is a very good idea, and thank you for 
it.
    Mr. Wolf. Good. I appreciate that. And hopefully there will 
be enough time that people could bring companies in from all 
over the country to come in; obviously there are companies from 
my region, but all over, and to give that opportunity. I think 
there is a lot going on in the private sector that the 
government doesn't know about, and I think that is a good 
opportunity. Thank you.

                          PTO RETENTION RATES

    Two other--last year we added $97 million, if my memory 
serves me, an increase for the Patent and Trademark Office. 
There were a lot of complaints they were losing people. Has 
that helped?
    Secretary Evans. It has helped. I think the retention rate 
has improved dramatically. We have cut the turnover in half, 
and so that is encouraging, but, there is more work to be done.
    We are also asking for an increase in this year's budget, 
as I know you know. We are finding a greater and greater need 
for technical people, engineers, mathematicians, scientists, et 
cetera. And so there is more work to be done, but did the funds 
and resources help in terms of retention and slowing down the 
attrition? You bet they did. Some of it may have been the 
economy. Some of it may indeed have been just the downturn in 
the high-tech community, but I think a big part of it was just 
having the additional resources to be able to pay more 
competitive kinds of wages.
    Mr. Wolf. Could you submit for the record kind of the 
retention rate----
    Secretary Evans. Sure, I would be delighted to.
    Mr. Wolf [continuing]. To see, so we can compare it with 
regard to the last year?
    Secretary Evans. You bet we will.
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    Mr. Wolf. One other question before I recognize Mr. 
Serrano. It deals with the question of intellectual property 
rights. A lot of high-tech companies have suffered with regard 
to piracy. Over the past 5 years piracy has cost the software 
industry $59.2 billion. Vietnam has the highest rate of pirated 
software, 97 percent. Ninety-seven percent. China, 94 percent. 
What are you doing, and are you working with Attorney General 
Ashcroft? Do you have a team working on this? What is Commerce 
doing to cut this piracy back? When you look at these figures, 
94 percent in China, 98 percent, 97 percent Vietnam, it is very 
tough for a company who wants to do business there.
    Secretary Evans. Right. Let me just start in terms of what 
we are doing with trade policy in this country to provide a 
level playing field. Part of providing a level playing field 
means that people are going to comply with the agreements that 
they sign, and there are lots of trade agreements around the 
world that we and others have signed. For instance the 301 
section of the Trade Act of 1974 gives us a tool to work with, 
compliant with WTO rules, when we want to focus on a country 
that we think might be violating basic intellectual property 
right issues.
    But the President made it very clear that a level playing 
field in dealing with countries that comply with the law is 
fundamental to our trade policy. I don't think there is anybody 
in our Department that is confused about the importance of 
compliance and enforcement in going after those that have 
chosen not to comply with our trade agreements. We continue to 
put more resources into this area, and I think that we should.
    In Market Access and Compliance, Foreign Commercial Service 
and Import Administration areas, we are adding about $13 
million and about 82 FTEs, full-time employees, that will be 
focused on compliance issues, and we are opening up more 
offices around the world to be focused on compliance issues. We 
are focusing hard on China. Our Assistant Secretary of Market 
Access and Compliance, Bill Lash, just got back from Thailand 
where he actually shut down a store in Thailand because he went 
there and discovered that they were selling intellectual 
property at ridiculously low rates, knew it had been pirated or 
copied, and the mall shut the store down because he went right 
to the government there and said this is unacceptable.
    So, when it comes to intellectual property rights, the 
President is certainly very clear on it. I think I am very 
clear within our own Department about the importance of it. I 
understand the value of intellectual property, particularly as 
we move into this knowledge-based economy or information-based 
economy that some people choose to call it. So as our good 
people here in America use their minds to be innovative and 
creative and develop new ways and better ways, we need to be 
very clear to the world that we are going to protect those 
rights.
    Mr. Wolf. Well, you know, Windows 95 was on the streets in 
Beijing before it was available here in Washington, D.C., and I 
would urge you to do that. I like to use two countries as sort 
of a model of really cracking down, and one is China. And, you 
know, I was one that was not overly fond of giving them MFN, 
but that issue is over, and they are going to be part of the 
WTO, but I think they have got to play by the rules. So I hope 
you will use China.
    And another country that I am not particularly fond about, 
both are persecuting Christians, both are persecuting Buddhist 
monks, both are persecuting the Catholic Church particularly, 
and that is Vietnam.
    So if I could ask you, if you could have your people 
particularly focus on China, which is going to be a great 
market, supposedly, in the future, and also Vietnam, that 
figure of 94 percent with China is astronomical, and 97 percent 
with Vietnam, and then kind of keep us informed as you go 
along.
    Secretary Evans. Thank you.
    Mr. Wolf. I think you also have to prosecute. You have to 
bring some cases. And so if you could let the committee know, 
using as kind of two guinea pigs, if you will, China and 
Vietnam, we would appreciate it.
    Mr. Serrano.
    Secretary Evans. Chairman, we will do that. We will keep 
you informed as to those two countries. We have let it be known 
in China that we will have a senior official from our 
Department in China every month. It is not going to be every 
other month or every quarter or twice a year. Every month. We 
have a senior official from our Department that will be there, 
and we will be talking about compliance, and we will be talking 
about enforcement. So we are being very clear about it and very 
straightforward about it. I am going to China myself in April, 
but we have made the commitment, and I assure you that we will 
honor that commitment that I will have a senior official from 
our Department in China talking about compliance and 
enforcement every month.
    Mr. Wolf. Well, will this be a different person every 
month?
    Secretary Evans. We will rotate it around. Depends on who 
is travelling to that part of the world. It may be me, the 
Under Secretary, the Deputy Secretary, or the Assistant 
Secretary, but it will be a senior official from our Department 
there every month.
    Mr. Wolf. Maybe the next one that comes back, say, for the 
month of March, if they could come by and sit down with us to 
kind of just tell us what they saw.
    Secretary Evans. Sure. You bet. We would be glad to do 
that.
    Mr. Wolf. Thank you.
    Mr. Serrano.

                     TECHNOLOGY OPPORTUNITY PROGRAM

    Mr. Serrano. Thank you, Mr. Chairman.
    Mr. Secretary, you and I have touched on this issue before, 
but it troubles me enough for it to be discussed in a public 
forum, and I know that you won't mind doing that. This whole 
issue of the digital divide; I know of no issue in this country 
facing us right now that has the long-term importance this one 
does to make sure that every American shares in this new 
technology. And yet in the present budget there is a feeling 
somehow that the TOP program, the Technology Opportunity 
Program, is no longer needed, when, in fact, many of us feel 
that the whole purpose of the program was to, in fact, begin to 
close this gap.
    Now, in the Commerce Department Budget in Brief on page 
148, it states this program has fulfilled its mission and is 
proposed for termination. I would like you first to comment on 
what mission it has fulfilled, especially when there is still a 
major, major serious gap in access to the Internet and access 
to this technology amongst different racial and ethnic groups 
in this country, people of lower income; and secondly, if 
indeed, as people have stated, as you and I have discussed, 
other agencies are expanding access to the Internet, why not 
then continue TOP in place to make sure that it sets the tone 
for that other behavior?
    And I would also like to comment on the fact that my 
understanding--and maybe you will correct me about other 
departments, other agencies providing more access to the 
Internet--is that what they do is to track, in the case of the 
Justice Department, the issues they deal with, for the FBI to 
deal with the issues they deal with, whereas TOP was to make 
people, low-income people, different folks, accessible--have 
the Internet accessible to them. So I don't see one as being 
the other.
    And lastly, my major concern here is that to say at this 
point that the digital divide has been done away with is to 
send a message that a problem does not exist, when, in fact, a 
major problem still exists, and I would like you to comment on 
that.
    Secretary Evans. The digital divide is not over with. I 
know I certainly haven't said that. In fact, I have said the 
opposite. I have said what I just finished saying, that there 
is still a gap that needs to be closed.
    First, with respect to the TOP program, it was started in 
1993, and at that time virtually no one in this country was 
connected to the Internet. Were there computers beginning to 
move into classrooms and move into our society and people 
beginning to use those into workplaces? Yes, that was beginning 
to happen, and it had been happening since the early or mid-
1980s.
    And so the TOP program was twofold, as I understand it. At 
least here is how it was used. It was used to move into 
communities and leverage some Federal money with some community 
dollars, maybe it is city dollars, maybe it is State dollars, 
to develop programs, set up programs that would help train, 
teach those in the inner cities or wherever, rural communities, 
how to use computers and how to become computer literate.
    The program has also been used to work with local 
municipalities and local law enforcement programs in teaching 
local fire departments and what have you how they can utilize 
the computer in their operation.
    So there has been kind of the mix between we are going to 
be using it to train some children, and we are also going to be 
using it in some of the local law enforcement agencies.
    Since 1993, there has been pretty consistent funding of 
about $20 million a year, and since 1993 obviously a lot of 
people have come online on the Internet. A lot more people are 
now using the computers and becoming more computer literate.
    We just released a report about a month ago that is called 
A Nation Online, and what that report basically said is that of 
those in the age group of between 5 and 17 years old, 90 
percent use computers. It also said that more than 50 percent 
of the people in America are connected to the Internet, and 
that 75 percent of students between 14 and 17, use the 
Internet. It also said that those that have been the farthest 
behind across America have been catching up the fastest, but 
that is not good enough, because we don't leave anybody out in 
America. As the President has said many times, we don't leave 
anybody behind, and when it comes to computers and the 
direction this economy is moving, the use of computers is an 
education issue. I think in order to be competitive in future 
economy and in this society, it is important that everybody 
have an understanding of computers, and over the last 11 or 12 
years what has occurred is a phenomenal amount of recognition 
of that in the private sector. And so there are programs that 
are being developed all across America that are helping train 
young children how to use a computer.
    I had the pleasure, a pleasant opportunity, to go to one of 
them here in Washington, D.C. at the local Boys and Girls Club 
called Uptech. It is great to walk through there and see all 
those young children learning how to use a computer, funded by 
Power-Up, funded by Steve Case and other kinds of leaders in 
the high-tech community that recognize the important role they 
have in teaching young children how to use computers. Power-Up 
is a program that has got a thousand sites all across America. 
TOP has funded under a hundred. Power-Up is a program that has 
raised $55 million to run these sites. So they are spending 
three times the amount of money--three and a half times the 
amount of money we are spending in the TOP program. Power-Up is 
a program that has got volunteers from all across this great 
land that are stepping up to do what they can to move into the 
local Boys and Girls Club, YMCA, schools, whatever, to teach 
these young children how to use computers and close the digital 
divide.
    It is still a very, very big problem, and that is why I 
would say what I did. It is an education issue now. It used to 
be, I think, kind of a convenience issue, or wouldn't it be 
nice to have a computer in your home. We are moving into a 
society where it is just almost like a telephone, and so there, 
to me, needs to be a whole different very serious focus on it, 
and part of the focus is an education focus, and that is 
exactly why the President put a billion dollars in the 
education budget that focuses on this important issue of being 
able to get----
    Mr. Serrano. Mr. Secretary, let me just interrupt you a 
second. I missed the first part of your statement. Power-Up 
is--has government funding?
    Secretary Evans. No, they do not.
    Mr. Serrano. Well, you see, that is precisely my point. 
TOP, as insignificant to some people as it might have been, was 
a government commitment to bridging the digital divide. My 
concern continues to be the message that it sends for these few 
dollars to suggest that the problem is over, and that is the 
reason to get rid of TOP.
    Secondly, if you go to my district in the South Bronx, you 
find waiting lists for people who want to get into programs to 
learn how to use a computer, and, most importantly in some 
cases, to have access to a computer because they don't have 
that access at home. Now, it is hard to believe--and I am not 
being sarcastic here--that there are not some folks, large 
numbers of people, who cannot afford the actual equipment at 
home, and so they must have access elsewhere. These centers are 
in many different places, funded in many cases by government 
and others--but the need is there. So I will, when you hear me 
trying to make the case in this committee that this program 
should stay in place, I do it as much for the program and what 
it does as I do to fight off the impression that is being given 
by cutting this program and the statements that go with it that 
this issue has been resolved, when, in fact, it has not been 
resolved.
    Secretary Evans. Right. Well, I certainly accept your 
point, and the only point I would make is one that I have been 
making; it is a much more serious problem than $20 million can 
certainly solve. I certainly take the point in terms of the 
signal that it might possibly send, but what I would quickly 
say is the President has put a billion dollars in the Education 
budget to address this problem, and has put a billion dollars 
in Justice Department's budget to address this problem. He has 
put $100 million in the Agriculture budget to address this 
problem.
    So certainly the dollars have been committed, and the last 
comment I would make is I am heartened as I see the private 
sector stepping up in a big way in this country to develop 
programs all across this country to help these neighborhoods.
    Mr. Serrano. I am not going to beat this subject to death, 
but we both agree, it is still a problem and the private sector 
has been wonderful. They are at the center of our society, but 
the private sector tends to work more in some neighborhoods 
than in others, and that is where government has to balance the 
approach.
    Do I have, Mr. Chairman, time for a quick second question?
    Mr. Wolf. Sure, yeah.

                        CENSUS BUREAU FACILITIES

    Mr. Serrano. On the Census Bureau and the Suitland 
facilities and the need for new homes for the census workers, 
one of my concerns is: do you feel that the way the budget is 
set up now and the requests are in place that you will be able 
to move folks into buildings prior to beginning to work on the 
next census? In other words, I am concerned that if they move 
in 2009 or in 2010, the disruption will be really ridiculous.
    Secretary Evans. Yes. The move-in date for the 1st building 
is Fall of 2006 and Spring of 2007 for the 2nd building. As you 
know, we do finally have it in the GSA budget, which we have 
fought for. It is vitally important just as a safety issue, if 
not anything else. And so we worked on it very hard.
    Mr. Serrano. Thank you, Mr. Chairman.
    Mr. Wolf. Mr. Taylor.
    Mr. Taylor. Thank you, Mr. Chairman.

                        TRADE INCREASE IN RUSSIA

    Mr. Secretary, in the area broadband and computers, the 
private sector does a great deal more than it gets credit for 
and actually is far more effective in that area than the 
government. That is true about most things.
    I would like to ask you about your comment regarding the 
Russian visit and to thank you and the President for the 
successful visit and for the way in which it was handled. What 
is happening in Russia now is very positive. Russia was very 
supportive of America after 9/11 and has worked with us in the 
past and is now working with us on the oil situation. Do you 
expect to see an increase in trade with Russia, and in what 
areas would you say that would happen?
    Secretary Evans. Congressman, I definitely expect trade to 
increase, and it will be in a variety of areas. I think in the 
natural resource area, we will certainly see some increase in 
trade between our countries. In the aviation area, I am 
anticipating some increase on that front. In the high-tech 
area, certainly some increase in trade. So it is a variety of 
areas.
    I think what is important to understand and what I am going 
to share with you about my visits to Russia is that there is a 
lot of talk and reporting about the leadership of President 
Putin and the direction they are taking in that country, the 
reforms they are moving through the Duma--reforms like rule of 
law, property right ownership and other kinds of reforms that 
are necessary for a free market economy to function. I have 
been very impressed with the reforms they have implemented over 
the course of the last 12 to 18 months. American companies that 
are on the ground and have been on the ground over there for 10 
or 12 years are also very impressed with the reforms.
    And so I see a lot happening from the top down, but I think 
the more interesting point that I want to make is that my 
travels over there suggest to me that there is a lot happening 
from the ground up, and there is a dramatic move in that 
country from being on a public payroll to a private sector 
payroll, and I think people are going to be impressed as they 
see data reflect over the next year or 2 the movement of people 
from public payrolls to private payrolls. Russia is a country 
where the young people literally understand and feel a deep 
sense of responsibility to their families, to their country, 
and to build their communities.
    And so what I say often is I see a lot happening from the 
top down, but I also see a lot happening from the ground up, 
and I think because of that, it is that kind of spirit that 
will really be a catalyst for more trade between our two 
countries.
    Mr. Taylor. We are often accused of going to Moscow, and 
not seeing the rest of the country. The remainder of Russia 
contains the vast majority of population and spans many time 
zones. That is almost doubled in 2001, in the local areas, in 
the provinces. So I think we will be very surprised when those 
figures start coming out, and I agree with you. Thank you.
    Secretary Evans. Thank you, Congressman.
    Mr. Wolf. Mr. Mollohan.
    Mr. Mollohan. Thank you, Mr. Chairman.
    Mr. Secretary.
    Secretary Evans. Thank you, Congressman.

                    Technology opportunities program

    Mr. Mollohan. Thank you. I want to follow up just a little 
bit on Mr. Serrano's questions on the TOP program. In rural 
areas this really is a problem, and I would like to reinforce 
that there is some strong support in the Congress for this 
program. When the President--I assume he was campaigning--in 
June of 2000, he made this statement: ``Technology has brought 
so many opportunities into our lives. Now we must make sure 
that these opportunities are shared as widely as possible so 
that everyone can gain and everyone can contribute in the 
digital economy. A student or worker without computer literacy 
is at a terrible disadvantage''. He made that statement at the 
La Pointe Learning Center in Los Angeles.
    Oh, I am sorry, Lucille. I would have given you this one.
    Ms. Roybal-Allard. That is okay.
    Mr. Mollohan. In Los Angeles in June of 2000, that center 
was one of the first recipients, grantees, of the TOP program.
    In light of that statement, what do you think the President 
meant by that, and what do you think his intention was to 
support this kind of activity when he became President and was 
putting together his budget?
    Secretary Evans. I would say again that, the President 
certainly understands the importance of, everyone having an 
understanding of computers and how they work and how they are 
used.
    Mr. Mollohan. And I would stipulate to that. I am sure the 
President does. It is just hard to understand when you get down 
to the detail of it, when you are at a center where he makes 
that kind of statement--do you want me to read the statement 
again?
    Secretary Evans. Yes.
    Mr. Mollohan. Okay. Technology has brought so many 
opportunities into our lives. Now we must make sure that these 
opportunities are shared as widely as possible so that everyone 
can gain and everyone can contribute. In the digital age, a 
student or worker without computer literacy is at a terrible 
disadvantage.
    The statement made in the learning center which was 
supported by the TOP program----
    Secretary Evans. Right.
    Mr. Mollohan. You would think that----
    Secretary Evans. Right, right.
    Again, I would just say what I have said earlier in that 
that is why he put a billion dollars in the education program--
--
    Mr. Mollohan. Talk to me about that. Are you suggesting a 
billion dollars is going to support this program? If that is 
true, we----
    Secretary Evans. I wasn't part of the start of the TOP 
program in 1994. It is my understanding that it was an 
awareness program, to make people aware of computers and how 
they can be used in their life, and Internets, and that is how 
it has been defined to me.
    Mr. Mollohan. It is a grantee program that provides 
resources to put those kind of facilities in place in order to 
bring technology opportunities to these kids. I am from a rural 
district, and I can tell you it is a real challenge to bring 
these kind of resources into these communities. In a lot of 
these communities we don't have big private sector companies 
that come in and participate, and if that solved the problem, I 
would salute that right up front, but it really doesn't solve 
the problem, and I would invite you to reconsider your 
justification statement for eliminating this program.
    You say, this program has been successful, whatever that 
means in your terms, but is no longer necessary to stimulate 
innovation in an industry that thrives on change and new 
applications. Respectfully, this program isn't designed to 
stimulate innovation in the information technology industry. So 
if that is your justification for killing this program, I would 
simply invite you to revisit the justification.
    Secretary Evans. Yeah. I take your point on that. I would 
have to go back and look at the exact history of it. It is 
reported to me that it was an awareness program, but I don't 
think there is anybody----
    Mr. Mollohan. The President really does support this 
program. I will bet he really does support this program.
    Secretary Evans. He really does support the goal of every 
child in America understanding how to use a computer. He knows 
how important it is to their education, and that is why, there 
is a billion dollars in the education budget.
    Mr. Mollohan. I am sorry. That honestly--well, I will 
invite you to tell me how that billion dollars is going to 
address the focus of the TOP program, and you don't have to do 
it right now, but I really do invite you to be interactive 
about that.
    Secretary Evans. Sure. I would be----
    Mr. Mollohan. And, again, I don't want to beat a dead 
horse, but this is a great program in areas that are challenged 
to take advantage of this kind of technology, and I didn't even 
get into reading you the statistics. Eighty percent of the 
households making over $75,000 in 1997 have computers; 30,000 
under $15,000 had a computer in 1997. In 2001, 90 percent of 
the households making over 75,000 had a computer; 40,000 
households making under $15,000 had a computer. The spread was 
the same, about 50 percentage points.
    So relatively speaking, the affluent are--because of their 
access in the home to computers--are definitely advantaged in 
being able to participate and to become computer literate, 
relative to those who are less fortunate in our society. The 
TOP program, through this community kind of program, just like 
the one the President visited, is nicely targeted to do that. 
And I will grant it, we need more money to do it, but it seems 
a shame to kill a program on the justification that it was 
successful, and the money isn't needed to provide initiative to 
an information technology industry that never needed any 
initiative to begin with and wasn't the focus of the program.
    Thank you, Mr. Secretary. Thank you, Mr. Chairman.
    Mr. Wolf. We are going to recess for about 7 minutes. When 
the first Members come back, they will begin the hearing to 
kind of move it right along, but we will resume in a bit.
    Secretary Evans. Thank you, Mr. Chairman.
    [Recess].

                             Census Bureau

    Mr. Miller [presiding]. Mr. Secretary, since I am the first 
one back, they have asked me to go a little bit out of order 
here. Right now, there is a little confusion as to what is 
going on on the floor right now with votes.
    First of all, let me thank you for your support of BEA and 
the Census Bureau. I follow those issues very closely. Most 
people think of Commerce as a huge bureaucratic organization, 
but it is a department important to our country.
    Getting accurate and timely information is critical to our 
economy; I think a lot of economists say what happened in 1990, 
that is not having accurate timely information for Allen 
Greenspan to make some tough decisions--had a negative impact 
on the economy back in the early 1990s.
    I thank you for your support, and I thank you for your 
support for the Census Bureau. It is one of those issues that 
is hard to fully understand all of the complexities of it, but 
you have jumped into it from everything I have heard, and so I 
appreciate that.
    I have some questions on the census now. The Commerce 
Department is requesting a large increase for the Census 
Bureau, 247 million, and 201 million in the periodic censuses 
and programs alone. By contrast, the entire Commerce Department 
is only requesting a total increase of 107 million. Even after 
September 11th, the entire State Department is only requesting 
a 270 million increase.
    At a time of war and recession with the first budget 
deficit in 4 years, how do you justify the enormous increase 
for a statistical agency?
    Secretary Evans. Well, as you said, statistical information 
that is accurate and real time is very important to the 
economic security of this country. It is very difficult to make 
wise policy decisions that affect millions of lives and--to 
make effective or good or wise policy decisions if you don't 
have timely, accurate information. That is the underlying 
principle of why I am comfortable with the size increase that 
is being reported or requested for this Department.
    Now, it breaks down into two pieces. One is, BEA or the--
doing everything we can to make sure that our GDP numbers are 
as accurate and timely as they might possibly be. Under the 
proposal, we have a target to speed up by some 20 days. We are 
going to cut it in half the time in which we report GDP 
numbers. So we will have that information out in the public 
domain sooner. As is important to being sooner, let's make sure 
it is accurate.
    One of the areas that we had difficulty with in the 1990s 
was dealing with the service industries. We collect and gather, 
and have for some time, information on the mining and 
manufacturing industries, but have not been focused on service 
industries, the high-tech industry, which is obviously a very 
large part of our economy now, and so we are gearing up an 
effort to understand what is going on in the service 
industries. That, quite frankly, is a sizable component of GDP 
calculations.
    Trade is another area that if we had more timely 
information, it would help our industries and help our economy 
make wiser and more timely decisions. And so we are asking for 
increases in order to accelerate the time that we report trade 
data. We are going to compress it by some 20 days, from 50 days 
beyond the end of the month down to 30 days beyond the end of 
the month.
    One of the principles going on here as to why the request 
to have dollars, is really the clear understanding of how 
important accurate, timely, and thorough data is to the 
economic security of this country, as Chairman Greenspan has 
said on numerous occasions.
    In addition, a large part of the request, about $250 
million or so, that we have requested in the census is a result 
of three or four things. One is that we are in the most active 
year of 5-year cycles of a government census effort, and an 
economic census effort. We have 5-year cycles that we run 
through to look at our economy as well as our governments and 
collect data, and this happens to be the peak year in those two 
very important census programs that are conducted on a 5-year 
cycle.
    In addition to that, as part of the 2000 lesson that we 
learned, we learned that we could have saved some money, could 
have been more efficient, probably more effective, if we had 
done a little better job in planning, in organizing, in 
preparing for the year well in advance and laying out a 9- or 
10-year plan.

                       American Community Survey

    Part of that very important process as we look back on 
2000, look forward to 2010, is the whole area called American 
Community Survey that you, I know, are familiar with. And we 
ran a study on that program during this last year to validate 
it, to see if it was going to provide us the kind of long form 
information that we would find acceptable in having a rolling 
census, so to speak. And the answer to that question was yes, 
we do think that this American Community Survey can provide 
this country with a rolling census and then provide States and 
municipalities and the districts with the kind of information 
that they need to do their own planning on an annual basis.
    It may be giving children flu shots. It may be staffing up 
to provide language help in certain communities. It may be the 
distribution of dollars within States and within districts and 
within counties. And rather than wait and only rely on 
information every 10 years, wouldn't it be wiser to have the 
information that we were looking at every year with respect to 
our society that is more accurate so that there would be a more 
efficient allocation of our resources?
    You all want to optimize the allocation of the scarce 
resources that we have in this country, and one way to do that 
is to make sure the people that are allocating those scarce 
resources have good information with which to allocate them.
    Mr. Miller. A question on the ACS. We do have the long 
form. But for 2010 we will not have the long form--is that 
correct?
    Secretary Evans. We will have it only in the form of the 
ACS, correct.
    Mr. Miller. There is a question of whether it is mandatory 
or voluntary. The Constitution refers to apportionment for 
House of Representatives. ACS is not a constitutional 
requirement as the short form is a constitutional requirement. 
Do you have an opinion on whether there is legal requirement 
that it be mandatory for the ACS?
    Secretary Evans. I don't know. I don't have a legal opinion 
on that. What I do have is an opinion on is it is going to be 
collecting the kind of information that we are required to 
collect statutorily. I think you know in the various statutes 
that we must honor and respect and provide the kind of 
information to the Congress that you have requested for us to 
collect. It will collect that kind of information.
    Mr. Miller. Well, I think the question we want to explore 
further is the question of whether it is mandatory, or even 
necessary for technical reasons. I know some people are 
concerned that the mandatory nature of it. We had some troubles 
with the long form when they were doing it a year and a half 
ago.
    Let me ask one more question relating to the census, and 
that is about the budget controls of the Bureau. I have been 
very supportive of the budget of the Census Bureau and 
supported these big increases they got as we went through the 
process for the decennial. And we had a very successful census, 
a $6 billion census, but it was the most accurate in history.
    But you have to be accountable for the money, and a 
September 2001 GAO report cited major problems with internal 
budget controls. And last year the Bureau suddenly found $50 
million after the GAO was asked to investigate. Now they have 
$90 million spent on contracts that have not been audited and 
may or may not have been received. They are projecting an $11.3 
billion census maybe in 2010; We may not be here, those of us 
sitting around here for the 2010 census, but whoever is sitting 
here is going to need to figure out where the money is coming 
from. So we need to make sure that we have good budget controls 
and accountability of the money spent.
    GAO has raised some questions, and I don't know what we can 
do to make sure that we have significant accountability of that 
money. Because it is huge sums, 6 billion and maybe $11.3 
billion in 2010. I just want to make sure that we are focused 
on controlling that spending.
    Secretary Evans. Yeah. Well, I am pretty sure I won't be 
here in 2010, but I will assure you of this: that I understand 
accountability, and I understand controls, and I understand 
people being held accountable, and I will take a hard look at 
this. I will ask the right, tough questions and make sure that 
we have the accounting controls in place that satisfy me that 
we have got a system that should work, and work efficiently.
    Mr. Miller. Thank you very much.
    Mr. Cramer.
    Mr. Cramer. Thank you.

                        DOMESTIC STEEL INDUSTRY

    Mr. Secretary, welcome back before the subcommittee. Last 
year when you were here, I asked you some questions about the 
domestic steel industry. I would like to direct your attention 
there. First I want to thank you and the administration for 
your strong actions in support of our domestic steel industry.
    What I was asking you about last year, you, in fact, 
initiated and caused the Section 201 investigation to occur. 
But I understand that back in mid-December the ITC formally 
submitted to the White House its recommendations, and will 
those recommendations be acted on by March the 6th, is that 
timetable correct?
    Secretary Evans. That is the timetable by which to make a 
decision, correct.
    Mr. Cramer. I was reading a report from an American 
University economics professor that came out this week that 
shows that more than 325,000 jobs may be lost in the United 
States steel industry if they don't receive a strong remedy.
    So my question is, do you have any sense of what direction 
the President is going with his decision, and can we expect 
that decision on or about March the 6th?
    Secretary Evans. Well, you know, I am, of course, not going 
to scoop the President, but I will say this to you with respect 
to his thinking on the issue. He made it very clear last year 
that, again, a strong component or strong principle when it 
comes to trade is a level playing field, and in the steel 
industry he has initiated a three-part program, one being work 
with the OECD and other countries all around the world to 
eliminate overcapacity in the world.
    We have been doing that. We have had a variety of sessions 
already in Paris with other countries around the world, and we 
have commitments from around the world to remove about 125 
million tons a year of capacity off the world market.
    And in addition to that, the President initiated an effort 
to talk to other countries, focus on trade-distorting practices 
of theirs and subsidy issues that were problems. We are having 
those kinds of discussions right now in the area of steel.
    The Commerce Department administers over 300 antidumping 
and countervailing duty orders all across the economy. Over one 
hundred fifty of those, a little more than 50 percent of them, 
are related to steel. And so it is clear to the President, it 
is clear to us, so that you know there is an ongoing issue with 
respect to subsidies around the world.
    And so in addition to those first two points and first two 
initiatives, he also talked about initiating a 201 process, 
which he did. And as you mentioned, ITC has issued their 
determinations, and they vary all over the board depending on 
what product you are talking about of the 54 steel products 
that are out there. But that has been presented to the 
President, and I anticipate that he will probably make a 
decision on or about March the 6th.
    Mr. Cramer. Well, I appreciate that strong action, because 
our domestic steel industry deserves that.

                            ULTRA WIDE BAND

    I want to ask you about the recent FCC ruling for UWB 
technology that I have been interacting with you and with your 
Department about.
    I have a company in my district that has provided or has 
been providing a product using cutting-edge UWB technology to 
allow the public safety community to detect movement behind 
walls. It has a local or national law enforcement impact there, 
and yet this FCC ruling set the commercially allowed power 
level so low to the use of that technology by the public safety 
sector, the law enforcement sector would be severely limited.
    Do you expect that we can have further dialogue over this 
issue, and what will be the next step from here?
    Secretary Evans. Right. I do know when the FCC released 
their determination, they allowed for the continuation of 
discussion and dialogue to further consider whether or not 
changes were suitable or acceptable to lower the power levels. 
And this is a safety issue on both sides when it comes to 
deciding where the power level may or may not be.
    It gets into safety issues. We will continue to work with 
the Department of Defense. We will work with the Department of 
Transportation. We will work with NASA and further explore 
other opportunities to change the power settings. I am not 
sure, but the FCC made it clear that dialogue could continue.
    Mr. Cramer. Very good. Thank you very much.
    Mr. Wolf [presiding]. Mr. Regula.
    Mr. Regula. Thank you, Mr. Chairman.

                        DOMESTIC STEEL INDUSTRY

    Mr. Secretary, you are certainly aware of the report that 
was alluded to by the professor at American University about 
the loss of 325,000 jobs, but I would point out that report 
does not include the impact on a whole group of other 
businesses, automobile dealers, clothing stores, you name it. 
So the number of jobs potentially lost are far more than the 
325,000.
    And also, I point out that the steel industry, as a result 
of the VRAs in the first Bush administration, has done a lot of 
restructuring. The labor has become very efficient, and it is 
difficult to do a whole lot more and still be able to compete.
    And I want to commend the President and you likewise for 
initiating a 201 investigation to start with. We tried for 8 
years prior to your administration, and when I say we, I am 
speaking on behalf of the Steel Caucus, to get a 201 
investigation initiated without success. So you at least took a 
degree of leadership there in getting that done.
    And I hope that the President will make a decision maybe 
with some relief, maybe not entirely what the ITC has 
recommended, but to give industry a breathing spell. We have a 
company in my district that is in Chapter 11. The labor force 
has agreed to take a 15 percent pay reduction. They are taking 
the same reduction in executive salaries in an effort to 
survive, but they need some time.
    And I think the President in making this decision could 
give these companies like that, because there are a lot of them 
out there in Chapter 11 in the industry, time to get 
restructured to become competitive and also to get some success 
with your effort to get other countries to voluntarily reduce 
production.
    I think the real problem, as you very well stated, is that 
there is just overcapacity in the world. The solution has to be 
twofold, one to get the economy stronger so the demand is 
there, and secondly to reduce capacity. I just wonder if you 
want to comment on that.
    Secretary Evans. I don't think I can amplify much on what I 
have already said. I will make one other point in terms of what 
is going on around the world. In 1985, about 75 percent of the 
steel capacity was owned by the government, and today about 
less than 25 percent of the steel capacity in the world is 
government-owned. And so there is a tremendous amount of 
economic force, moving toward privatization of the steel 
industry globally, and it is happening. In my judgment it will 
continue to happen, particularly when you look at where most of 
the government-owned steel capacity is, which is basically in 
Russia and Ukraine, that part of the world.
    I think we will continue to see free market forces work on 
the steel industry. I think it will bring the industry into 
balance in the years ahead. Is it going to happen next week? 
Probably not. In the meantime, I think that as the President 
said, one of the fundamental components of trade policy is a 
level playing field. We have to be able to say to our workers 
and our businesses that we are all going to play by the same 
rules.
    America loves to compete. We are the greatest competitor in 
the world. We have the greatest workers in the world, the best 
products in the world, but just make sure that we have a level 
playing field.
    Mr. Regula. We will be happy if the President's decision 
creates the level playing field. We look forward to that. But, 
Mr. Chairman, I would like to put this study in the record.
    Mr. Wolf. Sure. Without objection.
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    Mr. Regula. That would be a great achievement to get the 
level playing field. We have been trying for 25 years to 
achieve that goal, and I think one of the most significant 
steps was having the Section 201 investigation initiated.

                   NATIONAL SEA GRANT COLLEGE PROGRAM

    One other question on the National Sea Grant College 
Program. The President's budget proposes to transfer the 
National Sea Grant College Program from NOAA to the National 
Science Foundation. The director of the Ohio program, who is 
highly respected, would like to keep his partnership with your 
Department, and particularly with NOAA.
    As you know, the sea grant program is more than a basic 
grant program. The program engages many of the Nation's top 
universities in conducting scientific research, education, 
training and extension projects that are designed to result in 
science-based decisions in the use and conservation of our 
coastal resources, including those of the Great Lakes.
    The sea grant program also effectively leverages every 
Federal dollar with a direct match, and further investments by 
State, local, university and private sector funds to 
effectively manage our coastal resources.
    Would you explain the rationale for proposing to move the 
sea grant program from NOAA to the National Science Foundation?
    Secretary Evans. Congressman, the way I would explain it is 
that the National Science Foundation is clearly the premier 
center for basic research in the Federal Government, and the 
sea grant program is basically focused on basic research, 
whereas in NOAA the research that we focus on is more in 
applied research. And so the decision was based on the 
importance of getting more of the basic research programs 
within the Federal Government located in the National Science 
Foundation, which is the center for basic research in this 
government. So that is the reason for the decision.
    Mr. Regula. Well, I think the administration has promoted 
the idea of partnerships as an effective way to manage 
programs, and I think you will lose some of that by making that 
transfer, because the Sea Grant College Program has generated a 
lot of involvement at the State, local, university level in 
partnerships. And I would hope, and of course I am speaking on 
behalf of the Great Lakes, that you would rethink that decision 
in the sense that I believe we will lose some of the local, 
private, and the State governments' involvement if this is 
moved over to the NSF. It will be just one more program there, 
whereas, it presently has a focus on some problems that exist 
in the places like the Great Lakes.
    So, I don't know if that decision has been final, but at 
least I think it is something that I would hope that you would 
give some consideration to. And, again, we look forward to your 
decision on steel.

              MANUFACTURING EXTENSION PARTNERSHIP PROGRAM

    One other issue I would touch on, the Manufacturing 
Extension Partnership Program. I believe your budget zeroes 
that out. And we have had some success with this program in 
Ohio to help the small manufacturers, and small manufacturers 
become big manufacturers in time.
    And I think that this, again, is a partnership between the 
government and the small manufacturers in an effort to give 
them an opportunity to grow. In a State like Ohio, and I think 
it is probably true in a lot of other States, they have a great 
number of small companies that need a helping hand that is 
provided by the Manufacturing Extension Partnership Program. I 
would be interested in why you feel this is no longer useful.
    Secretary Evans. It is useful. It is, quite frankly, a 
wonderful program. When the program was first initiated, the 
idea was that we were going to run this for 6 years. At the end 
of the 6-year period, hopefully they would be up and running 
and self-sustaining. And that was changed 2 or 3 years later. 
That 6-year time window disappeared.
    But, you know, Congressman, I will just say to you that we 
are at war, and you got to have priorities. And this is a great 
program, but everything unfortunately can't make the cut. And 
we have left $13 million in the program to support a couple 
centers that have not been running for more than 6 years. But 
for those that have been in existence for more than 6 years, we 
are just hopeful that they will be self-sustaining. Also asked 
for and hope we will receive, sometime this spring or summer, a 
study as to whether or not those centers indeed can be 
privatized.
    You are providing a service to small and medium-sized 
manufacturers. It is the kind of service that would sustain a 
program.
    Mr. Regula. Well, if this committee were to make a somewhat 
different priority judgment, you would not find that totally 
negative action?
    Secretary Evans. No, it is a good program. It has been a 
worthwhile program, but, like I said, you just have to have 
priorities.
    Mr. Regula. Thank you.
    Mr. Wolf. Thank you, Mr. Regula.

               LEVEL PLAYING FIELD IN INTERNATIONAL TRADE

    I am going to Ms. Roybal-Allard. I want to follow up on 
one, and I don't have steel in my district.
    He really does have a pretty good point. As you know, I 
voted for the TPA. I guess everyone who voted for it can say 
that they were the deciding vote. It just seems that maybe they 
were, because, as you know, it was not there up until whatever.
    But he does raise a good point. And the other day I was 
listening to music, and Bruce Springsteen's song Youngstown 
came on. Have you ever heard the words to that song? You ought 
to look at the words to that song. It talks about the men who 
fought World War II and worked in the steel mills in 
Youngstown, who made the cannonballs and now they are all gone. 
And there is a certain thing. When you look at the level 
playing field issue, it isn't level.
    I like you. I trust you. I mean, I am a great fan of the 
President. The President was very firm with the Chinese when he 
was there. I had a Chinese worker come into my office 2 weeks 
ago; 29 days out of 30 they were working. They were getting up 
about 4 o'clock in the morning. They were working until like 9 
or 10 at night. They lived in a dormitory above the factory. 
They were making little plastic things for a fast food company, 
I won't mention it, in the United States.
    Well, that was not a level playing field. They had no OSHA, 
they had no EPA, they had no minimum wage, they had no family 
leave policy, they had nothing. If you need a kidney, you could 
go to China, for $45,000 they will go into the prison, they 
will execute someone with your blood type and give you a kidney 
transplant, and it probably will take, because the quicker the 
transplantation takes. So it is really not a level playing 
field.
    Mr. Regula is right. I really worry about the industries 
that need a little breathing time. The Chinese are dumping 
apple concentrate into this country. Well, the conditions are 
horrible. I mean, they are spraying. I mean, they just do 
things. And I plead with you to really make sure that it is 
really a level playing field in the truest sense of the word, 
because sometimes they hire the brightest and biggest of the K 
Street firms. I mean, they will hire them. China will come over 
and hire them. There was a law firm over there now trying to 
negotiate a business to help China with regard to the Olympics. 
I mean that maybe the fact that they got the Olympics kept them 
from invading Taiwan. That may be the one thing to help Taiwan. 
But really look at it. I urge you to.
    I will never check, I may ask you if this as a stream of 
consciousness, but get the words of Bruce Springsteen on 
Youngstown, and it really painted the picture that Mr. Regula 
is making. And I think if it were truly a level and completely 
level playing field, I think you are exactly right. I think the 
American worker does better, and I think the free enterprise 
system that we have is better.
    The problem is in China, in Vietnam, it isn't--I could go 
through the list. So I don't have steel in my district, the 
last time the vote came on, I didn't vote with them. But they 
have a good, legitimate point, and Bruce Springsteen makes it 
better than I do.
    Ms. Roybal-Allard.
    Ms. Roybal-Allard. Thank you, Mr. Chairman.
    And, Mr. Secretary, welcome.
    Secretary Evans. Thank you.

                              TOP PROGRAM

    Ms. Roybal-Allard. First of all, let me associate myself 
with all of the comments that have been made by Mr. Serrano, 
about the importance of the TOP program and the importance to 
many of our districts. And I just wanted to add something that 
relates to your opening statement where you said that the first 
priority of the budget is harnessing the resources of the 
Federal Government to protect the lives and safety of all 
Americans.
    The TOP program helped police in California to build an 
information-sharing computer network that the FBI used to 
identify a suspected terrorist within hours of the September 
11th attacks. And the FBI could not retrieve a photo of one of 
the suspects because it was not in the National Crime 
Information Center. But the Calphoto Crime Police Network was 
able to quickly find the photograph of the suspect.
    California's new antiterrorism information system, which 
depends on Calphoto and is something that the FBI also has 
access to, and this program began with a $400,000 TOP grant 
which is now funded by the local agency. So I just wanted to 
add that bit of information with regards to the program.

                              MEP PROGRAM

    Your Manufacturing Extension Partnership Program, which 
assists small and medium-sized companies, is working very well 
in California. In southern California, the MEP Center is known 
as the California Manufacturing Technology Center. And again, I 
was surprised that the recommendation is to cut the program 
from 106 million to 13 million, which virtually eliminates the 
program.
    Can you tell me what the most recent NIST survey results 
indicate about MEP relative to increased productivity, 
competitiveness, cost savings, increased investment, work force 
retention for small and medium-sized manufacturers who use 
these services?
    Secretary Evans. No, ma'am, I can't, but I will be glad to 
get back with you. I have not seen the report or know what the 
data shows, but I will get back to you on it.
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    Ms. Roybal Allard. It is my understanding that the latest 
survey of the MEP Program attributes about 700 million in 
increased sales, 480 million of cost savings and 900 million of 
increased capital investments.
    MEP also represents a significant partnership with both 
States and businesses. Can you tell me what the total level of 
funding for this effort is including the States and private 
contributions, and what will happen to that investment if the 
Federal share is effectively eliminated?
    This is the MEP Program, and it represents a significant 
partnership between the States and businesses, State and 
private partnership.
    Secretary Evans. Right.
    Ms. Roybal-Allard. And my question is what would happen to 
that?
    Secretary Evans. I am not sure there is any way of really 
telling. Some of the centers would continue. Some may be 
discontinued. I think it would just be a function of what the 
local communities were able to do in terms of filling in the 
gap that we would leave.
    Would others step up and fund that gap, or would it just 
mean that they couldn't serve quite as many? I am not sure. I 
don't know that we have studied that.
    As I said in my other remarks, I know the program was 
initially designed to support new centers for 6 years and get 
programs up and running, and with the idea that after 6 years, 
if they were worthwhile, they would be self-sufficient; that 
they would be strong enough, they would be showing results, 
they would be showing performance, so those in the local 
community would have enough results to go to others and say, 
this is something that we ought to fund. It is good for our 
community.
    Ms. Roybal-Allard. But my understanding is that there is an 
extremely high return on investment. Do you have those figures 
to share? I have some figures, but I am not sure that--well, my 
understanding is that each dollar of Federal investment in the 
program generates $2.66 in Federal tax revenue, and that each 
dollar of State investment in the program generates $3.55 in 
State and local revenue.
    So it appears to me that this is a real return on 
investment for increased productivity, worker retention. And in 
fact, in one of the tables that I believe comes out of one of 
your reports, it is a productivity improvement reported by MEP 
clients where you are talking about productivity improvement, 
48 percent; material productivity improvement, 43 percent; 
labor productivity 34; capital productivity, 41, and so on.
    And so I guess what I would like is for you to take another 
look at the cuts that are being proposed, and I think that you 
will find that this is a real investment and that you get a lot 
of return on your money for it, and you may reconsider the cut 
that is being made because it really does, in effect, kill the 
program.

                  Minority Business Development Agency

    My next question has to do with the Minority Business 
Development Agency, which is an agency that I definitely 
support within your Department. However, your performance 
measures which focus on the number and the dollar value of 
contracts awarded and the number and dollar value of financing 
packages received have been questioned by some of the MBDA 
centers in my area.
    And the concern is that in counting the total value of a 
contract or a financing package, that you don't necessarily 
reflect the number of jobs that have been saved or the number 
of jobs that have been created. One center could help, for 
example, four businesses that each have $5 million portfolios 
and create or save 100 jobs each, and another center might get 
a $20 million loan that doesn't necessarily create any jobs in 
the United States, but they each might be judged equally as 
successful.
    Are there any additional performance measures that you are 
considering that might better gauge the actual impact of 
minority businesses on the job?
    Secretary Evans. Congresswoman, also I support this very 
vigorously. I think this is a great program. We have got a 
great team of people that are engaged in building this program. 
We changed it from kind of an administrative kind of program to 
an entrepreneurial program of getting the local communities 
more engaged in building themselves, promoting themselves and 
doing constructive things in their own communities.
    That is the very question that I asked recently, what are 
the results? And because I am very results-oriented, that is my 
background, I want to know what the performance is. And I would 
say to you quite candidly that the way it was presented wasn't 
satisfactory to me. And I said, you need to go back and develop 
a program where we can look at the performance and really look 
at the results.
    Some of results they showed me dated all the way back to 
1997, and the reason it did is because it is part of this 5-
year economic survey that we run. It is interesting what 
happened in 1997. I am a little more interested, though, in 
what happened in 2000 and 2001. So we are focused on that. We 
will get back to you, to the kind of benchmarks that we will 
use, the kind of methodology that we will use. We will have a 
position on what that should look like, because I also think 
that is very, very important.
    Ms. Roybal-Allard. If you can give an answer to this 
question as to whether or not the centers get extra credit for 
the extent to which they direct their activities to small 
businesses?
    Secretary Evans. Yeah, we will look at that, sure. We would 
be happy to.
    Ms. Roybal-Allard. Thank you.
    One final question.
    Mr. Wolf. Sure.

                        Energy Security Program

    Ms. Roybal-Allard. You requested $6.1 million that would go 
to two pilot programs in New England and the Southeastern U.S. 
As part of an energy security program to improve the accuracy 
and reliability of forecast models of weather, hydrology and 
climate conditions. Now, I agree with the importance of such an 
effort for several reasons. For example, California, a climate 
change could have an enormous impact on energy demand, as you 
well know, including heat waves, cold spells, droughts, floods, 
as well as our ability to generate hydroelectric power. But in 
addition to the impact on energy, there are other benefits as 
well, such as stream flow predictions, which are very important 
in measuring not just water supply, but water quality in the 
form of salinity, which is, of course, very important to 
southern Californians who depend on this imported water. Also, 
stream flow predictions would help to do a better job of 
protecting endangered species by enabling us to balance our 
water demands. And States like Oregon and Washington have 
similar concerns.
    Given these facts and the significant work that is underway 
at Scripps Institute in California relative to climate change, 
why are you confining this pilot project to only two eastern 
areas of the country?
    Secretary Evans. Well, I think because it is a pilot 
project, and like you suggest, it has great potential, we feel 
that it could save us a billion dollars a year in energy costs 
alone, not to mention a number of the examples that you just 
recited as to other ways that it can benefit our society.
    But, you know, we want to test it first and understand what 
works and what does not work, and I think after that period of 
testing, which I judge will take a few years, we will be in a 
position to make a decision that is a much larger decision to 
the entire country.
    Obviously there is going to be a lot more money involved, 
and I think before you make that decision, you want to test it 
and see what works and what doesn't work, and what you may 
change or how you might alter it. And so I think it is a matter 
of just let's test it, let's try it, let's see how it works, 
let's see if these models that we have looked at or considered 
actually turn out to be real and really do work. And if that 
answer is yes, then we might well--whoever is here might be 
coming back up here in a few years and asking for a substantial 
amount of money to cover the country with this.
    Ms. Roybal-Allard. But the fact is that climate conditions 
and all of those things that this pilot project are supposed to 
address, the Eastern part of the United States is very 
different than the Western. I mean, California, for example, 
has a very different climate and different kinds of problems 
that might be experienced in the Eastern parts of the United 
States. So I would venture to say that it would be a much 
better study if perhaps one was done on the Eastern part of the 
United States, the other was done on the Western, and you might 
get better and, you know, broader information that would impact 
both.
    Because if you just concentrate on one part of the country, 
whatever comes out of that may not necessarily----
    Secretary Evans. I think our request is just the 
Southeastern part of the country, not New England. I think New 
England was put into the budget, but our request was just the 
Southeastern part of the country. So we picked one area in the 
country to test the model and to see what would work.
    Ms. Roybal-Allard. Part of this is my own paranoia. Since I 
have been here, in 10 years there is this east coast mentality. 
And somehow there is a feeling that the United States stops at 
the Mississippi, and California and others west of the 
Mississippi also seem to be having to say, hey, we exist, 
whether it comes to studies, research or whatever it happens to 
be. So I hope that you would at least consider some of this on 
the west coast.
    Secretary Evans. When I was chairman of the board of 
regents at the University of Texas system, I was also very 
jealous of the research dollars that seemed to go to 
California. It seemed like they were doing pretty well to me.
    Mr. Wolf. Thank you.

                  Homeland Security Initiative In BXA

    Mr. Secretary, your budget proposed a $20 million program 
to study Federal information systems to improve information-
sharing among Federal agencies for law enforcement, 
intelligence, border security and immigration.
    The office is to develop methods to improve information-
sharing, which is almost impossible at times, between Federal 
law enforcement and intelligence agencies, first responders, 
State and local governments. Why did they pick Commerce? Why 
not Justice or why not--why Commerce?
    Secretary Evans. Good question.
    Mr. Wolf. Do you have the authority--do you think you have 
the authority and the muscle to carry it through?
    Secretary Evans. We do indeed. I am absolutely sure that we 
do. There is no question, and a large part of that is because a 
number of years ago there was the creation of the CIAO, the 
Critical Infrastructure Assurance Office, which is, as you 
know, in the Department of Commerce. And so they have been 
building an organization over the last number of years to focus 
on the critical infrastructure of government in this country, 
not just critical infrastructure within government and those 
critical assets that we must protect here in government, but 
also the critical assets that must be protected all across this 
country so that this economy will function.
    And so during that process, Critical Infrastructure 
Assurance Office has been instrumental in organizing the effort 
to draw in the public and private sectors, because obviously 
there is quite a bit of knowledge within both sectors as to how 
technology can be used in this regard.
    When the decision was made to set up a separate Office of 
Homeland Security in this country, and we began to decide where 
certain functions that will support work and coordinate with 
the office and where various efforts should be housed, one of 
the key questions was the one you just raised of sharing 
information which can be pretty difficult at times, and 
particularly when you are trying to share information across 
agencies horizontally and vertically with the State and local 
organizations that might need information about terrorist 
threats or any other kind of terrorism-related information. And 
so because of the work we had already done in our Department in 
working with both the public and the private sectors in trying 
to develop some of the models and the programs and the 
organizational structures for dealing with information sharing, 
it seemed like Commerce was probably best suited to organize 
and lead this 2-year study.
    And it is just that; it will be a study. And we will be 
calling in public and private sector experts, the names of 
which you have heard before. These companies are comfortable in 
dealing with the Commerce Department because we have been 
dealing with them for a long time, and if all of a sudden we 
immerse them in some other department like the Department of 
Justice, then it may be a little more awkward for them to work 
with Department of Justice. So that was fundamentally the 
reason.
    Mr. Wolf. So the $20 million is a study? You will be 
contracting a lot of that out?
    Secretary Evans. That is correct.

                     EXPORT ENFORCEMENT ACTIVITIES

    Mr. Wolf. A recent AP article highlighted the arrest of an 
individual that tried to illegally ship computer goods to three 
Arab countries despite a Commerce Department order to stop it. 
What enforcement capabilities does the Bureau of Export 
Administration have?
    Secretary Evans. We have extensive enforcement authority.
    Mr. Wolf. What record have you, let's say, in the last 
year? During the Reagan administration they were very 
aggressive on this issue.
    Secretary Evans. Of course I will give you the full report. 
I am not familiar with the total report, and I will certainly 
get that to you. I am familiar with the case that you just 
talked about. I am familiar with the fact that we have just 
apprehended a suspect in New York City of shipping night vision 
binoculars to the Hezbollah in India. And as I travel around 
the country and meet with some of our enforcement officers, I 
am pleased with their focus on this very important issue.
    I don't have the listing with me of all of the cases that 
we have brought to the courts or all of the cases that we have 
resolved in the last 12 months, but I will be delighted to get 
that to you.
    Mr. Wolf. If you could.
    [The information follows:]
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    Mr. Wolf. I think it is important that you make it clear; 
there was a case during the Reagan administration with regard 
to SHEBA and the quiet propeller with regard to the aircraft--
to the submarine. It used to be we could not--200 miles off the 
coast, and the technology was transferred, and it really did 
jeopardize the national security. And particularly now it is an 
absolutely critical issue, even though the Soviet Union is 
gone. So I think how they hear from the Secretary--in the past 
at times there has almost been the inference that it is 
business first and security second. I think security is 
absolutely--I mean, Mr. Serrano was speaking earlier--27 people 
from my congressional district died in the Pentagon. I think 
national security and homeland security, and at times there has 
been this tendency to make the business deal and sort of look 
the other way. I think the more you are articulating, and I am 
not suggesting that--I think it filters down that the boss 
feels this is important.
    We are going to have a couple of votes. We are going to 
leave in 5 minutes, go vote, come back, and I think that should 
be the last round of votes.

                              BXA ATTACHES

    Last year money was provided in emergency supplemental for 
two post attaches, United Arab Emirates and Egypt. Have they 
been filled?
    Secretary Evans. I don't know if we filled them. I know the 
money was provided. But not filled yet?
    Ms. Retzlaff. Right. They have not been filled. They will 
be posted next week. We have received clearance from the 
ambassador.
    Mr. Wolf. What about UAE, it is particularly critical?
    Ms. Retzlaff. That will be up next week as well.
    Mr. Wolf. So there should be someone there in 2 or 3 weeks? 
You actually have the person?
    Ms. Retzlaff. No. The posting will go up to say that we are 
looking for them.
    Mr. Wolf. Well, a lot of stuff has gone through here. And 
diamonds, al Qaeda, Dubai, gold, the piece in the Washington 
Post the other day is very, very critical. This is kind of the 
funnel. And both of these countries, I think the sooner the 
person is on the job and somebody who has the capability to 
understanding it is very, very important.
    The budget requests new attaches in China, Russia, again 
UAE, so again, to the credit of the administration, you are now 
asking for another one, I guess, or more over--this is--you got 
supplemental----
    Ms. Retzlaff. Continued on funding for 2003.
    Mr. Wolf. Singapore.
    Secretary Evans. Right. Egypt.
    Mr. Wolf. How many BXA attaches do you have overseas?
    Secretary Evans. I don't know what the number is.
    Ms. Retzlaff. That will make seven.
    Mr. Wolf. Well, I think they ought to be up and moving 
quickly. This is a really important issue. And it is national 
security. If the committee can help you or give you any 
additional money even in that area, I think it is very, very 
important. It sends a signal, too.

                        AFRICAN TRADE EXPANSION

    Africa. We have seen reports that the volume of world trade 
has tripled, while the sub-Saharan Africa's share has fallen 2 
percent to less than 1 percent. The Congress passed the African 
growth and opportunity bill, which I supported, and I know the 
administration was very, very supportive, I believe. How has it 
helped? Is anything happening on Africa? Is there any 
improvement that we have seen?
    Secretary Evans. Well, I think it has helped a lot in terms 
of bringing focus to this important region for us to encourage 
trade and open up trade. There is no question about the 
commitment of America to expand African trade. A trade mission 
just returned from Africa, and I am going----
    Mr. Wolf. Where are you going?
    Secretary Evans. Not sure yet. But I am going there later 
this year, probably November. And I haven't set the exact 
schedule yet.
    Mr. Wolf. Are you bringing a trade mission?
    Secretary Evans. Yes. And so, I know that the Ambassador, 
USTR, just returned from Africa. So we are giving it a lot of 
attention. We have added some money in the budget to further 
promote trade to Africa.
    And so, in terms of our time and resources and focus it is 
growing. And I guess I would report to you, when you say how it 
is going, I mean, the report I got back from the trade mission 
that just returned was very positive. There is a lot of 
activity between those that went and those that are in Africa, 
regarding ways that they can work together and send products, 
services from over here to over there. And so I am encouraged 
by it.
    Mr. Wolf. Okay. Do you have a question or two before we go? 
I am going to come back. Do you want to wait?
    Mr. Serrano. It is up to you.
    Mr. Wolf. I think we ought to recess. We have got about 7 
minutes. So we will be back in 15 minutes. That should conclude 
it for the day when we come back to question. We will recess 
for about 15 or 20 minutes.
    [Recess.]
    Mr. Wolf. Mr. Secretary, we apologize, and everything just 
changed on the floor in the last--like the weather, and so they 
voiced something and we weren't back earlier, and so I 
apologize for taking all of your time. They were ready to just 
say go on home, and then they changed it.

                    CHINESE FRONT COMPANIES IN U.S.

    We have been told there are over 3,000 front companies, 
Chinese front companies operating in the United States. Many of 
them are owned by the China--People's Liberation Army or the 
Chinese Secret Police. Most of them have been used or are being 
used for espionage, and many of our companies don't know. So if 
you could look into that, we are going to ask the same question 
to the FBI, but if you could try to get me some sense of how 
many of these companies, because this is not a level playing 
field, obviously.
    So if you could look into this for me and find out how 
many--of these companies are operating within the United 
States, then I will ask the FBI, and we will match that 
information.
    Secretary Evans. Certainly. I would be happy to do that.
    [The information follows:]
              list of communist chinese military companies
    The Department of Commerce has not yet received the list from the 
Department of Defense. This list is required by Section 1233 of Public 
Law 106-398, National Defense Authorization Act of FY 2001.

                                 US/OTP

    Mr. Wolf. Your budget request, $8.1 million for the Office 
of the Undersecretary for Technology and the Office of 
Technology Policy, what is the rationale of the funding of this 
entity, the $5.4 million requested, Office of Science and 
Technology in the executive office of the President, how does 
this fit in with that?
    Secretary Evans. Well, there is certainly a lot of 
coordination between the two. We are focused in areas like 
broadband and like spectrum with NTIA and Office of Technology.
    Mr. Wolf. I guess in the funding issues, do you need both?
    Secretary Evans. Well, I think we do, yes. I mean, I think 
within the administration, it is very important for the private 
sector to have a portal into the government, and I think it is 
appropriate that come through the Department of Commerce. And 
so I feel like we play a very important role for the high-tech 
community to have a place for them to come, talk about their 
issues that are important to them, have us be an advocate for 
them, or certainly hear them out when it comes to the relevant 
high-tech issues that are going to continue to confront us in 
this economy.
    Mr. Wolf. And the office in the White House, how do you see 
that, then?
    Secretary Evans. Well, you know, we talk to them, but I 
can't tell you that--you know, I am talking to them on a 
regular basis. Obviously, there is a--the President has an 
advisory council, PCAST, which is the President's Council of 
Advisers on Science and Technology. We do work with them, and 
we do talk with them. So I see coordination and cooperation 
between the two, but in terms of just the industry, the high-
tech industry, it makes sense to me that commerce is a portal 
for them to come and discuss important issues.

                         2010 decennial census

    Mr. Wolf. Okay. Census, the Bureau of Census, is requested 
as increase of more than $122 million for the 2010 census. 
Given the budget restraints, why are we moving so quickly? Is 
this a good idea? Will it save us in the outyears?
    Secretary Evans. Yes, it will save us. I know they studied 
this very thoughtfully and very thoroughly, and not only will 
it save us, but as importantly, I think we will have better 
information. Part of this increase we talk about is to 
administer the American community survey, and so we will have 
an ongoing survey, and that ongoing survey will allow us to 
begin providing census data on an annual basis across the 
country that states, local municipalities can make very 
important decisions as to how they allocate their resources.
    So I think the big picture is that, we have to allocate 
scarce resources in this country, and the better information we 
have to allocate those resources, the more efficient we are 
going to be.
    Mr. Wolf. And the staff said that Mr. Miller had asked a 
number of questions on this subject. Did he ask how much the 
total cost was?
    Secretary Evans. For 2010?
    Mr. Wolf. For 2010, and it will be 11 billion----
    Secretary Evans. Yeah. I am hearing 11--it is a very large 
number.
    Mr. Wolf. 2000 was about----
    Secretary Evans. Six and half, right. So it is almost 
double, not quite. Obviously you have a lot of inflation in 
there. They told me that the plan we are implementing saves 
about a half a billion dollars plus has a lot better 
information.
    Again, I want to put a lot of emphasis on this being able 
to provide the country with fresh census data every year. The 
States and the municipalities have to wait 10 years to get data 
to see where their people are and how they are going to 
distribute, flu shots, for example. That is really important 
information for this country to have.
    Mr. Wolf. That is true.

                          Status of Fisheries

    Fisheries, the Financial Times had a recent article 
entitled fish docks face global collapse. It cites the American 
association for the advancement of science heard several 
studies showing that ocean ecosystems are in far worse state 
than researchers have realized 2 or 3 years ago. Any comment on 
that?
    Secretary Evans. Well, a couple of comments, chairman. One 
is we are adding some funding in the national marine fisheries. 
Not only are we going to request a new vessel that will help us 
monitor the fisheries of this country, but we are getting ready 
to put into service a vessel that was approved a year and a 
half ago. We are also beefing up our enforcement as we watch 
the fisheries and how they are being used.
    And so we are continuing to put more and more emphasis on 
this. But more important, I think, chairman, I would say that, 
again, the President's initiative to form an ocean policy 
commission that will report to him in the fall of 2002. And I 
think this policy--or not policy commission, but it is an ocean 
policy council, I guess it is called, will be reporting to the 
President as to the state of the oceans, and it will include 
the fisheries. And I think from that report it will give us 
some guidance as to, you know, what direction we should take.
    So I am looking forward to seeing that report. I think it 
will be a comprehensive look at kind of that very, very 
important area. And so while, yes, we are putting more emphasis 
on it all the time, understand the importance of it. I am glad 
we will have a more high-level report coming to us later on in 
the year.
    Mr. Wolf. You might take a look at the article, and I will 
quote from the article. It said the productivity of the ocean 
is six times less than 50 years ago. The fishing effort is 
three times greater than in 1950, while the catch has fallen by 
more than half. This gentleman, Reg Watson, it goes on to say, 
we are masking our own crisis. We are paying the fishers in 
other oceans to grind down their marine ecosystem for our 
consumption. They go on to talk about intensive deep-sea 
trolling. It said, ``it scooped up slowly growing species such 
as rockfish and orange roughy, which live for a 150 to 200 
years at wholly unsustainable rates. Secondly, communities of 
deepwater corals were being destroyed as to''--and then it goes 
on. It really--he calls it fish mining, and maybe we can get 
into that a little bit more, but that does seem to be a pretty 
serious issue.

                        Teleworking at Commerce

    Two other issues, and then I will refer to Mr. Serrano. We 
spoke to you the other day about teleworking. I don't know if 
you want to comment, but I think it is important that we 
aggressively move ahead. You have got a pretty good rating from 
OPM with regard to--I think it was 16 percent or 17 percent.
    Secretary Evans. Right. We are aggressively pursuing it.
    Mr. Wolf. So all of your people who are out here, who are 
listening, who are going back to their different agencies can 
know that the Secretary is a strong supporter of telework.
    Secretary Evans. Absolutely. Very strong supporter. They 
know it and we are continuing to encourage it.

                     International Trade Expansion

    Mr. Wolf. Okay. The National Institute of Standards and 
Technology develops and disseminates measurement techniques, 
reference data and other technologies and services required by 
U.S. industry to compete in the 21st century. What is this 
doing? Like, for instance, somebody came by to tell me the 
other day that in Mexico, they were changing the standards for 
plumbing, and had that standard been adopted by Mexico, that 
would have literally meant that they would have ripped out all 
the plumbing, which they probably would not have done, but 
moved to the EU standards. Are we aggressively moving into 
Tajikistan, Uzbekistan and those different sites to have our 
standards in so that when they begin to look as to who is going 
to meet that, they are coming to American companies rather than 
European countries?
    Secretary Evans. Chairman, that is a very good question, 
and I would say this to you, that it is one of the reasons it 
is so important that we have trade promotion authority. The 
President has the opportunity to lead when it comes to 
negotiating trade agreements around the world, because that is 
what happens. We negotiate trade agreements, and standards are 
set. And there are 133 free trade agreements in the world 
today. We are a party to three of them.
    What happens is other countries, other regions will get 
together and they will negotiate a trade agreement over certain 
products, and those products they will set standards on. If we 
are not a part of that agreement, but we decide we want to be 
in that market in 4 or 5 years, we may well go and knock on 
some country's door and say we want to be a part of this 
particular market, and they say, fine, well, here are the 
standards. Well, those don't meet our standards. Well, I am 
sorry. These are the standards that we set up in our country.
    So, again, back to the importance of us leading on trade, 
doing everything we can to make sure that we are providing at 
least as level a playing field as we can or giving our 
companies and businesses and workers a playing field to compete 
on, it is important that we are out front leading these 
negotiations and setting these standards, because that is what 
is happening around the world.
    We are doing it through trade agreements, and we are doing 
it through those kind of discussions, and so the more 
aggressive we can be in that arena, the more likely it is going 
to be that we will be able to get standards set that are 
favorable to our companies and products here in America.
    Mr. Wolf. Is there someone in the Department of Commerce 
that looks at the standards, particularly of the developing 
countries, to have us be part of that early? I mean, aside from 
the trade promotion----
    Secretary Evans. We do some, Mr. Chairman, I will look at 
that specifically.
    Mr. Wolf. They are all beginning to develop standards----
    Secretary Evans. Let me look. I know that we are called on 
around the world to discuss standards, and there are certain 
international symposiums that take place from time to time. Let 
me get back to you with a more specific kind of answer on that 
so I can tell you exactly what we have set up and how it is 
working.
    [The information follows:]
    [GRAPHIC] [TIFF OMITTED] T1888A.047
    
    Mr. Wolf. And maybe we should be fitting in with the 
President's TPA maybe aggressively finding where the standards 
are being developed and sending teams out.
    Secretary Evans. Right.
    Mr. Wolf. To help shape, because if you talk about trade, 
that is shaping the future.
    Secretary Evans. Absolutely.

                       Assistance to Afghanistan

    Mr. Wolf. Afghanistan, they are in the fourth year of 
drought. The poppy is growing, nothing else. Now, poppy season 
comes in in April. Has NOAA talked to anyone? Has NOAA been 
asked to go to Afghanistan.
    Mr. Wolf. It is a big issue.
    Secretary Evans. Right.
    Mr. Wolf. They have cut down grapevines. They have cut down 
trees, and I wonder if maybe you ought not----
    Secretary Evans. Sure.
    Mr. Wolf [continuing]. To have somebody from AID, from NOAA 
to help.
    Secretary Evans. Good thought, sure. We are sending the 
technical team over there sometime in the not too distant 
future and, and that is a good thought. We will certainly look 
at that.
    Mr. Wolf. The other thing is there any people to people 
contracts with regard to education? You are in a unique 
position to help the Afghan government. Computer technology, 
excess computers from Microsoft or from wherever, has Commerce 
been asked to participate in assisting? You see the University 
of Kabul is closed. Maybe they could use some laptop computers, 
or other technology. Is there any--from a point of view of--has 
Commerce been brought into this?
    Secretary Evans. Right. We have, Chairman. I met with the 
Minister of Trade and Public Works several weeks ago when the 
President was in town, and he had his team with him.
    Mr. Wolf. What did they ask you for?
    Secretary Evans. The technical assistance, as well as 
opportunities to open up trade. They say a lot of the products 
there, particularly in the textile fabric area, go to Pakistan 
and they move out of Pakistan to the rest of the world. They 
are wanting to see if there are ways that they could set up a 
more direct kind of distribution to the United States. What we 
will do is send a team in there in the not too distant future 
to look----
    Mr. Wolf. When does the team go? Do you know?
    Secretary Evans. No, I don't.
    Mr. Wolf. Suggestion I would like to raise your sensitivity 
to it. Karzai has a 6-month term. 2 months are over. He may not 
make it. Their economy is absolutely a basketcase. The most 
profitable thing is the growing of the poppy. That poppy are 
going to end up on the streets of Fairfax County and Houston, 
Texas, and places like that. They are looking for other 
alternatives. The standard of living--life expectancy is 44 
years of age. One out of four children die before the age of 
four.
    I think the earlier you could--from a textile point of view 
or from whatever point of view, the earlier you could go over 
there and help with regards to micro enterprises or take the 
technology or put together a team of maybe not government 
people but maybe some people in the private sector that you 
work with to come over there. But I think--I mean, the team 
ought to be on the plane by Saturday. This is really--there 
were 15,000 people that went through the training camps of the 
Taliban. We have only arrested 450. That means there are 14,000 
who changed jerseys but they are still in place.
    Osama bin Laden has not been arrested. Mullah Omar has not 
been arrested. The Iranians are pouring through the country. If 
you could see from an economic point of view what the Iranians 
are putting into Afghanistan, they are putting in more 
economic--obviously, we have military--into Afghanistan than we 
are. They want us to be there. The Afghan people are very 
appreciative, probably President Bush is probably more popular 
there than maybe any other place. They like what we did. They 
appreciate what we did, but, you know, they watched us leave in 
1989 and 1990.
    Their blood was used with our Stingers to defeat the Soviet 
Union. We then pulled out. They want us in there, not the 
Iranians. They want us in there, not the French. They want us, 
and I think this window of opportunity whereby people are 
coming in with creative minds, entrepreneurship, what can we 
do? Maybe we can bring some computers into the schools. Maybe 
we can develop--but this is really the time. His term ends, for 
all practical purposes, in June.
    Hopefully the Loya Jurga will select him and he will be--
but I would hope and ask, and if you could kind of let us know, 
when will the team go over there, and I would urge them to go 
over there quickly. And I don't think they ought to be just a 
couple of technical people. I think they ought to be 
entrepreneurs. Maybe as you get a trade team, a mission that 
goes to Africa, maybe get some really top five, six, seven, 
eight, nine people, an agricultural person, a high-tech person, 
a textile person to go over there and help him, because if he 
fails and the Taliban come back or in the northern area some of 
these people come back, this will be a sanctuary again, and I 
think it is really important to make sure that we are doing 
everything we possibly can.
    And you are the guy at the Department of Commerce. You and 
Andrew Natsios--the military have won the war. You and Andrew 
Natsios can make sure that we maintain the peace. And I would 
urge you, plead with you. We can pull a little extra money in. 
If you think you are going to be short, we will try to work 
something in now, knowing that you can feed off of it now. But 
I would like to see us send a good team over there, certainly 
before--you know, before the middle of March, I mean, March 
15th or something like that, if you could. I would appreciate 
it.
    Secretary Evans. Thank you, chairman. We will take a real 
hard look at it. We are heading that way.
    Mr. Wolf. Mr. Kennedy.

                       NATIONAL SEA GRANT PROGRAM

    Mr. Kennedy. Thank you, Mr. Chairman. Very insightful 
questions. I know the committee does well by having you as 
Chair and looking through all of these specific areas that you 
have paid attention to. And Mr. Secretary, it is an honor to 
have you here, and I want to just echo what the chairman said. 
Thank you to the Administration for the great job that they 
have done on the war effort, and I know they certainly have the 
appreciation of my constituents in that effort.
    I wanted to go back to a question that Mr. Regula had asked 
about the transfer of the Sea Grant Program to NSF out of NOAA. 
I have a letter here from the Consortium of Oceanographic 
Research and Education, and ironically, the new head of NOAA 
was formerly the head of this organization. You may know that. 
The point is that in your answer to Mr. Regula, you said that 
it makes more sense to have the Sea Grant Program in NSF 
because it is basic science.
    Well, the new head of the Consortium of Ocean Graphic 
Research and Education Groups, in a letter that he wrote to 
Mitch Daniels points out very clearly that the Sea Grant 
Program supports applied research, and the reason I am making a 
real distinction on it is because Rhode Island is the first Sea 
Grant university in the country, the University of Rhode 
Island, and Senator Pell, our former senator, made this one of 
his real priorities and hallmarks of his whole career in the 
Congress, in the Senate.
    So we have a big stake in the performance of NOAA and the 
Sea Grant, and all of the people that I am hearing from who 
really make this their life mission have all said that Sea 
Grant belongs in NOAA because it is applied research, not basic 
science. And this is more of just a bureaucratic how you 
organize it, where you put it.
    It is not that, so much as all the people who are involved 
in the area think that it is just better where it sits in NOAA, 
and I would just leave that with you. I know your answer with, 
Mr. Regula, but I would just have you maybe try to talk to 
Admiral Lautenbacher and see what the position is and how it is 
that this has all been brought about by Mr. Daniels.
    And I don't know whether it was your position or someone 
else's or whether Mitch Daniels said that it was his position 
that this happened, but I am just giving you the feedback from 
what I think the community--has indicated.
    Secretary Evans. Thank you.
    Mr. Kennedy. And my State is called the "Ocean State," so 
we take great pride in the number of people who are involved in 
this area, and they are pretty unanimous in this view.
    I want to say that certainly with all of that, I support 
the Administration's budget when it comes to supporting the 
weather program and severe weather program. I have had the 
personal privilege to visit the weather program that is going 
to be supported by the increase in funds that you have called 
for in this budget with Scott Gudes, your deputy director, and 
he has done a terrific job, and we have worked well with him.

                       NOAA VESSEL MODERNIZATION

    One of the things that I might ask you to comment some, in 
addition to what you have already mentioned, is the new 
ALBATROSS, which you are replacing, and that provides a very 
important platform for research.
    In addition, the WHITING is a state of the art, vessel, but 
it is only made that way because of the constant upgrades that 
have been given to it over its 40-year life span. So those are 
great programs.
    I have been on the WHITING, and it is a great ship, and the 
men and women who serve on that do a terrific job, and the work 
that they do in assisting the Coast Guard in various operations 
I know is very important with the side sonar technology and in 
being able to, map the bottom of the ocean. And all of this is 
stuff that most people have no, appreciation for unless they 
are looking to try to get a big ship in and out of a port and 
want to be able to do so safely, both for the environment, as 
well as for our national security interests.
    Secretary Evans. Absolutely.
    Mr. Kennedy. It certainly serves us well. So maybe you 
could comment a little bit about the modernization program you 
spoke briefly about.
    Secretary Evans. Yes. I am certainly very supportive of it. 
I think the oceans, in lots of ways, are a great underexplored 
frontier for us, and so we need to learn and know much more 
about the oceans. One way to learn more about it is just to 
have more data and collect more research information, and that 
is what these vessels will support. We have got some catching 
up to do, quite frankly, and we have got a long way to go, and 
as I mentioned to the chairman earlier, I am anxious to see 
what the Commission on Ocean Policy is going to say about our 
commitment to really understanding the oceans.
    You mentioned a couple of vessels and what they are used 
for, and, we have got so much mapping to do of the ocean floor, 
we just haven't even scratched the surface. There are some 
critical mapping things that need to be done, as you mentioned, 
with respect to just national security issues. How do we move 
ships in and out of these ports and lanes and what have you 
that we are behind on? We need to be doing more of that. We 
have got something in the budget for that. We know a lot more 
about the skies than we know about the oceans, so any time I 
see commitments to additional assets that can help us learn 
more about marine life and these marine resources that we have, 
I am very supportive of it.
    Mr. Kennedy. Well, they are, as I said, great assets to us. 
In response to the Chairman's inquiries about fish resources 
and marine fisheries, you will hear constantly about the state 
of our international marine fisheries, with Monterrey, Mexico 
coming up, and about the issue of sustainable food resources, 
poverty, and the issue of developing Nations not having enough 
food, and about starvation. The fact of the matter is our 
national security is very intertwined with global security, and 
we can learn a great deal about how it is we can manage fish 
species. We have done it in New England, and we can translate 
that research to other countries around the world. It is to our 
direct benefit to do so because we provide stability in 
countries that may become unstable as a result of inadequate 
food supplies.
    So, I know a lot of people don't appreciate all of the 
interconnections that some of this has, but I do. I have been a 
great student of it and appreciate it immensely what this very 
underappreciated little-known agency called National 
Oceanographic and Atmospheric Administration does. It does good 
work, and I know it is a big part of your budget. So I am 
anxious to work with you to make sure it stays strong, and I 
hope that you manage to keep the Sea Grant Program within NOAA 
where most of the folks think that it should be. But with that, 
I thank you--and I look forward to working with you on all 
these things.
    Secretary Evans. Thank you very much.
    Mr. Wolf. Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman. Mr. Secretary, first 
let me--so you don't leave here today thinking that everything 
we asked you was confrontational, let me thank you for your 
continued support of the minority-serving institutions funding.
    Secretary Evans. You bet.
    Mr. Serrano. I see that you have put that in at the same 
amount as you did last year, and I certainly appreciate that, 
and those of us who feel that it is a good expenditure of 
dollars and thank you for that support.
    Secretary Evans. You bet.

                    NIST STUDY ON WORLD TRADE CENTER

    Mr. Serrano. The National Institute of Standards and 
Technology and FEMA recently were involved in looking at the 
September 11th situation with the World Trade Center and trying 
to see what happened to the buildings and how we can look to 
the future in terms of what kinds of structures are safer. Now, 
as you know, we are already discussing in New York City what 
will take place at Ground Zero, a memorial, of course, but 
smaller buildings, one large building? You know, there are 
different attitudes there.
    Some people say let us be smart how we build this time. 
Others, business people, are saying there is no need for 
buildings that tall anyway in terms of the real estate market. 
And then there are those who are saying you don't run away. If 
they wanted to hurt us, then let us build them exactly as they 
were before. Having said all of that, your folks there will 
have to be looking at new structures and how it should be put 
together.
    In the budget, originally there was talk about $10 million 
to $12 million for that research, and now I understand there is 
talk of $2 million. So my question to you is is that enough to 
look at that whole issue and do what we have to do?
    Secretary Evans. I guess the answer right now is yes. I 
talked to the NIST director about this specific issue. He told 
me about the materials that have been collected. It has been 
quite an effort to make sure we are collecting the right 
samples and the right materials to examine and evaluate, and 
based on what they know as of today, yes, that is sufficient. 
That is not to say that we may not be back asking for more. I 
think as you mentioned, this is a learning process for a lot of 
us. I mean, all of us, we are trying to decide what kind of 
building to put there, trying to decide how big it is, where it 
is. And a lot of this research is the same kind of effort, and 
this is the first time we have had an event like this in this 
country, and we are gathering the material. We have had some 
idea of what it is going to take to study it, to research it, 
to analyze it, and we feel like right now we have sufficient 
resources to move forward with that project. And if we didn't, 
I would tell you, but I asked that specific question.
    Mr. Serrano. Okay. So that is satisfactory, the fact that 
they feel they can do the job. You know, it is interesting, 
actually sad but interesting to note that those buildings were 
built originally, those two towers, to cave in. I think they 
call that the pancake effect.
    And at any given time you can get 50,000 people in and out 
of those two buildings, but 150,000 in the vicinity. So as 
tragic as that was, if those buildings had come down this way 
rather than down that way, we would be talking about maybe ten 
times the tragedy that we had. So it is so important, as we 
look to rebuild that area and as we look to secure ourselves 
for the future, that we really pay attention to how to do that 
and advise local governments, and I would appreciate any help 
you could give us on that.

                HISPANIC CLASSIFICATIONS ON CENSUS FORMS

    You know, I was thinking before, Mr. Chairman, that maybe 
we are asking too many census questions, but then I realized--
staff informed me that the Census Bureau is not having their 
own hearing this year, so you get all the census questions. And 
one of them is that we came a long way in trying to get folks 
to be counted and identified properly, and yet in this last 
census, according to many groups--and I agree with them, 
specifically the Dominican community, the Panamanian 
community--we sort of took a step backwards, in that in the 
question that was asked of me, for instance, there was a place 
for me to check off Hispanic, and then there was a place where 
you could check Cuban, Mexican or Puerto Rican, and then there 
were ``other Hispanic''.
    In the past they gave examples of ``other Hispanic'' which 
kind of prompted people to write down how they identified 
themselves. It said Argentinian, Colombian, whatever. This time 
it just said ``other Hispanic'', and so, due to that, many 
people feel that--that perhaps 600,000 New York City Dominican 
population didn't grow at all and was not identified. And so 
while the Hispanic population nationwide, I believe, grew by 58 
percent, specific groups decreased. And ``other Hispanics'', 
this wonderful group, you know, ballooned out.
    And so in terms of identifying people--and just for the 
record, you know, we do that because scholars and institutions 
and community-based organizations and government themselves 
need that specific information. Is there any discussion about 
trying to go back to the original way of identifying people in 
that particular area?
    Secretary Evans. No. I haven't heard that, Congressman. I 
haven't heard about the effort to, go back and break it down 
even further if that is what you are asking. I am glad to bring 
that up.
    Mr. Serrano. Well, it would be two-pronged. It would be try 
to do something about what many people suspect are bad numbers 
right now, and also begin to talk about 2010 and what the 
question will look like.
    Secretary Evans. Yes. I am certainly glad to have our staff 
talk with you and your staff to see if there is anything that 
can be considered in this area, and so let us do that. I guess 
as I sit here thinking about it, I know there are lots of 
different groups in this country. You know, I am not sure where 
you draw the line.
    Mr. Serrano. No, no. It is not--don't mix it up with the 
first--the census has always specifically asked about Puerto 
Ricans, Mexicans and Cubans under Hispanic, but then in saying 
or ``other Hispanic'', in prior censuses, it gave examples, and 
the examples prompted people to know how to identify 
themselves. This time it didn't give examples, so people didn't 
identify themselves, and ``other Hispanics'' came out as a very 
large and growing category, whereas the Colombians, the 
Dominicans, Panamanians, as examples----
    Secretary Evans. Sure. Let me come at it this way then. You 
look back and you see mistakes and you find ways to improve the 
process and if they changed it and it turned out to hurt the 
process, not give as accurate information as we possibly could 
develop, we ought to rethink that, and maybe we should go back 
to the previous way. So let us look at that.
    Mr. Serrano. And let me--I don't want to ask you any more 
questions, but on a related question, let me just put in a 
pitch to you. You made an--in your opening statement, you said 
something that I believe you believe in and that the President 
believes in, and that is to leave no American behind, leave no 
child behind. How we accomplish that is the question. When it 
comes to the census count, you are aware that when the 
Constitution was put together, the Founding Parents said, go 
count the States. I guess because they suspected that there 
would never be American citizens living in any other place but 
States. So they said, go count the States. Since then, that is 
what we have been doing, counting the States, but we have 
millions of American citizens who live under the American flag 
in territories, and they always get shown as an add-on to the 
final figures.
    So if you look at the census count, it will say the count 
for 50 States, a line, and that was it. This year, this past 
census, I am proud to say, I was able to push enough to where I 
think the Census Bureau, in response to that, drew a line and 
then said and Puerto Rico, 4 million. I still think that we 
belong--we, my cousins belong above the line, not below the 
line, and I think that maybe the discussion should be about, 
you know, should the Census indicate who lives in the country, 
including all Americans, because I will give you a very 
interesting situation.
    If you are an undocumented alien--and you know how I feel 
about undocumented aliens. If you are undocumented living in 
Virginia, you get counted in the big numbers. If you are an 
American citizen living in Puerto Rico, you get counted below 
the line. So let us get rid of that line and let us try to 
move--and just--I don't know, Mr. Chairman, if it takes a 
constitutional amendment. I hope not--to say that you count 
people living under the flag rather than the States.
    Secretary Evans. Well, we will take a look at that. I don't 
know if I have got the authority to move the line.
    Mr. Serrano. You would be surprised at the power you have, 
sir. But anyway, I have no further questions. I thank you, sir, 
for your testimony today, and I look forward to working with 
you in every way we can to make life easier for the American 
people.
    Secretary Evans. Thank you, sir.
    Mr. Serrano. And those who live in the territories.
    Secretary Evans. You got it. Thank you.
    Mr. Wolf. Mr. Mollohan.
    Mr. Mollohan. Mr. Secretary. Mr. Secretary, I was glad to 
see in your budget request an increase of $4.95 million for the 
Market Access and Compliance Program. That is 33 FTEs. And for 
the Import Administration, a $6.2 million requested increase, 
which is 40 FTEs. And the U.S. and Foreign Commercial Service, 
$2.5 million, which is, based on this information, 9 FTEs. 
Particularly in light of the trade challenges we face, I think 
making those agencies more robust is a good thing, and I 
commend you for asking for those increases.
    I am wondering in regard to those increases, in regard to 
the pending 201 decision by the President with regard to steel, 
is the money you are requesting here, do you think adequate to 
hire enough FTEs to accommodate the 201 decision?
    Secretary Evans. Yes. Of course, I don't know what the 
decision is going to be, but--of all the orders that we are 
administering in the Department of Commerce as it relates to 
trade laws--and we have over 300 orders we are administering--
about 160 of them are steel, and so we are pretty focused on 
steel flow around the world.
    And so it is not something we are going to have to learn. 
It is something that we know a whole lot about. Where steel is 
coming from, where it is moving, what countries it is going 
through, not going through, the different kinds of products we 
have to deal with. There is a variety of them, and it is 
complicated and it is complex, but having said all of that, it 
is something we are doing every day right now. We have 160 
orders we are paying attention to every day. So I am confident 
that we will be able to continue to manage the system. Not 
knowing what the President is going to do or not do, we will be 
able to handle any additional load.
    Mr. Mollohan. Are these requested increases in response to 
your current workloads?
    Secretary Evans. They are in response to our growing 
workloads, and I say that because I thank this Committee, I 
thank the Congress for adding the substantial amount a couple 
years ago. We just finished filling those positions, the one 
you enumerated. That is another 82 positions. It takes a while. 
As the chairman was saying, he is anxious to get some of these 
attaches manned. So am I.
    Mr. Mollohan. Okay. Excuse me for interrupting. Let me ask 
it this way: If the President were to come forward with a 
favorable result--favorable to those of us from steel country--
in his 201 decisions, would the increases you are asking for be 
adequate to implement the 201 and do all of the monitoring that 
is necessary to ensure it is enforced? That is really a serious 
question on our part, because if you come forward with a nice 
201 decision and we don't enforce it, that would be a bad 
thing.
    Secretary Evans. Yes, it would be. People that cheat don't 
make me real happy, and I think our people understand how 
serious we are about enforcing the laws that we are--that we 
have sworn to enforce, and I haven't heard anybody suggest to 
me that we are not going to have the resources to enforce the 
laws we are enforcing. I haven't had anybody suggest to me that 
if the President were to make a decision that was a 201 remedy, 
that, hey, we need to go hire--we need to make sure we hire 
another--however many people. I am comfortable that we are in a 
position to enforce it.
    Mr. Mollohan. Well, we want to support you----
    Secretary Evans. Thank you.
    Mr. Mollohan [continuing]. As you do that.

                       NATIONAL SEA GRANT PROGRAM

    With regard to the Sea Grant Program, just a second, if I 
might, you are requesting to transfer that responsibility over 
to the National Science Foundation, are you not?
    Secretary Evans. Correct.
    Mr. Mollohan. And how much money is involved in that?
    Secretary Evans. $62 million.
    Mr. Mollohan. A couple questions there. In this current 
budget that you are advocating for here today, is this $62 
million in this budget or not in this budget?
    Secretary Evans. Not in this budget.
    Mr. Mollohan. Okay. And your request is, as I figure it, 
$22 million below last year's. If Sea Grants are not in this 
request and if we didn't approve this change, then you would 
have to fund this Sea Grant Program in this budget. What 
programs would this money come out of?
    Secretary Evans. Well, I am not sure, Congressman. We just 
have to kind of go back through the process again, and, you 
know, I----
    Mr. Mollohan. But you have absorbed the 2002 money and 2003 
into other programs that was earmarked for Sea Grant?
    Secretary Evans. Absorbed it?
    Mr. Mollohan. Well, it is throughout your budget. You have 
taken that money. It is not for Sea Grant. You have applied it 
at other programs throughout your department.
    Secretary Evans. The budget is less what you said than it 
was a year ago.
    Mr. Mollohan. Which makes it worse. In other words, it 
means that if Sea Grant comes back in, then other programs are 
cut more.
    Secretary Evans. Correct, unless a big budget increase. 
Then they are not----
    Mr. Mollohan. Is NSF requesting this money in their budget 
request?
    Ms. Retzlaff. They are, yes. They are requesting $57 
million for the program. Our budget has been cut $63 million 
that we did have there.
    Mr. Mollohan. Do you need an authorization for this move, 
for the Sea Grant Program to be administered in NSF?
    Ms. Retzlaff. No.
    Mr. Mollohan. And that is a definitive no? You know that 
for sure?
    Ms. Retzlaff. We don't need to have it authorized to be 
moved out of NOAA.

                      EMERGENCY STEEL LOAN PROGRAM

    Mr. Mollohan. I want to express chagrin at the 
recommendation to eliminate funding, the unobligated balances 
for the Emergency Steel Loan Guarantee Program, and perhaps 
hear you talk about why that decision was made.
    Secretary Evans. One reason is it certainly has been 
difficult to approve any loans. In fact, I guess the one that 
has--or was approved back in January of 2001 is now in default. 
We know that. So I don't know what that is going to cost the 
American taxpayer, but something.
    And we have reviewed other loans, not many, quite frankly. 
There have been a couple that have come through that have been 
reviewed. There is one that looks like it might well be 
approved, but there are several others that were considered and 
have not been approved. You know, we still have, quite frankly 
even though we are cutting it back, we still have a pretty 
substantial amount of room to loan money if we see a loan 
application that meets the test that it should meet.
    Mr. Mollohan. Okay. As I understand it, you are requesting 
to rescind all unobligated balances which----
    Secretary Evans. No. We are down to--a balance of $31 
million, which supports about 200 million in loans.
    Mr. Mollohan. Okay. You know, there were some major aspects 
of the program that made it unattractive to lending 
institutions. Senator Byrd was successful in getting the period 
of the loan extended, I think out 15 years. I think it is 15 
years, extended to 2015, and increasing the guarantee amounts 
at least for--in a tiered way, which I think would make it more 
attractive to steel companies.
    I hear what you said about the American people being stuck 
with loans. I got that, but I would just sensitize you to the 
fact that during this critical period when we are waiting for 
the 201 decision and these companies are in a very tenuous 
financial condition, if you at all are sympathetic to the idea 
that these companies have been subject to tremendous pressure 
from cheap foreign imports, then I think you can be 
sympathetic--and I hope the administration is, and I hope that 
is reflecting the 201 decision. Then I think you can be 
sympathetic to this whole issue that the relief package really 
has to include for many of these companies a loan guarantee 
program, at the same time they are hopefully receiving 201 
protection. That, of course, is very important because as we 
speak, imports are driving these companies out of business.
    I would just encourage you to perhaps be more sympathetic 
with regard to the loan guarantee program, and hopefully with 
these new criteria that the lending institutions might be able 
to take advantage of and grant some of these loans to some of 
these companies.
    Secretary Evans. Well, I am one that would be very 
surprised, Congressman, because there is a tremendous amount of 
fiduciary responsibility throughout our financial system and 
certainly within the lending institutions. It is a guarantee to 
the lender, not to the steel company, and so we have got a bad 
track record that we are working off of right now. We have made 
one, and it went south, and so when others look at this 
program, they are going to be, I would think, very reluctant, 
but have we supported the program? The answer is yes. We 
support up to a 95 percent guarantee, but if I am a lending 
institution, I don't know how they would want to lend unless 
you guarantee 112 percent--
    Mr. Mollohan. Well think if you want to lend because we 
have fundamentally changed one of the key variables in 
equation, and that is the import situation through the 201 
decision----that has to happen, or you are probably right.
    Secretary Evans. Well, I think the lending institution--
again, if they are going to lend it, they are going to lend it 
based on what the company--what they see the prospects of the 
company are and not whether or not you are going to provide a 
guarantee with 95 percent or 85.
    Mr. Mollohan. No. I am sorry. I must have not made my 
point, or maybe I did and you just disagreed with it but we are 
changing fundamentally the environment, the market, which 
dramatically improves any analysis of the prospects of 
viability of the steel industry in America generally or on a 
one by one basis if we get a 201 decision that is favorable.
    I think improving that environment is a huge factor in 
lending institutions looking at those loans. And then with the 
improvement in the criteria, larger loan guarantees, at least 
for the front end of the loan, or the first money in the loan 
and longer periods of extending the loan periods, I think that 
starts making the program work.
    Again, I would agree with you, if the marketplace isn't 
changed, that is, if the President doesn't come down with a 
favorable 201 decision.
    Secretary Evans. Well, I understand what you are saying, 
Congressman. But a 201 decision lasts for a limited period of 
time. And when you look at these kinds of loans, these are not, 
you know, 2-year loans or 3-year loans. People think about 
these kind of commitments as 10-year commitments.
    Mr. Mollohan. What period do you anticipate the President--
--
    Secretary Evans. Again, I don't want to scoop the 
President. I will let him make that decision.
    Mr. Mollohan. I don't want you to scoop him. I just want to 
know what he is going to decide.

                              MEP PROGRAM

    I support tremendously the Manufacturer Extension Program, 
and you are cutting it down to, I think, at least $12 million 
in the program. This, as I understand it, would fund two 
programs, one in Indiana and one in Ohio. It is a $95 million 
cut from 2002, which was $106 million. I am just wondering, why 
did you leave anything in the program? Why are you keeping the 
Ohio and the Indiana programs going in your recommendation?
    Secretary Evans. Right. Congressman, the reason is those 
are programs that are not 6 years old. They are new programs 
that have been running for a couple of years and kind of going 
back to the spirit of the original program. It was to get 
programs up and running, and see after 6 years if they have 
been worthwhile and self-sustaining and can support themselves 
in their own local community or local region or State or 
whatever. And so it is those that have, you know, passed that 
6-year time period that have been dropped. But there is a 
couple out there that we have only been supporting for a couple 
of years, and we thought we would continue with those.
    Mr. Mollohan. Do you have an assessment of this program, 
either as a Department or personally?
    Secretary Evans. I think it is a good program. It has been 
a helpful program. I haven't, quite frankly, looked at all the 
data and all the statistics and tried to ask the hard questions 
that you need to ask to really understand if it is real data 
and if it stands the test of some tough scrutiny or not.
    But my sense is it has been a good program, and I think any 
good program, if it has been that good, can support itself. 
And, as I said, one thing that we are looking at, and I expect 
we can report on it, is whether or not these programs can 
indeed be privatized. If they are that good, then there should 
be every reason that they can. The market ought to provide an 
opportunity for them, because if they are going to save 
companies that much money, and they are going to improve 
productivity that much, that means that their profits should 
increase, and so if I am one of those companies, I am glad to 
pay a fee to improve my profits.
    Mr. Mollohan. Was this Commerce's request that this be cut, 
or was this a push-back from OMB?
    Secretary Evans. This was Commerce looking at our budget in 
a period of war and having to make tough decisions.
    Mr. Mollohan. But the answer to my question is, when your 
request went up, this program was one that was cut?
    Secretary Evans. We continue to work with OMB in developing 
our budget and deciding what is going to be cut.
    Mr. Mollohan. What was the answer to that question? When 
this request went up to OMB for this program, was the request 
to have it cut or did the cut come back from OMB?
    Secretary Evans. I know this is part of the President's 
request to Congress.
    Mr. Mollohan. You are just not sure of the answer to that 
question maybe?
    Secretary Evans. Right.

                              ATP Program

    Mr. Mollohan. Advanced technology program, Mr. Chairman, if 
I could. In addition to cutting it and leaving it at $107.9 
million appropriation, you are outlining six major reforms that 
you want ATP to implement, principally to get the universities 
more involved in the program. Do those reforms need an 
authorization?
    Secretary Evans. I am sure that they do, yeah. Yes, they 
do.
    Mr. Mollohan. Are you requesting an authorization for them?
    Secretary Evans. Yes.
    Mr. Mollohan. So you are asking for the program to be 
changed in ways that do require an authorization?
    Secretary Evans. Yes.
    Mr. Mollohan. Thank you, Mr. Secretary.
    Mr. Wolf. Mr. Secretary, thank you. Just one last or two 
last questions.
    On the sea grant issue, just listening, it probably would 
make more sense to be in NOAA, I think. Actually it was my 
effort when I was in the minority to move the National Science 
Foundation over to Arlington. It was a dollar value, and it is 
a big battle, and you were, I think, up here maybe at that 
time. I don't know. But I do think it really probably would 
make more sense being in NOAA, just from looking at it.
    One issue I would like to think about, if you would help me 
with, and you triggered it, I was not going to have another 
question, but you said the word ``privatize.''

                        James River Ghost Fleet

    This really isn't in your area, but it is--with your 
background, you and the administration can be helpful. There is 
a fleet of ships called the ghost ships. They are not in my 
district, they are on the James River. They are a direct 
potential problem for the fishing and crabbing in the James 
River. Those are old ships that are in such bad condition that 
they just take them there and they leave them. There are 120 
some ships there about now. If a hurricane ever came up the 
east coast or a tornado and hit the James River, many of those 
ships would sink, and we would have an environmental crisis.
    The previous administration made a decision that--it used 
to be at that time those ships were sold to--for value--for 
about a million to a million and a half dollars to India and 
other countries. There was an--the EPA issued an edict 
prohibiting the sale of those ships.
    Now, the private sector, Mobil, Exxon, and I am making this 
up, I don't know if Mobil, but most of the private companies 
sell their ships to India, and they sell them for value. The 
Federal ships are not sold because of the EPA regulation, 
because, I think, of asbestos. We had asked MARAD last year to 
report back to us. They and MARAD come before this committee, 
but they are in the Transportation Department. It is one of 
those things if you follow the history, there might be a 
logical reason why it is in Transportation. I am not sure why 
it is there, but it is.
    One, this year in the President's budget there is $11 
million to begin to take those ships down. I think it costs 
roughly $3 million a ship. So that is three and a half ships. I 
think they are ready to put another 20 ships there this year. 
At that pace we will never clean these out of the James River.
    We had asked last year, and I understand the environmental 
problems, if we could develop a program, perhaps down in 
Honduras or El Salvador or Nicaragua, whereby we could get an 
American company to go, and particularly after the floods and 
all of the problems in Honduras--I had a daughter that was in a 
mission project in Honduras for 2 years. It is a very poor 
country. It really needs the help--if we could get an American 
company to go down to Honduras using good environmental 
standards. I certainly don't want to have a young person from 
Honduras working in something that I am not prepared to have my 
son work in, but use the right standards, we can empty these 
ships out of the James River, the 126, perhaps now at 146 by 
the end of this year, send them to Honduras. Many, many could 
not make the trip now to India, I don't believe.
    Could you help us? We just can't move this process. If we 
just put $11 million in, we are really throwing money away, and 
I think if the administration helped us and particularly if 
Commerce with MARAD came up with a creative idea, perhaps maybe 
those ships could be taken for nothing so the company could go 
down there for nothing, strip them down, sell whatever they 
sell, make sure it is environmentally appropriate so we are not 
doing what we don't want to do. But we can't get this thing to 
move.
    And last year I think there was $9 million in the budget. 
We just didn't put it in because it would have done three 
ships. It is kind of a NOAA issue in the sense that if there 
were an environmental disaster in the James River from the 
crabbing and everything else, it is a little bit of shipping 
and commerce.
    So could you have----
    Secretary Evans. We will be glad to take a look at it.
    Mr. Wolf. Now, there may be a company in this country that 
would like to do it, but my sense is that may be more 
difficult. But if we could go to a country in Central America 
that really needs the jobs, and we could help them and help us 
and help the environment.
    Okay. With that, if you can kind of be in touch with 
whoever is going to do that for you, let us know.
    With that, unless there are any other questions, I want to 
thank you very much. We appreciate it. Thank you.
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                                         Wednesday, March 20, 2002.

                   UNITED STATES TRADE REPRESENTATIVE

                                WITNESS

AMBASSADOR ROBERT B. ZOELLICK, UNITED STATES TRADE REPRESENTATIVE
    Mr. Wolf. Good afternoon, Mr. Ambassador. In the interest 
of time, I will not have an opening statement, but we welcome 
you to the committee. Your budget obviously is so minuscule 
insofar as the big picture, so I am sure most of the issues 
will really be involved with regard to policy. But with that, I 
will just recognize Mr. Serrano, but welcome.
    Mr. Serrano. I will join him in welcoming you. I am looking 
forward to your testimony and just so happy to be here with 
Chairman Wolf.
    That is it. It is a special day for all of us every day.
    Mr. Wolf. Every day.
    Mr. Serrano. Twice a day.
    Mr. Wolf. Twice a day.
    Mr. Serrano. For a lot of days.
    Mr. Wolf. We have canceled tomorrow's hearing because of 
you, so you can go home.
    Mr. Serrano. I thank you.
    Mr. Wolf. I am being family friendly.
    Mr. Serrano. Good. Thank you so much.
    We carry on like this all the time. [Laughter.]

                            Opening Remarks

    Mr. Zoellick. Well, I want to thank all of you. If I could 
just ask my full statement be put in the record. I tried to 
give you a little longer one there, so you could get a fuller 
sense of some of the things we are doing, but I want to start 
by noting my appreciation for the help that you give us with 
our budget full funding last year. We obviously could not do 
our job without this committee's help. While we are small in 
terms of money, that also means we do not have much cushion in 
terms of what we do.
    I also want to thank the chairman for his support on the 
Trade Promotion Authority bill. I know it was not an easy vote, 
and the President very much appreciates your support. I also 
know that in terms of some of the things we have tried to do 
with some of the poorer countries with aid and trade, we have 
been a big supporter and leader on this and appreciate your 
advice on this. I want to thank Mr. Serrano for his help with 
the budget as well.
    Together, I think we made some headway on trade policy and 
opening markets in 2001, although we have got obviously much 
more to do. There are five key components to our strategy.
    First, we have been trying to build momentum for 
liberalization by moving on multiple fronts, globally, 
regionally and bilaterally. In effect, we are trying to create 
a competition liberalization with the United States at the 
center of a network of activities which, frankly, gives us some 
leverage for leadership in negotiations.
    On the global front, we were obviously able to get the new 
global negotiations launched in the WTO in Doha this past 
November, and we were also able to complete the accession of 
China and Taiwan into the WTO, China being a 15-year effort 
across many administrations. My predecessor, Charlene 
Barshefsky did an important job on that. But Taiwan, as well, 
was a 9-year effort.
    Our next big one in this category will be Russia, where we 
will be working to try to help the Russians with their 
accession effort. We have had a little bit of a dust-up over 
the past week. It may have come to your attention because it 
deals with the poultry issue.
    Mr. Wolf. Poultry, that is my first question.
    Mr. Zoellick. And this is one that I will answer in greater 
length, but we are focused on very heavily because, as you 
probably know, it represents half of America's poultry exports. 
It is a subject that everybody from the President on down has 
been involved with.
    Regionally, we have been pushing the Free Trade Area of the 
Americas, which is a goal to try to create free trade among the 
34 democracies of the Western Hemisphere. The United States and 
Brazil become co-chairs of this effort later this year, which 
will be after the Brazilian elections, so we will see how that 
develops, but I was just down in Brazil, and I believe that it 
is something that is going to be a challenge, but it can be 
very important if we can accomplish it.
    The other major regional effort is not a trade agreement 
per se. It builds on something the Congress did in the year 
2000, which is the African Growth and Opportunity Act. I just 
was in Africa a couple of weeks ago, and this is a tremendous 
opening to the developing world, which I will comment on a 
little bit more in a minute.
    Bilaterally, we were able to get the Jordan Free Trade 
Agreement through the Congress. That was very important. It was 
the first free trade agreement with an Arab and Muslim country, 
the basic trade agreement with Vietnam. We are moving ahead on 
our free trade negotiations with Chile and Singapore, and we 
are considering some possible new free trade agreements now 
that we at least hope that trade promotion authority is in its 
sort of final lap on the Senate side as well.
    Here, we are looking to some of the guidance we have gotten 
from the Congress. The AGOA bill urges us to look at free trade 
with Africa. So when I was in Africa, I was talking with the 
countries of what is called the Southern African Customs 
Union--this is South Africa, Botswana, Namibia, Lesotho, and 
Swaziland--about a possibility which would, in my view, be 
fantastic in terms of opening doors with a continent that we 
need to do much more with.
    The Caribbean Basin Trade Partnership Act also encourages 
us to look in terms of that region, and as the President has 
talked about and will be talking about more when he goes down 
to El Salvador, we would like to try to have a free trade 
agreement with the five Central American democracies as well.
    In terms of timing, frankly, it is unfortunate to say, but 
it is true, is that we are in a little bit of a catch-up mode 
here because the European Union has 29 free trade and customs 
agreements, 22 of which they negotiated over the course of the 
past decade, and they are in the process of developing 12 more. 
Mexico, which was not even a member of the GATT, now called the 
WTO, until 1986, and went on after NAFTA and negotiated nine 
free trade agreements with 29 countries. Even Japan has moved 
ahead with Singapore and is looking at others, and China, which 
just came in the WTO, has said that it wants to do a free trade 
agreement with the Southeast Asian countries.
    Second, we have been enforcing agreements in trying to seek 
to manage disputes because we certainly recognize that while we 
need to pursue new agreements, we have to actively defend our 
national interests by vigorously enforcing the existing trade 
laws, and we will use all of the tools at our disposal to try 
to fight unfair practices. Where we can, we like to try to 
solve problems so that we can open markets for trade on both 
sides, and probably an area that is going to be most 
challenging as we go forward is the follow-through on China and 
Taiwan's accession to the WTO. Because now they are brought in, 
but obviously given the size and influence of those economies, 
this is a huge transformational process, and it is going to 
take a lot of years.
    Third, we have been trying to broaden the circle of trade 
opportunity. And in particular over the past year, since we 
last had a hearing on this, we have really tried to focus on 
the developing world, and here again I compliment the chairman 
because he has been a leader in this in many ways.
    I mentioned the trip I took to Africa. I went to Kenya, 
South Africa, Botswana, but I also met the ministers from all 
of the countries really in Eastern and Southern Africa. I 
partly wanted to listen and learn a little bit about their 
experience, based on the African Growth and Opportunity Act, 
but I also wanted to send a signal of how trade was important 
with some of the development interests that I know on your 
agenda as well. So, for example, I went to the center that 
Merck and Gates has put together in Botswana related to HIV/
AIDS, because, as you know, Botswana is a country that, on the 
one hand, has a tremendous program for dealing with HIV/AIDS, 
but the infection rate is probably about 35 percent. So it is a 
national tragedy.
    When I was in South Africa, I went to a center that was 
doing biotech research and could see the effect that it might 
have on mal-nutrition and health for a lot of Africans. I 
arranged to teach a class at the Center for Human Rights at the 
University of Pretoria, which was both fun, but an interesting 
opportunity, because it had people from all over the continent, 
and we were talking about globalization and its affect on their 
democracy. Also, when I was in Kenya, I attended a project that 
was dealing with some of the ecological issues there.
    But in addition to Africa, I have spent a lot of time with 
Latin America. In fact, just came back last week from Brazil 
and Colombia, and in about a week or so I will be headed off to 
East Asia because these developing countries are vital to 
building the network we have for trade. It is something that 
has really moved to the forefront over the past decade, and it 
deals with their future and our ability to enhance the trading 
system.
    So, in effect, what we have been trying to do is, whether 
formally or informally, build some networks that support 
reform, rule of law, economic opportunity, dealing with 
questions of poverty. Those countries became very important in 
the coalition we put together to launch the new Global Round at 
Doha. Obviously, the President has talked about the ongoing 
role of terrorism. I even think there is an important element 
related to this, because while I certainly would not argue that 
terrorism finds its roots in poverty, because I think it finds 
its roots in something far more evil, I do believe that poverty 
and failed societies can create fertile fields for terrorism, 
and I had no more striking example of that than the President 
asked me to go to Indonesia in July or August to see President 
Megawati on a number of topics, and on the way in I was warned 
about some risks from al Qaeda, and this was before al Qaeda 
became a household word. I will be going back to Indonesia in 
about a month trying to do some things on the trade side to 
help a country that is the largest Muslim country in the world, 
and frankly the stake of democracy there is very important, to 
say nothing of whether the society is able to offer some 
opportunity for people in the country.
    We, as a Government, have been leading efforts to try to 
help foreign Nations not only take party in trade agreements, 
but to be able to get the money to do so, and here this is 
obviously not my budget, but I thought you would be interested, 
given your multiple responsibilities, that when we totaled up 
the funds that AID and others devoted to trade capacity 
building for poor countries, last year it amounted to $555 
million. And I personally believe that money is very well spent 
because a lot of these countries do not have the staff to start 
to even take part in negotiations, much less implement 
complicated rules of intellectual property or sanitary and 
phytosanitary standards. In that, I am very pleased that the 
President announced his proposal to try to move up our 
development assistance from $10 billion to $15 billion over 3 
years because I think that will be an important part of the 
conference he is going to in Monterrey.
    Another part of working and expanding the circle of 
opportunity has been the preferential trade agreements. The 
House, as you probably know, passed some amendments to expand 
AGOA, the African Growth and Opportunity Act, and we hope that 
as the Senate acts that we can also complete those over the 
next month or two.
    The Andean Trades Preference Act, which is with the four 
countries of the Andean region, was passed in 1991 and expired 
last year. When I was in Colombia, I will tell you it was 
really sad to see the effect of that expiration with a country 
that has been driven by drug dealers, and narco traffickers and 
various types of guerrillas that really depends on that for 
access to market. The House obviously passed an extension, but 
we hope to get the Senate to act over the course of the next 
month or so.
    There is another one called the Generalized System of 
Preferences that actually has been in place for some 27 years 
that expired last year that covers 123 countries and 19 
territories. Again, it is part of the overall trade program 
Congress has put in place for years, and we hope that we can 
get it back in place.
    Fourth, we are trying to reach out to key stakeholders. 
This involves listening, building networks, educating, trying 
to deliver for people. Obviously, we are trying to push on all 
fronts for America's farmers and ranchers, but we also 
recognize that as a lot of industries go through the process of 
change, that it requires some help in terms of the adjustment 
side, dealing with anxieties. That was the context for the 
President's decision on the steel industry, the Steel 201, 
because, frankly, it was his determination that the industry 
needed a breathing space to restructure. I know there are 
different views on this committee, as all throughout the 
Congress.
    An important issue for me was that the steel industry is 
one that I believe is rife with intervention and subsidies 
globally. Frankly, given the fact that the industry was facing 
the lowest prices in 20 years and 30 percent of it in 
bankruptcy, it seemed appropriate to use the WTO and domestic 
laws to give them a chance to come back and to restructure.
    I add that the President's proposal of this is not just one 
to deal with the safeguards. It is also to try to deal with the 
issues of global overcapacity and to try to address the unfair 
practices globally. This is based on an ITC determination, 
unanimous, that the industry was facing substantial injury from 
imports. The ITC was not unanimous on the remedies, and so that 
is what we took some time to try to come up with a set that we 
hope will give the industry a chance to come back.
    Another issue that is related to that, and I know some of 
you have focused on in the past in the Congress, is the Trade 
Adjustment Assistance. As I have said before, I think this is a 
very important issue. If we are going to open markets, we have 
to help people be able to adjust for change. My statement 
includes a lot of points where I think we have some common 
ground. I was just in a meeting on the Senate side this 
morning, where I think working with the Department of Labor and 
others, that I hope we will be able to move some issues on this 
ahead.
    We have also tried to, recognizing trade affects so many 
interests, to reach out not only to the business community, but 
environment, and labor community and others. In Doha we 
obviously had an extreme circumstance because of the security 
issues, and so frankly I was very pleased that my staff came up 
with the idea of the first time ever to have live web 
briefings, which really helped a lot of people that felt they 
could not come, for security reasons, to stay in touch with 
what we were doing.
    Another issue that I know is of importance to a number of 
you, probably again different perspectives, is the question of 
the NAFTA 11 Investor State issue for dealing with questions of 
investor's rights when they feel that they have been taken 
advantage of abroad. Here, we have been trying to meet with all 
sides in the debate on this. I have met with a lot of NGOs. I 
have met with the business community. The TPA bill gives us 
some guidance, and we are trying to work through those issues 
carefully as we consider where we go with our next trade 
agreements.
    Fifth, we are trying to connect trade to values. As I think 
we discussed last year, the President is a firm believer about 
free trade being related to freedom, and so it means about 
opportunity, rule of law, and openness. We also recognize that 
it is important to try to align the trade system with values 
because, frankly, if it gets out of whack, I think trade is 
likely to lose.
    That is one of the reasons why we worked so hard dealing 
with this sensitive issue of a public health declaration at 
Doha, where we recognized the need to take advantage of the 
flexibility in the intellectual property rules to try to help 
poor countries deal with HIV/AIDS and other pandemics. At the 
same time, we need to preserve the intellectual properties so 
that people will continue to invent the drugs that deal with 
these problems.
    Obviously, Chairman, we have had a chance to work through 
the conflict diamonds issue, and I was very pleased with your 
leadership. You got it through the House. I hope we can get it 
through the Senate. In general, I think that what we are trying 
to do is to find other areas where we can have some win-win 
prospects. For example, we worked at Doha with the World 
Wildlife Fund to try to attack the issue of fish subsidies 
because it is bad economics and it is bad environmental policy, 
and they were pleased with our work there on that.
    So, to sum up, I think we have a very full agenda ahead. 
Obviously, we look forward to trying to complete the Trade 
Promotion Authority. Presidents have been without it now for 8 
years. We know we have also got a lot of sensitive issues that 
you may want to discuss today, Foreign Sales Corporation, 
steel, software, lumber, poultry, and bottom line is we 
obviously cannot make any progress on this agenda without our 
budget.
    The highlights of that are we are seeking a budget of 
$32,299,000, so roughly $32.3, which is an increase of 2.2. It 
is an increase of six positions. So we are going from 203 to 
209. The one thing I can assure you is, having served at the 
State Department, the Treasury Department, the Justice 
Department, the White House and the private sector, that the 
taxpayer gets their monies' worth from the people at USTR. As I 
mentioned, given our small size, we really do not have any 
margin for error in terms of what we do.
    I sent a letter to the committee about sort of a recent 
sort of modest change around of a couple offices and would be 
pleased to answer any questions on that, but I also want to 
thank two different staffs, and the first is of all of the 
different offices I work with in the Federal Government, I have 
found none that exceeds USTR in terms of the commitment, in 
terms of work and dedication of their job, as the USTR staff 
and, frankly, a problem-solving attitude, which is great to 
have. So it is an honor to serve with them.
    But I also want to thank, Chairman, your staff because I 
know that Christine has worked with us on a number of issues, 
some of which might seem small to some, but are important to 
us. For example, in the security context, she has worked with 
us to try to make sure that, given the location of our 
building, that some of our parking spaces are blocked off next 
to what are a lot of glass offices. As you may have seen, after 
9/11, the Eisenhower Office Building staff cleaned off 
everybody on the 17th Street side. We stayed in our office, but 
frankly when you have got those open parking places that 
anybody can be, where somebody can come up with a truck at any 
point and take out the building, it makes people feel more 
comfortable to know people are helping them. So I want to thank 
you.
    [The statement of Robert B. Zoellick follows:]
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                         Liberian ship registry

    Mr. Wolf. Well, thank you, Mr. Ambassador. We appreciate 
your comments. Like I say, your budget is not one of the 
mammoth ones like we normally have, so most of the questions 
will probably deal with policy. There will be a few on that 
other area.
    So just to kind of follow in that, to make a couple points 
that you will be sensitive, knowing that you are a key person 
in the administration. The administration ought to make an 
effort to remove the Liberian flag situation for the country of 
Liberia, that is, keeping the Liberian Government afloat. 
Between that and the lumber payments, Charles Taylor, not this 
Charles Taylor, as Mr. Serrano wanted to----
    Mr. Serrano. I just want to clarify that this guy is a good 
guy. [Laughter.]
    Mr. Wolf. So you do not have to comment, unless you happen 
to have a comment, but they are getting a good bit of money 
from that revenue, and there are other countries that can 
certainly meet that need, but I would like to see the 
administration make an effort, particularly, you are familiar 
with the hacking of arms, and the Liberians, and the Sierra 
Leone, and the diamond trade. Charles Taylor is the center. And 
also much of that money is coming out into HAMAS and Hezbollah, 
with regard to they now they believe, the Washington Post 
reports, al Qaeda.
    So you do not have to make a comment on that, but the 
Liberian flag issue, that flag ought to be taken away from 
Liberia. Do you agree? Well, just think about it.

                                 Steel

    Secondly, on the issue of, although I do not have any steel 
in my district, I do want to commend you, quite frankly, and 
the President for the position that you have taken. I will give 
you this, and I am not going to go through the whole thing, 
but--I mentioned this to Secretary Evans--there is a song 
entitled, ``Youngstown,'' by Bruce Springsteen, which I am not 
going to sing, but he talks in there that ``They built a blast 
furnace here along the shore and then made the cannon balls 
that helped the Union win the war.'' And then it goes on to 
say, ``Well, my daddy came home from Ohio when he worked, and 
he came home from World War II. Now the yard is just scrap and 
scrubble. He said them big boys did what Hitler couldn't do. 
These mills they built the tanks and bombs that won these 
countries' war. We sent our sons to Korea and Vietnam. Now we 
are wondering what they were dying for.''
    Then he goes on to say, ``Seven hundred tons of metal a 
day. Now, sir, you tell me the world has changed once I made 
you rich enough to forget my name.''
    I think the decision that the administration made was an 
appropriate one, and again I stress I have no steel mills in my 
congressional district, but I think it is a good one, and I am 
sure you have probably got a lot of criticism from people on 
both sides, but I think the President did what was appropriate.

                     CHINA: trade and Human rights

    On the issue of China, as you and our people speak out on 
these trading issues and trade issues, I think it is important 
to also combine them with human rights. The American ambassador 
in China did give a major speech about a month or a month and a 
half ago, where he actually mentioned names. A large number of 
our ambassadors have never ever spoken out on behalf of any of 
the individuals that are in prison in that country. Had that 
been the policy of the Reagan administration, Sharansky may 
never have gotten out and gotten across the Glienicke Bridge.
    When we raise individual cases, particularly when we are 
trading with them, I think it is very helpful. So I think as 
you go around the world and speak to the ambassadors, and we 
are going to be doing a letter to the State Department about 
this, they should articulate our values, but also raise 
individual cases. You do not have to do it in a belligerent, 
mean way, but you can do it in a consistent way, and that helps 
the individual that is in prison, maybe just more food for that 
week or that year and maybe get out earlier than they thought. 
But if you talk to any of the dissidents, they will tell you 
when their names were raised, it helped them.

                 Trade with africa and the middle east

    On the issue of Africa, I think the administration should 
have a blue ribbon panel, a presidential panel, which could 
move very fast, of good men and women who understand Africa to 
see what we could be doing differently than we are doing. I 
mean, the AIDS figures are unbelievable. Botswana I think the 
average life expectancy is now I think 39. But you have the 
problems in the Congo--2,500 die every day--the problems in 
Sudan, the problems in Sierra Leone, the problems in Guinea. 
Trade-off is a great opportunity, but I think just to do things 
the way they have been done in the past really is not going to 
work. If we do debt forgiveness, how do we forgive it? Do we 
require them to do certain things with regard to human rights 
and religious freedom? Do we do certain things with regard to 
opening up markets?
    There has to be some expectancy, and my sense is you should 
pick four or five countries, and I think the President alluded 
to that in his speech, whereby, we try these different ideas. 
But Africa is sinking, and just to do what we have done in the 
past may not be enough.
    On the issue of the Middle East, how significant is the 
Middle East for our trade relationship?
    Mr. Zoellick. Do you want me to answer that one now?
    Mr. Wolf. Yes.
    Mr. Zoellick. Well, most of our trade----
    Mr. Wolf. You could have answered any one----
    [Laughter.]
    Mr. Wolf. But I hope I am sensitizing you. Seriously, no, 
that is the purpose. I am not trying to put you on the spot, 
but I hope that you do take it seriously because these are 
issues that we may address in different ways as we move on, 
like the diamond bill. But how important is trade in the Middle 
East?
    Mr. Zoellick. Obviously, when you disaggregate most of the 
trade numbers, it is oil, but some of those markets are 
important to our agriculture producers. One of the things that 
I want to try to do if we are able to secure our new trade 
promotion authority, is again to see how we can use some of our 
free trade agreements to help with countries that are moving on 
the reform process, and in particular I was in Morocco a couple 
months ago, and----
    Mr. Wolf. Your frequent flyer miles must be quite 
extensive.
    Mr. Zoellick. Yes, it is a little much sometimes, but you 
have got it all in the budget.
    You know the new king has actually tried to move forward 
some reforms, and frankly I think it would be a good signal to 
the Arab and Muslim world if we are able to follow up our 
effort with Jordan to have another free trade agreement with an 
Arab and Muslim country, and Morocco is pretty much I think the 
best of the group in terms of that.
    Mr. Wolf. As we do it, it ought to track, though, my sense 
is our policy in the Middle East. If you looked at the Gallop 
Poll that came out, our reputation is not very high. Even in 
Kuwait, where we sent American men and women to die for their 
freedom in Kuwait, the Gallup survey showed that we are not 
very well liked even in Kuwait.
    When we are dealing with these countries on trade, we 
should also be pushing the values, and quite frankly my sense 
is the people of Kuwait would like to have freedom. The people 
of Saudi Arabia would like to have some form of democracy, the 
people of these different countries. And so when we just talk 
trade, although your economy makes a difference as to the type 
of Government you have, they view us sometimes as only caring 
about dollars, and I think we should also be pushing there is 
not one democracy, not one democracy in the Middle East, except 
for Israel.
    It is important for us to be pushing our values of freedom, 
and liberty and different things like that, in addition to 
making money, and trade is a great opportunity to do that.
    Mr. Zoellick. Mr. Chairman, just to give you a small sense 
of what I try to do on some of those, and I touched on that a 
little bit in the African case, is that where time permits I 
try to not only meet with the Government officials, but I try 
to go to either some other aspect that the U.S. Government is 
doing. For example, in Morocco, we fund some micro lending 
programs that have primarily helped women. I think the average 
loan size is about $230, but it has helped employ them, empower 
them, give a better sense of their stake in society, and so I 
try to go to that as an event. And then also, for example, when 
I was just in Brazil, I met with a number of the NGOs from 
either the human rights groups or the ecological groups and 
others, labor and different groups, and in the remarks I do try 
to emphasize how openness is part of a larger formula for 
change.

                            POULTRY INDUSTRY

    So I agree. There are things we can do, and we try to do 
them.
    Mr. Wolf. Two questions, and then I will recognize Mr. 
Serrano.
    The poultry industry is worth $6- to $700 million a year, 
very big in the Shendandoah Valley, which I have the 
opportunity of representing. Can you tell us how are the 
negotiations and where are we on that issue?
    Mr. Zoellick. Well, as soon as we found out about it, I 
called the Russian ambassador and told them very frankly that 
all of the work that we were trying to do on their WTO 
accession and to deal with Jackson-Vanik, just as a practical 
matter, was likely to go out the window unless we got this 
solved right away.
    I talked with Secretary Veneman, and she was going to see 
him that night, which she did. This was about the same time we 
were doing the steel decision, and there were some in Russia 
that were linking the two. In fact, in the process of the steel 
decision, we tried to do this in a way that could help the 
Russians on some steel issues, and so we again emphasized to 
them that they would really be shooting themselves in the foot, 
if not the head.
    I just talked with Secretary Evans today. He has been 
talking to our mutual counterpart, Minister Gref, almost every 
day. Secretary Powell has called the prime minister, and we now 
have a team there that is on an ongoing basis. I know the 
President actually is going to be speaking to President Putin 
this week as well. So you have got the highest levels of the 
Government focused on it intensely.
    My own guess of what is going on, Chairman, is the 
agriculture minister did this for protectionist reasons. As you 
know, the way our poultry industry works now they are 
separating the product and selling some of the white meat here, 
and they are selling some of the legs and dark meat elsewhere 
in the world, and we have run into this in lots of parts of the 
world. I was, frankly, also dealing with this issue in South 
Africa, where we have been working with the poultry issue to 
deal with an anti-dumping case that we have there.
    So I do not know for sure the resolution, but we have been 
very blunt with the Russians that this is going to be a dead 
end for them, and I think the discussions have been proceeding 
usefully, but not conclusively.
    Mr. Wolf. Mr. Serrano, we have a vote on, too.
    Mr. Kolbe. I have several.
    Mr. Wolf. Are there going to be several? What we will try 
to do is to keep it maybe moving so we can maybe--we may have 
to have a recess, but maybe there is a time that one or two can 
run back and forth.
    Mr. Serrano.

                       TRADE WITH CHINA AND CUBA

    Mr. Serrano. Thank you, Mr. Chairman.
    When we enacted the Trade Act in China, the Permanent 
Normal Trade Relations Act, some folks said that that would be 
the end of the annual debate on human rights in China, and I 
told them that it was not the end, that we have that debate 
every year when the Trade Representative comes to testify 
before this committee, and it is always a good debate. You are, 
and have been, consistent on this issue.
    When the chairman in past years has recounted assaults on 
civil rights and infringements against religious freedom in 
China, the Trade Ambassador, in this case you, has told us, as 
you did last year, that free trade is an important weapon in 
the fight for human rights. One of our best hopes to improve 
the lives of the people in China is to open our markets and 
give them a taste of free trade.
    Is that fair, the way I have characterized your comments?
    Mr. Zoellick. For China, yes. I know where you are going. 
[Laughter.]
    Mr. Serrano. I think everybody in the administration knows 
where I have been going for the last 12 years.
    I was elected March 20th of 1990 to Congress. They would 
like me to go where, Mr. Mollohan? [Laughter.]
    Let us try it again. If we tell the world, and I agree, 
that trading with China is good to bring the changes we would 
like, why can we not try the same experiment with Cuba? And why 
is it that now, just when it looks like members of Congress--
and incidently, much to my amazement, surprise, and 
satisfaction, on some of those issues, you see that a lot of 
the bills I proposed now have Republican sponsors. And it is an 
issue where I do not yell up and down and say, ``They took my 
bills.'' I am glad, about all the trade bills, the travel 
bills, the selling of our products to Cuba.
    Yet, Mr. Otto Reich, the head of the Western Hemisphere 
Affairs Section at the State Department, has now publicly 
stated, in the strongest language in a long, long time, that we 
are not going to help Fidel Castro stay in power by opening our 
markets to Cuba.
    So, for the record, can you try to explain the 
administration's reasoning and logic on why China and not Cuba? 
And by the way, it is not just this administration, it is the 
past one, too, that I cared for a lot. In fact, the last 
President, Mr. Clinton, whom I supported and respected, and who 
I felt was one of the more intelligent human beings I ever met, 
I once asked him at a White House reception, ``Mr. President, 
why China and not Cuba?'' And his answer was so sad, but so 
true. He said, ``China is big.''
    Is China still so important and so big that it is China and 
not Cuba?
    Mr. Zoellick. Well, that would not be the point that I 
focus on, Mr. Serrano, and I know that we probably share the 
goal of what we want to try to achieve in Cuba. We just have a 
different view about the means. I think the way that I would 
look at it is that over 40 years we have really had no sign 
that Castro is willing to do anything but use money and 
openings to strengthen his control.
    That has changed in China. I mean, I visited China in 1980, 
and I visited China last year, and it is a very different 
society. And the nature, it is not to suggest that it still 
does not have huge human rights problems and that it is an 
authoritarian country, it is. That is why I agree with the 
chairman about the points we need to emphasize in that, but you 
can see a trend line in change, and at least I do not see that 
trend line in Cuba.
    Frankly, I do not think that after September 11th, Castro 
helped himself with this cause by having his foreign minister 
say that Americans were baby killers and say that we were 
targeting Afghan civilians when we were going after the 
Taliban, and an official statement by the Cuban Government that 
said that the United States brought the events of September 11 
upon itself. I did not hear anything like that coming out of 
China. And, frankly, this continues to be a society that 
supports terrorism and is a haven for fugitives from the U.S. 
Government.
    So I wish Cuba will transform, and some day it will, and I 
hope that day is not long off, but we have not seen any of the 
steps that we would hope a Government might take to open it up 
for its people.
    Mr. Serrano. So you are, for the record, saying that you 
see a major difference between the Cuban society and the 
Chinese society and that one is transforming and one is not. 
Now I respect you, and I know you respect me, but you know if 
we were not here and we were saying this in private, you 
probably would be crossing your fingers behind your back at the 
hope that I would believe everything you are saying because 
everything indicates that we are talking about very similar 
societies.
    Now it is true that every so often the rhetoric coming out 
of Cuba is the kind of rhetoric that even a supporter of 
lifting the embargo does not want to hear, but there is also 
still a Cold War between this country and Cuba because the 
rhetoric coming out of the White House or the State Department 
about Cuba is rhetoric we would never put out about China, 
where we call them everything in the book.
    Just this morning we had the DEA administrator here trying 
to answer, and he could not really, why every time President 
Castro says, ``Join me, and I will join you in the war against 
drugs, join me to stop illegal immigration,'' we just get a 
comment like, ``We are going to bury you,'' you know, something 
of the book of Nikita Khrushchev, rather than, ``Let us talk.''
    Look, we know what it is. It is a county called Miami-Dade 
that controls our foreign policy, and this is an election year 
for Florida's governor, and this makes it even more difficult.
    But what I think we have to do is try to understand that if 
the answer is, and if you come here and you tell me that the 
answer is that politically we can do China, we cannot do Cuba 
right now, you know, as painful as that is, I understand that. 
But if you really try to tell me that there is a major 
difference, that one Communist Socialist society is moving 
towards where we want it, while it remains a Communist 
Socialist society, and the other one 90 miles away from us is 
not, well, I suggest to you then that if there was the 
equivalent of a Miami-Dade County with Chinese Americans who 
were complaining about doing business with China, you would be 
sitting there making the same nasty comments about China. So I 
would hope, Mr. Ambassador, that you and your people become 
voices that say this is a silly policy that does not make 
sense.
    Let me just close my comments, and hopefully you will 
comment further because I think we should engage in debate on 
this. No one is stronger against Cuba on the House floor than 
the majority whip, Mr. DeLay. It is interesting to note that 
Mr. DeLay was the strongest supporter on the House floor of 
gathering the votes for trading with China. Now he cannot 
explain that. He tried, the way you just did.
    So can you, for the record, at least open up here a little 
bit and tell us if there is another reason why China and not 
Cuba? I am not trying to be difficult. I just cannot understand 
this, and for years I have been trying to.
    I will tell you how far it goes. Just recently, the U.N., 
UNESCO, did a study in Cuba and in other countries which Cuba 
came out number one in the Western Hemisphere for reading 
scores, math and language scores, right? And so Miami went 
crazy, and our State Department went crazy, and UNESCO had to 
go back in to retest Cuban children. Waste of time, right? The 
second time they came out higher.
    So what is it going to take for us to admit that some 
things could be happening in Cuba that we want to be a part of, 
rather than try to strangle them to death, while we prop up 
China as an example of what the world should be like?
    Mr. Zoellick. Well, I would not say that China is an 
example of what the world should be like, but I do stand by, 
Mr. Serrano, and I respect the time, and effort, and depth of 
feeling you have on this, but I do think that the world of 
China over the past 25 years is a very different world than the 
world of Cuba. I mean, and I, because of fortuities in 
different jobs----
    Mr. Serrano. Excuse me. But we did not spend the last 25 
years trying to bury China.
    Mr. Zoellick. We have been pretty tough on China in 
different circumstances.
    Mr. Serrano. Well, we have been tough, but we have not 
strangled them, and we have strangled Cuba.
    Mr. Zoellick. But I honestly feel, Mr. Serrano, that every 
time, and you know over the past 20 years there have been 
efforts of various people to try to open this or that 
relationship with Cuba, that maybe because it is a small 
country, Castro has such a stranglehold on whatever happens 
there. Again, I am not attributing this to anything that you 
were saying, but when you have got a Government that makes 
these sort of statements in the light of September 11th, and I 
have been around a lot of countries around the world, and I 
have been touched by the warmth of people from all over of 
Americans. When I was in Brazil, I saw an American flag that 
was put together by 72 first graders that have never seen this 
country, and that is not what is coming out of Cuba, and that 
suggests to me there is something pretty different there.
    Mr. Serrano. Mr. Chairman, if you will give me a couple of 
more minutes here, and then I will go vote, but this debate is 
going to heat up in Congress because you now have a situation 
that we never had before. Before, basically what you had was 
some Democrats and Republicans wanting to trade with Cuba and 
to change the policy. Now you have a lot of Republicans, some 
of them up for reelection this year, with a lot of farmers 
telling them we want to trade with Cuba, and an administration 
with one person, Mr. Reich, saying absolutely not, that is 
never going to happen. In fact, making comments like, ``In 
spite of what Congress may want, we are not going to let it 
happen.'' I mean, I do not know who elected him.
    But let me tell you something, there are people living in 
Virginia, two of them that I know of, who are accused by the 
Castro Government of taking airplanes, one of them a commercial 
airliner, putting a gun to the pilot's head, bringing to Miami, 
German, Canadian, and Italian tourists, getting to Miami. The 
plane gets sent back with the tourists, and the person 
continues to live here.
    So if we are going to talk about Cuba harboring terrorists, 
well, you know, Cuba could, in some court have an argument that 
we harbor here people who have committed the same crimes 
against that society down there. But as you know, all you have 
got to do is come to Miami and say, ``I am running away for 
democracy and freedom,'' and any other crime you committed 
along the way does not count.
    So, you know----
    Mr. Zoellick. I would not go down that route, Mr. Serrano. 
I understand your other arguments, but I do not think you would 
ever remotely say these two societies are comparable in their 
attitude towards terrorism.
    Mr. Serrano. I am not suggesting that at all, sir. What I 
am suggesting is that more and more the arguments you present 
and the arguments that our Federal Government presents, from 
both sides of the aisle, holds no water any longer because we 
continue to build up other societies and trade with them, and 
we continue to have this misguided, foolish policy toward one, 
out-of-date Communist society. Now obviously I am wasting my 
time here trying to convince you otherwise, but please 
understand that around here there are members of Congress, a 
large number, who believe that this is the wrong policy and 
that we cannot continue to do this in order to prove some point 
to somebody in one county in the State of Florida.
    I tried, Mr. Chairman. [Laughter.]
    Mr. Wolf. Mr. Miller.
    Mr. Miller. Good afternoon. Thank you.

                                 SUGAR

    Let me first ask you a question about sugar. I talked to 
you about sugar last year, and I have been one of the ones 
trying to get rid of the sugar program. It is one of the more 
egregious forms of corporate welfare, and it really hurts jobs 
in this country, in my opinion. There is a Lifesaver plant in 
Michigan. It had to close and move to Michigan because of the 
price of sugar. You are aware of it.
    The Senate Finance Committee attached an amendment to the 
Trade Adjustment Assistance Bill that purports to restrict a 
product called stuffed molasses, but it looks like it is much 
broader than that. I am told that attorneys at USDA believe it 
violates WTO obligations. The amendment potentially could ban 
imports of any product that the Secretary of Agriculture 
believed was circumventing sugar quotas. The way the amendment 
is written, the President would have absolutely no discretion 
as to whether he would implement the Secretary's orders.
    Do you not believe that this amendment is dangerously broad 
and risks violating our trade commitments?
    Mr. Zoellick. I think, Mr. Miller, that the amendment is to 
a slightly different bill. I think it is to the ATPA, but same 
basic point.
    I have to tell you I have not had a chance to look at it in 
detail, but I have heard enough about it that the amendment 
causes me some real concern. I have mentioned to Senator Breaux 
and others that I know they were concerned about the, well, it 
was a legitimate concern about the stuffed molasses diversion, 
and what I urged them to do was to recognize that there was a 
court case going on that was reviewing the action by the 
Customs Department of trying to close that loophole, and the 
court case affirmed the Customs Department effort. So I think 
we have fixed the problem that they were concerned about. At 
least, from what I have heard of this amendment, it does cause 
me concern.
    Mr. Miller. So you think that the amendment may not survive 
because they have addressed the stuffed molasses that is a 
little different issue, but we make it as broad that you could 
not import Lifesavers or something because they claim that we 
are really getting into some----
    Mr. Zoellick. Well, I am not in a position to say what will 
survive the Senate, but I do have problems with that amendment.

                             METHYLBROMIDE

    Mr. Miller. Thank you. Do you know anything about methyl 
bromide?
    Mr. Zoellick. Methyl bromide, is that for the crops?
    Mr. Miller. Yes.
    Mr. Zoellick. Yes.
    Mr. Miller. It becomes a trade issue in that the United 
States, it has a lot of different uses. It is a very powerful 
fumigant. It is used for fumigating ships when they come into 
harbor for that purpose. But in Florida, in Southern 
agriculture, in particular, in Southern California and Texas 
agriculture, it is a fumigant that is used to fumigate the 
ground to allow multiple crops, two crops a year, for example. 
The U.S. is basically going to do away with it by year 2005, 
but developing countries can keep it until 2015, and the 
problem is Mexico is a developing country.
    Our tomato industry was hurt. I am a free trader, so I am 
going to be all right, but I get beat up for supporting NAFTA 
because of our tomato people, for example. Well, they are going 
to now be hit with this methyl bromide, and Mexico keeps methyl 
bromide. Has there been any study, I mean, it is not something 
totally under your control. It is an EPA issue, I understand, 
but it affects trade and becomes even more unfair, for example, 
to tomato growers, but it is used for other products, apples 
and other products, and not just from Florida. Tell me what 
economic impact that type of decision has on trade?
    Mr. Zoellick. I talked about this issue with Mr. Stenholm 
last year. As you properly mentioned, the United States has 
agreed to phase it out, but our phase-out is conditioned on 
certain issues, including I think the ability to develop a 
substitute, and it may be by use. And so we, actually, I went 
back and talked with Administrator Whitman, and I think last 
year there was a rule put forward to allow the continued use of 
methyl bromide, at least for quarantined purposes and maybe for 
others as well. But I was actually sympathetic to the points 
that you are making and tried to follow up, and I will be 
pleased to try to follow up again and let you know.
    Mr. Miller. We have been trying to work on the agricultural 
bill and with Secretary Whitman to try to make it so it is not 
so unfair to agriculture, not just Florida, but other 
agriculture. It is not just for the importation of food, it is 
just the issue of unfair competition.
    Mr. Zoellick. I thought I had actually addressed this one, 
but maybe not.

                                 SUGAR

    Mr. Miller. I would appreciate that.
    Let me ask one final question, if I may, getting back to 
sugar a little bit.
    One of the problems about this sugar program is we keep the 
high price of sugar, and the problem is it makes it hard for 
jobs in the candy industry. For example, when I was offering my 
sugar amendment last year, Mayor Daley and the City Council of 
Chicago supported my resolution because the candy capital of 
the United States is losing these candy companies. I mentioned 
Lifesavers just announced their closure, moving to Canada. In 
theory, you are saving some sugar jobs maybe, but the other 
jobs, and the candy companies or Don Manzullo from Chicago are 
talking about the cough drop company, will move the rest of his 
production to England because the cost of sugar in cough drops, 
anything that has got a hard surface. The candy cane companies 
in the United States are moving their production outside of the 
United States.

                             STEEL INDUSTRY

    This gets me into the steel issue. It is not that much 
different. I do not agree with what you did on steel exactly--I 
do not have any steel in my district in Florida--but the 
problem is we make other products uncompetitive. And whether 
you look at the lost jobs in sugar or the lost jobs in the 
people that use steel in the United States, do you do that type 
of analyses? There are going to be some job losses of steel 
users in the United States because of this.
    Mr. Zoellick. Well, let me take it in a couple of pieces. 
One is the sugar trade policy is driven by our sugar foreign 
policy, and that is obviously in the hands of the Congress, not 
in the hands of me. I can tell you that I share a lot of the 
same frustrations that you share in that because it certainly 
makes our life much more difficult. And you are darn straight, 
one of the things people have to recognize is if they prop up 
the price of something, it may lead to people having a higher 
cost input, and that may end up making other businesses 
uncompetitive.
    In the steel area, there is a fundamental difference. What 
the President acted on was a safeguard. It is a temporary form 
of relief, and it is only for 3 years, and even during that 3 
years, the nature of the relief will go down. It is not 
designed, like the sugar program, to be here until eternity 
with the industry, but instead it is giving an industry that 
the ITC found had received substantial injury from imports and 
giving them a breathing period to get back on their feet.
    The United States has done this with other industries. I 
mean, the most famous one is Harley Davidson, which actually 
did come back in that period. And now the question will be will 
the steel industry use this time to actually restructure, 
become more competitive and productive. In that sense, it is 
distinguished, I think, from the sugar case.
    Your last question was our analyses done on these things. 
There are analyses done by many outsiders. So, for example, in 
steel you can find, and you will find, ones that say you are 
going to lose a bunch of jobs, and you will find another one 
from MIT that says it will make a difference of $2 per 
automobile. In the case of steel, I think it was important to 
me to see that prices were 20-year lows and that you had large 
undercapacity or overcapacity in this country so that you had 
extra production, and I am not convinced that it is going to 
have a detrimental economic effect on our recovery.
    But more generally, there are studies done by outsiders, 
the ITC, the Department of Commerce, and I understand your 
concerns about the sugar program. It is one that is probably 
bigger than either of us.
    Mr. Miller. I have fought that battle for a number of 
years. Very frustrating. Sugar is only grown in a few 
congressional districts in the United States.
    Mr. Zoellick. Actually, when you look at it, as I have 
learned to look at it, it is in a lot of States spread around 
the country, because it is beet, it is cane, I mean, it is a 
variety. And so when you look at the map, as I have seen, of 
sugar producers, it covers a lot, which is one of the reasons I 
think it is what it is.
    Mr. Miller. By the way, on this issue, my staff just gave 
me a note. Following up on this methyl bromide, there are, as 
you know, a lot of different uses, and I was amazed when I got 
into this issue. I was just looking at it from a tomato issue, 
and that is the soil fumigation issue, which is the biggest use 
of methyl bromide. But the issue of quarantine is a different 
issue a little bit. The problem is finding a substitute. 
Everybody agrees for a substitute, they are pouring large 
amounts of money into the research. Everybody will accept a 
substitute, but we are concerned about the soil fumigation, 
which is a little different from the quarantine issue. So, if 
you check into it, it really becomes a fairness issue.
    Mr. Zoellick. Mr. Miller, I would pleased to follow up with 
you, is that now that probably makes sense, is that probably we 
did solve the quarantine issue, and it may be different for the 
soil fumigation. So I will be pleased to do what we can.
    Mr. Miller. Okay. If you can help us on that, it would be 
great.
    Mr. Chairman, thank you very much.
    Mr. Wolf. Sure. Thank you.

                           TRADE WITH RUSSIA

    Mr. Kolbe is coming back and the other members. They may be 
waiting for this vote. So, in the interim, I will just ask you 
a couple of additional questions.
    On the Jackson-Vanik, the administration favors granting 
MFN or PNTR to the Soviet Union or the former Soviet Union, now 
Russia. In doing that, how will you guarantee that there still 
is the protection of minorities. Because if we keep our memory 
sharp, we will know during the 1980s those who were Jewish were 
persecuted, and anti-Semitism is just below the surface in 
certain places. We also know that others, Assemblies of God, 
and others, Pentecostal, who had to go to the American embassy. 
I believe you were in the administration then.
    How do we know or what can we do as we grant MFN or PNTR to 
Russia to make sure that the respect for minorities, and not 
that we have any reason to believe that Putin will not, I am 
not inferring that it is not going to happen, but how do we 
maintain and make sure that that is out there at all times?
    I think it is a mistake, and I think the administration is 
wrong to abolish MFN or PNTR. Jackson-Vanik has worked so well, 
and it may very well be a day that we need it again. You can 
certainly grant PNTR or MFN to a country and keep Jackson-Vanik 
around. So how do we maintain that?
    Mr. Zoellick. Let me deal with your first and then try to 
give you the logic overall.
    The State Department and the NSC has been working with NGOs 
and religious groups to try to get additional meaningful 
commitments. At least my understanding of this process, Mr. 
Chairman, is that it has been going pretty well, including with 
a number of members here that have been working with the 
administration on that, and that a number of the groups who 
would be most concerned are feeling positive, but let me then 
make just two other points about the bigger issue.
    First, is----
    Mr. Wolf. But how do we maintain, though, that this is 
always there? There has been a history in the world of anti-
Semitism. It has just been we know from Nazi Germany, we have 
seen cases. How do we maintain and make sure, though, that this 
does not come back, that there is the respect for minorities, 
is there any way?
    Mr. Zoellick. Well, I am not sure that Jackson-Vanik will 
do that for you either. In other words----
    Mr. Wolf. Well, we did. We amended Jackson-Vanik. We 
amended it by osmosis. We extended Jackson-Vanik to trade 
relations with Rumania and many others. So it was amended 
almost by feeling, by gut, by passion over the years so that it 
became greater than what Jackson-Vanik. Jackson-Vanik was just 
immigration.
    Mr. Zoellick. Yes.
    Mr. Wolf. With China, it got amended in a way that I think 
was appropriate, insofar as we were looking at other things 
too.
    Mr. Zoellick. Here is I think the context in which the 
administration is trying to deal with that.
    As you know, you have a regime in Russia that is trying to 
move beyond the Cold War, and in their mind this is very much 
associated with the Cold War and----
    Mr. Wolf. I am not disagreeing with what the administration 
is doing.
    Mr. Zoellick. And so here is the question: The Russians are 
asking about how Jackson-Vanik would frankly relate to their 
WTO accession and whether it would hold them up in that 
context. And here, and I think they have a very important 
point, they are saying, look, we will abide by all of the 
rules, but we want equal treatment. We do not want to be 
treated in a way that is the old way.
    Mr. Wolf. Sure.
    Mr. Zoellick. And so what I think, and this is again more 
appropriate for the State and NSC, but I will be happy to try 
to intermediate and get the information, is that what we have 
tried to do, as an administration, is to say, well, for these 
ongoing human rights concerns, what systems can we build, what 
institutional processes can we build? Recognizing that a 
country can always, whether we pass a law or not, can always go 
the wrong direction.
    Mr. Wolf. Sure.
    Mr. Zoellick. And so at least I have been convinced, 
Chairman, that on this sort of issue, we have to be careful 
that it not be seen as a slap in the face and keeping the old 
Cold War logic.
    Having said this, and I hope you agree with me on this, 
too, I told the Russians that, going back to this poultry 
issue, that given the sensitivity of this topic here, that they 
can kiss this thing goodbye if they do not solve this poultry 
issue.
    Mr. Wolf. I share your feeling there.
    I was hoping another member would come that we could 
continue this, but in the light of the fact that neither Mr. 
Serrano nor I, have voted, we are going to go vote and come 
right back. It should be no more than 2 minutes.
    [Recess.]
    Mr. Wolf. We are going to have another vote, but I will 
have 15 minutes, and hopefully somebody will come back in the 
interim, and we can keep it so we don't tie you up all day.

                   REPATRIATION OF CRIMINAL OFFENDERS

    There is a section in the bill that we carried last year, 
the following. There are the following detainees from the 
following countries that have been convicted of generally 
violent crimes.
    Mr. Zoellick. Which bill is this, Chairman?
    Mr. Wolf. Our Conference Report last year. Of violent 
crimes, that under a court ruling may very well have to be 
released. For instance, 348 from Vietnam. Vietnam, we just gave 
them special trading rights. We are asking the administration, 
and you can be a big help, to tell Vietnam, ``Take these 
prisoners back.'' I may very well carry, and offer it on the 
floor, or carry some provision that triggers or implements what 
the provision is. And I don't have the exact section, and we 
can give it to you. And it has been exercised once for Guyana. 
If the Attorney General makes a decision as such and such, 
therefore the State Department can no longer issue visas to 
anyone from that country. So if we were to carry this, we would 
prohibit visas for anyone coming from Vietnam, diplomatic or 
nondiplomatic. Well, if they want our business, tell them to 
take their prisoners back. And these are violent prisoners, 
because if they are released on the streets, which they may 
very well be under the court ruling, some of them will be 
involved in killing some people you know.
    And so Vietnam has 348. Laos has 145. Cambodia has 81, 
Somalia 51, North Korea 75, Cuba 1,717, Libya 4, Iran 106, Iraq 
146, and Armenia 35.
    We give a lot of money to Armenia. I have been one of the 
strong supporters of Armenia, Nagorno-Karabakh. I support the 
Armenia resolution. What the Turks did to the Armenians was 
genocide, that is a fact. But they won't take back 35 people. 
So I would urge you to come and--I am going to give you this 
list, and I know you didn't know about it, so it is not 
directly directed against you, ask these countries--and you 
carry a tremendous amount of weight as the trade rep--friends 
treating other friends to just please take them back.
    Now, obviously, it may be more difficult with North Korea. 
It may be more difficult with Cuba. But I think Vietnam, if you 
were to speak out, particularly the trade mission's going back 
there, I think they would probably take them out. Laos I think 
would probably take the 145. Cambodia would probably take the 
81. Somalia, there is no government for all practical purposes 
of Somalia, but they are looking for good things to do with 
regard to where the war on terrorism is. Take back these 51. 
This is the top 10. Then there are other countries. So if you 
could intercede to encourage them to take back, as we would be 
obligated to take back from them. I think it is a reciprocal 
operation. That would be very much appreciated.
    I think that makes sense though.
    Mr. Zoellick. If you give me the list, I will make sure I 
share with my colleagues in other departments, but for the ones 
that I am doing business with like Vietnam, certainly I can 
raise it.
    Mr. Wolf. I just want to give the House an opportunity to 
vote on that. Just say, ``Okay, you want them, here is the 
opportunity.'' And my sense is that that amendment would carry. 
On the other hand, now that we have relationships with Vietnam, 
they ought to be good. I am not trying to look for reasons to 
make them go south, but one thing they can do is to take the 
people back.

                            CANADIAN LUMBER

    Canadian lumber, home builders, also manufacturers of 
mattresses. We have been told that your staff is working on 
this issue. We have heard that they are looking at different 
ways of solving this. Trade restrictions would obviously affect 
housing affordability. I think you probably saw the article in 
Sunday's ``Washington Post'' about the cost of housing in the 
suburban Washington Metropolitan area, Northern Virginia, same 
for Montgomery County, very difficult for young people to 
afford a house. What are your comments and thoughts about this 
issue?
    Mr. Zoellick. Well, I am sensitive to it, Chairman. In 
fact, no reason you would necessarily know this, but I used to 
be in the affordable housing business, so I used to run all the 
affordable housing programs and I was executive vice president 
of Fannie Mae.
    But let me start with the nature of the problem, and this 
is--there are negotiations going on as we meet here. The 
problem is, as you may know, that almost all the lumber in 
Canada is cut from Crown lands, so it is all off government 
lands, and there have been a series of practices that the 
Canadians have had for many, many years, that have created 
subsidies, and frankly, set of jobs programs related to that 
that have at times been challenged by some of their competitors 
in the United States, whether timber mills or people who are 
growing timber or other things like that.
    And last year they filed these anti-dumping and 
countervailing duty cases. And the preliminary findings of the 
anti-dumping and countervailing duty cases by the Commerce 
Department were for anti-dumping a 12.6 duty and for 
countervailing duty 19 percent. Now, what is causing the 
attention now is that by Thursday night, to be announced 
Friday, the Commerce Department makes the final determination 
on those duties.
    Mr. Wolf. This week?
    Mr. Zoellick. Yes. And the numbers may change. It is done 
through an independent process. I don't know what they are 
going to end up being. Secretary Evans doesn't know what they 
could end up being.
    Mr. Wolf. Is it a formula?
    Mr. Zoellick. Its formula is based on findings of the 
natures of subsidies. You know, it will vary by product and 
what the practice is. What we have been trying to do with the 
Canadians--and this is really the first time in 20 years people 
have been going at it this way--is to say, let's try to get at 
the underlying practices. In other words, our goal is an open 
and competitive market for lumber and timber. That is what we 
are trying to achieve. It gets complicated on the Canadian side 
because as you know, it is a highly federal system, so each of 
the provinces have their own policies, so we are negotiating 
with the people in Ottawa as well as the provinces. The most 
important ones, frankly, are probably British Columbia and 
perhaps Ontario in terms of the overall timber and cutting. And 
those provinces have sort of recognized the need to change some 
of the policies, and this gets complicated quickly, but let me 
just give you a little flavor of it. Because they cut the 
timber off what they call Crown lands, one of the things we 
have said is, ``Well, why don't you just put the timber up for 
auction? If you want to make sure it is in market, put it up 
for auction.'' Well, in part because of the vast spaces and 
others, they haven't agreed to do that. So one of the things 
that we are trying to negotiate with them is, you know, how 
much would you be wiling to put up for auction? They are at 13 
percent. Our industry is at 65 percent. So there is a pretty 
big gap here to try to bridge.
    But there are other issues. To say, ``Well, if you still 
want to use what is sort of a government industry system, then 
maybe you could use reference prices, reference to market 
prices in the United States.'' But then the Canadians have 
said, ``Yes, but it is not true for this type of tree or that 
type of tree.'' So that is the sort of issues that we have been 
trying to thrash out here.
    Obviously, this discussion has been going on even since I 
have come up here doing some other things on the Senate side 
this morning, so I can't say for sure, but I personally feel 
that there is still going to be a pretty significant difference 
here to be able to close by Thursday night.
    So what we have suggested to the Canadians is, ``Let's not 
lose the benefit of the work we have done with the provinces 
and the Ottawa Government about trying to go at the underlying 
practices.'' So we have suggested two ways in which we could 
continue this process, and either nationally in Canada or if 
each province starts to go off and make their reforms, they 
could come back to the Commerce Department and change those 
duties. And this is the point: is that while the duties are 
declared as final duties, there is a process in the Commerce 
Department called ``changed circumstances,'' so if the 
underlying circumstances change, that could allow the Commerce 
Department to say there is not subsidy in fact any more.
    The one other point I want to say on this, if you don't 
mind, Chairman, is that sometimes the Canadians get a little 
free in tossing around the word ``protectionism'', and so I 
went and asked someone to check the WTO website about whether 
Canada uses anti-dumping and countervailing duty laws, and lo 
and behold, I discovered they have 101 in place, 12 against the 
United States, where we only have 8. So while this is a 
legitimate issue we are trying to work on with them on various 
topics, I urge that some who get a little overheated on the 
Canadian side with rhetoric look at their own home turf as they 
deal with these issues too.
    Mr. Wolf. Now, Mr. Mollohan and Mr. Kolbe and maybe, if you 
could just chair the hearing, and I will be back in a while. 
Mr. Mollohan.

                              STEEL TRADE

    Mr. Mollohan [presiding]. Thank you, Mr. Chairman.
    Mr. Ambassador, welcome to the hearing. First of all, I am 
from an area that is very interested in the President's 
prosecuting the 201, and am very appreciative of his decision. 
I want to tell you that we are very appreciative of his 
decision, and I appreciate your accommodating it in your 
responsibilities.
    Mr. Zoellick. I tried to tell you last year I was working 
on this. [Laughter.]
    Mr. Mollohan. I appreciate it. I would like for you to talk 
a little bit about the exemption process. Actually, if you 
would start there, that would be kind of a good place to start 
it. I have noticed that we have already been processing some 
exemptions. How is that happening? There has been some concern 
that it is not transparent, that the ability to input the 
decision making with regard to exemptions is not clear if it 
exists. So I just invite you to talk a little bit about that 
exemption process.
    Mr. Zoellick. Sure. We had over 1,000 requests for 
exemptions, and there is no way that we could review those all 
fairly by the time that we made the decision. So what the 
President decided was to allow a 120-day period in which to 
examine these issues. And what we are trying to do is to look 
at areas where there is a grade of steel or type of steel that 
is either not produced by the United States or is very hard to 
get to one point or another that would frankly cost jobs, 
because that is what much of this has been about.
    Mr. Mollohan. Does the 201 cover any steel that is not 
produced in the United States?
    Mr. Zoellick. There is some question about the inputs. See, 
what much of this has done, Congressman, is relate to the 
inputs. This came up with the slab question, and in fact, I 
think you cover Weirton. Weirton was sort of on both sides a 
little bit, because one of things, as you know, I was working 
on the tin mill side and we tried to take care of that, but 
they, at various times when I have talked to them, they were 
also talking, as some companies have done, about importing the 
slab and in a sense doing a higher value-added part of the 
process. And one of the reasons this occurs is the quality of 
the ore is very good in Brazil and Australia, and so what some 
of the steel companies in America are moving to is importing a 
slab product and then doing a rerolling operation.
    Mr. Mollohan. But it is not the quality of product, it is 
price of product.
    Mr. Zoellick. Well, at least when you talk to various steel 
industries, and there are some, you know, Weirton, but also 
ones in the West Coast and some----
    Mr. Mollohan. I think Weirton is price.
    Mr. Zoellick [continuing]. In Texas, is that there is a 
question about the quality of the grade of the ore, I mean at 
least what they tell us. Now, that is a slightly different 
category because that is the tariff rate----
    Mr. Mollohan. That probably doesn't amount to----
    Mr. Zoellick. Well, it is 5.4 million tons, and it is 
important for a number of the producers, A.K. Steel and some of 
the others along the way. Now, the reason I referenced it is 
that the exemption process is somewhat similar in that--and in 
fact, this is where the steel industry is sometimes on both 
sides of this. USX has an operation that is up on the West 
Coast in Washington, and frankly, they were drawing in some of 
material that is called feed stock. It is between slab and sort 
of the next level. And they felt they couldn't get access to 
it, and it is partly production, Congressman, but it is also 
accessibility given the transportation costs, and what is the 
transportation availability of this. And there was another one 
in the case of California that much of the California 
delegation was worried that you would actually have to close 
down the plant and lose jobs.
    So, I frankly, Congressman, don't expect that there is 
going to be a great number of these. What the Commerce 
Department is trying to examine in a fair case-by-case fashion, 
whether--sometimes you get into very small specific products 
that may not be produced or they may have, you know, 75 percent 
of the production with one source, and so they worry about 
close to monopoly pricing. So those are the issues that people 
are looking at here.
    Mr. Mollohan. How many do you, in terms of how far this 
goes just in terms of numbers, do you anticipate at the end of 
the 120 days? I understand the President is going to open it up 
every year for the next year or--it is three years, is it not? 
How many exemptions would you anticipate being approved within 
the 120-day period?
    Mr. Zoellick. I wouldn't want to hazard a guess, 
Congressman. I guess the way I would answer it is this way. The 
President made a decision based on a logic about trying to give 
the industry a chance to catch its breath over this period. We 
don't want to do anything that undermines that. And so it will 
be, in my view, a careful and conservative process that is 
looking for true cases of where it would undermine jobs or 
serious employment or put someone at a real competitive 
disadvantage.
    Mr. Mollohan. Well, what is the process. Does the country 
do something formal? Do they file a petition, or do they write 
a letter?
    Mr. Zoellick. They have had to file and make in a sense a 
brief argument on why this is important, and in terms of what 
the alternative sources are.
    Mr. Mollohan. So they specifically enter an exemption 
consideration process.
    Mr. Zoellick. Yes, sir. And just for the--you mentioned a 
reference to the following year. What that is about is that 
frequently when safeguards are put in place, there is something 
called a short supply petition, which allows people to decide, 
``Well, if products are in particularly short supply, you can 
come in and get it.'' Because this safeguard is so large in its 
scope, and we didn't want to sort of have that be an ongoing 
process, we kind of combined the two. So in a sense what that 
effort is to open it to the following year is really an effort 
to deal with the short supply condition.
    Mr. Mollohan. How many of these petitions or requests for 
exemptions do you have before you?
    Mr. Zoellick. About a thousand.
    Mr. Mollohan. 1,000 right now?
    Mr. Zoellick. Well, I think they may have been able to 
review some 200, but that is the range we are talking about. 
Some of these are quite small.
    Mr. Mollohan. So you are going to--of that 1,000 you are 
going to review them within that 120-day period?
    Mr. Zoellick. Yes.
    Mr. Mollohan. When does that 120-day period end?
    Mr. Zoellick. I will get a precise answer for you, but I 
think it will be 120 days after the decision takes effect. We 
should get you a precise figure.
    Mr. Mollohan. So you are talking about summer. Would you be 
able to give any estimate on how many you would anticipate 
being acted on positively for the petitioner?
    Mr. Zoellick. I really wouldn't because it is not fair. I 
don't know what they are. I mean, and we do want to take this 
in a rational process. I will just say that in talking about 
this with Secretary Evans, our inclination is to do this very 
conservatively and carefully.
    Mr. Mollohan. Is the Australian example the only one you 
have approved so far?
    Mr. Zoellick. That I know of.
    Mr. Mollohan. Now, Brazil has--I know that you were down 
there visiting, were you not there just recently? Did they 
express concern about this decision?
    Mr. Zoellick. They certainly did.
    Mr. Mollohan. Did they yell and scream about this decision? 
And are they asking for exemptions?
    Mr. Zoellick. They presented us a list of potential 
exemptions, but what I explained to the Brazilians, 
Congressman, was that there were a couple of categories of 
steel that in the case of Brazil were under the 3 percent level 
for developing country and were excluded.
    Secondly, their major export to the United States is the 
slab that we talked about, and used the quote of slab based on 
the 2000 numbers, and I made the argument that given the fact 
that they would have a 52 percent share of this, that they 
should pretty well be taken care of in terms of their past slab 
exports, and that it was our estimate that about 87 percent of 
the steel that they sold to the United States in the past would 
be able to be available and so I----
    Mr. Mollohan. Under the initial.
    Mr. Zoellick. Under the initial. Now, there was one case 
that they presented, which we will look at, which is, is that 
there appears to be a Brazilian company that has bought a U.S. 
company, and they did so on the business model of bringing in 
more slab, and that is the sort of question where we want to 
take a fair look at it because it is a question of whether it 
is additional jobs in that. Now, if there is slab from other 
sources, then they won't need it, but it is something that we 
will take a look at.
    Mr. Mollohan. Typically, is the country processing these 
petitions or are the companies processing these petitions?
    Mr. Zoellick. When we--and I am glad you asked this, 
because when some of this is covered in the press it is a 
little confused, is that when we grant an exemption, it is a 
most favored nation exemption. In other words, it is not left 
for companies or countries alone. In other words, anybody who 
could supply that can supply it.
    Now, it turns out that in many of the cases what has driven 
this is there has been a special business relationship, so for 
example, in the case of the Korean one that people talk about, 
Posco Steel had had a business relationship with a factory that 
we had had in the Pacific Northwest, and so it is an ongoing 
business arrangement, so they are likely to be the only 
supplier, but it is open to anybody else too.
    Mr. Mollohan. When you say open to anybody else, what do 
you mean?
    Mr. Zoellick. It means that another company in another 
country that could supply that under the exemption can be free 
to do so if you have granted the exemption. In other words, it 
is not a special deal for one company or country alone.
    Mr. Mollohan. So it is for a type of steel?
    Mr. Zoellick. Right, right.
    Mr. Mollohan. So if you grant an exemption, it is not for 
Brazil or it is not for the Brazilian company, it is for that 
class of steel.
    Mr. Zoellick. Yes, now----
    Mr. Mollohan. And it could be supplied from any source, 
from any country?
    Mr. Zoellick. Now, it turns out that the nature of the 
exemptions, particularly if one is conservative with them, as I 
expect we will be, are exemptions where the only reason they 
were granted is because there is a business supplier 
relationship that can't be supplied from somewhere else in the 
United States, or that they would face an incredible price 
increase in their input, and so it is usually a particular 
plan, but I am saying that as a legal matter, it is open to 
others to be able to supply it too.
    Mr. Mollohan. I don't understand the process, and I could 
have boned up on it before this hearing, but I didn't, so 
typically is a country processing these exemption petitions or 
whatever, or does a company initiate it?
    Mr. Zoellick. I will have to check on that for you, 
Congressman, is, is that they have come from countries to the 
best of my knowledge, but I will double check for you.
    Mr. Mollohan. In this news story, BHP Steel and the 
Australian Government were mentioned almost in the same breath, 
and the president of the company seemed to be playing a very 
prominent role in the process, so I was just wondering formally 
how it is done.
    Mr. Zoellick. I will check for you.
    Mr. Mollohan. I appreciate that.
    Mr. Zoellick. Oh, Congressman, by the way, someone handed 
me a note. I am sorry. 120 days runs to first week of July.
    Mr. Mollohan. Okay, thank you. So when we talk about end 
rounding, or maybe that is not the right word, if you give an 
exemption to one country and then other suppliers come in 
through that exemption, that is actually wrong, thinking about 
it, because you are giving an exemption to that type of steel.
    Mr. Zoellick. For that U.S. company to make sure it gets 
its raw material.
    Mr. Mollohan. For that U.S. company, so it is on a company-
by-company basis.
    Mr. Zoellick. It is based on the idea that a certain U.S. 
company needs a certain amount of steel. It is then available 
for anybody to provide, although in practice, it is frequently, 
as I mentioned, because of a specific business relationship, so 
it is likely to be one company and one other country.
    So for example, which often happens, is----
    Mr. Mollohan. Well, let me just read this ``Intensive 
lobbying by Mark Dale, Australia's Trade Minister, has come up 
trumps in persuading the U.S. Government to effectively exempt 
Australian hot rolled coil exports from the 30 percent import 
tariff.''
    When I read that it doesn't say this is an exemption for a 
company to purchase that product from any source. It is just 
not saying that. So you are suggesting that is wrong?
    Mr. Zoellick. Congressman, we have many gentlemen and 
perhaps some gentlemen of the press behind me, and sometimes 
they use shorthand. [Laughter.]
    Mr. Mollohan. I sort of do that.
    Mr. Zoellick. All trying to avoid blame. [Laughter.]
    Mr. Mollohan. Thank you.
    Mr. Kolbe.
    Mr. Kolbe. Thank you, Mr. Chairman.

                            SOFTWOOD LUMBER

    Mr. Zoellick, welcome. You and I have worked together for a 
long time on a lot of different trade related issues, whether 
it has been NAFTA or the GATT round, WTO in China, and trade 
promotion authority in its earlier iterations as fast tracked, 
a lot of things that we have worked on. It has never been an 
easy one. It doesn't seem to get any easier. And I have great 
respect for you and for what you do.
    Having said that, I obviously have some differences of 
opinion as you know, with some of the administration's recent 
policies, listening to Mr. Mollohan here. Obviously, people of 
good minds can differ on these kinds of things and have 
different points of view. It has a lot to do I suppose with 
where you come from and who you represent.
    But I am very fearful, very worried that we are really 
moving off track in our promotion of opening markets and 
access, and the United States is not really setting much of an 
example, it doesn't seem to me, not with what we are doing on 
softwood lumber, not with what we're doing on steel. And I am 
worried that we are going to weaken the rules-based trading 
system that we have established in NAFTA and the WTO.
    With that in mind, let me just ask you a couple of specific 
questions about each of these, and particularly softwood 
lumber. I have already expressed my views on steel, but I will 
have at least a question or so on that.
    I am really worried about where we are headed again with 
softwood lumber. I had hoped we could put this issue behind us. 
It is a classic example, in my view, of how special interests 
always outweigh the larger interest. Obviously far more 
Americans are affected by buying lumber, buying homes, and are 
negatively affected by the efforts we are doing to a very, very 
tiny, small group of people, who have an interest in softwood 
lumber and trying to keep Canadian imports out of this country. 
And according to the press reports, you have been suggesting to 
the Canadians that they put a tax, 37 percent tax on the 
exports of Canadian softwood lumber. Is that accurate? Is that 
an accurate statement?
    Mr. Zoellick. No, the press reports have been all gummed up 
on this, and so if you want, I will--do you want me to explain 
this?
    Mr. Kolbe. Yes. I am delighted if that is true and I would 
like you to set the record straight.
    Mr. Zoellick. Okay. And I apologize--I forgot exactly when 
you came in. I talked a little bit about this.
    Mr. Kolbe. I realize you have probably done some--you may 
be going back over the same material. I apologize.
    Mr. Zoellick. And again, let me start out, Congressman, you 
have been a great supporter and a great help and under 
difficult days, and so my thanks and appreciation is offered to 
you.
    As you know, to pursue an aggressive open market trade 
policy around the world, we have to have support at home, and 
part of that having support at home is being able to treat our 
people fairly, and in the question of the softwood lumber, the 
problems starts with the fact that almost all the lumber in 
Canada, all the trees in Canada except in the maritime 
provinces, are grown on Crown land. And so the Canadians have 
had policies for decades that have basically been designed to 
create employment, not based on market prices, and what our 
fundamental goal is with this whole issue is to try to move 
this to a true open market system. Now, what has driven that, 
as you know, is that the industry has filed the anti-dumping 
and countervailing duty suits. And I just reviewed again before 
the fact that we had had findings that together were in 
preliminary duties were about 31 percent. The final duties will 
be made Thursday to be released on Friday. I don't know what 
those are. Secretary Evans doesn't know what those are, and 
part of what we are dealing with now, as we have had to deal 
with before, is sort of a last minute Canadian press rush, and 
I want to come back to that a little bit because if we are 
going to defend free trade and the Canadians want to try to 
play a certain game, they have got to be honest with themselves 
too.
    Now, what we have been trying to do is say let's do 
something that people haven't done for 20 years, which is let's 
go with the underlying practices. You may recall in the 1980s 
people dealt with this with an export tax when I was at the 
Treasury. We have said, ``Let's try to go and deal with the 
underlying problem.'' And just to give you one example--and we 
have made, frankly, I think a lot of progress going through 
what is a complex, even knotty issue. And one of the aspects of 
it would be the land that they sell, or the lumber that they 
sell. And you are a believer in free markets. I am a believer 
in free markets. My first suggestion is why don't you put it 
all up to auction? That is how free markets worked in the world 
that I know. And you can put your leases up to auction or put 
your timber up to auction. I don't care, but let's create a 
market.
    That is not what the Canadians have said. What the 
Canadians have said is they are willing to put all of 13 
percent of their leases up to auction. Well, that doesn't 
create a free market, and that is the problem we have. Now, our 
industry says 65 percent. And maybe there is something in 
between, but right now the Canadians aren't getting anywhere 
close to the economists that I talk to believe create a free 
market.
    Or another possibility we could use with this, because each 
of the provinces has a different policy, and part of our 
challenge here is we are not only negotiating with the Canadian 
Government, we are negotiating with a number of provinces, is 
that you could use reference prices. So let's reference the 
prices in the United States where we do have a free market, an 
open market in these areas. And when we have suggested that, 
then the Canadians want to come up with various things to 
basically not go at the underlying policy they have had.
    Now, there have been some important steps. For example, the 
Canadians used to have required cut demands that basically were 
designed to keep timber mills open in Canada regardless of what 
the market is, and they are moving in the direction of taking 
these on.
    So the story that you picked up, Congressman, is focused on 
the following issue. One of the things that we were trying to 
work out with the Canadians was basically a five-part program, 
to say, look, if we can agree on the changes in the underlying 
practices to finally create a set of open markets, it will take 
some time to implement them. So what we are trying to do is to 
say in the meantime, if we would agree on an overall export 
tax, as the Canadians had in the past, that would be reduced 
over time as they implement the practices, our industry would 
agree not to have anti-dumping, countervailing duty suits, and 
they would agree to drop the WTO action.
    That is the big package that we have been trying to work 
towards, and what I have said to my Canadian colleagues is, we 
still believe that is worth trying to work towards. We have 
made some progress. We are not there yet, but if we want to get 
at the underlying problem, let's try to do that.
    But we have offered them a second option as well, and that 
is because the different provinces have different approaches to 
this, we would say if a province, say British Columbia, which 
is a big player in this, is willing to make the reforms, then 
even if the others aren't willing to go forward, we would be 
willing to come back and remove the duties under a changed 
circumstances finding, which Commerce Department can do.
    So you hear a lot from the Canadians about how our industry 
is controlling this. Well, obviously, we listen to our 
industry, but we make an independent assessment of national 
interest. The Canadians aren't anywhere close to being able to 
create an open and fair market. So to come back to your point, 
to be able to defend open and fair markets around the world, we 
have to be able to make a case to our industry that it is a 
fair process, and right now that isn't the case.
    And the last point I just wanted to make, Jim, on this, is 
that--because you hear this too a lot--is that the Canadians 
are very free in saying this is American protectionism, and as 
I said to the Chairman, I went and checked the WTO website, and 
there are 101 anti-dumping and countervailing duty suits by the 
Canadian Government, and so that is maybe 101 examples of 
Canadian protectionism, and 12 of them are against the United 
States. So we are trying to work through this problem, as you 
can tell, in a serious way to get at the underlying issue. If 
we don't get it done by Thursday, I think we should still keep 
at it because I think this is an important issue to work 
towards, but tossing around terms as the Canadians do sometimes 
lightly won't get us any closer to solving it.
    Mr. Kolbe. Well, thanks for the very extensive answer to 
the first part of my question. I don't know whether or not the 
Canadians subsidize their timber or not. They of course claim 
they don't. But we have had case on this. We haven't been 
successful, am I right?
    Mr. Zoellick. Well, first off, we have just had a 
determination, a preliminary determination by the ITC and the 
Commerce Department of dumping duties, and I know everybody in 
Canada and others sort of think that those are always game, but 
I will tell you, I don't know what the numbers are. And I 
believe that people approach us in a professional way and try 
to analyze it, but, Congressman, come back to my offer. You 
know what a market is. I know what a market is. You want to 
have a market? Put it up for auction. That is what a market is. 
And so what is the problem here?
    Mr. Kolbe. Do you agree that what you are talking about 
doing is going to impose a burden on buyers in this country or 
do you think it makes no difference at all? If it doesn't then 
it obviously has no impact whatever.
    Mr. Zoellick. Well, I had asked my staff to try to check 
the futures prices for lumber and try to see whether there was, 
the prices in the upcoming months suggest much in the way of 
increase. And I think the price increase for the July boards 
are about 1 percent. They have gone up about 7 or 8 percent 
over the course of the past couple months, how much of that is 
due to extra demand and other things. But certainly, it is 
better if you have lower-priced inputs in terms of your 
product. But, you know, to be fair to our people who do things 
to, is that if a government owns the product and the government 
is selling the product not in a fair market condition, well, 
you know, that strikes me as a reasonable circumstance in which 
the United States can say, either we offer an alternative, 
which is the duties, or frankly, what I am trying to drive at 
is let's go at the underlying practices.
    And what we have been doing for the first time is to really 
look at these in an interlocking network. We have drawn on some 
stuff that we have gotten from some independent consultants. We 
have talked with the provinces. The good news is that frankly 
one of the major provinces, British Columbia, has a government 
that is now more willing to do this. The prior government was 
an NDP government, a socialist government, and they were freely 
using these policies to basically keep jobs alive in British 
Columbia to the loss of our jobs.
    Mr. Kolbe. Well, I sit on the Interior Committee and we 
always are hearing about complaints about our own timbering 
that we are giving too much of a break to companies that are 
cutting timber. Is it your view, is it the administration's 
view that we fully recover all the costs of sale on our timber 
of publicly-owned timberlands, which granted is not nearly as 
substantial as the Canadian percentage of lands, but they are 
substantial?
    Mr. Zoellick. Well, my understanding is there have actually 
been a lot of restrictions on the lumbering on our lands, and 
in fact, I just heard the President yesterday say that, 
particularly dealing with the question of forest fires, it 
wouldn't be so bad if we could sell some more of the dead wood 
off those lands. So I hope we can sell it.
    Mr. Kolbe. That is not the question though. It is about 
recovering the cost, all the roads, all the work that goes into 
making----
    Mr. Zoellick. Well, I don't know with specificity.
    Mr. Kolbe. Well, that is the argument, that we are 
subsidizing in the way that the Canadians do. We subsidize our 
timber, publicly-owned timber.
    Mr. Zoellick. So we should deal with that problem, but that 
doesn't give the Canadians a bye on their subsidies.
    Mr. Kolbe. We give them a cause for action if we do 
something that is not--that is out of whack or is not 
reciprocal.
    Mr. Zoellick. And if they want to take a legal action in 
the WTO or elsewhere against us, or an anti-dumping, 
countervailing duty suit, as I said, they don't seem to be shy 
about taking them against us.

                           TRADE DEVELOPMENT

    Mr. Kolbe. Well, let me, if I might, just turn to kind of a 
more general question. Again, coming back to the issue that I 
said that concerns me as to the direction that we are going.
    Certainly it seems to me that the promise of Doha is in 
major part that we are going to be increasing market access for 
developing countries, and that is why we call it the 
development round I think. It is certainly what we are trying 
to do. And I am just worried. Do you have any thoughts at night 
before you go to sleep about reconciling these kinds of market-
closing actions that we are doing on steel or----
    Mr. Wolf [presiding]. I can't wait to hear this answer. 
[Laughter.]
    Mr. Serrano. I hope he thinks about Cuba sometime. 
[Laughter.]
    Mr. Zoellick. I have a lot to think about before I go to 
sleep.
    Mr. Kolbe. Or I might add what Congress is doing on the 
farm bill with moving the trade liberalization forward. I mean 
is Congress and the President, are the Congress and the 
administration out of step with what I know is your very strong 
personal view about global liberalization, trade 
liberalization?
    Mr. Zoellick. Well, those are all very important questions. 
I just want to take a moment and go through a couple of them. 
On the issue of steel, as I think I mentioned in my opening 
comments, one of the things that drove me to the belief that a 
201 safeguard was entirely appropriate in this area is that 
this is a market where if you look into the history of it 
globally, has been extremely manipulated over time. And let me 
just give you one example that I found somewhat compelling. If 
you look at the Japanese steel industry, there has been five 
producers. Between 1970 and 1998 the market share of those five 
producers did not change even one percentage point in any one 
year over 28 years.
    Now you and I know markets, and that doesn't exactly strike 
me as being an open and fair market process. And so one of the 
things that I think is important is this is that the President 
didn't just emphasize safeguards. He emphasized an effort to 
try to deal with the underlying problem around the world in 
terms of both over capacity and in terms of the unfair 
practices.
    Now, as for developing countries--and I think probably 
everybody here shares this interest and for perhaps for 
different reasons and different causes--as you probably know, 
this safeguard excludes the developing countries, and we have 
got nice press releases from South Africa and others that are 
applauding us on our action. And given our common interest in 
terms of the western hemisphere, other 13 percent of Brazil and 
one product from Venezuela the western hemisphere isn't 
connected by this at all.
    Another argument that I would make in this is that we 
excluded our free trade partners. I think that is a very good 
signal to send. What it says is if countries are willing to 
negotiate a free trade agreement with us, and get at some of 
the underlying practices, then if the rules permit it, that we 
will treat you specially. So the developing countries, you 
know, are not hurt by this. And what we have also tried to 
suggest is we don't want to stop in terms of dealing with the 
underlying problems globally. But in the meantime--you have 
been in these sessions--we are not just going to let people 
jabber in diplomatic halls you know, in the meantime if we have 
got an industry that 30 percent of it is in bankruptcy and it 
is not just the integrated guys, it is the mini-mills, we have 
the same right that the other countries do to use safeguards.
    And again, I know--I am giving you this in part because you 
travel around a lot--there are 20 other safeguards in place 
around the world. How come it is fair for them but not for us 
to be able to try to use these procedures. And our friends in 
Europe who you and I deal with, you know, we have seen the 
color of their money. All of a sudden when the United States 
decides they want to put on a safeguard, and our market may be 
less open than it is in the past--although frankly, I think we 
will still import a steel because we are going to be growing--
then what do the Europeans do? They rush to put on safeguards, 
and they haven't even used any of the process that we have 
done, so I do question, as the Europeans go to put on 
safeguards, have they found injury? Have they found any of the 
things that they are claiming that we haven't found?
    So part of the problem is that the steel industry of all is 
a particularly manipulated one, and frankly, we ought to get at 
that problem and not leave our people high and dry in the 
meantime on Ag. issues, because I think on this one I share a 
concern with you, is that I do think as the Ag. bill gets 
finalized, it is absolutely vital that we try to put the 
supports in the green box so that we keep the commitment that 
we have in terms of being willing not only to eliminate export 
subsidies but reduce production support amber box.
    Mr. Kolbe. Let me interrupt. As now passed in the House or 
as looking in the Senate, would you agree that many of those 
supports are not in the green box but in the amber box?
    Mr. Zoellick. I just had a conversation with others in the 
administration about this, because obviously I am not dealing 
with the farm bill day by day. And they are encouraged that 
there is an increasing willingness in the conference to move 
these into green box programs. As you know, there is another 
trigger process that has been put into the House bill that we 
are also trying to work with in the conference to make sure 
that it works.
    But the key thing here is for America's farmers to recall 
that one out of three acres are planted for export, and that 25 
percent of gross cash receipts is from export. And so the 
United States is the key decider in this globally, frankly, 
because we know where the Europeans are, we know where the 
Japanese are, we know where the Koreans are, and if we don't 
keep sort of United States policy, both Ag. policy and trade 
policy moving towards market liberalization, it is going to 
backfire against our farmers, so maybe you can help us on that.
    Mr. Kolbe. You can be sure I will be there to try and help 
you on that.
    Mr. chairman, may I ask one more question?
    Mr. Wolf. Yes.

                       ANDEAN TRADE REFERENCE ACT

    Mr. Kolbe. In my capacity as Chairman of the Foreign 
Operations Subcommittee I have traveled down to South America, 
the Andean countries, and the plea we hear from them is, you 
know, ``We desperately need the Andean Trade Preference Act 
renewed.'' But we can see, here these countries are already too 
dependent on drugs, so losing that market access is 
tremendously important. I am going to be going down to 
Monterrey to the Development Assistance Conference, I hope 
tonight, but it looks like probably in the morning, and I 
expect what we are going to hear there from the--I hope from 
the President, I know from Secretary O'Neill, is that trade is 
the most important thing that we can do in terms of providing 
assistance to other countries.
    You have recently opened negotiations with five Central 
American countries, democracies, about a free trade agreement. 
But I understand the initial position that you put on the table 
with regard to the apparent provisions would actually reduce, 
take away market access or preference benefits. I hope that is 
not correct, but if it is----
    Mr. Zoellick. We haven't put any position on the table 
because----
    Mr. Kolbe. No discussion about textiles?
    Mr. Zoellick. Well, I don't know if people have discussed 
textiles, but just so you know where this is, when the 
President spoke about our interest in moving ahead with a free 
trade agreement with Central America, we are very conscious of 
the responsibilities about moving this forward in conjunction 
with the Congress, and so we have been trying to wait for the 
TPA process. He may have more to say about this when he is in 
El Salvador, but we hope that now that we are at the final lap 
of the TPA process, that we can launch the negotiations, but we 
haven't launched them yet. What we have had is a series of 
discussions.
    Mr. Kolbe. Well, that is what I was referring to was those 
discussions. I understand the initial--I realize it may not be 
a formal position, but was talking about actually reducing the 
textile and apparel benefits.
    Mr. Zoellick. Well, that certainly is not my concept as we 
go forward, personally. And in fact, to give you a little 
further point of where I hope this will be constructive for our 
common interest, as you know, there was a question about, under 
the Caribbean Basin Trade Initiative, about how the dyeing and 
finishing issues get done. But this is a good example of why a 
free trade agreement is important, because when you do these 
preferential agreements, frankly, what can be given can be 
taken away, where if we negotiate this, then I hope we can 
overcome those types of obstacles.
    Mr. Kolbe. Thank you very much, Mr. Zoellick.
    And, Mr. Chairman, let me just say in conclusion that I 
really hope I haven't tried to come across as being too 
hostile. You know I have to be a little bit of your conscience 
here to keep pushing back a little bit towards the free trade 
side here, and I appreciate what you have done. You have made 
enormous contributions to this country through the years, and I 
am very grateful.
    Mr. Zoellick. And I try to remember history before I go to 
bed so I can forget all this.[Laughter.]
    Mr. Kolbe. Thank you, Mr. Chairman.
    Mr. Wolf. Ms. Roybal-Allard, then Mr. Latham.
    Ms. Roybal-Allard. Thank you, Mr. Chairman.

                           TRADE WITH BRAZIL

    Mr. Ambassador, I would like to follow a little bit on some 
of what already has been discussed. You mentioned earlier that 
you had just gotten back from Brazil. I was there the end of 
last year and met with several folks from the administration, 
along with Congressman Dreier and other members of Congress 
that were there. And there was a lot of enthusiasm about the 
possibility of opening up trade and FTAA. When the House passed 
the Trade Promotion Authority Bill, which includes the removal 
of some of the agricultural products from the President's 
tariff proclamation authority, President Cardoza of Brazil said 
that any prospects for approval of FTAA were doomed.
    I know that Brazil is key to the creation of the free trade 
area of the Americas, and just recently there was also a lot of 
criticism from Brazilian officials about President Bush's 
decision to impose tariffs on steel imports.
    My question is do you think that FTAA is still currently 
achievable, and what are the challenges that you are now 
facing, and how is the United States prepared to address those 
challenges?
    Mr. Zoellick. I am very glad you asked that, Congresswoman, 
because to be frank, Brazil has politics too, and Brazil has an 
election going on this year, and I actually just saw President 
Cardoza last week, and both privately and publicly I 
complimented him because he has moved that country in a much 
more open fashion, but he has the same challenges that we do in 
keeping things open. I certainly did not sense any lessened 
commitment on his part to the free trade of the Americas. And 
indeed shortly before coming here, I saw a wire story that he 
was in Chile and he talked about the importance of the Free 
Trade Area of the Americas.
    And in fact what was actually quite striking, was that I 
also met with the Sao Paolo business community at a small 
dinner, because they are often the ones that are asserted to be 
sort of not as interested in global competition, and be focused 
more on the Mercosur, the four-country pact they have. And it 
was quite interesting. These business people didn't at all 
focus on Mercosur, because, frankly, Argentina is in 
difficulty, Uruguay and Paraguay are small, and they are 
orienting themselves towards global markets. So I believe we 
have very much an alive negotiation, and I apologize, I don't 
recall if you were here on the steel issue. Frankly, I think I 
was able to answer a number of their questions about how we 
tried to deal with them when I was down there, and I think in 
the end, the recognition was reasonably good.
    But I also don't want to underestimate the scope of this 
challenge, because there are some products where Brazil is 
extremely competitive, and we are going to have some challenges 
here in the United States.
    But separate from Brazil, you know, there will be issues of 
what is going on in Argentina and Venezuela, and that is one 
reason, going back to my opening comments, while we are trying 
to proceed globally, regionally and bilaterally, in other 
words, I think it would be a tremendous achievement to have 
this free trade among 34 democracies, but in the meantime if we 
can add Central America, we add Chile, get the Andean Trade 
Preference Act, let's start to build along the road because who 
can foresee what is going to happen in 34 countries? But it is 
certainly a very high priority of President Bush and of me to 
try to complete that.
    And one other point, Congresswoman, that is important, 
particularly related to Brazil, the deadline that we have 
agreed on last year is 2005 and that is the same deadline as 
the Doha negotiations. The reason why that is very important is 
because a lot of the Latin American countries, like Congressman 
Kolbe, are concerned about our agricultural subsidies, and we 
obviously couldn't negotiate those only in the hemisphere 
because we have to deal with Europe and Japan as well. The fact 
that the deadlines are now synchronized will help us because I 
think many of the Latin countries will feel they can deal with 
the agriculture subsidy issue in the global context and focus 
on other issues in the western hemisphere, so that is a plus.

                  TRADE WITH CENTRAL AND SOUTH AMERICA

    Ms. Roybal-Allard. The President has said that he wanted to 
negotiate a free trade agreement with the five countries of 
Central America, Costa Rica, Honduras, Guatemala, El Salvador 
and Nicaragua. And is there a timetable for that? And also you 
may have already answered it, I was wondering whether FTAA has 
any impact on the separate negotiations?
    Mr. Zoellick. Because we are still working our way through 
the Trade Promotion Authority process, and we don't yet have 
that authority, we didn't want to be stalled, so we are trying 
to proceed cautiously, and so, for example, when President Bush 
expressed his interest in a free trade agreement with those 
five countries, I wrote the Chairs and the Ranking of Finance 
and Ways and Means, to emphasize that this was something we 
wanted to discuss with them, get their inputs on and so forth. 
Under the TPA bills we are supposed to give Congress 90 days 
notice. That isn't yet law, but what we are actually trying to 
do is kind of work within the de factor framework even as 
Congress is finishing its work on these issues. So I frankly 
hope we will be in a position to formally launch the 
negotiations soon, but I want to consult closely with Congress 
as we do so.
    The responses that I have gotten, frankly, from both sides 
of the aisle have been very supportive, at least so far, 
because I think what people see is that while this is partly a 
trade issue, it is partly trying to help five democracies 
integrate and strengthen their own political reforms and 
economic reforms, particularly after the recent elections in 
Nicaragua and Honduras.
    As for timeframe, we take the time that we need to do 
these. You know, obviously, I would like to try to get this 
done over the next year or two, but that will depend on the 
nature of the problem.
    We are looking at different methods. We are partly trying 
to support these countries' integration with one another, but 
we recognize that Costa Rica has very different problems than 
Nicaragua, so one of the ideas we are looking at is perhaps a 
framework agreement that will cover all five, but then 
individual modules, if you will, to deal with the individual 
problems of each one, but that is just the sort of thing that 
we are now discussing with them.
    As for the relationship with the FTAA, we are emphasizing 
to them that this should be seen as a building block, not an 
alternative, and we want to try to use this as building 
support, but it also, frankly, goes back to one of my opening 
comments about competition liberalization. You asked about 
Brazil. Rather than getting arguments with the Brazilians of 
whether we will or whether we won't, my answer is to say we 
want to, we want to negotiate with you. We hope that you are 
there at the table, and by the way, if you are not, others will 
be.
    Ms. Roybal-Allard. One of the provisions of the Caribbean 
Basin Trade Partnership Act was to permit duty-free and quota-
free treatment to apparel assembled in one of the Caribbean 
countries with--and I am going to read this because it is a 
little complicated--``with fabric wholly formed and cut in the 
United States from U.S. made yarn, or from fabric made in the 
U.S. from U.S. made yarn, cut in a beneficiary country and sewn 
together there with U.S. made yarn.''
    During the vote on the Trade Promotion Authority, the 
Republican leadership promised that there would be no future 
trade bills on the House floor until legislative action is 
taken to assure that apparel assembled in the Caribbean and 
Central American countries for export to the U.S. is also made 
from fabric that is dyed, printed or finished in the United 
States.
    There seems to be a little bit of a contradiction here. And 
my question is, can you tell me how this pledge is in keeping 
with the Caribbean Trade Partnership?
    Mr. Zoellick. Sure. First off, if I could advertise, if we 
had a few more of your votes, we wouldn't need to do this, so 
for those of you who are interested in trade, maybe next time 
you will be with us. But when you read the quote, I think there 
is a little bit of difference at the end, Congresswoman. This 
is a preferential trade program, and so it is unilateral by 
Congress as opposed to a free trade agreement, where it is 
negotiated. And what in effect is happening here is that the 
U.S. textile and apparel industry, which has lost some 630,000 
jobs since 1994, is adjusting to an agreement made in the 
Uruguay Round which will end all quotas on textile and apparel 
that have existed for some 50 years, so all we will have left 
is tariffs.
    The good thing is what they are actually doing is they are 
developing business network relationships with the Caribbean 
and some in Central America, where for example, some of the 
production of the textile or the yarn, which were often more 
suited in terms of a capital investment in the United States, 
will be done in the United States, but some of the apparel, the 
sewing and others, will be done in these countries. So they are 
trying to prepare frankly for the competition from China.
    What this little issue deals is that under this 
preferential trade agreement, it said that if you use U.S. 
fabric--and by the way, many of these countries can use their 
own fabric, which is a key distinction, does the fabric have to 
be dyed and finished in the United States, or can it be dyed 
and finished in the local country to take advantage of the 
preference? And so again one of the things that is a little bit 
different about this is that we are offering a unilateral 
preference and so it is not out of line to say the terms of 
that preference. What we have checked on is the--tried to get a 
sense of what effect this would have. At least to the best of 
my knowledge, and I have talked about this with Mr. Rangel, 
because I know he has a very strong interest as well, is that 
there are not dying and finishing operations at present in the 
Caribbean except in the Dominican Republic, and those have 
tended to be used for their fabric, not for our fabrics. I 
don't think this would bite them.
    There has been some effect in some of the Central American 
countries and Columbia, and that was one of the reasons that I 
was saying to Mr. Kolbe the way around this problem over time 
is to do a free trade agreement, so it is reciprocal and we 
won't have any of these restrictions. As for the last part of 
this is that we accept sort of the leadership's pledge, and 
what we will have to do is work with the leadership and 
Chairman Thomas and Mr. Rangel to be able to follow through on 
it. So I think the overall effect of this will be less than 
some have surmised, but obviously, if I had had my preference 
we wouldn't have done it.
    Ms. Roybal-Allard. Now, it will take legislation to----
    Mr. Zoellick. Yes.
    Ms. Roybal-Allard. I don't know if last year you recall we 
had a little bit of a conversation about trade, and not only 
the positive aspects but the negative aspects as well. And 
during the discussion, and you said, and let me quote from the 
record, ``I think that in order to gain support for these trade 
agreements, that we should not just focus on some of the 
positive aspects. We have to keep in mind the people that are 
negatively impacted that suffer, that lose their jobs, lose 
their homes and are out on the street as a result of trade 
agreements as well.''

                       TRADE PROMOTION AUTHORITY

    Now, the Trade Promotion Authority bill is being held up in 
the Senate right now by those who oppose the inclusion of TAA, 
which as you know is designed to help displaced workers. So 
from your viewpoint, what really has been the message that is 
being sent to workers and those who lose their job? I mean you 
said you wish you had had a few more votes, and it is these 
kinds of messages and these kinds of fights that prevent you 
from getting those votes that you need on trade.
    Mr. Zoellick. I think there is a mistaken assumption here. 
It is not being held up by opposition to TAA. We support TAA. I 
just actually met with Chairman Grassley and leader Lott today 
about trying to work on expanding the TAA that came from the 
House side. What has held it up is the majority leader's 
calendar. He said that he wanted to bring this bill up earlier 
in the year, and I applauded him for doing that, and the same 
with the Andean Trade Preference Act. I talked with him a 
couple weeks ago. What he said publicly is, is that he wants to 
do energy and then the budget resolution and this, and at one 
point he said he hoped to do it before the Easter recess. That 
is obviously not going to happen. And so, frankly, we are 
urging him, and we hope you will too, to get this done as soon 
as they can in April when they come back.
    We recognize that TAA is going to be a key component of 
that, and as I said at that time and have said to the Senate 
and I am going to actually put in a call to try to talk with 
Senator Bingaman, who has been a leader on this, tomorrow. We 
want to try to see if we can overcome those differences, and 
frankly, there are a number of areas that have already been 
worked out at the staff level, so I hope this will move 
forward.
    There is going to be one tricky issue that deals with some 
effort to try to add a broader health care, a sort of COBRA 
entitlement benefit, that I think is going to be a sticker on 
this. But short of that, topics dealing with secondary workers 
and a number that I noted in my statement, I believe we can and 
should try to overcome, and I know Mr. Kennedy's had an 
interest in this too.
    Ms. Roybal-Allard. So right now you are saying that it is 
basically the calendar and then the health care provision that 
are the two things that need to be----
    Mr. Zoellick. I think, you know, I am always wary of 
stepping into a Senator's shoes as I am sure you would be too, 
is that right now it has been the calendar that I think has 
held it up. And I think as we move through this process, my own 
guess will be that it is primarily--I hope we can come to 
agreement on everything short of that, and it is our view, 
frankly, that if we can add a tremendous amount in trade 
adjustment assistance, and try to help in that point, that one 
can leave health care entitlement issues to health care bills.
    And frankly, one of my hopes was that if the bill comes 
back over here with those added provisions in it, it might also 
give some help to broaden the support here too.
    Ms. Roybal-Allard. So with the exception of the health care 
provision, there is no objection to any of the other parts of 
TAA?
    Mr. Zoellick. There are a series of issues, and I mean as 
in any bill, it is a complicated topic, and I don't want to 
presume each one. In my testimony I noted a number of the 
categories. I believe we can work out a number of these issues, 
but, for example, there is adding of secondary workers. Chief 
of Staff Andy Card had sent a letter in December saying we are 
willing to cover a lot of these, but we can't leave it a 
totally open door either. In other words, we have to figure out 
some way to rope those in. So number one, there have been some 
good staff level discussions, and I know that Chairman Baucus 
has talked with Senator Grassley. Number two, what I am saying 
is, is that we want to engage in more of those with the people 
on both sides of the aisle that want to have a good TAA bill. 
My own sense is, is that trying to push that as a vehicle to 
add a health care entitlement was going to be too far.
    Ms. Roybal-Allard. Thank you.
    Mr. Latham. I just have a couple questions. First, welcome, 
Mr. Ambassador.
    Thank you for the tremendous job that you've done. And I 
couldn't talk to you without complimenting my friend Al 
Johnson, who is a good family friend of a long, long time, and 
the work that you did on the last round, in comparison to 
Seattle, as far as agriculture is concerned, and the idea of 
keeping that in forefront rather than being the last issue to 
be settled.
    And, of course, nothing can be resolved once the bidding 
has already been done. And if you leave that issue for the end, 
it's not going to happen.
    So I compliment you very, very much.

                           AGRICULTURAL TRADE

    I was interested in your comment earlier about when we get 
resolution to the farm bill. Apparently you know something I do 
not today, because I think there are some real problems with 
that--certainly, in the Senate version, where you have a 
phasing out of the green payments, and all going to, basically, 
amber box payments, trade-distorting incentives, after 5 years.
    And so there are some huge problems, as far as I'm 
concerned, with the trade aspects. I do not know if you have 
any comment on that, if you have done a comparison or anything 
of the two bills.
    Mr. Zoellick. What I did, Congressman, and I appreciate 
your kind words. And Al is doing a fantastic job. We just, as 
you probably know, I think made some critical headway for 
soybean producers in China on this with biotech, and he is the 
person who did it, with the help of the President, intervening 
on his trip.
    Obviously, I have a strong interest in what happens on the 
ag bill process, so when I just talk to people in the 
administration, I was trying to get a sense of this, and I had 
a sense that there was a direction of that. But you are 
probably closer to it, and I hope, if you want to support the 
effort to make sure that the payments are in the green box, I 
would encourage you to do so.
    Mr. Latham. Well, the Senate bill, basically, phases out 
over 5 years all of the direct de-coupled payments, where the 
House bill maintains a level of those de-coupled payments, 
which are in the green box, and also puts tremendous incentives 
on new production, and certainly will be distorting as far as 
high target prices.

                      AGRICULTURAL TRADE WITH CUBA

    I guess I would probably have a disagreement with you and 
the administration as far as Cuba and would associate myself 
with Mr. Serrano.
    Mr. Serrano. Maybe you should stay in that chair. 
[Laughter.]
    Mr. Latham. I think so.
    But I certainly think that there are some opportunities 
there; for agricultural trade and just kind of getting our feet 
wet down in that part of the world.
    Mr. Zoellick. Just don't get your hands burnt. [Laughter.]
    Mr. Latham. No, and I appreciate your concerns. But I am 
not sure that trade there is going to be any kind of a real 
problem for us in the future.
    Mr. Kolbe was, I think touching on the subject. But I am 
curious as to your feelings as far as with the steel decision 
that was made and the effect on agricultural trade. It is 
always like pushing on a balloon; you push in one place, and it 
distants another place.
    What do you see as impact on agricultural trade?
    Mr. Zoellick. Well, first, Congressman, we have emphasized 
that when we recognize that there will be those that disagree 
with us. And what we have urged them to do is to follow the WTO 
process. And we understand that the European Union and others 
may wish to take us to dispute resolution, and that is their 
right. And if they wish to do so, then we will follow that 
process and not take any unilateral actions.

                                 STEEL

    Second, Commissioner Lamy, my counterpart in the European 
Union, while he has been quite vocal and vigorous about his 
position on steel, which is his right, has, I think, tried to 
keep this issue separate from others and recognize we have a 
disagreement on that.
    Third, I think it was a good sign that even in the 
aftermath of the steel decision, we were able to work out the 
soybean issue with China. And I think there is an underlying 
reason why others are willing to try to keep these distinct. We 
still import about $1 trillion of goods a year, and we had a 
$437 billion deficit in trade and goods. And one of the points 
that I have tried to emphasize abroad and I wrote in op-ed, and 
this I know affects the farm community, is, we are growing, 
others are not--I hope our growth recovers--particularly for 
commodity producers like steel and agriculture products, given 
the fact that the dollar remains strong. And I am not 
suggesting that there is anything wrong or off about that, but 
it is a fact of life that makes it harder in the commodity 
trade.
    So if you are China and you have an $80 billion trade 
surplus with the United States or many of the other counties, I 
do not think it is wise to start to get into a process of 
spreading this. What is a disagreement in steel should be 
handled in the context of the WTO.
    And I talked with the chairman a little bit about poultry, 
which is a very important export industry. We are pressing this 
in different quarters. And this is primarily a sanitary and 
phytosanitary issue. And all you know about agriculture, it is 
absolutely critical that people keep this within a 
scientifically based analysis. We have issues we have been 
trying to work out with Japan and others on these topics, 
because that basically will be the ruin of agriculture trade, 
if you let these SPS issues spread into other topics.
    And here we had some questions about Brazil. I was very 
pleased when I was in Brazil; the Brazilians obviously agree 
with that, too.

                     BARRIERS TO AGRICULTURAL TRADE

    Mr. Latham. I guess very briefly, the sound science 
argument as far as trade and agricultural products is huge. And 
when we talk about genetically modified soybeans or corn going 
into the European Union, beef with hormones, things like that, 
that is approved scientifically here but is used basically as a 
trade barrier in those markets. Do we see any light at the end 
of the tunnel?
    Mr. Zoellick. Well, it is interesting you mention that, 
because I met, about a week or two ago, I guess right before I 
went to South America, with the biotech caucus here. And I 
think it is a group that Cal Dooley is one of the co-chairs of.
    And I was trying to outline for them some of the thinking 
that Secretary Veneman and I and the State Department have 
about trying to make a much bigger push on the biotech issue, 
but how we need to do it in a way that is based on explaining 
the incredible possibilities for simply adding technology to 
agriculture, not only in productivity but in terms of dealing 
with questions of malnutrition, vitamins, less fertilizers, 
less pesticides. It is enormous, the possibilities.
    And, frankly, I think we need to do a better job of setting 
the context for this.
    We were talking bout the European Union. And, again, just 
like the European Union will keep our conflicts distinguished 
from one another, I will do the same. But I will say, as you 
probably know, the European Union has not been approving 
biotechnology products since 1998. And they know that they are 
in violation of the rules. And, frankly, when I talked to about 
four commissioners in December, I put them on notice that, if 
they do not change this, we will take action within the WTO, 
because it is a terrible development for agriculture around the 
world.
    Again, so you have a sense of this, I raised this with 
President Moi of Kenya and President Mbeki of South Africa, and 
they are very much in agreement with me.
    And, frankly, what I am trying to do is talk to more 
developing countries around the world, to get their voices into 
this debate, because they are the real losers from this.
    Mr. Latham. More of a statement than anything else, Mr. 
Chairman, that I will never understand Greenpeace, radical 
environmental people who are so much against biotech and 
genetically modified products, at a time when we have a 
tremendous opportunity to feed people in Third World countries. 
Advances now allow us to grow a crop in grounds where we once 
could not because with the new genetics that are available, we 
can have the very drought-tolerant plants.
    You are going to use a lot less chemicals, a lot less 
fertilizer to have the same product. And it is very friendly 
for the environment.
    But I do not know what the agenda is that makes them so 
much against what are true advances that could feed a hungry 
world in parts of the world where they cannot sustain 
themselves. That is my editorial comment.
    Mr. Wolf. Well, there is a lot of hunger in the world. A 
lot. A lot. Two-thousand-five-hundred die every day in the 
Congo, mainly from hunger. That is every day.
    Mr. Latham. Thank you, Mr. Chairman.
    Mr. Wolf. Mr. Kennedy?
    Mr. Kennedy. Thank you, Mr. Chairman. And welcome, Mr. 
Ambassador.

                                 NAFTA

    I want to hit on a local issue, really quickly, that you 
addressed in your opening remarks, and that is the NAFTA 11, 
the chapter 11 portion.
    We have a situation in Rhode Island, where a northern Rhode 
Island community is all contaminated with our water supply 
because of the seepage of MTBE into the water system. And what 
has happened is, Rhode Island is now considering legislation, 
passing a ban on MTBE, much as California is. But we understand 
the company that makes it up in Canada has sued California and 
could sue Rhode Island, and the feeling is that we would lose 
that suit, because they could argue legitimately under our free 
trade agreements that we were violating free trade by standing 
up and protecting our health and safety of our constituents in 
northern Rhode Island. So can you comment on that?
    Mr. Zoellick. Yes. Again, I do not know about the nature of 
the Rhode Island legislation, but----
    Mr. Kennedy. But if we were to ban MTBE from the State, if 
we said, ``We are not going to put it in our fuel.''
    Mr. Zoellick. Well, let me partly try to answer it this 
way, Congressman. We believe that the claim against California 
is a totally specious claim.
    Mr. Kennedy. Okay.
    Mr. Zoellick. And we believe that it will never survive.
    Mr. Kennedy. Okay.
    Mr. Zoellick. And the critical thing about this, because 
there has been a lot of, frankly, talk but sometimes not as 
much fact on this, is that this chapter 11 should not, in any 
way, undermine a government's ability to have health and safety 
regulation----
    Mr. Kennedy. Okay.
    Mr. Zoellick [continuing]. As long as it is done in a 
nondiscriminatory fashion.
    Mr. Kennedy. Okay.
    Mr. Zoellick. If it is based on sort of a reasonable 
approach and applies to Americans as well as foreigners, you 
should be free to do it.
    Mr. Kennedy. Okay.
    Mr. Zoellick. But, I do not know if you wanted to talk more 
about that issue, but let me just say this: There is no doubt 
that there has been a lot of fear and concern about this. And 
so what we have also been in the process of doing is looking at 
the guidance we got the House and Senate TPA bills, and I have 
been talking to both business groups environmental groups, and 
others, to try to see what changes we could make in investment 
provisions to try to alleviate some of the concerns.
    Here are the two sides of the story. On the other hand, if 
foreigners want to come to U.S. courts and challenge some 
action, Federal courts, they have a pretty good legal system. 
What hurts us is often our investors in other countries do not. 
So these basically arbitration provisions have been around for 
some 40 years in bilateral investment treaties, but they really 
first came to more light in a public sense about how people 
might use them in the U.S. context after NAFTA. And frankly, we 
think a lot of the fears are way overstated, but I think there 
are things we should do. And one of the things that actually we 
did last July, and we will do more in future agreements, is 
open up the process much more, in terms of openness, 
transparency, amicus briefs, so on and so forth.
    The other types of things we are looking at, take this 
Methanex case you are referring to, to see whether there could 
be an equivalent. In the U.S. system, the Federal courts, it is 
12(b)(6) or summary judgment where something gets thrown out 
earlier. And then there are other issues related to the review 
and standards.
    So, basically, what these rules are supposed to do, 
Congressman, is basically just give people the basic 
international protections against expropriation and sort of 
fair treatment. But it has raised a lot of concerns, and, 
frankly, I think we have to try to take some steps to answer 
those concerns.
    Mr. Kennedy. Well, I appreciate your answer. I think it 
does a lot to address some of the concerns that I have had and 
others have had, and I certainly look forward to hearing more 
from your office about exactly what kinds of administrative 
procedures you plan on implementing that would help address 
this cumbersome process of addressing questions of that sort.

                      TRADE ADJUSTMENT ASSISTANCE

    I would like to take you to the other question I asked last 
time, that you were good enough to identify for me in your own 
statement at the beginning, and that was, when you talk about 
trade, you often talk about dislocation locally of folks, and 
the benefits are so spread out that all the people feel is the 
pain and not the benefit. And that is why you discussed the 
importance of job training and programs that would help 
workers, if they were dislocated as a result of trade 
agreements.
    And I might say, this is not a question for you as much as 
I asked this question of Secretary Chao when she came before my 
other committee of Labor, Health and Education.
    And that was my concern, that we are right now considering 
basically trade promotion authority, and yet, at the same time, 
we see the budget for those who need assistance, Trade 
Adjustment Assistance, we see a very small increase, a $2.5 
million increase, which is very small when you consider the 
impact of this legislation on our economy and those workers who 
may be affected.
    And then, to make matters worse, we see the Administration 
cutting the funding for the Manufacturing Extension Partnership 
program, which really helps manufacturers in my area in Rhode 
Island address some of the critical needs that they have in 
bringing a product to market. And that is being cut. So they 
are going to be put on the defensive on both sides.
    And so I would just make that comment and say that while I 
know it is not within your purview, you did identify the need 
for Trade Adjustment Assistance, if we are going to have a 
good, aggressive trade policy. And I agree with you. I am just 
bemoaning the fact that your view on it and my view on it is 
not really being undertaken to the extent it needs to by the 
Administration.
    And I would just leave that for the record, because I don't 
intend for you to comment any more than you have. But if you 
would, certainly, like to add an additional comment?
    Mr. Zoellick. Congressman, all I can add is that I know 
that sometimes some of these complications come in part in that 
there have been different authorizing pieces over time. In 
fact, I think it was Senator Kennedy who had worked very hard 
on what now is the Workforce Investment Act, and maybe that is 
the one that is fundamentally in your jurisdiction.
    And the trade adjustment assistance, as you know, has a 
different history, because it came from the Finance and Ways 
and Means committees.
    Mr. Kennedy. Right.
    Mr. Zoellick. Frankly, I think a number of the sort of 
efforts that Senator Kennedy and even, I think, Senator Quayle 
did with the Job Training Partnership Act is the right 
direction to go to try to help workers however they lose their 
job.
    But in the context that I was talking with before, what we 
are trying to do is actually expand some of the things that 
came over in TAA in terms of authorizing and that could 
obviously involve other funds, too. I have talked with Chairman 
Thomas about that as well.
    So while I cannot speak to the ones in your jurisdiction, 
the ones that we are trying to do at TAA, we are trying to be 
forthcoming on.
    Mr. Kennedy. Well, I would certainly welcome any briefing 
for my office, so that I may be able to follow those areas that 
you think you might be able to help on, in terms of helping our 
workers that are dislocated as a result of free trade 
agreements.
    Mr. Zoellick. Be pleased to do that.

                               MONTERREY

    Mr. Kennedy. I also want to bring your attention to the 
subject that has been talked about frequently here, and that is 
Monterrey is certainly about to begin, and Mr. Kolbe said he is 
on his way down to Mexico. I was wondering if you could comment 
on your experience, given the fact when you first spoke about 
your seeing security issues dovetail very much with trade 
issues and economic issues at large, and how you are interested 
in not just working the trade issues in a vacuum without these 
critical security issues, which involve poverty and economic 
and political strife. Could you comment generally?
    Mr. Zoellick. As I mentioned, I am very pleased that the 
President decided to have the first substantial expansion, in 
terms of development aid, in a very long time, and I know it is 
politically tough up here for all of us, Executive or 
Congressional.
    And the way we see this is related to, whether it be trade 
or development, is how they are linked to try and help open 
these countries up, support those that are moving political 
reforms, and support those that are moving the economic 
reforms. And in some ways one basic distinction is the people 
who are supporting terrorism around the world are looking to a 
life of destruction as opposed to one of creation and 
production.
    So it is sad to say, but I think it is going to be reality. 
The war against terrorism is not going to be something that is 
a month or a year; it is going to be a long struggle.
    And I spent a lot of time traveling around the world, and I 
know how important the support of many countries has been in 
terms of intelligence and financial issues and other things. 
And the argument that I made, and I think there is a general 
sharing in the administration, is if we want the help of these 
countries, then we also have to be attentive to their needs and 
try to help them with a series of issues that are front-burner 
for them, for many of them in very impoverished circumstances 
trying to put in rule of law and support democracies.
    In addition, I was trying to make a broader point, which is 
that while I do not accept the idea that poverty leads people 
to terrorism--I think that is an insult to poor people--one 
does have to recognize that in a country like Indonesia, which 
has, I think, some 13,000 islands that are inhabited and 
another 9 or 10 or something that are uninhabited, and that you 
have a transition from an authoritarian regime to a democracy--
and President Megawati is trying to hold the country together, 
deal with potential Islamic radicalism, when we know that there 
are al Qaeda and other terrorist units that are trying to use 
that as a base of operations--that it is in our strategic 
interests to help her succeed.
    Now, there is only so much we can do. But just to give you 
a small example, Congressman, of the way I try to do this, is 
that, I might have mentioned that the President asked me to see 
President Megawati right after she took office. So I was 
talking with her about trade and security, as well as economic 
issues.
    I am going to go to Singapore in a few weeks, and we are 
doing this free trade agreement with Singapore.
    My staff came up with the idea that because the Indonesians 
belong to an information technology agreement that has zero 
tariffs, that we and Singaporeans belong to, we can actually 
sweep the information technology industry for Indonesia into 
this FTA and sort of have common rules of origin.
    And so I proposed this to both the Singaporeans and 
Indonesians, and I am going to actually try to go to some of 
the offshore islands where they might get some investment, 
because, frankly, Megawati needs a little shot in the arm. And 
if we can show that we can use trade to have a victory for her 
and maybe draw in some Singaporean investment, and it helps the 
Singaporeans, because it shows that they are not just doing a 
free trade agreement with us, but they are also trying to help 
their big neighbor to the south, it is a win-win-win venture.
    Mr. Kennedy. Right.
    Mr. Zoellick. And so we are trying to make those happen, 
wherever we can.
    But at the same time, frankly, part of my answer to Mr. 
Kolbe is that to keep the coalition here for openness, we have 
to treat people fair we can, and sometimes that means using 
safeguards and sometimes it means making sure these anti-
dumping countervailing duty rules, that we hold people to the 
same standard.
    So it is a bit of a balance here.
    Mr. Kennedy. But you generally seem to subscribe to the 
notion that a strong world economy is good for our own economy, 
and so we ought to be vested in helping to address poverty 
where and whenever possible.
    Mr. Zoellick. Yes, Congressman. There is a certain irony 
here, in that shortly after September 11th, I wrote an op-ed to 
this effect. For reasons that I think were separate from this, 
I received a little criticism from your side of the aisle. And 
the irony of it was that I was actually thinking that this was 
sort of thing that somebody would have done in the 1960s, 
including a member of your family, trying to use development as 
a relation to larger security. So I was a little surprised when 
I was criticized, but the context was perhaps understandable.
    Mr. Kennedy. Well, I will be happy to rate it and give you 
my critique. I think I might agree with you, if it is the way I 
think you are going, and that is in the wake of World War II, 
we had the Marshall Plan, and we would not have had trade with 
some of our biggest trading partners had we not invested 
heavily.
    And I agree with the Administration's increase in aid. I 
think it is a difficult time to be doing that politically for 
the Administration. But I think it is the right way to go.
    I think, however, in part, it is because the Administration 
has been subject to a lot of criticism with regards to 
Secretary O'Neill's proposal to shift loans into grants. And I 
think you can understand, having dealt with IMF and World Bank, 
because they are critical components to this international 
safety net, so to speak, that if you take money out of the 
kitty and give it all in grants, that there isn't going to be 
any left at the end of the day.
    I wonder if you could comment on that.
    Mr. Zoellick. Well, all I know is that I think that sense 
from the Treasury Department, the White House, is that it is 
financially doable. And where I think that Secretary O'Neill is 
right on point, and you see this happen, is we and others give 
these long-term loans. We don't expect them to ever get paid 
off, and so then we do a debt forgiveness bill. And isn't it 
better up front to kind of say, for countries that are very 
poor but are also making reforms, whether they be economic, 
political, environmental and others, let's be straight and give 
it to them as a grant? I mean, it has certain clarity of logic 
to it.
    Mr. Kennedy. That does, but if you talk to Jim Wolfensohn 
from the World Bank, there is also the fact that many of these 
countries, as poor as they are, 30 years later do get around to 
paying back most of their loans in some of these cases. That 
money, while it may not be all of it, given the fact that we 
have written off interest and so forth, when we first made the 
loan, is still enough to help provide another loan to a new 
country that is in desperate shape.
    Mr. Zoellick. And I think, Congressman, that is one of the 
reasons why the administration's proposal was not for all 
grants but a percentage of grants.
    But if I could follow up on one point, because I feel this 
is an important exchange, and I hope you will work with me, as 
we go forward.
    I realize that a lot of these trade issues are not so easy 
on your side of the aisle, and you have some groups that make 
it not easy. But as we work through this TPA process----
    Mr. Kennedy. Let me just, if I could? It is not easy for me 
personally. I have had the opportunity to travel to the 
maquiladora section of Mexico, and I was just appalled. I did 
not find one home that was even close to being looked upon as 
even simply being ``poor'' in this country, these were 
destitute. No indoor plumbing. No homes with roofs that didn't 
leak. I went there when it was raining. I kept thinking, well, 
I will get to the middle-class area, so to speak, whatever 
middle-class meant down there. Never got there.
    And I went to one company after the next, and, I am sorry 
to say, some of them came from Rhode Island. They set up shop 
there. These are 21st Century companies. And you have 13-, 14-
year-old girls working in these plants, really 6 days a week, 
14 hours a day. And that is not hyperbole. That is not 
hyperbole.
    And I walked in and I was thrown out of these places by 
these managers. And I heard a lot of stories about the kinds of 
working conditions that you would find intolerable. These 
workers working in abusive situations where they are, as I 
said, mostly girls. They are being abused on the job. And they 
are abused and treated like slaves for economic purposes.
    And there is no gain, it seems to me, for them. And it is 
certainly no gain for us that we have lost the jobs. And it 
does not seem to be any economic advantage to them.
    So that is my own experience. And I feel this way not only 
because of the fact that I have a lot of constituents who feel 
this way, but I have personally have been there and seen 
myself.
    And then I went down to South America to discuss trade 
promotion authority. I met with President Cardoza. I met 
President Frey, when he was president, and Menem, when he was 
president. All of them, to a person, told me that we needed to 
have solid environmental and strong labor protections in our 
bill in Washington, because, they said, if we do not pass it in 
the United States, they will never see it in their countries. 
This meant if we get rolled by our Chamber of Commerce and our 
big industrial multinational corporations, they are never going 
to have any hope of overcoming those multinational companies, 
when it comes to their small economies. In other words, they 
are as interested as we are in protecting the basic welfare and 
quality-of-life for their workers, just as we are trying to 
protect it for our workers.
    Mr. Zoellick. But if I could, because I think this is part 
of a critical debate here. When I was in South Africa, I went 
to a plant that was 90 percent women, often single mothers that 
would not have jobs except for the access to our market. And 
there have been a lot of studies done by World Bank and others.
    If you look at what happens to more open economies, and, in 
fact the World Bank showed this recently, the growth was three 
times as high, the poverty level decreased. And so the question 
is, if you start out poor, we will open this in trade and 
growth, slowly overcome this and help you overcome it, because 
one thing we know is that closing these markets off will not.
    Now on the point of labor and environmental issues, I wish 
you could have written down what they said, because that is not 
what they say to me when we are considering this in 
negotiations. But out of the TPA bill----
    Mr. Kennedy. Well, they all want it. They all want to get 
it, but they know if they are too expedient about it--because 
they know they want to get the economic--that it is going to 
mean long-term, and it is untenable long-term. They much prefer 
the floor here than the floor down here.
    Mr. Zoellick. This is what I think, frankly, the bill that 
eventually was put together out of Ways and Means gives us 
something to work with, because there are provisions that we 
can use here that, whether we are focused on some of the core 
labor rights issues or at least enforcement of people's owns 
laws and things like that--and we have done that.
    I mean, for example, in the case of Guatemala, because 
there are standards in the Caribbean Basin Act, in terms of 
worker standards, we pushed very hard when there was violence 
against workers, and it led to some labor reform issues.
    So I understand that we need to be able to try to address 
those issues. We just have to do so in a way that doesn't 
frighten the developing countries that it is going to be a new 
set of barriers.
    And, frankly, one of the interesting things that came out 
of Doha was that we did some in the environment that we 
actually created a little seed that we may be able to plant and 
use and develop in other areas.
    My only point, Congressman, was that if we get through this 
process, which I hope will, I hope that you and some of your 
colleagues that I know are sincerely interested in development 
and democracy around the world give us a chance to work with 
us, because with some of these free trade agreements, with 
South Africa and Central America and others, I think we can do 
some very good things along the lines we are talking about.
    And let us try to help make the case to you.
    Mr. Kennedy. I believe in good trade for bringing up 
everybody. When you say that we do not want to frighten them, I 
also hear, because they do not want to lose the business, too, 
that they are not going to have any stick to do what they have 
to do to bring up their own conditions.
    In other words, they are not going to have the real 
enforcement, if they don't have to have the enforcement. It is 
a real question of where you draw the line, how you see it, 
half-empty, half-full. And you make a very good point; we do 
not want to lose the opportunity to get economic growth. But at 
the same time, if you do not create an opportunity for people 
to have a law that has some protections for workers, then they 
are never going to see their opportunities improve for worker 
protection.
    That is why I have always been for having a carrot and 
stick approach, where we say, if you do not comply with basic 
worker protections, you know what, you are not going to be able 
to trade with us, because that is the only way to get the local 
Chamber of Commerce to say, ``we better start looking or at 
least posturing like we are protecting workers.'' And then 
maybe something good comes for those workers.
    Let me get to this issue of closed or open economies. We 
have the Commonwealth of the Northern Mariana Islands, which is 
the only American soil which has been permitted to set up a 
two-tier caste system for workers.

                       LABOR CONDITIONS IN SAIPAN

    And I would ask you to comment what USTR's involvement is 
on the issues concerning Saipan and what you are doing to work 
with the Department of Labor in regards to Saipan.
    You know it is exactly the kind of closed economy or system 
right now--it is American soil, and yet many people lure 
Chinese women into Saipan with the hopes that they will get to 
the United States. And then they are sent off into prostitution 
and terrible situations.
    So I am wondering what is it that we are doing to address 
this issue?
    Mr. Zoellick. Well I have to check on the, Congressman. But 
I suspect, as an American territory, that it is sort of not a 
trade issue, because I deal with other countries, not others. 
But I will check on that. I suspect that the economic 
relationships with American territories, just like it would be 
the Commonwealth of Puerto Rico, are defined by our domestic 
law as opposed to by trade negotiations.
    But I will be pleased to check.
    Mr. Kennedy. I mean, 90 percent of all private sector jobs 
in Saipan are held by foreign contractors. Indentured workers 
are paid less than U.S. minimum wage. And almost 60 percent of 
all local workers are employed by the island government with 
good pay and retirement programs, but Saipan is the only place 
where child labor and forced prostitution do run rampant.
    And it is one of these areas that we need to look at, 
because the garment industry, which we talked a great deal 
about before, is the most notorious and largest abuser of 
employees in that area. And that is where my question was 
going.
    I would like to just ask briefly on the generalized system 
of preferences, what is going to happen with that? Outside the 
context of TPA, what are we going to do?
    Mr. Zoellick. It expired last September. The House passed 
it, and it is, I believe, part of the Senate package. So we 
hope that the majority leader will take up TPA, the Andean 
trade preferences, GSP, and TAA all at once, and we are doing 
everything we can to urge him to do so. And that would include 
an extension of the GSP.

                        ANDEAN TRADE PREFERENCES

    Mr. Kennedy. Good.
    Has Andean trade worked out, in your view?
    Mr. Zoellick. It is very important. And I mentioned that I 
was just in Colombia very briefly last week. And one of the 
most moving things, Congressman, is I went there to talk to a 
conference on productivity and competitiveness that about 1,000 
businesspeople from Colombia. And your heart really goes out to 
these people, because they are living in a war zone, and these 
people are still trying to make it.
    Mr. Kennedy. Right.
    Mr. Zoellick. And I met with, for example, the flower 
growers. And in the speech I talked about how this was a $20 
million business and now it is a $500, $600 million business. 
And we traced the jobs, not only in Colombia but the jobs in 
the United States, in terms of people bringing the flowers in, 
the flower shops, so on and so forth.
    Mr. Kennedy. Right.
    Mr. Zoellick. And it is just this tremendous win-win 
venture.
    But what happened is, frankly, after the ATPA expired in 
December, those tariffs would go up. We exercised an action 
that did not collect the tariffs for some 90 days. And this is 
one of the issues we have had to discuss with Chairman Thomas, 
because he was not so pleased with this. But that runs out at 
the end of May, or the middle of May.
    And, frankly, we cannot stop the tariffs, if Congress has 
put them in effect. And so, if that, by the end of May, if the 
ATPA is not extended, these people are going to have to pay all 
the back tariffs for the flowers that they sold, plus things 
going forward, because that was as far as we thought our 
executive authority ran.
    So it is so critical for these countries, and particularly 
if you are trying to get them off narcotics production, you 
have to give the something else.

                             BIOTECHNOLOGY

    Mr. Kennedy. Right, I agree with you.
    In the area of biotech, I understood, in your recent visit 
to Africa, that you have really seen the benefits that the 
United States can give to the world community in the area of 
biotechnology. And it is a critical export market for us, and 
has a lot of positive benefits as well for other countries.
    In my State, we have over 100 firms in the biotech 
manufacturing center, accounting for over 4,000 jobs. And we 
have added many more just in the last year. So what is your 
impression of the role that U.S. biotechnology firms could play 
in African countries? And what barriers exist presently in this 
area?
    Mr. Zoellick. First, before I forget, Congressman, we need 
to make sure we know some of these companies, because I have 
been in touch with some of the big ones, the Monsanto, Du Pont, 
and Dow, and others, to try to build this coalition that I was 
talking about.
    Mr. Kennedy. Yes.
    Mr. Zoellick. But, actually, I want to try to get some of 
the smaller biotech firms as part of this, too.
    Mr. Kennedy. Our average company employs 75 people, so I 
would say it is very small.
    Mr. Zoellick. And if there is an association or something, 
because I am sure they are busy running their businesses.
    Mr. Kennedy. Definitely.
    Mr. Zoellick. I think, as I mentioned, this is a critical 
issue. It is one of the reasons I went to this site in South 
Africa, because I wanted to try to draw attention to it. And I 
met a farmer, whose name is Buthelezi, and I remember it, 
because it was that name of the chief of the Zulus.
    And this guy has about 12 hectares of land. And by bringing 
in, in his case, cotton and using this cotton variety, he was 
able to increase his production by a third. And so, for the 
first time, as opposed to having debts that he cannot pay off, 
he has the terrible problem of having money that he is not sure 
what to do.
    Mr. Kennedy. Right, right.
    Mr. Zoellick. But all throughout the region, they showed me 
corn, for example, and as the chairman was talking about, you 
have hundreds of millions of people in Sub-Saharan Africa that 
are suffering from malnutrition. And this could make a huge 
difference around the world.
    Mr. Kennedy. Absolutely.
    Mr. Zoellick. And so, frankly, here is the problem we have 
had. The Europeans have been the major obstacles to this. And I 
think the reason why, for some, it is fear. They have had a bad 
regulatory system of their own----
    Mr. Kennedy. Right.
    Mr. Zoellick [continuing]. Whether it be blood or mad cows 
or others.
    And so the NGOs in Europe have taken this and, frankly, 
they are now going around the world, including some--the 
Africans told me. And some of the member states of the European 
Union are threatening to cut off aid to these countries unless 
they take the European position on biotechnology.
    And so one of the things that I am trying to get going this 
year is to try to have a much stronger organized effort to try 
to link with some of the developing countries, link with some 
of the research institutes, link with some of the companies. 
And we have to tell the story here, because if the Europeans 
can make this a simply U.S.-European argument, then it is cast 
in one context. If we can tell European NGOs that are making 
this case and show them some of the Kenyans that I met, and 
say, look, this is our livelihood, thank you. And it depends on 
whether kids in some of our countries live or die.
    Mr. Kennedy. Right.
    Mr. Zoellick. And there are possibilities in terms of 
vitamins and nutrition.
    Frankly, what it is like doing is it taking technology, 
which we allow in services, which we allow in manufacturing, 
and say, ``We are not going to allow that in agriculture.''
    Mr. Kennedy. Right.
    Mr. Zoellick. And the cost to humankind is huge.
    Mr. Kennedy. I agree.
    Mr. Zoellick. So, frankly, what I am trying to do is get a 
more organized effort going forward on that.
    Mr. Kennedy. We faced it with the human bovine growth 
hormone, or whatever it was, up in Rhode Island, when we had 
the dairy selling. And I know that concerns locally.
    But this is a different issue, in my view. I mean, you have 
people who cannot even eat. These are folks that are just in 
need of food and we have the opportunity to produce it for 
them. And I do not think it is a question of them worried about 
the kinds of things the Europeans are.
    Mr. Zoellick. And this has been tested. I mean, of course, 
on the other side, we have an obligation to make sure that we 
have full and fair testing and so on and so forth. But what the 
Europeans, for example, are doing, Congressman, is even for the 
stuff that they approve, they want to add other regulations on 
top of it.
    Mr. Kennedy. Right.
    Mr. Zoellick. And so this is where we just have to do a 
better job.
    Mr. Kennedy. Okay, well, I commend you for your work in 
that area. I look forward to finding out whether there is not 
some way to get some of these smaller companies involved with 
that initiative.
    Thank you, Mr. Chairman.

                           HIV/AIDS IN AFRICA

    Mr. Wolf. Mr. Ambassador, we will have a lot of questions 
for the record, I guess. I know it is getting late, but let me 
go through a couple of things, and we can make some points and 
get your quick reactions, too. And I am really kind of speaking 
to you because I know you are in the Cabinet; you sit around as 
these issues come up.
    As you think in terms of Africa, we had Congressional 
Research do a study. HIV/AIDS has cut life expectancy in 
Botswana from 71 to 39; in Zimbabwe, from 70 years to 38. And a 
U.S. Census Bureau expert predicts that life expectancy 
throughout southern Africa will be 30 years old in the year 
2010.
    So what we are doing may be well-intentioned, but it is not 
working. And it may not always be more money; it may be doing 
things in a little bit different way.

                 CHINA: WTO COMPLIANCE AND HUMAN RIGHTS

    We talked about the African Growth and Opportunity.
    Can you tell us how many people are, in your shop, 
dedicated to monitoring compliance with China with the WTO?
    [The information follows:]
Response
    As I noted at the hearing, the human resources devoted to 
monitoring China's compliance with its commitments in the WTO and our 
bilateral agreements are considerable and involve people dedicated to 
the China monitoring effort and individuals that work on China as well 
as other specific issues.
    At USTR, we currently have 3 persons in the China Office and 2 
persons in the General Counsel's Office who devote most of their time 
to China WTO compliance matters. In addition, we soon should have on 
board replacements for 2 other persons in the China Office, who will 
also be devoting most of their time to China WTO compliance matters.
    Many others at USTR also participate in monitoring China compliance 
matters as the need arises. They include USTR policy and legal experts 
on issues such as intellectual property rights, services, investment, 
technical barriers to trade, customs administration, import licensing, 
rules of origin, information technology, tariffs, subsidies, 
agriculture, and sanitary and phytosanitary measures. In addition, 
USTR's representatives in Geneva participate in various WTO meetings 
and reviews addressing China's compliance efforts.
    Several other Washington agencies also devote substantial resources 
to day-to-day WTO compliance monitoring activities. They include the 
Departments of Commerce and Agriculture, both of which have more than 
half a dozen personnel in Washington who devote most of their time to 
compliance matters, as well as the Departments of State and Treasury. 
Many others at these agencies work on compliance matters on an as-
needed basis. In addition, at the Embassy and Consulates General in 
China, dozens of State Department economic officers, Foreign Commerce 
Service officers, Foreign Agriculture Service officers and Customs 
attaches work extensively on compliance matters.
    These monitoring activities are coordinated through monthly 
meetings of a Trade Policy Staff Committee (TPSC) subcommittee, which 
is chaired by USTR's China Office. Attendees at the TPSC subcommittee's 
meetings include personnel from USTR, the Departments of Commerce, 
including the Patent and Trademark Office, State, Agriculture, 
Treasury, Justice and Labor, the National Security Council, the Council 
of Economic Advisers, the Environmental Protection Agency, and the U.S. 
International Trade Commission.
Intellectual Property Rights
    Staff from several agencies work on monitoring China's 
implementation of its intellectual property rights (IPR) commitments as 
part of their portfolio. USTR has three staff members who monitor IPR 
developments in China on an ongoing basis. These individuals raise IPR 
issues with China in bilateral consultations and in the World Trade 
Organization Council on Trade-related Aspects of Intellectual Property 
Rights (TRIPs). Another five staff who monitor China IPR issues work at 
the Departments of State and Commerce, including the Patent and 
Trademark Office, the Library of Congress and the U.S. Customs Service. 
In China, two U.S. embassy staff in the Economic Section and the 
Foreign Commercial Service report on these issues, as do the consulate 
offices (5) around the country. Other USG experts may be called upon as 
necessary to address specific issues.

    Mr. Zoellick. I can try to get a more precise number, but 
it is a number of people across different offices. In other 
words, it is partly our legal office. We, as you know, are 
pretty small. It is partly our China office. But the largest 
number of people are in the Commerce Department.
    Frankly, I think the best answer to this is that we 
organized a monitoring system where every obligation that China 
has in the WTO will be assigned to one department or another, 
with an individual in charge. And there is a monthly meeting 
that reviews the progress of that across the whole government 
and then says: If they are not taking some action, what action 
should they take?
    And the reason I hesitate on numbers is that I asked the 
President to raise this when he went there, and he did. And we 
have the President, we have the NSC, we have different 
departments. Since we are so small, I am afraid it would be a 
misleading number.
    Mr. Wolf. Well, maybe across government-wide, if you can--
--
    Mr. Zoellick. Well, see, the question would be, for 
example, I devote some time to this, but it is not my full-time 
effort.
    Mr. Wolf. Of those who substantially devote most of their 
time.
    Mr. Zoellick. I will come up with a number and get it to 
you.
    Mr. Wolf. As part of the agreement on China's PNTR, your 
office was mandated to report annually on its assessment of 
China's compliance with its WTO obligations. Do you know what 
the status of that report is?
    Mr. Zoellick. If we owe you a report, I apologize, and we 
will produce it.
    Mr. Wolf. Well, it would not be to me. It would be to the 
Congress.
    Mr. Zoellick. I will check. I thought we sent something up 
at the time we did the PNTR. We will check.
    Mr. Wolf. Forced labor problems in China; you read the Wall 
Street Journal piece about a week or two ago, left-hand column?
    Mr. Zoellick. I might have been traveling.
    But on human rights in China, Chairman, I think we probably 
have a strong agreement on this. The conditions are not 
satisfactory, by any means. And it is one of the reasons why I 
was pleased that the State Department report that came out on 
this was very direct and honest about the problems. And I was 
pleased that when the President was on TV in China, that he 
mentioned these issues, including religious freedom.
    And so this is where I agree with the point you made when 
we began this hearing, is that we need and should speak about 
these issues. And in fact, I didn't get a chance to comment on 
it, but I agree very much with the experience that you 
obviously had with the former Soviet Union. I met some of these 
people, too, that--we often do not know how much it matters to 
be able to raise a name or to push an issue. And history will 
be on our side, and, certainly, we should be proud to do it, 
not afraid to do it.
    Mr. Wolf. There is a new book out. I forget the name, and I 
have not read it. I had a China expert by my office the other 
day. It basically talks about the coming economic collapse of 
China.
    You have been reading about the demonstrations at the 
different factories?
    Any comments?
    Mr. Zoellick. Well, this partly goes to the WTO issue, 
Chairman, in that they have taken--the story is mixed, as you 
would expect.
    They have taken some good steps. There are some good things 
that they have not done. It is such a huge economy. This is 
clearly part of a strategy for their transformation.
    And part of what we have tried to do is work not only 
bilaterally but get other countries to help with us, draw on 
the business community, which I gave a speech in January, where 
I said to the business community, you shouldn't only be 
bringing in goods, you should be bringing in American values as 
they try to promote these issues. And, frankly, when I have 
been in China, I have tried to meet with the Chambers of 
Commerce so we can help identify some of the problems as we go 
along.
    My own guess is that China has huge, huge economic 
problems, certainly in the banking system, certainly some of 
the state-owned enterprises.
    I do think overall, though, it has been a path where I 
would not believe all the numbers they have in term of the 
growth rates. But simply, having gone there at various times, 
from 1980 to last year, they are making progress. And so I do 
not foresee any imminent collapse, but I think on any situation 
like this, you are going to have ups and downs, and cannot help 
it.
    Mr. Wolf. Of course, we did not see the collapse of the 
Soviet Union in 1984.
    Mr. Zoellick. Yes, but at least I personally think, having 
worked with both these issues, is the Soviet Union was a closed 
economy, and it was a command economy. And they are moving to a 
market economy, and that is why----
    Mr. Wolf. Well, they are, but there was the article in the 
paper the other day about this Chinese--he had been a tank 
commander, and he is now worth millions. Come the revolution, 
he is not going to be there. I mean, the disparity between, and 
the people are leaving the villages and coming into the cities.
    I mean, they are going to fundamentally have a problem. And 
they are cracking down on religion. They are cracking down on 
many other things.
    They have almost found Ceaucescu's play book, and they are 
beginning to follow it. And what happened to Ceaucescu? He 
collapsed.
    And you cannot have that much of a disparity, and the 
average man on the street to see that. There are a lot of very 
wealthy people in the discos and driving the big cars, but 
there are a lot of very, very poor, poor, poor people.

                    INTELLECTUAL PROPERTY PROTECTION

    With regard to China, it is estimated that intellectual 
property rights piracy in China cost U.S. firms $1.5 billion in 
lost sales in 2001. Vietnam had the highest rate of pirated 
software at 97 percent, followed by China at 94, the so-called 
one-copy countries.
    How many intellectual property experts do you have working 
on this problem?
    Mr. Zoellick. I have to get you the precise numbers. But 
our intellectual property team is part of a larger team dealing 
with investment and services, and they often will work with our 
legal team as well, depending on the nature of the issues.
    But you are certainly talking about a number under 10.
    Mr. Wolf. Ten. You do view this as a serious problem, 
though?
    Mr. Zoellick. Yes. It is important to us economically, 
particularly given the knowledge-based economy. We have made 
some progress with China.
    Mr. Wolf. Windows 95 was available on the streets of 
Beijing before it was available here.
    Mr. Zoellick. Well, what we have been able to do with them 
is that--there are different steps. One is to try to make sure 
that they have the laws in place. And then you have to try to 
make sure that there is enforcement of these laws.
    And this is one where, frankly, one cannot just blame it on 
China. When I was in Brazil, I pointed out to them, there are 
about a billion dollars a year lost in intellectual property in 
Brazil.
    And this is, frankly, one of the other areas, when I 
referred to capacity-building assistance, with some countries 
we can actually relate our aid to helping them develop the 
abilities to go after some of these people. I talked with the 
Philippines minister about this.
    So I think it is a huge issue, and it is a priority for us.
    Mr. Wolf. We are having a hearing on April 23rd. Hopefully 
you can have someone----
    Mr. Zoellick. I think we agreed to have someone.

                           PHYSICAL SECURITY

    Mr. Wolf. The security concerns after September 11th, you 
are moving your Geneva office from the Botanic Building to the 
Mission Building. What were the security costs you incurred, 
and what did that cost you, and were there unexpected costs 
that you had that you did not think you were going to have?
    Mr. Zoellick. Again, first, I want to very much thank you 
and your staff on this, because--careful that I not talk about 
this too much publicly. We did not even have one security 
expert at USTR until you helped us get one. We have now a very 
first-rate person.
    And, frankly, in the aftermath of September 11th, we have 
done some things even with windows and wireless PA systems that 
are very important in terms of what we try to do, and it is 
because of your help.
    In terms of the Botanic Building, the relocation costs were 
$330,000. And that amounted to, basically, roughly, I think, 
$130,000 in terms of the actual cost, and we had to break a 
lease. And we would not have done this, except for the fact 
that we had a very serious intelligence threat, and that 
building is very vulnerable.
    In addition, we have asked OMB for not only the payment for 
that, but for $500,000 for reconfiguration of space, because we 
have about 27 people in Geneva. They are not all ours. About 
eight or nine of them are from USDA and others, but they work 
with us. And they now have about 50 percent less of the space.
    So on a technical sense, Chairman, we have a request in to 
OMB for $300,000 for the special security related to Doha. We 
had another $330,000 related to the Geneva office.
    Mr. Wolf. Is that going to be supplemental?
    Mr. Zoellick. Pardon?
    Mr. Wolf. Is that going to be in the supplemental?
    Mr. Zoellick. We have not heard back from OMB yet. I sent 
these over to OMB. They did help us with some of the immediate 
ones, in the aftermath of September 11th, but I have not heard 
from this one.
    We received, in the first round, I think it was about 
$537,000, but I do not have a response on this one yet.

                           CONFLICT DIAMONDS

    Mr. Wolf. Because you have a small budget. And look at what 
took place in Pakistan Sunday at the church, so you never can 
tell.
    Let me just submit the other questions for the record, 
except for the last issue, on how the WTO fits in.
    And I appreciate your help on the diamond issue. And I 
would hope that you could help us a little bit more, 
particularly over in the Senate, the Senate side.
    The issue of March for National Geographic is diamonds. And 
the beginning of the article, and I will just read it, just to 
sensitize you, so when this comes up: ``Africa. On a continent 
ravaged by civil strife, conflict diamonds have financed the 
desperate efforts of rebel warlords. The price paid by 
terrorized Africans has shocked the world and tarnished the 
luster of an industry.''
    Quite frankly, the diamond industry is going to just to 
south, if there is not a bill passed by the end of this year. 
They have spent so much money convincing people that diamonds 
are best friends, and all these phrases. If they miss this 
opportunity--and I think the administration ought to really 
make sure, because Congressman Hall, who has taken the 
leadership over here, has been appointed by the administration 
to be our ambassador in Rome. And I worry, with Tony leaving--
so it really has to pass the Senate.
    But it says it has tarnished the luster of an industry.
    They have people from Sierra Leone with their arms and legs 
cut off, ``These children at a shelter in Freetown, Sierra 
Leone, put a face on the inhuman suffering caused by conflict 
or blood diamonds. They have lost arms or legs, victims of the 
Revolutionary United Front, a vicious rebel army that 
terrorized civilians into submission by systematically hacking 
off limbs. Rebel control of rich diamond fields financed the 
civil war in Sierra Leone with sales to an unquestioning 
international market. Thanks to photographs such as these, 
conflict diamonds became a global scandal, threatening the 
romantic image nurtured by the diamond industry. `Perhaps what 
is happening in Sierra Leone is our problem,' announced one 
horrified industry insider after visiting a camp for 
amputees.''
    ``Perhaps it is our business. The business of mining here 
is brutal even without rebel atrocities. Clenching an air-hose 
in his teeth, one miner prepares to dive to the bottom of a 
muddy pond to gather gravel''--and then it ends by saying--
``for years such laborers have been little more than slaves.''
    It is modern day slavery. And so you are very, very 
persuasive, and you have a seat at the table. And there was 
some reluctance on the part of the administration at one time. 
And as you know, we had a little bit of conflict up here. I 
think it is important for the White House Congressional 
Relations Office to push this.
    Also, you have the situation in the Congo. You have Rwanda 
in the Congo. And you have Burundi and you have Uganda. They 
are there for diamonds, and they are for coal time; that is 
what they are there for.
    That is why they are dying. And so this administration, 
when it goes to Monterey and talks about the increases, has to 
bring this ball across the line to get it passed because we 
adjourn and then we come back, Mr. Hall is not here, we find 
another bipartisan effort, and pretty soon we are back into 
falling into the next year.
    So I would hope that you could help us to try to get the 
White House Congressional Relations Office to meet with the 
Senators to bring this thing----
    Mr. Zoellick. Yes, Chairman, again, let me start by 
complimenting your leadership and that of Mr. Hall----
    Mr. Wolf. Actually, Mr. Hall got me involved.
    Mr. Zoellick. Nevertheless, by the time it got to me, the 
two of you, I think, were seen as leaders on this and pushed 
it.
    I am little worried because after working with you on this, 
I have tried to follow it all throughout the process, and I 
know there are some proposals on the Senate side that I think, 
again, are going to re-raise a lot of the issues that you 
worked through, frankly. And as we discussed at the time, there 
are different things you are trying to balance here, but our 
goal was to have something that was effective, that did not 
hurt the African states like Botswana, and to keep our 
international obligations. And I think you came up with a good 
product. And I hope we could get done.
    So I will go back and check, but it may be something we can 
work on together. If the Senate keeps getting stuck, trying to 
reinvent the wheel, we could say there is a wheel, let's get it 
rolling.
    Mr. Wolf. That would be ideal. And the Congressional 
Relations Office talks to the leadership over on the Senate 
side. Maybe the bill could be better, but this was the bill 
that passed the House overwhelmingly, and I know it would be 
signed.
    Let me just submit the rest of the questions for the 
record. I appreciate your patience. I appreciate your 
testimony. You are a very effective witness.

                              AFGHANISTAN

    And I do hope, as somebody who is very supportive of the 
administration, and very grateful that the President is where 
he is, particularly at this time, I hope, as you get these 
opportunities on some of these issue you can be--also, I think 
you are going to have to focus very aggressively on trade with 
regard to Afghanistan.
    Afghanistan has no economy. Their largest export has been 
now the poppy. They need someone to come in to help them to 
develop some mechanism. I do not know what. They were into 
rugs, and they were into other things.
    Mr. Zoellick. Chairman, just so you know on that, one of 
the reasons I sent you the letter with the very modest 
reorganization is that I was recognizing some of the same 
things, that I wanted to break out sort of South and Central 
Asia and really to focus on India, Pakistan and Afghanistan. 
And it is really only a question of really two people, but I 
wanted to get an AUSTR, Assistant USTR-level person, focusing 
on that for that reason, which is that I do not know the answer 
for Afghanistan either, but I want to try to get someone on it.
    So you and I are thinking on the same track on trying to do 
that.
    And let me just, again, make this point, that, as you can 
see, whether you or your staff or your other colleagues raise 
issues, we do our best.
    Mr. Wolf. I know.
    Mr. Zoellick. And sometimes we can carry the day, but, 
frankly, I found it very beneficial, and you brought a number 
of things to our attention that are good to bring. Within the 
limited hours of the day or the week or the month, if we can 
carry something forward, I am pleased to do so. That is what we 
are here for.

                   REPATRIATION OF CRIMINAL OFFENDERS

    Mr. Wolf. Good. And, again, to end on that, if you can take 
a look at the list on the prisoners?
    Mr. Zoellick. Yes, got it right here.
    Mr. Wolf. My sense is about five of those countries could 
be solved relatively easily. The other five would be, 
obviously, more difficult.
    Mr. Zoellick. Mr. Chairman, just one more thought on this. 
It would be useful if we could either get from you or your 
staff also what you were talking about doing more 
legislatively.
    Mr. Wolf. We have the section.
    Mr. Zoellick. I guess what I am saying is, so then, when I 
talk to people, I can say, if you do not move on this, these 
are the things you are going to face.
    Mr. Wolf. I voted against MFN for Vietnam. I have not 
agreed with Mr. Serrano, because I agree with the 
administration on Cuba. I did not agree on China.
    What I was looking to do was to find a vehicle, and the 
vehicle was obviously this bill. I happened to be given this 
opportunity to be the chairman of this committee and offering 
it to this bill or maybe going down on the floor and offering 
it.
    Obviously, Vietnam has a hole to dig itself out of. When we 
were soldiers; Go look at the movie. Go look at the atrocities.
    So there is a rebuttable presumption that we ought not be 
doing too much to help them. I mean, you could argue that there 
are still MIAs. The flag still, as you go from the House to the 
Senate, is in the Rotunda there. There are unaccounted prisoner 
of war people.
    So we plan on pushing the issue, and I would probably pick 
one or two countries. My sense is Somalia is very concerned 
about what the United States is doing. I think you could 
obviously get Somalia to take those 51 or 48 back, my sense is, 
if you were to speak economically.
    So what we would do is we would pick one or two that we 
think we would have the best chance of carrying both on the 
floor and carrying in the conference.
    Mr. Zoellick. What I am saying, Chairman, even without 
going to the question of administration clearances, what you 
are planning to do, let me know, which countries, so that when 
I talk to these countries, I can say, look, not only should you 
be doing this, but here is the risk you face if you do not.
    Mr. Wolf. Well, we plan on asking Mr. Ashcroft to exercise 
his prerogatives, and the precedent has been set with Guyana. I 
do not know how many they took back, but they did take back.
    And I do not think it hurts them. It doesn't really. It is 
not a sanction. It is just saying you should take these people 
who are citizens of your country.
    You remember the Muriel boat people. Some of them were 
very, very violent--this type of activity. And under a recent 
court ruling, many of these people are now going to be released 
out on the streets. And wherever they are released from, you 
will almost be able to track; the crime wave will go up in 
those areas.
    Because of that, I think Vietnam ought to take them back.
    So if you can do that, and we can work together.
    Again, thank you very much, and the hearing is adjourned.
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                                          Thursday, March 14, 2002.

            NATIONAL OCEANIC AND ATMOSPHERIC ADMINISTRATION

                                WITNESS

VICE ADMIRAL CONRAD C. LAUTENBACHER, JR., USN (RET.), UNDER SECRETARY 
    FOR OCEANS AND ATMOSPHERE AND NOAA ADMINISTRATOR
    Mr. Wolf. Welcome, Admiral. Congress has adjourned and 
recessed, so a lot of members haven't arrived. But I am here, 
and I am in no hurry. Your full statement will appear in the 
record as if read. You can proceed however you see fit and then 
we will have a number of questions.
    Admiral Lautenbacher. Thank you.
    Mr. Wolf. Why don't you proceed, then?

             Opening Statement by Vice Admiral Lautenbacher

    Admiral Lautenbacher. Thank you, Mr. Chairman and 
distinguished members of the committee and staff. It is a great 
pleasure to be here this afternoon to explain and answer 
questions regarding the budget for the National Oceanic and 
Atmospheric Administration. I appreciate the support that this 
committee has given to NOAA over the years, and I look forward 
to working with you and all the members and staff to build a 
good budget that we can be proud of for the country.
    Sir, I was not going to go through my whole statement----
    Mr. Wolf. That's fine. Mr. Serrano will be here soon.
    Admiral Lautenbacher. Did you want me to wait?
    Mr. Wolf. No. It is not necessary because we both have read 
it. So you can just summarize it and make the points that you 
think are----
    Admiral Lautenbacher. Yes, sir. I appreciate that.
    As you are aware, we are part of the President's priorities 
in terms of supporting the main three, which are the war on 
terrorism, the homeland defense initiative, and economic 
security. This is a very tight budget, but it is a good budget. 
It is roughly at the same levels that was submitted last year. 
It provides major support of the economic security for our 
country.
    Just about everything that NOAA does, from top to bottom, 
is essential to economic activity throughout our great land. 
This budget allows us to continue to provide the products and 
services that are very important to the country from weather 
reports to navigation charts to managing our coastal zones.
    The way I would like to describe the budget is that it 
hasn't changed, that much. There is about a 10 percent churn, 
budget churn, totaling $3.3 billion that is, slightly down, 
from last year, a $45 million difference.
    There are about $300 million worth of changes in that 
total. And if you look at that, these changes are divided into 
two pieces.
    One piece, $130 million of it, is for making sure that we 
keep our main assets intact, the teams of scientists and 
specialized centers of excellence that we have throughout NOAA 
for atmospheric science, ocean science, biological sciences, 
coastal zone management. It keeps them intact and gives them 
the kind of encouragement and support we need. This provides 
for salaries and increases to our base to ensure that the work 
of producing products that are important to our Nation 
continues.
    Part of that increase is to improve our infrastructure. We 
are asking for a small down payment on our infrastructure. We 
have a new fisheries vessel in this year's budget. We have 
about $30 million for construction and working down our 
considerable facilities maintenance backlog.
    Then there are three other big pieces that are important to 
us. I say this because a lot of the money that comes out of our 
budget is for specific 1-year projects that have been 
terminated and then moved into higher-level issues. These are 
initiatives that we think are very important to us, and I am 
asking for support for the new initiatives that are in our 
budget.
    Climate, fisheries, energy, homeland security, improving 
warnings and extreme weather warnings are critical areas for 
us. We have the increase to our NPOESS program, polar orbiting 
satellite system. We are on the verge of switching from two 
systems, one at the Department of Defense and one that NOAA has 
been using over the years for polar observing satellites to a 
single system which will save about $1.8 billion.
    There is an increase in our budget if we go up a normal 
procurement ramp for this system. It is on track and performing 
under all the normal parameters for acquisition. We believe it 
is worthy of support.
    We are asking for a small increment to our AHPS program, 
Advanced Hydrological Prediction Service, which is important to 
determining flood warnings, river levels, so that we can save 
lives, and give advanced warning for events that could damage 
quite a bit of our infrastructure. That system, once in place, 
will save quite a bit of money and lives across the country.
    We are asking for an increase in supercomputing. We would 
like to have a backup. Part of our homeland security issue is 
the fact that we have one computer which is configured to do 
all of our weather forecasts at this point. We are asking to 
put a backup computer into place. Also it is time to upgrade 
the prime computer that we have to the next generation. So 
there are two separate computing initiatives.
    We are asking to outfit our G-IV, Gulfstream IV aircraft. 
It is a marvelous tool for use in predicting storms and it was 
used considerably extensively during Hurricane Michelle. The 
Hurricane Michelle track exceeded all expectations in terms of 
accuracy of forecast, and part of that was because we were able 
to do some airborne measurements with drop sordes and 
instrumentation in front of that storm. The Gulfstream IV needs 
to be completely instrumented. We need Doppler radar, de-icing 
equipment and some other instrumentation on it.
    In the climate area, the President's climate initiative is 
in full swing. It was announced at NOAA headquarters about a 
month ago. Our part of it is to look at climate change science. 
There is $18 million in our budget to improve the tools and 
techniques for better climate forecasting and build the kinds 
of products we need to support good policy-making related to 
climate change. Climate research is very important to us.
    We are asking for $45 million for the second fisheries 
research survey vessel. It is a very important part of 
maintaining our management of fisheries stocks and improving 
the fishing stocks that have been overfished. There is $9.9 
million dollars to increase the frequency of stock assessment 
and provide more accurate data on which to base management 
decisions, very important to us. There is a $9.7 million 
increase in enforcement in order to assure that we have a fair 
system out there for all of our fishermen, who are working hard 
to produce the food for our country.
    Finally, I just want to make mention of the fact that I am 
a strong believer in good financial management and building an 
organization that is responsive. We are working hard on 
building the kinds of controls that support sound programmatic 
and financial management. There has been a great deal of action 
taken before I came into this job. I intend to continue that. 
We have improved our budget structure in accordance with the 
congressional instructions. We have also made some improvements 
within the administration to try to make it easier for everyone 
to understand. We are working hard to improve our outreach and 
communications so that we do the right thing for everyone.
    Again, let me thank you and the distinguished members of 
this committee for your support in the past; and I look forward 
to working with you and the staff as we go forward with 2003. 
Thank you, Mr. Chairman.
    [The statement of Admiral Lautenbacher follows:]
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    Mr. Wolf. Thank you.

                       CLIMATE CHANGE INITIATIVE

    You mentioned President Bush announced his climate change 
research initiative and NOAA gets about half of that $40 
million, $5 million for additional climate change high-
performance computers. You have three, we have been told, 
computers--one out in Boulder, one in Princeton and one in 
Bowie. Given all this, where is the backup or is it feasible to 
use the one in Princeton as a backup or the one in Bowie as a 
backup?
    Admiral Lautenbacher. In the climate initiative there is $5 
million. That is not for another supercomputer; that is 
essentially for people and modeling time and that sort of 
thing. So that $5 million of the $18 million that we are 
talking about is to help improve the center of excellence that 
we have at Princeton. So we are not asking for another 
supercomputer at Princeton.
    On the other question, because the configuration for daily 
operations of the computers and what they are used for, it is 
very difficult to switch from the research modeling that is set 
up to do. Remember the computer that we use here in town, the 
National Center Environmental Prediction computer that does the 
weather, is configured for daily production. NCEP is an 
operational system. It provides 24-by-7 coverage of all the 
forecasts and things that we spew around the country to make 
sure that weather forcasts are made, so you can't play with 
that. You can't make changes to it.
    Mr. Wolf. That is set and that is it, right?
    Admiral Lautenbacher. Yes, sir. The other two computers are 
specified research computers in our research laboratories, and 
they are configured, one to do weather and one to climate 
research. It is a project kind of support on a project-by-
project basis.
    These computers are different. One of them is to used to 
try to get massively parallel processing computers working for 
the kinds of models we need. There is a significant difference 
between a Vector machine and a massively parallel computer. We 
made the investment within NOAA to go to massively parallel 
computers because that is our computer industry--for the 
Department of Commerce. This happened long before I came on the 
scene.
    Mr. Wolf. What is the backup that you are looking for then?
    Admiral Lautenbacher. We are looking for a computer that is 
geographically somewhere else--we are looking for separation 
and distance.
    Mr. Wolf. Is that for homeland security?
    Admiral Lautenbacher. Yes. This extra computer that I am 
talking about is a homeland security backup that would be able 
to put on line within 3 hours. If there were a casualty or some 
catastrophic event that took place here in Washington we would 
still be able to deliver the weather forecast, weather 
products.
    Mr. Wolf. So it will be basically not used, but only 
available when----
    Admiral Lautenbacher. We have a plan to try to use it. That 
obviously would have to be configured as this operational 
computer is configured, and the projects we would put on it 
would have to be tailored so that you wouldn't disturb either 
the operating system or the configuration of the models that 
are in there.
    In other words, so there would be a 3-hour drop-dead limit. 
If you couldn't take your job off that computer and have it 
working for 3 hours, you are not going to get to use it.
    So we would try to use it because it would be foolish to 
have a computer sit around.
    Mr. Wolf. So you could use the other two for the backup?
    Admiral Lautenbacher. I believe if we did that, we would 
take a significant hit on the amount of research and 
improvements that we already have. You would have to cut back 
on a significant amount of the research that we do now in 
climate and weather to turn one of those into a backup computer 
because you wouldn't be able to support--we have a lot of 
people that use those three systems.
    Mr. Wolf. Is that because of the 3-hour rule that you would 
have to----
    Admiral Lautenbacher. Well, yes. I mean, you could make it 
a 6-hour rule, a 12-hour rule.
    Mr. Wolf. So that is the reason----
    Admiral Lautenbacher. The reason is, it is not configured 
to do it; and it would be a major, major change to reconfigure 
the computer to run the operation model.
    Mr. Wolf. What about using the National Science Foundation 
computer or some other computer? In light of the fact that we 
hope we never go to this----
    Admiral Lautenbacher. I hope we never go to it either, but 
our investigation so far is that the computers which other 
agencies control are completely booked. And they again have 
their own operating systems and configuration management, so 
you have to end up taking one of their computers and really 
taking it over.
    You would have to say, this is the weather computer and now 
it is going to be configured to do weather; and by the way, if 
you can fit something else in, fine. But wherever you would 
take this, you would have a significant impact on what is going 
on now. I mean, that is sort of the basic issue.
    Mr. Wolf. How does the United States computing capability 
for climate modeling compare with other countries, for instance 
Great Britain, Japan, Norway, France? Can you give us one, 2, 
3, 4, 5 in the top 5, where we fit in?
    Admiral Lautenbacher. In climate, I think most people think 
of Great Britain as being a leader.
    Mr. Wolf. Why?
    Admiral Lautenbacher. My opinion is, they have dedicated 
the resources to doing it. It is not that they have brighter 
scientists or that they have better machines or they have some 
magic ingredient that we don't have in the United States. I 
think we have just as much talent and capability.
    The point is that they have dedicated more resources to 
this type of activity so there are more scientists that have 
been sitting in place working these problems, more software, 
more modeling that has been going on; and they have kind of a 
bigger portfolio of tools than we have.
    Mr. Wolf. So they are number one. And could it also be they 
are a smaller country?
    Admiral Lautenbacher. They are a smaller country.
    Mr. Wolf. For instance, it is easier to have a rail system 
in Great Britain versus a rail from here to California. Is that 
a big factor, a little factor? Is resources more, or the size 
of the country more, why they are number one?
    Admiral Lautenbacher. They are number----
    Mr. Wolf. No. I said why is it? Is it because of the size 
of the country or the resources?
    Admiral Lautenbacher. It is the resources just for this 
that have been dedicated to these tools, the facilities, the 
people and the computers to work the problem.
    Mr. Wolf. Who is second?
    Admiral Lautenbacher. I don't know. Canada, maybe. Canada 
has a pretty good center.
    Mr. Wolf. Who is third?
    Admiral Lautenbacher. I would have to get that for you in 
the records. I don't have a good feel for it. Japan is building 
some pretty good models. Japan is probably in the top five. 
They are spending a lot on building machines right now and have 
scientists dedicated to it.
    Mr. Wolf. If you could, submit it for the record from an 
objective point of view, who you think are one through five.
    Admiral Lautenbacher. Yes, sir.
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    Mr. Wolf. Mr. Serrano.
    Mr. Serrano. Yes. Let me welcome you, Admiral, and tell you 
that this has always been one of the hearings where I am very 
excited at the work you folks do.
    This morning we had the U.N. representative here, and we 
had some exchanges about foreign policy. That is not the issue 
here. You guys do exciting work, and your folks are now in the 
process in one part of my district, of establishing an 
educational program. In fact, it is an exciting possibility, a 
weather station for children to be part of--and this is 
something very exciting.

                     OUTREACH PROGRAMS FOR STUDENTS

    Can you tell us, what kind of outreach programs do you have 
for students and so on? I think, for the record, we should be 
reminded that this is one of the areas where you do your best 
work, and I also think it is one of the areas where every 
government agency does important work. It is one of the reasons 
why you have me as a strong supporter. So this is your chance 
to make me look good and yourself look good.
    Mr. Lautenbacher. Yes, sir. Thank you.
    I am a firm supporter, a strong believer, in education. I 
was the president of the Consortium for Oceanographic Research 
and Education before I came to this job, and my public record 
on education is well known.
    Let me just go through a couple of things that we have. The 
Minority-Serving Institutions program, which was initiated a 
couple of years ago and is a very good program. It supports 
four minority colleges including City College of New York. We 
have a $7.5 million award over 3 years to four institutions, 
and there are 13 more partners. So this is an opportunity to 
build the kind of understanding, level of science; we need to 
invigorate our community and ensure that education in the 
atmospheric and oceanic sciences is supported across the board.
    In that program, we support students with scholarships on 
the graduate and undergraduate levels. We have a program that 
supports environmental entrepreneurship, which has received a 
great deal of support and agreement that this is a good thing 
to do. So we again have that in our budget as a prime item.
    We have other education initiatives across the board. We 
have supported Globe. We have supported the JASON Project. We 
have supported the Ocean Sciences Bowl, which was big in my 
last job.
    We have one of the best Web sites, I think, that anybody 
can find. We work with the American Meteorological Society in 
providing material so that they can provide it for the K 
through 12 area to build lesson plans and get some of these 
things into the education curriculum.
    Mr. Serrano. I have to tell you that teachers and students 
in my district tell me it is one of the more exciting Web sites 
and one that, in a community like mine, invites use of that 
technology while also presenting something exciting. And I 
don't know to what extent you folks fully understand that young 
people, especially children, are easy to get excited about what 
you do, because they usually don't get an opportunity to talk 
about the atmosphere or the weather or the amount of time and 
energy and dollars that we spend on this. So in my district we 
have done a lot lately with situations that just were not 
understood to be inner-city issues.
    There is a lot going on in this area where you will be 
involved with the Bronx River. It's just a river that runs 
through a city, and most people never paid attention to the 
fact that there was a river there, because somehow you have got 
to be in the country to be near a river and trees and grass. So 
the Bronx River work offers the opportunity to work with 
children.
    I know you also have the Teachers at Sea program.
    Admiral Lautenbacher. Right. That is another valuable 
program.
    Mr. Serrano. CREST?
    Admiral Lautenbacher. Right.
    Mr. Serrano. Now, do you have any thoughts about expanding 
those or reaching out to new communities or coming up with new 
ways of involving young people in educational programs?
    Admiral Lautenbacher. Yes, I would like to expand it.
    I will have to tell you that this budget keeps doing what 
we have been supporting, so you won't see a lot of new 
initiatives in this budget. What we have done is to form an 
education committee inside of NOAA. We have all our major 
branches and line offices on it, and that group has now, for 
the first time in a long while, created an inventory for the 
things we are doing. We are looking for ways to make education 
initiatives more prevalent across all areas within NOAA.
    I personally have sort of a NASA philosophy that there 
should be some dedication to education in almost everything 
that you do. If you don't do that, you are missing the boat. 
And we need it especially in our area because a lot of our 
people are going to be retiring.
    We need to maintain a good science base in this country, 
and NOAA being a science agency, I believe we should support 
that. So I intend in the next year to get more proactive on it.
    Mr. Serrano. While I support the work you do in the 
minority-serving institutions, my understanding of the budget 
is that at the level of funding that is requested, we are 
talking about six candidates, internships at NOAA for about ten 
undergraduates, a handful of cooperative scientists and about 
13 environmental program grants. They obviously do very good 
work. They are involved, to my knowledge, in institutions I 
know--Bronx Community College, the University of Puerto Rico in 
Mayaguez, which is my birthplace; my hometown is The Bronx.

                         MSI PROGRAM EXPANSION

    But what additional funds would you need to expand on what 
you are doing here, and how would you expand so that this 
minority-serving institutions initiative grows rather than 
stays where it is right now?
    Admiral Lautenbacher. We could certainly expand it, and it 
would depend on how far you wanted to expand it. If I could 
provide you something for the record on that----
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    [GRAPHIC] [TIFF OMITTED] T1888B.035
    
    Mr. Serrano. I would like some thoughts, because one of the 
problems we have is that whenever we get a program like this, 
there are people on this committee who certainly support it; 
but some people in Congress think it is not the way to go, we 
shouldn't single out any one group. So then, if the program 
remains very small, it leads to attacks that it is not moving 
and it is not growing. We could have that problem.
    Admiral Lautenbacher. I am with you. I would certainly like 
to see it expand. I think it is a good program.
    Mr. Serrano. Mr. Chairman, I certainly have more questions, 
but I know there are folks to my left here who have planes 
leading across the country.
    Mr. Wolf. Mr. Vitter.
    Mr. Serrano. And to my right also.
    Mr. Vitter. Thank you for putting it on the record that I 
am to your right.
    Mr. Serrano. For the record, there are not too many to my 
left.
    Mr. Vitter. Thank you, Mr. Chairman.
    I thank the Admiral for being here. I very much appreciate 
it. I wanted to discuss a few things with you that go back to 
our activity in the subcommittee and the Congress last year, 
that precedes your service, but certainly I am sure you have 
been briefed on that and are working on some of these issues.

                          NOAA SURVEY BACKLOG

    A big concern of mine--I am from southeast Louisiana, 
suburban New Orleans, is the survey backlog at NOAA, all of 
that work that needs to be done, many places, certainly not 
just the Gulf of Mexico, but basically every coast and Alaska.
    If you just focus on the truly urgent survey work that 
needs to be done, the highest priority, just looking at that, 
the backlog is enormous; and we tried to address that in a 
concrete way last year with some additional funds, and that was 
in the final appropriations bill, and there was report language 
that specifically dedicated about $4.5 million of that to Gulf 
of Mexico and Lake Pontchartrain needs.
    Also we included language, through the leadership of the 
chairman and others, that encouraged NOAA to use a time-charter 
model if in fact it would get more of this work done quicker 
and cheaper, which I firmly believe it would; and I know NOAA 
has been exploring this model which has been used in Federal 
agencies.
    I guess I just wanted a general update on those efforts and 
some reassurance, quite frankly, about the work that will be 
done in the Gulf, since that was specifically enunciated in the 
final report.
    Admiral Lautenbacher. Yes. That is very important to us.
    The backlog is critical, and it is particularly important 
we recognize the homeland defense issues that we face today, to 
get that backlog moving. We have almost an extra $10 million in 
this year's budget that will go specifically towards time 
charters and dedicated specifically to the Gulf to try to get 
the backlog to our critical areas under control.
    And obviously it would be nice to do more, but we are at 
least recognizing the priority and trying to do what we can; 
and I think this is a good way to do business. So we are going 
to put the contract out and see how we fare with it.
    Mr. Vitter. If this coming year we stick to that $10 
million and then--we had busted up last year, and as I 
understand, since that has not been acted upon, that would 
essentially flow into the next fiscal year also, assuming those 
are our final figures for 2002 and then 2003 together, what 
would the total project be, and how would time be split between 
the Gulf and Alaska?
    Admiral Lautenbacher. The time for the Gulf would probably 
be October through April. May and September would be transit 
months and you would do the summer in Alaska basically. So 
between May and September in Alaska, and the rest of the year 
you would be in the Gulf. That is the initial thought process 
on the split of time.
    As far as the final money let me get back to you. I don't 
have that off the top of my head. I know what we put in this 
year that is additional. I don't know where the execution 
stands today in fiscal year 2002.
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    [GRAPHIC] [TIFF OMITTED] T1888B.036
    
    Mr. Vitter. Okay. I had understood that the more efficient 
way to think about there, rather than moving the boat every 
year, was moving it less often, mainly the same general ratio, 
the 2 years in the Gulf and 1 year in Alaska.
    Is what you are talking about consistent with that, and 
wouldn't it make more sense to have less transit time and 
longer stays?
    Admiral Lautenbacher. It would. And it would be better to 
have boats in both places, actually, to try to do this. I think 
the fewer transits you make, the better off you are. But in 
terms of trying to get the critical pieces for all parts of our 
country, you have to make some sacrifices.
    So if you want to do something in the Gulf or Alaska, there 
are a lot of vital areas to be covered. This was felt to be a 
compromise between efficiency and need for immediate coverage 
of critical areas.
    Mr. Vitter. I guess I would make two points. First, there 
has been a lot of discussion, particularly among the House 
offices that directly represent these areas--Billy Tauzin, me, 
and also Don Young in Alaska. I thought, and I still think, we 
have a general understanding of 2 years/1 year.
    Admiral Lautenbacher. Okay.
    Mr. Vitter. Even if the model which is used involves more 
frequent transits within a year, I guess I would hope that this 
understanding that I think we have in terms of ratios would 
still be honored, 2-to-1. That is one comment.
    My second comment is, as a layperson, it would sure seem to 
make sense to have longer stays and less transit time and that 
is the vein in which we have been talking about 2 years/1 year, 
and we are probably flexible about how we arrange that. But I 
would just commend to you a model which minimizes transit time 
for the obvious reason that you get more out of the boat.
    Admiral Lautenbacher. I understand that, and I would be 
happy to work with you and Congressman Young to make sure we 
are doing the right thing and following the will of Congress.
    Mr. Vitter. What would it cost to have the two boats that 
you mentioned?
    Admiral Lautenbacher. That is a good question. I would like 
to say double, but I am not sure it would be double; so let me 
get back to you and provide that for the record.
    Mr. Vitter. But the budget number you have in the 
administration budget is still envisioning one boat?
    Admiral Lautenbacher. That is right. We think this is the 
enough money to do the one boat. We don't think we can squeeze 
more out of this number.
    Mr. Vitter. Okay. If you could get us a rough estimate of 
two boats.
    Admiral Lautenbacher. I will do that.
    [The information follows:]
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                     SET-ASIDE vs OPEN-COMPETITION

    Mr. Vitter. There has also been some push from other 
quarters to have this time-charter model let out on a set-aside 
basis and not an open-competition basis, which I am very 
opposed to; and I have been assured by several people in 
Commerce that the plan is for open competition and normal 
competitive process. Can you confirm that?
    Admiral Lautenbacher. That is our intention. Our intention 
right now, unless we get otherwise directed from Congress, is 
to have an open competition. The contract will be on the market 
as an open competition.
    Mr. Vitter. What is the plan timetable for that?
    Admiral Lautenbacher. We would put out the contract 
shortly, basically spring, late spring. The vessel will be 
outfitted, and we will conduct initial operations in 2003. So 
it would take a while to get going, but you wouldn't have full 
operation until 2004. So based on what we believe in terms of 
how long it takes to bid, build and outfit to get going, it is 
going to be a year and a half or so.
    Mr. Vitter. But the first step is planned to be very soon?
    Admiral Lautenbacher. Yes, absolutely.
    Mr. Vitter. Let me back up for a second, because these 
specific concerns are part of a broader picture and a broader 
concern about NOAA; and they are as follows.
    NOAA has done great work in a lot of areas. In my opinion, 
and I am sure I am biased because I come from a region where 
maritime commerce is a huge part of our economy and an 
enormously important activity.
    But from that perspective, my view of a lot of NOAA work in 
the past is that it has been too weighted toward academic work 
and not weighted enough toward charting and other work with 
direct commercial application. And quite frankly, I am 
reassured by your appointment and your background, which has a 
lot of real-world, practical roots, that we will certainly be 
focusing on the important NOAA work that has direct commercial 
application.
    And I am not trivializing the academic work. I support that 
as a matter of balance and what we spend time and money on in 
relation to the other. So I guess, just as a general comment, I 
would really encourage you to correct what in my view has been 
this imbalance historically. Because NOAA is enormously 
important for a whole lot of reasons, including direct work 
that is vital to maritime commerce; and with the growth of 
trade, in general, that is vital to the whole economy.
    I guess that would be my overarching comment, but a lot of 
these specific concerns follow.
    Admiral Lautenbacher. I understand, and I am very familiar 
with the criticality of having accurate navigation information.
    And regarding the Gulf Coast I just came back from a day in 
New Orleans, and in St. Charles Parish, where I had a chance to 
talk to people. So I understand the issues, and I will do my 
best to try to provide the balance that can be supported here.

                  NAUTICAL CHARTING/HOMELAND SECURITY

    Mr. Vitter. And the final set of questions touch on 
something you just mentioned, which is nautical charting and 
homeland security.
    Last year, before September 11, I was pushing and we were 
successful in pushing to catch up with some of this backlog 
because of the direct commercial application. Unfortunately, 
since then, we have another compelling reason to do it which is 
waterborne mines and homeland security.
    So I just wanted to invite you to speak for a minute or two 
about that connection and the significance of that in terms of 
homeland security.
    Admiral Lautenbacher. It is a very important connection. We 
need to have timely surveys, accurate surveys, with the latest 
side scan sonar that we have. It is good, high-resolution 
equipment. You get a good picture of the bottom and the 
channels and contiguous waters.
    You can tell exactly what is down there. And then when you 
come back for the next sweep, if there is any threat at all, 
you can tell exactly what is going on. If somebody has dropped 
a mine or not, and you don't have to go down and investigate 
every refrigerator that was thrown overboard and sitting down 
there that you hadn't previously charted. We do that for 
military operations overseas and at this point it is certainly 
prudent to do it here for homeland security.
    And I might add, one of the reasons this money was in the 
budget actually was administration recognition, as it went 
through the system, that this was part of homeland security. So 
that has helped to lend some emphasis to this area.
    Mr. Vitter. Has the technical nature of the surveying and 
charting effort we are talking about changed significantly with 
this homeland security focus, or is what we were planning to do 
anyway, in terms of a technical nature of it, adequate to meet 
this mine threat and this homeland security focus?
    Admiral Lautenbacher. That is a very good question.
    We have had technological focus in trying to improve the 
way we do this, so we have been on a normal path for 
improvement which is more efficient and gives us high-
resolution pictures. The fact now that we have this been moving 
helps us more, but in terms of any great breakthrough since 9-
11, we are now taking that technology and trying to put more 
investment in it and use it.
    Mr. Vitter. What I am hearing you say is, NOAA was 
interested before then in technological advancement, both for 
clarity and efficiency; and basically the homeland security 
issue certainly underscores that need, but doesn't change the 
program fundamentally.
    Admiral Lautenbacher. Yes. That is true.
    Mr. Vitter. Okay.
    Well, again, I would underscore the importance of this 
work. The first reason is the commercial significance of it. As 
you know, most of the charting we have now basically goes back 
to the World War II era, and a lot has changed since World War 
II. Water bottoms have changed, ship drafts have changed and 
increased. Technology has improved dramatically.
    Then, in addition, as I said, there is this new homeland 
security issue with regard to mines, and quite frankly, I am 
not advertising this, but waterborne mines would be a pretty 
simple thing to slip into ports and create a lot of havoc and 
shut down a lot of commerce for quite a while.
    So I would just thank you for your focus already on those 
areas.
    Admiral Lautenbacher. Thank you. We will be working on 
that.
    Mr. Vitter. That is all I have, Mr. Chairman.
    Mr. Wolf. Mr. Mollohan.
    Mr. Mollohan. Thank you, Mr. Chairman.

                       NATIONAL SEA GRANT PROGRAM

    Welcome. I am the ranking member of the VA-HUD-Independent 
Agencies subcommittee for the National Science Foundation 
(NSF). We are, in that subcommittee, being asked to consider 
funding the Sea Grants program. The administration requested a 
transfer of jurisdiction from this committee. Others on this 
subcommittee have a vital interest in Sea Grants. My questions 
go to your thoughts about the recommended decrease in funding.
    If you would focus on the question of your reaction to the 
decrease in funding of $62.4 million, as I understand is this 
year's funding, to the request of $57 million. As someone who 
is President and CEO of CORE, I would think you would be in a 
unique position to comment on that.
    Admiral Lautenbacher. First of all, of course I am 
representing the administration today and I support the 
President's budget.
    Mr. Mollohan. Of course you do.
    Admiral Lautenbacher. Now let me try it from my side of the 
table. Of course it was reduced to $57 million as it shifted 
and the administration envisioned that the program would be 
handled somewhat differently: First of all, that the matching 
funds that the States kick in, some of those would be used 
basically to do some work whatever dropped out of this $57 
million.
    Second of all, you would have a more efficient management 
system, so you may be able to eliminate some of the 
infrastructure that is in place in the Sea Grant program right 
now and improve the management efficiency.
    So in between the way you would operate the program, which 
would allow for some of these things to be picked up at the 
State level in a different way and the management efficiency of 
the program, that $57 million was considered a fair amount to 
try to do the same level of activity. Now, whether that will 
play out, I can't predict, but certainly if you are a budget 
analyst, you can go through it with those thoughts in mind.
    Mr. Mollohan. And that is your answer?
    Admiral Lautenbacher. Well, you asked me for the impact of 
the $62 million to $57 million.
    Mr. Mollohan. What I really asked you was, what is your 
feeling about the impact of that recommendation on the program? 
And I am not really asking you to step outside your role, but 
as someone who is really being insightful about these programs, 
I think you could enlighten the committee on what might be the 
impact on the overall Sea Grant program of that kind of 
reduction.
    That is almost a 10 percent reduction in the program; it 
has to be significant. And yet administrative efficiencies are 
tremendous and they need to be effective continuously, but do 
you not have any thoughts about that kind of a reduction on the 
programmatics of the Sea Grant program, as we consider it over 
in VA-HUD, if we do?
    Admiral Lautenbacher. I think there will be an impact. 
There is certainly going to be an impact. The question is how 
it is handled, and it is hard to predict that at this point.
    What the administration has asked for is a chance to put it 
over there. They have asked me to work with NSF and build a 
committee of folks who would take a look at the program. There 
is this three-legged program; as you are aware of, it has got 
education, extension, and research involved with it. It is a 
program which takes things from research--in the research arena 
and gets them to the user. So it is like a land grant 
agriculture extension program.
    This takes research into what I would call critical issues 
to a region or area and moves it to the people who need it. So 
my intention would be to try to figure out how to do that under 
this new management arrangement; and some of it, because of the 
structure of NSF, would have to be taken over at the State 
level in a different way than is done now. And so that would be 
some of the impact of not having the funding there.
    You would have to change the way you allocated the money 
right now to the States because there is not the same amount of 
money. So you would have to come up with a new scheme and that 
would, I think, impact some of the infrastructure that is in 
place to move research into the field to the people who need 
it, to the users, to the commercial area; and that will require 
a great deal of careful effort to make it come off.
    That is my personal feeling on it. I am dedicated to trying 
to make it work. I believe in the program. I am on record, as 
you have mentioned, before I took this job, as supporting the 
program, I have said so many times; and I still have that same 
personal view.

                   CLIMATE CHANGE RESEARCH INITIATIVE

    Mr. Mollohan. I am not at all sure it is a good 
recommendation, but I was wondering about your comments on the 
proposed decrease in funding. The President has proposed a new 
climate change research initiative in which you are playing a 
significant role.
    As I understand, NOAA, as part of that 2003 budget, 
requested $18 million. Can you give us some idea of what role 
you would be playing and how this $18 million is adequate to 
play that role?
    Admiral Lautenbacher. Well, the $18 million, to be honest, 
is a down payment, is a beginning of a long process; and it is 
a beginning because we don't have a good--what I would call a 
``good plan'' to put in place that you can give to the 
President and say, This is good or somebody can come over and 
talk to you about--and talk about this, is what we ought to do.
    It is a down payment, but it is in areas where there is 
consensus that are absolutely critical to providing a little 
more effort, one of which was mentioned by the chairman, which 
was to create a supercomputing climate center of excellence.
    We need to be in the forefront. America can't afford to be 
the number 2, number 3, or number 4 leader in climate science. 
That doesn't make sense to me. So $5 million of the $18 
million, if we were to gain your permission and approval, would 
go towards creating the genesis of this climate supercomputing 
modeling center of excellence for research. It would be at the 
GFDL laboratory in Princeton that we have.
    You need the supercomputing model, but you need 
observations. I am a big supporter of having an observation 
system that makes sense and gives you the right data coming in 
so that you can, first of all, understand the processes, which 
we don't understand as well as we ought to today, and then to 
have continuing data so you can build products; you can tell 
people where the carbon sources and sinks are, you can tell 
them where the potential greenhouse gasses are, how it is being 
transported across borders, that sort of thing. And you have to 
take data to do that.
    So $8 million of this, we would like to put into 
observation systems, 4 of which would be for atmospheric and 4 
of which would be for ocean observing systems. It would start 
to plug some of the gaps.
    The atmospheric money would be used to reestablish some of 
the upper air soundings that we have been unable to keep going 
over the years because of resource limitations. The ocean 
section a lot of it would be used for the new Argo float 
system, which are drifting buoys that would give us a feel for 
temperature pressure, salinity in the first 2,000 meters of the 
ocean.
    So that is $8 million of it and I will go through the 
others: $2 million for carbon cycle research, which is a very 
small piece. We need to understand the transfer of carbon from 
land to air to water; that is not understood very well at all. 
Another $2 million for the impact of aerosols. Actually, clouds 
are in aerosol, but also carbon in the air and pollution 
particles, whatever the range of variability in the impact of 
aerosols in the climate go from positive to negative. It is 
something that we need much more work on before someone can 
stand up and say, this cloud is going to cause global warming. 
We don't know that.
    Then there is another $1 million to start a risk assessment 
of climate science change to individual areas, because it is 
not the average temperature that makes the difference. It 
matters what happens in your area, what is happening in Maine, 
what is happening in Louisiana, what is happening in your 
various areas, and the connection of change to the risk 
assessment to the local economy and activity there. So that is 
where that $18 is being delivered to us----
    Mr. Mollohan. For 2003?
    Admiral Lautenbacher. For 2003.
    Mr. Mollohan. You say that is a down payment. What does 
this look like----
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    [GRAPHIC] [TIFF OMITTED] T1888B.038
    
    Admiral Lautenbacher. I will tell you that the 
Administration has something like $4.5 billion across the 
Federal Government that is engaged in one way or another in 
global climate change and technology types of initiatives, and 
that includes burning coal and alternative fuels and carbon 
sequestration, other activities that I would call technology 
versus science applications.
    So there is already a great deal of effort going into this 
area.
    Mr. Mollohan. Of course there is, and the President has 
actually requested a decrease in funding for fossil fuel 
research, but I am just talking about the NOAA part of it.
    Admiral Lautenbacher. What is being envisioned is setting 
up a cross-agency organization that would be under the lead of 
the Department of Commerce, because not only is it a piece of 
the Department of Commerce. We would bring in all of the people 
that would play in the old global change program.
    Mr. Mollohan. You would be the facilitator?
    Admiral Lautenbacher. Yes. We are going to set up space up 
in Silver Spring in our offices, bring in NASA, and I have 
talked to Sean O'Keefe about this already--bring in NASA and 
all the people, Interior, EPA----
    Mr. Mollohan. So you anticipate this to become a bigger 
number?
    Admiral Lautenbacher. Well, yes. It will become a bigger 
number. The question is how you finance it. I don't know how 
that needs to be done, but I envision us working on a plan that 
makes sense, that takes an inventory of everything we are doing 
now instead of just what is in the global climate change 
program, which is not an all-inclusive number or figure, and 
building a plan that the President can sanction----
    Mr. Mollohan. So you are going to have major 
responsibilities for building this climate research?
    Admiral Lautenbacher. Yes, we will.
    Mr. Mollohan. Can you give us a time schedule, critical 
points, dates?
    Admiral Lautenbacher. We are just getting started. This 
initiative was basically approved a couple days before the 
President spoke, which was about 3 weeks ago. We are organizing 
the first meetings of the higher level groups in the Cabinet.
    There will be a Cabinet-level steering group, basically. It 
will have OMB in it, as well as Energy and EPA and NSF, 
Interior; and then we will have a working committee under that, 
and then we will have these joint program offices. So we are in 
the process of getting names to set up this structure.
    Does that give you the picture? Personally, I would like to 
have something so that we have an fiscal year 2004 kind of 
input.
    Mr. Mollohan. We will look----
    Admiral Lautenbacher. It is hard to do these things, but I 
will try.
    Mr. Mollohan. We will look forward to your progress. Thank 
you.
    Mr. Wolf. Ms. Roybal-Allard.
    Ms. Roybal-Allard. Thank you, Mr. Chairman.
    One of the issues that I have would like more information 
on is NOAA's plans for the $1 million increase that was 
requested for the regional integrated science assessments, 
known as RISA.

                    CALIFORNIA APPLICATIONS PROGRAM

    As you know, California has a RISA program known as CAP, 
California Applications Program, and that program has been 
working with the State of California, as well as with 
interested users within in the surrounding region, to evaluate 
and to improve forecasts from the user's perspective as well as 
to develop new forecast application strategies. Unfortunately, 
NOAA's past funding for CAP has been very, very modest, and we 
have a number of California decision-makers who can really make 
use of the climate information such as our department of water 
resources, CalFed, the agricultural extension service, our 
department of forestry and fire protection and even our public 
health officials who monitor outbreaks related to mosquitos and 
to pests.
    Can you tell me how much of the million dollars CAP will 
receive, and give us a little more detail into what you hope to 
accomplish with this overall increase of a million dollars?
    Admiral Lautenbacher. I can't tell you at this point how 
much money will be distributed. I don't have a plan for that at 
this point. It is part of the million dollars we talked about 
for risk assessment for the climate increase.
    We do have a small amount of money that does some of this, 
but it is catch as catch can. It is not a very big program. It 
is clearly an area that needs more attention. It has just not 
risen on the priority list of many, many things that are needed 
to be done.
    The million dollars is envisioned as doing some of the 
things that you are talking about, though. And we would use 
different size regional models, get assessments from various 
regions and try to use this in a regional or State and local 
way in order to figure out what makes sense from a climate 
point of view, what would happen when the climate changes.
    But we can provide you with some of our background, more 
material than I can spout off the top of my head, about what 
would be involved with the RISA program. We can provide that 
for you for the record. And I would have to take the other 
under advisement. I am not aware of us being connected in the 
program you are talking about in California, although it sounds 
like we perhaps should be. We will look into that.
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                   CAP ON COASTAL MANAGEMENT PROGRAM

    Ms. Roybal-Allard. Based on the $2 million cap of the 
Coastal Zone Management Act, the contribution to California's 
coastal management program has been steady for the last 10 
years at a time when the program's funding itself has grown 
from about $42 million to $78 million.
    Could you comment on the impact that stagnant funding for 
coastal management has on activities such as coastal 
development, permitting review of local coastal program 
updates, Federal consistency review of oil and gas permits and 
the timely review of other permits?
    Admiral Lautenbacher. Well, I am not sure I know exactly 
all the last part, but in terms of the cap, it has had an 
impact on distorting the original legislation. There was 
supposed to be a formula that was set up based on cost and 
people and that sort of thing, so that the distribution of the 
money was supposed to be done in accordance with some logical 
process based on the need, hopefully.
    And now that you bump into the cap on this, you are finding 
that those intentions are being disregarded because people are 
bumping up into the cap, and therefore you are not getting the 
distribution that was pictured in the original legislation. So 
we have asked, as we usually do, to remove the cap so that the 
funding can be distributed in accordance with the formula.
    Ms. Roybal-Allard. So you are in favor of----
    Admiral Lautenbacher. We are in favor of removing the cap.
    Ms. Roybal-Allard. Altogether?
    Admiral Lautenbacher. Altogether. And it does have an 
impact on all the other things you mentioned. Permitting and 
all that, it certainly has an impact.
    Ms. Roybal-Allard. At least if the cap was not removed, 
perhaps the criteria should be changed a little bit so that it 
would be based on other things, like miles of coastline and not 
just population. So I am glad to hear that.

                        ENERGY SECURITY PROGRAM

    You have requested $6.1 million for two pilot programs, one 
in New England and one in southeastern United States, as part 
of an energy security program to improve the accuracy and the 
reliability of forecast models of weather, hydrology and 
climate conditions. And coming from California, I certainly 
agree with the importance of that effort, because in 
California, climate change could have an enormous impact on 
energy due to such things as heat waves, droughts, floods, that 
kind of thing, and our ability to generate hydro power.
    Also--as you know, the climate change also impacts such 
things as stream flow predictions, which are very important to 
measuring not just water supply, but the quality of the water 
in the form of salinity, which of course is important to 
southern Californians who depend on imported water. It is my 
understanding that States like Washington and Oregon have 
similar kinds of problems.
    So given these facts and the reality of the differences in 
climate between eastern and western parts of the country, could 
you tell me what the justification is for confining both of 
these pilot projects to the eastern areas of the country, 
particularly when there is already significant work under way 
at the Scripps Institute in California relative to climate 
change?
    Admiral Lautenbacher. That is a good question. The two 
projects that you are talking about, and this is sort of an 
interesting history, the first project, which is a New England 
project, was a fiscal year 2002 project that Congress asked us 
to do. It was put into our appropriation bill as a 
Congressional action, and we are preparing to try to work on 
that.
    In the meantime, while Congress was conferring about how to 
handle these pilot projects, we were independently trying to 
find some money in our budget to do this. These two things went 
down separate tracks, and by the time they came out at the end, 
one is in New England and one is in the South because that is 
where we internally had worked within NOAA.
    If somebody would give us a few extra dollars, our 
scientists said we would like to try the Southeast. We think 
that we can get the most out of this if we add to the advanced 
hydrological prediction service project. That went in our 
budget, and Congress approved a budget for New England.
    I think that we need to work on this particular issue to 
make sure that we are consistent from year to year. This is an 
issue that came up because of the way that our system works.
    Obviously Congress thinks that it is important and the 
administration thinks that it is important. I am hoping that we 
have support to do this energy project. We are delighted to 
work with anyone that wants to have input. You need $120 
million to do the country. I would not recommend that. I think 
a pilot project is a good thing to do to see if it does work. 
We predict that it would allow more efficient use of energy and 
save money, and that is important for the whole country. I 
think if these things work, both the administration and 
Congress should look at ways to move it around and not just 
keep it in one area.
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    [GRAPHIC] [TIFF OMITTED] T1888B.040
    
    Ms. Roybal-Allard. If you do a pilot project in the areas 
that you are talking about, do you think you would be getting 
enough information so it would be applicable to a place like 
California, which has dry air and all of these differences? Or 
does this only give you information pertaining to areas that 
have similar kinds of climate, and then you would need to do 
another one to say, okay, does this work in a place like 
California, Los Angeles, which has dry air and a whole 
different kind of weather?
    Admiral Lautenbacher. That is a good question. I would say 
that ideally we would like to do pilots in a number of 
different places because part of this program is building a 
model that is focused on the effects in the region, in the 
area, and the regions are different.
    If you were able to make it successful in one area, you 
would at least have a baseline model that you could move to 
another part of the country and see what changes had to be 
made. But I would be uncomfortable taking a model from this 
region and then moving it somewhere else. The instrumentation, 
the networking, those sorts of hardware, you have a learning 
curve and you would be able to do that more efficiently. But 
the actual model and observations to get the data and use of 
the output would probably require some testing.
    We know what it would take to do the whole country. We 
didn't expect to get the money last year in Congress. We were 
able to get funding from the administration to do it, and so 
now we have an opportunity to do more than we originally 
intended.
    Ms. Roybal-Allard. I am expressing my frustration as a 
Californian.
    Admiral Lautenbacher. I understand.
    Ms. Roybal-Allard. We sometimes forget there is another 
part of the United States.
    Admiral Lautenbacher. It might have been differently if 
there was a logical plan from the beginning. That does not mean 
to say that we cannot adapt depending on the will of Congress.

                    MERGE OF NW AND SW NMFS REGIONS

    Ms. Roybal-Allard. Members of the California delegation are 
concerned that there are rumors of a possible merge of the 
Northwest and Southwest Regions of the National Marine 
Fisheries Service. Our concern is if the regions are combined 
and the Regional Director is located in the Northwest, that 
many of the issues that are important to California might take 
a back seat to some of the other important issues to Oregon and 
Washington. In fact, I understand that the Southwest Director's 
position is actually now vacant.
    Can you tell us what the status of the Southwest Region is, 
and what decisions have been made concerning that center?
    Admiral Lautenbacher. No decisions have been made, but we 
are reviewing it because of the need to have a greater presence 
in the Hawaiian area. That is a reasonable thing when you look 
at the issues with the islands and the Pacific. They are 
somewhat different issues than we have for California. 
California issues are very important to us, and in my view we 
are not going to do anything that reduces the presence or 
reduces the importance of California issues along the coast.
    So whatever plan we come up with, our intention is to 
consult with the Members of Congress and make sure that there 
are no issues which are not covered.
    Ms. Roybal-Allard. So there is a merger under 
consideration?
    Admiral Lautenbacher. That is just an option. We could 
create another region. We could add another region. There are 
issues of administrative coverage, efficiency, what makes sense 
in terms of how much money to devote to those kinds of things. 
We have a team in the National Marine Fisheries Service that is 
working on options to be brought up through the Department to 
try to figure out what is the best way to do this, and we 
certainly intend to consult with Congress before we do 
anything.
    Ms. Roybal-Allard. I believe it would be important to 
inform Californians as to what your options are.
    Admiral Lautenbacher. Absolutely. Whatever comes into play 
is not meant to lower the visibility and importance of 
California issues in this area.
    Ms. Roybal-Allard. Where this comes from, Mr. Chairman, I 
think the second day I was elected, one of the more senior 
colleagues came to me and said are you ready to deal with the 
``ABC'' syndrome. And I said, what is that? They said around 
here it is ``Anywhere But California''. After 10 years I have a 
sense of what he was talking about, and I want to make sure 
that we are not forgotten.
    Mr. Wolf. Mr. Latham.

                        U.S. WEATHER FORECASTING

    Mr. Latham. Mr. Secretary, I have my usual Midwest weather 
question. Also tied with that, there is a lot of talk about El 
Nino and its impacts. Is there someone here who can give us an 
update? It is a very important issue to people growing crops.
    Admiral Lautenbacher. As you are aware, we predicted the 
development of an El Nino condition back at the beginning of 
February. We announced a couple of weeks ago that in fact it 
has happened. The water temperature off Peru and Ecuador has 
risen 4 degrees. We are seeing rainfall patterns and fishing 
patterns that show the early stages of El Nino. We are 
confident that it is happening. We do not have a good feel for 
the severity of it yet.
    A couple of things that are interesting, there have never 
been two strong back-to-back El Ninos. The last one was very 
strong and affected California quite a bit. So that is one 
factor.
    The other factor is that this has been building up slowly. 
It has not been whoosh. We can take those two things and you 
can make your own conclusions. I don't want to draw any 
officially because there is no scientific basis for me to say 
what is going to happen.
    Mr. Latham. What are the possibilities?
    Admiral Lautenbacher. The possibilities are that it kind of 
wavers and goes along and is weak, and we will see minor 
effects in the winter. Most of the time we see these things in 
the fall and winter. When we get changes that affect the 
pattern, they are more visible in the winter than the summer. 
We would see this in the fall and winter.
    If it builds up and the indication is by the end of summer 
that the condition is strong, then we will see some pretty 
heavy impacts during the winter, but it takes awhile for this 
to back down. It is a cycle that varies from 2 to 4 years. The 
process is switching.
    I think it is too early to make wild prognostications, but 
hopefully there is some good effects, such as more rainfall for 
Florida and the Gulf Coast. Florida has had forest fires and 
drought conditions. The Southeast could get some help, which 
would be good. You might have less severe winters in the 
Midwest and the Farm Belt and Great Plains States.
    Mr. Latham. What about the growing season?
    Admiral Lautenbacher. In that part of the country it 
usually is drier and you have less snowpack and less 
precipitation during winter. I have always said, and I think 
that the agricultural industry takes this seriously, people 
start to take it very seriously, and you need to look at the 
types of crops that you plant if this is a good year to wait 
for a better year, instead of risking investing in a crop.
    Some of the studies that we have done show a very great 
impact on the agricultural industry. If you take this into 
account, there is a billion dollars worth of savings there.
    Mr. Latham. Thank you very much.
    Mr. Wolf. Mr. Kennedy.
    Mr. Kennedy. Welcome, Admiral, and congratulations on your 
position.
    Admiral Lautenbacher. Thank you.
    Mr. Kennedy. Let me say that I think Mr. Latham's questions 
are really on point, and I think given his questions, we should 
have a great deal more support throughout the Midwest and the 
Farm Belt for the work that you do at NOAA. NOAA is considered 
something of a coastal agency, but its primary focus is also on 
weather. When Mr. Vitter was talking about the need to move to 
more practical instead of scientific and academic research, I 
only wish he could have heard Mr. Latham's question because he 
would understand that the scientific and the academic have very 
real practical economic implications.
    I think this Nation has a great deal to learn from weather 
patterns, and its ability to apply that information to our 
economy can mean a great deal to our economy overall. I would 
only say that in Rhode Island, we appreciate NOAA because we 
are very dependent upon the climate directly because of the 
surrounding ocean and because of the fishing industry.
    But I would say that many other parts of the country that 
don't think that they have any vested interest in NOAA have 
another thing coming, and I would look to work with you and my 
colleagues on this committee to try to get this word out to my 
colleagues in the Midwest who do not know that this is 
something that they should be interested in. I can guarantee 
every district in this country has major complaints about 
flooding or too much rain or lack of rain or this condition or 
that condition. All of these conditions can be modeled and 
stored and utilized in future forecasting and modeling that can 
mean a great deal to their own regions, in both saving the 
lives and creating jobs.
    So I would just say I look forward to working with you and 
also balancing the academic aspect of this because I do think 
for those of us--I know it is hard to see the practical 
implications of this science research end of what you all do, 
but we see it in Rhode Island. I was very fortunate to have 
your Deputy Secretary Scott Gudes come up to Rhode Island and 
we watched the University of Rhode Island do some of their 
weather forecasting areas of technology, and it is just mind 
boggling to think of all of the different data that have to go 
into the computer at the same time in order to make a 
predictive model. It is just awesome amounts of data, and yet 
we have the technology today to be able to forecast a lot of 
that.
    So I want to just have you comment, if you can make a note, 
and I have a couple of questions.
    If you can point to the relationship between the scientific 
and academic and the need to improve the capabilities within 
that area.
    Admiral Lautenbacher. I would be delighted to. I believe 
NOAA is and should be both a research and an operationally 
oriented agency, and we are. I intend to keep it that way. I 
think there is a natural marriage between the applied research 
that we do that helps to improve hurricane models for, and 
taking that research and getting it into an operational sense. 
24-7 we can produce the data that economic decision makers and 
policymakers need to figure out what to do for the good of the 
country. The research and the operations are coupled, and I am 
a strong believer in that.
    We have a balanced program, I think. We also want to 
balance it between government laboratories and the academia and 
the private sector as well. There is a great deal that goes on 
in our academic institutions and universities. I have had an 
opportunity to visit many universities, and they do good work. 
We have grant programs and a joint institute program that we 
have with some of our major institutions that do atmospheric 
science.
    The objective is to get coupling between what is being done 
from research into operations. We need both pieces. If we do 
not do that, we will stagnate in terms of our ability to 
improve our quality of life and cope with the number of people 
and research demands that we have in the future.
    Mr. Kennedy. I think it also offers a great deal of 
potential around the world if we do these models for the major 
hunger and poverty problems that we have around the world. We 
can address a lot of those issues through the science that we 
come up with through these predictive models. For example 
Developing Nations can gain access to better knowledge as to 
how to have sustainable fisheries.

                       Sustainable Fishery Survey

    On the fisheries, I want to get to the issue of funding for 
fisheries. The direction needs to be going in the opposite 
direction than what your funding has been going in. I want to 
say that the need for fisheries information, the chairman asked 
Secretary Evans about the need to address this issue of crisis-
oriented management approach in fisheries. One of the problems 
that we have is we do not have enough funding to keep a more 
sustainable survey going of our fisheries so we get into these 
crisis modes. I think if we had more money in terms of the 
National Marine Fisheries Service, we would not be hitting 
these peaks and valleys and crises in this area.
    Do you have any comment?
    Admiral Lautenbacher. We need to do more surveys. Clearly 
the mandates that we have to try to manage the fisheries that 
we have require more frequent stock assessments and more 
complete stock assessments. We are behind, that is right. The 
good news is that there is an extra $9 million to try to 
improve that. It does not solve the problem but it is an 
indicator that we have the same priorities in mind that you 
have to do that.
    Second, the research that is done needs to be coordinated 
to try to make some of this less manpower intensive and cost 
intensive. That needs to be supported. We need to do more than 
counting each fish. There are better ways to do this if we can 
get the technologies at the right level.
    Mr. Kennedy. Having a Navy background and hearing Mr. 
Vitter's question about homeland security, a lot of the 
technologies that we are deploying for the Navy can be equally 
important to our efforts in terms of the coastal zone. In fact, 
in my area we have been developing a new technology called the 
advanced deployable system. It will be very appropriate in 
measuring the incoming and outgoing traffic for the Middle East 
and hot spots there for the worries that we have in terms of 
mine deploying capabilities, and I am sure that has 
transferable impact for our areas of measuring the coastal zone 
and also doing the mapping that we need to do to keep up our 
shipping traffic.
    Admiral Lautenbacher. Absolutely.

                             Buoyant Lines

    Mr. Kennedy. I want to bring just two other issues up, one 
with the National Marine Fisheries Service, and that is the 
issue of a specific nature that my lobster men have been 
bringing to me with the fixed gear fishermen. They said that 
they are having a tough time trying to meet the requirements of 
the new seasonal area management requirements that have been 
put forward in terms of the use of the naturally buoyant line 
and all buoy and ground lines. This is to protect our North 
Atlantic right whale, but it has run into a lot of issues 
because we are very conscious about the need to protect the 
species.
    But this technology has not been really fully researched 
from what they are telling me, and they say there are some 
problems that they are going to run into, both with utilizing 
this technology and also how they dispose of the old gear with 
the landfills very reluctant to take all of it.
    Admiral Lautenbacher. I recognize this as a problem and it 
is going to require more work. We are caught in between the 
requirements of the Endangered Species Act to try to take care 
of the right whales, and looking at ways to do that that are 
going to make sense, that are not prejudicial to the fishermen 
or the whales.
    I admit, this is a new rule in place that is probably 
causing some difficulty, and we need to continue to work 
together to see if we cannot improve it.
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    Mr. Kennedy. If you can work with us to see if we cannot 
find some ways to help mitigate the impact on the fishermen. 
They say that this line, their old line used to last years, and 
now the new line only lasts months. So obviously it puts an 
enormous burden on them, and I ask you to take a look at that.
    Admiral Lautenbacher. I will do that.

                       Nonpoint Source Pollution

    Mr. Kennedy. On Nonpoint source pollution, RI is leading 
the Nation and are embarking in a very ambitious project to 
tunnel throughout Providence to put all of the excess water so 
we can treat it before it goes in the Bay. A lot of other 
States are recognizing the need for this because of how 
successful it has been in helping to protect our coastal 
waters. Given that, I would just say there are more States 
looking for it, and yet the money has kind of stayed the same 
in terms of your nonpoint source pollution grant. I am looking 
to work with our chairman to get that grant boosted a little 
bit.
    Admiral Lautenbacher. I agree, it is an important area.
    Let me say finally, we support the ocean exploration 
program strongly. It is a great program and we want to do 
whatever we can to help see that go forward. It has great 
potential. Hopefully you will get Dr. Ballard up to URI.
    Admiral Lautenbacher. That would be good.
    Mr. Kennedy. You can certainly count on me to work with you 
and Mr. Vitter on ship modernization. We do not build the ships 
but we are interested in the technology. I have been on the 
WHITING. I was interested to see how good a job it does and its 
need for rehab.
    And the NOAA corps that you have is just fantastic. I don't 
think that they get much attention, but.
    Admiral Lautenbacher. I appreciate your comments. They do 
not get enough attention.
    Mr. Kennedy. I would like to have my colleagues visit them.
    Admiral Lautenbacher. I would be delighted to host any 
visits.
    Mr. Kennedy. My colleagues would really be impressed by 
their capabilities.
    Admiral Lautenbacher. Thank you. I will pass that on. I 
appreciate the endorsement.
    Mr. Wolf. A couple of questions. To follow-up on both what 
Mr. Serrano said and Mr. Kennedy, first with Mr. Kennedy, on 
the projections, we asked last year and never really got a 
clear answer. Do you put out a projection with regard to 
weather around the world? The question last year was with 
regard to Mozambique versus the Ethiopian famine? Do you 
project or share this information with other countries, 
particularly poor, developing countries? France can do its own. 
Do you do that?
    Admiral Lautenbacher. We have extensive data exchange 
arrangements through the World Meteorological Organization.
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    [GRAPHIC] [TIFF OMITTED] T1888B.043
    
    [GRAPHIC] [TIFF OMITTED] T1888B.044
    
    Mr. Wolf. Some of these poor countries do not even have a 
weather bureau.
    Admiral Lautenbacher. There is no general ``here is a 
forecast for the rest of the world'' kind of thing, and pass it 
out to all of the countries.
    Mr. Wolf. You really can't be the person for the entire 
world, but I think if your people see in the next year in 
Ethiopia, it makes sense to at least have somebody contact the 
Ethiopian embassy, to somehow let people know.
    Mr. Kennedy. Mr. Chairman, if I may, the Coastal Resources 
Management Council works very closely with AID to help many of 
these countries maximize their fishing potential in their 
countries to feed their people.
    Admiral Lautenbacher. We work with AID. We are the 
technical experts that help them with their projects. There are 
a number of AID projects that NOAA works with in that regard.
    Mr. Wolf. Secondly, this is the beginning of the fourth 
year of the drought in Afghanistan.
    Admiral Lautenbacher. Yes, I am aware of that. It is the 
fourth year of drought in Montana, too.
    Mr. Wolf. In Afghanistan there would have been a major 
famine if not for the World Food Program. Could somebody look 
and see what the projections are for Afghanistan for the next 
year, because we are putting a tremendous amount of--AID just 
announced a whole series of things.
    Admiral Lautenbacher. We have been doing some of those 
projections in concert with the war and the effort against 
terrorism in Afghanistan. We have been doing vegetation 
projections, drought projections. I can't say that they have 
been provided to Karzai directly, but they have been provided 
to the State Department and Department of Defense to go into 
the system.
    Mr. Wolf. Could you check and see if it has been given to 
the Karzai government, and see if it was given to the DCM for 
the embassy in Kabul?
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                        SITE VISITS FOR STUDENTS

    Mr. Wolf. Mr. Serrano talked about the visitation program 
with regard to the weather, and I think he was right on target. 
Do you open, say, the Weather Bureau facility in Sterling, in 
Loudoun County, do you have class trips that come in from the 
high schools and junior high schools?
    Admiral Lautenbacher. We have done that. Because of the 
homeland security, some of these things have been curtailed.
    Mr. Wolf. But at the high school level?
    Admiral Lautenbacher. I know. We have opened up again, I am 
told.
    Mr. Wolf. Tell me if you are open, but I think it is an 
opportunity for young people to be interested in the program.
    We live by weather and traffic, WTOP.
    Mr. Kennedy. And they provide it.
    Mr. Wolf. Willard Scott is the greatest weatherman in the 
country, bar none. He happens to live in my district, and he is 
a good friend of mine.
    I think it is important for class trips to come in to see. 
Obviously there are people who literally gear their television 
watching to Bob Ryan on Channel 4. And he is a real weatherman.
    Admiral Lautenbacher. And he is a supporter of NOAA.
    Mr. Wolf. It is interesting to get science teachers 
involved. I would love to see a program with the schools, and 
particularly Loudoun County, my area, tying in. They can study 
the weather gauges, the rain. I think it does build support for 
your program and gets kids interested in science.
    Admiral Lautenbacher. I agree. I will do that.
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    Mr. Wolf. Maybe we can pick a day or two and work it out.
    Admiral Lautenbacher. Certainly.
    Mr. Wolf. I don't think there would be any problem. It 
would be children coming on school buses.
    Mr. Serrano. I don't know, the INS, they will stop anybody.
    Mr. Wolf. Or they won't stop anybody.
    The National Polar Operational Environmental Satellite, we 
were told that was going to be a shared 50/50 program between 
Defense and NOAA. Is Defense waning a little bit?
    Admiral Lautenbacher. No. I just talked with Secretary 
Teets from the Air Force, and they are ready. They have joined 
in. I have heard nothing that says that they are not going to 
support their half of the share here.
    Mr. Wolf. NOAA facilities, space operations, you have an 
internal review, true?
    Admiral Lautenbacher. Well, I am having an internal review 
in terms of my whole organization.
    Mr. Wolf. What facilities, what they need?
    Admiral Lautenbacher. Absolutely. Facilities, yes.
    Mr. Wolf. Could you give the subcommittee staff a briefing 
on that, your long range plans, what are your priorities, 
general willingness at the State Department? I brought in kind 
of a systematic approach to embassy construction, and each 
embassy is obviously different because one may be in Latin 
America and one may be in Scandinavia, but each embassy will be 
sort of the same. So there are segments that you can look at. 
You have how many different locations in the Weather Bureau? 
How many different installations?
    Admiral Lautenbacher. A couple hundred. It is in the 
hundreds.
    Mr. Wolf. How many NOAA facilities are here in the United 
States?
    Admiral Lautenbacher. Weather is 121; but when you count 
all of the OAR labs, there is another hundred.
    Mr. Wolf. So you are doing an inventory of construction?
    Admiral Lautenbacher. We are, and I will let the staff 
know. We need a requirements system set up which is not set up. 
We are working on that, and we need a way to prioritize it. 
Then I will brief everyone on it.

                          NOAA Repair Backlog

    Mr. Wolf. Last year NOAA stated there was a backlog of 50 
million repairs and upgrades. This year the budget request 
states there are 54 backlogs. The fiscal year 2002 budget 
provided $88 million. You said that you needed 50. $88 million 
was provided, and now there are 54 upgrades you need.
    Admiral Lautenbacher. We are not making progress on the 
backlog. I admit that. It is not good. My boss does not like 
it. None of us like it. We will try to do what we can.
    Mr. Wolf. Do you have a 5-year plan? A 3-year plan?
    Admiral Lautenbacher. I will this year.
    Mr. Wolf. The question that Congressman Kennedy asked you 
was the article that I raised with the Secretary where this 
article in the Financial Times stated regarding the 
productivity of the ocean is six times less than 50 years ago. 
Do you agree with that?
    Admiral Lautenbacher. I am probably not competent enough to 
comment on that number specifically.

                           OCEAN PRODUCTIVITY

    Mr. Wolf. It says productivity of the ocean is six times 
less than 50 years ago, but the fishing effort is three times 
greater than in 1950. The catch has fallen by more than a half, 
and we are masking our crisis because we are paying for fishing 
in other oceans to grind down their marine ecosystem for our 
consumption. Is that something that you think is an 
overstatement, understatement, pretty accurate?
    Admiral Lautenbacher. I think the general statements are 
pretty close. The numbers that you talk about there are very 
difficult to pin down. We would say that the catch has gone up 
and leveled off. That is what I would say versus it is cut in 
half.
    Mr. Wolf. Has the catch gone up off the coast of the 
Atlantic around Virginia?
    Admiral Lautenbacher. No.
    Mr. Wolf. And Mr. Kennedy's area?
    Admiral Lautenbacher. No. But if you look at different 
species, that varies from year to year depending on fishing 
regulations. When you look at the ground fish, and since we 
have started to try to manage fisheries, which I admit as 
contorted and difficult as it is, I can show a curve where it 
went down to a low in 1991-1992, and now in the last 8 years 
the populations have been coming up. Georgia bank haddock, for 
instance. So there have been some successes.
    Mr. Wolf. My wife is from Marblehead.
    Admiral Lautenbacher. I will give you this chart, and I 
apologize for having something this small, but what you see 
here, there is a dip around 1993-1994. Basically our 
populations have been growing. We have to talk about the fact 
that that is still not adequate. It is still not what we need, 
but there have been some successes. We are doing something with 
all of the machinations that we do with budgets and councils. 
Something is happening. We want to make it better, but it is 
working.
    Mr. Wolf. I guess you have to look at how long fish live, 
different types.
    Admiral Lautenbacher. Absolutely. That is a critical piece 
of it.
    Mr. Wolf. In terms of haddock, how long do they live?
    Admiral Lautenbacher. I do not know. I can tell you that 
orange roughy lives for 100 years, and they have to be 20 years 
old before they start producing young roughies. So if we 
harvest all of the young fish, we have nothing left. People 
have done that. In other parts of the world, other countries' 
fishermen have done that. So while the United States recognizes 
a lot of these problems, other parts of the world are not as 
advanced in their ecosystem understanding and management.
    Internationally this is a big issue, and I am trying to 
work that, too. We have an international department, and we 
want to make agreements that get at the causes of the problem.
    Mr. Wolf. For instance catfish, most catfish that we have 
in the United States are domestically raised on farms.
    Admiral Lautenbacher. Yes.
    Mr. Wolf. What about fish coming from the ocean?
    Admiral Lautenbacher. We have had work with salmon in the 
Gulf of Maine area. But there are issues with mariculture, or 
whatever you want to call it. The pens are not perfectly escape 
proof. Hatchery fish get out and mingle with the natural 
population. People get excited about that.
    Mr. Wolf. So there is not a lot of success?
    Admiral Lautenbacher. There is a lot of potential. Some 
other countries like Norway do a better job. They put more into 
it, and they do a lot of exporting of mariculture.
    Mr. Wolf. So there are domestically produced salmon?
    Admiral Lautenbacher. And there are other ideas that are 
out there. I mean, I am convinced that eventually we will 
figure out how to do it.
    Mr. Wolf. And it is done with oysters in the Chesapeake 
Bay?
    Admiral Lautenbacher. Absolutely. It is easier with 
shellfish which can be confined to areas because they do not 
move as easily.
    Mr. Wolf. This is an important issue. I don't have a 
coastal district, but I am very, very interested, and the State 
of Virginia has a lot of coastline.
    Admiral Lautenbacher. Yes, it is very important.

                 NOAA DOMESTIC/INTERNATIONAL ACTIVITIES

    Mr. Wolf. What percentage of your budget does go for 
international versus domestic? Do you have that which you can 
tell us or give it to us for the record?
    Admiral Lautenbacher. Let me give it to you for the record.
    Mr. Wolf. How much work does the National Marine Fisheries 
do for developing countries?
    Admiral Lautenbacher. I will give that to you. We have 
that.
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    Mr. Wolf. Also we learned that you are going to be 
attending or sending a representative to the World's 
Sustainable Development Conference in Johannesburg, South 
Africa in August?
    Admiral Lautenbacher. Yes, we are the point agency for 
helping with ocean issues.
    Mr. Wolf. It is a high level delegation?
    Admiral Lautenbacher. Yes, we are helping the White House 
and the State Department build the agenda and issues. I am also 
going to the Pacific Conference in Korea in April, and I will 
lead a delegation for APEC nations and there will be a 
fisheries and ocean-related conference.
    Mr. Wolf. What is your budget for the Sustainable 
Development Office?
    Admiral Lautenbacher. I will provide that for the record.
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    Mr. Wolf. Tell us about NOAA's relationship with the State 
Department and international treaties, how does that work?
    Admiral Lautenbacher. I have a strong direct relationship 
with John Turner, who is Assistant Secretary of State over 
there, Mary Beth West works for him. We talk back and forth. We 
have a number of international commissions to which we provide 
members like the International Whaling Commission and the 
International Convention on Tuna and the Salmon Commission. We 
help provide the appointments with the approval of the State 
Department, and we coordinate positions to ensure that State 
Department and the sciences are represented correctly when the 
State Department is representing our country and providing 
representation.
    We in many cases lead the delegation. For instance, I will 
lead this APEC delegation even though it is international and 
sponsored by the State Department. We have a very solid 
relationship. That works for the World Meteorological 
Organization, too, from our weather agency. We lead that, but 
that is done in concert with the State Department. It works all 
across NOAA's lines.
    Mr. Wolf. Do most of the Western countries have a 
corresponding agency like yours? Where is it generally in most 
countries? At one time there was a proposal to merge your 
organization into a natural resources ministry. I don't recall 
the name. Where do you fit in in other countries like England 
and France and Germany?
    Admiral Lautenbacher. In many places it is a natural 
resources ministry of which we would be part. And other places 
it is split up and there is a fisheries management organization 
like we had before we had NOAA and a weather branch. It varies 
from country to country. We can give you a list of the 
protocols in each one of the countries. I can't think of one 
that is identical to NOAA. The British have a system that is 
fairly close, but it is under a bigger ministry. Of course we 
are under the Department of Commerce.
    In many countries, ocean and fisheries are split, weather 
is split. I would not say that we are unique, but we are 
probably one of the few countries that has kind of a center of 
excellence for ocean and atmospheric science.

                         NOAA TELEWORK PROGRAM

    Mr. Wolf. What percentage of people are telecommuting?
    Admiral Lautenbacher. We have about 80 people.
    Mr. Wolf. The law calls for 25 percent of those who are 
eligible.
    Admiral Lautenbacher. And it is something that we are 
getting started with. I wish I had a better handle on it, but 
it is hard to--we just started to look at this in the telework 
area, but it is a very small amount. We are getting started 
with it to see what we can do.
    Mr. Wolf. It is kind of the law. There are not criminal 
penalties, but it does say 20 percent of those who are 
eligible. Obviously everyone is not eligible. It has tremendous 
impact on families and productivity gains. Also the opportunity 
to take traffic off the roads, give people more control over 
their own lives. I think she is going to tell you your number.
    Admiral Lautenbacher. Many of our locations are things you 
have to be there at the office to do.
    Mr. Wolf. Sure.
    Admiral Lautenbacher. So there would be a number of places 
that would not be fully eligible, but certainly there is office 
work and spaces that would be eligible.
    Mr. Wolf. If you can tell us what percentage. Do you use 
flex time?
    Admiral Lautenbacher. We have some flex time.
    Mr. Wolf. Job sharing?
    Admiral Lautenbacher. Yes.
    Mr. Wolf. How many people are job sharing?
    Admiral Lautenbacher. I don't know the numbers. We will 
find that out.
    Mr. Wolf. Leave sharing?
    Admiral Lautenbacher. We have a leave sharing program. I 
will get you the numbers. I don't know what it is. I don't know 
how much it is.
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    Mr. Wolf. I think the studies show that people who are 
teleworking, and it might be just one day a week and you are 
doing a report or you just had a major operation or you have 
had a stroke and are in recovery and are given an opportunity 
to work at home. I hope that you can make that a priority. In 
fact, it is the law and you ought to be doing it. I think it is 
good for morale. Also somebody who just had a child, the 
opportunity to be at home. There is nothing magic about 
strapping yourself in a metal box and driving 43 miles and 
sitting at a laptop when you could be at home.
    Mr. Serrano.

                          STATUS OF BLUE CRAB

    Mr. Serrano. My question may sound odd, but do you folks 
play a role in advising the people who then advise us, for 
instance this year that blue crabs are in danger and we have to 
do something about it? Do you play a role in that at all? How 
do people determine that? I heard on the radio, much to my 
dismay, that we have to be careful about crabbing because crabs 
are in short supply, and over a period of time we could have a 
serious problem. Do you play a role in that?
    Admiral Lautenbacher. Yes. Our biologists play a role in 
that, and there are NGO organizations that are looking at the 
data and doing studies and also coming and talking to us. You 
are going to get this from a number of sources. But we have 
labs and stations, and we make our own determinations on that 
as well.
    If you are hearing something, come to us and we will tell 
you--if you are not sure about the validity of the information, 
give us a chance to verify it or tell you what its source might 
be.
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    Mr. Serrano. I heard it might be a tough season for blue 
crabs.
    Admiral Lautenbacher. That is right.

                   NATIONAL SEA GRANT COLLEGE PROGRAM

    Mr. Serrano. I am trying to make a point, so I ask you to 
answer yes or no. The President's budget proposal is to 
transfer the National Sea Grant College Program to the National 
Science Foundation. This subcommittee needs certain information 
to make its determination, so I would like to ask you factual 
questions.
    One, over the 32 years that NOAA has run the program, are 
you aware of any reports or analysis prepared by NOAA that 
recommends the Sea Grant Program be moved out of NOAA?
    Admiral Lautenbacher. I am not aware of NOAA doing any of 
those reports. There have been reports, but not NOAA reports.
    Mr. Serrano. The jury will disregard that answer. I asked 
you about NOAA.
    Are you aware of any independent reviews or audits 
conducted by the Inspector General or the General Accounting 
Office or any other independent review body, such as the 
National Research Council, that recommend moving the program 
out of NOAA?
    Admiral Lautenbacher. No.
    Mr. Serrano. Are you aware of any correspondence from the 
individuals in organizations that engage in research and 
education that indicate that Sea Grant should be moved out of 
NOAA?
    Admiral Lautenbacher. No.
    Mr. Serrano. I think you would be aware of any negative 
reports or correspondence. This is a classic case of trying to 
fix something that is not broken. The proposal to move the Sea 
Grant College Program is not based on any in-depth analysis at 
NOAA. It was not recommended by any Federal audit or review. In 
fact, the most recent National Academy of Sciences review 
considered and rejected the idea of transferring the program 
out of NOAA. It is not based on a complaint by any 
participating research or educational organization. Based on 
this information and the role that I play on this committee, I 
oppose this transfer and I will work hard to see that it stays 
exactly where it is.
    I yield to Mr. Kennedy.
    Mr. Kennedy. I would just like to associate myself with the 
gentleman's questions and also concur that I look forward to 
vehemently opposing any transfer of the Sea Grant Program to 
NSF.
    Admiral Lautenbacher. I understand.
    Mr. Serrano. And I am sorry for those yes or no questions.
    Let me ask you, Admiral, I know that you touched on this 
before, and this may be the type of question that you do not 
want to answer in public, but I will try anyway.

                       TERRORISM VULNERABILITIES

    If terrorists targeted your activities, what harm could 
they bring to our country? In other words, if we are in a 
situation here where we are looking at everything we have and 
are trying to make sure that we secure our future and protect 
our people, if terrorists were targeting you, without giving 
out any information that you don't need to do in public, what 
could they disrupt to hurt us?
    Admiral Lautenbacher. I think they could significantly 
cripple our economic activity in a wide variety of sectors. I 
can't imagine air traffic without weather forecasts, en route 
weather, storm warnings, being able to enter ports without 
marine forecast information on the water and tides and the fogs 
and winds.
    The products that we produce, you would disrupt virtually 
the foundation of the country. What we produce, they are like a 
public utility that has to be in place before you start the 
day, from agriculture to all of the management activities that 
we perform on a daily basis. If we did not have these things in 
place, we would have chaos. I can't imagine operating without 
understanding ocean conditions and atmospheric conditions when 
you make a decision on an activity, either individually or as a 
corporation. It is very important.
    Mr. Serrano. With that in mind, and again without telling 
me what you do not need to tell me right now, are we taking 
precautions? Is Homeland Security talking to you and taking 
precautions in planning for the safety of the NOAA system, if 
you will?
    Admiral Lautenbacher. I think we have taken the first 
steps. Do we need to do more? Yes. The inventory of our 
security and our ability to produce these products that I have 
talked about was made right after 9/11. In this budget is $23 
million that will help us with what I would characterize as 
single points of failure, things where someone could take 
something out in our system that could just shut it down.
    Over the years we have gone the way of the rest of America, 
to be efficient. The best way to be efficient is to consolidate 
operations. Well, you are now vulnerable, too. That is one 
reason for the extra weather computer. That is part of the 
program to get rid of the single points of failure.
    We have beefed up security at our satellite downlink 
stations. If you lose the satellite, you lose more than just 
pretty pictures on television. You lose ability to make 
forecasts into the future. The satellite downlink facilities 
need to be protected.
    There is more to be done, but there is a step in the $20 
million range to help eliminate some of these issues. I have 
been over to talk to Admiral Adam, and I have talked to 
Governor Ridge in passing. We have gone to the Homeland 
Security Office and explained all of the things that we do. We 
have given them a matrix of the critical pieces that we provide 
for homeland security, and we have made connections to be on 
the policy coordinating committees that they are going to have 
to set up this Office of Strategic Homeland Security Policy. We 
are working in the right direction.
    Mr. Serrano. I asked that question when it came to me, and 
I didn't realize it would open up so much concern on your part.
    Mr. Chairman, I would say that I may be totally wrong, but 
NOAA should be fully on the radar screen of the efforts that we 
are making to secure our situation. And perhaps you and I, 
under your leadership, as we make sure as this bill moves along 
and the supplemental moves along and all these things having to 
do with homeland security move along, remind ourselves of what 
they just told us; that these folks have responsibilities that, 
if disrupted, could hurt us in a way that we don't imagine.
    I don't have any more questions. Whatever I have I will 
submit for the record.
    Mr. Serrano. I want to thank you again for the testimony, 
and let me know about blue crab as soon as you can.
    Mr. Chairman, last year there was a Hurricane Jose, and 
they sent me a picture of Hurricane Jose right as it was going 
over Puerto Rico, except Jose skipped Puerto Rico because Jose 
would never hurt Puerto Rico. It is a wonderful picture of this 
hurricane. I know that bores you to death, I but wanted to 
share that with you.
    Mr. Lautenbacher. Can I add one thing on the blue crab 
forecast? We work with the State fisheries, too, because a lot 
of these things are the State borders and Federal borders; so 
many of the things you are hearing are coming from the State 
Department fisheries as well.
    Mr. Wolf. Mr. Kennedy.
    Mr. Kennedy. I just want to say I would like to see the 
oyster program which worked so well in Chesapeake maybe 
expanded up to Narragansett Bay, because the Chairman keeps 
talking about it so much. And I also want to say that in just 
following up, I concur with Mr. Serrano's question on the Sea 
Grant moving over to NSF.
    But I would like to correct the record. When I had the 
committee hearing with Secretary Evans, I cited you, rather 
than the current President of CORE, when it came to the letter 
opposing the transfer of NSF, and I certainly did not mean to 
put you in any hot water and I certainly apologize for that. So 
the fact of the matter is I wanted to correct that for the 
record, Mr. Chairman.
    Mr. Lautenbacher. Thank you.
    Mr. Wolf. Sure. Well, the record will show that you were 
faithful to the administration's position.
    Mr. Lautenbacher. Thank you, sir; I appreciate that.

                       GHOST SHIPS ON JAMES RIVER

    Mr. Wolf. Two last issues--and you can submit this for the 
record--the ghost ship issue, ghost ships on the James; just 
give us a worst-case scenario of the hurricane coming up the 
James, the sinking of ships, what the impact would be on marine 
life in the fisheries program and the environmental impact in 
that region if you could do that.
    Mr. Lautenbacher. We will provide that for you.
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    Mr. Wolf. They are looking for an in-depth satellite study. 
If you could do something relatively soon----
    Mr. Lautenbacher. Yes, sir.

                          NOAA FTE MANAGEMENT

    Mr. Wolf. Also your written statement states that NOAA 
began an effort to conduct a position and FTE management 
review, and now this baseline completed and implemented.
    Your statement continues on that in fiscal year 2003, NOAA 
will focus on ensuring that the positions associated with this 
new baseline are aligned properly with program requirements. 
Last year the subcommittee brought the issue of FTE 
discrepancies up with your predecessor. This was done for the 
record. The response we received back for the record stated, 
quote, ``NOAA had FTE reductions imposed upon it in the 
Presidential review of its budget, in both fiscal year 2001 and 
2002. Given the limited time to respond to these reductions, 
NOAA prorated them across its line items and PPAs. We now have 
gone back and revised this methodology in conjunction with the 
Department.'' that was the end of the quote.
    Could you please tell the committee, and you can do it for 
the record, how many full-time equivalents you have right now 
and how many full-time equivalents are funded from direct 
appropriations, corporate charges, and from specific 
appropriations? And if you could also give the subcommittee an 
organizational chart depicting the number of FTEs and the 
source of funding for each.
    Mr. Lautenbacher. Okay. We will work on that.
    Mr. Wolf. With that, unless there are any other questions, 
the hearing is adjourned. Thank you.
    [The FTE chart follows:]
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                                           Tuesday, April 23, 2002.

TESTIMONY OF FEDERAL AGENCY OFFICIALS AND OTHER INTERESTED INDIVIDUALS 
                           AND ORGANIZATIONS

                              ----------                              


           INTELLECTUAL PROPERTY: A CORNERSTONE OF CAPITALISM

                               WITNESSES

JAMES E. ROGAN, UNDER SECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY 
    AND DIRECTOR OF THE UNITED STATES PATENT AND TRADEMARK OFFICE
E. ANTHONY WAYNE, ASSISTANT SECRETARY OF STATE FOR ECONOMIC AND 
    BUSINESS AFFAIRS
CLAUDE BURCKY, DEPUTY U.S. TRADE REPRESENTATIVE FOR INTELLECTUAL 
    PROPERTY, OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE
MICHAEL CHERTOFF, ASSISTANT ATTORNEY GENERAL FOR CRIMINAL DIVISION, 
    U.S. DEPARTMENT OF JUSTICE
PAUL J. McNULTY, UNITED STATES ATTORNEY FOR THE EASTERN DISTRICT OF 
    VIRGINIA, U.S. DEPARTMENT OF JUSTICE

                    Chairman Wolf's Opening Remarks

    Mr. Wolf. Good morning. We welcome you to Loudoun County. 
Just a couple opening comments. I want to thank my colleague 
and friend, Mr. Serrano, for joining us here and taking the 
time to come out.
    I also want to thank all of you for coming. It is probably 
the only congressional hearing you will go to where there will 
be coffee and donuts served before the hearing. Welcome to 
beautiful Loudoun County, which is in my congressional district 
and to this campus. We thank George Washington University for 
allowing us to use their facility on this very important issue.
    We appreciate the witnesses coming for a very serious 
problem, the piracy of intellectual property. The jurisdiction 
of this subcommittee includes the Commerce Department, the 
Justice Department, the State Department, the Patent and 
Trademark Office, and the United States Trade Rep, all which 
play a vital role in protecting our intellectual property and 
in defending a critical and growing sector of our economy.
    Today, we will hear from federal agency officials, experts 
in the field and representatives of affected industries on both 
the nature of the piracy problem and the potential solutions.
    The illegal theft, manufacture, copying and selling of 
software, movies and music costs the United States economy more 
than $15 billion a year, and many believe that is actually a 
low figure, and is responsible for the loss of more than 
100,000 U.S. jobs annually.
    Virginia is among the hardest hit states. According to the 
Business Software Alliance, Virginia in 1999 lost $295 million 
in wages and salaries, $69 million in taxes and nearly 4,300 
jobs as a result of software piracy.
    The worldwide software piracy rate is said to hover around 
40 percent. That means that more than one-third of the software 
sold worldwide is estimated to be fake. I have been told over 
and over so I guess it is true that Windows 95 was available on 
the streets of Beijing before it was available on the streets 
of Washington, D.C.
    The music and motion picture industries face similar 
problems, whether it is something as simple as sneaking a 
camcorder into a movie theater and videotaping a film to be 
shown or a college student downloading music from the internet 
to a business making thousands of illicit copies of videos and 
CDs at night, after hours, and flooding the market with bogus 
copies, the cost in lost revenues and jobs is enormous.
    In fact, as I also saw in the paper, that about eight or 
nine sites in Somalia, Mogadishu, were showing Black Hawk Down 
two or three days after it opened here in the U.S.
    This hearing will examine several issues critical to the 
continued success of the high technology and copyright sectors 
of our economy. In addition, we will look at the role of 
technology, which on the one hand is making it easier to 
download software, movies and music, while on the other hand 
can help solve the problem.
    If the United States has a particular strength for the 
future, it is in the intellectual property sector. Since 1979, 
a number of manufacturing jobs unfortunately in the United 
States dropped by 3.3 million, while jobs in the intellectual 
property sector have more than doubled.
    There is no country in the world that can match the United 
States in ingenuity. United States leads the world in the 
research and development of software and the recording of music 
and the making of movies. However, unless we get a handle on 
the incredible amount of counterfeiting that has gone on, 
particularly overseas, we run the risk of losing our 
competitive edge.
    Many counterfeiters have become almost--I've been told--as 
ingenious on how to steal the property as the creators were in 
producing the original version of the software, electronic game 
or movie.
    One U.S. Customs Service official has actually said that 
they have seen counterfeited packaging that is of a higher 
quality than of the original. As more and more countries move 
into high tech age and hunger for better and faster technology, 
the demand for bogus software and other high tech products will 
only increase.
    Piracy in Asia, the Middle East and Latin America and 
Eastern Europe is already on the rise--all regions of the world 
with organized crime rings, growing faster economies and a 
thirst for new technology. The problem will only get worse, 
particularly in developing countries like China as they come on 
line.
    According to Business Software Alliance, Vietnam and China 
lead the world in the amount of counterfeit software being 
used. In Vietnam, 97 percent of the software used is stolen, 
and I wonder, does our State Department raise this issue? Do 
they push this issue? Do they press this issue?
    In China, 94 percent of the software used is stolen, 94 
percent. Listen to the percentage of counterfeit software being 
used in other nations. Indonesia, 89 percent; the Ukraine, 89. 
I do not know how much money we give the Ukraine government. We 
give the Ukraine government a lot of money with regard to 
foreign aid.
    Russia, 88 percent. Pakistan, 83. Bolivia, 81. I am told 
that even some foreign governments are using pirated software 
in their official capacity. I, very seldom when I read, and I 
serve and spend a lot of time looking at international news 
stories, I very seldom see our government when they go abroad, 
whether it be China, or whether it be Vietnam, raise this issue 
aggressively both publicly and privately.
    Imagine the uproar if stolen software were being used at 
the Justice Department or at the Commerce Department. How to 
protect our economy in the software industry is the question of 
the day. Congressional Quarterly devoted a recent cover story 
to the growing theft of intellectual property. In an article 
titled ``Hill Contemplates Copyrights: Does Innovation Trump 
Piracy?'' reporter Adrian Beetleheim observed:
    ``In today's computer age, books, movies or music can be 
reduced to millions of digital information packets that course 
through electronic transmission lines and are reassembled to 
flawless copies at the other end. The copyright issue of today 
has become the illegal downloading and copying of entertainment 
and other fare on the internet.''
    He then asks the question: ``How do policymakers balance 
the intellectual property rights of creators against the 
economic imperative to let technological innovation run its 
course?'' That's the challenge today.
    If the ownership of intellectual property is not protected, 
over time it is feared that the production of high quality 
intellectual property will just dry up. If that happens, it 
will not only destroy the entertainment industry and others, 
but it will jeopardize the entire high technology sector of the 
economy. Although entertainment and high technology have 
differences about how to solve the piracy problem, most people 
agree it is in everyone's interests to protect the ownership of 
intellectual property.
    The piracy of intellectual property is one of the most 
serious problems facing our nation, and I hope that this 
hearing will help shed some additional light on the 
controversial and complex issue.
    The subcommittee has already shown its commitment to deal 
with this issue with regard to cybercrime and others and looks 
forward to hearing from our witnesses to see what the 
subcommittee can do by encouraging the administration on what 
else can be done to deal with this issue to protect the economy 
and to protect their jobs.
    With that, I would just recognize my colleague, Mr. 
Serrano, for any comments and then we will go that panel.
    Mr. Serrano. Thank you, Mr. Chairman, and I thank you as 
ranking member on this committee for inviting me to your 
district. I know that this is the higher rent part of your 
district, and if we were in my district in the South Bronx, we 
would do this at Yankee Stadium. [Laughter.]
    But we would have a lot of empty seats obviously, so maybe 
this is the better idea. Let me first thank you for putting 
together the idea for this hearing. This is a very serious 
issue that needs to be dealt with. It never ceases to amaze me, 
however, in listening to you why it is that we continue to have 
foreign policy that rewards people who hurt us and hurts people 
who do not hurt us.
    And as you know, I have an ongoing understanding with you 
and Chairman Rogers, and that is how do I get Cuba into every 
hearing that we have? And so listening to you about how much we 
deal with China and how much China steals from us, and how we 
deal with Vietnam and how they treat us, and yet we go out of 
our way to hurt places like Cuba where this may not be an 
issue.
    In fact, we may have participated in an overthrow of a 
president this past week slightly for 24 hours based on our 
relationship with Cuba. So it just makes me wonder how, as you 
say, how the State Department deals with an issue like this and 
why we do not bring it up in our conversations with allies and 
with foes alike.
    However, I think, Mr. Chairman, that one of the problems 
with this issue is the lack of understanding of the issue by 
the American public, not the lack of caring, but the lack of 
understanding. And I offer to you the fact that there are so 
many people who will very easily buy a pirated videotape or buy 
a CD that has been copied or do whatever they have to do and 
not think twice about it.
    In fact, I will break a rule which is, as you know, I 
protect my family's privacy to the nth, but my 13-year-old in a 
conversation this past week with me in anticipation of this 
hearing could not understand why Napster was taken up in the 
courts. As a typical 13-year-old, he wanted to know why these 
rich people wanted more money and would not let him listen to 
some music or download some music.
    Now, he may just be the 13-year-old of a congressman, but 
there are a lot of 13-year-olds like that, and there are a lot 
of 26-year-olds who feel the same way, and there might be a lot 
of 39-year-olds who feel that way, and I think as long as you 
do not have the American public outraged that this is 
happening, then you may not have the support in government to 
go out and really do something about it.
    Now let me close by saying this. Under normal 
circumstances, I would be very happy that my 13-year-old would 
be interested in the distribution of wealth in this society, 
because it means that he has been listening to my politics all 
these years, but obviously this is an ongoing conversation 
because I need to make him understand what the reality is 
behind the issue.
    But I think my point is that we need to make the American 
people understand the reality of the issues so that folks like 
the first panel can do the work they have to do. Everything 
else they do in these various departments has the support of 
the American people and the understanding to a large extent. I 
do not think on this issue the American public fully 
understands the danger, the crime and therefore the lack of 
support.
    And with that, once again I thank you for the donuts, I 
thank you for the coffee, and I thank you for the wonderful 
hearing which I am looking forward to.
    Mr. Wolf. Thank you very much. And I will look forward to 
doing a reciprocal hearing in the Bronx.
    Mr. Serrano. The Bronx.
    Mr. Wolf. The Bronx, your district.
    Mr. Serrano. My district.
    Mr. Wolf. Whenever you want to do it.
    Mr. Serrano. Sure.
    Mr. Wolf. Okay. The five panelists, your full statements 
will appear in the record, and you can summarize, but the first 
panel, United States Patent and Trademark Office, James Rogan, 
our former colleague, who quite frankly we are sorry that you 
are not in the Congress--or I am sorry--I cannot speak for Mr. 
Serrano. [Laughter.]
    Mr. Rogan. Oh, you can.
    Mr. Wolf. Well, we are sorry that you are not in the 
Congress. Secondly----
    Mr. Serrano. He is a friend of mine.
    Mr. Wolf. Yeah. The Department of State, Anthony Wayne, 
Assistant Secretary of State for Economic and Business Affairs, 
we appreciate your coming.
    Office of U.S. Trade Representative, Claude Burcky, Deputy 
U.S. Trade Representative for Intellectual Property. Department 
of Justice, we have a split jurisdiction: Michael Chertoff, and 
we appreciate your taking time, Assistant Attorney General; and 
my good friend, who I have worked with for a long time as a 
staff person many years on the Hill, Paul McNulty, who is the 
U.S. Attorney for the Eastern District of Virginia, which is 
probably the more--I mean every district is important, but more 
significantly you are now being faced with the terrorist 
trials. We are pleased to see all of you here.
    You can proceed, in that order and then summarize, and then 
we will have a number of questions.
    Mr. Rogan. Mr. Chairman, first, I just feel the need to say 
parenthetically that if the Republican Party is going to have a 
shot at the ranking member's 13 year old, it sounds like we are 
going to have to move very quickly. [Laughter.]
    Mr. Chairman and Mr. Ranking Member, I am delighted to join 
you and I thank you for inviting me to this hearing today to 
discuss protection of intellectual property. As Under Secretary 
for Intellectual Property and Director of the USPTO, I deeply 
appreciate the attention your subcommittee is bringing to the 
protection of American intellectual property abroad.
    Mr. Chairman, you have long appreciated the economic 
importance of intellectual property to our economy. Thanks to 
your leadership, the Dulles Corridor has become a high tech 
haven and a catalyst for economic opportunity throughout the 
region.
    As we see here in Northern Virginia, intellectual property 
has become increasingly vital to our nation's economic 
competitiveness, our standard of living, and our global 
security. As the importance of IP assets increase, so have the 
USPTO's international efforts. In addition to examining and 
issuing patents and trademarks, the USPTO works to protect 
American intellectual property both on the domestic and 
international levels.
    We help negotiate international IP treaties. We provide 
technical assistance to foreign governments to develop or 
improve their IP systems. We train foreign officials on IP 
enforcement, and we work with USTR in drafting IP sections in 
bilateral investment treaties and trade agreements.
    Our goal in the international arena is to move toward 
greater consistency in intellectual property protection around 
the world. In the patents area, we are seeking uniform 
worldwide treatment of patent applications and grants which 
will reduce costs for American patent owners in protecting 
their IP rights abroad.
    In the trademark area, we are working with Congress with 
respect to implementation of international IP agreements, such 
as the Madrid Protocol, which will provide one-stop shopping 
for international trademark protection.
    On copyrights, we continue to work to bring copyright law 
in line with the digital age through the adoption of the 1996 
WIPO Internet treaties. That being the WIPO Copyright Treaty 
and the WIPO Performers and Phonograms Treaty.
    Of course, a significant part of our international efforts 
are devoted to combatting IP piracy. As other witnesses will 
detail, the illegal duplication of software, music, DVDs and 
other digitized information comes with a high price.
    Last year, for example, U.S. copyright industries lost 
nearly $22 billion due to overseas piracy. We need to ensure 
that American IP owners have sufficient legal tools to fight 
piracy. We also need to provide technical assistance to foreign 
entities on drafting and implementing effective IP laws and 
training on enforcement of IP rights.
    The USPTO has a dedicated team of professionals doing just 
that. We have assisted many countries in establishing adequate 
enforcement mechanisms to meet their obligations under the 
TRIPs Agreement. In bilateral negotiations, we work closely 
with the USTR to seek assurances from our trading partners of 
even higher levels of IP enforcement than those found in TRIPs.
    The USPTO also conducts an array of training programs to 
improve IP enforcement. In cooperation with the World 
Intellectual Property Organization, we conduct semi-annual 
training for Customs, Judicial and law enforcement officials in 
countries ranging from Albania to Zimbabwe.
    As you know so well, Mr. Chairman, an area of particular IP 
concern is Asia, especially China, as you alluded to in your 
opening comments. Earlier this month in conjunction with the 
Departments of Commerce and State, the USPTO conducted an IP 
enforcement program in China designed for prosecutors, judges 
and Customs officials, and it was conducted by a USPTO 
enforcement specialist who speaks fluent Mandarin.
    These programs were held in two cities with rampant 
counterfeiting and piracy problems. This is the third such 
program and a fourth program is planned for September. 
Secretary Evans is in China as we speak, and I have briefed him 
thoroughly on this subject, and he intends to raise this issue 
aggressively with his host in China on this trip.
    Finally, Mr. Chairman, on the domestic front, the USPTO 
serves as co-chair along with the Justice Department of the 
National Intellectual Property Law Enforcement Coordination 
Council, which essentially is a council that was put together 
recently by statute to bring together all of the relevant 
agencies so that we can have an interagency working group and 
make sure that we are working as one rather than taking 
separate tracks on these very important issues.
    Mr. Chairman, the demands on USPTO's expertise in the 
international area have grown dramatically over the last few 
years. As we look to the future, I expect these demands to 
increase alongside our obligation of meeting the traditional 
function of issuing patents and trademarks.
    President Bush and Secretary Evans are firmly committed to 
ensuring that the USPTO has the resources it needs to protect 
American innovators. Mr. Chairman, I know that with your 
support and the support of this committee, we will continue to 
be able to do the job that we are charged with doing in this 
area. Again, thank you for the invitation to join you this 
afternoon.
    Mr. Wolf. Thank you, Jim. Mr. Wayne.
    [The information follows:]
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              Opening Remarks of Assistant Secretary Wayne

    Mr. Wayne. Thank you, Mr. Chairman, Mr. Ranking Member, for 
this opportunity to talk about what you both made clear is a 
very important topic. If I could, I will give you a longer 
version of what I am going to say for the record.

           RECENT TRENDS IN INTELLECTUAL PROPERTY PROTECTION

    Mr. Chairman, as you have said, our economy is increasingly 
knowledge-based and innovation driven, and thus the protection 
of intellectual property rights is increasingly important for 
our prosperity and our economic leadership in the world. And I 
think more and more our trading partners are coming to 
understand the importance of this innovation driven economy for 
their own prosperity. In that context they are coming to 
understand that it is in their interests to have strong 
intellectual property protection if they are going to create an 
attractive investment climate and the growth that they want in 
their economy.
    Two very positive developments Judge Rogan referred to show 
that there is an increasing consensus in the world about the 
importance of protecting intellectual property, and that is the 
two treaties agreed to under the World Intellectual Property 
Organization, WIPO: the Copyright Treaty and the Performances 
and Phonograms Treaty. These treaties, as you well know, Mr. 
Chairman, update the protection of the rights of authors and 
performers within the digital environment, and they provide a 
legal framework which is going to facilitate the further 
development of electronic commerce in these areas.
    We are signatory to both treaties. And with your and your 
colleague's cooperation, Congress has already passed the 
necessary implementing legislation. But what is interesting is 
that we now have enough countries that have ratified these 
treaties that they are going into effect. The WCT, the 
Copyright Treaty, came into force in March, and the 
Performances and Phonograms Treaty is going to come into effect 
in May.
    Now, these trends are positive, but as you well pointed 
out, there are tremendous challenges that are out there for us 
in having other countries come up to the standards, the legal 
standards that we have, and then to enforce those standards 
effectively. One of the key tools that we use to focus our 
efforts is the Special 301 review. That is under the 
chairmanship of USTR.
    And this year we have especially been looking at the growth 
of optical media piracy. Piracy of optical media, namely CDs 
and DVDs, is a problem that can quickly infect a whole regional 
market. Our recent imposition of sanctions, about $75 million 
worth of sanctions on Ukraine, was intended to send a very 
strong signal that we will not tolerate the wanton theft of our 
intellectual property.
    Another challenge that we face is the failure of some WTO 
members to fully comply with their obligations under the TRIPs 
Agreement, and we are committed to working very closely with 
the private sector and with other agencies to address this 
matter, because the TRIPs Agreement is a baseline of protection 
that we are seeking to achieve.

        THE STATE DEPARTMENT'S ROLE IN IP POLICY AND ENFORCEMENT

    Now in this, the State Department has a role to play in 
working very closely with our other agencies, and our embassies 
and missions overseas have a key role to play. We put a 
priority on the objective of advancing intellectual property 
interests and to protect our intellectual property overseas.

                 INTERNAL STATE DEPARTMENT PREPARATION

    Our ambassadors and our country teams around the world are 
informed of the priority that we place on this. When our 
officers come into the Foreign Service, they have intellectual 
property training as part of their introduction. When our mid-
career officers come back for that training part way through 
their career to get them ready for greater responsibility, 
intellectual property is a key part of what they learn.
    And when our ambassadors and deputy chiefs of mission go 
overseas, we have a specific part of their orientation that is 
aimed at describing the problems they are going to face in the 
countries where they are assigned and the task they have to get 
those intellectual property rights and the respect for them up 
to an acceptable level.

                         COOPERATIVE ACTIVITIES

    This is, however, a joint endeavor. It is a joint endeavor 
among the agencies at this table and others. It is a joint 
endeavor with industry. And we enjoy a very close working 
relationship within the U.S. government and with our private 
sector colleagues. One critical area where we are employing 
this cooperative approach is in international negotiations.
    For example, last year at the World Trade Organization 
Ministerial in Doha, Qatar, the Department of State worked very 
closely with our interagency colleagues including Claude 
Burcky, who is here next to me, and the private sector, to 
reach agreement on a declaration on TRIPs and Public Health.
    This declaration reaffirms the commitment of the WTO 
members to the TRIPs Agreement and to the flexibilities in that 
agreement which afford WTO members the ability to pursue their 
public health objectives.
    A special focus of the Department's work in the annual 
USTR-led 301 review is, as I have said, intellectual property 
practices, and here our posts play a key role for everybody as 
we are trying to figure out the best way to go about this. They 
provide us with the critical information and assessments about 
what is going on in the host countries, the practices, the 
policies, and what are the factors behind those policies, what 
are the best ways tactically that we can go around, go about 
influencing those policies and practices for the better.
    This enables us to use the Special 301 process not just as 
a report card, but as an effective tool to help leverage real 
change and progress with our trading partners. We are regularly 
and continually looking for ways to mobilize the resources of 
the intellectual property community in both the public and 
private sectors.

          TRAINING, TECHNICAL ASSISTANCE, AND PUBLIC DIPLOMACY

    Much of our attention is focused on identifying cooperative 
efforts such as Judge Rogan mentioned: to identify training, 
technical assistance and public diplomacy programs, 
interestingly, to help developing countries improve their 
intellectual property regimes.
    We at the State Department chair an Intellectual Property 
Training Rights Coordination Group. We meet monthly with other 
agencies and with the private sector to try and get a sense of 
priority for the program proposals that are out there for 
helping other countries and to make sure that we get the most 
out of our training and assistance investments. So we are not 
trying to do the same thing in the same country.
    Let me give a couple of examples of what we have done over 
the last few months and year. We have had seminars that USAID 
paid for in Jordan for the public and private sector on the 
benefits of intellectual property protection and then we had 
additional training programs for Jordanian judges on 
intellectual property laws.
    We run regular intellectual property enforcement programs 
at the International Law Enforcement Academies--we have three 
around the world--where the Department of State provides the 
facility and the program funding and then U.S. law enforcement 
agencies provide the substantive expertise and teach the 
courses.

                            OUTREACH EFFORTS

    Some of the most effective things that we do actually are 
programs, outreach programs, developed by the Department's 
public diplomacy officers. A recent example took place in Sao 
Paulo, Brazil, and here the Public Affairs Section of our 
Consulate General worked with the government of Brazil and with 
industry representatives and they organized a seminar that 
talked through ways to combat piracy in the Brazilian market, 
which is a significant problem area, including better training 
and public/private cooperation, and helped develop the kind of 
solid working relationships that we need now to actually get 
implementation going in the fight against copyright piracy.
    We also have been trying to think innovatively about using 
some of the new technology we have. We have recently 
established in February an intellectual property web site for 
foreign audiences where there are key reports, international 
agreements linked to the U.S. government relevant web sites, 
fact sheets and original articles on current intellectual 
property issues.
    Our embassies and consulates are regularly working on this, 
Mr. Chairman. They are working with outreach, they are doing 
their reporting and their analysis and they are intervening 
frequently with foreign government officials.
    Let me just give a couple of examples. In Hong Kong, our 
Consul General and his officers worked strenuously for over a 
year and finally convinced the authorities there to pass a good 
optical disk law to shut down pirating production lines and to 
drive pirating distributors out of business.
    In Greece, we worked for months, well, well over months, 
for several years, at the ambassadorial level on down to 
convince the government to pass tougher enforcement laws, and 
as a result, the losses from audiovisual piracy--and the 
problem here were TV stations showing movies without paying 
royalties--have declined from about $100 million to near zero.
    In the United Arab Emirates, repeated representations by 
our ambassador resulted in successful raids on stores selling 
pirated computer software. And we awarded--the Secretary of 
State--not we, the Secretary of State awarded the ambassador in 
the United Arab Emirates the Department's Charles E. Cobb Award 
for helping pharmaceutical companies in the UAE government 
reach an agreement ending counterfeiting in the UAE of U.S. 
pharmaceutical products.
    In Slovenia, we used the Special 301 process as leverage to 
convince the government to pass legislation to protect 
pharmaceutical test data that was being submitted to the 
government to obtain marketing approval.
    In Paraguay, the embassy worked tirelessly to help convince 
the government to accede to the two WIPO treaties that were 
mentioned earlier. And the junior officer who led this effort 
very vigorously received the Department's Charles E. Cobb Award 
for Initiative and Success in Trade Development--there are two 
of those awards, one at the ambassadorial level, and one at the 
working level--for his efforts on behalf of intellectual 
property in Paraguay.
    And finally, in South Africa, the embassy brought together 
a group representing all the intellectual property industries 
and companies in the country and the group has developed ways 
for Customs agents at remote borders to better identify 
counterfeit goods.
    There are a number of other examples, and in the questions 
I would be happy to talk about some of the countries that you 
raise and that you are interested in.

                               CONCLUSION

    Let me underscore that we treat the protection of 
intellectual property as a priority, that our ability to do so 
effectively, of course, depends on teamwork, teamwork across 
the U.S. government agencies, teamwork with industry, and 
teamwork with you and your colleagues as we go forward, and we 
welcome this opportunity, and we look forward to working 
together with you to succeed.
    Thank you, sir.
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    Mr. Wolf. Mr. Burcky, please. Your full statement will 
appear in the record.
    Mr. Burcky. Thank you. Good morning, Mr. Chairman, and 
Congressman Serrano. Thank you very much for the opportunity to 
appear before you this morning and talk about the role played 
by the Office of the U.S. Trade Representative in protecting 
intellectual property.
    We appreciate the support and interest we have received 
from Congress over the years including through hearings such as 
this. Today I would like to briefly review with you our 
initiatives in this area and respond to any questions that you 
may have. As we have already heard from Under Secretary Rogan, 
ensuring the respect for intellectual property rights is 
immensely important to American economic interest.
    According to industry estimates that were just released 
yesterday, the core American copyright industries--software, 
films, music, books and other works--accounted for $535 billion 
in value added to the U.S. economy, or approximately 5.24 
percent of the gross domestic product.
    Now, the threat of piracy is very real, and the threat of 
piracy abroad is substantial. The American copyright industry 
reported losses through piracy overseas at between $20 and $22 
billion last year. Now, our goal at USTR is to control piracy 
through strong laws and effective enforcement worldwide and to 
ensure that protection remains effective as technology develops 
in the future.
    Effective protection of intellectual property rights 
involves Customs, courts, prosecutors, police, but most 
importantly political will and commitment on the part of senior 
political officials in every government, but although it is 
complex and the work is never done, we strongly believe the 
effort over the years has been quite successful.
    The major initiatives and policy tools we employ at USTR in 
this effort include bilateral initiatives such as the 
negotiation of free trade agreements, tools such as our 
statutory authority under Special 301, and our trade 
preferences programs such as the Generalized System of 
Preferences, as well as multilateral agreements such as the WTO 
TRIPs Agreement and the tool we have of WTO dispute settlement.
    Let me briefly review each of these tools that we have at 
our disposal to further protection of intellectual property 
rights. First, we are advancing the protection of these rights 
through the negotiation of free trade agreements. As part of 
the negotiations with Jordan, Chile, and Singapore, as well as 
the hemispheric free trade areas of the Americas, we are 
pushing for higher levels of intellectual property protection, 
giving us the opportunity to ensure that the intellectual 
property provisions of these new agreements reflect the 
technological changes that have occurred since the WTO TRIPs 
agreement was negotiated in the late 1980s and early 1990s. So 
a considerable time has passed since the TRIPs Agreement was 
first concluded.
    Now, Mr. Chairman and Congressman Serrano, we also 
intercede directly in countries where piracy is especially 
prevalent. And one of the most effective tools we have in this 
effort is the annual Special 301 review that was mandated by 
Congress in the 1988 Trade Act and use of our Trade Preference 
programs such as GSP.
    Now, in many cases, through the 301 review process, we have 
achieved improvements in intellectual property in individual 
countries. One notable example is Bulgaria. Several years ago, 
it was one of Europe's largest sources of pirate CDs and a 
major cause of concern for the United States government and 
industry. Now, Bulgaria has largely eliminated pirate CD 
production. Similarly, progress has occurred in places such as 
Hong Kong, Macau and Malaysia.
    But Mr. Chairman, as you know, at times we must use the 
sanction authority granted to us under 301 for worst case 
offenders, and China is a prime example.
    In 1995 and 1996, persistent tolerance of piracy, in 
particular the growth of pirate CD production and export, led 
the United States to threaten $1 billion in trade sanctions. 
But today, Mr. Chairman, China has a vastly improved copyright 
system and illegal production of pirate copyrighted works has 
dropped significantly.
    Now, nevertheless, despite this progress, retail piracy and 
counterfeiting do remain rampant in China, as you pointed out.
    The United States continues to engage China bilaterally to 
ensure that China applies its laws in a manner that does 
provide more effective protection for intellectual property 
rights. In fact, Ambassador Zoellick, Secretary Evans, Under 
Secretary of Commerce Grant Aldonas, and Assistant USTR Joseph 
Papovich have all stressed the importance of addressing this 
problem in their recent consultations in China.
    We will also be undertaking a review of China's 
implementation of its WTO commitments on intellectual property 
this year and annually thereafter for the next ten years. That 
is unprecedented for any WTO member.
    Ukraine is another example of a problem we have faced 
recently. After several years of negotiations were not 
successful, we acted to impose $75 million in sanctions on 
Ukrainian exports to the United States because of Ukraine's 
failure to crack down on sound recording and optical media 
piracy, particularly its failure to pass an optical disk law.
    In the 2000 Special 301 review, Mr. Chairman, we analyzed 
approximately 80 countries, the largest number of countries 
ever reviewed, with 49 countries recommended for special 
identification, and under Special 301, we categorized countries 
either as priority foreign countries, the worst case offenders, 
priority watch list countries, and watch list countries.
    In this year's review, which we are about to conclude and 
announce on April 30, we are focusing on four major issues that 
I think are of all great concern to U.S. industry. First, as 
Tony Wayne indicated, we are focused on ensuring full 
implementation of the TRIPs Agreement including its very 
important obligations on enforcement.
    As part of this, we have been very aggressive in using WTO 
dispute settlement where we cannot achieve the implementation 
progress we would like through consultations. The United States 
initiated the first dispute settlement case against Japan on a 
sound recording issue in 1996, and we have initiated 12 cases 
since then. And I think achieved tremendous progress toward 
full TRIPs implementation.
    But at the same time we're working on TRIPs implementation, 
our work must keep up with the very rapid advance of 
technology. As new optical media products and services develop, 
pirates quickly take advantage of them. Thus, we are focusing 
on the control of piracy of music and video, CDs and software 
CD-ROMs by pressing our trading partners to adopt specific 
legislation to regulate optical disk production.
    Another aspect of our review, Mr. Chairman, and Congressman 
Serrano, is the WIPO copyright treaties. As serious as the 
problem of optical media piracy is in the physical world, the 
internet potentially is even more problematic in that it has 
provided an efficient global distribution network for pirate 
products.
    We are actively consulting with U.S. industry to develop 
the best trade strategy to address internet piracy, and an 
important first step was achieved at the WIPO when it concluded 
these two copyright treaties in 1996.
    Now, Ambassador Zoellick and all of USTR is committed to 
working internationally to promote ratification of these 
treaties, and we work in this effort very cooperatively with 
the Patent and Trademark Office and the State Department, and 
because of our combined effort, as Tony Wayne mentioned, these 
two treaties finally entered into force, WCT on March 6, and 
WPPT will enter into force on May 20.
    Now, at USTR, we are building on the achievement of treaty 
ratification in several important ways, but the first is 
through our free trade agreements, and we have had our first 
success in this regard already with our FTA with Jordan. The 
Jordan FTA laid the foundation for pursuing incorporation of 
the WIPO treaties in our trade agreements for the first time, 
and we are now aggressively pursuing that as a treaty 
obligation objective with Chile and Singapore, and I expect we 
will be doing it with our other free trade agreements as well.
    Finally, Mr. Chairman, ensuring that government ministries 
worldwide use legitimate software is another focus of our 301 
review. Our goal is to control end-user piracy, that is 
unauthorized copying of large numbers of legally obtained 
programs by government agencies.
    The United States is leading the way in providing an 
example to other governments that this type of activity should 
not be tolerated. In 1998, the United States implemented an 
executive order mandating only the use of authorized software. 
Many countries have since issued decrees also only mandating 
the use of authorized software.
    And China is a case in point. They issued their first 
directive in 1995 and have followed it with two more in 2000 
and 2001. Mr. Chairman, in the past century, the commitment we 
have shown to enforce respect for intellectual property rights 
at home has helped us to create the world's most 
technologically advanced economy.
    The implications of our international intellectual property 
policies for prosperity, creative innovation, and improved 
lives throughout the world are no less. Congress through 
passage of the Special 301 law in 1988, passage of the Digital 
Millennium Copyright Act in 2000, which implemented the WIPO 
treaties, by providing strong intellectual property mandates in 
trade promotion authority currently pending before Congress, 
and in hearings such as this deserves great credit for bringing 
public focus to these issues.
    We look forward to continuing in the effort together in the 
years ahead, and I would be happy to elaborate further on any 
of these initiatives and respond to your questions.
    Mr. Wolf. Thank you very much.
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    Mr. Wolf. Mr. Chertoff.

                  Opening Remarks of Michael Chertoff

    Mr. Chertoff. Thank you, Mr. Chairman----
    Mr. Wolf. Your full statement will appear in the record.
    Mr. Chertoff [continuing]. And Ranking Member Serrano. I am 
going to try to be very brief and make a few remarks about what 
we are doing at the Department of Justice with respect to the 
important issue of enforcing intellectual property rights.
    I appreciate the opportunity to testify. I have never been 
in this building before. I have to say when I entered the room 
I did so with trepidation. It has been a long time since I have 
sat at this side of the classroom, and I used to sit in the 
back, so sitting in the front is particularly unnerving. 
[Laughter.]

                         Increased Enforcement

    Fighting intellectual property crime, be it copyright 
infringement, trademark counterfeiting or theft of trade 
secrets, is a priority for the Department of Justice. The 
Attorney General just last year stepped up our enforcement 
efforts by creating 13 prosecutorial units, including one here 
in the Eastern District of Virginia, dedicated to fighting 
crime in cyberspace.
    These cybercrime units, known as Computer Hacking and 
Intellectual Property, or CHIPs units, work closely with the 
Criminal Division's Computer Crime and Intellectual Property 
Section, as well as with experts in every U.S. Attorney's 
Office to form the backbone of the Department of Justice 
efforts to prosecute cybercrime and intellectual property 
crime.
    What are the things that we do? Well, for example, CCIPS 
attorneys and other DOJ attorneys prosecute cybercrime and 
intellectual property cases in the courts. They advise and 
train local, state and federal prosecutors and investigators in 
computer and intellectual property law.
    They coordinate international enforcement and outreach 
efforts to combat intellectual property and computer crime, 
and, of course, they work with Congress in commenting upon and 
proposing legislation.
    For example, Department of Justice attorneys worked with 
this Congress in 1997 to improve intellectual property 
enforcement through the No Electronic Theft Act, which extended 
federal criminal copyright law even to those situations in 
which the thieves do not make a profit.
    In 1999, prosecutors from the CCIPS section obtained the 
first convictions after trial under the Economic Espionage Act 
of 1996, a criminal statute that protects trade secrets, and 
the department also works with the U.S. Sentencing Commission 
to amend sentencing guidelines to provide for substantial 
sentences and punishment for copyright infringement.
    On the training front, last year CCIPS conducted the first 
ever course on criminal intellectual property prosecutions for 
our federal prosecutors in the field. This successful course 
will be held again this coming June. CCIPS also published 
Prosecuting Intellectual Property Crimes which is available 
understandably through a web site, www.cybercrime.gov.
    On the operational side, I know, Mr. Chairman, you and 
Congressman Serrano will recall that recently operating hand in 
hand with the Eastern District of Virginia and the Customs 
Service, our CCIPS attorneys conducted the largest federal 
investigation and prosecution of online copyright infringement 
to date.
    This was the so-called Operation Buccaneer, which involved 
the execution of approximately 70, search warrants here and 
abroad. So far, nine defendants have pled guilty nationwide in 
this case with additional guilty pleas expected in the weeks 
ahead. And I know my colleague, Paul McNulty, will provide more 
details about this case in a moment.

                       International Enforcement

    Finally, Mr. Chairman, I want to touch briefly on the 
international aspects of IP enforcement. We are well aware of 
the fact that the crime of intellectual property thievery is a 
global crime and it is one that can take place in remote parts 
of the world and the effects of which are felt here at home.
    The department and in particular the CCIPS section have 
concentrated international IP efforts in four important areas. 
First, coordinating international training efforts to address 
specific enforcement related issues. Second, working in 
bilateral and multilateral forums to promote investigative 
cooperation with our counterparts abroad. Third, coordinating 
efforts with other agencies of the government including those 
here who are charged with promoting effective IP enforcement.
    And finally, integrating the latest empirical data and 
trends involving transborder IP crime into our DOJ enforcement 
operations. There is no question that in order to respond 
effectively to intellectual property crime, the United States 
must reach across borders and work closely with foreign 
counterparts.
    For example, in Operation Buccaneer, our domestic 
enforcement activities were closely coordinated with our 
counterparts in the United Kingdom, Australia, Finland, Sweden 
and Norway. And I believe approximately 17 search warrants or 
the equivalent were executed in these overseas locations. 
Important targets in those countries are now the subject of 
prosecutions overseas.
    Had the enforcement efforts of Operation Buccaneer stopped 
at our own borders, significant software pirates would have 
escaped justice. This type of international cooperation must 
become the rule rather than the exception because we cannot 
address IP crime if we do not do it on a global basis.

                     OUTREACH AND PUBLIC EDUCATION

    Finally, just to echo Congressman Serrano's remarks, a 
critical portion of what we do has to be educating the public. 
We do operate in an area where technology changes all the time, 
and I think that it is fair to say that parents who would 
without hesitation condemn their children for walking out of a 
Tower Records store with a CD stuck in their pocket, and 
without paying for that, are genuinely sometimes confused and 
uncertain what the rules are with respect to downloading the 
same material over the internet.
    So I think we have, all of us, both as government officials 
and as parents, we need to educate our children about what 
really is required by the law.
    I appreciate the opportunity to testify and I look forward 
to answering any questions.
    Mr. Wolf. I thank you. Paul

                   Opening Statement of Paul McNulty

    Mr. McNulty. Thank you, Mr. Chairman, Mr. Serrano. It is 
great to be here. Mr. Chairman, you and I are privileged to 
serve the public in a region that is home to the backbone of 
the internet. And, it is also my privilege to appear before you 
today to discuss the efforts of the United States Attorney's 
Office in the Eastern District of Virginia to combat the 
infringement of intellectual property.
    Since September 11, Northern Virginia has come to be 
associated with our war on terrorism, but we know that Northern 
Virginia is one of America's leading high-tech regions. As a 
result, it has been a top priority in my office to make 
cybercrime and the enforcement of offenses associated with 
pirated software and other high-tech criminal activity a real 
priority of the office, and we have put resources into that, 
and I will describe that in a moment.
    But, Mr. Chairman, let me say that it is clear that 
developers of intellectual property are now threatened by 
thieves who have an unprecedented ability to cause harm to this 
segment of our economy. High-tech thieves and techno gangs 
counterfeit computer chips, software programs and packaging and 
then pass the products off as authentic.
    Software pirates obtain computer source code or strip the 
encryption features of software movies and music CDs or DVDs 
and unlawfully duplicate and distribute virtually identical 
copies of such copyrighted works.
    Crooked computer programmers obtain and sell unauthorized 
access to protected works and information. And each of these 
examples illustrate criminals stealing the profits that 
rightfully belong to the creators or makers of the copyrighted, 
trademarked or otherwise protected property.
    High-tech counterfeiters and software pirates and those who 
engage in economic espionage are as difficult to track down, 
but yet nevertheless have to be found.
    They are also extremely different in the way that they 
operate. They can be computer administrators or computer 
hackers or they can be members of organized criminal groups who 
have moved into the intellectual property field. Many copyright 
and trademark pirates operate out of countries in Asia, where 
counterfeit and imitation immigration products can be made 
inexpensively by using underpaid laborers.
    Now, Mike mentioned the effort to establish cybercrime 
units throughout the country, and you have provided, through 
appropriations, the resources for this to happen at the 
Department of Justice, and so the Eastern District of Virginia 
has established such a unit. We have established a unit with 
six attorneys working full time in cybercrime, and we have 
certainly a big challenge here in the District because of the 
high-technology presence here in the Dulles Corridor, and also 
major universities, the Pentagon and military complex, Defense 
contractors, and the Patent and Trademark Office.
    We have devoted these attorneys full time, six of them to 
this unit, and we will focus on any violation of criminal law 
in which the use of a computer plays an integral part in the 
commission of the crime.
    In particular, EDVA's cybercrime unit prosecutes cases 
involving unauthorized computer intrusions or hacking, denial 
of service attacks, web vandalism or manipulation, internet and 
computer fraud, theft of trade secrets, economic espionage, 
criminal copyright and trademark offenses, software piracy and 
other forms of computer internet and electronic crimes.
    We also pursue child pornography and pedophiles who use the 
internet. The cybercrime unit works closely with local, state 
and federal law enforcement agencies, and the business 
community to develop, coordinate, and implement effective 
strategies to combat these high-tech crimes, and also a big 
part of our work is to reach out to companies and to build a 
positive working relationship, so that these companies will 
feel comfortable reporting the crimes to us, and know that we 
can successfully track down those who have victimized them.
    I thought it would be useful for me to give an example of 
this case that Mike Chertoff has referred to in Operation 
Buccaneer. A little background on this operation and the threat 
that is a challenge we face. We are seeing international 
underground networks with members from countries spanning the 
globe, organizing themselves into competitive techno-gangs that 
obtain software, crack it (that is remove various security 
features designed to prevent unauthorized duplication of the 
software) and post it on the internet for use by other members 
of the group sometimes before the software has been 
commercialized or released.
    These criminal organizations, which are commonly known as 
warez groups, are believed to be responsible for the vast 
majority of pirated software, games and movies available on the 
internet today.
    The top level warez groups are highly structured. 
Frequently the members of these groups never meet. They know 
each other only through their screen names. The top techno-
thieves use the latest technology to expand their reach and 
avoid detection by law enforcement. Warez groups store their 
pirated merchandise on multiple computer sites, linked full-
time to the internet, which frequently contain over 18,000 
individual titles of pirated games, movies and software. The 
estimated retail value of the material in these types of major 
sites is in the millions of dollars.
    We have been part of this Operation Buccaneer which was led 
by the Criminal Division's CCIPS. This is the section on 
computer crime. Working with the U.S. Customs Service and our 
office, we have been involved in substantial law enforcement 
operations the last few months. As a result on February 27, 
John Sankus, the co-leader of one of the targeted groups, Drink 
or Die, a prominent international internet software piracy 
group, pled guilty in the Eastern District of Virginia to one 
felony count of conspiracy to commit criminal copyright 
infringement.
    Drink or Die specialized in being the first to release and 
distribute over the internet high-end software applications and 
utilities. Sankus, who will be sentenced on May 17, could 
receive a maximum sentence of five years in federal prison and 
a $250,000 fine. Six other members of Drink or Die have also 
pled guilty to felony counts and other guilty pleas are 
expected soon in this district.
    Drink or Die is just one example of the numerous, highly 
structured, security-conscious organizations that illegally 
reproduce and distribute hundreds of thousands of copies of 
copyrighted works around the world resulting in billions of 
dollars of losses each year.
    Sankus admitted that he supervised approximately 60 
individuals who acquired, cracked and distributed the pirated 
software. Company insiders often provided the group with new 
software, frequently days or weeks before the software would be 
released to the general public.
    Group members known as crackers would defeat the software 
imbedded copyright protections, allowing the software to be 
illegally reproduced and used by anyone obtaining a copy. The 
finished product was then quickly distributed to internet sites 
for further distribution to an ever-expanding web of sites. 
Within hours, a new release could be found on hundreds of 
illegal sites throughout the world.
    Drink or Die concealed these sites and conducted business 
in closed, invite-only, internet relay channels. Sankus and 
other high-ranking members of Drink or Die used encryption to 
conceal all e-mails discussing the group's illegal activities. 
And Sankus and Drink or Die took every technological step 
possible to conceal their activity.
    Let me just conclude, Mr. Chairman, by saying that we will 
continue in this cybercrime unit to work closely with the 
victims who have been identified to us and to try to continue 
to crack down on illegally distributed copyrighted motion 
pictures and other creative works.
    We also continue to conduct industry outreach and 
facilitate interagency cooperation and intellectual property 
enforcement. We will continue to conduct intellectual property 
crime training in our district for agents and prosecutors.
    The Department of Justice recognizes that the increasing 
high-tech nature of intellectual property investigations 
requires that investigators and prosecutors from all districts 
have access to the latest technologies and specialized training 
to effectively prosecute cases.
    Staying ahead, a step ahead of sophisticated IP infringers, 
requires more knowledgeable law enforcement at every level. The 
funding that Congress has already provided for additional 
Assistant United States Attorneys is greatly appreciated by the 
Eastern District of Virginia and by the Department of Justice. 
It will help us more effectively pursue our law enforcement 
initiatives, and I also want to echo what Mike has said about 
the whole issue of cyberethics.
    I think that ultimately our law enforcement efforts will 
fall short of having an effect that will really make a 
difference if we do not at the same time have a growing sense 
in this country of the responsibility that all parents have to 
instill in their children a sense that just because you are 
alone with the computer does not mean that you can do whatever 
you want. As your colleague, J.C. Watts, likes to say, 
character is what you do when no one is looking.
    And I think we have to understand that cyberethics is about 
having character when no one is looking, and so I hope that the 
enforcement efforts, which always are an important part of 
educating a culture about right and wrong, will be combined 
with the growing cultural understanding of the importance of 
using this wonderful resource responsibly. Thank you, Mr. 
Chairman.
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    Mr. Wolf. Thank you, Paul. I want to thank all of you. We 
have a number of questions. A lot will be for the record, 
because I went through as you were writing. As you were 
testifying, I wrote down a number of questions, and we will try 
to go person by person, but throw some out to everybody. If you 
had to look at the problem, domestically and internationally, 
and the problem was 100 percent, we said this is 100 percent, 
this is the problem, what percentage of it is international? 
What percentage is it domestic?
    Mr. Rogan. Mr. Chairman, I think all of us would have to 
venture a guess on that one. The problem is, as you understand, 
that some of this is happening in the privacy of one's own home 
and one hacker or one pirate with the click of a mouse can take 
a digitized work and send it to 100 people, a thousand people, 
a million people, if he or she had the wherewithal to do it. My 
suspicion is the estimates that we have on piracy on the 
domestic and on the international level are probably low ball 
at best because those are based on the cases that we are 
finding, the people we are investigating. Trying to quantify it 
though, in the real world, I suspect would be much higher than 
the figures that you quoted in your opening statement and that 
all of us referred to at various levels.
    Mr. Wolf. So it is a major problem, bigger than we 
initially thought internationally as well as domestically. It 
seems to me that internationally is a lot harder to deal with 
to a certain respect, because within our own borders we have 
opportunities we would not have outside.
    I think it is a question of, and the Trade Rep's Office 
mentioned, political will. Every time I have been at an embassy 
abroad, this issue has never come up. When you get to 
briefings, come into country, although some of them are 
countries that perhaps there may not be that great of a 
problem, one, are our allies in Europe, the so-called NATO 
allies, and others, are they cooperating with us? England, 
France, Germany, Spain, would they not be having the same 
problem? Do they cooperate? Are they having the same problem? 
Are they?
    Mr. Burcky. Yes. The European Commission works with us 
internationally on this effort, although I will say the United 
States, as I pointed out in my statement, is the most 
aggressive with respect to the use of tools like Special 301 
and WTO dispute settlement.
    Mr. Wolf. Do other countries have 301?
    Mr. Burcky. The European Community has something like 301, 
but it is not quite the same thing.
    Mr. Wolf. Are their industries not crying out and speaking 
out?
    Mr. Burcky. I do believe they are, and I think the European 
Community works on this issue in various ways, certainly 
through its accession agreements with other states that want to 
join the Union, they do work on it, and they do work with us in 
Geneva in the multilateral context to promote respect for 
intellectual property rights.
    Mr. Wolf. Who in our government would you say is in charge? 
What agency? If it is a criminal activity, the Justice 
Department generally is in charge. If it is agricultural issue 
with regard to avian flu down in--with regard to Turkey, it is 
the Department of Agriculture? What agency, who is in charge of 
this issue in the federal government? What agency do you think 
would be? I know it goes cross-border across. But who would be 
the lead agency on this issue?
    Mr. Wayne. Well, if it is the international policy aspects 
of it, USTR coordinates and takes the lead.
    Mr. Burcky. Thank you. I was not quite clear if you were 
asking about U.S. domestic issues or the international issue, 
and certainly on international trade issues----
    Mr. Wolf. Well, both actually.
    Mr. Burcky. On international trade issues, USTR is the 
Administration is coordinator for the development of 
intellectual property trade policy, and we do this through the 
Trade Policy Staff Committee.
    All of these agencies before you and many more participate 
in that effort, and when we develop our Special 301 report and 
release it April 30, the decision we take about countries and 
the actions we are going to pursue have been developed through 
this TPSC process. So they represent a consensus view of over a 
dozen U.S. agencies.
    Mr. Wolf. Generally, USTR does not support sanctions, 
generally; is that correct? I mean it is correct. It is just a 
fact. I think State Department and USTR generally shy away 
whenever you use the word sanctions. Several years ago, and 
Paul was up there on the Hill, the Congress under the 
leadership of Senator Brownback and Congressman Smith, passed 
legislation which has nothing to do with this issue, but I want 
to lay it out and take that example over to it.
    It deals with sexual trafficking. We are having a very 
difficult time dealing with sexual trafficking in Eastern 
Europe, in Bulgaria, in Romania, in Moldova, in Russia, in many 
other countries, and so the Congress passed a law that said if 
you are involved in sexual trafficking, there will be three 
categories.
    If you are not involved in it, if a country is not 
involved, you will not be on any list. If you are involved, but 
you are doing something about it, you will be in Category I. If 
you are involved, meaning there is sexual trafficking in that 
country, but you are doing something about it but not very 
much, you will be in Category II.
    If you are involved and you are doing nothing about it, 
which there was a large number, Vietnam, Romania, countries 
like that, you will be in Category III. Then after, there is a 
report similar to the 301, and the report is now being put 
together, the Congress has the ability but not only that, but 
the incentive to cut off foreign aid. Now how much money do we 
give the Ukrainian government?
    Mr. Wayne. I do not know the total, but probably over $100 
million.
    Mr. Wolf. So we said Ukraine is a major problem. Is it a 
major problem?
    Mr. Wayne. It has been a major problem.
    Mr. Wolf. Well, why would we not use that leverage because 
under the sexual trafficking language, we can cut off our non-
humanitarian foreign aid? We certainly would not want to cut 
off humanitarian foreign aid to the poor, to the hungry, to the 
naked, to people that are really in difficulties, to those in 
refugee camps. But why would we not?
    The Ukraine government would not even allow the FBI, that 
was over there last week and two weeks ago, investigating the 
case--you remember a member of the press was killed over there, 
body parts taken and put somewhere else. When you are dealing 
with a country that kills people in response and taking body 
parts and doing certain things to the body which I do not want 
to get into, do you think that type of country is going to be 
influenced by the USTR Rep going over there and giving a speech 
with regard to that?
    My sense is why would you not take the same principle, and 
if you all could answer this, why would you not take the same 
principle and say if there are intellectual piracy--piracy--we 
are not talking about something that we do not--but breaking 
the law, impacting the United States government. These 
companies that are losing money, many who may very well be 
reluctant to come forward, may very well be reluctant to say in 
downtown Beijing what the problem is because they do not want 
to offend the Chinese government, that company who has 
employees in all of our congressional districts in this 
country, they are paying taxes into the United States 
government, their employees are paying taxes into the United 
States government, that are part of the foreign aid budget that 
is going to the Ukraine. What would be wrong with setting up--
because the 301 just deals with trade sanctions--does it not--
what would be wrong with taking that language and it gives us 
the ability to cut off? And obviously you could put a 
presidential waiver whereby the president under certain 
circumstances because of the conditions would have a waiver.
    Why would we not do that with regard to this very important 
critical problem to our economy and to the country? Maybe we 
will go to the Trade Rep.
    Mr. Burcky. Mr. Chairman, I will let Tony Wayne speak to 
the issue of foreign aid, but I just want to clarify what we 
have done.
    Mr. Wolf. But it gives you leverage, though, because it 
gives you the ability when you go there to speak with a 
forceful voice, to have a weapon in your hand, if you will, 
that makes a difference.
    Mr. Burcky. Absolutely, and the first step we took with the 
Ukraine----
    Mr. Wolf. How many times have you exercised 301, really 
actual sanctions, since 1988?
    Mr. Burcky. I cannot count the number of times, but with 
respect to the Ukraine, I think it is very important to note 
that when it became clear we could not negotiate a settlement, 
the first step we took was to withdraw the trade preferences 
that the Ukraine received. They had preferential access to our 
market under the GSP program. The first thing we did was 
eliminate that preference.
    Mr. Wolf. But has it made a difference?
    Mr. Burcky. The second step that we took when that step was 
not effective in solving the problem was to impose $75 million 
in trade sanctions, and I think that step has gotten the 
attention of the Ukrainian government.
    Mr. Wolf. Two weeks ago, they would not allow the FBI to 
interview the witness though on that case?
    Mr. Burcky. I am not familiar with that situation, but 
since we imposed the sanctions, we have been working with the 
Ukrainian government to develop specific regulations to control 
optical media piracy.
    Mr. Wolf. But the Ukrainian government has portions of it 
that are fundamentally corrupt. Can you have that type of an 
agreement? Is it appropriate for the United States government 
and employees who work for some of these companies to be 
funding foreign aid to a country that is doing that? I mean 
from a Trade Rep----
    Mr. Burcky. I cannot speak to the issue of foreign aid.
    Mr. Wolf. Well, from a Trade Rep point of view, how do you 
approach it?
    Mr. Burcky. We have taken way the trade preferences that we 
provided.
    Mr. Wolf. But I say with regard to the foreign aid?
    Mr. Burcky. That is beyond my jurisdiction, Mr. Chairman.
    Mr. Wolf. Would it give you more leverage to deal with the 
issue, though, if you had that ability?
    Mr. Burcky. I think we are working very effectively with 
the powers that we have.
    Mr. Wolf. But you are really not though. The truth of the 
matter is, and you are just new, because you just came on, but 
I read you the figures with regard to China. What is the 
software piracy in China rate? Software? 90----
    Mr. Wayne. 90 something.
    Mr. Wolf. 90. So we are not really being very successful 
there. What is it in Vietnam? Do you know in Vietnam, we have 
Vietnam prisoners in our jails today who have committed major 
crimes in the United States, and now that their time is coming 
up, we cannot even get the Vietnamese government to take them 
back. Well, if they will not take 41 prisoners that are in 
prison, take them back, the piracy rate in Vietnam is 94 
percent--is it--or is it 97? So my sense is that unless we have 
this, it does not mean you always use the weapon, but unless 
you have in your arsenal of ideas and thoughts, that it really 
will not work.
    Is the problem getting better or is it about the same or if 
you had worked on this problem last year and went away, went to 
Bermuda for a year and came back, would you say, wow, it is 
really improved or would you say it is getting worse or would 
you say I do not know, it is about the same? How would you, if 
you came back a year from now, how would you view it?
    Mr. Burcky. Maybe I could just refer to a statement made by 
the International Intellectual Property Alliance in the 301 
submission that they made to the USTR this year. In that 
submission, they noted that, in fact, we have made tremendous 
progress, that were it not for our use internationally of the 
trade tools we have plus the activities of these other 
agencies, the industry would be facing 90 percent piracy rates 
across the board in all developing countries, but the fact of 
the matter is that through our intervention we have brought 
down piracy rates in a number of important markets, but as you 
point out, there are many markets still facing an enormous 
challenge.
    So our work is by no means done, but I am convinced through 
the use of our trade tools, we have had some impact.
    Mr. Rogan. Mr. Chairman, if I may, when you asked earlier 
who really is in charge, that kind of goes back to this 
question, because this is an issue that is so broad and has to 
be dealt with on so many different levels, everybody has a 
piece to play. And when you look at IP from a piracy 
standpoint, you can go back and remember Willy Sutton's famous 
line when he was asked why do you rob banks. He said that is 
where the money is. Why do people commit acts of piracy? Well, 
because they can and that is where the money is.
    And unless and until we are able through either trade, 
through legislation, through carrots, through sticks, through 
education, through some other means, to demonstrate to people, 
to demonstrate to foreign countries, that it is not in their 
economic interest to have a system of law that is so lax on 
protection of intellectual property that you as a people, you 
as a nation, cannot ever hope to grow technologically, 
innovatively or economically, we will continue to see piracy on 
these high levels irrespective of all of the speeches that we 
give, all of the training seminars that the USPTO puts on, any 
legislation that Congress suggests.
    It is a very broad issue, but I think Michael hit the nail 
on the head and summarizes it in a very simple example. Here in 
the United States, parents who would be shocked at their 
children walking into a Tower Records and sticking a CD under 
their coat or sticking a DVD under their coat think nothing of 
the morality of their children sitting on the Internet and 
burning a copy onto a CD. When we have that mentality here 
domestically, it is awfully tough for us to go into these 
developing nations and these undeveloped nations and say, gee, 
you really should not do it either.
    So it is a multi-task, multi-level problem that we face and 
it is going to take the cooperation of everybody at this table 
and then some to combat this and make a real difference.
    Mr. Wolf. Well, I agree with you, Jim, and it would seem to 
me that we ought to have, you know, in anything in Washington, 
unless somebody is charged and given the responsibility both 
for getting the credit and getting the blame, like the Cobb 
award that you referred to, meetings take place. I was in an 
administration for five years. The amount of times that you 
meet and talk, and unless there is somebody who is responsible, 
it does seem to me there ought to be somebody responsible 
domestically and somebody responsible internationally, almost 
in a co, if you will, to kind of deal with an issue.
    It is like public affairs diplomacy. Who is responsible? 
Well, State is responsible, DoD is responsible, others, but 
somebody has to be ultimately responsible. What about the aid 
issue? I am throwing this question to you since you----
    Mr. Wayne. Well, I think I would just like to say that I 
think the imposition of trade sanctions is extremely effective.
    Mr. Wolf. But what about cutting off foreign aid? Foreign 
aid to countries. Again we are not talking about to the poor--
--
    Mr. Wayne. Well, in many countries----
    Mr. Wolf. Let me just get it out.
    Mr. Wayne. Okay.
    Mr. Wolf. We are not talking about to the poor and to the 
hungry. We are talking about a program that has been codified 
by Congress in the Sexual Trafficking Act, which is a crime 
against humanity to take women and children across borders, 
50,000 who come to this country, and many go to many other 
countries. The Congress has acted on this. This is not 
something that the whole purpose of this is to cut off foreign 
aid.
    It is to have an encouragement to countries to do what Jim 
said, to show that we care. So what about giving you that 
ability also in addition to the 201?
    Mr. Wayne. Well, with due respect, Mr. Chairman, I think 
that the trade sanctions are more effective sanction when--
    Mr. Wolf. But how can----
    Mr. Wayne. Excuse me, sir. A number of countries where we 
have problems, we do not provide foreign aid, China, for 
example.
    Mr. Wolf. A lot of them you do though.
    Mr. Wayne. In others where we do, we do not provide them 
through the government. We provide them through NGOs. We 
provide the kind of training that is needed for their judges 
who want to carry out the laws and their enforcement people who 
want to carry out the laws. The trade sanctions bring a direct 
economic cost to their industries. Where there is often 
resistance as in Ukraine, it is because there is an economic 
power there that is able to exert that influence.
    By making the cost and taking away their GSP benefits, and 
then now having $75 million in tariff, that is 100 percent duty 
on a number of their key products, you are bringing that direct 
cost right back to the economic sector where you are having 
problems convincing. I just happen to believe that is the most 
effective way to do it, sir.
    Mr. Wolf. Well, you know, with all due respect, the State 
Department always takes those positions though. I mean there 
are times that the State Department on human rights, when 
Catholic priests were being persecuted in China, in jail, and 
protestant pastors and Buddhist monks were being tortured in 
Drapche prison where I have been outside of in Tibet, that the 
State Department would sort of just talk about it.
    I think unless they really know, the countries know, we are 
not saying you would take away 301. We are saying you would add 
to 301 to give you greater ability to do what everyone seems to 
say that they want to do to get at a problem that does not 
appear to be that much better.
    Let me just ask one more or two questions and then I will 
recognize Mr. Serrano. Jim, are there successes that your 
council, the National Intellectual Property Law Enforcement 
Coordination Council, have had in the protection of 
intellectual property rights?
    Mr. Rogan. Mr. Chairman, I think it is fair to say that the 
Council itself is still in the birthing stage. It was a fairly 
recent creature of statute. It occurred at the tail end of the 
last Administration. We have been contacting all of those who 
are associated with the Council, trying to get it up and 
running. There is a number of things we are looking at doing. 
We are trying to get it organized now. I think they spent the 
first year of existence, before I was on board, trying to 
identify and define what should be the mission.
    The Council is about to reach out to all of the 
stakeholders in the community and find out exactly what it is 
they think should be done, get their opinion on how we should 
do it, what should be the government's role, to what extent is 
legislation required, should recommendations be made, and what 
can we do on the enforcement end.
    Members who are participants include everybody from the 
Customs Service to the Justice Department to the State 
Department to the Copyright Office. I see in the Council a lot 
of opportunities, and I think as time goes by, and the Council 
gets up and running, it will be a very effective tool to 
organize the interageny efforts on these issues.
    Mr. Wolf. With regard to the State Department, the 
committee has made this--this committee in a bipartisan basis 
has made huge investments in the State Department's three year 
plan to hire 1,100 new Foreign Service Officers. We have been 
told that in the first two years of this staffing initiative, 
50 new officers in the economic cone are to be deployed 
worldwide.
    The job of the Foreign Service Officer is to promote U.S. 
interests including the protection of our intellectual 
property. How will these new hires, the additional ones, impact 
the government's willingness to protect intellectual property?
    Mr. Wayne. Well, I think, Mr. Chairman, they will impact 
our effectiveness in carrying out our desire to defend 
intellectual property overseas. As I mentioned earlier, as an 
integral part of educating every new officer that comes in, the 
protection of intellectual property is a key part of that 
curriculum.
    Mr. Wolf. I understand that.
    Mr. Wayne. There are other things that go forward. We have 
worked to carefully identify those posts overseas that are 
understaffed in the economic area to support us and USTR and 
others because they are the people on the ground, so we are 
going to be adding positions in economic sections around the 
world.
    Now, what happens when they get over there? Let me give the 
example in China where there is a significant problem. Our 
embassy has established an intellectual property working group, 
both at the embassy, with all the agencies present, also 
linking to the consulates and linking back to USTR and State 
and others in a real time basis. So we can both identify the 
problems, not just monitor them, but also figure out the best 
and the quickest way to do interventions, that we can organize 
the best kind of outreach such as the visit of the USPTO 
experts who went out to these two troubled provinces and 
actually had courses to train local officials as to where to go 
forward.
    What we are going to do with these extra officers is be 
able to do that better and more effectively. Part of what we 
have to do is, one, find the problem, then identify what are 
the key linchpins to correct that, and then figure out, okay, 
how do you influence that, and that takes people on the ground. 
Then, if they need reinforcements, they can call in Bob 
Zoellick, they can call in Secretary Evans, they can call in 
Secretary Powell, to raise these issues at higher levels.
    Mr. Wolf. I appreciate the Secretary's efforts. I saw in 
the paper he spoke out in China on this very issue that you 
said. I have been told that Taiwan is a major problem; is that 
correct?
    Mr. Wayne. There is a problem, yes, in Taiwan, sir.
    Mr. Wolf. Could you submit for the record all of the 
communications that have taken place between the State 
Department and our people in Taiwan urging that they be on this 
issue point by point? Say from January of this year, how many 
communications have taken place to our embassy in Taiwan, what 
memos have gone out, how is the administration, and if we could 
see the same thing maybe for Vietnam? We will use them as two 
examples. If you can supply the committee all of the records of 
the activity of the State Department that has been done with 
regard to urging those two countries to deal with intellectual 
property.
    One is our friend, Taiwan, and the other it is not my 
friend, Vietnam. It depends on your circumstances. Keep in mind 
there is still missing in action people. But if we could see, 
the committee could see what the State Department has done with 
regard to your people in both of those countries?
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    Mr. Wolf. Mr. Serrano.
    Mr. Serrano. Thank you. Thank you, Mr. Chairman. Thank you 
for those questions also. During the last few months, either 
sarcastically or in a very profound manner or both, I have said 
that the only people who may have benefitted in this country 
from the September 11 attack are people who had Justice 
Department investigations on their tail and those that had the 
FBI ready to move for you folks to indict. I suspect with so 
much being done and rightfully so to deal with the issue of 
terrorism, and maybe some of these issues have been put aside 
for awhile, therefore my statement that they are the only 
people who have benefitted.
    With that in mind, has this area, which obviously from 
listening to all of you takes a lot of time and a lot of effort 
and resources, has this suffered through the shifting of 
resources, the shifting of time, and the shifting of personnel? 
Have you lost--as in other hearings, we find out that people 
are being lost from many agencies to go into law enforcement 
areas under the new terrorism act. How has that affected you 
folks?
    Mr. Chertoff. Maybe I am the best person at least in the 
first instance to address that. Obviously within the first few 
weeks after September 11, everybody's attention was directed at 
the issues there, and it remains, of course, understandably the 
number one priority of the department, but I think it is 
important for the public to be aware that in fact, September 11 
and our focus on terrorism has not distracted us from the other 
principal priorities that we have at the Department of Justice 
and protecting our intellectual property is one of those 
priorities.
    We may do fewer note job bank cases. There may be other 
kinds of cases that are handled adequately by state and local 
law enforcement that we have moved over to them, but in areas 
involving, for example, high-tech crime where we are dealing 
with not only a critical national resource, but with something 
which is international in its scope, we have made a very firm 
commitment not to back off and not to diminish resources.
    And I can give you two concrete examples. Operation 
Buccaneer was executed in December of last year, within 
approximately two months after September 11, and just in the 
last week in the northern district of California, 27 
individuals were arrested after a two-year undercover operation 
for trafficking in counterfeit software and similar types of 
products.
    These are big high-impact cases. I venture to say about as 
big and as high-impact as any that have ever been done. 
Certainly the Customs Service, the FBI, which are the two 
principal agencies involved in doing these operations, have not 
backed off at all in the intensity of their focus on this.
    One of the things we have to do as we go forward in dealing 
with terrorism and in recognizing that this war is not 
something that is going to be over in six months, or a year, or 
even two or three years. We have to learn to balance what we do 
fighting terrorism with everything else that we need to do, and 
I do not think there is any doubt at the Department of Justice 
that protecting one of the richest resources that this country 
has, which is its intellectual development, and its intangible 
property is something which is critical to our way of life.
    So I can assure you both based on what we have done in the 
last six months, and what we intend to do in the next months 
and years, that there is no diminution of resources or effort 
focused on policing and enforcing the rules with respect to 
this area.
    Mr. Serrano. Any other comments on that?
    Mr. McNulty. I would just add to that excellent overview of 
the sort of resource allocation that one of the particular 
reasons why I do not think this area has been as affected is 
because a number of the investigative resources here are 
somewhat dedicated resources, that are specialized, and they 
have a skill that does not get pulled off as quickly as some 
other more general investigative activity.
    You also have the Customs Service with the Cybersmuggling 
Center, which is located coincidentally right here in the 
Fairfax area, and that resource is very valuable in tracking 
what is going on and helping make this big case that we have 
talked about this morning. So it is a very important point you 
are raising, and it is something that we in the prosecution 
side worry about all the time, because we want those cases to 
be investigated and we watch for the distribution of resources.
    And there has been some impact, but this field, I do not 
think, has suffered from it like others have.
    Mr. Chertoff. I should add one thing. This Congress and 
this committee has been terrific in providing us with 
additional resources to pursue this area, and regarding your 
question about whether or not people are now getting distracted 
and leaving us to go do other kinds of law enforcement. I 
interview everybody who comes in to be hired by our CCIPS 
section, and we get uniformly, since September 11 still, 
topflight attorneys who want to pick this area as an area to 
focus their work as federal prosecutors.
    It is intellectually challenging. It draws people who have 
terrific records that frankly exceed those of lawyers that I 
worked with when I was a partner at a private law firm. So 
certainly in terms of our competing for the best minds, we have 
really been blessed with the kinds of quality people who have 
come in to do this kind of work for us.
    Mr. Rogan. Congressman, just speaking from an opposite 
side, the USPTO is not a per se enforcement agency. But we rely 
heavily upon the enforcement agencies of all of the offices 
represented here at the table and other offices.
    Coming into office myself only about four months ago, I 
have just been incredibly impressed, post-September 11, to the 
degree of interest and the willingness of each of these offices 
to commit whatever resources are necessary to work with us as 
we have identified some of these problem areas.
    Mr. Serrano. Anyone else? One of the concerns I have, this 
question I will preface by admitting that I am totally out of 
left field, and in my case you will never hear a question out 
of right field. [Laughter.]
     Just a little baseball humor. I would rather be here than 
a baseball game. One of my concerns is that at the State 
Department and at the Justice Department we may be going a 
little overboard in using the word ``terrorism,'' and I know 
that is--and terrorist--that is a dangerous and delicate thing 
for me to bring up because obviously there is nothing that we 
should hold back on when it comes to terrorism.
    You know I am in the city that was hit, where the crime 
took place, where the attack took place. I often remind people 
that I was in New York on that day. It was primary day, as you 
know, and a few people have mentioned the fact that those folks 
accomplished one thing that hardly ever gets to happen in this 
country: we called off an election, and this is the greatest 
democracy on earth, and it was called off at 11 a.m.
    And the next day the only way out of New York was driving, 
and as I driving out, I looked by the New Jersey Turnpike, and 
for the first time in a cloud of smoke, I noticed the two 
buildings I had taken for granted were no longer there, and 
then the rest, for the first weeks and months, handing out 
American flags to deceased constituent families and so on, so I 
take very seriously, as we all do, what happened.
    But at the same time, I am nervous that, for instance, not 
for today's discussion but for another day, we now call the PT 
insurgency in Colombia narcoterrorists rather than 
narcotraffickers. Is this an issue serious enough to our 
security, our national security, to our economy, where 
eventually either your department or your department could put 
it under the umbrella of terrorism or is this still individual 
crimes that we go after and indifference by governments that we 
try to change in terms of the laws that they have or do not 
have?
    Mr. Chertoff. Congressman, I am sensitive as you are to 
the----
    Mr. Serrano. And I say this I am handed by my very good 
staff member who is to my right, only physically, but the fact 
that there is something out here that says ``Music Piracy, 
Organized Crime and Terrorism.'' I do not know what the content 
is, but some people are beginning to put it all together.
    Mr. Chertoff. I am sensitive as you are about the overuse 
of the phrase ``terrorism,'' partly because I do not want to 
dilute it, in much the same way that I in other contexts have 
sometimes seen people refer to something as a death knell or a 
matter of life and death, and I have to say I as you had the 
experience of actually dealing with little matters of life and 
death.
    At the same time, I think that I could certainly envision 
circumstances where in the area of computer crime, there might 
be efforts made that would be organized efforts to damage our 
economy by way of hacking or denial of service, and perhaps 
even using other economic means to damage the country that 
could be mounted by terrorists. But that being said, that is a 
speculative matter. I am not saying that that is happening.
    I think that for now my view is this is a very serious 
problem in and of itself in much the same way that racketeering 
is a serious problem or health care for us is a serious 
problem. I do not know that we need to make everything into 
terrorism.
    But we do have a national interest in protecting our 
intellectual property. It is something that this country 
brings, it adds unique value to the world economy. Other 
countries can outpace us in terms of, you know, bringing a lot 
of labor to something and being able to provide, you know, mass 
production of things.
    But in terms of value added through intellectual property, 
I do not know that there is a country that surpasses us, so it 
is a national resource that we should try to protect. I do not 
know that we need to go further than that.
    Mr. Serrano. Thank you so much for your answer. It 
certainly puts it in perspective, and you know one of my 
concerns, Mr. Chairman, bringing up one of my favorite subjects 
again, and I am very serious about this, is that there have 
been some serious discussions with the State Department 
publicly and a lot of editorials written saying that Cuba 
should no longer be on the terrorist list because for the last 
20 years, there has been no proof of any terrorist actions by 
the Cuban government.
    And I heard the gentleman who is now in charge of the Cuban 
issues at the State Department saying, well, we are not going 
to look to see if they are involved in any computer hacking so 
that we can I think try to declare them cyberterrorists because 
we need every day of the week to find a reason to be at war 
with Cuba and we will try to do that.
    So your answer was correct, and I think it is the way that 
we have to go, not to diminish the importance of the word 
``terrorism,'' but at the same time, if it is an attack on our 
country, to make sure that it gets dealt with.
    On the issue of drugs in this country, we have a two-tier 
approach. We have enforcement of laws. We go after bad guys. We 
even get involved in other countries in going after bad guys on 
the issue of drugs.
    But we also have, not to the extent I would like to see it, 
but a serious effort at educating people on the use of drugs, 
prevention. Why not then the same approach at this level? And I 
know we both touched on this before, but there really is not 
enough out there for the public to understand that this is a 
problem. A lot of enforcement that the public is not aware of, 
but why cannot we do that? What is being done? And what would 
you suggest in the area of educating the public?
    Because, you know, it reaches a point where now people who 
care about these things--for instance, neighbors of mine are 
asking me questions. I had a neighbor who bought, as I did, a 
CD recorder, and then you take your LPs and you record them 
onto CDs so you can play them in the car. Is that against the 
law? Do not tell me if it is. I do not want to know.[Laughter.]
    Mr. Serrano. I will ask somebody else. Mr. Chairman, it 
does not matter where we go, we are still under the debate on--
we are protected here; right? So I mean on the one hand, you 
have good people saying how far can I go? Did I break the law 
when I recorded my LPs on cassette? Am I breaking that when I 
take the cassette and put it on CD?
    The other is clear. The piracy, the selling of something 
stolen that does not belong to you. And then another part of 
educating, which is the discussion I had with this 13-year-old, 
is you are thinking about the ten million a month rock singer, 
but how about the composer who is in a nursing home and never 
got a penny from a song he wrote? He needs to be protected and 
that begins again to have the public understand the real 
problem.
    Mr. Rogan. Congressman Serrano, first as a former judge, 
reflecting back on your statement regarding recording music, I 
feel obliged to remind you that you have a right to remain 
silent. [Laughter.]
     Anything you say----
    Mr. McNulty. It is in the Eastern District, and it is too 
late. [Laughter.]
    Mr. Serrano. I feel targeted.
    Mr. Rogan. I am not sure this answers your question, 
because I think the short answer is education has to come from 
all levels and it is not solely the responsibility of the 
Congress or any of the executive agencies, but something that I 
observed during my service with both of you in Congress. As you 
know, I was on the Intellectual Property Subcommittee of the 
House Judiciary Committee. Intellectual property accounts for 
about 50 percent of our exports in the United States so the 
significance or at least 50 percent of our exports rely on some 
semblance of intellectual property protection.
    So obviously the significance of intellectual property to 
the American economy cannot be understated. Having said that, I 
noticed this curious phenomenon during my service in Congress 
that if Congress was taking up some issue relating to a 
depreciation allowance or some tax code issue or some OSHA 
regulation or some labor code, it seemed that CEOs nationwide 
certainly beat a path to all of our doors to make sure their 
voices were heard.
    We would hear from our donors. We would hear from our 
constituents. We would hear from major heads of corporations 
and we have all experienced that. When issues relating to 
injury to intellectual property were raised, there was almost 
silence from the business community, and I have tried to 
understand why that phenomenon is so. It may well be that when 
patent lawyers, for instance, come in and start talking to CEOs 
about patent portfolios, their eyes just glaze over and they 
are not terribly interested in it.
    I am not sure what is the cause of that phenomenon. It may 
well be that business as an entity recognizes that it is a 
problem as a whole, but unless it is a business entity that is 
specifically affected directly where they can see the drain of 
their intellectual property being copied and used, rather than 
how the piracy issue in general affects a business portfolio, 
they are the only ones that seem to make their presence known. 
And so when we talk about the need for educating in these 
different areas, I would also include those who are being 
economically impacted through their own portfolios and may not 
even be cognizant of the degree that the harm is occurring.
    Mr. Burcky. Can I just add one point to that? And I 
entirely agree with the Under Secretary's observation, but on 
the international side of things, what is critically important 
is to educate creative forces in foreign countries that their 
rights, too, are being taken by this activity, because it is 
one thing for a government to be responsive to the United 
States in the theft of our intellectual property, but it is 
quite another to recognize that it is your own creative artists 
and innovators within your own borders that are never going to 
advance unless the government clamps down on this type of 
piracy.
    And I think one of the most effective things I have seen in 
Hong Kong not too long ago, local theater owners, and artists 
and performers got together and took to the streets and sent a 
very clear public message to the Hong Kong government that this 
situation needs to be corrected, and that is the type of 
activity I would like to work with my colleagues interagency to 
promote abroad, because when these countries recognize that it 
is in their own interests as well as the interests of the 
United States, they will have the political will to take the 
actions necessary.
    Mr. Rogan. And the perfect example of that, of this not 
just being the United States, a major economic powerhouse, 
asking other people to please have strong intellectual property 
laws, because it will be good for us, is our own experience 
from 212 years ago in that very limited document that the 
founders created called the Constitution of the United States. 
There is not much there. It is very brief, but one of the 
things the founders saw fit to include in the Constitution in 
Article I, Section 8, was the contemplation of the protection 
of inventors' and authors' intellectual property for a limited 
period. The reason that was included by the Founders was 
because they understood that this agrarian colony, this 
breakaway colony, could never become an economic and 
technological and inventive powerhouse unless that was crafted 
right in our founding document.
    And if you go back and look at the history of intellectual 
property for centuries, you find that there never has been a 
strong nation built without some semblance of protection of 
intellectual property for that very same reason, because 
without that protection the incentive to create, to invent, is 
simply not there, and the creators and the inventors will take 
their goods and their services elsewhere.
    Mr. Serrano. Well, did you want to comment?
    Mr. Wayne. I just wanted to add two concrete examples to 
that. I mentioned in my remarks a seminar pulled together by 
our Consulate General in Sao Paulo with U.S. industry but also 
with Brazilian industry, because there is a tremendous problem 
with piracy in Brazil, but the artists that suffer from it are 
80 percent or so Brazilian artists because that is the kind of 
music that is very popular there. And they have come to realize 
that they are the ones who are suffering from this.
    Last September, we organized with our Consul General in 
Naples an anti-piracy meeting. The co-sponsors were the Italian 
organizations of artists and of the audio industry because they 
realized that they are also the ones who suffer tremendously. 
And when we get that kind of a dynamic going is when we can be 
much more effective overseas because you have got the in-
country dynamic working too.
    Mr. Serrano. I cannot minimize how strongly we feel that 
educating the public may make the big difference here, and how 
does the public get educated to understand the Tower Records 
example? Again, you would not allow your child or you yourself 
in your right mind would never steal a DVD from a store. Yet 
you are walking on the street in big cities and in rural 
communities and urban and suburban communities, and someone is 
selling them on the street, and I do not think the mentality 
for most people is to stop and think that it is the same thing.
    It is not the same thing in most people's minds. So I think 
that we have to put an effort into educating people in this 
country to understand that that is the same thing and that then 
will make your international fight much easier.
    Another thing. Going back to the recording thing before, 
assume that people do not like people to make copies of their 
old records for their personal use, nevertheless--assume people 
do not like that, and I do know that they do not or they do--
but then you have legally the ability to buy equipment that 
accomplishes that. The latest toy on the market will take your 
videos and transfer them to DVD.
    So the thousands or hundreds of hours you may have of the 
kids growing up, you can now edit and just put ``x'' amount on 
a DVD. I cannot see how anyone will say that it is illegal. It 
is your video that you are transferring on to your DVD, but 
nevertheless that sets a tone in people's mind that says, well, 
so explain to me why that other thing is wrong. And I do not 
think the public understands--see you are going along 
copyrights. But I think the public would understand royalties 
to a composer, royalties to an actor, and to break it down to 
where you realize, for instance, and I think last year, the 
average, and I am sure Jack Valenti can better, but a few years 
ago, the average salary for actors in this country was $6,000. 
And everybody was focusing in on the $20 million that Jim Carey 
made for one movie.
    Well, for everyone who did that, there were 50,000 people 
waiting tables in New York City who have never made it on 
Broadway or in LA who never made it into Hollywood. Again, 
please, take note of the fact that we think that educating the 
public could make this a much easier task.
    Mr. Rogan. And as your question suggests, great care has to 
be taken in educating the public to make sure we do not scare 
the public from doing what they lawfully are able to do. We 
have fair use laws in the United States that say if you own, 
for instance, an album and you want to transfer it to a 
cassette tape so you can listen to it in your car, that is fair 
use.
    If you own a VHS recorder and you want to record a movie 
that is playing while you are at work so that you can watch it 
later at a time that is convenient, that is fair use. That is 
not a violation of the copyright law. The violation, of course, 
comes when somebody is taking that creation and then 
expropriating it or making copies and distributing those copies 
to the extent that it has some economic impact.
    Now, I am not a copyright lawyer, and I am oversimplifying 
the issue, but there is that concern that we do not want to 
overreact to this and preclude legitimate fair use or scare 
people into thinking that their conduct is illegal when, in 
fact, it is fair. But by the same token, there is a careful 
balance of not allowing, under the guise of fair use, the 
opportunity for pirates and thieves to expropriate the property 
and do with it that which the law precludes.
    Mr. Serrano. Well, Mr. Chairman, as you, I have many other 
questions I will submit for the record.
    Mr. Wolf. Yeah.
    Mr. Serrano. I want to thank you for your testimony, and 
Congressman Rogan, I thank you for your last comments which 
were my defense, so thank you. [Laughter.]
    Mr. Wolf. We will have a number of questions for the 
record.
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    Mr. Wolf. We are almost to 12 o'clock. Let me just 
summarize from my own perspective of where I am going to be 
thinking and going. One, I appreciate all five of you coming, 
and you are all good people. I mean two of you I know very 
well; three--so we could not have better people where you are 
than you, so I do not want to look like we are personally 
criticizing you. I do appreciate the comment and all five of 
you have great bosses. I wrote down Mr. Zoellick. I mean you 
could not be more effective and more articulate and more of an 
advocate frankly. While I have not agreed with everything in 
the Trade Rep's plans, I was not for MFN for China and 
different things, but I, you know, I think he is a good person.
    Secretary Powell, I mean we could not have a finer person 
running our State Department and the same with Secretary Evans 
with regard to Commerce. And I made that comment that Secretary 
Evans raised this issue in Beijing. It was in yesterday's paper 
so it could have been the day before, and I know how he feels.
    And Attorney General Ashcroft, I know the commitment that 
he has to these issues, and I think we are kind of beginning 
anew with the new administration, and as a Republican, this is 
my administration. I am an advocate for my side. I want us to 
do well by this issue and by other issues that I care deeply 
about.
    I think your comment of the political will that was very, 
very important. Mr. Serrano is right. Education is very 
important and there needs to be the political will to follow 
through on the education. There also needs to be the political 
will for our leadership to advocate and speak out publicly. If 
you want to find out what people really feel, they say there 
are two things to look at. Look at the calendars. But look at 
their calendar and see how much time they are spending with 
their family, if they say they are great family people. How 
much? Look at the calendar and look at their checkbook and see 
what they write their checks on and see what their calendar 
shows how much time they are spending. That tells you.
    If you look at our government, it is how much money we are 
putting to this issue and the subcommittee is trying to do what 
it can, and also our leadership, particularly in the executive 
branch speaking out, a major speech by Secretary Powell on this 
issue. There is probably nobody that is more thought of as a 
Secretary of State abroad than the Secretary, so for him to 
give a speech, the fact that Secretary Evans spoke out in 
Beijing, and it is easier sometimes to speak in Washington and 
harder to speak in the country that you are in.
    To give you an example, the new ambassador, our new 
ambassador to China, spoke out for one of the first times on 
the issue of human rights. Usually our ambassadors speak out 
generally about human rights. They are for quote ``human 
rights,'' but he, Ambassador Rant, raised individual cases. He 
raised five individual cases, one of a Catholic bishop, another 
a Tibetan monk, and others. Three of the five and now all of 
the five have gotten out.
    And many people believe it is because the ambassador, our 
ambassador for the first time in China raised their names. It 
is kind of like for those of you--you would understand better 
in politics. If somebody says I am really with you, Jim, but I 
just do not want to be identified with you publicly.
    Mr. Rogan. You are beginning now to sound like all my 
constituents I used to represent. [Laughter.]
    Mr. Wolf. Yes. You want them to be with you privately and 
publicly, and I think it is important he spoke out on behalf of 
the persecuted church in China, and now the Chinese know he 
cares. And when President Bush went to China, he spoke out. 
When President Reagan went to Moscow to the monastery, spoke 
out very eloquently on behalf of human rights. We would ask the 
administration and the different cabinet levels to think of 
ways to speak out publicly, put your resources there, speak out 
publicly and do I think what Congressman Serrano said, to 
develop working with the industry an educational program so 
that we can deal with it.
    Education, which is part of speaking out, and we can from 
the subcommittee put the necessary resources in and to 
encourage the executive branch to aggressively enforce this, to 
protect, as Jim said, which was actually mentioned in the 
Constitution.
    There will be a number of questions. On those two 
countries, I think in fairness, we should probably go back and 
not take it to January of this year, maybe take it two years 
from now so we are able to see one year of the last 
administration and one year of this administration to see how 
many times they spoke out with regard to those two countries.
    With that, unless Mr. Serrano has anything else I thank all 
of you for your testimony and appreciate your taking time to 
come today.
    Mr. Rogan. Thank you, Mr. Chairman.
    Mr. Burcky. Thank you.
    Mr. Wayne. Thank you.
    Mr. McNulty. Thank you.
    Mr. Wolf. Thank you very much.
    [Recess.]
                              ----------                              

                                           Tuesday, April 23, 2002.

                     PROTECTING CONTENT AND PATENTS


                               WITNESSES

JACK VALENTI, PRESIDENT AND CEO, MOTION PICTURE ASSOCIATION OF AMERICA
SHIRA PERLMUTTER, VICE PRESIDENT, IP POLICY, AOL/TIME WARNER
FRANK M. CREIGHTON, EXECUTIVE VICE PRESIDENT, RECORDING INDUSTRY 
    ASSOCIATION OF AMERICA
    Mr. Wolf. The hearing will resume. We are changing the 
panels because of scheduling. First, we are going to hear from 
Jack Valenti with the Motion Pictures Association, and Shira 
Perlmutter with AOL/Time Warner, and then Mr. Creighton with 
the Recording Industry Association. Your full statements will 
appear in the record as read, so you can summarize, and with 
that, I will just recognize Mr. Serrano for an opening comment.
    Mr. Serrano. Well, just very briefly. I am very much 
interested in this side of the testimony and to take this time 
to welcome Mr. Valenti and to embarrass him by reminding him of 
something. Twenty-eight years ago when I was elected to the New 
York State Assembly, I was told to be careful about all these 
parties you go to.
    And the first party, if you will, that we went to in the 
New York State Assembly with my dear friend Billy Pasaranti was 
hosted by you.
    Mr. Valenti. I remember that.
    Mr. Serrano. Since then, my staff can attest to that, I do 
not go to receptions after hours because once you have been to 
a Valenti party, you never want to go to another party. 
[Laughter.]
    Mr. Serrano. Because no one can match it. But that is how 
long it has been. Twenty-eight years ago.
    Mr. Valenti. Mr. Congressman----
    Mr. Serrano. I am still trying to do this right.
    Mr. Valenti [continuing]. You are a dangerous man. Your 
memory is too good.
    Mr. Serrano. Thank you and welcome, all of you.
    Mr. Wolf. You can begin and you can summarize. And as you 
are testifying, too, if you want to work it in, any comments 
that you had based on the last panel's comments, if you were 
listening, go ahead.

                    Opening Remarks of Jack Valenti

    Mr. Valenti. Mr. Chairman, thank you so much. I do have to 
leave here at 12:30 due to an unbreakable appointment with some 
out-of-town visitors and I hope that you will forgive me.
    Mr. Wolf. We do.
    Mr. Valenti. But at any rate, I really come here on a 
matter of some urgency, the reason why I wanted to be here in 
person, and because I do think we have a problem, and the 
problem essentially is that the future of America's greatest 
trade prize, the copyright industry, is in peril. And it is in 
peril because of the side effects of this new magical digital 
world, side effects that could cause us great problems.
    Now, the side effect that I am talking about is I use the 
phrase ``internet abuse,'' and that is the taking down of 
movies illegally without any compensation to the owner or 
permission of the owner. Now I am not calling that theft. I 
want to call that abuse, and the reason why I am not calling it 
theft is that so many people are doing it, and I think what 
came out in the earlier panel--I think that Judge Rogan brought 
it up--is that there is a disconnect between the moral compact 
that governs a stable and serious and enduring society and what 
is happening in universities and with young people today.
    And so I use the word ``abuse'' rather than theft. And the 
peril that we have is the erosion of the worth of these 
valuable creative works because, again, as the other panelists 
said, with the click of a mouse, you can send a movie hurdling 
around the world with the speed of light. I must tell you, Mr. 
Chairman and Mr. Serrano, it is a bit scary when you think 
about that.
    Now my question that I would ask is is this issue worthy of 
attention by this committee? Well, let me count the ways. The 
copyright industries, movies, television programs, home video, 
music, computer software and books constitute an enormous 
economic asset, an awesome engine of growth. The previous panel 
pointed out quite accurately that we comprise more than five 
percent of this nation's gross domestic product. We bring in 
more international revenues, Mr. Chairman, than agriculture, 
than aircraft, than automobiles and auto parts.
    We are creating new jobs at three times the rate of the 
rest of the economy, and finally the American motion picture 
industry itself has a surplus balance of trade with every 
single country in the world. No other American enterprise can 
make that statement, and I do not have to tell you, gentlemen, 
this comes at a time when this nation is bleeding from deficits 
ranging up to $400 billion. So I think it is worthy that you 
would take up this issue, particularly on this powerful 
Appropriations Subcommittee where you can do something about 
it.
    Now, how stern and how relentless is this problem? Well, 
Viant, V-I-A-N-T, which is a Boston-based consulting firm, has 
estimated than 350,000 to 400,000 movies are being illegally 
downloaded everyday--everyday. And as I said, when you with a 
simple click of the mouse, you can send movies around 
particularly in the so-called file sharing sites, Morpheus, 
Grokster, KaZaA, you name it, Gnutella, that are up there where 
millions of movies are being quote ``file shared'' without any 
compensation to the owner, without permission of the owner.
    Now we are fighting a war against thievery, in both the 
digital and the analog world. As you know, your television set 
probably is analog. The videocassette is analog, and digital is 
brand new. When you consider the fact six or seven years ago, 
Mr. Serrano, nobody ever heard of the internet. The velocity of 
the growth of this magical new world has been astounding, and 
in turn with the Emersonian doctrine, for every loss there is a 
gain, for every gain, there is a loss, all the rewards it has 
brought to this country, it also has brought some serious 
problems.
    Our anti-piracy forces are engaged in this struggle in Hong 
Kong, Indonesia, Malaysia, the Philippines, Taiwan, Thailand 
and China. We have an anti-piracy forces all over this world. 
We spend more money on anti-piracy in the Motion Picture 
Association than we spend on our regular budget.
    And we are continuing to do that because we have to be 
vigilant everyday because like virtue, we are everyday 
besieged. We are besieged because of DVD theft, and now VCD, 
which is an inexpensive new intrusion. It is optical disk 
piracy. It is called video compact disk. You can buy them, Mr. 
Serrano, in China, the machines for 20, 30, 40 dollars, 
contrasted to maybe a couple hundred dollars for a DVD machine, 
and these pirated disks cost you less than a dollar. I know I 
bought them. I have been to China four times in the last five 
years so I know something about that personally.
    And we are on guard in China because of street corner 
vending. When I walk into a theater in Shanghai and in Beijing, 
it is playing Titanic, and then you walk outside, and they are 
on the corner, you can get all the Titanic VCDs you want for 
pennies practically. So that is a problem.
    Now this Asian landscape, I must say, is seriously infected 
with movie theft. Just recently, though, it is coming home to 
us. FBI raided a factory in New Jersey, which was illegally 
producing DVDs. This is the first time we have found a factory 
illegally producing DVDs in this country. But it will not be 
the last.
    And I report to you, I have got to tell you, Mr. Chairman, 
that we are joyously grateful for the wonderful cooperation we 
are getting from the FBI, from the U.S. Customs Service, from 
the Secret Service, from the Department of Justice, and U.S. 
attorneys in various jurisdictions, wonderful cooperation. The 
FBI recently some years ago raised to a higher level cyberspace 
crime and video piracy.
    But these people need more resources, Mr. Chairman. These 
are superior organizations, but if we are going to vanquish or 
at least bring piracy to some kind of a tolerable level, they 
have got to have more resources to help us. We cannot do this 
by ourselves. Now we are fighting on three fronts. First front 
is protecting our copyrights in the courts. We are going to 
court to say you cannot do this. You are violating the 
copyright laws of this country. The second front is promoting 
legitimate legal alternatives to internet abuse.
    For example, I think all seven of my member companies, the 
major studies, will be on line with a legal alternative, 
bringing down movies probably for rental first, later on for 
sale at fair and reasonable prices--I might add a phrase--that 
will be defined by the consumer and not be the studios.
    And third, we are engaged right now in meetings with the 
information technology community, with the consumer electronics 
industry, with the chip manufacturers, to try to find some way 
to use this magic of technology to provide protective garments 
for our movies, so we can bring them down safely to the home 
and then not have them distributed all over the internet. That 
is important.
    We are trying to keep digital piracy out of the mainstream 
and pushing it to the fringes. You and I both know we are never 
going to be hackers, nobody is going to beat them, they can 
bust into the Pentagon war room, they can sure as the devil 
strip our movies clean of their protective clothing.
    However, 99.9 percent of the American public are not 
hackers and I am counting on that as our savior. Now let me 
just finish up now by saying to you what can this subcommittee 
do to help, and the reason why I personally came down here is I 
wanted to plead with you, your power and your help is critical. 
Copyright laws are only as good as their enforcement. We all 
know that. We have helped write copyright laws for countries 
around the world, but alas-alas, the political will and the 
resolve is not there to enforce them. So what good do they do?
    While the cooperation of law enforcement agencies in my 
judgment has been exemplary, their resources are stretched to 
the snapping point, and that is where you come in, Mr. 
Chairman. They need more funding. That funding is absolutely 
indispensable, and unless we move swiftly and decisively, I 
think the future is going to darken with very bleak forecast 
about the slow undoing of one of America's greatest economic 
assets. That is why I think this is a national problem, not 
just our problem, and it most surely and most severely needs 
your help and your influence to get these resources to the law 
enforcement agencies who are ready and willing to stop this 
piracy.
    Mr. Wolf. Thank you, Mr. Valenti.
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                  Opening Remarks of Shira Perlmutter

    Mr. Wolf. Ms. Perlmutter, your full statement will appear 
in the record, too.
    Ms. Perlmutter. Thank you very much, Mr. Chairman, and 
Representative Serrano, for the opportunity to present AOL/Time 
Warner's views on the current challenges to the protection of 
intellectual property in this country and abroad. This hearing 
provides a very timely focus on an issue of great importance to 
the U.S. economy as well as to our company, and of course, it 
is also a critical issue for Northern Virginia where AOL, 
Inc.'s headquarters is just down the road from where we are 
sitting.
    As the world's largest producer of information and 
entertainment, AOL/Time Warner relies on copyright protection 
everyday. Whether it is the journalism of Time, Inc. and CNN, 
the music of the Warner Music Group, the magic of a movie like 
Harry Potter, or our creative television programming, like The 
West Wing or the Sopranos, compelling content is what consumers 
want.
    That is what fuels the creation of new distribution 
businesses and new products and services, but the continued 
availability of this high quality content cannot be ensured 
unless it is adequately protected against piracy, and in 
particular, internationally strong copyright protection is 
essential to the ability to enter and compete in foreign 
markets.
    These overseas markets are increasingly important to 
maintaining and expanding U.S. economic growth and to providing 
good jobs here at home, but the prospects for growth are 
clouded by a number of market access barriers, and most 
significantly the lack of effective enforcement against piracy. 
Now why is copyright policy a barrier to market access?
    Well, the answer is clear. It is very difficult to sell a 
product in competition with free or extremely cheap pirated 
versions, and to make this more concrete, when pirate DVDs of 
Lord of the Rings complete with cover art were available on the 
streets of Beijing for less than a dollar on the very same day 
the movie opened in U.S. theaters but not yet in Chinese 
theaters, a whole series of markets is compromised.
    The theatrical box office, the revenue from sales or 
rentals of videos, the subscription fees to cable TV or 
satellite services on which the movie might appear, all of 
those are hurt.
    When Madonna's latest release is available on pirate CDs in 
a night market in Malaysia at a fraction of the retail price, 
the viability of our legitimate retail channels is undermined, 
and the result of that is the millions that are spent, not only 
to produce the copyrighted works, but also to promote and 
distribute them in those overseas market, are placed at risk.
    Now, piracy is not a new phenomenon, and we have been 
fighting it for decades, but the nature of the threat has 
changed substantially. Fifteen or 20 years ago, the 
unauthorized copying and sale of American works was not even 
illegal in many countries in the world. Today, at least there 
are laws on the books in nearly all of our major trading 
partners that outlaw these practices.
    The question now is how are these laws being enforced, and 
unfortunately the answer is mixed. In some countries and often 
as we have heard, under pressure from the U.S. government, 
there have been improvements, but in other countries 
enforcement remains entirely unsatisfactory.
    It is not just the legal environment that has changed. It 
is also the formats and technologies. A decade ago, most 
copyright piracy was analog in format. We were talking about 
videocassettes, audio cassettes and books and other print 
materials.
    While the piracy rates for these formats have declined 
significantly, in many countries, these analog formats are 
playing a decreasingly significant role in the marketplace. 
Today, virtually all of our music and film products are 
distributed in digital formats like CDs, DVDs, video CDs and 
CD-ROM.
    And as piracy has moved into these realms, it has become 
much more dangerous. Digital formats are smaller and more 
transportable so it is cheaper and easier for pirates to 
warehouse and distribute contraband and to ship it across 
borders and oceans without fear of detection.
    Even the production facilities for digital product, for 
pirated digital products, can now easily be decentralized and 
moved from country to country with the latest iteration being 
the CD burner which is small indeed.
    With digitization, copyright piracy has become a truly 
global operation. To combat it effectively requires not only 
strong enforcement of copyright laws, but also increased 
cooperation and coordination among law enforcement agencies and 
policymakers of different nations.
    It is critical, for example, to prevent pirates from 
relocating across the border as soon as one country adopts an 
effective legal regime against pirate digital production 
facilities. That country's neighbors also have to adopt similar 
laws and implement them effectively.
    Just in the past few years, copyright piracy has moved to a 
new dimension, and of course, that is the internet. Along with 
tremendous benefits, digital network technology also enables 
users not only to make unlimited perfect copies, but to 
distribute them globally with, as Mr. Valenti points out, the 
click of a mouse.
    With the recent spread of pier-to-pier swapping services 
that encourage and enable online theft, the problem has become 
both more complex and more urgent. Moreover online piracy is 
quintessentially international. It travels wherever there is a 
sufficiently robust internet connection, and in a few short 
years, that will mean virtually everywhere.
    Internationally, online piracy presents other issues as 
well. While most countries have modernized their laws with 
respect to piracy and tangible copies, many still lag far 
behind with respect to internet piracy. The U.S. is a leader in 
this area and the two new WIPO internet treaties that are just 
coming into force this spring, which you have heard mentioned 
by the earlier panel, have updated the minimum international 
legal standards.
    The task now is to persuade our trading partners to follow 
our lead to meet those new standards and then to enforce their 
updated laws meaningfully and effectively.
    So what are we as a company doing to combat copyright 
piracy? On the digital front, we are pursuing a multi-pronged 
approach. In the United States, we have vigorously pursued 
legal remedies. We have taken to court commercial services that 
are building their businesses around providing people with 
content created by others without their compensation or 
consent.
    We are also working as quickly as possible to develop and 
build legitimate online delivery services so that consumers 
will have access to premium digital content at a reasonable 
price on the internet.
    Finally, we are active in cooperative cross-industry 
efforts to develop innovative content protection technologies 
that will diminish piracy risks and will also enable us to 
deliver content to consumers with greatly enhanced convenience 
and flexibility.
    On the international level, we are also actively engaged in 
anti-piracy activities, mostly through our trade associations, 
particularly the RIA and the MPAA as well as through the 
International Intellectual Property Alliance. In all of these 
efforts, we in the copyright industries work closely and 
productively with many agencies under this subcommittee's 
jurisdiction including, of course, the Office of the U.S. Trade 
Representative, the Department of Justice, the State Department 
and several agencies within the Commerce Department, notably 
the Patent and Trademark Office, and the International Trade 
Administration as well as with the U.S. Copyright Office.
    These agencies have all made tremendously important 
contributions to progress in the fight against piracy and all 
have a critical role to play in meeting today's challenges.
    Let me conclude with a few general observations about how 
that role might be enhanced. First is the question of 
resources. Obviously, there are many competing claims on scarce 
tax dollars, but expenditures on copyright enforcement are a 
valuable investment in this country's future.
    You have heard impressive figures about the contributions 
of the copyright industries to the U.S. economy, our role in 
job creation and our track record on exports and foreign sales. 
Money spent to combat the threat posed by piracy and to 
safeguard all of these economic benefits is money well spent.
    The second issue is coordination. There has been a lot of 
progress on this front, but more can still be done. For 
example, training and technical assistance efforts need to be 
coordinated with trade negotiations. When trading partners 
agree to adopt tougher new legal standards or to face new 
enforcement challenges, and then seek help in implementing 
those obligations, there must be a timely U.S. government 
response.
    Finally, two developments make this an especially critical 
time for ratcheting up the fight against international piracy. 
First, there are the two new WIPO internet treaties which 
represent a higher global standard that other countries must be 
encouraged to meet.
    Second, U.S. trade policy has increasingly been focused on 
the negotiation of bilateral and regional free trade 
agreements. These negotiations offer an excellent opportunity 
to persuade our trading partners to upgrade their copyright 
laws and to improve enforcement.
    So thank you again for the opportunity to testify, and I am 
pleased to answer any questions.
    Mr. Wolf. Thank you very much.
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                   Opening Remarks of Frank Creighton

    Mr. Wolf. Mr. Creighton, your full statement will appear in 
the record.
    Mr. Creighton. Thank you, Chairman Wolf and Representative 
Serrano, for holding this hearing and asking me to appear 
before you today to discuss the issue of piracy, a problem that 
has threatened the vitality of American creative works for a 
very long time.
    I would also like to extend to you the regrets of Ms. 
Hilary Rosen, our president and CEO, for her inability to join 
us here today due to a last minute travel glitch. I know she 
was very much looking forward to testifying today and asked me 
to stand in her behalf.
    I thought I would start my testimony off with actually the 
words of pirates themselves. I brought a piece of piratical 
product that is the subject of a current investigation. This 
disk is a DVD that contains 54 complete albums of our member 
companies' repertoire, of very popular artists, everybody from 
Bon Jovi to Janet Jackson to Jennifer Lopez to the Beatles. And 
in this package itself, they also include the cover art and all 
the liner notes that you would possibly want and need to 
actually produce additional copies of this particular product.
    They actually have an insert inside the product which I 
would like to read to you. It says: ``Welcome to the first 
edition of MP3 collection. As a special first edition, this DVD 
includes all the albums from the UK Album Top 40 and more 
albums from the album charts across Europe. This will supply 
you with the most popular music from this moment.''
    ``As of next month, MP3 collection will be released every 
month and will then include the most popular albums that are 
released that month. You will never have to buy a CD again 
since MP3 collection will supply you with every popular CD that 
is released. Make sure you collect them all. You can easily 
play the music from the DVD by using the user friendly menu 
that will automatically start when you insert the DVD.''
    ``You can also recreate the original CD by using the 
supplied CD recording software and printing the CD covers which 
are also included in this DVD. Or you can create your own CD 
with your favorite tracks chosen from all 50 albums on this 
DVD. The choice is yours. The possibilities are endless.''
    I thought it was an important piece of product to 
demonstrate because it actually combines the two areas of 
concern, both the physical piracy arena and the internet piracy 
arena.
    Piracy is the largest threat facing our industry today. We 
estimate we lose more than $300 million domestically and more 
than $4.5 billion worldwide to all forms of piracy. Those 
estimates are conservative numbers and those numbers do not 
include losses that we are incurring due to internet piracy.
    As a further indication of how our piracy problem is 
growing, we can look to our year end 2001 seizure statistics. 
In 2001, more than 230 distribution operations were raided 
compared to a hundred in the previous year. More than 145 
manufacturing operations were raided domestically compared to 
50 in the previous year.
    2.8 million unauthorized CD recordable disks were seized 
compared to 1.6 in the previous year. 21 million counterfeit 
insert cards were seized, compared to 3.5 million the year 
before. Search warrants were up 74 percent. Arrests and 
indictments are up 113 percent. Site seizures were up 170 
percent, and guilty pleas and convictions were up 203 percent.
    Many of these successes are directly attributable to the 
law enforcement agencies and prosecutors' offices represented 
here today. The problem is not confined within U.S. borders and 
is now not confined to the physical medium. On the internet, we 
are experiencing extraordinary levels of piracy and 
extraordinary challenges.
    Advances in technology while exciting to our industry have 
far outpaced our ability to effectively address the piracy in 
facilitates via traditional means. I would like to give you a 
couple of examples of the file sharing services that were 
alluded to earlier, and we have a couple of different versions.
    One is the centralized file sharing services. Everybody is 
familiar with the Napster scenario. Well, there is another 
arena out there called open ap. It basically utilizes the 
Napster like protocol and uses centralized servers to offer up 
the files. On those services, a snapshot that we took last week 
indicated that there were 350,000 users on those services 
offering more than 150 million files.
    There is a hybrid version of centralized pier-to-pier 
networks. A popular one known as FastTrack, and Jack indicated 
Music City and Grokster and KaZaA are part of this system. On 
that system alone, last week, 1.6 million users on average on 
that system and more than 288 million files being made 
available.
    Then we have the third iteration which is the completely 
decentralized system called Gnutella, where we do not have the 
ability to bring traditional remedies in the civil arena to 
bear because there is no corporation, there is no main entity 
running this operation. On that system alone, 290,000 users 
with millions of files.
    On all of these networks, the vast majority of those files 
are unauthorized and cross the borders of all content. It is 
not just music. It is movies, it is videos, it is software, et 
cetera.
    We have utilized extensive and expensive self-help measures 
to address piracy in the pier-to-pier arena. Despite strong 
legal precedence as witnessed in this Napster case, new and 
evolving pier-to-pier services continue to facilitate enormous 
levels of piracy. The deterrent has not been created via civil 
remedies.
    There are very positive signs from enforcement and they are 
deeply appreciated. The creation of Computer Hacking 
Intellectual Property, known as CHIPs units, in some U.S. 
Attorneys' offices is very helpful, but we are concerned that 
the focus will be on computer hacking to the exclusion of 
intellectual property. In our view, that would be a terrible 
tragedy, not just for our interests but for American society as 
a whole.
    Operation Buccaneer was a great example of interagency and 
international cooperation. And RIA is continuing to spend a lot 
of time doing the self-help that industry should do--educating, 
training, litigation on our own and investing in expensive 
technologies to combat piracy. We need to maintain this 
vigilance. Mr. Chairman, I can assure you there is more piracy, 
not less, especially online. We would be very eager to work 
with you and learn more from your vantage point on how we can 
continue to work together to improve this situation.
    Anything short of aggressive enforcement of existing laws 
sends the wrong message to pirates and others who would flout 
our laws. The Department of Justice and other enforcement 
agencies are filled with dedicated, very smart lawyers and 
investigators who we know are committed to doing the right 
thing in this area. But we all have to find ways to come 
together and make sure that we are using the people's resources 
and the tools of the law and government in a way that makes 
sense and gets results.
    We need more CHIPs units. We need IP to be a priority 
within these units. We need to explore creative approaches to 
creating appropriate term levels on the internet in 
coordination with private industry. There needs to be a better 
mechanism for getting field offices to obtain funds for 
investigations in cases.
    We need to look at CCIPS authority to pursue internet 
related cases from headquarters. There is a range of things we 
could do if we could work together and focus on the persistent 
problem of piracy, and we appreciate your attention to and 
concern about this cooperation. I thank you very much.
    Mr. Wolf. Thank you.
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                             POLITICAL WILL

    Mr. Wolf. Mr. Valenti, I know you have to leave so we are 
going to ask you a question or two and then at any time you 
feel you must, just get up and leave. Do you believe there is 
the political will in the country with regard to this issue? 
And is your problem more domestic or is it more international?
    Mr. Valenti. Mr. Chairman, the first part of your question, 
I hope there is the political will, and I think it will come 
from people like you and Mr. Serrano, that will be very useful 
and valuable in making sure that the resolve in this government 
is staunch and unhesitant.
    My judgment is that right now international is the biggest 
problem we have, and I have cited the countries, particularly 
in Asia with optical disk piracy. But my own feeling is that 
the United States is going to get worse. We are seeing piracy 
on an unparalleled level. But it is just the tip of the 
iceberg. Why? Because the music industry is getting pillaged 
now because you can bring down a song with a 56K modem which 
most people have in real time.
    We have been protected for awhile because there were so 
much graphics in a movie that it would take you with a 56K 
modem 11 to 12 hours to bring down a two-hour movie. With a DSL 
line or a cable modem--that is called broadband access--as they 
get faster and faster, you are going to bring it down in 
minutes. But right now there are only about 9.5 million 
broadband access homes out of some 69 million computer homes.
    Now here is the great conundrum. My belief is if we get 
more movies on the internet legitimately, broadband is going to 
grow because right now if you have a 56K modem, almost 
everything you want from the internet you can bring down--
instant messaging, e-mail, text, business data, as I said very 
little graphics, so people do not need broadband, many of them 
think, and they do not want to pay $40 to $50 a month for that 
which they can bring down without paying it.
    But broadband is going to grow, and the velocity of 
broadband, the speed of that, will grow exponentially. So I am 
saying to you that as more broadband access homes come on 
screen, our piracy problems will grow and grow and grow, and as 
of this moment, I do not know how we are going to stem it.
    Now, we are having meetings with the computer 
manufacturers, as I said in my brief prologue testimony, and 
with the chip manufacturers, and with the consumer electronic 
people and us. We are sitting down and so far these are good 
faith discussions. We have three goals. One is to have a 
broadcast flag. I may be telling you more than you want to 
know, but I think this is important.
    A broadcast flag means that when you bring down a TV series 
or something that is over the air, that is on the networks now, 
and those TV series are all in deficit, they can only get their 
money back when they go into what we call syndication.
    So if they are brought down today and then transferred back 
to the internet, then the worth of those products and their 
aftermarket will go steadily downward. So we are moving very 
good, very good progress on the broadcast flag and I'm hoping 
for the next month or two all these parties will have come to 
conclusion on that.
    The second goal is plugging the analog hole. Now that is 
technical jargon for the following: when something comes down 
from the internet, it is digital. Now when it comes into your 
home, 98 percent of homes today have analog television sets. I 
have got one. So that digital stream comes into your set-top 
box on top of your television set and it is transferred into 
analog, but the minute it is transferred into analog, you can 
view it on your analog TV set, it is stripped clean of all its 
protective garments which means it can go back up to the 
internet with no protective garments. That is deadly. So we are 
trying to have meetings to fix that.
    The third goal is called per-to-per file sharing, what Mr. 
Creighton and Ms. Perlmutter talked about, Grokster and 
Gnutella and Morpheus and KaZaA and all of those where you can 
go in. Literally a million people can be online exploring and 
extracting from each other's hard drive all the movies in the 
world.
    Now, one of the things we found out, and he mentioned 
Buccaneer. Buccaneer was a beautiful case of law enforcement. 
Buccaneer went after what is known as ``Drink or Die'', a bunch 
of arrogant hackers. This entire operation, done by the 
Department of Justice and the U.S. Customs Service, covered six 
countries, 70 search warrants were issued, and I think over 100 
computers were seized with--get this--over 50 terabytes of 
movies in it. Do you know what a terabyte is? That is a 
trillion bytes and indeed one fellow who confessed to his sins 
and is going to jail, I pray, said that he had over 5,000 
movies he put on the internet, and another one we found had 
over 15,000 movies, videogames, computer software and music set 
up on the internet. Now that is what you are dealing with. Now 
that is a lengthy, a long expatiation on that, but my outrage 
sometimes brims over the surface.

                         INTERNATIONAL CONCERNS

    Mr. Wolf. Are your counterparts as equally concerned as 
you?
    Mr. Valenti. Yes. I will give you France, for example. We 
have had a lot of problems in France. The French creative 
community has been upset about the dominance of American films 
in France, but lately there has been this marvelous rapport 
between the creative community in France and the United States. 
Why? Because thieves are equal opportunity thieves. They seize 
everything if it is popular.
    So the French community now, the creative community worries 
about whether their movies are going to be worth anything 
because they are being stolen too. So all of the creative 
communities and the European Union are all, we are girdled 
together cheek by jowls, joined at the hip in this unit, this 
circle of unity.
    Mr. Wolf. Mr. Serrano.
    Mr. Serrano. I just wanted to find out, right on that line 
you were heading there, if there was concern in other countries 
that any of us were indifferent to their problems and I think 
we spoke to it. The French, for instance, were just as 
concerned that their property is being stolen as we are that 
ours is being stolen. Now has this always been the case or have 
we been a little lax here in protecting other people's 
property?
    Mr. Valenti. I think the concern has grown steadily in 
Europe because they recognize that while we have been preaching 
the doctrine of protection, they now see that their own 
precious creative works are in dire peril. As a matter of fact, 
the European Union is now working on a copyright directive that 
my office in Brussels has been working very closely with the 
European Union and with the creative communities of all the 15 
member states, and right now that copyright directive we 
believe is pretty sturdy. I presume you have been examining it 
too, Shira, so that we feel pretty good about that.
    But there is much to be done. China, for example, I have to 
praise the Chinese government. In my visits over there, they 
have really gone after the organized pirates. And they have run 
them out of China. Most of them are now taking up residence in 
Macau, but it is a long border so they are shipping back their 
nefarious goods back into China, but the problem in China is 
street vending, optical disk piracy, and I hope Secretary 
Evans, who is there now--it was pointed out by the earlier 
panel. I will be going back to China later on this year to 
visit with my friends in the various departments and hope to 
see the highest ranking officials there to once more point out 
how we need their help.
    Mr. Serrano. Let me ask you a question here to let us see, 
Jack, if you see a contradiction. I do not, but if you see a 
contradiction. In recent years, we have seen more and more 
inviting bits from upcoming movies on the internet available, 
my understanding, from you folks, from whoever made the film. 
We have seen that with the Blair Witch Project, Star Wars: The 
Phantom Menace, Spiderman, also books and CDs. If you give even 
that much out to the public, while the public has no right then 
to break the law, is that not inviting them to then pass it on 
their friends since it came on that way to them?
    Mr. Valenti. The illegal movies on the internet come from 
several sources. Some of them do come from what we call 
screeners, and that is at Academy Award time, the companies 
will put out to members of the Academy only these screeners. 
They also come from corrupt people in laboratories who take 
$500 bucks and let you use a digital master overnight and it 
can be copied, go to a theater booth and where some--thank God 
it does not happen that often--where some people, some 
projectionists will for a fee let you have the 35 millimeter 
film or you can take these screeners which come in CD form or 
in videocassette form and then go back and copy those.
    Also, you can take a highly sophisticated camcorder and go 
into the opening day of a movie, and it used to be pretty 
awkward before, but now these new camcorders are fantastic, and 
you can record a movie with sight, sound, with great fidelity 
to sight, sound and color. So these are the ways that it is 
being done. And so long as there are people who are willing to 
sell their soul for a few bucks, it is very difficult to stop 
it.
    The only way we are going to have to deal with it is to 
find some technological means through, for example, 
watermarking or some digital rights management that would 
disallow the playing of that movie because it did not have a 
watermark in it from being played in your computer or obviously 
later on instead of the computer you go right into your 
television set. I have great faith in the technological magic 
of America and I believe that the scientists who are working on 
that now are going to come up with a kind of protective garment 
that they need, always knowing, Mr. Serrano, that hackers, 
sophisticated hackers, will bust anything.

                            ORGANIZED CRIME

    Mr. Serrano. One last question. Maybe I have been watching 
too much TV or too many movies, but is there an organized crime 
aspect to this or is this an individual criminal intent that is 
taking place? I mean some of these operations are so big that 
you wonder who is funding them and what role other people are 
playing?
    Mr. Valenti. Good question. I think there is more organized 
crime in analog videocassette piracy because it takes a lot 
more equipment. On the other hand, with DVDs, the equipment is 
more expensive like this DVD lab in New Jersey. In my judgment, 
somebody has organized that. There are some tentacles of some 
criminals that are behind that kind of sophisticated and 
expensive operation. My judgment is that organized crime will 
get into this digital piracy. You know why? The rewards are 
large and so far the risks are small.
    Once you make this too risky for them, that will set it 
back and the way to do that is put a lot of these people in 
jail. I mean doing slammer time and that does make their eyes 
smart, and as Dr. Johnson said, when a man is about to be 
hanged, it does tend to concentrate the mind wonderfully. So I 
think that is the way they need to go after it.
    Mr. Serrano. Well, we thank you for your testimony. I know 
you have to go, and if there is a role that you think the two 
of us can play in the upcoming picture, please let us know.
    Mr. Valenti. Well, I leave you, I think we will have you 
play law enforcement agencies in the next crime movie that will 
come along here. [Laughter.]
    But mainly I want to leave with you, I think we need to 
give these law enforcement agencies more funding, Mr. Chairman. 
I mean that is absolutely essential. We cannot ask them to do 
more and more without giving them more resources in order to do 
the job right. And I urge you to consider that.
    Mr. Serrano. Mr. Chairman, I did have a question and you 
brought it up. So do you think that the laws we have in place 
now are adequate that will need funding as far as current law?
    Mr. Valenti. I think the laws are fairly adequate. The DMCA 
and there are other copyright laws. I probably would consult 
with experts like Shira here and others before I answer that 
question. Obviously, laws can always be improved, but we have 
pretty good laws on the books now, thanks to you and your 
colleagues in the Congress. But as I said earlier, the law may 
be fine, but if it is not enforced, or the law enforcement 
agencies are barren of all the resources they need, what good 
is the law?
    Thank you, Mr. Chairman. Please forgive me for having to do 
this, but----
    Mr. Wolf. Sure. Thank you.
    Mr. Valenti. I am very grateful for this opportunity.
    Mr. Wolf. Thank you. A couple questions for the other 
panelists. With regard to AOL/Time Warner, how much does piracy 
and the theft of intellectual property hurt your company?
    Ms. Perlmutter. Well, it is difficult to give you an exact 
numbers at this point, and perhaps we can get you more 
information after the hearing, but it certainly is a real 
concern and a real threat and cuts deeply into our markets. We 
have seen statistics even in the record industry about the 
downturn in profits from internet piracy just in the last year 
or so, and there is no question that it makes an appreciable 
difference, that it hurts the bottom line.
    Mr. Wolf. Significantly?
    Ms. Perlmutter. Yes.
    Mr. Wolf. Okay. Is your problem more international or more 
domestic?
    Ms. Perlmutter. Well, it is a good question, and I was 
thinking about it as some of the other panelists were 
responding. I think I would say that it is both and that in 
particular, and of course the proportion is always shifting, 
but these days in the area of physical media, whether it is a 
analog or digital media, the problem appears to be worse, and 
please correct me if I am wrong, but the problem appears to be 
worse overseas, whereas when it comes to internet piracy, 
internet issues, of course, because the United States has been 
the initiator of so many of these technologies and programs, 
the problem has been probably greater here and also in Europe 
and in parts of Asia where there is the kind of internet 
connectivity that makes internet distribution possible.
    Mr. Wolf. Are the individual companies somewhat reluctant 
to speak out in foreign countries for fear, and without not 
necessarily yours, but any, for fear that you may anger the 
country involved? Because many times we are dealing with 
authoritarian governments. Is there somewhat a reluctance to 
speak out as a company versus an industry when you see a 
particular problem?
    Ms. Perlmutter. Well, I think ordinarily, no, we do tend to 
work through the trade associations and work as an industry 
because obviously there is strength in numbers and we have 
tremendous expertise in our trade associations abroad. But 
there have been a number of cases where we have had particular 
problems as a company in a country and we have made clear and 
made public that we do have a problem.
    I think part of it is again the realization, as Mr. Burcky 
said on the earlier panel, that these are not problems that are 
unique to American companies, but this kind of disrespect for 
intellectual property rights and failure of enforcement harms 
tremendously local creators and local industries as well. So we 
have a common interest.

                             POLITICAL WILL

    Mr. Wolf. Do you think there is the political will on 
behalf of the government to be very engaged in this issue?
    Ms. Perlmutter. In this country? I do believe so. I think 
we have had tremendous cooperation from all of the agencies 
that have appeared here today.
    Mr. Wolf. So if you went away for two years and came back, 
would you say the problem is getting better or getting worse or 
about the same?
    Ms. Perlmutter. That is a difficult question, because, of 
course, there are so many variables that go into the answer 
including what technologies have developed and what they make 
possible for pirates to do these days. So that is difficult. I 
think progress has been made, certainly in the international 
and through the cooperation of all of these agencies working 
together with the private sector. We have seen progress. How 
that is reflected in exact numbers is a difficult question to 
answer.
    Mr. Wolf. Is it progress that is more connected to movement 
or is it progress with regard to really progress? Many times 
there is activity and clearly the agencies here are beginning 
to move, but Buccaneer has been hailed, and yet I am sure 
Buccaneer is such a small portion of the problem. By breaking 
Buccaneer that did not solve the problem. Sometimes they move 
off to other places, and so I wonder, and I guess there is no 
way of knowing, but is it we are seeing more movement on behalf 
of the government with resources? The committee has put a 
considerable amount of resources, I think over above what the 
administration asked for.
    My sense is it will also take the political will, not only 
domestic but internationally. I had asked the first panel about 
with regard to cutting off, and cutting off foreign aid is not 
the worry. It is an oversimplification, because we are running 
out of time. It is a tool in your tool bench that you can use 
on certain occasions. It is almost never exercised, and when it 
is, it is only done in certain very difficult, egregious cases. 
But the 301 trade sanctions would be one. Education is 
certainly another.
    In many of the law enforcement agencies around the world, 
many are corrupt. You found in the sexual trafficking that in 
many countries where there was sexual trafficking in women and 
children, the police were involved. That the activity did not 
really take place if the police did not want it to take place, 
particularly in authoritarian governments whereby the police 
take their orders from whoever is in charge as to deal with 
this or do not deal with this.
    So would there be some merit to having that as an 
opportunity or a possibility with regard to a reducing non-
humanitarian, not humanitarian, not dealing with the poor and 
the hungry and food and medicine, with regard to cutting off 
some federal dollars?
    Ms. Perlmutter. It is a difficult question for me to 
answer. I would say that I think real progress has been made 
over the years, judging in part from the fact that now most of 
our trading partners do have adequate laws at least on the 
books and now we are moving to the question of enforcement, we 
have moved somewhere.
    We have seen results when we have brought as a country 
TRIPs disputes in the WTO. We have seen results when we 
withheld trade benefits or imposed trade sanctions. But, of 
course, the problem is burgeoning and there is still more to be 
done, and more that needs to be dedicated to trying to resolve 
the problem.
    As to the appropriate way to do it and the right 
allocations of government resources, I do not know that I am 
qualified to answer.
    Mr. Wolf. Sure.
    Ms. Perlmutter. But certainly a high level commitment is of 
extreme importance both in this country and abroad.
    Mr. Wolf. Well, your industry is contributing mightily to 
the economy, and somehow you take a country like Vietnam, for 
instance, or you take a country like the Ukraine, there was an 
FBI over there two weeks ago, which I was relating to, who was 
not able to either interview the witnesses with regard to the 
people who were cutting people's arms and heads off, if you 
will.
    So, therefore, if we are not making a lot of progress with 
regard to the FBI dealing with that, even though a country may 
very well have it on the books, I mean the right to vote and 
the right of freedom of worship was accepted in the Soviet 
Union for years and years. But many people with faith, all 
different dominations, Catholic, Protestant, Jewish, Muslim, 
Buddhist, were not able to exercise their faith, even though if 
they went to court, they could say it is in the constitution.
    It really was the political will and the determination of 
the leadership of that country, and my sense is when the United 
States speaks out and there is the political will on our part, 
using all different legitimate efforts, then the other 
countries know that we are serious, but if our people from the 
State Department go over and hardly ever raise the issue, or it 
is in a kind of a basket of perfunctory things that they raise, 
they begin to say how serious are they?
    My sense is, as Mr. Valenti seemed to say, the law was 
there, that there has been a lack of political will, a lack of 
the commitment on this issue and others, whether it be human 
rights, religious freedom, sexual trafficking, intellectual 
piracy, and there are probably four or five other ones you 
could put there.
    When it becomes a priority item, that when you sit down at 
the highest levels, the Secretary levels and whatever, then the 
country that you are in says we understand this. During the 
days of the Soviet Union, almost every congressional delegation 
that used to go over there used to speak out on behalf of the 
right to emigrate, the right of human rights, the right of 
religious freedom.
    It was literally part of your trip. You got briefed before 
you went by the State Department. They said there were so many 
dissident cases here, and these are the dissident cases. 
Mention this case, mention this case, mention this case, 
mention this case and mention this case. When Secretary of 
State Schultz would go to the Soviet Union, he would meet with 
the dissidents in the embassy, those who want to emigrate, go 
to Israel, come to the United States, he met with them. He 
advocated their case, whereby the Soviets knew, wow, this is a 
high priority of the United States.
    My sense is until this issue becomes like some of those 
issues, the words will be there, the law will say, but the 
enforcement will not take place, and if you could go in some of 
these countries and actually find out really about their law 
enforcement, many times the police are the problem or the 
police are not the solution, and until there is a commitment, 
then there will never be the effort to follow through.
    Let me recognize Mr. Serrano, and then I just have one last 
question. Mr. Serrano.
    Mr. Serrano. Thank you. This question is for both of you or 
either one that wishes to deal with it. But as we said before, 
because there is so much modern equipment now and the ability 
for people to copy items, if you will, I would like to know 
about your internal policing? Do you go based on government 
information? Do you go based on tips from the public? I mean 
how do you try to find out what is out there and what is being 
done, and also what, to each of you, is the largest crime 
committed? In your case, is it recording music and sending it 
out over the internet or is it recording it and selling it on 
the street corner, and is yours an international situation?
    Mr. Creighton. Well, as far as how we actually investigate 
these crimes, you know, I think our industry probably more than 
most other industries has invested significant sums in hiring 
full time investigative and legal staff to conduct these 
investigations. We have offices, full-time offices all around 
the country. We have full-time investigators that are mostly 
all former law enforcement. All of our regional counsel are 
former prosecutors, and it is their job not just to investigate 
the cases, but act as a liaison between our industry and law 
enforcement and prosecutor's offices.
    We think an important part of creating a deterrent, you 
know, in music piracy is following it through to the end, not 
just grabbing the product and using the statistics and the 
numbers, but actually creating the longer term deterrent by 
getting jail time. And so we have lawyers that are dedicated to 
holding the hands of the prosecutors, educating them about the 
statutes that apply and the process and the impact to our 
industry.
    So we spend a significant amount of time there. We also 
spend a significant amount of time training. We need the 
assistance of law enforcement, and so we regularly are training 
federal, state and local law enforcement agencies as to how to 
identify the product, what statutes apply, who to call, et 
cetera. We need them to help be our eyes and ears out there 
because we cannot be everywhere.
    On the internet side, we also employ full-time staff of 
what we call internet specialists whose sole job is to surf the 
internet 24 hours a day looking for all different types of 
violations of our member companies repertoire. We also have a 
legal staff dedicated to dealing with the complexities of 
enforcing the internet environment.
    And we also employ automated tools. Due to the scale and 
scope of the piracy out there, I am trying to do it in a manual 
fashion with the remedies that we have available to us now. It 
is an impossible task. So while technology has created some of 
these challenges, technology has to be part of the solution, 
and right now we are investing a lot of time and money and 
resources and looking at technologies that are going to not 
only help us protect it from getting on the internet in the 
first place, but if it does get out there, help us quickly 
address the significant amounts of piracy on the internet.
    Ms. Perlmutter. I would only add that when it comes to 
enforcement, we do rely very heavily on our trade associations, 
the RIA, the International Federation of Phonographic 
Industries and the MPAA, to help us with that. In addition, I 
know I personally often get e-mail tips from friends who send 
me links to various sites and I immediately pass them on to the 
people who handle enforcement at the appropriate division of 
the company.
    Mr. Serrano. Now, Mr. Creighton, could you for the record 
just tell us what the difference is between the Recording 
Industry Association and ASCAP?
    Mr. Creighton. Well, the Recording Industry Association is 
the trade association that represents about 90 percent of the 
legitimate manufactures of sound recordings in the U.S., so we 
generally represent the producers of the sound recordings. 
ASCAP is a performance society. In essence, they collect 
royalties on behalf of publishers for public performances.
    So every time there is a song played over the radio, ASCAP 
is collecting royalties that go to the artist and the 
songwriter for those performances, where we represent the 
actual producers of the albums or sound recordings.
    Mr. Serrano. Now every time I buy a CD, there is now a 
system by which that cash register or whatever lets who, the 
people you represent, know that that CD was sold in this 
country?
    Mr. Creighton. It is not necessarily the cash register 
itself, but that there are mechanisms in place to track the 
sales of those recordings, and the distribution of the 
royalties associated with those recordings.
    Mr. Serrano. But that mechanism is not also included when I 
buy it?
    Mr. Creighton. I am sorry?
    Mr. Serrano. At the counter, there is no way or how do they 
keep track of that?
    Mr. Creighton. Well, there are a number of ways. I mean 
obviously retailers are ordering from distribution locations 
which are then getting their product from the manufacturing 
location. So a retailer, we are going to know exactly what is 
being sold. There are reporting mechanisms in place, some 
automated, some manual, that let you know what is actually 
being sold and who the royalties need to be distributed to, and 
that is one of the challenges in the internet environment in 
delivering legitimate opportunities for distribution on the 
internet is figuring out a mechanism to take into account 
micro-transactions and distributions of royalties for everybody 
involved and that has a right in those products.
    Mr. Serrano. Right. What is the most common form of 
pirating one of your products?
    Mr. Creighton. Right now in the U.S., it would be the CD 
recordable. You know, going back about five years or so ago, 
the biggest problem was counterfeit cassette tapes. At that 
time, you needed approximately a quarter million dollars in 
industrial machinery and you needed an industrial complex to 
house that, and therefore, you know, our ability to address 
those major manufacturing operations was much simpler than 
today.
    Now, you know, every computer comes with the CD hard 
burner, and you know everybody with a computer has the 
potential to be a pirate, not that they all are, and because of 
how cheap the devices are and how maneuverable they are, you 
know, we are now spending significantly more resources chasing 
many more factories that may be smaller in nature, but present 
just as much of a problem to us.
    Overseas in the physical format, you know, the primary 
problem is still the molded optical disk that is being produced 
by what we call above-ground CD replication facilities. We do 
not have as much of a problem here domestically because 
fortunately we have strict liability under the civil statutes 
where we can actually go after the CD plant as opposed to going 
after the customers. That is more of a problem overseas.
    Mr. Serrano. Okay. And what is the most common form for 
you?
    Ms. Perlmutter. The most common form of piracy, well, 
certainly the music area, I would defer to Mr. Creighton's 
explanation. And obviously internationally the general problem 
with optical disk manufacturing and distribution, and then, of 
course, growing from the United States and spreading outward 
internet distribution, because these new pier-to-pier services 
do enable material to be made available to millions if not tens 
of millions of users within a very, very short amount of time, 
and that is tremendous--represents a tremendous number of 
potential lost sales.
    Mr. Serrano. I have one more question for you, Mr. 
Creighton, and forgive me if I try to present it the way I 
think it needs to be, and it is just a concern I have of a 
situation in reverse to what we are looking at here, where we 
may owe some people some money and some respect.
    ASCAP, you said is responsible for collecting royalties. 
But your association is responsible for paying those royalties.
    Mr. Creighton. Our member companies.
    Mr. Serrano. Your member companies.
    Mr. Creighton. In some respects, yes.
    Mr. Serrano. They pay the royalties. ASCAP makes sure they 
collect them. When I bought the Buena Vista Social Club CD, I 
understood that that had been recorded by Cuban performers 
either in Cuba or in Canada, processed through Canada, and I 
was buying it through a label, a major label. I understand that 
those performers in Cuba, notwithstanding our lack of relation 
government to government, got the royalties for all those CDs 
that were sold worldwide including the ones that were sold 
here. I am probably incorrect on that.
    Mr. Creighton. Yes, there are in many cases what they call 
reciprocal agreements between collection societies.
    Mr. Serrano. Right.
    Mr. Creighton. And that would be both for the performances 
and for the mechanicals, and therefore that is taken into 
account on how to distribute those royalties depending on where 
the sale takes place.
    Mr. Serrano. Okay. Well, I want to alert you to the fact 
that I will be trying through this committee to bring this up. 
At this very moment, somewhere in Florida, in New York, in 
California, with the large growth in the Latin music industry 
that continues to grow, there is somebody recording a song here 
that was written by a person who now lives in Cuba.
    It is my understanding that for the most part of the last 
40 years, we have not sent any royalties to Cuba because of the 
political situation. First of all, are you aware of that at 
all?
    Mr. Creighton. I am not aware of that.
    Mr. Serrano. And if so, is there an abeyance department 
where some person in a nursing home in Cuba now could find out 
that he has got a million and a half dollars waiting for him in 
the United States?
    Mr. Creighton. Well, it sounds to me like it is not our 
industry that really is at issue here. It sounds like it is the 
collection societies that may be holding back those payments. I 
am not sure of what reasons may be facilitating that, but there 
are also scenarios where we see this quite often where people 
that need to pay royalties cannot identify who the artist is or 
cannot track down where that artist is or the performer or the 
songwriter, and therefore they hold those royalties in escrow, 
you know, pending trying to locate that.
    We are having this problem right now in the online 
environment where we are collecting royalties for distribution 
to artists and record companies for web casting, for streaming 
audio.
    Identifying all of the artists and singers and songwriters 
and publishers, you know, for all of the different songs that 
are out there is a difficult proposition, and you cannot track 
them all down. So we hold money in escrow and we publicize in 
public forums the fact that we are holding these monies for 
these individuals in the hope of tracking them down.
    Mr. Serrano. Right. Mr. Chairman, that is my last question. 
The reason I wanted to make clear to you, Mr. Chairman, the 
reason I brought that subject up is because it is a slight 
contradiction. While we are rightfully concerned about who is 
ripping us off, it is possible that in this particular area 
where some of the best Latin music that we are all crazy about 
in this country has come from, we have been ripping off artists 
in that country now for years, simply either because there is 
not a mechanism to get the money from the recording industry 
over to ASCAP or because no one is asking for it, or because a 
lot of people said you do not have to ask for it, forget it, 
just make the money, sell it here and do not give anybody a 
penny, or as you have said, because there is not the political 
will in the industry to say notwithstanding how we feel about 
their political system, every time somebody sells a record in 
this country where the song was written by someone over there 
or played on the radio where I understand the composer gets 
money also--when the record is put on the radio, the performer 
gets no money; right?
    Mr. Creighton. The composer gets money. The record 
companies do not.
    Mr. Serrano. Exactly. The composer. So I am talking about 
composers. We probably would have some day a case, a court 
case, talking about hundreds of millions of dollars that are 
owed over these 40 years, and I just wanted to put that on the 
record.
    Thank you so much, both of you.
    Ms. Perlmutter. Thank you.
    Mr. Wolf. I want to thank you both. Your full statement 
will be in the record. We will have a number of questions that 
we will follow up, but thank you both.
    Mr. Creighton. Thank you.
    Ms. Perlmutter. Thanks.
    Mr. Wolf. What we thought we would do is hear from 
Professor Adelman from George Washington University for a brief 
history and then recess for about five minutes and then go into 
the last panel. I know this is taking longer than many people 
thought, but I think it is an important issue, so I think we 
are going to give it enough time.
    Professor, if you could begin, your full statement, will 
appear in the record as read and then after the professor 
finishes, we will take a brief recess.
                              ----------                              

                                           Tuesday, April 23, 2002.

            INTELLECTUAL PROPERTY: A HISTORICAL PERSPECTIVE


                                WITNESS

DR. MARTIN ADELMAN, PROFESSOR, GEORGE WASHINGTON UNIVERSITY

              Opening Remarks of Professor Martin Adelman

    Mr. Wolf. Go right ahead.
    Mr. Adelman. Mr. Chairman, Mr. Ranking Member, it is my 
pleasure to be here and to talk a little bit about the patent 
system. We have been talking about copyright and piracy, but 
probably overall in terms of the American economy, our patent 
system is the most important of the intellectual property 
rights.
    And in that regard, I have submitted a statement on patent 
history, but I thought I would just mention briefly that the 
belief in the patent system, in intellectual property in the 
United States is not necessarily as strong as people like me 
would like, and I think right now we are in a period where it 
is being challenged both in the United States and abroad, 
including the failure of our trade representatives to stick up 
for the patent system in Doha.
    But this has a long history. Just to give you a little bit 
of the history, you know in the 1930s, the patent system was 
blamed for the Depression. There is a famous article by 
Professor Hamilton of the Yale Law School and I think that 
influenced the Supreme Court and Thurmond Arnold who set up the 
Antitrust Division or reinvigorated it under the Roosevelt 
administration, and things got so bad in the United States that 
Mr. Justice Jackson wrote that the only valid patent is one 
that the Supreme Court has not got its hands on, which if you 
looked at the Supreme Court decisions after the Depression was 
about right.
    Congress made some effort to change that in the '52 Patent 
Act, but then Congress commissioned a whole series of studies. 
One of them was by Fritz Maclab [ph], one of the most famous 
economists of the time, and he wrote a very, very influential 
piece that I believe has damaged our economy ever since, and he 
concluded by saying that, well, if we did not have a patent 
system, we certainly would not want to adopt one, but since we 
do have a patent system, we do not have enough evidence to 
repeal it, so we would keep it.
    That was the basis for considerable number of attacks on 
the patent system. Many of us perhaps have forgotten that Estes 
Kefauver probably tried to run for president on beating up on 
drug patents, did a lot of damage. But fortunately we never 
actually changed our laws.
    The Justice Department, the Antitrust Division, set up a 
whole section of intellectual property run by my good friend 
Dick Stern and they were out after patent doctrine and the 
patent system. There is not much question about it, and that 
only died in the early 1980s when the Justice Department got 
badly beaten in the Court of Appeals for the District of 
Columbia in a famous case, and that ended that attack.
    The other thing that helped the patent system really was 
the collapse of antitrust, which collapsed not during the 
Reagan administration, but actually collapsed in 1978 when you 
could see that the intellectual underpinnings of much of 
antitrust fell apart and that fairly well ended for that time 
the attacks by our government on the patent system.
    We had then a resurgence of support for the patent system, 
which led to many changes in our laws, very good changes in our 
laws including the creation of the Court of Appeals for the 
Federal Circuit. And the Federal Circuit corrected many of the 
errors of the Supreme Court and fixed things for awhile and now 
has to work out a lot of some difficult points.

                        FEDERAL TRADE COMMISSION

    However, if you look around, what is the Department of 
Justice doing in the Federal Trade Commission, but holding a 
whole series of hearings about intellectual property. Clearly 
the National Science Foundation is doing that as well. And I 
venture to tell you that this is not going to be good for the 
patent system and intellectual property. This is I guess every 
20 years, you have to try and beat up what has been good for 
you. It is human nature.
    And also the Federal Trade Commission does not have much to 
do. I can show you that. And what they are doing actually in 
bringing cases, I support, but what they are doing in terms of 
hearings will not lead to anything good.
    But this just is to show, if we look at the history of the 
patent system, that we always have to fight the battle. This is 
not a system that people accept readily. In many ways it is 
counterintuitive. It is also associated with capitalism, and it 
is needs defending both nationally and internationally. I also 
have to report that my profession is primarily associated with 
people who want to weaken the intellectual property system. 
That just seems to be endemic at least for the time.
    So, while I think we get support and everybody would agree 
that, you know, piracy is bad, when we start looking at things 
more generally, we have to worry that forces that are opposed 
to intellectual property, property rights, intangibles, are 
very much in evidence and constant vigilance is necessary.
    Mr. Wolf. You maintain then this is a cycle?
    Mr. Adelman. I maintain it is a cycle.
    Mr. Wolf. Thank you very much. Mr. Serrano.
    Mr. Serrano. Well, you said that your profession, I think 
you said?
    Mr. Adelman. Academics.
    Mr. Serrano. Right.
    Mr. Adelman. Right. IP academics in law school.
    Mr. Serrano. Okay. Why do you think that they would want to 
weaken what we have?
    Mr. Adelman. To some extent, let us take drugs. People who 
were sympathetic say, you know, patents raise the cost of 
drugs, and as a result, gee, would it not be better for people 
if we figured out a way for the government to pay for drugs? 
And if the government would buy intellectual property rights? 
This is now a popular thing in the academic literature. It is 
absurd. I mean there is no way.
    And it is an old idea, a discredited idea, but nevertheless 
if you have people who are thinking about perfection in a 
perfect world, they may think, well, gee, let us have the 
government do this or buy patents and then the prices can be 
kept lower, which would be the case.
    Now we would not have the drugs, and we would not have the 
incentives, but they would argue, no, no, no, the government 
would pay. Well, you cannot really work out the details, but I 
think that is part of it. Part of it is ideological. The 
profession, if you took the people in elite law schools and 
counted up the ballots in Bush v. Gore, you would think that 
Bush got five percent of the vote in the election. It was 
almost even, but in academia, it would have been five percent 
or ten percent.
    Whether that tells us much, I do not know. I try to think 
myself why is this? Why do most of my colleagues find fault 
with the system? Why are they hysterical about the Digital 
Millennium Copyright Act? Hysterical. I will show you the 
academic literature. The world is going to end. I mean our real 
enemy is not Osama bin Laden. It is the Digital Millennium 
Copyright Act. Why? It is a good question.
    Mr. Serrano. Thank you.
    Mr. Wolf. I thank you very much, professor. We will have 
some questions that we will submit to you.
    Mr. Adelman. Fine. Thank you very much.
    [The information follows:]
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    Mr. Wolf. We will take a five minute recess.
    [Recess.]
                              ----------                              

                                           Tuesday, April 23, 2002.

                           SECURING SOFTWARE


                               WITNESSES

ROBERT HOLLEYMAN II, PRESIDENT, BUSINESS SOFTWARE ALLIANCE
RICH LaMAGNA, SENIOR MANAGER, WORLDWIDE PIRACY INVESTIGATIONS, 
    MICROSOFT CORPORATION
JEFFREY PAYNE, PRESIDENT AND CEO OF CIGITAL, INC.
    Mr. Wolf. The committee will reconvene. All your statements 
will appear in the record as if read. You might want to 
summarize in light of the time, but we want to hear from you 
and also have an opportunity to ask you some questions. We have 
read all your statements or two of the three we have read, and 
so with that, let me just see if Mr. Serrano has any comments 
and then----
    Mr. Serrano. No comments. Thank you.
    Mr. Wolf. No comments. First, we will have Business 
Software Alliance and then Microsoft's, and then Cigital.

                   Robert Holleyman's Opening Remarks

    Mr. Holleyman. Mr. Chairman, Mr. Serrano, my name is Robert 
Holleyman and I am the president and CEO of the Business 
Software Alliance. Delighted to have this opportunity this 
afternoon to talk to you a little bit about some of the 
principal concerns of a number of the leading software and e-
commerce companies who deal with piracy on a daily basis and 
BSA is involved in that fight with member companies like 
Microsoft and other leaders in the industry.
    And we believe it is particularly important for a district 
like yours, Mr. Chairman. There is probably no better example 
in the country of the type of innovation that can come out of a 
high tech district like Northern Virginia, and so certainly 
anything that robs high tech workers of the rewards of their 
labors or that hurts the U.S. software industry like the 
problem of theft is one we cannot ignore and we appreciate the 
subcommittee's attention.
    I very deliberately used the term ``theft'' because I think 
if you dealt with any other enterprise in America, retail or 
other enterprise, if things were walking off of store shelves 
or elsewhere, we would refer to it as theft.
    When the CEOs of our companies come to Washington on a 
regular basis, they view it as theft, so we do as well. But it 
impacts more than the software industry. Globally software 
piracy, as you said in your opening statement, Mr. Chairman, 
nearly 40 percent, 38 percent of all the business applications 
in use today for software around the world are pirated. In the 
U.S. that grade is 24 percent.
    I know you have asked questions to prior witnesses about 
whether the levels of piracy are greater outside the U.S.? To 
give you an example, more than a quarter of the dollar losses 
due to software piracy occur here in the United States.
    So we look at the twin issues of the international problem 
and the domestic problem, but simply looking at the domestic 
problem of piracy of software in the United States, and I am 
talking about business software, we have estimated that in 
2000, that resulted in a loss of $5.6 billion in wages to 
American workers, $1.6 billion lost tax revenues, and roughly 
180,000 jobs that were not available.
    In a bricks and mortar world, local, state and federal 
resources combine to fight conventional theft. But for software 
and other forms of IP, the federal government is the only cop 
on the beat, and I think that is an important distinction to 
remember, because it is very rare for federal resources to be 
the only law enforcement resources that are deployed, as it is 
the case for software and intellectual property.
    With that said, BSA members believe that the principal 
responsibility for fighting copyright pirates rests with the 
owners of the content. And we do this through both our own 
investigations and by working with law enforcement authorities.
    Like other content industries, we bring hundreds of civil 
enforcement actions when we find infringement each year in this 
country, and globally we watched tens of thousands of 
enforcement actions each year. Some of those are civil, some of 
those are in conjunction with national government resources.
    We also as Mr. Serrano spoke of earlier, we also believe 
that education is a critical component of this long-term fight. 
Indeed, most recently, we have partnered with the Hamilton Fish 
Institute on school and community violence under the George 
Washington University for part of this educational effort.
    And finally, though, there are cases where we need to turn 
to federal law enforcement because of the unique investigative 
powers of federal authorities or in cases where civil actions 
alone will not deter future instances of piracy.
    And in those cases, we bring our own investigative tools to 
the table. We do not simply place a call asking for Justice 
Department to help, but in fact we try to work with them 
cooperatively. In my written testimony, I identified five key 
roles of Congress. In light of the time this afternoon, I think 
I would like to focus on two that I think are most important.
    One is the issue of resources and second is the issue of 
oversight. First, Congress through the work of your 
subcommittee has begun to ensure that there are appropriate 
federal resources for federal prosecutors to bring more 
meaningful cases.
    Over the past two years, this subcommittee worked with the 
IP community and with the Justice Department to ensure that 
there were dedicated resources for IP and computer crime. As a 
result, more cases are being brought. From just a few in 1999, 
there were over 20 in 2001. And this is a very good start, Mr. 
Chairman, but I know all of us in this room agree that even 
more will be needed to ensure that we make substantial 
reductions in the high levels of software piracy that exist.
    The creation of the Computer Hacking and Intellectual 
Property units, of which there are ten in this country, does 
provide an important regional cop on the beat. Indeed, one of 
these units headed through the office of Mr. McNulty, who was 
on the panel earlier this morning, certainly showed what can be 
done. We have trained and dedicated agents and prosecutors 
focusing on these issues.
    I also add the second key issue that I think is for the 
appropriate role of congressional oversight about how federal 
resources are spent. And I would very strongly encourage this 
committee to maintain its requirement for DOJ to report 
annually on the number and nature of copyright cases it 
prosecutes. This is critical to help Congress assess new needs 
as they arise.
    In summary, Mr. Chairman, this committee has a significant 
role to play in fighting software theft and BSA welcomes the 
role of this committee in that. It is important for both your 
constituents here, but I also think it is important for us as 
an economy to ensure that the contributions of software and the 
contributions of intellectual property are properly valued in 
our economy as a whole.
    It is also, in terms of internet piracy, counterfeiting, 
and conventional end-user piracies for software, important to 
send the right message of deterrence.
    We need to know as we move into an online world that the 
same standards we have for legality in our bricks and mortar 
world and on Main Street are ones that we carry into our online 
transactions. So thank you on behalf of our members for the 
opportunity to testify.
    Mr. Wolf. Thank you.
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                    Opening Remarks of Rich LaMagna

    Mr. Wolf. Mr. LaMagna.
    Mr. LaMagna. Chairman Wolf, Ranking Member Serrano, and 
members of the subcommittee, my name is Rich LaMagna, and I am 
senior manager for Worldwide Piracy Investigations at Microsoft 
Corporation. I joined Microsoft in 1999 after a 28 year career 
as Special Agent, serving with the DEA and FBI investigating 
international drug trafficking.
    I want to thank you and the members of this committee for 
your continued support of our nation's law enforcement agencies 
and for holding this important hearing today. In particular, 
Microsoft appreciates the funding you included in last year's 
appropriations bill for the Department of Justice to increase 
investigations and prosecutions of intellectual property 
crimes, including software counterfeiting.
    Already the DOJ, the FBI, and the U.S. Customs Services 
increased attention to IP enforcement is beginning to bear 
fruit, and we heartily commend them for it. Two recent cases 
stand out. Last November in southern California, U.S. Customs 
Service made the largest counterfeit software seizure in U.S. 
history valued at over $100 million. Operation Buccaneer has 
already been mentioned. And just last week, in San Jose, 
California, the FBI's Operation Cyberstorm resulted in the 
arrest of 27 individuals and seizure of $75 million in 
counterfeit and fraudulent software.
    This operation successfully dismantled a high level 
criminal enterprise. The additional resources provided by your 
subcommittee will enable federal law enforcement agencies to 
build on these successes.
    Software counterfeiters go to great lengths to make fake 
product look genuine. The goal being to deceive the customer, 
avoid detection by law enforcement and maximize profits. Here 
is a counterfeit copy of Microsoft Office 97. As you can see, 
it is very high quality designed to deceive the consumer. Even 
the most sophisticated consumer would have great difficulty in 
distinguishing it from the genuine. There is no question that 
sophisticated counterfeits defraud consumers and displace 
legitimate sales of Microsoft products.
    With Microsoft Office 97 alone, we estimate that the 
company lost more than $1.3 billion from counterfeiting 
activity. Software counterfeiters use state-of-the-art 
technology to create counterfeit CD-ROMs in packaging that bear 
all the hallmarks of the genuine product.
    For many years, Microsoft has worked to outpace 
counterfeiting technology by developing product authentication 
features that help consumers and law enforcement distinguish 
legitimate software from sophisticated counterfeits.
    For example, the certificate of authenticity, or COA, on 
the side of the software package, right here. It has a number 
of security features imbedded in it. It incorporates security 
features such as special inks and microtext that authenticate 
Microsoft software.
    Another example is the highly sophisticated and costly 
technology of the edge-to-edge hologram. This is on our most 
recent office products and is a feature that counterfeiters 
have had some difficulty in defeating. This feature alone costs 
Microsoft several millions of dollars to develop.
    But counterfeiters have developed clever simulations of the 
hologram that could easily fool an unsuspecting consumer. They 
have created a stick-on label that looks like an edge-to-edge 
hologram and put that over a counterfeit CD. Increasingly, the 
most sophisticated counterfeits combined fake CD-ROMs and 
packaging with genuine features. In the past year, nearly 
100,000 Microsoft certificates of authenticity were stolen from 
authorized replicators in southern California.
    Certificates of authenticity are highly valued commodities 
with a cash value on the street and are prized by 
counterfeiters. When coupled with counterfeit software, they 
create the appearance of authenticity and increase the 
product's appeal to consumers who would not knowingly purchase 
counterfeit goods.
    Again, this is clearly designed to deceive consumers. 
Currently, federal law does not provide adequate civil and 
criminal remedies to combat trafficking in software authentic 
features or the combination of stolen package components with 
counterfeit CD-ROMs.
    To close this gap, Microsoft urges Congress to enact 
legislation that would prohibit trafficking in genuine 
authentication features or software components. The 
distribution of counterfeit software in many ways resembles the 
international narcotics trade.
    Indeed, in working with the music and motion picture 
industries, we found some evidence of a nexus between 
counterfeiting, drug trafficking and organized crime. With 
potential profits in the billions, it is hardly surprising that 
organized crime is deeply involved in the counterfeiting trade.
    Counterfeit manufacturers are often based in countries with 
weak IP enforcement and rely upon a global network of 
distributors to market the counterfeit software. The internet 
has made it possible and convenient for counterfeiters to make 
direct contact with consumers in every part of the world. 
Although Asia continues to be the major source of sophisticated 
counterfeit software, manufacturing facilities exist throughout 
the world, even in the United States.
    To win the war against counterfeiting, it is critical that 
law enforcement agencies in the United States and throughout 
the world treat software counterfeiting as a major crime 
priority. We urge you to support modest increases in funding 
for the investigation and prosecution of software 
counterfeiting and other IP crimes. Your subcommittee's 
commitment to intellectual property enforcement will help 
protect one of the United States' most valuable economic 
assets.
    Again, thank you for holding this hearing, and if I may, I 
would like to suggest that perhaps a year from now we could do 
a follow-up hearing to monitor our progress in this area. Thank 
you very much.
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                     Jeff Payne's Opening Statement

    Mr. Wolf. Mr. Payne.
    Mr. Payne. Thank you, Chairman Wolf, Ranking Member 
Serrano, for the opportunity to present and discuss today 
issues around intellectual property and protecting our 
intellectual property. I have submitted a written copy of my 
testimony for the record.
    Mr. Wolf. It will be in the record.
    Mr. Payne. And I will be very brief today in my comments. 
First of all, I want to commend you, Chairman Wolf, for your 
leadership in tackling this issue. This is a very large issue 
and it does affect the well-being of all of America, in 
addition to, of course, the many software companies and digital 
media companies right here in our home district of Northern 
Virginia.
    My name is Jeffrey Payne, and I am the CEO and co-founder 
of Cigital. We are located here in Dulles, Virginia, and during 
our ten-year history, we have distinguished ourselves as the 
authorities on software risk management. We help companies, 
Fortune 500 companies, protect themselves against the 
consequences of software failure, malicious code attack.
    For the past four years, Cigital has been one of the 
fastest growing companies here in Virginia and our research 
lab, Cigital Labs, has been the better part of ten years 
inventing new technologies to protect software, software based 
systems against attack, copy protection, privacy, piracy, et 
cetera.
    My purpose of testifying here today is really to focus on 
the technology issues around protecting software and protecting 
digital content in general. There has been a lot of discussion 
about fair use and consumer rights and other aspects that I am 
not really going to focus on, but let me state for the record 
that while we all might disagree on exactly how to go about 
protecting our intellectual property, our digital content, I 
join everyone here on this panel and everyone here today 
condemning those who steal intellectual property and I want to 
help identify ways in which we can curb or reduce piracy.
    In general, the mechanisms for protecting software from 
piracy, the technology mechanisms for doing so, has failed 
miserably, and my colleagues will probably agree with me that 
as a result of this, there is a definite trend away from 
protecting software through technical solutions and relying 
upon technical solutions as the only means of combatting piracy 
in copying of technology.
    It has proved to be a very difficult problem, and there is 
really no discernable business case for strictly protecting 
software and trying to stop people from copying it. There are 
many reasons for this, and I think that it is important to 
understand these reasons, as these lessons can certainly be 
applied to other forms of digital content, such as music and 
video and things we heard earlier today. They are very 
interrelated.
    The first lesson that Cigital has learned is when it comes 
to software, the only absolutely secure computer is one that is 
unplugged, it is turned off, it is encased in concrete and it 
is buried in a hole. Viewing computer security as anything 
other than a series of tradeoffs between the amount of security 
that you need or you desire and what your customers need and 
the end-user needs of your customer is a mistake. There is 
definitely a tradeoff scenario.
    The second lesson is that technology to secure software and 
a hacker's ability to circumvent that technology is basically 
an arms race, something we can never win. It can be shown 
scientifically that no perfect solution, no perfect technology 
solution exists or possibly can exist to fully protect software 
against attack or piracy. This means that piracy is always 
going to be an issue, and we need to take a multifaceted 
approach to dealing with it.
    The last lesson is that computers in the internet were 
built to be very general purpose. By this, what I mean is they 
do not really know and should not have to know what the 
contents of an application or a piece of content that they are 
using does or understand anything about it. To do that would 
really restrict computers and software applications on those 
computers to really where software or content would have to be 
built specifically for certain devices or computers.
    And as consumer devices become more and more general 
purpose, it is going to become even more and more difficult to 
deal with these issues. It is a very hard problem. So my 
advice, these lessons that we have learned in the software 
industry, as applied to media companies is this. First, learn 
from the software industry. We have been trying to deal with 
this problem, as these guys will tell you, for a long time with 
some successes and some failures, and media companies should 
leverage that.
    Certainly, we should spend time and effort inventing 
technology solutions to try to combat and deal with this 
important problem. However, we cannot expect technology to 
solve the problem. We need to seek a balanced solution that 
uses technology appropriately but also increases piracy 
prosecution and as was mentioned earlier user education.
    My advice to Congress is twofold. First, we cannot mandate 
a technology solution to protect digital content at this time. 
The only thing I believe worse than no standard is a bad 
standard, and at this point no technology solution that I know 
of is this magic solution that was alluded to earlier that 
would pass public scrutiny and be strong enough to warrant any 
kind of congressional action.
    I do believe, and I have heard today this same belief from 
many others, that the best means of thwarting professional 
piracy is really to work to put in place better enforcement 
mechanisms, better trade agreements with other countries such 
as China and Vietnam and other places, where their acceptance 
into our trade community is conditioned upon them accepting our 
international copyright laws and all associated enforcement 
procedures.
    So, in summary, as the technologist here today, I strongly 
support the idea of using technology to solve business 
concerns. However, we need to make sure that we have an actual 
practical viable solution before we begin to make standards 
around those solutions. Mr. Chairman, Ranking Member Serrano, I 
thank you once again for your time, and I would be happy to 
answer any questions you may have.
    Mr. Wolf. Well, thank you very much.
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                       Chairman Wolf's Questions

    Mr. Wolf. Information taken from the Sixth Annual Business 
Software Alliance Global Software Piracy Study is not 
encouraging. For the first time in the study's history, the 
world's piracy rate did not decline but instead showed an 
increase.
    I asked in a different way the same question to the other 
panels--its if you left for two years and came back, is it 
getting better, it is getting worse? I know there is movement 
and the committee has put additional funding in and there have 
been more cases brought, but where are we today, and is it 
better, worse, or about the same?
    Mr. Holleyman. Well, why do I not take a start at that 
since we released that study.
    Mr. Wolf. Okay.
    Mr. Holleyman. Two things.
    Mr. Wolf. How you define it is different. Is it better? 
Well, it is better because there are more people interested, 
but overall the problem. I mean I would have to say it is 
better today because there is certainly more funding for that 
at the FBI and Justice and McNulty and his teams. I was not 
meaning so much from those conditions. That is better, but is 
the problem of piracy, the problem, not so much how we are 
responding?
    Mr. Holleyman. Software piracy can probably be broken into 
three components. The biggest problem globally is when 
organizations make unauthorized copies for the use of their 
organization. They may have 50 percent of their software is 
legal, they had another 100 workers and rather than get 
licenses for those 100 workers, they just make unauthorized 
copies. That is the biggest problem worldwide.
    That problem is probably better today than it was five or 
ten years ago. It is certainly a huge problem.
    Mr. Wolf. Is it better because it is better in the United 
States and that is weighted heavily or is it better all over?
    Mr. Holleyman. It is better all over, because more large 
enterprises, whether an academic institution or a business or 
government, are learning they need to better manage their 
software.
    Mr. Wolf. If that problem was 100 percent, it is down to 
what now? 33?
    Mr. Holleyman. It is still I think more than 50 percent of 
the cause of software piracy, but as opposed to a decade ago, 
where 70 plus percent of all the software in use around the 
world was pirated, we are now down to 36 percent.
    The two biggest problems that I think are growing rapidly 
now is, one, the problem of counterfeit piracy, which Mr. 
LaMagna refers to, because of the greater sophistication among 
the pirates. And secondly, as the internet grows as a means of 
distribution of product, the online theft incidence is also 
growing rapidly.
    Mr. Wolf. Okay.
    Mr. LaMagna. If I may comment, sir, from our perspective, 
we believe it is getting worse, and there are a number of 
reasons for that, one of which is the capacity of the optical 
disk replication industry has greatly increased, but apparently 
they do not have enough work. So increasingly, we see some of 
them turning to illegal replications. So that is one issue.
    Secondly, many areas around the world are getting much more 
sophisticated. As the technology becomes available to them, 
replication becomes easier. CD burners, for example. Just as an 
example, we had one case in Seattle, one gentleman, who was 
working out of his house burning a thousand CDs per day and 
shipping out between five and 10,000 a week through Fed-Ex and 
other express carriers.
    He was a one person operation. Records show that in a 
year's time, he had grossed over a million dollars in sales. 
His cost per CD was probably about two dollars. So that is 
another form of piracy that we are concerned about because the 
technology has made it easy to do.
    And then thirdly, as Mr. Holleyman suggested, the internet 
has made it much easier for international criminals and pirates 
to find customers, to move money, to make contacts, and they 
maintain some degree of anonymity, so it has been a great boon 
to the legitimate business world, but also to criminals. So we 
see it as a problem that is on the increase.
    Mr. Payne. Mr. Chairman, if I may add one comment. We 
definitely see it on the increase, and from a technology 
perspective, there is a couple things that might even suggest 
that it will accelerate if we do not figure out better means of 
really policing and enforcing the laws that we have, and that 
gets to the fact that software is easier to protect than things 
like media that are now popping up, but unfortunately, or 
fortunately, depending on your perspective, software is 
becoming like media. It is becoming content that things, if you 
have heard of XML and other things that go across the internet 
and run and do things, look a lot more like media than they do 
your traditional software applications.
    And that means over time it is going to be harder and 
harder to enforce anything technologically for software. Second 
is that media devices, which today are pretty simple, like DVD 
players and televisions and Tivos and things like, that are 
becoming general purpose computers. It is a lot harder to 
protect and prohibit copying of a general purpose computing 
engine than it is a specific device.
    So if you see those two things both headed in that 
direction, that means that the problem in software is going to 
become more difficult and the problem in digital content in 
general is going to become more difficult to deal with.
    Mr. Wolf. So is there the political will, do you think, 
political interest now, which could lag, could be getting 
better while the problem is getting worse, but do you now see 
that? And if you were both policymakers in the administration, 
do you believe that you now have, or looking from outside in, 
is there a coherent policy now? Does State raise these issues 
enough when they are in certain countries? Does the Trade Rep's 
Office coordinate enough with State? Are the cases that are 
outside the country, both inside the country, being coordinated 
with Justice?
    Does that then translate down to the U.S. Attorney? I mean 
who is in charge? Are you confident that there is the political 
will to kind of now deal with this issue?
    Mr. LaMagna. Mr. Chairman, we have seen a tremendous amount 
of progress in our own government, in the federal government.
    Mr. Wolf. Within the last 15 years or 15 months or----
    Mr. LaMagna. I can speak for the past three years.
    Mr. Wolf. Three years.
    Mr. LaMagna. We have seen tremendous improvement, and one 
of the things I really want to point out is their willingness 
to partner with the industry and with companies such as 
Microsoft. They have been tremendous in that respect, although 
there is room for improvement, and I am aware that the FBI, I 
believe, is creating a cybercrime division.
    Mr. Wolf. Yeah.
    Mr. LaMagna. And we are very hopeful that that is going to 
help. With regard to our foreign policy, I see many 
similarities to the drug issue, and many countries view this as 
a Western problem, view it as a Microsoft problem or some other 
company's problem, and I think that we have to do more in terms 
of getting this on the foreign policy agenda and getting it 
higher, not only the issue at the policy level, but then real 
enforcement.
    And quite often the issues we run into abroad--we have 
Microsoft investigators all over the world--is that (a) lack of 
political will; (b) corruption; (c) lack of expertise; (d) lack 
of dedicated resources. And again, I am very familiar with the 
drug issue, particularly in Asia. Even if they had the 
political will, they did not have the means, the money, the 
technology, you know, cars, radios, those kinds of things, to 
do these type of investigations.
    So it is a multifaceted problem that we have to address 
both at the policy level and at the kind of working level and 
training level.
    Mr. Wolf. Well, let me ask you. Taiwan and China? Is there 
a problem in China? I know the answer, but is there a problem 
in China?
    Mr. Holleyman. Yes.
    Mr. LaMagna. Yes.
    Mr. Wolf. Is there a problem in Taiwan?
    Mr. Holleyman. Yes.
    Mr. LaMagna. Yes.
    Mr. Wolf. We have a very good relationship with Taiwan. We 
are basically its defender, if you will. I have been a 
supporter of Taiwan over the years. One would think then that 
the Department of Defense would have a special relationship 
with Taiwan and would be able to say to the Taiwanese 
government this is important to us. This is a priority for the 
United States government. This is a priority for this 
Administration. We are now asking you, because you do want our 
help, as other issues come up, we are asking you to cooperate. 
That is why we asked the question on Taiwan with the gentleman 
from the State Department. Do you see this, and then the other 
side of the coin is we have less impact with China. Are our 
people, and we appreciate Secretary Evans raising it, do you 
see that effort being made on both different types of 
countries, one close to us and one not, that have an impact? 
Would you not think that if it was a major priority, that the 
Taiwanese government would get the message?
    Mr. LaMagna. Mr. Chairman, what I see from our perspective 
is that there are efforts being made at the policy level, and I 
am not singling out Taiwan, but many countries will pass 
legislation and they believe that that is simply doing enough.
    Mr. Wolf. Right.
    Mr. LaMagna. But where the rubber meets the road and real 
enforcement has to take place and international cooperation, 
that is where I see many countries lacking.
    Mr. Wolf. Right.
    Mr. LaMagna. It is a real breakdown when it gets down to 
that level.
    Mr. Wolf. Do you have any comments?
    Mr. Holleyman. I guess I would add two things. One is the 
U.S. needs to use every mechanism through trade and leverage 
that we can to bring these issues.
    Mr. Wolf. You just said trade, trade leverage. What if a 
country wanted to get into NATO, what if they were just panting 
to get into NATO, and this Country X was violating intellectual 
property and was a leader in piracy, would you not say to them, 
hey, you want to get into NATO or you want to be part of us and 
you are doing this? So trade, you know, if you are wimpy on 
this thing, you really may get wimpy results.
    Ronald Reagan, who I felt was a great President, spoke out 
very eloquently. He called the Soviet Union the ``evil 
empire''. He was criticized when he spoke out with regard to 
that, but clearly everyone in the ``evil empire'', the 
leadership of that group, knew who they were at the time Reagan 
gave his speech.
    You really on this issue, if you all believe as deeply as 
you do, just to narrow trade sanctions, there may be a country 
that wants to be part of NATO. There may be a situation in 
Taiwan. Taiwan is our friend. They rely on us. We want a great 
relationship with Taiwan. But on the other hand, if we want to 
be helping Taiwan, they ought to be certainly cooperating 
legally with regard to our law. So I would not just narrow it 
down to trade because that may not get you where you want.
    Mr. Holleyman. Well, I think we focused on trade because 
historically that has been the greatest leverage, and having 
worked with a succession of U.S. Trade Representatives, I can 
say when the U.S. government through whatever resources focuses 
like a laser on this problem, they can see fairly dramatic 
reductions in levels of piracy. And I will not give you all the 
examples, but we have seen piracy rates cut dramatically in 
countries where the U.S. has been successful in working with 
that government to come up with a solution.
    Mr. Holleyman. By speaking and focusing and thinking 
creatively.
    Mr. Wolf. Now I know the business interest gets very 
anxious with regard to sanctions and reduction or cutting off 
of foreign aid or something like that. I do not know if you 
were here when I raised the situation of the--what are your 
feelings with regard if we could demonstrate that by coming 
into a country like the Ukraine, which I understand is a 
violator of this, that they would know that they may very well 
lose some financial support from this government if they did 
not deal with this issue.
    Or do you just narrow it down to trade sanctions or would 
you also be open to go to other areas also?
    Mr. Holleyman. Well, I think we would welcome the 
opportunity to work with Congress as you think of appropriate 
mechanisms to deal with it. Historically, we thought about it 
from a trade perspective, but we would be eager to discuss this 
with you further.
    Mr. Wolf. Okay. How do you feel?
    Mr. LaMagna. Mr. Chairman, we found that the countries 
where we have been most successful are countries where we can 
actually get in there and work with them on a day-to-day level 
and engage them on these issues, but I think over a period of 
time, in the long run, if the evidence shows that a certain 
country is not fully cooperative or is not making sufficient 
efforts, then I think that is certainly something worth 
considering.
    Mr. Wolf. Anything else?
    Mr. Payne. I agree that Ronald Reagan was a great 
president, and he also said trust but verify, and I think your 
point about or the point made by the gentleman about there 
being laws on the books or we can put laws on the books all we 
want, but we have to enforce them. Someone has to carry that 
stick and go there and verify that laws are being enforced.
    I think we should use any means we feel can coerce or 
encourage these companies to follow international copyright 
laws, our law, our copyright laws, but we also need to have 
someone responsible for enforcing that and verifying that it is 
being enforced or it is not going to really have any teeth.
    Mr. Wolf. I am going to recognize Mr. Serrano now--maybe it 
would be helpful if there were a law or something providing 
that in addition to the 301, that countries get on a list. List 
I means you have a problem in intellectual piracy, and you are 
doing something about it.
    List II is you have a problem with intellectual piracy and 
you are kind of talking about it and you are doing something, 
but not very much.
    And List III, Category III, is you have a problem, and you 
are doing nothing about it. Back to the sexual trafficking 
bill, there are countries that are dramatically concerned that 
they are not going to be in Category III, and are working 
desperately to get from Category III to Category II or from 
Category II to Category I, because they do not know what the 
response of the Congress is going to be.
    And so many are now rapidly--some who want to get into NATO 
are rapidly passing laws, and then others are rapidly beginning 
to enforce the laws, and so it may very well be helpful to have 
a list that carries another thing in addition to the 301, 
whereby the world can see, whereby obviously your people as 
they are doing business know who is and who is not, but it may 
very well be helpful before you are able to make a major 
investment and deal with a certain country to know Country X is 
really trying. They have a problem, but they are really trying, 
or Country Y has a problem, but they are doing nothing, and so 
maybe, you know, we always said, well, I had a religious 
freedom bill which the previous administration and others 
opposed; we were able to pass it. Chris Smith and Sam Brownback 
on this issue of sexual trafficking--other administrations 
support. Republicans and Democrats do not like to be told by 
the Congress what to do, but I think this is a good thing.
    It is good for their country because obviously their 
country will not come into this 21st century and be prosperous 
if they do not recognize and accept these things, so, in 
essence, you are not hurting their country, and you certainly 
would not cut off any aid on education. You certainly would not 
cut off aid if it was health care. You certainly would not cut 
off feeding.
    But other things that help prop up some of these countries, 
i.e., the Ukrainian government, if you will, now, may very well 
get their attention in a way that just a 301 sanction would 
not. Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman. Let me first thank 
you for your testimony and in commenting, Mr. Chairman, you 
have done a wonderful job in trying to get support for 
sanctions for most of these folks. I do not approve of 
sanctions, but nevertheless I respect your stand on it. We have 
to remember for the most part, these are business people, and 
it is politicians who impose sanctions. Business people love to 
trade and so----
    Mr. Wolf. Yes.
    Mr. Serrano [continuing]. If you do not send them money, 
they will not buy other products, and maybe that is part of the 
problem, but I can understand why that would have happened that 
you had business people telling you they want economic 
sanctions.
    I was going to say where would I buy that? No, that is not 
what I meant. [Laughter.]
    How would that be available to me? Is that to me? Is that 
to industry? Where does that travel?
    Mr. LaMagna. Mr. Serrano, this kind of product, high 
quality counterfeit product, is available through auction sites 
over the internet, it is available in shops, it is available, 
it is quite widely available. And sometimes I think the real 
problem here is that people do not even realize they are 
getting counterfeit.
    Mr. Serrano. So we get back to education.
    Mr. LaMagna. So we get back to awareness and education. 
Yes.
    Mr. Serrano. Right, because I will give you an example. I 
have a relationship with the children of Frank Sinatra. I was 
involved, as you remember, Mr. Chairman, in getting Mr. Sinatra 
the Congressional Gold Medal for his life's work and so on, and 
I claimed to have the full Sinatra collection, only to find out 
that some of the stuff, they do not get angry at their friends 
when they buy at legitimate CD stores, happened not to have 
been approved by anybody in the Sinatra conglomerate or the 
companies that he recorded for during his time.
    Now I did not know that, and I was a friend and a fan, so 
if I did not know that, how would Mr. Smith know that they were 
buying something that is improper and how do then we educate 
the people to doing that?
    Mr. LaMagna. We have a number of projects that we use. One 
is hotline, which is 1-800-RULEGIT, that people can call. The 
other is a web site. It is called the ``How to Tell Web Site?'' 
It is a Microsoft web site which will actually walk people 
through the identification process to see if they have an 
authentic problem.
    And then we put out other information and one of the things 
we tell people is if the price is too good to be true, it 
probably is counterfeit. If a product normally sells in Best 
Buy's or Fry's or Comp USA for $100, and someone is advertising 
it for $40 or $50, you have got to be somewhat aware that there 
is something wrong here.
    Mr. Serrano. Which leads me to the second question, what 
are the possibilities that if I buy it at Best Buy, and I 
frequent Best Buy, that I am buying something that is not, 
because those Sinatra CDs I was telling you about, which were 
compilations put together overseas, most of them are sold in 
legitimate stores. How did that happen for that? I should have 
asked the music people that.
    So why then, not with you, that I could end up buying 
something at a reputable store and they do not know they are 
selling me something that is improper? Is that possible?
    Mr. LaMagna. It is possible, and I am certainly not in any 
way suggesting for people to be wary at Best Buy's or Fry's or 
anywhere else, but what I am suggesting here is that it is not 
impossible, but the majority of counterfeit is sold in smaller 
shops, over the internet. We have a very robust program to shut 
down internet sites and people who are selling counterfeit over 
the internet.
    Mr. Serrano. And like Chairman Wolf, my questions can be 
for anyone.
    Mr. Payne. Mr. Serrano, I have a comment on that. Really 
you are getting to a great issue which is there are actually 
three types of people. You can classify people in three types 
that are violating copyright law. The first are people that do 
it unintentionally. This is an example of you go to a store and 
you bought something and you thought it was legitimate and it 
was not.
    Now those people I think, and each of these sets of people 
I think you want to deal with differently, and there are 
different ways of dealing with them--education and marketing 
software and providing services for you to check the validity 
of your software is a great way to deal with the first set of 
problems. The second set are really people who copy things 
because they, much like you mentioned your son, do not believe 
or they seem to think it is maybe a victimless crime or 
everybody is doing it. It is just kind of the way it is, and, 
you know, and whatever. And there is ways you can deal with and 
address those.
    The third, of course, is the professional pirate, and they 
are the ones that I think from a congressional perspective are 
the most troublesome and worrisome, because these are people--
since we are in an arms race, if someone can break the 
protection around a piece of software, then if they are a 
professional, their job and goal is to distribute that to as 
many people as possible and do it as quickly as possible and it 
only takes one person to do that.
    And it can be all over Taiwan or China or wherever, and 
that is a huge problem, and one that I think really needs 
focused attention around this issue of really getting countries 
to step up to copyright laws and enforcement of those laws.
    Mr. Serrano. So you feel if we get at that, and we quote-
unquote ``solve'' that problem or dilute it to a point where it 
does not hurt the way it does now, the other two can be dealt 
with?
    Mr. Payne. I believe that one is I am not sure I believe 
all the statistics that are out there about how much is really 
lost, because the question always is would someone actually buy 
something if it did not come to them for free? And that is 
always the tricky part to try figure out. What percentage of 
people that pirate things would actually pay money for 
something if, in fact, it was only available to them through 
money?
    So it is hard to tell really what the real losses are, but 
I believe that the third one, the professional is where we 
really want to crack down and focus attention. A lot of losses 
come through that. Certainly, the second that I mentioned which 
is a culture--I guess Jack Valenti called it a moral fiber that 
is changed that says it is okay to copy things and all of the 
file sharing mechanisms out there. Certainly it is something we 
need to address and deal with, but I think the professionals 
are the ones I personally believe that you really want to 
ferret out.
    Mr. Holleyman. Mr. Serrano, if I might add one comment? 
Where I think we will have a significant challenge going 
forward is as the internet becomes the principal means of 
distribution of legal product. Our CEO said that in 2000, 
roughly 12 percent of business software was being distributed 
by the internet, but in 2005, fully two-thirds in this country 
would be distributed by the internet, and so we are still as a 
society at a very early point in which we framed our attitudes 
about what type of behavior we expect to exist on the internet, 
and just as we have never tolerated again in that bricks and 
mortar world that people would steal software off of shelves, 
what does it take for us as a society to ensure that as we now 
begin to have the majority of our transactions in cyberspace 
where it is a point and click world, where you are doing it in 
the privacy of the office or your home, what is the culture 
that is going to encourage American citizens and other citizens 
around the world to go to reputable legal sites to acquire 
their software rather than illegal sites?
    And that is where I think there is a key role for both the 
laws which I think are good that are on the books in this 
country, but also there has to be an enforcement role, because 
just as we expect on Main Street, we know there is a culture of 
legality that benefits the merchants as well as legitimate 
consumers on Main Street because of law enforcement. We need to 
create that same culture of expectation for how we conduct our 
business online because that will become the principal means we 
obtain intellectual property.
    Mr. Serrano. To follow up on the line of questioning by the 
chairman, China then, we really never got anyone to say this, 
China is the number one problem for us?
    Mr. LaMagna. I am very much involved in the international 
investigations, Mr. Serrano. It is very hard to point the 
finger at China because it is such a global trade, and it 
crosses national boundaries. For example, Latin America has 
become an area where gangs from Hong Kong and other parts of 
Asia have set up shop, replication plants. You know there is 
some replication probably going on in Mexico.
    It is not so much pointing the finger or the blame at a 
particular country so much as working together, industry and 
law enforcement, to go after these individuals and these 
organizations. These are the big international--the ones who 
are sending in container loads of software. The local product 
that is found for two or three dollars in the marketplace is an 
important issue, but a very separate issue from the high 
quality stuff that is going to turn up here in a shop or 
something.
    Mr. Serrano. That is interesting. You answered that 
question, and I am saying with all due respect, in a friendly 
way, you answered that question less as an employee of 
Microsoft and more as a member of the State Department. They 
would not want to point a finger at anybody, because they have 
deals going with everybody, and they may need China for 
something tomorrow morning that we may not approve of. But 
having said that, let us take it the other way.
    Mr. LaMagna. I forgot my background, sir.
    Mr. Serrano. I understand and you are doing that very well, 
let me tell you. You have earned your pension, trust me. 
[Laughter.]
    Let me ask you then on one of my favorite subjects because, 
let me backtrack a second, you in the industry, if you will, 
have to know where your problem is coming from, and if you tell 
me it is global, sure, it is global, but there are countries in 
there. I mean when you were in law enforcement, you knew there 
was a drug problem.
    Mr. LaMagna. Right.
    Mr. Serrano. But you knew there were some cartels that were 
the problem.
    Mr. LaMagna. Right. Exactly.
    Mr. Serrano. And you went after them to get at the problem. 
So now let us take it the other way. In Latin America, how much 
a problem in this to Microsoft is Cuba?
    Mr. LaMagna. To be honest with you, we have not uncovered 
any evidence whatsoever that Cuba is a key player in this. 
There are other areas, as you correctly point out, there are 
certain areas that are more problematic than others, and China 
certainly is one of those, but there are other countries.
    Mr. Serrano. But Cuba is not?
    Mr. LaMagna. We have never come up with any information 
about Cuba to my knowledge.
    Mr. Serrano. All right. Has your association come up with 
any information on Cuba?
    Mr. Holleyman. We have not collected any data on Cuba.
    Mr. Serrano. But if there was something going on, it would 
have probably reached you somehow, if they were culprits 
creating a problem?
    Mr. Holleyman. The way in which, I think if there are three 
parts of a software piracy problem, end-user piracy, we would 
not know about Cuba because we are not selling legal products 
into that market.
    Mr. Serrano. Right.
    Mr. Holleyman. So we cannot calculate that.
    Mr. Serrano. I see.
    Mr. Holleyman. The counterfeit problem----
    Mr. Serrano. Right, and you have heard nothing on the 
counterfeit.
    Mr. Holleyman [continuing]. Mr. LaMagna has discussed. He I 
think would be in the best position to know it.
    Mr. Serrano. Right.
    Mr. Holleyman. On the online problem, we really could not 
identify Cuba as a site, a haven for that at this time.
    Mr. Serrano. Yeah. I am not, Mr. Chairman, using these 
gentlemen for my----
    Mr. Wolf. I know what you are doing. And you are doing it 
very well. [Laughter.]
    Mr. Serrano. I am not using these folks, but there is a guy 
at the State Department who is trying now to remove Cuba from 
one list of terrorist nations, and claim because they cannot 
justify Cuba being like al Qaida or any of these groups----
    Mr. Wolf. Right.
    Mr. Serrano. They now claim that Cuba is a cyberterrorist 
and this is a country that even those of us who support a lot 
of the actions or accuse them of something is their inability 
to come into the computer age. So how the heck do you become a 
cyberterrorist if you do not have the equipment to do it? But 
anyway, your comments are fine for what I am trying to do here.
    Now, particularly for you, sir, one of the concerns that 
some people have is that in the desire, again, to get the bad 
guys, we begin to snoop, we begin to get too much information 
on computer use, we begin to know too much about what people do 
with their computer that we have no damn business knowing.
    Is that a concern to any of you, and as private citizens, 
how would you deal with that so that you do what you have to 
do, and at the same time I am now--if I want to listen to 
baseball games in my computer, as I do, you know, different 
games throughout the country, on weekends, I do that. You pay 
$10 a year and Major League Baseball gives you that. No one 
should know that I am listening to that. That is none of their 
business. It is benign, but it is none of their business.
    But I am afraid that as we try to get at these legitimate 
problems, we will know too much, more than we need to know what 
people are doing. Any concerns?
    Mr. LaMagna. Mr. Serrano, I can tell you from our 
investigations that we do not collect, we do not have any 
mechanisms whereby we collect information from consumers or on 
users. People call voluntarily and give information through the 
hotline. We work very closely with law enforcement and are very 
sensitive to privacy issues.
    We do not routinely or as a matter of course during our 
investigations collect information about people or their 
computers or their systems. Actually it is not really necessary 
to do any piracy investigations.
    Mr. Serrano. Right. But the tips themselves, and I am not 
suggesting this is wrong at this point, but the tips themselves 
are reminiscent in some way of a police state; right? I am 
calling you to tell you that this guy on my right, not this 
guy, the best guy in the world, but that this one is doing 
something improper. Okay. That makes me a good citizen and it 
also makes me an informer for corporate America and therefore 
the government. Is that where we want to go?
    Mr. Holleyman. Let me say we certainly refer to those 
throughout a lot of laws in the U.S. as whistleblower 
protection, and BSA operates typically toll free hotlines in 
more than 60 countries around the world where people can call 
and reported pirated software.
    They can either do it if they have purchased counterfeit 
product and they want to report it, but many times what happens 
is that comes from organizational end-user piracy, from someone 
who has responsibility within that company, who knew that their 
company was violating their country's copyright law, went to 
management with a request to make sure they were legal, and 
management rebuffed that and said no one will ever know if we 
are making internal copies.
    And many of the times those are high ethic employees who 
have no other alternative but to report that, and when we get 
that information, we try to get anonymous. We present it when 
necessary to a federal judge or someone else to get an 
appropriate court order, but we do try to value the privacy 
while at the same time we need to take appropriate steps under 
civil law to ensure that we have some way of trying to address 
the piracy problem.
    Mr. Serrano. Let me make a quick comment on that. You just 
gave me reasons why it should be okay for me to call because 
nobody is going to know I called. My concern is the fact that I 
am calling in the first place, that we seem to be asked by 
private industry now, by corporate America, that in order to 
keep your profits where they should be and in order not to have 
people rip you off, which is correct, that I should tell on 
him, and, you know, where does it stop?
    That we will all become a cadre of informers for folks who 
at times in general have not been too nice to the people who 
are informing or the people who are the victims of the 
information.
    Mr. LaMagna. Mr. Serrano, when we get those tips, we 
probably get over a thousand calls a day or e-mail messages, we 
obviously cannot and do not run out and investigate every lead, 
every tip. We have a process whereby we look at it. If it looks 
like it may have some credence, quite often we will do a test 
purchase. If it is a question of someone dealing in counterfeit 
software, we will do a test purchase to see if, in fact, they 
are dealing in counterfeit, and then if it looks like something 
that really may have some validity, we will then pass it to a 
law enforcement agency, and then they will have their own 
process of scrutiny.
    And so I think we have enough filters and safeguards built 
in that we are not going to be running out sort of violating 
people's privacy and rights, kind of willy-nilly, and we also 
have a very big customer satisfaction issue. Microsoft prides 
itself on customer satisfaction, so we want to be very careful 
that in the process of enforcing IP, we are not going to be 
trampling all over consumer rights and people's privacies. We 
are very sensitive to that issue.
    Mr. Payne. Mr. Serrano, if I may add one comment. I think 
you are really getting at something that is a bigger issue 
here, and that is that thing, the software and the digital 
economy, or whatever you want to call it, is radically changing 
our lives, and it is going to continue to accelerate, and that 
is going to open up all sorts of philosophical questions about 
privacy, freedom of speech, the rights and where are the 
borders in the world?
    You know if gambling is illegal in certain states, but on 
the internet you can play sitting in your home in that state 
and play online somewhere else in the world, is that illegal or 
not illegal?
    These are things that we are going to wrestle with for 
awhile. I mean we are changing our society. Society is going to 
change and wrestle with all of this stuff. I do not think any 
of us have today the answer to all of those issues, but they 
are very legitimate issues that are going to have to be sorted 
out over time.
    Mr. Serrano. Let me just thank you for your testimony. I 
will submit the rest of my questions for the record, Mr. 
Chairman.
    Mr. Serrano. Mr. Chairman, let me just make one comment. 
First of all, let me thank Microsoft and both of you folks in 
this new world for caring about people in communities like mine 
in the South Bronx and trying to bring them online, and to 
provide them with the equipment and the knowledge to compete in 
this changing world.
    On the other hand, let me warn you that in the future, you 
may use so much of your energy to stop people from ripping you 
off that in the process, you will forget that the biggest crime 
that could be committed in your industry may not be the one we 
are discussing today, but would be if we leave behind millions 
of people who have no access to this technology.
    So, on the one hand, I thank you for all you do; on the 
other one, I remind you that a lot needs to be done. Thank you.
    Mr. LaMagna. You are welcome.
    Mr. Wolf. Thank you. I am going to have a number of 
questions, too, for the record, and I want to thank the three 
of you for being here.
    I think where this committee and the Congress can play a 
part and will play a part, is certainly with the professional 
pirate, if that is the word I think you used. The committee has 
provided additional funding to assist the agencies. Uniquely, 
this Committee does have State, does have Commerce, does have 
the PTO, does have Justice within its jurisdiction. It does 
have the U.S. Attorneys' Office, which is actually the Justice 
Department, and we will attempt to encourage them and persuade 
them to continue their efforts.
    I think the four people, I think Ambassador Zoellick is 
committed to it, listening to him, the same way with regard to 
the State Department. And I know having listened to Secretary 
Evans, I know that he is committed, and I know that Attorney 
General Ashcroft is committed. But we do have to give them the 
resources to make sure that they can do the work.
    Now we are in a very difficult time. We have the war on 
terrorism. We have INS problems. We have SBA to help small 
businesses. We have the FTC, the SEC with Enron. So there are a 
lot of competing interests for a limited amount of dollars, but 
we will attempt to give the resources to the agencies, and with 
the right attitude and the right amount of resources, it is 
amazing what they can. My sense is they do have the right 
attitude.
    I do worry a little bit about the international aspect. I 
do not believe that there may be or there always has been the 
commitment abroad, and sometimes in an embassy you can develop 
clientitis, and the clientitis means that you begin to 
represent the country that you are in back to the United States 
more than you are representing the United States to that 
country.
    And that happens. I think it would happen to everyone. I do 
not think it is unique with regard to people in the Foreign 
Service. You go there. You learn the culture. You attend 
religious services there. You develop friends there, and so 
pretty soon you see things differently. I think it is important 
that the State Department be very aggressive in representing 
the interests of people in our country who have this legitimate 
concern. This is not just a question of making more money. If 
you strip away the protection for intellectual property, why 
would somebody go and spend all that time to do it?
    So I think there may very well be a weakness in that area, 
the international area. I do not think there is a weakness 
domestically. Now how successful they will be, I think is 
another question. Now, there has been the war on terrorism. 
Obviously, Secretary of State Powell has had his time consumed 
in many other issues, spent ten days in the Middle East, you 
know, and other things taking place in Country A, Country B, 
the situation with regard to Colombia, everything goes on.
    I just wrote a letter to all of the American Ambassadors 
abroad, every American Ambassador, quoting Martin Luther King, 
also quoting Isaiah with regard to speaking out on behalf of 
the persecuted, that those of us who serve in public service 
have to have this as a burden, as an obligation, to speak out 
on behalf of the persecuted.
    And there is a great saying by Martin Luther King that you 
will remember not those who persecute you, but you will 
remember those who did not do anything when they had an 
opportunity to actually help you. Human rights is important, 
but I think you can take that over into this area, too, and I 
think our ambassadors ought to be more aggressive.
    When Ambassador Rant, our ambassador in China, spoke out, 
there has been a lot of amazing articles saying because he 
actually raised these individual cases, these individual cases, 
these men have gotten out of prison. It may not be a big deal 
for the American foreign policy, but it is a big deal for them. 
But it is also a big deal because it lets the Chinese 
government know that we cared enough that Rant literally knew 
who was in Dropshe prison. He literally knew who was in Beijing 
Prison No. 1. He literally knew.
    I think the same thing would hold here. I think there ought 
to be an effort, and we might ask the State Department to 
validate this, that they ought to be letting people know. I 
think Attorney General Ashcroft is doing it with the U.S. 
attorneys, letting them know that whenever you have the 
opportunity, when you are asked to give a speech downtown in 
downtown Sophia or downtown Bucharest or downtown wherever the 
case may be, talk about this issue, advocate the issue, raise 
the issue, talk about the issue, because it is good for our 
economy, and it is good for their economy.
    And I think that what you speak about really sends a 
message and do you just do it because, okay, that was number 
seven, I throw that out and got rid of it, and then we come 
back to what we are really interested in, or do you really have 
the intensity of human rights and intellectual privacy, four or 
five others? Good issues that really deeply impact on our 
economy, on our people, and are morally right. I mean you are 
not asking them to rip somebody off. You are asking them to 
just comply with the law. And so as long as we are asking what 
is moral and ethical, I think it really has to be a priority, 
and I sense, I felt this before the hearing, and I sort of go 
away with it at the end, that that may very well be the 
weakness, that internationally we are not as aggressive in a 
positive way, in a nice way, I do not mean mean or anything.
    And if we are doing that, then I think then that requires 
you all to develop that educational process locally and 
nationally, here, which goes hand in hand. So when someone from 
abroad, the Vietnamese ambassador, is here, he sees on 
Washington television, yeah, there is a program, they are 
making an effort. I saw a public service ad, so they are really 
serious about it, but we cannot be interested just abroad to 
crack down and not do anything here.
    But we will attempt to monitor and watch the people that 
come, the agencies that come, all good people, that come under 
this, and see what we can do to continue the progress, or the 
effort if there is not progress, whatever the case may be, to 
make an improvement.
    Mr. Serrano, do you have anything else? I am going to yield 
to him at the end, but with that, I just thank you all for 
coming.
    Mr. Serrano. Thank you.


DEPARTMENTS OF COMMERCE, JUSTICE, AND STATE, THE JUDICIARY, AND RELATED 
                    AGENCIES APPROPRIATIONS FOR 2003

                              ----------                              

                                      Wednesday, February 27, 2002.

                         DEPARTMENT OF COMMERCE

                               WITNESSES

HON. DONALD L. EVANS, SECRETARY OF COMMERCE
BARBARA RETZLAFF, DIRECTOR OF BUDGET
    Mr. Wolf. Mr. Secretary, welcome to the committee.
    I will not have an opening statement, and I will recognize 
Mr. Serrano in a minute. I appreciate the good job that you are 
doing and the President is doing, particularly on the battle 
and the effort with regard to terrorism and what is taking 
place around the world. I hope that the American people are not 
getting too complacent because things went so well in 
Afghanistan so quickly, and if you read today's paper, there 
are now soldiers in Soviet Georgia and other places. And this 
is going to be a long-term effort, but I appreciate the 
intensity and the diligence, the vigilance of the President and 
what the Administration is doing.
    What triggered this thought is last night going home, I 
listened to NPR. It was the press conference that Secretary 
Rumsfeld was having, and the press was just all over him, and I 
thought, don't they understand what is taking place in 
Afghanistan? They were just picking on him for every type 
thing.
    I was in Afghanistan, as you know, the first week of 
January. It is a very tough situation. Our military are doing 
an incredible job in a very tough environment, and you almost 
got the attitude by listening to them that they thought this 
thing was over and we were just putting a bow and wrapping it 
up, when actually the package is just beginning the process.
    So I just wanted to put that word in, and I thank you, and 
please thank the President, and tell Secretary Rumsfeld I 
thought he did a great job yesterday. That was the first time I 
ever listened to that back-and-forth, but he did very well.
    Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman. Let me first say how 
excited I am to be back with you. Happy new year a little late, 
and the Yankees will win the pennant again this year in the 
Bronx, and we will get a team in Virginia, I promise you that. 
Very important, too.
    And, Mr. Secretary, we welcome you back to our committee. 
We just met a little while ago in my office, and I was very 
happy with our conversation. Let me tell you that every so 
often we take a look at just how much the Commerce Department 
covers, and we are amazed. You are on the land, on the sea, in 
outer space, in the atmosphere. Hopefully this year, as I give 
all of the help that I can give you, I can finally begin to see 
that my brother at the Census Bureau gets that window that we 
have been trying to get him now for so many years, if we can 
get a new building with some windows and some sun coming in.
    We are indeed extremely happy at the way all of the 
agencies have come together after September 11th, and certainly 
as one who represents New York City, I am very grateful for all 
of the attention that has been given to my city.
    In my neighborhood we are still identifying people who were 
lost on September 11th, and the handing out of flags to 
families is still a very painful experience. I mention that, as 
the Chairman did, because it all ties into the work that we all 
have to do and the work you have to do, and we are very 
grateful for that and in every way possible look forward to 
supporting your efforts this year. Thank you.
    Secretary Evans. Thank you, Congressman.
    Mr. Wolf. Any other Members have any comments? If not, we 
will go straight to the testimony.
    You can summarize or proceed as you see fit, but your full 
statement will appear in the record.

                      Overview by Secretary Evans

    Secretary Evans. Thank you very much, Congressman. Before I 
go through my brief summary, I would like to just acknowledge 
your opening comments and say to all of you here that the 
September 11th event brought this country together in a way I 
think it has probably never been united, or ever been united in 
my lifetime, and in Commerce we focus a lot, of course, on the 
economy, and what I have seen with respect to the economy is a 
resilient economy. I see an economy that I think has stayed 
strong, primarily because consumer confidence has remained 
strong, and I think that is primarily because of the 
President's leadership and your leadership.
    I think that if this country had not seen the kind of 
leadership, response, bipartisan effort with respect to the 
war, consumer confidence could well have been breached, as 
business confidence could have also been breached, but it was 
not. And so I salute all of you and acknowledge the major role 
that you have played in leading this country in this very 
difficult time.
    Our economy is obviously getting stronger. The indicators 
look much better, and so I thank you for that, because without 
your leadership, it could have been a whole different picture, 
and without economic security, it is pretty tough to have 
national security and homeland security.
    So anyway, I wanted to acknowledge that, and, Mr. Chairman, 
let me go through a brief summary here and say to you, Mr. 
Chairman and Mr. Serrano and members of this committee, I am 
pleased to present the President's fiscal 2003 budget request 
for the Department of Commerce. With your permission, I would 
like to make my brief oral statement and submit the written 
testimony for the record, which you have acknowledged it will.
    Mr. Wolf. Yes.
    Secretary Evans. Thank you very much. The Commerce 
Department's historic mission remains constant: working for 
America to provide homeland and economic security. For fiscal 
year 2003, the President's total Commerce budget request is 
$5.3 billion. This budget was carefully crafted. It reflects 
the core functions of the Department. These include promoting 
innovation, entrepreneurship and international trade; and 
increasing knowledge and good stewardship of the natural 
environment. It also reflects the urgent needs of these 
challenging times we are in.
    It targets the diverse resources of the Department toward 
three great national goals: winning the war on terrorism, 
protecting our homeland, and strengthening economic security. 
This budget proposal provides for the continued funding of 
high-priority Commerce programs.
    An additional $33 million is requested for the Bureau of 
Export Administration. The funds will help halt the spread of 
weapons of mass destruction and combat terrorism, and they will 
be used for the new homeland security information program to 
help protect our critical infrastructure.
    Homeland security investments also will be made in the 
National Oceanic and Atmospheric Administration and in the 
Technology Administration's National Institute of Standards and 
Technology. For NOAA, we are asking for $23.1 million in 
additional funding to fix vulnerabilities in the weather and 
satellite system so we can always depend on them.
    We are also proposing a $5 million homeland security 
increase for NIST. These world-class laboratories have more 
than 75 projects under way that support law enforcement, 
military operations, emergency service personnel, airport and 
building security, and cybersecurity. For example, they are 
working on strengthening protective gear for first responders. 
NIST also will continue to research new ways to detect 
potential threats posed by chemical, biological, nuclear, 
radiological and explosive agents.
    On the economic security front, we also propose an increase 
of $237 million for the U.S. Patent and Trademark Office to 
expedite services. America's economic growth and 
competitiveness depend on sustained innovation, and as you 
know, the Patent Office is dealing with escalating numbers of 
applications, especially in the intellectual property area.
    We are proposing an $11 million program increase for the 
Bureau of Economic Analysis. This is to improve the Nation's 
key economic statistics, including the gross domestic product, 
so business and government decisionmakers have the best 
possible information in a timely fashion.
    To help ensure a level playing field for America's 
exporters, we are also proposing a $13 million increase for our 
International Trade Administration to strengthen trade 
compliance efforts. And the President is requesting $2.6 
million to open several export assistance offices in Africa. 
These will help U.S. businesses find opportunities in these 
growing markets.
    At the time we continue to help U.S. business play a 
leadership role in the global marketplace, we provide 
assistance to help communities, businesses and workers 
transition to the 21st century economy. The fiscal year 2003 
budget overall reflects streamlined economic development 
administration programs, including an additional $2.5 million 
for trade adjustment assistance.
    Lastly, let me say that this budget reflects a careful and 
professional analysis of all Department programs and sets 
priorities for our resources in a post-9/11 world.
    I look forward to hearing your comments, and I will be 
pleased to answer any questions that you have. Thank you, Mr. 
Chairman.
    Mr. Wolf. I thank you, Mr. Secretary.
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    Mr. Wolf. A couple of questions. Then I will recognize Mr. 
Serrano.

                          TECHNOLOGY SYMPOSIUM

    I had raised this with you one other time, and I want to 
get it on the record. Since 9/11, a number of companies have 
come in with new technology requests. Some companies are trying 
to approach the FBI. Some are approaching INS. There was a 
story in the paper yesterday about tracking student exit/entry 
visas; also the issue with regard to some DEA problems; also 
the new security office at the Department of Transportation 
with regard to the baggage screeners. I would hope and request 
that the administration put together a major conference or a 
forum whereby perhaps you get convention--the convention center 
and put out some stipulations as to what you are looking for 
and then give small and medium-sized companies the opportunity 
to come in to see--maybe they have something that is on the 
shelf that somebody at Commerce is looking for, someone at the 
FBI is looking for. But I think the sooner we do that, one, 
from a budgetary point of view, we have a better handle on how 
the money is being spent. You would have the Justice Department 
people there, transportation people there, but could you kind 
of comment or----
    Secretary Evans. Sure.
    Mr. Wolf. Will the administration be doing that, or can you 
tell me how you think you are going to be doing it?
    Secretary Evans. Yeah, sure, Mr. Chairman. Thank you for 
the opportunity to comment about that. We have talked about 
this before. I think it is a splendid idea. I think it is 
something indeed we should do. We, in fact, are going to move 
forward on that idea. We would love to work with your staff and 
your office to help coordinate the conference or symposium or 
forum, whatever we want to call it. Sooner rather than later is 
what I am telling our team. So we are going to meet on this 
very issue this next week. We will be contacting your office 
and ask that somebody represent your office at this meeting to 
help set a time and a place and move on with the planning.
    Now, having said that, I don't want those comments to 
discourage people that are out there from coming in and 
presenting ideas that they have. I mean, what we are talking 
throughout government----
    Mr. Wolf. Sure.
    Secretary Evans [continuing]. With all kinds of companies 
right now. We talk to a lot of small- and medium-sized 
businesses through our Technology Administration. I am 
encouraging those in the private sector having different types 
of technology who think they might apply to this homeland 
security issue to come in and talk to us, and they are indeed 
doing that. Some are talking to the Department of 
Transportation. Some might be talking to people who are in 
Homeland Security, but we are talking to quite a few also, and 
anybody that comes into our Department, and we think it is 
worthy of being considered, then we move it on in and ask 
somebody at Homeland Security to also take a look at it.
    So I don't mean to discourage people that have good ideas 
to--from coming in now.
    Mr. Wolf. No.
    Secretary Evans. In fact, I want to encourage them. But 
should we have a much larger, broader conference that puts on 
display many of these exciting technologies or--that are being 
developed out there across America? You bet we should. It would 
provide the opportunity for many more people to view the 
technologies that are out there. So, anyway, we are going to 
move forward, and that is a very good idea, and thank you for 
it.
    Mr. Wolf. Good. I appreciate that. And hopefully there will 
be enough time that people could bring companies in from all 
over the country to come in; obviously there are companies from 
my region, but all over, and to give that opportunity. I think 
there is a lot going on in the private sector that the 
government doesn't know about, and I think that is a good 
opportunity. Thank you.

                          PTO RETENTION RATES

    Two other--last year we added $97 million, if my memory 
serves me, an increase for the Patent and Trademark Office. 
There were a lot of complaints they were losing people. Has 
that helped?
    Secretary Evans. It has helped. I think the retention rate 
has improved dramatically. We have cut the turnover in half, 
and so that is encouraging, but, there is more work to be done.
    We are also asking for an increase in this year's budget, 
as I know you know. We are finding a greater and greater need 
for technical people, engineers, mathematicians, scientists, et 
cetera. And so there is more work to be done, but did the funds 
and resources help in terms of retention and slowing down the 
attrition? You bet they did. Some of it may have been the 
economy. Some of it may indeed have been just the downturn in 
the high-tech community, but I think a big part of it was just 
having the additional resources to be able to pay more 
competitive kinds of wages.
    Mr. Wolf. Could you submit for the record kind of the 
retention rate----
    Secretary Evans. Sure, I would be delighted to.
    Mr. Wolf [continuing]. To see, so we can compare it with 
regard to the last year?
    Secretary Evans. You bet we will.
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    Mr. Wolf. One other question before I recognize Mr. 
Serrano. It deals with the question of intellectual property 
rights. A lot of high-tech companies have suffered with regard 
to piracy. Over the past 5 years piracy has cost the software 
industry $59.2 billion. Vietnam has the highest rate of pirated 
software, 97 percent. Ninety-seven percent. China, 94 percent. 
What are you doing, and are you working with Attorney General 
Ashcroft? Do you have a team working on this? What is Commerce 
doing to cut this piracy back? When you look at these figures, 
94 percent in China, 98 percent, 97 percent Vietnam, it is very 
tough for a company who wants to do business there.
    Secretary Evans. Right. Let me just start in terms of what 
we are doing with trade policy in this country to provide a 
level playing field. Part of providing a level playing field 
means that people are going to comply with the agreements that 
they sign, and there are lots of trade agreements around the 
world that we and others have signed. For instance the 301 
section of the Trade Act of 1974 gives us a tool to work with, 
compliant with WTO rules, when we want to focus on a country 
that we think might be violating basic intellectual property 
right issues.
    But the President made it very clear that a level playing 
field in dealing with countries that comply with the law is 
fundamental to our trade policy. I don't think there is anybody 
in our Department that is confused about the importance of 
compliance and enforcement in going after those that have 
chosen not to comply with our trade agreements. We continue to 
put more resources into this area, and I think that we should.
    In Market Access and Compliance, Foreign Commercial Service 
and Import Administration areas, we are adding about $13 
million and about 82 FTEs, full-time employees, that will be 
focused on compliance issues, and we are opening up more 
offices around the world to be focused on compliance issues. We 
are focusing hard on China. Our Assistant Secretary of Market 
Access and Compliance, Bill Lash, just got back from Thailand 
where he actually shut down a store in Thailand because he went 
there and discovered that they were selling intellectual 
property at ridiculously low rates, knew it had been pirated or 
copied, and the mall shut the store down because he went right 
to the government there and said this is unacceptable.
    So, when it comes to intellectual property rights, the 
President is certainly very clear on it. I think I am very 
clear within our own Department about the importance of it. I 
understand the value of intellectual property, particularly as 
we move into this knowledge-based economy or information-based 
economy that some people choose to call it. So as our good 
people here in America use their minds to be innovative and 
creative and develop new ways and better ways, we need to be 
very clear to the world that we are going to protect those 
rights.
    Mr. Wolf. Well, you know, Windows 95 was on the streets in 
Beijing before it was available here in Washington, D.C., and I 
would urge you to do that. I like to use two countries as sort 
of a model of really cracking down, and one is China. And, you 
know, I was one that was not overly fond of giving them MFN, 
but that issue is over, and they are going to be part of the 
WTO, but I think they have got to play by the rules. So I hope 
you will use China.
    And another country that I am not particularly fond about, 
both are persecuting Christians, both are persecuting Buddhist 
monks, both are persecuting the Catholic Church particularly, 
and that is Vietnam.
    So if I could ask you, if you could have your people 
particularly focus on China, which is going to be a great 
market, supposedly, in the future, and also Vietnam, that 
figure of 94 percent with China is astronomical, and 97 percent 
with Vietnam, and then kind of keep us informed as you go 
along.
    Secretary Evans. Thank you.
    Mr. Wolf. I think you also have to prosecute. You have to 
bring some cases. And so if you could let the committee know, 
using as kind of two guinea pigs, if you will, China and 
Vietnam, we would appreciate it.
    Mr. Serrano.
    Secretary Evans. Chairman, we will do that. We will keep 
you informed as to those two countries. We have let it be known 
in China that we will have a senior official from our 
Department in China every month. It is not going to be every 
other month or every quarter or twice a year. Every month. We 
have a senior official from our Department that will be there, 
and we will be talking about compliance, and we will be talking 
about enforcement. So we are being very clear about it and very 
straightforward about it. I am going to China myself in April, 
but we have made the commitment, and I assure you that we will 
honor that commitment that I will have a senior official from 
our Department in China talking about compliance and 
enforcement every month.
    Mr. Wolf. Well, will this be a different person every 
month?
    Secretary Evans. We will rotate it around. Depends on who 
is travelling to that part of the world. It may be me, the 
Under Secretary, the Deputy Secretary, or the Assistant 
Secretary, but it will be a senior official from our Department 
there every month.
    Mr. Wolf. Maybe the next one that comes back, say, for the 
month of March, if they could come by and sit down with us to 
kind of just tell us what they saw.
    Secretary Evans. Sure. You bet. We would be glad to do 
that.
    Mr. Wolf. Thank you.
    Mr. Serrano.

                     TECHNOLOGY OPPORTUNITY PROGRAM

    Mr. Serrano. Thank you, Mr. Chairman.
    Mr. Secretary, you and I have touched on this issue before, 
but it troubles me enough for it to be discussed in a public 
forum, and I know that you won't mind doing that. This whole 
issue of the digital divide; I know of no issue in this country 
facing us right now that has the long-term importance this one 
does to make sure that every American shares in this new 
technology. And yet in the present budget there is a feeling 
somehow that the TOP program, the Technology Opportunity 
Program, is no longer needed, when, in fact, many of us feel 
that the whole purpose of the program was to, in fact, begin to 
close this gap.
    Now, in the Commerce Department Budget in Brief on page 
148, it states this program has fulfilled its mission and is 
proposed for termination. I would like you first to comment on 
what mission it has fulfilled, especially when there is still a 
major, major serious gap in access to the Internet and access 
to this technology amongst different racial and ethnic groups 
in this country, people of lower income; and secondly, if 
indeed, as people have stated, as you and I have discussed, 
other agencies are expanding access to the Internet, why not 
then continue TOP in place to make sure that it sets the tone 
for that other behavior?
    And I would also like to comment on the fact that my 
understanding--and maybe you will correct me about other 
departments, other agencies providing more access to the 
Internet--is that what they do is to track, in the case of the 
Justice Department, the issues they deal with, for the FBI to 
deal with the issues they deal with, whereas TOP was to make 
people, low-income people, different folks, accessible--have 
the Internet accessible to them. So I don't see one as being 
the other.
    And lastly, my major concern here is that to say at this 
point that the digital divide has been done away with is to 
send a message that a problem does not exist, when, in fact, a 
major problem still exists, and I would like you to comment on 
that.
    Secretary Evans. The digital divide is not over with. I 
know I certainly haven't said that. In fact, I have said the 
opposite. I have said what I just finished saying, that there 
is still a gap that needs to be closed.
    First, with respect to the TOP program, it was started in 
1993, and at that time virtually no one in this country was 
connected to the Internet. Were there computers beginning to 
move into classrooms and move into our society and people 
beginning to use those into workplaces? Yes, that was beginning 
to happen, and it had been happening since the early or mid-
1980s.
    And so the TOP program was twofold, as I understand it. At 
least here is how it was used. It was used to move into 
communities and leverage some Federal money with some community 
dollars, maybe it is city dollars, maybe it is State dollars, 
to develop programs, set up programs that would help train, 
teach those in the inner cities or wherever, rural communities, 
how to use computers and how to become computer literate.
    The program has also been used to work with local 
municipalities and local law enforcement programs in teaching 
local fire departments and what have you how they can utilize 
the computer in their operation.
    So there has been kind of the mix between we are going to 
be using it to train some children, and we are also going to be 
using it in some of the local law enforcement agencies.
    Since 1993, there has been pretty consistent funding of 
about $20 million a year, and since 1993 obviously a lot of 
people have come online on the Internet. A lot more people are 
now using the computers and becoming more computer literate.
    We just released a report about a month ago that is called 
A Nation Online, and what that report basically said is that of 
those in the age group of between 5 and 17 years old, 90 
percent use computers. It also said that more than 50 percent 
of the people in America are connected to the Internet, and 
that 75 percent of students between 14 and 17, use the 
Internet. It also said that those that have been the farthest 
behind across America have been catching up the fastest, but 
that is not good enough, because we don't leave anybody out in 
America. As the President has said many times, we don't leave 
anybody behind, and when it comes to computers and the 
direction this economy is moving, the use of computers is an 
education issue. I think in order to be competitive in future 
economy and in this society, it is important that everybody 
have an understanding of computers, and over the last 11 or 12 
years what has occurred is a phenomenal amount of recognition 
of that in the private sector. And so there are programs that 
are being developed all across America that are helping train 
young children how to use a computer.
    I had the pleasure, a pleasant opportunity, to go to one of 
them here in Washington, D.C. at the local Boys and Girls Club 
called Uptech. It is great to walk through there and see all 
those young children learning how to use a computer, funded by 
Power-Up, funded by Steve Case and other kinds of leaders in 
the high-tech community that recognize the important role they 
have in teaching young children how to use computers. Power-Up 
is a program that has got a thousand sites all across America. 
TOP has funded under a hundred. Power-Up is a program that has 
raised $55 million to run these sites. So they are spending 
three times the amount of money--three and a half times the 
amount of money we are spending in the TOP program. Power-Up is 
a program that has got volunteers from all across this great 
land that are stepping up to do what they can to move into the 
local Boys and Girls Club, YMCA, schools, whatever, to teach 
these young children how to use computers and close the digital 
divide.
    It is still a very, very big problem, and that is why I 
would say what I did. It is an education issue now. It used to 
be, I think, kind of a convenience issue, or wouldn't it be 
nice to have a computer in your home. We are moving into a 
society where it is just almost like a telephone, and so there, 
to me, needs to be a whole different very serious focus on it, 
and part of the focus is an education focus, and that is 
exactly why the President put a billion dollars in the 
education budget that focuses on this important issue of being 
able to get----
    Mr. Serrano. Mr. Secretary, let me just interrupt you a 
second. I missed the first part of your statement. Power-Up 
is--has government funding?
    Secretary Evans. No, they do not.
    Mr. Serrano. Well, you see, that is precisely my point. 
TOP, as insignificant to some people as it might have been, was 
a government commitment to bridging the digital divide. My 
concern continues to be the message that it sends for these few 
dollars to suggest that the problem is over, and that is the 
reason to get rid of TOP.
    Secondly, if you go to my district in the South Bronx, you 
find waiting lists for people who want to get into programs to 
learn how to use a computer, and, most importantly in some 
cases, to have access to a computer because they don't have 
that access at home. Now, it is hard to believe--and I am not 
being sarcastic here--that there are not some folks, large 
numbers of people, who cannot afford the actual equipment at 
home, and so they must have access elsewhere. These centers are 
in many different places, funded in many cases by government 
and others--but the need is there. So I will, when you hear me 
trying to make the case in this committee that this program 
should stay in place, I do it as much for the program and what 
it does as I do to fight off the impression that is being given 
by cutting this program and the statements that go with it that 
this issue has been resolved, when, in fact, it has not been 
resolved.
    Secretary Evans. Right. Well, I certainly accept your 
point, and the only point I would make is one that I have been 
making; it is a much more serious problem than $20 million can 
certainly solve. I certainly take the point in terms of the 
signal that it might possibly send, but what I would quickly 
say is the President has put a billion dollars in the Education 
budget to address this problem, and has put a billion dollars 
in Justice Department's budget to address this problem. He has 
put $100 million in the Agriculture budget to address this 
problem.
    So certainly the dollars have been committed, and the last 
comment I would make is I am heartened as I see the private 
sector stepping up in a big way in this country to develop 
programs all across this country to help these neighborhoods.
    Mr. Serrano. I am not going to beat this subject to death, 
but we both agree, it is still a problem and the private sector 
has been wonderful. They are at the center of our society, but 
the private sector tends to work more in some neighborhoods 
than in others, and that is where government has to balance the 
approach.
    Do I have, Mr. Chairman, time for a quick second question?
    Mr. Wolf. Sure, yeah.

                        CENSUS BUREAU FACILITIES

    Mr. Serrano. On the Census Bureau and the Suitland 
facilities and the need for new homes for the census workers, 
one of my concerns is: do you feel that the way the budget is 
set up now and the requests are in place that you will be able 
to move folks into buildings prior to beginning to work on the 
next census? In other words, I am concerned that if they move 
in 2009 or in 2010, the disruption will be really ridiculous.
    Secretary Evans. Yes. The move-in date for the 1st building 
is Fall of 2006 and Spring of 2007 for the 2nd building. As you 
know, we do finally have it in the GSA budget, which we have 
fought for. It is vitally important just as a safety issue, if 
not anything else. And so we worked on it very hard.
    Mr. Serrano. Thank you, Mr. Chairman.
    Mr. Wolf. Mr. Taylor.
    Mr. Taylor. Thank you, Mr. Chairman.

                        TRADE INCREASE IN RUSSIA

    Mr. Secretary, in the area broadband and computers, the 
private sector does a great deal more than it gets credit for 
and actually is far more effective in that area than the 
government. That is true about most things.
    I would like to ask you about your comment regarding the 
Russian visit and to thank you and the President for the 
successful visit and for the way in which it was handled. What 
is happening in Russia now is very positive. Russia was very 
supportive of America after 9/11 and has worked with us in the 
past and is now working with us on the oil situation. Do you 
expect to see an increase in trade with Russia, and in what 
areas would you say that would happen?
    Secretary Evans. Congressman, I definitely expect trade to 
increase, and it will be in a variety of areas. I think in the 
natural resource area, we will certainly see some increase in 
trade between our countries. In the aviation area, I am 
anticipating some increase on that front. In the high-tech 
area, certainly some increase in trade. So it is a variety of 
areas.
    I think what is important to understand and what I am going 
to share with you about my visits to Russia is that there is a 
lot of talk and reporting about the leadership of President 
Putin and the direction they are taking in that country, the 
reforms they are moving through the Duma--reforms like rule of 
law, property right ownership and other kinds of reforms that 
are necessary for a free market economy to function. I have 
been very impressed with the reforms they have implemented over 
the course of the last 12 to 18 months. American companies that 
are on the ground and have been on the ground over there for 10 
or 12 years are also very impressed with the reforms.
    And so I see a lot happening from the top down, but I think 
the more interesting point that I want to make is that my 
travels over there suggest to me that there is a lot happening 
from the ground up, and there is a dramatic move in that 
country from being on a public payroll to a private sector 
payroll, and I think people are going to be impressed as they 
see data reflect over the next year or 2 the movement of people 
from public payrolls to private payrolls. Russia is a country 
where the young people literally understand and feel a deep 
sense of responsibility to their families, to their country, 
and to build their communities.
    And so what I say often is I see a lot happening from the 
top down, but I also see a lot happening from the ground up, 
and I think because of that, it is that kind of spirit that 
will really be a catalyst for more trade between our two 
countries.
    Mr. Taylor. We are often accused of going to Moscow, and 
not seeing the rest of the country. The remainder of Russia 
contains the vast majority of population and spans many time 
zones. That is almost doubled in 2001, in the local areas, in 
the provinces. So I think we will be very surprised when those 
figures start coming out, and I agree with you. Thank you.
    Secretary Evans. Thank you, Congressman.
    Mr. Wolf. Mr. Mollohan.
    Mr. Mollohan. Thank you, Mr. Chairman.
    Mr. Secretary.
    Secretary Evans. Thank you, Congressman.

                    TECHNOLOGY OPPORTUNITIES PROGRAM

    Mr. Mollohan. Thank you. I want to follow up just a little 
bit on Mr. Serrano's questions on the TOP program. In rural 
areas this really is a problem, and I would like to reinforce 
that there is some strong support in the Congress for this 
program. When the President--I assume he was campaigning--in 
June of 2000, he made this statement: ``Technology has brought 
so many opportunities into our lives. Now we must make sure 
that these opportunities are shared as widely as possible so 
that everyone can gain and everyone can contribute in the 
digital economy. A student or worker without computer literacy 
is at a terrible disadvantage''. He made that statement at the 
La Pointe Learning Center in Los Angeles.
    Oh, I am sorry, Lucille. I would have given you this one.
    Ms. Roybal-Allard. That is okay.
    Mr. Mollohan. In Los Angeles in June of 2000, that center 
was one of the first recipients, grantees, of the TOP program.
    In light of that statement, what do you think the President 
meant by that, and what do you think his intention was to 
support this kind of activity when he became President and was 
putting together his budget?
    Secretary Evans. I would say again that, the President 
certainly understands the importance of, everyone having an 
understanding of computers and how they work and how they are 
used.
    Mr. Mollohan. And I would stipulate to that. I am sure the 
President does. It is just hard to understand when you get down 
to the detail of it, when you are at a center where he makes 
that kind of statement--do you want me to read the statement 
again?
    Secretary Evans. Yes.
    Mr. Mollohan. Okay. Technology has brought so many 
opportunities into our lives. Now we must make sure that these 
opportunities are shared as widely as possible so that everyone 
can gain and everyone can contribute. In the digital age, a 
student or worker without computer literacy is at a terrible 
disadvantage.
    The statement made in the learning center which was 
supported by the TOP program----
    Secretary Evans. Right.
    Mr. Mollohan. You would think that----
    Secretary Evans. Right, right.
    Again, I would just say what I have said earlier in that 
that is why he put a billion dollars in the education program--
--
    Mr. Mollohan. Talk to me about that. Are you suggesting a 
billion dollars is going to support this program? If that is 
true, we----
    Secretary Evans. I wasn't part of the start of the TOP 
program in 1994. It is my understanding that it was an 
awareness program, to make people aware of computers and how 
they can be used in their life, and Internets, and that is how 
it has been defined to me.
    Mr. Mollohan. It is a grantee program that provides 
resources to put those kind of facilities in place in order to 
bring technology opportunities to these kids. I am from a rural 
district, and I can tell you it is a real challenge to bring 
these kind of resources into these communities. In a lot of 
these communities we don't have big private sector companies 
that come in and participate, and if that solved the problem, I 
would salute that right up front, but it really doesn't solve 
the problem, and I would invite you to reconsider your 
justification statement for eliminating this program.
    You say, this program has been successful, whatever that 
means in your terms, but is no longer necessary to stimulate 
innovation in an industry that thrives on change and new 
applications. Respectfully, this program isn't designed to 
stimulate innovation in the information technology industry. So 
if that is your justification for killing this program, I would 
simply invite you to revisit the justification.
    Secretary Evans. Yeah. I take your point on that. I would 
have to go back and look at the exact history of it. It is 
reported to me that it was an awareness program, but I don't 
think there is anybody----
    Mr. Mollohan. The President really does support this 
program. I will bet he really does support this program.
    Secretary Evans. He really does support the goal of every 
child in America understanding how to use a computer. He knows 
how important it is to their education, and that is why, there 
is a billion dollars in the education budget.
    Mr. Mollohan. I am sorry. That honestly--well, I will 
invite you to tell me how that billion dollars is going to 
address the focus of the TOP program, and you don't have to do 
it right now, but I really do invite you to be interactive 
about that.
    Secretary Evans. Sure. I would be----
    Mr. Mollohan. And, again, I don't want to beat a dead 
horse, but this is a great program in areas that are challenged 
to take advantage of this kind of technology, and I didn't even 
get into reading you the statistics. Eighty percent of the 
households making over $75,000 in 1997 have computers; 30,000 
under $15,000 had a computer in 1997. In 2001, 90 percent of 
the households making over 75,000 had a computer; 40,000 
households making under $15,000 had a computer. The spread was 
the same, about 50 percentage points.
    So relatively speaking, the affluent are--because of their 
access in the home to computers--are definitely advantaged in 
being able to participate and to become computer literate, 
relative to those who are less fortunate in our society. The 
TOP program, through this community kind of program, just like 
the one the President visited, is nicely targeted to do that. 
And I will grant it, we need more money to do it, but it seems 
a shame to kill a program on the justification that it was 
successful, and the money isn't needed to provide initiative to 
an information technology industry that never needed any 
initiative to begin with and wasn't the focus of the program.
    Thank you, Mr. Secretary. Thank you, Mr. Chairman.
    Mr. Wolf. We are going to recess for about 7 minutes. When 
the first Members come back, they will begin the hearing to 
kind of move it right along, but we will resume in a bit.
    Secretary Evans. Thank you, Mr. Chairman.
    [Recess].

                             Census Bureau

    Mr. Miller [presiding]. Mr. Secretary, since I am the first 
one back, they have asked me to go a little bit out of order 
here. Right now, there is a little confusion as to what is 
going on on the floor right now with votes.
    First of all, let me thank you for your support of BEA and 
the Census Bureau. I follow those issues very closely. Most 
people think of Commerce as a huge bureaucratic organization, 
but it is a department important to our country.
    Getting accurate and timely information is critical to our 
economy; I think a lot of economists say what happened in 1990, 
that is not having accurate timely information for Allen 
Greenspan to make some tough decisions--had a negative impact 
on the economy back in the early 1990s.
    I thank you for your support, and I thank you for your 
support for the Census Bureau. It is one of those issues that 
is hard to fully understand all of the complexities of it, but 
you have jumped into it from everything I have heard, and so I 
appreciate that.
    I have some questions on the census now. The Commerce 
Department is requesting a large increase for the Census 
Bureau, 247 million, and 201 million in the periodic censuses 
and programs alone. By contrast, the entire Commerce Department 
is only requesting a total increase of 107 million. Even after 
September 11th, the entire State Department is only requesting 
a 270 million increase.
    At a time of war and recession with the first budget 
deficit in 4 years, how do you justify the enormous increase 
for a statistical agency?
    Secretary Evans. Well, as you said, statistical information 
that is accurate and real time is very important to the 
economic security of this country. It is very difficult to make 
wise policy decisions that affect millions of lives and--to 
make effective or good or wise policy decisions if you don't 
have timely, accurate information. That is the underlying 
principle of why I am comfortable with the size increase that 
is being reported or requested for this Department.
    Now, it breaks down into two pieces. One is, BEA or the--
doing everything we can to make sure that our GDP numbers are 
as accurate and timely as they might possibly be. Under the 
proposal, we have a target to speed up by some 20 days. We are 
going to cut it in half the time in which we report GDP 
numbers. So we will have that information out in the public 
domain sooner. As is important to being sooner, let's make sure 
it is accurate.
    One of the areas that we had difficulty with in the 1990s 
was dealing with the service industries. We collect and gather, 
and have for some time, information on the mining and 
manufacturing industries, but have not been focused on service 
industries, the high-tech industry, which is obviously a very 
large part of our economy now, and so we are gearing up an 
effort to understand what is going on in the service 
industries. That, quite frankly, is a sizable component of GDP 
calculations.
    Trade is another area that if we had more timely 
information, it would help our industries and help our economy 
make wiser and more timely decisions. And so we are asking for 
increases in order to accelerate the time that we report trade 
data. We are going to compress it by some 20 days, from 50 days 
beyond the end of the month down to 30 days beyond the end of 
the month.
    One of the principles going on here as to why the request 
to have dollars, is really the clear understanding of how 
important accurate, timely, and thorough data is to the 
economic security of this country, as Chairman Greenspan has 
said on numerous occasions.
    In addition, a large part of the request, about $250 
million or so, that we have requested in the census is a result 
of three or four things. One is that we are in the most active 
year of 5-year cycles of a government census effort, and an 
economic census effort. We have 5-year cycles that we run 
through to look at our economy as well as our governments and 
collect data, and this happens to be the peak year in those two 
very important census programs that are conducted on a 5-year 
cycle.
    In addition to that, as part of the 2000 lesson that we 
learned, we learned that we could have saved some money, could 
have been more efficient, probably more effective, if we had 
done a little better job in planning, in organizing, in 
preparing for the year well in advance and laying out a 9- or 
10-year plan.

                       American Community Survey

    Part of that very important process as we look back on 
2000, look forward to 2010, is the whole area called American 
Community Survey that you, I know, are familiar with. And we 
ran a study on that program during this last year to validate 
it, to see if it was going to provide us the kind of long form 
information that we would find acceptable in having a rolling 
census, so to speak. And the answer to that question was yes, 
we do think that this American Community Survey can provide 
this country with a rolling census and then provide States and 
municipalities and the districts with the kind of information 
that they need to do their own planning on an annual basis.
    It may be giving children flu shots. It may be staffing up 
to provide language help in certain communities. It may be the 
distribution of dollars within States and within districts and 
within counties. And rather than wait and only rely on 
information every 10 years, wouldn't it be wiser to have the 
information that we were looking at every year with respect to 
our society that is more accurate so that there would be a more 
efficient allocation of our resources?
    You all want to optimize the allocation of the scarce 
resources that we have in this country, and one way to do that 
is to make sure the people that are allocating those scarce 
resources have good information with which to allocate them.
    Mr. Miller. A question on the ACS. We do have the long 
form. But for 2010 we will not have the long form--is that 
correct?
    Secretary Evans. We will have it only in the form of the 
ACS, correct.
    Mr. Miller. There is a question of whether it is mandatory 
or voluntary. The Constitution refers to apportionment for 
House of Representatives. ACS is not a constitutional 
requirement as the short form is a constitutional requirement. 
Do you have an opinion on whether there is legal requirement 
that it be mandatory for the ACS?
    Secretary Evans. I don't know. I don't have a legal opinion 
on that. What I do have is an opinion on is it is going to be 
collecting the kind of information that we are required to 
collect statutorily. I think you know in the various statutes 
that we must honor and respect and provide the kind of 
information to the Congress that you have requested for us to 
collect. It will collect that kind of information.
    Mr. Miller. Well, I think the question we want to explore 
further is the question of whether it is mandatory, or even 
necessary for technical reasons. I know some people are 
concerned that the mandatory nature of it. We had some troubles 
with the long form when they were doing it a year and a half 
ago.
    Let me ask one more question relating to the census, and 
that is about the budget controls of the Bureau. I have been 
very supportive of the budget of the Census Bureau and 
supported these big increases they got as we went through the 
process for the decennial. And we had a very successful census, 
a $6 billion census, but it was the most accurate in history.
    But you have to be accountable for the money, and a 
September 2001 GAO report cited major problems with internal 
budget controls. And last year the Bureau suddenly found $50 
million after the GAO was asked to investigate. Now they have 
$90 million spent on contracts that have not been audited and 
may or may not have been received. They are projecting an $11.3 
billion census maybe in 2010; We may not be here, those of us 
sitting around here for the 2010 census, but whoever is sitting 
here is going to need to figure out where the money is coming 
from. So we need to make sure that we have good budget controls 
and accountability of the money spent.
    GAO has raised some questions, and I don't know what we can 
do to make sure that we have significant accountability of that 
money. Because it is huge sums, 6 billion and maybe $11.3 
billion in 2010. I just want to make sure that we are focused 
on controlling that spending.
    Secretary Evans. Yeah. Well, I am pretty sure I won't be 
here in 2010, but I will assure you of this: that I understand 
accountability, and I understand controls, and I understand 
people being held accountable, and I will take a hard look at 
this. I will ask the right, tough questions and make sure that 
we have the accounting controls in place that satisfy me that 
we have got a system that should work, and work efficiently.
    Mr. Miller. Thank you very much.
    Mr. Cramer.
    Mr. Cramer. Thank you.

                        DOMESTIC STEEL INDUSTRY

    Mr. Secretary, welcome back before the subcommittee. Last 
year when you were here, I asked you some questions about the 
domestic steel industry. I would like to direct your attention 
there. First I want to thank you and the administration for 
your strong actions in support of our domestic steel industry.
    What I was asking you about last year, you, in fact, 
initiated and caused the Section 201 investigation to occur. 
But I understand that back in mid-December the ITC formally 
submitted to the White House its recommendations, and will 
those recommendations be acted on by March the 6th, is that 
timetable correct?
    Secretary Evans. That is the timetable by which to make a 
decision, correct.
    Mr. Cramer. I was reading a report from an American 
University economics professor that came out this week that 
shows that more than 325,000 jobs may be lost in the United 
States steel industry if they don't receive a strong remedy.
    So my question is, do you have any sense of what direction 
the President is going with his decision, and can we expect 
that decision on or about March the 6th?
    Secretary Evans. Well, you know, I am, of course, not going 
to scoop the President, but I will say this to you with respect 
to his thinking on the issue. He made it very clear last year 
that, again, a strong component or strong principle when it 
comes to trade is a level playing field, and in the steel 
industry he has initiated a three-part program, one being work 
with the OECD and other countries all around the world to 
eliminate overcapacity in the world.
    We have been doing that. We have had a variety of sessions 
already in Paris with other countries around the world, and we 
have commitments from around the world to remove about 125 
million tons a year of capacity off the world market.
    And in addition to that, the President initiated an effort 
to talk to other countries, focus on trade-distorting practices 
of theirs and subsidy issues that were problems. We are having 
those kinds of discussions right now in the area of steel.
    The Commerce Department administers over 300 antidumping 
and countervailing duty orders all across the economy. Over one 
hundred fifty of those, a little more than 50 percent of them, 
are related to steel. And so it is clear to the President, it 
is clear to us, so that you know there is an ongoing issue with 
respect to subsidies around the world.
    And so in addition to those first two points and first two 
initiatives, he also talked about initiating a 201 process, 
which he did. And as you mentioned, ITC has issued their 
determinations, and they vary all over the board depending on 
what product you are talking about of the 54 steel products 
that are out there. But that has been presented to the 
President, and I anticipate that he will probably make a 
decision on or about March the 6th.
    Mr. Cramer. Well, I appreciate that strong action, because 
our domestic steel industry deserves that.

                            ULTRA WIDE BAND

    I want to ask you about the recent FCC ruling for UWB 
technology that I have been interacting with you and with your 
Department about.
    I have a company in my district that has provided or has 
been providing a product using cutting-edge UWB technology to 
allow the public safety community to detect movement behind 
walls. It has a local or national law enforcement impact there, 
and yet this FCC ruling set the commercially allowed power 
level so low to the use of that technology by the public safety 
sector, the law enforcement sector would be severely limited.
    Do you expect that we can have further dialogue over this 
issue, and what will be the next step from here?
    Secretary Evans. Right. I do know when the FCC released 
their determination, they allowed for the continuation of 
discussion and dialogue to further consider whether or not 
changes were suitable or acceptable to lower the power levels. 
And this is a safety issue on both sides when it comes to 
deciding where the power level may or may not be.
    It gets into safety issues. We will continue to work with 
the Department of Defense. We will work with the Department of 
Transportation. We will work with NASA and further explore 
other opportunities to change the power settings. I am not 
sure, but the FCC made it clear that dialogue could continue.
    Mr. Cramer. Very good. Thank you very much.
    Mr. Wolf [presiding]. Mr. Regula.
    Mr. Regula. Thank you, Mr. Chairman.

                        DOMESTIC STEEL INDUSTRY

    Mr. Secretary, you are certainly aware of the report that 
was alluded to by the professor at American University about 
the loss of 325,000 jobs, but I would point out that report 
does not include the impact on a whole group of other 
businesses, automobile dealers, clothing stores, you name it. 
So the number of jobs potentially lost are far more than the 
325,000.
    And also, I point out that the steel industry, as a result 
of the VRAs in the first Bush administration, has done a lot of 
restructuring. The labor has become very efficient, and it is 
difficult to do a whole lot more and still be able to compete.
    And I want to commend the President and you likewise for 
initiating a 201 investigation to start with. We tried for 8 
years prior to your administration, and when I say we, I am 
speaking on behalf of the Steel Caucus, to get a 201 
investigation initiated without success. So you at least took a 
degree of leadership there in getting that done.
    And I hope that the President will make a decision maybe 
with some relief, maybe not entirely what the ITC has 
recommended, but to give industry a breathing spell. We have a 
company in my district that is in Chapter 11. The labor force 
has agreed to take a 15 percent pay reduction. They are taking 
the same reduction in executive salaries in an effort to 
survive, but they need some time.
    And I think the President in making this decision could 
give these companies like that, because there are a lot of them 
out there in Chapter 11 in the industry, time to get 
restructured to become competitive and also to get some success 
with your effort to get other countries to voluntarily reduce 
production.
    I think the real problem, as you very well stated, is that 
there is just overcapacity in the world. The solution has to be 
twofold, one to get the economy stronger so the demand is 
there, and secondly to reduce capacity. I just wonder if you 
want to comment on that.
    Secretary Evans. I don't think I can amplify much on what I 
have already said. I will make one other point in terms of what 
is going on around the world. In 1985, about 75 percent of the 
steel capacity was owned by the government, and today about 
less than 25 percent of the steel capacity in the world is 
government-owned. And so there is a tremendous amount of 
economic force, moving toward privatization of the steel 
industry globally, and it is happening. In my judgment it will 
continue to happen, particularly when you look at where most of 
the government-owned steel capacity is, which is basically in 
Russia and Ukraine, that part of the world.
    I think we will continue to see free market forces work on 
the steel industry. I think it will bring the industry into 
balance in the years ahead. Is it going to happen next week? 
Probably not. In the meantime, I think that as the President 
said, one of the fundamental components of trade policy is a 
level playing field. We have to be able to say to our workers 
and our businesses that we are all going to play by the same 
rules.
    America loves to compete. We are the greatest competitor in 
the world. We have the greatest workers in the world, the best 
products in the world, but just make sure that we have a level 
playing field.
    Mr. Regula. We will be happy if the President's decision 
creates the level playing field. We look forward to that. But, 
Mr. Chairman, I would like to put this study in the record.
    Mr. Wolf. Sure. Without objection.
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    Mr. Regula. That would be a great achievement to get the 
level playing field. We have been trying for 25 years to 
achieve that goal, and I think one of the most significant 
steps was having the Section 201 investigation initiated.

                   NATIONAL SEA GRANT COLLEGE PROGRAM

    One other question on the National Sea Grant College 
Program. The President's budget proposes to transfer the 
National Sea Grant College Program from NOAA to the National 
Science Foundation. The director of the Ohio program, who is 
highly respected, would like to keep his partnership with your 
Department, and particularly with NOAA.
    As you know, the sea grant program is more than a basic 
grant program. The program engages many of the Nation's top 
universities in conducting scientific research, education, 
training and extension projects that are designed to result in 
science-based decisions in the use and conservation of our 
coastal resources, including those of the Great Lakes.
    The sea grant program also effectively leverages every 
Federal dollar with a direct match, and further investments by 
State, local, university and private sector funds to 
effectively manage our coastal resources.
    Would you explain the rationale for proposing to move the 
sea grant program from NOAA to the National Science Foundation?
    Secretary Evans. Congressman, the way I would explain it is 
that the National Science Foundation is clearly the premier 
center for basic research in the Federal Government, and the 
sea grant program is basically focused on basic research, 
whereas in NOAA the research that we focus on is more in 
applied research. And so the decision was based on the 
importance of getting more of the basic research programs 
within the Federal Government located in the National Science 
Foundation, which is the center for basic research in this 
government. So that is the reason for the decision.
    Mr. Regula. Well, I think the administration has promoted 
the idea of partnerships as an effective way to manage 
programs, and I think you will lose some of that by making that 
transfer, because the Sea Grant College Program has generated a 
lot of involvement at the State, local, university level in 
partnerships. And I would hope, and of course I am speaking on 
behalf of the Great Lakes, that you would rethink that decision 
in the sense that I believe we will lose some of the local, 
private, and the State governments' involvement if this is 
moved over to the NSF. It will be just one more program there, 
whereas, it presently has a focus on some problems that exist 
in the places like the Great Lakes.
    So, I don't know if that decision has been final, but at 
least I think it is something that I would hope that you would 
give some consideration to. And, again, we look forward to your 
decision on steel.

              MANUFACTURING EXTENSION PARTNERSHIP PROGRAM

    One other issue I would touch on, the Manufacturing 
Extension Partnership Program. I believe your budget zeroes 
that out. And we have had some success with this program in 
Ohio to help the small manufacturers, and small manufacturers 
become big manufacturers in time.
    And I think that this, again, is a partnership between the 
government and the small manufacturers in an effort to give 
them an opportunity to grow. In a State like Ohio, and I think 
it is probably true in a lot of other States, they have a great 
number of small companies that need a helping hand that is 
provided by the Manufacturing Extension Partnership Program. I 
would be interested in why you feel this is no longer useful.
    Secretary Evans. It is useful. It is, quite frankly, a 
wonderful program. When the program was first initiated, the 
idea was that we were going to run this for 6 years. At the end 
of the 6-year period, hopefully they would be up and running 
and self-sustaining. And that was changed 2 or 3 years later. 
That 6-year time window disappeared.
    But, you know, Congressman, I will just say to you that we 
are at war, and you got to have priorities. And this is a great 
program, but everything unfortunately can't make the cut. And 
we have left $13 million in the program to support a couple 
centers that have not been running for more than 6 years. But 
for those that have been in existence for more than 6 years, we 
are just hopeful that they will be self-sustaining. Also asked 
for and hope we will receive, sometime this spring or summer, a 
study as to whether or not those centers indeed can be 
privatized.
    You are providing a service to small and medium-sized 
manufacturers. It is the kind of service that would sustain a 
program.
    Mr. Regula. Well, if this committee were to make a somewhat 
different priority judgment, you would not find that totally 
negative action?
    Secretary Evans. No, it is a good program. It has been a 
worthwhile program, but, like I said, you just have to have 
priorities.
    Mr. Regula. Thank you.
    Mr. Wolf. Thank you, Mr. Regula.

               LEVEL PLAYING FIELD IN INTERNATIONAL TRADE

    I am going to Ms. Roybal-Allard. I want to follow up on 
one, and I don't have steel in my district.
    He really does have a pretty good point. As you know, I 
voted for the TPA. I guess everyone who voted for it can say 
that they were the deciding vote. It just seems that maybe they 
were, because, as you know, it was not there up until whatever.
    But he does raise a good point. And the other day I was 
listening to music, and Bruce Springsteen's song Youngstown 
came on. Have you ever heard the words to that song? You ought 
to look at the words to that song. It talks about the men who 
fought World War II and worked in the steel mills in 
Youngstown, who made the cannonballs and now they are all gone. 
And there is a certain thing. When you look at the level 
playing field issue, it isn't level.
    I like you. I trust you. I mean, I am a great fan of the 
President. The President was very firm with the Chinese when he 
was there. I had a Chinese worker come into my office 2 weeks 
ago; 29 days out of 30 they were working. They were getting up 
about 4 o'clock in the morning. They were working until like 9 
or 10 at night. They lived in a dormitory above the factory. 
They were making little plastic things for a fast food company, 
I won't mention it, in the United States.
    Well, that was not a level playing field. They had no OSHA, 
they had no EPA, they had no minimum wage, they had no family 
leave policy, they had nothing. If you need a kidney, you could 
go to China, for $45,000 they will go into the prison, they 
will execute someone with your blood type and give you a kidney 
transplant, and it probably will take, because the quicker the 
transplantation takes. So it is really not a level playing 
field.
    Mr. Regula is right. I really worry about the industries 
that need a little breathing time. The Chinese are dumping 
apple concentrate into this country. Well, the conditions are 
horrible. I mean, they are spraying. I mean, they just do 
things. And I plead with you to really make sure that it is 
really a level playing field in the truest sense of the word, 
because sometimes they hire the brightest and biggest of the K 
Street firms. I mean, they will hire them. China will come over 
and hire them. There was a law firm over there now trying to 
negotiate a business to help China with regard to the Olympics. 
I mean that maybe the fact that they got the Olympics kept them 
from invading Taiwan. That may be the one thing to help Taiwan. 
But really look at it. I urge you to.
    I will never check, I may ask you if this as a stream of 
consciousness, but get the words of Bruce Springsteen on 
Youngstown, and it really painted the picture that Mr. Regula 
is making. And I think if it were truly a level and completely 
level playing field, I think you are exactly right. I think the 
American worker does better, and I think the free enterprise 
system that we have is better.
    The problem is in China, in Vietnam, it isn't--I could go 
through the list. So I don't have steel in my district, the 
last time the vote came on, I didn't vote with them. But they 
have a good, legitimate point, and Bruce Springsteen makes it 
better than I do.
    Ms. Roybal-Allard.
    Ms. Roybal-Allard. Thank you, Mr. Chairman.
    And, Mr. Secretary, welcome.
    Secretary Evans. Thank you.

                              TOP PROGRAM

    Ms. Roybal-Allard. First of all, let me associate myself 
with all of the comments that have been made by Mr. Serrano, 
about the importance of the TOP program and the importance to 
many of our districts. And I just wanted to add something that 
relates to your opening statement where you said that the first 
priority of the budget is harnessing the resources of the 
Federal Government to protect the lives and safety of all 
Americans.
    The TOP program helped police in California to build an 
information-sharing computer network that the FBI used to 
identify a suspected terrorist within hours of the September 
11th attacks. And the FBI could not retrieve a photo of one of 
the suspects because it was not in the National Crime 
Information Center. But the Calphoto Crime Police Network was 
able to quickly find the photograph of the suspect.
    California's new antiterrorism information system, which 
depends on Calphoto and is something that the FBI also has 
access to, and this program began with a $400,000 TOP grant 
which is now funded by the local agency. So I just wanted to 
add that bit of information with regards to the program.

                              MEP PROGRAM

    Your Manufacturing Extension Partnership Program, which 
assists small and medium-sized companies, is working very well 
in California. In southern California, the MEP Center is known 
as the California Manufacturing Technology Center. And again, I 
was surprised that the recommendation is to cut the program 
from 106 million to 13 million, which virtually eliminates the 
program.
    Can you tell me what the most recent NIST survey results 
indicate about MEP relative to increased productivity, 
competitiveness, cost savings, increased investment, work force 
retention for small and medium-sized manufacturers who use 
these services?
    Secretary Evans. No, ma'am, I can't, but I will be glad to 
get back with you. I have not seen the report or know what the 
data shows, but I will get back to you on it.
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    Ms. Roybal Allard. It is my understanding that the latest 
survey of the MEP Program attributes about 700 million in 
increased sales, 480 million of cost savings and 900 million of 
increased capital investments.
    MEP also represents a significant partnership with both 
States and businesses. Can you tell me what the total level of 
funding for this effort is including the States and private 
contributions, and what will happen to that investment if the 
Federal share is effectively eliminated?
    This is the MEP Program, and it represents a significant 
partnership between the States and businesses, State and 
private partnership.
    Secretary Evans. Right.
    Ms. Roybal-Allard. And my question is what would happen to 
that?
    Secretary Evans. I am not sure there is any way of really 
telling. Some of the centers would continue. Some may be 
discontinued. I think it would just be a function of what the 
local communities were able to do in terms of filling in the 
gap that we would leave.
    Would others step up and fund that gap, or would it just 
mean that they couldn't serve quite as many? I am not sure. I 
don't know that we have studied that.
    As I said in my other remarks, I know the program was 
initially designed to support new centers for 6 years and get 
programs up and running, and with the idea that after 6 years, 
if they were worthwhile, they would be self-sufficient; that 
they would be strong enough, they would be showing results, 
they would be showing performance, so those in the local 
community would have enough results to go to others and say, 
this is something that we ought to fund. It is good for our 
community.
    Ms. Roybal-Allard. But my understanding is that there is an 
extremely high return on investment. Do you have those figures 
to share? I have some figures, but I am not sure that--well, my 
understanding is that each dollar of Federal investment in the 
program generates $2.66 in Federal tax revenue, and that each 
dollar of State investment in the program generates $3.55 in 
State and local revenue.
    So it appears to me that this is a real return on 
investment for increased productivity, worker retention. And in 
fact, in one of the tables that I believe comes out of one of 
your reports, it is a productivity improvement reported by MEP 
clients where you are talking about productivity improvement, 
48 percent; material productivity improvement, 43 percent; 
labor productivity 34; capital productivity, 41, and so on.
    And so I guess what I would like is for you to take another 
look at the cuts that are being proposed, and I think that you 
will find that this is a real investment and that you get a lot 
of return on your money for it, and you may reconsider the cut 
that is being made because it really does, in effect, kill the 
program.

                  Minority Business Development Agency

    My next question has to do with the Minority Business 
Development Agency, which is an agency that I definitely 
support within your Department. However, your performance 
measures which focus on the number and the dollar value of 
contracts awarded and the number and dollar value of financing 
packages received have been questioned by some of the MBDA 
centers in my area.
    And the concern is that in counting the total value of a 
contract or a financing package, that you don't necessarily 
reflect the number of jobs that have been saved or the number 
of jobs that have been created. One center could help, for 
example, four businesses that each have $5 million portfolios 
and create or save 100 jobs each, and another center might get 
a $20 million loan that doesn't necessarily create any jobs in 
the United States, but they each might be judged equally as 
successful.
    Are there any additional performance measures that you are 
considering that might better gauge the actual impact of 
minority businesses on the job?
    Secretary Evans. Congresswoman, also I support this very 
vigorously. I think this is a great program. We have got a 
great team of people that are engaged in building this program. 
We changed it from kind of an administrative kind of program to 
an entrepreneurial program of getting the local communities 
more engaged in building themselves, promoting themselves and 
doing constructive things in their own communities.
    That is the very question that I asked recently, what are 
the results? And because I am very results-oriented, that is my 
background, I want to know what the performance is. And I would 
say to you quite candidly that the way it was presented wasn't 
satisfactory to me. And I said, you need to go back and develop 
a program where we can look at the performance and really look 
at the results.
    Some of results they showed me dated all the way back to 
1997, and the reason it did is because it is part of this 5-
year economic survey that we run. It is interesting what 
happened in 1997. I am a little more interested, though, in 
what happened in 2000 and 2001. So we are focused on that. We 
will get back to you, to the kind of benchmarks that we will 
use, the kind of methodology that we will use. We will have a 
position on what that should look like, because I also think 
that is very, very important.
    Ms. Roybal-Allard. If you can give an answer to this 
question as to whether or not the centers get extra credit for 
the extent to which they direct their activities to small 
businesses?
    Secretary Evans. Yeah, we will look at that, sure. We would 
be happy to.
    Ms. Roybal-Allard. Thank you.
    One final question.
    Mr. Wolf. Sure.

                        Energy Security Program

    Ms. Roybal-Allard. You requested $6.1 million that would go 
to two pilot programs in New England and the Southeastern U.S. 
As part of an energy security program to improve the accuracy 
and reliability of forecast models of weather, hydrology and 
climate conditions. Now, I agree with the importance of such an 
effort for several reasons. For example, California, a climate 
change could have an enormous impact on energy demand, as you 
well know, including heat waves, cold spells, droughts, floods, 
as well as our ability to generate hydroelectric power. But in 
addition to the impact on energy, there are other benefits as 
well, such as stream flow predictions, which are very important 
in measuring not just water supply, but water quality in the 
form of salinity, which is, of course, very important to 
southern Californians who depend on this imported water. Also, 
stream flow predictions would help to do a better job of 
protecting endangered species by enabling us to balance our 
water demands. And States like Oregon and Washington have 
similar concerns.
    Given these facts and the significant work that is underway 
at Scripps Institute in California relative to climate change, 
why are you confining this pilot project to only two eastern 
areas of the country?
    Secretary Evans. Well, I think because it is a pilot 
project, and like you suggest, it has great potential, we feel 
that it could save us a billion dollars a year in energy costs 
alone, not to mention a number of the examples that you just 
recited as to other ways that it can benefit our society.
    But, you know, we want to test it first and understand what 
works and what does not work, and I think after that period of 
testing, which I judge will take a few years, we will be in a 
position to make a decision that is a much larger decision to 
the entire country.
    Obviously there is going to be a lot more money involved, 
and I think before you make that decision, you want to test it 
and see what works and what doesn't work, and what you may 
change or how you might alter it. And so I think it is a matter 
of just let's test it, let's try it, let's see how it works, 
let's see if these models that we have looked at or considered 
actually turn out to be real and really do work. And if that 
answer is yes, then we might well--whoever is here might be 
coming back up here in a few years and asking for a substantial 
amount of money to cover the country with this.
    Ms. Roybal-Allard. But the fact is that climate conditions 
and all of those things that this pilot project are supposed to 
address, the Eastern part of the United States is very 
different than the Western. I mean, California, for example, 
has a very different climate and different kinds of problems 
that might be experienced in the Eastern parts of the United 
States. So I would venture to say that it would be a much 
better study if perhaps one was done on the Eastern part of the 
United States, the other was done on the Western, and you might 
get better and, you know, broader information that would impact 
both.
    Because if you just concentrate on one part of the country, 
whatever comes out of that may not necessarily----
    Secretary Evans. I think our request is just the 
Southeastern part of the country, not New England. I think New 
England was put into the budget, but our request was just the 
Southeastern part of the country. So we picked one area in the 
country to test the model and to see what would work.
    Ms. Roybal-Allard. Part of this is my own paranoia. Since I 
have been here, in 10 years there is this east coast mentality. 
And somehow there is a feeling that the United States stops at 
the Mississippi, and California and others west of the 
Mississippi also seem to be having to say, hey, we exist, 
whether it comes to studies, research or whatever it happens to 
be. So I hope that you would at least consider some of this on 
the west coast.
    Secretary Evans. When I was chairman of the board of 
regents at the University of Texas system, I was also very 
jealous of the research dollars that seemed to go to 
California. It seemed like they were doing pretty well to me.
    Mr. Wolf. Thank you.

                  Homeland Security Initiative In BXA

    Mr. Secretary, your budget proposed a $20 million program 
to study Federal information systems to improve information-
sharing among Federal agencies for law enforcement, 
intelligence, border security and immigration.
    The office is to develop methods to improve information-
sharing, which is almost impossible at times, between Federal 
law enforcement and intelligence agencies, first responders, 
State and local governments. Why did they pick Commerce? Why 
not Justice or why not--why Commerce?
    Secretary Evans. Good question.
    Mr. Wolf. Do you have the authority--do you think you have 
the authority and the muscle to carry it through?
    Secretary Evans. We do indeed. I am absolutely sure that we 
do. There is no question, and a large part of that is because a 
number of years ago there was the creation of the CIAO, the 
Critical Infrastructure Assurance Office, which is, as you 
know, in the Department of Commerce. And so they have been 
building an organization over the last number of years to focus 
on the critical infrastructure of government in this country, 
not just critical infrastructure within government and those 
critical assets that we must protect here in government, but 
also the critical assets that must be protected all across this 
country so that this economy will function.
    And so during that process, Critical Infrastructure 
Assurance Office has been instrumental in organizing the effort 
to draw in the public and private sectors, because obviously 
there is quite a bit of knowledge within both sectors as to how 
technology can be used in this regard.
    When the decision was made to set up a separate Office of 
Homeland Security in this country, and we began to decide where 
certain functions that will support work and coordinate with 
the office and where various efforts should be housed, one of 
the key questions was the one you just raised of sharing 
information which can be pretty difficult at times, and 
particularly when you are trying to share information across 
agencies horizontally and vertically with the State and local 
organizations that might need information about terrorist 
threats or any other kind of terrorism-related information. And 
so because of the work we had already done in our Department in 
working with both the public and the private sectors in trying 
to develop some of the models and the programs and the 
organizational structures for dealing with information sharing, 
it seemed like Commerce was probably best suited to organize 
and lead this 2-year study.
    And it is just that; it will be a study. And we will be 
calling in public and private sector experts, the names of 
which you have heard before. These companies are comfortable in 
dealing with the Commerce Department because we have been 
dealing with them for a long time, and if all of a sudden we 
immerse them in some other department like the Department of 
Justice, then it may be a little more awkward for them to work 
with Department of Justice. So that was fundamentally the 
reason.
    Mr. Wolf. So the $20 million is a study? You will be 
contracting a lot of that out?
    Secretary Evans. That is correct.

                     EXPORT ENFORCEMENT ACTIVITIES

    Mr. Wolf. A recent AP article highlighted the arrest of an 
individual that tried to illegally ship computer goods to three 
Arab countries despite a Commerce Department order to stop it. 
What enforcement capabilities does the Bureau of Export 
Administration have?
    Secretary Evans. We have extensive enforcement authority.
    Mr. Wolf. What record have you, let's say, in the last 
year? During the Reagan administration they were very 
aggressive on this issue.
    Secretary Evans. Of course I will give you the full report. 
I am not familiar with the total report, and I will certainly 
get that to you. I am familiar with the case that you just 
talked about. I am familiar with the fact that we have just 
apprehended a suspect in New York City of shipping night vision 
binoculars to the Hezbollah in India. And as I travel around 
the country and meet with some of our enforcement officers, I 
am pleased with their focus on this very important issue.
    I don't have the listing with me of all of the cases that 
we have brought to the courts or all of the cases that we have 
resolved in the last 12 months, but I will be delighted to get 
that to you.
    Mr. Wolf. If you could.
    [The information follows:]
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    Mr. Wolf. I think it is important that you make it clear; 
there was a case during the Reagan administration with regard 
to SHEBA and the quiet propeller with regard to the aircraft--
to the submarine. It used to be we could not--200 miles off the 
coast, and the technology was transferred, and it really did 
jeopardize the national security. And particularly now it is an 
absolutely critical issue, even though the Soviet Union is 
gone. So I think how they hear from the Secretary--in the past 
at times there has almost been the inference that it is 
business first and security second. I think security is 
absolutely--I mean, Mr. Serrano was speaking earlier--27 people 
from my congressional district died in the Pentagon. I think 
national security and homeland security, and at times there has 
been this tendency to make the business deal and sort of look 
the other way. I think the more you are articulating, and I am 
not suggesting that--I think it filters down that the boss 
feels this is important.
    We are going to have a couple of votes. We are going to 
leave in 5 minutes, go vote, come back, and I think that should 
be the last round of votes.

                              BXA ATTACHES

    Last year money was provided in emergency supplemental for 
two post attaches, United Arab Emirates and Egypt. Have they 
been filled?
    Secretary Evans. I don't know if we filled them. I know the 
money was provided. But not filled yet?
    Ms. Retzlaff. Right. They have not been filled. They will 
be posted next week. We have received clearance from the 
ambassador.
    Mr. Wolf. What about UAE, it is particularly critical?
    Ms. Retzlaff. That will be up next week as well.
    Mr. Wolf. So there should be someone there in 2 or 3 weeks? 
You actually have the person?
    Ms. Retzlaff. No. The posting will go up to say that we are 
looking for them.
    Mr. Wolf. Well, a lot of stuff has gone through here. And 
diamonds, al Qaeda, Dubai, gold, the piece in the Washington 
Post the other day is very, very critical. This is kind of the 
funnel. And both of these countries, I think the sooner the 
person is on the job and somebody who has the capability to 
understanding it is very, very important.
    The budget requests new attaches in China, Russia, again 
UAE, so again, to the credit of the administration, you are now 
asking for another one, I guess, or more over--this is--you got 
supplemental----
    Ms. Retzlaff. Continued on funding for 2003.
    Mr. Wolf. Singapore.
    Secretary Evans. Right. Egypt.
    Mr. Wolf. How many BXA attaches do you have overseas?
    Secretary Evans. I don't know what the number is.
    Ms. Retzlaff. That will make seven.
    Mr. Wolf. Well, I think they ought to be up and moving 
quickly. This is a really important issue. And it is national 
security. If the committee can help you or give you any 
additional money even in that area, I think it is very, very 
important. It sends a signal, too.

                        AFRICAN TRADE EXPANSION

    Africa. We have seen reports that the volume of world trade 
has tripled, while the sub-Saharan Africa's share has fallen 2 
percent to less than 1 percent. The Congress passed the African 
growth and opportunity bill, which I supported, and I know the 
administration was very, very supportive, I believe. How has it 
helped? Is anything happening on Africa? Is there any 
improvement that we have seen?
    Secretary Evans. Well, I think it has helped a lot in terms 
of bringing focus to this important region for us to encourage 
trade and open up trade. There is no question about the 
commitment of America to expand African trade. A trade mission 
just returned from Africa, and I am going----
    Mr. Wolf. Where are you going?
    Secretary Evans. Not sure yet. But I am going there later 
this year, probably November. And I haven't set the exact 
schedule yet.
    Mr. Wolf. Are you bringing a trade mission?
    Secretary Evans. Yes. And so, I know that the Ambassador, 
USTR, just returned from Africa. So we are giving it a lot of 
attention. We have added some money in the budget to further 
promote trade to Africa.
    And so, in terms of our time and resources and focus it is 
growing. And I guess I would report to you, when you say how it 
is going, I mean, the report I got back from the trade mission 
that just returned was very positive. There is a lot of 
activity between those that went and those that are in Africa, 
regarding ways that they can work together and send products, 
services from over here to over there. And so I am encouraged 
by it.
    Mr. Wolf. Okay. Do you have a question or two before we go? 
I am going to come back. Do you want to wait?
    Mr. Serrano. It is up to you.
    Mr. Wolf. I think we ought to recess. We have got about 7 
minutes. So we will be back in 15 minutes. That should conclude 
it for the day when we come back to question. We will recess 
for about 15 or 20 minutes.
    [Recess.]
    Mr. Wolf. Mr. Secretary, we apologize, and everything just 
changed on the floor in the last--like the weather, and so they 
voiced something and we weren't back earlier, and so I 
apologize for taking all of your time. They were ready to just 
say go on home, and then they changed it.

                    CHINESE FRONT COMPANIES IN U.S.

    We have been told there are over 3,000 front companies, 
Chinese front companies operating in the United States. Many of 
them are owned by the China--People's Liberation Army or the 
Chinese Secret Police. Most of them have been used or are being 
used for espionage, and many of our companies don't know. So if 
you could look into that, we are going to ask the same question 
to the FBI, but if you could try to get me some sense of how 
many of these companies, because this is not a level playing 
field, obviously.
    So if you could look into this for me and find out how 
many--of these companies are operating within the United 
States, then I will ask the FBI, and we will match that 
information.
    Secretary Evans. Certainly. I would be happy to do that.
    [The information follows:]
              list of communist chinese military companies
    The Department of Commerce has not yet received the list from the 
Department of Defense. This list is required by Section 1233 of Public 
Law 106-398, National Defense Authorization Act of FY 2001.

                                 US/OTP

    Mr. Wolf. Your budget request, $8.1 million for the Office 
of the Undersecretary for Technology and the Office of 
Technology Policy, what is the rationale of the funding of this 
entity, the $5.4 million requested, Office of Science and 
Technology in the executive office of the President, how does 
this fit in with that?
    Secretary Evans. Well, there is certainly a lot of 
coordination between the two. We are focused in areas like 
broadband and like spectrum with NTIA and Office of Technology.
    Mr. Wolf. I guess in the funding issues, do you need both?
    Secretary Evans. Well, I think we do, yes. I mean, I think 
within the administration, it is very important for the private 
sector to have a portal into the government, and I think it is 
appropriate that come through the Department of Commerce. And 
so I feel like we play a very important role for the high-tech 
community to have a place for them to come, talk about their 
issues that are important to them, have us be an advocate for 
them, or certainly hear them out when it comes to the relevant 
high-tech issues that are going to continue to confront us in 
this economy.
    Mr. Wolf. And the office in the White House, how do you see 
that, then?
    Secretary Evans. Well, you know, we talk to them, but I 
can't tell you that--you know, I am talking to them on a 
regular basis. Obviously, there is a--the President has an 
advisory council, PCAST, which is the President's Council of 
Advisers on Science and Technology. We do work with them, and 
we do talk with them. So I see coordination and cooperation 
between the two, but in terms of just the industry, the high-
tech industry, it makes sense to me that commerce is a portal 
for them to come and discuss important issues.

                         2010 DECENNIAL CENSUS

    Mr. Wolf. Okay. Census, the Bureau of Census, is requested 
as increase of more than $122 million for the 2010 census. 
Given the budget restraints, why are we moving so quickly? Is 
this a good idea? Will it save us in the outyears?
    Secretary Evans. Yes, it will save us. I know they studied 
this very thoughtfully and very thoroughly, and not only will 
it save us, but as importantly, I think we will have better 
information. Part of this increase we talk about is to 
administer the American community survey, and so we will have 
an ongoing survey, and that ongoing survey will allow us to 
begin providing census data on an annual basis across the 
country that states, local municipalities can make very 
important decisions as to how they allocate their resources.
    So I think the big picture is that, we have to allocate 
scarce resources in this country, and the better information we 
have to allocate those resources, the more efficient we are 
going to be.
    Mr. Wolf. And the staff said that Mr. Miller had asked a 
number of questions on this subject. Did he ask how much the 
total cost was?
    Secretary Evans. For 2010?
    Mr. Wolf. For 2010, and it will be 11 billion----
    Secretary Evans. Yeah. I am hearing 11--it is a very large 
number.
    Mr. Wolf. 2000 was about----
    Secretary Evans. Six and half, right. So it is almost 
double, not quite. Obviously you have a lot of inflation in 
there. They told me that the plan we are implementing saves 
about a half a billion dollars plus has a lot better 
information.
    Again, I want to put a lot of emphasis on this being able 
to provide the country with fresh census data every year. The 
States and the municipalities have to wait 10 years to get data 
to see where their people are and how they are going to 
distribute, flu shots, for example. That is really important 
information for this country to have.
    Mr. Wolf. That is true.

                          Status of Fisheries

    Fisheries, the Financial Times had a recent article 
entitled fish docks face global collapse. It cites the American 
association for the advancement of science heard several 
studies showing that ocean ecosystems are in far worse state 
than researchers have realized 2 or 3 years ago. Any comment on 
that?
    Secretary Evans. Well, a couple of comments, chairman. One 
is we are adding some funding in the national marine fisheries. 
Not only are we going to request a new vessel that will help us 
monitor the fisheries of this country, but we are getting ready 
to put into service a vessel that was approved a year and a 
half ago. We are also beefing up our enforcement as we watch 
the fisheries and how they are being used.
    And so we are continuing to put more and more emphasis on 
this. But more important, I think, chairman, I would say that, 
again, the President's initiative to form an ocean policy 
commission that will report to him in the fall of 2002. And I 
think this policy--or not policy commission, but it is an ocean 
policy council, I guess it is called, will be reporting to the 
President as to the state of the oceans, and it will include 
the fisheries. And I think from that report it will give us 
some guidance as to, you know, what direction we should take.
    So I am looking forward to seeing that report. I think it 
will be a comprehensive look at kind of that very, very 
important area. And so while, yes, we are putting more emphasis 
on it all the time, understand the importance of it. I am glad 
we will have a more high-level report coming to us later on in 
the year.
    Mr. Wolf. You might take a look at the article, and I will 
quote from the article. It said the productivity of the ocean 
is six times less than 50 years ago. The fishing effort is 
three times greater than in 1950, while the catch has fallen by 
more than half. This gentleman, Reg Watson, it goes on to say, 
we are masking our own crisis. We are paying the fishers in 
other oceans to grind down their marine ecosystem for our 
consumption. They go on to talk about intensive deep-sea 
trolling. It said, ``it scooped up slowly growing species such 
as rockfish and orange roughy, which live for a 150 to 200 
years at wholly unsustainable rates. Secondly, communities of 
deepwater corals were being destroyed as to''--and then it goes 
on. It really--he calls it fish mining, and maybe we can get 
into that a little bit more, but that does seem to be a pretty 
serious issue.

                        Teleworking at Commerce

    Two other issues, and then I will refer to Mr. Serrano. We 
spoke to you the other day about teleworking. I don't know if 
you want to comment, but I think it is important that we 
aggressively move ahead. You have got a pretty good rating from 
OPM with regard to--I think it was 16 percent or 17 percent.
    Secretary Evans. Right. We are aggressively pursuing it.
    Mr. Wolf. So all of your people who are out here, who are 
listening, who are going back to their different agencies can 
know that the Secretary is a strong supporter of telework.
    Secretary Evans. Absolutely. Very strong supporter. They 
know it and we are continuing to encourage it.

                     International Trade Expansion

    Mr. Wolf. Okay. The National Institute of Standards and 
Technology develops and disseminates measurement techniques, 
reference data and other technologies and services required by 
U.S. industry to compete in the 21st century. What is this 
doing? Like, for instance, somebody came by to tell me the 
other day that in Mexico, they were changing the standards for 
plumbing, and had that standard been adopted by Mexico, that 
would have literally meant that they would have ripped out all 
the plumbing, which they probably would not have done, but 
moved to the EU standards. Are we aggressively moving into 
Tajikistan, Uzbekistan and those different sites to have our 
standards in so that when they begin to look as to who is going 
to meet that, they are coming to American companies rather than 
European countries?
    Secretary Evans. Chairman, that is a very good question, 
and I would say this to you, that it is one of the reasons it 
is so important that we have trade promotion authority. The 
President has the opportunity to lead when it comes to 
negotiating trade agreements around the world, because that is 
what happens. We negotiate trade agreements, and standards are 
set. And there are 133 free trade agreements in the world 
today. We are a party to three of them.
    What happens is other countries, other regions will get 
together and they will negotiate a trade agreement over certain 
products, and those products they will set standards on. If we 
are not a part of that agreement, but we decide we want to be 
in that market in 4 or 5 years, we may well go and knock on 
some country's door and say we want to be a part of this 
particular market, and they say, fine, well, here are the 
standards. Well, those don't meet our standards. Well, I am 
sorry. These are the standards that we set up in our country.
    So, again, back to the importance of us leading on trade, 
doing everything we can to make sure that we are providing at 
least as level a playing field as we can or giving our 
companies and businesses and workers a playing field to compete 
on, it is important that we are out front leading these 
negotiations and setting these standards, because that is what 
is happening around the world.
    We are doing it through trade agreements, and we are doing 
it through those kind of discussions, and so the more 
aggressive we can be in that arena, the more likely it is going 
to be that we will be able to get standards set that are 
favorable to our companies and products here in America.
    Mr. Wolf. Is there someone in the Department of Commerce 
that looks at the standards, particularly of the developing 
countries, to have us be part of that early? I mean, aside from 
the trade promotion----
    Secretary Evans. We do some, Mr. Chairman, I will look at 
that specifically.
    Mr. Wolf. They are all beginning to develop standards----
    Secretary Evans. Let me look. I know that we are called on 
around the world to discuss standards, and there are certain 
international symposiums that take place from time to time. Let 
me get back to you with a more specific kind of answer on that 
so I can tell you exactly what we have set up and how it is 
working.
    [The information follows:]
    [GRAPHIC] [TIFF OMITTED] T1888A.047
    
    Mr. Wolf. And maybe we should be fitting in with the 
President's TPA maybe aggressively finding where the standards 
are being developed and sending teams out.
    Secretary Evans. Right.
    Mr. Wolf. To help shape, because if you talk about trade, 
that is shaping the future.
    Secretary Evans. Absolutely.

                       Assistance to Afghanistan

    Mr. Wolf. Afghanistan, they are in the fourth year of 
drought. The poppy is growing, nothing else. Now, poppy season 
comes in in April. Has NOAA talked to anyone? Has NOAA been 
asked to go to Afghanistan.
    Mr. Wolf. It is a big issue.
    Secretary Evans. Right.
    Mr. Wolf. They have cut down grapevines. They have cut down 
trees, and I wonder if maybe you ought not----
    Secretary Evans. Sure.
    Mr. Wolf [continuing]. To have somebody from AID, from NOAA 
to help.
    Secretary Evans. Good thought, sure. We are sending the 
technical team over there sometime in the not too distant 
future and, and that is a good thought. We will certainly look 
at that.
    Mr. Wolf. The other thing is there any people to people 
contracts with regard to education? You are in a unique 
position to help the Afghan government. Computer technology, 
excess computers from Microsoft or from wherever, has Commerce 
been asked to participate in assisting? You see the University 
of Kabul is closed. Maybe they could use some laptop computers, 
or other technology. Is there any--from a point of view of--has 
Commerce been brought into this?
    Secretary Evans. Right. We have, Chairman. I met with the 
Minister of Trade and Public Works several weeks ago when the 
President was in town, and he had his team with him.
    Mr. Wolf. What did they ask you for?
    Secretary Evans. The technical assistance, as well as 
opportunities to open up trade. They say a lot of the products 
there, particularly in the textile fabric area, go to Pakistan 
and they move out of Pakistan to the rest of the world. They 
are wanting to see if there are ways that they could set up a 
more direct kind of distribution to the United States. What we 
will do is send a team in there in the not too distant future 
to look----
    Mr. Wolf. When does the team go? Do you know?
    Secretary Evans. No, I don't.
    Mr. Wolf. Suggestion I would like to raise your sensitivity 
to it. Karzai has a 6-month term. 2 months are over. He may not 
make it. Their economy is absolutely a basketcase. The most 
profitable thing is the growing of the poppy. That poppy are 
going to end up on the streets of Fairfax County and Houston, 
Texas, and places like that. They are looking for other 
alternatives. The standard of living--life expectancy is 44 
years of age. One out of four children die before the age of 
four.
    I think the earlier you could--from a textile point of view 
or from whatever point of view, the earlier you could go over 
there and help with regards to micro enterprises or take the 
technology or put together a team of maybe not government 
people but maybe some people in the private sector that you 
work with to come over there. But I think--I mean, the team 
ought to be on the plane by Saturday. This is really--there 
were 15,000 people that went through the training camps of the 
Taliban. We have only arrested 450. That means there are 14,000 
who changed jerseys but they are still in place.
    Osama bin Laden has not been arrested. Mullah Omar has not 
been arrested. The Iranians are pouring through the country. If 
you could see from an economic point of view what the Iranians 
are putting into Afghanistan, they are putting in more 
economic--obviously, we have military--into Afghanistan than we 
are. They want us to be there. The Afghan people are very 
appreciative, probably President Bush is probably more popular 
there than maybe any other place. They like what we did. They 
appreciate what we did, but, you know, they watched us leave in 
1989 and 1990.
    Their blood was used with our Stingers to defeat the Soviet 
Union. We then pulled out. They want us in there, not the 
Iranians. They want us in there, not the French. They want us, 
and I think this window of opportunity whereby people are 
coming in with creative minds, entrepreneurship, what can we 
do? Maybe we can bring some computers into the schools. Maybe 
we can develop--but this is really the time. His term ends, for 
all practical purposes, in June.
    Hopefully the Loya Jurga will select him and he will be--
but I would hope and ask, and if you could kind of let us know, 
when will the team go over there, and I would urge them to go 
over there quickly. And I don't think they ought to be just a 
couple of technical people. I think they ought to be 
entrepreneurs. Maybe as you get a trade team, a mission that 
goes to Africa, maybe get some really top five, six, seven, 
eight, nine people, an agricultural person, a high-tech person, 
a textile person to go over there and help him, because if he 
fails and the Taliban come back or in the northern area some of 
these people come back, this will be a sanctuary again, and I 
think it is really important to make sure that we are doing 
everything we possibly can.
    And you are the guy at the Department of Commerce. You and 
Andrew Natsios--the military have won the war. You and Andrew 
Natsios can make sure that we maintain the peace. And I would 
urge you, plead with you. We can pull a little extra money in. 
If you think you are going to be short, we will try to work 
something in now, knowing that you can feed off of it now. But 
I would like to see us send a good team over there, certainly 
before--you know, before the middle of March, I mean, March 
15th or something like that, if you could. I would appreciate 
it.
    Secretary Evans. Thank you, chairman. We will take a real 
hard look at it. We are heading that way.
    Mr. Wolf. Mr. Kennedy.

                       NATIONAL SEA GRANT PROGRAM

    Mr. Kennedy. Thank you, Mr. Chairman. Very insightful 
questions. I know the committee does well by having you as 
Chair and looking through all of these specific areas that you 
have paid attention to. And Mr. Secretary, it is an honor to 
have you here, and I want to just echo what the chairman said. 
Thank you to the Administration for the great job that they 
have done on the war effort, and I know they certainly have the 
appreciation of my constituents in that effort.
    I wanted to go back to a question that Mr. Regula had asked 
about the transfer of the Sea Grant Program to NSF out of NOAA. 
I have a letter here from the Consortium of Oceanographic 
Research and Education, and ironically, the new head of NOAA 
was formerly the head of this organization. You may know that. 
The point is that in your answer to Mr. Regula, you said that 
it makes more sense to have the Sea Grant Program in NSF 
because it is basic science.
    Well, the new head of the Consortium of Ocean Graphic 
Research and Education Groups, in a letter that he wrote to 
Mitch Daniels points out very clearly that the Sea Grant 
Program supports applied research, and the reason I am making a 
real distinction on it is because Rhode Island is the first Sea 
Grant university in the country, the University of Rhode 
Island, and Senator Pell, our former senator, made this one of 
his real priorities and hallmarks of his whole career in the 
Congress, in the Senate.
    So we have a big stake in the performance of NOAA and the 
Sea Grant, and all of the people that I am hearing from who 
really make this their life mission have all said that Sea 
Grant belongs in NOAA because it is applied research, not basic 
science. And this is more of just a bureaucratic how you 
organize it, where you put it.
    It is not that, so much as all the people who are involved 
in the area think that it is just better where it sits in NOAA, 
and I would just leave that with you. I know your answer with, 
Mr. Regula, but I would just have you maybe try to talk to 
Admiral Lautenbacher and see what the position is and how it is 
that this has all been brought about by Mr. Daniels.
    And I don't know whether it was your position or someone 
else's or whether Mitch Daniels said that it was his position 
that this happened, but I am just giving you the feedback from 
what I think the community--has indicated.
    Secretary Evans. Thank you.
    Mr. Kennedy. And my State is called the "Ocean State," so 
we take great pride in the number of people who are involved in 
this area, and they are pretty unanimous in this view.
    I want to say that certainly with all of that, I support 
the Administration's budget when it comes to supporting the 
weather program and severe weather program. I have had the 
personal privilege to visit the weather program that is going 
to be supported by the increase in funds that you have called 
for in this budget with Scott Gudes, your deputy director, and 
he has done a terrific job, and we have worked well with him.

                       NOAA VESSEL MODERNIZATION

    One of the things that I might ask you to comment some, in 
addition to what you have already mentioned, is the new 
ALBATROSS, which you are replacing, and that provides a very 
important platform for research.
    In addition, the WHITING is a state of the art, vessel, but 
it is only made that way because of the constant upgrades that 
have been given to it over its 40-year life span. So those are 
great programs.
    I have been on the WHITING, and it is a great ship, and the 
men and women who serve on that do a terrific job, and the work 
that they do in assisting the Coast Guard in various operations 
I know is very important with the side sonar technology and in 
being able to, map the bottom of the ocean. And all of this is 
stuff that most people have no, appreciation for unless they 
are looking to try to get a big ship in and out of a port and 
want to be able to do so safely, both for the environment, as 
well as for our national security interests.
    Secretary Evans. Absolutely.
    Mr. Kennedy. It certainly serves us well. So maybe you 
could comment a little bit about the modernization program you 
spoke briefly about.
    Secretary Evans. Yes. I am certainly very supportive of it. 
I think the oceans, in lots of ways, are a great underexplored 
frontier for us, and so we need to learn and know much more 
about the oceans. One way to learn more about it is just to 
have more data and collect more research information, and that 
is what these vessels will support. We have got some catching 
up to do, quite frankly, and we have got a long way to go, and 
as I mentioned to the chairman earlier, I am anxious to see 
what the Commission on Ocean Policy is going to say about our 
commitment to really understanding the oceans.
    You mentioned a couple of vessels and what they are used 
for, and, we have got so much mapping to do of the ocean floor, 
we just haven't even scratched the surface. There are some 
critical mapping things that need to be done, as you mentioned, 
with respect to just national security issues. How do we move 
ships in and out of these ports and lanes and what have you 
that we are behind on? We need to be doing more of that. We 
have got something in the budget for that. We know a lot more 
about the skies than we know about the oceans, so any time I 
see commitments to additional assets that can help us learn 
more about marine life and these marine resources that we have, 
I am very supportive of it.
    Mr. Kennedy. Well, they are, as I said, great assets to us. 
In response to the Chairman's inquiries about fish resources 
and marine fisheries, you will hear constantly about the state 
of our international marine fisheries, with Monterrey, Mexico 
coming up, and about the issue of sustainable food resources, 
poverty, and the issue of developing Nations not having enough 
food, and about starvation. The fact of the matter is our 
national security is very intertwined with global security, and 
we can learn a great deal about how it is we can manage fish 
species. We have done it in New England, and we can translate 
that research to other countries around the world. It is to our 
direct benefit to do so because we provide stability in 
countries that may become unstable as a result of inadequate 
food supplies.
    So, I know a lot of people don't appreciate all of the 
interconnections that some of this has, but I do. I have been a 
great student of it and appreciate it immensely what this very 
underappreciated little-known agency called National 
Oceanographic and Atmospheric Administration does. It does good 
work, and I know it is a big part of your budget. So I am 
anxious to work with you to make sure it stays strong, and I 
hope that you manage to keep the Sea Grant Program within NOAA 
where most of the folks think that it should be. But with that, 
I thank you--and I look forward to working with you on all 
these things.
    Secretary Evans. Thank you very much.
    Mr. Wolf. Mr. Serrano.
    Mr. Serrano. Thank you, Mr. Chairman. Mr. Secretary, first 
let me--so you don't leave here today thinking that everything 
we asked you was confrontational, let me thank you for your 
continued support of the minority-serving institutions funding.
    Secretary Evans. You bet.
    Mr. Serrano. I see that you have put that in at the same 
amount as you did last year, and I certainly appreciate that, 
and those of us who feel that it is a good expenditure of 
dollars and thank you for that support.
    Secretary Evans. You bet.

                    NIST STUDY ON WORLD TRADE CENTER

    Mr. Serrano. The National Institute of Standards and 
Technology and FEMA recently were involved in looking at the 
September 11th situation with the World Trade Center and trying 
to see what happened to the buildings and how we can look to 
the future in terms of what kinds of structures are safer. Now, 
as you know, we are already discussing in New York City what 
will take place at Ground Zero, a memorial, of course, but 
smaller buildings, one large building? You know, there are 
different attitudes there.
    Some people say let us be smart how we build this time. 
Others, business people, are saying there is no need for 
buildings that tall anyway in terms of the real estate market. 
And then there are those who are saying you don't run away. If 
they wanted to hurt us, then let us build them exactly as they 
were before. Having said all of that, your folks there will 
have to be looking at new structures and how it should be put 
together.
    In the budget, originally there was talk about $10 million 
to $12 million for that research, and now I understand there is 
talk of $2 million. So my question to you is is that enough to 
look at that whole issue and do what we have to do?
    Secretary Evans. I guess the answer right now is yes. I 
talked to the NIST director about this specific issue. He told 
me about the materials that have been collected. It has been 
quite an effort to make sure we are collecting the right 
samples and the right materials to examine and evaluate, and 
based on what they know as of today, yes, that is sufficient. 
That is not to say that we may not be back asking for more. I 
think as you mentioned, this is a learning process for a lot of 
us. I mean, all of us, we are trying to decide what kind of 
building to put there, trying to decide how big it is, where it 
is. And a lot of this research is the same kind of effort, and 
this is the first time we have had an event like this in this 
country, and we are gathering the material. We have had some 
idea of what it is going to take to study it, to research it, 
to analyze it, and we feel like right now we have sufficient 
resources to move forward with that project. And if we didn't, 
I would tell you, but I asked that specific question.
    Mr. Serrano. Okay. So that is satisfactory, the fact that 
they feel they can do the job. You know, it is interesting, 
actually sad but interesting to note that those buildings were 
built originally, those two towers, to cave in. I think they 
call that the pancake effect.
    And at any given time you can get 50,000 people in and out 
of those two buildings, but 150,000 in the vicinity. So as 
tragic as that was, if those buildings had come down this way 
rather than down that way, we would be talking about maybe ten 
times the tragedy that we had. So it is so important, as we 
look to rebuild that area and as we look to secure ourselves 
for the future, that we really pay attention to how to do that 
and advise local governments, and I would appreciate any help 
you could give us on that.

                HISPANIC CLASSIFICATIONS ON CENSUS FORMS

    You know, I was thinking before, Mr. Chairman, that maybe 
we are asking too many census questions, but then I realized--
staff informed me that the Census Bureau is not having their 
own hearing this year, so you get all the census questions. And 
one of them is that we came a long way in trying to get folks 
to be counted and identified properly, and yet in this last 
census, according to many groups--and I agree with them, 
specifically the Dominican community, the Panamanian 
community--we sort of took a step backwards, in that in the 
question that was asked of me, for instance, there was a place 
for me to check off Hispanic, and then there was a place where 
you could check Cuban, Mexican or Puerto Rican, and then there 
were ``other Hispanic''.
    In the past they gave examples of ``other Hispanic'' which 
kind of prompted people to write down how they identified 
themselves. It said Argentinian, Colombian, whatever. This time 
it just said ``other Hispanic'', and so, due to that, many 
people feel that--that perhaps 600,000 New York City Dominican 
population didn't grow at all and was not identified. And so 
while the Hispanic population nationwide, I believe, grew by 58 
percent, specific groups decreased. And ``other Hispanics'', 
this wonderful group, you know, ballooned out.
    And so in terms of identifying people--and just for the 
record, you know, we do that because scholars and institutions 
and community-based organizations and government themselves 
need that specific information. Is there any discussion about 
trying to go back to the original way of identifying people in 
that particular area?
    Secretary Evans. No. I haven't heard that, Congressman. I 
haven't heard about the effort to, go back and break it down 
even further if that is what you are asking. I am glad to bring 
that up.
    Mr. Serrano. Well, it would be two-pronged. It would be try 
to do something about what many people suspect are bad numbers 
right now, and also begin to talk about 2010 and what the 
question will look like.
    Secretary Evans. Yes. I am certainly glad to have our staff 
talk with you and your staff to see if there is anything that 
can be considered in this area, and so let us do that. I guess 
as I sit here thinking about it, I know there are lots of 
different groups in this country. You know, I am not sure where 
you draw the line.
    Mr. Serrano. No, no. It is not--don't mix it up with the 
first--the census has always specifically asked about Puerto 
Ricans, Mexicans and Cubans under Hispanic, but then in saying 
or ``other Hispanic'', in prior censuses, it gave examples, and 
the examples prompted people to know how to identify 
themselves. This time it didn't give examples, so people didn't 
identify themselves, and ``other Hispanics'' came out as a very 
large and growing category, whereas the Colombians, the 
Dominicans, Panamanians, as examples----
    Secretary Evans. Sure. Let me come at it this way then. You 
look back and you see mistakes and you find ways to improve the 
process and if they changed it and it turned out to hurt the 
process, not give as accurate information as we possibly could 
develop, we ought to rethink that, and maybe we should go back 
to the previous way. So let us look at that.
    Mr. Serrano. And let me--I don't want to ask you any more 
questions, but on a related question, let me just put in a 
pitch to you. You made an--in your opening statement, you said 
something that I believe you believe in and that the President 
believes in, and that is to leave no American behind, leave no 
child behind. How we accomplish that is the question. When it 
comes to the census count, you are aware that when the 
Constitution was put together, the Founding Parents said, go 
count the States. I guess because they suspected that there 
would never be American citizens living in any other place but 
States. So they said, go count the States. Since then, that is 
what we have been doing, counting the States, but we have 
millions of American citizens who live under the American flag 
in territories, and they always get shown as an add-on to the 
final figures.
    So if you look at the census count, it will say the count 
for 50 States, a line, and that was it. This year, this past 
census, I am proud to say, I was able to push enough to where I 
think the Census Bureau, in response to that, drew a line and 
then said and Puerto Rico, 4 million. I still think that we 
belong--we, my cousins belong above the line, not below the 
line, and I think that maybe the discussion should be about, 
you know, should the Census indicate who lives in the country, 
including all Americans, because I will give you a very 
interesting situation.
    If you are an undocumented alien--and you know how I feel 
about undocumented aliens. If you are undocumented living in 
Virginia, you get counted in the big numbers. If you are an 
American citizen living in Puerto Rico, you get counted below 
the line. So let us get rid of that line and let us try to 
move--and just--I don't know, Mr. Chairman, if it takes a 
constitutional amendment. I hope not--to say that you count 
people living under the flag rather than the States.
    Secretary Evans. Well, we will take a look at that. I don't 
know if I have got the authority to move the line.
    Mr. Serrano. You would be surprised at the power you have, 
sir. But anyway, I have no further questions. I thank you, sir, 
for your testimony today, and I look forward to working with 
you in every way we can to make life easier for the American 
people.
    Secretary Evans. Thank you, sir.
    Mr. Serrano. And those who live in the territories.
    Secretary Evans. You got it. Thank you.
    Mr. Wolf. Mr. Mollohan.
    Mr. Mollohan. Mr. Secretary. Mr. Secretary, I was glad to 
see in your budget request an increase of $4.95 million for the 
Market Access and Compliance Program. That is 33 FTEs. And for 
the Import Administration, a $6.2 million requested increase, 
which is 40 FTEs. And the U.S. and Foreign Commercial Service, 
$2.5 million, which is, based on this information, 9 FTEs. 
Particularly in light of the trade challenges we face, I think 
making those agencies more robust is a good thing, and I 
commend you for asking for those increases.
    I am wondering in regard to those increases, in regard to 
the pending 201 decision by the President with regard to steel, 
is the money you are requesting here, do you think adequate to 
hire enough FTEs to accommodate the 201 decision?
    Secretary Evans. Yes. Of course, I don't know what the 
decision is going to be, but--of all the orders that we are 
administering in the Department of Commerce as it relates to 
trade laws--and we have over 300 orders we are administering--
about 160 of them are steel, and so we are pretty focused on 
steel flow around the world.
    And so it is not something we are going to have to learn. 
It is something that we know a whole lot about. Where steel is 
coming from, where it is moving, what countries it is going 
through, not going through, the different kinds of products we 
have to deal with. There is a variety of them, and it is 
complicated and it is complex, but having said all of that, it 
is something we are doing every day right now. We have 160 
orders we are paying attention to every day. So I am confident 
that we will be able to continue to manage the system. Not 
knowing what the President is going to do or not do, we will be 
able to handle any additional load.
    Mr. Mollohan. Are these requested increases in response to 
your current workloads?
    Secretary Evans. They are in response to our growing 
workloads, and I say that because I thank this Committee, I 
thank the Congress for adding the substantial amount a couple 
years ago. We just finished filling those positions, the one 
you enumerated. That is another 82 positions. It takes a while. 
As the chairman was saying, he is anxious to get some of these 
attaches manned. So am I.
    Mr. Mollohan. Okay. Excuse me for interrupting. Let me ask 
it this way: If the President were to come forward with a 
favorable result--favorable to those of us from steel country--
in his 201 decisions, would the increases you are asking for be 
adequate to implement the 201 and do all of the monitoring that 
is necessary to ensure it is enforced? That is really a serious 
question on our part, because if you come forward with a nice 
201 decision and we don't enforce it, that would be a bad 
thing.
    Secretary Evans. Yes, it would be. People that cheat don't 
make me real happy, and I think our people understand how 
serious we are about enforcing the laws that we are--that we 
have sworn to enforce, and I haven't heard anybody suggest to 
me that we are not going to have the resources to enforce the 
laws we are enforcing. I haven't had anybody suggest to me that 
if the President were to make a decision that was a 201 remedy, 
that, hey, we need to go hire--we need to make sure we hire 
another--however many people. I am comfortable that we are in a 
position to enforce it.
    Mr. Mollohan. Well, we want to support you----
    Secretary Evans. Thank you.
    Mr. Mollohan [continuing]. As you do that.

                       NATIONAL SEA GRANT PROGRAM

    With regard to the Sea Grant Program, just a second, if I 
might, you are requesting to transfer that responsibility over 
to the National Science Foundation, are you not?
    Secretary Evans. Correct.
    Mr. Mollohan. And how much money is involved in that?
    Secretary Evans. $62 million.
    Mr. Mollohan. A couple questions there. In this current 
budget that you are advocating for here today, is this $62 
million in this budget or not in this budget?
    Secretary Evans. Not in this budget.
    Mr. Mollohan. Okay. And your request is, as I figure it, 
$22 million below last year's. If Sea Grants are not in this 
request and if we didn't approve this change, then you would 
have to fund this Sea Grant Program in this budget. What 
programs would this money come out of?
    Secretary Evans. Well, I am not sure, Congressman. We just 
have to kind of go back through the process again, and, you 
know, I----
    Mr. Mollohan. But you have absorbed the 2002 money and 2003 
into other programs that was earmarked for Sea Grant?
    Secretary Evans. Absorbed it?
    Mr. Mollohan. Well, it is throughout your budget. You have 
taken that money. It is not for Sea Grant. You have applied it 
at other programs throughout your department.
    Secretary Evans. The budget is less what you said than it 
was a year ago.
    Mr. Mollohan. Which makes it worse. In other words, it 
means that if Sea Grant comes back in, then other programs are 
cut more.
    Secretary Evans. Correct, unless a big budget increase. 
Then they are not----
    Mr. Mollohan. Is NSF requesting this money in their budget 
request?
    Ms. Retzlaff. They are, yes. They are requesting $57 
million for the program. Our budget has been cut $63 million 
that we did have there.
    Mr. Mollohan. Do you need an authorization for this move, 
for the Sea Grant Program to be administered in NSF?
    Ms. Retzlaff. No.
    Mr. Mollohan. And that is a definitive no? You know that 
for sure?
    Ms. Retzlaff. We don't need to have it authorized to be 
moved out of NOAA.

                      EMERGENCY STEEL LOAN PROGRAM

    Mr. Mollohan. I want to express chagrin at the 
recommendation to eliminate funding, the unobligated balances 
for the Emergency Steel Loan Guarantee Program, and perhaps 
hear you talk about why that decision was made.
    Secretary Evans. One reason is it certainly has been 
difficult to approve any loans. In fact, I guess the one that 
has--or was approved back in January of 2001 is now in default. 
We know that. So I don't know what that is going to cost the 
American taxpayer, but something.
    And we have reviewed other loans, not many, quite frankly. 
There have been a couple that have come through that have been 
reviewed. There is one that looks like it might well be 
approved, but there are several others that were considered and 
have not been approved. You know, we still have, quite frankly 
even though we are cutting it back, we still have a pretty 
substantial amount of room to loan money if we see a loan 
application that meets the test that it should meet.
    Mr. Mollohan. Okay. As I understand it, you are requesting 
to rescind all unobligated balances which----
    Secretary Evans. No. We are down to--a balance of $31 
million, which supports about 200 million in loans.
    Mr. Mollohan. Okay. You know, there were some major aspects 
of the program that made it unattractive to lending 
institutions. Senator Byrd was successful in getting the period 
of the loan extended, I think out 15 years. I think it is 15 
years, extended to 2015, and increasing the guarantee amounts 
at least for--in a tiered way, which I think would make it more 
attractive to steel companies.
    I hear what you said about the American people being stuck 
with loans. I got that, but I would just sensitize you to the 
fact that during this critical period when we are waiting for 
the 201 decision and these companies are in a very tenuous 
financial condition, if you at all are sympathetic to the idea 
that these companies have been subject to tremendous pressure 
from cheap foreign imports, then I think you can be 
sympathetic--and I hope the administration is, and I hope that 
is reflecting the 201 decision. Then I think you can be 
sympathetic to this whole issue that the relief package really 
has to include for many of these companies a loan guarantee 
program, at the same time they are hopefully receiving 201 
protection. That, of course, is very important because as we 
speak, imports are driving these companies out of business.
    I would just encourage you to perhaps be more sympathetic 
with regard to the loan guarantee program, and hopefully with 
these new criteria that the lending institutions might be able 
to take advantage of and grant some of these loans to some of 
these companies.
    Secretary Evans. Well, I am one that would be very 
surprised, Congressman, because there is a tremendous amount of 
fiduciary responsibility throughout our financial system and 
certainly within the lending institutions. It is a guarantee to 
the lender, not to the steel company, and so we have got a bad 
track record that we are working off of right now. We have made 
one, and it went south, and so when others look at this 
program, they are going to be, I would think, very reluctant, 
but have we supported the program? The answer is yes. We 
support up to a 95 percent guarantee, but if I am a lending 
institution, I don't know how they would want to lend unless 
you guarantee 112 percent--
    Mr. Mollohan. Well think if you want to lend because we 
have fundamentally changed one of the key variables in 
equation, and that is the import situation through the 201 
decision----that has to happen, or you are probably right.
    Secretary Evans. Well, I think the lending institution--
again, if they are going to lend it, they are going to lend it 
based on what the company--what they see the prospects of the 
company are and not whether or not you are going to provide a 
guarantee with 95 percent or 85.
    Mr. Mollohan. No. I am sorry. I must have not made my 
point, or maybe I did and you just disagreed with it but we are 
changing fundamentally the environment, the market, which 
dramatically improves any analysis of the prospects of 
viability of the steel industry in America generally or on a 
one by one basis if we get a 201 decision that is favorable.
    I think improving that environment is a huge factor in 
lending institutions looking at those loans. And then with the 
improvement in the criteria, larger loan guarantees, at least 
for the front end of the loan, or the first money in the loan 
and longer periods of extending the loan periods, I think that 
starts making the program work.
    Again, I would agree with you, if the marketplace isn't 
changed, that is, if the President doesn't come down with a 
favorable 201 decision.
    Secretary Evans. Well, I understand what you are saying, 
Congressman. But a 201 decision lasts for a limited period of 
time. And when you look at these kinds of loans, these are not, 
you know, 2-year loans or 3-year loans. People think about 
these kind of commitments as 10-year commitments.
    Mr. Mollohan. What period do you anticipate the President--
--
    Secretary Evans. Again, I don't want to scoop the 
President. I will let him make that decision.
    Mr. Mollohan. I don't want you to scoop him. I just want to 
know what he is going to decide.

                              MEP PROGRAM

    I support tremendously the Manufacturer Extension Program, 
and you are cutting it down to, I think, at least $12 million 
in the program. This, as I understand it, would fund two 
programs, one in Indiana and one in Ohio. It is a $95 million 
cut from 2002, which was $106 million. I am just wondering, why 
did you leave anything in the program? Why are you keeping the 
Ohio and the Indiana programs going in your recommendation?
    Secretary Evans. Right. Congressman, the reason is those 
are programs that are not 6 years old. They are new programs 
that have been running for a couple of years and kind of going 
back to the spirit of the original program. It was to get 
programs up and running, and see after 6 years if they have 
been worthwhile and self-sustaining and can support themselves 
in their own local community or local region or State or 
whatever. And so it is those that have, you know, passed that 
6-year time period that have been dropped. But there is a 
couple out there that we have only been supporting for a couple 
of years, and we thought we would continue with those.
    Mr. Mollohan. Do you have an assessment of this program, 
either as a Department or personally?
    Secretary Evans. I think it is a good program. It has been 
a helpful program. I haven't, quite frankly, looked at all the 
data and all the statistics and tried to ask the hard questions 
that you need to ask to really understand if it is real data 
and if it stands the test of some tough scrutiny or not.
    But my sense is it has been a good program, and I think any 
good program, if it has been that good, can support itself. 
And, as I said, one thing that we are looking at, and I expect 
we can report on it, is whether or not these programs can 
indeed be privatized. If they are that good, then there should 
be every reason that they can. The market ought to provide an 
opportunity for them, because if they are going to save 
companies that much money, and they are going to improve 
productivity that much, that means that their profits should 
increase, and so if I am one of those companies, I am glad to 
pay a fee to improve my profits.
    Mr. Mollohan. Was this Commerce's request that this be cut, 
or was this a push-back from OMB?
    Secretary Evans. This was Commerce looking at our budget in 
a period of war and having to make tough decisions.
    Mr. Mollohan. But the answer to my question is, when your 
request went up, this program was one that was cut?
    Secretary Evans. We continue to work with OMB in developing 
our budget and deciding what is going to be cut.
    Mr. Mollohan. What was the answer to that question? When 
this request went up to OMB for this program, was the request 
to have it cut or did the cut come back from OMB?
    Secretary Evans. I know this is part of the President's 
request to Congress.
    Mr. Mollohan. You are just not sure of the answer to that 
question maybe?
    Secretary Evans. Right.

                              ATP Program

    Mr. Mollohan. Advanced technology program, Mr. Chairman, if 
I could. In addition to cutting it and leaving it at $107.9 
million appropriation, you are outlining six major reforms that 
you want ATP to implement, principally to get the universities 
more involved in the program. Do those reforms need an 
authorization?
    Secretary Evans. I am sure that they do, yeah. Yes, they 
do.
    Mr. Mollohan. Are you requesting an authorization for them?
    Secretary Evans. Yes.
    Mr. Mollohan. So you are asking for the program to be 
changed in ways that do require an authorization?
    Secretary Evans. Yes.
    Mr. Mollohan. Thank you, Mr. Secretary.
    Mr. Wolf. Mr. Secretary, thank you. Just one last or two 
last questions.
    On the sea grant issue, just listening, it probably would 
make more sense to be in NOAA, I think. Actually it was my 
effort when I was in the minority to move the National Science 
Foundation over to Arlington. It was a dollar value, and it is 
a big battle, and you were, I think, up here maybe at that 
time. I don't know. But I do think it really probably would 
make more sense being in NOAA, just from looking at it.
    One issue I would like to think about, if you would help me 
with, and you triggered it, I was not going to have another 
question, but you said the word ``privatize.''

                        James River Ghost Fleet

    This really isn't in your area, but it is--with your 
background, you and the administration can be helpful. There is 
a fleet of ships called the ghost ships. They are not in my 
district, they are on the James River. They are a direct 
potential problem for the fishing and crabbing in the James 
River. Those are old ships that are in such bad condition that 
they just take them there and they leave them. There are 120 
some ships there about now. If a hurricane ever came up the 
east coast or a tornado and hit the James River, many of those 
ships would sink, and we would have an environmental crisis.
    The previous administration made a decision that--it used 
to be at that time those ships were sold to--for value--for 
about a million to a million and a half dollars to India and 
other countries. There was an--the EPA issued an edict 
prohibiting the sale of those ships.
    Now, the private sector, Mobil, Exxon, and I am making this 
up, I don't know if Mobil, but most of the private companies 
sell their ships to India, and they sell them for value. The 
Federal ships are not sold because of the EPA regulation, 
because, I think, of asbestos. We had asked MARAD last year to 
report back to us. They and MARAD come before this committee, 
but they are in the Transportation Department. It is one of 
those things if you follow the history, there might be a 
logical reason why it is in Transportation. I am not sure why 
it is there, but it is.
    One, this year in the President's budget there is $11 
million to begin to take those ships down. I think it costs 
roughly $3 million a ship. So that is three and a half ships. I 
think they are ready to put another 20 ships there this year. 
At that pace we will never clean these out of the James River.
    We had asked last year, and I understand the environmental 
problems, if we could develop a program, perhaps down in 
Honduras or El Salvador or Nicaragua, whereby we could get an 
American company to go, and particularly after the floods and 
all of the problems in Honduras--I had a daughter that was in a 
mission project in Honduras for 2 years. It is a very poor 
country. It really needs the help--if we could get an American 
company to go down to Honduras using good environmental 
standards. I certainly don't want to have a young person from 
Honduras working in something that I am not prepared to have my 
son work in, but use the right standards, we can empty these 
ships out of the James River, the 126, perhaps now at 146 by 
the end of this year, send them to Honduras. Many, many could 
not make the trip now to India, I don't believe.
    Could you help us? We just can't move this process. If we 
just put $11 million in, we are really throwing money away, and 
I think if the administration helped us and particularly if 
Commerce with MARAD came up with a creative idea, perhaps maybe 
those ships could be taken for nothing so the company could go 
down there for nothing, strip them down, sell whatever they 
sell, make sure it is environmentally appropriate so we are not 
doing what we don't want to do. But we can't get this thing to 
move.
    And last year I think there was $9 million in the budget. 
We just didn't put it in because it would have done three 
ships. It is kind of a NOAA issue in the sense that if there 
were an environmental disaster in the James River from the 
crabbing and everything else, it is a little bit of shipping 
and commerce.
    So could you have----
    Secretary Evans. We will be glad to take a look at it.
    Mr. Wolf. Now, there may be a company in this country that 
would like to do it, but my sense is that may be more 
difficult. But if we could go to a country in Central America 
that really needs the jobs, and we could help them and help us 
and help the environment.
    Okay. With that, if you can kind of be in touch with 
whoever is going to do that for you, let us know.
    With that, unless there are any other questions, I want to 
thank you very much. We appreciate it. Thank you.
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                                         Wednesday, March 20, 2002.

                   UNITED STATES TRADE REPRESENTATIVE

                                WITNESS

AMBASSADOR ROBERT B. ZOELLICK, UNITED STATES TRADE REPRESENTATIVE
    Mr. Wolf. Good afternoon, Mr. Ambassador. In the interest 
of time, I will not have an opening statement, but we welcome 
you to the committee. Your budget obviously is so minuscule 
insofar as the big picture, so I am sure most of the issues 
will really be involved with regard to policy. But with that, I 
will just recognize Mr. Serrano, but welcome.
    Mr. Serrano. I will join him in welcoming you. I am looking 
forward to your testimony and just so happy to be here with 
Chairman Wolf.
    That is it. It is a special day for all of us every day.
    Mr. Wolf. Every day.
    Mr. Serrano. Twice a day.
    Mr. Wolf. Twice a day.
    Mr. Serrano. For a lot of days.
    Mr. Wolf. We have canceled tomorrow's hearing because of 
you, so you can go home.
    Mr. Serrano. I thank you.
    Mr. Wolf. I am being family friendly.
    Mr. Serrano. Good. Thank you so much.
    We carry on like this all the time. [Laughter.]

                            Opening Remarks

    Mr. Zoellick. Well, I want to thank all of you. If I could 
just ask my full statement be put in the record. I tried to 
give you a little longer one there, so you could get a fuller 
sense of some of the things we are doing, but I want to start 
by noting my appreciation for the help that you give us with 
our budget full funding last year. We obviously could not do 
our job without this committee's help. While we are small in 
terms of money, that also means we do not have much cushion in 
terms of what we do.
    I also want to thank the chairman for his support on the 
Trade Promotion Authority bill. I know it was not an easy vote, 
and the President very much appreciates your support. I also 
know that in terms of some of the things we have tried to do 
with some of the poorer countries with aid and trade, we have 
been a big supporter and leader on this and appreciate your 
advice on this. I want to thank Mr. Serrano for his help with 
the budget as well.
    Together, I think we made some headway on trade policy and 
opening markets in 2001, although we have got obviously much 
more to do. There are five key components to our strategy.
    First, we have been trying to build momentum for 
liberalization by moving on multiple fronts, globally, 
regionally and bilaterally. In effect, we are trying to create 
a competition liberalization with the United States at the 
center of a network of activities which, frankly, gives us some 
leverage for leadership in negotiations.
    On the global front, we were obviously able to get the new 
global negotiations launched in the WTO in Doha this past 
November, and we were also able to complete the accession of 
China and Taiwan into the WTO, China being a 15-year effort 
across many administrations. My predecessor, Charlene 
Barshefsky did an important job on that. But Taiwan, as well, 
was a 9-year effort.
    Our next big one in this category will be Russia, where we 
will be working to try to help the Russians with their 
accession effort. We have had a little bit of a dust-up over 
the past week. It may have come to your attention because it 
deals with the poultry issue.
    Mr. Wolf. Poultry, that is my first question.
    Mr. Zoellick. And this is one that I will answer in greater 
length, but we are focused on very heavily because, as you 
probably know, it represents half of America's poultry exports. 
It is a subject that everybody from the President on down has 
been involved with.
    Regionally, we have been pushing the Free Trade Area of the 
Americas, which is a goal to try to create free trade among the 
34 democracies of the Western Hemisphere. The United States and 
Brazil become co-chairs of this effort later this year, which 
will be after the Brazilian elections, so we will see how that 
develops, but I was just down in Brazil, and I believe that it 
is something that is going to be a challenge, but it can be 
very important if we can accomplish it.
    The other major regional effort is not a trade agreement 
per se. It builds on something the Congress did in the year 
2000, which is the African Growth and Opportunity Act. I just 
was in Africa a couple of weeks ago, and this is a tremendous 
opening to the developing world, which I will comment on a 
little bit more in a minute.
    Bilaterally, we were able to get the Jordan Free Trade 
Agreement through the Congress. That was very important. It was 
the first free trade agreement with an Arab and Muslim country, 
the basic trade agreement with Vietnam. We are moving ahead on 
our free trade negotiations with Chile and Singapore, and we 
are considering some possible new free trade agreements now 
that we at least hope that trade promotion authority is in its 
sort of final lap on the Senate side as well.
    Here, we are looking to some of the guidance we have gotten 
from the Congress. The AGOA bill urges us to look at free trade 
with Africa. So when I was in Africa, I was talking with the 
countries of what is called the Southern African Customs 
Union--this is South Africa, Botswana, Namibia, Lesotho, and 
Swaziland--about a possibility which would, in my view, be 
fantastic in terms of opening doors with a continent that we 
need to do much more with.
    The Caribbean Basin Trade Partnership Act also encourages 
us to look in terms of that region, and as the President has 
talked about and will be talking about more when he goes down 
to El Salvador, we would like to try to have a free trade 
agreement with the five Central American democracies as well.
    In terms of timing, frankly, it is unfortunate to say, but 
it is true, is that we are in a little bit of a catch-up mode 
here because the European Union has 29 free trade and customs 
agreements, 22 of which they negotiated over the course of the 
past decade, and they are in the process of developing 12 more. 
Mexico, which was not even a member of the GATT, now called the 
WTO, until 1986, and went on after NAFTA and negotiated nine 
free trade agreements with 29 countries. Even Japan has moved 
ahead with Singapore and is looking at others, and China, which 
just came in the WTO, has said that it wants to do a free trade 
agreement with the Southeast Asian countries.
    Second, we have been enforcing agreements in trying to seek 
to manage disputes because we certainly recognize that while we 
need to pursue new agreements, we have to actively defend our 
national interests by vigorously enforcing the existing trade 
laws, and we will use all of the tools at our disposal to try 
to fight unfair practices. Where we can, we like to try to 
solve problems so that we can open markets for trade on both 
sides, and probably an area that is going to be most 
challenging as we go forward is the follow-through on China and 
Taiwan's accession to the WTO. Because now they are brought in, 
but obviously given the size and influence of those economies, 
this is a huge transformational process, and it is going to 
take a lot of years.
    Third, we have been trying to broaden the circle of trade 
opportunity. And in particular over the past year, since we 
last had a hearing on this, we have really tried to focus on 
the developing world, and here again I compliment the chairman 
because he has been a leader in this in many ways.
    I mentioned the trip I took to Africa. I went to Kenya, 
South Africa, Botswana, but I also met the ministers from all 
of the countries really in Eastern and Southern Africa. I 
partly wanted to listen and learn a little bit about their 
experience, based on the African Growth and Opportunity Act, 
but I also wanted to send a signal of how trade was important 
with some of the development interests that I know on your 
agenda as well. So, for example, I went to the center that 
Merck and Gates has put together in Botswana related to HIV/
AIDS, because, as you know, Botswana is a country that, on the 
one hand, has a tremendous program for dealing with HIV/AIDS, 
but the infection rate is probably about 35 percent. So it is a 
national tragedy.
    When I was in South Africa, I went to a center that was 
doing biotech research and could see the effect that it might 
have on mal-nutrition and health for a lot of Africans. I 
arranged to teach a class at the Center for Human Rights at the 
University of Pretoria, which was both fun, but an interesting 
opportunity, because it had people from all over the continent, 
and we were talking about globalization and its affect on their 
democracy. Also, when I was in Kenya, I attended a project that 
was dealing with some of the ecological issues there.
    But in addition to Africa, I have spent a lot of time with 
Latin America. In fact, just came back last week from Brazil 
and Colombia, and in about a week or so I will be headed off to 
East Asia because these developing countries are vital to 
building the network we have for trade. It is something that 
has really moved to the forefront over the past decade, and it 
deals with their future and our ability to enhance the trading 
system.
    So, in effect, what we have been trying to do is, whether 
formally or informally, build some networks that support 
reform, rule of law, economic opportunity, dealing with 
questions of poverty. Those countries became very important in 
the coalition we put together to launch the new Global Round at 
Doha. Obviously, the President has talked about the ongoing 
role of terrorism. I even think there is an important element 
related to this, because while I certainly would not argue that 
terrorism finds its roots in poverty, because I think it finds 
its roots in something far more evil, I do believe that poverty 
and failed societies can create fertile fields for terrorism, 
and I had no more striking example of that than the President 
asked me to go to Indonesia in July or August to see President 
Megawati on a number of topics, and on the way in I was warned 
about some risks from al Qaeda, and this was before al Qaeda 
became a household word. I will be going back to Indonesia in 
about a month trying to do some things on the trade side to 
help a country that is the largest Muslim country in the world, 
and frankly the stake of democracy there is very important, to 
say nothing of whether the society is able to offer some 
opportunity for people in the country.
    We, as a Government, have been leading efforts to try to 
help foreign Nations not only take party in trade agreements, 
but to be able to get the money to do so, and here this is 
obviously not my budget, but I thought you would be interested, 
given your multiple responsibilities, that when we totaled up 
the funds that AID and others devoted to trade capacity 
building for poor countries, last year it amounted to $555 
million. And I personally believe that money is very well spent 
because a lot of these countries do not have the staff to start 
to even take part in negotiations, much less implement 
complicated rules of intellectual property or sanitary and 
phytosanitary standards. In that, I am very pleased that the 
President announced his proposal to try to move up our 
development assistance from $10 billion to $15 billion over 3 
years because I think that will be an important part of the 
conference he is going to in Monterrey.
    Another part of working and expanding the circle of 
opportunity has been the preferential trade agreements. The 
House, as you probably know, passed some amendments to expand 
AGOA, the African Growth and Opportunity Act, and we hope that 
as the Senate acts that we can also complete those over the 
next month or two.
    The Andean Trades Preference Act, which is with the four 
countries of the Andean region, was passed in 1991 and expired 
last year. When I was in Colombia, I will tell you it was 
really sad to see the effect of that expiration with a country 
that has been driven by drug dealers, and narco traffickers and 
various types of guerrillas that really depends on that for 
access to market. The House obviously passed an extension, but 
we hope to get the Senate to act over the course of the next 
month or so.
    There is another one called the Generalized System of 
Preferences that actually has been in place for some 27 years 
that expired last year that covers 123 countries and 19 
territories. Again, it is part of the overall trade program 
Congress has put in place for years, and we hope that we can 
get it back in place.
    Fourth, we are trying to reach out to key stakeholders. 
This involves listening, building networks, educating, trying 
to deliver for people. Obviously, we are trying to push on all 
fronts for America's farmers and ranchers, but we also 
recognize that as a lot of industries go through the process of 
change, that it requires some help in terms of the adjustment 
side, dealing with anxieties. That was the context for the 
President's decision on the steel industry, the Steel 201, 
because, frankly, it was his determination that the industry 
needed a breathing space to restructure. I know there are 
different views on this committee, as all throughout the 
Congress.
    An important issue for me was that the steel industry is 
one that I believe is rife with intervention and subsidies 
globally. Frankly, given the fact that the industry was facing 
the lowest prices in 20 years and 30 percent of it in 
bankruptcy, it seemed appropriate to use the WTO and domestic 
laws to give them a chance to come back and to restructure.
    I add that the President's proposal of this is not just one 
to deal with the safeguards. It is also to try to deal with the 
issues of global overcapacity and to try to address the unfair 
practices globally. This is based on an ITC determination, 
unanimous, that the industry was facing substantial injury from 
imports. The ITC was not unanimous on the remedies, and so that 
is what we took some time to try to come up with a set that we 
hope will give the industry a chance to come back.
    Another issue that is related to that, and I know some of 
you have focused on in the past in the Congress, is the Trade 
Adjustment Assistance. As I have said before, I think this is a 
very important issue. If we are going to open markets, we have 
to help people be able to adjust for change. My statement 
includes a lot of points where I think we have some common 
ground. I was just in a meeting on the Senate side this 
morning, where I think working with the Department of Labor and 
others, that I hope we will be able to move some issues on this 
ahead.
    We have also tried to, recognizing trade affects so many 
interests, to reach out not only to the business community, but 
environment, and labor community and others. In Doha we 
obviously had an extreme circumstance because of the security 
issues, and so frankly I was very pleased that my staff came up 
with the idea of the first time ever to have live web 
briefings, which really helped a lot of people that felt they 
could not come, for security reasons, to stay in touch with 
what we were doing.
    Another issue that I know is of importance to a number of 
you, probably again different perspectives, is the question of 
the NAFTA 11 Investor State issue for dealing with questions of 
investor's rights when they feel that they have been taken 
advantage of abroad. Here, we have been trying to meet with all 
sides in the debate on this. I have met with a lot of NGOs. I 
have met with the business community. The TPA bill gives us 
some guidance, and we are trying to work through those issues 
carefully as we consider where we go with our next trade 
agreements.
    Fifth, we are trying to connect trade to values. As I think 
we discussed last year, the President is a firm believer about 
free trade being related to freedom, and so it means about 
opportunity, rule of law, and openness. We also recognize that 
it is important to try to align the trade system with values 
because, frankly, if it gets out of whack, I think trade is 
likely to lose.
    That is one of the reasons why we worked so hard dealing 
with this sensitive issue of a public health declaration at 
Doha, where we recognized the need to take advantage of the 
flexibility in the intellectual property rules to try to help 
poor countries deal with HIV/AIDS and other pandemics. At the 
same time, we need to preserve the intellectual properties so 
that people will continue to invent the drugs that deal with 
these problems.
    Obviously, Chairman, we have had a chance to work through 
the conflict diamonds issue, and I was very pleased with your 
leadership. You got it through the House. I hope we can get it 
through the Senate. In general, I think that what we are trying 
to do is to find other areas where we can have some win-win 
prospects. For example, we worked at Doha with the World 
Wildlife Fund to try to attack the issue of fish subsidies 
because it is bad economics and it is bad environmental policy, 
and they were pleased with our work there on that.
    So, to sum up, I think we have a very full agenda ahead. 
Obviously, we look forward to trying to complete the Trade 
Promotion Authority. Presidents have been without it now for 8 
years. We know we have also got a lot of sensitive issues that 
you may want to discuss today, Foreign Sales Corporation, 
steel, software, lumber, poultry, and bottom line is we 
obviously cannot make any progress on this agenda without our 
budget.
    The highlights of that are we are seeking a budget of 
$32,299,000, so roughly $32.3, which is an increase of 2.2. It 
is an increase of six positions. So we are going from 203 to 
209. The one thing I can assure you is, having served at the 
State Department, the Treasury Department, the Justice 
Department, the White House and the private sector, that the 
taxpayer gets their monies' worth from the people at USTR. As I 
mentioned, given our small size, we really do not have any 
margin for error in terms of what we do.
    I sent a letter to the committee about sort of a recent 
sort of modest change around of a couple offices and would be 
pleased to answer any questions on that, but I also want to 
thank two different staffs, and the first is of all of the 
different offices I work with in the Federal Government, I have 
found none that exceeds USTR in terms of the commitment, in 
terms of work and dedication of their job, as the USTR staff 
and, frankly, a problem-solving attitude, which is great to 
have. So it is an honor to serve with them.
    But I also want to thank, Chairman, your staff because I 
know that Christine has worked with us on a number of issues, 
some of which might seem small to some, but are important to 
us. For example, in the security context, she has worked with 
us to try to make sure that, given the location of our 
building, that some of our parking spaces are blocked off next 
to what are a lot of glass offices. As you may have seen, after 
9/11, the Eisenhower Office Building staff cleaned off 
everybody on the 17th Street side. We stayed in our office, but 
frankly when you have got those open parking places that 
anybody can be, where somebody can come up with a truck at any 
point and take out the building, it makes people feel more 
comfortable to know people are helping them. So I want to thank 
you.
    [The statement of Robert B. Zoellick follows:]
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                         LIBERIAN SHIP REGISTRY

    Mr. Wolf. Well, thank you, Mr. Ambassador. We appreciate 
your comments. Like I say, your budget is not one of the 
mammoth ones like we normally have, so most of the questions 
will probably deal with policy. There will be a few on that 
other area.
    So just to kind of follow in that, to make a couple points 
that you will be sensitive, knowing that you are a key person 
in the administration. The administration ought to make an 
effort to remove the Liberian flag situation for the country of 
Liberia, that is, keeping the Liberian Government afloat. 
Between that and the lumber payments, Charles Taylor, not this 
Charles Taylor, as Mr. Serrano wanted to----
    Mr. Serrano. I just want to clarify that this guy is a good 
guy. [Laughter.]
    Mr. Wolf. So you do not have to comment, unless you happen 
to have a comment, but they are getting a good bit of money 
from that revenue, and there are other countries that can 
certainly meet that need, but I would like to see the 
administration make an effort, particularly, you are familiar 
with the hacking of arms, and the Liberians, and the Sierra 
Leone, and the diamond trade. Charles Taylor is the center. And 
also much of that money is coming out into HAMAS and Hezbollah, 
with regard to they now they believe, the Washington Post 
reports, al Qaeda.
    So you do not have to make a comment on that, but the 
Liberian flag issue, that flag ought to be taken away from 
Liberia. Do you agree? Well, just think about it.

                                 STEEL

    Secondly, on the issue of, although I do not have any steel 
in my district, I do want to commend you, quite frankly, and 
the President for the position that you have taken. I will give 
you this, and I am not going to go through the whole thing, 
but--I mentioned this to Secretary Evans--there is a song 
entitled, ``Youngstown,'' by Bruce Springsteen, which I am not 
going to sing, but he talks in there that ``They built a blast 
furnace here along the shore and then made the cannon balls 
that helped the Union win the war.'' And then it goes on to 
say, ``Well, my daddy came home from Ohio when he worked, and 
he came home from World War II. Now the yard is just scrap and 
scrubble. He said them big boys did what Hitler couldn't do. 
These mills they built the tanks and bombs that won these 
countries' war. We sent our sons to Korea and Vietnam. Now we 
are wondering what they were dying for.''
    Then he goes on to say, ``Seven hundred tons of metal a 
day. Now, sir, you tell me the world has changed once I made 
you rich enough to forget my name.''
    I think the decision that the administration made was an 
appropriate one, and again I stress I have no steel mills in my 
congressional district, but I think it is a good one, and I am 
sure you have probably got a lot of criticism from people on 
both sides, but I think the President did what was appropriate.

                     CHINA: TRADE AND HUMAN RIGHTS

    On the issue of China, as you and our people speak out on 
these trading issues and trade issues, I think it is important 
to also combine them with human rights. The American ambassador 
in China did give a major speech about a month or a month and a 
half ago, where he actually mentioned names. A large number of 
our ambassadors have never ever spoken out on behalf of any of 
the individuals that are in prison in that country. Had that 
been the policy of the Reagan administration, Sharansky may 
never have gotten out and gotten across the Glienicke Bridge.
    When we raise individual cases, particularly when we are 
trading with them, I think it is very helpful. So I think as 
you go around the world and speak to the ambassadors, and we 
are going to be doing a letter to the State Department about 
this, they should articulate our values, but also raise 
individual cases. You do not have to do it in a belligerent, 
mean way, but you can do it in a consistent way, and that helps 
the individual that is in prison, maybe just more food for that 
week or that year and maybe get out earlier than they thought. 
But if you talk to any of the dissidents, they will tell you 
when their names were raised, it helped them.

                 TRADE WITH AFRICA AND THE MIDDLE EAST

    On the issue of Africa, I think the administration should 
have a blue ribbon panel, a presidential panel, which could 
move very fast, of good men and women who understand Africa to 
see what we could be doing differently than we are doing. I 
mean, the AIDS figures are unbelievable. Botswana I think the 
average life expectancy is now I think 39. But you have the 
problems in the Congo--2,500 die every day--the problems in 
Sudan, the problems in Sierra Leone, the problems in Guinea. 
Trade-off is a great opportunity, but I think just to do things 
the way they have been done in the past really is not going to 
work. If we do debt forgiveness, how do we forgive it? Do we 
require them to do certain things with regard to human rights 
and religious freedom? Do we do certain things with regard to 
opening up markets?
    There has to be some expectancy, and my sense is you should 
pick four or five countries, and I think the President alluded 
to that in his speech, whereby, we try these different ideas. 
But Africa is sinking, and just to do what we have done in the 
past may not be enough.
    On the issue of the Middle East, how significant is the 
Middle East for our trade relationship?
    Mr. Zoellick. Do you want me to answer that one now?
    Mr. Wolf. Yes.
    Mr. Zoellick. Well, most of our trade----
    Mr. Wolf. You could have answered any one----
    [Laughter.]
    Mr. Wolf. But I hope I am sensitizing you. Seriously, no, 
that is the purpose. I am not trying to put you on the spot, 
but I hope that you do take it seriously because these are 
issues that we may address in different ways as we move on, 
like the diamond bill. But how important is trade in the Middle 
East?
    Mr. Zoellick. Obviously, when you disaggregate most of the 
trade numbers, it is oil, but some of those markets are 
important to our agriculture producers. One of the things that 
I want to try to do if we are able to secure our new trade 
promotion authority, is again to see how we can use some of our 
free trade agreements to help with countries that are moving on 
the reform process, and in particular I was in Morocco a couple 
months ago, and----
    Mr. Wolf. Your frequent flyer miles must be quite 
extensive.
    Mr. Zoellick. Yes, it is a little much sometimes, but you 
have got it all in the budget.
    You know the new king has actually tried to move forward 
some reforms, and frankly I think it would be a good signal to 
the Arab and Muslim world if we are able to follow up our 
effort with Jordan to have another free trade agreement with an 
Arab and Muslim country, and Morocco is pretty much I think the 
best of the group in terms of that.
    Mr. Wolf. As we do it, it ought to track, though, my sense 
is our policy in the Middle East. If you looked at the Gallop 
Poll that came out, our reputation is not very high. Even in 
Kuwait, where we sent American men and women to die for their 
freedom in Kuwait, the Gallup survey showed that we are not 
very well liked even in Kuwait.
    When we are dealing with these countries on trade, we 
should also be pushing the values, and quite frankly my sense 
is the people of Kuwait would like to have freedom. The people 
of Saudi Arabia would like to have some form of democracy, the 
people of these different countries. And so when we just talk 
trade, although your economy makes a difference as to the type 
of Government you have, they view us sometimes as only caring 
about dollars, and I think we should also be pushing there is 
not one democracy, not one democracy in the Middle East, except 
for Israel.
    It is important for us to be pushing our values of freedom, 
and liberty and different things like that, in addition to 
making money, and trade is a great opportunity to do that.
    Mr. Zoellick. Mr. Chairman, just to give you a small sense 
of what I try to do on some of those, and I touched on that a 
little bit in the African case, is that where time permits I 
try to not only meet with the Government officials, but I try 
to go to either some other aspect that the U.S. Government is 
doing. For example, in Morocco, we fund some micro lending 
programs that have primarily helped women. I think the average 
loan size is about $230, but it has helped employ them, empower 
them, give a better sense of their stake in society, and so I 
try to go to that as an event. And then also, for example, when 
I was just in Brazil, I met with a number of the NGOs from 
either the human rights groups or the ecological groups and 
others, labor and different groups, and in the remarks I do try 
to emphasize how openness is part of a larger formula for 
change.

                            POULTRY INDUSTRY

    So I agree. There are things we can do, and we try to do 
them.
    Mr. Wolf. Two questions, and then I will recognize Mr. 
Serrano.
    The poultry industry is worth $6- to $700 million a year, 
very big in the Shendandoah Valley, which I have the 
opportunity of representing. Can you tell us how are the 
negotiations and where are we on that issue?
    Mr. Zoellick. Well, as soon as we found out about it, I 
called the Russian ambassador and told them very frankly that 
all of the work that we were trying to do on their WTO 
accession and to deal with Jackson-Vanik, just as a practical 
matter, was likely to go out the window unless we got this 
solved right away.
    I talked with Secretary Veneman, and she was going to see 
him that night, which she did. This was about the same time we 
were doing the steel decision, and there were some in Russia 
that were linking the two. In fact, in the process of the steel 
decision, we tried to do this in a way that could help the 
Russians on some steel issues, and so we again emphasized to 
them that they would really be shooting themselves in the foot, 
if not the head.
    I just talked with Secretary Evans today. He has been 
talking to our mutual counterpart, Minister Gref, almost every 
day. Secretary Powell has called the prime minister, and we now 
have a team there that is on an ongoing basis. I know the 
President actually is going to be speaking to President Putin 
this week as well. So you have got the highest levels of the 
Government focused on it intensely.
    My own guess of what is going on, Chairman, is the 
agriculture minister did this for protectionist reasons. As you 
know, the way our poultry industry works now they are 
separating the product and selling some of the white meat here, 
and they are selling some of the legs and dark meat elsewhere 
in the world, and we have run into this in lots of parts of the 
world. I was, frankly, also dealing with this issue in South 
Africa, where we have been working with the poultry issue to 
deal with an anti-dumping case that we have there.
    So I do not know for sure the resolution, but we have been 
very blunt with the Russians that this is going to be a dead 
end for them, and I think the discussions have been proceeding 
usefully, but not conclusively.
    Mr. Wolf. Mr. Serrano, we have a vote on, too.
    Mr. Kolbe. I have several.
    Mr. Wolf. Are there going to be several? What we will try 
to do is to keep it maybe moving so we can maybe--we may have 
to have a recess, but maybe there is a time that one or two can 
run back and forth.
    Mr. Serrano.

                       TRADE WITH CHINA AND CUBA

    Mr. Serrano. Thank you, Mr. Chairman.
    When we enacted the Trade Act in China, the Permanent 
Normal Trade Relations Act, some folks said that that would be 
the end of the annual debate on human rights in China, and I 
told them that it was not the end, that we have that debate 
every year when the Trade Representative comes to testify 
before this committee, and it is always a good debate. You are, 
and have been, consistent on this issue.
    When the chairman in past years has recounted assaults on 
civil rights and infringements against religious freedom in 
China, the Trade Ambassador, in this case you, has told us, as 
you did last year, that free trade is an important weapon in 
the fight for human rights. One of our best hopes to improve 
the lives of the people in China is to open our markets and 
give them a taste of free trade.
    Is that fair, the way I have characterized your comments?
    Mr. Zoellick. For China, yes. I know where you are going. 
[Laughter.]
    Mr. Serrano. I think everybody in the administration knows 
where I have been going for the last 12 years.
    I was elected March 20th of 1990 to Congress. They would 
like me to go where, Mr. Mollohan? [Laughter.]
    Let us try it again. If we tell the world, and I agree, 
that trading with China is good to bring the changes we would 
like, why can we not try the same experiment with Cuba? And why 
is it that now, just when it looks like members of Congress--
and incidently, much to my amazement, surprise, and 
satisfaction, on some of those issues, you see that a lot of 
the bills I proposed now have Republican sponsors. And it is an 
issue where I do not yell up and down and say, ``They took my 
bills.'' I am glad, about all the trade bills, the travel 
bills, the selling of our products to Cuba.
    Yet, Mr. Otto Reich, the head of the Western Hemisphere 
Affairs Section at the State Department, has now publicly 
stated, in the strongest language in a long, long time, that we 
are not going to help Fidel Castro stay in power by opening our 
markets to Cuba.
    So, for the record, can you try to explain the 
administration's reasoning and logic on why China and not Cuba? 
And by the way, it is not just this administration, it is the 
past one, too, that I cared for a lot. In fact, the last 
President, Mr. Clinton, whom I supported and respected, and who 
I felt was one of the more intelligent human beings I ever met, 
I once asked him at a White House reception, ``Mr. President, 
why China and not Cuba?'' And his answer was so sad, but so 
true. He said, ``China is big.''
    Is China still so important and so big that it is China and 
not Cuba?
    Mr. Zoellick. Well, that would not be the point that I 
focus on, Mr. Serrano, and I know that we probably share the 
goal of what we want to try to achieve in Cuba. We just have a 
different view about the means. I think the way that I would 
look at it is that over 40 years we have really had no sign 
that Castro is willing to do anything but use money and 
openings to strengthen his control.
    That has changed in China. I mean, I visited China in 1980, 
and I visited China last year, and it is a very different 
society. And the nature, it is not to suggest that it still 
does not have huge human rights problems and that it is an 
authoritarian country, it is. That is why I agree with the 
chairman about the points we need to emphasize in that, but you 
can see a trend line in change, and at least I do not see that 
trend line in Cuba.
    Frankly, I do not think that after September 11th, Castro 
helped himself with this cause by having his foreign minister 
say that Americans were baby killers and say that we were 
targeting Afghan civilians when we were going after the 
Taliban, and an official statement by the Cuban Government that 
said that the United States brought the events of September 11 
upon itself. I did not hear anything like that coming out of 
China. And, frankly, this continues to be a society that 
supports terrorism and is a haven for fugitives from the U.S. 
Government.
    So I wish Cuba will transform, and some day it will, and I 
hope that day is not long off, but we have not seen any of the 
steps that we would hope a Government might take to open it up 
for its people.
    Mr. Serrano. So you are, for the record, saying that you 
see a major difference between the Cuban society and the 
Chinese society and that one is transforming and one is not. 
Now I respect you, and I know you respect me, but you know if 
we were not here and we were saying this in private, you 
probably would be crossing your fingers behind your back at the 
hope that I would believe everything you are saying because 
everything indicates that we are talking about very similar 
societies.
    Now it is true that every so often the rhetoric coming out 
of Cuba is the kind of rhetoric that even a supporter of 
lifting the embargo does not want to hear, but there is also 
still a Cold War between this country and Cuba because the 
rhetoric coming out of the White House or the State Department 
about Cuba is rhetoric we would never put out about China, 
where we call them everything in the book.
    Just this morning we had the DEA administrator here trying 
to answer, and he could not really, why every time President 
Castro says, ``Join me, and I will join you in the war against 
drugs, join me to stop illegal immigration,'' we just get a 
comment like, ``We are going to bury you,'' you know, something 
of the book of Nikita Khrushchev, rather than, ``Let us talk.''
    Look, we know what it is. It is a county called Miami-Dade 
that controls our foreign policy, and this is an election year 
for Florida's governor, and this makes it even more difficult.
    But what I think we have to do is try to understand that if 
the answer is, and if you come here and you tell me that the 
answer is that politically we can do China, we cannot do Cuba 
right now, you know, as painful as that is, I understand that. 
But if you really try to tell me that there is a major 
difference, that one Communist Socialist society is moving 
towards where we want it, while it remains a Communist 
Socialist society, and the other one 90 miles away from us is 
not, well, I suggest to you then that if there was the 
equivalent of a Miami-Dade County with Chinese Americans who 
were complaining about doing business with China, you would be 
sitting there making the same nasty comments about China. So I 
would hope, Mr. Ambassador, that you and your people become 
voices that say this is a silly policy that does not make 
sense.
    Let me just close my comments, and hopefully you will 
comment further because I think we should engage in debate on 
this. No one is stronger against Cuba on the House floor than 
the majority whip, Mr. DeLay. It is interesting to note that 
Mr. DeLay was the strongest supporter on the House floor of 
gathering the votes for trading with China. Now he cannot 
explain that. He tried, the way you just did.
    So can you, for the record, at least open up here a little 
bit and tell us if there is another reason why China and not 
Cuba? I am not trying to be difficult. I just cannot understand 
this, and for years I have been trying to.
    I will tell you how far it goes. Just recently, the U.N., 
UNESCO, did a study in Cuba and in other countries which Cuba 
came out number one in the Western Hemisphere for reading 
scores, math and language scores, right? And so Miami went 
crazy, and our State Department went crazy, and UNESCO had to 
go back in to retest Cuban children. Waste of time, right? The 
second time they came out higher.
    So what is it going to take for us to admit that some 
things could be happening in Cuba that we want to be a part of, 
rather than try to strangle them to death, while we prop up 
China as an example of what the world should be like?
    Mr. Zoellick. Well, I would not say that China is an 
example of what the world should be like, but I do stand by, 
Mr. Serrano, and I respect the time, and effort, and depth of 
feeling you have on this, but I do think that the world of 
China over the past 25 years is a very different world than the 
world of Cuba. I mean, and I, because of fortuities in 
different jobs----
    Mr. Serrano. Excuse me. But we did not spend the last 25 
years trying to bury China.
    Mr. Zoellick. We have been pretty tough on China in 
different circumstances.
    Mr. Serrano. Well, we have been tough, but we have not 
strangled them, and we have strangled Cuba.
    Mr. Zoellick. But I honestly feel, Mr. Serrano, that every 
time, and you know over the past 20 years there have been 
efforts of various people to try to open this or that 
relationship with Cuba, that maybe because it is a small 
country, Castro has such a stranglehold on whatever happens 
there. Again, I am not attributing this to anything that you 
were saying, but when you have got a Government that makes 
these sort of statements in the light of September 11th, and I 
have been around a lot of countries around the world, and I 
have been touched by the warmth of people from all over of 
Americans. When I was in Brazil, I saw an American flag that 
was put together by 72 first graders that have never seen this 
country, and that is not what is coming out of Cuba, and that 
suggests to me there is something pretty different there.
    Mr. Serrano. Mr. Chairman, if you will give me a couple of 
more minutes here, and then I will go vote, but this debate is 
going to heat up in Congress because you now have a situation 
that we never had before. Before, basically what you had was 
some Democrats and Republicans wanting to trade with Cuba and 
to change the policy. Now you have a lot of Republicans, some 
of them up for reelection this year, with a lot of farmers 
telling them we want to trade with Cuba, and an administration 
with one person, Mr. Reich, saying absolutely not, that is 
never going to happen. In fact, making comments like, ``In 
spite of what Congress may want, we are not going to let it 
happen.'' I mean, I do not know who elected him.
    But let me tell you something, there are people living in 
Virginia, two of them that I know of, who are accused by the 
Castro Government of taking airplanes, one of them a commercial 
airliner, putting a gun to the pilot's head, bringing to Miami, 
German, Canadian, and Italian tourists, getting to Miami. The 
plane gets sent back with the tourists, and the person 
continues to live here.
    So if we are going to talk about Cuba harboring terrorists, 
well, you know, Cuba could, in some court have an argument that 
we harbor here people who have committed the same crimes 
against that society down there. But as you know, all you have 
got to do is come to Miami and say, ``I am running away for 
democracy and freedom,'' and any other crime you committed 
along the way does not count.
    So, you know----
    Mr. Zoellick. I would not go down that route, Mr. Serrano. 
I understand your other arguments, but I do not think you would 
ever remotely say these two societies are comparable in their 
attitude towards terrorism.
    Mr. Serrano. I am not suggesting that at all, sir. What I 
am suggesting is that more and more the arguments you present 
and the arguments that our Federal Government presents, from 
both sides of the aisle, holds no water any longer because we 
continue to build up other societies and trade with them, and 
we continue to have this misguided, foolish policy toward one, 
out-of-date Communist society. Now obviously I am wasting my 
time here trying to convince you otherwise, but please 
understand that around here there are members of Congress, a 
large number, who believe that this is the wrong policy and 
that we cannot continue to do this in order to prove some point 
to somebody in one county in the State of Florida.
    I tried, Mr. Chairman. [Laughter.]
    Mr. Wolf. Mr. Miller.
    Mr. Miller. Good afternoon. Thank you.

                                 SUGAR

    Let me first ask you a question about sugar. I talked to 
you about sugar last year, and I have been one of the ones 
trying to get rid of the sugar program. It is one of the more 
egregious forms of corporate welfare, and it really hurts jobs 
in this country, in my opinion. There is a Lifesaver plant in 
Michigan. It had to close and move to Michigan because of the 
price of sugar. You are aware of it.
    The Senate Finance Committee attached an amendment to the 
Trade Adjustment Assistance Bill that purports to restrict a 
product called stuffed molasses, but it looks like it is much 
broader than that. I am told that attorneys at USDA believe it 
violates WTO obligations. The amendment potentially could ban 
imports of any product that the Secretary of Agriculture 
believed was circumventing sugar quotas. The way the amendment 
is written, the President would have absolutely no discretion 
as to whether he would implement the Secretary's orders.
    Do you not believe that this amendment is dangerously broad 
and risks violating our trade commitments?
    Mr. Zoellick. I think, Mr. Miller, that the amendment is to 
a slightly different bill. I think it is to the ATPA, but same 
basic point.
    I have to tell you I have not had a chance to look at it in 
detail, but I have heard enough about it that the amendment 
causes me some real concern. I have mentioned to Senator Breaux 
and others that I know they were concerned about the, well, it 
was a legitimate concern about the stuffed molasses diversion, 
and what I urged them to do was to recognize that there was a 
court case going on that was reviewing the action by the 
Customs Department of trying to close that loophole, and the 
court case affirmed the Customs Department effort. So I think 
we have fixed the problem that they were concerned about. At 
least, from what I have heard of this amendment, it does cause 
me concern.
    Mr. Miller. So you think that the amendment may not survive 
because they have addressed the stuffed molasses that is a 
little different issue, but we make it as broad that you could 
not import Lifesavers or something because they claim that we 
are really getting into some----
    Mr. Zoellick. Well, I am not in a position to say what will 
survive the Senate, but I do have problems with that amendment.

                             METHYLBROMIDE

    Mr. Miller. Thank you. Do you know anything about methyl 
bromide?
    Mr. Zoellick. Methyl bromide, is that for the crops?
    Mr. Miller. Yes.
    Mr. Zoellick. Yes.
    Mr. Miller. It becomes a trade issue in that the United 
States, it has a lot of different uses. It is a very powerful 
fumigant. It is used for fumigating ships when they come into 
harbor for that purpose. But in Florida, in Southern 
agriculture, in particular, in Southern California and Texas 
agriculture, it is a fumigant that is used to fumigate the 
ground to allow multiple crops, two crops a year, for example. 
The U.S. is basically going to do away with it by year 2005, 
but developing countries can keep it until 2015, and the 
problem is Mexico is a developing country.
    Our tomato industry was hurt. I am a free trader, so I am 
going to be all right, but I get beat up for supporting NAFTA 
because of our tomato people, for example. Well, they are going 
to now be hit with this methyl bromide, and Mexico keeps methyl 
bromide. Has there been any study, I mean, it is not something 
totally under your control. It is an EPA issue, I understand, 
but it affects trade and becomes even more unfair, for example, 
to tomato growers, but it is used for other products, apples 
and other products, and not just from Florida. Tell me what 
economic impact that type of decision has on trade?
    Mr. Zoellick. I talked about this issue with Mr. Stenholm 
last year. As you properly mentioned, the United States has 
agreed to phase it out, but our phase-out is conditioned on 
certain issues, including I think the ability to develop a 
substitute, and it may be by use. And so we, actually, I went 
back and talked with Administrator Whitman, and I think last 
year there was a rule put forward to allow the continued use of 
methyl bromide, at least for quarantined purposes and maybe for 
others as well. But I was actually sympathetic to the points 
that you are making and tried to follow up, and I will be 
pleased to try to follow up again and let you know.
    Mr. Miller. We have been trying to work on the agricultural 
bill and with Secretary Whitman to try to make it so it is not 
so unfair to agriculture, not just Florida, but other 
agriculture. It is not just for the importation of food, it is 
just the issue of unfair competition.
    Mr. Zoellick. I thought I had actually addressed this one, 
but maybe not.

                                 SUGAR

    Mr. Miller. I would appreciate that.
    Let me ask one final question, if I may, getting back to 
sugar a little bit.
    One of the problems about this sugar program is we keep the 
high price of sugar, and the problem is it makes it hard for 
jobs in the candy industry. For example, when I was offering my 
sugar amendment last year, Mayor Daley and the City Council of 
Chicago supported my resolution because the candy capital of 
the United States is losing these candy companies. I mentioned 
Lifesavers just announced their closure, moving to Canada. In 
theory, you are saving some sugar jobs maybe, but the other 
jobs, and the candy companies or Don Manzullo from Chicago are 
talking about the cough drop company, will move the rest of his 
production to England because the cost of sugar in cough drops, 
anything that has got a hard surface. The candy cane companies 
in the United States are moving their production outside of the 
United States.

                             STEEL INDUSTRY

    This gets me into the steel issue. It is not that much 
different. I do not agree with what you did on steel exactly--I 
do not have any steel in my district in Florida--but the 
problem is we make other products uncompetitive. And whether 
you look at the lost jobs in sugar or the lost jobs in the 
people that use steel in the United States, do you do that type 
of analyses? There are going to be some job losses of steel 
users in the United States because of this.
    Mr. Zoellick. Well, let me take it in a couple of pieces. 
One is the sugar trade policy is driven by our sugar foreign 
policy, and that is obviously in the hands of the Congress, not 
in the hands of me. I can tell you that I share a lot of the 
same frustrations that you share in that because it certainly 
makes our life much more difficult. And you are darn straight, 
one of the things people have to recognize is if they prop up 
the price of something, it may lead to people having a higher 
cost input, and that may end up making other businesses 
uncompetitive.
    In the steel area, there is a fundamental difference. What 
the President acted on was a safeguard. It is a temporary form 
of relief, and it is only for 3 years, and even during that 3 
years, the nature of the relief will go down. It is not 
designed, like the sugar program, to be here until eternity 
with the industry, but instead it is giving an industry that 
the ITC found had received substantial injury from imports and 
giving them a breathing period to get back on their feet.
    The United States has done this with other industries. I 
mean, the most famous one is Harley Davidson, which actually 
did come back in that period. And now the question will be will 
the steel industry use this time to actually restructure, 
become more competitive and productive. In that sense, it is 
distinguished, I think, from the sugar case.
    Your last question was our analyses done on these things. 
There are analyses done by many outsiders. So, for example, in 
steel you can find, and you will find, ones that say you are 
going to lose a bunch of jobs, and you will find another one 
from MIT that says it will make a difference of $2 per 
automobile. In the case of steel, I think it was important to 
me to see that prices were 20-year lows and that you had large 
undercapacity or overcapacity in this country so that you had 
extra production, and I am not convinced that it is going to 
have a detrimental economic effect on our recovery.
    But more generally, there are studies done by outsiders, 
the ITC, the Department of Commerce, and I understand your 
concerns about the sugar program. It is one that is probably 
bigger than either of us.
    Mr. Miller. I have fought that battle for a number of 
years. Very frustrating. Sugar is only grown in a few 
congressional districts in the United States.
    Mr. Zoellick. Actually, when you look at it, as I have 
learned to look at it, it is in a lot of States spread around 
the country, because it is beet, it is cane, I mean, it is a 
variety. And so when you look at the map, as I have seen, of 
sugar producers, it covers a lot, which is one of the reasons I 
think it is what it is.
    Mr. Miller. By the way, on this issue, my staff just gave 
me a note. Following up on this methyl bromide, there are, as 
you know, a lot of different uses, and I was amazed when I got 
into this issue. I was just looking at it from a tomato issue, 
and that is the soil fumigation issue, which is the biggest use 
of methyl bromide. But the issue of quarantine is a different 
issue a little bit. The problem is finding a substitute. 
Everybody agrees for a substitute, they are pouring large 
amounts of money into the research. Everybody will accept a 
substitute, but we are concerned about the soil fumigation, 
which is a little different from the quarantine issue. So, if 
you check into it, it really becomes a fairness issue.
    Mr. Zoellick. Mr. Miller, I would pleased to follow up with 
you, is that now that probably makes sense, is that probably we 
did solve the quarantine issue, and it may be different for the 
soil fumigation. So I will be pleased to do what we can.
    Mr. Miller. Okay. If you can help us on that, it would be 
great.
    Mr. Chairman, thank you very much.
    Mr. Wolf. Sure. Thank you.

                           TRADE WITH RUSSIA

    Mr. Kolbe is coming back and the other members. They may be 
waiting for this vote. So, in the interim, I will just ask you 
a couple of additional questions.
    On the Jackson-Vanik, the administration favors granting 
MFN or PNTR to the Soviet Union or the former Soviet Union, now 
Russia. In doing that, how will you guarantee that there still 
is the protection of minorities. Because if we keep our memory 
sharp, we will know during the 1980s those who were Jewish were 
persecuted, and anti-Semitism is just below the surface in 
certain places. We also know that others, Assemblies of God, 
and others, Pentecostal, who had to go to the American embassy. 
I believe you were in the administration then.
    How do we know or what can we do as we grant MFN or PNTR to 
Russia to make sure that the respect for minorities, and not 
that we have any reason to believe that Putin will not, I am 
not inferring that it is not going to happen, but how do we 
maintain and make sure that that is out there at all times?
    I think it is a mistake, and I think the administration is 
wrong to abolish MFN or PNTR. Jackson-Vanik has worked so well, 
and it may very well be a day that we need it again. You can 
certainly grant PNTR or MFN to a country and keep Jackson-Vanik 
around. So how do we maintain that?
    Mr. Zoellick. Let me deal with your first and then try to 
give you the logic overall.
    The State Department and the NSC has been working with NGOs 
and religious groups to try to get additional meaningful 
commitments. At least my understanding of this process, Mr. 
Chairman, is that it has been going pretty well, including with 
a number of members here that have been working with the 
administration on that, and that a number of the groups who 
would be most concerned are feeling positive, but let me then 
make just two other points about the bigger issue.
    First, is----
    Mr. Wolf. But how do we maintain, though, that this is 
always there? There has been a history in the world of anti-
Semitism. It has just been we know from Nazi Germany, we have 
seen cases. How do we maintain and make sure, though, that this 
does not come back, that there is the respect for minorities, 
is there any way?
    Mr. Zoellick. Well, I am not sure that Jackson-Vanik will 
do that for you either. In other words----
    Mr. Wolf. Well, we did. We amended Jackson-Vanik. We 
amended it by osmosis. We extended Jackson-Vanik to trade 
relations with Rumania and many others. So it was amended 
almost by feeling, by gut, by passion over the years so that it 
became greater than what Jackson-Vanik. Jackson-Vanik was just 
immigration.
    Mr. Zoellick. Yes.
    Mr. Wolf. With China, it got amended in a way that I think 
was appropriate, insofar as we were looking at other things 
too.
    Mr. Zoellick. Here is I think the context in which the 
administration is trying to deal with that.
    As you know, you have a regime in Russia that is trying to 
move beyond the Cold War, and in their mind this is very much 
associated with the Cold War and----
    Mr. Wolf. I am not disagreeing with what the administration 
is doing.
    Mr. Zoellick. And so here is the question: The Russians are 
asking about how Jackson-Vanik would frankly relate to their 
WTO accession and whether it would hold them up in that 
context. And here, and I think they have a very important 
point, they are saying, look, we will abide by all of the 
rules, but we want equal treatment. We do not want to be 
treated in a way that is the old way.
    Mr. Wolf. Sure.
    Mr. Zoellick. And so what I think, and this is again more 
appropriate for the State and NSC, but I will be happy to try 
to intermediate and get the information, is that what we have 
tried to do, as an administration, is to say, well, for these 
ongoing human rights concerns, what systems can we build, what 
institutional processes can we build? Recognizing that a 
country can always, whether we pass a law or not, can always go 
the wrong direction.
    Mr. Wolf. Sure.
    Mr. Zoellick. And so at least I have been convinced, 
Chairman, that on this sort of issue, we have to be careful 
that it not be seen as a slap in the face and keeping the old 
Cold War logic.
    Having said this, and I hope you agree with me on this, 
too, I told the Russians that, going back to this poultry 
issue, that given the sensitivity of this topic here, that they 
can kiss this thing goodbye if they do not solve this poultry 
issue.
    Mr. Wolf. I share your feeling there.
    I was hoping another member would come that we could 
continue this, but in the light of the fact that neither Mr. 
Serrano nor I, have voted, we are going to go vote and come 
right back. It should be no more than 2 minutes.
    [Recess.]
    Mr. Wolf. We are going to have another vote, but I will 
have 15 minutes, and hopefully somebody will come back in the 
interim, and we can keep it so we don't tie you up all day.

                   REPATRIATION OF CRIMINAL OFFENDERS

    There is a section in the bill that we carried last year, 
the following. There are the following detainees from the 
following countries that have been convicted of generally 
violent crimes.
    Mr. Zoellick. Which bill is this, Chairman?
    Mr. Wolf. Our Conference Report last year. Of violent 
crimes, that under a court ruling may very well have to be 
released. For instance, 348 from Vietnam. Vietnam, we just gave 
them special trading rights. We are asking the administration, 
and you can be a big help, to tell Vietnam, ``Take these 
prisoners back.'' I may very well carry, and offer it on the 
floor, or carry some provision that triggers or implements what 
the provision is. And I don't have the exact section, and we 
can give it to you. And it has been exercised once for Guyana. 
If the Attorney General makes a decision as such and such, 
therefore the State Department can no longer issue visas to 
anyone from that country. So if we were to carry this, we would 
prohibit visas for anyone coming from Vietnam, diplomatic or 
nondiplomatic. Well, if they want our business, tell them to 
take their prisoners back. And these are violent prisoners, 
because if they are released on the streets, which they may 
very well be under the court ruling, some of them will be 
involved in killing some people you know.
    And so Vietnam has 348. Laos has 145. Cambodia has 81, 
Somalia 51, North Korea 75, Cuba 1,717, Libya 4, Iran 106, Iraq 
146, and Armenia 35.
    We give a lot of money to Armenia. I have been one of the 
strong supporters of Armenia, Nagorno-Karabakh. I support the 
Armenia resolution. What the Turks did to the Armenians was 
genocide, that is a fact. But they won't take back 35 people. 
So I would urge you to come and--I am going to give you this 
list, and I know you didn't know about it, so it is not 
directly directed against you, ask these countries--and you 
carry a tremendous amount of weight as the trade rep--friends 
treating other friends to just please take them back.
    Now, obviously, it may be more difficult with North Korea. 
It may be more difficult with Cuba. But I think Vietnam, if you 
were to speak out, particularly the trade mission's going back 
there, I think they would probably take them out. Laos I think 
would probably take the 145. Cambodia would probably take the 
81. Somalia, there is no government for all practical purposes 
of Somalia, but they are looking for good things to do with 
regard to where the war on terrorism is. Take back these 51. 
This is the top 10. Then there are other countries. So if you 
could intercede to encourage them to take back, as we would be 
obligated to take back from them. I think it is a reciprocal 
operation. That would be very much appreciated.
    I think that makes sense though.
    Mr. Zoellick. If you give me the list, I will make sure I 
share with my colleagues in other departments, but for the ones 
that I am doing business with like Vietnam, certainly I can 
raise it.
    Mr. Wolf. I just want to give the House an opportunity to 
vote on that. Just say, ``Okay, you want them, here is the 
opportunity.'' And my sense is that that amendment would carry. 
On the other hand, now that we have relationships with Vietnam, 
they ought to be good. I am not trying to look for reasons to 
make them go south, but one thing they can do is to take the 
people back.

                            CANADIAN LUMBER

    Canadian lumber, home builders, also manufacturers of 
mattresses. We have been told that your staff is working on 
this issue. We have heard that they are looking at different 
ways of solving this. Trade restrictions would obviously affect 
housing affordability. I think you probably saw the article in 
Sunday's ``Washington Post'' about the cost of housing in the 
suburban Washington Metropolitan area, Northern Virginia, same 
for Montgomery County, very difficult for young people to 
afford a house. What are your comments and thoughts about this 
issue?
    Mr. Zoellick. Well, I am sensitive to it, Chairman. In 
fact, no reason you would necessarily know this, but I used to 
be in the affordable housing business, so I used to run all the 
affordable housing programs and I was executive vice president 
of Fannie Mae.
    But let me start with the nature of the problem, and this 
is--there are negotiations going on as we meet here. The 
problem is, as you may know, that almost all the lumber in 
Canada is cut from Crown lands, so it is all off government 
lands, and there have been a series of practices that the 
Canadians have had for many, many years, that have created 
subsidies, and frankly, set of jobs programs related to that 
that have at times been challenged by some of their competitors 
in the United States, whether timber mills or people who are 
growing timber or other things like that.
    And last year they filed these anti-dumping and 
countervailing duty cases. And the preliminary findings of the 
anti-dumping and countervailing duty cases by the Commerce 
Department were for anti-dumping a 12.6 duty and for 
countervailing duty 19 percent. Now, what is causing the 
attention now is that by Thursday night, to be announced 
Friday, the Commerce Department makes the final determination 
on those duties.
    Mr. Wolf. This week?
    Mr. Zoellick. Yes. And the numbers may change. It is done 
through an independent process. I don't know what they are 
going to end up being. Secretary Evans doesn't know what they 
could end up being.
    Mr. Wolf. Is it a formula?
    Mr. Zoellick. Its formula is based on findings of the 
natures of subsidies. You know, it will vary by product and 
what the practice is. What we have been trying to do with the 
Canadians--and this is really the first time in 20 years people 
have been going at it this way--is to say, let's try to get at 
the underlying practices. In other words, our goal is an open 
and competitive market for lumber and timber. That is what we 
are trying to achieve. It gets complicated on the Canadian side 
because as you know, it is a highly federal system, so each of 
the provinces have their own policies, so we are negotiating 
with the people in Ottawa as well as the provinces. The most 
important ones, frankly, are probably British Columbia and 
perhaps Ontario in terms of the overall timber and cutting. And 
those provinces have sort of recognized the need to change some 
of the policies, and this gets complicated quickly, but let me 
just give you a little flavor of it. Because they cut the 
timber off what they call Crown lands, one of the things we 
have said is, ``Well, why don't you just put the timber up for 
auction? If you want to make sure it is in market, put it up 
for auction.'' Well, in part because of the vast spaces and 
others, they haven't agreed to do that. So one of the things 
that we are trying to negotiate with them is, you know, how 
much would you be wiling to put up for auction? They are at 13 
percent. Our industry is at 65 percent. So there is a pretty 
big gap here to try to bridge.
    But there are other issues. To say, ``Well, if you still 
want to use what is sort of a government industry system, then 
maybe you could use reference prices, reference to market 
prices in the United States.'' But then the Canadians have 
said, ``Yes, but it is not true for this type of tree or that 
type of tree.'' So that is the sort of issues that we have been 
trying to thrash out here.
    Obviously, this discussion has been going on even since I 
have come up here doing some other things on the Senate side 
this morning, so I can't say for sure, but I personally feel 
that there is still going to be a pretty significant difference 
here to be able to close by Thursday night.
    So what we have suggested to the Canadians is, ``Let's not 
lose the benefit of the work we have done with the provinces 
and the Ottawa Government about trying to go at the underlying 
practices.'' So we have suggested two ways in which we could 
continue this process, and either nationally in Canada or if 
each province starts to go off and make their reforms, they 
could come back to the Commerce Department and change those 
duties. And this is the point: is that while the duties are 
declared as final duties, there is a process in the Commerce 
Department called ``changed circumstances,'' so if the 
underlying circumstances change, that could allow the Commerce 
Department to say there is not subsidy in fact any more.
    The one other point I want to say on this, if you don't 
mind, Chairman, is that sometimes the Canadians get a little 
free in tossing around the word ``protectionism'', and so I 
went and asked someone to check the WTO website about whether 
Canada uses anti-dumping and countervailing duty laws, and lo 
and behold, I discovered they have 101 in place, 12 against the 
United States, where we only have 8. So while this is a 
legitimate issue we are trying to work on with them on various 
topics, I urge that some who get a little overheated on the 
Canadian side with rhetoric look at their own home turf as they 
deal with these issues too.
    Mr. Wolf. Now, Mr. Mollohan and Mr. Kolbe and maybe, if you 
could just chair the hearing, and I will be back in a while. 
Mr. Mollohan.

                              STEEL TRADE

    Mr. Mollohan [presiding]. Thank you, Mr. Chairman.
    Mr. Ambassador, welcome to the hearing. First of all, I am 
from an area that is very interested in the President's 
prosecuting the 201, and am very appreciative of his decision. 
I want to tell you that we are very appreciative of his 
decision, and I appreciate your accommodating it in your 
responsibilities.
    Mr. Zoellick. I tried to tell you last year I was working 
on this. [Laughter.]
    Mr. Mollohan. I appreciate it. I would like for you to talk 
a little bit about the exemption process. Actually, if you 
would start there, that would be kind of a good place to start 
it. I have noticed that we have already been processing some 
exemptions. How is that happening? There has been some concern 
that it is not transparent, that the ability to input the 
decision making with regard to exemptions is not clear if it 
exists. So I just invite you to talk a little bit about that 
exemption process.
    Mr. Zoellick. Sure. We had over 1,000 requests for 
exemptions, and there is no way that we could review those all 
fairly by the time that we made the decision. So what the 
President decided was to allow a 120-day period in which to 
examine these issues. And what we are trying to do is to look 
at areas where there is a grade of steel or type of steel that 
is either not produced by the United States or is very hard to 
get to one point or another that would frankly cost jobs, 
because that is what much of this has been about.
    Mr. Mollohan. Does the 201 cover any steel that is not 
produced in the United States?
    Mr. Zoellick. There is some question about the inputs. See, 
what much of this has done, Congressman, is relate to the 
inputs. This came up with the slab question, and in fact, I 
think you cover Weirton. Weirton was sort of on both sides a 
little bit, because one of things, as you know, I was working 
on the tin mill side and we tried to take care of that, but 
they, at various times when I have talked to them, they were 
also talking, as some companies have done, about importing the 
slab and in a sense doing a higher value-added part of the 
process. And one of the reasons this occurs is the quality of 
the ore is very good in Brazil and Australia, and so what some 
of the steel companies in America are moving to is importing a 
slab product and then doing a rerolling operation.
    Mr. Mollohan. But it is not the quality of product, it is 
price of product.
    Mr. Zoellick. Well, at least when you talk to various steel 
industries, and there are some, you know, Weirton, but also 
ones in the West Coast and some----
    Mr. Mollohan. I think Weirton is price.
    Mr. Zoellick [continuing]. In Texas, is that there is a 
question about the quality of the grade of the ore, I mean at 
least what they tell us. Now, that is a slightly different 
category because that is the tariff rate----
    Mr. Mollohan. That probably doesn't amount to----
    Mr. Zoellick. Well, it is 5.4 million tons, and it is 
important for a number of the producers, A.K. Steel and some of 
the others along the way. Now, the reason I referenced it is 
that the exemption process is somewhat similar in that--and in 
fact, this is where the steel industry is sometimes on both 
sides of this. USX has an operation that is up on the West 
Coast in Washington, and frankly, they were drawing in some of 
material that is called feed stock. It is between slab and sort 
of the next level. And they felt they couldn't get access to 
it, and it is partly production, Congressman, but it is also 
accessibility given the transportation costs, and what is the 
transportation availability of this. And there was another one 
in the case of California that much of the California 
delegation was worried that you would actually have to close 
down the plant and lose jobs.
    So, I frankly, Congressman, don't expect that there is 
going to be a great number of these. What the Commerce 
Department is trying to examine in a fair case-by-case fashion, 
whether--sometimes you get into very small specific products 
that may not be produced or they may have, you know, 75 percent 
of the production with one source, and so they worry about 
close to monopoly pricing. So those are the issues that people 
are looking at here.
    Mr. Mollohan. How many do you, in terms of how far this 
goes just in terms of numbers, do you anticipate at the end of 
the 120 days? I understand the President is going to open it up 
every year for the next year or--it is three years, is it not? 
How many exemptions would you anticipate being approved within 
the 120-day period?
    Mr. Zoellick. I wouldn't want to hazard a guess, 
Congressman. I guess the way I would answer it is this way. The 
President made a decision based on a logic about trying to give 
the industry a chance to catch its breath over this period. We 
don't want to do anything that undermines that. And so it will 
be, in my view, a careful and conservative process that is 
looking for true cases of where it would undermine jobs or 
serious employment or put someone at a real competitive 
disadvantage.
    Mr. Mollohan. Well, what is the process. Does the country 
do something formal? Do they file a petition, or do they write 
a letter?
    Mr. Zoellick. They have had to file and make in a sense a 
brief argument on why this is important, and in terms of what 
the alternative sources are.
    Mr. Mollohan. So they specifically enter an exemption 
consideration process.
    Mr. Zoellick. Yes, sir. And just for the--you mentioned a 
reference to the following year. What that is about is that 
frequently when safeguards are put in place, there is something 
called a short supply petition, which allows people to decide, 
``Well, if products are in particularly short supply, you can 
come in and get it.'' Because this safeguard is so large in its 
scope, and we didn't want to sort of have that be an ongoing 
process, we kind of combined the two. So in a sense what that 
effort is to open it to the following year is really an effort 
to deal with the short supply condition.
    Mr. Mollohan. How many of these petitions or requests for 
exemptions do you have before you?
    Mr. Zoellick. About a thousand.
    Mr. Mollohan. 1,000 right now?
    Mr. Zoellick. Well, I think they may have been able to 
review some 200, but that is the range we are talking about. 
Some of these are quite small.
    Mr. Mollohan. So you are going to--of that 1,000 you are 
going to review them within that 120-day period?
    Mr. Zoellick. Yes.
    Mr. Mollohan. When does that 120-day period end?
    Mr. Zoellick. I will get a precise answer for you, but I 
think it will be 120 days after the decision takes effect. We 
should get you a precise figure.
    Mr. Mollohan. So you are talking about summer. Would you be 
able to give any estimate on how many you would anticipate 
being acted on positively for the petitioner?
    Mr. Zoellick. I really wouldn't because it is not fair. I 
don't know what they are. I mean, and we do want to take this 
in a rational process. I will just say that in talking about 
this with Secretary Evans, our inclination is to do this very 
conservatively and carefully.
    Mr. Mollohan. Is the Australian example the only one you 
have approved so far?
    Mr. Zoellick. That I know of.
    Mr. Mollohan. Now, Brazil has--I know that you were down 
there visiting, were you not there just recently? Did they 
express concern about this decision?
    Mr. Zoellick. They certainly did.
    Mr. Mollohan. Did they yell and scream about this decision? 
And are they asking for exemptions?
    Mr. Zoellick. They presented us a list of potential 
exemptions, but what I explained to the Brazilians, 
Congressman, was that there were a couple of categories of 
steel that in the case of Brazil were under the 3 percent level 
for developing country and were excluded.
    Secondly, their major export to the United States is the 
slab that we talked about, and used the quote of slab based on 
the 2000 numbers, and I made the argument that given the fact 
that they would have a 52 percent share of this, that they 
should pretty well be taken care of in terms of their past slab 
exports, and that it was our estimate that about 87 percent of 
the steel that they sold to the United States in the past would 
be able to be available and so I----
    Mr. Mollohan. Under the initial.
    Mr. Zoellick. Under the initial. Now, there was one case 
that they presented, which we will look at, which is, is that 
there appears to be a Brazilian company that has bought a U.S. 
company, and they did so on the business model of bringing in 
more slab, and that is the sort of question where we want to 
take a fair look at it because it is a question of whether it 
is additional jobs in that. Now, if there is slab from other 
sources, then they won't need it, but it is something that we 
will take a look at.
    Mr. Mollohan. Typically, is the country processing these 
petitions or are the companies processing these petitions?
    Mr. Zoellick. When we--and I am glad you asked this, 
because when some of this is covered in the press it is a 
little confused, is that when we grant an exemption, it is a 
most favored nation exemption. In other words, it is not left 
for companies or countries alone. In other words, anybody who 
could supply that can supply it.
    Now, it turns out that in many of the cases what has driven 
this is there has been a special business relationship, so for 
example, in the case of the Korean one that people talk about, 
Posco Steel had had a business relationship with a factory that 
we had had in the Pacific Northwest, and so it is an ongoing 
business arrangement, so they are likely to be the only 
supplier, but it is open to anybody else too.
    Mr. Mollohan. When you say open to anybody else, what do 
you mean?
    Mr. Zoellick. It means that another company in another 
country that could supply that under the exemption can be free 
to do so if you have granted the exemption. In other words, it 
is not a special deal for one company or country alone.
    Mr. Mollohan. So it is for a type of steel?
    Mr. Zoellick. Right, right.
    Mr. Mollohan. So if you grant an exemption, it is not for 
Brazil or it is not for the Brazilian company, it is for that 
class of steel.
    Mr. Zoellick. Yes, now----
    Mr. Mollohan. And it could be supplied from any source, 
from any country?
    Mr. Zoellick. Now, it turns out that the nature of the 
exemptions, particularly if one is conservative with them, as I 
expect we will be, are exemptions where the only reason they 
were granted is because there is a business supplier 
relationship that can't be supplied from somewhere else in the 
United States, or that they would face an incredible price 
increase in their input, and so it is usually a particular 
plan, but I am saying that as a legal matter, it is open to 
others to be able to supply it too.
    Mr. Mollohan. I don't understand the process, and I could 
have boned up on it before this hearing, but I didn't, so 
typically is a country processing these exemption petitions or 
whatever, or does a company initiate it?
    Mr. Zoellick. I will have to check on that for you, 
Congressman, is, is that they have come from countries to the 
best of my knowledge, but I will double check for you.
    Mr. Mollohan. In this news story, BHP Steel and the 
Australian Government were mentioned almost in the same breath, 
and the president of the company seemed to be playing a very 
prominent role in the process, so I was just wondering formally 
how it is done.
    Mr. Zoellick. I will check for you.
    Mr. Mollohan. I appreciate that.
    Mr. Zoellick. Oh, Congressman, by the way, someone handed 
me a note. I am sorry. 120 days runs to first week of July.
    Mr. Mollohan. Okay, thank you. So when we talk about end 
rounding, or maybe that is not the right word, if you give an 
exemption to one country and then other suppliers come in 
through that exemption, that is actually wrong, thinking about 
it, because you are giving an exemption to that type of steel.
    Mr. Zoellick. For that U.S. company to make sure it gets 
its raw material.
    Mr. Mollohan. For that U.S. company, so it is on a company-
by-company basis.
    Mr. Zoellick. It is based on the idea that a certain U.S. 
company needs a certain amount of steel. It is then available 
for anybody to provide, although in practice, it is frequently, 
as I mentioned, because of a specific business relationship, so 
it is likely to be one company and one other country.
    So for example, which often happens, is----
    Mr. Mollohan. Well, let me just read this ``Intensive 
lobbying by Mark Dale, Australia's Trade Minister, has come up 
trumps in persuading the U.S. Government to effectively exempt 
Australian hot rolled coil exports from the 30 percent import 
tariff.''
    When I read that it doesn't say this is an exemption for a 
company to purchase that product from any source. It is just 
not saying that. So you are suggesting that is wrong?
    Mr. Zoellick. Congressman, we have many gentlemen and 
perhaps some gentlemen of the press behind me, and sometimes 
they use shorthand. [Laughter.]
    Mr. Mollohan. I sort of do that.
    Mr. Zoellick. All trying to avoid blame. [Laughter.]
    Mr. Mollohan. Thank you.
    Mr. Kolbe.
    Mr. Kolbe. Thank you, Mr. Chairman.

                            SOFTWOOD LUMBER

    Mr. Zoellick, welcome. You and I have worked together for a 
long time on a lot of different trade related issues, whether 
it has been NAFTA or the GATT round, WTO in China, and trade 
promotion authority in its earlier iterations as fast tracked, 
a lot of things that we have worked on. It has never been an 
easy one. It doesn't seem to get any easier. And I have great 
respect for you and for what you do.
    Having said that, I obviously have some differences of 
opinion as you know, with some of the administration's recent 
policies, listening to Mr. Mollohan here. Obviously, people of 
good minds can differ on these kinds of things and have 
different points of view. It has a lot to do I suppose with 
where you come from and who you represent.
    But I am very fearful, very worried that we are really 
moving off track in our promotion of opening markets and 
access, and the United States is not really setting much of an 
example, it doesn't seem to me, not with what we are doing on 
softwood lumber, not with what we're doing on steel. And I am 
worried that we are going to weaken the rules-based trading 
system that we have established in NAFTA and the WTO.
    With that in mind, let me just ask you a couple of specific 
questions about each of these, and particularly softwood 
lumber. I have already expressed my views on steel, but I will 
have at least a question or so on that.
    I am really worried about where we are headed again with 
softwood lumber. I had hoped we could put this issue behind us. 
It is a classic example, in my view, of how special interests 
always outweigh the larger interest. Obviously far more 
Americans are affected by buying lumber, buying homes, and are 
negatively affected by the efforts we are doing to a very, very 
tiny, small group of people, who have an interest in softwood 
lumber and trying to keep Canadian imports out of this country. 
And according to the press reports, you have been suggesting to 
the Canadians that they put a tax, 37 percent tax on the 
exports of Canadian softwood lumber. Is that accurate? Is that 
an accurate statement?
    Mr. Zoellick. No, the press reports have been all gummed up 
on this, and so if you want, I will--do you want me to explain 
this?
    Mr. Kolbe. Yes. I am delighted if that is true and I would 
like you to set the record straight.
    Mr. Zoellick. Okay. And I apologize--I forgot exactly when 
you came in. I talked a little bit about this.
    Mr. Kolbe. I realize you have probably done some--you may 
be going back over the same material. I apologize.
    Mr. Zoellick. And again, let me start out, Congressman, you 
have been a great supporter and a great help and under 
difficult days, and so my thanks and appreciation is offered to 
you.
    As you know, to pursue an aggressive open market trade 
policy around the world, we have to have support at home, and 
part of that having support at home is being able to treat our 
people fairly, and in the question of the softwood lumber, the 
problems starts with the fact that almost all the lumber in 
Canada, all the trees in Canada except in the maritime 
provinces, are grown on Crown land. And so the Canadians have 
had policies for decades that have basically been designed to 
create employment, not based on market prices, and what our 
fundamental goal is with this whole issue is to try to move 
this to a true open market system. Now, what has driven that, 
as you know, is that the industry has filed the anti-dumping 
and countervailing duty suits. And I just reviewed again before 
the fact that we had had findings that together were in 
preliminary duties were about 31 percent. The final duties will 
be made Thursday to be released on Friday. I don't know what 
those are. Secretary Evans doesn't know what those are, and 
part of what we are dealing with now, as we have had to deal 
with before, is sort of a last minute Canadian press rush, and 
I want to come back to that a little bit because if we are 
going to defend free trade and the Canadians want to try to 
play a certain game, they have got to be honest with themselves 
too.
    Now, what we have been trying to do is say let's do 
something that people haven't done for 20 years, which is let's 
go with the underlying practices. You may recall in the 1980s 
people dealt with this with an export tax when I was at the 
Treasury. We have said, ``Let's try to go and deal with the 
underlying problem.'' And just to give you one example--and we 
have made, frankly, I think a lot of progress going through 
what is a complex, even knotty issue. And one of the aspects of 
it would be the land that they sell, or the lumber that they 
sell. And you are a believer in free markets. I am a believer 
in free markets. My first suggestion is why don't you put it 
all up to auction? That is how free markets worked in the world 
that I know. And you can put your leases up to auction or put 
your timber up to auction. I don't care, but let's create a 
market.
    That is not what the Canadians have said. What the 
Canadians have said is they are willing to put all of 13 
percent of their leases up to auction. Well, that doesn't 
create a free market, and that is the problem we have. Now, our 
industry says 65 percent. And maybe there is something in 
between, but right now the Canadians aren't getting anywhere 
close to the economists that I talk to believe create a free 
market.
    Or another possibility we could use with this, because each 
of the provinces has a different policy, and part of our 
challenge here is we are not only negotiating with the Canadian 
Government, we are negotiating with a number of provinces, is 
that you could use reference prices. So let's reference the 
prices in the United States where we do have a free market, an 
open market in these areas. And when we have suggested that, 
then the Canadians want to come up with various things to 
basically not go at the underlying policy they have had.
    Now, there have been some important steps. For example, the 
Canadians used to have required cut demands that basically were 
designed to keep timber mills open in Canada regardless of what 
the market is, and they are moving in the direction of taking 
these on.
    So the story that you picked up, Congressman, is focused on 
the following issue. One of the things that we were trying to 
work out with the Canadians was basically a five-part program, 
to say, look, if we can agree on the changes in the underlying 
practices to finally create a set of open markets, it will take 
some time to implement them. So what we are trying to do is to 
say in the meantime, if we would agree on an overall export 
tax, as the Canadians had in the past, that would be reduced 
over time as they implement the practices, our industry would 
agree not to have anti-dumping, countervailing duty suits, and 
they would agree to drop the WTO action.
    That is the big package that we have been trying to work 
towards, and what I have said to my Canadian colleagues is, we 
still believe that is worth trying to work towards. We have 
made some progress. We are not there yet, but if we want to get 
at the underlying problem, let's try to do that.
    But we have offered them a second option as well, and that 
is because the different provinces have different approaches to 
this, we would say if a province, say British Columbia, which 
is a big player in this, is willing to make the reforms, then 
even if the others aren't willing to go forward, we would be 
willing to come back and remove the duties under a changed 
circumstances finding, which Commerce Department can do.
    So you hear a lot from the Canadians about how our industry 
is controlling this. Well, obviously, we listen to our 
industry, but we make an independent assessment of national 
interest. The Canadians aren't anywhere close to being able to 
create an open and fair market. So to come back to your point, 
to be able to defend open and fair markets around the world, we 
have to be able to make a case to our industry that it is a 
fair process, and right now that isn't the case.
    And the last point I just wanted to make, Jim, on this, is 
that--because you hear this too a lot--is that the Canadians 
are very free in saying this is American protectionism, and as 
I said to the Chairman, I went and checked the WTO website, and 
there are 101 anti-dumping and countervailing duty suits by the 
Canadian Government, and so that is maybe 101 examples of 
Canadian protectionism, and 12 of them are against the United 
States. So we are trying to work through this problem, as you 
can tell, in a serious way to get at the underlying issue. If 
we don't get it done by Thursday, I think we should still keep 
at it because I think this is an important issue to work 
towards, but tossing around terms as the Canadians do sometimes 
lightly won't get us any closer to solving it.
    Mr. Kolbe. Well, thanks for the very extensive answer to 
the first part of my question. I don't know whether or not the 
Canadians subsidize their timber or not. They of course claim 
they don't. But we have had case on this. We haven't been 
successful, am I right?
    Mr. Zoellick. Well, first off, we have just had a 
determination, a preliminary determination by the ITC and the 
Commerce Department of dumping duties, and I know everybody in 
Canada and others sort of think that those are always game, but 
I will tell you, I don't know what the numbers are. And I 
believe that people approach us in a professional way and try 
to analyze it, but, Congressman, come back to my offer. You 
know what a market is. I know what a market is. You want to 
have a market? Put it up for auction. That is what a market is. 
And so what is the problem here?
    Mr. Kolbe. Do you agree that what you are talking about 
doing is going to impose a burden on buyers in this country or 
do you think it makes no difference at all? If it doesn't then 
it obviously has no impact whatever.
    Mr. Zoellick. Well, I had asked my staff to try to check 
the futures prices for lumber and try to see whether there was, 
the prices in the upcoming months suggest much in the way of 
increase. And I think the price increase for the July boards 
are about 1 percent. They have gone up about 7 or 8 percent 
over the course of the past couple months, how much of that is 
due to extra demand and other things. But certainly, it is 
better if you have lower-priced inputs in terms of your 
product. But, you know, to be fair to our people who do things 
to, is that if a government owns the product and the government 
is selling the product not in a fair market condition, well, 
you know, that strikes me as a reasonable circumstance in which 
the United States can say, either we offer an alternative, 
which is the duties, or frankly, what I am trying to drive at 
is let's go at the underlying practices.
    And what we have been doing for the first time is to really 
look at these in an interlocking network. We have drawn on some 
stuff that we have gotten from some independent consultants. We 
have talked with the provinces. The good news is that frankly 
one of the major provinces, British Columbia, has a government 
that is now more willing to do this. The prior government was 
an NDP government, a socialist government, and they were freely 
using these policies to basically keep jobs alive in British 
Columbia to the loss of our jobs.
    Mr. Kolbe. Well, I sit on the Interior Committee and we 
always are hearing about complaints about our own timbering 
that we are giving too much of a break to companies that are 
cutting timber. Is it your view, is it the administration's 
view that we fully recover all the costs of sale on our timber 
of publicly-owned timberlands, which granted is not nearly as 
substantial as the Canadian percentage of lands, but they are 
substantial?
    Mr. Zoellick. Well, my understanding is there have actually 
been a lot of restrictions on the lumbering on our lands, and 
in fact, I just heard the President yesterday say that, 
particularly dealing with the question of forest fires, it 
wouldn't be so bad if we could sell some more of the dead wood 
off those lands. So I hope we can sell it.
    Mr. Kolbe. That is not the question though. It is about 
recovering the cost, all the roads, all the work that goes into 
making----
    Mr. Zoellick. Well, I don't know with specificity.
    Mr. Kolbe. Well, that is the argument, that we are 
subsidizing in the way that the Canadians do. We subsidize our 
timber, publicly-owned timber.
    Mr. Zoellick. So we should deal with that problem, but that 
doesn't give the Canadians a bye on their subsidies.
    Mr. Kolbe. We give them a cause for action if we do 
something that is not--that is out of whack or is not 
reciprocal.
    Mr. Zoellick. And if they want to take a legal action in 
the WTO or elsewhere against us, or an anti-dumping, 
countervailing duty suit, as I said, they don't seem to be shy 
about taking them against us.

                           TRADE DEVELOPMENT

    Mr. Kolbe. Well, let me, if I might, just turn to kind of a 
more general question. Again, coming back to the issue that I 
said that concerns me as to the direction that we are going.
    Certainly it seems to me that the promise of Doha is in 
major part that we are going to be increasing market access for 
developing countries, and that is why we call it the 
development round I think. It is certainly what we are trying 
to do. And I am just worried. Do you have any thoughts at night 
before you go to sleep about reconciling these kinds of market-
closing actions that we are doing on steel or----
    Mr. Wolf [presiding]. I can't wait to hear this answer. 
[Laughter.]
    Mr. Serrano. I hope he thinks about Cuba sometime. 
[Laughter.]
    Mr. Zoellick. I have a lot to think about before I go to 
sleep.
    Mr. Kolbe. Or I might add what Congress is doing on the 
farm bill with moving the trade liberalization forward. I mean 
is Congress and the President, are the Congress and the 
administration out of step with what I know is your very strong 
personal view about global liberalization, trade 
liberalization?
    Mr. Zoellick. Well, those are all very important questions. 
I just want to take a moment and go through a couple of them. 
On the issue of steel, as I think I mentioned in my opening 
comments, one of the things that drove me to the belief that a 
201 safeguard was entirely appropriate in this area is that 
this is a market where if you look into the history of it 
globally, has been extremely manipulated over time. And let me 
just give you one example that I found somewhat compelling. If 
you look at the Japanese steel industry, there has been five 
producers. Between 1970 and 1998 the market share of those five 
producers did not change even one percentage point in any one 
year over 28 years.
    Now you and I know markets, and that doesn't exactly strike 
me as being an open and fair market process. And so one of the 
things that I think is important is this is that the President 
didn't just emphasize safeguards. He emphasized an effort to 
try to deal with the underlying problem around the world in 
terms of both over capacity and in terms of the unfair 
practices.
    Now, as for developing countries--and I think probably 
everybody here shares this interest and for perhaps for 
different reasons and different causes--as you probably know, 
this safeguard excludes the developing countries, and we have 
got nice press releases from South Africa and others that are 
applauding us on our action. And given our common interest in 
terms of the western hemisphere, other 13 percent of Brazil and 
one product from Venezuela the western hemisphere isn't 
connected by this at all.
    Another argument that I would make in this is that we 
excluded our free trade partners. I think that is a very good 
signal to send. What it says is if countries are willing to 
negotiate a free trade agreement with us, and get at some of 
the underlying practices, then if the rules permit it, that we 
will treat you specially. So the developing countries, you 
know, are not hurt by this. And what we have also tried to 
suggest is we don't want to stop in terms of dealing with the 
underlying problems globally. But in the meantime--you have 
been in these sessions--we are not just going to let people 
jabber in diplomatic halls you know, in the meantime if we have 
got an industry that 30 percent of it is in bankruptcy and it 
is not just the integrated guys, it is the mini-mills, we have 
the same right that the other countries do to use safeguards.
    And again, I know--I am giving you this in part because you 
travel around a lot--there are 20 other safeguards in place 
around the world. How come it is fair for them but not for us 
to be able to try to use these procedures. And our friends in 
Europe who you and I deal with, you know, we have seen the 
color of their money. All of a sudden when the United States 
decides they want to put on a safeguard, and our market may be 
less open than it is in the past--although frankly, I think we 
will still import a steel because we are going to be growing--
then what do the Europeans do? They rush to put on safeguards, 
and they haven't even used any of the process that we have 
done, so I do question, as the Europeans go to put on 
safeguards, have they found injury? Have they found any of the 
things that they are claiming that we haven't found?
    So part of the problem is that the steel industry of all is 
a particularly manipulated one, and frankly, we ought to get at 
that problem and not leave our people high and dry in the 
meantime on Ag. issues, because I think on this one I share a 
concern with you, is that I do think as the Ag. bill gets 
finalized, it is absolutely vital that we try to put the 
supports in the green box so that we keep the commitment that 
we have in terms of being willing not only to eliminate export 
subsidies but reduce production support amber box.
    Mr. Kolbe. Let me interrupt. As now passed in the House or 
as looking in the Senate, would you agree that many of those 
supports are not in the green box but in the amber box?
    Mr. Zoellick. I just had a conversation with others in the 
administration about this, because obviously I am not dealing 
with the farm bill day by day. And they are encouraged that 
there is an increasing willingness in the conference to move 
these into green box programs. As you know, there is another 
trigger process that has been put into the House bill that we 
are also trying to work with in the conference to make sure 
that it works.
    But the key thing here is for America's farmers to recall 
that one out of three acres are planted for export, and that 25 
percent of gross cash receipts is from export. And so the 
United States is the key decider in this globally, frankly, 
because we know where the Europeans are, we know where the 
Japanese are, we know where the Koreans are, and if we don't 
keep sort of United States policy, both Ag. policy and trade 
policy moving towards market liberalization, it is going to 
backfire against our farmers, so maybe you can help us on that.
    Mr. Kolbe. You can be sure I will be there to try and help 
you on that.
    Mr. chairman, may I ask one more question?
    Mr. Wolf. Yes.

                       ANDEAN TRADE REFERENCE ACT

    Mr. Kolbe. In my capacity as Chairman of the Foreign 
Operations Subcommittee I have traveled down to South America, 
the Andean countries, and the plea we hear from them is, you 
know, ``We desperately need the Andean Trade Preference Act 
renewed.'' But we can see, here these countries are already too 
dependent on drugs, so losing that market access is 
tremendously important. I am going to be going down to 
Monterrey to the Development Assistance Conference, I hope 
tonight, but it looks like probably in the morning, and I 
expect what we are going to hear there from the--I hope from 
the President, I know from Secretary O'Neill, is that trade is 
the most important thing that we can do in terms of providing 
assistance to other countries.
    You have recently opened negotiations with five Central 
American countries, democracies, about a free trade agreement. 
But I understand the initial position that you put on the table 
with regard to the apparent provisions would actually reduce, 
take away market access or preference benefits. I hope that is 
not correct, but if it is----
    Mr. Zoellick. We haven't put any position on the table 
because----
    Mr. Kolbe. No discussion about textiles?
    Mr. Zoellick. Well, I don't know if people have discussed 
textiles, but just so you know where this is, when the 
President spoke about our interest in moving ahead with a free 
trade agreement with Central America, we are very conscious of 
the responsibilities about moving this forward in conjunction 
with the Congress, and so we have been trying to wait for the 
TPA process. He may have more to say about this when he is in 
El Salvador, but we hope that now that we are at the final lap 
of the TPA process, that we can launch the negotiations, but we 
haven't launched them yet. What we have had is a series of 
discussions.
    Mr. Kolbe. Well, that is what I was referring to was those 
discussions. I understand the initial--I realize it may not be 
a formal position, but was talking about actually reducing the 
textile and apparel benefits.
    Mr. Zoellick. Well, that certainly is not my concept as we 
go forward, personally. And in fact, to give you a little 
further point of where I hope this will be constructive for our 
common interest, as you know, there was a question about, under 
the Caribbean Basin Trade Initiative, about how the dyeing and 
finishing issues get done. But this is a good example of why a 
free trade agreement is important, because when you do these 
preferential agreements, frankly, what can be given can be 
taken away, where if we negotiate this, then I hope we can 
overcome those types of obstacles.
    Mr. Kolbe. Thank you very much, Mr. Zoellick.
    And, Mr. Chairman, let me just say in conclusion that I 
really hope I haven't tried to come across as being too 
hostile. You know I have to be a little bit of your conscience 
here to keep pushing back a little bit towards the free trade 
side here, and I appreciate what you have done. You have made 
enormous contributions to this country through the years, and I 
am very grateful.
    Mr. Zoellick. And I try to remember history before I go to 
bed so I can forget all this.[Laughter.]
    Mr. Kolbe. Thank you, Mr. Chairman.
    Mr. Wolf. Ms. Roybal-Allard, then Mr. Latham.
    Ms. Roybal-Allard. Thank you, Mr. Chairman.

                           TRADE WITH BRAZIL

    Mr. Ambassador, I would like to follow a little bit on some 
of what already has been discussed. You mentioned earlier that 
you had just gotten back from Brazil. I was there the end of 
last year and met with several folks from the administration, 
along with Congressman Dreier and other members of Congress 
that were there. And there was a lot of enthusiasm about the 
possibility of opening up trade and FTAA. When the House passed 
the Trade Promotion Authority Bill, which includes the removal 
of some of the agricultural products from the President's 
tariff proclamation authority, President Cardoza of Brazil said 
that any prospects for approval of FTAA were doomed.
    I know that Brazil is key to the creation of the free trade 
area of the Americas, and just recently there was also a lot of 
criticism from Brazilian officials about President Bush's 
decision to impose tariffs on steel imports.
    My question is do you think that FTAA is still currently 
achievable, and what are the challenges that you are now 
facing, and how is the United States prepared to address those 
challenges?
    Mr. Zoellick. I am very glad you asked that, Congresswoman, 
because to be frank, Brazil has politics too, and Brazil has an 
election going on this year, and I actually just saw President 
Cardoza last week, and both privately and publicly I 
complimented him because he has moved that country in a much 
more open fashion, but he has the same challenges that we do in 
keeping things open. I certainly did not sense any lessened 
commitment on his part to the free trade of the Americas. And 
indeed shortly before coming here, I saw a wire story that he 
was in Chile and he talked about the importance of the Free 
Trade Area of the Americas.
    And in fact what was actually quite striking, was that I 
also met with the Sao Paolo business community at a small 
dinner, because they are often the ones that are asserted to be 
sort of not as interested in global competition, and be focused 
more on the Mercosur, the four-country pact they have. And it 
was quite interesting. These business people didn't at all 
focus on Mercosur, because, frankly, Argentina is in 
difficulty, Uruguay and Paraguay are small, and they are 
orienting themselves towards global markets. So I believe we 
have very much an alive negotiation, and I apologize, I don't 
recall if you were here on the steel issue. Frankly, I think I 
was able to answer a number of their questions about how we 
tried to deal with them when I was down there, and I think in 
the end, the recognition was reasonably good.
    But I also don't want to underestimate the scope of this 
challenge, because there are some products where Brazil is 
extremely competitive, and we are going to have some challenges 
here in the United States.
    But separate from Brazil, you know, there will be issues of 
what is going on in Argentina and Venezuela, and that is one 
reason, going back to my opening comments, while we are trying 
to proceed globally, regionally and bilaterally, in other 
words, I think it would be a tremendous achievement to have 
this free trade among 34 democracies, but in the meantime if we 
can add Central America, we add Chile, get the Andean Trade 
Preference Act, let's start to build along the road because who 
can foresee what is going to happen in 34 countries? But it is 
certainly a very high priority of President Bush and of me to 
try to complete that.
    And one other point, Congresswoman, that is important, 
particularly related to Brazil, the deadline that we have 
agreed on last year is 2005 and that is the same deadline as 
the Doha negotiations. The reason why that is very important is 
because a lot of the Latin American countries, like Congressman 
Kolbe, are concerned about our agricultural subsidies, and we 
obviously couldn't negotiate those only in the hemisphere 
because we have to deal with Europe and Japan as well. The fact 
that the deadlines are now synchronized will help us because I 
think many of the Latin countries will feel they can deal with 
the agriculture subsidy issue in the global context and focus 
on other issues in the western hemisphere, so that is a plus.

                  TRADE WITH CENTRAL AND SOUTH AMERICA

    Ms. Roybal-Allard. The President has said that he wanted to 
negotiate a free trade agreement with the five countries of 
Central America, Costa Rica, Honduras, Guatemala, El Salvador 
and Nicaragua. And is there a timetable for that? And also you 
may have already answered it, I was wondering whether FTAA has 
any impact on the separate negotiations?
    Mr. Zoellick. Because we are still working our way through 
the Trade Promotion Authority process, and we don't yet have 
that authority, we didn't want to be stalled, so we are trying 
to proceed cautiously, and so, for example, when President Bush 
expressed his interest in a free trade agreement with those 
five countries, I wrote the Chairs and the Ranking of Finance 
and Ways and Means, to emphasize that this was something we 
wanted to discuss with them, get their inputs on and so forth. 
Under the TPA bills we are supposed to give Congress 90 days 
notice. That isn't yet law, but what we are actually trying to 
do is kind of work within the de factor framework even as 
Congress is finishing its work on these issues. So I frankly 
hope we will be in a position to formally launch the 
negotiations soon, but I want to consult closely with Congress 
as we do so.
    The responses that I have gotten, frankly, from both sides 
of the aisle have been very supportive, at least so far, 
because I think what people see is that while this is partly a 
trade issue, it is partly trying to help five democracies 
integrate and strengthen their own political reforms and 
economic reforms, particularly after the recent elections in 
Nicaragua and Honduras.
    As for timeframe, we take the time that we need to do 
these. You know, obviously, I would like to try to get this 
done over the next year or two, but that will depend on the 
nature of the problem.
    We are looking at different methods. We are partly trying 
to support these countries' integration with one another, but 
we recognize that Costa Rica has very different problems than 
Nicaragua, so one of the ideas we are looking at is perhaps a 
framework agreement that will cover all five, but then 
individual modules, if you will, to deal with the individual 
problems of each one, but that is just the sort of thing that 
we are now discussing with them.
    As for the relationship with the FTAA, we are emphasizing 
to them that this should be seen as a building block, not an 
alternative, and we want to try to use this as building 
support, but it also, frankly, goes back to one of my opening 
comments about competition liberalization. You asked about 
Brazil. Rather than getting arguments with the Brazilians of 
whether we will or whether we won't, my answer is to say we 
want to, we want to negotiate with you. We hope that you are 
there at the table, and by the way, if you are not, others will 
be.
    Ms. Roybal-Allard. One of the provisions of the Caribbean 
Basin Trade Partnership Act was to permit duty-free and quota-
free treatment to apparel assembled in one of the Caribbean 
countries with--and I am going to read this because it is a 
little complicated--``with fabric wholly formed and cut in the 
United States from U.S. made yarn, or from fabric made in the 
U.S. from U.S. made yarn, cut in a beneficiary country and sewn 
together there with U.S. made yarn.''
    During the vote on the Trade Promotion Authority, the 
Republican leadership promised that there would be no future 
trade bills on the House floor until legislative action is 
taken to assure that apparel assembled in the Caribbean and 
Central American countries for export to the U.S. is also made 
from fabric that is dyed, printed or finished in the United 
States.
    There seems to be a little bit of a contradiction here. And 
my question is, can you tell me how this pledge is in keeping 
with the Caribbean Trade Partnership?
    Mr. Zoellick. Sure. First off, if I could advertise, if we 
had a few more of your votes, we wouldn't need to do this, so 
for those of you who are interested in trade, maybe next time 
you will be with us. But when you read the quote, I think there 
is a little bit of difference at the end, Congresswoman. This 
is a preferential trade program, and so it is unilateral by 
Congress as opposed to a free trade agreement, where it is 
negotiated. And what in effect is happening here is that the 
U.S. textile and apparel industry, which has lost some 630,000 
jobs since 1994, is adjusting to an agreement made in the 
Uruguay Round which will end all quotas on textile and apparel 
that have existed for some 50 years, so all we will have left 
is tariffs.
    The good thing is what they are actually doing is they are 
developing business network relationships with the Caribbean 
and some in Central America, where for example, some of the 
production of the textile or the yarn, which were often more 
suited in terms of a capital investment in the United States, 
will be done in the United States, but some of the apparel, the 
sewing and others, will be done in these countries. So they are 
trying to prepare frankly for the competition from China.
    What this little issue deals is that under this 
preferential trade agreement, it said that if you use U.S. 
fabric--and by the way, many of these countries can use their 
own fabric, which is a key distinction, does the fabric have to 
be dyed and finished in the United States, or can it be dyed 
and finished in the local country to take advantage of the 
preference? And so again one of the things that is a little bit 
different about this is that we are offering a unilateral 
preference and so it is not out of line to say the terms of 
that preference. What we have checked on is the--tried to get a 
sense of what effect this would have. At least to the best of 
my knowledge, and I have talked about this with Mr. Rangel, 
because I know he has a very strong interest as well, is that 
there are not dying and finishing operations at present in the 
Caribbean except in the Dominican Republic, and those have 
tended to be used for their fabric, not for our fabrics. I 
don't think this would bite them.
    There has been some effect in some of the Central American 
countries and Columbia, and that was one of the reasons that I 
was saying to Mr. Kolbe the way around this problem over time 
is to do a free trade agreement, so it is reciprocal and we 
won't have any of these restrictions. As for the last part of 
this is that we accept sort of the leadership's pledge, and 
what we will have to do is work with the leadership and 
Chairman Thomas and Mr. Rangel to be able to follow through on 
it. So I think the overall effect of this will be less than 
some have surmised, but obviously, if I had had my preference 
we wouldn't have done it.
    Ms. Roybal-Allard. Now, it will take legislation to----
    Mr. Zoellick. Yes.
    Ms. Roybal-Allard. I don't know if last year you recall we 
had a little bit of a conversation about trade, and not only 
the positive aspects but the negative aspects as well. And 
during the discussion, and you said, and let me quote from the 
record, ``I think that in order to gain support for these trade 
agreements, that we should not just focus on some of the 
positive aspects. We have to keep in mind the people that are 
negatively impacted that suffer, that lose their jobs, lose 
their homes and are out on the street as a result of trade 
agreements as well.''

                       TRADE PROMOTION AUTHORITY

    Now, the Trade Promotion Authority bill is being held up in 
the Senate right now by those who oppose the inclusion of TAA, 
which as you know is designed to help displaced workers. So 
from your viewpoint, what really has been the message that is 
being sent to workers and those who lose their job? I mean you 
said you wish you had had a few more votes, and it is these 
kinds of messages and these kinds of fights that prevent you 
from getting those votes that you need on trade.
    Mr. Zoellick. I think there is a mistaken assumption here. 
It is not being held up by opposition to TAA. We support TAA. I 
just actually met with Chairman Grassley and leader Lott today 
about trying to work on expanding the TAA that came from the 
House side. What has held it up is the majority leader's 
calendar. He said that he wanted to bring this bill up earlier 
in the year, and I applauded him for doing that, and the same 
with the Andean Trade Preference Act. I talked with him a 
couple weeks ago. What he said publicly is, is that he wants to 
do energy and then the budget resolution and this, and at one 
point he said he hoped to do it before the Easter recess. That 
is obviously not going to happen. And so, frankly, we are 
urging him, and we hope you will too, to get this done as soon 
as they can in April when they come back.
    We recognize that TAA is going to be a key component of 
that, and as I said at that time and have said to the Senate 
and I am going to actually put in a call to try to talk with 
Senator Bingaman, who has been a leader on this, tomorrow. We 
want to try to see if we can overcome those differences, and 
frankly, there are a number of areas that have already been 
worked out at the staff level, so I hope this will move 
forward.
    There is going to be one tricky issue that deals with some 
effort to try to add a broader health care, a sort of COBRA 
entitlement benefit, that I think is going to be a sticker on 
this. But short of that, topics dealing with secondary workers 
and a number that I noted in my statement, I believe we can and 
should try to overcome, and I know Mr. Kennedy's had an 
interest in this too.
    Ms. Roybal-Allard. So right now you are saying that it is 
basically the calendar and then the health care provision that 
are the two things that need to be----
    Mr. Zoellick. I think, you know, I am always wary of 
stepping into a Senator's shoes as I am sure you would be too, 
is that right now it has been the calendar that I think has 
held it up. And I think as we move through this process, my own 
guess will be that it is primarily--I hope we can come to 
agreement on everything short of that, and it is our view, 
frankly, that if we can add a tremendous amount in trade 
adjustment assistance, and try to help in that point, that one 
can leave health care entitlement issues to health care bills.
    And frankly, one of my hopes was that if the bill comes 
back over here with those added provisions in it, it might also 
give some help to broaden the support here too.
    Ms. Roybal-Allard. So with the exception of the health care 
provision, there is no objection to any of the other parts of 
TAA?
    Mr. Zoellick. There are a series of issues, and I mean as 
in any bill, it is a complicated topic, and I don't want to 
presume each one. In my testimony I noted a number of the 
categories. I believe we can work out a number of these issues, 
but, for example, there is adding of secondary workers. Chief 
of Staff Andy Card had sent a letter in December saying we are 
willing to cover a lot of these, but we can't leave it a 
totally open door either. In other words, we have to figure out 
some way to rope those in. So number one, there have been some 
good staff level discussions, and I know that Chairman Baucus 
has talked with Senator Grassley. Number two, what I am saying 
is, is that we want to engage in more of those with the people 
on both sides of the aisle that want to have a good TAA bill. 
My own sense is, is that trying to push that as a vehicle to 
add a health care entitlement was going to be too far.
    Ms. Roybal-Allard. Thank you.
    Mr. Latham. I just have a couple questions. First, welcome, 
Mr. Ambassador.
    Thank you for the tremendous job that you've done. And I 
couldn't talk to you without complimenting my friend Al 
Johnson, who is a good family friend of a long, long time, and 
the work that you did on the last round, in comparison to 
Seattle, as far as agriculture is concerned, and the idea of 
keeping that in forefront rather than being the last issue to 
be settled.
    And, of course, nothing can be resolved once the bidding 
has already been done. And if you leave that issue for the end, 
it's not going to happen.
    So I compliment you very, very much.

                           AGRICULTURAL TRADE

    I was interested in your comment earlier about when we get 
resolution to the farm bill. Apparently you know something I do 
not today, because I think there are some real problems with 
that--certainly, in the Senate version, where you have a 
phasing out of the green payments, and all going to, basically, 
amber box payments, trade-distorting incentives, after 5 years.
    And so there are some huge problems, as far as I'm 
concerned, with the trade aspects. I do not know if you have 
any comment on that, if you have done a comparison or anything 
of the two bills.
    Mr. Zoellick. What I did, Congressman, and I appreciate 
your kind words. And Al is doing a fantastic job. We just, as 
you probably know, I think made some critical headway for 
soybean producers in China on this with biotech, and he is the 
person who did it, with the help of the President, intervening 
on his trip.
    Obviously, I have a strong interest in what happens on the 
ag bill process, so when I just talk to people in the 
administration, I was trying to get a sense of this, and I had 
a sense that there was a direction of that. But you are 
probably closer to it, and I hope, if you want to support the 
effort to make sure that the payments are in the green box, I 
would encourage you to do so.
    Mr. Latham. Well, the Senate bill, basically, phases out 
over 5 years all of the direct de-coupled payments, where the 
House bill maintains a level of those de-coupled payments, 
which are in the green box, and also puts tremendous incentives 
on new production, and certainly will be distorting as far as 
high target prices.

                      AGRICULTURAL TRADE WITH CUBA

    I guess I would probably have a disagreement with you and 
the administration as far as Cuba and would associate myself 
with Mr. Serrano.
    Mr. Serrano. Maybe you should stay in that chair. 
[Laughter.]
    Mr. Latham. I think so.
    But I certainly think that there are some opportunities 
there; for agricultural trade and just kind of getting our feet 
wet down in that part of the world.
    Mr. Zoellick. Just don't get your hands burnt. [Laughter.]
    Mr. Latham. No, and I appreciate your concerns. But I am 
not sure that trade there is going to be any kind of a real 
problem for us in the future.
    Mr. Kolbe was, I think touching on the subject. But I am 
curious as to your feelings as far as with the steel decision 
that was made and the effect on agricultural trade. It is 
always like pushing on a balloon; you push in one place, and it 
distants another place.
    What do you see as impact on agricultural trade?
    Mr. Zoellick. Well, first, Congressman, we have emphasized 
that when we recognize that there will be those that disagree 
with us. And what we have urged them to do is to follow the WTO 
process. And we understand that the European Union and others 
may wish to take us to dispute resolution, and that is their 
right. And if they wish to do so, then we will follow that 
process and not take any unilateral actions.

                                 STEEL

    Second, Commissioner Lamy, my counterpart in the European 
Union, while he has been quite vocal and vigorous about his 
position on steel, which is his right, has, I think, tried to 
keep this issue separate from others and recognize we have a 
disagreement on that.
    Third, I think it was a good sign that even in the 
aftermath of the steel decision, we were able to work out the 
soybean issue with China. And I think there is an underlying 
reason why others are willing to try to keep these distinct. We 
still import about $1 trillion of goods a year, and we had a 
$437 billion deficit in trade and goods. And one of the points 
that I have tried to emphasize abroad and I wrote in op-ed, and 
this I know affects the farm community, is, we are growing, 
others are not--I hope our growth recovers--particularly for 
commodity producers like steel and agriculture products, given 
the fact that the dollar remains strong. And I am not 
suggesting that there is anything wrong or off about that, but 
it is a fact of life that makes it harder in the commodity 
trade.
    So if you are China and you have an $80 billion trade 
surplus with the United States or many of the other counties, I 
do not think it is wise to start to get into a process of 
spreading this. What is a disagreement in steel should be 
handled in the context of the WTO.
    And I talked with the chairman a little bit about poultry, 
which is a very important export industry. We are pressing this 
in different quarters. And this is primarily a sanitary and 
phytosanitary issue. And all you know about agriculture, it is 
absolutely critical that people keep this within a 
scientifically based analysis. We have issues we have been 
trying to work out with Japan and others on these topics, 
because that basically will be the ruin of agriculture trade, 
if you let these SPS issues spread into other topics.
    And here we had some questions about Brazil. I was very 
pleased when I was in Brazil; the Brazilians obviously agree 
with that, too.

                     BARRIERS TO AGRICULTURAL TRADE

    Mr. Latham. I guess very briefly, the sound science 
argument as far as trade and agricultural products is huge. And 
when we talk about genetically modified soybeans or corn going 
into the European Union, beef with hormones, things like that, 
that is approved scientifically here but is used basically as a 
trade barrier in those markets. Do we see any light at the end 
of the tunnel?
    Mr. Zoellick. Well, it is interesting you mention that, 
because I met, about a week or two ago, I guess right before I 
went to South America, with the biotech caucus here. And I 
think it is a group that Cal Dooley is one of the co-chairs of.
    And I was trying to outline for them some of the thinking 
that Secretary Veneman and I and the State Department have 
about trying to make a much bigger push on the biotech issue, 
but how we need to do it in a way that is based on explaining 
the incredible possibilities for simply adding technology to 
agriculture, not only in productivity but in terms of dealing 
with questions of malnutrition, vitamins, less fertilizers, 
less pesticides. It is enormous, the possibilities.
    And, frankly, I think we need to do a better job of setting 
the context for this.
    We were talking bout the European Union. And, again, just 
like the European Union will keep our conflicts distinguished 
from one another, I will do the same. But I will say, as you 
probably know, the European Union has not been approving 
biotechnology products since 1998. And they know that they are 
in violation of the rules. And, frankly, when I talked to about 
four commissioners in December, I put them on notice that, if 
they do not change this, we will take action within the WTO, 
because it is a terrible development for agriculture around the 
world.
    Again, so you have a sense of this, I raised this with 
President Moi of Kenya and President Mbeki of South Africa, and 
they are very much in agreement with me.
    And, frankly, what I am trying to do is talk to more 
developing countries around the world, to get their voices into 
this debate, because they are the real losers from this.
    Mr. Latham. More of a statement than anything else, Mr. 
Chairman, that I will never understand Greenpeace, radical 
environmental people who are so much against biotech and 
genetically modified products, at a time when we have a 
tremendous opportunity to feed people in Third World countries. 
Advances now allow us to grow a crop in grounds where we once 
could not because with the new genetics that are available, we 
can have the very drought-tolerant plants.
    You are going to use a lot less chemicals, a lot less 
fertilizer to have the same product. And it is very friendly 
for the environment.
    But I do not know what the agenda is that makes them so 
much against what are true advances that could feed a hungry 
world in parts of the world where they cannot sustain 
themselves. That is my editorial comment.
    Mr. Wolf. Well, there is a lot of hunger in the world. A 
lot. A lot. Two-thousand-five-hundred die every day in the 
Congo, mainly from hunger. That is every day.
    Mr. Latham. Thank you, Mr. Chairman.
    Mr. Wolf. Mr. Kennedy?
    Mr. Kennedy. Thank you, Mr. Chairman. And welcome, Mr. 
Ambassador.

                                 NAFTA

    I want to hit on a local issue, really quickly, that you 
addressed in your opening remarks, and that is the NAFTA 11, 
the chapter 11 portion.
    We have a situation in Rhode Island, where a northern Rhode 
Island community is all contaminated with our water supply 
because of the seepage of MTBE into the water system. And what 
has happened is, Rhode Island is now considering legislation, 
passing a ban on MTBE, much as California is. But we understand 
the company that makes it up in Canada has sued California and 
could sue Rhode Island, and the feeling is that we would lose 
that suit, because they could argue legitimately under our free 
trade agreements that we were violating free trade by standing 
up and protecting our health and safety of our constituents in 
northern Rhode Island. So can you comment on that?
    Mr. Zoellick. Yes. Again, I do not know about the nature of 
the Rhode Island legislation, but----
    Mr. Kennedy. But if we were to ban MTBE from the State, if 
we said, ``We are not going to put it in our fuel.''
    Mr. Zoellick. Well, let me partly try to answer it this 
way, Congressman. We believe that the claim against California 
is a totally specious claim.
    Mr. Kennedy. Okay.
    Mr. Zoellick. And we believe that it will never survive.
    Mr. Kennedy. Okay.
    Mr. Zoellick. And the critical thing about this, because 
there has been a lot of, frankly, talk but sometimes not as 
much fact on this, is that this chapter 11 should not, in any 
way, undermine a government's ability to have health and safety 
regulation----
    Mr. Kennedy. Okay.
    Mr. Zoellick [continuing]. As long as it is done in a 
nondiscriminatory fashion.
    Mr. Kennedy. Okay.
    Mr. Zoellick. If it is based on sort of a reasonable 
approach and applies to Americans as well as foreigners, you 
should be free to do it.
    Mr. Kennedy. Okay.
    Mr. Zoellick. But, I do not know if you wanted to talk more 
about that issue, but let me just say this: There is no doubt 
that there has been a lot of fear and concern about this. And 
so what we have also been in the process of doing is looking at 
the guidance we got the House and Senate TPA bills, and I have 
been talking to both business groups environmental groups, and 
others, to try to see what changes we could make in investment 
provisions to try to alleviate some of the concerns.
    Here are the two sides of the story. On the other hand, if 
foreigners want to come to U.S. courts and challenge some 
action, Federal courts, they have a pretty good legal system. 
What hurts us is often our investors in other countries do not. 
So these basically arbitration provisions have been around for 
some 40 years in bilateral investment treaties, but they really 
first came to more light in a public sense about how people 
might use them in the U.S. context after NAFTA. And frankly, we 
think a lot of the fears are way overstated, but I think there 
are things we should do. And one of the things that actually we 
did last July, and we will do more in future agreements, is 
open up the process much more, in terms of openness, 
transparency, amicus briefs, so on and so forth.
    The other types of things we are looking at, take this 
Methanex case you are referring to, to see whether there could 
be an equivalent. In the U.S. system, the Federal courts, it is 
12(b)(6) or summary judgment where something gets thrown out 
earlier. And then there are other issues related to the review 
and standards.
    So, basically, what these rules are supposed to do, 
Congressman, is basically just give people the basic 
international protections against expropriation and sort of 
fair treatment. But it has raised a lot of concerns, and, 
frankly, I think we have to try to take some steps to answer 
those concerns.
    Mr. Kennedy. Well, I appreciate your answer. I think it 
does a lot to address some of the concerns that I have had and 
others have had, and I certainly look forward to hearing more 
from your office about exactly what kinds of administrative 
procedures you plan on implementing that would help address 
this cumbersome process of addressing questions of that sort.

                      TRADE ADJUSTMENT ASSISTANCE

    I would like to take you to the other question I asked last 
time, that you were good enough to identify for me in your own 
statement at the beginning, and that was, when you talk about 
trade, you often talk about dislocation locally of folks, and 
the benefits are so spread out that all the people feel is the 
pain and not the benefit. And that is why you discussed the 
importance of job training and programs that would help 
workers, if they were dislocated as a result of trade 
agreements.
    And I might say, this is not a question for you as much as 
I asked this question of Secretary Chao when she came before my 
other committee of Labor, Health and Education.
    And that was my concern, that we are right now considering 
basically trade promotion authority, and yet, at the same time, 
we see the budget for those who need assistance, Trade 
Adjustment Assistance, we see a very small increase, a $2.5 
million increase, which is very small when you consider the 
impact of this legislation on our economy and those workers who 
may be affected.
    And then, to make matters worse, we see the Administration 
cutting the funding for the Manufacturing Extension Partnership 
program, which really helps manufacturers in my area in Rhode 
Island address some of the critical needs that they have in 
bringing a product to market. And that is being cut. So they 
are going to be put on the defensive on both sides.
    And so I would just make that comment and say that while I 
know it is not within your purview, you did identify the need 
for Trade Adjustment Assistance, if we are going to have a 
good, aggressive trade policy. And I agree with you. I am just 
bemoaning the fact that your view on it and my view on it is 
not really being undertaken to the extent it needs to by the 
Administration.
    And I would just leave that for the record, because I don't 
intend for you to comment any more than you have. But if you 
would, certainly, like to add an additional comment?
    Mr. Zoellick. Congressman, all I can add is that I know 
that sometimes some of these complications come in part in that 
there have been different authorizing pieces over time. In 
fact, I think it was Senator Kennedy who had worked very hard 
on what now is the Workforce Investment Act, and maybe that is 
the one that is fundamentally in your jurisdiction.
    And the trade adjustment assistance, as you know, has a 
different history, because it came from the Finance and Ways 
and Means committees.
    Mr. Kennedy. Right.
    Mr. Zoellick. Frankly, I think a number of the sort of 
efforts that Senator Kennedy and even, I think, Senator Quayle 
did with the Job Training Partnership Act is the right 
direction to go to try to help workers however they lose their 
job.
    But in the context that I was talking with before, what we 
are trying to do is actually expand some of the things that 
came over in TAA in terms of authorizing and that could 
obviously involve other funds, too. I have talked with Chairman 
Thomas about that as well.
    So while I cannot speak to the ones in your jurisdiction, 
the ones that we are trying to do at TAA, we are trying to be 
forthcoming on.
    Mr. Kennedy. Well, I would certainly welcome any briefing 
for my office, so that I may be able to follow those areas that 
you think you might be able to help on, in terms of helping our 
workers that are dislocated as a result of free trade 
agreements.
    Mr. Zoellick. Be pleased to do that.

                               MONTERREY

    Mr. Kennedy. I also want to bring your attention to the 
subject that has been talked about frequently here, and that is 
Monterrey is certainly about to begin, and Mr. Kolbe said he is 
on his way down to Mexico. I was wondering if you could comment 
on your experience, given the fact when you first spoke about 
your seeing security issues dovetail very much with trade 
issues and economic issues at large, and how you are interested 
in not just working the trade issues in a vacuum without these 
critical security issues, which involve poverty and economic 
and political strife. Could you comment generally?
    Mr. Zoellick. As I mentioned, I am very pleased that the 
President decided to have the first substantial expansion, in 
terms of development aid, in a very long time, and I know it is 
politically tough up here for all of us, Executive or 
Congressional.
    And the way we see this is related to, whether it be trade 
or development, is how they are linked to try and help open 
these countries up, support those that are moving political 
reforms, and support those that are moving the economic 
reforms. And in some ways one basic distinction is the people 
who are supporting terrorism around the world are looking to a 
life of destruction as opposed to one of creation and 
production.
    So it is sad to say, but I think it is going to be reality. 
The war against terrorism is not going to be something that is 
a month or a year; it is going to be a long struggle.
    And I spent a lot of time traveling around the world, and I 
know how important the support of many countries has been in 
terms of intelligence and financial issues and other things. 
And the argument that I made, and I think there is a general 
sharing in the administration, is if we want the help of these 
countries, then we also have to be attentive to their needs and 
try to help them with a series of issues that are front-burner 
for them, for many of them in very impoverished circumstances 
trying to put in rule of law and support democracies.
    In addition, I was trying to make a broader point, which is 
that while I do not accept the idea that poverty leads people 
to terrorism--I think that is an insult to poor people--one 
does have to recognize that in a country like Indonesia, which 
has, I think, some 13,000 islands that are inhabited and 
another 9 or 10 or something that are uninhabited, and that you 
have a transition from an authoritarian regime to a democracy--
and President Megawati is trying to hold the country together, 
deal with potential Islamic radicalism, when we know that there 
are al Qaeda and other terrorist units that are trying to use 
that as a base of operations--that it is in our strategic 
interests to help her succeed.
    Now, there is only so much we can do. But just to give you 
a small example, Congressman, of the way I try to do this, is 
that, I might have mentioned that the President asked me to see 
President Megawati right after she took office. So I was 
talking with her about trade and security, as well as economic 
issues.
    I am going to go to Singapore in a few weeks, and we are 
doing this free trade agreement with Singapore.
    My staff came up with the idea that because the Indonesians 
belong to an information technology agreement that has zero 
tariffs, that we and Singaporeans belong to, we can actually 
sweep the information technology industry for Indonesia into 
this FTA and sort of have common rules of origin.
    And so I proposed this to both the Singaporeans and 
Indonesians, and I am going to actually try to go to some of 
the offshore islands where they might get some investment, 
because, frankly, Megawati needs a little shot in the arm. And 
if we can show that we can use trade to have a victory for her 
and maybe draw in some Singaporean investment, and it helps the 
Singaporeans, because it shows that they are not just doing a 
free trade agreement with us, but they are also trying to help 
their big neighbor to the south, it is a win-win-win venture.
    Mr. Kennedy. Right.
    Mr. Zoellick. And so we are trying to make those happen, 
wherever we can.
    But at the same time, frankly, part of my answer to Mr. 
Kolbe is that to keep the coalition here for openness, we have 
to treat people fair we can, and sometimes that means using 
safeguards and sometimes it means making sure these anti-
dumping countervailing duty rules, that we hold people to the 
same standard.
    So it is a bit of a balance here.
    Mr. Kennedy. But you generally seem to subscribe to the 
notion that a strong world economy is good for our own economy, 
and so we ought to be vested in helping to address poverty 
where and whenever possible.
    Mr. Zoellick. Yes, Congressman. There is a certain irony 
here, in that shortly after September 11th, I wrote an op-ed to 
this effect. For reasons that I think were separate from this, 
I received a little criticism from your side of the aisle. And 
the irony of it was that I was actually thinking that this was 
sort of thing that somebody would have done in the 1960s, 
including a member of your family, trying to use development as 
a relation to larger security. So I was a little surprised when 
I was criticized, but the context was perhaps understandable.
    Mr. Kennedy. Well, I will be happy to rate it and give you 
my critique. I think I might agree with you, if it is the way I 
think you are going, and that is in the wake of World War II, 
we had the Marshall Plan, and we would not have had trade with 
some of our biggest trading partners had we not invested 
heavily.
    And I agree with the Administration's increase in aid. I 
think it is a difficult time to be doing that politically for 
the Administration. But I think it is the right way to go.
    I think, however, in part, it is because the Administration 
has been subject to a lot of criticism with regards to 
Secretary O'Neill's proposal to shift loans into grants. And I 
think you can understand, having dealt with IMF and World Bank, 
because they are critical components to this international 
safety net, so to speak, that if you take money out of the 
kitty and give it all in grants, that there isn't going to be 
any left at the end of the day.
    I wonder if you could comment on that.
    Mr. Zoellick. Well, all I know is that I think that sense 
from the Treasury Department, the White House, is that it is 
financially doable. And where I think that Secretary O'Neill is 
right on point, and you see this happen, is we and others give 
these long-term loans. We don't expect them to ever get paid 
off, and so then we do a debt forgiveness bill. And isn't it 
better up front to kind of say, for countries that are very 
poor but are also making reforms, whether they be economic, 
political, environmental and others, let's be straight and give 
it to them as a grant? I mean, it has certain clarity of logic 
to it.
    Mr. Kennedy. That does, but if you talk to Jim Wolfensohn 
from the World Bank, there is also the fact that many of these 
countries, as poor as they are, 30 years later do get around to 
paying back most of their loans in some of these cases. That 
money, while it may not be all of it, given the fact that we 
have written off interest and so forth, when we first made the 
loan, is still enough to help provide another loan to a new 
country that is in desperate shape.
    Mr. Zoellick. And I think, Congressman, that is one of the 
reasons why the administration's proposal was not for all 
grants but a percentage of grants.
    But if I could follow up on one point, because I feel this 
is an important exchange, and I hope you will work with me, as 
we go forward.
    I realize that a lot of these trade issues are not so easy 
on your side of the aisle, and you have some groups that make 
it not easy. But as we work through this TPA process----
    Mr. Kennedy. Let me just, if I could? It is not easy for me 
personally. I have had the opportunity to travel to the 
maquiladora section of Mexico, and I was just appalled. I did 
not find one home that was even close to being looked upon as 
even simply being ``poor'' in this country, these were 
destitute. No indoor plumbing. No homes with roofs that didn't 
leak. I went there when it was raining. I kept thinking, well, 
I will get to the middle-class area, so to speak, whatever 
middle-class meant down there. Never got there.
    And I went to one company after the next, and, I am sorry 
to say, some of them came from Rhode Island. They set up shop 
there. These are 21st Century companies. And you have 13-, 14-
year-old girls working in these plants, really 6 days a week, 
14 hours a day. And that is not hyperbole. That is not 
hyperbole.
    And I walked in and I was thrown out of these places by 
these managers. And I heard a lot of stories about the kinds of 
working conditions that you would find intolerable. These 
workers working in abusive situations where they are, as I 
said, mostly girls. They are being abused on the job. And they 
are abused and treated like slaves for economic purposes.
    And there is no gain, it seems to me, for them. And it is 
certainly no gain for us that we have lost the jobs. And it 
does not seem to be any economic advantage to them.
    So that is my own experience. And I feel this way not only 
because of the fact that I have a lot of constituents who feel 
this way, but I have personally have been there and seen 
myself.
    And then I went down to South America to discuss trade 
promotion authority. I met with President Cardoza. I met 
President Frey, when he was president, and Menem, when he was 
president. All of them, to a person, told me that we needed to 
have solid environmental and strong labor protections in our 
bill in Washington, because, they said, if we do not pass it in 
the United States, they will never see it in their countries. 
This meant if we get rolled by our Chamber of Commerce and our 
big industrial multinational corporations, they are never going 
to have any hope of overcoming those multinational companies, 
when it comes to their small economies. In other words, they 
are as interested as we are in protecting the basic welfare and 
quality-of-life for their workers, just as we are trying to 
protect it for our workers.
    Mr. Zoellick. But if I could, because I think this is part 
of a critical debate here. When I was in South Africa, I went 
to a plant that was 90 percent women, often single mothers that 
would not have jobs except for the access to our market. And 
there have been a lot of studies done by World Bank and others.
    If you look at what happens to more open economies, and, in 
fact the World Bank showed this recently, the growth was three 
times as high, the poverty level decreased. And so the question 
is, if you start out poor, we will open this in trade and 
growth, slowly overcome this and help you overcome it, because 
one thing we know is that closing these markets off will not.
    Now on the point of labor and environmental issues, I wish 
you could have written down what they said, because that is not 
what they say to me when we are considering this in 
negotiations. But out of the TPA bill----
    Mr. Kennedy. Well, they all want it. They all want to get 
it, but they know if they are too expedient about it--because 
they know they want to get the economic--that it is going to 
mean long-term, and it is untenable long-term. They much prefer 
the floor here than the floor down here.
    Mr. Zoellick. This is what I think, frankly, the bill that 
eventually was put together out of Ways and Means gives us 
something to work with, because there are provisions that we 
can use here that, whether we are focused on some of the core 
labor rights issues or at least enforcement of people's owns 
laws and things like that--and we have done that.
    I mean, for example, in the case of Guatemala, because 
there are standards in the Caribbean Basin Act, in terms of 
worker standards, we pushed very hard when there was violence 
against workers, and it led to some labor reform issues.
    So I understand that we need to be able to try to address 
those issues. We just have to do so in a way that doesn't 
frighten the developing countries that it is going to be a new 
set of barriers.
    And, frankly, one of the interesting things that came out 
of Doha was that we did some in the environment that we 
actually created a little seed that we may be able to plant and 
use and develop in other areas.
    My only point, Congressman, was that if we get through this 
process, which I hope will, I hope that you and some of your 
colleagues that I know are sincerely interested in development 
and democracy around the world give us a chance to work with 
us, because with some of these free trade agreements, with 
South Africa and Central America and others, I think we can do 
some very good things along the lines we are talking about.
    And let us try to help make the case to you.
    Mr. Kennedy. I believe in good trade for bringing up 
everybody. When you say that we do not want to frighten them, I 
also hear, because they do not want to lose the business, too, 
that they are not going to have any stick to do what they have 
to do to bring up their own conditions.
    In other words, they are not going to have the real 
enforcement, if they don't have to have the enforcement. It is 
a real question of where you draw the line, how you see it, 
half-empty, half-full. And you make a very good point; we do 
not want to lose the opportunity to get economic growth. But at 
the same time, if you do not create an opportunity for people 
to have a law that has some protections for workers, then they 
are never going to see their opportunities improve for worker 
protection.
    That is why I have always been for having a carrot and 
stick approach, where we say, if you do not comply with basic 
worker protections, you know what, you are not going to be able 
to trade with us, because that is the only way to get the local 
Chamber of Commerce to say, ``we better start looking or at 
least posturing like we are protecting workers.'' And then 
maybe something good comes for those workers.
    Let me get to this issue of closed or open economies. We 
have the Commonwealth of the Northern Mariana Islands, which is 
the only American soil which has been permitted to set up a 
two-tier caste system for workers.

                       LABOR CONDITIONS IN SAIPAN

    And I would ask you to comment what USTR's involvement is 
on the issues concerning Saipan and what you are doing to work 
with the Department of Labor in regards to Saipan.
    You know it is exactly the kind of closed economy or system 
right now--it is American soil, and yet many people lure 
Chinese women into Saipan with the hopes that they will get to 
the United States. And then they are sent off into prostitution 
and terrible situations.
    So I am wondering what is it that we are doing to address 
this issue?
    Mr. Zoellick. Well I have to check on the, Congressman. But 
I suspect, as an American territory, that it is sort of not a 
trade issue, because I deal with other countries, not others. 
But I will check on that. I suspect that the economic 
relationships with American territories, just like it would be 
the Commonwealth of Puerto Rico, are defined by our domestic 
law as opposed to by trade negotiations.
    But I will be pleased to check.
    Mr. Kennedy. I mean, 90 percent of all private sector jobs 
in Saipan are held by foreign contractors. Indentured workers 
are paid less than U.S. minimum wage. And almost 60 percent of 
all local workers are employed by the island government with 
good pay and retirement programs, but Saipan is the only place 
where child labor and forced prostitution do run rampant.
    And it is one of these areas that we need to look at, 
because the garment industry, which we talked a great deal 
about before, is the most notorious and largest abuser of 
employees in that area. And that is where my question was 
going.
    I would like to just ask briefly on the generalized system 
of preferences, what is going to happen with that? Outside the 
context of TPA, what are we going to do?
    Mr. Zoellick. It expired last September. The House passed 
it, and it is, I believe, part of the Senate package. So we 
hope that the majority leader will take up TPA, the Andean 
trade preferences, GSP, and TAA all at once, and we are doing 
everything we can to urge him to do so. And that would include 
an extension of the GSP.

                        ANDEAN TRADE PREFERENCES

    Mr. Kennedy. Good.
    Has Andean trade worked out, in your view?
    Mr. Zoellick. It is very important. And I mentioned that I 
was just in Colombia very briefly last week. And one of the 
most moving things, Congressman, is I went there to talk to a 
conference on productivity and competitiveness that about 1,000 
businesspeople from Colombia. And your heart really goes out to 
these people, because they are living in a war zone, and these 
people are still trying to make it.
    Mr. Kennedy. Right.
    Mr. Zoellick. And I met with, for example, the flower 
growers. And in the speech I talked about how this was a $20 
million business and now it is a $500, $600 million business. 
And we traced the jobs, not only in Colombia but the jobs in 
the United States, in terms of people bringing the flowers in, 
the flower shops, so on and so forth.
    Mr. Kennedy. Right.
    Mr. Zoellick. And it is just this tremendous win-win 
venture.
    But what happened is, frankly, after the ATPA expired in 
December, those tariffs would go up. We exercised an action 
that did not collect the tariffs for some 90 days. And this is 
one of the issues we have had to discuss with Chairman Thomas, 
because he was not so pleased with this. But that runs out at 
the end of May, or the middle of May.
    And, frankly, we cannot stop the tariffs, if Congress has 
put them in effect. And so, if that, by the end of May, if the 
ATPA is not extended, these people are going to have to pay all 
the back tariffs for the flowers that they sold, plus things 
going forward, because that was as far as we thought our 
executive authority ran.
    So it is so critical for these countries, and particularly 
if you are trying to get them off narcotics production, you 
have to give the something else.

                             BIOTECHNOLOGY

    Mr. Kennedy. Right, I agree with you.
    In the area of biotech, I understood, in your recent visit 
to Africa, that you have really seen the benefits that the 
United States can give to the world community in the area of 
biotechnology. And it is a critical export market for us, and 
has a lot of positive benefits as well for other countries.
    In my State, we have over 100 firms in the biotech 
manufacturing center, accounting for over 4,000 jobs. And we 
have added many more just in the last year. So what is your 
impression of the role that U.S. biotechnology firms could play 
in African countries? And what barriers exist presently in this 
area?
    Mr. Zoellick. First, before I forget, Congressman, we need 
to make sure we know some of these companies, because I have 
been in touch with some of the big ones, the Monsanto, Du Pont, 
and Dow, and others, to try to build this coalition that I was 
talking about.
    Mr. Kennedy. Yes.
    Mr. Zoellick. But, actually, I want to try to get some of 
the smaller biotech firms as part of this, too.
    Mr. Kennedy. Our average company employs 75 people, so I 
would say it is very small.
    Mr. Zoellick. And if there is an association or something, 
because I am sure they are busy running their businesses.
    Mr. Kennedy. Definitely.
    Mr. Zoellick. I think, as I mentioned, this is a critical 
issue. It is one of the reasons I went to this site in South 
Africa, because I wanted to try to draw attention to it. And I 
met a farmer, whose name is Buthelezi, and I remember it, 
because it was that name of the chief of the Zulus.
    And this guy has about 12 hectares of land. And by bringing 
in, in his case, cotton and using this cotton variety, he was 
able to increase his production by a third. And so, for the 
first time, as opposed to having debts that he cannot pay off, 
he has the terrible problem of having money that he is not sure 
what to do.
    Mr. Kennedy. Right, right.
    Mr. Zoellick. But all throughout the region, they showed me 
corn, for example, and as the chairman was talking about, you 
have hundreds of millions of people in Sub-Saharan Africa that 
are suffering from malnutrition. And this could make a huge 
difference around the world.
    Mr. Kennedy. Absolutely.
    Mr. Zoellick. And so, frankly, here is the problem we have 
had. The Europeans have been the major obstacles to this. And I 
think the reason why, for some, it is fear. They have had a bad 
regulatory system of their own----
    Mr. Kennedy. Right.
    Mr. Zoellick [continuing]. Whether it be blood or mad cows 
or others.
    And so the NGOs in Europe have taken this and, frankly, 
they are now going around the world, including some--the 
Africans told me. And some of the member states of the European 
Union are threatening to cut off aid to these countries unless 
they take the European position on biotechnology.
    And so one of the things that I am trying to get going this 
year is to try to have a much stronger organized effort to try 
to link with some of the developing countries, link with some 
of the research institutes, link with some of the companies. 
And we have to tell the story here, because if the Europeans 
can make this a simply U.S.-European argument, then it is cast 
in one context. If we can tell European NGOs that are making 
this case and show them some of the Kenyans that I met, and 
say, look, this is our livelihood, thank you. And it depends on 
whether kids in some of our countries live or die.
    Mr. Kennedy. Right.
    Mr. Zoellick. And there are possibilities in terms of 
vitamins and nutrition.
    Frankly, what it is like doing is it taking technology, 
which we allow in services, which we allow in manufacturing, 
and say, ``We are not going to allow that in agriculture.''
    Mr. Kennedy. Right.
    Mr. Zoellick. And the cost to humankind is huge.
    Mr. Kennedy. I agree.
    Mr. Zoellick. So, frankly, what I am trying to do is get a 
more organized effort going forward on that.
    Mr. Kennedy. We faced it with the human bovine growth 
hormone, or whatever it was, up in Rhode Island, when we had 
the dairy selling. And I know that concerns locally.
    But this is a different issue, in my view. I mean, you have 
people who cannot even eat. These are folks that are just in 
need of food and we have the opportunity to produce it for 
them. And I do not think it is a question of them worried about 
the kinds of things the Europeans are.
    Mr. Zoellick. And this has been tested. I mean, of course, 
on the other side, we have an obligation to make sure that we 
have full and fair testing and so on and so forth. But what the 
Europeans, for example, are doing, Congressman, is even for the 
stuff that they approve, they want to add other regulations on 
top of it.
    Mr. Kennedy. Right.
    Mr. Zoellick. And so this is where we just have to do a 
better job.
    Mr. Kennedy. Okay, well, I commend you for your work in 
that area. I look forward to finding out whether there is not 
some way to get some of these smaller companies involved with 
that initiative.
    Thank you, Mr. Chairman.

                           HIV/AIDS IN AFRICA

    Mr. Wolf. Mr. Ambassador, we will have a lot of questions 
for the record, I guess. I know it is getting late, but let me 
go through a couple of things, and we can make some points and 
get your quick reactions, too. And I am really kind of speaking 
to you because I know you are in the Cabinet; you sit around as 
these issues come up.
    As you think in terms of Africa, we had Congressional 
Research do a study. HIV/AIDS has cut life expectancy in 
Botswana from 71 to 39; in Zimbabwe, from 70 years to 38. And a 
U.S. Census Bureau expert predicts that life expectancy 
throughout southern Africa will be 30 years old in the year 
2010.
    So what we are doing may be well-intentioned, but it is not 
working. And it may not always be more money; it may be doing 
things in a little bit different way.

                 CHINA: WTO COMPLIANCE AND HUMAN RIGHTS

    We talked about the African Growth and Opportunity.
    Can you tell us how many people are, in your shop, 
dedicated to monitoring compliance with China with the WTO?
    [The information follows:]
Response
    As I noted at the hearing, the human resources devoted to 
monitoring China's compliance with its commitments in the WTO and our 
bilateral agreements are considerable and involve people dedicated to 
the China monitoring effort and individuals that work on China as well 
as other specific issues.
    At USTR, we currently have 3 persons in the China Office and 2 
persons in the General Counsel's Office who devote most of their time 
to China WTO compliance matters. In addition, we soon should have on 
board replacements for 2 other persons in the China Office, who will 
also be devoting most of their time to China WTO compliance matters.
    Many others at USTR also participate in monitoring China compliance 
matters as the need arises. They include USTR policy and legal experts 
on issues such as intellectual property rights, services, investment, 
technical barriers to trade, customs administration, import licensing, 
rules of origin, information technology, tariffs, subsidies, 
agriculture, and sanitary and phytosanitary measures. In addition, 
USTR's representatives in Geneva participate in various WTO meetings 
and reviews addressing China's compliance efforts.
    Several other Washington agencies also devote substantial resources 
to day-to-day WTO compliance monitoring activities. They include the 
Departments of Commerce and Agriculture, both of which have more than 
half a dozen personnel in Washington who devote most of their time to 
compliance matters, as well as the Departments of State and Treasury. 
Many others at these agencies work on compliance matters on an as-
needed basis. In addition, at the Embassy and Consulates General in 
China, dozens of State Department economic officers, Foreign Commerce 
Service officers, Foreign Agriculture Service officers and Customs 
attaches work extensively on compliance matters.
    These monitoring activities are coordinated through monthly 
meetings of a Trade Policy Staff Committee (TPSC) subcommittee, which 
is chaired by USTR's China Office. Attendees at the TPSC subcommittee's 
meetings include personnel from USTR, the Departments of Commerce, 
including the Patent and Trademark Office, State, Agriculture, 
Treasury, Justice and Labor, the National Security Council, the Council 
of Economic Advisers, the Environmental Protection Agency, and the U.S. 
International Trade Commission.
Intellectual Property Rights
    Staff from several agencies work on monitoring China's 
implementation of its intellectual property rights (IPR) commitments as 
part of their portfolio. USTR has three staff members who monitor IPR 
developments in China on an ongoing basis. These individuals raise IPR 
issues with China in bilateral consultations and in the World Trade 
Organization Council on Trade-related Aspects of Intellectual Property 
Rights (TRIPs). Another five staff who monitor China IPR issues work at 
the Departments of State and Commerce, including the Patent and 
Trademark Office, the Library of Congress and the U.S. Customs Service. 
In China, two U.S. embassy staff in the Economic Section and the 
Foreign Commercial Service report on these issues, as do the consulate 
offices (5) around the country. Other USG experts may be called upon as 
necessary to address specific issues.

    Mr. Zoellick. I can try to get a more precise number, but 
it is a number of people across different offices. In other 
words, it is partly our legal office. We, as you know, are 
pretty small. It is partly our China office. But the largest 
number of people are in the Commerce Department.
    Frankly, I think the best answer to this is that we 
organized a monitoring system where every obligation that China 
has in the WTO will be assigned to one department or another, 
with an individual in charge. And there is a monthly meeting 
that reviews the progress of that across the whole government 
and then says: If they are not taking some action, what action 
should they take?
    And the reason I hesitate on numbers is that I asked the 
President to raise this when he went there, and he did. And we 
have the President, we have the NSC, we have different 
departments. Since we are so small, I am afraid it would be a 
misleading number.
    Mr. Wolf. Well, maybe across government-wide, if you can--
--
    Mr. Zoellick. Well, see, the question would be, for 
example, I devote some time to this, but it is not my full-time 
effort.
    Mr. Wolf. Of those who substantially devote most of their 
time.
    Mr. Zoellick. I will come up with a number and get it to 
you.
    Mr. Wolf. As part of the agreement on China's PNTR, your 
office was mandated to report annually on its assessment of 
China's compliance with its WTO obligations. Do you know what 
the status of that report is?
    Mr. Zoellick. If we owe you a report, I apologize, and we 
will produce it.
    Mr. Wolf. Well, it would not be to me. It would be to the 
Congress.
    Mr. Zoellick. I will check. I thought we sent something up 
at the time we did the PNTR. We will check.
    Mr. Wolf. Forced labor problems in China; you read the Wall 
Street Journal piece about a week or two ago, left-hand column?
    Mr. Zoellick. I might have been traveling.
    But on human rights in China, Chairman, I think we probably 
have a strong agreement on this. The conditions are not 
satisfactory, by any means. And it is one of the reasons why I 
was pleased that the State Department report that came out on 
this was very direct and honest about the problems. And I was 
pleased that when the President was on TV in China, that he 
mentioned these issues, including religious freedom.
    And so this is where I agree with the point you made when 
we began this hearing, is that we need and should speak about 
these issues. And in fact, I didn't get a chance to comment on 
it, but I agree very much with the experience that you 
obviously had with the former Soviet Union. I met some of these 
people, too, that--we often do not know how much it matters to 
be able to raise a name or to push an issue. And history will 
be on our side, and, certainly, we should be proud to do it, 
not afraid to do it.
    Mr. Wolf. There is a new book out. I forget the name, and I 
have not read it. I had a China expert by my office the other 
day. It basically talks about the coming economic collapse of 
China.
    You have been reading about the demonstrations at the 
different factories?
    Any comments?
    Mr. Zoellick. Well, this partly goes to the WTO issue, 
Chairman, in that they have taken--the story is mixed, as you 
would expect.
    They have taken some good steps. There are some good things 
that they have not done. It is such a huge economy. This is 
clearly part of a strategy for their transformation.
    And part of what we have tried to do is work not only 
bilaterally but get other countries to help with us, draw on 
the business community, which I gave a speech in January, where 
I said to the business community, you shouldn't only be 
bringing in goods, you should be bringing in American values as 
they try to promote these issues. And, frankly, when I have 
been in China, I have tried to meet with the Chambers of 
Commerce so we can help identify some of the problems as we go 
along.
    My own guess is that China has huge, huge economic 
problems, certainly in the banking system, certainly some of 
the state-owned enterprises.
    I do think overall, though, it has been a path where I 
would not believe all the numbers they have in term of the 
growth rates. But simply, having gone there at various times, 
from 1980 to last year, they are making progress. And so I do 
not foresee any imminent collapse, but I think on any situation 
like this, you are going to have ups and downs, and cannot help 
it.
    Mr. Wolf. Of course, we did not see the collapse of the 
Soviet Union in 1984.
    Mr. Zoellick. Yes, but at least I personally think, having 
worked with both these issues, is the Soviet Union was a closed 
economy, and it was a command economy. And they are moving to a 
market economy, and that is why----
    Mr. Wolf. Well, they are, but there was the article in the 
paper the other day about this Chinese--he had been a tank 
commander, and he is now worth millions. Come the revolution, 
he is not going to be there. I mean, the disparity between, and 
the people are leaving the villages and coming into the cities.
    I mean, they are going to fundamentally have a problem. And 
they are cracking down on religion. They are cracking down on 
many other things.
    They have almost found Ceaucescu's play book, and they are 
beginning to follow it. And what happened to Ceaucescu? He 
collapsed.
    And you cannot have that much of a disparity, and the 
average man on the street to see that. There are a lot of very 
wealthy people in the discos and driving the big cars, but 
there are a lot of very, very poor, poor, poor people.

                    INTELLECTUAL PROPERTY PROTECTION

    With regard to China, it is estimated that intellectual 
property rights piracy in China cost U.S. firms $1.5 billion in 
lost sales in 2001. Vietnam had the highest rate of pirated 
software at 97 percent, followed by China at 94, the so-called 
one-copy countries.
    How many intellectual property experts do you have working 
on this problem?
    Mr. Zoellick. I have to get you the precise numbers. But 
our intellectual property team is part of a larger team dealing 
with investment and services, and they often will work with our 
legal team as well, depending on the nature of the issues.
    But you are certainly talking about a number under 10.
    Mr. Wolf. Ten. You do view this as a serious problem, 
though?
    Mr. Zoellick. Yes. It is important to us economically, 
particularly given the knowledge-based economy. We have made 
some progress with China.
    Mr. Wolf. Windows 95 was available on the streets of 
Beijing before it was available here.
    Mr. Zoellick. Well, what we have been able to do with them 
is that--there are different steps. One is to try to make sure 
that they have the laws in place. And then you have to try to 
make sure that there is enforcement of these laws.
    And this is one where, frankly, one cannot just blame it on 
China. When I was in Brazil, I pointed out to them, there are 
about a billion dollars a year lost in intellectual property in 
Brazil.
    And this is, frankly, one of the other areas, when I 
referred to capacity-building assistance, with some countries 
we can actually relate our aid to helping them develop the 
abilities to go after some of these people. I talked with the 
Philippines minister about this.
    So I think it is a huge issue, and it is a priority for us.
    Mr. Wolf. We are having a hearing on April 23rd. Hopefully 
you can have someone----
    Mr. Zoellick. I think we agreed to have someone.

                           PHYSICAL SECURITY

    Mr. Wolf. The security concerns after September 11th, you 
are moving your Geneva office from the Botanic Building to the 
Mission Building. What were the security costs you incurred, 
and what did that cost you, and were there unexpected costs 
that you had that you did not think you were going to have?
    Mr. Zoellick. Again, first, I want to very much thank you 
and your staff on this, because--careful that I not talk about 
this too much publicly. We did not even have one security 
expert at USTR until you helped us get one. We have now a very 
first-rate person.
    And, frankly, in the aftermath of September 11th, we have 
done some things even with windows and wireless PA systems that 
are very important in terms of what we try to do, and it is 
because of your help.
    In terms of the Botanic Building, the relocation costs were 
$330,000. And that amounted to, basically, roughly, I think, 
$130,000 in terms of the actual cost, and we had to break a 
lease. And we would not have done this, except for the fact 
that we had a very serious intelligence threat, and that 
building is very vulnerable.
    In addition, we have asked OMB for not only the payment for 
that, but for $500,000 for reconfiguration of space, because we 
have about 27 people in Geneva. They are not all ours. About 
eight or nine of them are from USDA and others, but they work 
with us. And they now have about 50 percent less of the space.
    So on a technical sense, Chairman, we have a request in to 
OMB for $300,000 for the special security related to Doha. We 
had another $330,000 related to the Geneva office.
    Mr. Wolf. Is that going to be supplemental?
    Mr. Zoellick. Pardon?
    Mr. Wolf. Is that going to be in the supplemental?
    Mr. Zoellick. We have not heard back from OMB yet. I sent 
these over to OMB. They did help us with some of the immediate 
ones, in the aftermath of September 11th, but I have not heard 
from this one.
    We received, in the first round, I think it was about 
$537,000, but I do not have a response on this one yet.

                           CONFLICT DIAMONDS

    Mr. Wolf. Because you have a small budget. And look at what 
took place in Pakistan Sunday at the church, so you never can 
tell.
    Let me just submit the other questions for the record, 
except for the last issue, on how the WTO fits in.
    And I appreciate your help on the diamond issue. And I 
would hope that you could help us a little bit more, 
particularly over in the Senate, the Senate side.
    The issue of March for National Geographic is diamonds. And 
the beginning of the article, and I will just read it, just to 
sensitize you, so when this comes up: ``Africa. On a continent 
ravaged by civil strife, conflict diamonds have financed the 
desperate efforts of rebel warlords. The price paid by 
terrorized Africans has shocked the world and tarnished the 
luster of an industry.''
    Quite frankly, the diamond industry is going to just to 
south, if there is not a bill passed by the end of this year. 
They have spent so much money convincing people that diamonds 
are best friends, and all these phrases. If they miss this 
opportunity--and I think the administration ought to really 
make sure, because Congressman Hall, who has taken the 
leadership over here, has been appointed by the administration 
to be our ambassador in Rome. And I worry, with Tony leaving--
so it really has to pass the Senate.
    But it says it has tarnished the luster of an industry.
    They have people from Sierra Leone with their arms and legs 
cut off, ``These children at a shelter in Freetown, Sierra 
Leone, put a face on the inhuman suffering caused by conflict 
or blood diamonds. They have lost arms or legs, victims of the 
Revolutionary United Front, a vicious rebel army that 
terrorized civilians into submission by systematically hacking 
off limbs. Rebel control of rich diamond fields financed the 
civil war in Sierra Leone with sales to an unquestioning 
international market. Thanks to photographs such as these, 
conflict diamonds became a global scandal, threatening the 
romantic image nurtured by the diamond industry. `Perhaps what 
is happening in Sierra Leone is our problem,' announced one 
horrified industry insider after visiting a camp for 
amputees.''
    ``Perhaps it is our business. The business of mining here 
is brutal even without rebel atrocities. Clenching an air-hose 
in his teeth, one miner prepares to dive to the bottom of a 
muddy pond to gather gravel''--and then it ends by saying--
``for years such laborers have been little more than slaves.''
    It is modern day slavery. And so you are very, very 
persuasive, and you have a seat at the table. And there was 
some reluctance on the part of the administration at one time. 
And as you know, we had a little bit of conflict up here. I 
think it is important for the White House Congressional 
Relations Office to push this.
    Also, you have the situation in the Congo. You have Rwanda 
in the Congo. And you have Burundi and you have Uganda. They 
are there for diamonds, and they are for coal time; that is 
what they are there for.
    That is why they are dying. And so this administration, 
when it goes to Monterey and talks about the increases, has to 
bring this ball across the line to get it passed because we 
adjourn and then we come back, Mr. Hall is not here, we find 
another bipartisan effort, and pretty soon we are back into 
falling into the next year.
    So I would hope that you could help us to try to get the 
White House Congressional Relations Office to meet with the 
Senators to bring this thing----
    Mr. Zoellick. Yes, Chairman, again, let me start by 
complimenting your leadership and that of Mr. Hall----
    Mr. Wolf. Actually, Mr. Hall got me involved.
    Mr. Zoellick. Nevertheless, by the time it got to me, the 
two of you, I think, were seen as leaders on this and pushed 
it.
    I am little worried because after working with you on this, 
I have tried to follow it all throughout the process, and I 
know there are some proposals on the Senate side that I think, 
again, are going to re-raise a lot of the issues that you 
worked through, frankly. And as we discussed at the time, there 
are different things you are trying to balance here, but our 
goal was to have something that was effective, that did not 
hurt the African states like Botswana, and to keep our 
international obligations. And I think you came up with a good 
product. And I hope we could get done.
    So I will go back and check, but it may be something we can 
work on together. If the Senate keeps getting stuck, trying to 
reinvent the wheel, we could say there is a wheel, let's get it 
rolling.
    Mr. Wolf. That would be ideal. And the Congressional 
Relations Office talks to the leadership over on the Senate 
side. Maybe the bill could be better, but this was the bill 
that passed the House overwhelmingly, and I know it would be 
signed.
    Let me just submit the rest of the questions for the 
record. I appreciate your patience. I appreciate your 
testimony. You are a very effective witness.

                              AFGHANISTAN

    And I do hope, as somebody who is very supportive of the 
administration, and very grateful that the President is where 
he is, particularly at this time, I hope, as you get these 
opportunities on some of these issue you can be--also, I think 
you are going to have to focus very aggressively on trade with 
regard to Afghanistan.
    Afghanistan has no economy. Their largest export has been 
now the poppy. They need someone to come in to help them to 
develop some mechanism. I do not know what. They were into 
rugs, and they were into other things.
    Mr. Zoellick. Chairman, just so you know on that, one of 
the reasons I sent you the letter with the very modest 
reorganization is that I was recognizing some of the same 
things, that I wanted to break out sort of South and Central 
Asia and really to focus on India, Pakistan and Afghanistan. 
And it is really only a question of really two people, but I 
wanted to get an AUSTR, Assistant USTR-level person, focusing 
on that for that reason, which is that I do not know the answer 
for Afghanistan either, but I want to try to get someone on it.
    So you and I are thinking on the same track on trying to do 
that.
    And let me just, again, make this point, that, as you can 
see, whether you or your staff or your other colleagues raise 
issues, we do our best.
    Mr. Wolf. I know.
    Mr. Zoellick. And sometimes we can carry the day, but, 
frankly, I found it very beneficial, and you brought a number 
of things to our attention that are good to bring. Within the 
limited hours of the day or the week or the month, if we can 
carry something forward, I am pleased to do so. That is what we 
are here for.

                   REPATRIATION OF CRIMINAL OFFENDERS

    Mr. Wolf. Good. And, again, to end on that, if you can take 
a look at the list on the prisoners?
    Mr. Zoellick. Yes, got it right here.
    Mr. Wolf. My sense is about five of those countries could 
be solved relatively easily. The other five would be, 
obviously, more difficult.
    Mr. Zoellick. Mr. Chairman, just one more thought on this. 
It would be useful if we could either get from you or your 
staff also what you were talking about doing more 
legislatively.
    Mr. Wolf. We have the section.
    Mr. Zoellick. I guess what I am saying is, so then, when I 
talk to people, I can say, if you do not move on this, these 
are the things you are going to face.
    Mr. Wolf. I voted against MFN for Vietnam. I have not 
agreed with Mr. Serrano, because I agree with the 
administration on Cuba. I did not agree on China.
    What I was looking to do was to find a vehicle, and the 
vehicle was obviously this bill. I happened to be given this 
opportunity to be the chairman of this committee and offering 
it to this bill or maybe going down on the floor and offering 
it.
    Obviously, Vietnam has a hole to dig itself out of. When we 
were soldiers; Go look at the movie. Go look at the atrocities.
    So there is a rebuttable presumption that we ought not be 
doing too much to help them. I mean, you could argue that there 
are still MIAs. The flag still, as you go from the House to the 
Senate, is in the Rotunda there. There are unaccounted prisoner 
of war people.
    So we plan on pushing the issue, and I would probably pick 
one or two countries. My sense is Somalia is very concerned 
about what the United States is doing. I think you could 
obviously get Somalia to take those 51 or 48 back, my sense is, 
if you were to speak economically.
    So what we would do is we would pick one or two that we 
think we would have the best chance of carrying both on the 
floor and carrying in the conference.
    Mr. Zoellick. What I am saying, Chairman, even without 
going to the question of administration clearances, what you 
are planning to do, let me know, which countries, so that when 
I talk to these countries, I can say, look, not only should you 
be doing this, but here is the risk you face if you do not.
    Mr. Wolf. Well, we plan on asking Mr. Ashcroft to exercise 
his prerogatives, and the precedent has been set with Guyana. I 
do not know how many they took back, but they did take back.
    And I do not think it hurts them. It doesn't really. It is 
not a sanction. It is just saying you should take these people 
who are citizens of your country.
    You remember the Muriel boat people. Some of them were 
very, very violent--this type of activity. And under a recent 
court ruling, many of these people are now going to be released 
out on the streets. And wherever they are released from, you 
will almost be able to track; the crime wave will go up in 
those areas.
    Because of that, I think Vietnam ought to take them back.
    So if you can do that, and we can work together.
    Again, thank you very much, and the hearing is adjourned.
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                           W I T N E S S E S

                              ----------                              
                                                                   Page
Adelman, Dr. Martin..............................................   502
Burcky, Claude...................................................   353
Chertoff, Michael................................................   353
Creighton, F. M..................................................   450
Evans, Hon. D. L.................................................     1
Holleyman, Robert, II............................................   512
LaMagna, Rich....................................................   512
Lautenbacher, Vice Adm. C. C., Jr................................   247
McNulty, P. J....................................................   353
Payne, Jeffrey...................................................   512
Perlmuter, Shira.................................................   450
Retzlaff, Barbara................................................     1
Rogan, J. E......................................................   353
Rosen, Hilary....................................................   483
Valenti, Jack....................................................   450
Wayne, E. A......................................................   353
Zoellick, Ambassador R. B........................................   163


                               I N D E X

                              ----------                              

                         Secretary of Commerce

                                                                   Page
2010 Decennial Census............................................ 78-79
African Trade Expansion..........................................    77
American Community Survey........................................ 28-29
Assistance to Afghanistan........................................ 83-84
ATP Program...................................................... 94-95
Attachment A: R-NRFU and POP 99s by LCO type....................122-132
Attachment B:...................................................133-139
Attachment C:...................................................140-142
Attachment D:...................................................143-145
Biography of Secretary Evans.....................................    13
BXA:
    Attaches..................................................... 76-77
    Export Enforcement activities................................    70
    Homeland Security Initiative................................. 69-70
    Reports...................................................... 71-75
Census Bureau.................................................... 26-28
Census Bureau Facilities.........................................    23
Chinese Front Companies in U.S................................... 77-78
Domestic Steel Industry.......................................... 29-30
Domestic Steel Industry.......................................... 31-32
Economic Information and Framework...............................   7-9
Emergency Steel Loan Program..................................... 91-93
Energy Security Program.......................................... 67-69
Hispanic Classifications on Census Forms......................... 88-90
Homeland Security................................................   5-7
International Trade Expansion.................................... 80-81
James River Ghost Ships.......................................... 95-96
Level Playing Field in International Trade....................... 43-44
Manufacturing Extension Partnership Program...................... 42-43
MEP Program......................................................    45
MEP Program...................................................... 93-94
Minority Business Development Agency............................. 66-67
National Sea Grant College Program...............................    42
National Sea Grant Program....................................... 84-85
National Sea Grant Program.......................................    91
NOAA Vessel Modernization........................................ 85-87
Observing and Managing the Nations Oceanic & Atmospheric 
  Environment.................................................... 10-12
Overview by Secretary Evans......................................   2-4
Providing Infrastructure for Technological Innovation............  9-10
PTO Incentives:
    Recruitment..................................................    17
    Retention....................................................    17
    Special Pay.................................................. 16-17
    Telecommuting................................................ 17-18
    Retention Rates..............................................    15
Questions:
    Congressman Bud Cramer Questions.............................   161
    Congressman Dan Miller Questions............................107-121
    Congressman Dan Miller Questions............................158-160
    Congressman Jose Serrano Questions...........................97-106
    Congressman Wolf Questions...................................    82
    Congresswoman Lucille Roybal-Allard Questions................ 46-53
Status of Fisheries.............................................. 79-80
Studies:
    Census--Potential Life Cycle Savings for the 2010 Census....146-157
    Delivering Measurable Returns to Clients..................... 54-65
    Jobs at Risk................................................. 33-41
    NIST--World Trade Center..................................... 87-88
Technology Opportunity Program................................... 20-23
Technology Opportunity Program................................... 24-26
Technology Symposium............................................. 14-15
Teleworking of Commerce..........................................    80
TOP Program...................................................... 44-45
Trade Increase in Russia......................................... 23-24
Ultra Wide Band.................................................. 30-31

                   United States Trade Representative

Chairman Wolf's Opening Remarks..................................   163
Opening Remarks of U.S. Trade Representative Robert Zoelick......   163
Statement of U.S. Trade Representative Robert Zoelick............   170
Liberian Ship Registry...........................................   186
Steel..........................................................186, 218
China: Trade and Human Rights....................................   187
Trade with Africa and the Middle East............................   187
Poultry Industry.................................................   188
Trade with China and Cuba........................................   189
Sugar..........................................................193, 195
Methylbromide....................................................   194
Steel Industry...................................................   195
Trade with Russia................................................   196
Repatriation of Criminal Offenders...............................   198
Canadian Lumber..................................................   199
Steel Trade......................................................   201
Softwood Lumber..................................................   205
Trade Development................................................   209
Andean Trade Reference Act.......................................   211
Trade with Brazil................................................   212
Trade Promotion Authority........................................   216
Agricultural Trade...............................................   217
Agricultural Trade with Cuba.....................................   218
Barriers to Agricultural Trade...................................   219
NAFTA............................................................   220
Trade Adjustment Assistance......................................   221
Monterrey........................................................   223
Labor Conditions in Saipan.......................................   227
Andean Trade Preferences.........................................   228
Biotechnology....................................................   228
HIV/Aids in Africa...............................................   230
China: WTO Compliance and Human Rights...........................   230
Intellectual Property Protection.................................   233
Physical Security................................................   234
Conflict Diamonds................................................   234
Afghanistan......................................................   236
Questions for the Record.........................................   239

            NATIONAL OCEANIC AND ATMOSPHERIC ADMINISTRATION

Afghanistan Drought Projection...................................   318
Biography of Vice Admiral Lautenbacher...........................   282
Buoyant Lines...................................................311-313
California Applications Program (RISA)..........................302-303
Cap on Caostal Management Program................................   304
Clarifying Statement: Sterling WFO..............................320-321
Climate Change Initiative.......................................283-286
Climate Change Research Initiative...............................   302
Energy Security Program.........................................304-307
FTE Chart by Organization and Appropriation......................   340
Ghost Ships on the James River..................................334-339
Global Weather Projections......................................314-317
Merge of NW and SW NMFS Regions.................................307-308
MSI Program Expansion...........................................288-290
National Sea Grant College Program...............................   332
National Sea Grant Program......................................297-298
Nautical Charting/Homeland Security.............................296-297
NOAA Domestic/International Activities..........................323-327
NOAA FTE Management..............................................   339
NOAA Repair Backlog.............................................321-322
NOAA Survey Backlog.............................................290-294
NOAA Telework Program...........................................327-330
Nonpoint Source Polution........................................313-314
Ocean Productivity..............................................322-323
Opening Statement by Vice Admiral Lautenbacher..................247-249
Outreach Programs for Students..................................287-288
Questions Submitted by Representative Bud Cramer................349-352
Questions Submitted by Representative Dan Miller................342-348
Questions Submitted by Representative David Obey.................   341
Set Aside vs. Open Competition (Time Charter)....................   295
Site Visits for Students........................................319-320
Status of Blue Crab.............................................330-332
Sustainable Fishery Survey......................................310-311
Terrorism Vulnerabilities.......................................332-334
US Weather Forecasting..........................................308-310
Written Statement of Vice Admiral Lautenbacher..................250-281

                Intellectual Property Protection Hearing

                                PANEL I

           Intellectual Property: A Cornerstone of Capitalism

Chairman Wolf's Opening Remarks..................................   353
Statement of the Hon. James E. Rogan.............................   360
Opening Remarks of Assistant Secretary of State E. Anthony Wayne.   365
    Recent Trends in Intellectual Property Protection............   365
    State Department's Role in IP Policy and Enforcement.........   366
    Internal State Department Preparation........................   366
    Cooperative Activities.......................................   366
    Training, Technical Assistance, and Public Diplomacy.........   367
    Outreach Efforts.............................................   367
Statement of Assistant Secretary of State E. Anthony Wayne.......   369
Statement of Deputy Assistant U.S. Trade Representative P. Claude 
  Burcky.........................................................   382
Opening Remarks of Michael Chertoff, Assistant Attorney General..   396
    Increased Enforcement........................................   396
    International Enforcement....................................   397
    Outreach and Public Education................................   397
Opening Statement of Paul McNulty, United States Attorney........   398
Statement of Paul McNulty, United States Attorney................   402
Questions for the Record.......................................424, 445

                                PANEL II

                     Protecting Content and Patents

Opening Remarks of Jack Valenti, President/CEO Motion Picture 
  Association....................................................   451
Statement of Jack Valenti........................................   455
Opening Remarks of Shira Perlmutter, Vice President, IP Policy, 
  AOL/Timer Warner...............................................   471
Statement of Shira Perlmutter....................................   475
Opening Remarks of Frank Creighton, Executive Vice President, 
  Recording Industry Association of America......................   480
Statement of Hilary Rosen........................................   483
Political Will.................................................491, 495
International Concerns...........................................   492
Organized Crime..................................................   494

                               PANEL III

            Intellectual Property: A Historical Perspective

Opening Remarks of Professor Martin Adelman, George Washington 
  University.....................................................   502
    Federal Trade Commission.....................................   503
Statement of Professor Martin Adelman............................   505

                                PANEL IV

                           Securing Software

Opening Remarks of Robert Holleyman II, President, Business 
  Software Alliance..............................................   512
Statement of Robert Holleyman....................................   515
Opening Remarks of Rich LaMagna, Microsoft Corporation...........   522
Statement of Rich LaMagna........................................   524
Opening Remarks of Jeff Payne, President and CEO of Cigital, Inc.   532
Statement of Jeff Payne..........................................   534
Questions for the Record.........................................   539

                                
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