[Senate Hearing 109-206]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-206
 
       U.S.-E.U. REGULATORY COOPERATION ON EMERGING TECHNOLOGIES

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

                                HEARING

                               BEFORE THE

                    SUBCOMMITTEE ON EUROPEAN AFFAIRS

                                 OF THE

                     COMMITTEE ON FOREIGN RELATIONS
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 11, 2005

                               __________

       Printed for the use of the Committee on Foreign Relations


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                     COMMITTEE ON FOREIGN RELATIONS

                  RICHARD G. LUGAR, Indiana, Chairman

CHUCK HAGEL, Nebraska                JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island         PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia               CHRISTOPHER J. DODD, Connecticut
NORM COLEMAN, Minnesota              JOHN F. KERRY, Massachusetts
GEORGE V. VOINOVICH, Ohio            RUSSELL D. FEINGOLD, Wisconsin
LAMAR ALEXANDER, Tennessee           BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire        BILL NELSON, Florida
LISA MURKOWSKI, Alaska               BARACK OBAMA, Illinois
MEL MARTINEZ, Florida
                 Kenneth A. Myers, Jr., Staff Director
              Antony J. Blinken, Democratic Staff Director

                                 ------                                

                    SUBCOMMITTEE ON EUROPEAN AFFAIRS

                    GEORGE ALLEN, Virginia, Chairman

GEORGE V. VOINOVICH, Ohio            JOSEPH R. BIDEN, Jr., Delaware
LISA MURKOWSKI, Alaska               PAUL S. SARBANES, Maryland
CHUCK HAGEL, Nebraska                CHRISTOPHER J. DODD, Connecticut
LINCOLN CHAFEE, Rhode Island         RUSSELL D. FEINGOLD, Wisconsin

                                  (ii)

  
?

                            C O N T E N T S

                              ----------                              
                                                                   Page
Allen, Hon. George, U.S. Senator from Virginia...................     1

Duffy, Joseph E., vice president, SAP Public Services, Inc., 
  Washington, D.C................................................    51
    Prepared statement...........................................    53

Harper, Stephen F., director, environmental, health and safety 
  policy, Intel Corporation, Washington, D.C.....................    34
    Prepared statement...........................................    37

Hassell, John D., director, federal and state government affairs, 
  Hewlett-Packard Company, Washington, D.C.......................    28
    Prepared statement...........................................    30

Klaessig, Dr. Frederick C., technology director, Aerosil and 
  Silanes Business Unit, Degussa Corporation, Piscataway, New 
  Jersey.........................................................    41
    Prepared statement...........................................    42

Miller, Harris, president, Information Technology Association of 
  America........................................................     4
    Prepared statement...........................................     7

Patton, Thomas B., vice president, government relations, Philips 
  Electronics North America, Washington, D.C.....................    21
    Prepared statement...........................................    24

West, Frances W., worldwide director of Accessibility Center, IBM 
  Corporation, Cambridge, Massachusetts..........................    45
    Prepared statement...........................................    47

                                 (iii)

  


       U.S.-E.U. REGULATORY COOPERATION ON EMERGING TECHNOLOGIES

                              ----------                              


                        Wednesday, May 11, 2005

                      United States Senate,
                  Subcommittee on European Affairs,
                            Committee on Foreign Relations,
                                                   Washington, D.C.
    The subcommittee met at 2:43 p.m., in room SD-419, Dirksen 
Senate Office Building, Hon. George Allen, chairman of the 
subcommittee, presiding.
    Present: Senator Allen.

   OPENING STATEMENT OF HON. GEORGE ALLEN, U.S. SENATOR FROM 
                            VIRGINIA

    Senator Allen. Good afternoon to everyone. Welcome. I am 
sorry we are a bit late. We had a vote on the Senate floor. It 
is actually fortuitous it was at the beginning of the hearing 
as opposed to in the middle of it. I thank all of our witnesses 
for appearing this afternoon.
    I am calling this hearing of the Foreign Relations 
Subcommittee on European Affairs to order.
    We will be examining this afternoon how the United States 
and the European Union are regulating emerging technologies. 
Today we will be examining how the United States and the 
European Union can work together--where we are, and where we 
may not be working together. We need to cooperate to ensure 
that future advancements and innovations and technology are not 
stifled by overzealous or unnecessary government regulations, 
whether European or American.
    The United States and the European Union have the largest 
bilateral trade relationship in the world, accounting for about 
37 percent of the value of global trade in goods and about 45 
percent of the world trade in services. It is unique not only 
because of its size and complexity, but also because it is one 
of the very few where both sides benefit immensely from this 
trade relationship. Making the effort to consult with each 
other prior to any new regulations becoming law, I believe, is 
a key element in keeping this trade and investment relationship 
beneficial and productive. Both the U.S. and European economies 
are so dynamic, so fast-moving, that changes enacted to 
either's regulatory system without prior consultation could 
hinder future commerce, investment, and job creation.
    I will give you another example, not in commerce but in law 
enforcement. We had a hearing this morning in the Commerce 
Committee on the issue of spyware and combating illegal spyware 
applications, which hinder and impede the enjoyment of the 
Internet and computers, whether at home or in businesses. To 
the extent that we are going to be able to combat this illegal 
burden of spyware, it cannot just be the United States. We need 
our friends in Europe to be close partners in this effort, as 
much as we are close partners in combating international 
terrorism.
    Now, nowhere is this close and consistent cooperation more 
important than when we are advancing, addressing, and actually 
embracing new technologies that emerge seemingly every month. 
Innovation and technology development have been a large part of 
both the United States' and the European Union's economic 
success. In fact, a 2003 U.S. Department of Commerce digital 
economy study found that frequent users of information 
technology and the Internet are growing the gross domestic 
product at almost double the rate of less frequent users. 
Without a supportive climate or conditions that foster 
breakthrough research and technologies, neither the European 
Union nor the United States would be able to compete so 
effectively in the global economy.
    To ensure that U.S. and European companies are at the 
forefront of innovation and cutting-edge technologies, both the 
U.S. Government and the European Commission must work together 
to create a fair and free regulatory environment in which the 
technology community can continue to compete, succeed, and 
innovate.
    For example, nanotechnology is one of the areas where I 
believe government must tread carefully. I have made, along 
with a partner of mine, Ron Wyden, nanotechnology one of our 
priorities, and I want to make sure the United States is in the 
lead in nanotechnology. I recognize also that the Europeans are 
making a concerted effort in nanotechnology, as are Asian 
countries as well. Ron Wyden and I held the first hearing on 
nanotechnology, on this emerging science, which I think is 
going to forever change the way we approach scientific and 
engineering challenges. We created the first bipartisan, 
bicameral Congressional Nanotechnology Caucus. We authored the 
21st Century Nanotechnology Research and Development Act, which 
authorized appropriations for long-term investment in the 
multifaceted fields of nanotechnology. I know we have a witness 
from Hewlett-Packard who is very strong in nanotechnology, as 
are other companies, as well as colleges and universities.
    Now, this field of science, nanotechnology, is quickly 
transforming almost every aspect of our world and is already 
significantly improving our quality of life. That is why it is 
important that we have cooperation with our international 
partners in this field as it continues to develop. It is my 
hope that United States and European regulators can work 
cooperatively to provide the needed safeguards and parameters 
of nanotechnology research without burdening scientists with 
needless bureaucratic constraints nor limiting innovation.
    In copyright areas, we need to be working with our European 
friends to make sure traditional safeguards are still relevant 
to new products and technologies. The emergence of multi-media 
products has brought into question the role of Europe's so-
called collection societies. These powerful groups are 
authorized by law in most European countries to assign a tax or 
levy to equipment that can be used to copy commercial products 
like compact disks or movies. The revenue raised by collecting 
these taxes or levies is used to compensate copyright holders 
for the unauthorized copy of their work. The development of 
levies on digital media and equipment has resulted in a 
significant increase in the levies collected by European 
countries. The Business Software Alliance has found that 
increases in levies, coupled with a wider range of products 
subject to these charges, will result in a three-fold increase 
by 2006, compared to the levies collected in 2002.
    The fact is there are more choices available to consumers 
in terms of how they access media content and information than 
any other time in our history. The ability to get media 
products directly from rights holders make collection of levies 
unnecessary and amount to double taxation. The United States 
needs to engage our European partners and question the 
legitimacy of these levies, given the uniqueness of today's 
media products.
    Finally, the U.S. and the Europeans must begin to harmonize 
the regulation of IT (Information Technology) accessibility for 
the disabled. I know one of our witnesses will testify on this 
matter. Suffice it to say that we do need to reach a consensus 
with Europe, and that will go a long way to establishing a 
global IT accessibility standard and would allow companies to 
focus on developing their products rather than retrofitting to 
a multitude of accessibility standards.
    Let me close by saying this, I want this country to lead in 
innovation, and I think the Europeans want to lead in 
innovation as well. Advancements in technology have 
beneficially changed our lives and the way we live our lives. 
We have more access to information, entertainment, commerce, 
and the sharing of ideas than ever before. It is vital that our 
Government work with the governments of Europe to make sure 
that regulatory demands do not stifle future innovation. We can 
be free in this country, keeping what I like to call 
Jeffersonian principles, which may not necessarily be shared by 
our European friends. But at least for commerce and jobs, it 
ought to be understood by our friends in Europe that having 
less regulation is actually beneficial for more creativity, 
more innovation, and ultimately, of course, better for the 
people whether they are in France, Germany, the Netherlands, or 
anywhere else in Europe. We do need to keep in close contact 
with our trade and investment partners to keep these regulatory 
guidelines reasonable and consistent.
    I thank all of our witnesses for being here with us today. 
I look forward to hearing your testimony.
    We have two panels, Harris Miller gets a panel of his own. 
So we will first hear from Harris. I will introduce the second 
panel after Mr. Miller's testimony.
    Mr. Harris Miller is the president of the Information 
Technology Association of America. In addition to his work at 
ITAA, Mr. Miller serves as the president of the World 
Technology and Services Alliance. He is perfect to be 
testifying here today. He created the first international 
conference on global IT public policy held in Buenos Aires, and 
he also conceived the global information security summit, one 
of the leaders from that, to bring together the private sector 
of industry and government from around the world to discuss 
information sharing in the global security arena.
    Last month, Mr. Miller represented ITAA at the 
Transatlantic High Tech Business Initiative meeting in London 
where many IT policy issues of major concern to both the U.S. 
and the E.U. comprised the agenda.
    He has served up here. He worked for former Senator John 
Durkin from New Hampshire and certainly is well qualified and 
conversant on the issues that we are facing and will share with 
us his views.
    Mr. Miller, welcome, and we look forward to hearing your 
insight and commentary for our policies on this very important 
issue.

 STATEMENT OF HARRIS MILLER, PRESIDENT, INFORMATION TECHNOLOGY 
                     ASSOCIATION OF AMERICA

    Mr. Miller. Well, thank you very much, Mr. Chairman. We in 
the IT community are very fortunate to have you holding this 
hearing today. Certainly your knowledge of IT issues is 
unrivaled in the U.S. Senate, both from your tenure as Governor 
of my home State of Virginia, which is one of the leading IT 
States in this country, and of course, your service here in the 
Senate where you have been a constant leader on all these IT 
issues. So I commend you for holding this hearing on this 
important topic.
    Also, there is such a thing as personal privilege. I would 
like to take one minute to recognize one of the staff of the 
committee, my friend, Dr. Mike Haltzel. I understand this is 
his last hearing after 11 years on the committee. Our wives 
went to college together. They were sorority sisters many, many 
years ago. And I understand Mike, after many years of service 
on the committee, is moving to the private sector, and I want 
to note that we have really appreciated working with him all 
these many years and look forward to working with him when he 
joins the private sector. So I would like to mention that.
    Senator Allen. Well, I am sorry to hear that bad news. He 
is Democratic counsel, but we work very well together. He has 
always been a gentleman, straight shooter, and we work well 
together on the many issues that we actually all agree on, 
although no one focuses on those.
    They are just not as interesting.
    Mr. Miller. Tech Daily will.
    Today's hearing, Mr. Chairman, comes at a particularly 
opportune time because, as you know, President Bush will host 
European Council President Juncker and European Commission 
President Barroso at the annual U.S.-E.U. summit here in 
Washington, D.C. on June 20th. It is very much the hope of the 
high tech community that during the summit, they will make 
these topics of ICT (Information Communication Technology) one 
of the areas they will focus on.
    Mr. Chairman, in my perspective, there are a lot of these 
issues of conflict which you identified between the U.S. and 
E.U. that make us almost like children on a beach fighting over 
small castles in the sand, utterly focused on issues which seem 
very important at the time, but what we cannot see is that the 
economic tide is rising. In the 21st century, the rising tide 
represents the developing markets, particularly China, India, 
Brazil. So here they are coming in, joining the global 
information technology community, and really posing a major 
challenge to the leadership that the U.S. and Europe and Japan 
have had during the first 60 years of the computer revolution, 
and we are not focusing on that challenge but instead fighting 
a lot of old battles.
    What is at stake? Total ICT spending is expected to grow to 
more than $3.2 trillion just 2 years from now, from just $2.4 
trillion 2 years ago. In other words, it is going to grow by 
over 30 percent in a 4-year period according to our annual 
study, Digital Planet. Asia, and China in particular, are the 
fastest growing portions of that span. In fact, China is 
growing faster than any other nation among the top 10 spenders 
on ICT.
    With this bigger challenge in mind, we were very pleased 
and privileged to work with our sister association in the UK 
called Intellect and the European-American Business Council to 
host a conference in London last month, including high level 
officials from the U.S. Government led by Ambassador David 
Gross, senior officials from the European Union and high tech 
companies from both sides of the Atlantic, to focus on how we 
resolve some of these common issues and barriers that are 
hindering both the U.S. and Europe to be more successful in 
this new age of global competition.
    What I want to emphasize, however, is that while the 
meeting went very well, I was very troubled by how long the 
list is of continued disagreements that exists between the 
sides of the Atlantic. Let me just focus on some of them.
    Technology trade--we are in the midst of a very difficult 
and contentious global round of negotiations generally referred 
to as Doha. There are major differences of opinion between the 
so-called developed economies and developing economies. Yet, 
even here the U.S. and Europe continue to disagree on some 
important technical, but yet very, very substantive issues such 
as classification of software, the status of downloadable 
products, how to best define telecommunications services. If we 
are going to really move ahead in the Doha round to break down 
some of the global barriers to global ICT trade, the U.S. and 
Europe need to get on the same page and they need to get on the 
same page quickly.
    Another topic, Internet governance. As you know, Mr. 
Chairman, this November in Tunis we are going to have the 
second meeting of the World Summit on Information Society, 
sponsored by the United Nations. We in the U.S., ITAA, and many 
of our members both in the U.S. and global operations, are 
somewhat concerned about the tenor of the discussions leading 
up to those. There clearly are people in the world who believe 
that the best way to run the Internet and to forward 
information technology is to have bureaucrats in Geneva making 
decisions about how to govern the Internet. I think that given 
that I believe about 45 percent of all Internet traffic passes 
through our home State of Virginia, you and I probably do not 
think that is a really great idea. Unfortunately, there have 
been some musings by some European Union officials which seem 
to indicate that they have at least sympathy for that argument, 
and we very much are encouraging our European colleagues and 
the European government officials with whom they deal to 
understand that the global growth of ICT is the fastest growth 
of any technology in the history of humankind. Most of that 
growth is already occurring in developing countries, and we do 
not need governments to tell us how to do it better.
    A third topic, which you mentioned in your opening 
comments, is this issue of device accessibility. The U.S. got a 
little bit out in front of the European Union on these issues. 
The disabilities community, the U.S. Government, people from 
the House and the Senate, and people from industry worked very 
hard to come up with an approach which focuses on outcomes to 
make sure that people with disabilities have access to 
information technology. We have come up with an approach that 
we think makes sense. We agreed not to focus on trying to 
dictate technologies. That is the wrong way to go.
    Right now, however, the European Union has come to look at 
these issues, and frankly, as you will hear in more detail from 
some of the other witnesses, we are concerned about some of the 
directions the Europeans seem to be headed. The most important 
outcome, however, is that we cannot end up with two sets of 
standards. We cannot do this again, particularly in the context 
of this global competition.
    The next area you also mentioned where you and Senator 
Wyden have played such a great leadership role is 
nanotechnology. We have a chance for incredible collaboration 
in this area. Also, we have a chance to avoid getting involved 
in making bad regulatory decisions that are not necessary or 
appropriate. But again, European and U.S. leaders must work 
together to avoid those kind of restrictions that could occur 
through overregulation and come up with useful ways of 
collaborating.
    The next area is information security. The U.S. and Europe 
have more at stake than any other region in the world in terms 
of information security simply because we are the largest users 
of information security. But we need to collaborate even more 
in this area. Information security, cyber security, is the sine 
qua non of the information technology revolution. So we look 
forward to more close collaboration between the European Union 
and the U.S. to make this a higher priority.
    Math and science education. Again, Senator Allen, you are 
one of the leaders on this issue. I am also very pleased to see 
that your colleague, Congressman Frank Wolf, has taken some 
very dramatic steps in the last few weeks in this area. But you 
know very well that our performance here in the U.S. 
unfortunately, as is the performance of many European 
countries, is quickly falling behind what is going on in China, 
India, and other developing countries. In 2001, for example, 39 
percent of all undergraduate degrees in China went to 
engineers. In the U.S., 5 percent of undergraduates got 
engineering degrees.
    So the U.S. and Europe again need to think about working 
together on collaborative efforts to increase student interest 
in the basic so-called STEM field, science, technology, 
engineering, and mathematics. We need to take advantage of our 
great educational systems and make sure that we turn out enough 
people to fuel the basic information technology revolution. 
People are the iron ore of this revolution. If we do not have 
skilled people, we cannot last on the battlefield.
    The next topic is telecommunications reform. Next year the 
E.U. will consider its telecommunications framework and the 
implementation of some of its 2001 directives. Similarly you 
here in the Congress have begun to assess possible reforms of 
the 1996 Telecommunications Act. We hope that you and your 
colleagues in the Congress will keep in touch with your 
colleagues in the European Parliament and the regulators here 
in the U.S. will work with the European Regulators Group. We 
must figure out ways to collaborate on moving forward to next 
generation networks, getting beyond where we are now and make 
sure that all steps are taken to promote next generation 
networks, rather than getting involved in a heavy regulatory 
model, which unfortunately has held back telecommunications 
for, lo, these many years.
    In conclusion, Mr. Chairman, we often hear China referred 
to as a waking giant. I would argue that we in the West perhaps 
are the slumbering giants. Perhaps we have been lulled into 
complacency by 60 years of unprecedented scientific and 
technological success. My simple message is we must stop 
arguing about how to build a better sand castle and focus on 
the economic tsunami headed our way from Asia, from Brazil, and 
other parts of the world which are now part of this information 
technology revolution.
    While the challenges I outlined today are important, we 
dwell on them at a price. The leaders of the E.U. and the U.S. 
must lead the way over these obstacles and assure that all 
western firms have access to the world's fastest growing 
technology markets.
    Thank you very much, and I would be glad to answer any 
questions you might have.

    [The prepared statement of Mr. Miller follows:]

                  Prepared Statement of Harris Miller

                              INTRODUCTION

    Chairman Allen, Senator Biden and other esteemed Subcommittee 
Members, I appreciate your taking time from your very busy schedules to 
hold this hearing today on the challenges facing the critical 
relationship between the United States and the European Union as it 
impacts emerging technologies, the global information economy, 
technology trade, and the overall regulatory environment for 
information technology.
    I am Harris N. Miller, president of the Information Technology 
Association of America (ITAA), representing over 380 member companies 
in the information technology (IT) industry--the enablers of the 
information economy. Our members are located in every state in the 
United States, and range from the smallest IT start-ups to industry 
leaders in the software, services, systems integration, 
telecommunications, Internet, and computer consulting fields. These 
firms are listed on the ITAA website at www.itaa.org. Many of them 
operate on a truly global basis with offices, operations, and clients 
throughout the world, including Europe.
    ITAA is also the secretariat for the world Information Technology 
and Services Alliance (WITSA), a consortium of information technology 
(IT) industry associations from 67 economies around the world, 
representing over 90 percent of the world's IT market. As the global 
voice of the IT industry, WITSA is dedicated to advocating policies 
that advance industry growth and development; facilitating 
international trade and investment in IT products and services; 
strengthening WITSA's national industry associations; providing members 
with a broad network of contacts; and overseeing the world Congress on 
Information Technology, the premier industry-sponsored global IT policy 
event, that will be held in May, 2006, in Austin, Texas.
    Before I address the specific issues at hand, it is important to 
put them into context. The E.U. and the U.S. have become like children 
on a beach fighting over castles in the sand. We are so utterly focused 
on control over our own little sand castles that we cannot see that the 
tide is rising. Unless we can refocus on our common interests and flee 
to higher ground, our sand castles, along with our future economic 
prospects in high technology, will be washed away in the surf.
    In the 21st century, the rising tide represents the developing 
economies, primarily in Asia and Eastern Europe, and especially China 
and India. While the U.S. and Europe, along with Japan, represent the 
leading nations in today's global Information and Communications 
Technology (ICT) market, China and India are gaining market share 
rapidly. These nations represent two of the fastest growing information 
economies in the world today.
    The primary reason for this rapid accession into IT global 
leadership is that unlike traditional industries, there is a relatively 
low cost of entry into the global ICT market. Along with the implicit 
efficiency and productivity afforded by technologies such as IP 
networking and high volume data storage, a commitment to leadership in 
ICT is nearly all that it takes for an emerging economy to rival 
established powers, as long as they prepare their workforce, the ``iron 
ore'' of the IT revolution.
    Despite our differences, the U.S. and E.U. are bound by a common 
heritage and common values. We believe in the democratic process, in 
freedom of expression, and in free market economies. We also share 
common interests. We represent much of the developed world. We both 
currently spend more on ICT than any other global region. We depend 
more on information technology to ``grease the gears'' of every day 
life. We are first to enjoy the productivity benefits of automation and 
the value this productivity creates for customers and shareholders.
    Similarly, the U.S. and the E.U. face many of the same challenges 
to our global leadership in information and communication technology. 
Our ICT markets are developed, and while they will continue to grow 
steadily, our companies must look to other geographies for rapid growth 
opportunities. Our comparative advantage in terms of technical know-how 
and quality performance is challenged by the developing economies cited 
above, which are anxious to use their rapidly expanding expertise in 
computers, software and networks to build larger and more sustainable 
middle class societies.
    Our common trans-Atlantic dilemma is determining how to build these 
distant markets without tearing down our own. And our shared commitment 
to democracy and a civil society constantly pushes us to seek public 
policy solutions that balance the need to protect profits and privacy, 
national security and commercial practice, including, most often, 
keeping government out of the way.
    Meanwhile some countries--and China, unfortunately, continues to be 
a prime example--seek to protect their domestic markets from potential 
trading partners and focus primarily on gaining access to other 
people's markets with little reciprocation. With that in mind the U.S. 
and the E.U. must resolve our minor differences--quickly.
    What's at stake? Total ICT spending is expected to grow to more 
than $3.2 trillion by 2007, from $2.4 trillion in 2003, according to 
the latest study on global ICT spending published by WITSA, Digital 
Planet 2004. Asia, and China, in particular, represent a growing 
portion of that spend. Among the top ten nations in ICT spending, China 
is projected to be the fastest growing, with a compound annual growth 
rate of 13.9 percent during the years 2003 through 2007. They will be 
6th fastest among all nations, including many in the developing world 
that are starting from near zero. India, meanwhile, ranks tenth in 
growth overall at 13.44 percent.
    For the U.S., overall exports to China have increased dramatically 
since China joined the WTO in 2001.\1\ U.S. exports to China totaled 
$35 billion in 2004, close to double the total for 2001. In fact, from 
2001 to 2004, U.S. exports to China increased nearly 8 times faster 
than U.S. exports to the rest of the world. As a result, China rose 
from our ninth largest export market in 2001 to our fifth largest 
export market in 2004.
---------------------------------------------------------------------------
    \1\ Statement of Charles W. Freeman III Assistant U.S. Trade 
Representative of China Affairs, Office of the U.S. Trade 
Representative, Committee on House Ways and Means, April 14, 2005.
---------------------------------------------------------------------------
    While the opportunity within Chinese borders is clear, it is hardly 
free to all corners. To put it succinctly, China is not playing by the 
rules of global trade, and in fact, may be trying to change the game 
entirely. For example, China's implementation of its WTO commitments 
has lagged in areas in which the U.S. and Europe have competitive 
advantage, particularly where innovation or technology plays a key 
role. Their recent proposal to have a ``buy China'' policy for software 
purchased by the Chinese government is one extremely unfortunate 
example.
    With so much in common, the U.S. and must work together through our 
respective governments and industries to address what are--in the 
greater context--small problems. To that end ITAA, and its sister 
association in the United Kingdom, Intellect, along with the European 
American Business Council, recently hosted a conference in London 
between high-level industry and government officials. Ambassador David 
Gross led the U.S. government delegation and did an excellent job 
explaining the challenges and opportunities from the U.S. government 
perspective. Officials from the European Union and from the U.K. 
government joined us.
    Our objective was to discuss ways to advance our common interests 
and further what must be our common purpose: the delivery of 
information technology to solve the world's most pressing problems in 
security, healthcare, education, environmental protection, law 
enforcement, and economic development. At the end of those talks, we 
committed to continued cooperation in a public declaration, which I 
have attached to my statement. We will continue to work together and 
with our respective governments to contribute to resolving these 
issues. However, I would like to emphasize that, from industry's 
perspective, the list of troubling issues was much too long for 
comfort. Too many obstacles exist between the E.U. and U.S. to permit 
the full achievements possible.
    Today's hearing comes at a particularly opportune time. President 
Bush will host European Council President Jean-Claude Juncker and 
European Commission President Jose Manuel Barroso at the annual U.S.-
E.U. summit in Washington on June 20th. Among the many other important 
issues that they discussed that day, it is my hope that these 
challenges related to ICT will be discussed with timely resolutions in 
mind.
    Now I would like to discuss several of the issues over which we can 
either continue to fuss and feud or form a more perfect foundation for 
global trade in information and communication technology.

                                 TRADE

    Technology trade is one area where the U.S. and the E.U. have much 
at stake. Though fundamentally allies, there are a number of vexing 
issues where we are at odds with one another to the detriment of 
advancing what should be our common interests. Various bilateral trade 
differences continue to hinder trade between the two economic powers 
and the liberalization of ICT services in other countries.
    Aggressive efforts to resolve these differences in a timely manner 
would spur economic activity in both the U.S. and E.U., and in the rest 
of the world for E.U. and U.S. companies, Yet instead of joining forces 
and securing improved commitments from more countries, we are engaged 
in bilateral squabbling over a number of specifics.
    For example, the Doha round of World Trade Organization 
negotiations appear to be poised to move forward, particularly in 
services. However, we disagree on the classification of software, the 
status of downloadable products, and how best to define 
telecommunication services. Movement of highly skilled people between 
the U.S. and E.U. remains difficult. And various labor laws frequently 
found in European countries--though not all member countries--continue 
to be major inhibitors to U.S. services companies expanding their 
operations in Europe.

                          INTERNET GOVERNANCE

    Internet governance is an area of particular frustration, as the 
E.U. seems to support the hasty installation of an international 
governing body for the Internet, an ill-conceived idea, if ever I have 
heard one. The issues potentially in play represent international 
regulation of the Internet in areas that extend far beyond the 
technical coordination currently exerted by the Internet Corporation 
for Assigned Names and Numbers (ICANN). Mr. Chairman, given that so 
much Internet traffic travels through your home state, you know better 
than most what a truly bad idea it would be for regulators in Geneva or 
any other location to decide the future of one of the greatest 
inventions of humankind.
    The Working Group on Internet Governance is currently considering 
recommendations for the second phase of the World Summit on the 
Information Society to be held in Tunis this November. In the Summit, 
the U.S. and the E.U. have adopted a common agenda to promote freedom 
of information internationally. But they should also jointly oppose 
efforts to move control of the Internet to government regulation from 
the global, collaborative, private sector-led approach that currently 
works so well.
    However, the E.U. appears focused on the internationalization of 
Internet governance, calling it one of the core topics besides the 
``organization and administration of naming and numbering, including 
the operation of the root server system'' and ``the stability, 
dependability and robustness of the Internet, including the impact of 
spam.''
    Through this process, we should also agree to take steps to 
encourage the widespread deployment of broadband, RFID (radio frequency 
identification), and other innovative technologies to extend the 
economic and security benefits of ICT, again, without heavy handed and 
unnecessary government interference. Instead, the E.U. has initiated a 
privacy review of RFID that, by its very nature, creates uncertainty 
and dampens the widespread adoption of this critical technology. 
Finally, we should redouble our efforts to promote telecommunications 
liberalization, which continues to produce positive results in 
countries that adopt it.

                             NANOTECHNOLOGY

    Common technology policy interests and objectives are difficult 
enough to establish between global regions when technologies are well 
understood and their applications accepted. In many technical areas, 
however, we stand at the threshold. The possibilities are vast and the 
outcomes unknowable. Nanotechnology is one such area. Even as we 
struggle to understand the broad outlines of what this field entails, 
countries are rushing to claim leadership in nanotechnology expertise.
    The Organization for Economic Cooperation and Development (OECD) 
estimates that over 30 nations have funded nanotechnology research 
programs. The OECD goes on to report that between 1997 and 2000, 
nanotech research and development (R&D) funding jumped from 
approximately $114 million to over $210 million in the E.U., $102 
million to $293 million in this country, and from $93.5 million to $189 
million in Japan.\2\
---------------------------------------------------------------------------
    \2\ OECD Science, Technology and Industry Scoreboard 2003--Towards 
a knowledge-based economy.
---------------------------------------------------------------------------
    If we compare the relative positions of the U.S. and E.U. in 
nanotechnology with other regions of the world, the advantages of the 
West are enormous. We are the first movers in the marketplace. We are 
performing the bulk of the research. We have the history of productive 
collaboration between government agencies and research universities. We 
have the culture of risk capital and entrepreneur-driven innovation. We 
have the twin traditions of public domain knowledge and intellectual 
property protection. Nanotechnology is an interdisciplinary science, 
most prominently affecting industries like aerospace, biotechnology, 
defense, electronics, energy and other high tech fields. As home to 
many of the world-class corporations in these industries, the U.S. and 
E.U. have the critical mass of private sector firms with the ability 
and incentive to support both nanotechnology research and to provide 
investment capital.\3\
---------------------------------------------------------------------------
    \3\ J.S.A. Bhat, ``Concerns of New Technology Based Industries--the 
Case of Nanotechnology,'' Technovation, 2005.
---------------------------------------------------------------------------
    What is critical, again, is collaboration, particularly among 
leading researchers in academic institutions and laboratories, without 
unjustified interference from well-intentioned but ultimately 
interfering public officials.

                          INFORMATION SECURITY

    The U.S. and E.U. share common concerns about information security. 
If we look across the globe, we quickly see that our respective regions 
represent the most mature ICT markets. We are, therefore, the most 
reliant on their unimpeded performance. Given this reliance, 
information security means national economic security. And in an era of 
global terrorism and the possibility of cyber warfare, information 
security may mean national security itself.
    As a result, we share a common goal of protecting our information 
infrastructures from attack. This commonality of purpose entails best 
practice approaches to vulnerability assessment and intrusion 
detection, attack prevention and cyber hygiene, incident investigation 
and computer forensics and cybercrime prosecution. We advocate 
additional collaboration by U.S. and E.U. government agencies to 
achieve these goals, a process that should at a minimum incorporate law 
enforcement, intelligence, harmonized regulatory approaches, education, 
investment and appropriate statutory frameworks.
    Encouraging people to keep their cyber doors locked remains one of 
our largest common challenges, whether at home or on the job. If it is 
impractical to export cyber security awareness campaigns, certainly we 
can share the good ideas, lessons learned and insights into what works 
can be pooled and exploited for the benefit of both societies.
    Because the nature of the cyber threat is constantly changing, 
additional information security R&D by experts in both the U.S. and 
E.U. should be encouraged, funded and, where appropriate, shared.
    And I must not miss this occasion to once again encourage this 
committee and the Senate to take favorable action at the earliest 
possible moment to ratify the Council of Europe Convention on 
Cybercrime that sets a solid framework for all countries around the 
world to fight cybercrime.

                         RESEARCH & DEVELOPMENT

    Information security is not the only arena for enhanced cooperation 
in research and development. In the U.S., federal government support 
for research and development has slipped substantially. In the 
aftermath of the Soviet Union's Sputnik launch, federal R&D funding of 
basic research swelled to 75 percent of all such spending. Seventy 
cents of every R&D dollar now comes from the private sector.\4\ Federal 
R&D spending creates jobs for scientists and engineers directly and for 
professionals in business, law, accounting and many other fields 
indirectly. This support also underwrites the development of valuable 
intellectual property that, through a process of technology transfer 
from the public domain to the private sector, forms the basis of still 
more capital investment, job creation and wealth creation.
---------------------------------------------------------------------------
    \4\ John A. Douglass, R&D and the U.S. Economy: A Sputnik 
Reflection, University of California, Berkeley.
---------------------------------------------------------------------------
    Federal funding for leading science and technology government 
agencies has also slipped. Increases in the federal R&D budget will 
fail to keep pace with inflation for the first time in ten years, up in 
FY 2006 a barely perceptible 0.1 percent. Most non-defense agencies 
performing R&D will see their budgets decline. National Science 
Foundation research grants will be reduced for the second consecutive 
year.\5\
---------------------------------------------------------------------------
    \5\ American Association for the Advancement of Science, AAAS 
Analysis of R&D in the FY 2006 Budget, March 9, 2005.
---------------------------------------------------------------------------
    To turn a blind eye to R&D is to turn a blind eye to the future. 
Less government R&D means less basic research; less basic research 
means a society with less potential for innovation, inspiration and 
commercial success. Less potential translates to fewer career 
opportunities for individuals to make a difference in science and 
technology. And fewer individuals striving for breakthroughs in fields 
like aerospace, energy, the environment, healthcare, nanotechnology, 
optics, robotics and more means fewer such breakthroughs are likely. We 
will not know what we do not know--and we will not even be asking the 
questions.

                       MATH AND SCIENCE EDUCATION

    Cutbacks in R&D may already be having an impact on the science, 
technology, engineering and math education pipeline. While the number 
of undergraduate degrees awarded in the U.S. is rising, the number of 
degrees awarded to science and engineering students is falling. Between 
1985 and 2000, bachelor's degrees awarded in engineering, math, 
computer sciences, physical sciences and geological sciences fell 18.6 
percent.\6\ Comparing the graduate enrollments of U.S. citizens and 
permanent residents in 1983 and 2001, totals have dropped in physical 
sciences; earth, atmospheric and ocean sciences; agricultural sciences; 
mathematics and engineering.
---------------------------------------------------------------------------
    \6\ Ibid, page 16.
---------------------------------------------------------------------------
    In China, the situation is just the reverse. In 2001, 39 percent of 
all undergraduate degrees awarded in China went to engineers; in the 
U.S., that percentage was five percent. Almost 220,000 Chinese students 
received engineering degrees in 2001, compared to just under 60,000 in 
the U.S.\7\ India and China produce 125,000 computer science graduates 
annually, twice the number of the European Union.\8\
---------------------------------------------------------------------------
    \7\ President's Council of Advisers on Science and Technology, 
``Maintaining the Strength of Our Science & Engineering Capabilities,'' 
June 2004.
    \8\ Lachlan Carmichael, ``Blair pledges to boost Britons' skills to 
compete with China, India,'' Agence France Presse, April 28, 2005.
---------------------------------------------------------------------------
    Collaborative efforts to increase student interest in the basic 
STEM fields--science, technology, engineering, and mathematics--is 
certainly a worthy topic of discussion between the U.S. and the E.U.

                       TELECOMMUNICATIONS REFORM

    Both the U.S. and the E.U. find themselves at a fork in the road in 
terms of their overall telecommunications regulatory environment. Next 
year, the E.U. will consider its telecommunications framework and the 
implementation of the 2001 directives. Similarly, Congress has begun to 
assess the 1996 Telecommunications Act and consider possible revisions. 
We call on the Federal Communications Commission and the European 
Regulators Group to initiate a collaborative dialogue and work towards 
``light touch'' regulatory approaches that emphasize competition, 
innovation, capital investment and market demand.
    Sadly, instead of making common cause, the U.S. and E.U. appear to 
be at loggerheads over fine-grained aspects of telecommunications trade 
policy. The WTO Doha negotiations, particularly in the area of 
services, appear to be poised to move forward. Yet instead of joining 
forces and securing improved commitments from more countries, we are 
engaged in bilateral squabbling over a number of specifics. For 
example, the E.U. has proposed a new definition of telecommunications 
that many companies feel will allow countries to slide on previous 
commitments. Rather than introducing new, controversial mechanisms, the 
E.U. and the U.S. should jointly encourage new and better commitments 
from all countries.

                          DEVICE ACCESSIBILITY

    If we are truly committed to building ICT markets that promote 
values like competition, innovation, and capital investment, the U.S. 
and E.U. should likewise avoid implementing disparate standards, 
particularly in the area of device accessibility. Technology should be 
used aggressively to help seniors and those with disabilities live 
fuller, richer lives. Government mandated technical specifications for 
device accessibility create rather than eliminate barriers to swift 
deployment.
    ITAA is proud to have played a major role in the formation of the 
provisions incorporated in the ``Electronic and Information Technology 
Accessibility Standards'' in the U.S. Some of ITAA's member companies 
were represented on the Access Board's Electronic and Information 
Technology Accessibility Advisory Committee that formulated the 
standard that underlies section 508. ITAA consulted with members, 
drafted and submitted industry comments on the regulation during its 
development, and facilitated alignment between the positions of the 
government, industry, and the stakeholder organizations in the 
community of people with disabilities. We consider this alignment 
between the parties concerned with ICT accessibility to be of 
significant value. We hope that as Europe looks at the topic of ICT 
accessibility, they will consider the principles underlying the 
approach taken in the U.S. standard.
    Unfortunately, however, they seem to be heading in a different 
direction, a direction that will end up with companies having to face 
two different worlds--one in the U.S. and one in Europe--and that will 
ultimately lessen the ability of companies to improve accessibility for 
individuals with disabilities.
    We are pleased that the U.S. Commerce Department is currently 
participating in the U.S.-E.C. ICT Standards Dialogue in an effort to 
steer clear of mandated technical specifications. When governmental 
bodies adopt accessibility requirements for government ICT purchases, 
these requirements should strike an appropriate balance between 
encouraging the design, development, and provision of products and 
services that address accessibility on one hand, while ensuring that 
accessibility requirements do not impede the rapid advancement of 
information technology.
    Thus, ITAA is a champion of performance-based, open standards 
intended to facilitate innovation and desired outcomes. We believe that 
the U.S. and E.U. must work towards a single, global standard that 
reflects these values and gives all users of information and 
communications technology the ability to enjoy its maximum benefits.

         CONCLUSION: FROM COMMON GOALS TO COLLABORATIVE ACTION

    We often hear China referred to as a waking giant. The commitment 
of the Chinese government to a national technology policy and to 
leverage comparative advantage in science and technology for global 
competitive advantage strongly suggests that the giant is not only 
awake but on the move. I would argue that we in the west are the 
slumbering giants, perhaps lulled into complacency by 60 years of 
unprecedented scientific and technological success.
    The U.S. and E.U. need to assess systematically those aspects of 
their public policy that have nurtured high tech innovation and 
investment, and those which have lost effectiveness in light of the new 
competitive reality.
    Instead of looking for areas to regulate, I strongly encourage 
governments on both sides of the Atlantic to look to areas to 
deregulate, to remove barriers to ICT growth.
    With this knowledge, we must form a persistent collaboration 
dedicated to removing regulatory barriers, facilitating competition, 
promoting technology convergence and, through this process, 
accentuating the comparative advantages of the world's most developed 
ICT markets.
    Most of all, we must stop arguing about how to build a better sand 
castle and set our collective sights on the economic tsunami headed in 
this direction. In recent times, the U.S. and E.U. countries have 
disagreed on privacy rights, the value added tax, the definition of 
telecommunications, how to classify software, the status of 
downloadable products and other issues. We have done a terrific job 
understanding individual trees; we have done a terrible job standing 
back and viewing the global forest.
    The Information Technology Association of America is committed to 
working with counterpart organizations in the E.U. to achieve policies 
that foster growth, innovation and security. ITAA believes that U.S. 
and E.U. officials should develop a dialogue on high tech policy issues 
in keeping with these goals.

                                 ______
                                 

                               Attachment

    conclusions of the transatlantic high-tech business initiative--
  governments listening to business held on monday, april 11, 2005 at 
                     intellect's offices in london.

    There needs to be persistent collaboration between the E.U. and the 
U.S. on ICT issues. The meeting noted that the TABD (Trans Atlantic 
Business Dialogue) does not currently address ICT issues in sufficient 
detail. It was proposed that the group assembled by EABC, ITAA and 
Intellect should fulfill the function of a TABD for ICT issues (whether 
informal, or formally recognized). It was agreed that future meetings 
should be held alternately in Brussels and Washington. They must be 
held every six months if the goal of persistent collaboration is to be 
achieved. ITAA, Intellect and EABC will plan the next meeting for 
October 2005.
    We seek to have included in the forthcoming E.U.-U.S. summit a 
declaration on Information and Communications Technology. A proposed 
draft is shown below.
Proposed Draft Declaration on ICT for the E.U./U.S. Summit.
    The E.U./U.S. relationship on technology is a critical area of 
mutual importance that impacts economic security, national security and 
the interdependency of all critical sectors. U.S. and E.U. ICT policies 
must:

   stimulate investment and growth in the availability of the 
        products and services of the ICT sectors;

   support the innovations that advance these technologies;

   seek commonality in their regulatory regimes;

   assure a secure environment for their use, and

   assure continued private sector leadership of the technical 
        components of the Internet.

    To achieve this ITAA and EABC will work through Ambassador David 
Gross and Intellect will work through Fabio Nasarre de Letosa, EICTA 
and the UK Government's DTI.
    Further background on the above draft is contained in the sections 
below.
Telecommunications--The Infrastructure for a Knowledge Economy
    There is a unique opportunity to bring together the overall 
regulatory climate in the E.U. and U.S. In 2006 the E.U. will be 
reviewing the telecommunications framework and the implementation of 
the 2001 directives. Concurrently the U.S. will be drafting new 
telecommunication legislation to account for new technologies. An over 
riding principle must be the need to stimulate investment and 
innovation.
    Persistent co-operation is required between the U.S. and the 
Commission. The FCC and the ERG (European Regulators Group) need to 
link their work. There is a need for more formal and more frequent 
issue based communication. We need to decouple social and regulatory 
issues.
    The meeting was concerned at the current state of VoIP regulation 
in the E.U. Maximum possible regulatory convergence between the E.U. 
and U.S. should be a goal. One specific example is the need for a 
common mobile handset conformance testing regime. (This can be treated 
as a trade or telecoms issue).
Information Technology (IT): Enabling the Innovation Ecosystem
    The information technology environment:

   needs to have policy addressed on an urgent basis;

   is global in nature, with emerging new significant policy 
        voices (China/India);

   depends on public-private collaboration;

   must focus on the role/impact on citizens/customers/
        consumers of IT services;

   is characterized by rapid commoditisation of its 
        technologies, and

   needs to enhance role of sector as an effective employer.
Trade in ICT Goods and Services
    The ICT Trade environment needs to:

   Resolve bilateral differences on telecommunications 
        definition, software classification, inclusion of internet 
        services, and status of downloadable products;

   Promote ICT services WTO commitments aggressively, and

   Address China and India trade issues uniformly as a single 
        entity.
Further Background
    Growth:

   Government must become educated on technology;

   Regulators should commence a deregulatory review and impact 
        analysis, forbear from regulation unless clear need emerges, 
        assure multilateral consistency in any regulatory measures;

   Non-tariff trade barriers (NTTBs) must be dismantled, and

   Government's role in affirmatively fostering technology 
        innovation and investment must be expressed through tax policy, 
        intellectual property protection, h/r policies that promote 
        skilled worker mobility, role of government as customer, and 
        adherence to industry led oversight of the technical co-
        ordination of the Internet.
Technology
   Emergence of Next Generation Networks (NGNs) as primary 
        artifact (includes edge/access/mobile networks);

   Intellectual property (IP) protections must be maintained 
        and consistent, and

   Research (R&D) is the source of innovation; investment in 
        research must grow.
Security
   The sine qua non of the networked ecosystem;

   Law enforcement's role in maintaining security must be 
        supported with education, investment and statutory frameworks 
        that empower effective prosecution;

   Multilateral cooperation;

   Research investment for security must be encouraged, 
        collaborative and supported by government investment (7th 
        Framework Programme/U.S. R&D institutions), and

   Security education and awareness of all stakeholders must 
        expand.

    Senator Allen. Mr. Miller, thank you so much for your 
testimony. I am going to put your entire statement in the 
record. I know you summarized it. I would say this to all the 
witnesses. Your entire statement will be put in the record, if 
you so desire. I suspect you would not have spent time 
composing it if you did not want it as part of the record.
    Thank you for this. There are so many things that you 
brought up, and I am, as you might guess, in complete agreement 
with you.
    The education issue. Today there has been a strand of 
continuity, but just earlier today, sometime in the morning, we 
received a petition from 6,000 women concerned about the lack 
of women involved in science, engineering, and technology. It 
is just in the single digits really, maybe a little bit over 10 
percent. And then you add to the concern as to African 
Americans and Latino citizens, one of the fastest growing part 
of our work force and will be 35 percent of the workforce in 
the next 15 to 20 years. You think, well, if we are not 
recruiting or encouraging women to get involved, that is half 
of our population. If Latinos and African Americans, for 
whatever reason--and a lot of it has to do with the Hispanic-
serving institutions and historically black colleges and 
universities not having the technology infrastructure to get 
the faculty to impart the knowledge and skills to those 
students. Then they are not able to apply for and get the 60 
percent of the jobs out there which require technological 
proficiency.
    Meanwhile, our engineering schools--and thank you for these 
figures here--I understand in this country we are behind one-
fourth to one-sixth of what India or China, respectively, are 
matriculating. And then about 40 percent of those students in 
our universities in these graduate studies in technology and 
science and engineering are from overseas, which is fine. I 
want this country--I have said this many times--to be a magnet 
for the best minds in the future. You are exactly correct. This 
is what is going to help us compete and lead in innovation in 
the future.
    I want to work with you. Please, if there are any specific 
ideas that you have that you can share with us in this 
committee here this afternoon. Ideas on encouraging all 
Americans, regardless of their gender, their race, or their 
ethnicity, to get more involved, to get encouraged, to get into 
science and technology and engineering, please share them with 
us here or please stay in contact with me. I think this is one 
of the most absolutely essential challenges facing this country 
and our ability to compete and succeed in the future. I forgot 
what you called it. The gold mine?
    Mr. Miller. The iron ore.
    Senator Allen. The iron ore. Well, I do not care to call 
humans anything but gold and diamonds. Regardless, the strength 
of our country is our people and their capability. They are the 
best asset of this country and we need to make sure they have 
that ability.
    Do you have any specific ideas of what we can do to 
encourage young people in this country to engage in these key 
sciences of the future?
    Mr. Miller. Well, I certainly agree with the analysis of 
the current situation, Senator Allen. In fact, we did a study 
in 1997, before the Internet boom really took off, of women and 
minorities in the computer science field. We repeated that 
study in 2003, hoping that perhaps we would see some 
improvement, at least among women and minorities, in terms of 
percentages in the computer science field and in the profession 
of computer science. Unfortunately, there had been almost no 
change between 1997 and 2003. We are expecting to do that 
survey again either late this year or early next year. But the 
numbers are not good.
    Since you opened the door, let me make a modest proposal, 
and I will tell you where the modest proposal came from. When I 
was in India last October for a cyber security conference, I 
was invited by the chief minister of Andhra Pradesh, the 
equivalent of a governor as you were, to meet with him. I 
thought it was a typical kind of meet and greet. Here is the 
U.S. IT guy coming to meet the chief minister. He was just 
newly elected. This is a gentleman named Dr. Reddi. He is a 
medical doctor. Well, it was more than just a meet and greet. 
He actually wanted to talk for over half an hour about this 
issue of how he increased his work force.
    Now, in Andhra Pradesh is the City of Hyderabad, which is 
probably the second IT center in India after Bangalore. It is 
not quite as well known, but believe me, it is a huge and 
growing center.
    All he wanted to talk about was the shortage. So the half 
hour was up, and I figured, well, now he is going to get rid of 
me. That is enough. He said, come with me to my next meeting. I 
said, where are we going, Chief Minister? He was going to meet 
with all the vice chancellors of all the universities in Andhra 
Pradesh, which are like the presidents of our universities, the 
equivalent under the British or Indian system. I said, well, 
why do you want me to come along. He said, well, I am going to 
tell them that they have got to turn out more engineers and 
mathematicians and scientists, and I will fund every one of 
them. I said, why do you want me to come along? He said, 
because I want you to say the same thing, and they will believe 
you. They will not believe me.
    He sees his competition in Shanghai and Beijing and 
Brasilia and places that have not taken off yet, Karachi and 
Manila and other places. So even though we may sit here saying 
how far the Indians are ahead of us, he is sitting there as a 
political leader saying, I am afraid of the future and falling 
behind. So I am going to invest even more. He said to the vice 
chancellors of the universities, for every student you enroll 
in the sciences and math, I will pay for it.
    So I began to think. I said, now, we used to have a time 
like that in this country. It was called Sputnik in 1957. When 
the Soviets sent that little missile up into outer space, the 
country went into a full-fledged panic. It was part of the big 
Cold War attack, very unsettling to the American people, and we 
passed the National Higher Education Defense Act and basically 
said if you want to study science or math, the U.S. Government 
will pay for it. Many would argue that that really helped to 
grow the United States dramatically as we entered the 
engineering age, followed by the information technology age. 
But we have had nothing like that since. We had that one brief 
burst where the government stepped in and basically said we 
will educate everybody in science and math.
    Well, my modest proposal, to be somewhat ironic about it, 
is we should do it again. We really need to think about 
something that dramatic. Now, your colleague, Congressman Wolf, 
has gone part of the way with his ideas of a loan forgiveness 
program, but I would be even more radical. I would say that we 
should have a goal of doubling the number of STEM graduates in 
this country within a 5-year period, and we as a government--I 
know this is tough in tough budget times, and I know you face 
these issues every day as a Senator making allocations--we 
should say we will fund anybody who will go into science and 
math in undergraduate education.
    If my kids wanted to go school and one is studying English 
and one is studying music right now, it is on my nickel or they 
have to go get student loans or find some other way to pay for 
school. But if that student, no matter what socioeconomic 
income, no matter what race, whichever gender, wants to study 
science and math, the U.S. Government will pay for it.
    We estimate the cost at probably a couple billion dollars a 
year, so it is not chicken feed. On the other hand, think about 
the return on the investment in terms of new products, new 
revenue, because these people will become higher wage earners. 
We have all the research that shows that. More research in 
universities.
    The other thing I think that would happen, Senator--I know 
you come from a sports background, your father is a famous 
coach--is maybe the parent who is now spending all their time 
coaching their kids to play football or soccer or something 
else, because they hope they get a college scholarship in that 
area, will say, maybe I ought to coach Johnnie and Susie in 
math or science, and maybe instead of sending them to summer 
basketball camp, I ought to send them to summer science camp. 
The secondary effects would be remarkable.
    So that is my modest proposal. We are still working on 
trying to put it into more concrete terms, but I think we have 
to do something dramatic. There is no Sputnik right now, Mr. 
Chairman. There is no dramatic thing. Instead, we are kind of 
like the frog sitting in the boiling water. It is getting 
hotter and hotter, and before we know it, we are going to be 
dinner because these other countries, like the chief minister 
of Andhra Pradesh, are making those investments today. On a per 
capita basis, China is turning out two and a half times more 
engineers, not in absolute numbers, on a per capita basis. 
Within 3 years, they will be turning out three and a half times 
more engineers than we are in this country. We cannot compete 
with that kind of disadvantage in the global marketplace.
    Senator Allen. Understood. The innovations of the future, 
the intellectual property, the inventions will come from many 
of those engineers. It makes it very difficult.
    I do think kids like to be outside in the summer, though. 
Kids are kids.
    There is a measure I am working with some of my colleagues 
on the Senate side on providing scholarship approaches in 
technology and science. I do think it is important that we give 
scholarships. Of course, they are funded in athletics, which is 
fine, and the universities make a ton of money off all the TV 
contracts.
    Unfortunately, this country is reducing our R&D funding in 
aeronautics. The Europeans, our friends, whom we are talking 
about here, have a strategic plan to dominate the world by 2020 
in aeronautics. They are on the way to doing it because last 
year they sold more aircraft than the United States. The 
funding proposals are to keep cutting on the next generation or 
new vehicle systems, hypersonic flight, and all the rest.
    We do need to invest, and we do have to find ways to 
encourage students. Scholarships may very well be, the sort of 
incentive grants we need. It's the best way to go, and I 
appreciate your comments.
    Let me ask you one other question here. The Europeans 
generally seem to have a more active regulatory instinct than 
the U.S. I know you are generally in the other party than I am, 
but we both seem to have this libertarian streak to leave free 
people and free enterprise minimally limited. I hate 
restrictions and limits unless they are harming someone else.
    The Europeans seem to be more restrictive. Even the concept 
of the Internet is being somehow governed by the United 
Nations. To me this is just an abhorrent idea. This is not 
something for the United Nations or folks in Geneva need to be 
worrying about. Let individuals make those decisions. I think 
the Internet is the greatest invention since the Gutenberg 
press for the dissemination of information and ideas, and the 
last thing we need is regulatory reform.
    You can take the example of Martin Luther in Germany, the 
Church at Wittenberg, where he nailed his 95 theses. People 
would not have read those but for the Gutenberg press getting 
it disseminated. So that is another reason, just historically, 
you do not want government regulations.
    Some have viewed the European Commission position--and it 
ends up depending on the industry to thinking that the 
government is the best capable of setting parameters and 
standards. My general view is that I would like to have the 
industry, the people in the private sector, saying here is our 
standard. This applies not just to the U.S. and E.U. It ends up 
with China as well because if China comes up a different 
standard, that fouls all of us up.
    How does the industry look at this approach, or the 
propensity of the Europeans to be looking at government setting 
standards, as opposed to those in private industry? Is that a 
legitimate concern?
    Mr. Miller. It is. While I think there are many people in 
the European Union who do understand the value of having the 
marketplace make these decisions, there are others in the 
European Union and some of the European Union member states 
which still do have a very regulatory approach. The 
implications for Europe are fairly clear.
    When I was in London recently, for the meeting I mentioned, 
there was also a meeting hosted by my good friend, Mike 
Maibach, the head of the European-American Business Council. He 
brought in a research firm who had been studying the impact of 
the European approach versus the U.S. approach in terms of ICT, 
a firm called Indepen. They gave a report to the group at an 
event that he hosted. It showed that the European Union--this 
is counting the original 15 member states, before the accession 
of the additional 10--that ICT was only 5.8 percent of GDP, 
whereas in the U.S. it is 6.3 percent of GDP.
    Senator Allen. Say that again. What are you measuring here?
    Mr. Miller. Gross domestic product. In the U.S., IT is 6.3 
percent of GDP. It is 5.8 percent in Europe, half of a full 
percentage point, which is a huge amount.
    In another metric, the ICT investment in terms of all 
investment in Europe is only 18 percent; whereas, in the U.S., 
it was 29 percent. So there is a lot more investment by 
customers of IT in the U.S. as opposed to what is going on in 
Europe.
    And in terms of perhaps the most important economic factor 
that economists look at over time, which is labor productivity 
growth, because at the end of the day, you cannot grow an 
economy unless you get productivity growth, ICT contributed 42 
percent of labor productivity growth in Europe during the last 
half of the last decade, while it contributed 80 percent of 
labor productivity growth in the U.S.
    So, the short answer to your question is the European Union 
attitude is not just sometimes creating difficulties between 
Europe and the U.S.; it is actually, I would argue, even 
hurting Europe itself.
    I will tell you, this is not a European policy, but some 
nation states in the European Union, as you know, have very, 
very restrictive labor mobility laws. It is very difficult to 
dismiss someone, to use the nice terminology, to downsize, to 
right size, whatever the terminology is. Well, the implication 
of that is if you are an IT services firm--and you have many of 
them headquartered with very, very significant operations in 
northern Virginia, and you know them all very well, and some 
will be testifying on the next panel--you basically have to be 
out of your mind to open a facility in some of those countries 
in Europe because your whole business model is that when things 
are going well, you hire more people, and when things are not 
going quite so well, you have to have the flexibility to lay 
some people off. That is your whole business model. Your assets 
are those people. Sometimes business is good, sometimes 
business is not so good.
    Another event I attended while I was in London, at an event 
hosted by our sister association, Intellect--I was very busy in 
London--was a presentation by a research group called Ovum. One 
of the speakers noted that he had clients in one particular 
country, France, where they were having to accept clients 
paying only 30 percent of their normal labor fee because they 
had to get some cash in the door because they could not fire 
these people. They could not lay them off. They could not do 
normal kind of business activity. Those clients, of course, 
were very seriously looking at pulling out of that country.
    Now, that does not help the workers in that country. It 
does not help the users of IT in the country. It does not help 
the French economy to have leading IT companies, whether they 
are European or U.S., saying I do not want to do business here 
because of bad, restrictive, unnecessary labor mobility laws. 
We understand the need to protect the rights of workers. That 
is not the issue, but the issue is in a services economy, the 
IT economy, you have to have flexibility.
    So having said all that, I would still say the European 
Union officials here in the U.S. and Europe are always willing 
to meet with us. We do have a lot of dialogue going on, 
Senator. So I do not want to claim that there is no dialogue 
going on, but I think we still have a long way to go to get on 
the same page.
    Senator Allen. Let me finish with this question. We have to 
finish with something positive. Can you give me an example of 
where this cooperation has actually been beneficial? Every once 
in a while, if you find those sort of approaches, that can be 
the model for future discussions and cooperation.
    Mr. Miller. I think there are a lot of very positive 
conversations going on in the research and development area in 
various areas of IT between the U.S. and Europe, and more and 
more joint research projects are being set up. I think that has 
been an area that has been very, very positive and is moving 
forward.
    Senator Allen. How about on standards?
    Mr. Miller. On standards we are making some progress, but 
again, the Europeans still tend to bend a little bit toward 
government knows best or locking in technologies as opposed to 
locking in outcomes and letting the industry come up with them.
    Yes, there is some good dialogue going on. After all, the 
telecommunications system does work between here and Europe. 
Europe has, to a large extent, deregulated its 
telecommunications market, in some ways better than we have in 
some areas. They have moved ahead with some technology even 
faster than we have in some areas, but I still think there is a 
long way for us to go in partnership to do a lot more.
    Senator Allen. Well, Mr. Miller, I very much appreciate you 
appearing, your insight, and I look forward to working with you 
in the years to come on these shared interests and ideas for 
the future of our country--working with the Europeans, but also 
making sure this country is competing and succeeding as well.
    Mr. Miller. Thank you very much, Senator.
    Senator Allen. Thank you so much.
    We are having votes this afternoon, and some members may 
not get here. Some may want to pose some questions in writing, 
and hopefully you will be willing, as always, to answer those 
questions.
    Mr. Miller. Absolutely.
    Senator Allen. Thank you, Mr. Miller.
    I would like to call forward now our second panel, if you 
would all approach.
    Well, I want to thank our second panel for being here. We 
have Mr. Patton and Mr. Hassell to talk about the European 
collection. Correct?
    Mr. Hassell. Yes, Senator.
    Senator Allen. All right, on nanotechnology we have Mr. 
Harper and Mr. Klaessig, and then on IT access we have Ms. West 
and Mr. Duffy.
    What I would like to do is have everyone shift. We have not 
hiked the ball, so everyone still can shift so we have at least 
a coherence of going from nanotech, to IT, to Euro, then back 
to nanotech.
    Let me briefly introduce our second panel. I am going to 
stick with this order; it will be close enough.
    First, Mr. Harper. Steve Harper is the director of 
Environmental, Health and Safety Policy for Intel Corporation. 
Prior to being at Intel, he directed Amoco Petroleum's Fuel 
Regulatory Service Group and was a senior policy analyst at the 
United States EPA. Prior to his work at EPA, he was vice 
president in the consulting firm, ICF Consulting. Mr. Harper 
has an MBA from the University of Chicago and an MPA from 
Princeton. Welcome, Mr. Harper.
    Dr. Klaessig is the technical director of Aerosil and 
Silanes Business Unit of Degussa Corporation, which is 
headquartered in Germany. Pertinent to his testimony is his 
work on fumed metal oxide powders, silica, titanium oxide, 
alumina, and others which are high surface area powders 
supplied by Degussa for more than 60 years. Though not fitting 
the dominant definition of nanoparticles, these materials have 
many attributes associated with nanomaterials. Prior to working 
at Degussa, Dr. Klaessig led the research department at Betz 
Laboratories. He has a Ph.D. from Rensselaer Polytechnic 
Institute and a bachelors of science from the University of 
California at Berkeley.
    Thomas Patton is the vice president of government relations 
for Philips Electronics North America Corporation, Philips a 
Dutch company. He joined Philips in 1986 to open its first 
Washington office on federal government relations. He was 
elected vice president and corporate officer in January of 1989 
for government relations for the NAFTA region and is a member 
of the Philips global government relations team. He had 
previously worked for the U.S. electronics industry and trade 
organizations and was a policy analyst for the Office of the 
Secretary of the U.S. Department of Health and Human Services. 
Mr. Patton received his masters in public administration from 
American University in 1978 and his B.A. in political science 
from Stetson University in 1976.
    John Hassell is the director of federal and state 
government affairs for Hewlett-Packard Company based in 
Washington, D.C. In the U.S., he helps lead the public policy 
and public sector business development at the federal and state 
government agency level. Hewlett-Packard is a wonderful 
international company, great technology company, and Mr. 
Hassell joined in January of 2000. He is a native of Newport 
News, Virginia, is a graduate of the College of William and 
Mary, and now reportedly lives in Washington, D.C. Is that 
correct?
    Mr. Hassell. My dad still lives in Richmond.
    Senator Allen. All right. Well, you ought to get on the 
other side of the bridge.
    At any rate, Ms. Frances West. Ms. West is the director of 
the Worldwide Accessibility Center at IBM. She is charged with 
the responsibility of establishing IBM's leadership and 
accessibility by promoting IBM technology through thought 
leadership, products, and solutions on a worldwide basis. Her 
team is based in the IBM research area but works across all 
divisions of IBM. She attended universities in Hong Kong and 
the United States, and earned her bachelors degree in 
marketing. Welcome, Ms. West.
    Finally, Joseph Duffy. Mr. Duffy is the vice president of 
SAP Public Services, where he has responsibility for a number 
of key strategic initiatives and customer relationships. Mr. 
Duffy is the spokesperson for SAP's efforts in accessibility 
and the executive sponsor of numerous customer relationships in 
federal, state, and local government and utilities as well. 
Prior to joining SAP, he spent 17 years at their rival, Oracle, 
in a variety of executive and sales management positions. He 
received his bachelors degree from the University of Maryland 
and he has attended numerous business and trade education 
forums. He is a member of the board of directors of Plato 
Learning, which is the NASDAQ symbol TUTR, if you want to check 
it out. He resides with his family in Potomac, Maryland.
    Welcome to you all. I thank you all for coming. What I 
would suggest we do--I assume you all have this agenda--Mr. 
Patton and Mr. Hassell will talk on the European collection. 
Then if we could have Mr. Harper and Mr. Klaessig talk about 
nanotechnology, and then Ms. West and Mr. Duffy on IT access. 
If there is no objection, I would like to proceed that way. We 
would like to hear first from Mr. Patton.

   STATEMENT OF THOMAS B. PATTON, VICE PRESIDENT, GOVERNMENT 
 RELATIONS, PHILIPS ELECTRONICS NORTH AMERICA, WASHINGTON, D.C.

    Mr. Patton. Thank you very much, Chairman Allen.
    First, a couple of very quick reactions to the excellent 
testimony of Mr. Miller. If being a Virginian gets you your own 
panel, I deserve one too. I was born in Winchester, Virginia.
    Senator Allen. Oh, great. Did you go to Apple Blossom last 
weekend?
    Mr. Patton. I did not get out there. Others in my family 
were there, though. I do reside in the District.
    Senator Allen. Are you related to General Patton?
    Mr. Patton. No, sir.
    Senator Allen. He went to VMI, you know.
    Mr. Patton. Yes, and my dad did as well.
    Senator Allen. Great.
    Mr. Patton. Secondly, my son takes off for 6 weeks for 
biology camp this summer in Sanibel Island in the Keys. It is 
all outdoors, and it should be a lot of fun.
    Senator Allen. See, that is the way to do it: incent it so 
it is fun.
    Mr. Patton. And thirdly, if you have to run for President 
to launch a bold initiative in the math and science area, there 
would be a few that would support that idea.
    Senator Allen. All right. We have got to stay to relevant 
subjects here.
    Mr. Patton. Thank you for this opportunity. I appreciate 
being here. My name is Tom Patton, vice president for 
government relations with Philips Electronics North America 
Corporation, a subsidiary of Royal Philips Electronics.
    As a health care, lifestyle, and technology company, 
Philips is a world leading manufacturer of medical devices, 
lighting products, consumer electronics, semiconductors, and 
domestic appliances. We employ more than 160,000 people 
worldwide, more than 30,000 in the United States. It invests 
more than $1 billion annually in research and development and 
we are proud to hold more than 115,000 patents.
    I am testifying on behalf of Philips, of course, as well as 
the European-American Business Council, which is committed to 
fortifying U.S.-E.U. economic integration, growth and 
competitiveness by establishing an open transatlantic market 
that stimulates innovation, investment, economic growth, and 
job creation.
    My testimony today addresses a matter of serious 
consequence for the transatlantic relationship and, indeed, to 
global economic growth and the future of technological 
innovation, especially innovation in digital content protection 
technologies, an area of great importance in the new digital 
era. Specifically, I speak of the urgent need to harmonize, 
rationalize, and modernize Europe's myriad national copyright 
levy regimes. These levies, which are administered on a 
country-by-country basis throughout the E.U. by national 
entities known as collecting societies, are remnants of a 
bygone era of the analog time and are, indeed, intended to 
provide remuneration to authors, artists, and other 
intellectual property rights holders for certain uses of 
copyrighted works. As these levies are being imposed in today's 
digital world, however, they threaten to stifle otherwise 
robust consumer demand for new digital products and services 
and perversely undermine innovation in technologies that 
promise to provide genuine intellectual property rights 
protection.
    Absent swift and sweeping reform, technology companies such 
as Philips face an unacceptable array of risks and potential 
liability, all of which deter investment in new digital rights 
management and other advanced digital content protection 
systems needed to prevent mass, indiscriminate, unauthorized 
redistribution of digital video and audio content over the 
Internet. The amount of levies imposed upon new high tech 
products, often based upon storage capacity, creates a lack of 
predictability and may artificially constrain consumer 
functionality because the levies militate against incorporating 
greater storage capacity.
    Today a company seeking to introduce a new digital device 
or media to European consumers, including PC hard drives, MP3 
players, DVD players and recorders, blank DVD's and CD's, faces 
a gauntlet of as many as 20 different national copyright levy 
regimes, all of which vary considerably in terms of the rate, 
the scope, complexity, structure, and payment processes.
    For example, in France, levies imposed by that country's 
collecting society, SACEM, on blank DVD's now represent more 
than 47 percent of the final price for the consumer. In 
Germany, where their levy is on PC hard drives, as disk drive 
sizes expand to terabytes in notebooks and petabytes in home 
DVR's, the tax will far outweigh not just the cost of the 
drive, but the cost of the entire device. In Austria, the 
exorbitant levy imposed upon MP3 players has caused Philips to 
delay introduction of its Jukebox product in that country.
    This creates nothing less than a toxic environment for 
investment and stands in marked contrast to that of the United 
States which has chosen, quite wisely--and thanks in large part 
to your leadership, Senator Allen--to promote innovation and 
economic growth in Internet-based services by shielding them 
from these very types of redundant and excessive taxes.
    Philips suggests that there are three areas most in need of 
reform. The first is harmonization. Despite the continued best 
efforts of the European Commission to foster a uniform, 
rational European system of copyright levies, uneven and 
incomplete implementation of these objectives has, 
unfortunately, resulted in a patchwork quilt of outmoded, 
inefficient, and excessive levies, dramatically increasing the 
final sales price to consumers of many products or impeding 
their market introduction altogether. Potential reforms in this 
area might include standardized levies on agreed-upon products 
throughout Europe or eliminating the individual levies 
collected directly by collecting societies in favor of a 
payment of a fixed amount from a VAT tax.
    The second area is better governance and increased 
transparency. There is a need to address the severe lack of 
basic good governance, transparency, and accountability in the 
way that national collecting societies operate. In particular, 
the arbitrary and discriminatory manner in which these levies 
are enforced is a major problem and has resulted in 
competitively disadvantaging the larger leading manufacturing 
companies, the ones most engaged in innovation, while virtually 
ignoring smaller competitors.
    Philips supports efforts being undertaken by the EC to 
impose good governance rules on collecting societies and agrees 
that such rules are crucial. In particular, processes should be 
open, transparent, and nondiscriminatory, both to the 
manufacturers paying in and the rights owners being 
compensated.
    Finally is the area of modernization. Technology companies 
such as Philips and major copyright owners agree that levies-
based copyright protection systems are nothing less than 
archaic in light of the digital technology alternatives. 
Technology-based solutions make it easier for content owners to 
identify authors and articulate terms of usage, to establish 
prices and collect payment, and to determine, among other 
things, how content is delivered, accessed, and copied. As 
these technologies evolve, content providers are discovering 
new ways to use them, developing exciting new business models 
that allow them to better satisfy a broad spectrum of user 
requirements. The ultimate beneficiaries of these developments, 
of course, are consumers who can enjoy greater and more user-
friendly opportunities to access and interact with digitally 
distributed content.
    In this new digital environment, it is more important than 
ever that intellectual property laws and regulations strike an 
appropriate balance between a consumer's right to copy for 
personal and noncommercial use and content owners' right to 
protect their works from unauthorized redistribution, 
especially over the Internet.
    In light of this need for a modern and balanced approach, 
Philips is particularly disturbed by the finding of a French 
court that recently ruled that DRM-based security features on 
DVD's are actually illegal, as they violate that country's 
private copying right. By outlawing DRM solutions for DVD's, 
the French court's decision does not appear to recognize or 
respect the need for such a balance, and unless overturned, 
that decision could harm innovation and uptake of similar 
technology solutions that offer much needed relief from that 
and other E.U. countries' oppressive system of levies.
    In conclusion, Senator Allen, the current system of 
balkanized, excessive, and secretive national copyright levies 
in Europe is so flawed and so potentially harmful to global 
economic growth and technological innovation that it demands 
immediate, high level transatlantic cooperation. It would be 
most productive if this topic and the reforms we suggest could 
be given high priority at the United States-European Union 
summit next month.
    Again, I thank you for the opportunity to appear before 
this subcommittee and would be pleased to answer any questions. 
Thank you.

    [The prepared statement of Mr. Patton follows:]

                 Prepared Statement of Thomas B. Patton

    Thank you, Chairman Allen, ranking member Biden and members of the 
subcommittee. My name is Tom Patton, and I am Vice President for 
Government Relations with Philips Electronics North America 
Corporation, a subsidiary of Royal Philips Electronics headquartered in 
Amsterdam, The Netherlands. On behalf of the European-American Business 
Council, Philips welcomes the opportunity to participate in this 
subcommittee's hearing on U.S. and European regulations affecting 
emerging technologies.
    Philips is a diversified global technology company employing more 
than 160,000 employees in over 60 countries worldwide, roughly 30,000 
of whom work in the United States. Philips is a company focused on the 
physical and emotional well-being of its customers, manufacturing 
products as varied as defibrillators and medical diagnostic equipment, 
electric toothbrushes, electric shavers, and a full range of video and 
audio entertainment products from digital televisions to the Jukebox 
MP3 player. Philips is currently number 1 in the global markets for 
lighting, electric shavers, and DVD recorders, and we're number 2 in 
medical diagnostic imaging worldwide. Philips Consumer Electronics is 
the third largest consumer electronics company in the world and the 
largest in Europe. Together with Sony, Philips invented the technology 
that enabled the development of the CD and DVD industries. Our company 
invests more than a billion dollars annually in research and 
development and holds more than 115,000 patents.
    The transatlantic economic relationship is one of most important in 
the world. Bilateral trade and investment are powerful forces that have 
fostered prosperity and stability between the U.S. and Europe, as well 
as much of the world. In 2003, total transatlantic commercial exchanges 
reached $2.5 trillion, generating $77.1 billion in earnings for U.S. 
affiliates in Europe and $46.4 billion for European affiliates in the 
U.S. In that same period, total U.S. investment in Europe was $800 
billion and total European investment in the U.S. was more than $1 
trillion. Not surprisingly, this investment is a major engine for job 
growth, with 4.2 million people employed in the U.S. by European 
affiliates and 3.2 million people employed in the E.U. by U.S. 
affiliates. With eleven percent of the world's population and forty 
percent of its GDP, the U.S. and E.U. together are both an engine for 
global growth and leaders in standards-setting for the world. The 
European-American Business Council is committed to fortifying U.S.-E.U. 
economic integration, growth and competitiveness through regulatory 
convergence and free exchange of goods, services and capital. EABC 
pursues mutually beneficial solutions to U.S-E.U. trade barriers 
through enhanced government-to-industry dialogue across the Atlantic.

         THE NATIONAL COPYRIGHT LEVY SYSTEM IN EUROPE IS BROKEN

    My testimony today addresses a matter of real consequence to global 
economic growth and future technological innovation, and in particular, 
to the development and introduction of new and effective digital 
content protection technologies, exciting consumer digital 
entertainment devices and IT services. There is an urgent need to 
harmonize, rationalize, and modernize the laws and regulations that 
govern how intellectual property rights are protected and compensated 
in the European market.
    Currently, throughout Europe, there exists a system of copyright 
levies, collected and distributed on a country-by-country basis 
throughout the E.U. by national entities known as ``collecting 
societies.'' The purpose of these levies, which originated in the 
analog era, is to provide remuneration to authors, artists, and other 
intellectual property rights holders for certain uses of copyrighted 
works, some of which, such as certain home copying, are not subject to 
copyright control in the U.S. As these levies are being imposed in 
today's digital world, however, they are causing serious market 
distortions, threaten to stifle otherwise robust consumer demand for 
new digital products and services, and perversely undermine the very 
intellectual property rights protection that they are intended to 
promote.
    Absent swift and sweeping reform of the myriad national copyright 
levy regimes operating in Europe, technology companies such as Philips 
face an unacceptable array of risks and potential liability, all of 
which deter investment in new digital rights management and other 
advanced digital content protection systems needed to prevent mass, 
indiscriminate, unauthorized redistribution of digital video and audio 
content over the Internet. The amount of levies imposed upon new high-
tech products, often based upon storage capacity, creates a lack of 
predictability and may artificially constrain consumer functionality 
because the levies militate against incorporating greater storage 
capacity. The balance of trade deficit for the United States will 
worsen because both the American entertainment and high-tech industries 
stand to lose significant revenues under the current levy system.
    The negative consequences of this increasingly out-of-control 
system of levies on global economic growth and technological innovation 
are so serious and immediate that reform of the system should be 
accorded real priority in next month's U.S.-E.U. summit.
    Of particular concern to Philips is the evolution of these 
copyright levies--functionally consumer taxes--on the sale of virtually 
anything capable of storing or recording digital data. Today, a company 
seeking to introduce a new digital device or media to European 
consumers, including PC hard drives, MP3 players, DVD player/recorders, 
blank DVDs, and CDs, faces a gauntlet of as many as 20 different 
national copyright levy regimes, all of which vary considerably in 
terms of rate (as well as the metrics used to assess that rate), scope, 
complexity, structure, and payment processes.
    For example, in France, levies imposed by SACEM on blank DVDs now 
represent more than 47 percent of the final price for the consumer. In 
Germany, where there is a levy on PC hard drives, as disk drive sizes 
expands to terabytes in notebooks and petabytes in home DVRs, the tax 
will far outweigh not just the cost of the drive, but the cost of the 
entire device! In Spain, a multi-function copier/fax/printer costs 
around =79 (approx. $102) (including 16% VAT). Spain's collecting 
society, SGAE, imposes a levy on that device of slightly more than =45, 
which is also subject to a 16% VAT, thus increasing the final price to 
the consumer by 66 percent, to =131 (approx. $170). In Austria, the 
exorbitant levy imposed upon MP3 players has caused Philips to delay 
introduction of its ``Jukebox'' product in that country.
    The trend line is clear. Ever-increasing levy rates are being 
exacted by national collecting societies across Europe without any 
semblance of uniformity on an ever-increasing number of digital 
consumer electronics devices and blank media. To make matters worse, 
the irregular manner in which these levies are imposed and enforced 
disproportionately harms the most innovative technology companies, 
often ignoring entirely lesser-known ``copy-cat'' manufacturers. 
Indeed, in a perverse twist, the more modern the product, the more 
cutting-edge the technology, and the earlier its introduction to the 
market, the greater is the risk. In short, the national levy system in 
Europe turns all of the fundamental laws of capitalism on their heads.
    The net effect of these disparate, unevenly enforced and 
unreasonably high copyright levies is nothing less than a toxic 
investment environment for U.S. and European companies, including 
Philips, that are at the forefront of digital technology innovation. 
How can technology companies justify the enormous initial investments 
required for innovation, including innovation in the very types of 
technologies that offer a better solution to protecting digital 
content, if they cannot even plan new products because of the 
unpredictable effect of ever-increasing and redundant copyright levies? 
The answer is they cannot.
    It's important to point out that the current approach in many E.U. 
Member Countries to tax emerging technologies as much as possible 
stands in marked contrast to that of the U.S., particularly this 
country's decision--thanks in large part to your leadership, Mr. 
Chairman--to promote innovation and economic growth in Internet-based 
services by shielding them from these very types of redundant and 
excessive taxes. Thank you. We hope you will agree that, for the sake 
of preserving and promoting a vibrant and healthy transatlantic 
economy, and the enormous benefits that clearly flow from that, a 
similar approach is desperately needed in Europe.

                             NEEDED REFORMS

    There are three distinct areas of reform that need to be undertaken 
immediately: harmonization, vastly increased transparency, and, most 
importantly, a fundamental re-examination leading to modernization.
1. Harmonization
    Despite the continued best efforts of the European Commission 
(initially through its adoption its 2001 Copyright Directive 
(implementing its obligations under the WIPO Treaty) and today in its 
pending review of Member Countries' implementation of that Directive) 
to attempt to foster a more harmonized and rational system of laws to 
protect intellectual property and preserve and promote technology 
innovation and competition, uneven and incomplete implementation of 
these objectives by E.U. Member Countries has unfortunately resulted in 
a patchwork quilt of outmoded, inefficient and excessive levies--either 
increasing the final sales price to consumers of many products or 
impeding their introduction into the market altogether. This maze of 
disparate copyright levies distorts cross-border trade and creates 
massive inefficiencies and costly administrative burdens. It 
competitively disadvantages leading manufacturing companies which bear 
the brunt of the levies. Potential reforms in this area might include 
standardized levies on agreed upon products throughout Europe or 
eliminating the individual levies collected directly by collecting 
societies in favor of payment of a fixed amount from a VAT tax.
2. Governance and transparency
    There also is a need to address the severe lack of basic ``good 
governance,'' transparency and accountability in the way that national 
collecting societies operate. Incredibly, the manner in which these 
quasi-governmental, quasi-private entities operate and set levies is 
closed to public scrutiny with little meaningful opportunity for 
stakeholders to participate in the levy-setting or distribution 
processes or to object to these levies once established. The arbitrary 
and discriminatory manner in which these levies are enforced is 
contrary to every basic tenet of fairness. Moreover, even most of the 
largest and most creative content owners, whose intellectual property 
rights these levies are supposed to protect, strongly oppose the 
current system because it does not serve the core purpose of protecting 
their digital content; instead it simply favors a select group of 
domestic rights holders or other pet parochial projects.
    Philips supports efforts being undertaken by the E.C. to impose 
``good governance'' rules on collecting societies, and agrees that such 
rules are crucial. In particular, processes should be open, transparent 
and nondiscriminatory. Stakeholders should be able to contest tariffs 
through efficient, open and cost-effective procedures conducted by an 
independent third party, with appeal to the E.U. as necessary and 
appropriate. Similarly, collection societies should be required to 
publish detailed information on the amounts they collect and the 
distributions they make.
3. Modernization that emphasizes digital content protection technology 
        solutions
    The problems with the national system of copyright levies are so 
acute today that these first two major areas of reforms must be 
implemented right away. They are not, however, substitutes for a 
fundamental re-examination of the levy system and development of a 
modernized system that reflects the realities--and responds to the 
imperatives--of the digital era in which we now live.
    Technology companies such as Philips and major copyright owners 
such as U.S. motion picture studios and record companies stand united 
in the belief that the advent of digital technology demands a new 
paradigm in which digital content protection technologies and digital 
rights management systems--not taxes--play a paramount role in ensuring 
that rights owners are appropriately and adequately compensated for 
their works and that those works are better protected from 
indiscriminate, unauthorized redistribution.
    In fact, levies-based copyright protection systems are nothing less 
than archaic in light of the digital technology alternatives. 
Technology-based solutions make it easier for content owners to 
identify authors and articulate terms of usage, to establish prices and 
collect payment, and to determine, among other things, how content is 
delivered, accessed and copied. As these technologies evolve, content 
providers are discovering new ways to use them, developing exciting new 
business models that allow them to better satisfy a broad spectrum of 
user requirements. The ultimate beneficiaries of these developments, of 
course, are consumers, who can enjoy greater and more user-friendly 
opportunities to access and interact with digitally-distributed 
content.
    It is no wonder that the content industry prefers DRM-based 
solutions over private copy levies. As one major content industry 
association executive recently stated, ``Private copy levies impose a 
cost on all consumers, whether or not they copy, and distribute the 
proceeds imprecisely and with high overhead.''
    For these reasons, Philips and the EABC agree with the European 
Commission that DRM solutions represent ``. . . an important, if not 
the most important, tool for rights management in the [European] market 
of the new digital services.'' Indeed, we urge that copyright regimes 
must be modernized not only to reflect the availability and 
effectiveness of these technologies, but to promote their development 
and use.
    The outlook for technology alternatives in the European context, 
however, is not particularly good. Just last month, a French court, 
reversing a lower court ruling in the Que Choisir case, ruled that DRM-
based security features on DVDs are actually illegal, as they violate 
that country's private copying right. In this new digital environment, 
it is more important than ever that intellectual property laws and 
regulations strike an appropriate balance between a consumer's right to 
copy for personal and non-commercial use, and content owners' right to 
protect their works from unauthorized redistribution especially over 
the Internet. By outlawing DRM solutions for DVDs, the French court's 
decision does not appear to recognize or respect the need for such a 
balance, and, unless overturned, that decision could harm innovation 
and uptake of similar technologies solutions that offer much needed 
relief from that and other E.U. countries' oppressive system of levies.

                               CONCLUSION

    The current system of balkanized, excessive and secretive national 
copyright levies in Europe is so flawed and so potentially harmful to 
global economic growth and technological innovation that it demands 
immediate, high level transatlantic cooperation. It would be most 
productive if this topic could be given high priority at the United 
States-European Union Summit next month.
    Again, I thank you for the opportunity to appear before this 
subcommittee and would be pleased to answer any questions.

    Senator Allen. Thank you for your testimony, Mr. Patton.
    I want to actually ask questions at the end, but there are 
some that just hit me. With these balkanized approaches, what 
people do in this country is they just trade over the borders. 
If certain things are cheaper on one side of the border in 
different States, they go over there and buy it. Does, say, a 
French person--or whatever that was that cost so much there--go 
over to Switzerland or to Germany or Belgium and buy it, or 
does somebody from Germany go to Austria. Or does somebody from 
Austria where you were not putting in the MP3, I think you were 
saying, just go to Hungary or to Germany and buy them there 
where the levies are less?
    Mr. Patton. Yes, Senator. It is hard to know what exact 
numbers to attribute to that kind of reaction by the consumer 
in the marketplace. Because the marketplace is so distorted by 
these various collecting societies and the levies that they 
produce, it is not clear where one would go to avoid these. But 
it is definitely changing the consumers' behavior in these 
markets.
    The distortion leads to a variety of other problems as 
well. A great market for products that are not paying the 
levies is a very lucrative market for these products. It is 
changing the business behavior. You would think that you would 
come to the point where you might ignore these arbitrary and 
discriminatory kinds of programs, but then you find yourself at 
the place such as in the French courts where your DRM 
solutions, for example, are deemed illegal. So it is a system 
in much need of repair.
    Senator Allen. Thank you, Mr. Patton. And it should be made 
a priority. That is one of the reasons we held this hearing at 
this time before that meeting. Thank you.
    Mr. Hassell.

  STATEMENT OF JOHN D. HASSELL, DIRECTOR OF FEDERAL AND STATE 
 GOVERNMENT AFFAIRS, HEWLETT-PACKARD COMPANY, WASHINGTON, D.C.

    Mr. Hassell. Good afternoon, Senator Allen. Thank you. My 
name is John Hassell. I am director of federal and state 
government affairs for Hewlett-Packard Company. I thank you, 
Mr. Chairman, and the committee for hosting this hearing on 
several issues of importance to HP.
    Senator Allen. By the way, let me interrupt briefly. Your 
entire testimony, just for time--and I do not know when we are 
going to get another vote. If you could summarize your 
statements and your key points, that would be appreciated. Your 
whole statement will be made a part of the record. I just do 
not want folks getting cut off. So if each of you all could 
summarize your statement in 5 to 7 minutes, that might be 
helpful just in the caution of votes and time. Excuse me, Mr. 
Hassell.
    Mr. Hassell. Thank you. I will be brief.
    As you are well aware, the world is experiencing a digital 
entertainment revolution where the consumer is in charge. Using 
new technologies, consumers are now able to have a digital 
mobile, virtual, and personal experience with content in ways 
never before imagined. As the largest consumer IT company, HP 
stands firmly at the center of this revolution. We are striving 
to build every one of our consumer devices to ensure an 
exciting and rewarding experience for consumers, while at the 
same time respecting and supporting intellectual property.
    HP is committed to three principles to support digital 
rights management: one, to emphasize the consumer experience; 
two, to build reasonable content protection solutions; and 
three, to respect intellectual property and copyright.
    Unfortunately, our efforts and the efforts of others in the 
tech industry to give consumers these exciting opportunities 
are being undermined by private copyright levies. Tax-like 
levies were developed almost 50 years ago at a time when it was 
impossible to ensure that authors received fair compensation 
for uses of their works. Today, however, technologies like 
digital rights management systems make it possible for 
consumers to fully enjoy works while preventing unauthorized 
uses.
    While DRM's are complex in their workings, what they mean 
at a practical level is that content creators, the right 
holders, are able to control how their works are enjoyed and to 
set license fees accordingly. At the same time, DRM's enhance 
the consumer experience as well by offering new and simpler 
ways for users to enjoy copyrighted works.
    HP is active in this space. One of our products includes 
the HP DVD movie writer, the first system in the industry to 
respect digital rights, informing the consumer only when 
content cannot be legally copied.
    Despite the development of tools like this one, we continue 
to see the virtual unfettered expansion of tax-like levy 
regimes throughout Europe. HP is currently paying levies on CD 
and DVD burners, as well as multi-functional devices such as 
copies and scanners. In Germany, a recent court judgment now 
under appeal upheld the extension of levies to PC's. HP is 
engaged in separate litigation regarding the application of 
these levies to printers. In some instances, proposed levies 
have even exceeded the cost of the product being levied. In 
others, competing collecting societies are seeking levies on 
the same products.
    We seek the subcommittee's support to address the 
challenges brought on by copyright levies. At the outset, I 
want to stress the E.U.'s constructive role in this issue. It 
is important to note that the expansion of levies, without 
regard to DRM's, is happening in spite of E.U. law to the 
contrary. Indeed, the E.U. has worked closely with HP and other 
companies in an effort to ensure these limitations are 
respected in practice. For this, we are grateful.
    We ask you to do two things, Mr. Chairman. We respectfully 
urge the subcommittee to express its support to the E.U. in 
these efforts. As the E.U. currently considers broad-based 
legislation on collective rights management, the IT industry 
has called upon it to take this opportunity to review the 
functioning of national levies regimes. We ask the E.U. to 
impose clear parameters to limit efforts to expand those 
regimes into the digital arena. Specifically, Mr. Chairman, we 
request that you communicate support for this position to 
Commissioner McGreevy, the commissioner for internal market and 
services, and other counterparts in Europe.
    At the same time, secondly, countries outside of Europe are 
studying whether they should expand levies regimes to cover 
digital products. We believe U.S. free trade agreements should 
include language opposing the establishment of new levy systems 
and calling for the phase-out of existing levies. We ask for 
your support in this effort as well.
    Thank you again for your leadership on this issue and for 
holding this hearing. I stand ready to answer any questions you 
may have.

    [The prepared statement of Mr. Hassell follows:]

                   Prepared Statement of John Hassell

    Good afternoon. My name is John Hassell. I am the Director for 
Federal and State Government Affairs for the Hewlett-Packard Company. 
HP is a technology solutions provider to consumers, businesses and 
institutions globally. The company's offerings span IT infrastructure, 
global services, business and home computing, and imaging and printing, 
with annual revenue exceeding $81 billion.
    I thank the committee for hosting this hearing and for giving me 
the opportunity to testify today. We applaud that you have chosen for 
consideration three issues of critical importance to HP. In my 
testimony, intend to address the increasingly important issue of 
European ``private copy levies.''
    As my testimony will demonstrate, levies are now outdated and pose 
a significant threat to the interests of authors, consumers and 
technology developers. They were developed almost 50 years ago, at a 
time when it was impossible to ensure that authors received fair 
compensation for uses of their music or movies. Today, technologies 
like digital rights management make it possible for both the consumer 
to fully enjoy the work while preventing unauthorized uses. The tax-
like levy raises costs to all, and creates the misimpression that 
piracy is sanctioned. This was never the goal of levies, and it 
constitutes bad public policy.
    We believe that circumstances have evolved to the point where the 
rough justice that justified levies in the first place is no longer 
good policy. E.U. law recognizes this change. But many European 
countries persist not only in maintaining their levies regimes, but in 
expanding them to new areas. The net result is increased costs to 
consumers, who end up paying two or three times for the music and 
movies they acquire.
    We seek your support in addressing this challenge. More 
specifically, we ask that the subcommittee support the E.U.'s efforts 
to address national levies regimes through its upcoming directive on 
collective rights management. We also recommend that U.S. trade 
agreements include language opposing the establishment of new levy 
systems and calling for the phase-out of existing levies.

                   ORIGIN OF COPYRIGHT-RELATED LEVIES

    I would like to start my testimony by offering a brief explanation 
of the origins of the levy system in Europe for those of you unfamiliar 
with this system.
    Many European Union member states have what is known as a ``private 
copy exception'' in their copyright laws. This exception permits users 
in certain situations to reproduce copyrighted works such as music and 
movies for personal use. (Notably, there is no private copy exception 
for software).
    This exception raised a problem of remuneration for authors, 
however. In the days of analog works, it was extremely difficult for 
authors and right holders to monitor or administer the private copy 
exception. There was no effective way for right holders to control how 
and when private copies of their copyrighted works were made. 
Similarly, there was no effective way for them to track the number of 
private copies being made or to be remunerated directly for those 
copies.
    The levies system emerged in the 1960s as a response to those 
challenges. In essence, a levy is similar to a tax added to the 
purchase price of blank media and recording and reproduction devices. 
Many European states now have legislation that allows national 
``collecting societies'' (independent and quasi-governmental 
associations responsible for administering levies regimes) to set the 
amount of the levy, determine the media and devices that would be 
covered by the levy and handle distribution of the funds collected. As 
a general matter, a percentage of the levy collected is distributed to 
authors and right holders; a percentage is used for the cost of 
administering the levy; and, in some instances, an amount is also set 
aside to support national cultural funds or projects.
    Although so-called ``private copy'' levies have never been able to 
accurately reflect the actual value and use of any particular work, 
they were deemed to be the only practical method to compensate right 
holders for private copy exceptions in the analog era. In short, levies 
reflected a compromise solution in a world where the technology did not 
exist to manage particular uses of works.

                  LEVIES TODAY: THE DIGITAL DIMENSION

    In today's digital world, the fundamental premise that underlies 
levy regimes--the author's inability to control private uses of his or 
her work--has been eroded dramatically. Indeed, technology now enables 
right holders to exercise far greater control over the use of their 
works and to be compensated accurately for such uses.
    These technologies are commonly referred to as ``digital rights 
management'' technologies or ``DRMs.'' DRMs are among the most 
important and most exciting emerging technologies. While these 
technologies are complex in their workings, what they mean at a 
practical level is that authors and right holders are able to control 
how their works are enjoyed and to set license fees accordingly. 
Authors, composers, recording companies and even collecting societies 
are now using DRM systems to identify content and authors, to set forth 
acceptable uses, to establish prices and to grant licenses directly and 
automatically to individual users. At the same time, DRMs enhance the 
consumer experience as well, by offering new and simpler ways for users 
to enjoy copyrighted works.
    HP is very active in the DRM space. Our activities in this area, 
which are focused on enhancing the consumer experience, building 
reasonable solutions for respecting creative content, and respecting 
copyright, include the following:

   HP created HP DVD Movie Writer, the first system in the 
        industry to respect digital rights, informing the consumer only 
        when content cannot be legally copied;

   HP allied with Apple on iTunes and iPod to deliver the best 
        music experience possible;

   HP developed VCPS with Philips, and licensed other industry 
        leading DRM technologies;

   HP collaborates with numerous standards bodies and industry 
        consortia to further next generation technologies, such as the 
        Advanced Access Copyright System, Open Mobile Alliance DRM, 
        Content Management Licensing Administrator, and DVD Copy 
        Control Association;

   HP is a founding member of the Coral Consortium, a cross-
        industry group to promote interoperability between DRM 
        technologies used in the consumer media market.

    The above are only a few examples of HP's commitment to ensuring a 
simple, affordable and enjoyable entertainment experience that is 
supported by a fair business model for content providers.
    Tools like the ones described above are enabling right holders to 
manage their works directly and thus are eliminating the need for 
traditional levies. In light of these developments, one would 
anticipate that levies would be scaled back. This has not been the 
case, however. Instead, we have consistently seen the expansion of 
levies regimes throughout Europe--including the systematic extension of 
levies to digital media and equipment and an ongoing increase in the 
amount of levies demanded by collecting societies.
    It is important to note that the expansion of levies is happening 
despite a 200 law adopted by the European Union that instructs Member 
States to the contrary. The ``Copyright Directive''--which brings 
European copyright law into the digital age--makes clear that levy 
regimes must be adjusted to reflect the application of DRMs. The 
majority of Member States and national collecting societies have yet to 
implement this obligation in practice, however.
    Instead, despite the increasing usage of DRMs, national collecting 
societies are applying levies to an expanded universe of products. 
Depending on national legislation, levies are being extended to digital 
equipment such as PCs, printers, mobile-phones, personal video 
recorders and portable music players, fax machines, copiers, scanners 
as well as to a wide variety of media (hard disks, memory cards, CM, 
DVD-R). In some Member States, proposed levies have exceeded the cost 
of the product being levied. In others, competing collecting societies 
are seeking levies on the same products.
    To take just one example of particular significance to HP, in 
Germany, a high-profile case brought by the collecting society VG Wort 
against Fujitsu Siemens has extended the levies regime to PCs, 
notebooks and servers. After unsuccessful negotiations with industry, 
VG Wort chose to bring a test case against Fujitsu Siemens, arguing 
that its products could be used for copying and therefore should be 
subject to levies. Earlier this year, its claim was successful and in 
fact, the court initially declared that the levy should be applied 
retroactively to include all machines sold since 2001, when the claim 
was first made. (The court did rule, however, that the levy should be 
12 Euros for each new PC sold rather than 30 Euros as originally sought 
by the collecting society.) Fujitsu Siemens was supported during the 
proceedings by other hardware manufacturers, including HP, and has 
filed an appeal against the decision. The ultimate decision will apply 
to other manufacturers as well.
    The German levy would be in spite of the fact that PCs are used for 
many other purposes than making private copies of copyrighted works. 
(As noted, there is no private copy exception for software and thus no 
levy applicable to software reproductions). Similar litigation is under 
way between VG Wort and HP and Lexmark, concerning attempted levies 
sought on printers. Applying levies to multi-functional products 
necessarily opens the door to the application of levies to all sorts of 
other hardware equipped with memory chips: radio and television sets, 
digital cameras, digital video units, telephones, car stereos, 
automobile information systems, watches--the possibilities are endless. 
If this path is followed, an increasingly large number of users will 
end up subsidizing the activities of a small group of private copiers.

                THE IMPACT OF LEVIES ON DIGITAL PRODUCTS

    Before reviewing the broad and often detrimental effects of digital 
private copy levies, let me begin by saying that HP is committed to 
fair and full remuneration for rights owners for the use of their 
products. What we question is whether levies are the best way to attain 
this end--especially in light of digital developments which call into 
question the necessity of levies. HP hopes to partner with interested 
stakeholders in the transition away from a levies-based system to a 
world of reasonable, consumer-friendly solutions for respecting 
creative content.

The Impact on Consumers
    Levies as a general rule are paid by IT product manufacturers and 
importers. Ultimately, however, the consumer shares this burden.
    Where DRMs are in place, a levy on digital products means a 
consumer may pay two or more times for private copies. For example, 
when a consumer purchases her favorite song through a DRM-enabled on-
line music store for use on her MP3 player, the artist receives a 
direct payment for her use of the song and for a specified number of 
``private'' copies. If collecting societies have their way, that 
consumer will also pay a levy on the device. If she stores the song in 
her PC, she might pay a levy on the PC, on the CD-burner embedded in 
the PC and on the blank CD used to hold the song.
    The increasing popularity of on-line music and movies services that 
employ DRM technologies and the increasing number of digital devices 
covered by the levy system can only mean that more and more consumers 
will be charged multiple times for the right to make a copy. This 
decreases consumer enthusiasm for DRMs. It also means right holders 
have little incentive to apply DRMs to their works.
    At a more general level, levies are a tax on digital products. As 
such they raise the cost of technology to a country's citizens. When a 
collecting society establishes a levy on a new product or raises the 
price of a levy on an existing product, the increased price necessarily 
results in a lower demand for such products. The result of this ``tax'' 
is that fewer people possess the newest technological products, slowing 
the uptake of new technologies and widening the digital divide.This tax 
also suppresses sales by U.S. information and communication technology 
(ICT) companies in Europe and reduces investment in, and the 
development of, DRM-enabled businesses like those that have flourished 
in the United States.

Impact on Industry
    Two major studies have been conducted to calculate the significant 
costs to industry that levies impose. The first study, undertaken by 
Rightscom and commissioned by the Business Software Alliance in 
September 2003,\1\ examined the impact of levies in France, Germany, 
Italy, the Netherlands and Spain. The study predicted. that between 
2002 and 2006 the total amounts of levies collected in these five 
countries would increase by threefold--from $380 million in 2003 to 
over one billion U.S. dollars in 2006. This analysis was based on the 
fact that levies now cover more products and that levy rates are 
increasing. If proposed levies on additional products, such as the 
German levy on PCs, continue to be enforced, the study estimated that 
the total amount collected in 2006 could increase to over $1.5 billion.
---------------------------------------------------------------------------
    \1\ http://www.bsa.org
---------------------------------------------------------------------------
    A second study sought to assess lost sales (of PCs, portable music 
players, and printers) as a result of increased prices brought-about by 
the private copy levies. This study from Nathan Associates,\2\ 
concludes that the cost of levies to the technology industry, depending 
on the elasticity of the price of the product, could range from $808 
million to $8.8 billion per year.
---------------------------------------------------------------------------
    \2\ Presentation delivered in Maryland, USA ``Impact of Content 
Rights Compensation Levies: Lost Sales Revenue Worldwide.'' April 28, 
2003, Robert Damuth, Vice President Nathan Associates, 
www.nathaninc.com
---------------------------------------------------------------------------
    These costs are staggering. Few but the largest technology 
providers can bear them. And faced with demands that can be both 
arbitrary and unpredictable and that differ from one Member State to 
another, levies also impair industry's ability to develop coherent, 
E.U.-wide business strategies. Add to this the fact that levies on 
digital products suppress demand for those products and hinder the 
roll-out of DRM-enabled content delivery systems and the reason for the 
concern of the technology industries becomes evident.

Impact on Authors and Right Holders
    Even authors and right holders--the intended beneficiaries of levy 
systems--have significant concerns with how these systems are operated. 
Many of these revolve around the transparency of the system and the way 
in which levies are distributed. At present, it can be difficult for 
authors (and consumers and manufacturers as well) to understand how 
levy rates are assessed, on what products they apply and how they are 
distributed.
    In a number of countries, for example, an artist will only receive 
compensation if he or she is a member of a particular collecting 
society--leaving non-members with little recourse. Because a portion of 
the funds collected are used to pay the collecting societies' 
administrative expenses, right holders often receive distributions that 
represent only a fraction of what they would receive if they were 
compensated directly.

Contribution to Piracy
    As this Committee knows well, right holders suffer significant harm 
as a result of copyright piracy. Users of digital audio and audio-
visual works can and do mistake private copy levies--which are intended 
to compensate right holders for lawful private copying only--for an 
``open-license'' to copy content freely. Levies quickly become a 
``license to pirate.'' At the same time, the presence of levies in a 
market can also hamper or undermine investment in DRM-enabled products 
and services that would seem to offer the best avenue for curtailing 
rampant illegal file-sharing.

Recommendations to the Subcommittee
    Before making any recommendations, I want to stress the E.U.'s 
constructive role on this issue. As I noted above, European law 
includes many important safeguards to avoid the unfettered expansion of 
levies regimes. The ELI has worked closely with HP and other companies 
in an effort to ensure these limitations are respected in practice. For 
this, we are grateful.
    I also want to reiterate HP's commitment to DRM technologies and to 
ensuring regulatory systems that enable, rather than obstruct, these 
technologies. It is part of HP's core mission to ensure and advance the 
consumer's ability to easily enjoy entertainment on any device, in any 
format, while making new business models possible. Levies, improperly 
considered, can and do stand in the way of this mission.
    This is why HP and other technology providers have been extremely 
active on the levies issue in Europe both independently and through 
trade associations including the Business Software Alliance and EICTA, 
the European ICT industry association.
    We respectfully request the committee's support in our efforts:

   First, we urge the committee to express its support for E.U. 
        efforts to rationalize national levies regimes. Led by its 
        Directorate on the Internal Market, the E.U. is currently 
        considering broad-based legislation on collective rights 
        management. The ICT industry in Europe has called upon the E.U. 
        to take this opportunity to review the functioning of national 
        levies regimes and impose clear parameters on national efforts 
        to expand those regimes into the digital arena. We ask that you 
        communicate support for our request to your counterparts in 
        Europe. We understand that there is an E.U.-U.S. Ministerial 
        Summit scheduled for June 2005. This might be an appropriate 
        opportunity to express the U.S. Government's interest and 
        concerns surrounding this issue.

   At the same time, countries outside of Europe are studying 
        whether they should expand levies regimes to cover digital 
        products. We believe U.S. trade agreements should include 
        language opposing the establishment of new levy systems and 
        calling for the phase-out of existing levies. We ask for your 
        support in this effort.

    I thank you for your time today and stand ready to answer any 
questions you may have.

    Senator Allen. Thank you, Mr. Hassell. As I stated to all 
of you all here, one of the reasons we are having this hearing 
is the timeliness of it. To the extent we get your information, 
it is actually great to get it from a U.S. company, as well as 
a Dutch company, that does business not just in Europe and the 
U.S. but throughout the world. We thank you for your testimony. 
We will act on that.
    Now I would like to shift to our two panelists concerning 
nanotechnology. We will first hear from Mr. Harper.

STATEMENT OF STEPHEN F. HARPER, DIRECTOR, ENVIRONMENTAL, HEALTH 
     AND SAFETY POLICY, INTEL CORPORATION, WASHINGTON, D.C.

    Mr. Harper. Thank you, Senator. I direct Intel's global 
environmental, health, and safety policy activity and 
nanotechnology, in part, falls underneath that umbrella.
    I want to express our appreciation, as was mentioned 
earlier, for your leadership in establishing the congressional 
Nanotechnology Caucus, which we think is a great development.
    I am here representing Intel and EABC. Tom Patton already 
introduced EABC. Hopefully you are familiar with Intel.
    I think the critical data point here is that we are a 
global company with operations throughout the world. We have 
very significant manufacturing and other operations in Europe, 
as well as the United States and Asia. I am going to really 
basically focus on one key issue with several different 
dimensions of it. That issue is the need for cooperation in 
addition to competition between the United States and Europe 
with respect both to the science of nanotechnology but also 
with respect to the environmental, health, and safety 
regulation of nanotechnology moving forward.
    Intel's interest in nanotechnology is multifaceted. In the 
immediate term, we are today creating devices that feature 
transistors that are smaller than 100 nanometers in width. That 
is the classic definition of nanotechnology. These nano 
features are the reason why our current Pentium IV processors 
have more than 100 million transistors on them and why we just 
prototyped a new Itanium II processor that has 17 billion 
transistors in it. We cannot do that without the small feature 
of the nanotechnology.
    In terms of dollar value of product, advanced 
semiconductors currently represent by far the biggest slice of 
the current nanotechnology marketplace.
    The size of our current transistors and circuits are so 
small that they are difficult to fathom, at least for this 
political scientist, as opposed to a physical scientist. The 
best way to appreciate their size is in relation to more 
familiar objects. Later this year, we are going to introduce 
chips that have transistor gates that measure less than 35 
nanometers across. At that size, approximately 100 of these 
transistor gates--and that is the switch that flips the 
transistor on and off--can fit within the diameter of a human 
red blood cell.
    For the foreseeable future, semiconductors will continue to 
rely on traditional silicon-based technology, what we have used 
for many years. But perhaps approaching around 2020, we 
anticipate running up against physical limitations that will 
hamper the ability to continue to use silicon-based approaches. 
At that point chip manufacturing may rely on new nanomaterials 
such as carbon nanotubes and nanowires to continue along the 
progress of Moore's Law.
    The year 2020 sounds like a long time away, but because of 
the complexity of the technical work that must be done to 
invent and implement the nanotechnology future, Intel and the 
semiconductor industry have begun investing in a major way in 
the research and development to bridge to that future. Much of 
this work takes place in the context of what is called the 
International Technology Roadmap for Semiconductors, or ITRS. 
The ITRS lays out the priority scientific and environmental 
challenges that must be met in order to continue progress along 
the trajectory of Moore's Law. It is important to emphasize 
that the ITRS and much of the current nanotechnology research 
and development work being done in our industry is viewed as 
pre-competitive. Companies from across the industry from around 
the world are pursuing a common basic research agenda, working 
through cooperative institutions like Sematech and the 
Semiconductor Research Corporation to solve some of the 
important physical issues associated with continuing along 
Moore's Law.
    I have referred now several times to Moore's Law. It is the 
40th anniversary of Moore's Law last month and hopefully most 
people have at least heard of it. But why care? Why does 
Moore's Law matter?
    Forty years ago Gordon Moore, one of the founders of Intel, 
predicted that the number of transistors and integrated 
circuits would double every year. That was later extended to 
every 2 years. Moore's observation--it really is an observation 
rather than a law--really focuses on two phenomena: increasing 
density of transistors on semiconductors and a radical decrease 
in the cost per transistor. Although it is not a law--it is an 
observation--it has functioned as a law in our industry because 
it has driven the pace of innovation, research, and 
development.
    So who cares about Moore's Law? Maybe that is something 
interesting to semiconductor geeks or IT technologists only, 
but progress along the trajectory of Moore's Law has translated 
into cost decreases for a wide range of products that depend on 
semiconductors: computers, telecommunications equipment, 
automobiles, scientific equipment, and the like. Falling prices 
for information technology products have driven the rapid 
proliferation of IT throughout the world's economy, and the 
diffusion of IT has been the biggest single reason for the 
recent historic acceleration of U.S. economic productivity 
growth which, as Harris Miller pointed out at the beginning of 
the hearing, is key to the advancement and improvement of our 
standard of living.
    Pre-competitive research and development in our industry 
has been essential to continuing along Moore's Law. We believe 
it will be even more important as we continue further into the 
realm of nanomaterials. This cooperation needs to be 
international in scope, combining the best research minds in 
the industry and government, as well as university labs, no 
matter where those best minds are. This is somewhat at odds 
with the spirit of numerous government reports and 
communications on nanotechnology from the U.S. Government, from 
Europe and Japan that portray nanotechnology as the next space 
race, as the proverbial goose that may lay the golden economic 
egg down the road.
    My message today is we need a balance, a balance of 
competition and cooperation, when it comes to the applications 
of nanotechnology. International cooperation is also critical 
in the realm of the implications of nanotechnology, especially 
the environmental, health, and safety implications of this new 
magic. Research initiatives launched pursuant to the National 
Nanotechnology Initiative need to be undertaken in cognizance 
of and, where appropriate, in cooperation with parallel 
activities in Europe and elsewhere.
    At this point I want to stress the value we place in the 
NNI, and your nanotechnology bill of 2003 was critical in 
helping to establish a statutory basis for that program, and we 
appreciate that. In a very short period of time, the NNI staff, 
with support from the agencies that participate in the NNI and 
support from Congress, have developed a very robust program of 
activities. In the semiconductor industry, we are active in a 
series of NNI/Semiconductor Research Corporation, or SRC, joint 
work groups focusing on a variety of nanotechnology technical 
issues, including environmental, health, and safety.
    The NNI/SRC focus on the EHS dimensions of nanotechnology 
is part of a broader trend of NNI focusing on the implications 
of this technology. We support these activities. Indeed, we 
believe more attention and resources need to be devoted to this 
important task of identifying and reducing the EHS risks of 
nanotechnology.
    Intel's own EHS management activities in the nanotechnology 
realm have two primary focal points. In the immediate term, we 
are committed to ensuring the safety of our own workers in the 
research and development operations where we work with 
nanomaterials. Longer-term we have an interest in the 
responsible development and deployment of nanotechnology, 
ensuring that attention is paid to the implications, as well as 
the applications. What we want to avoid is for the trajectory 
of nanotechnology to follow that of genetically-modified 
organisms, or GMO's. In the case of GMO's, which has been a hot 
button issue between the U.S. and the E.U., in our view the 
deployment of the applications outpaced attention to the 
environmental, health, and safety implications of the 
technology. Public concerns that arose because of this 
phenomenon have significantly retarded the realization of GMO's 
great commercial potential.
    Finally, I want to focus on the issue of government 
regulation of the EHS aspects of nanotechnology. Drawing 
lessons once again from the precedent of GMO's, government 
regulation of nanotechnology may be essential to long-term 
public acceptance of new technologies like nano. This probably 
is especially true in the European Union where the 
precautionary approach underlies their basic approach to these 
issues. But I want to caution--and this is the difficult aspect 
of the issue--that while we think governmental oversight of 
this new technology is important to public acceptance, we very 
much want to avoid overregulation that does have the potential, 
as you alluded to in the previous context, of killing this 
golden goose.
    While the two governments, U.S. and E.U., are beginning to 
sort out how they want to regulate nano, there is need for 
cooperation across the Atlantic. Because progress on the 
scientific aspects of nanotechnology will depend in part on 
international cooperation, there is a parallel need for 
cooperation in assessing and addressing the environmental 
implications. The emergence of significant differences in the 
regulatory approaches across the Atlantic does have the 
potential in the future to undercut the cooperation on the 
science. So the two are interrelated.
    Specifically what is called for is open cooperation and 
sharing in the generation of data concerning the risks, as well 
as the benefits, of nanotechnology. Sensible regulations need 
to be based on good science and accumulating data from credible 
scientific studies. We need an international research strategy 
focused on the potential environmental, health, and safety 
risks of nanotechnology, as well as the benefits, with a very 
broad sharing of research results and coordination of research 
efforts.
    With that I will end and be glad to answer any questions. 
Thank you.

    [The prepared statement of Mr. Harper follows:]

                  Prepared Statement of Stephen Harper

    Thank you, Senator Allen and committee members, for this 
opportunity to discuss an important topic--nanotechnology in the 
context of U.S.-European relations. I am Stephen Harper, director of 
environmental, health and safety policy at Intel Corporation. I am here 
representing Intel as well as the European-American Business Council 
(EABC).
    EABC is a trans-Atlantic, trans-sectoral alliance network of 43 
U.S.- and European-based global companies. EABC's mission is to enhance 
U.S. and European economic competitiveness through government-to-
government and government-to-industry policy collaboration. The EABC 
believes that smart trans-Atlantic regulatory alignment can truly add 
to productivity gains. Today I want to emphasize several key themes:

   First, innovation in the semiconductor industry has been a 
        principal driver of recent U.S. gains in economic productivity 
        and significant improvements in health care and other fields 
        benefiting humanity.

   Second, looking into the not-too-distant future, continued 
        progress in the semiconductor industry will depend on progress 
        in the development of nanotechnology. Just as semiconductor 
        technology is the competitive edge of the Information Age, so 
        nanotechnology will be the competitive edge of semiconductor 
        technology in the future.

   Third, continued progress in the development of 
        nanotechnology depends in significant measure on international 
        cooperation in key areas of research and development. The 
        opportunities and challenges simply are too great for one 
        nation, or a national industry, to try to tackle them in 
        isolation.

   Fourth, the evolution of an appropriate environmental, 
        health, and safety (EHS) regulatory framework for addressing 
        potential nanotechnology risks will be critical to the ultimate 
        public acceptance of this new technology. International 
        cooperation, especially between the U.S. and Europe, will be 
        key here as well.

   The U.S. government, focused through the National 
        Nanotechnology Initiative, can help ensure international 
        cooperation regarding EHS regulation of nanotechnology.

    Before I delve into each of these themes, let me first focus on 
Intel--who we are and why we care about nanotechnology.
    Intel, as you know, is the largest and leading semiconductor 
company in the world. Founded in 1968, Intel today employs 87,000 
employees worldwide, with 2004 revenue of approximately $34 billion. 
Although known primarily for our Pentium and Centrino products, Intel 
markets over 450 products and services.
    Intel also is a global company, with 294 offices and facilities in 
48 countries. Intel has a major manufacturing presence in the United 
States, with 49,000 U.S.-based employees and major production 
facilities in Oregon, Arizona, New Mexico, Colorado, Washington, and 
Massachusetts. We continue to have major research, design, and other 
facilities in California, in addition to our corporate headquarters.
    Importantly in the context of today's hearing, Intel also has a 
major investment in Europe. Leixlip, Ireland, in the suburbs of Dublin, 
is home to two Intel factories or ``fabs,'' employing 3,300. In 
addition to Ireland, we have significant design and research facilities 
in the UK, Denmark, and Germany. Specifically focused on 
nanotechnology, we participate in the Irish Nanotechnology Research 
Center as well as a research center in Belgium. Reflecting our 
production, design, and research investments in the European Union, we 
also participate in a number of industry trade associations and 
coalitions, including the European-American Business Council. The 
important thing to stress is that our facilities in the U.S. and 
Europe, and in Asia for that matter, are all part of an integrated 
enterprise. The success of each is important to the success of the 
overall company.
    Intel's interest in nanotechnology is multi-faceted. In the 
immediate term, Intel today is creating devices that feature 
transistors that are smaller than 100 nanometers wide. These nano-sized 
features are why Intel's current Pentium 4 processors are packed with 
more than 100 million transistors and our Itanium 2 server processor 
family includes a recently-prototyped chip that includes more than 17 
billion transistors, a product we expect to launch commercially early 
next year. In terms of dollar value of product, advanced semiconductors 
represent the biggest slice of the current nanotechnology marketplace. 
We refer to our current nanotechnology as ``nano-electronics.''
    The width of our current transistors and circuits is so small they 
are difficult to fathom. The best way to appreciate their size is in 
relation to more familiar objects. Later this year, Intel will 
introduce chips that have 65 nanometer-sized transistors. The gates of 
the transistors--the switch that turns them on and off--measure only 35 
nanometers across. At this size, approximately 100 of these transistor 
gates could fit inside the diameter of a human red blood cell. Another 
comparison: approximately 10 million of these transistors could fit in 
the area of the tip of a ball-point pen.
    Looking ahead we believe that we can continue to evolve and improve 
current materials and technologies to drive transistor sizes down to 
approximately the 10 nanometer size range. For the foreseeable future, 
semiconductors will continue to rely on traditional silicon-based 
technology. But perhaps approaching 2020, we anticipate running up 
against the physical limitations of silicon-based approaches. At that 
point, chip manufacturing may rely on new nanomaterials such as carbon 
nanotubes and nanowires to continue progress in accordance with Moore's 
Law.
    The year 2020 sounds like a long time away. But because of the 
complexity of the technical work that must be done to invent and 
implement the nanomaterial future, Intel and the semiconductor industry 
have begun investing in significant research and development to bridge 
to the nanomaterial future. Much of this work takes place within the 
context of the International Technology Roadmap for Semiconductors 
(ITRS). The ITRS lays out the key scientific and environmental 
challenges that must be met in order to continue progress along the 
path predicted by Moore's Law. It is important to emphasize that the 
ITRS, and much of the current nanotechnology R&D being undertaken in 
the semiconductor industry, is viewed as ``pre-competitive''--companies 
from across the industry, from around the world, are pursuing a common 
basic research agenda, working through cooperative institutions like 
Sematech and the Semiconductor Research Corporation. The economic 
promise and technical challenges of nanotechnology require effective 
international collaboration.
    Within Europe, Intel has been active in the Belgium-based 
Interuniversity MicroElectronics Center (IMEC), the European 
Nanoelectronics Initiative Advisory Council (ENIAC), and other 
industry-government cooperative ventures. We will also play a major 
role in the upcoming First International Nanotechnology Conference on 
Communication and Cooperation, scheduled for early June in San 
Francisco.
    I have referred several times to ``Moore's Law.'' What is Moore's 
Law and why does it matter? Forty years ago, Gordon Moore, one of the 
founders of Intel, predicted in an industry magazine that the number of 
transistors in integrated circuits would double every year. Moore later 
updated his projection to a doubling every two years, accounting for 
the increased complexity of semiconductors. Moore's observation really 
focuses on two phenomena--increasing density of transistors on 
semiconductors and radically decreasing cost per transistor. It 
describes the phenomenon in our industry whereby we etch ever smaller-
sized features in silicon. Moore's Law was a prediction based on an 
observation, not a true ``law.'' But it has functioned as a law in the 
sense that it has driven the pace of change and innovation in our 
industry, as we seek to continue the trend of past advances.
    So who cares? As described, Moore's Law perhaps is something 
interesting to semiconductor industry technologists only. But progress 
along the trajectory of Moore's Law has translated into cost decreases 
for a wide range of products that depend on semiconductors--computers, 
telecommunications equipment, automobiles, scientific equipment, and 
many other devices. Falling prices for information technology products 
have driven the rapid proliferation of information technology. The 
diffusion of information technology has been the biggest reason for the 
recent, historic acceleration of U.S. economic productivity growth. And 
productivity growth is the secret to improving our standard of living. 
In the words of Harvard Economics Professor Dale W. Jorgenson, ``A 
consensus has emerged that the development and deployment of 
information technology (IT) is the foundation of the American growth 
resurgence. The mantra of the `new economy'--faster, better, cheaper--
characterizes the speed of technological change and product improvement 
in semiconductors, the key enabling technology,'' (2005 Semiconductor 
Industry Association Annual Report).
    Pre-competitive R&D cooperation has been central to keeping up with 
Moore's Law in the past. We believe it will continue to be critical as 
we move further into the realm of nanomaterials. And this cooperation 
needs to be international in scope, combining the best research minds 
in the industry, and in government and university labs, wherever they 
are located. This is somewhat at odds with the spirit of numerous 
governmental reports and communications--from the U.S., Europe, and 
Japan--that portray nanotechnology as the next ``space race,'' as the 
proverbial ``goose'' that will lay the future economic ``golden egg.'' 
Clearly, governments in many geographies view nanotechnology as a 
foundation of future economic growth.
    My message today is that what we need is a balance of competition 
and cooperation. And international cooperation is critical in areas 
such as semiconductors, where the challenges are great and the cost of 
meeting those challenges is excessive. International cooperation is 
also critical in the realm of the implications of nanotechnology--
especially the environmental, health, and safety (EHS) implications of 
this new ``magic.'' Research initiatives launched pursuant to the 
National Nanotechnology Initiative (NM) need to be undertaken in 
cognizance of and, where appropriate, in cooperation with parallel 
activities in Europe and elsewhere.
    At this point I want to stress the value we place on the activities 
of the NNI. In a very short period of time, the NNI, with support from 
participating agencies and funding from the Congress, has developed a 
very robust program of activities. And we are confident that the 
ongoing National Academy of Sciences review, mandated by Congress, will 
confirm this and make suggestions for the continued success of the NNI. 
In the semiconductor industry, we are participating in a series of 
joint NNI/Semiconductor Research Cooperation (SRC) workgroups under the 
auspices of the NNI's Consultative Board on Advancing Nanotechnology 
(CBAN). These issues range from meeting priority technology challenges 
to identifying and addressing environmental, health, and safety (EHS) 
research needs related to semiconductor applications of nanotechnology. 
NNI funding related to semiconductor nanotechnology research goes to 
many universities in numerous states across the U.S.
    The NNI/SRC focus on the EHS dimensions of nanotechnology is part 
of a broader NNI trend of focusing on the ``implications'' of 
nanotechnology, not just ``applications.'' We support those activities; 
indeed, we believe that more attention and resources need to be devoted 
to identifying and reducing the EHS risks of nanotechnology.
    Intel has proud record of accomplishment in our own EHS programs 
and activities. Our guiding EHS management principles commit us to 
preventing all injuries in the workplace, being an EHS leader in our 
industry and our communities, and reducing the environmental 
``footprint'' of our products, processes, and operations. But ``talk is 
cheap''; we have translated these principles into a world-class record 
of performance. Our worker safety record is among the best of any 
company in any industry. Across both safety and environmental realms, 
Intel has earned dozens of awards for leadership in the U.S., Israel, 
the Philippines, and many other geographies. Within the industry, Intel 
has been a leader in the development of the EHS element of the 
International Technology Roadmap for Semiconductors.
    Intel's EHS management activities in the nanotechnology realm have 
two primary focal points. In the immediate term, we are committed to 
ensuring the safety of our own employees as they work with innovative 
nanomaterials in our research labs. Longer-term, we have an interest in 
the responsible development and deployment of nanotechnology, ensuring 
that attention is paid to the ``implications'' as well as the 
``applications.'' What we want to avoid is for the trajectory of 
nanotechnology to follow that of genetically-modified organisms (GMOs), 
the most recent ``magic'' technology. In the case of GMOs, in our view, 
deployment of applications outpaced attention to the environmental, 
health, and safety implications of the technology. Public concerns that 
arose because of this have significantly retarded the realization of 
GMO's great commercial potential.
    With this concern in mind, Intel has been an active participant in 
the CBAN NNUSRC Workgroup 5 activities, focused on EHS research. Intel 
also has assumed a role in a nascent activity under the auspices of the 
International Standardization Organization (ISO) focused on developing 
international standards related to the EHS aspects of nanotech. We also 
are one of the founding supporters of the International Council on 
Nanotechnology (ICON), a multi-stakeholder initiative of Rice 
University's Center for Biological and Environmental Nanotechnology 
(CBEN). ICON is focused on advancing and coordinating nanotechnology 
ENS research. In addition, we are engaged in formal ``benchmarking'' 
activities with other companies to identify ``best known methods'' in 
the measurement and safe handling of nanomaterials in the research 
laboratory environment.
    As a result of our engagement in these nanotechnology EHS 
initiatives, we believe there are two broad categories of research 
needs. First, much more needs to be known about the toxicity of 
nanomaterials. Second, there is a need for the development of 
standardized meterology techniques and EHS controls for application in 
both the laboratory and production environments. These needs are not 
unique to the semiconductor industry--they are common to a broad range 
of industries with an interest in the responsible deployment of 
nanotechnology.
    Finally, I want to focus on governmental regulation of the EHS 
aspects of nanotechnology. Drawing lessons once again from the 
precedent of CMOs, governmental regulation of nanotechnology may be 
essential to the long-term public acceptance of new technologies like 
nano. This probably is especially true in the European Union, where the 
``precautionary approach'' increasingly defines the governmental, and 
societal, approach to new technologies.
    Here in the U.S., the Environmental Protection Agency is in the 
early stages of wrestling with some difficult questions concerning the 
applicability to nanotechnology of their regulatory authority under the 
Toxic Substances Control Act (TSCA). We understand that the Agency 
intends to convene a public workshop on this issue later this year.
    In the European Union, we anticipate that regulation of 
nanotechnology will proceed under the broad umbrella of the REACH 
Directive. REACH is a fundamental revision of the E.U.'s approach to 
regulating new and existing chemicals. Because the REACH Directive is 
still in the legislative process, it is not entirely clear what the new 
chemical regulatory regime will look like, much less how it will 
address nanotechnology.
    While the two governments--U.S. and E.U.--are beginning to sort out 
how they want to regulate nanotechnology, there is a need for 
cooperation across the Atlantic. Because progress on the scientific 
aspects of nanotechnology--at least in the semiconductor industry--will 
depend in part on international cooperation, there is a parallel need 
for cooperation in assessing and addressing the EHS implications of 
nanotechnology. The emergence of significant differences in regulatory 
approaches across the Atlantic could undercut cooperation on the 
science.
    Specifically what is called for is open cooperation and sharing in 
the generation of data concerning the risks as well as the benefits of 
nanotechnology. Sensible regulations need to be based on good science 
and accumulating data from credible scientific studies. We need an 
international research strategy focused on the potential EHS risks of 
nanotechnology, with broad sharing of research results and the 
coordination of future efforts. The U.S. Government can provide a 
significant service in this regard. The NNI, working with CBEN, ICON, 
and others, should clearly identify all past, current, and proposed 
nanotechnology research focused on human health risks and safety 
issues. Overtures should be made to the Europeans and Japanese to 
encourage them to add to this database. A collective, international 
effort of this kind will help to identify key research gaps and spur 
the development of an international EHS research strategy for 
nanotechnology. Execution of this strategy will inform responsible 
regulation of nanotechnology and, in our view, increase the prospects 
of public acceptance and commercial realization of nanotechnology's 
great promise.
    Thank you again for this opportunity to testify. I will be happy to 
answer any questions.

    Senator Allen. Thank you, Mr. Harper, for your insight. 
Part of what you were saying about the concerns about GMO's and 
others is exactly one of the salient reasons why Senator Wyden 
and I have created the Nanotech Caucus. I would venture to say 
there are not many Senators who understand this subject. And if 
people are not knowledgeable, if there are charges or 
frightening unknowns brought forward, the reactions can be 
exaggerated and then be harmful. But on the other hand, there 
should be certain standards that will help that credibility 
whether here or in Europe, in fact, an international standard. 
But I thank you for your insight on this.
    Now we would like to hear from Mr. Klaessig.

 STATEMENT OF DR. FREDERICK C. KLAESSIG, TECHNOLOGY DIRECTOR, 
    AEROSIL AND SILANES BUSINESS UNIT, DEGUSSA CORPORATION, 
                     PISCATAWAY, NEW JERSEY

    Dr. Klaessig. Good afternoon, Senator.
    Senator Allen. Good afternoon.
    Dr. Klaessig. I appreciate very much the opportunity from 
you and your subcommittee to appear today on a very important 
topic for Degussa.
    I represent the Degussa Corporation, plus a number of 
chemical firms in the United States and in Europe that have 
organized under the American Chemistry Council to come together 
and bring industry's view to the regulatory agencies and also 
the counterparts of the American Chemistry Council over in 
Europe, the CEFIC, VCI, and similar organizations.
    I am the technology director for a product that comes under 
the definition of nanotechnology. My responsibilities are 
customer support, introduce new products, and liaison between 
our research department in Germany, as well as with emerging 
American marketplace opportunities.
    The material that we do manufacture, as you mentioned 
earlier, is a fumed metal oxide. It does not fit the standard 
definition of nanotechnology, but that is one of the issues 
that we do deal with, that there is no definition of 
nanotechnology. Steve just referred to the classical 
definition, but there are a number of definitions. Each agency 
seems to have a definition that is associated with its mission 
statement. Therefore, we accept that our knowledge of the 
chemistry of our materials, other chemistry that people are 
discussing in the nanotechnology area--and in some applications 
our materials are found in the nano size of 100 nanometers that 
Steve mentioned.
    We have been manufacturing those materials for about 60 
years. In fact, our materials have been in commerce longer than 
the word ``nano'' has been in the English language, if you 
believe the Oxford English Dictionary. So we have a rather 
historical perspective, shall we say. We are bemused sometimes 
with the scientific facts that others find surprising in 
physical chemistry, but they are learning what we have known 
for a while, and there are new innovations definitely there 
too.
    We are concerned about the different definitions that are 
occurring and feel that there may be shifting burdens, but as a 
supplier of existing materials, we are prepared for that. That 
is also the reason that we are working with other firms.
    We have a higher concern when the issue comes to that of a 
finding of safety. There are many new novel materials being 
introduced or being examined. All materials, to get into 
commerce, have to go through the regulatory review. In this 
area, concerns about public safety or public confidence in 
safety may arise.
    The last area of our concern, but one that is less that we 
can influence and one of the reasons that I am here today, is 
the issue that others have mentioned, harmonization, avoiding 
patchwork quilts of regulations around the world. Here we have 
less immediate influence, but we are trying to be participatory 
and ask for help there.
    We have three essential items that we would like to bring 
your attention to. One is that nanotechnology is real and here 
today. You change the definitions, you just change the volumes 
of what you are quoting in terms of what is in commerce.
    Steve mentioned the Moore's Law. One of the enabling 
technologies for semiconductor chip manufacture involves silica 
particles and a water slurry being used to planerize the chips. 
That is an example of something that has been around and is 
contributing to innovation in other fields.
    We also have examples in inkjet paper where the coating for 
glossy inkjet paper often has nanomaterials or materials that 
can become nano under processing conditions.
    So it is here. It is real, and we believe that the 
regulatory TSCA procedures by the EPA are robust enough to 
incorporate them because they have been incorporating them for 
some time if ongoing science is introduced into the process.
    Our second point is that I have mentioned science and we 
have had a number of mentions here today about science. This 
topic is a global science topic with a global opportunity, and 
the area of environmental, health, and safety, the level of 
effort, the priority in the nano initiative has not been as 
prominent either here or in Europe or other locations, and it 
does go to public trust. That will extend itself into other 
areas such as customs duties and identification of materials. 
It will also go into other areas such as FDA. But since every 
firm has to go through this process, we need the best 
evaluatory tools in order to proceed.
    The last item is the harmonization item. This topic is 
emerging. It is becoming more prominent. There will be meetings 
here by the EPA on June 23rd, a public meeting. There will be a 
meeting by the OECD on June 7th on the same topic. As this 
rises in priority or in visibility to the governments, the 
strong voice that both groups or of all groups respond to the 
science in their way but to have a harmonized version would be 
appreciated.
    The final comment is for those who do not know. Degussa is 
a multinational firm based in Germany, about 6,000 employees in 
the United States with major facilities in Alabama, Virginia, 
New Jersey, and other States. We appreciate very much the 
opportunity to speak to you. Thank you.

    [The prepared statement of Dr. Klaessig follows:]

              Prepared Statement of Frederick C. Klaessig

    Thank you, Senator Allen and committee members and staff, for the 
opportunity to address nanotechnology and regulatory issues from the 
standpoints of U.S. and European firms. I am Dr. Frederick C. Klaessig, 
technology director for the Aerosil & Silanes Business Unit of Degussa 
Corporation. I am here representing Degussa plus several U.S. and 
European member firms of the American Chemistry Council (ACC) that are 
actively involved with nanotechnology issues. Some of these firms are 
also active in the ACC's European and German counterparts, CEFIC and 
VCI, respectively.
    If I am effective in my testimony today, I will be leaving you with 
three concepts:

          1. The existing regulatory frameworks in Europe and the U.S. 
        are robust enough to evaluate newer nanomaterials if on-going 
        scientific advances are taken into consideration;

          Congressional support would be most effective in encouraging 
        global coordination and harmonization of regulatory activities, 
        so that newer materials do not face a patchwork of regulations; 
        and
          3. Congressional support is also crucial in encouraging 
        federal agencies to increase funds for environmental, health 
        and safety (EHS) research.

    Degussa Corporation is a wholly-owned subsidiary of Degussa AG, the 
third largest German chemical firm, based in Duesseldorf, Germany. 
Degussa AG's roots go back to the mid-nineteenth century and we are 
presently the world's largest specialty chemical firm with revenues of 
=13 billion, employing 45,000 people globally. In the United States, 
Degussa employs 6,000 workers at over 60 manufacturing sites, with 
major facilities in Alabama, Virginia, New jersey, New York, Ohio, 
Georgia, and Texas.
    Nanotechnology is regarded as one of the key technologies of the 
21st century, Degussa regards this new technology as an opportunity to 
help develop new products and efficient scientific and technological 
solutions, and so make essential contributions towards environmental 
protection, health, and product quality. The company's responsible 
approach to nanotechnology is described in the policies recently 
approved by Degussa's Management Board; according to these policies, 
Degussa produces and markets nanomaterials only if, according to the 
latest available research, they can be manufactured and applied in a 
safe and environmentally compatible manner.
    Degussa specializes in manufacturing fine scale powders. During 
these manufacturing processes, intermediates form that are nanoscale in 
part, which are smaller than one ten-thousandth of a millimeter and 
which immediately coalesce into much larger, micron-sized agglomerates. 
For special applications, formulations such as dispersions are 
selectively manufactured that contain these nanomaterials. In the 
research, production, and application of nanomaterials, Degussa is 
guided by informed prudent practices and the findings of scientific 
studies on hazard and risk assessment. These findings determine the 
measures necessary to protect employees, customers, and consumers when 
manufacturing and using nanoscale materials. Degussa works closely with 
leading European and U.S. research institutes for this purpose. 
Moreover, Degussa explicitly supports the establishment of new research 
methods, specially tailored to the specific effects of nanoscale 
materials, which permit refinement of risk assessment.
    Unlike other ``new'' technologies, there is a long history of 
nanomaterials being safely used in commerce when following good 
industrial hygiene practice. As a manufacturer for more than 60 years 
of products that have nano-scaled features, we are in a position to 
bring an historical perspective to the current R&D initiatives taking 
place in the U.S., Europe, and Japan. We have actively participated in 
the general trend of utilizing finer and finer materials (smaller and 
smaller features) and narrower and narrower particle size 
distributions, which taken together are termed the top down avenue to 
nanotechnology. The decades long trend to smaller particles has led to 
a dramatic improvement in physical properties in such applications as 
reinforcement of silicone rubber, paint theology control, fillers in 
general, glossy inkjet paper coatings and chemical mechanical 
planarization of semiconductor wafers.
    From the broader historical perspective, we note the following 
tipping points when viewing the current nanotechnology initiative in 
the United States (expressed in the traditional stasis categories):

Comment on Current Situation
          Fact.--Traditional concepts of surface and bulk chemistry are 
        being confused when physical and life science disciplines 
        participate in the dialog.

          Definition.--There are a multitude of definitions for 
        materials that have been in commerce safely for decades, while 
        there is a lack of definition for newer materials and novel 
        functionality.

          Quality.--The safety of existing materials, as well as future 
        innovative substances, is put into question when there are gaps 
        in scientific knowledge and toxicity test methodology that are 
        being actively pursued.

          Venue.--The science and uses of nanotechnology are global in 
        nature, but the research initiatives and regulatory schemes are 
        potentially regional.

          Overall.--The various branches of technology development are 
        operating at different speeds, causing confusion regarding the 
        science, safety, and utilization of nano-scaled materials.

    For those firms having existing nano-scaled products, like Degussa, 
there is a concern that new, naive definitions will undermine existing 
patents, trade secrets, and TSCA registrations. The same would be true 
for our customers who have relied on our technology in developing their 
own products. For those firms that are contemplating entering the field 
of nanomaterials with new ``engineered'' substances with novel 
functionality, there is uncertainty regarding evolving definitions that 
do not capture the essence of their innovative concepts in 
manufacturing, characterizing, and evaluating these materials. For some 
firms, especially those that are small, innovative and inexperienced, 
there is the greater likelihood that they are unaware of the regulatory 
issues they must address in order to achieve a finding of safety for 
their product(s). All categories of firms, no matter size or resources, 
will encounter the same regulatory issues during the commercialization 
process, However, it is not clear that regulatory agencies are viewing 
the development of nanotechnology with the same priority or 
coordinating with each other. Placing these concerns under the common 
heading of ``regulatory risk,'' all categories of firms must now add an 
additional risk to the standard business risk of the marketplace.
    Several member firms of the American Chemistry Council have 
established working groups with the purposes of coordinating a 
collective response to our concerns about both existing materials and 
those in the R&D pipeline.
    It is our firm belief that the current regulatory frameworks in the 
U.S. and Europe are capable of addressing the development of new 
nanomaterials, if scientific results are taken into consideration as 
they arise. Certainly, emerging scientific results will need to be 
taken into consideration as they arise, but the regulatory frameworks 
are in place to deal with them. The firms participating in the ACC 
forums are committed to Responsible Care principles and are prepared 
to respond to new and on-going EHS studies. The same is true for 
industrial hygiene issues, where an industry consortium is already 
planning efficacy evaluations of face mask, gloves, and other materials 
when exposed to nanoparticles.
    Governmental initiatives in both the U.S. and Europe are to be 
congratulated in fostering the development of applications in 
nanotechnology. As society has experienced in other emerging fields, 
meshing science, technology, funding, and patents does not guarantee 
success in the global marketplace with new products. We (Degussa and 
the like-minded firms at ACC, CEFIC, etc.) are most concerned with EHS 
issues, and we would ask the Senator and his colleagues to consider 
this issue in their future deliberations.
    All new substances require EPA review before being introduced to 
the commercial market, yet to date, the global initiatives for 
nanotechnology have not emphasized EHS in their priority programs. 
Generating the body of knowledge needed to make findings of safety, the 
process inherent to being TSCA listed, are considered to be the domain 
of the commercial firm and not of the academic laboratory. Yet, too, 
the new nanomaterials can exhibit unique properties in both their 
physical performance as well as in their toxicological, environmental 
attributes. The novel materials are challenging to the field of 
toxicology as they are unique in their performance. A gap is forming 
where we as a society are generating nanotechnology more rapidly than 
we are creating the tools to measure the EHS impact of this same 
technology. We understand that public confidence in both the safety of 
the novel products of nanotechnology and in the methods and processes 
used to assess them are essential; both must be vigorously pursued. 
Existing materials may point the way to both health concerns and the 
product stewardship practices needed to eliminate those concerns.
    The unknown, especially the unseen material with an uncertain 
toxicity, can lead to a sudden loss in public confidence about safety. 
Our concern, being global companies, regarding the developing gap 
between generating nanotechnology and evaluating its EHS attributes, is 
that it may lead the different regions of the world to have separate 
and restrictive EHS regulations. If a competitive race between regions 
in generating nanotechnology should lead to a commensurate race in 
regulating these same materials, then our common desire for benefiting 
from nanotechnology will be undermined.
    It is our firm belief at Degussa that nanotechnology is a global 
opportunity to be based on a global reservoir of scientific facts. We 
would urge the Congress to encourage the U.S. agencies to work 
cooperatively with their European and Japanese counterparts. For 
example, we commend the Environmental Protection Agency's staff for 
their active involvement with the upcoming OECD meeting on 7 June. The 
public meetings the EPA plans in the U.S. will parallel the public 
meetings to be held by the OECD in 2006. Efforts such as these should 
be encouraged.
    It would help the research innovation cycle greatly if the Congress 
would encourage the funding agencies involved with the NNI to redirect 
money from the fundamental research of nanomaterials to the fundamental 
research for potential toxicity of nanomaterials, as well as their 
relevant exposure scenarios. It is currently assumed that industry 
should be responsible for generating the database needed to gain a TSCA 
listing, but the newer nanomaterials pose a challenge to existing 
testing methodology. However, test methodologies, structure activity 
relationships, and analytical techniques are not standardized in this 
field, and federal funding here would guide the regulatory agencies and 
responsible firms towards proper testing and evaluation of new 
materials. Industry and the EPA will look for some guidance to 
federally funded academic studies, which is preferable to case-by-case 
studies protected by trade secret status.
    Many states have nanotechnology initiatives, which is true in 
Europe as well. These efforts are closely tied to job creation and 
often use local university and college resources in these efforts. 
Successful, state-funded firms will encounter EHS hurdles when 
commercializing their products at the point of regulatory review at the 
EPA level or when exporting to Europe or Asia. In fact, there is a 
range of trade-related issues, such as customs duties, that are similar 
to EHS concerns and are susceptible to confusing, isolated 
interpretations when viewed on the global perspective. Again, global 
coordination of Federal agency activities and research funding of EHS-
related evaluation techniques are areas where Congressional 
encouragement would be most helpful.
    I wish to join my other colleagues from industry in expressing our 
appreciation of the time you are giving to this topic.

    Senator Allen. Thank you, Dr. Klaessig, for your testimony 
and insight from a company that has been involved for a long 
time.
    Generally you say 100 nanometers and all that. Of course, 
it is so small no one understands it. I always explain it as 
one one-hundredth of the width of the human hair, if you would 
agree with that definition. You have got to scale it to 
something people could understand. Obviously, one one-hundredth 
of the width of the human hair is microscopic. That is at least 
one way I try to explain it.
    It is profoundly changing the way that we do a lot of 
things. Microelectronics is one that is fully understood. The 
materials engineering I think will have the earlier 
applications, and ultimately some of those in the life 
sciences, health sciences, and energy have great potential as 
well.
    I appreciate your comments.
    We would now like to hear from Ms. West and then Mr. Duffy. 
Ms. West.

      STATEMENT OF FRANCES W. WEST, WORLDWIDE DIRECTOR OF 
ACCESSIBILITY CENTER, IBM CORPORATION, CAMBRIDGE, MASSACHUSETTS

    Ms. West. Thank you. Before I start my formal testimony, I 
would like to follow Mr. Patton's example to make a Virginia 
connection. The first school I attended in the United States 
was Washington Lee University.
    Senator Allen. Oh, great.
    Ms. West. And my son is a sophomore at the University of 
Virginia. So I feel like I am half Virginian too.
    Senator Allen. Certainly paying tuition.
    Ms. West. That is right.
    So let me start. Thank you, Senator Allen. I appreciate the 
opportunity to share with you the importance of furthering the 
development of IT accessibility. I thank you for your work on 
this subject and for recognizing the importance of this topic 
and your willingness to take a leadership position in this 
area.
    You have my written testimony that I submitted for the 
record, and I would like to highlight what I think are the most 
relevant and important concepts in my oral remarks.
    My name is Frances West, and I am the worldwide director of 
IBM's Accessibility Center. I have been with IBM for 25 years 
and have been the director of the center for the past two 
years.
    Accessibility has traditionally been viewed as a people 
with disabilities issue. It is not. It is really every man's 
and woman's issue because we are all aging. According to recent 
AARP statistics, one in every four people will acquire a 
functional disability by age 50; one in two people by age 65. 
So the topic of accessibility is not really about them. It is 
about all of us.
    Given that accessibility is an emerging technology, we do 
need government policies that raise the awareness and set in 
motion actions that can be taken by industry. For example, IBM 
has always viewed accessibility as a key part of our work force 
core values, and we hired the first disabled employee in 1914, 
some 76 years before the Americans with Disabilities Act.
    In 1999, section 508 was passed into law which was the 
impetus for corporate action. IBM set up its Accessibility 
Center in the year 2000 and issued internal corporate 
instruction 162 on this topic, which is an example of how 
Government policy can be a catalyst for institutional changes 
in a private enterprise.
    Section 508 promoted focus and growth, but if there are too 
many competing standards, it could cause corporations to spend 
precious resources not on innovation but on compliance-related 
decisions or actions.
    We see accessibility product compliance as an initial 
building block on a journey towards usable access and societal 
access. What do I mean by that? Let me explain.
    Usable access is about not just enabling a person to have 
access but to have the access in a meaningful way. For example, 
a web page can be accessible to a blind person, but it may take 
20 minutes for a screen reader to read through all the 
information on the screen. Or you can build in navigational 
tools to skip around so that the blind user can accomplish the 
same task in 5 minutes. That is the difference between 
compliant access and usable access.
    Societal access is about integrating private and 
governmental infrastructure to provide citizens of all 
capabilities with seamless support. For example, a returning 
soldier from Iraq with a disability or a hard-of-hearing 
grandmother can have all their transportation, medical, and 
financial services coordinated in such a way that it is 
efficient, effective, and personalized to their needs. The 
benefit of such an environment is a more citizen-centric 
government and a much better allocation of both governmental 
and private resources.
    To achieve this desired state, much innovation is needed. 
Industry resources should be focused on innovation to solve 
these complex issues and technical challenges instead of 
diverting these resources to support enforcement proposals such 
as third party certification or mark and labeling.
    The European Union just issued a procurement directive for 
information technology, and this is very exciting. We see this 
as a potential next step in extending what section 508 has 
started. We would like the opportunity to collaborate with the 
E.U. government and other stakeholders in the development of 
the next generation of accessibility policies so that we can 
continue to promote innovative products, best practices, and 
new approaches.
    With strong endorsement from government leaders such as 
yourself and supporting policies from the E.U. and the U.S., 
private enterprises like IBM will embrace the challenge to 
deliver innovative solutions to people at large and especially 
to people with disabilities.
    We in IBM truly believe in a vision and environment in 
which all people can fulfill their highest capacity regardless 
of their ability or disability. Currently all lines of the 
business within IBM are involved in inventing and developing 
technologies, products, services, and solutions that will 
benefit people with diverse capabilities. We are engaged with 
governments and the private sector in first-of-a-kind 
enterprise transformation initiatives that will result in a 
more inclusive society, a society where human and societal 
potential can be optimized. In essence, we are striving to 
deliver not just innovation, but innovation that matters to the 
world, a corporate core value of IBM, and we think that 
enhancing human capacity through accessible technology and 
solutions is an innovation that matters.
    But this vision can only be achieved through active 
collaboration between industry, government, and the citizenry. 
We therefore appreciate opportunities, such as today's hearing, 
for advancing this dialogue.
    I thank you very much for your time and your interest in 
this topic.

    [The prepared statement of Ms. West follows:]

                   Prepared Statement of Frances West

    Good afternoon. I am Frances west with the IBM Corporation. It is 
my pleasure to appear today before you on behalf of the European-
American Business Council (EABC) and the Information Technology 
Industry Council (ITI), two organizations with whom IBM has a 
longstanding relationship.
    We appreciate the opportunity to speak to the Senate European 
Affairs Subcommittee on the topic of accessibility--a subject we 
believe is strongly tied to enhancing human capacity in the 
transatlantic region. Specifically, we will share our views on the 
impact information technology (IT) accessibility policy can have on the 
transatlantic market, how certification and labeling proposals can 
negatively impact the current growth and development of accessibility 
initiatives, and our recommendations for the U.S. government to work 
with the European Union towards the same goal of a global accessibility 
standard for technology.

                              INTRODUCTION

    IT Accessibility, until recently seen as an emerging market and 
technology issue, is going mainstream, fueled by powerful demographic 
and social trends.
    Between 750 million and one billion of the world's six billion 
people have a speech, vision, mobility, hearing or cognitive 
impairment, according to the World Health Organization. And accessible 
information technology is one solution to assist all these people in 
connecting to the world around them.
    In the U.S., more than 54 million people have disabilities. These 
numbers are increasing, in part, because while people are living longer 
and health care is continually improving, this has not fully 
ameliorated the incidence of acquired disabilities as a natural part of 
the aging process. According to AARP, one in every four people will 
acquire a functional disability by age 50, one in two people by age 65.
    According to the Center for Strategic and International Studies in 
a 2003 report, the rapid aging of the populations of developed 
countries poses major challenges for global prosperity and stability 
during first half of the 21st century. In countries like Italy, Spain 
and Japan, by year 2040, 45% of the population will be over the age of 
60. This changing demographic further elevates the importance of 
accessibility.
    The impact of accessibility affects society as whole, As this 
emerging trend continues, society and industry can realize economic 
returns if individuals are allowed to benefit from product, services 
and solution innovation and if this innovation is enabled by 
governmental policies.
    IBM, for example, is taking a holistic approach to accessibility. 
Our focus on accessibility encompasses our roles as a developer and 
manufacture of IT products, a service provider in the IT industry, a 
buyer of components, products and services and an employer of over 
330,000 people worldwide, looking to attract and retain the best talent 
in a competitive industry. To each of these roles, we bring a 
philosophy that strives to enhance human capacity by enabling and 
easing information access for the largest number of people--especially 
those whose disabilities restrict direct access. Frequently, this 
involves the creation of special products or modifications of the 
products that we design and manufacture. But, to achieve the greatest 
benefit requires more than just products.
    We believe that making technology accessible to all is a need that 
is best met by technologies and solutions that are committed to 
interoperability based on open standards, and have been developed via 
collaborative processes. Accessibility is enhanced by open standards 
that permit the free exchange of information, encourage innovation and 
give businesses, governments, schools and social agencies more 
flexibility to customize solutions and meet their own individual 
requirements.
    IBM workforce diversity is a core commitment and we have long 
viewed accessibility as part of this corporate belief. For example, IBM 
hired its first disabled employee in 1914, fully 76 years before the 
ADA was enacted. We accelerated accessibility related investments, 
however, when the U.S. government took a leadership role in 
establishing section 508. We believe that section 508 is a 
comprehensive and meaningful framework to support the industry's work 
in this area. We, along with ITI, EABC and our industry colleagues like 
SAP applaud the U.S. Government's foresight in this issue.

                               BACKGROUND

    The need for accessible information technology is acute across the 
globe. The global number of people with disabilities is expected to 
grow as the population ages. In response to this reality, the U.S. led 
the world in developing a policy for IT accessibility when it passed 
section 508 of the Rehabilitation Act in 1998, a procurement law 
mandating that all IT purchased by the federal government be 
accessible. This law, with technical specifications defined within it, 
has had an impact far beyond the U.S. federal government and in fact, 
has global reach.
    However, we have a concern that the positive impact of section 508 
may be disrupted or side tracked. Governments in Europe are currently 
exploring or actually establishing national or regional, IT 
accessibility policies. Some of these policies are similar to section 
508, but many of them are different. These governments are considering 
procurement policy now to help develop accessible e-government systems. 
This is good for the technology sector, for the people who need 
accessibility and for the marketplace. But without a harmonized 
approach to accessible IT procurement, each government could decide to 
adopt a different technical standard, thereby fragmenting markets, 
limiting accessible choices, reducing incentive for research and 
innovation by companies, but most importantly, undercutting the very 
real contributions we need persons with disabilities to make.
    Section 508 has been important not only to those requiring 
accessibility but to the whole technology sector. Since the passing of 
section 508 into law, the technology industry has invested significant 
technical and human resources in bringing products into compliance. 
IBM, for example, has made significant investments in our internal 
infrastructure as well as our design and testing processes.

   We have developed an extensive set of techniques that guide 
        our development teams in implementing section 508 requirements 
        and our test teams in validating that the requirements have 
        been properly met.

   We have integrated accessibility tasks into all phases of 
        our mainstream development processes. Accessibility 
        requirements are considered from the very beginning during the 
        concept phase of product development.

   We have developed an extensive reporting and tracking system 
        for the accessibility of all our products. Once a product is 
        ready for announcement, a section 508 Voluntary Product 
        Accessibility Template (VPAT) is created.

    Fulfilling the true mandate of section 508 is not easily 
accomplished--it takes systematic and corporate wide effort in order to 
be realized. Industry has made much progress but there is more to do. 
Given the broad implications accessibility has on society and the 
population in general, industry is looking to move beyond compliance 
and bring innovative solutions to the marketplace. This is where we can 
use your help.

              U.S.-E.U. REGULATORY HARMONIZATION IS NEEDED

    If you are blind and use a screen reader to surf the Web, it should 
read sites from the U.S. government as easily as it reads ones posted 
by the government of Sweden. This can only be done if there is 
agreement among governments on the policy for accessibility.
    Without transatlantic harmonization of global IT accessibility 
approaches in policy and standards, all consumers--or more importantly 
the people who need the technology most--lose. If differing regional or 
country technical requirements are mandated, industry is forced to 
focus on multiple compliance developments rather than pushing beyond 
and investing in new technologies and solutions.
    Take just Web site accessibility and compliance as an example. IBM 
has approximately 5 million internal and external Web pages. If it had 
to bring all of its Web pages into compliance with multiple 
accessibility mandates, it would be economically and practically 
impossible.
    If different standards are enforced, as one can see in the example 
just cited, the cost of implementation would be astronomical. Companies 
would be forced to choose whether they have the resources to develop 
unique products and services to meet varying specifications. Or, more 
likely, they might choose not compete in certain markets at all. If, on 
the other hand, the European technical specifications for accessibility 
are harmonized with those globally, it would more than double the 
market for conforming IT products and would create an even greater 
incentive for manufacturers to compete on the basis of accessibility. 
Ultimately, society will reap the greatest benefits in the form of more 
involved citizens, more contributing workers and more enabled 
individuals.
    What the technology sector seeks is for the U.S. government to work 
with the European Commission to ensure that any new accessibility 
policy removes existing barriers and does not create any new barriers 
to the accessibility market.

                  THIRD PARTY TESTING OR CERTIFICATION

    The European Commission will publish its Communication on e-
Accessibility in the autumn of this year; it is expected to discuss the 
introduction of accessibility compliance testing or certification by a 
third party. Based on the technology sector's experience with third 
party testing over the years in other venues, and given the resources 
involved in accessible product design, development, marketing, and 
support, third party certifications present significant problems and 
draw backs:

   Third party certification tends to freeze innovation by 
        driving manufacturers to focus their attention and resources on 
        passing certification tests rather than on new research and 
        development that can lead to new and innovative ways to 
        incorporate accessibility features into IT.

   Only the manufacturer has the flexibility to test and 
        evaluate components as they are developed in-cycle, whereas 
        third-party testing is usually performed at the end of the 
        development cycle, thereby increasing the costs of product 
        modifications or redesigns. External certification increases 
        manufacturing costs considerably; it would lengthen the product 
        development cycle; and can not only delay the introduction of 
        new products into the market, but also potentially slow the 
        procurement process. This benefits no one, especially the end 
        user.

   Third-party testing across the range of accessibility 
        products is impractical due to the inherent subjectivity, 
        ambiguities, and complexity of the technical accessibility 
        standards. In some cases it is technically infeasible, like 
        trying to measure ``equivalent facilitation'' or difficult to 
        be objective when determining if a web page uses simple 
        language to convey a concept.

   This method of testing demands that a certifying 
        organization rely on open, transparent and recognized objective 
        technical criteria and testing protocols, yet these criteria 
        and protocols do not exist. For example, there are no 
        established section 508 objective conformance criteria, and it 
        is highly unlikely that they could be developed in light of the 
        broad range and multifaceted functionality of IT products 
        currently in the marketplace.

   An additional complexity is that third party testing 
        organizations, in using any such objective conformance criteria 
        and testing protocols required for IT products, would also have 
        to account for IT interoperability with assistive technologies. 
        The assistive technology issue is particularly problematic, as 
        there are many different assistive technology products, and 
        they are not all designed to work on all systems.

   Another problem with this approach is the scope and depth of 
        technical expertise that would be needed by external testing 
        organizations.

    In light of the significant technological and operational 
complexity in this area, and the negative impact it would have 
ultimately on the user, third party testing is not an approach that 
will increase IT accessibility or add value to products or services. 
For whether or not a testing organization successfully evaluates a 
product's accessibility, the manufacturer in either case remains 
responsible and liable for the accessibility of the product.
    We do support, however, a voluntary system of self certification 
that strengthens the incentive to address accessibility early in the 
product design phase, and enables innovative products to be brought to 
the marketplace more quickly. Evaluation of products in-house 
encourages interoperability and collaborative problem solving between 
hardware, software, and assistive technology vendors, and also 
reinforces a corporate commitment to accessibility. This self-
declaration approach has been implemented successfully in Europe and 
elsewhere on such critical matters as product safety and environmental 
attributes (e.g. electrical shock, flammability standards). In the 
U.S., the Voluntary Product Accessibility Template or VPAT has been a 
successful part of the procurement process to report compliance with 
the technical requirements of section 508.

                            PRODUCT LABELING

    There is discussion in the E.U. about developing a quality mark or 
labeling for accessibility on IT products and services. We have 
concerns regarding potential requirements for accessibility labeling or 
an accessibility mark and the effect it will have on the development of 
IT products.
    Given the enormous range of functional limitations that exist, even 
within a single disability or impairment type, it would be nearly 
impossible to create a label or mark that could provide sufficient 
information to buyers regarding a product's conformance with evolving 
accessibility technical and procurement standards. Indeed, it could 
raise false expectations for consumers and thereby generate significant 
legal and practical concerns for manufacturers. We see labeling as 
having the following drawbacks:

   Consumers and users can misperceive labeling proposals as a 
        simplistic and complete solution to a complicated technology 
        issue that only due diligence by the developers can resolve. A 
        quality mark can never replace the in-depth work that site 
        developers and owners should be doing in their creation of 
        pages.

   Labeling proposals would not provide sufficient information 
        regarding conformance with developing accessibility standards 
        given the various differences among disabilities and even 
        within a single disability or impairment.

   Labeling proposals run the risk of setting false 
        expectations for consumers. For example, with websites, most 
        consumers do not recognize that an accessible web page is only 
        part of a comprehensive solution to deliver an accessible 
        experience to the end-user. Support is also needed in the web 
        browser and the assistive technology. Labeling a web page as 
        accessible may not give the consumer accessibility if the 
        assistive technology does not perform as expected. False 
        expectations from labels may give rise to significant legal and 
        practical concerns for manufacturers and employers.

   Labeling proposals would be difficult to organize and 
        implement for most products, but especially for web pages that 
        are updated frequently--some as often as many times an hour.

    Finally, product labeling is expensive. If a government entity were 
to embrace unique accessibility labeling requirements for products sold 
in a specific marketplace, the business case for selling in that 
marketplace would be lessened, reducing competition and consumer 
choice. And again, the people most in need of this technology would 
lose.

                               CONCLUSION

    IBM, on behalf of the IT industry, requests the assistance of this 
committee in ensuring that all who need accessible technology get the 
best our industry has to offer. We have three specific requests:

          First, given the broad reach of the technology and potential 
        impact on all citizens, IT accessibility policy demands 
        attention from the highest levels of government. We hope that 
        the profile and importance of IT accessibility can be raised 
        whenever there are discussions between U.S. andleaders.

          Second, we suggest establishing an early warning process 
        where Congressional and Parliament members can work in tandem 
        to examine regulatory convergence issues such as IT 
        accessibility. We believe that with increased attention from 
        the leadership and proper oversight, transatlantic agency 
        activities with regard to accessibility standardization can be 
        accelerated.

          And third, we request that the U.S. government work with the 
        European Commission to continue the pursuit of a harmonized 
        approach to accessibility.

    In closing, IBM shares the belief with EABC and ITI that IT 
accessibility is a topic that touches not just people with 
disabilities, but increasingly the population at large, as we all will 
experience some type of disability the older we get and the longer we 
live. We therefore need to work towards a global standard that is open, 
harmonized to existing approaches, and promotes an IT environment that 
enables interoperability. This would foster innovation, unite the 
market place, and create a border free and barrier free information 
society.
    Finally, at IBM, we envision an environment in which all people can 
fulfill their highest capacity, regardless of ability or disability. 
Currently, all lines of business within IBM are involved in inventing 
and developing technologies, products, services, solutions that will 
benefit people with diverse capabilities. We are engaged with 
governments and the private sector in first-of-a-kind enterprise 
transformation initiatives that will result in a more inclusive 
society; a society where human and societal potential can be optimized. 
In essence, we are striving to deliver ``innovation that matters to the 
world,'' a corporate wide value. And we think enhancing human capacity 
through accessible technology and solutions is an innovation that 
matters.
    But, this vision can only be achieved through active collaboration 
between industry, government and the citizenry. We therefore appreciate 
opportunities such as today's hearing for advancing this dialogue.
    Thank you for your attention and I look forward to answering your 
questions.

    Senator Allen. Thank you, Ms. West, for your testimony and 
insight.
    Now we would like to hear from Mr. Duffy.

   STATEMENT OF JOSEPH E. DUFFY, VICE PRESIDENT, SAP PUBLIC 
                SERVICES, INC., WASHINGTON, D.C.

    Mr. Duffy. Thank you very much, Mr. Chairman, and thank you 
for the opportunity to testify before you today.
    We appreciate the role that Congress has played in creating 
a favorable policy environment for accessible information 
technologies. We commend you today for seeking to encourage 
greater harmony on this issue between the United States and 
Europe because only harmonized international accessibility 
standards will produce the best results for the disabled 
community.
    For background, SAP is the world's leading provider of 
business applications software. More than 26,000 companies and 
government agencies run on SAP business software, and an 
estimated 12 million individuals who work for these 
organizations are SAP users. SAP has a strong presence in the 
U.S., employing more than 5,500 people in 18 locations. SAP 
America has enjoyed substantial growth in the last 2 years, and 
we anticipate growing further this year. Our CEO, Bill 
McDermott, recently stated that SAP created 1,500 new jobs in 
the United States in the last 18 months. In addition, SAP 
provides more than 50,000 U.S.-based students with SAP training 
at 115 universities across the Nation.
    At SAP we feel strongly that barriers faced by individuals 
with disabilities in the work place must be eliminated. We 
support policies that protect a person with disabilities' right 
to participate in the work force, including section 508.
    Through our Accessibility Competence Center and our 
industry-leading research and development, we are working to 
make sure that our software solutions are accessible and meet 
the needs of people with disabilities around the globe. Today 
we are implementing a very detailed program with specific goals 
and milestones to meet the needs of the disabled community. Our 
plan is designed to address sensory and motor-skill 
disabilities and to focus on the needs of end users first, 
making accessible software available to the largest number of 
users as rapidly as possible.
    Making information technology, or IT, more accessible to 
people with disabilities is not an easy task. First, there are 
many kinds of physical disabilities. Each type poses unique 
challenges to IT product developers. Second, the degree of IT 
accessibility depends on the complex interaction of multiple 
technologies produced by multiple vendors, including operating 
systems, keyboards, terminal screens, mouse pointers, and 
business applications. On top of this, people with disabilities 
usually use a combination of assistive technologies such as 
screen readers, Braille displays, and mouse alternatives. As 
you can imagine, designing and producing accessible products is 
an ongoing and complex challenge for all IT providers, while 
the very definition of accessibility is a moving target.
    To put this into context, one of our products, mySAP ERP, 
contains more than 150,000 screen views. Updating each one of 
them with accessibility features is really a daunting task.
    As we pursue this mission, we strongly support efforts to 
achieve harmonized global accessibility standards. Simply put, 
accessibility standards are specifications that product 
manufacturers must meet to serve the needs of the disabled 
user. International standards development organizations, or 
SDO's, are one source of such standards, but government 
entities in the U.S. and Europe also provide such 
specifications. If we get into a situation where there are 
multiple standards for a given technology, then IT developers 
must either choose one set of standards and forego certain 
markets or go to the trouble of implementing multiple standards 
and hope they do not come into conflict with each other. As you 
can imagine, the difficulty of avoiding such conflicts 
increases as more and more standards are created.
    Before moving on to solutions, let us just take a moment to 
examine how fragmented accessibility standards can negatively 
impact people with disabilities.
    To cite the most obvious effect, fragmented standards 
impose extra cost and delay on technology providers which has a 
spill-over effect on consumers. This extra effort delays the 
availability of new technologies, and even worse, it raises the 
price of such products for consumers, imposing additional 
burdens on the very people we are trying to help, many of whom 
are financially disadvantaged.
    Another impact of fragmented standards is to recreate the 
geographic barriers that IT otherwise does so much to remove. 
Imagine the frustration of a disabled consumer who cannot 
access a web site because the designed lived in another country 
and followed a different accessibility standard. In short, the 
needs of disabled consumers are essentially identical whether 
they live in the United States or Europe and we should not 
impose new barriers based on fragmented standards.
    Lastly, it must be noted that fragmented information 
technology accessibility standards also create trade barriers 
and discourage global competition. The negative impact is 
particularly damaging to small companies which can ill-afford 
the smaller markets and extra development costs of complying 
with divergent standards.
    With regard to ongoing work to establish accessibility 
standards in Europe, the IT industry encourages policy makers 
there to consider the flexible, market-oriented approach taken 
in the United States under section 508 of the Rehabilitation 
Act. The applicable requirements have already been incorporated 
into the product development process at SAP and many other 
companies. As a result, section 508 has already generated 
significant innovation and benefits all disabled users in the 
public and private sectors all over the world.
    As the U.S. Access Board is now considering an update to 
section 508, we see this as a great opportunity for 
transatlantic cooperation. Ideally we would like to see a 
single set of rules governing the accessibility requirements in 
both regions and have them be performance- and outcome-
oriented. The specific technical requirements should be 
generated and managed by SDO's.
    As a company with a strong presence in Europe, we have 
committed to supporting and working closely with our U.S.-based 
peers, including IBM, Microsoft, Oracle, HP, and others to 
promote global harmonized standards within the European 
Commission. We all believe that only harmonized international 
accessibility standards can produce the best results for the 
disabled community, businesses, and the economy.
    We would like to thank ITI and EABC for their support to 
industry and thank you for the opportunity to submit these 
comments. We look forward to further discussion, and I will be 
happy to answer any questions.

    [The prepared statement of Mr. Duffy follows:]

                   Prepared Statement of Joseph Duffy

    Mr. Chairman, Senator Allen, and members of the subcommittee, thank 
you for the invitation to be with you today for this important 
discussion. I know I speak for many in our industry when I say we 
appreciate the role that Congress has played in creating a favorable 
policy environment for accessible information technologies (IT). We 
applaud you again today for seeking to encourage greater harmony on 
this issue between the United States and Europe, because only 
harmonized international accessibility standards will produce the best 
results for consumers, businesses and the economy.
    Mr. Chairman, my company, SAP, is the world's leading provider of 
business application software. Our products and services are relied 
upon by more than 12 million users at 26,000 companies and public 
sector agencies to manage such crucial functions as financials, 
operations, supply chains, and human resources. We are a global company 
with a strong presence in the United States, employing more than 5,500 
people in 18 U.S. offices and labs. We are also an active partner of 
many Federal and state agencies, which use our software to improve 
efficiency and accountability in agencies like the departments of 
Defense, Homeland Security, Treasury, Interior and Energy, and GSA.
    SAP also donates more than $60 million a year to help improve math, 
science and engineering curriculum in U.S. secondary and post-secondary 
educational institutions. Over the last few years, we have provided 
almost half a million dollars to schools and programs in the U.S. that 
serve thousands of disabled adults and children.
    Mr. Chairman, our commitment to serving our customers and 
communities includes making our products accessible to users with 
physical disabilities. We are doing this not only because it's the 
right thing to do, but also because there is a strong and growing 
market for it. According to the U.S. Census Bureau, the United States 
is home to about 30 million working-age people with disabilities,\1\ 
while the European Commission estimates an additional 17 to 24 million 
live in the European Union.\2\ The World Health Organization estimates 
about 600 million people of all ages live with disabilities 
worldwide.\3\ Obviously, there are large markets to be addressed and 
many social and economic benefits to be gained by working together to 
make IT products more accessible.
---------------------------------------------------------------------------
    \1\ U.S. Census Bureau, fact sheet dated 12 July 2002 and posted at 
http://www.census.gov/Press-Release/www/2002/cb02ffl.html.
    \2\ European Commission Directorate-General for Employment and 
Social Affairs, report entitled ``Active Labour Market Programmes for 
People with Disabilities,'' dated August 2002 and posted at http://
europa.eu.int/comm/employment_social/index/active_labour_market.
    \3\ World Health Organization, fact sheet dated 3 December 2003 and 
posted at http://who.int/ncd/disability/index.htm.
---------------------------------------------------------------------------
    Making IT more accessible to people with disabilities is not an 
easy task. First, there are many kinds of physical disabilities, and 
each type poses unique challenges to IT product developers. Second, the 
degree of IT accessibility depends on the complex interaction of 
multiple technologies produced by multiple vendors: operating systems, 
keyboards, terminal screens, mouse pointers, business applications, and 
so forth. On top of this, people with disabilities usually use a 
combination of assistive technologies such as screen readers, Braille 
display, and mouse alternatives. As you can imagine, designing and 
producing accessible products is an ongoing and complex challenge for 
all IT providers, and the very definition of accessibility is a moving 
target.
    At SAP, through our Accessibility Competence Center and our 
industry-leading research and development, we are working to make our 
software solutions more accessible. Accessibility requirements are 
incorporated into our product design, development, and quality control 
processes. We are taking additional steps to add accessibility features 
into existing products. For example, one of our products, mySAP ERP, 
contains more than 150,000 screen views, and updating them is a serious 
undertaking. In addition, our partners and customers can also take 
advantage of our technology advancement to enhance the accessibility of 
their software applications. Indeed, we are implementing a very 
detailed program with specific goals and milestones to meet the needs 
of the disabled community. Our plan is designed to address sensory and 
motor skill disabilities and to focus on the needs of end users first, 
making accessible software available to the largest number of users as 
rapidly as possible.
    As we pursue this mission, we strongly support efforts to achieve 
harmonized global accessibility standards.
    Simply put, accessibility standards are specifications that product 
manufacturers must meet to serve the needs of disabled users. 
International standards development organizations are one source of 
such standards, but government entities in the U.S. and Europe also 
provide such specifications. If we get into a situation where there are 
multiple standards for a given technology, then IT developers must 
either choose one set of standards and forgo certain markets, or go to 
the trouble of implementing multiple standards and hope they do not 
come into conflict with each other. As you can imagine, the difficulty 
of avoiding such conflicts increases as more and more standards are 
created.
    Before moving on to solutions, let's take a moment to examine how 
fragmented accessibility standards can negatively impact people with 
disabilities.
    To cite the most obvious effect, fragmented standards impose extra 
costs and delays on technology providers, which then have spill-over 
impacts on consumers. In the best-case scenario, divergent standards do 
not create irreconcilable conflicts but merely require extra time and 
expense to design, development, test, and deploy. This extra effort 
delays the introduction of new technologies. Even worse, it raises the 
prices of such products for consumers, imposing additional burdens on 
the very people we are trying to help, many of whom are financially 
disadvantaged.
    Another impact of fragmented standards is to re-create the 
geographic barriers that IT otherwise does so much to remove. 
Overcoming such barriers is particularly relevant to those with 
physical disabilities because they have greater difficulties in 
traveling. Imagine the frustration of a disabled consumer who might be 
unable to access an important web site because the site designer lived 
in another country and followed a different standard. In short, the 
needs of disabled consumers are essentially identical whether they live 
in United States or Europe, and we shouldn't impose new barriers based 
on fragmented standards.
    Lastly, it must be noted that fragmented information technology 
accessibility standards also creates trade barriers and discourage 
global competition. The negative impact is particular damaging to small 
companies, which can ill-afford the extra development cost of complying 
with divergent standards.
    For all of the forgoing reasons, SAP strongly supports efforts to 
achieve harmonized global IT accessibility standards. Harmonized 
standards offer the greatest opportunities for consumers, business, and 
society by reducing costs, improving time to market, widening the 
availability of accessible products, and increasing the quality of life 
of people with disabilities. So how can we achieve harmonized 
standards?
    Global standards development organizations (SDOs) are in the best 
position to maintain global standards and resolve conflicts among 
competing standards. Let's face it, the pace of technological 
innovation is so fast that even SDOs have a hard time keeping up. But 
writing technical standards into law or regulation makes the problem 
even worse. Typical lawmaking processes cannot keep up with the speed 
of information technology advancements.
    We encourage legislators and regulators in the United States and 
abroad to reference the work of international SDOs in domestic 
regulations instead of trying to fine-tune those standards and set them 
in law in their own countries. If specific requirements must be written 
into law, we encourage the lawmakers to specify the requirements based 
on outcome and performance instead of technical methods. Methods often 
change due to technological advances.
    With regard to ongoing work to establish accessibility standards in 
Europe, the IT industry encourages policy makers there to consider the 
flexible, market-oriented approach taken in the United States under 
section 508 of the Federal Rehabilitation Act. Section 508 requires the 
U.S. Government to purchase the most accessible products on the market. 
Because the U.S. Government is the leading purchaser of IT in the 
world, section 508 has spurred extraordinary cooperation among public 
sector buyers, industry and consumers to meet that demand, which in 
turn has led to rapid progress in the development of accessible 
products.
    The applicable requirements of section 508 have already been 
incorporated into the product-development process at SAP and many other 
companies. As a result, section 508 has already generated significant 
innovation and benefits for all disabled users in the public and 
private sectors all over the world.
    Depending on how the rules are implemented by the European 
Commission and Member States, addressing accessibility through global 
SDOs and a public procurement approach could provide many advantages 
for European consumers. For example, if European requirements are 
harmonized with those of the United States, it would more than double 
the market for conforming IT products and create an even greater 
incentive for manufacturers to develop accessible products. Consumers 
will reap the ultimate benefits in the form of lower costs, greater 
choices, and better quality of life--and it will all occur sooner 
rather than later.
    As the U.S. Access Board is now considering an update of section 
508, we see this as a great opportunity for trans-Atlantic cooperation. 
Ideally, we would like to see a single set of rules governing the 
accessibility requirements in both regions. We would also prefer to see 
that specific requirements refer to designated SDOs' work or that the 
requirements be performance and outcome-oriented.
    This does not mean ignoring difference of language and culture; 
these are important and must be addressed in standards-setting 
processes. As global standards are adopted, they must be published and 
promoted in multiple languages to facilitate adoption by local 
authorities and to avoid misinterpretations. But language and cultural 
differences affect all people regardless of disabilities. Thus, there 
is no need to create additional international trade barriers for the 
alleged benefit of accessibility. Instead, global SDOs should obtain 
inputs from regional experts and create standards that are applicable 
in all geographic locations. This is of particular importance when we 
examine the complexity involved in Asian languages.
    Mr. Chairman, I am pleased to report that early efforts to 
harmonize global accessibility standards are promising. The Special 
Working Group on Accessibility of the Joint Technical Committee 1 (JTC 
1) of the International Organization for Standardization (ISO) and the 
International Electrotechnical Commission (IEC) have already begun the 
work of gathering user requirements, taking inventory of existing 
standards, and tracking laws and policy. Section 508 will be 
influential in that process. SAP, IBM, many of our peer companies, and 
the U.S. Access Board are supporting the working group's efforts. We 
are eagerly anticipating the positive results that it promises to 
deliver.
    Within Europe, the European Commission has issued a Communication 
on ``e-Accessibility'' that recognizes the risk of a fragmented 
disability market and cites as its ``main'' objective ``to promote 
harmonization on a voluntary basis and to help self-regulation.'' 
Industry applauds this emphasis and urges deference to the 
international, consensus-based standards development process, which 
will be the most efficient and effective way to advance IT 
accessibility.
    Mr. Chairman, to summarize, developing harmonized global standards 
through SDOs and cooperative inter-governmental initiatives will enable 
IT vendors to focus on innovating and competing in the global market, 
rather than on responding to a patchwork quilt of redundant and 
contradictory requirements. Close cooperation between the United State 
and Europe is essential to making progress on this topic. Failure to 
achieve cooperation would cause significant harm to the IT industry, 
the economy, and, most importantly, people with disabilities.
    Thank you for the opportunity to submit these comments. We look 
forward to further discussion and would be happy to answer any 
questions.

    Senator Allen. Thank you, Mr. Duffy and Ms. West. Thank you 
to both of you all on the IT accessibility issue. Let me first 
start with you all to try to get a gist of what we can do here.
    When you all are developing the IT accessibility products, 
services, clearly that is a smaller market. It is not a larger 
market. I do not know if your companies, IBM or SAP, actually 
make any money. Do you even make money? I do not want to get 
into proprietary information.
    The reason I am asking this question is to the extent you 
end up with a fragmented market, it makes it all the more 
costly as an investment for IBM or SAP, wonderful companies 
that want to be making sure people with a variety of different 
disabilities have access to technology and information. If you 
do not make any profit off of it, if you are doing this as a 
service or as a cost of doing business, how would this 
fragmentation and regulations that are unnecessarily burdensome 
affect the ability of folks with a variety of disabilities to 
actually have access to your programs, so to speak?
    Either one of you all or both can speak to that. If somehow 
this is a violation of Sarbanes-Oxley to answer this question, 
you can cite that as a reason for not answering it.
    Mr. Duffy. I will take a shot at it, sir. I do not believe 
we do not track down to that level whether we make money or 
not. But clearly we invest a tremendous amount of money to 
serve that community, and we think it is good corporate citizen 
policy, in fact, to do so.
    But if we do have to get into many, many different 
fragmented regulations, it really just kind of spreads the 
peanut butter a little too far. When you want to go out and you 
want to get products to market quicker and you want to give 
availability to folks with disabilities, because a computer is 
the lifeblood to a lot of folks with disabilities, the more we 
can concentrate on a standard set of standards, the more we can 
focus those resources on that.
    Senator Allen. Ms. West.
    Ms. West. From IBM's standpoint, we actually started 
looking at this market, and we actually foresee a tremendous 
business advantage of addressing accessibility. Like I 
mentioned earlier, the aging trend is becoming a global issue. 
We already have seen industries like the retail industry and 
the banking industry viewing people with disabilities and the 
aging population as the target market. So there is actually 
money to be had or business to be made in that under-served 
market segment.
    Secondly, with a self-declaration kind of a process that 
section 508 has introduced, it really helped IBM to focus 
building accessibility requirements into the front end of our 
products. This is not actually a very difficult thing to solve 
if you think about it ahead of time. So by engaging our 
development team at the concept stage of development, the cost 
of production actually has gone down significantly. And then 
the application of that accessible solution can be broad-based 
to everybody who is experiencing aging. So then again, the 
average return on the investment actually is quite substantial. 
So this is not an issue in our view of just kind of a social 
responsibility issue. We actually view it as a tremendous 
economic benefit.
    Senator Allen. Well, thanks for that insight.
    Now, both your companies have invested a great deal since 
508 was adopted and enforced on companies. Obviously both you 
have invested heavily, and maybe it is a good market share, 
maybe it is good corporate citizenship to make your products 
accessible to meet the 508 requirements. Briefly, if each of 
you could share with me and obviously the committee--and, Ms. 
West, I just want to close the loop on this. You in your 
testimony talked about if the E.U. decides to adopt an 
accessibility standard which deviates from 508--and it may 
actually be a better standard. I do not know if it is better or 
worse. But regardless, I was trying to follow that. What impact 
would that have, for example, on IBM to meet a different 
standard or a different set of requirements?
    Ms. West. The section 508--I think from the accessibility 
standards standpoint, there actually has been very good 
dialogue between the U.S. committee and also the European Union 
community. We actually applaud the E.U. looking at 508 as a 
base because this is a new area and many extensions should be 
had. As long as the E.U. does not go down a path that 
completely deviates from the section 508 base, then I think it 
is definitely a very good scenario because we too would like to 
participate in that second generation of defining the 
accessibility standards. We just do not want to start having 
differing standards, for example, by countries or by regions. 
That will create a problem for us.
    Senator Allen. Thank you, Ms. West.
    Mr. Duffy, do you have anything you want to add to it? I 
just wanted to clarify something in Ms. West's testimony in 
that regard.
    Mr. Duffy. That is fine.
    Senator Allen. Thank you.
    Let me talk to our nanotechnologists here and ask you some 
questions. As far as the regulatory agencies, whether they are 
here in the U.S. or in the European Union, do you feel in 
either area, whether it is U.S. or the E.U., that any of them 
headed in the wrong direction in the development of 
regulations, environmental regulations, for example, for 
nanotechnology? If so, let us know how.
    Mr. Harper. Yes, Senator. I think it is a somewhat 
asymmetric situation. Governments on both sides are just 
beginning to look. Agencies are just beginning to look at how 
to regulate nanotechnology. U.S. EPA I think has taken a very 
good first step in the right direction. They are holding a 
meeting in late June where they are bringing in stakeholders 
from all sides to look at developing a pilot program for how 
you apply the Toxic Substances Control Act, the primary 
chemical regulatory authority that Congress has provided EPA, 
to nanotechnology. Fred had alluded to that earlier.
    We think that the tools of TSCA and the authorities of TSCA 
can be made to apply quite well to nanotechnology, but there 
are some unique issues and there are some unique science, and 
we think that the pilot project approach is a good way for the 
agency and everyone else to work their way through that 
process. I think there is a good deal of goodwill on all sides, 
including industry and the environmental community, to try and 
make this work.
    In Europe, it is a very different situation. They are even 
earlier in their stage of looking at nanotechnology, and I 
think it will be a longer time before they get around to it 
simply because they are in the midst of rewriting their entire 
chemical regulatory legislative framework. They have something 
called the REACH regulation which is working its way through 
parliament, as we speak. I think it is clear that 
nanotechnology will be handled under the umbrella of the REACH 
regulation. How that will occur I think is still very much up 
in the air because a lot of the details of the REACH regulation 
are still very much up in the air.
    But right now, at least in the United States, we think 
things are headed in the right direction. EPA in our view has 
shown the right amount of attention to this, and the jury is 
still out on how it is going to turn out, as it is in Europe as 
well. But because both sides are in the early stages of looking 
at this issue and how to apply their existing or future tools 
in the case of Europe, we think there is great opportunity for 
the two sides to collaborate and share their thoughts to 
maximize the chances that the two regulatory regimes will be 
very similar going forward in time.
    I do not know what Fred thinks.
    Dr. Klaessig. I agree with Steve. Overall, the issue I 
think that will come up in terms of the science, both groups 
have the goodwill to use the best science and global science. 
When there are difficulties, especially with the newer and more 
novel materials that are being generated in the laboratories 
today, I think the issue will come up of evaluation tools, 
toxicity mechanisms, the type of issues that normally are 
assumed to be carried by industry when it has a product in hand 
and a market to go after. But when you do not know what the 
right test is or if the definition of the material does not 
cause you to go to the EPA or other agency for proper review, 
that will be the area where I think--call it a gap, call it a 
developing issue might arise. And then, of course, individual 
groups will start having definitions of what precaution really 
means.
    I agree with Steve on the issue of the E.U.. The group that 
seems to becoming prominent on this topic is OECD, which I do 
not know how to rank it in all the different discussions here, 
but the OECD is working on this. They do get involved with 
standardized tests and test methodologies. So what may happen 
in this case is the United States EPA takes the lead. The OECD 
takes the energy and the effort over in Europe, while the E.U. 
is involved with Project REACH. So it may be a plight of the 
Parisian OECD.
    Senator Allen. Thank you.
    Let me ask you this one last question on nanotechnology. 
Are there any types of commercial products that are currently 
in use and in what way? And are there any differences that you 
foresee at this time between the U.S. and Europe marketplaces, 
if there are any of these differences?
    Dr. Klaessig. From existing materials, the marketplaces are 
very similar. From future marketplaces, I think the main issue 
for me would be that the United States has been more 
encouraging of smaller firms, start-up firms, university type 
of offshoots, and no matter what size a firm is, you have to go 
through this regulatory stage to commercialize your product. So 
I would think that just as the EPA has taken the lead on trying 
to incorporate these issues into their TSCA scheme, we will 
also be the first that will be involved with a start-up firm 
not being aware of the topic, and just when they want to go to 
commercialization and when their investors are insisting on 
quick commercialization, finding out that they did not even 
know they had to register, did not even take the underlying 
tests, and had difficulty finding out what the right test 
methodologies were. So I think that sort of an issue will also 
arise here in the United States first.
    Mr. Harper. Yes. I would just like to add to that. The uses 
for the nanomaterials that are now out on the marketplace, sun 
block, nanomaterials that harden tennis balls, harden tennis 
rackets--I mean, there are a number of applications. The real 
interesting areas of exploration are still, by and large, in 
the R&D labs.
    While the U.S. and the E.U. governments are trying to 
figure out how to make their existing or, in the case of 
Europe, new regulatory regimes apply to nano, a lot of folks in 
industry, including Fred's company and my own, are active in 
industry and in some cases industry and environmental group 
collaborations and academic collaborations to try and develop, 
for lack of a better term, best known methods for handling 
these materials in our facilities so that we make sure that 
issues do not arise between now and when EPA has fully figured 
out, for example, how to regulate nanotechnology in the 
workplace or the marketplace.
    One of the concerns I think Fred and I both share is that a 
lot of this work is being done in start-up companies that do 
not have environmental management teams like Intel or Degussa 
has or academic research labs. One of the challenges for 
companies like ours is in the development of these approaches 
in the labs particularly but also in the manufacturing 
environment, that we share those approaches with these smaller 
companies and with these academic research institutions that, 
as I say, do not have the capability to develop these 
approaches themselves. We are working on that. That is really 
an obligation I think on industry's end.
    Senator Allen. What is your motivation to do that? You do 
not want to have some small company cause some problem and have 
an overreaction?
    Mr. Harper. I will speak for Intel. In our case, there is a 
long tradition in our company of not making environmental, 
health, and safety practices a competitive issue. So we will 
share our environmental, health, and safety practices, which 
have been widely recognized as leadership practices, with 
anybody, including our fiercest competitors. We feel like that 
is the right thing to do.
    In addition, through one of our subsidiaries, Intel 
Capital, we have venture capital investments in several of the 
principal start-up companies that are developing these new 
applications. We feel a stewardship responsibility there 
because we are part owner of that enterprise.
    Then I think, finally, you touched on the other aspect that 
I mentioned in my testimony. If these materials are deployed in 
the wrong way, even if it is only in the research and 
development environment, there is a possibility that these 
technologies--and it is plural, not singular--could get held up 
in regulation or in public oversight or public lack of 
acceptance, much like in the GMO environment, and we want to 
avoid that.
    Dr. Klaessig. Yes. Loss of public confidence in both the 
materials and also the system by which we make findings of 
safety, leading to a chilling effect on innovation even by 
those who are following responsible procedures. Again, if there 
is an incident or something that causes great public alarm, 
then the precautionary principle, which is more resident in 
Europe than it is here in the United States, will be used 
everywhere as opposed to in a reasonable and consistent 
fashion.
    Senator Allen. Thank you, Dr. Klaessig. Thank you both, 
gentlemen.
    Finally, on the European collection societies, Mr. Patton 
and Mr. Hassell, you are talking about our approach versus the 
Europeans. The Europeans have multiple, apparently redundant, 
often extremely excessive levels of levies and taxation; 
whereas, as far as we are concerned in this country, I have 
always felt like it's better to leave it free. Let innovation 
go forward and let the consumers, the marketplace make a 
decision, particularly on not taxing Internet services.
    Clearly, I assume you all, regardless of Europe or the 
U.S., feel the U.S. approach, keeping Internet services free of 
taxation and regulation is a preferable approach for consumers, 
not just for businesses. Would you agree with that assertion or 
statement?
    Mr. Hassell. Yes, Mr. Chairman, we would. I think the 
United States' approach is we trust the market. We trust the 
market to help solve this problem. I think there are lots of 
companies that are producing great technologies to balance the 
need to protect intellectual property. We want to protect our 
intellectual property at HP. We are against stealing. However, 
we do not think having this tax-like levy system is going to 
encourage any solution to this problem.
    So we appreciate your leadership. You, I think, understand 
in your gut that you do not tax the Internet, and we have had 
one of the biggest economic booms in our country's history. So 
we certainly support that position.
    Mr. Patton. I think it is fair to ask whether an ebay or a 
Google or an iTune service could have really flourished if we 
had a practice here in the United States to go after it and tax 
it because it is an available and growing source of revenue.
    The way the European collecting societies focus on 
innovation I think has an absolutely detrimental effect on 
innovation, and it stifles it. It works this way: If there is 
an innovation of a new category of products, such as there is 
beginning to be in Europe in flash memory devices and personal 
digital systems and PC's and everything else in the digital 
age, these collection societies are viewing those as sources of 
revenue. They are developing these excessive levels of levies. 
You do not know, as they meet to determine what level of tax 
they are going to put on, what that is going to be.
    We currently are reserving about $8 for a DVD recorder in 
Spain for putting in reserve to wait to find out what the levy 
is going to be. It may be $8; it may be $10; it may be $15; it 
could be $20. When they finally decide what to apply to this 
DVD recorder in Spain, we could find that we have been selling 
it in the market for 9 months, 12 months, 18 months, 2 years at 
a loss, and we will not know it until it is applied.
    This is not a way to enter a market. We can deal with 
normal market conditions and market forces. We can deal with 
regulations when they are appropriate. We can deal with all of 
the legal framework for what you sell in a marketplace, but you 
cannot enter a market that is so intensively competitive around 
the globe, as it is today in the new digital era, and wait to 
find out what kind of margin you might be able to squeak out 
based on the excessiveness of the tax.
    Senator Allen. Well, it strikes me in that market--you were 
mentioning Austria--in a market like that, if you had a world 
market like that--if the United States was like that and Europe 
is the way they are, as you describe it--it would strike me 
that you would reduce research and development into some of 
these new innovations with that uncertainty. You would not even 
know what your market would be. You would expect out of 
European countries that share much of our heritage and similar 
values that they would understand these just basic economic 
principles of predictability. If you are going to go in a 
market, you need to know what your risks are, what your costs 
are.
    I would hope that as we have this meeting, conference, 
summit, whatever you want to call it, next month, that just 
these basic things--you are Philips, of course, a Dutch 
company, and hopefully they will listen to you. They ought to 
listen, of course, to Hewlett-Packard and IBM and Intel. But it 
would seem to me that the European companies, in particular, 
might have the greatest influence on our partners or potential 
partners in Europe on such matters. It just does not make sense 
to have to face that sort of a situation or to try to get in 
the market and, therefore, harm those consumers' ability to 
have the most advanced technologies, whether it is for 
commerce, whether it is for information, or whether it is for 
entertainment.
    Mr. Patton. It is an appropriate moment to suggest that our 
voices in unison perhaps are more powerful than us speaking 
singularly, and we had the opportunity with HP to collaborate 
on lots of exciting and innovative new technologies.
    But it is also important to point out that we do commend 
the European Commission for trying to push member states to 
implement the E.U. copyright directive in ways that do 
recognize the new reality of the digital era in the marketplace 
in Europe. They have certainly made great strides since the 
introduction of the single market, and it is a single market 
that consumers are benefiting from.
    Your first question about looking around for other places 
to buy a product so that they do not have to pay the excessive 
taxes is absolutely spot-on in terms of one of the distortions. 
Never underestimate the consumers' ability to go find a better 
deal. And Europe will make strides, I am sure.
    Mr. Hassell. If I may, Mr. Chairman. I just want to 
emphasize that the E.U. is very receptive to our position. We 
have been working together with other companies, and I think 
they share our position that we need to somehow address the 
spread of levies. So they are receptive at the E.U. level. We 
just need to apply that directive and make sure it is enforced.
    Senator Allen. Thank you both.
    There was a reason that you all were selected here on these 
three large topics, whether it is accessibility, whether it is 
the technology standards, or whether it was the taxes, levies, 
or nanotechnology and one from a European company and a U.S. 
company. There was a group made up of business leaders on both 
sides of the Atlantic--and it is still in existence--called The 
Atlantik Bruecke (The Atlantic Bridge). I find that the 
business leaders from European companies and U.S. companies 
have much more compatibility, on a one-on-one basis. As far as 
governmental officials, we do not have good personality 
agreements and friendliness, but sometimes the governments need 
to listen. I think it makes a great deal of sense to listen to 
people in the free enterprise system, listen to the innovators, 
the inventors as we are making policy so we are making the 
right policy. And all of your companies are international in 
scope. But to the extent you find U.S.- and E.U.-based 
businesses and business leaders saying the same thing, that 
does have an influence on us, and I think it would also have a 
positive influence on the representative democracies of Europe 
as well.
    So I thank you all for taking time from your busy 
schedules, sharing with us your insight on these important 
subjects. As this meeting takes place next month, there will be 
certain things as you requested. We will follow up on it. So I 
thank everyone here, Mr. Harper, Dr. Klaessig, Ms. West, Mr. 
Duffy, Mr. Patton, a good Virginian, Mr. Hassell, a wayward 
Virginian who I know will come back before too long.
    Thank you all so much, and we will keep innovating and we 
will keep leading. Thank you all so much.
    Hearing adjourned.

    [Whereupon, at 4:45 p.m., the subcommittee was adjourned.]

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