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99–604 PDF 2005

S. HRG. 108–798

NOMINATIONS OF: HARVEY S. ROSEN

KRISTIN J. FORBES, JULIE L. MYERS, AND

PETER LICHTENBAUM

HEARING

BEFORE THE

COMMITTEE ON

BANKING, HOUSING, AND URBAN AFFAIRS

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

ON

NOMINATIONS OF:

HARVEY S. ROSEN, OF NEW JERSEY, TO BE A MEMBER OF

THE COUNCIL OF ECONOMIC ADVISERS

KRISTIN J. FORBES, OF MASSACHUSETTS, TO BE A MEMBER OF

THE COUNCIL OF ECONOMIC ADVISERS

JULIE L. MYERS, OF KANSAS, TO BE ASSISTANT SECRETARY FOR

EXPORT ENFORCEMENT, U.S. DEPARTMENT OF COMMERCE

PETER LICHTENBAUM, OF VIRGINIA, TO BE ASSISTANT SECRETARY FOR EXPORT

ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE

SEPTEMBER 16, 2003

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

(

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

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

RICHARD C. SHELBY, Alabama, Chairman

ROBERT F. BENNETT, Utah

WAYNE ALLARD, Colorado

MICHAEL B. ENZI, Wyoming

CHUCK HAGEL, Nebraska

RICK SANTORUM, Pennsylvania

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

JOHN E. SUNUNU, New Hampshire

ELIZABETH DOLE, North Carolina

LINCOLN D. CHAFEE, Rhode Island

PAUL S. SARBANES, Maryland

CHRISTOPHER J. DODD, Connecticut

TIM JOHNSON, South Dakota

JACK REED, Rhode Island

CHARLES E. SCHUMER, New York

EVAN BAYH, Indiana

ZELL MILLER, Georgia

THOMAS R. CARPER, Delaware

DEBBIE STABENOW, Michigan

JON S. CORZINE, New Jersey

KATHLEEN L. CASEY, Staff Director and Counsel

STEVEN B. HARRIS, Democratic Staff Director and Chief Counsel

PEGGY R. KUHN, Senior Financial Economist

SKIP FISCHER, Senior Professional Staff

MARK A. CALABRIA, Senior Professional Staff

MARTIN J. GRUENBERG, Democratic Senior Counsel

PATIENCE R. SINGLETON, Counsel

JOSEPH R. KOLINSKI, Chief Clerk and Computer Systems Administrator

GEORGE E. WHITTLE, Editor

(II)

CONTENTS

TUESDAY, SEPTEMBER 16, 2003

Page

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

Opening statements, comments, or prepared statements of:

Senator Sununu ................................................................................................ 2

Senator Reed ..................................................................................................... 7

Senator Sarbanes .............................................................................................. 10

Senator Carper ................................................................................................. 16

Senator Warner ................................................................................................ 33

NOMINEES

Harvey S. Rosen, of New Jersey, to be a Member of the Council of

Economic Advisers ............................................................................................... 3

Biographical sketch of nominee ....................................................................... 34

Kristin J. Forbes, of Massachusetts, to be a Member of the Council of

Economic Advisers ............................................................................................... 4

Biographical sketch of nominee ....................................................................... 45

Julie L. Myers, of Kansas, to be Assistant Secretary for Export Enforcement,

U.S. Department of Commerce ........................................................................... 20

Biograhpical sketch of nominee ....................................................................... 53

Peter Lichtenbaum, of Virginia, to be Assistant Secretary for Export Administration, U.S. Department of Commerce .............................................................. 22

Biograhpical sketch of nominee ....................................................................... 62

ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD

A letter from Current and former Co-Chairs of the International Trade Law

Committee of the American Bar Association’s Section of International Law

and Practice to Senator Richard C. Shelby and Senator Paul S. Sarbanes,

dated October 10, 2003 ........................................................................................ 71

(III)

(1)

NOMINATIONS OF:

HARVEY S. ROSEN, OF NEW JERSEY AND

KRISTIN J. FORBES, OF MASSACHUSETTS

TO BE MEMBERS OF

THE COUNCIL OF ECONOMIC ADVISERS

JULIE L. MYERS, OF KANSAS

TO BE ASSISTANT SECRETARY

FOR EXPORT ENFORCEMENT, AND

PETER LICHTENBAUM, OF VIRGINIA

TO BE ASSISTANT SECRETARY

FOR EXPORT ADMINISTRATION

U.S. DEPARTMENT OF COMMERCE

TUESDAY, SEPTEMBER 16, 2003

U.S. SENATE,

COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS,

Washington, DC.

The Committee met at 10 a.m., in room SD–538, Dirksen Senate

Office Building, Senator Richard C. Shelby (Chairman of the Committee) presiding.

OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY

Chairman SHELBY. The hearing will come to order.

We have several nominees this morning. I appreciate the willingness of the nominees to appear before the Committee today. We

will take them in two panels.

Our first panel will be Professor Harvey Rosen and Professor

Kristin Forbes. Professors Rosen and Forbes have been nominated

to be Members of the President’s Council of Economic Advisers.

The Council of Economic Advisers, established by the Employment

Act of 1946, provides the President of the United States with economic analysis and advice on the development and implementation

of domestic and international policy issues.

Professor Harvey Rosen is currently the John L. Weinberg Professor of Economics and Business Policy at Princeton University. I

will note that Professor Rosen also served as the Chairman of

Princeton’s Economics Department from 1993 to 1996. The President’s Council of Economic Advisers will not be Professor Rosen’s

first stint at public service. Previously, Professor Rosen served as

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the Deputy Assistant Secretary for Tax Analysis at the U.S. Department of the Treasury.

Professor Kristin Forbes is the Mitsubishi Chair and Associate

Professor of International Management at the Massachusetts Institute of Technology’s Sloan School of Management. Previously, Professor Forbes served as the Deputy Assistant Secretary for Quantitative Policy Analysis, Latin American and Caribbean Nations, at

the U.S. Department of the Treasury. Prior to joining MIT, Professor Forbes held positions in the Investment Banking Division at

Morgan Stanley and in the Research Policy Division of the World

Bank.

Senator Sununu, you are here and I think I will yield to you to

introduce Professor Forbes, if you so desire.

STATEMENT OF SENATOR JOHN E. SUNUNU

Senator SUNUNU. Thank you very much, Mr. Chairman.

It is a pleasure to be here to welcome both of the nominees to

participate on the Council of Economic Advisers, and it is a special

honor to present Dr. Forbes today as one of those nominees. She

has a remarkable record of achievements. You have touched on a

couple of them. They cover not only academics but also economics

and public service as well, and they really do flow from her very

strong roots in our home State of New Hampshire.

She is the daughter of a physician, Jim Forbes, and his wife, Allison, and she was raised in our State capital of Concord. Dr. Forbes’

parents, Dr. and Mrs. Forbes, are here today, as well as her husband, Steve Calhoun, and I want to welcome them all to the Senate

Banking Committee.

Her professional work in international economics has been punctuated with public service, and that is really a credit. Rather than

just work successfully in academia or consulting, she has spent a

great deal of time trying to give back to the country and served

most recently as Deputy Assistant Secretary of the Treasury for

Quantitative Policy Analysis, as you mentioned. That is a position

where in her capacity she focused on Latin America and Caribbean

nations.

After serving for a year in the Bush Administration, she returned to MIT, which is a school that I know reasonably well, having managed to graduate there after a prolonged effort. She served

at the Sloan School of Management, and as you mentioned, she has

held the Mitsubishi Career Development Chair.

She has a great grasp of international economic policy that has

earned her worldwide recognition. Earlier this year, she was honored as one of the Global Leaders for Tomorrow at the World Economic Forum in Davos, Switzerland. She has a wonderful record of

achievement, and that does indeed make her a natural choice for

the Council of Economic Advisers. I am pleased and very proud for

the entire State of New Hampshire to welcome her here today.

Thank you, Mr. Chairman, and welcome, Dr. Forbes.

Chairman SHELBY. Our first panel, Professors Rosen and Forbes,

I am going to administer an oath to you, and after that you can

make your opening statement, and you might want to introduce

any members of the your respective families that you have.

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First, if you would stand and raise your right hand. Do you

swear or affirm that the testimony that you are about to give is the

truth, the whole truth, and nothing but the truth, so help you God?

Ms. FORBES. I do.

Mr. ROSEN. I do.

Chairman SHELBY. Do you agree to appear and testify before any

duly-constituted committee of the Senate?

Ms. FORBES. I do.

Mr. ROSEN. I do.

Chairman SHELBY. Thank you.

Professor Rosen, do you have an opening statement? Do you

want to introduce any of your family?

STATEMENT OF HARVEY S. ROSEN, OF NEW JERSEY

TO BE A MEMBER OF THE COUNCIL OF ECONOMIC ADVISERS

Mr. ROSEN. Thank you, Senator. I would like to introduce my

son, Jonathan Rosen, and my wife, Marsha Novick, who drove

down from New Jersey to join us today.

Chairman SHELBY. Thank you. Your written statements will be

made part of the hearing record in its entirety. Please proceed as

you wish although we may have to recess, because we have a vote

at 10:45.

Mr. ROSEN. Yes, sir.

Chairman SHELBY. Go ahead, sir.

Mr. ROSEN. Mr. Chairman, Senator Sununu, I am honored to

have the opportunity to appear before you as the President’s nominee to be a Member of the Council of Economic Advisers. This is

an important moment in my life, and I am happy that I have family and friends here to experience it with me. In particular, I would

like once again to introduce you to my wife, Marsha, to whom I

have been married 27 years, and my son, Jonathan, who is a junior

at Princeton. Jonathan’s older sister, Lynne, could not be here

today. She is in Vietnam, spending the year teaching English at a

community college in the Mekong Delta. Neither Lynne nor Jonathan has ever taken a course in economics. They have focused instead on the hard sciences, sensibly preferring disciplines that at

least occasionally provide unambiguous answers to questions.

I mention my children not primarily because I like to talk about

them, although, since I am under oath, I am compelled to say that,

as a proud father, the opportunity to brag about them to a distinguished Committee of the U.S. Senate is irresistible. Rather, I

bring them up because they relate to a question that I expect is on

your minds as you ponder my suitability for this appointment. Why

does he want the job? I have benefited from the amazing opportunities that America provides its citizens. I want these opportunities

to be open to my children and to all children. To a large extent,

these opportunities depend on the Nation’s prosperity. This prosperity derives primarily from our system of free markets, which

unleashes the creative energies of our people.

Our system of free markets depends critically on appropriate

Government intervention. Government sets the rules of the game,

defining property rights and assuring that all people compete on a

level playing field. Government provides certain services that private markets simply cannot provide, such as national defense. And

4

Government maintains a safety net to assist those people who need

a helping hand.

In short, the prosperity I want for my children and others to

enjoy depends on good economic policy. I have spent my professional life doing research on economic policy, writing about it, and

teaching about it. If I am fortunate enough to be confirmed, I hope

this experience will help me to participate effectively in shaping

our Nation’s responses to the economic challenges that confront it.

Thank you.

Chairman SHELBY. Professor Forbes.

STATEMENT OF KRISTIN J. FORBES, OF MASSACHUSETTS

TO BE A MEMBER OF THE COUNCIL OF ECONOMIC ADVISERS

Ms. FORBES. Chairman Shelby, Senator Sununu, it is my privilege to appear before you today. I am honored to be considered by

the President and considered by you to serve as a Member of the

Council of Economic Advisers.

After just observing the second anniversary of September 11,

2001, this is a particularly poignant moment to reflect on the tremendous strength and resilience of the U.S. economy. In the past

few years, the United States has experienced an unprecedented series of challenges—from the collapse of the stock market bubble, to

the terrorist attacks of September 11, to the corporate accounting

scandals, to the wars in Afghanistan and Iraq. Reflecting on these

events reminds me, first of all, of the importance of family and

friends. Therefore, I am delighted to be joined here today by my

parents and my husband, as just introduced by Senator Sununu.

Reflecting on these events of the past few years also reminds me

of the tremendous vitality of the U.S. economy. Despite this series

of challenges, the U.S. economy has remained strong and resilient.

The recession of 2001 was one of the shallowest in post-World War

history, as measured in the fall of GDP from its peak. The U.S.

economy grew faster than any other major economy in the world

in 2002, and is expected to do so in 2003. Productivity growth is

rapid and has recently exceeded even optimistic expectations.

Despite these positive signs, however, there are also reasons to

be very cautious and vigilant. Employment has been very slow to

recover, and unemployment is still too high. If growth in the

United States continues to outpace that in the rest of the world,

the current account deficit is likely to increase. In the next decade,

as baby boomers retire, the payments for Social Security and Medicare will put increasing pressure on our Federal budget.

Given these challenges, it is important to reinforce the

underpinnings of the U.S. economy and the strengths that have

contributed to its vitality. The United States is a land of opportunity, where people can, through hard work and perseverance, rise

from humble beginnings to comfortable lifestyles. It is a land where

an individual with a good idea can start his or her own business

and flourish. These possibilities exist in the United States due to

the economy’s reliance on market forces, combined with a strong

protection of individuals’ rights. The U.S. Government has an important role to play in building and in enforcing the institutions

necessary to ensure that markets function efficiently and that individuals’ rights are protected.

5

Not only does the Government have an important role to play in

reinforcing the strengths of the U.S. economy, but also to ensure

that the economy successfully adapts to new challenges. Our response to the series of corporate accounting scandals—arresting

corrupt managers, allowing insolvent firms to go bankrupt, and

passing new legislation to reduce the chance of these events occurring in the future—is a model of rapid adaptation that is the envy

of many other countries. Over a decade after its asset bubble burst,

Japan is still struggling with how to resolve many of the same

challenges. As this country becomes increasingly integrated with

the rest of the world, it will continually face new challenges on how

to manage these adjustments, while still reaping the tremendous

benefits of globalization.

Given the important role of Government in protecting the

strength and vitality of our economy, I realize the substantial responsibility entailed in a position as a Member of the Council of

Economic Advisers. My background, as Senator Sununu just outlined—a Ph.D. in economics, a professor, and award-winning teacher at MIT, and a recent position as a Deputy Assistant Secretary

in the U.S. Treasury Department—has hopefully helped prepare

me for these challenges. If confirmed, I will be honored to accept

the responsibility of providing sound economic advice to help ensure the continued vibrancy of the economy.

Thank you for your time, and I look forward to your questions.

Chairman SHELBY. Thank you.

Professor Rosen, earlier this year, I again introduced legislation

that would greatly simplify our tax system. My proposal, Senate

bill 1040, is a simple 17-percent flat tax for all families, after a

generous standard deduction.

Knowing your background on taxes and so forth, what do you

think, what would be the impact of this proposal? I know it is a

proposal, and that is all it is at the moment. But what is the impact of that?

Mr. ROSEN. Senator, I think that a tax system with lower marginal tax rates would be good for labor supply incentives, for saving

incentives, would improve the allocation of capital, and reduce administrative costs.

Chairman SHELBY. Dr. Forbes, your academic research has addressed the topic of shocks and contagion in the international financial and economic systems. The Committee has looked at that

topic in the context of the Russian and Asian financial crises, as

well as other earlier systemic events.

What role do you believe capital controls play in the area? Specifically, do you think emerging countries should be considering

controls over ‘‘hot money’’ coming into their economies?

Ms. FORBES. That is an excellent question, and that is a topic

many academics have debated very seriously for the past few years.

Chairman SHELBY. It has been raised here, too.

Ms. FORBES. I am sure. I think that it is tempting for a country

to put on capital controls because it can protect them from events

in the rest of the world, especially negative shocks and negative

events in the rest of the world.

Chairman SHELBY. But not for long.

6

Ms. FORBES. No. I was going to say there is a substantial cost

if a country puts on capital controls. It can cut them off from the

benefits of globalization and interacting with the rest of the world.

I have also done some research that shows it can introduce some

serious microeconomic distortions in the allocation of capital. In

particular, large companies find it sometimes easy to get around

capital controls to raise money, but for smaller companies, it is

much harder to get around capital controls to raise financing. So

putting on capital controls can seriously hinder the growth of small

and medium enterprises. And as we have seen in many emerging

markets, growth often doesn’t come from your large state-owned

enterprises. It comes from your small and medium enterprises that

can grow and become large.

Chairman SHELBY. So they are stifling their own development of

their small business sector by doing this.

Ms. FORBES. Exactly.

Chairman SHELBY. Is that what your findings are?

Ms. FORBES. Exactly. I think capital controls can be very dangerous and seriously hurt the development of small- and mediumsize businesses.

Chairman SHELBY. Professor Rosen, Dr. Rosen, a lot of your own

research is focused on how local and State governments respond to

how a Federal tax system is structured.

Mr. ROSEN. Yes, sir.

Chairman SHELBY. Have you seen any evidence that local and

State governments increase their reliance on certain types of taxes,

like property taxes, when these taxes are deductible against Federal taxes?

Mr. ROSEN. Yes, sir.

Chairman SHELBY. What is the correlation here?

Mr. ROSEN. I did look at the data to see whether or not the likelihood that a jurisdiction had a property tax or an income tax depended on whether or not the marginal tax rate of the members

of the community were high or low. The higher your marginal tax

rate, the larger the benefit of such a deduction. What this research

found was that, yes, in fact, the fiscal structures of the State and

local governments were sensitive to the marginal tax rates of the

residents.

Chairman SHELBY. But this is not anything new, is it?

Mr. ROSEN. I think it is common sense. It was an interesting

project to document it.

Chairman SHELBY. Thank you.

Dr. Forbes, next month this Committee will be receiving the

semiannual report from the Treasury Secretary on the International Economic Policy and Exchange Rates, and, of course, Secretary Snow will appear again before the Committee. What advice

will you be giving the President with regard to China and its fixed

exchange rate policy? And more broadly speaking, what concerns

should policymakers have with regard to the U.S. current account

deficit and the capital account surplus? I know it complicated stuff,

but you are a professor at MIT so you can explain it.

Ms. FORBES. I will begin by addressing the first part of your

question about the report on exchange rates. I firmly believe that

7

the best exchange rate regime for most countries is a market-determined flexible exchange rate.

Chairman SHELBY. Let it float, in other words.

Ms. FORBES. Yes, let the exchange rates float, especially when

combined with the free movement of capital and open markets for

trade. I think that is the best policy for countries. It reduces their

vulnerability to crises and shocks and makes them much more

flexible in terms of adjusting to shocks.

In terms of your second question—am I concerned about the current account deficit?—I think it is something we need to watch

very carefully. The current account deficit is now approximately 5

percent of GDP, which is an all-time high for the United States. I

hope the current account deficit does not grow much more.

Chairman SHELBY. If it did grow, what are some of the

downsides?

Ms. FORBES. I think the current account deficit is large, and if

it grows, it does need to be interpreted as a symbol of strength. The

reason we have a large current account deficit is largely because

of capital flows into the United States because foreigners see the

United States as the best place to invest in the world and a very

attractive investment climate. Although the current account deficit

is large, it is easily funded by money from abroad because of the

promise that the United States holds as an investment area.

Chairman SHELBY. Senator Sarbanes.

Senator SARBANES. I’ll defer to Senator Reed. He was here first.

Chairman SHELBY. Senator Reed.

STATEMENT OF SENATOR JACK REED

Senator REED. Thank you, Mr. Chairman.

Dr. Rosen, you authored a paper called ‘‘The Case for Making the

Tax Cuts Permanent,’’ which Glenn Hubbard promoted extensively.

Within the paper, though, you seemed to diminish the impact of

the tax cuts on potential deficits going forward. You do acknowledge that they could raise the budget deficit, but then you say that

with dynamic scoring this could be corrected. And also you tend to

talk about the empirical evidence on the relationship between

deficit and interest rates is inconclusive, whereas some people, including Chairman Greenspan, feel that the correlation is highly

conclusive and that the deficit is not a real measure of the burden

of Government. In short—and I think these are the words in the

paper—‘‘the possible deficits associated with the tax law are no obstacle to making it permanent.’’

Do you still feel that deficits are an unimportant consideration

in evaluating making these tax changes permanent?

Mr. ROSEN. Senator, I think that deficits are certainly a concern.

I think that deficits at the level we are looking at now, however,

are manageable, especially when we look at them relative to GDP.

In terms of possible downside effects of the deficit, the issue here,

I think, is whether or not increased deficits will lead to increased

interest rates. In my view, I continue to think that the research on

that issue, taken all together, is inconclusive. Both the theoretical

and empirical literature have estimates that are all over the map.

That said, my personal opinion is that, other things being the

same, deficits do increase interest rates. I think the issue then beVerDate 11-MAY-2000 12:46 Mar 21, 2005 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 99604.TXT SBANK4 PsN: SBANK4
8

comes, when we think about deficits at the level we have now,

given the condition of the economy now, are they big enough to impede the recovery? And I think that they are not.

Senator REED. When you look at the deficits with respect to gross

domestic product, do you factor out the Social Security surplus?

Mr. ROSEN. The computations about which I am speaking refer

to all types of revenue.

Senator REED. Some of the numbers that I have seen suggest

that we are running, on a percentage of GDP basis if you subtract

out the Social Security fund, at levels that we have not seen since

the early 1980’s, which was not exactly a stellar period of economic

growth in the country. One of the reasons why it makes sense to

take out the Social Security surpluses is because back in the

1980’s, in fact, up until very recently, we really did not have any

significant Social Security surpluses. That was a phenomenon of

the changes made in 1986 and compounded going forward.

I would suggest that in historic terms, even using the comparison

between GDP ratios, that we are running fairly substantial deficits

at this point, which I think will give rise to, as your gut tells you,

increased interest rates at some point. And that is something that

I think Chairman Greenspan believes also.

This I think is going to be one of the significant issues that you

and Ms. Forbes face in advising the President because everything

we are doing today has suddenly been transformed by the notion

that we do not have any money to do it. And we have some uncontrollable expenditures like Iraq that will certainly add and not detract from the deficit.

I would hope that in your work you would be sensitive to the

issue of the deficit and particularly when we consider these tax

policies and make them permanent. Thank you. And I thank you

for being here today. Ms. Forbes, thank you, too.

Chairman SHELBY. Senator Sununu.

Senator SUNUNU. Thank you.

Mr. Rosen, could you comment a little bit about your perspective

of the role and the mission of the IMF, areas where its focus can

provide economic benefits overseas and perhaps areas where in the

past it may have undertaken policies that were more questionable

or might have had more mixed results?

Mr. ROSEN. Senator, I think international organizations such as

the IMF and the World Bank can provide a useful framework for

the joint action of nations to help other nations that are facing fiscal distress of one kind or another. I think that, in general, the

United States has to play an aggressive role in making sure that

these policies are executed in a sensible way.

Senator SUNUNU. Do you want to elaborate any more on how prescriptive the IMF can or should be and the degree to which it has

been successful or had limited success in some of its interventions?

Mr. ROSEN. I really think Kristin might do a better job on that

question.

Senator SUNUNU. I will be happy to kick it over to Dr. Forbes,

although in that regard, I would like to ask a slightly more specific

question, and that is with regard to Latin America. First, the degree to which the prescriptive policies of the IMF have been successful or unsuccessful in Latin America, but, second, the areas

9

that your evaluation and your research would indicate are the

greatest opportunities for next-stage reforms in Latin America. We

have seen some changes, many positive changes in a number of the

economies in Central and Latin America over the past 10 years. We

have seen what I would term some missteps or some counterproductive action in just the last few years. But where do you see

the greatest opportunities for reforms in the next 2 to 4 years

throughout Central and South America?

Ms. FORBES. I think, taking a little bit of a step back, when the

IMF was created, it was created in the 1960’s as part of the

Bretton Woods Agreement to ensure the stable flow of capital and

balance of payment stability in an era of fixed exchange rates. The

world has changed dramatically since then. Capital flows have increased. The world is much more globalized. Many countries have

flexible exchange rates. And the IMF has adapted its role to account for these changes.

Along the way, there have been times it has been slow to adapt

and slow to adjust to some of these changes. For example, the

Asian crisis caught the IMF largely by surprise. The IMF actually

did a fairly good job predicting that Thailand was in trouble in

1997, but was not aware of how quickly the problems in Thailand

could spread to other countries.

After not being fully aware of the vulnerabilities during the

Asian crisis, the IMF has made tremendous steps in reforming

itself. It has created an Independent Evaluations Office, the IEO,

which is looking at specific programs and policies and trying to

think about how the IMF can improve on itself.

I have not seen all of the reports in the IEO. It is still very much

a work in progress, but I think some of my own personal recommendations of what the IMF can do to improve its performance,

I think first of all the basis of what it does is fundamentally sound.

If it is going to give aid to countries, it is right to work with the

countries to come up with a stable macro environment, sound fiscal

situation, keep inflation under control. Countries just will not recover from financial crisis if they do not have some of these basic

macro conditions in place. And the IMF is fairly good at establishing what is needed for macro stability.

Where I think the IMF can reform—and it is trying to make

steps in this area—is to now work more on some micro reforms,

building institutions in these countries. As we have seen in Argentina, for example, if you have constant changes in the rule of law,

constant changes in bankruptcy proceedings, and you cannot trust

the legal system, it is very hard to get a banking system that will

work and function. And it is very hard to get the financial system

to work and the economy to grow again.

I think while the IMF does perform some very important and

useful functions, the world is changing, and the IMF is trying to

change, and some of the new areas where the IMF will need to

focus in the future is on building institutions and some micro reforms to have economies recover and grow.

Senator SUNUNU. Thank you.

Thank you, Mr. Chairman.

Chairman SHELBY. Senator Sarbanes.

10

STATEMENT OF SENATOR PAUL S. SARBANES

Senator SARBANES. Thank you, Mr. Chairman.

Ms. Forbes, I want to ask you first about a response on your

questionnaire from the Committee with respect to political contributions. The question asks the nominees to itemize all political

contributions of $500 or more to any individual, campaign, organization, political party, political action committee, or similar entity

during the last 8 years and identify specific amounts, dates, and

names of recipients. And your response to that is that you purchased two tickets for the President’s Dinner, a fundraiser for the

Republican Party, total contributions of $5,000 in May 2003—in

other words, this past May.

Now, the Intention to Nominate you was announced by the

White House on May 15, if I am not correct, and presumably for

some period of time before that, you knew that this nomination

was in the works.

Were you solicited in some way for that political contribution, by

mail, orally, or in any other way?

Ms. FORBES. No, I was not solicited in any way. Just to make

sure the time line is clear, I had spoken to the White House in late

winter, actually interviewed for the position during one of the big

snowstorms in late winter. The possibility of my receiving the position and the Intention to Nominate me was conveyed to me well

before I received any invitation to the President’s Ball.

The reason why it took so long for my Intention to Nominate to

be released was because I was not able to come to Washington and

start as a consultant until after I had finished teaching. I had a

very busy teaching semester in the spring at MIT. And the person

who I was going to replace on the Council was still in the position

on the Council, and I did not want to prematurely announce the

Intention to Nominate while he was still serving because it might

hurt his effectiveness to serve the President.

I was well aware that they were going to offer me the opportunity to serve on the Council well before the invitation to this

event came. Then the way it came, I still—honestly, I do not know

how my name got on the mailing list, but I just received an invitation to the President’s Ball, which was a large fundraiser and dinner at which the President was speaking, and a large number of

Senators and Congressmen would be there. I was actually planning

to come to Washington during that date, anyway, to look at apartments for the possibility of coming to Washington to serve in this

capacity. So, I figured the timing was perfect. I would be in Washington anyway looking at apartments. I already knew I would be

offered the possibility of obtaining this position. And I figured this

was a wonderful opportunity to possibly see the President and possibly meet some Senators with whom I would be working.

There was no way that I think that the job offer was contingent

on the donation, and it is just a pure coincidence that they occurred

about the same time.

Senator SARBANES. Had you previously at any time been solicited

to make a political contribution?

Ms. FORBES. I probably have received mailings in the past. I cannot think of any specific occasions off the top of my head. Growing

up in New Hampshire, I frequently did go to local events.

11

Senator SARBANES. Well, when this invitation came—I take it

you got an invitation in the mail.

Ms. FORBES. Yes.

Senator SARBANES. To contribute to this fundraiser. Is that correct?

Ms. FORBES. It wasn’t——

Senator SARBANES. It was not—was it followed up in any way

orally by phone or in any other manner?

Ms. FORBES. No. It was just an anonymous invitation that I actually know other colleagues of my husband also received in the mail.

Senator SARBANES. When you got this invitation, it was something new, I take it. I mean, you hadn’t been getting invitations

like this previously, had you?

Ms. FORBES. My guess was that it had either come because one

of my husband’s colleagues who was on these mailing lists might

have mentioned I had served at the Treasury Department in the

Bush Administration, or I thought it might have just come because

of after serving in the Bush Administration my name had been possibly added to some mailing lists. But other than that, I have no

idea where the invitation came from.

Senator SARBANES. It did not strike you in any way as being

something amiss? Here you were about to receive a job in the Administration, and now you are being solicited to attend a fundraiser

and make a major contribution, something you hadn’t done over

the previous 8 years. Is that right?

Ms. FORBES. Also, I did not feel any pressure to give the donation. If I hadn’t been in town anyway looking at apartments, I

probably wouldn’t have written any check. I definitely wouldn’t

have gone to the fundraiser. So, I did not feel any pressure to contribute and in no way link this to this opportunity to serve on the

Council.

Senator SARBANES. Mr. Rosen, did you at any point along the

way here get solicited to make a contribution?

Mr. ROSEN. Sir, from time to time, I receive mail solicitations at

my home.

Senator SARBANES. In the past?

Mr. ROSEN. In the past, yes, sir.

Senator SARBANES. And did you receive any on or about the time

that you were being considered for this nomination?

Mr. ROSEN. Not that I know of, sir.

Senator SARBANES. What does that mean?

Mr. ROSEN. It means no, sir.

Senator SARBANES. Just checking.

Do you have any concern about the appearances of this situation?

Ms. FORBES. In hindsight, since it has made you concerned, I

wish I had not given the contribution. But, honestly, at the time

I saw it as an opportunity to see the President I would be serving

and to meet possibly some of the Senators I would be working with

and just saw it as an opportunity and not in any way as a solicitation or anything inappropriate.

Senator SARBANES. Yes. My message is not directed so much at

you, but at the person who maybe is running these lists and so

forth.

Can I ask another question?

12

Chairman SHELBY. Sure, go ahead, Senator.

Senator SARBANES. I want to turn to the unemployment insurance issue here for a moment. Almost 22 percent of all unemployed

workers are long-term unemployed. The percentage has been above

21 percent now for 7 consecutive months, the first time that has

happened since 1983. And it is estimated that over a million American workers have been unemployed for more than 39 weeks and

have exhausted their extended unemployment insurance benefits

and are unable to find work.

We have had a long, bipartisan history, actually, of

extending unemployment insurance benefits during period of prolonged weakness in the labor market. We have extended benefits

in every recession since World War II and in many circumstances

for a longer period.

In response to an question put to Chairman Greenspan regarding

providing these benefits during periods of sustained weakness in

the labor market, he answers, ‘‘I have always argued that in periods like this, the economic restraints on the unemployment insurance system almost surely should be eased.’’

Do you support easing the restraints on the unemployment insurance given the high percentage of long-term unemployed, people

who want to work but cannot find a job? Should we extend unemployment insurance benefits?

Ms. FORBES. That is a very difficult question. Long-term unemployment is a serious problem. It is very difficult right now for

some unemployed to find jobs. There is a very sound argument for

providing some relief for the unemployed who are unable to find

jobs to help ease them through this transition period.

On the other hand, if we do continue to extend unemployment

insurance and provide very generous benefits, then this will reduce

the incentives for unemployed to find work. We have seen very

strong evidence of this in other countries, such as France, which

has generous unemployment insurance and it has severely hurt the

incentives of people to find jobs.

Senator SARBANES. Do you apply the same judgment with respect

to previous periods in our own history in which we have extended

unemployment insurance benefits in order to address the problem

created by a difficult labor market?

If you compare it with the French, then you are a winner from

the start, given the attitudes now prevailing around here about the

French. But let us just talk about the Americans, just to keep it

in the American context. What I am questioning is—I am not asking whether you favor doing something we have never done before.

Actually, I am asking whether you favor doing something that we

have repeatedly done before.

Ms. FORBES. Well, given the very difficult challenges the United

States has faced in the past 2 years and the series of shocks that

have hurt the economy, the President did think it was worthwhile

to extend the unemployment insurance, and that is why twice he

has extended unemployment insurance benefits. And I believe that

was the right decision and agree with his decision based on the environment in the United States.

When the unemployment insurance, possibility to renew the extension of benefits comes up again in December, I think it is going

13

to be very important to evaluate what is the current economic situation, what is the current situation with the unemployed, and to

weigh the potential benefits of helping the unemployed with additional uninsurance benefits with the potential cost and what it will

do to incentives for people to find work. And that is going to be a

very difficult decision and one that the President will have to make

at the end of the year.

Senator SARBANES. Well, what advice would you give him? I

want to point out that there are about 2 million long-term unemployed. A million of those have exhausted all their benefits, even

with the extension that you made reference to. That extension continues to fall short of extensions that have been done in previous

recessions. So for the million, they are just flat out now. Then there

is another million long-term unemployed, presumably between 26

and 39 weeks, who are using up their benefits and may shortly run

out of them. What would your advice be?

Ms. FORBES. The unemployed is a very serious concern, and it is

something we need to be very aware of. I think the best solution

for unemployment, though, is to encourage growth in the United

States and stimulate growth. Only with a recovery and rapid

growth will we see unemployment fall. And so I would advise the

President to do what he is doing in terms of passing three stimulus

packages in the past 3 years to spur growth and, therefore, to help

the unemployed find jobs.

Senator SARBANES. It has not stimulated the growth and enabled

them to find jobs; at least it has fallen short, so far short that at

the moment we have these record levels of long-term unemployed.

What are we going to do about the long-term unemployed? Would

you advise the President to extend the unemployment insurance in

order to enable them to meet the difficult situation with which they

are confronted?

Ms. FORBES. That has been one very frustrating aspect of the

economic recovery. Even though growth is starting to pick up, unemployment is still increasing. Employment is still falling. We are

hoping, though—the predictions are that growth should improve

dramatically in the third and fourth quarter of this year. Growth

should be well above potential GDP growth, which means we hope

to see employment start to increase and unemployment start to fall

by the end of the year.

It is very difficult to predict right now what will happen, and we

will have to see what the economic situation is at the end of the

year when the President makes the decision about whether to extend unemployment insurance.

Senator SARBANES. If the current situation continues to prevail

at the end of the year, what kind of situation would you recommend extending the unemployment insurance benefit?

Ms. FORBES. That is a decision for the President to make.

Senator SARBANES. No, I am just asking——

Ms. FORBES. —he is going to need to weigh——

Senator SARBANES. —what advice would you give him?

Ms. FORBES. My advice to him would be here is the current economic situation, here is what happened in employment, hopefully

those numbers will be positive by then. But there are still a number of unemployed people which would benefit from extending the

14

unemployment insurance, but there are these potential long-term

costs. And then I would leave the final decision up to the President

after having carefully laid out the costs and benefits of the different policies.

Senator SARBANES. President Truman once said he wanted a onearmed economist. They asked him, ‘‘Why do you want a one-armed

economist?’’ And President Truman said, ‘‘Because I am tired of

this ‘on the one hand’ and ‘on the other hand,’ and I want to get

some specific advice.’’

Mr. Rosen, what would you advise?

Mr. ROSEN. I am afraid I am a two-handed economist, sir.

[Laughter.]

I think that an adviser’s job in this context is to make clear to

the decisionmaker on the one hand the real distress that unemployed people are facing, and on the other hand the costs of an extension in terms of possibly increasing the unemployment rate.

Presumably, the people who have been the President’s advisers in

the past presented those data to him and he decided that, on balance, it made sense to extend the UI benefits, that the alleviation

of this stress, given the situation at the time, more than

outbalanced or outweighed the associated possible increases in unemployment.

Senator SARBANES. In addition to the alleviation of the stress

does it not have an impetus to the economy by providing purchasing power for people who otherwise would not have it? Does it

not have a stimulative effect?

Mr. ROSEN. Yes, Senator, that UI benefits do have a stimulative

effect on the economy, and then the question becomes how these

rank relative to other possible ways to stimulate the economy, and

in particular, ways that might not simultaneously develop or engender supply side effects that work in the direction of when we

would want to move.

Senator SARBANES. That would be to discourage people from

working, the supply side effect?

Mr. ROSEN. Precisely, sir.

Senator SARBANES. Do you think that is a major problem facing

us right now?

Mr. ROSEN. The research that I have seen on the effects of unemployment insurance in the United States suggests that when benefits are extended, other things being the same, people take longer

to get new jobs. That doesn’t mean that UI is a bad program at

all. It is a classic problem that arises in the design of social insurance programs. We want to provide a safety net, but at the same

time we understand that they may have an effect on incentives

that does counter other public policy goals.

Senator SARBANES. Thank you, Mr. Chairman.

Chairman SHELBY. Dr. Forbes, at the President’s dinner just

about everybody on the Republican side of the aisle were there

with the President. Just about all of us gave him money. We do not

know if he is going to give us a job, we would probably take it. But

we did it for philosophical reasons and to help him.

I want to ask several more questions, but one to both of you. Has

anybody ever done any studies or suggestions that of the money we

pay out in unemployment benefits week by week and extended—

15

and we all have compassion for people that are unemployed, and

there are too many people unemployed. We all know that on both

sides of the aisle and you know it as economists. On the other

hand, if people, as a rule of human nature, drawing money, a lot

of them are not seriously looking for a job. I think myself, when

I was going to the university and looking for a summer job, if I

could have drawn unemployment, I would have had a heck of a

time that summer, but I knew I had to work. We have all been

there. Have any studies or thought ever been brought forth to see

if you could pay some of that money in a lump sum to some of the

more enterprising people one time as capital, where it would unleash something in their makeup, a dynamic, which they never

had.

I know a lot of people would spend that money and they would

be down and out. But some people would not spend the money.

They would be frugal with it. They would be wise with it. How you

differentiate the people, I do not know, but I do not see other than

compassion, which we all support, to help people that are temporarily down or even long-term down. The billions of dollars spent

on unemployment benefits over and over and over. It seems to

me—I am sure it is not the norm—but if I got a lump sum of

$10,000 or $12,000, heck, I might do something with it. I might

start something in my house. I do not know. Capital, as you know,

is hard to create. It is hard to earn. It often takes families one to

two generations to get enough capital to even start a business. It

is just a thought. Dr. Forbes, is that way off the mark?

Ms. FORBES. No, not at all, and actually, the President has a

proposal that is somewhat along those lines. The President has

proposed personal reemployment accounts, where if someone is unemployed they would receive about $3,000, so it is not quite as generous as your plan, but again, it does keep in mind the fiscal

constraints we are operating under.

Chairman SHELBY. You see what I am talking about though?

Ms. FORBES. Yes. And then an unemployed individual can take

the $3,000 to either get trained for a new career or to move to a

new location where there is more likelihood of finding a job. And

the individual can use that money to do what he or she sees best

to reemploy himself or herself. And if this person finds a job fast,

they can keep the extra money in that pool.

Chairman SHELBY. It seems to me like that would be like microcredit except it would be a lump sum micro to start something.

Maybe I am way off the mark.

Ms. FORBES. No. I think it is an excellent idea.

Chairman SHELBY. Professor Rosen, you have any comment?

Mr. ROSEN. There have actually been a number of academic studies looking at this issue. Some States ran demonstration projects

to see what would happen if you gave people unemployment insurance benefits as a lump sum up front instead of on a week-by-week

basis.

Chairman SHELBY. With the understanding that was it and there

is not going to be any more, correct?

Mr. ROSEN. Yes, sir.

Chairman SHELBY. Like when your parents say, ‘‘That is all you

are getting,’’ you are gone.

16

Mr. ROSEN. And that is it.

Chairman SHELBY. You looked at your son.

[Laughter.]

Mr. ROSEN. And, you know, one thing that emerged from those

studies is that, yeah, people do in fact find their way back to work

sooner under those conditions.

Chairman SHELBY. Could you furnish some of that for the Banking Committee record?

Mr. ROSEN. I would be happy to, sir.

Chairman SHELBY. As an academic, you will dig it up quicker

than we will.

Mr. ROSEN. I would be delighted.

Chairman SHELBY. Thank you. Professor Rosen, this Committee,

as you know, has jurisdiction over most Federal housing programs.

You have done a lot of research focused on delivery of housing subsidies, I believe. Have you reached any conclusions in the course

of your research that you believe this Committee should consider

in evaluating our current housing programs? If you want to furnish

that for the record, you can do that.

Mr. ROSEN. I think that the major conclusions of my work on

housing subsidies were pretty straightforward, and they are that

the housing subsidies embodied in the income tax are an effective

way to increase home ownership in this country. My research suggested the subsidies increase the likelihood that a family will own

rather than rent, and so it is been—to the extent the goal is to——

Chairman SHELBY. Most people want to own rather than rent, do

they not?

Mr. ROSEN. I think that is a goal of many Americans.

Chairman SHELBY. It is not for everybody, but for most people.

Mr. ROSEN. I think right now about two-thirds of Americans are

owning, so they are clearly manifesting those preferences.

Chairman SHELBY. Block grants to State and local governments

you have looked at? A constant concern is that these funds are not

offset by reduced funding for various activities like housing at the

local level. During the course of your research, have you reached

any conclusions as to what degree Federal Block Grant funding is

or is not offset?

Mr. ROSEN. No, sir, I am afraid I have not studied that question.

Chairman SHELBY. Thank you.

Senator Carper.

COMMENTS OF SENATOR THOMAS R. CARPER

Senator CARPER. Thanks, Mr. Chairman.

Dr. Forbes, Dr. Rosen, thank you for being here today. Thank

you for your willingness to serve our country.

I am going to ask you to set aside modesty for just a moment,

although I admire modesty in people. Just take a moment to tell

us why you think you are well prepared to take on these responsibilities. Dr. Forbes?

Ms. FORBES. As Senator Sununu said in his introduction, I have

spent the last few years of my life switching between public service

and academics in economics. As an academic I have spent an extensive amount of time studying what determines growth in countries,

as well as what determines financial vulnerability in countries and

17

financial crises, how globalization is affecting the world and affects

different countries, and how globalization affects different countries

vulnerabilities as well as building some of their strengths. I think

those are all incredibly important issues that the U.S. economy has

to struggle with, how to grow faster, how to deal with globalization

and benefit from globalization. So based on my academic background, I think I can bring something to the job in that aspect.

Also I have been in and out of public service and worked in a

number of different institutions. Recently, I was at the U.S. Treasury Department and served as a Deputy Assistant Secretary, seeing how the policy process works and the importance of merging

economic concepts and economic ideas with other goals, political

goals, social goals. I have also spent some time in the private sector

in investment banking at Morgan Stanley and at the World Bank.

So, I have had a range of different experiences, and I hope all

of that has helped prepare me for the challenges I will face and the

responsibilities in this position as a member of the Council of Economic Advisers if confirmed.

Senator CARPER. You have crammed a lot into a relatively few

years, that is for sure.

Ms. FORBES. Thank you.

Senator CARPER. Dr. Rosen.

Mr. ROSEN. Thank you, Senator. I have been doing research and

thinking about public policy questions for many years now. I have

looked at the effect of tax policy on the efficiency of the economy.

I have looked at the effect of taxes on labor supply, as Senator

Shelby mentioned, on housing. I have studied the effect of taxes on

entrepreneurship, whether entrepreneurs are more or less likely to

hire labor, expand their businesses in light of taxes. I have looked

at a number of other domestic policy issues including health. I am

hopeful that what I have learned by doing that research would help

me to inform discussions in Washington about public policy.

I should also add that I have been teaching for a number of

years. Teaching has actually been a very important part of my career to me. And that is about communication, and I think one problem that economists sometimes have operating in the public arena

is making the translation from jargon to English.

Senator CARPER. We have that problem sometimes too, so it is

not just economists.

[Laughter.]

Mr. ROSEN. I am hopeful that those skills might also be useful

when it comes to serving in the Government.

Senator CARPER. We are suffering through our second almost jobless recovery in the last dozen years or so. And I was in a meeting

earlier this morning where some discussion, not of the loss of manufacturing jobs which we hear a lot about and talk a lot about, but

the loss of jobs that are more information technology related, programmers, people that are just running software. We are seeing

the exportation of those jobs to places you have heard about, in the

Philippines, India, and a variety of other countries.

I would like for you just to each take a minute or two and tell

us what you think some of the elements of an economic recovery

package for our country should be, and it could be pieces that are

already in place, it could be things that we are already doing, that

18

we need to continue to do, maybe several elements that we should

do more of, and that would involve not only something that the

Congress can do but also maybe monetary policy as well on the

part of the Fed. Just a few elements. It does not have to be comprehensive. Just say these are a few of the important things we

need to be doing to get this moving again.

Ms. FORBES. I can think of two major sets of policies that would

get the economy moving again, many of which are in place or in

progress. The first is opening up markets abroad for U.S. goods and

U.S. exports. The collapse of the talks in Cancun this weekend was

a travesty, and I think we need to continue the aggressive strategy

the United States has followed in the past 3 years to continue to

negotiate free trade agreements, to continue to reduce barriers to

trade, and just open up markets around the world for U.S. exports.

We have an incredibly competitive economy and we can compete

with any country around the world if markets are open to us. I

think it is very important to continue this progress.

A second set of major policies I would propose would be to make

sure we reduce costs in the United States to ensure our companies

maintain their existing competitiveness. For example, manufacturing has raised concerns, and some specific policies that would

address cost issues in manufacturing are some things like tort reform to reduce the excessive cost of lawsuits. Reducing regulations.

Some regulations are obviously necessary to ensure safety standards and environmental standards, but making sure we only have

regulations for which the benefits exceeds the costs. Another is ensuring low costs or maintaining the cost increases in health care

so individuals have health care at reasonable cost.

And another aspect of maintaining low cost to ensure competitiveness is ensuring that we have stable and affordable energy. The

blackouts reminded us of the importance of making sure we have

a stable source of energy in order for U.S. companies to maintain

competitiveness.

Senator CARPER. That is a good list. Thanks.

Dr. Rosen.

Mr. ROSEN. There is not too much I can add to that list.

Senator CARPER. Do you want to take anything away?

[Laughter.]

Mr. ROSEN. No. I think it was a great list. I may have a bias because I have spent so many years studying tax policy, but I would

certainly like to see a tax system that is friendly to both business

and workers, a tax system with low marginal tax rates that doesn’t

distort behavior. Also in the context of both the tax system and the

regulatory issue is some easing of the administrative burden associated with the tax system, in particular. For example, there are

reporting requirements for small businesses that are quite burdensome. I understand some progress has been made in reducing

those, and that is an avenue that I would like to go down, which

I would like to see us continue to move.

Senator CARPER. Thank you for your testimony. Your families

are gathered behind you, and I would say to them, thank you for

sharing your loved ones with the people of this country.

Chairman SHELBY. Senator Sarbanes.

19

Senator SARBANES. Dr. Forbes, did you say Cancun was a travesty or a tragedy?

Ms. FORBES. Travesty.

Senator SARBANES. And who caused the travesty?

Ms. FORBES. I do not have any information other than what I

have read in the newspapers. What I have read is that the reason

talks broke down was largely because a number of developing countries were making very strong demands that some developed countries, especially Europe, were not comfortable with, and there was

an unwillingness to negotiate. Although people kept thinking there

would be a breakthrough and the two groups would be able to find

some compromises, somehow those compromises never emerged

and the talks suddenly ended, much to everyone’s surprise.

Senator SARBANES. I was struck by that choice of words.

Mr. Chairman, I just want to make a concluding comment to

both of our nominees.

In my view an extraordinarily comprehensive and efficient solicitation protocol or regime on the part of the Administration, and

you all are relatively new to this. I am prepared to accept that explanation. But I really want to forewarn you that U.S. Code Title

18 on Making Political Contributions, says:

It shall be unlawful for an officer or employee of the United States or any department or agency thereof or person receiving any salary or compensation for services

from money derived from the Treasury, to make any contribution, within the meaning of Section 301 of the Election Campaign Act, to any other such officer, employee

or person, or to any Senator or Representative, if the person receiving such contribution is the employer or employing authority of the person making the contribution.

Then it sets out the penalties. Then it says, ‘‘For purposes of this

section, a contribution to an authorized committee as defined, et

cetera, shall be considered a contribution to the individual who has

authorized such committee.’’

For this to apply, you must be an officer or an employee. There

are also penalties for those who do the solicitation, if they in fact

are officers or employees of the United States. But just in case

these solicitations come in upon you, you really have to acquaint

yourself, familiarize yourself with what the legal requirements are,

because those soliciting you may not be very sensitive to the requirements. Indeed, they may be oblivious of the requirements. The

danger then exists that you will in an innocent way be caught up

in something, which you obviously would not want to be caught up

with, and so I thought it important to bring this to your attention

as we draw this hearing to a close.

Chairman SHELBY. Dr. Forbes, I just want to note for the record,

from what I have learned, you are not an employee of the White

House. You were a Professor at Massachusetts Institute of Technology, so you have not violated any laws or even the spirit of the

law.

Senator SARBANES. Mr. Chairman, I did not mean in any way to

suggest that, and I thought that had been developed quite clearly

in the previous discussion.

Chairman SHELBY. Absolutely, yes.

Senator SARBANES. But I just want to forewarn, as you move

ahead, that there are applicable statutory provisions that you need

to be on the alert about.

20

Chairman SHELBY. Same as our employees can’t give us money.

Senator SARBANES. Right.

Chairman SHELBY. That is a good record.

First of all, I want to thank you, Professor Rosen and Professor

Forbes, for appearing here today. I think we have had a good dialogue, good exchange of views. We wish you well as on the Council

of Economic Advisers to the President, and we will try to move

your nomination as soon as we can. Thank you. You can go.

Mr. ROSEN. Thank you, Senator.

Ms. FORBES. Thank you very much.

Chairman SHELBY. Our second panel is composed of Mr. Peter

Lichtenbaum, nominated to be Assistant Secretary of Commerce for

Export Administration, and Ms. Julie Myers, nominated to be Assistant Secretary of Commerce for Export Enforcement.

Mr. Lichtenbaum is a Partner with the firm of Steptoe & Johnson LLP, where he specializes in trade law. Mr. Lichtenbaum is a

widely published author of numerous articles on international

trade and export controls. He has been nominated for a position

that sits at the nexus of international trade and national security.

As Assistant Secretary of Commerce for Export Administration, he

would oversee the process whereby applications for license to export items with both civil and military applications are reviewed in

coordination with the Departments of State and Defense.

Second, we have Ms. Julie Myers, as I mentioned. Ms. Myers’

most recent position has been as Chief of Staff to the Assistant Attorney General for the Criminal Division, Department of Justice.

Prior to that she was Deputy Assistant Secretary of Treasury for

Money Laundering and Financial Crimes, in which capacity she

was involved in formulating the Department’s national money

laundering and terrorist financing strategy, and before that was an

Assistant U.S. Attorney for the Eastern District of New York.

We welcome both of you to the panel today, and I want to say

for the record your written statements will be made part of the

record in their entirety.

We have just started a vote on the floor of the Senate, but I believe I will try to get through your testimony, and then recess and

come back. Ms. Myers, you want to go first?

STATEMENT OF JULIE L. MYERS, OF KANSAS

TO BE ASSISTANT SECRETARY FOR EXPORT ENFORCEMENT

U.S. DEPARTMENT OF COMMERCE

Ms. MYERS. Thank you, Senator Shelby.

Chairman SHELBY. Thank you. Welcome to the Committee.

Ms. MYERS. Thank you very much. I would like to introduce, sitting behind me, my mother and my stepfather, Kathy and David

Sinzheimer, who have flown in to be with me today.

It is a great honor and privilege for me to appear before the

Committee and to be the President’s nominee for the position of Assistant Secretary of Commerce for Export Enforcement. I thank

President Bush and Secretary Evans for their confidence and trust.

Chairman SHELBY. What I need to do before I go farther, I was

just reminded by staff, thank goodness, I need to administer an

oath to both of you. Would you raise your right hands and be

sworn?

21

Do you swear or affirm that the testimony that you are about to

give is the truth, the whole truth, and nothing but the truth, so

help you God?

Ms. MYERS. I do.

Mr. LICHTENBAUM. I do.

Chairman SHELBY. Do you agree to appear and testify before any

duly-constituted committee of the Senate?

Ms. MYERS. I do.

Mr. LICHTENBAUM. I do.

Chairman SHELBY. Thank you. I apologize to you. I think I was

focusing on that vote, but I will focus on your testimony.

Ms. MYERS. Thank you, Chairman Shelby.

The Bureau of Industry and Security has a critical mission, safeguarding our national security while protecting the right of American businesses to export their products. The Bureau’s Export

Enforcement Division advances this mission by rigorously enforcing

the export control and antiboycott laws and regulations.

Today, the Bureau’s mission is more important than ever. As the

President has said, the war on terrorism is fought on many fronts,

and Export Enforcement agents have assisted in this fight. They

have investigated links between terrorism and exports of dual-use

items. For example, Export Enforcement agents played a substantial role in the highly publicized indictment of INFOCOM Corporation and others for illegally exporting computers and computer

technology to designated state sponsors of terrorism, Syria and

Libya. The INFOCOM indictment also alleges that proceeds from

these sales funded Hamas’s terrorist activities.

In addition to penalizing unlawful shipments after the fact, Export Enforcement agents work to keep sensitive technologies from

ever reaching terrorists and other criminals. The Division, through

its close collaboration with industry and with our foreign counterparts, identifies unlawful shipments and technology transfers in

advance, and thereby stops exports violations before they occur.

The Export Enforcement team has had many great successes

over the past 2 years. As a former Federal prosecutor, if confirmed,

I will work to build on these investigative successes and work to

target the most significant violations such as terrorist-related acquisitions and export of biological toxins. My experience at the Departments of Treasury and Justice has taught me the importance

of seamless law enforcement and seamless coordination between

the different components of American law enforcement. Export Enforcement already enjoys good relations with its law enforcement

partners. I will work to strengthen these crucial ties. My previous

experience also demonstrated the necessity of partnerships with industry. Export Enforcement has done a great deal to develop relationships with industry, and with our foreign counterparts. I will

assign the highest priority to be nurturing these vital relationships

in order to stop dangerous exports before they reach terrorists.

Export Enforcement occupies a key role in protecting our national security. If confirmed, it will be my privilege to work with

the career law enforcement officials within the Bureau of Industry

and Security—special agents, intelligence analysts, and other Enforcement leadership to fulfill our essential mission. In particular,

I look forward to working with Under Secretary Kenneth Juster

22

and Assistant Secretary Designate for Export Administration,

Peter Lichtenbaum.

On a personal note, I want to thank my family and friends who

are here in the audience today, as well as my father, Charles

Myers. Without their constant encouragement and support I would

not be here today.

Let me conclude by thanking the Committee for its prompt consideration of my nomination. If confirmed, I look forward to working closely with you, the Committee staff and the entire Congress.

Thank you.

Chairman SHELBY. Mr. Lichtenbaum.

STATEMENT OF PETER LICHTENBAUM, OF VIRGINIA

TO BE ASSISTANT SECRETARY FOR EXPORT ADMINISTRATION

U.S. DEPARTMENT OF COMMERCE

Mr. LICHTENBAUM. Thank you, Chairman Shelby.

First, I want to say I was a student of Dr. Rosen’s, and I can testify truthfully here that he did in fact always speak in English and

never in jargon.

Chairman SHELBY. Senator Sarbanes preceded all of you at

Princeton.

[Laughter.]

Mr. LICHTENBAUM. I was fortunate to be a classmate of his son,

as a matter of fact.

I am honored to appear before you today as President Bush’s

nominee for Assistant Secretary of Commerce for Export Administration. I thank President Bush and Secretary Evans for the trust

they have placed in me. I also appreciate the time that Members

of this Committee, including Senators Shelby and Enzi have taken

recently to meet with me. If confirmed, I will work closely with you

and your staff.

As everyone here knows, we are living in dangerous times. We

are all aware of the dangers that surround us from terrorist organizations, as well as from certain countries. As our security concerns

have increased, so too has the importance of our export control system.

The core function of U.S. export controls is to protect U.S. national and economic security. Since entering office, this Administration has taken numerous actions to reemphasize the importance of

security and export controls. The Administration has made it a

prime objective to ensure that Commerce’s Bureau of Industry and

Security, which administers the dual-use controls, considers

national security as its fundamental goal. The Bureau’s mission

statement in fact describes this as its paramount concern. I am

completely committed to this mission.

While national security is our top priority, we cannot disregard

the impact that export controls have on the U.S. private sector.

This is especially true in the current economic climate. If controls

become outdated, then they burden our businesses and workers

without promoting our security. Indeed, such controls could reduce

our security if they spur high-technology industries in other countries, which may not maintain the adequate export controls.

After my education at Princeton and at Harvard and service in

the U.S. Department of the Treasury, I have worked for the last

23

11 years in the private sector, where I focused on promoting compliance by U.S. companies with our export laws, primarily the

Commerce Department controls, but also the parallel rules administered by the State Department and the Treasury Department. I

believe that this private sector work will be helpful to me in understanding the impact of export controls on the business community.

If confirmed, I plan to work closely with Under Secretary Kenneth Juster, Assistant Secretary Designate for Export Enforcement,

Julie Myers, and the career Commerce Department staff. I also will

coordinate with other agencies who have an important role in our

export control system such as the Departments of State and Defense.

In closing, I want to thank my family for their extraordinary love

and support. In the audience today are my parents, Steve and

Lynn Lichtenbaum, my wife Greta, and her father, Dale

Husemoller, as well as two of my three children, Annika and Jacob,

and I regret that my 4-year-old daughter, Rose, could not be here

today, as she had a more important commitment, her birthday

party at school.

[Laughter.]

I appreciate your time, and am pleased to answer any questions

you may have. Thank you.

Chairman SHELBY. We have a vote on the floor, and we have just

a few minutes to get there. Everybody else is there I think. We are

going to recess, because we have a number of questions we would

like to ask you, and we will get back as soon as we can. We hope

10 or 12 minutes.

The hearing will be in recess until the call of the Chair.

[Recess.]

Chairman SHELBY. Thank you for your patience. The hearing will

come to order. It is part of the Senate, as you know.

I have a number of questions for you, and I will preface some of

it. Both the Department of Commerce Office of Inspector General

and the General Accounting Office have been highly critical of the

Bureau of Industry and Security’s conduct of its role in the export

control process. One area that has received considerable attention

involves post-shipment verification to ensure that controlled items

are both physically at the required location and being used for the

purposes for which the authorized shipment intended. We know

this is difficult.

Ms. MYERS. Yes.

Chairman SHELBY. This problem is not entirely a problem with

the Bureau. The issue of post-shipment verifications overwhelmingly involve shipments of dual-use technologies to China, among

others, which has placed severe restrictions on our ability to carry

out these inspections. The General Accounting Office, has reported

that China’s intransigence ‘‘has resulted in a backlog of about 700

post-shipment visits.’’ That is on China. The GAO report goes on

to say, however, that the U.S. Government: ‘‘Makes limited efforts

to monitor exporters’ and users’ compliance with the conditions set

forth in the export license for high-performance computers.’’

Given the importance of high-performance computers to virtually

everything China seeks to do within the realm of its military command, control, and communication programs and relative to its

24

overall effort to modernize its armed forces, do you, as nominees,

have any thoughts on how this issue will be dealt with if you are

confirmed?

Mr. Lichtenbaum, do you want to go first?

Mr. LICHTENBAUM. Well, I will defer to Ms. Myers.

Chairman SHELBY. Okay. Since I started with her—I was moving

back and forth, but I will defer to her, too, at your suggestion.

Ms. Myers.

Ms. MYERS. Thank you, Senator Shelby.

Chairman SHELBY. We know that is a difficult thing to enforce.

Ms. MYERS. Absolutely.

Chairman SHELBY. It is easy to sell, dual-use. Go ahead.

Ms. MYERS. Absolutely, you are exactly right, Senator. It is a

very difficult thing to enforce. The Bureau and the Export Enforcement Division are aware of GAO’s concerns and the Inspector General’s concerns and have worked on a targeted plan——

Chairman SHELBY. GAO is reflecting a lot of our concerns.

Ms. MYERS. That is right.

Chairman SHELBY. As Members of the Senate.

Ms. MYERS. That is right, concerns that you and other Members

of Congress have raised.

Chairman SHELBY. Right.

Ms. MYERS. And they have worked on a plan to try to improve

in this area because it is so critical that we have end-use visits that

are accurate.

In China, in particular, the Bureau has done several things.

They have developed what is known as an unverified list, and this

list contains the names of parties who have previously conducted

transactions, but yet the U.S. Government was not allowed to do

an end-use visit. And those parties are then put on the unverified

list, and until they are taken off, licenses are stopped and exporters

know there is a red flag.

Chairman SHELBY. How many people do you have on that list?

Can you furnish it for the record?

Ms. MYERS. Oh, absolutely.

Chairman SHELBY. And who they are.

Ms. MYERS. Absolutely. It is on our website, and we will also furnish a copy for the record.

Chairman SHELBY. Absolutely.

[The list follows:]

Ms. MYERS. It is in the neighborhood of 12 or so right now that

are on the unverified list, but it is a method that we developed to

try to, you know, hold individuals accountable and parties accountable. When they do not have end-use visits, they can no longer do

business with exporters.

We have also conducted some additional outreach with the Chinese community. Tomorrow and I believe the next day, we are

holding an export conference in China, the first one in 3 years, to

try to help educate industry and educate indeed the Chinese Government about our rules and regulations and what needs to be

done to comply.

Chairman SHELBY. We, on the Banking Committee, are not the

only ones concerned with this, although we have jurisdiction over

the issue. A lot of us who serve on the Defense Appropriations

25

Committee are concerned with this because of national security

concerns, as you are very much aware of.

Ms. MYERS. Absolutely, and it is important that we target our

end-use visits, too, and to target on the most significant violations.

If we were faced with a choice between doing an end-use visit on,

a 200 MTOP computer that went to a bank and a five-axle piece

of machinery that went to a manufacturing concern, obviously our

efforts would be focused on the five-axle piece of machinery. And

the Bureau of Export Enforcement has tried to target its efforts on

these high-risk transactions, and I am pleased to report that it is

my understanding that they have conducted several end-use visits

in China over the last several months. I think there has been

progress in this area, but we know that there is a lot more to do,

and if confirmed, I would look forward to working in this area.

Chairman SHELBY. Ms. Myers, in your opening statement, you

emphasized the importance that you place on close cooperation

within the law enforcement community as a result of your background, your experience as a Federal prosecutor, among other

things. As recently as this past June, the Commerce Department

Inspector General reported that the Bureau of Industry and Security’s level of cooperation with other Federal agencies, including

U.S. Attorney’s Offices, the Customs Bureau within the Department of Homeland Security, the FBI, and other agencies, was deficient. That is their report. It also noted that cooperation with the

intelligence community was similarly lacking. This is not a trivial

matter, as you well know from your background. Cases of illegal

shipments to rogue regimes remain a regular occurrence. Earlier

this month, The Washington Times reported on a case of four U.S.-

manufactured specialty pumps, dual-use items that can be used in

the manufacture of nuclear weapon materials, were illegally diverted to Iran, a country whose nuclear program is a source of considerable concern to even the United Nations.

Last June, the Denver Post reported on a Colorado man being investigated for helping the Chinese military illegally export highspeed digital cameras to a research institute that develops missiles

designed to deliver nuclear warheads. The list can go on and on,

but you get the point, I know very well.

Irrespective of how one views the licensing process, diversions

such as these present a danger to U.S. interests, perhaps to our national security down the road, that you both are well aware of.

Ms. Myers, data provided to my office indicate that, ‘‘Out of an

average yearly caseload of 1,038 cases, just three criminal cases

were successfully prosecuted in 2002’’—and we know it is difficult

when you are dealing with dual-use—‘‘with another 25 cases closed

with administrative sanctions.’’ That is not a very impressive statistic. You know, I do not know how much is going on with that.

What do you anticipate recommending to strengthen the enforcement mechanism at the Department of Commerce and within the

broader law enforcement community? We have had these debates

a long time, as you know, but you will be right in the center of it.

Ms. MYERS. Thank you, Senator. You raise very complex and difficult issues.

Chairman SHELBY. Very complex.

26

Ms. MYERS. Having worked at both Treasury and Justice and

then also in the field as a prosecutor, I am very much aware of the

problems when agencies do not coordinate and work together. And

if confirmed, under my leadership I will seek to improve upon the

relations that Export Enforcement has with other agencies.

In terms of the Bureau’s numbers, in my preliminary review I

have been pleased to see what Export Enforcement has done. If you

look, for example, at the civil penalties, which is an important part

of Export Enforcement’s work——

Chairman SHELBY. It is.

Ms. MYERS. —you can see a rising trend. I think in 2000 there

was somewhere in the neighborhood——

Chairman SHELBY. Some of it might not be criminal, anyway.

Ms. MYERS. Some of it may not be. There are cases where——

Chairman SHELBY. It is up to you all to decide.

Ms. MYERS. Right, right. You know, sometimes you have a global

settlement where there is both a civil side and a criminal side. But

the civil penalties imposed in 2000 were in the neighborhood of $1

million; in 2002, it was $5.2 million. So from my view, I have seen

Export Enforcement agents working harder to conduct more significant cases. And, recently, they have participated on the JTTF’s

very successfully. An agent from New York worked on the Daniel

Pearl case. They participated in the INFOCOM indictment that I

talked about. They participated down in Texas and provided very

important information in the indictment of a Texas Tech professor

for transporting human bacteria illegally.

And Commerce agents can bring their expertise to these lengthy

investigations, and our numbers will never be like the Bureau, but

we will certainly work to target and work on the most significant

violations, if I am confirmed.

Chairman SHELBY. Thank you.

Senator Sarbanes.

Senator SARBANES. Thank you very much, Mr. Chairman.

I would like to ask a question of both of you. Some argue that

the Commerce Department, because of its orientation of business

promotion—indeed, it has a charge to do that—is the wrong lead

agency for export control policy and enforcement. What do you all

say to that observation?

Ms. MYERS. Senator, thank you for your question. Export Enforcement is in precisely the right place within the Department of

Commerce because of the relationships that the Commerce Department has with industry. The agents, we only have a little over 100

agents. They cannot do it all by themselves, and they need to rely

on the expertise of exporters, freight forwarders, various parts in

the supply chain to bring things to our attention. And because of

the relationship the Department of Commerce has with industry,

we are able to leverage that in our prosecutions.

And I think that the President’s budget numbers and Commerce’s budget request for 2005 show that Commerce values export

enforcement. If you look at the 2003 budget, there is about $30 million and 217 FTE’s. In the President’s 2004 budget, they have requested an increase of $5 million, which is pretty significant for the

enforcement side, and 10 FTE’s. And this is because the Commerce

Department values the work that is done. And I think some of the

27

great cases that I have talked about previously show how the export enforcement agents can do a good job within this agency and

to partner and leverage off of our licensing partners so we can help

them impose certain license conditions and, indeed, work to monitor them.

Mr. LICHTENBAUM. If I may just add to that, I believe it is a very

important question. If it were the case that the Bureau of Industry

and Security were acting simply as an advocate for industry, then

I think it might be fair to question the appropriateness of having

our export controls located in the Commerce Department. However,

I believe that is not the case, and particularly since this Administration came into office, I think there has—and the events of September 11—been a very strong emphasis on security, as I mentioned in my statement. And I believe that this is not just, you

know, my understanding but the view of the agencies that Commerce works with as well who are specialists in the security area,

Defense Department, for example.

I would also note that the decisions that the Bureau makes are

made on an interagency basis. For example, the decision about

what items to list on Commerce’s control list are made on an interagency basis. The decisions about what licenses to grant or deny

are made on an interagency basis, with the right of any agency to

appeal if it disagrees. So, I believe that the current system is working very well to protect U.S. national security.

Senator SARBANES. Let me just follow up that response. Again,

to both of you, one of the principal criticisms that is made of our

current export system is that we do not have a workable process

for the executive agencies with responsibility for export control—

Commerce, State, Defense Department—by which they can resolve

disagreements on export licenses. What do you think about that

issue?

Mr. LICHTENBAUM. I actually do not think that the criticism is

warranted. I think there is a system that has fairly clear rules,

that is put in place by an Executive order under which we have an

initial stage in which agencies receive licenses to get their opinions

on them. If there is disagreement among the agencies on what

should happen, that license will then be considered by an interagency operating committee. Again, if an agency disagrees with the

decision that is made by the operating committee, they can then escalate that to an advisory committee, which is at the Assistant Secretary rank.

I think there is a very clearly defined process that is in place and

has time frames to ensure quick resolution of licensing disputes.

Senator SARBANES. Ms. Myers.

Ms. MYERS. I do not really have anything to add to Peter’s statement on that.

Senator SARBANES. Are you familiar with the legislation that was

reported out of this Committee dealing with export control? It was

not enacted into law.

Mr. LICHTENBAUM. Right.

Senator SARBANES. What is your view of that legislation?

Mr. LICHTENBAUM. Well, I am generally familiar with the legislation, although unfortunately I cannot say that I have read it line

by line. I believe clearly, that legislation was supported by a large

28

majority on this Committee, a large majority in the Senate as a

whole, and so represented at the time a consensus judgment, bipartisan judgment about the direction of U.S. export control reform.

However, a fair amount of time has passed since the Senate and

this Committee considered that bill, and since then, of course, we

have had the events of September 11. We have had numerous developments in the world situation. And so I think everyone who is

involved in the process probably will want to take the opportunity

to come at it afresh and decide whether any modifications should

be made to that bill.

Senator SARBANES. It was supported by the Administration as

well.

Mr. LICHTENBAUM. Yes, it was.

Senator SARBANES. Strongly.

Mr. LICHTENBAUM. Yes, it was.

Senator SARBANES. Are they still supporting it, do you know?

Mr. LICHTENBAUM. I do not know that there is an Administration

position. There is no legislation pending in the Congress at this

time, as far as I am aware. I would expect that the Administration

would—first, obviously, it would react to any legislation that is introduced and provide its position at the time, and even before that

I think would be more than happy to work with your staffs and

yourselves on specific provisions that you may be considering.

Ms. MYERS. And certainly on the enforcement side, there is a

great need to expand our law enforcement authorities and the penalties so that our export control system can be more effective.

Senator SARBANES. In fact, you are now proceeding under emergency authorities, are you not?

Ms. MYERS. That is correct, Senator.

Senator SARBANES. Some have raised the concern that some actions that the Administration has taken or might take using the

emergency authorities would not stand up to a court challenge. Do

you have a view on that question?

Mr. LICHTENBAUM. Well, having left private law practice behind,

I decline to offer an opinion on the prospects for such a challenge.

But I certainly would agree with you, Senator, that the fact that

we are operating under emergency authority creates an unnecessary risk for our export control system, and that is one of the principal reasons why I personally think we need to move forward with

an Export Administration Act.

For example, in the area of our proliferation controls, the EPCI

initiative, also in the area of antiterrorism controls, I would think

that a stronger legal footing could only be helpful.

Ms. MYERS. And, Senator, certainly on the enforcement side, we

have been very successful so far in courts, and the agents in the

Bureau of Industry and Security have been flexible enough to work

with their counterparts on creative kinds of charges. But absolutely

it would be a good thing to have firmer authority.

Senator SARBANES. Ms. Myers, after law school you were a law

clerk to a Federal judge in the Eighth Circuit. Is that right?

Ms. MYERS. Yes, Senator.

Senator SARBANES. And then you went to Mayer, Brown, and

Platt in Chicago for a couple of years, with whom you had worked

in the summers while at law school. Is that correct?

29

Ms. MYERS. That is correct, Senator.

Senator SARBANES. And then you came to Washington. Is that

right?

Ms. MYERS. Well, after working at Mayer, Brown, and Platt, I

worked for about 16 months for Independent Counsel Ken Starr,

and so I was based in both Little Rock and in Washington, DC, but

kept my apartment in Chicago actually throughout that period.

Senator SARBANES. What did you do for the Independent Counsel?

Ms. MYERS. I was a very junior attorney, so I did a number of

things as assigned. I worked on investigations in Little Rock, and

then on the investigation here in DC, writing, researching, and also

appearing some in court.

Senator SARBANES. And why did you leave there?

Ms. MYERS. Well, in my view, for my own personal career, the

time had come. I had the opportunity to go work as an Assistant

U.S. Attorney in Brooklyn, which was my lifelong dream to prosecute cases. And so I left to go try more cases, get in front of juries,

and help enforce our Nation’s laws

Senator SARBANES. And then what happened?

Ms. MYERS. I was drafted back down to DC into the Administration. After September 11, I was offered the opportunity to come

down and work on policy from a bigger perspective than I had as

an AUSA. And I came down and served as a Deputy Assistant Secretary for money laundering and financial crimes, and that was a

very valuable opportunity.

Senator SARBANES. How long did you stay there?

Ms. MYERS. I was there for about a year. It was at the same time

when the Department of Homeland Security was under consideration, and so it was very clear that my job would likely either move

over to the Department of Homeland Security or be eliminated altogether. And so I was offered the opportunity to come to work for

one of my personal heroes, Michael Chertoff, at the Criminal Division, and I served as his chief of staff until he was promoted to be

a judge on the Third Circuit Court of Appeals, and that is when

this opportunity opened up to me.

Senator SARBANES. Did these opportunities come along and

present themselves to you, or did you seek them out? I am just curious. The way you phrase it, it is as though you are just moving

blissfully along in life and these opportunities keep presenting

themselves to you.

Ms. MYERS. Well, I feel fortunate, Senator. Obviously, I have

looked for good opportunities, but I feel that I have been very fortunate, the opportunities that have come into my life. Of course, I

have worked for them and feel that my background qualifies me for

them, but I do feel there is some combination of fortune and talent.

Senator SARBANES. But you sought them out, I take it, generally

speaking?

Ms. MYERS. That is correct, Senator.

Senator SARBANES. How long do you think you might stay over

here at the Commerce Department? I mean, you were at Mayer,

Brown, and Platt for 2 years. Then you were with Starr for, I think

you said, 16 months. And then you were at the U.S. Attorney’s Office for 2 years. And then you were at Treasury for a year. And

30

then you were at Justice for—well, that is where you are. Is that

where you are now?

Ms. MYERS. No. I just moved over as a consultant over a Commerce a week ago.

Senator SARBANES. Okay. So you were at Justice for, what, not

even a year.

Ms. MYERS. That is correct.

Senator SARBANES. Well, now, how long do you think you will be

at Commerce?

Ms. MYERS. Well, of course, if confirmed, I would serve at the

President’s pleasure. I certainly have no intention to go looking for

a different opportunity at this time.

Senator SARBANES. Do you think an opportunity may come looking for you?

Ms. MYERS. Senator, unfortunately, in my previous administration positions, they have moved out under me so I have sought

other opportunities. If Michael Chertoff was still at Justice, I would

still be there working for him, and that was certainly a highlight

of my career. And if the enforcement office was still at Treasury,

I would have remained at Treasury working for Under Secretary

Gurule ́.

Senator SARBANES. Of course, we know Michael, and we know

him very well. Let me just ask you, you have been a prosecutor.

You think the resources available presently to the Assistant Secretary for Export Enforcement in the Commerce Department are

adequate to the task?

Ms. MYERS. Well, certainly in the President’s 2004 budget request, we have asked for more resources to get a few more agents

and to place some people abroad, and I think that is necessary.

And I think with those limited resources, we can do a good job. I

look forward to evaluating that further if I am confirmed, if I am

in the job.

Senator SARBANES. Thank you.

Chairman SHELBY. Ms. Myers, you keep doing what you are

doing. You are getting great experience. Both of you are young and

obviously talented. I have some questions, if I can.

The findings of the Commerce Department’s Office of Inspector

General called into question the adequacy of the training of special

agents, the individuals in the field actually conducting investigations. The quality of both prelicense investigations and post-shipment verifications that we got into are dependent upon the quality

of the individuals carrying out the investigations. Both of you know

that well. In fact, it is not uncommon for post-shipment verifications to be carried out by the Commerce Department foreign

and commercial officers untrained in the sometimes very complicated technical matters involved.

We are interested in the IG report’s finding regarding the lack

of correlation between prelicense checks and the outcome of license

applications. We went into that earlier. The IG report found the

following: ‘‘Instances in which Export Enforcement recommended

rejection of license applications but Export Administration returned

them to applicants without action, neither approval nor denial. The

two offices did not always attempt to reach consensus on license

31

recommendations by way of the dispute resolution process outlined

in a 1996 Memorandum of Understanding.’’

That is the Inspector General.

To acknowledge the obvious, neither of you, quite candidly,

worked in the Department before, but you bring a lot of experience,

although both of you are young, and you cannot be expected, I believe, to comment in any great detail on what has transpired there

in the past. I would, however, appreciate hearing from you on your

views of this finding by the Inspector General. Do you have any

comments on that? You have got to have quality trained people in

anything to help do your job right. Right?

Mr. LICHTENBAUM. That is absolutely the case. I would defer on

the enforcement issue you raised, Senator, to Ms. Myers.

On the question of interagency discussion on classification requests, I haven’t seen that report. I know that the Commerce Department filed a fairly strong statement of disagreement with the

GAO. I have not had the time myself to determine the facts of the

matter, but certainly I think it is appropriate for one thing that

Commerce——

Chairman SHELBY. It has got to be addressed.

Mr. LICHTENBAUM. Yes, exactly. Commerce should be acting fully

consistent with the terms of the 1996 NSC guidance. And, in general, if there are commodity classifications that the Defense Department feels it is important for them to review, then we should

find a way to make that happen.

Chairman SHELBY. Do you want to comment on that, Ms. Myers?

The training of people, very important?

Ms. MYERS. Absolutely. And in a way, I feel fortunate to have

this report because it provides a blueprint of some problems that

the Bureau has had in the past and ways that we should address

them. And it is my understanding that Export Enforcement has

worked to update and revise the manual, particularly in Chapter

7, which is the safeguards or the end-use visits area that you are

referring to, because it is critically important that agents know

what to do when they conduct end-use checks.

In terms of when the Foreign Service individuals conduct end-use

checks, the Bureau has worked with them to provide them additional assistance and has come up with a number of ways to make

it more clear to them about what they should do.

One thing that they are also doing is working to put attache ́s in

different destinations, and the Bureau has found this to be a very

effective way, having someone on the ground there who knows

what is going on and can work and conduct those end-use checks.

Chairman SHELBY. It is just too important to take chances here,

is it not?

Ms. MYERS. Absolutely, Senator.

Chairman SHELBY. Mr. Lichtenbaum, I want to ask you a question. The Export Administration Act, as you know, has

expired. Dual-use exports continue to be controlled under international emergency economic powers authority, which Senator Sarbanes alluded to. If confirmed, what actions would you anticipate

taking to rectify this situation? Do you have some concept in mind

of how a new control regime should look, how it should be structured?

32

Mr. LICHTENBAUM. Well, Senator, you raise one of the most important questions that I will have to——

Chairman SHELBY. You have to address it.

Mr. LICHTENBAUM. —deal with if I am confirmed.

Chairman SHELBY. Oh, you will be confirmed, I predict.

Mr. LICHTENBAUM. I appreciate that.

Chairman SHELBY. As soon as we can do it.

[Laughter.]

Mr. LICHTENBAUM. I very much appreciate the support, Senator.

The Export Administration Act, as you say, has expired. We are

operating under emergency authorities. I think that one of the key

areas for us is to make sure that the authorities are clearly in

place for things that we are already doing and that there is bipartisan consensus, I believe, that we should do.

Chairman SHELBY. What about consensus in the area of penalties for violations of export control regulations?

Mr. LICHTENBAUM. I am sorry. I did not——

Chairman SHELBY. Let me say it again. What about consensus

in the area of penalties for violations of export control regulations?

In other words, do you support penalties more stringent than were

in the Export Administration Act of 1979?

Mr. LICHTENBAUM. Yes, I would support more stringent penalties. I believe that is, as Ms. Myers mentioned, one of the

important——

Chairman SHELBY. I want to address that to Ms. Myers. You will

be enforcing that.

Ms. MYERS. Oh, absolutely.

Chairman SHELBY. We need strong penalties.

Ms. MYERS. Absolutely, Senator.

Chairman SHELBY. We look forward to working with you two on

trying to address this because you need clear direction, you need

clear laws to enforce this, I believe.

We appreciate your patience. You know the Senate is in session

and we are doing other things. But we will try to move both of your

nominations as soon as possible, first in the Committee and then

on the floor. It is important to you before you can go to work.

Thank you. The hearing is adjourned.

[Whereupon, at 12:14 p.m., the hearing was adjourned.]

[Prepared statements, biographical sketches of nominees, and additional material supplied for the record follow:]

33

PREPARED STATEMENT OF JOHN W. WARNER

A U.S. SENATOR FROM THE STATE OF VIRGINIA

Chairman Shelby and my other distinguished colleagues on the Senate’s Committee on Banking, Housing, and Urban Affairs, I am pleased to support the nomination of a Virginian, Peter Lichtenbaum, to serve as Assistant Secretary of the

U.S. Department of Commerce for Export Administration.

The Bureau of Industry and Security plays a key role in challenging issues involving national security and nonproliferation, export growth and high technology. It

works to regulate the export of sensitive goods and technologies; enforces export control, antiboycott, and public safety laws; assists U.S. industry to comply with international arms control agreements; and works with other countries on export control

and strategic trade issues.

Mr. Lichtenbaum brings significant expertise to this role from his trade law practice with the firm of Steptoe & Johnson LLP. Through his practice, he has gained

extensive experience regarding U.S. export control laws and regulations. He has

counseled clients with respect to the Export Administration Act (EAA) and Export

Administration Regulations (EAR), as well as the Arms Export Control Act (AECA),

the International Traffic in Arms Regulations (IT AR), the International Emergency

Economic Powers Act (IEEP A) and various economic embargo programs administered by the U.S. Treasury Department.

Mr. Lichtenbaum holds a law degree from Harvard Law School, a master’s degree

in public policy from the John F. Kennedy School of Government at Harvard University, and a bachelor of arts degree from Princeton University. He is an active member of the American Bar Association, where he served on the Council of the ABA’s

Section of International Law and Practice. Mr. Lichtenbaum previously served as

an Honors Attorney at the U.S. Department of Treasury and as Acting Foreign

Service Officer at the U.S. Embassy in Madagascar for the U.S. Department of

State.

Mr. Chairman, clearly Mr. Lichtenbaum’s extensive professional experience makes

him highly qualified to serve as Assistant Secretary of Commerce for Export Administration, and I am confident that he will do so with distinction.

Again, I am very pleased to support Mr. Lichtenbaum’s candidacy. I look forward

to the Committee reporting his nomination favorably and for a confirmation vote before the full Senate.

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