[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.