[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]





             THE IMPACT OF REGULATION ON U.S. MANUFACTURING

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

                                HEARING

                               before the

                   SUBCOMMITTEE ON REGULATORY AFFAIRS

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 12, 2005

                               __________

                           Serial No. 109-32

                               __________

       Printed for the use of the Committee on Government Reform


  Available via the World Wide Web: http://www.gpoaccess.gov/congress/
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                     COMMITTEE ON GOVERNMENT REFORM

                     TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut       HENRY A. WAXMAN, California
DAN BURTON, Indiana                  TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida                PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota             CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana              ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio           DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania    DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee       DIANE E. WATSON, California
CANDICE S. MILLER, Michigan          STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio              CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California          LINDA T. SANCHEZ, California
GINNY BROWN-WAITE, Florida           C.A. DUTCH RUPPERSBERGER, Maryland
JON C. PORTER, Nevada                BRIAN HIGGINS, New York
KENNY MARCHANT, Texas                ELEANOR HOLMES NORTON, District of 
LYNN A. WESTMORELAND, Georgia            Columbia
PATRICK T. McHENRY, North Carolina               ------
CHARLES W. DENT, Pennsylvania        BERNARD SANDERS, Vermont 
VIRGINIA FOXX, North Carolina            (Independent)
------ ------

                    Melissa Wojciak, Staff Director
       David Marin, Deputy Staff Director/Communications Director
                      Rob Borden, Parliamentarian
                       Teresa Austin, Chief Clerk
          Phil Barnett, Minority Chief of Staff/Chief Counsel

                   Subcommittee on Regulatory Affairs

                 CANDICE S. MILLER, Michigan, Chairman
GINNY BROWN-WAITE, Florida           STEPHEN F. LYNCH, Massachusetts
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
MICHAEL R. TURNER, Ohio              CHRIS VAN HOLLEN, Maryland
LYNN A. WESTMORELAND, Georgia

                               Ex Officio

TOM DAVIS, Virginia                  HENRY A. WAXMAN, California
                       Ed Schrock, Staff Director
                Erik Glavich, Professional Staff Member
                          Lauren Jacobs, Clerk
                     Krista Boyd, Minority Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 12, 2005...................................     1
Statement of:
    Duesterberg, Thomas, president and CEO, Manufacturers 
      Alliance/MAPI; Lori Luchak, vice president and marketing 
      director, Miles Fiberglass & Composites, on behalf of the 
      American Composites Manufacturers Association; and Sidney 
      Shapiro, University distinguished Chair in law, Wake Forest 
      University, on behalf of Center for Progressive Regulation.    55
        Duesterberg, Thomas......................................    55
        Luchak, Lori.............................................    73
        Shapiro, Sidney..........................................    84
    Frink, Al, Assistant Secretary for Manufacturing and 
      Services, U.S. Department of Commerce; John D. Graham, 
      Ph.D., Administrator, Office of Information and Regulatory 
      Affairs, Office of Management and Budget; and Governor John 
      Engler, president, National Association of Manufacturers...    11
        Engler, Governor John....................................    27
        Frink, Al................................................    11
        Graham, John, Ph.D.......................................    22
Letters, statements, etc., submitted for the record by:
    Duesterberg, Thomas, president and CEO, Manufacturers 
      Alliance/MAPI, prepared statement of.......................    58
    Engler, Governor John, president, National Association of 
      Manufacturers, prepared statement of.......................    29
    Frink, Al, Assistant Secretary for Manufacturing and 
      Services, U.S. Department of Commerce, prepared statement 
      of.........................................................    13
    Graham, John D., Ph.D., Administrator, Office of Information 
      and Regulatory Affairs, Office of Management and Budget, 
      prepared statement of......................................    24
    Luchak, Lori, vice president and marketing director, Miles 
      Fiberglass & Composites, on behalf of the American 
      Composites Manufacturers Association, prepared statement of    76
    Miller, Hon. Candice S., a Representative in Congress from 
      the State of Michigan, prepared statement of...............     4
    Shapiro, Sidney, University distinguished Chair in law, Wake 
      Forest University, on behalf of Center for Progressive 
      Regulation, prepared statement of..........................    86

 
             THE IMPACT OF REGULATION ON U.S. MANUFACTURING

                              ----------                              


                        TUESDAY, APRIL 12, 2005

                  House of Representatives,
                Subcommittee on Regulatory Affairs,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10:05 a.m., in 
room 2154, Rayburn House Office Building, Hon. Candice S. 
Miller (chairwoman of the subcommittee) presiding.
    Present: Representatives Miller, Brown-Waite, Cannon, 
Westmoreland, and Lynch.
    Staff present: Ed Schrock, staff director; Rosario 
Palmieri, deputy staff director; Erik Glavich and Dena Kozanas, 
professional staff members; Lauren Jacobs, clerk; Krista Boyd, 
minority counsel; and Cecelia Morton, minority office manager.
    Mrs. Miller. Good morning.
    Welcome to our hearing this morning. Our great Nation has 
just in a few short centuries developed into a society and a 
culture that is envied by people around the entire globe. They 
see an America that beat all the odds. They see the American 
people who have been able to excel because we truly have been 
the land of opportunity, a place where individuals can reach 
their highest potential in many cases just by using their 
creativity and because of a desire to simply work hard. And 
that ingenuity and work has manifested itself in our ability to 
build things, things that other people want to buy, commonly 
called manufacturing. And for many years, it has been widely 
acknowledged that the manufacturing industry has been a 
critical component of the backbone of America. And for the most 
part, government has understood that it does not create jobs. 
The private sector creates jobs, but the government can help to 
provide an environment that attracts business investment and 
encourages job creation.
    But unfortunately today, the American manufacturing 
industry is under attack, and there are a number of dynamics 
involved in this. And we hear stories each and every day about 
good-paying manufacturing jobs that leave America for other 
countries. And we see our trading partners in other countries 
taking advantage of American generosity in some of our trade 
agreements. We see nations that live under the blanket of 
freedom and democracy paid for by American dollars and in some 
cases by American blood. Today, some of those nations subsidize 
their own manufacturing industries to the disadvantage of ours. 
Some of these nations are clearly manipulating their currency, 
again to the disadvantage of America. And many of these 
countries compete against our products by producing similar 
products in sweat shops or by a wage rate that is so low that 
we cannot compete with that here in our country. And for these 
reasons and many more, manufacturing has had a really tough go 
of it lately, and the statistics clearly show that.
    Our manufacturing industry is responsible for 14 million 
jobs, 14 percent of the GDP, over 60 percent of all exports and 
over 60 percent of all research and development spending. And 
yet, in just the past few years, the manufacturing sector has 
lost several million jobs, both union jobs and non-union jobs, 
jobs that have provided a high quality of life for so many 
Americans; that have contributed to raising the standard of 
living for millions of Americans. And unfortunately, we find 
that oftentimes it's our very own government, perhaps with the 
very best of intentions, who has become an unwitting partner in 
assisting other countries to import not just American products 
but American jobs. And why? Because of the onerous burden of 
excessive regulations.
    Let's consider a few sobering statistics: The Small 
Business Administration has estimated that the cost of 
compliance of government-imposed regulations costs small 
businesses as much as $7,000 per employee. The National 
Association of Manufacturers has estimated that the structural 
costs of American products compared with any of our foreign 
competitors is 22 to 23 percent higher because of government-
imposed regulatory burdens.
    And guess what? These regulations and rules were not 
imposed by countries likes China or Japan. We have done it to 
ourselves, and the time is long overdue for us to do a cost-
benefit analysis of many of these regulations.
    Some will say that any attempts to reform these many 
regulations, even just a handful of the tens of thousands of 
them that exist today, will begin a decline of our standard of 
living; that we in America need to set the global standard; 
that even if we continue to bleed manufacturing jobs, that even 
if we lose our ability to compete in the global marketplace, it 
is all for the betterment of mankind and incumbent on America 
to continue to shoulder the burden.
    I am a defender of regulations that protect worker health 
and safety. I've spent almost three decades in public office as 
a principal advocate of our environment, and I think of myself 
as an environmentalist. I think of myself as green. But I must 
also say that I would like to have a little green in our 
wallets. And I think that the common standard must always be 
what is reasonable, what is rational. And that is why we are 
having this hearing today.
    We have an outstanding lineup of panelists today, and I 
feel certain they will give us excellent ideas for improving 
the Federal Government's approach to regulations that are in 
place for the benefit of all Americans. And I know that working 
together, we can do the right thing for workers and for the 
environment while leveling the playing field and improving the 
competitiveness of American manufacturers. I look forward to 
hearing from all of our witnesses
today.
    And at this time, I would like to recognize the ranking 
member, Mr. Lynch, for his opening comments.
    [The prepared statement of Hon. Candice S. Miller follows:]

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    Mr. Lynch. Thank you, Madam Chairwoman. It's an honor for 
me. This being the first subcommittee hearing, I want to say 
how honored I am to serve with you. I want to thank you for 
holding this hearing. And I want to pledge my willingness to 
work with my Republican colleagues and all the members of this 
committee.
    Just as a matter of my own full disclosure about my own 
background, especially as it relates to the manufacturing 
industry, in my prior life before coming to Congress, I 
actually worked for about 20 years as an iron worker and mostly 
in steel erection, which has the dubious distinction of being 
perhaps one of the most dangerous occupations, at least 
peacetime occupations, in this country and results in more 
deaths and on-the-job disabilities than almost any other 
peacetime occupation. In my capacity as an iron worker, I had a 
chance to work at a number of manufacturing facilities, 
including the General Motors plant in Framingham, MA, as an 
iron worker and as a foreman. That was before GM shifted a lot 
of work into Mexico. I also worked at the General Dynamics 
shipyard in Quincy, MA, as a welder. I worked as an iron worker 
at the Boise Cascade Paper Mill in Rumford, ME. I worked as an 
iron worker at the Shell Oil Refinery in Louisiana and also 
worked at U.S. Steel in Gary, IN, and worked as an iron worker 
as well at the Inland Steel Plant in East Chicago, IN.
    I must say that, as a iron worker and as a shop steward, I 
had far too many occasions to attend the wakes and funerals of 
my fellow workers. And there is no more grim responsibility 
than reporting to a family that their dad, their father who 
went out to work that morning was not coming home because he 
was killed on the job. So I probably have a different 
perspective about some regulations that affect workers in this 
country. And there are industries that actually need them and I 
think work to the betterment of not only workers but also their 
employers.
    I do have a deep appreciation for having had the 
opportunity to raise a family and earn a decent living working 
at manufacturing facilities. And I understand we are under a 
lot of threat, a lot of pressure from foreign competition. And 
I look forward to strengthening the industry and helping it 
grow. And I look forward to eliminating unnecessary burdens 
through regulations that are placed on our manufacturers as 
well, but we need to do it carefully and thoughtfully. 
Manufacturing has a major impact on the U.S. economy, providing 
jobs to over 14 million workers. The focus of today's hearing 
is on the effect of regulations on the manufacturing industry.
    However, this hearing is also an important focus, I think, 
on the role that regulations play in protecting public health, 
safety and the environment. And there are countless examples of 
what can go wrong in the absence of strong regulatory 
protections. The California energy crisis is one example. Lax 
regulation allowed rampant market manipulation by Enron and 
other energy companies that cost California over $9 billion. 
Enron traders were caught on tape laughing about lying and 
cheating from grandmothers.
    Another example is drug safety. After evidence emerged in 
the drug Vioxx, that the drug Vioxx was associated with heart 
attacks and strokes in the year 2000, the FDA could not require 
that the company immediately conduct a safety study nor could 
the agency demand specific changes to information for doctors 
and patients. And as a result, months and years went by before 
key label changes were made and more detailed information on 
safety became available and, finally, the drug was withdrawn 
from the market in September 2004, 4 years later.
    The abusive trading practices of mutual fund companies is 
another example of what can happen without strong regulatory 
protections. For years, mutual fund companies were engaged in 
such practices, such as late trading, where certain investors 
made transactions after the markets had closed for the day at 
that day's prices and this allowed traders to make transactions 
and reactions to new announcements that were released after the 
market closed and that might affect the next day's closing 
price. These late traders made profits at the expense of long-
term investors. Stronger consumer protections would have 
prevented this abuse of millions of Americans who rely on long-
term mutual investments for their retirement.
    A particularly egregious example came in the Massachusetts 
Department of Health where we conducted an investigation that 
revealed, from 1969 to 1978 in my own State, an unusual number 
of children in Woburn, MA, were diagnosed with cancer, and the 
cause was two companies who were dumping chemicals in ways that 
were in violation of certain regulations and circumvented 
others. And they allowed those compounds to reach Woburn's 
drinking water.
    These are just a few examples of why we need regulatory 
protections. OMB should be evaluating where existing 
regulations are not providing enough protection for consumers, 
and instead, unfortunately today, most of these proposals are 
on OMB's regulatory hit list, and they recommend weakening or 
gutting existing protections.
    For example, OMB includes proposals to reduce the amount of 
information that the public has and companies have to report 
under the Toxic Release Inventory. And we will hear today about 
how such regulations like Toxic Release Inventory cost the 
industry. But rather, I think we might be focusing on the cost 
of regulations as well to the public who are damaged by the 
lack of proper controls. I think it's important to look at the 
benefits as well. The Toxic Relief Inventory provides an 
enormous benefit to the public by making information available 
to them about toxic chemical releases.
    I want to thank the Chair for her kindness in inviting me 
here today, and I want thank the witnesses for appearing here 
today and offering your help to this committee. Thank you.
    Mrs. Miller. Other opening statements?
    I turn now to our vice chair, Representative Brown-Waite.
    Ms. Brown-Waite. Thank you very much Madam Chairwoman.
    She needs to be commended for having this hearing today to 
assess the impact of regulation on U.S. manufacturing. 
Certainly the burden of excessive and unnecessary regulation is 
a hidden tax. That is really what it is. It is a weight that 
drags down our Nation's economic potential. I'm eager to hear 
the opinions of today's expert panelists so we can properly 
assess the burden of regulation on the economy and formulate 
ways that Congress can help.
    Ronald Regan understood the importance of regulatory 
reform. In his first inauguration speech on January 20, 1981, 
he expressly stated that government is not a solution to our 
problem. Government is the problem. Too often in our Nation's 
past, we have looked to the government to legislate or regulate 
around a problem. However, this is not always the most 
efficient solution. There are always unintended side effects 
that arise whenever government meddles in the workplace.
    Sometimes government intervention is merited generally when 
the benefits to society outweigh the cost of the 
implementation. However, there are many regulations in effect 
today that never underwent a cost-benefit analysis before going 
into effect. As legislators and policymakers, we should never 
lose sight of the consequences of our actions. Last year, the 
2005 House Budget Resolution, there actually was a recognition 
of the significance of regulatory reform, and let me just quote 
from that language: It is the sense of this House that Congress 
should establish a mechanism for reviewing Federal agencies and 
their regulations with the expressed purpose of making 
recommendations to Congress when agencies prove to be 
ineffective, duplicative, outdated, irrelevant or failed to 
accomplish their intended purpose.
    There is a bill in Congress for regulatory reform because 
the need is just so obvious. We know that excessive paperwork 
and burdensome regulations thwart the U.S. economy and our 
global competitiveness. It has been estimated that Americans 
pay more than $700 billion a year to comply with regulatory 
burdens. That equals to about $8,000 per household according to 
a recent survey. Unnecessary and ineffective regulations crowd 
out capital investment by American businesses large and small.
    On the issue of regulatory reform, the States have actually 
led the way. When I served as a Senator in Florida, I had the 
privilege of serving on the Joint Legislative Committee on 
Administrative Procedures [JCAP]. In Florida, it is a 
bipartisan committee made up of House and Senate members 
charged with the responsibility and also the authority of 
reviewing agency rules. I think that some people at JCAP could 
serve as a great model for Federal reforms. After all, article 
1, section 1, of the Constitution delegated all legislative 
authority to Congress and not to administrative agencies. 
Therefore, I believe that Congress, the elected representatives 
of the people, should lessen the regulatory burden by taking 
back some of its authority that it actually has ceded over the 
years to agencies. And I think we need to do that by exercising 
proper oversight.
    With these guiding principals, I look forward to today's 
discussion and look forward to hearing from some people who 
have great recommendations. Thank you, Madam Chairwoman. I 
yield back the balance of my time.
    Mrs. Miller. Opening statement from Representative 
Westmoreland.
    Mr. Westmoreland. Thank you, Madam Chairwoman, and I want 
to thank you for holding these hearings.
    And I want to thank the witnesses for taking the time to 
come testify. And Madam Chairwoman, I'm very surprised, with 
this subject that we are talking about today, that this room 
isn't packed, and there aren't people standing out in the 
hallway waiting to come in here and hear this testimony and 
hear what we on the committee have to say, because maybe they 
don't think we are serious about doing anything about this or I 
promise you there would be a lot more people in this meeting 
today, because this is a very serious problem we have.
    And I think investigating how various regulations harm the 
manufacturing industry, especially in relation to employees and 
the threat to making the industry less competitive, is very 
fitting to this subcommittee's first hearing, and I hope it 
won't be a continuation of several hearings, but we will 
hopefully take some action on this problem that we have all 
identified here today.
    It's no secret that the domestic manufacturing industry has 
steadily lost jobs over the past few years, and we should be 
quite concerned about that because we have lost approximately 
2.8 million jobs. That's a problem, and it's a problem due to 
our own making in the regulations that we have put on 
manufacturing. After reading the Manufacturing Institute's 
report and seeing that the cost to do business in the United 
States has increased 22 percent because of regulations and 
restrictions on all levels of government, these things such as 
corporate taxation, increasing health care and pension benefit 
costs, tort litigation, rising energy costs and the costs of 
regulatory compliance, we need to act and need to act now.
    Furthermore, the report estimates total regulatory 
compliance costs for U.S. manufacturers to be $160 billion per 
year. I'm anxious to hear how we are going to solve these 
problems, because these are problems that you understand that 
we have built on our own manufacturing due to the fact that we 
continue to give agencies, government agencies, more and more 
power to shepherd or over-regulate the businesses in this 
country that have made our industry so great here.
    I mean, come on, this is equivalent to 12 percent excise 
tax on manufacturing. I'm anxious to hear what this panel has 
to say and very interested in what we can do to ease these 
burdens on our domestic manufacturing industry. After all, the 
manufacturing sector of this country is an engine, if not the 
engine, of our economy. Thank you, Madam Chairwoman.
    Mrs. Miller. Thank you.
    Before we begin receiving testimony from the witnesses, I 
want to remind everyone that we would like you to keep your 
verbal testimony to 5 minutes if you could. And in front of you 
on the table, you are going to see a little box there that will 
let you know when your time is up. When it lights up yellow, 
you have 1 minute remaining. And when 5 minutes have expired, 
the red light will appear, and we would like you to wrap up 
your testimony when you see the red light come on. It is the 
custom of this committee to swear in all of our witnesses, so 
if you could please rise and raise your right hands.
    [Witnesses sworn.]
    Mrs. Miller. Our first witness that the subcommittee will 
hear from is Mr. Al Frink. He is the Assistant Secretary for 
Manufacturing and Services within the Department of Commerce. 
Assistant Secretary Frink was confirmed in September 2004. 
Prior to coming to Washington, Mr. Frink co-founded the carpet 
manufacturer Fabrica in 1974 with $100,000 from the Small 
Business Administration. He has been a member of several boards 
and committees and has been particularly active in the Hispanic 
and Native American communities. In 2004, he was inducted into 
the prestigious Small Business Administration Hall of Fame.
    Assistant Secretary Frink, thank you for being here.

 STATEMENTS OF AL FRINK, ASSISTANT SECRETARY FOR MANUFACTURING 
  AND SERVICES, U.S. DEPARTMENT OF COMMERCE; JOHN D. GRAHAM, 
  PH.D., ADMINISTRATOR, OFFICE OF INFORMATION AND REGULATORY 
  AFFAIRS, OFFICE OF MANAGEMENT AND BUDGET; AND GOVERNOR JOHN 
    ENGLER, PRESIDENT, NATIONAL ASSOCIATION OF MANUFACTURERS

                     STATEMENT OF AL FRINK

    Mr. Frink. I'm watching this clock. Good morning to you, 
Madam Chairwoman and Ranking Member Lynch and all the other 
members of the subcommittee. I respectfully ask that my written 
statement be accepted into the record.
    Mrs. Miller. Without objection.
    Mr. Frink. I would like to thank you for inviting me here 
today to discuss manufacturing and update you on the Department 
of Commerce's progress on implementing recommendations from the 
Manufacturing in America Report, including regulatory reform 
efforts.
    Two years ago, President Bush and former Secretary Donald 
Evans focused directly on the issues affecting U.S. 
manufacturing and competitiveness at home and abroad. Under 
their leadership, 27 roundtables took place across the country 
which included companies small, medium and large in various 
industry sectors. The purpose of those were to solicit input 
directly from a variety of manufacturers.
    The results of these discussions were compiled and 
published in a book called Manufacturing in America. That 
report was released early last year, and it includes 57 
recommendations that are intended to foster conditions that 
enable manufacturers to compete in this competitive global 
economy. Some of the recommendations have already been 
implemented, and some of these include the following: creating 
the first ever manufacturing council to represent the interests 
of manufacturing; taking significant steps to protect 
intellectual property rights; and of course, the newly created 
position of assistant secretary of commerce for manufacturing 
services.
    I certainly want to thank the President for granting me 
this honor and opportunity to be of service. Secretary 
Gutierrez and myself have a profound appreciation for living 
the American dream and considerable respect for manufacturing. 
We are both immigrants and have come from humble beginnings and 
directed successful manufacturing enterprises, of course with 
my company being much smaller than the great Kellogg's Corp., 
together--I try to avoid the great--we bring the value of dual 
perspectives. We understand as you do that the manufacturing 
sector is crucial to the overall U.S. economy and its 
importance in creating good jobs.
    Manufacturing is often referred to as the engine that 
drives the economy, as the Congressman mentioned. As such, it 
should be mentioned that while the manufacturing report 
reflects my marching orders, you cannot learn everything from 
reading a book. Therefore, I believe it was crucial in my early 
stages to go on a listening and learning tour across America to 
speak with manufacturers on a one-to-one basis and understand 
their concerns firsthand.
    To date, I have personally visited and addressed over 
13,000 manufacturers. From these travels, one common concern 
was expressed. There is a need for regulatory reform. I have 
seen both the positive and negative impacts of regulations in 
my own business and the businesses throughout the United 
States. Well-thought-out regulations can be enacted, and many 
are, that minimize the cost burdens for manufacturers while 
still achieving improvements to the quality of our lives.
    I have also found that a vast majority of manufacturers are 
very environmentally conscious. They recognize that they also 
have to live in the environment they create. For example, in my 
carpet company, we used to, as a matter of practice, be the 
biggest user of water in the city of Santa Anna, CA, and the 
water we used was all reclaimed. And yet the processes we put 
into place produced water that was actually better than what 
went into our facility. We used to take a little liberty and 
say that it was near drinkable quality. We are very concerned 
about the environment, and I found surprisingly so many 
companies in my travels feel the same way. Therefore, we are 
committed to working with OMB, SBA and other Federal agencies 
to improve the regulatory process for business and for the 
quality of life, speaking to Congressman Lynch's concerns.
    To assist in this effort, we have established an Office of 
Industry Analysis to provide additional analytical capacity 
through a regulatory process, and we appointed a new deputy 
assistant secretary to lead that effort. In addition, Secretary 
Gutierrez will soon be asking fellow Cabinet secretaries to 
name a manufacturing liaison from their departments to serve on 
an interagency task force on manufacturing. This task force 
will facilitate and coordinate a Federal approach to the 
challenges facing the manufacturing sector, including the 
regulatory issues.
    I will close by saying, we are continuing to address the 
issues affecting manufacturing and look forward to working with 
you and the subcommittee to help manufacturers unleash the 
creativity, hard work, and innovation that are the engine of 
the American dream. Thank you.
    [The prepared statement of Mr. Frink follows:]

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    Mrs. Miller. Thank you very much.
    Our next witness this morning is Dr. John Graham, who is 
the Administrator of OMB's Office of Information and Regulatory 
Affairs. He was born and raised in Pittsburgh. Dr. Graham 
founded and led the Harvard Center for Risk Analysis from 1990 
to 2001. Confirmed in July 2001, Dr. Graham is on leave from 
the faculty at Harvard's School of Public Health, where he 
taught graduate students the methods of risk analysis and cost-
benefit analysis.
    Dr. Graham, good morning, appreciate your time.

                STATEMENT OF JOHN GRAHAM, PH.D.

    Mr. Graham. Good morning, Madam Chairwoman, members of the 
subcommittee, I appreciate the opportunity to testify this 
morning on the subject of regulation of the manufacturing 
sector. There is, in fact, a sea of existing Federal 
regulations. Let me give you some ballpark figures. Since OMB 
began to keep records in 1981, Federal agencies have adopted 
over 115,000 new Federal regulations. Of those, we at OMB 
reviewed and cleared 20,000 of them. And of those, over 1,100 
were estimated to cost the economy $100 million or more when 
they were issued.
    Sad as it is to say, I have to confess that most of these 
regulations have never been reexamined to determine whether 
they accomplish their purpose, how much did they really cost 
and what were the benefits. I should also say that not all 
sectors of the economy are equally impacted by this growth of 
Federal regulation. We all know, for example, that in the 
health care industry, physicians and nurses are heavily 
impacted by Federal regulation and paperwork. But it turns out 
that economic studies have shown that the sector that is most 
affected, when you compare it on the measure of burden per 
employee, is the manufacturing sector of the U.S. economy.
    And as you said, Madam Chairwoman, these manufacturing 
firms are now competing in an increasingly global economy. So 
when we add additional regulatory burden that is without 
justification, we are placing these companies and we are 
placing jobs at risk. In the Bush administration, we have taken 
modest steps to address this area. In February 2004, we 
announced an open opportunity for the public to suggest reform 
of manufacturing regulations. The focus in particular was on 
ways to help small, medium-sized or any manufacturing firm 
compete in a global economy without compromising the benefits 
of Federal regulation, whether those benefits be safety, 
health, environment or homeland security or otherwise. The 
result of that initiative is that we received at OMB, 189 
suggestions from 41 commentors. We then took those suggestions 
and we instituted a process of analysis and deliberation, both 
at the Federal agencies and at OMB. And I'm particularly 
pleased to report, this morning, I received technical 
assistance evaluating these nominations from both the advocacy 
office of the Small Business Administration and our colleagues 
who are here this morning from the Department of Commerce. The 
result is the administration has identified 76 of these reform 
ideas as worthy of further examination and action.
    Now I would like to report to you this morning that the 
mere designation of these 76 priorities means that they will 
get done. But I have been in Washington for enough years now to 
confess to you with some humility that we have a long way to go 
to get these 76 reforms done. And let me explain to you why 
that is. First of all, we have found through experience that 
regulators find it more interesting and more exciting, if you 
will, to craft new regulatory programs than to go into the 
existing regulations and modernize them or streamline them. And 
there can be lots of psychological reasons for why that's the 
case. And in fact, many cases, the people that need to do this 
work were involved in crafting those regulations in the first 
place. The whole task we are talking about engaging in is not 
one that is the natural inclination of a Federal bureaucracy.
    Second, there is no real course to the commentors who 
suggested these reforms if the agency does not get it done. 
These are discretionary actions that the agencies may take, but 
it is not backed up with the threat of litigation which often 
exists for a new regulation where an agency may be obliged by 
an act of Congress to do a new regulation or face legal threat 
in the Federal courts. And then you might ask, why isn't OMB 
there to make sure the agencies do their work? And I'm here to 
assure you that we are here, but we are a modest organization. 
And recently, as you know, cuts in staffing as a result of our 
last budget, sharing in some of the downsizing that a lot of 
the American economy is experiencing and our staffing resources 
are modest to oversee an effort of this magnitude.
    I want to conclude on a note of optimism. The 76 ideas are 
modest; they are practical. They do not threaten the health, 
safety and environment of our country. They do not require 
congressional action, but we do however want your support. And 
the agencies have committed to deadlines and milestones for 
making decisions in these areas. Thank you very much for your 
interest in this issue, and we look forward to working with 
you.
    [The prepared statement of Mr. Graham follows:]

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    Mrs. Miller. Thank you, Dr. Graham.
    Our next witness that the subcommittee will hear from is a 
former Michigan Governor John Engler. Governor Engler is the 
president of the National Association of Manufacturers, a post 
he assumed on October 1, 2004. He certainly is a well respected 
public official in his own right. Governor Engler served three 
terms as Michigan Governor from 1991 to 2002, years I remember 
very, very well. He also served 20 years in the State 
legislature, including 7 years as the majority leader of the 
State Senate. He was the youngest person ever elected to the 
Michigan House of Representatives.
    Governor Engler, we are proud to have you here this morning 
and look forward to your testimony, sir.

               STATEMENT OF GOVERNOR JOHN ENGLER

    Mr. Engler. Madam Chairwoman, members of the committee and 
your very able committee staff, I'm delighted to be here and 
thank you for the opportunity to address the subcommittee about 
the regulatory burden on America's manufacturers.
    You have limited to me to 5 minutes in my oral 
representation. I need not tell you that sort of represents 
cruel and inhumane punishment for someone who has been in 
public office as long as I have. We have much to say about 
Federal regulation and its impact on manufacturing and changes 
that we believe are needed.
    I'm delighted to be with my colleagues this morning on this 
panel, Mr. Frink and Dr. Graham. I, too, will submit for the 
record. Let me make a couple of points though in the limited 
time.
    Manufacturers in the United States today are caught up in 
the most competitive marketplace the world has ever seen. 
Because manufacturing products are easily transported, we must 
compete with manufacturers all around the world. One result is 
the relentless downward pressure on prices. As a practical 
matter, our members have very little pricing power. While they 
can't raise prices on their products, they have to contend with 
steadily rising costs of production. These are not just the 
basic costs of doing business--labor, capital investment--but 
also include the subject of today's session, external costs 
associated with taxes, health care, regulations, litigation, 
energy.
    You mentioned it, Madam Chairwoman, in your opening 
comments. The NAM study issued last year documented some 22.4 
percent a year labor costs in manufacturing higher in the 
United States compared to nine major trading partners. And Tom 
Dueseterberg, his people worked directly on that study as a 
partner with the NAM, and there is more detail in his written 
testimony. Government regulations hit the manufacturing sector 
harder than any other sector, probably due to the nature of 
manufacturing that Ranking Member Lynch mentioned. It is 
complicated and can be dangerous. There are environmental and 
safety issues. In at least one study, and I cite that in my 
written testimony, about 30 percent of the total costs of 
environmental, economic and tax regulations fall on 
manufacturers. Now, again, there is a recognition, some of this 
is probably inevitable given the nature of manufacturing, but 
our members encounter daily regulatory burdens that simply make 
no sense and serve no purpose or are unnecessary. I'm going to 
use three examples to make the point and talk about the 
categories.
    Old regulations not updated, Madam Chairwoman, I know you 
are a boater and you are very good at this, so this one was 
picked for you. Years ago, our--and this has been for years, we 
have an affiliate, the National Marine Manufacturers 
Association. They have been pleading with OSHA to update its 
rules for spray finishing flammable and combustible materials 
that govern application of resins that are in gel coats on new 
boats. Technical but that is what manufacturing is, very high 
tech. The rule now in effect dates back to 1969; conspicuously 
out of date. And technically, what this means, every boat maker 
using modern methods could be considered in violation of the 
rule, thus subject to sanctions and fines. And in today's 
liability environment, that could be an issue. Despite that, 
OSHA fails to update this important regulation.
    A new regulation but implemented in a questionable fashion, 
the Family Medical Leave Act, which many of us supported, but 
it has become a headache for some of our members because of the 
abuses. One company--Ohio-based, 840 employees--reported to us 
in 2004 that 221 of its employees or 26 percent claimed a total 
of 4,100 workdays missed under the Family Medical Leave Act. It 
is not so much the Family Leave Act, not the birth of a child, 
but the medical leave portion of this, which was, as you 
recall, almost an afterthought in the legislation. Family leave 
is where we were headed with this originally. That same company 
reported 20 employees did not return to work after exhausting 
their medical leave of 1,200 days. And yet another 10 incidents 
of people allegedly on leave were found to be actually 
physically employed doing other work.
    Conflicts, and this is conflicts here at home, sometimes 
among different regions of the same agency, but this is a 
conflict that deals with international conflicts. Small 
manufacturers of heat-sealing equipment report to us that they 
make equipment to meet specifications of the U.S. market and 
specifications with the Canadian market. Despite that 
commitment to compliance, when that equipment goes to Canada, 
there is a physical reinspection that takes place that adds 
several hundred dollars to the costs.
    These are just a couple of other examples that our members 
have to deal with. We can't afford to keep wasting resources in 
this fashion, and I think Congress could do something about it. 
And I'll close with just a final point. Sarbanes-Oxley, NAM 
supported passage, and it was a way to safeguard investors and 
restore confidence, but now the compliance costs have risen to 
the point and studies show that nearly 6 percent of net income 
before taxes is taken up by compliance. If you take 6 percent 
off the bottom line, we would like to work with the 
policymakers and Congress, regulatory agencies to reduce the 
compliance costs there. Thank you, Madam Chairwoman. My time 
has expired.
    [The prepared statement of Mr. Engler follows:]

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    Mrs. Miller. Thank you for your insight and thoughtfulness 
on this very important subject, and I might start the 
questioning here if I might.
    Governor, I thought it was interesting, you used a boat 
manufacturing analogy. The Federal Government has been after 
boat manufacturing for some reason when they passed the luxury 
tax in the late 1980's, ostensibly to get at the rich. They 
almost put the entire American boat manufacturers out of 
business because, of course, those that could afford a luxury 
boat went to a different country and purchased one and 
documented it somewhere else and brought it here. So it is not 
surprising that they continue on that. And that's an excellent 
suggestion that you have made or brought to light there.
    Also in your written testimony, Governor, you suggested 
that the role of the Department of Commerce and regulatory 
review would be made in statute; actually, that it be made 
statutory. I'm just wondering, if the mechanics of the process, 
particularly of small manufacturers as to how they deal with 
the Federal regulatory agencies, can be made a little bit more 
customer-friendly or oriented? Do you have any ideas on that?
    Mr. Engler. I think with Dr. Graham and Secretary Frink, we 
have two leaders--I know Dr. Graham has been terrific. I think 
the Commerce Department effort pursuant to the legislation 
passed after the Department came out with a report about 
manufacturing in America is designed to help get at that 
question you're asking, and Secretary Gutierrez and Secretary 
Frink are making it clear. This is something they want to do. 
It is going to be a bit of a listing post, and we are excited 
about being able to talk to commerce, have commerce actually 
working with us to go to OIRA or go to Dr. Graham.
    But I think where it gets hard after that is to get the 
agencies tagged, and that is where it comes back to the 
Congress, because so often in the bureaucracy, it is a sense we 
can wait it out; this, too, shall pass. And in the case of the 
boat regulation, it has been since 1969 that OSHA has been 
asked to deal with that. They are going ahead, but why do we 
have them at risk, and why do we have obsolete rules? I have 
seen this in air quality with EPA, where in the competition for 
a manufacturing plant expansion, one region of the country this 
year went through this where a region in one part where the 
costs were lower, the rate of ionization was lesser. They also 
found themselves with a more favorable air quality decision out 
of the Federal region than was the case back up in Michigan 
where I happened to be Governor at the time. And we said look, 
it's a Federal law. Which region is controlling this decision? 
And today, that's often a problem, too. And when it means 
dislocation of jobs or General Motors moves from Massachusetts 
to someplace else, because the northeast's interpretation is 
different than the southeast's interpretation, that's unfair as 
well.
    Mrs. Miller. It's true. We do see States sort of 
cannibalizing one another, and the Federal Government sort of a 
handmaiden to all of that, probably with the best intentions, 
but that is the reality of the impact of that.
    Dr. Graham, I thought it was interesting that it was 
counterintuitive to you for some of the regulators to ever 
really go back and look at what they have on their hands there 
in the practical application of some of these things. You said 
it might go against the very nature. But how can Congress 
incentivize some of these different regulators to have an 
annual review process? You mentioned the 76 different priority 
reforms, which do not require legislation. They are in the rule 
promulgation stages, I suppose. What can we do to incentivize 
these different agencies to have an annual review to see 
whether or not the cost-benefit analysis makes sense, if it's 
rational or reasonable?
    Mr. Graham. The fact that you are chairing this hearing and 
having this hearing today on this topic and you are expressing 
interest in the administration's initiative on these 76 
manufacturing regulations, that is a very significant boost to 
myself and the two dozen staff members at OIRA who are working 
on a day-to-day basis to make sure the agencies make progress 
in these areas. I want to start with the most basic answer to 
you, which is, thank you for expressing interest in having this 
hearing.
    Looking down the road in terms of how you can further 
contribute to this, we have worked out with agencies, some 
would say negotiated with agencies, deadlines that are in that 
list of 76 for when they would take specified actions. I 
encourage you and your staff to track those, to see if we 
continue to make progress on those and to make it clear that 
members of this subcommittee care about whether these deadlines 
are met and provide explanations if some of these are not being 
met. These are very practical but very real things that need to 
happen. And we need your assistance to make sure we are making 
progress.
    Mrs. Miller. A final question for Mr. Frink. You mentioned 
that you had already visited or had contact with 13,000 
different manufacturers and a common element theme that you 
found in your discussions was a need to reform from all these 
different manufacturers. Was there a common problem? Was there 
one or two things you really found that the manufacturers kept 
coming back to that just leaped off the page at you, a 
regulation that they found onerous and burdensome?
    Mr. Frink. Sarbanes-Oxley, Sarbanes-Oxley, Sarbanes-Oxley. 
That was the most resounding plea for assistance from all 
levels of manufacturing, large, medium and small. It is 
especially impacting the smaller companies that don't have the 
resources to comply with the requirements of Sarbanes. 
Everybody agrees that the legislation/regulation has positive 
aspects to it. There are just some attachments to it that have 
created a burden that makes it probably almost so significant. 
And I think around tax time, it has been especially resounding 
that it has dwarfed any other regulatory issues in my recent 
visits in the last 3 months. So I would have to say that one is 
clearly at the top of the concern level. I think, beyond 
Sarbanes, I didn't get specifics that I could share, just a 
general concern that regulations, in many cases, as they vary 
within the sectors, have tremendous impact on their ability to 
remain competitive per what Governor Engler mentioned with 
regard to the varying costs of doing business in this country 
and that they look at that as one of their main areas of costs 
that they would like assistance on in terms of reform.
    Mrs. Miller. Thank you. I turn the floor over to the 
ranking member, Representative Lynch.
    Mr. Lynch. Thank you, Madam Chairwoman.
    I want to thank you for appearing before the committee.
    Dr. Graham, I actually had sent a letter over to you and 
I'm hearing now that you are short on staff and that may be the 
reason for it. I know that Ranking Member Waxman and I sent a 
letter over requesting information regarding the whole process 
that you have embarked upon in terms of all these folks that 
you have met with the idea of engaging in regulatory reform, 
and this committee is going to be handling a lot of that based 
on what Chairman Davis has said.
    And we are a bit concerned if we're going to get a picture, 
a snapshot of what's going on. We want to make sure that group 
is as wide as possible and reflects, not just one viewpoint, 
but might be reflective of a broader spectrum so that, I mean, 
let's face it, the work of this committee is sometimes, well, 
all the time affected by the information we get. We want it to 
be accurate. We want it to be representative of the entire 
spectrum of people who are affected out there. And I guess what 
I would like to know is, how are we doing with the responses to 
that letter that I did send you?
    Mr. Graham. We have received the letter. This is the March 
24 letter? We are working on it. And we had hoped to get you a 
response before the hearing and didn't quite make it. We are 
still working on it, and just to give people in the room a 
sense of why we might not have it yet, let me read item four 
from the letter: Please provide all documents, including e-
mails, exchanges between on OIRA staff and any non-Federal 
employee since January 1, 2003, related to the regulatory 
process. Obviously, this has taken us awhile to figure out 
exactly how we are supposed to deal with it.
    Mr. Lynch. It would have been nice if you said, we got your 
letter and call us up and say, we are having a problem with one 
of your inquiries. We got silence. I thought maybe it got lost 
in the mail.
    Mr. Graham. We tried to call you Friday, but we are working 
on it. But I want people to get a feel of the kind of thing we 
are talking about here.
    Mr. Lynch. You can look at the other questions, too, if we 
are going to go over that. We would like to know basically the 
groups you met with this is an initiative to change the 
regulatory process. And we understand that the administration 
is very committed to this, and we would like to make sure that 
it's a forthright process, and there is full disclosure and 
everyone gets to offer their concerns and comments regarding 
this process, and it shouldn't be just slanted to one group, as 
important as that group might be.
    Mr. Graham. You raise an excellent point. Just to keep in 
mind, the process on the manufacturing initiative, this was a 
public nomination process where any group could submit comments 
if they wanted to, and all the comments we have received are 
posted on the OMB Web site. And our policy at OMB is to have an 
open door policy for visitors from any of the groups, including 
labor groups, public interest groups, environmental groups. 
They certainly have an opportunity to participate. And let me 
assure you, they do.
    Mr. Lynch. In this round of solicitation and comment, 97 
percent of the responses have been from manufacturers and 3 
percent have been from everyone else.
    Mr. Graham. Given who is incurring the burdens of these 
regulations, you would expect the business community to be the 
dominant participants. Let me assure you on your interest that 
you mentioned in your opening statement on the development of 
new regulations to protect public health, safety and the 
environment, we do meet with frequency the groups you are 
talking about on their ideas for new regulations. And they are 
very aggressive and persuasive in making their case.
    Mr. Lynch. We will be getting that information. And we can 
talk about the feasibility of getting the information there. We 
can talk about what we are looking for. Obviously, staff was, I 
think, trying to cover everything that we might possibly need 
in response to those efforts. Let me ask as well, the 
information that we get here, we would like it to be as 
accurate as possible. And I know a lot of folks come before 
this committee and others citing certain studies and some 
reports that say--I've heard various estimates already here of 
costs of regulation. And I'm one of those folks that likes to 
look at the underlying documents that generate that number, 
because in a lot of cases, what I've found, these are guesses. 
These are largely guesses, and a lot of them are based upon 
information that was just like some of these regulations, 
actually, that were gleaned back in the 1960's. I know that the 
Crane and Hopkins study actually uses data that was gathered 
back from the 1960's at the same time these regulations came 
in. So when people offer that information and there is a 
certain amount of inaccuracy in it, it's just difficult for us 
to make the quality of our response as accurate as we would 
like it, because we are working with very, very dated 
information and, also, some information that is unsound in 
terms of the process that goes through to reach the conclusion 
that the report cites.
    So I'm sure you are going to be a frequent flyer to this 
committee; I get the sense. And I want you to know, we are 
going to look at the underlying studies and reports and the 
whole analysis to make sure we're basing our collective 
decisions on accurate information.
    And last, if I could--and I don't want to take too much 
time here--but I was a little surprised that last year, 2004, 
the administration actually listed some of its accomplishments, 
one being the listeria rule, which it cited as being one of its 
accomplishments, albeit a very modest rule, a very weak rule in 
a lot of peoples' estimates, regarding one of the most 
poisonous compounds that are out there. I mean, 20 percent of 
those infected with listeria, based on some studies, those are 
fatal. And there is tremendous danger in listeria contained in 
ready-to-eat meat products and poultry that they are extremely 
dangerous to pregnant women and their unborn children. So I was 
a little surprised to see it on the hit list. Last year, it was 
on the accomplishments list, and now it is on the hit list with 
an attempt to weaken it even further. And I was a little 
puzzled by that.
    Mr. Graham. You can be assured, sir, that we are not 
talking about eliminating this regulation. The suggestion is 
ways to reduce the compliance costs of the regulation without 
reducing the protection to the consumer in terms of food 
safety. If you read the comments from the affected industry 
that indicated that the compliance costs have proven to be much 
more substantial than was projected before the regulation was 
adopted.
    Mr. Lynch. Let me get this right. Last year, it was an 
accomplishment?
    Mr. Graham. The regulation as a whole was an 
accomplishment, but there are ways in which you can refine and 
fine tune the regulation to achieve the same level of 
protection for the consumer but at lower costs to the industry.
    Mr. Lynch. I yield back.
    Mrs. Miller. Thank you.
    The Chair recognizes the vice chair, Representative Brown-
Waite, for her questions.
    Ms. Brown-Waite. Thank you very much. My first question is 
for Governor Engler. Obviously, in order to reduce the 
regulatory burden on businesses, we have to get rid of some old 
inefficient rules and maybe some rules that bureaucrats sort of 
snuck in there. I think that was the case when we did the 
regulatory reform in Florida. I believe that Michigan has 
something very similar to what I described before as a Joint 
Administrative Procedures Committee. And if you could briefly 
describe that and the success or lack of success. But I heard 
it was very successful. If you could just share that with the 
committee, I would appreciate it.
    Mr. Engler. During my tenure as Governor, Congresswoman, we 
established an Office of Regulatory Reform. And part of the 
challenge we had was that agencies, in some cases, refused to 
promulgate rules that they were required to promulgate. And so 
when the legislature would have fixed the statute, that wasn't 
followed through in other cases. As has been described here, 
sometimes it's easier to do something new rather than go back 
and clean up what is. We required that a central point exists 
where all agencies had to bring the rules in and you could 
harmonize them to make sure that they were internally 
consistent; that a new rule being promulgated in one agency 
wasn't in conflict with an existing rule over in another agency 
or in conflict with a pre-existing rule of the same agency.
    At the same time, we said, if you are promulgating a rule 
in maybe a health standard, if you're in an area of the 
administrative code, then while you're there, clean up the 
obsolete references, the old language. The net of this was to 
reduce by more than a third the administrative code of the 
State of Michigan, while I think strengthening compliance and 
reducing compliance costs. All in all, it proved to be a very 
effective way to get at this problem. We didn't always have the 
ability to--if there were pre-existing problems to faithfully 
implement the statute, we would say to the legislature, you 
know, that cannot be changed by the agency, you have to go back 
and change the underlying statute. And so there is a mixture of 
these, and that is why the work of the committee is so 
important because there is this delineation and the 
classification of what are we dealing with, because they are 
going to differ from agency to agency and department to 
department.
    The one thing that I would add, it is sort of the 
environment that we are in, because this was out of today's 
paper--and it's a challenge for the committee that goes right 
to your mission--a little article, Business Looks to the 
Panel's New Leader for Relief, entitled, The Regulators. The 
Chair of the committee suggests that the problem is cost 
regulation where some rules have outlived their usefulness and 
cost-effectiveness.
    The Chair of the committee suggests the problem is with 
cost regulation where some rules outlived their usefulness, 
cost-effectiveness. ``My approach is the largest room is the 
room for improvement, particularly when it comes to 
regulation.''
    In the same article, something described as a public 
interest community, which I think I am part of the public 
interest community because we want to put good manufacturing 
products out there.
    The public interest community views the Miller regulatory 
agenda as extreme. Now, I don't think it's extreme to say room 
for improvement, but that's the environment--and cautions it's 
mobilizing to fight business-backed initiatives that would 
limit health and safety regulations or create procedural 
roadblocks to regulations like sunset reviews. Now, sunset 
review, if I understand that right, that terminates something--
it isn't a roadblock to enacting it. It merely says we ought to 
take a look at it.
    Ms. Brown-Waite. Right.
    Mr. Engler. But that's how dug in--and so when Dr. Graham 
puts out a call and comes in for 97 percent of the 
manufacturers, that is because the status quo has 97 percent of 
the rules in place, and they are happy with this bureaucracy, 
but they are not trying to make a profit in today's world. So 
what you are doing is real important.
    Ms. Brown-Waite. Well, certainly the chairwoman and I come 
from the States that, you know, took this issue on, and I think 
it's our goal to make sure that the Federal Government does 
that also; that we look at overlapping and duplicative 
regulations that do nothing for public safety, that do nothing 
for the good of the business community or even the environment, 
but rather are just duplicative and outdated. I appreciate your 
response. Hopefully we can accomplish the same thing at the 
Federal level.
    I wanted to just ask Mr. Frink one question, and that was 
on Sarbanes-Oxley. I serve in the Financial Services Committee, 
and I, too, have heard from small businesses about their audit 
that's necessary for compliance with Sarbanes-Oxley. I was 
wondering if you had come up with some suggestions to make it a 
little easier for small businesses so that the accountants and 
auditors don't overcomply and, therefore, drive up the cost. 
That's what I am hearing from small businesses.
    Mr. Frink. Congresswoman, I think that's a good question, 
and it's the same question that I have posed to people that 
have brought that concern to me. I felt they were in the best 
position to be able to provide advice. I also recommended that 
they put together a legitimate case to quantify what their 
actual costs are so that we could bring back legitimate 
information that would substantiate what everybody is saying. 
Because I think that, speaking to Congressman Lynch, is concern 
for quantification, accuracy of quantification. I wanted to 
have that kind of information available so that I could come 
back and then present it in a manner that would have some 
teeth.
    So what I would like to do is to allow me to pursue that 
information gathering and report to you subsequent to this 
hearing with what I think you are asking for.
    Ms. Brown-Waite. May I followup? Did you give the small 
businesses a timeframe to get back to you with these 
suggestions? Because one of the things that I found is that in 
Congress the ``we will get back to you'' becomes years. Not 
only--this is only my 3rd year here.
    Mr. Frink. You know, in the spirit of the meetings I had, 
there was a sense of urgency. But, you know, to answer your 
question honestly, no. But I will do that subsequent to this 
meeting. I think it's--I have experienced the same thing. So I 
will get back to those individuals and tell them, look, I think 
we have a chance to really try to get some value to addressing 
of your concern, I need it by this time.
    Ms. Brown-Waite. Thank you, Madam Chairwoman. I yield back 
the balance of my time.
    Mrs. Miller. The Chair recognizes Representative 
Westmoreland for questions.
    Mr. Westmoreland. Thank you, Madam Chairwoman.
    Governor Engler, let me thank you for bringing 
recommendations to this committee for things that we can do 
right now to help with our manufacturing, and I want to thank 
you for doing that.
    Dr. Graham, in your testimony you said that since 1981, 
there have been 115,996 final rules published in the Federal 
Register by Federal agencies. It says that the office looked at 
a little over 19,000 of those.
    When government agencies--and I apologize for my 
ignorance--but when government agencies do new rules and 
regulations, what process do they go through before they 
actually go into the Federal Register?
    Mr. Graham. Yes, sir. An agency typically will draft a 
regulation, submit it to OMB and other interested agencies for 
review. Then once there is a decision made to go forward with 
that proposal, there is then a period of public comment.
    Mr. Westmoreland. Who makes the decision to go forward? Do 
you have any authority to stop any regulation put forth by an 
agency?
    Mr. Graham. Well, as you know, the executive branch is all 
one big family, and we work together on these issues, but we do 
have authority in the Presidential Executive order to ask an 
agency to reconsider a proposal.
    Mr. Westmoreland. But do you have the ability.
    Mr. Graham. That's the authority that I have through 
Executive order.
    Mr. Westmoreland. Just to ask them to review it.
    Mr. Graham. To reconsider.
    Mr. Westmoreland. To reconsider it.
    Mr. Graham. Yes.
    Mr. Westmoreland. If they choose not to reconsider it, then 
they can do it regardless of what you say.
    Mr. Graham. Well, if they disagree with Dr. Graham, then 
they can appeal that decision to my boss Mr. Bolten, the OMB 
Director. And as the Executive order indicates, if there is 
still a disagreement, that can go the Chief of Staff, to the 
Vice President or to the President himself. But everyone in the 
executive branch is working for the President, and in the final 
analysis, all resolutions, if necessary, go to the President.
    Mr. Westmoreland. But they--but the only thing you can do 
is ask them to reconsider it. Who is the person that can tell 
them, no, you are not going to implement that rule?
    Mr. Graham. Well, I can be, as a starting point, by asking 
them to think about it some more. But if they feel strongly 
about it, and they want to continue to push it, they can appeal 
that and elevate that decision above my level into the White 
House.
    Mr. Westmoreland. OK. I don't know if I don't understand 
what you are saying or if you don't understand what I am 
saying.
    Mr. Graham. In the final analysis it will still be the 
President's decision, the final say.
    Mr. Westmoreland. OK. So he says, yes, you can, or, no, you 
can't. If you ask him to reconsider it--and that is basically 
you are telling them, please don't do this.
    Mr. Graham. I am the person representing the President on 
regulatory matters.
    Mr. Westmoreland. OK.
    Mr. Graham. If they don't want to deal with Dr. Graham, 
then they need to get their Cabinet officer, whatever, to call 
the President or the Vice President or Andy Card and work it 
out.
    Mr. Westmoreland. So, of these that were put on the final 
registry at some point in time, the President had to say, this 
is OK.
    Mr. Graham. We, as OMB, and the Executive Office of the 
President cleared over 20,000 of those regulations.
    Mr. Westmoreland. OK. That had a cost of a little over--or 
a potential cost of a little over $100 million a year.
    Mr. Graham. 1,100 of them----
    Mr. Westmoreland. Right.
    Mr. Graham [continuing]. Had estimated costs of over $100 
million a year.
    Mr. Westmoreland. Do you know what the cost of the other 
18,000 or so were, or were they just----
    Mr. Graham. Fabulous question. I don't think anybody, 
frankly, really knows the answer, because the way the Executive 
order is designed is it focuses the cost estimates on the most 
expensive of the regulations. But there are a large number of 
less expensive regulations that aren't analyzed as seriously, 
so the cumulative burden of those other regulations is, of 
course, an unknown.
    Mr. Westmoreland. Mr. Frink, one question for you. On page 
3 of what I have in your testimony, it says you talk about the 
manufacturers' report. With 18 specific recommendations 
completed in less than 1 year, the Department of Commerce will 
continue making progress on these recommendations and other 
efforts to ensure the competitiveness of all U.S. manufacturing 
businesses.
    Of the 18 specific recommendations that have been completed 
in less than a year, what were the total number of 
recommendations--maybe I have missed it somewhere--in here?
    Mr. Frink. The total are 57 initiatives from the book of 
Manufacturing America, of which, when I came on board in 
September, I believe there was about seven to eight of those 
accomplished. So in the last 6 months there's been an 
additional 10, making 18, and we have another 4 close to 
completion, another 17 that are further out.
    Mr. Westmoreland. Are these recommendations doing away with 
some of the regulations that is only manufacturing, or 
regulations--I mean, what are these recommendations?
    Mr. Frink. Well, none of them would be the Office of 
Industry Analysis. That is a newly formed industry or sector 
within our department. That individual is a new DAS, and as a 
new DAS for Industry Analysis is going to be working very close 
with OMB and SBA on their regulatory process to help assist 
with the information gathering, the evaluation, hopefully the 
impact of regulations. So I think in that regard, some of our 
best work is ahead of us.
    So that signal area is probably the one that is most 
focused on getting results in achieving reform with regard to 
the regulatory process.
    Mr. Westmoreland. But really nothing has changed as far as 
the regulations on manufacturing. We have just--you have come 
up with some ideas about how to judge what those regulations 
really do, because I think we already know what they do.
    Mr. Frink. Correct.
    Mr. Westmoreland. I mean, I know that this other agency is 
probably helpful, but the last thing I think we need in 
government is another agency.
    Mr. Frink. Well, actually I think that in this case we do. 
The need for focus on regulations has not, to my knowledge, 
been in place specific to manufacturing. And we have needed a 
sector in the manufacturing focus that is clearly looking at 
the regulatory process, and not just looking at the results, 
but perhaps analyzing the process to see how we can affect 
regulations, even perhaps before they become official.
    So to have that focus, I don't know of any other agency or 
service within government that was doing that besides OMB. So 
we are adding our efforts to theirs and that of SBA. It's such 
a daunting task, I think it needs as much attention as can be 
given to it.
    Mr. Graham. Yes, sir.
    Just a quick condition, if I may, on that question.
    Mr. Westmoreland. Yes.
    Mr. Graham. Keep in mind that at large regulatory agencies, 
like Department of Transportation, the Labor Department, the 
Environmental Protection Agency, they have hundreds, sometimes 
even thousands, of people who are available to work on 
regulatory proposals. We at OMB have two dozen for the entire 
Federal Government. The prospect of an analytic unit at the 
Commerce Department that would have a couple dozen additional 
analysts working on these regulations, that makes people in OMB 
very optimistic about the prospects for further progress.
    Mr. Westmoreland. Good. Do you think there's a possibility 
that we could get a list of those 57 recommendations and the 
ones that's been checked off and how many more are to go?
    Mr. Frink. It would be my pleasure. I will make sure you 
get followup information on that.
    Mr. Westmoreland. Thank you, sir.
    Mrs. Miller. In the interest of time, I will forego the 
second round of questions, but I would like to recognize the 
ranking member, Representative Lynch.
    Mr. Lynch. Thank you, Madam Chairwoman.
    Mr. Graham, if I could just come back with you a little 
bit. In your statement, at least initially, from what I heard 
today was that there is an attempt to draw a direct link 
between the recession and job losses and the existence of 
certain regulations. I am really concerned that what OMB has 
done here is create a hit list somewhat of environmental health 
and safety protections that industry would like to see weakened 
or eliminated.
    Now, what I don't understand is how OMB is making the 
connection between job losses that we have seen in the last 4 
years and the list of regulations that OMB is now supporting 
for reform. For example, though we started seeing major job 
losses in 2001, many of the regulations that I see on OMB's hit 
list have been around for much, much, much longer than that, 
and actually during periods of high job growth for that matter. 
For example, the toxic release inventory and cleanup 
requirements for PCBs, a very dangerous substance in our--
especially in industrial sites, and Title 5 of the Clean Air 
Act around permitting, they have all been around for many, many 
years, and yet these important environmental protections are 
all targeted on OMB's hit list.
    It just seems to me, now I have grappled with this for some 
time, the job loss issue, and it seems to me--I mean, I visited 
China, Shanghai, not long ago and talked to some manufacturing 
workers in the Otis Elevator plant there in Shanghai. I asked 
the technician there what he was making, what he was earning, 
and he told me he gets paid about $25 a month. And I know that 
my elevator constructors and the folks in that industry are 
probably paid $25 an hour, at least.
    I mean, let's just set aside for the moment the fact that 
the Chinese worker has no freedom of expression, can't own a 
home, has no solid health care, has no freedom of religion or 
expression, or the right to join a union. Let's set that aside 
for a moment. But given the economic reality, the labor costs, 
the difference between one worker making $25 a month, our 
workers making $25 an hour, shouldn't we be looking at our 
trade policies and labor policies and the incentives that some 
companies are given right here today in the United States to 
locate jobs overseas to take advantage of that much, much 
cheaper labor market?
    Mr. Graham. I agree that it requires a broad-based 
examination, not just regulation, but liability reform; 
certainly we need to look at trade policy, and we are doing 
that. There are a range of issues that need to be looked at. 
But let's not deflect from the importance of just the 
regulatory burden on the long-term competitiveness of American 
businesses in the world economy. It may not solve the next 
recession, but it helps them compete in the global economy when 
they don't have unnecessary cost burdens imposed on them.
    Mr. Lynch. OK. Thank you.
    The other thing, I just wanted to go back to that Listeria. 
I was reading my notes on the way in on the plane that actually 
OMB's recommendation was to rescind the rule, was because it 
was OMB's position that the benefits of the Listeria rule were 
overstated. So it wasn't just--wasn't just around costs, but 
that the benefits of this rule were overstated. That's in your 
own report here.
    Mr. Graham. Yes, page 66 of the report, the summary. There 
is a summary of what the commenter suggested. There is not an 
OMB recommendation.
    Mr. Lynch. OK. All right. So you don't think it's----
    Mr. Graham. And what the commenter has said is that--both 
that the costs are more costly than USDA estimated, that's line 
3; and you are correct, they also say that the benefits were 
overestimated.
    Mr. Lynch. Right. The benefits----
    Mr. Graham. So you are actually making both arguments.
    Mr. Lynch. Yes. So you don't believe----
    Mr. Graham. The USDA is now in the process of reexamining 
those in light of the comments made on the interim final rule.
    Mr. Lynch. OK. But is that your, OMB's, position----
    Mr. Graham. No. In fact, I think I was clarifying for you 
is that language on page 66 is the language of the commenter, 
not the language of OMB.
    Mr. Lynch. OK. I want to be certain.
    Mr. Frink, Graham and Engler, I want to thank you both as 
well. Although I haven't really bothered you as much as well, I 
want you to know I really do appreciate your working on this 
issue, and we will have to grapple if we are going to solidify, 
stabilize the manufacturing industry in this country, and I 
appreciate all of your work on that effort.
    Thank you. I yield back.
    Mrs. Miller. Thank you very much. I certainly sincerely as 
well thank all of our witnesses, our panelists, for being here 
today. It's been very interesting for us.
    This is a committee that does look to improvement, 
certainly. I don't think that's a radical agenda. In fact, 
something that might be a radical example of Federal Government 
regulations, this morning we are talking about manufacturing, 
and sometimes we think of heavy industry or what have you in 
manufacturing. But other things are being manufactured, like 
bread. And it's interesting, talking to the American Bakers 
Association, that the Federal Government has regulated 
breadmaking to the extent that they think that the smell of 
fresh-baked bread is smell pollution, and it has to be 
regulated out of existence. So you can't have that fresh smell 
any more.
    But I think that might be a little extreme agenda, but we 
do, as I say, want to continue to examine or explore, do what 
is right for all of the workers of America, and our environment 
as well. I certainly think that we can do so working together.
    Governor Engler, do you have a final comment, sir?
    Mr. Engler. One last thing, Madam Chairwoman, to submit for 
the record that addresses something that Ranking Member Lynch 
mentioned earlier in terms of the freshness of studies. This is 
a 2003 study. A reference has been made to it in your comments 
and some of my testimony, about how structural costs imposed on 
U.S. workers can harm workers' competitiveness. A lot of the 
source documents are in here with the graphs and the 
attributions so that you can go right to the source and go 
through that to seek verification of the data. And it's a 
wonderful study and quite authoritative, I think, that gets to 
the work of the committee.
    Thank you for your time.
    Mrs. Miller. Thank you all very much. At this point we will 
just take a few minutes recess for this panel to take their 
spots. Thank you again.
    [Recess.]
    Mrs. Miller. I will call the meeting back to order here. I 
am interested to hear from our next panel of witnesses. Again, 
it is the committee's desire that we swear you all in. So if 
you could all raise your right hands, please.
    [Witnesses sworn.]
    Mrs. Miller. Thank you very much. We appreciate that.
    Our next witness the subcommittee will now hear from is Dr. 
Thomas Duesterberg. Dr. Duesterberg is president and CEO of the 
Manufacturers Alliance. The alliance has more than 425 
corporate members engaged in manufacturing and business 
services, and conducts economic and policy research relevant to 
its membership.
    Doctor.

     STATEMENTS OF THOMAS DUESTERBERG, PRESIDENT AND CEO, 
 MANUFACTURERS ALLIANCE/MAPI; LORI LUCHAK, VICE PRESIDENT AND 
MARKETING DIRECTOR, MILES FIBERGLASS & COMPOSITES, ON BEHALF OF 
 THE AMERICAN COMPOSITES MANUFACTURERS ASSOCIATION; AND SIDNEY 
  SHAPIRO, UNIVERSITY DISTINGUISHED CHAIR IN LAW, WAKE FOREST 
   UNIVERSITY, ON BEHALF OF CENTER FOR PROGRESSIVE REGULATION

                STATEMENT OF THOMAS DUESTERBERG

    Mr. Duesterberg. Madam Chairwoman, thank you for having me 
here today. I want to commend you and Mr. Lynch for holding 
this hearing on regulation on U.S. manufacturing.
    As you mentioned, I represent the Manufacturers Alliance, 
which is a 501(c)(6) organization devoted to economic research 
and executive development.
    My remarks draw on a number of our studies issued in the 
last few years, and I want to try to do something a little bit 
different today, which is to do basically two things: To put 
into context the competitive situation of the manufacturers, 
especially with regard to the international competition and the 
cost pressures that affect manufacturers, and to address a few 
of the larger issues of regulation, which sometimes are 
forgotten in the effort to deal with these 100-and-some 
thousand regulations that Mr. Graham mentioned earlier this 
morning.
    I have a few charts and graphs that I will--your staff is 
going to help me with as I go through this. But what I wanted 
to do today is first call attention to a gradual decline in the 
performance of the manufacturing industry, starting somewhere 
in the late 1990's.
    First, we note that, if we could put the first chart up, 
there had been a certain consistency in plant openings and 
closings in the manufacturing sector dating back about 40 
years, and our research, drawing on the Commerce Department, 
indicates that there was a break in this.
    This is the--can't see it very well, but the bottom line, 
bottom two lines, show that the number of plant closings has 
remained steady over time, but the number of plant openings 
started to trend downward in the late 1990's. About 10,000 
plants each year that would have been opened were not opened. 
If you look at hiring and firing in the manufacturing industry, 
that trend is the same. So there's been a trend downward in the 
annual spurts of entrepreneurship, if you will, affecting all 
manufacturing.
    Second, and if we could go to the second slide, this is 
also reflected in the profit margin, this is--especially of 
durable goods manufacturers. Again, these profits have been 
highly cyclical, but durable goods tended to run a little bit 
less than the nondurable goods manufacturers for a number of 
years. But in the late 1990's and in this decade, they have 
trended downward again and have not recovered to the extent 
they should have at this point in the recovery.
    The third thing I would mention is that everyone is 
familiar with the trade numbers--and again, we had numbers come 
out again this morning--which were the worst trade deficits in 
U.S. history. And it affects especially the goods-producing 
sector, whether--it's between $600 billion and $700 billion in 
deficit each year.
    Again, if we could go to the next slide, this shows the 
percent of domestic output that goes to exports, which is the 
bolder blue, and the lighter blue is the percent represented by 
imports, and the import number keeps going up and up. It is now 
35 percent of domestic consumption, pardon me, and as our 
exports have trended downward since about 1997.
    So how to explain this. The growth in international 
competition is certainly a major explanation of this, but the 
role of cost pressures, which Governor Engler mentioned, which 
Madam Chairwoman mentioned in your opening statement, also is 
important.
    And if we could go to my final chart, which is really a 
summary of our costs study, which we did a couple of years ago, 
it indicates that if you take unit labor costs, which are 
adjusted for productivity, compare it with our nine leading 
trading partners, everyone from the advanced countries like 
Germany and France to China and Mexico, there's about a $5-an-
hour wage differential. And, again, this is corrected for 
productivity and for capital inputs.
    U.S. productivity has been so good that over the last 12 
years unit labor costs have actually declined in the United 
States, but nonetheless, we have been unable to keep pace. Part 
of reason for this we think is the structurally imposed costs.
    We were able to calculate on a comparative basis corporate 
taxes, employee benefits, tort, natural gas costs and pollution 
abatement costs. When all of these are averaged out for our 
nine leading trading partners, it shows that this subtracts 
about $3 an hour from their costs. And so this averages out to 
a 22 percent increase in the cost of domestic production.
    I focused them on four separate areas of regulation which I 
think merit the attention of this committee. Energy, especially 
natural gas, where, for the last decade or so, we have 
encouraged consumption and discouraged production. We believe 
that easing up on the ability to import LNG is a near-term 
solution to this problem which has affected especially the 
chemicals and fertilizer industry. We have lost 100,000 jobs in 
the chemicals industry, partly as a result of our higher 
prices.
    I focus on the telecom industry, where even though we 
have--the language of deregulation has been used, we have--the 
regulatory bar in Washington, DC, has grown by 73 percent since 
the deregulation bill. Again, the industry has declined by a 
third in terms of employment because of--partly because of 
overregulation. They think we need to pay attention to that.
    The third thing I have mentioned in the testimony is the 
costs of Sarbanes-Oxley. We have done a number of studies of 
our membership, the most recent of which was a survey of CFOs 
of our member companies. We found that the costs, all end costs 
of Sarbanes-Oxley Section 404 compliance, total almost 6 
percent of net income before taxes. And this excludes companies 
that are not making money, so it's probably an understatement. 
We think that is probably an example where we can do better in 
terms of our regulation, and we offer a number of constructive 
suggestions for improving the way Sarbanes-Oxley is 
implemented.
    Finally, I wanted to call attention to the new phenomenon 
of regulation through litigation. The practice involves the 
employment of private trial lawyers by State and local 
governments who conduct a coordinated litigation effort against 
an entire industry purportedly for the purpose of attacking 
serious public health and safety problems.
    We think that regulation should be accomplished, as our 
Constitution indicates, by the Congress of the United States or 
by State legislatures, not by the judicial branch. This problem 
could rise to more importance as the targets of the litigation 
go from politically disadvantaged industries like tobacco and 
firearms to the auto industry, the pharmaceutical industry and 
the food industry.
    So all in all, Madam Chairwoman, we think that we need to 
pay attention to the regulatory costs in this increasingly 
competitive global environment, because it impairs the ability 
of American firms to compete against the Chinas, the Indias and 
even the Mexicos and Canadas of this world.
    Mrs. Miller. Thank you very much.
    [The prepared statement of Mr. Duesterberg follows:]

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    Mrs. Miller. Our next witness this morning is Lori Luchak. 
She is the vice president and marketing director for Miles 
Fiberglass & Composites in Portland, OR. Mrs. Luchak is 
testifying on behalf of the American Composites Manufacturing 
Association, which is the world's largest trade association 
representing the composites industry.
    Miles Fiberglass & Composites is a family owned corporation 
founded in 1963 with plants in Portland and Oregon City. In 
2003, Oregon Business Magazine scored Miles Fiberglass one of 
the top 100 best companies to work for.
    Mrs. Luchak, we certainly want to thank you for making the 
trip to Washington, DC, this morning. The committee welcomes 
you and looks forward to your testimony.

                    STATEMENT OF LORI LUCHAK

    Ms. Luchak. Madam Chairwoman and members of the committee, 
thank you for the opportunity to testify today.
    Miles Fiberglass & Composite employs 60 employees in our 
two plants located in Oregon. Our company manufacturers 
component parts for the RV and light rail train industry. I am 
here representing the 1,000 member companies of the American 
Composites Manufacturers Association.
    Our industry supported the recent OMB initiatives to 
identify specific regulations needing reform to lessen 
unnecessary burdens on manufacturers. Of the 76 regulations 
identified by OMB and Federal agencies as justifying reform 
measures, several directly or indirectly impact the composite 
industry.
    Beyond these targeted efforts, we would like to suggest 
some general principles for rulemaking that the committee might 
consider in its oversight of their regulatory process. These 
general principles are drawn from our efforts over the years to 
work in partnership with the government agencies to protect the 
health of our workers and neighbors.
    First, industry and other stakeholders should be given a 
seat at the table very early in the development of any 
regulation, policy or determination. Stakeholders often have 
data on feasibility, health impacts, control options, energy 
use, cost and other factors, or can readily develop such 
information that can play a key role in shaping the early 
development of rules, policy, or determinations. But too often 
we find that agencies are already well along the way before 
they sit down with us and start accepting our input. At this 
point, agencies have spent months or years developing narrow 
approaches based on lesser-quality data, analyses, viewpoints 
and assumptions.
    Our information, if brought into the development process 
from the start, can result in better decisionmaking and more 
efficient regulatory development. When stakeholders are brought 
in only late in the development process, we run the risk that 
the agency will argue that it is not able to consider our 
suggested alternative approaches because their regulatory 
schedule does not allow them to back up and collect the 
necessary data or do the needed analysis in time for the 
required decision.
    Second, development of rules, policy, guidance or 
determination should be managed transparently. By this we mean 
that all the data and analyses that may be relied on by an 
agency should be made available for stakeholders' review as 
early as reasonably possible. Further, all decisionmakers and 
peer reviewers who may be involved should be identified and 
stakeholders allowed a reasonable opportunity to present data 
analysis and other information to these decisionmakers and 
reviewers. There should be no black boxes; that is, no data or 
decisionmaking processes that are not open to at least some 
level of reasonable stakeholder input.
    Agencies often argue that the integrity of the system 
requires them to keep stakeholders less involved; however, we 
believe the opposite is true. Without the opportunity for a 
meaningful and open stakeholder involvement, the integrity of 
the decisionmaking process is often compromised.
    Third, regulatory agencies should embrace the use of best 
quality data at every stage of developing rules, determinations 
or policies. This should include internal checks on data 
quality as well as timely opportunities for stakeholders to 
informally appeal quality decisions before poor quality data is 
used to prepare and justify preliminary or draft agency 
decisions. Finally, agencies should be more willing to take 
responsibility for full economic and societal impacts of 
regulatory actions and determinations.
    Efforts by regulators and government health scientists to 
consider the economic, competitive and other broad impacts of 
proposed rules, policies or determinations are often precluded 
by narrow program objectives, or are no more than meaningless 
``check the box'' responses to OMB or congressional directives 
completed after the key decisions have been made. These impact 
assessments can be difficult and time-consuming, but actions 
promulgated without considering these impacts can needlessly 
result in severe damage to our ability to make products and 
provide employment.
    To summarize, our experience has shown that adoption of the 
following principles would result in a more effective 
partnership of government and industry to protect the public 
health: A seat for stakeholders at the table early in the 
regulatory process; a transparent development process, with 
stakeholders given a reasonable opportunity to present data and 
discuss regulatory options; a clear commitment to using the 
best available science and making decisions with an opportunity 
for stakeholders to point out where they believe the commitment 
is not being fulfilled; a meaningful commitment to understand 
the economic and societal impacts of all decisions before 
decisions are made to pursue them; and improvements in the 
openness of the scientific health assessment processes of the 
Federal agencies, and efforts to coordinate their reviews and 
avoid overlap and duplication.
    These are the principles that in our small way we are 
attempting to express and promote in our interactions with 
these regulatory agencies in the context of specific ongoing 
assessments and regulations about which we are concerned. 
However, we hope that because these principles are of a wider 
scope, they may be helpful to the committee in framing its 
oversight and any possible legislation or guidance to the 
regulatory agencies and the administration as a whole.
    Our industry is proud of our record of working both 
independently and in partnership with regulatory agencies to 
protect the health of our workers and neighbors. Our industry 
sponsored a thorough review of health risks by the Harvard 
School of Public Health in 2002, and we comply with the 
recommendations made by the Harvard panel. Our industry also 
voluntarily negotiated with OSHA to establish a recommended 
occupational exposure limit well below the official OSHA limit. 
And we continue a 15-year, $15 million history of conducting 
state-of-the-art research to make sure we fully understand the 
health risks that may result from our operations.
    I appreciate the opportunity to deliver these comments to 
you today, and we would welcome any requests by this committee 
for assistance in helping to improve the regulatory climate for 
manufacturers in America while still protecting the health of 
our employees and neighbors.
    Thank you very much.
    Mrs. Miller. Thank you so much.
    [The prepared statement of Ms. Luchak follows:]

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    Mrs. Miller. And our last witness today is Sidney Shapiro, 
distinguished Chair in law at Wake Forest University. Mr. 
Shapiro is testifying on behalf of the Center for Progressive 
Regulation, which is an organization for which he is a member 
of the board.
    The Center for Progressive Regulation is a nonprofit 
research and educational organization of university-affiliated 
academics with expertise in the legal, economic and scientific 
issues related to regulation of health, safety and environment.
    Mr. Shapiro.

                  STATEMENT OF SIDNEY SHAPIRO

    Mr. Shapiro. Thank you, Madam Chairwoman. Many Shapiros, 
but I am a Shapiro.
    For the last several years, OMB has invited nominations of 
regulations that should be reformed. Lately it sought to 
justify this process on the ground that regulation makes U.S. 
business less competitive. The scholarly literature, however, 
provides little or no support for the conclusion that such a 
tradeoff exists.
    Academic scholarship has focused on the impact of 
environmental regulations on plant location decisions and on 
trade flows. Neither type of study supports a link between 
regulation and competitiveness. The leading study in the field 
states that there is ``overall, relatively little evidence to 
support the hypothesis that environmental regulations have had 
a large adverse effect on competitiveness, however that term is 
defined.''
    This result should not be surprising for two reasons. 
First, compliance costs are only a very small percentage of the 
total value of shipments made by manufacturers. Pollution 
abatement costs, for example, average less than 1 percent of 
the total value of manufactured goods in the United States. 
Industry sectors with high abatement costs pay less than 1\1/2\ 
percent of the value of shipments. Second, many claims about 
regulatory costs are suspicious because they rely on cost 
estimates that come from industry sources that have an 
incentive to overstate the costs for regulatory and public 
relations purposes. OSHA itself, in its latest report, admits 
that existing economic studies do not establish a 
competitiveness regulatory tradeoff. Its response is that 
manufacturing industries have disproportionately higher 
regulatory costs than other industries. But manufacturers are 
also responsible for a larger portion of the environmental and 
occupational safety and health problems in the country.
    The government should look back at existing regulations, 
but this should be done as part of an overall priority-setting 
process that includes an evaluation of when and whether 
additional regulation is also necessary and appropriate. 
Instead, OMB's process unbalances how regulatory priorities are 
set in the Federal Government in favor of the pet projects of 
certain industries.
    While 85 percent of the reform nominations were made by 
industry, as we have heard, 15 percent were submitted by public 
interest groups. But on the final list approved by OMB, 97 
percent of the reforms were industry-sponsored, and a paltry 3 
percent were from the public interest community.
    Instead of an ad hoc process, OMB should require agencies 
to consider regulatory reform requests in the context of an 
agency's annual regulatory plan. This plan gives an agency the 
opportunity to place such requests to modifying regulations 
within the hierarchy of all agency business and give 
appropriate priorities to all agency business.
    OMB also seeks to justify its nomination process as 
necessary to protect the small business community. While the 
small business community is deserving of special consideration 
from regulators, it already receives such consideration through 
existing exemptions and protections. More importantly, perhaps, 
very few of the final OMB hit list recommendations appear to 
address small business concerns. Of the 71 final reforms, only 
11 purport to focus at all or in part on small business.
    Finally, no one should object to an effort to make it less 
costly to meet existing levels of regulation, assuming that the 
changes lead to the same level of regulatory protection. Some 
of the nominations address this objective. Many of the 
nominations, however, seek to reduce the level of regulatory 
protection of people and the environment.
    At the same time, OMB has almost entirely disregarded the 
nominations and ways to improve such protections as I have 
stated earlier.
    I thank you for the opportunity to testify.
    Mrs. Miller. Thank you very much.
    [The prepared statement of Mr. Shapiro follows:]

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    Mrs. Miller. I have a question for Ms. Luchak, if I might. 
I was interested to hear you speak for the need for 
transparency from some of the agencies as they are going 
through their process there. And I thought you were sort of 
indicating that some of these decisions are essentially being 
made almost behind closed doors, I suppose, when they are 
bringing forth all the different information gathering. It 
certainly creates uncertainty, I would imagine, for your 
industries and others.
    Do you think that the process negatively impacts your 
ability as an industry to be creative--I am sure you are always 
very innovative and looking for new processes and new types of 
products within your industry. Does rulemaking impact that 
negatively by not having transparency about the kinds of things 
they are looking for?
    Ms. Luchak. Yes. I believe that we know our industry is the 
best, and there may be input that we could provide before they 
get well along the way that could, you know, be very helpful 
in, you know, making up a rule. I know with Title 5, you know, 
the first thing they thought of was putting after-burners on, 
but within our industry, we knew there was a lot of other 
things that could be done, like low styrene resin is possible, 
which did come about. Controlled spray really reduces 
emissions. There are a vast amount of things that you can do 
that--you know, just by not being in the industry you would be 
unaware of.
    Mrs. Miller. Thank you.
    Dr. Duesterberg, if I could, and as we talked in this 
subcommittee hearing today, we keep going back to the 22 or 23 
percent of the structural costs for the manufacturing industry 
in America, and a lot of different dynamics, as you mentioned, 
are in that study, certainly, besides regulation. And you 
mentioned here that regulation by litigation is sort of a 
creeping phenomena, and I think you said that you have had some 
experience, I guess what I am asking, if you could cite 
examples, are there some States that there are locals, 
municipalities, that are actually hiring these trial attorneys 
to try to rulemake themselves in this way? That's the first 
time I have really heard of this phenomena, as you say, 
regulation by litigation. So I am interested to know what you 
mean by that.
    Mr. Duesterberg. Well, the gun industry is the current 
target. There have also been cases with regard to the food 
processing industry, which you mentioned. There have been cases 
with regard to the pharmaceutical industry as well.
    The point that we would like to make is simply that this 
bears a lot of scrutiny on the part of the Congress. None of 
the gun industry suits so far, as far as I know, have 
succeeded. None of the fast-food industry cases, as far as I 
know, have succeeded. But there's a lot of money on the part of 
the trial bar to invest in cases like that, and they are so 
investing.
    So I think it just bears watching on the part of the 
Congress, especially since I believe it involves the 
jurisdictional issue, if you will, that you should be aware of.
    Mrs. Miller. I appreciate that. Actually the House did pass 
some legislation in regards to the gun industry, as you were 
speaking of that. And in regards to the food industry, I think 
we call it the cheeseburger bill, where you had a--we had quite 
a bit of consternation, certainly expressed on behalf of the 
restaurant association.
    You also mentioned different regulatory costs associated 
with several key elements. You mentioned energy, 
telecommunications, corporate governance. I am just wondering, 
of the three, do you have any idea of or observation of which 
of them you think might present the greatest challenge to the 
manufacturing industry?
    Mr. Duesterberg. Well, Assistant Secretary Frink mentioned 
Sarbanes-Oxley. That's certainly on the radar screen of almost 
every senior management executive today, because they are 
having to come into compliance, and it's taken a good deal more 
of their effort and time than they had anticipated, as well as 
money. And also the guidance given by the PCAOB and the Big 
Four audit firms has been internally inconsistent, and so they 
frequently will have problems knowing exactly what the standard 
is that they are supposed to meet.
    But that being said, I think the other major issue is 
natural gas costs. We have tripled natural gas costs in this 
country since the late 1990's. Again, it's partly because of 
the increase in demand, but demand use in natural gas was 
favored for a number of regulatory actions; production was 
constrained.
    There are certain industries, chemicals, plastics, glass, 
paper, fertilizer industry, which have been severely hit 
because they use some gas as a heat source, but also as a 
feedstock in many cases. This is an issue that I think can be 
addressed, and there are ways to meet the increased demand. 
There could be substitution, for instance, of other energy 
resources for electricity production, because one of the major 
areas of increase for natural gas use has been in the 
production of electricity. So if we could figure out ways to 
move electricity into other sources, both traditional like 
nuclear and coal, but nontraditional wind energy, for instance, 
as well, then that would be very helpful to this case. And I 
mentioned the regulation of the siting of LNG import facilities 
is something we think could be of immediate assistance.
    Mrs. Miller. Well, the energy bill, as you know, will be 
coming to the floor of the House, I think, next week, perhaps, 
I am not quite sure, but soon, and it's interesting, as you 
mentioned--I know we are talking about regulation today, but in 
my State of Michigan, I don't think we have had a new 
electrical grid built there for over 20 years because of some 
of the different situations that we have had.
    In fact, again, I know we are talking about regulation, but 
my final question would be to you, you did mention about a lot 
of the different challenges from some of the other countries, 
China, India, some of these emerging nations, with their 
manufacturing sector. In Michigan, actually, our largest 
trading partner is Canada. It's our largest trading partner. We 
have a lot of consternation about how NAFTA is being enforced.
    I just wonder as an association whether or not you have any 
observations about some of the trade agreements that we have, 
how that might impact some of the regulatory burdens that we 
have, or if you have taken any positions on some of the 
upcoming trade agreements, or generally are we enforcing our 
trade agreements as we should be?
    Mr. Duesterberg. Well, we are generally in favor of trade-
opening measures. That being said, it is important for our 
trading partners to enforce the obligations which they take on 
in joining these agreements. That has not always been the case. 
We focused a lot on China because it's the growing source of 
competition, and there are clear examples which the Trade 
Representative chronicles each year; it took 60 pages, I think, 
to go over China in their annual report to the Congress. They 
haven't enforced their intellectual property rights, some of 
the rights of companies to set up operations, distribution 
operations and the like.
    With regard to Canada, I don't have any specific examples 
where I think there is a major issue there. There are irritants 
of all sorts, but these are being litigated through the NAFTA 
dispute settlement procedures and sometimes the WTO. So I think 
we are addressing those issues that we had with Canada. We 
should probably be doing more to address issues with China and 
some of the other trading partners.
    Mrs. Miller. Thank you.
    I will recognize the ranking member, Representative Lynch.
    Mr. Lynch. Thank you, Madam Chairwoman. I just want to 
thank each of you for your testimony here this morning.
    Dr. Duesterberg, actually, I am right in the middle of a 
process now trying to get an LNG facility, an offshore 
facility, approximate to Boston Harbor, which I represent, so I 
can certainly understand and agree with your assessment of that 
whole process. It's been painful.
    Ms. Luchak, I think you have come up with some very solid, 
rather straightforward proposals in terms of having a seat at 
the table early on, and having a transparent process, and 
having accurate information, things that I believe could really 
help this process, and I want to thank you for taking your time 
to testify today, and I think you added a lot to the hearing.
    Mr. Shapiro, I do want to ask you a couple of questions. As 
someone who worked, has worked, for 20 years in the 
manufacturing industry, isn't there a reason that I heard a lot 
of complaints today, or concerns today, about the heavy level 
of regulation in manufacturing? But considering my 
surroundings, when I worked at U.S. Steel and Inland Steel, and 
working at blast furnaces, and even working at, you know, a 
General Motors facility, isn't there a reason that, you know, 
the regulations regarding worker safety and environmental 
impact are targeted in some respects more to manufacturing than 
to clerical or any other industries?
    Mr. Shapiro. Certainly, Congressman, it is among our most 
dangerous industries in terms of occupational health and 
safety, along with logging and construction. And that's 
actually part of a more general problem.
    Certainly these cost figures are overwhelming. They are 
staggering, indeed, when you look at the amount of cost of some 
regulations, and that should give us pause. And if we can find 
cheaper ways to do things, by all means we ought to do it. But 
under an economic methodology, one would also have to look at 
the benefits which are generated by these regulations, and 
that's the trouble with these figures about how much money the 
manufacturing industry is paying in terms of regulatory costs. 
You also have to compare that to the regulatory benefits.
    Now, OMB, in its draft 2005 report to Congress, totals up 
aggregate benefits of all regulation and aggregate costs. And 
aggregate benefits, OMB says, are somewhere between $12.6 and 
$108 billion as against the regulatory costs of $3.8 to $4 
billion. So there's enormous aggregate benefit that the 
American public and the environment get from these regulations. 
Now, that doesn't mean that individual regulations are 
necessarily reasonable or sensible. We do need to look at 
individual regulations. But over all, we get enormous benefit 
for these many, many dollars that we also have to pay.
    Mr. Lynch. Thank you.
    The last question, actually, follows up on that. We are 
responsible here with trying to assess what the costs and 
benefits are, and a lot of the information that we get in terms 
of studies and reports are somewhat outdated, and I spoke of 
that with the earlier panel. This Crane and Hopkins study, I am 
not sure if you are familiar with that.
    Mr. Shapiro. Yes.
    Mr. Lynch. It is one of the older ones. Do you agree 
because they are the ones you speak of who make this aggregate 
cost estimate, do you see underlying problems with that 
particular study?
    Mr. Shapiro. This is very hard to do. OMB itself does a 
Herculean task to try to report to the Congress each year its 
own costs and benefits, and in the course of doing that, they 
explain time and time again the difficulty of coming up with 
these figures.
    Professor Hopkins' figures have been around for a long 
time, and OMB has already said that it basically can't use them 
when it itself tries to attempt to collect these costs and 
benefits, because they are drawn from various sources, and they 
are very general.
    The other problem with them is there is a group of figures 
dealing with paperwork costs, dealing with tax compliance 
costs, dealing with regulatory costs, even dealing with 
transfer costs, like farm subsidies. So it's very hard to pick 
out of these figures, for purposes of blaming one thing, which 
of these various sources are feeding into that. So I think they 
have tried to do their best, but this is at best a guess, I 
think, by them as to these totals.
    Mr. Lynch. OK. Thank you, Mr. Shapiro.
    Mrs. Miller. Thank you very much.
    I certainly again want to thank all the witnesses for their 
wonderful testimony and their input. It is a very complicated 
issue, and certainly as the committee and the Congress 
struggles forward, tries to move forward positively, we want to 
continue to create an environment where we can have--
incentivize business to invest and to create new jobs, etc., 
here in the American manufacturing industry, and we look at how 
these regulations certainly impact manufacturers, both 
positively and negatively.
    So again we thank you very, very much for your testimony, 
and with that, we will adjourn the meeting.
    [Whereupon, at 12:06 p.m., the subcommittee was adjourned.]

                                 
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