[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


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                                 ______

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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.



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