[Senate Hearing 108-]
[From the U.S. Government Publishing Office]



 
DEPARTMENTS OF COMMERCE, JUSTICE, AND STATE, THE JUDICIARY, AND RELATED 
              AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2004

                              ----------                              


                        THURSDAY, MARCH 20, 2003

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10 a.m., in room S-146A, the 
Capitol, Hon. Judd Gregg (chairman) presiding.
    Present: Senators Gregg, Stevens, Hollings, and Kohl.

                         DEPARTMENT OF COMMERCE

                        Office of the Secretary

STATEMENT OF HON. DONALD L. EVANS, SECRETARY OF 
            COMMERCE
    Senator Gregg. Let me formally welcome you, Mr. Secretary. 
We appreciate your coming by to tell us what is happening at 
the Commerce Department. The floor is yours.
    Did you have a statement or anything?
    Senator Hollings. No, thank you.
    Secretary Evans. Thank you, Mr. Chairman. If you do not 
mind, Mr. Chairman, for the record let me go ahead and read a 
brief edition of what I would like to submit to the record in 
my written remarks.
    Mr. Chairman, Mr. Hollings, members of the committee, I am 
pleased to be here again to present the President's fiscal year 
2004 budget request for the Department of Commerce. With your 
permission, I would like to briefly highlight some of the key 
components of our budget and submit my written testimony for 
the record.
    A vibrant private sector is essential to American jobs and 
security. One hundred years ago, Congress created the 
Department of Commerce to promote American industry and 
business and economic opportunity for our citizens. This is the 
nexus of our diverse programs in trade, technology, 
entrepreneurship, and environmental stewardship.
    In developing the budget request, I have carefully followed 
the President's directive to focus on four priorities. As you 
know, making a budget entails difficult decisions and resources 
are limited. Choices have to be made. Clearly, these troubled 
times of war and attacks on our way of life demand responsible, 
targeted spending. The President's total budget request for the 
Department of Commerce is $5.4 billion. This budget provides 
for the continued funding of key Commerce programs, while 
focusing resources on four critical priorities: fostering 
economic growth, contributing to homeland security, advancing 
science and technology, and upgrading facilities.
    To generate jobs and economic growth, government and 
business decisionmakers need the best possible economic 
information. An additional $5.4 million is requested for the 
Bureau of Economic Analysis. These funds are required to 
improve the quality and timeliness of GDP and economic accounts 
data. As you know, two-thirds of the revisions in the last 
three GDP annual releases were due to lack of information.
    For the Census Bureau, which monitors the Nation's social 
and economic development, we are asking $9.3 million in 
increased spending. The money is for improved data collection 
and methods for measurement of the important services sector 
and continued planning for the 2010 census.
    The President and I are very concerned about the economic 
security of America's workers. A proposed increase of $13.8 
million for economic development administration will assist 
communities severely impacted by plant closures and layoffs.
    To meet homeland security needs, the President is 
requesting an additional $2.3 million for the Bureau of 
Industry and Security. The funds will be used to strengthen 
export controls on the dual use of goods and technologies that 
would strengthen the military capabilities of our adversaries.
    The NOAA budget request includes $5.5 million to expand 
NOAA weather radio to a truly national all-hazards warning 
network. The funding will allow first responders and emergency 
managers direct access to the network to transmit all hazard 
messages, and to further strengthen homeland security, we are 
requesting $10.3 million for NIST. As you know, NIST is 
investigating the collapse of the World Trade Center buildings. 
Using lessons learned, we want to help develop new standards 
for cost-effective safety and security of buildings. 
Additionally, the funds will be used to test performance 
standards for biometric systems used to identify visitors to 
our country and to test radiation standards.
    To support technology innovation and provide for 
intellectual property protection, the Department is working to 
eliminate the practice of using USPTO revenues for unrelated 
Federal programs. Making more fees available sooner will enable 
the agency to increase the quality of patents and trademarks 
issued. Because America's leadership in science and technology 
has a direct impact on our economic and homeland security, we 
also are requesting $9.2 million for NIST research in such 
emerging areas as nanotechnology, quantum computing, and health 
care quality assurance.
    We also include a $16.9 million increase for NOAA to study 
areas of scientific uncertainty in climate change, and an 
additional $29.8 million increase to modernize fishery 
management to better protect this $50 billion industry.
    Mr. Chairman, the scientists, engineers, and support staff 
in our Commerce laboratories are world-class. Unfortunately, in 
some cases, the facilities they occupy are not. For example, 
the NIST facilities in Boulder, Colorado were built in the 
1950s under the Eisenhower administration. I have seen them. 
They lack adequate temperature controls. They suffer power 
outages and spikes. All of this adversely affects our vital 
research. The fiscal year 2004 budget request includes funding 
to renovate the NIST Boulder facilities and to bolster safety 
and security in NOAA's facilities and throughout the 
Department.
    One last comment. As I said earlier, these are troubled, 
threatening times for our Nation, and we have had to make some 
tough choices affecting some very good programs. To enable us 
to focus on new economic and homeland security needs, this 
budget phases out funding for the Advanced Technology Program 
and the Technology Opportunities Program. It includes funding 
only for those manufacturing extension partnership centers in 
operation for less than 7 years, as the original law specifies, 
and it suspends funding for the public telecommunications 
facilities planning and construction.
    I know that there will not be universal agreement about 
these choices. There are members of this committee and other 
Members of Congress who will have different views on priorities 
and on funding. Let me say here, I sincerely respect those 
views and those judgments, and I look forward to working with 
you and working through the budget process with you on the many 
issues affecting this Department.
    Mr. Chairman, we appreciate the support of the committee 
and the support of the committee members that provided for the 
Commerce programs and initiatives in the past. This budget is 
focused on helping our Nation meet the challenges it faces in 
these difficult times.

                           PREPARED STATEMENT

    I welcome your comments, and will be pleased to answer any 
questions you may have. Thank you, Mr. Chairman.
    [The statement follows:]

                 Prepared Statement of Donald L. Evans

    Thank you for the opportunity to appear before you to present the 
Department of Commerce's fiscal year 2004 budget request. Our focus is 
on funding the core mission of the Department and its bureaus. As you 
know, the Administration faces great challenges in its commitment to 
fight and win the war on terrorism, while at the same time harnessing 
the resources of the Federal government to protect the lives and safety 
of all Americans. I hope to fully utilize the resources of the 
Department of Commerce not only to provide for the physical security of 
the Nation, but also to work with other agencies and the private sector 
to promote economic security.
    The Commerce Department's budget request of $5.4 billion supports 
the President's budget plan to focus resources to strengthen our core 
Commerce activities. In particular, our request supports the 
Administration's economic revitalization and homeland security 
priorities and continues our commitment to fund important work of the 
Department to provide infrastructure for technological innovation and 
to observe and manage the Nation's oceanic and atmospheric environment. 
To complement the digital convergence in the private sector, we will be 
proposing legislation to modernize the technology and telecommunication 
entities of the Department.
    The Commerce Department undertakes a wide range of activities 
designed to stimulate growth of the nation's economy. Commerce gathers 
and develops economic and demographic data for business and government 
decision-making; helps American firms and consumers benefit from open 
and fair international trade; issues patents and trademarks that 
support innovation; helps set industrial standards and performs 
cutting-edge scientific research; forecasts the weather to improve 
public safety; and promotes sustainable stewardship of the oceans, 
including ocean fisheries.
    This diversity of activities is reflected in Commerce's five 
strategic goals:
  --Foster the Nation's economic growth.
  --Secure our homeland and enhance public safety.
  --Upgrade the Department's facilities, infrastructure, and safety.
  --Improve and streamline the Nation's fishery management system to 
        better meet commercial, recreational, and conservation 
        objectives.
  --Implement the Administration's Climate Change Research Initiative 
        to reduce present uncertainties in climate science, and support 
        policy and management decisions to benefit public safety and 
        quality of life.
    To enhance these activities, resources will be shifted from various 
lower priority programs.

                            ECONOMIC GROWTH

    Economic growth is a central theme for the President and for the 
Department of Commerce's bureaus for fiscal year 2004. The Economics 
Statistics Administration's Bureau of Economic Analysis (BEA) supplies 
the nation's key economic statistics, including gross domestic product 
(GDP), which are crucial ingredients for business and government 
decision making. BEA seeks to strengthen the understanding of the 
United States economy and its competitive position by providing 
accurate economic accounts data in a timely and cost-effective manner. 
BEA's request includes a $5.4 million increase to accelerate the 
release of major economic estimates, to incorporate new international 
economic data classifications, and to acquire real-time data to improve 
the quality and timeliness of economic statistics.
    In conjunction with BEA's request, the Census Bureau's budget 
request includes an increase of $39.1 million in current economic and 
demographic statistics to fill gaps in data collection, to improve 
methodologies for collecting that information, and to improve the 
measurement of the Nation's service sector. The Census Bureau's budget 
for fiscal year 2004 also includes funding to process and to review 
data from the Economic Census, and to continue planning and designing 
the 2010 Decennial Census.
    The International Trade Administration (ITA) is responsible for 
assisting the growth of export businesses, enforcing U.S. trade laws 
and agreements, and improving access to overseas markets by identifying 
and pressing for the removal of trade barriers. ITA's budget for fiscal 
year 2004 focuses on promoting U.S. exports and enhancing the 
competitiveness of U.S. businesses in the global economy, by fighting 
unfair foreign trade barriers and by negotiating and implementing 
multilateral and bilateral trade agreements.
    The Economic Development Administration (EDA) helps communities 
across the nation create economic opportunity by promoting a favorable 
business environment to attract private capital investments and higher-
skill, higher-wage jobs. EDA accomplishes this principally through 
infrastructure investments and capacity building. A program increase of 
$13.8 million is requested for EDA to assist communities that 
demonstrate a high level of economic distress.
    The Minority Business Development Agency (MBDA) will continue to 
focus on accelerating the competitiveness and growth of minority-owned 
businesses by closing the gap in economic opportunities and capital 
access. MBDA is transitioning from an administrative agency to an 
entrepreneurial organization, and is driven by entrepreneurship and 
innovation. MBDA will continue to provide minority business development 
services, through its Minority Business Information Portal and local 
Business Development Centers.
    For more than one hundred years, the Nation has relied upon the 
Technology Administration's National Institute for Standards and 
Technology (NIST) for scientific and technical expertise to promote 
economic growth, commerce and trade, and national security. The quality 
of NIST work is exemplified by the awards in 1997 and 2001 of the Nobel 
Prize, the world's ultimate recognition in science, to two NIST 
scientists--Bill Phillips in Gaithersburg, Maryland, and Eric Cornell 
in Boulder, Colorado. The work they are leading in super-cold matter 
and the strange nature of quantum mechanics is driving whole new areas 
of science and technology, from atomic clocks that do not gain or lose 
more than a billionth of a second in thirty years, to the potential for 
unimaginably powerful computers based on individual atoms, to new forms 
of telecommunications that provide the ultimate in information 
security.
    The President's request includes a total of $340.8 million for the 
NIST Laboratories to strengthen the national measurements and standards 
infrastructure that enables innovation and economic growth. The request 
will enable NIST to expand its work in the areas of nanotechnology, 
advanced information technology, and health care diagnostics--all areas 
with broad economic impact.
    NIST will expand its program in nanotechnology, the so-called 
``tiny revolution'' in technology, (total request of $62 million). 
Nearly all industrial sectors plan to exploit this emerging technology, 
and most of these plans call for appropriately scaled measurements and 
standards, which is NIST's specialty. NIST closely coordinates its 
nanotechnology work with other Federal agencies through the President's 
National Nanotechnology Initiative, or NNI. NIST appropriately has the 
lead in providing the measurements and standards infrastructure for the 
NNI.
    The request also includes $7.3 million to build on NIST's world-
class expertise in quantum computing and communications. This effort, 
with teams led by NIST's two Nobel laureates, is developing 
revolutionary means of making calculations much more quickly than 
traditional electronic computers will ever be able to do. NIST 
scientists already have made the working elements of quantum computers 
based on individual atoms.
    The fiscal year 2004 Budget also requests funding to allow NIST to 
strengthen its programs supporting health care diagnostics, which not 
only improve the quality of health care, but also ensure that U.S. 
manufacturers can compete fairly in the $20 billion global market for 
these products. The request includes a total of $17.1 million to 
strengthen this effort. Consistent with the President's emphasis on 
shifting resources to reflect changing national needs, the President's 
fiscal year 2004 Budget proposes terminating the Advanced Technology 
Program (ATP) and requests a total of $27 million for administrative 
and close-out costs. The fiscal year 2004 President's Budget also 
proposes maintaining the fiscal year 2003 policy of significantly 
reducing Federal funding for the Manufacturing Extension Partnership 
(MEP), for which the budget requests $12.6 million. These programs have 
been well-run, but the scarce resources are needed for higher priority 
programs. The budget request focuses on NIST's core mission of 
measurements, standards, and laboratory research, rather than its 
extramural programs, by providing the 21st century facilities the NIST 
Laboratories need for success. Investment of limited NIST resources in 
the Laboratory programs and facilities will have the greatest impact on 
fostering innovation that leads to economic growth.
    The U.S. Patent and Trademark Office (PTO) request will support the 
second year of the agency's strategic plan to enhance the quality of 
products and services and to keep pace with workload growth by 
promoting e-government activities and reducing pendency. We understand 
that intellectual property protection is paramount to the Nation's 
ability to innovate and move products into the marketplace. 
Concurrently, Commerce has recently proposed legislation to restructure 
PTO fees to better align the fee system with the work undertaken by 
PTO. The Department is also working to eliminate the practice of using 
USPTO revenues for unrelated Federal programs so that a greater share 
of the applicants' fees are available to the agency in the year they 
are collected.

                           HOMELAND SECURITY

    The Bureau of Industry and Security (BIS) seeks to advance U.S. 
national security and foreign policy interests by regulating exports of 
critical goods and technologies that could be used to damage those 
interests, while furthering the growth of legitimate U.S. exporters to 
maintain our economic leadership. The fiscal year 2004 budget includes 
a $5.6 million increase for BIS to address vulnerabilities in 
regulating exports of critical goods and technologies. This budget 
increase will enable BIS to strengthen export enforcement with 
additional agents and capabilities and to enhance the bureau's analysis 
of U.S. export control regulations to ensure they reflect the dynamics 
of 21st century market and technological changes.
    We request an increase of $13.3 million (for a total of $38.7 
million) for NIST to address key national needs for homeland security 
measurements, standards, and technologies. This request will strengthen 
NIST's portfolio of more than 100 projects that address homeland 
security technology needs.
    Included in this request is an increase of $7 million (for a total 
of $10.9 million) as part of a program to use lessons learned from the 
NIST-led investigation of the World Trade Center (WTC) collapse to make 
buildings, occupants, and emergency responders safer from terrorist 
attacks on buildings and other building disasters. NIST has the unique 
combination of technical expertise in a broad range of building and 
fire sciences and lengthy experience working with the building and 
emergency responder communities to provide the Nation with the maximum 
benefit from the WTC investigation and associated research.
    The NIST homeland security request also includes an increase of 
$5.3 million (for a total of $26.8 million) to develop the measurement 
infrastructure needed to detect nuclear and radiological (``dirty 
bomb'') threats, to improve the use of radiation such as x-rays and 
other imaging techniques to detect concealed terrorist threats, and to 
use radiation safely and effectively to destroy biowarfare agents such 
as anthrax.
    Our homeland security request also includes a total of $1 million 
to develop standards and test methods for biometric identification 
systems, used to positively identify the approximately 20 million non-
citizens who enter the United States each year or apply for visas. This 
will enable NIST to carry out the mandate of the USA PATRIOT Act, which 
requires NIST to develop technology standards for biometric 
identification, recognizing NIST's long history of expertise in this 
area.
    Ensuring public safety remains a priority of NOAA and its National 
Weather Service (NWS). The budget request for NOAA includes an increase 
of $7.7 million (for a total of $65.1 million) to enhance homeland 
security. This increase includes new funding in the amount of $5.5 
million to support a scaled upgrade of the current NOAA Weather Radio 
(NWR) operation to an All Hazards Warning Network. This upgrade 
includes systems to standardize and automate receipt and dissemination 
of non-weather emergency messages. The Administration is also 
requesting $2.2 million in new funding for emergency preparedness and 
safety to improve physical security at 149 NWS facilities to prevent 
unauthorized individuals from entering and/or tampering with NWS 
property.
    The fiscal year 2004 budget request also includes an increase of 
$3.7 million to secure core aspects of ITA's worldwide communications 
network, to defend against unauthorized access, and to create recovery 
mechanisms should damaging events occur.

                 FACILITIES, INFRASTRUCTURE AND SAFETY

    The fiscal year 2004 budget strengthens key Commerce programs that 
provide the infrastructure that enables U.S. businesses to maintain 
their technological edge in world markets. Important priorities for 
fiscal year 2004 are to upgrade NIST's and NOAA's facilities and 
laboratories and begin consolidating PTO facilities. The NIST budget 
request includes $36.2 million to address inefficiencies and safety 
problems at its facilities in Boulder, Colorado and Gaithersburg, 
Maryland. Valuable research continues to be lost or interrupted by 
power outages, spikes, and fluctuations. This budget increase will 
enable NIST to protect critical research data from degradation, and to 
maintain employee safety and security. The budget also requests $8.2 
million to equip, maintain, and operate NIST's Advanced Measurement 
Laboratory, and to fund time scale and time dissemination backup 
elements.
    The budget includes a $47.7 million program increase for NOAA to 
address safety and security concerns associated with its buildings, 
aircraft, and ships, to upgrade weather forecast offices in the 
continental United States, Alaska and the Pacific Islands, to modernize 
the primary NWS telecommunications gateway, to continue construction of 
the NOAA Satellite Operations Facility in Suitland, Maryland, and to 
plan the replacement of the World Weather Building to be co-located 
with a major research institution. During fiscal year 2004, NOAA will 
also continue the tri-agency acquisition (with DOD and NASA) of the 
next-generation polar-orbiting satellites, and systems design and 
development for the next-generation geostationary satellite series 
(GOES R).
    In fiscal year 2004, the PTO will begin relocating its facilities 
from 18 buildings in Arlington, VA into a consolidated 5-building 
campus in Alexandria, VA with an initial move into two of the buildings 
this December. The new consolidated facility is designed to meet the 
PTO's operational needs, provide flexibility to future program or 
process changes, and fully comply with current fire, life-safety and 
accessibility guidelines. The budget includes a $44.6 million program 
increase for construction inflation costs that occurred during the 
project delay generated by litigation and maintaining dual rent and 
simultaneous operations during the eighteen-month move period.
    To strengthen the spectrum management capabilities of the National 
Telecommunications and Information Administration (NTIA), to meet the 
increasing demand for Federal wireless communication systems and 
services, the Department of Commerce requests an increase of $1 million 
for NTIA to establish a paperless system for spectrum issue resolution, 
certification, satellite coordination and frequency authorization, and 
to intensify research aimed at expanding spectrum utilization through 
greater understanding of radio frequency interference. The fiscal year 
2004 budget also proposes to suspend the Public Telecommunications 
Facilities Planning and Construction (PTFPC) grants, a program 
reduction of $41.1 million for NTIA during fiscal year 2004. Up to $80 
million in funding for digital conversion grants for public television 
stations can be made available from within the Corporation for Public 
Broadcasting (CPB) $380 million appropriation, which has already been 
enacted. The fiscal year 2004 President's Budget also proposes to 
terminate the Technology Opportunities Program (TOP) as funding within 
the Department of Commerce has been redirected to higher priority 
programs.
    GSA, in coordination with DOC, is planning a major renovation of 
the 70-year old Herbert C. Hoover Building. This initiative will 
restore the great building to its original condition, bring it up to 
current code requirements, address the realities of post 9/11 security 
needs and extend the useful life of this historic building. It is 
essential to the optimal stewardship of the taxpayers money that we 
establish a Renovations Office in fiscal year 2004. In addition, the 
Department will focus on safety issues by instituting a new 
Occupational Safety and Health Program targeted toward preventing 
accidents and injuries through incident tracking and proactive 
prevention.

                               FISHERIES

    NOAA's budget request for fiscal year 2004 contains a $29.8 million 
program increase to modernize and improve the nation's fishery 
management system. Specifically, the requested funding addresses the 
need to improve socioeconomic data collection, to reduce bycatch in 
targeted fisheries, to increase fishery observer coverage, to 
streamline the current fisheries regulatory process, and to implement 
the Columbia River Biological Opinion effectively. New funds will also 
increase the understanding of the effects of climate change on marine 
and coastal ecosystems, and build a national observer program for the 
collection of high-quality fisheries and environmental data. The fiscal 
year 2004 budget includes a reduction of $40 million for the Pacific 
Salmon Treaty for which all U.S. obligations have been met.

                             CLIMATE CHANGE

    Finally, one of the highlights of the Department's fiscal year 2004 
Budget is the request of $295.9 million for NOAA's climate change 
research, observations and services. This amount includes an increase 
of $16.9 million as part of a total request of $41.6 million for NOAA's 
contribution to the President's interagency Climate Change Research 
Initiative (CCRI). The NOAA fiscal year 2004 CCRI request supports 
NOAA's efforts to: enhance ocean observations for climate; augment 
carbon-monitoring capabilities in North America as well as in key 
under-sampled oceanic and continental regions around the globe; advance 
the understanding of all major types of aerosols; establish a climate 
modeling center within NOAA's Geophysical Fluid Dynamics Laboratory, 
which will focus on research, analysis, and policy applications for the 
development of model product generation; and coordinate and manage the 
Nation's interagency climate and global change programs through the 
Climate Change Science Program Office.
    The President's CCRI led to the creation of a new interagency 
framework in order to enhance coordination of Federal agency resources 
and research activities. Under this framework, thirteen Federal 
agencies are working together under the leadership of a Cabinet-level 
committee on climate change to improve the value of U.S. climate change 
research.
    The President's fiscal year 2004 Budget request for climate change 
activities reflects the President's priorities by focusing Federal 
research on the elements of the U.S. Global Change Research Program 
(USGCRP) that can best support improved public discussion and decision-
making. Under the CCRI, various agencies will adhere to specific 
performance goals, including providing products to decision-makers 
within four years. The priorities of the CCRI are: reducing key 
scientific uncertainties; designing and implementing a comprehensive 
global climate and ecosystem monitoring and data management system; and 
providing resources to support public evaluation of a wide range of 
climate change scenarios and response options. Even in this time of 
difficult budget decisions, the President is committed to fully funding 
climate research so that we can continue to reduce the uncertainties 
associated with climate change.
    As I previously stated, this budget request for the Department of 
Commerce has been carefully crafted to focus on those core functions 
that the American people rely on from this agency. We will focus on 
promoting innovation, entrepreneurship, exports, and safety, while 
spreading opportunity to all Americans and ensuring responsible 
stewardship of our natural resources.

                    CIAO MOVED TO HOMELAND SECURITY

    Senator Gregg. Thank you, Mr. Secretary. CIAO has been 
moved over to Homeland Security, at least in theory. I am 
wondering to what extent that has actually occurred, how it is 
physically being done, and whether the transfers are affecting 
the operations past the infrastructure protection efforts.
    Secretary Evans. It has been done. As far as I know the 
transfer was made smoothly. We continue within NIST to work 
with areas of CIAO in terms of protecting cybersecurity in this 
country, but the CIAO group has been moved over.
    Senator Gregg. Have they physically left?
    Secretary Evans. Yes, gone. At least, I am not seeing them 
around there any more. On March 1, 2003, pursuant to Public Law 
107-296 Homeland Security Act of 2002, the CIAO was transferred 
from the Department of Commerce to the Department of Homeland 
Security. There are plans for the CIAO/DHS to move out of the 
Herbert C. Hoover Building, but the move has not yet taken 
place.

                 ENTRY/EXIT SYSTEM BASED ON BIOMETRICS

    Senator Gregg. NIST is doing biometric identification work. 
To what extent is that being coordinated with the INS efforts 
to produce an exit/entry system which is based on biometrics, 
do you know?
    Secretary Evans. I am certain that there is close 
coordination, because that is the purpose of it, is to be used 
in identifying people coming into this country with biometric 
techniques, and so I know there is close coordination. I am not 
sure of the specific meetings.
    Senator Gregg. I would be interested in getting, or having 
your staff get for us an explanation of to what extent you are 
working with INS and to what extent NIST has evaluated the INS 
efforts in exit/entry, and whether or not they are on the right 
track.
    Secretary Evans. Sure.
    Senator Gregg. This committee has had very serious 
reservations about INS' capacity to do exit/entry system based 
on biometrics. NIST is an extremely talented agency, filled 
with talented people, a very strong agency. I would be very 
interested in their evaluation of the INS efforts in this area.
    Secretary Evans. You bet.
    [The information follows:]

             NIST's Work With INS on the Entry/Exit System

    Under the USA PATRIOT Act of 2001 and the Enhanced Border 
Security and Visa Entry Reform Act of 2002, NIST (with the 
Attorney General and Secretary of State) is required to 
``develop and certify a technology standard, including 
appropriate biometric identifier standards, that can be used to 
verify the identity of persons applying for a United States 
visa or such persons seeking to enter the United States 
pursuant to a visa for the purposes of conducting background 
checks, confirming identity, and ensuring that a person has not 
received a visa under a different name . . .'' NIST has an on-
going mandate to provide technical guidance on appropriate 
biometric identifiers based on technology evaluations and to 
write reports with the Departments of Justice, State, Defense, 
and Homeland Security/INS on recommendations for entry-exit 
systems. The first report, entitled ``Use of Technology 
Standards and Interoperable Databases With Machine-Readable, 
Tamper-Resistant Travel Documents,'' was submitted to Congress 
on February 4, 2003. The NIST appendix to that report is 
available at http://222.itl.nist.gov/iad/894.03/
NISTAPP__Nov02.pdf. The second report on biometric standards 
has been completed and is currently circulating for comments 
within the agencies. NIST is evaluating face recognition and 
fingerprint matching systems for the INS and is planning an 
evaluation of the INS' Automated Biometric INDENTification 
System (IDENT) later in fiscal year 2003.

                NIST PROGRESS INVESTIGATING WTC ATTACKS

    Senator Gregg. NIST is also investigating the WTC attack 
and the destruction of the buildings. Do you have any 
conclusions yet that we can share?
    Secretary Evans. No--well, I think there are some, Mr. 
Chairman. I know that we have been sharing with some of the 
designers in New York some of the preliminary findings. I think 
there is a preliminary report, I believe that will be out this 
summer, but the full study is scheduled to take 2 years, which 
means we will not be finished for I think another year or so, 
but I know that those who are doing the designs under the new 
construction in New York have been talking to NIST, and they 
have been communicating, but still the findings, of course, are 
preliminary.
    Senator Gregg. Do they have the funding they need? There 
has been some indication maybe too much stuff has been sent to 
the scrap heap and NIST could not get their hands on the 
necessary material.
    Secretary Evans. Right, Mr. Chairman. That was an issue 
that was brought up about 1 year ago. I went back and inquired 
and yes, there was concern about that initially. But after 
inquiring, my understanding now is, they feel like they have 
the necessary materials to provide the public with a full, and 
complete, and thorough report of what occurred, and what kind 
of standards we ought to think about implementing for providing 
more safety and security of these kinds of structures.

                     BACKLOG OF PATENT APPLICATIONS

    Senator Gregg. The Patent Office has a 400,000 backlog of 
patent applications, and that is staggering. What is the game 
plan for getting that to some sort of reasonable conclusion?
    Secretary Evans. Well, as I mentioned, part of the game 
plan is more funding, and recruiting more examiners. Part of 
the game plan is modernization of the systems going from a 
paper-loaded system to a paperless system, which will take some 
time. In general, pendency rates have not moved a lot. They 
have come down a little bit, but I think the thrust, I would 
say, Mr. Chairman, is to move from a paper system to a 
technology computer information kind of system where we make 
more use of the modern information systems we have today, as 
well as continuing to recruit more examiners.
    But I must say to you that a substantial amount of the 
funding also is going to go into a new program that we are 
implementing which is just the requalification of the examiners 
themselves. Right now, the way PTO works is, examiners, once 
they are a full-time examiner, you would think of it as tenure. 
They are always a full-time examiner, and we felt like it was 
important to have a system in place where periodically they go 
through a requalification process.
    One other area, Mr. Chairman, I think--I mean, we are 
putting a lot of energy and a lot of effort into this, because 
it is so critical not only to protecting patents here in the 
United States--not protecting them, but approving them in a 
timely kind of way, but also making sure that those patents are 
recognized and honored around the world, and we are moving very 
aggressively toward a global patent system.
    We are working aggressively with USPTO, Europe and with 
Japan--85 percent of the patents in the world are in those 
three areas, and so we are working toward a system that would 
eventually result in the mutual exploitation of search results 
in terms of integrating the information we have and sharing it 
with the European Patent Office (EPO) and with Japan, and other 
intellectual property offices and also them sharing their 
information with us. We feel like that would not only make the 
patent system more efficient but reduce a lot of duplication 
that is out there in the world today.
    So just rest assured that I think we have got a very good 
team working on this. It is certainly a big focus of ours. We 
understand, just industry after industry in our country, how 
important intellectual property is, and protecting intellectual 
property.
    Senator Gregg. Well, I do not know about other Members of 
the Senate, but I have heard from a number of folks in New 
Hampshire that their frustration with the Patent Office is 
fairly significant right now. Some of them have just given up 
on going that route, so I would be interested if there is a 
plan, a formalized plan for how you are going to reduce the 
backlog and how you are going to make it more electronically 
controlled, and how you are going to develop this international 
system. I would like to see such a plan, if it is a formal 
plan.
    Secretary Evans. We will be glad to provide that to you, 
you bet.
    [The information follows:]

    The U.S. Patent and Trademark Office (USPTO), in response to 
stakeholder input, updated its June 2002 21st Century Strategic Plan on 
February 3, 2003, and submitted it to the Congress in support of the 
fiscal year 2004 President's budget.
    The USPTO prepared its 21st Century Strategic Plan in response to 
Congressional direction. For example, the Senate CJS Subcommittee 
report language dated July 19, 2001 directed the Secretary of Commerce 
to develop a five-year plan with three core objectives: Prepare the 
agency to handle the workload associated with the 21st century economy; 
improve patent quality; and reduce patent and trademark pendency.
    The Committee further said that the plan should include: 
Recommendations to improve retention and productivity of examiner 
workforce; targeted hiring increases to deal with high-growth areas; 
improved training; E-Government and other capital improvements designed 
to improve productivity; and benchmarks for measuring progress in 
achieving each of these objectives.
    The Committee also directed that the ``electronic file wrapper'' be 
fully implemented by the end of fiscal year 2004.
    The attached plan identifies the specific actions the USPTO is 
taking to
  --Deliver an operational system to process patent applications 
        electronically by October 1, 2004.
  --Reduce duplication of effort and decrease workload by relying on 
        search results obtained via partnerships with other 
        intellectual property offices (see Work Sharing 1).
  --Achieve an interim patent pendency goal of 27 months by fiscal year 
        2008. The USPTO will continue to work toward reducing pendency 
        and pursue the long-term optimum goal of 18 months pendency 
        beyond the five-year horizon of the strategic plan.
  --Reduce total patent examiner hires through fiscal year 2008 
        compared to the fiscal year 2003 budget and business plan 
        projection.
    Each of these actions is supported by a detailed analysis of the 
issue and an implementation plan. These are posted on the USPTO web 
site and can be made available to the Senator's staff.

                    The 21st Century Strategic Plan

                           EXECUTIVE OVERVIEW

    Today, the United States Patent and Trademark Office (USPTO) is 
under siege. Patent application filings have increased dramatically 
throughout the world. There are an estimated seven million pending 
applications in the world's examination pipeline, and the annual 
workload growth rate in the previous decade was in the range of 20-30 
percent. Technology has become increasingly complex, and demands from 
customers for higher quality products and services have escalated. Our 
applicants are concerned that the USPTO does not have access to all of 
the fees they pay to have their patent and trademark applications 
examined, thereby jeopardizing the benefits intellectual property 
rights bring to our national economy. In the United States, these 
demands have created a workload crisis. The Congress, the owners of 
intellectual property, the patent bar, and the public-at-large have all 
told us that we must address these challenges aggressively and 
promptly.
    We agree. We believe that the USPTO must transform itself into a 
quality-focused, highly productive, responsive organization supporting 
a market-driven intellectual property system. And we also believe that 
we have the tools, the skills, the will and the plan to do so.
  --The tools.--The technology exists to create a high-quality, cost-
        effective, responsive, paperless patent examination process, 
        building on our current success in automating trademarks.
  --The skills.--We have a cadre of talented staff with the technical 
        expertise and the vision to help guide and support the 
        technical and, even more important, the cultural transformation 
        of the USPTO.
  --The will.--Organizational transformations require sustained 
        commitment and constancy of purpose ``from the top.'' The USPTO 
        leadership is dedicated to this task.
  --The plan.--This strategic plan lays out our approach to creating, 
        over the next five years, an agile, capable and productive 
        organization fully worthy of the unique leadership role the 
        American intellectual property system plays in both the 
        American and the global economies.
    This new 21st Century Strategic Plan is aggressive and far-
reaching. However, anything less would fall short of the expectations 
of the U.S. Congress, the applicants for, and owners of, patents and 
trademarks, the patent and trademark bar, and the public-at-large. 
Additionally, the failure to adopt this strategic plan would have 
negative consequences. We would be unable to implement our quality and 
e-Government initiatives, pendency would rise to uncontrollable levels, 
and our costs would continue to grow.
    After the implementation of this strategic plan:
  --Market forces will drive our business model.
  --Geography and time will be irrelevant when doing business with the 
        USPTO.
  --We will strengthen our ability to be ranked as one of the highest 
        quality, most-efficient intellectual property organizations in 
        the world.
  --Our products and services will be tailored to meet the needs of 
        customers.
  --Examination will be our core expertise.
  --Our employees will be recognized as expert decision makers.
  --Independent inventors, U.S. industry and the public will benefit 
        from stronger, more enforceable intellectual property rights 
        worldwide.
  --Our workplace will become a state-of-the-art facility designed for 
        the 21st Century.
  --Following implementation of this plan and its underlying 
        assumptions, including the enactment of legislation to 
        restructure fees, statutory fees will remain steady for the 
        foreseeable future.

                 ABOUT THE 21ST CENTURY STRATEGIC PLAN

    This five-year strategic plan reflects both a thorough internal 
process review and a systematic attempt to incorporate the best 
thinking of our applicants, our counterparts in Europe, Japan and other 
countries, and our stakeholders, including our Public Advisory 
Committees. Key stakeholders also include our dedicated employees, 
without whose commitment the strategic plan could not have been 
developed and its success could not be assured.
    The strategic plan takes a global perspective by envisioning the 
patent and trademark systems of the future that American innovators 
would need to remain competitive around the world. It is built on the 
premise that American innovators want to obtain enforceable 
intellectual property rights here and abroad as seamlessly and cost-
effectively as possible. It emphasizes the opportunity for the USPTO to 
collaborate with intellectual property organizations in automation, 
global patent classification, and exploitation of search results. 
Finally, the plan is predicated on changes to the way all players in 
the intellectual property system do business with the USPTO and the way 
USPTO employees respond.
    The strategic plan is supported with detailed documentation 
analyzing all of the related issues, a five-year implementation plan 
with identified critical tasks, proposed revisions to the fiscal year 
2003 budget request to enable timely implementation of the strategic 
plan, and corresponding proposed legislation and regulations necessary 
for a successful multi-year implementation.
    This strategic plan cannot succeed without enactment of the 
legislation changing the USPTO's current fee schedule and access to 
revenue generated in fiscal year 2003, to the extent provided in the 
President's fiscal year 2003 Budget, revisions to current rules, and 
legislation for streamlining the patent and trademark systems to 
facilitate these changes. There are a number of variables, such as 
potential changes in restriction practice and the use of commercial 
search services that could affect our projected costs and revenues. 
Once they have been clarified, any ensuing revisions to our program 
costs and fee schedule will be resolved in the context of the USPTO's 
annual budget submission to the Congress.

Proof of Concept
    To ensure the USPTO proposes appropriate changes to patent and 
trademark laws, makes changes to internal processes that provide 
benefits and increased efficiency, and makes sound investment 
decisions, the initiatives proposed in this plan will be subjected to 
thorough evaluation. Pilot projects will be initiated and tested 
wherever necessary. Evaluation plans will incorporate, where 
appropriate, measurable objectives, critical measures of success, 
baseline data, and conditions for full implementation.

Performance Measures
    This plan contains measurable objectives and milestones for each of 
the general goals. The annual budget submission to the Congress will 
provide additional criteria by establishing key measurements and yearly 
milestones that will be used to determine the USPTO's success in 
achieving these goals. The annual integrated budget/performance plan is 
the most efficient and effective way of establishing accountability by 
making sure that performance measures and milestones are consistent 
with the views of the Administration and the Congress in the enacted 
annual budget.

                            STRATEGIC AGENDA

Vision
    The USPTO will lead the way in creating a quality-focused, highly 
productive, responsive organization supporting a market-driven 
intellectual property system for the 21st Century.
    We believe that quality must permeate every action taken by every 
employee of the USPTO. The new initiatives in our strategic plan are 
targeted toward creating a cultural transformation whereby quality is 
the principal focus of everything we do.

Mission
    The USPTO mission is to ensure that the intellectual property 
system contributes to a strong global economy, encourages investment in 
innovation, and fosters entrepreneurial spirit.
    In order to accomplish our mission, we have prepared this strategic 
plan. Provided we receive the funding and statutory changes necessary 
to implement this new strategy, we will:
  --Enhance the quality of patent and trademark examining operations 
        through consolidation of quality assurance activities in fiscal 
        year 2003.
  --Achieve 27 months overall patent pendency goal \1\ in fiscal year 
        2008.
---------------------------------------------------------------------------
    \1\ Pendency is a measurement of USPTO's traditional examination 
processing time; i.e., from filing (under 35 U.S.C. 111(a)) to ultimate 
disposal.
---------------------------------------------------------------------------
  --Reduce total patent examiner hires through fiscal year 2008 by 
        2,400 compared to the 2003 Business Plan.\2\
---------------------------------------------------------------------------
    \2\ The 2003 Business Plan was submitted to the Congress in 
February 2002 as part of the USPTO's fiscal year 2003 Budget.
---------------------------------------------------------------------------
  --Accelerate processing time by implementing e-Government in 
        Trademarks by November 2, 2003, and in Patents by October 1, 
        2004.
  --Competitively source classification and search functions, and 
        concentrate Office expertise as much as possible on the core 
        government functions.
  --Expand our bilateral and multilateral discussions to strengthen 
        intellectual property rights globally and to reduce duplication 
        of effort among offices.

Strategic Themes
    To achieve our vision and accomplish our mission, we must transform 
our organization and become a more agile, more capable and more 
productive USPTO. The Congress has directed us to (1) improve patent 
and trademark quality, (2) aggressively implement e-Government to 
handle the workload associated with the 21st Century economy, and (3) 
reduce patent and trademark pendency. We have identified three 
strategic themes that correspond directly to these Congressional 
requirements:
  --1. Agility: Address the 21st Century Economy by Becoming a More 
        Agile Organization.--We will create a flexible organization and 
        work processes that can handle the increasing expectations of 
        our markets, the growing complexity and volume of our work, and 
        the globalization that characterize the 21st Century economy. 
        We will work, both bilaterally and multilaterally, with our 
        partners to create a stronger, better-coordinated and more 
        streamlined framework for protecting intellectual property 
        around the world. We will transform the USPTO workplace by 
        radically reducing labor-intensive paper processing.
  --2. Capability: Enhance Quality through Workforce and Process 
        Improvements.--We will make patent and trademark quality our 
        highest priority by emphasizing quality in every component of 
        this strategic plan. Through the timely issuance of high-
        quality patents and trademarks, we will respond to market 
        forces by promoting advances in technology, expanding business 
        opportunities and creating jobs.
  --3. Productivity: Accelerate Processing Times Through Focused 
        Examination.--We will control patent and trademark pendency, 
        reduce time to first Office action, and recover our investments 
        in people, processes and technology.
    We will transform the USPTO by adhering to these themes in each of 
the improvement initiatives upon which this strategic plan is based, as 
well as in all of our other programs. These initiatives are discussed 
in more detail under each of the major theme sections.

Agility: Address the 21st Century Economy by Becoming a More Agile 
        Organization
    An agile organization responds quickly and efficiently to changes 
in the economy, the marketplace, and the nature and size of workloads. 
In pursuit of an agile organization, the USPTO will focus both 
internally and externally.
    As a first priority, we have made electronic end-to-end processing 
of both patents and trademarks the centerpiece of our business model.
    We will create a nimble, flexible enterprise that responds rapidly 
to changing market conditions. We will make the USPTO a premier place 
to work; we will rely on a smaller cadre of highly trained and skilled 
employees; and we will place greater reliance on the private sector, 
including drawing on the strengths of the information industry. We will 
enhance the quality of work life for our employees by exploring 
expansion of work-at-home opportunities and moving to the new Carlyle 
campus facility in Alexandria, Virginia.
    Further, we will enhance existing and establish new alliances with 
our friends in other national and international intellectual property 
organizations to strengthen American intellectual property rights 
around the world.
    Specific actions, with parenthetical cross-references to the 
analyses and implementation plans in the Appendices, include:

            Implement automation for patent and trademark applications

    Develop a trademark electronic file management system and begin e-
Government operations on November 2, 2003, in tandem with 
implementation of the Madrid Protocol. [E-Government 1]
    Deliver an operational system to process patent applications 
electronically by October 1, 2004, including electronic image capture 
of all incoming and outgoing paper documents. [E-Government 2]
    Develop an automated information system to support a post-grant 
patent review process. [E-Government 3]
    Establish an information technology security program for fully 
certifying and accrediting the security of automated information 
systems. [E-Government 4]
    Provide back-up systems to ensure maximum availability of computer 
systems to examiners, attorneys, the public and other patent and 
trademark offices by establishing appropriate back-up systems. [E-
Government 5]

            Expand work-at-home opportunities
    Increase the efficiency and return on investment of our work-at-
home program and thereby encourage more employees to participate. 
[Work-at-Home 1]
            Increase flexibility through greater reliance on the 
                    private sector or other intellectual property 
                    offices
    Increase reliance on the private sector or other intellectual 
property offices for:
    Classifying patent documents. [Flexibility 1]
    Supporting national application and Patent Cooperation Treaty 
search activities. [Flexibility 2]
    Transitioning to a new global patent classification system. 
[Flexibility 3]
    Classifying trademark goods/services and searching design codes. 
[Flexibility 4]
            Global Development: Streamline intellectual property 
                    systems and strengthen intellectual property rights 
                    around the world
    Promote harmonization in the framework of the World Intellectual 
Property Organization and its Standing Committee on the Law of Patents; 
resolve major issues in a broader context and pursue substantive 
harmonization goals that will strengthen the rights of American 
intellectual property holders by making it easier to obtain 
international protection for their inventions and creations. [Global 
Development 1]
    Negotiate bilateral and multilateral agreements to facilitate 
global convergence of patent standards. [Global Development 2]
    Accelerate Patent Cooperation Treaty reform efforts, focusing on 
the USPTO's proposal for simplified processing. [Global Development 3]
    Develop a ``universal'' trademark electronic application by 
leveraging the United States' experience with electronic filing of 
trademark applications. [Global Development 4]
            Share search results with other intellectual property 
                    offices
    Reduce duplication of effort and decrease workload by relying on 
search results obtained via partnerships with other intellectual 
property offices. [Work Sharing 1]
            Planned Agility Accomplishments
    Accelerate processing time by implementing e-Government in 
Trademarks by November 2, 2003, and in Patents by October 1, 2004.
    Competitively source classification and search functions, and 
concentrate USPTO expertise as much as possible on core government 
functions.
    Expand our bilateral and multilateral discussions to strengthen 
intellectual property rights globally and to reduce duplication of 
effort among intellectual property offices.
Capability: Enhance Quality Through Workforce and Process Improvements
    A capable organization has a highly skilled, appropriately sized 
workforce; it has systems and procedures that enhance the capability of 
every employee; and it has in place effective quality management 
processes to ensure high quality work and continuous performance 
improvement. In other words, a capable organization is committed to 
doing the right job right--the first time and every time. We will be 
such an organization.
    Quality will be assured throughout the process by hiring the people 
who make the best patent and trademark examiners, certifying their 
knowledge and competencies throughout their careers at the USPTO, and 
focusing on quality throughout the examination of patent and trademark 
applications. By bolstering confidence in the quality of U.S. patents 
and trademarks, the USPTO will enhance the reliability in the quality 
of products and services needed to increasingly spur our economy and 
reduce litigation costs.
    Specific actions, with parenthetical cross-references to the 
analyses and implementation plans in the Appendices, include:
            Enhance workforce capabilities by certifying competencies
    Create an enterprise-wide training strategy that meets the needs of 
the new business model and the e-Government generation. [Transformation 
1]
    Restructure the USPTO by redirecting resources to core examination 
activities, implement revised performance plans to incorporate changes 
required to implement an e-Government workplace, meet agency-wide 
standards for senior executives, and implement selected award packages. 
[Transformation 2 and 3]
    Transform the workforce by exploring alternative organizational 
concepts and structures. [Transformation 4]
    Ensure that professionals, support staff and supervisors 
responsible for the patent process possess the requisite skills needed 
to carry out their responsibilities. [Transformation 5]
    Certification of knowledge, skills and ability in the Trademark 
Process. [Transformation 6]
    Implement pre-employment testing for patent examiners. 
[Transformation 7 and 8]
    Recertify the knowledge, skills and abilities of primary examiners 
to ensure currency in patent law, practice and procedures. 
[Transformation 9]
    Certify the legal competency and negotiation abilities of patent 
examiners before promotion to grade 13. [Transformation 10]
    Improve the selection and training of supervisory patent examiners 
to focus on their primary responsibilities of training patent examiners 
and reviewing and approving their work. [Transformation 11]
            Make improvements in patent and trademark quality assurance 
                    techniques
    Enhance the current quality assurance programs by integrating 
reviews to cover all stages of examination. [Quality 1]
    Expand reviews of primary examiner work. [Quality 2]
    Engineer quality into our processing including the selective 
expansion of the ``second pair of eyes'' review \3\ of work products in 
such advanced fields of technology as semiconductors, 
telecommunications, and biotechnology. [Quality 3 and 4]
---------------------------------------------------------------------------
    \3\ A secondary review of applications for proper claim 
interpretation and to ensure that the closest prior art has been 
discovered and correctly applied.
---------------------------------------------------------------------------
    Incorporate an evaluation of search quality into the patent work 
product review process, and survey practitioners on specific 
applications. [Quality 5 and 6]
    Enhance the reviewable record of prosecution in patent 
applications. [Quality 7]
    Certify and monitor the quality of searching authorities to ensure 
that patent searches provided by the private sector contractors or 
other patent offices are complete and of the highest quality. [Quality 
8]
            Make process improvements that contribute to enhanced 
                    quality through legislation/rule changes
    Propose legislation and/or rule changes that have been identified 
as critical for the accomplishment of this strategic plan. Continue the 
process of seeking comments from stakeholders on proposed changes.
            Planned Capability Accomplishments
    Enhance the quality of patent and trademark examining operations 
through consolidation of quality assurance activities in fiscal year 
2003.
Productivity: Accelerate Processing Times Through Focused Examination
    We are committed to promoting advances in technology, expansion of 
business opportunities and creation of jobs through the timely issuance 
of high quality patents and trademarks. A productive organization 
maximizes its output of work performed. Improved productivity is key to 
reducing pendency and inventory.
    This strategic plan has aggressive timeliness goals: to make 
available, on average, a first Office action for first-filed U.S. non-
provisional patent applications, at the time of 18-month publication, 
and a patent search report for other patent applications in the same 
time frame--by far the fastest in the world. This will be accomplished 
through a redesign of the entire patent search and examination systems 
based upon multiple-examination tracks, greater reliance on qualified 
patent search services, and variable, incentive-driven fees. In 
Trademarks, achieve an average 12-month total pendency. This will be 
accomplished by a three-track examination system. Likewise, both 
Patents and Trademarks will restructure the way they do business to be 
compatible with an e-Government environment.
    Specific actions, with parenthetical cross-references to the 
analyses and implementation plans in the Appendices, include:
            Transition to market-driven examination options
    Adopt procedures that give greater choice and flexibility to 
trademark applicants for filing and examination of applications for the 
registration of trademarks, with a focus on using technology to improve 
the process and provide a lower cost filing option. [Pendency 1]
    Move from a ``one-size-fits-all'' patent examination process to a 
multi-track examination process that leverages search results of other 
organizations and permits applicants to have freedom of choice in the 
processing of their applications. This new process will eliminate 
duplication of effort, encourage greater participation by the applicant 
community and public, and improve the quality of our patents and 
decrease processing time. [Pendency 2]
    Address the number of claims presented for examination in an 
application and the size of applications through fee-setting 
legislation to reflect the cost of processing complex applications. 
[Shared Responsibility 1]
    Achieve greater examiner productivity by reducing their prior art 
search responsibilities. [Pendency 3]
            Implement an accelerated examination path option
    Offer patent applicants the market-driven new ``rocket docket'' 
option of choosing an accelerated examination procedure with priority 
processing and a pendency time of no longer than 12 months. 
[Accelerated Examination 1]
            Share responsibility for timely and high quality patents 
                    and trademarks between applicant and the USPTO
    Seek enactment of legislation to restructure the USPTO fee schedule 
by mid-fiscal year 2003, and thereby create incentives that contribute 
to achievement of USPTO goals. For example, the filing fee will be kept 
as low as possible to incentivize applicants to file, and the refund 
provision expanded to allow the USPTO to refund a portion of the search 
fee if the application is expressly abandoned before search or 
examination. [Shared Responsibility 1]
    Make patents more reliable by proposing amendments to patent laws 
to improve a post-grant review of patents. [Shared Responsibility 2]
            Planned Productivity Accomplishments
    Achieve first Office action patent pendency of 14.7 months in 
fiscal year 2008.
    Achieve an interim patent pendency goal of 27 months by fiscal year 
2008. Note: The USPTO will continue to work toward reducing pendency 
and pursue the long-term optimum goal of 18 months pendency beyond the 
five-year horizon of this strategic plan. Our best estimate is that it 
will take at least a decade to achieve the 18-month goal.
    Reduce total patent examiner hires through fiscal year 2008 by 
2,400 compared to the 2003 Business Plan projection. [See Figure 1]


              Figure 1. Patent Examiner Hiring Comparison

            Critical Needs
    The performance commitments outlined in this strategic plan demand 
extraordinary effort from every USPTO employee, and the full support of 
our key stakeholders. Our strategic plan is built around the following 
critical needs.
Multilateral and Bilateral Agreements
    We need to consult with, and receive support of, other patent 
offices in structuring new bilateral and multilateral initiatives.
Legislation/Rules
    We will need enactment of legislation by the Congress to adjust 
certain patent and trademark fees and access to revenue generated by 
mid-fiscal year 2003 to the extent provided in the President's fiscal 
year 2003 Budget. We also will need to promulgate final rules to effect 
fee changes.
    We will need to continue working to develop the proposed 
legislation and rule changes that have been identified, and continue 
the process of seeking comments from interested parties on ways to 
improve our operation.
            Labor Relations
    We will need to notify the three bargaining units representing 
USPTO employees of proposed changes and negotiate, where necessary, any 
changes in working conditions.
Budget
    We will need enactment of an appropriation for fiscal year 2003 
that is consistent with the level of the President's 2003 Budget.
Move to Carlyle in Alexandria, Virginia
    We will need to carefully plan the logistics for relocating the 
USPTO to a consolidated campus in Alexandria, Virginia, while 
minimizing any adverse effects on employees, applicants and the public. 
The USPTO is quickly moving into the implementation phase of the 
relocation of its facilities from 18 buildings spread throughout 
Crystal City to a single lease in a consolidated campus. This 
consolidation is expected to save us $72 million over the 20-year term 
of the lease, but it is a highly complex and difficult endeavor.
            President's Management Agenda
    Secretary Donald Evans has committed the Department of Commerce to 
speedy implementation of the President's Management Agenda. President 
Bush has stated that true government reform must be based on a 
reexamination of the role of the Federal Government. In this regard, he 
has called for ``active, but limited'' government: a government that 
empowers states, cities, and citizens to make decisions; ensures 
results through accountability; and promotes innovation through 
competition. The reforms that he has identified to help the Federal 
Government adapt to a rapidly changing world include a government that 
is: Citizen-centered--not bureaucracy-centered; results-oriented--not 
process-oriented; and market-based--actively promoting, not stifling, 
innovation, and competition.
    This strategic plan supports the President's Management Agenda:
    Human Capital.--We will provide the tools and the resources to 
ensure that we have a highly qualified, certified, knowledge-based, 
accountable workforce. Specifically, we will strengthen pre-employment 
testing; develop a competency certification program; create a new 
labor-management paradigm to meet changing business needs; streamline 
our workforce to maximize quality and efficiency; and focus our 
training, performance evaluation and assessment environment on our core 
expertise--examination.
    Competitive Sourcing.--We are committed to achieving performance 
enhancements and cost-savings, through the process of competitive 
sourcing. This process compares the capabilities and costs of 
commercial service providers with current government program providers. 
Greater competition drives down costs and yields more innovative 
solutions. We will seek improved effectiveness in the following areas: 
patent searching, patent documentation classification, and information 
technology and logistical support operations.
    Improved Financial Management.--The USPTO has a strong, fully 
integrated financial management system in place and we will continue to 
strengthen our internal controls, improve the timeliness and usefulness 
of our management information and continue to achieve an unqualified 
financial audit opinion.
    E-Government.--We are accelerating deployment of critical automated 
information systems, particularly electronic end-to-end processing of 
patent and trademark applications. In addition, we are currently 
working on ways to improve delivery schedules, reliability, 
performance, security and the cost of all our automated information 
systems.
    Budget/Performance Integration.--We will allocate budget resources 
to the programs based on the concept of linking them to the achievement 
of both enterprise-wide goals and individual unit performance. The 
USPTO will expand the involvement of applicants and the public in 
assessing the accomplishment of our goals and performance targets.
    As a reflection of our commitment to fund our strategic priorities, 
we conducted a comprehensive review of current operations and 
redirected substantial fiscal year 2003 resources toward improving 
examination quality and implementing e-Government processing.
Long-term Agenda
    This strategic plan is only the first step toward creating a 
quality-focused, highly productive, responsive USPTO that supports a 
market-based intellectual property system for the 21st Century. Once 
the initial phases of this plan have been supported, adopted and 
implemented, the USPTO will explore further options to enhance its 
ability to more fully operate like a business.
    Within the framework of the legislative and regulatory packages 
there are a number of items that will be implemented in the out-years 
of the strategic plan.
    Restriction practice.--We will conduct a study of the changes 
needed to implement a Patent Cooperation Treaty (PCT) style unity of 
invention standard in the United States. The study will be completed 
and appropriate legislation will be introduced before the end of the 
108th Congress.
    Patent term adjustment.--Before seeking legislation to simplify 
patent term adjustment, we will explore a number of options to address 
this issue with the small business community and other key 
stakeholders.
    Mutual exploitation of examination results.--In anticipation of 
achieving our long-term goal of substantive patent harmonization, we 
will take a cautious approach to mutual exploitation of examination 
results by first evaluating International Preliminary Examination 
Reports during national stage examination. We will subsequently analyze 
the potential of whether the acceptance of examination results (granted 
patents) from foreign offices is a proper basis for use in counterpart 
applications in the United States. However, the USPTO will never 
recommend any changes that would compromise our sovereign right to 
determine patentability issues or to preclude our right to make further 
examinations when necessary.
    Copyright issues.--As part of the implementation of the electronic 
file wrapper, we will ascertain the best means for assuring that these 
documents in an application file that may be subject to copyright 
protection can be included in the USPTO's databases. The intent of this 
option would be to ensure full public access to all the information 
contained in a pending application file.
    Third party request for reexamination.--As part of the initiative 
to seek post-grant review legislation, we will explore the need for 
retention of third-party requested reexamination.
    District court actions.--We will evaluate the desirability of a 
revision to the provisions for judicial review of USPTO decisions to 
make an appeal to the U.S. Court of Appeals for the Federal Circuit the 
sole avenue for judicial review of a Board of Patent Appeals and 
Interferences or a Trademark Trial and Appeal Board decision.
    Patent Cooperation Treaty Activities.--We will actively pursue 
revisions to Patent Cooperation Treaty search and examination 
guidelines to achieve an enhanced level of reliance on PCT 
International Search Reports and International Preliminary Examination 
Reports.
    Business-like practices.--We also will explore whether we have a 
good justification for operating in a more business-like manner.
    USPTO Campus.--Once we have settled into the Carlyle campus and 
have fully implemented automated patent and trademark processing, we 
will be able to assess the feasibility of expanding our work-at-home 
program by using such virtual office concepts as telecommuting and 
flexible workplace to the maximum potential.
    Examiner Training.--We will evaluate the feasibility of reinstating 
the Examiner Education Program through corporate sponsorship to enable 
patent examiners to gain better insights into technological 
developments in the fields in which they examine.
Some Final Thoughts
    This 21st Century Strategic Plan sets forth an ambitious agenda to 
resolve the crisis all intellectual property organizations are facing. 
We believe economic and technological progress in the United States and 
the global market can be significantly enhanced through the 
implementation of the initiatives proposed in this plan.
    We intend to refine and update our strategic plan periodically to 
adjust to changing conditions and to incorporate the best thinking of 
the entire intellectual property community. We are eager to work with 
those who believe, as we do, that American innovators and businesses 
must have the very best intellectual property system in the world. This 
21st Century Strategic Plan represents an important first step in the 
pursuit of this goal.

                          FREE TRADE CONCERNS

    Senator Gregg. Senator Hollings.
    Senator Hollings. Thank you, Mr. Chairman.
    Mr. Secretary, we have got a hot war ongoing, and there is 
no question in this Senator's mind or anybody in this room that 
we will win that one, but we have got a cold war economically 
that we are losing, and you are the Chairman of the Joint 
Chiefs of Staff in that cold war.
    As Secretary of Commerce, you are the most important 
member, and with the President, the most influential member, 
and we are looking at the results. The war did not start when 
you folks came to town. This war has been going on since World 
War II, and we had the Marshall Plan. It worked. We sent over 
the expertise, we sent over the technology and everything else 
into Europe and to the Pacific Rim and they revived them.
    But now you look and you find out you have got over $420-
some billion in the deficit in the balance of trade last year, 
and now it is inching up to over $500 billion this year, and I 
am looking at different items--well, I've already lost, don't 
worry about my questions being about textiles. They are 
Republican and they have gone anyway, so it is a sort of twofer 
for me.
    Senator Gregg. They left New Hampshire a long time ago to 
go to South Carolina.
    Senator Hollings. Over two-thirds of the clothing I am 
looking at is imported, over 86 percent of the shoes on the 
floor are imported, but then I look at the list that you made 
of critical items to our national security, and you list about 
some 500, and we have a $5 billion deficit in the balance of 
trade in those critical items.
    We have got a deficit in the balance of trade in 
semiconductors. I know I have got a deficit in the balance of 
trade in cotton. I am riding through the cotton fields 
politicking down home, but I am importing Chinese cotton 
because we do not produce enough in this country, and then I 
looked and found that we made finally a deficit in the balance 
of trade in farm products for the second time in the history of 
the country.
    Free trade is fine in the textbooks, and fine for England 
when she was in control of the world's empire. In other words, 
when old Alexander Hamilton got the note that what we ought to 
do, having won our little freedom as a colony, we ought to 
trade back what we produced best, and they in Britain would 
trade back what they produced best, the doctrine of comparative 
advantage, David Ricardo, old Hamilton said bug off--we are not 
going to remain your colony, just shipping our timber and our 
coal and our iron ore and farm products. We are going to build 
up our own manufacturing.
    So he introduced, and by gosh, old Madison supported him in 
the second bill. The first bill was for the U.S. Seal as a 
Nation. The second bill that passed the Congress was the 50-
percent tariff bill, protectionism, on about 60 articles, and 
we started rebuilding, and in fact we financed the country with 
protectionism until 1913, when we finally got the income tax.
    Other countries are doing the same thing, after World War 
II, the Japanese, the Koreans and everybody coming right on 
down the road, and they do not practice free trade, they 
practice protectionism.
    One of the big reasons behind my Advanced Technology 
Program was to try to compete with the subsidization, the 
financing of the industry, the banking, and not only that, but 
also protecting in every respect the retail markets, and the 
pricing by our foreign competitors. My Lexus cost me $30,000. 
In downtown Tokyo, that same car, I priced it, is $45,000.
    So my point is, I am trying to bring around our 
administration to where even Ronald Reagan was. He was long on 
common sense. We were losing out on semiconductors and still 
are, but he put in a voluntary restraint agreement on 
semiconductors and they instituted at the congressional level, 
Senator Danforth and myself, Sematech. We had VRAs in steel and 
automobiles and machine tools, and it worked, and it saved 
those industries.
    Now, we have got to start competing here. I am looking at 
the Ambassador from Singapore, Frank Levin. He recently 
concluded this United States-Singapore free trade agreement, 
and Levin said in the long run, and I quote him, the most 
significant economic aspect of this FTA, free trade agreement, 
could be provisions allowing products assembled in the two 
Indonesian outer islands to be counted as Singaporean in origin 
for the purpose of the FTA. This would allow U.S. electronics 
manufacturers to take advantage of low wage rates on those 
islands to assemble components from Singapore and then the 
electronic products can enter the United States duty free. Do 
you agree with that?
    Secretary Evans. Well, I have not seen the statement. You 
read the statement. I have not seen it before. I mean, I must 
say that I think that when you have a free trade agreement with 
Singapore, you have a free trade agreement with Singapore. You 
do not have a free trade agreement with some other country, or 
some other island. That is who the free trade agreement is 
with.
    And so I think there is a basic principle, and it is 
products and services that come from that country, not from 
some other sovereign nation or country to that country and into 
the United States, but I must admit, I do not know the exact 
relationship of those islands with Singapore. Are they separate 
countries or separate sovereign nations, or are they a part of 
Singapore? I do not think they are.
    Senator Hollings. Well, it is not the technicality of the 
thing, it is the actual tenor and thrust of low wage rates. 
That is what happened--58,000 textile jobs have gone from my 
little State of South Carolina down to Mexico. If your 
competition leaves, you have got to leave, so that swishing 
sound that old Ross talked about, I am telling you right now, 
we can hear it loud and clear in the Piedmont section of South 
Carolina, I can tell you.
    That is the whole point. What we have got to do is start 
competing, and we have done everything for that export 
administration. Your Commerce Department has commercial 
attaches around the world, and we have done everything to help 
our businesses compete.
    One other thing that we do is just that, the Advanced 
Technology Program. The distinguished Secretary talks growth, 
growth, growth. That is the buzzword around here. You get 
everybody on the message, so the growth thing is the Advanced 
Technology Program. That gives the growth. There is not any 
question.
    We have got I do not know how many studies. I think there 
were 14 studies, the Department of Commerce Inspector General, 
the National Academy of Sciences, the National Research 
Council, and go right on down the list, and they found that, 
quote, ATP could use more funding effectively and efficiently, 
and we cut and eliminated that and the Manufacturers Extension 
Partnership Program, but we give money to the Bureau of 
Economic Analysis to get more analysis. That is not going to 
hire any more people, except pointy-headed intellectuals, as 
George Wallace would say.
    We give money to the Patent and Trademark Office----
    Senator Gregg. We don't quote from George Wallace.
    Senator Hollings. That's right. Well, I thought I'd get 
you. I like to stick the Chairman every now and again.
    We give money to the International Trade Administration for 
promoting U.S. exports and all those things, they are not going 
to get growth. The one thing that is going to get the growth, 
and it has proved out, and they are not pork, they have got to 
be vetted by the National Academy of Engineering, like you 
said, and NIST.
    I got together--we had a fellow over there, Craig Fields in 
DARPA, and he found out the Navy program for research was rapid 
manufactured parts. We got it going through the Department of 
Commerce, because a boat would break down in the gulf and the 
destroyer is 30 years old, or whatever it is, and the part, 
they have to languish there in the gulf for 2 months and then 
go back. We have got a system now where they do not languish 
over 24 hours.
    So we have got DARPA, we have got NIST, we have got the 
Advanced Technology Program, and why do we eliminate it?
    Secretary Evans. Well, again, like I said, those are good 
programs, no question about it.
    Senator Hollings. That is all. You do not have to explain 
any more. I am going to quote you.
    Secretary Evans. You can.
    Senator Hollings. Thank you. I would yield to the 
distinguished Senator from Wisconsin.
    Secretary Evans. Good.

              MANUFACTURING EXTENSION PARTNERSHIP PROGRAM

    Senator Kohl. Thank you, Mr. Chairman, and Secretary Evans, 
I would like to talk a little bit about the Manufacturing 
Extension Partnership Program.
    I know this administration supports research and 
development to maintain American leadership and technology 
development and commercialization. To quote from the Commerce 
Department's Web site, ``Americans will never win the game to 
see who can pay their workers less. We do not want to, and 
continued innovation means that we will not have to. Innovation 
excellence starts with research and development, and since 
taking office, the President has proposed record levels of 
Federal R&D.''
    So Mr. Secretary, I am concerned and puzzled by your 
proposed budget, which includes only $12.6 million for the 
Manufacturing Extension Partnership Program, called MEP. This 
program has always had bipartisan congressional support. By way 
of comparison for fiscal year 2003, we funded the program at 
well over $100 million. Given the current situation, I 
therefore cannot understand why you would virtually eliminate a 
program like this, which truly makes a difference.
    The United States is losing hundreds of thousands of 
manufacturing jobs and production know-how to low-wage 
countries like China. We have our largest imbalance with China, 
an imbalance growing by 30 percent a year. In my State of 
Wisconsin, the jobs we are losing to overseas production are 
high-paying jobs.
    To help counter this trend, my State MEP centers work 
directly with small manufacturers to help these companies 
compete by being more productive and more effective, and so my 
question is, why are you virtually gutting Federal support for 
this program? Virtually half of the program's costs and 
expenses come from the Federal Government. Small manufacturers 
in my State have said this program is important to them, and so 
I do not know what I should be telling them with respect to 
what I know is your commitment to the development of small 
manufacturing innovation, efficiency, technology, and your 
apparent opinion that the MEP program is not all that 
important. I just give you this map for you to peruse.
    Secretary Evans. Sure, thanks Senator.
    Senator Kohl. Those MEP centers, as you can see, are all 
over the country. There are hundreds and hundreds of MEP 
centers, and without Federal support they may well evaporate.
    Senator Gregg. Aren't they called Hollings centers?
    Senator Kohl. Pardon me?
    Senator Gregg. No, I think they're called Hollings centers, 
aren't they?
    Senator Kohl. Hollings centers?
    Secretary Evans. You know, I will say what I said earlier, 
I think, that there are certainly some very good stories from 
ATP that one can look to and can say were successes. I think 
the same thing applies to MEP, the Manufacturing Extension 
Partnership Program. I travel all across the country on 
university campuses, from time to time, talk to universities 
and how they are participating in these MEPs with the Federal 
Government, with other cities, with counties and so I am very 
much aware of the programs.
    First of all, I would just say it is a matter of 
priorities, and understanding at some point you have to draw 
the line, and we are not all going to draw the line at exactly 
the same place, and I know that and you know that, and so I am 
more than happy to work through the budget process with the 
committee and talk about our differences with respect to these 
programs, but when you look at the MEP program, what confuses 
me is why this program would not be a success in the private 
sector, and the reason I say that is because the studies people 
show me and want to give to me in the way of results are the 
sizeable returns that people enjoy by participating in the MEP.
    Well, having been somebody that was out there in the 
private sector for some 26 years of my life, that looks like to 
me a pretty good opportunity to start a business, because if I 
can give those kinds of returns to some of the small businesses 
in the area, then it seems like they would be willing to pay me 
for that service I am providing to them.
    You know, I had the same kind of issue, the same related 
issue with ATP, and that I really felt like if we were going to 
provide funding for seed capital, or venture capital for 
research, and if it is successful, then maybe some of that 
ought to come back to the American taxpayer that funded it to 
begin with.
    So I think it is good programs that--what I see opportunity 
for, I see some opportunity for the private sector to step in 
and provide the same kind of service. And I also see an 
opportunity, if it is successful, if it works, then maybe there 
is an opportunity to return some of the benefits, not all of 
them, but some of those benefits back to the American taxpayer 
to help pay for the program, if the program were to continue.
    Senator Kohl. I do not totally disagree with what you are 
saying, but my response is that this is not entirely a Federal 
program. This is a 50-50 partnership between the Federal 
Government and private industry, and so the question is not 
really why does the Federal Government have to fund this 
program entirely. It is that, what is wrong with the 
partnership concept?
    I mean, if this were 100 to nothing, or 100 to zero in 
terms of percent of funding, I would understand what you are 
saying, but it is 50-50. It seems to me that is reasonable--
reasonable, and I guess my question is, why would you all take 
the position that on your list of priorities, in terms of 
funding, that almost comes down to zero?
    Secretary Evans. Well, again I guess I would say, Senator, 
it is priorities. I mean, like you, we think about the Federal 
debt and the deficit, and there are lots of worthwhile programs 
that we would like to see funded, but the resources are not 
there to fund all of the programs that we would all like to see 
funded, and so you have to draw the line some place. You have 
to make tough choices, and I understand that, we will have 
differences of opinion as to where the line should be drawn, 
and this is one of those areas where we have a difference of 
opinion.
    I am not here saying that these programs have not provided 
a service. I am not here saying that there is not some good 
results to point to historically, but I am saying that one, 
particularly at this moment in our history, we have some 
priorities of homeland security and national security that we 
are all certainly very focused on, and these are just some 
tough choices that have to be made, but certainly, as I 
mentioned, I look forward to working through the process, 
working with the committee and working through our differences 
of opinion.
    Senator Kohl. Well, thank you. I will keep on badgering if 
I can, and see if we cannot get something.
    Secretary Evans. Sure, sure.
    Senator Gregg. The Senator from Wisconsin is a very good 
badger.
    Secretary Evans. Very good, very good. Not bad. Very good, 
Chairman.
    Senator Gregg. Mr. Secretary, following up on the Senator's 
point, your comment that maybe there should be a greater return 
to the taxpayer when these MEPs produce a commercial event that 
has profitability, do you have language that you would insert 
to change the programs to create that atmosphere?
    Secretary Evans. No, Mr. Chairman, I have not. It is 
something that we would be glad to look at and would be glad to 
think about. It just seems that if you have a company that 
enjoys some 25 percent return or 35 percent return from the 
services they have been provided, then maybe they would want to 
return some funding back to the center to help some other small 
manufacturer who comes along.
    Senator Gregg. I'm attracted to the idea, so if we end up 
refunding these as a result of the Senator from Wisconsin's 
energies, I would be interested if you had language that could 
accomplish that as a part of the exercise.
    Secretary Evans. I know if I was out there running a small 
business and I had this available to my company, and it was 
successful, and we had great results from it, I would feel some 
kind of responsibility to support that program in a pretty 
direct kind of way, and so that the program could benefit other 
small, or other manufacturing companies that come along behind.
    Senator Kohl. They do. I say, the program is supported 50 
percent by these companies, so it is not as though they are 
only taking. They are also giving to the program.
    Senator Gregg. On ATP, we really do not have any place in 
the Government right now where people who are coming up with 
creative ideas on the issue of counterterrorism, technology 
ideas, can go and get a grant quickly that would allow them to 
expand their efforts, and I do not know about other offices. 
Maybe once a month somebody comes in with some fairly unique 
idea as to how they are going to screen somebody, or what they 
can do, or how they are going to develop something.

             RESEARCH AND DEVELOPMENT FOR COUNTERTERRORISM

    Would it make sense if we reauthorized or refunded ATP to 
redirect it into an exercise of being more focused on 
counterterrorism, producing technology for counterterrorism, 
experimental or commercial?
    Secretary Evans. I guess what has been called to my 
attention is, Homeland Security is requesting some $900 million 
in this area of R&D for counterterrorism.
    Senator Gregg. How are they going to oversee that? Well, we 
will have Secretary Ridge. We will ask him.
    We have been joined by the chairman of the full committee.
    Senator Stevens. Good morning, Mr. Secretary.
    Senator Gregg. Do you have anything more?
    Senator Hollings. Yes, I will, but for example, from 1992 
to 2004, the ATP funded $270 million in projects with primary 
relevance to the detection of and protection from and response 
to potential terrorist activity. They have been coming to my 
office, too, and I have been sending them over there and it is 
working. You are helping Secretary Ridge.
    Senator Gregg. I think it makes a lot of sense.
    Senator Stevens, do you have any questions?
    Senator Stevens. No, I had no questions this year. I just 
stopped by to see our friend and say hello.
    Senator Hollings. Well, I have a few more questions, and I 
am like Senator Stevens and I am going to work with the 
chairman. Your budget is in good shape, and I will work with 
Chairman Gregg for what he thinks we ought to do.
    But frankly, I am worried about this war, and I have moved 
from the military to the trouble we have in the world 
community. If the President asked me to come over in the next 
10 minutes and asked me what to do, I would say, I would get 
that best friend of yours, Secretary Evans, up to Canada. You 
cannot just get everybody--I see on my TV this morning the 
President is on the phone trying to still get support. Isn't 
that a hell of a note? But he is on the phone this morning 
trying to get support.
    Now, we all support it, we are committed, but in my war, 
World War II, the first in was Canada. So we have got to get 
you back involved. You come with the calling card of President 
Bush--and you know how to talk to people. You can help us with 
Vicente Fox. You know him down there in Mexico.
    When you start an engagement of this kind, and can't even 
get Mexico and Canada, we have got to start working back 
upstream now to get some help from the United Nations and 
everything else like that, and do not worry about budgets and 
ATP and MEP and all that other stuff. Right now, let us get 
going on this war. Yes, sir.
    Senator Gregg. Senator Stevens.
    Senator Stevens. Mr. Secretary, we lost a big one yesterday 
as far as my State is concerned, but I know we have had talks 
about the Alaska gas pipeline. We have a new hybrid proposal we 
want to discuss with the administration, and I hope we can get 
some time on your schedule to discuss that sometime soon.
    Secretary Evans. We can.
    Senator Stevens. We will be coming in this week and next 
week to talk about it. It's not an immediate project--it won't 
run gas to our system before 2011, but it is an 8-year project 
at a minimum. If we can get it off the ground this year it will 
be very meaningful. I hope you are both familiar with that 
project.
    All of the gas that is produced with 17 billion barrels of 
oil we produce and send down the Alaska pipeline was separated 
out and put right back in the ground right there at Prudhoe. We 
do not have to explore for it. All we have to have is a 
mechanism to transport it, and it is a substantial amount of 
gas.
    Secretary Evans. I would be glad to come by at your 
calling. Just give me a call and I will be there.
    Senator Stevens. Maybe we can arrange for you to come back 
up to our State again this summer and take a look at it.
    Secretary Evans. Good. Thank you, Senator.
    Senator Gregg. While we are here, I do want to acknowledge 
and thank the chairman of the committee for returning a hearing 
room to its rightful spot.
    Senator Hollings. I thank you, Mr. Chairman.
    Senator Gregg. We very much appreciate it.
    Senator Hollings. I was chairman of legislative 
appropriations. I walked in here and it was just a pile of wood 
and paint cans and everything else, and the Architect of the 
Capitol was using this just as a storeroom to do repair work 
all over, and we cleaned it up.
    Senator Gregg. I believe this was the room that the 
Dartmouth College case was argued in by Daniel Webster.

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Hollings. And Marbury v. Madison.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]
               Questions Submitted by Senator Judd Gregg

                           HOMELAND SECURITY

    Question. Mr. Secretary, BIS' work towards controlling the 
proliferation of sensitive dual-use technologies is critical to our 
national security. We are now faced with a restless nuclear power on 
the Korean Peninsula that has already acquired the necessary 
technologies to create weapons of mass destruction. There are many more 
regimes in the world that are hostile to the United States and are 
aggressively pursuing these technologies. How is BIS adapting to this 
rapidly changing global security environment? How has its mission 
changed since 9/11? Have BIS' requirements changed?
    Answer. The Bureau of Industry and Security (BIS) administers U.S. 
export controls for dual-use items, including items that may be used 
for the development of weapons of mass destruction, delivery vehicles 
for these weapons, and advanced conventional arms. Its mission remains, 
as before, to advance U.S. national security, foreign policy, and 
economic interests. Since September 11, 2001, BIS has been actively 
working with its counterparts in the Departments of State, Energy, and 
Defense to ensure that export controls address current global security 
challenges and, in particular, are adequate to prevent the acquisition 
of such items and use by hostile nations or terrorist groups. To that 
end, we have advocated proposals to strengthen export controls and 
procedures in all four multilateral export control regimes (the Nuclear 
Suppliers Group (NSG), the Australia Group (AG), the Missile Technology 
Control Regime (MTCR), and the Wassenaar Arrangement).
    For example, in the NSG, the United States has proposed a ``watch 
list'' of non-controlled commodities that could be of use to North 
Korea's nuclear program. This list would be shared with non-regime 
partners to make them more aware of the commodities that could aid 
North Korea's nuclear program. The AG has accepted U.S. proposals to 
tighten the controls on small fermenters that terrorists could use to 
produce biological warfare agents. The AG also has agreed to a U.S. 
proposal to tighten controls on technology transferred through 
intangible means such as the Internet. In the MTCR, the United States 
has advocated expanding the controls to include small unmanned aerial 
vehicles that could have applicability in spreading chemical and 
biological weapons agents. In the Wassenaar Arrangement, the United 
States advocated amending the ``Initial Principles'' to include, as a 
core regime objective, the prevention of terrorism.
    These regime changes support BIS efforts to address security 
concerns originating not only from hostile nations but also from 
terrorist groups and individuals.
    Question. Your fiscal year 2004 request for the Bureau is only $3.5 
million above the fiscal year 2003 enacted level. Is this amount 
adequate to meet all of the new requirements you will surely face in 
the upcoming months and years?
    Answer. BIS is comfortable with the funding request contained in 
the President's budget. In order to address new requirements, BIS 
believes that the budget request should be funded in full.
    Question. Is BIS' technology infrastructure adequate? From high-
powered data warehousing at headquarters to satellite phone capability 
in the field, does BIS have the tools it needs to do its job?
    Answer. BIS currently has an adequate technology infrastructure to 
perform its mission-critical functions. BIS is in the process of 
modernizing its Export Control Automated Support System (ECASS), which 
was developed in the mid-1980s, from a mainframe-based system to a 
modern server-based system with a relational database. BIS also has 
upgraded all personal computers, desktop software, and 
telecommunications links to provide its users with up-to-date 
technology and to improve productivity. BIS continues to seek ways to 
modernize its technology infrastructure to empower its employees to 
deliver critical services to its customers.
    To that end we note that in the President's fiscal year 2004 budget 
proposal, additional resources are requested to support BIS's Seized 
Computer Evidence Recovery System (SCERS) program. This program, which 
uses evidence seized from computer disk drives, has a significant 
backlog of evidence awaiting analysis. This delay has hindered the 
processing of cases and the completion of time-sensitive 
investigations. In the President's fiscal year 2004 budget, BIS seeks 
additional personnel (one agent and two technical analysts) to staff a 
modern SCERS lab, thus alleviating the burden placed on SCERS agents in 
the field currently performing this work.
    Question. To what extent will BIS be working with the Department of 
Homeland Security? In your opinion, what is the appropriate 
relationship between BIS and Homeland Security? To what degree will the 
new Department influence BIS' mission, policies, and agenda?
    Answer. BIS has an excellent working relationship with various 
agencies now located in the Department of Homeland Security, and we 
anticipate that we will continue to work well with those agencies. BIS 
has long had an excellent working relationship with the U.S. Customs 
Service in the administration and enforcement of dual-use export 
controls. BIS also maintains a good working relationship with the 
Information Analysis and Infrastructure Protection Directorate of DHS, 
to which BIS's Critical Infrastructure Assurance Office was transferred 
earlier this year. The creation of the Department of Homeland Security 
has not altered BIS's mission, policies, or agenda.
    Question. To what extent is the Bureau of Industry and Security 
working with the Department of State, which has responsibility for 
regulating weapons exports? Could you describe how this relationship 
has evolved since September 11? Are State and BIS sharing information 
and lessons-learned? Are State and BIS collaborating their efforts 
overseas, for example, sharing information about end-use checks, 
monitoring, enforcement, and the like?
    Answer. BIS continues to have a close working relationship with the 
Department of State on the implementation of U.S. export controls. BIS 
has been involved with the Departments of State, Defense, and Energy, 
and the National Security Council in a comprehensive review of goods 
and technologies on the U.S. Munitions List (USML). The State 
Department implements export controls under the USML. In addition, by 
Executive Order, State reviews export license applications submitted to 
BIS and BIS-promulgated regulations concerning exports of U.S. dual-use 
goods and technologies. BIS also works closely with State on changes to 
the multilateral export control regime lists. Through these various 
processes, State and BIS share information about countries and end-
users of concern. Moreover, since the mid-1990s, BIS has worked closely 
with State to share information relevant to each other's watch lists 
and end-use checks. Finally, BIS works closely with the State 
Department in rendering technical assistance to other countries to 
assist the development of strong indigenous export control systems and 
improve cooperation in export controls, under the State Department 
administered Export Control and Border Security program.

                   CRITICAL INFRASTRUCTURE PROTECTION

    Question. Mr. Secretary, CIAO was created within the Department of 
Commerce in fiscal year 1999. A conscious decision was made to put CIAO 
at Commerce because of Commerce's strong ties to the private sector, 
which controls the lion's share of our national critical infrastructure 
(the Internet and utilities, to name just two examples). This month, 
CIAO began its transition to the Department of Homeland Security.
    How do you think CIAO's mission will change once it is incorporated 
into the new Department? Will CIAO continue to have primary 
responsibility for liaising with the private sector on matters relating 
to critical infrastructure protection and for ensuring that the private 
sector does not inadvertently create weaknesses in our national 
critical infrastructure, or will this responsibility remain at 
Commerce?
    Answer. CIAO's mission consisted of three main functions related to 
critical infrastructure protection when it transferred into the 
Department of Homeland Security (DHS): national outreach and awareness, 
planning and policy coordination, and critical asset and 
interdependency identification for federal government agencies (Project 
Matrix). Consistent with the requirements of the Homeland Security Act 
of 2002, these functions were fully integrated into the Information 
Analysis and Infrastructure Protection Directorate. Since private 
industry owns and operates 85-90 percent of the nation's critical 
infrastructures, we anticipate that DHS will need to continue to work 
closely with U.S. industry, and has primary responsibility for doing 
so. The Planning and Partnerships Office of the new Directorate retains 
CIAO's core public-private partnering competencies and previously-built 
contacts with the private sector. Commerce stands ready to assist where 
appropriate.
    Question. Do you think Homeland Security is well-suited to handle 
the task of liaising with the private sector, as CIAO did while it was 
at Commerce? How do you think companies will react to having DHS--which 
is essentially a law enforcement agency--involved in their internal 
efforts to strengthen their systems against attack?
    Answer. Our experience suggests that U.S. industry generally 
cooperates well with government agencies on issues of national security 
and homeland defense. As we all have seen since September 11, 2001, 
national and economic security depends on homeland security. Private 
industry in general recognizes this new reality. We are optimistic that 
industry and the Department of Homeland Security will have a productive 
and mutually beneficial relationship with respect to critical 
infrastructure protection. The Commerce Department stands ready to 
assist in this effort as appropriate.
    Question. With the transfer of CIAO, will the Bureau of Industry 
and Security have any role in critical infrastructure protection?
    Answer. The Department of Commerce generally, and the Bureau of 
Industry and Security specifically, will continue to carry out programs 
and activities relating to the economic security component of critical 
infrastructure protection--as they did before CIAO was created in the 
Department of Commerce. For example, the National Telecommunications 
and Information Administration has responsibility for spectrum 
management and chairs the interagency Internet Protocol version 6 
(IPv6) task force. The Technology Administration's National Institute 
for Standards and Technology will continue its leading role in 
developing standards relating to the physical and cyber security of 
products, services, and processes, which are shared internationally as 
well as domestically.
    The Bureau of Industry and Security (BIS) continues to have 
significant defense industrial base responsibilities. The defense 
industrial base was recognized as one of the fourteen critical sectors 
in the National Homeland Security Strategy. BIS administers the 
priorities and allocations authority under Title I of the Defense 
Production Act to ensure the timely delivery of industrial products, 
equipment, materials, and services for approved national defense and 
homeland security programs. Under that authority, BIS has assisted the 
Transportation Security Administration and the FBI in acquiring 
products and equipment needed for the war on terrorism. BIS also 
conducts assessments of the viability of various critical industry 
sectors. Finally, consistent with its mission of furthering U.S. 
national security and economic security, BIS continues to advocate the 
importance of protecting the country's critical infrastructures and 
assets.

NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY (NIST)/HOMELAND SECURITY

    Question. It is clear that NIST and the Department of Homeland 
Security (DHS) must develop a close working relationship. Have you had 
any preliminary talks with Secretary Ridge on this subject? Do you 
believe the Director of NIST has a clear understanding of what will be 
expected of NIST under the new homeland security framework? Does he 
have the resources he needs to meet these requirements?
    Answer. There have been extensive discussions between the 
Department of Commerce (DoC) and the Department of Homeland Security 
(DHS) on the need to develop a close and effective collaboration. Such 
discussions led to the signing of a Memorandum of Understanding (MOU) 
on May 22, 2003, between the Technology Administration (TA) of DoC and 
the Science and Technology (S&T) Directorate of DHS. The MOU allows the 
S&T Directorate to leverage TA's, and specifically NIST's, expertise in 
measurement science and standards to accelerate the development, 
testing, evaluation, and deployment of homeland security technologies. 
S&T and TA seek to collaborate on research and planning activities, and 
share where appropriate facilities, personnel, and scientific 
information. This MOU builds on the long history of collaboration 
between NIST and the various agencies incorporated into DHS, such as 
the Federal Emergency Management Agency (FEMA), and the Office for 
Domestic Preparedness (ODP). To further improve ties between NIST and 
DHS in the areas of measurements and standards, NIST has detailed on a 
full-time basis the Division Chief from its Ionizing Radiation Division 
and a staff member (part time) from its Computer Security Division to 
the Office of Standards in the DHS S&T Directorate.
    The Director of NIST has a clear understanding of NIST's role in 
homeland security. This role is defined by NIST's unique mission to 
develop and promote measurement, standards, and technology to enhance 
productivity, facilitate trade, and improve the quality of life. 
Because of the overwhelming importance of homeland security to the 
quality of our life, NIST will work with the new DHS to ensure that the 
appropriate measurements and standards are in place to support the 
efforts of DHS in chemical, biological, radiological, nuclear, and 
explosive detection and defense, cybersecurity, critical infrastructure 
protection, first responders, etc. NIST's partnership with DHS will 
build upon years of experience working with a number of the agencies 
making up the new Department.
    NIST is also building upon its experience in consensus standards 
and its partnerships with standards development organizations (SDO's) 
to address the needs for homeland security standards. The Chief of 
NIST's Standards Services Division is the government co-chair of the 
ANSI Homeland Security Standards Panel that is coordinating the efforts 
of standards development organizations (SDOs) in developing standards 
required for homeland security technologies.
    Because of the importance of homeland security to our citizens, 
NIST has redirected resources to develop the critical measurements and 
standards in this area. When appropriate, NIST homeland security 
efforts are supplemented by funds from other government agencies. When 
sufficient funding is not available through these approaches, the 
Administration has proposed budget initiatives for NIST in the area of 
measurements and standards for homeland security. For fiscal year 2004 
the following homeland security budget initiatives have been proposed: 
Homeland Security: Standards, Technology, and Practices for Buildings 
and First Responders ($4.0 million, 7 permanent positions, and 5 FTE); 
Measurement Infrastructure for Homeland Security ($5.3 million, 12 
permanent positions, and 9 FTE); and Standards for Biometric 
Identification Systems ($1.0 million, 4 permanent positions, and 3 
FTE).

              NIST/LAW ENFORCEMENT TECHNOLOGIES STANDARDS

    Question. Mr. Secretary, a great deal of funding has been earmarked 
during the last two years to help first responders purchase the 
equipment they need to effectively combat terrorism. Justice has been 
doing some work in the area, but standards-development is really NIST's 
bailiwick.
    The President's budget does not request any direct funding for the 
Office of Law Enforcement Standards at NIST. Are you planning to 
request funds for OLES in the fiscal year 2005 budget request? Wouldn't 
you agree that there is a significant need in this area and that NIST 
is uniquely qualified to fill it?
    Answer. In response to your statement, developing performance 
standards for communication and personal protection equipment for first 
responders is very important and the National Institute of Standards 
and Technology (NIST) has an important role to play here. For several 
years, NIST's Office of Law Enforcement Standards (OLES) has been 
working with the Department of Justice's National Institute of Justice 
(NIJ) and other government agencies developing performance standards 
for first responders.
    The ability of law enforcement and public safety agencies to 
communicate and exchange data in critical situations is fragmented by 
equipment incompatibilities and the lack of standards to provide a 
common, nationwide approach to telecommunications and information 
sharing. In its efforts to resolve this issue, NIST's OLES has been 
working hard on a Public Safety Communications Standards program geared 
toward solving public safety interoperability and information sharing 
problems by developing and adopting NIJ standards for voice, data, 
image, and video information transfers for first responders. In 
addition, OLES has been holding discussions with end users about their 
requirements and evaluating commercial devices instrumental to ensure 
that the equipment and technologies currently being used by the U.S. 
first responders community are interoperable, safe, dependable, and 
effective.
    In addition, OLES has been managing a program since 1999, to 
develop CBRNE (chemical, biological, radiological, nuclear, and 
explosive) protective equipment standards for emergency first 
responders. This program, initially funded by NIJ, will continue with 
funding provided by the Office for Domestic Preparedness (ODP). An 
Interagency Agreement has been signed between the ODP, formerly of the 
Office of Justice Programs, now part of the Borders and Transportation 
Security Directorate, Department of Homeland Security, to continue the 
program managed by OLES for the development of a national suite of 
CBRNE protective equipment standards for emergency first responders. 
This program led to a National Institute of Occupational Safety and 
Health (NIOSH) standard for Self-Contained Breathing Apparatus (SCBA) 
and Air Purifying Respirators (gas masks) and produced an important set 
of guides and databases to help emergency first responders in the 
evaluation and purchase of chemical and biological detection, personal 
protective, and communications equipment. The continuation of this 
program under ODP will be significantly expanded beyond development of 
personal protective equipment standards to address radiological 
threats, decontamination standards, and explosive detection standards.
    Yes, the National Institute of Standards and Technology (NIST) 
believes there is a significant need in the criminal justice and public 
safety area and NIST is uniquely qualified to fill it. NIST has 
successfully filled these needs over the past 32 years through a number 
of reimbursable agreements with other agencies, such as the Department 
of Justice's National Institute of Justice, the Department of 
Transportation, and most recently with the Department of Homeland 
Security's Office of Domestic Preparedness.
    The $3 million funding for NIST's Office of Law Enforcement 
Standards (OLES) provided in the fiscal year 2003 Omnibus 
Appropriations Act will go a long way in helping NIST to ensure that 
NIST has the critical personnel with the expertise to implement law 
enforcement standards initiatives proposed by their partner federal 
agencies as specifically stated in the Act itself. This funding 
supports NIST with an appropriation in fiscal year 2003 for the staff 
and administrative costs related to the Office of Law Enforcement 
Standards, giving NIST the means to independently hire, maintain and 
manage the appropriate technical expertise to perform its 
responsibilities to the law enforcement community. In addition, it 
allows NIST to devote the entirety of its funding from reimbursable 
sponsors to the technical needs of those sponsors, without diverting 
any funding from sponsors to cover staff and administrative costs at 
NIST.
    At the time the fiscal year 2004 President's budget request was 
submitted, the fiscal year 2003 Omnibus Appropriations Act had not been 
enacted. Therefore, the fiscal year 2004 President's budget request 
builds from the fiscal year 2003 President's budget request, which did 
not include any direct appropriated funding for NIST's OLES. Decisions 
on the funding priorities to be included in the President's fiscal year 
2005 budget have not been finalized, and we will bear your concerns in 
mind as we evaluate the many competing requests for funding.

                 NIST/WORLD TRADE CENTER INVESTIGATION

    Question. Before NIST took over the World Trade Center 
investigation, there was a huge controversy over whether too much of 
the structural steel from the Twin Towers had been sold to scrap yards, 
creating an impossible situation for NIST's scientist and engineers. 
Now that NIST is seven months into the investigation, has it been able 
to gather enough evidence including structural steel to conduct the 
investigation? Could you report on NIST's progress or any preliminary 
findings from the investigation?
    Answer. Yes, the National Institute of Standards and Technology 
(NIST) is basing its review, analysis, modeling, and testing work for 
the World Trade Center (WTC) investigation on a solid foundation of 
technical evidence.
    NIST has in its possession nearly 250 pieces of WTC steel. The vast 
majority of the pieces are of significant size and include perimeter 
prefabricated column-spandrel elements, rectangular box beams, wide 
flange sections, truss sections, channels and several smaller pieces, 
such as bolts. As of March 28, 2003, NIST has catalogued 235 pieces of 
WTC steel which includes a database with photographic records and 
member markings. In addition, NIST has examined additional steel stored 
by the Port Authority at JFK airport and has transported 12 specimens 
to NIST. NIST believes that this collection of steel from the WTC 
towers is adequate for purposes of the investigation.
    NIST has also received considerable cooperation and large volumes 
of information from a variety of organizations and agencies 
representing the building designers, owners, leaseholders, suppliers, 
contractors, and insurers.
    Local authorities providing information include the Port Authority 
of New York and New Jersey (PANYNJ or Port Authority) and its 
consultants and contractors; the Fire Department of New York (FDNY); 
the New York Police Department (NYPD); the New York City Department of 
Design and Construction (DDC); the New York City Department of 
Buildings (DOB); and the New York City Office of Emergency Management 
(OEM). In addition, the Occupational Safety and Health Administration 
(OSHA) provided correspondence sent to it regarding the evacuation 
experience of WTC occupants on September 11, 2001.
    NIST also has received information from Silverstein Properties 
(Silverstein) and its consultants and contractors; the group of 
companies that insured the WTC towers and its technical experts; Nippon 
Steel; Laclede Steel; Isolatek International, formerly known as U.S. 
Mineral Products; Marsh & McLennan (a tenant of WTC 1), and Roger Morse 
Associates. The information from Silverstein and the insurance 
companies includes the large body of technical work completed by both 
parties as part of the insurance litigation involving the WTC towers, 
such as reports on the structural collapse, fire spread and severity, 
and wind tunnel test results for the WTC towers. In addition, technical 
experts for both parties independently provided extensive briefings to 
the WTC investigation team and discussed the tenability environment and 
the evacuation procedures in the buildings.
    Solid progress has been made by the investigation team at the one-
third mark of the ongoing 24-month effort. On May 7, 2003, NIST 
released a progress report (http://wtc.nist.gov/) on the WTC 
investigation, its second since the effort began in August 2002. This 
interim report does not include any conclusions or make any 
recommendations, since the investigation is still in its early stages.
    Key points in the progress report included:
  --a status update on efforts to collect critical data about the WTC 
        disaster of September 11, 2001, such as building documents, 
        video and photographic records, emergency response records and 
        oral histories (a complete listing of materials collected to 
        date and those items still needed are included in the report);
  --an interim report that documents the procedures and practices used 
        to provide the passive fire protection (fireproofing) for the 
        floor system of the WTC towers (nothing in the interim report 
        based on a review of factual data in documents obtained by NIST 
        should be taken to imply that the floor trusses played a 
        critical role in the collapse of the WTC towers);
  --a detailed description of the key factors that NIST is considering 
        in its analysis of the various collapse scenarios hypothesized 
        for the WTC buildings, including fire endurance testing of a 
        typical WTC floor system and individual steel members;
  --a look at the integrated approach for identifying the most probable 
        of the technically possible collapse sequences for WTC 1 and 2 
        (the Twin Towers) and WTC 7; and
  --a review of NIST plans originally presented in April 2003 for 
        studying the WTC evacuation and emergency response by 
        collecting first-person data from survivors (both WTC occupants 
        and first responders), families of victims, and individuals 
        with operational and command authority during the WTC disaster.

             NIST/WARWICK, RHODE ISLAND FIRE INVESTIGATION

    Question. Mr. Secretary, in January, we in New England suffered a 
horrible tragedy when 96 people were killed in a nightclub fire in West 
Warwick, Rhode Island. Was the National Construction Safety Team Act 
successful in helping avoid confusion over responsibility for the 
investigation into this tragedy? How is the Administration proposing to 
fund this and future investigations? If NIST is going to be responsible 
for investigating these events when they occur, should funds be set 
aside within NIST for this purpose to avoid the delay in starting the 
investigation?
    Answer. The tragic fire in West Warwick, Rhode Island, is the type 
of event that the National Institute of Standards and Technology (NIST) 
would have investigated under its existing authority prior to the 
passage of the National Construction Safety Team (NCST) Act. What the 
Act has done, however, is to allow us to respond immediately and to 
raise the awareness and appreciation of our activities in the eyes of 
local officials and the other Federal agencies that are conducting 
investigations. The Act provides for the criminal investigation to have 
priority over NCST activities. We have briefed local and state 
authorities on the role and objectives of the NCST investigation, and 
established liaisons with the Rhode Island State Fire Marshal's office, 
the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) and the 
U.S. Fire Administration. The NCST is gathering evidence, to the extent 
possible, independent of any criminal investigations.
    The Rhode Island investigation plan was issued based upon the 
redirection of base funds. The plan targets completion of the 
investigation by the end of calendar year 2003.
    NIST has not been appropriated any additional funding for 
activities associated with the NCST Act. Where appropriate, NIST will 
continue to undertake investigations of major building disasters as 
authorized by law.

           PATENT AND TRADEMARK OFFICE, INCREASE IN USER FEES

    Question. PTO's fiscal year 2004 budget request includes a 15 
percent increase in user fees. This fee increase will mean an 
additional $300 million in fee revenue for the PTO that it would 
otherwise not collect. How is a 15 percent increase in user fees 
justified when, under the current plan, PTO does not expect to 
significantly decrease patent pendency?
    Answer. The fee legislation currently pending in Congress will 
generate additional revenues and ensure the implementation of the 
USPTO's 21st Century Strategic Plan. If the fee legislation is not 
implemented for fiscal year 2004, the USPTO's projection of fee 
collections is $1,302.7 million and if the fee legislation is 
implemented before fiscal year 2004, the USPTO's projection of fee 
collections is $1,503.8 million in fiscal year 2004. This equates to an 
additional $201.1 million, or a 15 percent increase. The proposed Fee 
Modernization Act of 2003 is a critical component to the successful 
implementation of the strategic plan. The strategic plan aims to 
modernize the agency for the 21st century by addressing patent pendency 
as well as quality, workload, and e-Government. As Under Secretary 
James E. Rogan has testified before Congress, without the additional 
fees secured by passage of a fee bill this year, average patent 
pendency will climb to more than 40 months by 2008.
    The USPTO has been responsive to concerns that it continually 
attempts to address workload demands by hiring increasingly more patent 
examiners. The 21st Century Strategic Plan addresses this concern 
through a number of initiatives that will enable patent examiners to 
focus on the core mission of the organization--the examination of 
patent applications. These initiatives include the multi-track patent 
examination process, the mutual exploitation of search results, 
competitive sourcing of search, and the proposed fee restructuring. 
These initiatives, plus Under Secretary Rogan's top-to-bottom review 
resulted in a plan that reduces patent examiner hires through fiscal 
year 2008 by 2,400 compared to the fiscal year 2003 Business Plan.\1\ 
As noted in the strategic plan, average patent pendency time will 
increase over the short-term and be at 27 months in 2008. The USPTO 
will continue to work toward reducing pendency and pursue the long-term 
optimum goal of 18 months pendency beyond the five-year horizon of the 
strategic plan.
---------------------------------------------------------------------------
    \1\ The 2003 Business Plan was submitted to the Congress in 
February 2002 as part of the USPTO's fiscal year 2003 Budget.
---------------------------------------------------------------------------
                              [ATTACHMENT]

        CONSEQUENCES OF FAILING TO ENACT FEE LEGISLATION IN 2003

    Inability to Hire Needed Examiners.--In fact, patent pendency will 
increase dramatically because of our inability to hire 2,900 new patent 
examiners. An inability to hire patent examiners beginning in fiscal 
year 2003 and the out years will increase processing delays and 
severely impact USPTO's ability to bring down pendency. Over 140,000 
patents will not issue over the next five years if the USPTO is held to 
current fees and funding levels.
    Unexamined Patent Applications Skyrocket.--If recommended funding 
levels are not appropriated in future years, the inventory of 
unexamined patent applications would skyrocket to over 1,000,000 
applications by 2008 (more than double the current amount).
    Average Patent Pendency Skyrockets.--As measured from the time of 
filing, pendency would jump to over 40 months in 2008, the highest 
pendency rate in more than four decades.
    Delaying Full e-Government.--Inability to meet the stated goals of 
a fully electronic, e-Government environment for patent and trademark 
applications.

                      PTO/FIVE YEAR STRATEGIC PLAN

    Question. Mr. Secretary, I understand the PTO is now placing a 
higher priority on goals like quality assurance and e-government 
initiatives (the latter goal being driven primarily by OMB). While I 
agree that these are valid goals, I remain concerned about the issue of 
patent pendency. I understand that there is currently a 400,000 patent 
backlog. How will the Five Year Strategic Plan help decrease patent 
pendency? Will the PTO remain committed to the goal of 18 months for 
patent pendency? When can we realistically expect PTO to meet this 
goal?
    Answer. As you know, there is general agreement among the nation's 
CEOs, the inventor community, throughout lawyers in the bar, and people 
in the capital equity markets that issuing U.S. patents faster (vis-a-
vis reducing pendency) without adequate quality assurance behind them 
would lead to uncertainty for the tech community and be a terrible 
mistake overall. Further, if we do not complete our e-government 
initiatives to electronically process patent applications, we would 
remain less able to respond quickly to changes in workloads.
    As Under Secretary Rogan has also testified before Congress, 
without the passage of the Fee Bill, the USPTO's patent application 
backlog is predicted to rise to 1,000,000 by 2008 and more than 140,000 
patents will not issue in that time frame. We continue to work on all 
of these agency goals--pendency, backlog, quality assurance--through 
the 21st Century Strategic Plan and its initiatives. [See following 
graphs.]






    While the USPTO is making quality and e-Government initiatives an 
immediate priority, it continues to implement initiatives to support 
the USPTO's long-term pendency goals. The 21st Century Strategic Plan 
has aggressive timeliness goals: to make available, on average, a first 
Office action for first-filed U.S. non-provisional patent applications, 
at the time of 18 month publication, and a patent search report for 
other patent applications in the same time frame--by far the fastest in 
the world. This will be accomplished by redesigning the entire patent 
search and examination system based upon multiple-examination tracks, 
greater reliance on qualified patent search services, and variable, 
incentive-driven fees.
    Upon enactment of the Fee Modernization Act of 2003, the USPTO will 
move from a ``one-size-fits-all'' patent examination process to a 
multi-track examination process that leverages search results of other 
organizations and permits applicants to have freedom of choice in the 
processing of their applications. The new process will eliminate 
duplication of effort, encourage greater participation by the applicant 
community and the public, and improve the quality of patents and 
decrease processing time. For example, the proposed fee legislation 
contains significant authorities needed to implement the strategic 
plan, such as providing refundable search and examination fees rather 
than the composite fee currently charged. This change will provide 
patent applicants with the opportunity to terminate the application 
process because an invention does not have sufficient commercial 
viability and obtain a refund. This would abandon the application and 
obviate the need for the USPTO to proceed with the examination of the 
application. The USPTO will continue to work toward reducing pendency 
and pursue the long-term optimum goal of 18 months pendency beyond the 
five-year horizon of the strategic plan. Their best estimate is that it 
will take at least a decade to achieve the 18-month goal.
    Under a new paradigm, the USPTO will concentrate Office expertise 
as much as possible on the core government function of examination, and 
over the five-year horizon of the strategic plan, expects to hire 2,400 
fewer patent examiners than originally envisioned. However, they will 
make available, on average, a first Office action for first-filed U.S. 
non-provisional applications at the time of 18 month publication, and a 
patent search report for other patent applications in the same time 
frame which industry acknowledges is a highly beneficial interim 
pendency solution.

                  PAPERLESS PATENT APPLICATION PROCESS

    Question. Could you describe PTO's progress towards instituting a 
paperless patent application process? How high a priority is this for 
the PTO? How is this related to PTO's implementation of the various e-
government initiatives?
    Answer. The USPTO's priorities in the 21st Century Strategic Plan 
are to (1) improve patent and trademark quality, (2) aggressively 
implement e-Government to handle workload associated with the 21st 
Century economy, and (3) reduce patent and trademark pendency. One of 
the USPTO's highest priority e-Government initiatives is delivering an 
operating pipeline to process patent applications electronically by 
October 1, 2004, including electronic capture of all post-filing paper 
correspondence. At the center of the e-Government strategy is the 
collaboration with the European Patent Office (EPO) to use their 
ePHOENIX system, and collaboration with the Trilateral Offices (EPO and 
the Japan Patent Office) to achieve common goals and share systems 
already in use or development. The USPTO's Tools for Electronic 
Application Management (TEAM) project will also continue to support the 
e-Government strategy.
    The USPTO is on schedule to meet its October 1, 2004 planned 
electronic patent application processing date as follows:
    In May 2003, a prototype Image File Wrapper (IFW) system was 
installed in five Patent Examining Pilot Art Units, and more than 100 
patent examiners and support staff were trained on the use of the 
system.
    In June 2003, the USPTO will begin scanning all newly filed patent 
applications into the IFW system, and the digital copy replaces paper 
as the official patent file.
    In July 2003, the USPTO will begin full production roll-out of the 
IFW system. Seven Art Units, comprised of about 100 employees, will be 
added to the system each week. Upwards of 7,000 applications will be 
scanned per week resulting in adding over 8 million pages to the 
database each month.
    In December 2003, all working patent application files of the three 
Technology Centers moving to the USPTO's new Carlyle facility in 
Alexandria, Virginia, will be operating on the IFW system. At this 
time, there will be over 2,000 total users of the system.
    In January 2004, the USPTO will begin the final phase of full 
deployment of the IFW system throughout the Patent Examining Corps.
    In October 2004, all patent application processing will occur in a 
totally electronic environment that will be used by over 4,000 patent 
examiners and 2,500 support staff.
    Beginning in fiscal year 2004, the USPTO will collaborate with the 
European Patent Office to initiate an effort to process captured patent 
application images into text and associated images. This effort will 
use an eXtensible Markup Language (XML)-based data representation 
enabling text-based patent application processing (e.g., document 
navigation, document searching) by fiscal year 2006.

                            SOFTWOOD LUMBER

    Question. Mr. Secretary, are you aware of the softwood lumber 
issue, and can you give us a status report on the countervailing and 
antidumping investigations? Are you aware of the particular problem 
that some loggers and landowners in New England have had, which is that 
a dumping tax was, in effect, imposed on U.S. lumber that is shipped to 
Canada for processing? Is there going to be any opportunity for these 
companies to present their case and thus rectify this situation?
    Answer. After complex and thorough investigations, antidumping and 
countervailing duty orders on softwood lumber from Canada were issued 
in May 2002.
    I am aware of the issue involving duties being imposed on U.S. 
lumber shipped to Canada for processing and re-imported into the United 
States. In fact, in February 2003, based on comments we received, the 
Department issued a scope ruling to address this very issue. In 
essence, we clarified that U.S.-origin softwood lumber that is further 
processed in Canada may re-enter the United States free of antidumping 
and countervailing duties so long as, at the time of importation, the 
Bureau of Customs and Border Protection (BCBP) can be satisfied that 
the lumber was first produced in the United States. We believe that 
this matter has now been resolved. Since the Department issued its 
scope clarification, we have heard of no instances of BCBP collecting 
duty deposits on U.S. lumber processed in Canada and returned to the 
United States.
    In addition, during May 2003, we received numerous requests for 
administrative reviews of both the antidumping and countervailing duty 
orders. We will be initiating the administrative reviews by the end of 
June 2003.

                          WORKING CAPITAL FUND

    Question. Mr. Secretary, what would be the advantages and 
disadvantages of directly appropriating funds for central 
administrative services, rather than depending upon the Working Capital 
Fund?
    Answer. The Department's Working Capital Fund (WCF) was established 
on June 28, 1944, pursuant to 5 U.S.C. 607 (15 U.S.C. 1521). The 
Working Capital Fund is a no-year revolving fund established to support 
departmental services delivered more efficiently, economically, or 
advantageously on a centralized basis. Although activities and services 
have changed over the years of operation, the WCF continues to display 
full costing of services in bureau budgets. We see no advantages to 
directly appropriating funds for central administrative services.
    The disadvantages of directly appropriating funds for central 
administration services include the loss of:
  --Responsiveness/Flexibility for Bureaus.--The WCF provides a 
        mechanism where Bureaus can request additional services based 
        on their needs and funding availability, which varies year to 
        year. For example, additional guard service and security 
        investigations are requested as needed by Bureaus. If directly 
        appropriated, bureaus would lose this flexibility.
  --Flexible Cost Sharing Mechanism.--As a result of the 9/11/01 
        tragedy, applications for government jobs through the Postal 
        Service were significantly delayed throughout the federal 
        government. Hiring came to a halt in most federal agencies. 
        However, DOC job applications continued to be processed through 
        Commerce Opportunities On-Line (COOL), an automated job 
        application system. Individual DOC Bureaus may not have been 
        able to fund this initiative alone, but collectively through 
        the WCF this on-line job application system was developed and 
        is being used successfully by all participating Bureaus.
  --Economies of Scale.--The WCF provides a better vehicle to manage 
        inventory accounts and purchase large equipment or quantities 
        of items in which the Bureaus share in expenses and cost 
        savings. For example, we consolidate buying power and 
        management of services through large orders for administrative 
        services such as janitorial and printing. The WCF serves as a 
        better vehicle to realize volume cost savings.
  --Full Cost in Bureau Budgets.--Costs charged through the WCF ensure 
        that the Bureau's full cost of doing business is reflected in 
        Bureau budgets, not in a general administration budget.
                                 ______
                                 
             Question Submitted by Senator Pete V. Domenici

    PUBLIC TELECOMMUNICATIONS FACILITIES, PLANNING AND CONSTRUCTION

    Question. Secretary Evans, public television stations all across 
the country are facing a federal mandate to convert to digital 
broadcasting. Approximately 192 stations out of 355 have filed with the 
Federal Communications Commission for a waiver because they are not 
going to meet the May 2003 deadline due to lack of funding. These 
stations are counting on the Public Telecommunications Facilities 
Program (PTFP), which provides grants to public radio and TV stations 
for equipment, to help them cross the digital TV finish line with a 
federal matching grant.
    The President's fiscal year 2004 budget submission doesn't request 
funding for this important matching grant program. Can you please 
explain the thinking behind this decision?
    Answer. The President's fiscal year 2004 Budget proposes to suspend 
funding for the PTFP grant program in fiscal year 2004. The President's 
fiscal year 2004 Budget also proposes that Federal support of public 
television's digital television conversion be funded through monies 
previously appropriated to the Corporation for Public Broadcasting 
(CPB). As you probably are aware, CPB is funded through a two-year 
advance funding procedure. CPB's fiscal year 2004 appropriation of $380 
million was enacted into law on January 10, 2002, as part of the Labor/
HHS/Education appropriation, Public Law 107-116.
    The Administration proposes that up to $80 million in funding for 
digital conversion grants be made available from within CPB's $380 
million appropriation. The President's fiscal year 2004 budget 
recognizes that the FCC digital conversion requirement should be 
addressed in the next fiscal year.
    To date, public television stations have kept pace with their 
commercial counterparts in the digital conversion. PTFP's 2003 funding 
will assist approximately 109 stations meet the FCC's 2004 deadline. In 
addition, CPB has been appropriated $48 million for the digital 
transition as part of its fiscal year 2003 appropriation. NTIA has been 
in contact with CPB officials and understands that CPB will award these 
funds later in the year. Given competing national budget priorities and 
the availability of funds within CPB, the Administration believes that 
suspending PTFP grants for a year is prudent.
                                 ______
                                 
            Questions Submitted by Senator Daniel K. Inouye

                                TOURISM

    Question. Our country's engagement with Iraq has begun. The 
apprehension caused by this military conflict and terrorist incidents 
within the United States has led to a decline in air travel. This, 
coupled with weak economic conditions, has led to a decline in tourism 
such as we saw after September 11, 2001, and Desert Storm.
    Has the Commerce Department developed a strategy to reduce the 
effects on the tourism industry from this decline in business? Does the 
fiscal year 2004 budget request the necessary resources to shore up 
this important industry?
    Answer. In the fiscal year 2003 Omnibus Appropriation, Congress 
appropriated $50 million to market and promote the United States as a 
tourism destination. We are working with industry to implement this 
program and expect the tourism promotion campaign to commence in fiscal 
year 2004.
    The Department of Commerce is working in a number of ways to 
support the travel and tourism industry and to assist in its recovery. 
Immediately after 9/11, I reconvened the Tourism Policy Council (TPC) 
to coordinate throughout government the programs and policies that 
impact travel and tourism. The TPC provides the private sector with a 
forum for making known to the Federal government the industry's ideas 
and concerns. The TPC also ensures that the various Federal programs 
are coordinated to maximize support for the industry.
    The Department has launched a public-private partnership between 
the United States and Japan to restore travel and tourism between our 
two countries. Through promotional programs and events, this ``Tourism 
Export Expansion Initiative'' also seeks to address Japanese concerns 
about security and to convey that the United States is a safe 
destination--key to restoring travel from this market.
    The Department provides support to the travel and tourism industry 
through its Market Development Cooperator Program (MDCP). The MDCP is a 
competitive, matching grants program that seeks to leverage limited 
Federal support for expanding exports of small and medium-sized 
businesses. The Western States Tourism Policy Council received an award 
to focus on a cooperative strategy to restore international tourism in 
gateway communities in and around the federal public lands.
    The Department also provided a $788,000 grant to the State of 
Hawaii to help offset some of its losses attributable to the lack of 
tourism resulting from 9/11. The project was awarded to the Hawaii 
Visitor and Convention Bureau (Hawaii VCB) for a marketing campaign to 
attract visitors. Marketing will be multi-media and focused on mainland 
cities. The Hawaii VCB is based in Honolulu County but the project will 
benefit all counties of Hawaii.
    The Department provides support to the travel and tourism industry 
through its market research program. The Department is responsible for 
collecting and disseminating international traveler statistics, 
including arrival statistics and visitor expenditures.

         NATIONAL OCEANIC AND ATMOSPHERIC ADMINISTRATION (NOAA)

    Question. Support for NOAA activities and resources in Hawaii. I am 
concerned with what appears to be a lack of Administration support for 
NOAA's commitment to address critical needs in Hawaii and the American 
Flag Territories. I have two items of particular concern. First, the 
NOAA ship VINDICATOR (to be renamed HI'I ALAKAI) will be converted this 
fiscal year to support the National Ocean Service's activities in the 
Pacific including coral reef research. I understand that while the 
vessel will be ready for deployment during fiscal year 2004, the 
Administration's budget proposal does not include any funding for the 
operations of this vessel. Please explain in full detail why funds were 
not requested by the Administration for the operation of the 
VINDICATOR?
    Answer. At the time the fiscal year 2004 budget was being 
formulated, NOAA was still defining the multi-disciplinary mission 
requirements that would be used to develop the specification package to 
convert HI'I ALAKAI to meet the requirements. The likely date for award 
of the shipyard conversion contract was still unknown as was the 
expected amount of time that would be required for conversion and 
shakedown of new or modified systems. Considering those unknowns, it 
seemed unlikely the ship would be ready for operations early enough to 
require fiscal year 2004 operating funds.
    Second, the National Marine Fisheries Service will finally 
establish the new Pacific Islands Region next month. I am informed that 
NOAA does not have the two SES positions needed to provide the new 
Region with its top level managers: a Regional Administrator and a 
Science Director. In addition to the SES positions, I have not received 
any credible confirmation that there will be adequate FTE positions to 
staff the new Region.
    Question. Please explain how you plan to address these personnel 
problems and when we can expect these problems to be resolved.
    Answer. With respect to the two Senior Executive Service (SES) 
positions, the National Marine Fisheries Service has requested 
authority from the Department of Commerce to recruit for a Pacific 
Islands Regional Administrator and Science Center Director. We expect 
to receive approval shortly and have these positions filled permanently 
by the end of the year. To fully staff the Pacific Islands Region and 
Science Center, we have projected a long term requirement (2010) of 187 
FTE positions in addition to approximately 70 contract employees to 
primarily assist in carrying out science related activities. Currently, 
there are 117 funded FTE positions (including the two SES positions) 
and 70 contract employees located in Honolulu that constitute the 
initial staff for the Pacific Islands Region.
    Question. Streamlining Fisheries Management. According to your 
written statement, one of your Department's strategic goals is to 
``improve and streamline the Nation's fishery management system to 
better meet commercial, recreational, and conservation objectives.'' 
How do you plan to implement this goal on a national scale, and how far 
will the Administration's request of $29.8 million in fiscal year 2004 
go toward meeting this goal?
    Answer. The National Marine Fisheries Service (NOAA Fisheries) has 
responsibility for the management of sustainable fisheries, the 
recovery and protection of marine mammals and endangered and threatened 
species, and the conservation and restoration of marine habitat. NOAA 
Fisheries works closely with regional fishery management councils, 
states, and other constituents to carry out these mandates. The 
regulatory process affects not just marine resources but also the 
associated people, businesses, and communities.
    The goal of the Regulatory Streamlining Project (RSP) is to improve 
the efficiency and effectiveness of regulatory operations and decrease 
NMFS's vulnerability to litigation. While the RSP initiative highlights 
the National Environmental Policy Act (NEPA) as a critical component of 
the regulatory process, there are many other requirements that must be 
addressed to ensure compliance with all of the agency's mandates. 
Extensive analyses and documentation are required to comply with the 
Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-
Stevens Act) and other associated mandates such as the Endangered 
Species Act (ESA), Marine Mammal Protection Act (MMPA), Administrative 
Procedure Act (APA), Regulatory Flexibility Act (RFA), Paperwork 
Reduction Act (PRA), Coastal Zone Management Act (CZMA), and Executive 
Orders 12612, 12630, and 12866. NOAA's fiscal year 2004 budget request 
for NOAA Fisheries includes $1.5 million specifically to implement RSP 
during fiscal year 2004, as well as requests for additional resources 
for increasing the number of stock assessments around the country and 
the collection of comprehensive biological, economic, and sociological 
data on an increasing number of species and the environmental factors 
that influence their health and abundance. Current and improved 
analyses are critical to front-loading the management and regulatory 
process.
    There are a number of other initiatives that are critical to 
regulatory streamlining on a national level. These include electronic 
rulemaking and information systems, improvements to the regulatory 
process, professional training to ensure compliance with all relevant 
laws and executive orders, and quality control/quality assurance.
    Fiscal year 2004 funding would support the development of an 
electronic web-based system for all regulatory and information 
collection activities, including rule development, the maintenance of 
administrative records or dockets that support rulemaking, and rule-
related communications with stakeholders. This initiative will directly 
support the RSP by expanding constituent participation, facilitating 
information dissemination, encouraging a more transparent decision 
making process, fostering better collaboration with stakeholders, and 
contributing to problem-solving early in the rulemaking process. NOAA 
Fisheries' performance will be greatly enhanced as the time required to 
review and process rules and regulations is reduced and long-term cost 
savings are generated. NOAA Fisheries is developing a training program 
specific to our rulemaking needs. The program will ensure that all 
appropriate staff are fully conversant with Federal Register 
documentation requirements, Agency documentation standards, compliance 
with all legal requirements, etc. Existing internal and external 
training opportunities will be utilized to the extent possible. 
Nevertheless, it will be necessary to develop specialized training 
which incorporates all applicable requirements relative to the fishery 
management context. These needs will be assessed and addressed in 
conjunction with development of revised Operational Guidelines. As 
additional responsibility is transferred to the Regions under the RSP, 
the Regional staff will need specialized training to able to fulfill 
their changing responsibilities. In addition, during 2004, NOAA 
Fisheries will undertake a retrospective bench-marking of past 
performance dealing with litigation, timeliness, and the need for 
Federal Register corrections.
    As part of RSP, NOAA Fisheries delegated signature authority for 
Endangered Species Act (ESA) section 7 consultations to Regional 
Administrators, except for those that are national in scope (i.e., 
programmatic, multi-Regional, etc.) or for permits issued by the Office 
of Protected Resources. In NOAA Fisheries Headquarters, the 
consultation program must conduct national consultations, provide 
guidance, training, expertise and program review to the Regional 
Offices, as well as all Federal agencies, Congress, and constituents. 
Regional Offices require additional resources to conduct a variety of 
consultations and to provide expert advice to fishery management 
councils and constituents. One important goal of the RSP is to have 
NOAA Fisheries alert fishery management councils and others early in 
their planning process of potential endangered species-fisheries 
interactions.
    A centerpiece of successful ESA section 7 delegation will be NOAA 
Fisheries' continued commitment to train managers and consulting 
biologists to ensure that they maintain the knowledge, skills, and 
abilities that are necessary to implement the agency's section 7 
program consistently, efficiently, and effectively. In particular, the 
following programs would be supported by fiscal year 2004 funding: 
Develop and implement basic and advanced section 7 training; develop 
and implement section 7 training for managers and Senior Executives; 
develop and implement annual regional section 7 workshops; and develop 
and implement training sessions for special topics.
    Question. You have highlighted the climate change request of $295.0 
million for fiscal year 2004. However, $266 million, or 89 percent of 
that figure, is listed as ``other programs,'' which are maintained at 
fiscal year 2003 level funding. Please explain how the majority of 
NOAA's $16.9 million increase for the Climate Change Research 
Initiative shows a commitment to ``fully funding climate research'' 
when no new funds are being requested for long standing, well 
respected, NOAA climate programs?
    Answer. The $16.9 million request for the Climate Change Research 
Initiative (CCRI) represents a single NOAA climate request that is 
targeted toward the highest priority national needs as described in 
this Presidential initiative and in the National Academy of Sciences 
2001 report Climate Change Science: An Analysis of Some Key Questions. 
This is on top of providing full funding for NOAA's long-standing 
climate programs, including provision of inflationary costs and planned 
pay raises in the President's fiscal year 2004 budget. The request 
makes full use of NOAA's long-standing climate programs. In particular, 
of the $16.9 million request, we are using existing programs and 
laboratories as follows:
  --Global Ocean Observing System (+$6.3 million request).--This effort 
        will be managed by NOAA's Office of Global Programs (OGP) and 
        is expected to include support for Scripps Institution of 
        Oceanography, University of Miami, Woods Hole Oceanographic 
        Institution, and University of Hawaii, among others.
  --Carbon Cycle Observing System ($5.0 million).--This system, focused 
        on determining the amount of carbon dioxide taken up by North 
        America, is to be operated by NOAA's Climate Monitoring and 
        Diagnostics Laboratory (CMDL) in conjunction with the Climate 
        and Global Change Program. CMDL has substantial experience in 
        operating large-scale atmospheric observing systems, having 
        operated the Baseline Observatories (including Mauna Loa) that 
        document the global rise in greenhouse gases. The Climate and 
        Global Change Program will ensure university involvement in 
        modeling and data analysis.
  --Aerosol-Climate Interactions ($1.0 million).--This increase builds 
        on an existing program aimed at one of the most prominent 
        uncertainties in climate projection, namely the impacts of fine 
        airborne particles on climate. This will be administered 
        through NOAA's Office of Global Programs and the Aeronomy 
        Laboratory.
  --Supercomputing ($3.5 million).--This will support an increase in 
        climate computational ability at NOAA's Geophysical Fluid 
        Dynamics Laboratory, which originated the modeling of climate 
        in the 1960's.
    The remaining $1.1 million in NOAA's fiscal year 2004 requested 
CCRI increase would be to fund the Climate Change Science Program 
Office, which would provide coordinated national leadership for the 
President's interagency climate and global change program, including 
the coordination for CCRI among the Departments of Commerce, State, 
Interior, Health and Human Services, Energy, Agriculture, and Defense, 
and the Environmental Protection Agency, the National Science 
Foundation, the National Aeronautics and Space Administration, the 
Smithsonian Institution, the Office of Management and Budget, and the 
Office of Science and Technology Policy.
    In addition, fiscal year 2003 CCRI funding is also being used in 
existing programs. CCRI supports expansion of the Regional Integrated 
Science and Assessments Program (RISA) of OGP, which focuses on 
developing pilot projects for using climate information and enhancing 
collaboration among researchers, decision-makers, and the public. This 
year, a new RISA project will be started in Hawaii at the East-West 
Center looking at the options, risks, and uncertainties in mitigating 
and adapting to year-to-year climate variability and long-term climate 
change.

                      TRADE ADJUSTMENT ASSISTANCE

    Question. The Commerce Department administers a small program, 
Trade Adjustment Assistance for Firms, that is authorized to be funded 
at $16 million, but is currently operating at $10.4 million. Small 
companies in my state have benefited from expertise provided through 
this program and have improved their competitiveness against imports. I 
was pleased that the fiscal year 2004 budget request includes funding 
of $13 million, but am concerned by reorganization proposals. It is my 
understanding that the Trade Adjustment Assistance Centers (TAACs) may 
be moved into the Economic Development Administration regional offices 
providing another level of bureaucracy to this small and successful 
program. I am aware that discussions have been initiated to keep the 
TAACs as free-standing programs under the International Trade 
Administration. It is also my understanding that the formula is being 
recalculated in a manner that would be unfavorable to the Western 
Region TAAC. Could you discuss these proposed changes and the effect 
they may have on the program?
    Answer. EDA's transition to a decentralized program delivery 
structure was begun during the last Administration. Current EDA 
leadership is simply completing the process. EDA's Public Works, 
Economic Adjustment and Local Technical Assistance (including 
University Centers) programs are all administered by EDA's six regional 
offices. The Trade Adjustment Assistance (TAA) for Firms program is the 
only regional program activity that is administered by EDA headquarters 
rather than by the EDA regional offices.
    The realignment of the TAA for Firms program to mirror the 
decentralized structure of EDA's other programs will simply transfer 
TAA for Firms processing functions, currently being performed in EDA 
headquarters, to the regional offices. The requirements and basic 
processes for the TAA for Firms program will remain unchanged. As with 
EDA's other programs that have been successfully decentralized to the 
regional level for many years, this action will bring the TAA for Firms 
program closer to the firms it serves and in line with the President 
Management Agenda. This change will not affect the structure of the 12 
Trade Assistance Adjustment Centers (TAAC).
    Under this structure, the TAACs will interact with new, more 
locally-based EDA personnel, but the structure will not result in an 
additional level of bureaucracy. In fact, the more robust program 
delivery capability of EDA regional offices is expected to improve 
EDA's overall administration of the TAA for Firms program.
    EDA funding allocations for the TAACs for fiscal year 2003 were 
calculated following the same methodology used in fiscal year 2002 and 
previous years. EDA is presently working with the TAAC community to 
establish a formalized and quantifiable funding formula that can be 
replicated year-to-year, allocating funding based on various factors, 
including TAAC performance levels. EDA has not yet proposed a funding 
formula for 2004 and beyond. On March 5, 2003, EDA staff met with 
representatives of the TAACs to seek input and to discuss possible 
funding formulas. On May 29, 2003, the TAAC community responded with a 
suggested funding formula, which EDA currently is considering. In 
addition, some TAACs, including the Great Lakes TAAC (Ann Arbor, MI) 
and the Western TAAC (Los Angeles, CA) expressed concerns about the 
overall TAAC community's recommendations to EDA. These minority 
opinions are also being considered by EDA. EDA intends to proceed with 
the development of a formalized and quantifiable funding formula, in 
consultation with the TAAC community, that will not only provide each 
TAAC with a base level of funding but will also reward those TAACs with 
the highest performance levels.
                                 ______
                                 
           Questions Submitted by Senator Barbara A. Mikulski

                   TRADE AGREEMENTS--IMPACT ON SUGAR

    Question. Mr. Secretary, the Administration has sought to move the 
WTO and FTAA negotiations into a more serious phase, concluded 
negotiations on free trade agreements (FTA's) with Chile and Singapore 
and launched four new FTA negotiations--with Central America, Morocco, 
the South Africa Customs Union, and Australia. And more such FTA 
initiatives may be on the way.
    I am concerned that negotiations pursued piecemeal, with inadequate 
attention to industry-specific problems, as they seem now headed, could 
bring disastrous results to American sugar beet and cane producers and 
refiners.
    Do you share my concern that inclusion of sugar trade provisions in 
bilateral or regional trade agreements could leave the U.S. sugar 
industry vulnerable to increased competition without opening European 
and other consumer markets?
    Answer. The U.S. Department of Agriculture has jurisdiction over 
this issue and therefore is the appropriate agency to respond to this 
question.
    Question. Every other major sugar producing country excludes sugar 
from their regional and bilateral trade agreements, even so-called 
``free trade agreements.'' Why would the United States include 
sensitive products like sugar in FTA's if other countries do not?
    Answer. The U.S. Department of Agriculture has jurisdiction over 
this issue and therefore is the appropriate agency to respond to this 
question.
    Question. Should trade in sugar therefore be addressed only in the 
multilateral negotiations of the World Trade Organization (WTO)?
    Answer. The U.S. Department of Commerce, primarily through its 
International Trade Administration unit supports bilateral and multi-
lateral trade negotiations and monitors the results of signed trade 
agreements. However, in relation to sugar trade issues the U.S. 
Department of Agriculture has jurisdiction and therefore is the 
appropriate agency to respond more fully to these questions.
    Question. How do you plan to address other countries' policies 
distorting trade in sugar, which create a ``dump'' in the market with 
prices averaging barely half the world average cost of production for 
the past two decades? Do you seek to impose restrictions on sugar 
trade-distorting policies on developing and developed countries alike?
    Answer. In general, the Department of Commerce is examining the 
role of market distortions and their effect on trade in the context of 
the Doha Round. We note that in their mandate for negotiations on Rules 
in the Doha Round, the Trade Ministers included disciplines on ``trade-
distorting practices'' as an explicit area for further clarification 
and improvement. Accordingly, the United States has addressed this 
issue already in our submissions to the Rules Negotiating Group. For 
example, in our October 22, 2002 Basic Concepts and Principles paper, 
we noted that:

    ``A government's industrial policies or key aspects of the economic 
system supported by government inaction can enable injurious dumping to 
take place. Although these policies take on many different forms, they 
can provide similar artificial advantages to producers. For instance, 
these policies may allow producers to earn high profits in a home 
`sanctuary market,' which may in turn allow them to sell abroad at an 
artificially low price. Such practices can result in injury in the 
importing country since domestic firms may not be able to match the 
artificially low prices from producers in the sanctuary market.'' (TN/
RL/W/27, at 4)

    We believe that addressing market- and trade-distorting practices 
is essential to a rules-based multilateral trading system where U.S. 
domestic producers and U.S. exporters can compete on a level playing 
field, and we will press strongly throughout these negotiations for 
strengthened disciplines in this area.
    More specifically, the Department of Commerce vigorously enforces 
the unfair trade laws, and has three outstanding antidumping duty 
orders covering sugar from Belgium, France, and Germany. There is also 
a countervailing duty order covering sugar from the European Community 
in effect. As you know, our antidumping and countervailing duty laws 
apply to developed and developing countries alike.

                   TRANSPARENCY IN TRADE NEGOTIATIONS

    Question. Representatives of American workers and industries report 
that they have not been consulted or even briefed sufficiently on 
ongoing trade negotiations, including Free Trade Agreements and the 
U.S.-Mexico sweetener agreement. What measures are you taking to 
improve transparency of trade negotiations with key American 
constituencies?
    Answer. Transparency throughout the negotiating process 
significantly strengthens the ability of U.S. negotiators to craft 
trade agreements that will benefit the U.S. economy. The Department of 
Commerce makes every effort to consult with American constituencies 
before, during, and after trade negotiations on all aspects of trade 
negotiations in which the Department is involved. The U.S.-Mexico 
sweetener agreement has been handled by the Department of Agriculture 
and the U.S. Trade Representative.
    At the launch of negotiations, and when major policy issues arise, 
the Administration issues a Federal Register notice. After carefully 
reviewing and cataloging the responses, we draw on this material to 
inform our positions throughout the negotiation. We also participate in 
public hearings to get additional input.
    During the negotiations, Department staff regularly brief industry 
groups on the status of trade negotiations. It is extremely important 
to share as much information as possible, as early as possible, with 
interested parties. One of the ways we seek private-sector input is 
through the Industry Consultations Program, which is jointly 
administered by Commerce and the United States Trade Representative, 
and includes 21 industry sector and functional advisory committees and 
approximately 345 industry executives as members.
    We also brief other industry groups, associations, and individual 
companies as requested. We coordinate with broad industry associations, 
such as the National Association of Manufacturers, to seek input on 
trade negotiations. Industry-specific trade specialists within the 
Department's Trade Development Unit canvass their sectors for input 
regarding all relevant policy decisions. Staff regularly draft material 
that contributes to trade negotiation summaries which are posted on 
USTR's public website. We also hold public hearings at important 
junctures in negotiations so interested parties can hear first-hand 
from the negotiators or from more senior U.S. officials how 
negotiations are proceeding. The Department uses other avenues such as 
World Trade Week and our export assistance centers to try to reach a 
broad spectrum of interests.
    After the negotiations are concluded, we prepare user-friendly 
summaries and industry-by-industry reports that are posted on our web 
site.

                      STEEL TARIFFS--WTO DECISION

    Question. Are the temporary tariffs on steel, imposed under section 
201 of the Trade Act, having the desired effect?
    Answer. In March 2002, following a thorough U.S. International 
Trade Commission (ITC) investigation and after reviewing the ITC 
recommendations, the President implemented the steel safeguard remedy 
to provide the temporary relief the industry needed to facilitate the 
adjustment and rationalization of the U.S. steel industry.
    The U.S. steel industry has experienced an unprecedented level of 
consolidation and restructuring, with additional consolidation likely 
in the near future. The International Steel Group led the way by 
acquiring and reorganizing the integrated production facilities of LTV 
and Acme Steel and last month bought Bethlehem Steel. US Steel recently 
acquired National Steel. These and other companies have negotiated more 
flexible labor agreements that are expected to generate significant 
cost savings. In the mini-mill sector, Nucor is investing heavily to 
modernize the mills it purchased from Trico Steel and Birmingham Steel. 
A number of smaller companies have closed and others have emerged from 
bankruptcy, downsized and under new ownership.
    Any decision regarding modification of the Section 201 remedy will 
follow submission of the ITC's mid-term review to the President and 
Congress on September 20, 2003. Our trade law requires the ITC to 
prepare this report, which will document the efforts of the domestic 
industry to adjust to import competition.
    After the President receives the mid-term report, the statute gives 
him greater authority to ``reduce, modify, or terminate'' the 
safeguard. A decision under this authority will be taken by the 
President, and we cannot prejudge what his decision may be.
    Question. What progress has been achieved in reducing excess steel-
making capacity abroad?
    Answer. Since September 2001, the steel initiative at the 
Organization of Economic Cooperation and Development (OECD) has engaged 
in a serious review of the world steel capacity situation in light of 
the adverse impact on world steel markets from excess inefficient 
capacity. To this end, the OECD established the Capacity Working Group 
to examine approaches that could be used to monitor and encourage the 
closure of inefficient excess capacity and restructuring developments 
in the industry through market forces. The primary tool for the 
Capacity Working Group is the periodic peer review of the reports from 
the participating countries on their respective steel industry. These 
reports describe capacity and production levels, likely closures and 
new capacities. Information on significant legal and policy changes 
that affect the steel making capacity are also contained in these 
reports. The peer reviews are conducted at OECD among the participating 
countries. When the governments present their reports, the 
participating countries ask any questions they might have on the 
reports. The purpose of the peer review to highlight any significant 
problems related to inefficient excess capacities in the global steel 
market.
    As of May 2003, the participating countries have reported 107.07 
million metric tons of crude steel capacity that have been closed 
during 1998 to 2002. The United States accounts for approximately 14 
million metric tons of this reduction. They also forecasted an 
additional 29.00-35.60 millions of closures for the period of 2003-
2005. However, some countries are also estimating some increase in new 
capacity or replacement of old capacity. On an aggregate level, we 
expect 16.75-17.05 million metric tons of new capacity for 2003-2005.
    Question. When can we expect to achieve a better balance between 
steel-making capacity and global demand?
    Answer. Global production and consumption of steel reached 902 and 
812 million metric tons respectively in 2002. While analysts generally 
agree that the figure for global capacity is about 1 billion metric 
tons, there is no definitive number. In 2002, production and 
consumption of steel products significantly increased from 2001, and 
most of the increase in demand and production has been from China. In 
some ways, the increase in demand for steel products in 2002 has 
diminished the need to reduce capacity in many regions. For example, 
there is no evidence that significant elimination of capacity or 
decreases in production have taken place in Russia and Ukraine, both 
countries which analysts cite as having significant amounts of 
inefficient excess capacity. Similar to the situation in China, these 
governments are reluctant to face the social cost of dismantling steel 
mills in towns where the steel mills are the major employment source. 
Meanwhile, we believe that Russia, Ukraine, Japan, Korea and India have 
all increased exports to China in 2002. Many analysts wonder how long 
China's growing economy will sustain this frantic pace of demand. 
China, which became the largest steel importer in the world in 2002, 
importing close to 30 million metric tons, is responsible for much of 
the increase in worldwide demand. Without continued import demand from 
China, countries that count on exports to sustain their production 
levels might become sources of excess supply. The OECD Capacity Working 
Group's peer review process will allow us to quickly detect excess 
capacity. It is therefore difficult to predict when we can achieve a 
better balance of capacity and demand. However, we do know that 
eliminating subsidy and other market-distorting practices from the 
world steel market is the key to permanently removing inefficient 
excess capacity.
    Question. Is the Administration prepared to continue the temporary 
steel tariffs, for as long as necessary, even if the World Trade 
Organization dispute settlement panel rules against the United States?
    Answer. The United States disagrees with many of the WTO panel's 
preliminary conclusions, but we are pleased that the panel rejected 
some of the complainants' claims. The WTO dispute settlement process 
regarding the steel safeguard measures is not yet complete, so it is 
premature to discuss any response to the panel report. In the WTO 
dispute settlement system, a report from either a panel or the 
Appellate Body is not final unless formally adopted. The steel panel 
report has not yet been publicly released in final form, and the appeal 
has not even begun.
    In the meantime, the steel safeguards measure will remain in place. 
From the beginning, we planned to reduce the supplemental tariffs by 
one-fifth each year. We made the first such reduction in March of this 
year. The panel report does not affect this process.
    Under our domestic safeguards laws, the International Trade 
Commission issues a report on domestic producers' condition midway 
through the term of a safeguard measure, which will occur toward the 
end of September 2003 in the steel case. The President may reduce, 
modify, or terminate a safeguard measure after receiving this report.
                                 ______
                                 
             Questions Submitted by Senator Robert C. Byrd

                             BYRD AMENDMENT

    Question. U.S. Trade Ambassador Zoellick assured me, personally, 
and publicly, that the Bush Administration would defend the Byrd 
Amendment against the case brought by our trade competitors before the 
World Trade Organization. Imagine my surprise, then, to learn that the 
Administration had recommended a repeal of the law in its fiscal year 
2004 budget request. In fact the press apparently was notified by the 
Administration of its intent to recommend a repeal of the Byrd 
Amendment the day before the WTO Appellate Body issued its final 
determination of the case.
    Why would the Administration advise me and recipients of Byrd 
Amendment funds across the nation that it strongly supported the Byrd 
Amendment, if, at the same time, the Administration was planning to 
request its repeal in the fiscal year 2004 budget?
    Answer. The Administration vigorously defended the Byrd Amendment 
at the WTO. Unfortunately, the WTO ruled against the United States on 
this issue. The Administration continues to believe that the decision 
on the Byrd Amendment (Continued Dumping and Subsidy Offset Act of 
2000) was not inconsistent with WTO rules.
    We look forward to working with USTR, Treasury and Congress to 
develop a response to the WTO's decision. We recognize that the 
ultimate response to the WTO decision lies with Congress, and your 
constitutional authority to determine whether, when, and in what way to 
comply. There may be a number of ways in which U.S. law could be 
amended to address the issues raised by the WTO Appellate Body without 
sacrificing our goal of providing effective assistance to companies and 
workers that have been injured by unfair trade.
    Question. On February 4, 2003, I sent a letter to the President 
signed by 70 Members of the U.S. Senate, urging the Administration to 
negotiate a solution to the Appellate Body's ruling on the Byrd 
Amendment, and to consult closely with the Congress on the particulars 
of these negotiations. Obviously, there is no support in Congress for a 
repeal of this law.
    How does the Administration intend to resolve this issue in WTO 
negotiations? When will the United States put this issue on the agenda 
of the WTO negotiations?
    Answer. The Office of the United States Trade Representative is the 
agency primarily responsible for developing the U.S. agenda for these 
negotiations. We would look forward to working with Congress in 
crafting a strategy that would allow us to comply while at the same 
time ensuring the effectiveness of our trade laws.

                 EMERGENCY STEEL LOAN GUARANTEE PROGRAM

    Question. Last year, in its fiscal year 2003 budget request, the 
Bush Administration recommended rescinding $96 million from the 
Emergency Steel Loan Guarantee Program. In its fiscal year 2004 budget 
request, the Administration again recommended rescinding whatever 
monies for the program remained in the budget. Congress rightfully 
rejected the Administration's recommendation for fiscal year 2003, and 
I fully anticipate it will reject the Administration's recommendation 
with respect to the fiscal year 2004 budget, as well.
    How can the Administration continue to tell America's steelworkers 
that it is doing all it can to support the U.S. steel industry on the 
one hand, while, at the same time, seeking to eliminate this program?
    Answer. Due to the lower than anticipated demand for steel loan 
guarantees, the Emergency Steel Loan Guarantee Program has been subject 
to proposed rescissions in both fiscal year 2003 and fiscal year 2004. 
The Administration believes that this program has not been an effective 
method of supporting the U.S. steel industry.
    Question. What do you say to families like the 25,000 in the Ohio 
River Valley, who, right now, are looking to the Emergency Steel Loan 
Guarantee Program to save their jobs and preserve their pensions?
    Answer. The Emergency Loan Guarantee Board has approved, with 
conditions, a loan guarantee for a loan amount of $250 million to 
Wheeling-Pittsburgh Steel Corporation, which is located in the Ohio 
River Valley.
    Question. Can you provide me with the names of any steel industry 
consultants that were recommended by Bush Administration officials to 
advise members of the Emergency Steel Loan Guarantee Program about the 
validity of the application submitted by Wheeling-Pittsburgh Steel?
    Answer. Bush Administration officials did not recommend steel 
industry consultants to advise members of the Emergency Steel Loan 
Guarantee Board or loan program staff concerning the application 
submitted by Royal Bank of Canada on behalf of Wheeling-Pittsburgh 
Steel Corporation. The loan program staff chooses and retains steel 
industry consultants to assist with review and analysis of applications 
for loan guarantees. Choices are made based on factors such as specific 
related prior experience, recommendations from third parties involved 
in the steel industry, general reputation, satisfactory performance on 
prior applications, and absence of conflicting relationships.

                       IMPORT MONITORING PROGRAM

    Question. What is the Administration's position regarding 
instituting a program to monitor surges of all [steel] imports into the 
United States, not just those steel imports that were originally 
subject to the 201 investigation of steel products? If the 
Administration will not support such an import monitoring program, why 
not?
    Answer. The Administration currently monitors steel imports through 
two steel import monitoring programs administered by the Department of 
Commerce's Import Administration. These two import monitoring programs 
differ in scope of coverage and source of information.
    One program, which was instituted as part of the safeguard remedy, 
applies only to products subject to the safeguard, and draws upon 
aggregate information collected from proprietary information reported 
on steel import licenses. Information on these imports is collected and 
reported by product category and country of origin. The primary purpose 
of this program is to provide early identification of import surges, 
particularly those from excluded developing countries, that could 
undermine the relief provided to the industry by the President.
    The other steel import monitoring program, which is much broader in 
scope, covers all imports of steel mill products. This monitoring 
program was established prior to the safeguard remedy, and is based on 
the early release of steel import data collected by the Census Bureau. 
It has been expanded over the past year to provide detailed monthly 
statistical information on steel imports including import quantity, 
value and unit values. This early release data is the most timely and 
reliable monthly data available on U.S. steel imports and is issued 
roughly three weeks after the close of the import month. Import volume 
and value data are collected and reported by AISI category as well as 
section 201 remedy category and by country of origin.
    To increase the usefulness of the monitoring programs, detailed 
information on steel imports compiled from both steel import monitoring 
programs is available to interested members of the domestic steel 
industry, government and public through the steel import monitoring 
website--www.ia.ita.doc.gov/steel/license/. The data is reviewed 
continuously and is updated on a regular basis--the day of release for 
monthly Census import data; each week for import license data.
    Expansion of the current import monitoring programs, particularly 
the extension of the licensing requirement to products beyond the scope 
of the section 201 remedies, would require additional authorizing 
legislation. Depending upon the scope of the expansion and the number 
of new product categories and additional Harmonized Tariff Schedule's 
(HTS) to be added to the system, the expanded monitoring system could 
entail a considerable outlay of new resources, particularly if the same 
level of detailed reporting is to be maintained.
    Currently, more than 25,000 licenses are issued each month and the 
website generates approximately 7,000-8,000 tables and graphs which 
must be reviewed and updated each week. Expansion to all steel mill 
products would more than double the number of licenses. The number of 
covered tariff numbers would almost triple and depending upon the 
number of steel categories added, the number of tables and graphs would 
likely triple as well. This is far beyond the capabilities of the 
existing database and monitoring program and would likely cause a 
decrease in service, timeliness and/or accuracy. Expansion to all 
tariff numbers in HTS Chapters 72 and 73 would greatly increase the 
number of licenses, covered tariff numbers and reported product 
categories and further tax the system.

                          201 MID-TERM REVIEW

    Question. The ITC has begun its mid-term review of the remedies 
that were imposed last year on imported steel under section 201. What 
criteria will the Bush Administration use to decide whether to lift the 
tariffs and other remedies that were imposed as a result of last year's 
investigation under section 201? Does the Administration plan to base 
its decision this fall on information gathered by the ITC during mid-
term review, and on advice offered by the entities referenced in 19 
U.S.C. section 2254, or on additional input, including extraneous 
comments submitted to the White House, or the U.S. Commerce Department, 
by foreign countries or foreign exporters, or by U.S. importers of 
steel products otherwise subject to the 201?
    What impact will foreign policy concerns have on the 
Administration's decision in this respect?
    Answer. The President implemented the steel safeguard remedy to 
provide the temporary relief needed to facilitate the adjustment and 
rationalization of the U.S. steel industry. Since the implementation of 
the steel safeguard remedy, the U.S. steel industry has experienced an 
unprecedentedly high level of consolidation and restructuring, with 
additional consolidation likely in the near future.
    As required by section 201, the International Trade Commission 
(ITC) recently initiated a mid-term review of the effectiveness of the 
steel safeguard remedy and the restructuring efforts undertaken by the 
industry. The ITC will collect information from a broad range of U.S. 
steel producers, foreign steel producers, and steel importers. Based on 
a request from the House Ways and Means Committee, the ITC will also 
review the impact of the safeguard remedies on steel consumers. The ITC 
will issue its report to the President in September.
    The President may reduce, modify or terminate the section 201 
remedies imposed in March 2002; he may also leave the measures 
unchanged. In accordance with the statute, the President will take into 
account the report and advice of the ITC, as well as the advice of the 
Secretaries of Commerce and Labor, in reaching a decision under section 
204. In addition, the President may consult with the House Ways and 
Means Committee or the Senate Finance Committee.
    However, the statute does not limit the President to consider only 
these sources in his decision. As it does in every section 201 
proceeding, the Administration will consider any information that is 
potentially relevant to an evaluation of the statutory factors, 
including information or advice from members of Congress, U.S. steel 
producers, U.S. steel consumers, U.S. importers and other interested 
parties. The Administration will also consider any information 
presented to it by foreign governments or foreign parties that is 
relevant to the inquiry under section 204.

                DEDUCTING 201 DUTIES FROM AD/CVD MARGINS

    Question. In a recent case, the Department considered but made no 
final determination regarding whether to deduct from the U.S. price of 
a dumped or countervailable product the amount of 201 duties that had 
already been imposed on an imported steel product. 201 duties reflect a 
decision by the President to increase normal customs duties, 
temporarily, and such duties can be deducted from the U.S. price in 
determining the margin in an antidumping or countervailing duty case. 
What is the Department's position concerning the deduction of 201 
duties from U.S. price in determining the margin in an antidumping or 
countervailing duty case?
    Answer. To date we have not made a decision concerning this 
important issue. We intend to address it in the context of upcoming 
antidumping case decisions after we have received comments from 
interested parties.
    The issue of how to treat section 201 duties in our dumping margin 
calculations was raised in the final weeks of our statutory time period 
in our recent investigation on steel wire rod from Trinidad and Tobago. 
In that case, the foreign respondent, the domestic producers and the 
United Steelworkers of America submitted comments on this issue, but 
the domestic producers and the United Steelworkers of America requested 
that the Department allow more time for broader comment on this far-
reaching policy determination. Since the adjustment in the steel wire 
rod from Trinidad and Tobago case would have had an insignificant 
effect, we did not address the treatment of section 201 duties in that 
case.
    We have a few cases currently pending in which this issue has been 
raised. We are allowing all interested parties to comment fully on this 
issue, including parties not involved in these specific proceedings. We 
will carefully consider all comments before reaching a decision.

                         IMPORT ADMINISTRATION

    Question. My office has been advised that the Office of Policy 
within the Department's Office of Import Administration has been 
steadily expanding over the past several years. There is a concern that 
available resources within Import Administration are being diverted to 
the Office of Policy at the expense of the other offices within Import 
Administration that actually conduct the antidumping and countervailing 
duty investigations and administrative reviews. Could you please 
provide me with detailed information how the Office of Policy within 
Import Administration has expanded over the past five years? And for 
what purpose?
    Answer. At no time has the Office of Policy been expanded at the 
expense of the Operations offices. With the additional fiscal year 2001 
funding, management also increased the funding of the three Operations 
offices within IA that conduct AD/CVD cases. The growth of the Office 
of Policy resulted directly from increases in the annual 
appropriations, and represents a conscious decision of both the 
Executive and Legislative branches during the past two Administrations 
to develop tools for supporting and supplementing the enforcement of 
U.S. trade laws to address foreign unfair trade practices. There were 
no reductions in the budgets of the Operations during this period for 
the purpose of expanding the Office of Policy, nor was funding diverted 
to support Office of Policy growth.

 IMPORT ADMINISTRATION STAFFING OFFICE OF POLICY VS. OPERATIONS OFFICES
                          FISCAL YEAR 1999-2002
------------------------------------------------------------------------
                                                              DAS Groups
                  Fiscal Year                      Policy      (I, II,
                                                                 III)
------------------------------------------------------------------------
1999..........................................           27          222
2000..........................................           27          222
2001..........................................           55          222
2002..........................................           65      \1\ 222
------------------------------------------------------------------------
\1\ Does not include miscellaneous overhires to work on steel issues.

(Source: IA Staffing Plans).

    During the past five years, IA received two budget increases 
through the annual appropriations process in fiscal year 1999 and 
fiscal year 2001. The fiscal year 1999 appropriation included a funding 
increase for IA to conduct new AD/CVD program activities set forth in 
the Uruguay Round Agreements Act (URAA). IA management directed the 
Office of Policy to assume responsibility for the new activities 
described below.
  --AD/CVD Sunset Reviews
  --Subsidies Enforcement
    The fiscal year 2001 appropriation included a funding increase to 
support the Trade Compliance Initiative (TCI) first proposed by the 
Clinton Administration and subsequently supported by the Bush 
Administration. IA's new TCI program activities were assigned to the 
Office of Policy and included the following new activities:
  --Overseas Compliance Program
  --China Trade Compliance and Japan Trade Compliance
  --Import Surge Monitoring, Expedited Investigations & Subsidies 
        Enforcement
  --IA Senior Official Stationed in Geneva, Switzerland.
    In particular, a significant portion of these funds and increased 
staffing were used to support Import Administration's increasing 
activity on three fronts--(1) steel issues, (2) pre-petition support to 
potential users of the AD/CVD laws, and (3) WTO negotiations on rules. 
Of the new policy analysts hired in the past two years, more than half 
have been dedicated to these new areas.

              IMPORT ADMINISTRATION: CUSTOMS INSTRUCTIONS

    Question. I learned of possibly misallocated resources when my 
office was advised that certain companies have been unable to obtain 
funds from the special accounts that have been established at the 
Treasury Department under the Byrd Amendment. It is my understanding 
that certain companies cannot access funds in the relevant accounts 
because investigators in Import Administration have been too short-
staffed to send necessary instructions regarding certain cases to the 
U.S. Customs Service. Consequently, some U.S. companies that have been 
eligible to receive funds under the Byrd Amendment have been told by 
Customs that there is simply no money in relevant accounts at the U.S. 
Treasury Department. Are you aware of this problem and can you tell me 
whether there has been any effort by the Department to address this 
issue?
    Answer. As explained below, it is true that, in some instances, 
there has been a delay at the Department of Commerce in issuing 
liquidation instructions. It should be understood, however, that the 
DOC does not maintain the special accounts established under the Byrd 
Amendment and cannot, therefore, speak to the reason(s) why any 
particular claimant has been unable to receive distributions.
    DOC conducts administrative reviews of antidumping (AD) and 
countervailing duty (CVD) orders where a request for review is timely 
filed by an appropriate interested party. If a review is initiated, the 
entries covered by the review remain suspended until the Department 
completes the review (typically 12 to 18 months from initiation). If 
the Department's final results are not challenged (in either the Court 
of International Trade or NAFTA), Import Administration issues 
liquidation instructions, whenever possible, within 15 days of the 
issuance of the final results of the administrative review. However, if 
parties challenge our final results and obtain an injunction against 
liquidation of the entries covered by the review, those entries will be 
suspended until the litigation is resolved. If the Department does not 
receive a request for administrative review, or if a review request 
covers only entries from certain producers/exporters, the Department 
advises the Department of Homeland Security's Bureau of Customs and 
Border Protection (BCBP) to liquidate the entries for which a review 
was not requested.
    The Department's liquidation instructions indicate to the BCBP how 
much in the way of special duties to assess on entries of merchandise 
subject to an AD and/or CVD order. BCBP then assesses duties on the 
entries and places the proceeds in special accounts pursuant to the 
Byrd Amendment. When claims are made for the funds in the special 
accounts, BCBP determines whether--and to what degree--the claims will 
be satisfied.
    The Department takes a proactive approach to ensure that 
liquidation instructions are properly issued. Despite these efforts, 
given the sheer volume of cases and instructions that must be issued by 
the Department to the BCBP, there may be instances where entries have 
inadvertently not been liquidated. Typically, the Department is 
notified of these instances by the BCBP or private parties (such as the 
domestic producer or the U.S. importer). Import Administration makes 
every effort to work with parties and the BCBP to identify the problem, 
and to address it as expeditiously as possible. We closely monitor the 
accuracy and the timeliness of our issuance of instructions to BCBP and 
immediately address any problem that we identify or is brought to our 
attention. We are not aware of any instances in which customs 
instructions were not sent due to staffing issues.
    Finally, we note that, to address concerns that there had been 
significant delays in the issuance of liquidation instructions in 
certain cases, the Department conducted a review of all completed 
proceedings to ensure that BCBP has been issued appropriate 
instructions. Import Administration officials reviewed more than 200 
final decisions in the course of this project, which took several years 
to complete. As a result, the Department ensured that all liquidation 
instructions had been issued for all entries subject to the orders/
findings involved.

              VALIDITY OF OUTSIDE CONTRACTOR PATENT SEARCH

    Question. Why does the PTO trust that an outside contractor with no 
relevant patent experience would conduct a valid patent search in the 
same thorough and learned manner as a patent examiner with years of 
experience?
    Answer. The USPTO is confident that a certified outside contractor 
can conduct a valid patent search in the same thorough manner as an 
experienced patent examiner. The USPTO's decision to split the search 
and examination functions--a key component of the 21st Century 
Strategic Plan--is not an unprecedented or untested approach. The USPTO 
and its sister patent offices throughout the world have considerable 
experience in splitting the two tasks of search and examination. For 
example, search and examination have been separated within the European 
Patent Office (EPO) for more than twenty years without any detriment to 
quality. Indeed, search quality will actually improve under a 
Contractor Search Service (CSS) system, as the examiner will be acting 
as a second pair of eyes relative to the search contractors.
    The USPTO will provide detailed search guidelines and quality 
measures to ensure the quality and uniformity of prior art searches 
performed by a CSS. Prior to contract award, all offerors will be 
evaluated to ascertain the technical background and skills of their 
employees and their abilities to provide a high quality search.
    The USPTO plans to have multiple levels of Quality Control/Review 
and will promptly terminate its contract with any provider whose 
searches and search reports do not meet the standards. Furthermore, 
patent examiners can always request a further search or perform a 
supplemental search with approval of their supervisor if the examiner 
feels the search supplied is inadequate.
    With these quality assurance measures, there should be no adverse 
effects on the presumption of validity or the public confidence in 
patents. In fact, this collaborative effort in prior art searching will 
improve both efficiency and substantive focus in the preparation, 
examination, and prosecution of patent applications in a more cost 
effective and expeditious manner. It will, with the implementation of 
the quality measures outlined in the 21st Century Strategic Plan, 
strengthen the validity of patents, thus providing a more substantive 
and valuable end product for our customers.

                COST OF OUTSIDE CONTRACTOR PATENT SEARCH

    Question. Why is the PTO not concerned that outsourcing this 
function could increase, rather than a decrease agency costs?
    Answer. The USPTO believes that, overall, it will be cost effective 
to competitively source patent searches. The USPTO has been criticized 
for ``hiring its way out'' of its growing patent workload problem. For 
example, in 2002 the Senate Appropriations Committee stated, ``PTO 
management has not been sufficiently innovative. Although patent 
filings have increased dramatically over the past decade, PTO 
management chose to remain wedded to an archaic patent process and 
attempted to hire its way out of its workload problems.''
    Competitive sourcing of searches is part of the USPTO's effort to 
address incoming work and an inventory of pending applications by 
allowing patent examiners to concentrate on patentability 
determinations rather than spending time on searching. The removal of 
search functions will allow examiners to process more patent 
applications, assisting the USPTO in lowering pendency and reducing 
backlogged applications.
    Competitive-sourcing of the search will be validated by a proof of 
concept before we proceed to full implementation.

            RELIABILITY OF OUTSIDE CONTRACTOR PATENT SEARCH

    Question. How does the PTO plan to address the issue that searches 
conducted by an outside firm could prove faulty or unreliable and, as a 
result, could undermine the validity of patents issued by the PTO?
    Answer. In addition to the steps outlined in response to the 
question above regarding confidence in contractor abilities to conduct 
prior art searches, the USPTO has benchmarked models that other 
intellectual property organizations have used for many years. For 
example:
  --The Japan Patent Office (JPO) also has experience in splitting the 
        two tasks of search and examination. The Japanese government 
        established the Industrial Property Cooperation Center (IPCC) 
        in 1985 for such purposes as providing search reports on patent 
        applications pending before the JPO, indexing patents according 
        to the F-term classification scheme used by the JPO, and 
        assigning classifications to patents according to the 
        International Patent Classification system. Since then, more 
        than one million prior art searches have been conducted by IPCC 
        for JPO's patent examiners and more than two million F-term 
        assignments have been made to JPO's searchable database. The 
        IPCC is now staffed with about 1,100 engineers, only 40 of whom 
        were previously employed as patent examiners. Based on such an 
        extensive base of empirical data, together with on-site 
        benchmarking reviews that have been conducted with JPO 
        officials over the past decade, we have no doubt that searches 
        can be done with high quality by experienced and skilled 
        engineers.
  --Closer to home, the USPTO has allowed examiners to elect the 
        services of searchers to search non-patent literature and 
        foreign patents in the Office's Electronic Information Centers 
        for the last decade. Thus far this year, examiners have 
        requested 13,011 searches. These searches are conducted by 
        contract staff or Government employees who have extensive 
        knowledge of the database content, search strategy formulation, 
        and command language of several commercial online providers, 
        such as Dialog and Lexis-Nexis. They also have knowledge of 
        internal search systems, such as the Examiner's Automated 
        Search Tool (EAST) and the Web-based Examiner Search Tool 
        (WEST), and are adept at searching the Internet.
  --The European Patent Office (EPO) serves as another benchmark. The 
        EPO has extensive experience that clearly demonstrates that a 
        high quality search can be generated by someone other than the 
        substantive patent examiner with no diminution in the quality 
        of the patentability determination or the patent examiner's 
        ability to keep current with his or her understanding of, or 
        currency with, the technology and/or state of the art. Since 
        1978, EPO searchers in The Hague and Berlin (and more recently, 
        Munich) produced almost 1.8 million searches of which half were 
        for EPO's substantive patent examiners in Munich. In fact, the 
        USPTO has already received more than 75,000 patent search 
        reports from the EPO over the past few years pursuant to the 
        Patent Cooperation Treaty (PCT). While that is not a direct 
        ``contractor'' model, conceptually there is virtually no 
        difference with the IPCC model described earlier.
    The EPO, where the search was carried out by an examiner in The 
Hague or Berlin and the examination was conducted by a three-man 
examining division in Munich, currently is moving towards combining the 
search and examination functions to improve productivity, not because 
there are quality issues associated with the separation of search and 
examination. Survey data collected from U.S. patent attorneys over the 
past five years show that the EPO's searches and patentability 
decisions are consistently of high quality.
    As Director Rogan explained in his April 3, 2003, testimony before 
the House Judiciary Committee's Subcommittee on Courts, the Internet 
and Intellectual Property, the USPTO and its sister patent offices 
throughout the world have considerable experience in splitting the two 
tasks of search and examination, as described above. Contrary to the 
assertion that quality suffers under such a structure, the reverse is 
true. During the hearing, Director Rogan entered into the record a 
letter from the President of the EPO, Dr. Ingo Kober, which discusses 
Europe's experience in this area. See attachment.
    While the EPO does not competitively source the search function, 
search and examination have been separated within the EPO for more than 
twenty years without any detriment to quality.
    For firms that would like to offer search services, the USPTO will 
follow the Federal procurement process to enter into contractual 
arrangements with them. The USPTO would maintain the authority to 
certify that a private firm, individual, or commercial entity was 
capable of providing a valid, thorough, and complete search of the 
prior art for patent examination processes.

              [ATTACHMENT--EUROPEAN PATENT OFFICE LETTER]

                                                     March 4, 2003.
Mr. James E. Rogan,
Under Secretary of Commerce for Intellectual Property and Director of 
        the United States Patent and Trademark Office, 2121 Crystal 
        Drive, Suite 906, Arlington, VA 22202 USA.
    Dear Mr. Rogan, I understand that some organisations and 
individuals in the United States have recently expressed certain 
misconceptions concerning a program of the European Patent Office, 
namely, Bringing Examination and Search Together or BEST. I would like 
to clarify some basic facts about this program to ensure it is properly 
understood.
    Any characterisation that the European Patent Office chose to 
``adopt'' the American system of searching and examining patent 
applications is simply not true. Our decision to combine the search and 
examination functions was based on the need to increase examiner 
productivity. As you know, these changes occurred during a time of 
transition to a more automated environment and a significant expansion 
of our staff.
    Indeed, the previous arrangement was initially dictated by 
historical and geographical reasons which no longer apply. However, 
this separate search and examination program, where the search was 
carried out by an examiner in The Hague or Berlin and the examination 
was conducted by a three-man examining division in Munich, produced 
high quality results and served us very well over a period of more than 
25 years. In fact, feedback we have received from our interested 
circles has consistently indicated high satisfaction levels with our 
searches.
    Finally, all major industrial property offices in the world 
currently confront a workload crisis that demands creative solutions. 
That is why I agreed to sign a bilateral record of discussion with you 
to explore the potential of exploiting searches generated by our 
respective Offices for counterpart patent applications. I am convinced 
that this will help improve patent quality, increase efficiency and 
productivity, and reduce operating costs.
    It is unfortunate that recent statements made by commentators on 
the EPO's current and future plans as well as on the USPTO's plans have 
characterised our processes as diverging, when in fact they are indeed 
converging.
    Should you wish further clarification of my views on this matter, I 
shall be glad to provide additional details.
            Yours sincerely,
                                       Dr. H.C. Ingo Kober,
                                                         President.

              VALIDITY OF OUTSIDE CONTRACTOR PATENT SEARCH

    Question. Why does the PTO trust that an outside contractor with no 
relevant patent experience would conduct a valid patent search in the 
same thorough and learned manner as a patent examiner with years of 
experience?
    Answer. The USPTO is confident that a certified outside contractor 
can conduct a valid patent search in the same thorough manner as an 
experienced patent examiner. The USPTO's decision to split the search 
and examination functions--a key component of the 21st Century 
Strategic Plan--is not an unprecedented or untested approach. The USPTO 
and its sister patent offices throughout the world have considerable 
experience in splitting the two tasks of search and examination. For 
example, search and examination have been separated within the European 
Patent Office (EPO) for more than twenty years without any detriment to 
quality. Indeed, search quality will actually improve under a 
Contractor Search Service (CSS) system, as the examiner will be acting 
as a second pair of eyes relative to the search contractors.
    The USPTO will provide detailed search guidelines and quality 
measures to ensure the quality and uniformity of prior art searches 
performed by a CSS. Prior to contract award, all offerors will be 
evaluated to ascertain the technical background and skills of their 
employees and their abilities to provide a high quality search.
    The USPTO plans to have multiple levels of Quality Control/Review 
and will promptly terminate its contract with any provider whose 
searches and search reports do not meet the standards. Furthermore, 
patent examiners can always request a further search or perform a 
supplemental search with approval of their supervisor if the examiner 
feels the search supplied is inadequate.
    With these quality assurance measures, there should be no adverse 
effects on the presumption of validity or the public confidence in 
patents. In fact, this collaborative effort in prior art searching will 
improve both efficiency and substantive focus in the preparation, 
examination, and prosecution of patent applications in a more cost 
effective and expeditious manner. It will, with the implementation of 
the quality measures outlined in the 21st Century Strategic Plan, 
strengthen the validity of patents, thus providing a more substantive 
and valuable end product for our customers.

               PILOT OF OUTSIDE CONTRACTOR PATENT SEARCH

    Question. If the PTO plans to test these searches in some sort of 
``pilot program,'' what assurances are there that such a pilot program 
will actually be undertaken? How will the PTO measure success? Who will 
measure success? Will the Congress be involved?
    Answer. To meet the requirements of their customers and to 
determine the feasibility of competitively sourcing search functions, 
the USPTO will implement a proof of concept through a pilot program. 
The Office will assure quality of contractor performance through 
continuous monitoring of the pilot and the conduct of a formal 
evaluation. The planned proof of concept will be widely vetted with 
USPTO's key stakeholders and the Patent Public Advisory Committee. The 
results of the pilot will also be widely shared. USPTO will conduct a 
formal review of the pilot prior to making a final decision as to 
whether or not to proceed with full implementation. The Congress will 
be kept informed throughout the process. Although the specifics of the 
pilot and evaluation have not been finalized, the USPTO is considering 
using an outside contractor to validate the quality of the searches.
    The USPTO already has obtained public comment on its plans and 
posted on its website for many months the answers to questions or 
suggestions they have received from the public, patent examiners, and 
the professional associations with whom it has worked extensively. The 
Office recently published on its website a detailed action plan which 
describes the implementation approach. What follows are the highlights 
of the administrative structure and processes USPTO is fully prepared 
to implement, including a description of the proof of concept.
    The USPTO will use the contractors to prepare complete and accurate 
search reports for patent applications. One or more contracts would be 
awarded. It is anticipated that there will be at least one contract 
specializing in each discipline. The contractor may be a private or 
commercial search entity with demonstrated expertise and search skills. 
The request for a search and the resulting search report are activities 
between the USPTO and the contractor.
    The USPTO would administer the same preliminary processing 
procedures currently established for new application filings. A copy of 
the application would be forwarded to the contractor approximately 
three months prior to the examination. The contractor would perform a 
prior art search and prepare a report using Patent Cooperation Treaty 
(PCT) guidelines and USPTO search guidelines for additional non-patent 
literature (NPL) resources as stated above.
    Upon completion of the report, the application would be forwarded 
to the Patent Technology Center to await review by the examiner. The 
examiner would then review the report and prior art cited. If the 
report was inadequate or if the examiner was personally aware of other 
prior art, the examiner could request time to search them, or have the 
report sent back to the contractor with an explanation of the 
deficiency and a request for supplemental information.
    The USPTO would maintain the authority to certify that a private 
firm, individual, or commercial entity was capable of providing a 
valid, thorough, and complete search of the prior art for patent 
examination processes. A certification process would be done at the 
USPTO. The process could be given to firms or individuals or a 
combination thereof. The certification process may be based on industry 
specific criteria and be given on an individual basis based on the 
firm's or individual's qualifications. Similar to the Primary Examiner 
at the USPTO, a senior member of the firm could sign off on an 
``assistant's'' search. Thus, while there are multiple options 
available, a preferred one would be to certify the ``firm'' which, in 
turn, would be responsible for certifying their individual searchers.
    The critical measures of success would be determined based on the 
contractors' ability to: (1) determine if disclosed invention is 
subject to an international search; (2) identify a field of search that 
would cover the disclosed invention; (3) select the proper tools and 
art collections to perform the search; (4) determine the appropriate 
search strategy for each of the selected search tools and art 
collections; (5) search the art collections using the selected search 
tools and search strategy, and using any additional strategy suggested 
by the art that is found; (6) retrieve sufficient information from art 
that is identified during the search to evaluate the pertinence of the 
art; (7) select the prior art that is most pertinent to the claimed 
subject matter; (8) record the results of the art that is selected 
according to the criteria set forth in the guidelines; and (9) 
determine if certain claims are found to be searchable subject matter 
and/or lack clarity or distinctness.
    The contractor would have to prove that it has ready access to the 
appropriate industry-specific search tools. Much of the work in 
developing industry-specific search tools is either in the process of 
being done or has already been published on the USPTO intranet in the 
form of Search Guidelines. These guidelines were developed by Quality 
Action Teams and represent a listing of appropriate search tools and 
databases for each technology. The guidelines include PCT Minimum 
Document requirements, appropriate text search systems, as well as the 
pertinent commercially available databases. In addition to using the 
established guidelines, a classified search using the U.S. Patent 
Classification (USPC) system would also need to be performed, if 
appropriate.
    Another requirement would be the technical qualifications of the 
contractors' staff. Just as in examining, varying levels of technical 
expertise are required for searching different technologies. In 
addition, the contractor would have to provide proof of a thorough 
understanding of the patent examining procedures and patent statutes. 
It is essential that any contractor have the ability to read and 
analyze claims, as well as broadly apply the prior art to produce a 
PCT-type search report, which would be submitted to USPTO. The 
contractor would need to be aware of patent law and practice and be 
able to understand such concepts as ``motivation'' for example. This 
could be ensured through testing requirements. Finally, the 
contractors' ability to provide timely reports would be essential to 
the program's success. Special attention would be paid to ensure treaty 
deadlines were enforced.
    For proper examination and quality comparisons, a search submission 
would be expected to include, at a minimum, a listing for every search 
including: (1) text search systems; (2) commercial databases; (3) USPC 
classified search, if appropriate; (4) the complete search statement 
and logic; and (5) a statement regarding the teachings and 
applicability of each reference against each claim.
    The USPTO also would have to maintain a ``search quality review 
process'' in order to ``sample'' the quality of searches submitted by 
the certified search authorities. A component of the in-process review 
activity is to evaluate the quality of the search results for each 
contractor. A statistically valid sample of cases would be reviewed 
using criteria such as whether the search was based on what is claimed 
and reasonably expected to be claimed. Additionally, an experienced 
examiner will conduct a separate search on the same application, to 
ensure the contractor used the proper search procedures.
    The Office would retain the ability to terminate any contract and 
``de-certify'' authorities that submit a number of poor searches from 
either the test sample or from other sources such as examiner reports, 
requests for re-examination or post-grant opposition that show clear 
errors.
    It is possible that separate contractor support would be needed to 
set up, implement, and maintain the necessary certification procedures, 
along with a dedicated staff of search and examination experts.
    Contractors may be required to supply certified translations or 
English language equivalents, with valid dates, for any non-English 
language prior art references cited, which would also eliminate the 
need for examiners requesting certified translations, partial 
translations and/or on-the-spot translations of non-English documents.
    Proof of Concept: The USPTO recognizes that the use of contractors 
to provide prior art search and/or opinion reports for patent 
applications is a major change to current patent examination processes. 
The USPTO also understands customer concerns for excellence in a prior 
art search. To ensure quality art searches are maintained and that 
there is uninterrupted service to all USPTO customers, the Office would 
use the results of the PCT pilot as its foundation for competitively 
sourcing all other search activities within the Office. By using the 
pilot study, the USPTO will be able to assess accurately the 
feasibility of competitively sourcing prior art searches. Performance 
and product will be reviewed to ensure the highest quality is 
maintained, using both an in-process review procedure and separate 
searches performed by experienced examiners.
    The PCT competitive sourcing pilot will be implemented in multiple 
arts to ensure the contractors can provide a quality search report for 
any technology. Between three and six different art areas, all with 
generally high backlogs, would be selected as pilot areas. The results 
of the PCT pilot will provide the Office with the information necessary 
to implement the best possible transition from examiner searches to 
contractor searches. Prior to full-scale implementation, a final report 
would be developed that identifies the strengths, weaknesses, costs and 
benefits. This report would be published and made available for general 
review prior to a decision on whether to further implement competitive-
sourcing in other areas of the Office.
    There would be multiple evaluations of the search and reports 
prepared by the contractors. Examiners would complete an evaluation 
every time a contracted search is used in the examination of a U.S. 
application. There would also be independent evaluations both during 
in-process reviews, and by independent third parties (similar to a 
quality review of the examination). Failure of a contractor to maintain 
the high quality expectations could result in the ``forfeit'' of the 
contract to the contractor.
    Regarding the costs of the commercial search, the USPTO's 
stakeholders' view is that quality has not been properly emphasized in 
recent years. Accordingly, the USPTO has listened to patent applicants 
and the consistent message they have conveyed is that quality must be 
improved and the cost of improving quality is something for which they 
are prepared to pay.

                 STOPPING PILOT OF COMPETITIVE-SOURCING

    Question. Is there any certainty that the outsourcing will stop if 
the pilot program proves that the experiment is not working?
    Answer. Yes. First, the planned proof of concept will be vetted in 
advance with the USPTO's key stakeholders and the Patent Public 
Advisory Committee.
    Second, the USPTO has committed to developing a final report 
documenting the strengths, weaknesses, costs and benefits. The report 
will be published and made available for general review prior to a 
decision on whether to implement further competitive-sourcing.
    The final decision to implement further competitive-sourcing will 
rest with the Director, based on the recommendation of the Management 
Council, which is chaired by the Deputy Director and comprised of 
senior managers from all USPTO divisions. The Management Council has 
responsibility for monitoring implementation of the 21st Century 
Strategic Plan. Once the proof of concept has been completed and the 
results documented, the Management Council will be responsible for 
making a final recommendation to the Director.

                   SEARCH CONTRACTORS OWNING PATENTS

    Question. Finally, what safeguards are in place to make sure that 
the contractors who are chosen to conduct these patent searches do not, 
themselves, have a financial stake in the patent system?
    Currently, by law, patent examiners may not own patents with narrow 
exceptions such as by inheritance. Will the PTO likewise bar search 
contractors from owning patents?
    Answer. The Federal Acquisition Regulation (``FAR''), 48 C.F.R. 
Sec. 9.5 et seq., provides guidance and prescribes responsibilities and 
procedures for identifying, evaluating and resolving organizational 
conflicts of interest (``OCOI''). In particular, FAR Sec. 9.504 
requires the contracting officer, before issuing a solicitation, to 
prepare an analysis and a recommendation for avoiding, neutralizing, or 
mitigating organizational conflicts of interest. Pursuant to this 
guidance, the USPTO is presently considering various plans and methods 
to avoid and neutralize actual and potential OCOIs that may occur as a 
result of contracting out patent search services. At a minimum, the 
USPTO will require patent search firms not only to disclose actual or 
potential OCOIs, such as past or present associations with major patent 
application filers, but also to submit suitable OCOI mitigation plans 
as an integral part of the evaluation of proposals to conduct patent 
search services. PTO will also seek to ensure that any personal 
conflicts of interest by employees of the search firms are minimized to 
the maximum extent practicable. The USPTO plans to award multiple 
contracts to fulfill its needs and require that all applicable OCOI 
requirements flow-down to any subcontractors and employees as well.
    The USPTO will include in all solicitations and contracts for 
patent search services clauses that: (1) invite the offerors' attention 
to FAR part 9.5; (2) state the nature of the OCOI or potential OCOI; 
(3) require the prompt disclosure of actual and potential OCOIs; and 
(4) state the proposed remedies available to the government upon 
discovery of an OCOI. As part of the procurement process, the Office 
also plans to solicit comments and suggestions on how the Agency can 
best mitigate actual or potential OCOIs.
    The USPTO also plans to include in its contracts for patent search 
services clauses which reference 35 U.S.C. Sec. 122 and prohibit the 
disclosure of information contained in patent applications as well as 
requirements to safeguard patent applicants' proprietary and trade 
secret information.
    Although the USPTO has not yet made a decision to impose a total 
ban on the ownership of patents, if ownership of patents creates an 
impermissible organizational or personal conflict of interest, which 
cannot be neutralized or mitigated, the USPTO may disqualify that firm 
from competing for the search contracts. In addition, the USPTO may 
structure the resulting contracts to allow for termination of the 
contracts for impermissible conflicts of interest.
    As described above, the USPTO fully intends to obtain early 
exchanges of information from all interested parties through a variety 
of means, such as additional Requests for Information or draft 
solicitations, to determine whether a total ban on the ownership of 
patents will be required from search firms. Further, on May 22, 2003, 
the USPTO will be holding an ``Industry Day,'' a vendor conference 
whereby USPTO will be showcasing existing and new agency initiatives. 
During Industry Day, the Office will be soliciting comments regarding 
the initiatives from vendors who conduct or will conduct business with 
the USPTO. The Office will include the issue of OCOI among search firms 
as a topic for discussion at that time.

                          SUBCOMMITTEE RECESS

    Senator Gregg. Thank you, Mr. Secretary.
    [Whereupon, at 10:40 a.m., Thursday, March 20, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]
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