    [Senate Hearing 108-798]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 108-798

                        NOMINATIONS OF: HARVEY S. ROSEN
                     KRISTIN J. FORBES, JULIE L. MYERS, AND
                               PETER LICHTENBAUM

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

                                    HEARING

                                   before the

                                  COMMITTEE ON
                       BANKING,HOUSING,AND URBAN AFFAIRS
                              UNITED STATES SENATE

                          ONE HUNDRED EIGHTH CONGRESS

                                 FIRST SESSION

                                       ON

                                NOMINATIONS OF:

               HARVEY S. ROSEN, OF NEW JERSEY, TO BE A MEMBER OF
                        THE COUNCIL OF ECONOMIC ADVISERS

                                   __________

             KRISTIN J. FORBES, OF MASSACHUSETTS, TO BE A MEMBER OF
                        THE COUNCIL OF ECONOMIC ADVISERS

                                   __________

            JULIE L. MYERS, OF KANSAS, TO BE ASSISTANT SECRETARY FOR
                EXPORT ENFORCEMENT, U.S. DEPARTMENT OF COMMERCE

                                   __________

     PETER LICHTENBAUM, OF VIRGINIA, TO BE ASSISTANT SECRETARY FOR EXPORT
                  ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE

                                   __________

                               SEPTEMBER 16, 2003

                                   __________

      Printed for the use of the Committee on Banking, Housing, and Urban
                                    Affairs

       Available at: http: //www.access.gpo.gov /senate /senate05sh.html

                                     ______

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                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      RICHARD C. SHELBY, Alabama, Chairman

    ROBERT F. BENNETT, Utah              PAUL S. SARBANES, Maryland
    WAYNE ALLARD, Colorado               CHRISTOPHER J. DODD, Connecticut
    MICHAEL B. ENZI, Wyoming             TIM JOHNSON, South Dakota
    CHUCK HAGEL, Nebraska                JACK REED, Rhode Island
    RICK SANTORUM, Pennsylvania          CHARLES E. SCHUMER, New York
    JIM BUNNING, Kentucky                EVAN BAYH, Indiana
    MIKE CRAPO, Idaho                    ZELL MILLER, Georgia
    JOHN E. SUNUNU, New Hampshire        THOMAS R. CARPER, Delaware
    ELIZABETH DOLE, North Carolina       DEBBIE STABENOW, Michigan
    LINCOLN D. CHAFEE, Rhode Island      JON S. CORZINE, New Jersey

                 Kathleen L. Casey, Staff Director and Counsel

         Steven B. Harris, Democratic Staff Director and Chief Counsel

                   Peggy R. Kuhn, Senior Financial Economist

                    Skip Fischer, Senior Professional Staff

                  Mark A. Calabria, Senior Professional Staff

                 Martin J. Gruenberg, Democratic Senior Counsel

                         Patience R. Singleton, Counsel

       Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator

                           George E. Whittle, Editor

                                      (ii)

                                C O N T E N T S

                                  ----------

                          TUESDAY, SEPTEMBER 16, 2003

                                                                       Page

    Opening statement of Chairman Shelby.............................     1

    Opening statements, comments, or prepared statements of:
        Senator Sununu...............................................     2
        Senator Reed.................................................     7
        Senator Sarbanes.............................................    10
        Senator Carper...............................................    16
        Senator Warner...............................................    33

                                    NOMINEES

    Harvey S. Rosen, of New Jersey, to be a Member of the Council of
      Economic Advisers..............................................     3
        Biographical sketch of nominee...............................    34
    Kristin J. Forbes, of Massachusetts, to be a Member of the
      Council of
      Economic Advisers..............................................     4
        Biographical sketch of nominee...............................    45
    Julie L. Myers, of Kansas, to be Assistant Secretary for Export
      Enforcement, U.S. Department of Commerce.......................    20
        Biograhpical sketch of nominee...............................    53
    Peter Lichtenbaum, of Virginia, to be Assistant Secretary for
      Export Administration, U.S. Department of Commerce.............    22
        Biograhpical sketch of nominee...............................    62

                  Additional Material Supplied for the Record

    A letter from Current and former Co-Chairs of the International
      Trade Law Committee of the American Bar Association's Section
      of International Law and Practice to Senator Richard C. Shelby
      and Senator Paul S. Sarbanes, dated October 10, 2003...........    71

                                     (iii)

                                NOMINATIONS OF:
                       HARVEY S. ROSEN, OF NEW JERSEY AND
                      KRISTIN J. FORBES, OF MASSACHUSETTS
                                TO BE MEMBERS OF
                        THE COUNCIL OF ECONOMIC ADVISERS
                           JULIE L. MYERS, OF KANSAS
                           TO BE ASSISTANT SECRETARY
                          FOR EXPORT ENFORCEMENT, AND
                         PETER LICHTENBAUM, OF VIRGINIA
                           TO BE ASSISTANT SECRETARY
                           FOR EXPORT ADMINISTRATION
                          U.S. DEPARTMENT OF COMMERCE

                                  ----------

                          TUESDAY, SEPTEMBER 16, 2003

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.

        The Committee met at 10 a.m., in room SD-538, Dirksen
    Senate Office Building, Senator Richard C. Shelby (Chairman of
    the Committee) presiding.

            OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY

        Chairman Shelby. The hearing will come to order.
        We have several nominees this morning. I appreciate the
    willingness of the nominees to appear before the Committee
    today. We will take them in two panels.
        Our first panel will be Professor Harvey Rosen and
    Professor Kristin Forbes. Professors Rosen and Forbes have been
    nominated to be Members of the President's Council of Economic
    Advisers. The Council of Economic Advisers, established by the
    Employment Act of 1946, provides the President of the United
    States with economic analysis and advice on the development and
    implementation of domestic and international policy issues.
        Professor Harvey Rosen is currently the John L. Weinberg
    Professor of Economics and Business Policy at Princeton
    University. I will note that Professor Rosen also served as the
    Chairman of Princeton's Economics Department from 1993 to 1996.
    The President's Council of Economic Advisers will not be
    Professor Rosen's first stint at public service. Previously,
    Professor Rosen served as the Deputy Assistant Secretary for
    Tax Analysis at the U.S. Department of the Treasury.
        Professor Kristin Forbes is the Mitsubishi Chair and
    Associate Professor of International Management at the
    Massachusetts Institute of Technology's Sloan School of
    Management. Previously, Professor Forbes served as the Deputy
    Assistant Secretary for Quantitative Policy Analysis, Latin
    American and Caribbean Nations, at the U.S. Department of the
    Treasury. Prior to joining MIT, Professor Forbes held positions
    in the Investment Banking Division at Morgan Stanley and in the
    Research Policy Division of the World Bank.
        Senator Sununu, you are here and I think I will yield to
    you to introduce Professor Forbes, if you so desire.

                  STATEMENT OF SENATOR JOHN E. SUNUNU

        Senator Sununu. Thank you very much, Mr. Chairman.
        It is a pleasure to be here to welcome both of the nominees
    to participate on the Council of Economic Advisers, and it is a
    special honor to present Dr. Forbes today as one of those
    nominees. She has a remarkable record of achievements. You have
    touched on a couple of them. They cover not only academics but
    also economics and public service as well, and they really do
    flow from her very strong roots in our home State of New
    Hampshire.
        She is the daughter of a physician, Jim Forbes, and his
    wife, Allison, and she was raised in our State capital of
    Concord. Dr. Forbes' parents, Dr. and Mrs. Forbes, are here
    today, as well as her husband, Steve Calhoun, and I want to
    welcome them all to the Senate Banking Committee.
        Her professional work in international economics has been
    punctuated with public service, and that is really a credit.
    Rather than just work successfully in academia or consulting,
    she has spent a great deal of time trying to give back to the
    country and served most recently as Deputy Assistant Secretary
    of the Treasury for Quantitative Policy Analysis, as you
    mentioned. That is a position where in her capacity she focused
    on Latin America and Caribbean nations.
        After serving for a year in the Bush Administration, she
    returned to MIT, which is a school that I know reasonably well,
    having managed to graduate there after a prolonged effort. She
    served at the Sloan School of Management, and as you mentioned,
    she has held the Mitsubishi Career Development Chair.
        She has a great grasp of international economic policy that
    has earned her worldwide recognition. Earlier this year, she
    was honored as one of the Global Leaders for Tomorrow at the
    World Economic Forum in Davos, Switzerland. She has a wonderful
    record of achievement, and that does indeed make her a natural
    choice for the Council of Economic Advisers. I am pleased and
    very proud for the entire State of New Hampshire to welcome her
    here today.
        Thank you, Mr. Chairman, and welcome, Dr. Forbes.
        Chairman Shelby. Our first panel, Professors Rosen and
    Forbes, I am going to administer an oath to you, and after that
    you can make your opening statement, and you might want to
    introduce any members of the your respective families that you
    have.
        First, if you would stand and raise your right hand. Do you
    swear or affirm that the testimony that you are about to give
    is the truth, the whole truth, and nothing but the truth, so
    help you God?
        Ms. Forbes. I do.
        Mr. Rosen. I do.
        Chairman Shelby. Do you agree to appear and testify before
    any duly-constituted committee of the Senate?
        Ms. Forbes. I do.
        Mr. Rosen. I do.
        Chairman Shelby. Thank you.
        Professor Rosen, do you have an opening statement? Do you
    want to introduce any of your family?

              STATEMENT OF HARVEY S. ROSEN, OF NEW JERSEY

           TO BE A MEMBER OF THE COUNCIL OF ECONOMIC ADVISERS

        Mr. Rosen. Thank you, Senator. I would like to introduce my
    son, Jonathan Rosen, and my wife, Marsha Novick, who drove down
    from New Jersey to join us today.
        Chairman Shelby. Thank you. Your written statements will be
    made part of the hearing record in its entirety. Please proceed
    as you wish although we may have to recess, because we have a
    vote at 10:45.
        Mr. Rosen. Yes, sir.
        Chairman Shelby. Go ahead, sir.
        Mr. Rosen. Mr. Chairman, Senator Sununu, I am honored to
    have the opportunity to appear before you as the President's
    nominee to be a Member of the Council of Economic Advisers.
    This is an important moment in my life, and I am happy that I
    have family and friends here to experience it with me. In
    particular, I would like once again to introduce you to my
    wife, Marsha, to whom I have been married 27 years, and my son,
    Jonathan, who is a junior at Princeton. Jonathan's older
    sister, Lynne, could not be here today. She is in Vietnam,
    spending the year teaching English at a community college in
    the Mekong Delta. Neither Lynne nor Jonathan has ever taken a
    course in economics. They have focused instead on the hard
    sciences, sensibly preferring disciplines that at least
    occasionally provide unambiguous answers to questions.
        I mention my children not primarily because I like to talk
    about them, although, since I am under oath, I am compelled to
    say that, as a proud father, the opportunity to brag about them
    to a distinguished Committee of the U.S. Senate is
    irresistible. Rather, I bring them up because they relate to a
    question that I expect is on your minds as you ponder my
    suitability for this appointment. Why does he want the job? I
    have benefited from the amazing opportunities that America
    provides its citizens. I want these opportunities to be open to
    my children and to all children. To a large extent, these
    opportunities depend on the Nation's prosperity. This
    prosperity derives primarily from our system of free markets,
    which unleashes the creative energies of our people.
        Our system of free markets depends critically on
    appropriate Government intervention. Government sets the rules
    of the game, defining property rights and assuring that all
    people compete on a level playing field. Government provides
    certain services that private markets simply cannot provide,
    such as national defense. And Government maintains a safety net
    to assist those people who need a helping hand.
        In short, the prosperity I want for my children and others
    to enjoy depends on good economic policy. I have spent my
    professional life doing research on economic policy, writing
    about it, and teaching about it. If I am fortunate enough to be
    confirmed, I hope this experience will help me to participate
    effectively in shaping our Nation's responses to the economic
    challenges that confront it.
        Thank you.
        Chairman Shelby. Professor Forbes.

            STATEMENT OF KRISTIN J. FORBES, OF MASSACHUSETTS

           TO BE A MEMBER OF THE COUNCIL OF ECONOMIC ADVISERS

        Ms. Forbes. Chairman Shelby, Senator Sununu, it is my
    privilege to appear before you today. I am honored to be
    considered by the President and considered by you to serve as a
    Member of the Council of Economic Advisers.
        After just observing the second anniversary of September
    11, 2001, this is a particularly poignant moment to reflect on
    the tremendous strength and resilience of the U.S. economy. In
    the past few years, the United States has experienced an
    unprecedented series of challenges--from the collapse of the
    stock market bubble, to the terrorist attacks of September 11,
    to the corporate accounting scandals, to the wars in
    Afghanistan and Iraq. Reflecting on these events reminds me,
    first of all, of the importance of family and friends.
    Therefore, I am delighted to be joined here today by my parents
    and my husband, as just introduced by Senator Sununu.
        Reflecting on these events of the past few years also
    reminds me of the tremendous vitality of the U.S. economy.
    Despite this series of challenges, the U.S. economy has
    remained strong and resilient. The recession of 2001 was one of
    the shallowest in post-World War history, as measured in the
    fall of GDP from its peak. The U.S. economy grew faster than
    any other major economy in the world in 2002, and is expected
    to do so in 2003. Productivity growth is rapid and has recently
    exceeded even optimistic expectations.
        Despite these positive signs, however, there are also
    reasons to be very cautious and vigilant. Employment has been
    very slow to recover, and unemployment is still too high. If
    growth in the United States continues to outpace that in the
    rest of the world, the current account deficit is likely to
    increase. In the next decade, as baby boomers retire, the
    payments for Social Security and Medicare will put increasing
    pressure on our Federal budget.
        Given these challenges, it is important to reinforce the
    underpinnings of the U.S. economy and the strengths that have
    contributed to its vitality. The United States is a land of
    opportunity, where people can, through hard work and
    perseverance, rise from humble beginnings to comfortable
    lifestyles. It is a land where an individual with a good idea
    can start his or her own business and flourish. These
    possibilities exist in the United States due to the economy's
    reliance on market forces, combined with a strong protection of
    individuals' rights. The U.S. Government has an important role
    to play in building and in enforcing the institutions necessary
    to ensure that markets function efficiently and that
    individuals' rights are protected.
        Not only does the Government have an important role to play
    in reinforcing the strengths of the U.S. economy, but also to
    ensure that the economy successfully adapts to new challenges.
    Our response to the series of corporate accounting scandals--
    arresting corrupt managers, allowing insolvent firms to go
    bankrupt, and passing new legislation to reduce the chance of
    these events occurring in the future--is a model of rapid
    adaptation that is the envy of many other countries. Over a
    decade after its asset bubble burst, Japan is still struggling
    with how to resolve many of the same challenges. As this
    country becomes increasingly integrated with the rest of the
    world, it will continually face new challenges on how to manage
    these adjustments, while still reaping the tremendous benefits
    of globalization.
        Given the important role of Government in protecting the
    strength and vitality of our economy, I realize the substantial
    responsibility entailed in a position as a Member of the
    Council of Economic Advisers. My background, as Senator Sununu
    just outlined--a Ph.D. in economics, a professor, and award-
    winning teacher at MIT, and a recent position as a Deputy
    Assistant Secretary in the U.S. Treasury Department--has
    hopefully helped prepare me for these challenges. If confirmed,
    I will be honored to accept the responsibility of providing
    sound economic advice to help ensure the continued vibrancy of
    the economy.
        Thank you for your time, and I look forward to your
    questions.
        Chairman Shelby. Thank you.
        Professor Rosen, earlier this year, I again introduced
    legislation that would greatly simplify our tax system. My
    proposal, Senate bill 1040, is a simple 17-percent flat tax for
    all families, after a generous standard deduction.
        Knowing your background on taxes and so forth, what do you
    think, what would be the impact of this proposal? I know it is
    a proposal, and that is all it is at the moment. But what is
    the impact of that?
        Mr. Rosen. Senator, I think that a tax system with lower
    marginal tax rates would be good for labor supply incentives,
    for saving incentives, would improve the allocation of capital,
    and reduce administrative costs.
        Chairman Shelby. Dr. Forbes, your academic research has
    addressed the topic of shocks and contagion in the
    international financial and economic systems. The Committee has
    looked at that topic in the context of the Russian and Asian
    financial crises, as well as other earlier systemic events.
        What role do you believe capital controls play in the area?
    Specifically, do you think emerging countries should be
    considering controls over ``hot money'' coming into their
    economies?
        Ms. Forbes. That is an excellent question, and that is a
    topic many academics have debated very seriously for the past
    few years.
        Chairman Shelby. It has been raised here, too.
        Ms. Forbes. I am sure. I think that it is tempting for a
    country to put on capital controls because it can protect them
    from events in the rest of the world, especially negative
    shocks and negative events in the rest of the world.
        Chairman Shelby. But not for long.
        Ms. Forbes. No. I was going to say there is a substantial
    cost if a country puts on capital controls. It can cut them off
    from the benefits of globalization and interacting with the
    rest of the world.
        I have also done some research that shows it can introduce
    some serious microeconomic distortions in the allocation of
    capital. In particular, large companies find it sometimes easy
    to get around capital controls to raise money, but for smaller
    companies, it is much harder to get around capital controls to
    raise financing. So putting on capital controls can seriously
    hinder the growth of small and medium enterprises. And as we
    have seen in many emerging markets, growth often doesn't come
    from your large state-owned enterprises. It comes from your
    small and medium enterprises that can grow and become large.
        Chairman Shelby. So they are stifling their own development
    of their small business sector by doing this.
        Ms. Forbes. Exactly.
        Chairman Shelby. Is that what your findings are?
        Ms. Forbes. Exactly. I think capital controls can be very
    dangerous and seriously hurt the development of small- and
    medium-size businesses.
        Chairman Shelby. Professor Rosen, Dr. Rosen, a lot of your
    own research is focused on how local and State governments
    respond to how a Federal tax system is structured.
        Mr. Rosen. Yes, sir.
        Chairman Shelby. Have you seen any evidence that local and
    State governments increase their reliance on certain types of
    taxes, like property taxes, when these taxes are deductible
    against Federal taxes?
        Mr. Rosen. Yes, sir.
        Chairman Shelby. What is the correlation here?
        Mr. Rosen. I did look at the data to see whether or not the
    likelihood that a jurisdiction had a property tax or an income
    tax depended on whether or not the marginal tax rate of the
    members of the community were high or low. The higher your
    marginal tax rate, the larger the benefit of such a deduction.
    What this research found was that, yes, in fact, the fiscal
    structures of the State and local governments were sensitive to
    the marginal tax rates of the residents.
        Chairman Shelby. But this is not anything new, is it?
        Mr. Rosen. I think it is common sense. It was an
    interesting project to document it.
        Chairman Shelby. Thank you.
        Dr. Forbes, next month this Committee will be receiving the
    semiannual report from the Treasury Secretary on the
    International Economic Policy and Exchange Rates, and, of
    course, Secretary Snow will appear again before the Committee.
    What advice will you be giving the President with regard to
    China and its fixed exchange rate policy? And more broadly
    speaking, what concerns should policymakers have with regard to
    the U.S. current account deficit and the capital account
    surplus? I know it complicated stuff, but you are a professor
    at MIT so you can explain it.
        Ms. Forbes. I will begin by addressing the first part of
    your question about the report on exchange rates. I firmly
    believe that the best exchange rate regime for most countries
    is a market-determined flexible exchange rate.
        Chairman Shelby. Let it float, in other words.
        Ms. Forbes. Yes, let the exchange rates float, especially
    when combined with the free movement of capital and open
    markets for trade. I think that is the best policy for
    countries. It reduces their vulnerability to crises and shocks
    and makes them much more flexible in terms of adjusting to
    shocks.
        In terms of your second question--am I concerned about the
    current account deficit?--I think it is something we need to
    watch very carefully. The current account deficit is now
    approximately 5 percent of GDP, which is an all-time high for
    the United States. I hope the current account deficit does not
    grow much more.
        Chairman Shelby. If it did grow, what are some of the
    downsides?
        Ms. Forbes. I think the current account deficit is large,
    and if it grows, it does need to be interpreted as a symbol of
    strength. The reason we have a large current account deficit is
    largely because of capital flows into the United States because
    foreigners see the United States as the best place to invest in
    the world and a very attractive investment climate. Although
    the current account deficit is large, it is easily funded by
    money from abroad because of the promise that the United States
    holds as an investment area.
        Chairman Shelby. Senator Sarbanes.
        Senator Sarbanes. I'll defer to Senator Reed. He was here
    first.
        Chairman Shelby. Senator Reed.

                     STATEMENT OF SENATOR JACK REED

        Senator Reed. Thank you, Mr. Chairman.
        Dr. Rosen, you authored a paper called ``The Case for
    Making the Tax Cuts Permanent,'' which Glenn Hubbard promoted
    extensively. Within the paper, though, you seemed to diminish
    the impact of the tax cuts on potential deficits going forward.
    You do acknowledge that they could raise the budget deficit,
    but then you say that with dynamic scoring this could be
    corrected. And also you tend to talk about the empirical
    evidence on the relationship between
    deficit and interest rates is inconclusive, whereas some
    people, including Chairman Greenspan, feel that the correlation
    is highly conclusive and that the deficit is not a real measure
    of the burden of Government. In short--and I think these are
    the words in the paper--``the possible deficits associated with
    the tax law are no obstacle to making it permanent.''
        Do you still feel that deficits are an unimportant
    consideration in evaluating making these tax changes permanent?
        Mr. Rosen. Senator, I think that deficits are certainly a
    concern. I think that deficits at the level we are looking at
    now, however, are manageable, especially when we look at them
    relative to GDP.
        In terms of possible downside effects of the deficit, the
    issue here, I think, is whether or not increased deficits will
    lead to increased interest rates. In my view, I continue to
    think that the research on that issue, taken all together, is
    inconclusive. Both the theoretical and empirical literature
    have estimates that are all over the map.
        That said, my personal opinion is that, other things being
    the same, deficits do increase interest rates. I think the
    issue then becomes, when we think about deficits at the level
    we have now, given the condition of the economy now, are they
    big enough to impede the recovery? And I think that they are
    not.
        Senator Reed. When you look at the deficits with respect to
    gross domestic product, do you factor out the Social Security
    surplus?
        Mr. Rosen. The computations about which I am speaking refer
    to all types of revenue.
        Senator Reed. Some of the numbers that I have seen suggest
    that we are running, on a percentage of GDP basis if you
    subtract out the Social Security fund, at levels that we have
    not seen since the early 1980's, which was not exactly a
    stellar period of economic growth in the country. One of the
    reasons why it makes sense to take out the Social Security
    surpluses is because back in the 1980's, in fact, up until very
    recently, we really did not have any significant Social
    Security surpluses. That was a phenomenon of the changes made
    in 1986 and compounded going forward.
        I would suggest that in historic terms, even using the
    comparison between GDP ratios, that we are running fairly
    substantial deficits at this point, which I think will give
    rise to, as your gut tells you, increased interest rates at
    some point. And that is something that I think Chairman
    Greenspan believes also.
        This I think is going to be one of the significant issues
    that you and Ms. Forbes face in advising the President because
    everything we are doing today has suddenly been transformed by
    the notion that we do not have any money to do it. And we have
    some uncontrollable expenditures like Iraq that will certainly
    add and not detract from the deficit.
        I would hope that in your work you would be sensitive to
    the issue of the deficit and particularly when we consider
    these tax policies and make them permanent. Thank you. And I
    thank you for being here today. Ms. Forbes, thank you, too.
        Chairman Shelby. Senator Sununu.
        Senator Sununu. Thank you.
        Mr. Rosen, could you comment a little bit about your
    perspective of the role and the mission of the IMF, areas where
    its focus can provide economic benefits overseas and perhaps
    areas where in the past it may have undertaken policies that
    were more questionable or might have had more mixed results?
        Mr. Rosen. Senator, I think international organizations
    such as the IMF and the World Bank can provide a useful
    framework for the joint action of nations to help other nations
    that are facing fiscal distress of one kind or another. I think
    that, in general, the United States has to play an aggressive
    role in making sure that these policies are executed in a
    sensible way.
        Senator Sununu. Do you want to elaborate any more on how
    prescriptive the IMF can or should be and the degree to which
    it has been successful or had limited success in some of its
    interventions?
        Mr. Rosen. I really think Kristin might do a better job on
    that question.
        Senator Sununu. I will be happy to kick it over to Dr.
    Forbes, although in that regard, I would like to ask a slightly
    more specific question, and that is with regard to Latin
    America. First, the degree to which the prescriptive policies
    of the IMF have been successful or unsuccessful in Latin
    America, but, second, the areas that your evaluation and your
    research would indicate are the greatest opportunities for
    next-stage reforms in Latin America. We have seen some changes,
    many positive changes in a number of the economies in Central
    and Latin America over the past 10 years. We have seen what I
    would term some missteps or some counterproductive action in
    just the last few years. But where do you see the greatest
    opportunities for reforms in the next 2 to 4 years throughout
    Central and South America?
        Ms. Forbes. I think, taking a little bit of a step back,
    when the IMF was created, it was created in the 1960's as part
    of the Bretton Woods Agreement to ensure the stable flow of
    capital and balance of payment stability in an era of fixed
    exchange rates. The world has changed dramatically since then.
    Capital flows have increased. The world is much more
    globalized. Many countries have flexible exchange rates. And
    the IMF has adapted its role to account for these changes.
        Along the way, there have been times it has been slow to
    adapt and slow to adjust to some of these changes. For example,
    the Asian crisis caught the IMF largely by surprise. The IMF
    actually did a fairly good job predicting that Thailand was in
    trouble in 1997, but was not aware of how quickly the problems
    in Thailand could spread to other countries.
        After not being fully aware of the vulnerabilities during
    the Asian crisis, the IMF has made tremendous steps in
    reforming itself. It has created an Independent Evaluations
    Office, the IEO, which is looking at specific programs and
    policies and trying to think about how the IMF can improve on
    itself.
        I have not seen all of the reports in the IEO. It is still
    very much a work in progress, but I think some of my own
    personal recommendations of what the IMF can do to improve its
    performance, I think first of all the basis of what it does is
    fundamentally sound. If it is going to give aid to countries,
    it is right to work with the countries to come up with a stable
    macro environment, sound fiscal situation, keep inflation under
    control. Countries just will not recover from financial crisis
    if they do not have some of these basic macro conditions in
    place. And the IMF is fairly good at establishing what is
    needed for macro stability.
        Where I think the IMF can reform--and it is trying to make
    steps in this area--is to now work more on some micro reforms,
    building institutions in these countries. As we have seen in
    Argentina, for example, if you have constant changes in the
    rule of law, constant changes in bankruptcy proceedings, and
    you cannot trust the legal system, it is very hard to get a
    banking system that will work and function. And it is very hard
    to get the financial system to work and the economy to grow
    again.
        I think while the IMF does perform some very important and
    useful functions, the world is changing, and the IMF is trying
    to change, and some of the new areas where the IMF will need to
    focus in the future is on building institutions and some micro
    reforms to have economies recover and grow.
        Senator Sununu. Thank you.
        Thank you, Mr. Chairman.
        Chairman Shelby. Senator Sarbanes.

                 STATEMENT OF SENATOR PAUL S. SARBANES

        Senator Sarbanes. Thank you, Mr. Chairman.
        Ms. Forbes, I want to ask you first about a response on
    your questionnaire from the Committee with respect to political
    contributions. The question asks the nominees to itemize all
    political contributions of $500 or more to any individual,
    campaign, organization, political party, political action
    committee, or similar entity during the last 8 years and
    identify specific amounts, dates, and names of recipients. And
    your response to that is that you purchased two tickets for the
    President's Dinner, a fundraiser for the Republican Party,
    total contributions of $5,000 in May 2003--in other words, this
    past May.
        Now, the Intention to Nominate you was announced by the
    White House on May 15, if I am not correct, and presumably for
    some period of time before that, you knew that this nomination
    was in the works.
        Were you solicited in some way for that political
    contribution, by mail, orally, or in any other way?
        Ms. Forbes. No, I was not solicited in any way. Just to
    make sure the time line is clear, I had spoken to the White
    House in late winter, actually interviewed for the position
    during one of the big snowstorms in late winter. The
    possibility of my receiving the position and the Intention to
    Nominate me was conveyed to me well before I received any
    invitation to the President's Ball.
        The reason why it took so long for my Intention to Nominate
    to be released was because I was not able to come to Washington
    and start as a consultant until after I had finished teaching.
    I had a very busy teaching semester in the spring at MIT. And
    the person who I was going to replace on the Council was still
    in the position on the Council, and I did not want to
    prematurely announce the Intention to Nominate while he was
    still serving because it might hurt his effectiveness to serve
    the President.
        I was well aware that they were going to offer me the
    opportunity to serve on the Council well before the invitation
    to this event came. Then the way it came, I still--honestly, I
    do not know how my name got on the mailing list, but I just
    received an invitation to the President's Ball, which was a
    large fundraiser and dinner at which the President was
    speaking, and a large number of Senators and Congressmen would
    be there. I was actually planning to come to Washington during
    that date, anyway, to look at apartments for the possibility of
    coming to Washington to serve in this capacity. So, I figured
    the timing was perfect. I would be in Washington anyway looking
    at apartments. I already knew I would be offered the
    possibility of obtaining this position. And I figured this was
    a wonderful opportunity to possibly see the President and
    possibly meet some Senators with whom I would be working.
        There was no way that I think that the job offer was
    contingent on the donation, and it is just a pure coincidence
    that they occurred about the same time.
        Senator Sarbanes. Had you previously at any time been
    solicited to make a political contribution?
        Ms. Forbes. I probably have received mailings in the past.
    I cannot think of any specific occasions off the top of my
    head. Growing up in New Hampshire, I frequently did go to local
    events.
        Senator Sarbanes. Well, when this invitation came--I take
    it you got an invitation in the mail.
        Ms. Forbes. Yes.
        Senator Sarbanes. To contribute to this fundraiser. Is that
    correct?
        Ms. Forbes. It wasn't----
        Senator Sarbanes. It was not--was it followed up in any way
    orally by phone or in any other manner?
        Ms. Forbes. No. It was just an anonymous invitation that I
    actually know other colleagues of my husband also received in
    the mail.
        Senator Sarbanes. When you got this invitation, it was
    something new, I take it. I mean, you hadn't been getting
    invitations like this previously, had you?
        Ms. Forbes. My guess was that it had either come because
    one of my husband's colleagues who was on these mailing lists
    might have mentioned I had served at the Treasury Department in
    the Bush Administration, or I thought it might have just come
    because of after serving in the Bush Administration my name had
    been possibly added to some mailing lists. But other than that,
    I have no idea where the invitation came from.
        Senator Sarbanes. It did not strike you in any way as being
    something amiss? Here you were about to receive a job in the
    Administration, and now you are being solicited to attend a
    fundraiser and make a major contribution, something you hadn't
    done over the previous 8 years. Is that right?
        Ms. Forbes. Also, I did not feel any pressure to give the
    donation. If I hadn't been in town anyway looking at
    apartments, I probably wouldn't have written any check. I
    definitely wouldn't have gone to the fundraiser. So, I did not
    feel any pressure to contribute and in no way link this to this
    opportunity to serve on the Council.
        Senator Sarbanes. Mr. Rosen, did you at any point along the
    way here get solicited to make a contribution?
        Mr. Rosen. Sir, from time to time, I receive mail
    solicitations at my home.
        Senator Sarbanes. In the past?
        Mr. Rosen. In the past, yes, sir.
        Senator Sarbanes. And did you receive any on or about the
    time that you were being considered for this nomination?
        Mr. Rosen. Not that I know of, sir.
        Senator Sarbanes. What does that mean?
        Mr. Rosen. It means no, sir.
        Senator Sarbanes. Just checking.
        Do you have any concern about the appearances of this
    situation?
        Ms. Forbes. In hindsight, since it has made you concerned,
    I wish I had not given the contribution. But, honestly, at the
    time I saw it as an opportunity to see the President I would be
    serving and to meet possibly some of the Senators I would be
    working with and just saw it as an opportunity and not in any
    way as a solicitation or anything inappropriate.
        Senator Sarbanes. Yes. My message is not directed so much
    at you, but at the person who maybe is running these lists and
    so forth.
        Can I ask another question?
        Chairman Shelby. Sure, go ahead, Senator.
        Senator Sarbanes. I want to turn to the unemployment
    insurance issue here for a moment. Almost 22 percent of all
    unemployed workers are long-term unemployed. The percentage has
    been above 21 percent now for 7 consecutive months, the first
    time that has happened since 1983. And it is estimated that
    over a million American workers have been unemployed for more
    than 39 weeks and have exhausted their extended unemployment
    insurance benefits and are unable to find work.
        We have had a long, bipartisan history, actually, of
    extending unemployment insurance benefits during period of
    prolonged weakness in the labor market. We have extended
    benefits in every recession since World War II and in many
    circumstances for a longer period.
        In response to an question put to Chairman Greenspan
    regarding providing these benefits during periods of sustained
    weakness in the labor market, he answers, ``I have always
    argued that in periods like this, the economic restraints on
    the unemployment insurance system almost surely should be
    eased.''
        Do you support easing the restraints on the unemployment
    insurance given the high percentage of long-term unemployed,
    people who want to work but cannot find a job? Should we extend
    unemployment insurance benefits?
        Ms. Forbes. That is a very difficult question. Long-term
    unemployment is a serious problem. It is very difficult right
    now for some unemployed to find jobs. There is a very sound
    argument for providing some relief for the unemployed who are
    unable to find jobs to help ease them through this transition
    period.
        On the other hand, if we do continue to extend unemployment
    insurance and provide very generous benefits, then this will
    reduce the incentives for unemployed to find work. We have seen
    very strong evidence of this in other countries, such as
    France, which has generous unemployment insurance and it has
    severely hurt the incentives of people to find jobs.
        Senator Sarbanes. Do you apply the same judgment with
    respect to previous periods in our own history in which we have
    extended unemployment insurance benefits in order to address
    the problem created by a difficult labor market?
        If you compare it with the French, then you are a winner
    from the start, given the attitudes now prevailing around here
    about the French. But let us just talk about the Americans,
    just to keep it in the American context. What I am questioning
    is--I am not asking whether you favor doing something we have
    never done before. Actually, I am asking whether you favor
    doing something that we have repeatedly done before.
        Ms. Forbes. Well, given the very difficult challenges the
    United States has faced in the past 2 years and the series of
    shocks that have hurt the economy, the President did think it
    was worthwhile to extend the unemployment insurance, and that
    is why twice he has extended unemployment insurance benefits.
    And I believe that was the right decision and agree with his
    decision based on the environment in the United States.
        When the unemployment insurance, possibility to renew the
    extension of benefits comes up again in December, I think it is
    going to be very important to evaluate what is the current
    economic situation, what is the current situation with the
    unemployed, and to weigh the potential benefits of helping the
    unemployed with additional uninsurance benefits with the
    potential cost and what it will do to incentives for people to
    find work. And that is going to be a very difficult decision
    and one that the President will have to make at the end of the
    year.
        Senator Sarbanes. Well, what advice would you give him? I
    want to point out that there are about 2 million long-term
    unemployed. A million of those have exhausted all their
    benefits, even with the extension that you made reference to.
    That extension continues to fall short of extensions that have
    been done in previous recessions. So for the million, they are
    just flat out now. Then there is another million long-term
    unemployed, presumably between 26 and 39 weeks, who are using
    up their benefits and may shortly run out of them. What would
    your advice be?
        Ms. Forbes. The unemployed is a very serious concern, and
    it is something we need to be very aware of. I think the best
    solution for unemployment, though, is to encourage growth in
    the United States and stimulate growth. Only with a recovery
    and rapid growth will we see unemployment fall. And so I would
    advise the President to do what he is doing in terms of passing
    three stimulus packages in the past 3 years to spur growth and,
    therefore, to help the unemployed find jobs.
        Senator Sarbanes. It has not stimulated the growth and
    enabled them to find jobs; at least it has fallen short, so far
    short that at the moment we have these record levels of long-
    term unemployed. What are we going to do about the long-term
    unemployed? Would you advise the President to extend the
    unemployment insurance in order to enable them to meet the
    difficult situation with which they are confronted?
        Ms. Forbes. That has been one very frustrating aspect of
    the economic recovery. Even though growth is starting to pick
    up, unemployment is still increasing. Employment is still
    falling. We are hoping, though--the predictions are that growth
    should improve dramatically in the third and fourth quarter of
    this year. Growth should be well above potential GDP growth,
    which means we hope to see employment start to increase and
    unemployment start to fall by the end of the year.
        It is very difficult to predict right now what will happen,
    and we will have to see what the economic situation is at the
    end of the year when the President makes the decision about
    whether to extend unemployment insurance.
        Senator Sarbanes. If the current situation continues to
    prevail at the end of the year, what kind of situation would
    you recommend extending the unemployment insurance benefit?
        Ms. Forbes. That is a decision for the President to make.
        Senator Sarbanes. No, I am just asking----
        Ms. Forbes. --he is going to need to weigh----
        Senator Sarbanes. --what advice would you give him?
        Ms. Forbes. My advice to him would be here is the current
    economic situation, here is what happened in employment,
    hopefully those numbers will be positive by then. But there are
    still a number of unemployed people which would benefit from
    extending the unemployment insurance, but there are these
    potential long-term costs. And then I would leave the final
    decision up to the President after having carefully laid out
    the costs and benefits of the different policies.
        Senator Sarbanes. President Truman once said he wanted a
    one-armed economist. They asked him, ``Why do you want a one-
    armed economist?'' And President Truman said, ``Because I am
    tired of this `on the one hand' and `on the other hand,' and I
    want to get some specific advice.''
        Mr. Rosen, what would you advise?
        Mr. Rosen. I am afraid I am a two-handed economist, sir.
        [Laughter.]
        I think that an adviser's job in this context is to make
    clear to the decisionmaker on the one hand the real distress
    that unemployed people are facing, and on the other hand the
    costs of an extension in terms of possibly increasing the
    unemployment rate. Presumably, the people who have been the
    President's advisers in the past presented those data to him
    and he decided that, on balance, it made sense to extend the UI
    benefits, that the alleviation of this stress, given the
    situation at the time, more than outbalanced or outweighed the
    associated possible increases in unemployment.
        Senator Sarbanes. In addition to the alleviation of the
    stress does it not have an impetus to the economy by providing
    purchasing power for people who otherwise would not have it?
    Does it not have a stimulative effect?
        Mr. Rosen. Yes, Senator, that UI benefits do have a
    stimulative effect on the economy, and then the question
    becomes how these rank relative to other possible ways to
    stimulate the economy, and in particular, ways that might not
    simultaneously develop or engender supply side effects that
    work in the direction of when we would want to move.
        Senator Sarbanes. That would be to discourage people from
    working, the supply side effect?
        Mr. Rosen. Precisely, sir.
        Senator Sarbanes. Do you think that is a major problem
    facing us right now?
        Mr. Rosen. The research that I have seen on the effects of
    unemployment insurance in the United States suggests that when
    benefits are extended, other things being the same, people take
    longer to get new jobs. That doesn't mean that UI is a bad
    program at all. It is a classic problem that arises in the
    design of social insurance programs. We want to provide a
    safety net, but at the same time we understand that they may
    have an effect on incentives that does counter other public
    policy goals.
        Senator Sarbanes. Thank you, Mr. Chairman.
        Chairman Shelby. Dr. Forbes, at the President's dinner just
    about everybody on the Republican side of the aisle were there
    with the President. Just about all of us gave him money. We do
    not know if he is going to give us a job, we would probably
    take it. But we did it for philosophical reasons and to help
    him.
        I want to ask several more questions, but one to both of
    you. Has anybody ever done any studies or suggestions that of
    the money we pay out in unemployment benefits week by week and
    extended--and we all have compassion for people that are
    unemployed, and there are too many people unemployed. We all
    know that on both sides of the aisle and you know it as
    economists. On the other hand, if people, as a rule of human
    nature, drawing money, a lot of them are not seriously looking
    for a job. I think myself, when I was going to the university
    and looking for a summer job, if I could have drawn
    unemployment, I would have had a heck of a time that summer,
    but I knew I had to work. We have all been there. Have any
    studies or thought ever been brought forth to see if you could
    pay some of that money in a lump sum to some of the more
    enterprising people one time as capital, where it would unleash
    something in their makeup, a dynamic, which they never had.
        I know a lot of people would spend that money and they
    would be down and out. But some people would not spend the
    money. They would be frugal with it. They would be wise with
    it. How you differentiate the people, I do not know, but I do
    not see other than compassion, which we all support, to help
    people that are temporarily down or even long-term down. The
    billions of dollars spent on unemployment benefits over and
    over and over. It seems to me--I am sure it is not the norm--
    but if I got a lump sum of $10,000 or $12,000, heck, I might do
    something with it. I might start something in my house. I do
    not know. Capital, as you know, is hard to create. It is hard
    to earn. It often takes families one to two generations to get
    enough capital to even start a business. It is just a thought.
    Dr. Forbes, is that way off the mark?
        Ms. Forbes. No, not at all, and actually, the President has
    a
    proposal that is somewhat along those lines. The President has
    proposed personal reemployment accounts, where if someone is
    unemployed they would receive about $3,000, so it is not quite
    as generous as your plan, but again, it does keep in mind the
    fiscal
    constraints we are operating under.
        Chairman Shelby. You see what I am talking about though?
        Ms. Forbes. Yes. And then an unemployed individual can take
    the $3,000 to either get trained for a new career or to move to
    a new location where there is more likelihood of finding a job.
    And the individual can use that money to do what he or she sees
    best to reemploy himself or herself. And if this person finds a
    job fast, they can keep the extra money in that pool.
        Chairman Shelby. It seems to me like that would be like
    microcredit except it would be a lump sum micro to start
    something. Maybe I am way off the mark.
        Ms. Forbes. No. I think it is an excellent idea.
        Chairman Shelby. Professor Rosen, you have any comment?
        Mr. Rosen. There have actually been a number of academic
    studies looking at this issue. Some States ran demonstration
    projects to see what would happen if you gave people
    unemployment insurance benefits as a lump sum up front instead
    of on a week-by-week basis.
        Chairman Shelby. With the understanding that was it and
    there is not going to be any more, correct?
        Mr. Rosen. Yes, sir.
        Chairman Shelby. Like when your parents say, ``That is all
    you are getting,'' you are gone.
        Mr. Rosen. And that is it.
        Chairman Shelby. You looked at your son.
        [Laughter.]
        Mr. Rosen. And, you know, one thing that emerged from those
    studies is that, yeah, people do in fact find their way back to
    work sooner under those conditions.
        Chairman Shelby. Could you furnish some of that for the
    Banking Committee record?
        Mr. Rosen. I would be happy to, sir.
        Chairman Shelby. As an academic, you will dig it up quicker
    than we will.
        Mr. Rosen. I would be delighted.
        Chairman Shelby. Thank you. Professor Rosen, this
    Committee, as you know, has jurisdiction over most Federal
    housing programs. You have done a lot of research focused on
    delivery of housing subsidies, I believe. Have you reached any
    conclusions in the course of your research that you believe
    this Committee should consider in evaluating our current
    housing programs? If you want to furnish that for the record,
    you can do that.
        Mr. Rosen. I think that the major conclusions of my work on
    housing subsidies were pretty straightforward, and they are
    that the housing subsidies embodied in the income tax are an
    effective way to increase home ownership in this country. My
    research suggested the subsidies increase the likelihood that a
    family will own rather than rent, and so it is been--to the
    extent the goal is to----
        Chairman Shelby. Most people want to own rather than rent,
    do they not?
        Mr. Rosen. I think that is a goal of many Americans.
        Chairman Shelby. It is not for everybody, but for most
    people.
        Mr. Rosen. I think right now about two-thirds of Americans
    are owning, so they are clearly manifesting those preferences.
        Chairman Shelby. Block grants to State and local
    governments you have looked at? A constant concern is that
    these funds are not offset by reduced funding for various
    activities like housing at the local level. During the course
    of your research, have you reached any conclusions as to what
    degree Federal Block Grant funding is or is not offset?
        Mr. Rosen. No, sir, I am afraid I have not studied that
    question.
        Chairman Shelby. Thank you.
        Senator Carper.

                  COMMENTS OF SENATOR THOMAS R. CARPER

        Senator Carper. Thanks, Mr. Chairman.
        Dr. Forbes, Dr. Rosen, thank you for being here today.
    Thank you for your willingness to serve our country.
        I am going to ask you to set aside modesty for just a
    moment, although I admire modesty in people. Just take a moment
    to tell us why you think you are well prepared to take on these
    responsibilities. Dr. Forbes?
        Ms. Forbes. As Senator Sununu said in his introduction, I
    have spent the last few years of my life switching between
    public service and academics in economics. As an academic I
    have spent an extensive amount of time studying what determines
    growth in countries, as well as what determines financial
    vulnerability in countries and financial crises, how
    globalization is affecting the world and affects different
    countries, and how globalization affects different countries
    vulnerabilities as well as building some of their strengths. I
    think those are all incredibly important issues that the U.S.
    economy has to struggle with, how to grow faster, how to deal
    with globalization and benefit from globalization. So based on
    my academic background, I think I can bring something to the
    job in that aspect.
        Also I have been in and out of public service and worked in
    a number of different institutions. Recently, I was at the U.S.
    Treasury Department and served as a Deputy Assistant Secretary,
    seeing how the policy process works and the importance of
    merging economic concepts and economic ideas with other goals,
    political goals, social goals. I have also spent some time in
    the private sector in investment banking at Morgan Stanley and
    at the World Bank.
        So, I have had a range of different experiences, and I hope
    all of that has helped prepare me for the challenges I will
    face and the responsibilities in this position as a member of
    the Council of Economic Advisers if confirmed.
        Senator Carper. You have crammed a lot into a relatively
    few years, that is for sure.
        Ms. Forbes. Thank you.
        Senator Carper. Dr. Rosen.
        Mr. Rosen. Thank you, Senator. I have been doing research
    and thinking about public policy questions for many years now.
    I have looked at the effect of tax policy on the efficiency of
    the economy. I have looked at the effect of taxes on labor
    supply, as Senator Shelby mentioned, on housing. I have studied
    the effect of taxes on entrepreneurship, whether entrepreneurs
    are more or less likely to hire labor, expand their businesses
    in light of taxes. I have looked at a number of other domestic
    policy issues including health. I am hopeful that what I have
    learned by doing that research would help me to inform
    discussions in Washington about public policy.
        I should also add that I have been teaching for a number of
    years. Teaching has actually been a very important part of my
    career to me. And that is about communication, and I think one
    problem that economists sometimes have operating in the public
    arena is making the translation from jargon to English.
        Senator Carper. We have that problem sometimes too, so it
    is not just economists.
        [Laughter.]
        Mr. Rosen. I am hopeful that those skills might also be
    useful when it comes to serving in the Government.
        Senator Carper. We are suffering through our second almost
    jobless recovery in the last dozen years or so. And I was in a
    meeting earlier this morning where some discussion, not of the
    loss of manufacturing jobs which we hear a lot about and talk a
    lot about, but the loss of jobs that are more information
    technology related, programmers, people that are just running
    software. We are seeing the exportation of those jobs to places
    you have heard about, in the Philippines, India, and a variety
    of other countries.
        I would like for you just to each take a minute or two and
    tell us what you think some of the elements of an economic
    recovery package for our country should be, and it could be
    pieces that are already in place, it could be things that we
    are already doing, that we need to continue to do, maybe
    several elements that we should do more of, and that would
    involve not only something that the Congress can do but also
    maybe monetary policy as well on the part of the Fed. Just a
    few elements. It does not have to be comprehensive. Just say
    these are a few of the important things we need to be doing to
    get this moving again.
        Ms. Forbes. I can think of two major sets of policies that
    would get the economy moving again, many of which are in place
    or in progress. The first is opening up markets abroad for U.S.
    goods and U.S. exports. The collapse of the talks in Cancun
    this weekend was a travesty, and I think we need to continue
    the aggressive strategy the United States has followed in the
    past 3 years to continue to negotiate free trade agreements, to
    continue to reduce barriers to trade, and just open up markets
    around the world for U.S. exports. We have an incredibly
    competitive economy and we can compete with any country around
    the world if markets are open to us. I think it is very
    important to continue this progress.
        A second set of major policies I would propose would be to
    make sure we reduce costs in the United States to ensure our
    companies maintain their existing competitiveness. For example,
    manufacturing has raised concerns, and some specific policies
    that would address cost issues in manufacturing are some things
    like tort reform to reduce the excessive cost of lawsuits.
    Reducing regulations. Some regulations are obviously necessary
    to ensure safety standards and environmental standards, but
    making sure we only have regulations for which the benefits
    exceeds the costs. Another is ensuring low costs or maintaining
    the cost increases in health care so individuals have health
    care at reasonable cost.
        And another aspect of maintaining low cost to ensure
    competitiveness is ensuring that we have stable and affordable
    energy. The blackouts reminded us of the importance of making
    sure we have a stable source of energy in order for U.S.
    companies to maintain competitiveness.
        Senator Carper. That is a good list. Thanks.
        Dr. Rosen.
        Mr. Rosen. There is not too much I can add to that list.
        Senator Carper. Do you want to take anything away?
        [Laughter.]
        Mr. Rosen. No. I think it was a great list. I may have a
    bias because I have spent so many years studying tax policy,
    but I would certainly like to see a tax system that is friendly
    to both business and workers, a tax system with low marginal
    tax rates that doesn't distort behavior. Also in the context of
    both the tax system and the regulatory issue is some easing of
    the administrative burden associated with the tax system, in
    particular. For example, there are reporting requirements for
    small businesses that are quite burdensome. I understand some
    progress has been made in reducing those, and that is an avenue
    that I would like to go down, which I would like to see us
    continue to move.
        Senator Carper. Thank you for your testimony. Your families
    are gathered behind you, and I would say to them, thank you for
    sharing your loved ones with the people of this country.
        Chairman Shelby. Senator Sarbanes.
        Senator Sarbanes. Dr. Forbes, did you say Cancun was a
    travesty or a tragedy?
        Ms. Forbes. Travesty.
        Senator Sarbanes. And who caused the travesty?
        Ms. Forbes. I do not have any information other than what I
    have read in the newspapers. What I have read is that the
    reason talks broke down was largely because a number of
    developing countries were making very strong demands that some
    developed countries, especially Europe, were not comfortable
    with, and there was an unwillingness to negotiate. Although
    people kept thinking there would be a breakthrough and the two
    groups would be able to find some compromises, somehow those
    compromises never emerged and the talks suddenly ended, much to
    everyone's surprise.
        Senator Sarbanes. I was struck by that choice of words.
        Mr. Chairman, I just want to make a concluding comment to
    both of our nominees.
        In my view an extraordinarily comprehensive and efficient
    solicitation protocol or regime on the part of the
    Administration, and you all are relatively new to this. I am
    prepared to accept that explanation. But I really want to
    forewarn you that U.S. Code Title 18 on Making Political
    Contributions, says:

        It shall be unlawful for an officer or employee of the
    United States or any department or agency thereof or person
    receiving any salary or compensation for services from money
    derived from the Treasury, to make any contribution, within the
    meaning of Section 301 of the Election Campaign Act, to any
    other such officer, employee or person, or to any Senator or
    Representative, if the person receiving such contribution is
    the employer or employing authority of the person making the
    contribution.

        Then it sets out the penalties. Then it says, ``For
    purposes of this section, a contribution to an authorized
    committee as defined, et cetera, shall be considered a
    contribution to the individual who has authorized such
    committee.''
        For this to apply, you must be an officer or an employee.
    There are also penalties for those who do the solicitation, if
    they in fact are officers or employees of the United States.
    But just in case these solicitations come in upon you, you
    really have to acquaint yourself, familiarize yourself with
    what the legal requirements are, because those soliciting you
    may not be very sensitive to the requirements. Indeed, they may
    be oblivious of the requirements. The danger then exists that
    you will in an innocent way be caught up in something, which
    you obviously would not want to be caught up with, and so I
    thought it important to bring this to your attention as we draw
    this hearing to a close.
        Chairman Shelby. Dr. Forbes, I just want to note for the
    record, from what I have learned, you are not an employee of
    the White House. You were a Professor at Massachusetts
    Institute of Technology, so you have not violated any laws or
    even the spirit of the law.
        Senator Sarbanes. Mr. Chairman, I did not mean in any way
    to suggest that, and I thought that had been developed quite
    clearly in the previous discussion.
        Chairman Shelby. Absolutely, yes.
        Senator Sarbanes. But I just want to forewarn, as you move
    ahead, that there are applicable statutory provisions that you
    need to be on the alert about.
        Chairman Shelby. Same as our employees can't give us money.
        Senator Sarbanes. Right.
        Chairman Shelby. That is a good record.
        First of all, I want to thank you, Professor Rosen and
    Professor Forbes, for appearing here today. I think we have had
    a good dialogue, good exchange of views. We wish you well as on
    the Council of Economic Advisers to the President, and we will
    try to move your nomination as soon as we can. Thank you. You
    can go.
        Mr. Rosen. Thank you, Senator.
        Ms. Forbes. Thank you very much.
        Chairman Shelby. Our second panel is composed of Mr. Peter
    Lichtenbaum, nominated to be Assistant Secretary of Commerce
    for Export Administration, and Ms. Julie Myers, nominated to be
    Assistant Secretary of Commerce for Export Enforcement.
        Mr. Lichtenbaum is a Partner with the firm of Steptoe &
    Johnson LLP, where he specializes in trade law. Mr. Lichtenbaum
    is a widely published author of numerous articles on
    international trade and export controls. He has been nominated
    for a position that sits at the nexus of international trade
    and national security. As Assistant Secretary of Commerce for
    Export Administration, he would oversee the process whereby
    applications for license to export items with both civil and
    military applications are reviewed in coordination with the
    Departments of State and Defense.
        Second, we have Ms. Julie Myers, as I mentioned. Ms. Myers'
    most recent position has been as Chief of Staff to the
    Assistant Attorney General for the Criminal Division,
    Department of Justice. Prior to that she was Deputy Assistant
    Secretary of Treasury for Money Laundering and Financial
    Crimes, in which capacity she was involved in formulating the
    Department's national money laundering and terrorist financing
    strategy, and before that was an Assistant U.S. Attorney for
    the Eastern District of New York.
        We welcome both of you to the panel today, and I want to
    say for the record your written statements will be made part of
    the record in their entirety.
        We have just started a vote on the floor of the Senate, but
    I believe I will try to get through your testimony, and then
    recess and come back. Ms. Myers, you want to go first?

                 STATEMENT OF JULIE L. MYERS, OF KANSAS

            TO BE ASSISTANT SECRETARY FOR EXPORT ENFORCEMENT

                      U.S. DEPARTMENT OF COMMERCE

        Ms. Myers. Thank you, Senator Shelby.
        Chairman Shelby. Thank you. Welcome to the Committee.
        Ms. Myers. Thank you very much. I would like to introduce,
    sitting behind me, my mother and my stepfather, Kathy and David
    Sinzheimer, who have flown in to be with me today.
        It is a great honor and privilege for me to appear before
    the Committee and to be the President's nominee for the
    position of Assistant Secretary of Commerce for Export
    Enforcement. I thank President Bush and Secretary Evans for
    their confidence and trust.
        Chairman Shelby. What I need to do before I go farther, I
    was just reminded by staff, thank goodness, I need to
    administer an oath to both of you. Would you raise your right
    hands and be sworn?
        Do you swear or affirm that the testimony that you are
    about to give is the truth, the whole truth, and nothing but
    the truth, so help you God?
        Ms. Myers. I do.
        Mr. Lichtenbaum. I do.
        Chairman Shelby. Do you agree to appear and testify before
    any duly-constituted committee of the Senate?
        Ms. Myers. I do.
        Mr. Lichtenbaum. I do.
        Chairman Shelby. Thank you. I apologize to you. I think I
    was focusing on that vote, but I will focus on your testimony.
        Ms. Myers. Thank you, Chairman Shelby.
        The Bureau of Industry and Security has a critical mission,
    safeguarding our national security while protecting the right
    of American businesses to export their products. The Bureau's
    Export
    Enforcement Division advances this mission by rigorously
    enforcing the export control and antiboycott laws and
    regulations.
        Today, the Bureau's mission is more important than ever. As
    the President has said, the war on terrorism is fought on many
    fronts, and Export Enforcement agents have assisted in this
    fight. They have investigated links between terrorism and
    exports of dual-use items. For example, Export Enforcement
    agents played a substantial role in the highly publicized
    indictment of INFOCOM Corporation and others for illegally
    exporting computers and computer technology to designated state
    sponsors of terrorism, Syria and Libya. The INFOCOM indictment
    also alleges that proceeds from these sales funded Hamas's
    terrorist activities.
        In addition to penalizing unlawful shipments after the
    fact, Export Enforcement agents work to keep sensitive
    technologies from ever reaching terrorists and other criminals.
    The Division, through its close collaboration with industry and
    with our foreign counterparts, identifies unlawful shipments
    and technology transfers in advance, and thereby stops exports
    violations before they occur.
        The Export Enforcement team has had many great successes
    over the past 2 years. As a former Federal prosecutor, if
    confirmed, I will work to build on these investigative
    successes and work to target the most significant violations
    such as terrorist-related acquisitions and export of biological
    toxins. My experience at the Departments of Treasury and
    Justice has taught me the importance of seamless law
    enforcement and seamless coordination between the different
    components of American law enforcement. Export Enforcement
    already enjoys good relations with its law enforcement
    partners. I will work to strengthen these crucial ties. My
    previous experience also demonstrated the necessity of
    partnerships with industry. Export Enforcement has done a great
    deal to develop relationships with industry, and with our
    foreign counterparts. I will assign the highest priority to be
    nurturing these vital relationships in order to stop dangerous
    exports before they reach terrorists.
        Export Enforcement occupies a key role in protecting our
    national security. If confirmed, it will be my privilege to
    work with the career law enforcement officials within the
    Bureau of Industry and Security--special agents, intelligence
    analysts, and other Enforcement leadership to fulfill our
    essential mission. In particular, I look forward to working
    with Under Secretary Kenneth Juster and Assistant Secretary
    Designate for Export Administration, Peter Lichtenbaum.
        On a personal note, I want to thank my family and friends
    who are here in the audience today, as well as my father,
    Charles Myers. Without their constant encouragement and support
    I would not be here today.
        Let me conclude by thanking the Committee for its prompt
    consideration of my nomination. If confirmed, I look forward to
    working closely with you, the Committee staff and the entire
    Congress. Thank you.
        Chairman Shelby. Mr. Lichtenbaum.

              STATEMENT OF PETER LICHTENBAUM, OF VIRGINIA

          TO BE ASSISTANT SECRETARY FOR EXPORT ADMINISTRATION

                      U.S. DEPARTMENT OF COMMERCE

        Mr. Lichtenbaum. Thank you, Chairman Shelby.
        First, I want to say I was a student of Dr. Rosen's, and I
    can testify truthfully here that he did in fact always speak in
    English and never in jargon.
        Chairman Shelby. Senator Sarbanes preceded all of you at
    Princeton.
        [Laughter.]
        Mr. Lichtenbaum. I was fortunate to be a classmate of his
    son, as a matter of fact.
        I am honored to appear before you today as President Bush's
    nominee for Assistant Secretary of Commerce for Export
    Administration. I thank President Bush and Secretary Evans for
    the trust they have placed in me. I also appreciate the time
    that Members of this Committee, including Senators Shelby and
    Enzi have taken recently to meet with me. If confirmed, I will
    work closely with you and your staff.
        As everyone here knows, we are living in dangerous times.
    We are all aware of the dangers that surround us from terrorist
    organizations, as well as from certain countries. As our
    security concerns have increased, so too has the importance of
    our export control system.
        The core function of U.S. export controls is to protect
    U.S. national and economic security. Since entering office,
    this Administration has taken numerous actions to reemphasize
    the importance of security and export controls. The
    Administration has made it a prime objective to ensure that
    Commerce's Bureau of Industry and Security, which administers
    the dual-use controls, considers
    national security as its fundamental goal. The Bureau's mission
    statement in fact describes this as its paramount concern. I am
    completely committed to this mission.
        While national security is our top priority, we cannot
    disregard the impact that export controls have on the U.S.
    private sector. This is especially true in the current economic
    climate. If controls become outdated, then they burden our
    businesses and workers without promoting our security. Indeed,
    such controls could reduce our security if they spur high-
    technology industries in other countries, which may not
    maintain the adequate export controls.
        After my education at Princeton and at Harvard and service
    in the U.S. Department of the Treasury, I have worked for the
    last 11 years in the private sector, where I focused on
    promoting compliance by U.S. companies with our export laws,
    primarily the Commerce Department controls, but also the
    parallel rules administered by the State Department and the
    Treasury Department. I believe that this private sector work
    will be helpful to me in understanding the impact of export
    controls on the business community.
        If confirmed, I plan to work closely with Under Secretary
    Kenneth Juster, Assistant Secretary Designate for Export
    Enforcement, Julie Myers, and the career Commerce Department
    staff. I also will coordinate with other agencies who have an
    important role in our export control system such as the
    Departments of State and Defense.
        In closing, I want to thank my family for their
    extraordinary love and support. In the audience today are my
    parents, Steve and Lynn Lichtenbaum, my wife Greta, and her
    father, Dale Husemoller, as well as two of my three children,
    Annika and Jacob, and I regret that my 4-year-old daughter,
    Rose, could not be here today, as she had a more important
    commitment, her birthday party at school.
        [Laughter.]
        I appreciate your time, and am pleased to answer any
    questions you may have. Thank you.
        Chairman Shelby. We have a vote on the floor, and we have
    just a few minutes to get there. Everybody else is there I
    think. We are going to recess, because we have a number of
    questions we would like to ask you, and we will get back as
    soon as we can. We hope 10 or 12 minutes.
        The hearing will be in recess until the call of the Chair.
        [Recess.]
        Chairman Shelby. Thank you for your patience. The hearing
    will come to order. It is part of the Senate, as you know.
        I have a number of questions for you, and I will preface
    some of it. Both the Department of Commerce Office of Inspector
    General and the General Accounting Office have been highly
    critical of the Bureau of Industry and Security's conduct of
    its role in the export control process. One area that has
    received considerable attention involves post-shipment
    verification to ensure that controlled items are both
    physically at the required location and being used for the
    purposes for which the authorized shipment intended. We know
    this is difficult.
        Ms. Myers. Yes.
        Chairman Shelby. This problem is not entirely a problem
    with the Bureau. The issue of post-shipment verifications
    overwhelmingly involve shipments of dual-use technologies to
    China, among others, which has placed severe restrictions on
    our ability to carry out these inspections. The General
    Accounting Office, has reported that China's intransigence
    ``has resulted in a backlog of about 700 post-shipment
    visits.'' That is on China. The GAO report goes on to say,
    however, that the U.S. Government: ``Makes limited efforts to
    monitor exporters' and users' compliance with the conditions
    set forth in the export license for high-performance
    computers.''
        Given the importance of high-performance computers to
    virtually everything China seeks to do within the realm of its
    military command, control, and communication programs and
    relative to its overall effort to modernize its armed forces,
    do you, as nominees, have any thoughts on how this issue will
    be dealt with if you are confirmed?
        Mr. Lichtenbaum, do you want to go first?
        Mr. Lichtenbaum. Well, I will defer to Ms. Myers.
        Chairman Shelby. Okay. Since I started with her--I was
    moving back and forth, but I will defer to her, too, at your
    suggestion.
        Ms. Myers.
        Ms. Myers. Thank you, Senator Shelby.
        Chairman Shelby. We know that is a difficult thing to
    enforce.
        Ms. Myers. Absolutely.
        Chairman Shelby. It is easy to sell, dual-use. Go ahead.
        Ms. Myers. Absolutely, you are exactly right, Senator. It
    is a very difficult thing to enforce. The Bureau and the Export
    Enforcement Division are aware of GAO's concerns and the
    Inspector General's concerns and have worked on a targeted
    plan----
        Chairman Shelby. GAO is reflecting a lot of our concerns.
        Ms. Myers. That is right.
        Chairman Shelby. As Members of the Senate.
        Ms. Myers. That is right, concerns that you and other
    Members of Congress have raised.
        Chairman Shelby. Right.
        Ms. Myers. And they have worked on a plan to try to improve
    in this area because it is so critical that we have end-use
    visits that are accurate.
        In China, in particular, the Bureau has done several
    things. They have developed what is known as an unverified
    list, and this list contains the names of parties who have
    previously conducted transactions, but yet the U.S. Government
    was not allowed to do an end-use visit. And those parties are
    then put on the unverified list, and until they are taken off,
    licenses are stopped and exporters know there is a red flag.
        Chairman Shelby. How many people do you have on that list?
    Can you furnish it for the record?
        Ms. Myers. Oh, absolutely.
        Chairman Shelby. And who they are.
        Ms. Myers. Absolutely. It is on our website, and we will
    also furnish a copy for the record.
        Chairman Shelby. Absolutely.
        [The list follows:]
        Ms. Myers. It is in the neighborhood of 12 or so right now
    that are on the unverified list, but it is a method that we
    developed to try to, you know, hold individuals accountable and
    parties accountable. When they do not have end-use visits, they
    can no longer do business with exporters.
        We have also conducted some additional outreach with the
    Chinese community. Tomorrow and I believe the next day, we are
    holding an export conference in China, the first one in 3
    years, to try to help educate industry and educate indeed the
    Chinese Government about our rules and regulations and what
    needs to be done to comply.
        Chairman Shelby. We, on the Banking Committee, are not the
    only ones concerned with this, although we have jurisdiction
    over the issue. A lot of us who serve on the Defense
    Appropriations Committee are concerned with this because of
    national security concerns, as you are very much aware of.
        Ms. Myers. Absolutely, and it is important that we target
    our end-use visits, too, and to target on the most significant
    violations. If we were faced with a choice between doing an
    end-use visit on, a 200 MTOP computer that went to a bank and a
    five-axle piece of machinery that went to a manufacturing
    concern, obviously our efforts would be focused on the five-
    axle piece of machinery. And the Bureau of Export Enforcement
    has tried to target its efforts on these high-risk
    transactions, and I am pleased to report that it is my
    understanding that they have conducted several end-use visits
    in China over the last several months. I think there has been
    progress in this area, but we know that there is a lot more to
    do, and if confirmed, I would look forward to working in this
    area.
        Chairman Shelby. Ms. Myers, in your opening statement, you
    emphasized the importance that you place on close cooperation
    within the law enforcement community as a result of your
    background, your experience as a Federal prosecutor, among
    other things. As recently as this past June, the Commerce
    Department Inspector General reported that the Bureau of
    Industry and Security's level of cooperation with other Federal
    agencies, including U.S. Attorney's Offices, the Customs Bureau
    within the Department of Homeland Security, the FBI, and other
    agencies, was deficient. That is their report. It also noted
    that cooperation with the intelligence community was similarly
    lacking. This is not a trivial matter, as you well know from
    your background. Cases of illegal shipments to rogue regimes
    remain a regular occurrence. Earlier this month, The Washington
    Times reported on a case of four U.S.-manufactured specialty
    pumps, dual-use items that can be used in the manufacture of
    nuclear weapon materials, were illegally diverted to Iran, a
    country whose nuclear program is a source of considerable
    concern to even the United Nations.
        Last June, the Denver Post reported on a Colorado man being
    investigated for helping the Chinese military illegally export
    high-speed digital cameras to a research institute that
    develops missiles designed to deliver nuclear warheads. The
    list can go on and on, but you get the point, I know very well.
        Irrespective of how one views the licensing process,
    diversions such as these present a danger to U.S. interests,
    perhaps to our national security down the road, that you both
    are well aware of.
        Ms. Myers, data provided to my office indicate that, ``Out
    of an average yearly caseload of 1,038 cases, just three
    criminal cases were successfully prosecuted in 2002''--and we
    know it is difficult when you are dealing with dual-use--``with
    another 25 cases closed with administrative sanctions.'' That
    is not a very impressive statistic. You know, I do not know how
    much is going on with that.
        What do you anticipate recommending to strengthen the
    enforcement mechanism at the Department of Commerce and within
    the broader law enforcement community? We have had these
    debates a long time, as you know, but you will be right in the
    center of it.
        Ms. Myers. Thank you, Senator. You raise very complex and
    difficult issues.
        Chairman Shelby. Very complex.
        Ms. Myers. Having worked at both Treasury and Justice and
    then also in the field as a prosecutor, I am very much aware of
    the problems when agencies do not coordinate and work together.
    And if confirmed, under my leadership I will seek to improve
    upon the relations that Export Enforcement has with other
    agencies.
        In terms of the Bureau's numbers, in my preliminary review
    I have been pleased to see what Export Enforcement has done. If
    you look, for example, at the civil penalties, which is an
    important part of Export Enforcement's work----
        Chairman Shelby. It is.
        Ms. Myers. --you can see a rising trend. I think in 2000
    there was somewhere in the neighborhood----
        Chairman Shelby. Some of it might not be criminal, anyway.
        Ms. Myers. Some of it may not be. There are cases where----
        Chairman Shelby. It is up to you all to decide.
        Ms. Myers. Right, right. You know, sometimes you have a
    global settlement where there is both a civil side and a
    criminal side. But the civil penalties imposed in 2000 were in
    the neighborhood of $1 million; in 2002, it was $5.2 million.
    So from my view, I have seen Export Enforcement agents working
    harder to conduct more significant cases. And, recently, they
    have participated on the JTTF's very successfully. An agent
    from New York worked on the Daniel Pearl case. They
    participated in the INFOCOM indictment that I talked about.
    They participated down in Texas and provided very important
    information in the indictment of a Texas Tech professor for
    transporting human bacteria illegally.
        And Commerce agents can bring their expertise to these
    lengthy investigations, and our numbers will never be like the
    Bureau, but we will certainly work to target and work on the
    most significant violations, if I am confirmed.
        Chairman Shelby. Thank you.
        Senator Sarbanes.
        Senator Sarbanes. Thank you very much, Mr. Chairman.
        I would like to ask a question of both of you. Some argue
    that the Commerce Department, because of its orientation of
    business promotion--indeed, it has a charge to do that--is the
    wrong lead agency for export control policy and enforcement.
    What do you all say to that observation?
        Ms. Myers. Senator, thank you for your question. Export
    Enforcement is in precisely the right place within the
    Department of Commerce because of the relationships that the
    Commerce Department has with industry. The agents, we only have
    a little over 100 agents. They cannot do it all by themselves,
    and they need to rely on the expertise of exporters, freight
    forwarders, various parts in the supply chain to bring things
    to our attention. And because of the relationship the
    Department of Commerce has with industry, we are able to
    leverage that in our prosecutions.
        And I think that the President's budget numbers and
    Commerce's budget request for 2005 show that Commerce values
    export enforcement. If you look at the 2003 budget, there is
    about $30 million and 217 FTE's. In the President's 2004
    budget, they have requested an increase of $5 million, which is
    pretty significant for the enforcement side, and 10 FTE's. And
    this is because the Commerce Department values the work that is
    done. And I think some of the great cases that I have talked
    about previously show how the export enforcement agents can do
    a good job within this agency and to partner and leverage off
    of our licensing partners so we can help them impose certain
    license conditions and, indeed, work to monitor them.
        Mr. Lichtenbaum. If I may just add to that, I believe it is
    a very important question. If it were the case that the Bureau
    of Industry and Security were acting simply as an advocate for
    industry, then I think it might be fair to question the
    appropriateness of having our export controls located in the
    Commerce Department. However, I believe that is not the case,
    and particularly since this Administration came into office, I
    think there has--and the events of September 11--been a very
    strong emphasis on security, as I mentioned in my statement.
    And I believe that this is not just, you know, my understanding
    but the view of the agencies that Commerce works with as well
    who are specialists in the security area, Defense Department,
    for example.
        I would also note that the decisions that the Bureau makes
    are made on an interagency basis. For example, the decision
    about what items to list on Commerce's control list are made on
    an interagency basis. The decisions about what licenses to
    grant or deny are made on an interagency basis, with the right
    of any agency to appeal if it disagrees. So, I believe that the
    current system is working very well to protect U.S. national
    security.
        Senator Sarbanes. Let me just follow up that response.
    Again, to both of you, one of the principal criticisms that is
    made of our current export system is that we do not have a
    workable process for the executive agencies with responsibility
    for export control--Commerce, State, Defense Department--by
    which they can resolve disagreements on export licenses. What
    do you think about that issue?
        Mr. Lichtenbaum. I actually do not think that the criticism
    is warranted. I think there is a system that has fairly clear
    rules, that is put in place by an Executive order under which
    we have an initial stage in which agencies receive licenses to
    get their opinions on them. If there is disagreement among the
    agencies on what should happen, that license will then be
    considered by an interagency operating committee. Again, if an
    agency disagrees with the decision that is made by the
    operating committee, they can then escalate that to an advisory
    committee, which is at the Assistant Secretary rank.
        I think there is a very clearly defined process that is in
    place and has time frames to ensure quick resolution of
    licensing disputes.
        Senator Sarbanes. Ms. Myers.
        Ms. Myers. I do not really have anything to add to Peter's
    statement on that.
        Senator Sarbanes. Are you familiar with the legislation
    that was reported out of this Committee dealing with export
    control? It was not enacted into law.
        Mr. Lichtenbaum. Right.
        Senator Sarbanes. What is your view of that legislation?
        Mr. Lichtenbaum. Well, I am generally familiar with the
    legislation, although unfortunately I cannot say that I have
    read it line by line. I believe clearly, that legislation was
    supported by a large majority on this Committee, a large
    majority in the Senate as a whole, and so represented at the
    time a consensus judgment, bipartisan judgment about the
    direction of U.S. export control reform.
        However, a fair amount of time has passed since the Senate
    and this Committee considered that bill, and since then, of
    course, we have had the events of September 11. We have had
    numerous developments in the world situation. And so I think
    everyone who is involved in the process probably will want to
    take the opportunity to come at it afresh and decide whether
    any modifications should be made to that bill.
        Senator Sarbanes. It was supported by the Administration as
    well.
        Mr. Lichtenbaum. Yes, it was.
        Senator Sarbanes. Strongly.
        Mr. Lichtenbaum. Yes, it was.
        Senator Sarbanes. Are they still supporting it, do you
    know?
        Mr. Lichtenbaum. I do not know that there is an
    Administration position. There is no legislation pending in the
    Congress at this time, as far as I am aware. I would expect
    that the Administration would--first, obviously, it would react
    to any legislation that is introduced and provide its position
    at the time, and even before that I think would be more than
    happy to work with your staffs and yourselves on specific
    provisions that you may be considering.
        Ms. Myers. And certainly on the enforcement side, there is
    a great need to expand our law enforcement authorities and the
    penalties so that our export control system can be more
    effective.
        Senator Sarbanes. In fact, you are now proceeding under
    emergency authorities, are you not?
        Ms. Myers. That is correct, Senator.
        Senator Sarbanes. Some have raised the concern that some
    actions that the Administration has taken or might take using
    the emergency authorities would not stand up to a court
    challenge. Do you have a view on that question?
        Mr. Lichtenbaum. Well, having left private law practice
    behind, I decline to offer an opinion on the prospects for such
    a challenge. But I certainly would agree with you, Senator,
    that the fact that we are operating under emergency authority
    creates an unnecessary risk for our export control system, and
    that is one of the principal reasons why I personally think we
    need to move forward with an Export Administration Act.
        For example, in the area of our proliferation controls, the
    EPCI initiative, also in the area of antiterrorism controls, I
    would think that a stronger legal footing could only be
    helpful.
        Ms. Myers. And, Senator, certainly on the enforcement side,
    we have been very successful so far in courts, and the agents
    in the Bureau of Industry and Security have been flexible
    enough to work with their counterparts on creative kinds of
    charges. But absolutely it would be a good thing to have firmer
    authority.
        Senator Sarbanes. Ms. Myers, after law school you were a
    law clerk to a Federal judge in the Eighth Circuit. Is that
    right?
        Ms. Myers. Yes, Senator.
        Senator Sarbanes. And then you went to Mayer, Brown, and
    Platt in Chicago for a couple of years, with whom you had
    worked in the summers while at law school. Is that correct?
        Ms. Myers. That is correct, Senator.
        Senator Sarbanes. And then you came to Washington. Is that
    right?
        Ms. Myers. Well, after working at Mayer, Brown, and Platt,
    I worked for about 16 months for Independent Counsel Ken Starr,
    and so I was based in both Little Rock and in Washington, DC,
    but kept my apartment in Chicago actually throughout that
    period.
        Senator Sarbanes. What did you do for the Independent
    Counsel?
        Ms. Myers. I was a very junior attorney, so I did a number
    of things as assigned. I worked on investigations in Little
    Rock, and then on the investigation here in DC, writing,
    researching, and also appearing some in court.
        Senator Sarbanes. And why did you leave there?
        Ms. Myers. Well, in my view, for my own personal career,
    the time had come. I had the opportunity to go work as an
    Assistant U.S. Attorney in Brooklyn, which was my lifelong
    dream to prosecute cases. And so I left to go try more cases,
    get in front of juries, and help enforce our Nation's laws
        Senator Sarbanes. And then what happened?
        Ms. Myers. I was drafted back down to DC into the
    Administration. After September 11, I was offered the
    opportunity to come down and work on policy from a bigger
    perspective than I had as an AUSA. And I came down and served
    as a Deputy Assistant Secretary for money laundering and
    financial crimes, and that was a very valuable opportunity.
        Senator Sarbanes. How long did you stay there?
        Ms. Myers. I was there for about a year. It was at the same
    time when the Department of Homeland Security was under
    consideration, and so it was very clear that my job would
    likely either move over to the Department of Homeland Security
    or be eliminated altogether. And so I was offered the
    opportunity to come to work for one of my personal heroes,
    Michael Chertoff, at the Criminal Division, and I served as his
    chief of staff until he was promoted to be a judge on the Third
    Circuit Court of Appeals, and that is when this opportunity
    opened up to me.
        Senator Sarbanes. Did these opportunities come along and
    present themselves to you, or did you seek them out? I am just
    curious. The way you phrase it, it is as though you are just
    moving blissfully along in life and these opportunities keep
    presenting themselves to you.
        Ms. Myers. Well, I feel fortunate, Senator. Obviously, I
    have looked for good opportunities, but I feel that I have been
    very fortunate, the opportunities that have come into my life.
    Of course, I have worked for them and feel that my background
    qualifies me for them, but I do feel there is some combination
    of fortune and talent.
        Senator Sarbanes. But you sought them out, I take it,
    generally speaking?
        Ms. Myers. That is correct, Senator.
        Senator Sarbanes. How long do you think you might stay over
    here at the Commerce Department? I mean, you were at Mayer,
    Brown, and Platt for 2 years. Then you were with Starr for, I
    think you said, 16 months. And then you were at the U.S.
    Attorney's Office for 2 years. And then you were at Treasury
    for a year. And then you were at Justice for--well, that is
    where you are. Is that where you are now?
        Ms. Myers. No. I just moved over as a consultant over a
    Commerce a week ago.
        Senator Sarbanes. Okay. So you were at Justice for, what,
    not even a year.
        Ms. Myers. That is correct.
        Senator Sarbanes. Well, now, how long do you think you will
    be at Commerce?
        Ms. Myers. Well, of course, if confirmed, I would serve at
    the President's pleasure. I certainly have no intention to go
    looking for a different opportunity at this time.
        Senator Sarbanes. Do you think an opportunity may come
    looking for you?
        Ms. Myers. Senator, unfortunately, in my previous
    administration positions, they have moved out under me so I
    have sought other opportunities. If Michael Chertoff was still
    at Justice, I would still be there working for him, and that
    was certainly a highlight of my career. And if the enforcement
    office was still at Treasury, I would have remained at Treasury
    working for Under Secretary Gurule.
        Senator Sarbanes. Of course, we know Michael, and we know
    him very well. Let me just ask you, you have been a prosecutor.
    You think the resources available presently to the Assistant
    Secretary for Export Enforcement in the Commerce Department are
    adequate to the task?
        Ms. Myers. Well, certainly in the President's 2004 budget
    request, we have asked for more resources to get a few more
    agents and to place some people abroad, and I think that is
    necessary. And I think with those limited resources, we can do
    a good job. I look forward to evaluating that further if I am
    confirmed, if I am in the job.
        Senator Sarbanes. Thank you.
        Chairman Shelby. Ms. Myers, you keep doing what you are
    doing. You are getting great experience. Both of you are young
    and obviously talented. I have some questions, if I can.
        The findings of the Commerce Department's Office of
    Inspector General called into question the adequacy of the
    training of special agents, the individuals in the field
    actually conducting investigations. The quality of both
    prelicense investigations and post-shipment verifications that
    we got into are dependent upon the quality of the individuals
    carrying out the investigations. Both of you know that well. In
    fact, it is not uncommon for post-shipment veri-
    fications to be carried out by the Commerce Department foreign
    and commercial officers untrained in the sometimes very
    complicated technical matters involved.
        We are interested in the IG report's finding regarding the
    lack of correlation between prelicense checks and the outcome
    of license applications. We went into that earlier. The IG
    report found the following: ``Instances in which Export
    Enforcement recommended rejection of license applications but
    Export Administration returned them to applicants without
    action, neither approval nor denial. The two offices did not
    always attempt to reach consensus on license recommendations by
    way of the dispute resolution process outlined in a 1996
    Memorandum of Understanding.''
        That is the Inspector General.
        To acknowledge the obvious, neither of you, quite candidly,
    worked in the Department before, but you bring a lot of
    experience, although both of you are young, and you cannot be
    expected, I believe, to comment in any great detail on what has
    transpired there in the past. I would, however, appreciate
    hearing from you on your views of this finding by the Inspector
    General. Do you have any comments on that? You have got to have
    quality trained people in anything to help do your job right.
    Right?
        Mr. Lichtenbaum. That is absolutely the case. I would defer
    on the enforcement issue you raised, Senator, to Ms. Myers.
        On the question of interagency discussion on classification
    requests, I haven't seen that report. I know that the Commerce
    Department filed a fairly strong statement of disagreement with
    the GAO. I have not had the time myself to determine the facts
    of the matter, but certainly I think it is appropriate for one
    thing that Commerce----
        Chairman Shelby. It has got to be addressed.
        Mr. Lichtenbaum. Yes, exactly. Commerce should be acting
    fully consistent with the terms of the 1996 NSC guidance. And,
    in general, if there are commodity classifications that the
    Defense Department feels it is important for them to review,
    then we should find a way to make that happen.
        Chairman Shelby. Do you want to comment on that, Ms. Myers?
    The training of people, very important?
        Ms. Myers. Absolutely. And in a way, I feel fortunate to
    have this report because it provides a blueprint of some
    problems that the Bureau has had in the past and ways that we
    should address them. And it is my understanding that Export
    Enforcement has worked to update and revise the manual,
    particularly in Chapter 7, which is the safeguards or the end-
    use visits area that you are referring to, because it is
    critically important that agents know what to do when they
    conduct end-use checks.
        In terms of when the Foreign Service individuals conduct
    end-use checks, the Bureau has worked with them to provide them
    additional assistance and has come up with a number of ways to
    make it more clear to them about what they should do.
        One thing that they are also doing is working to put
    attaches in different destinations, and the Bureau has found
    this to be a very effective way, having someone on the ground
    there who knows what is going on and can work and conduct those
    end-use checks.
        Chairman Shelby. It is just too important to take chances
    here, is it not?
        Ms. Myers. Absolutely, Senator.
        Chairman Shelby. Mr. Lichtenbaum, I want to ask you a
    question. The Export Administration Act, as you know, has
    expired. Dual-use exports continue to be controlled under
    international emergency economic powers authority, which
    Senator Sarbanes alluded to. If confirmed, what actions would
    you anticipate taking to rectify this situation? Do you have
    some concept in mind of how a new control regime should look,
    how it should be structured?
        Mr. Lichtenbaum. Well, Senator, you raise one of the most
    important questions that I will have to----
        Chairman Shelby. You have to address it.
        Mr. Lichtenbaum. --deal with if I am confirmed.
        Chairman Shelby. Oh, you will be confirmed, I predict.
        Mr. Lichtenbaum. I appreciate that.
        Chairman Shelby. As soon as we can do it.
        [Laughter.]
        Mr. Lichtenbaum. I very much appreciate the support,
    Senator.
        The Export Administration Act, as you say, has expired. We
    are operating under emergency authorities. I think that one of
    the key areas for us is to make sure that the authorities are
    clearly in place for things that we are already doing and that
    there is bipartisan consensus, I believe, that we should do.
        Chairman Shelby. What about consensus in the area of
    penalties for violations of export control regulations?
        Mr. Lichtenbaum. I am sorry. I did not----
        Chairman Shelby. Let me say it again. What about consensus
    in the area of penalties for violations of export control
    regulations? In other words, do you support penalties more
    stringent than were in the Export Administration Act of 1979?
        Mr. Lichtenbaum. Yes, I would support more stringent
    penalties. I believe that is, as Ms. Myers mentioned, one of
    the important----
        Chairman Shelby. I want to address that to Ms. Myers. You
    will be enforcing that.
        Ms. Myers. Oh, absolutely.
        Chairman Shelby. We need strong penalties.
        Ms. Myers. Absolutely, Senator.
        Chairman Shelby. We look forward to working with you two on
    trying to address this because you need clear direction, you
    need clear laws to enforce this, I believe.
        We appreciate your patience. You know the Senate is in
    session and we are doing other things. But we will try to move
    both of your nominations as soon as possible, first in the
    Committee and then on the floor. It is important to you before
    you can go to work.
        Thank you. The hearing is adjourned.
        [Whereupon, at 12:14 p.m., the hearing was adjourned.]
        [Prepared statements, biographical sketches of nominees,
    and additional material supplied for the record follow:]

                      PREPARED STATEMENT OF JOHN W. WARNER

                   A U.S. Senator from the State of Virginia
        Chairman Shelby and my other distinguished colleagues on the
    Senate's Committee on Banking, Housing, and Urban Affairs, I am pleased
    to support the nomination of a Virginian, Peter Lichtenbaum, to serve
    as Assistant Secretary of the U.S. Department of Commerce for Export
    Administration.
        The Bureau of Industry and Security plays a key role in challenging
    issues involving national security and nonproliferation, export growth
    and high technology. It works to regulate the export of sensitive goods
    and technologies; enforces export control, antiboycott, and public
    safety laws; assists U.S. industry to comply with international arms
    control agreements; and works with other countries on export control
    and strategic trade issues.
        Mr. Lichtenbaum brings significant expertise to this role from his
    trade law practice with the firm of Steptoe & Johnson LLP. Through his
    practice, he has gained extensive experience regarding U.S. export
    control laws and regulations. He has counseled clients with respect to
    the Export Administration Act (EAA) and Export Administration
    Regulations (EAR), as well as the Arms Export Control Act (AECA), the
    International Traffic in Arms Regulations (IT AR), the International
    Emergency Economic Powers Act (IEEP A) and various economic embargo
    programs administered by the U.S. Treasury Department.
        Mr. Lichtenbaum holds a law degree from Harvard Law School, a
    master's degree in public policy from the John F. Kennedy School of
    Government at Harvard University, and a bachelor of arts degree from
    Princeton University. He is an active member of the American Bar
    Association, where he served on the Council of the ABA's Section of
    International Law and Practice. Mr. Lichtenbaum previously served as an
    Honors Attorney at the U.S. Department of Treasury and as Acting
    Foreign Service Officer at the U.S. Embassy in Madagascar for the U.S.
    Department of State.
        Mr. Chairman, clearly Mr. Lichtenbaum's extensive professional
    experience makes him highly qualified to serve as Assistant Secretary
    of Commerce for Export Administration, and I am confident that he will
    do so with distinction.
        Again, I am very pleased to support Mr. Lichtenbaum's candidacy. I
    look forward to the Committee reporting his nomination favorably and
    for a confirmation vote before the full Senate.