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THE IMPACT OF REGULATION ON U.S.

MANUFACTURING

HEARING

BEFORE THE

SUBCOMMITTEE ON REGULATORY AFFAIRS

OF THE

COMMITTEE ON

GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

APRIL 12, 2005

Serial No. 109–32

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.gpoaccess.gov/congress/index.html

http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

TOM DAVIS, Virginia, Chairman

CHRISTOPHER SHAYS, Connecticut

DAN BURTON, Indiana

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

JOHN L. MICA, Florida

GIL GUTKNECHT, Minnesota

MARK E. SOUDER, Indiana

STEVEN C. LATOURETTE, Ohio

TODD RUSSELL PLATTS, Pennsylvania

CHRIS CANNON, Utah

JOHN J. DUNCAN, JR., Tennessee

CANDICE S. MILLER, Michigan

MICHAEL R. TURNER, Ohio

DARRELL E. ISSA, California

GINNY BROWN-WAITE, Florida

JON C. PORTER, Nevada

KENNY MARCHANT, Texas

LYNN A. WESTMORELAND, Georgia

PATRICK T. MCHENRY, North Carolina

CHARLES W. DENT, Pennsylvania

VIRGINIA FOXX, North Carolina

——— ———

HENRY A. WAXMAN, California

TOM LANTOS, California

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

CAROLYN B. MALONEY, New York

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

DANNY K. DAVIS, Illinois

WM. LACY CLAY, Missouri

DIANE E. WATSON, California

STEPHEN F. LYNCH, Massachusetts

CHRIS VAN HOLLEN, Maryland

LINDA T. SANCHEZ, California

C.A. DUTCH RUPPERSBERGER, Maryland

BRIAN HIGGINS, New York

ELEANOR HOLMES NORTON, District of

Columbia

———

BERNARD SANDERS, Vermont

(Independent)

MELISSA WOJCIAK, Staff Director

DAVID MARIN, Deputy Staff Director/Communications Director

ROB BORDEN, Parliamentarian

TERESA AUSTIN, Chief Clerk

PHIL BARNETT, Minority Chief of Staff/Chief Counsel

SUBCOMMITTEE ON REGULATORY AFFAIRS

CANDICE S. MILLER, Michigan, Chairman

GINNY BROWN-WAITE, Florida

CHRIS CANNON, Utah

MICHAEL R. TURNER, Ohio

LYNN A. WESTMORELAND, Georgia

STEPHEN F. LYNCH, Massachusetts

WM. LACY CLAY, Missouri

CHRIS VAN HOLLEN, Maryland

EX OFFICIO

TOM DAVIS, Virginia HENRY A. WAXMAN, California

ED SCHROCK, Staff Director

ERIK GLAVICH, Professional Staff Member

LAUREN JACOBS, Clerk

KRISTA BOYD, Minority Counsel

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C O N T E N T S

Page

Hearing held on April 12, 2005 .............................................................................. 1

Statement of:

Duesterberg, Thomas, president and CEO, Manufacturers Alliance/MAPI;

Lori Luchak, vice president and marketing director, Miles Fiberglass

& Composites, on behalf of the American Composites Manufacturers

Association; and Sidney Shapiro, University distinguished Chair in

law, Wake Forest University, on behalf of Center for Progressive Regulation .............................................................................................................. 55

Duesterberg, Thomas ................................................................................ 55

Luchak, Lori .............................................................................................. 73

Shapiro, Sidney ......................................................................................... 84

Frink, Al, Assistant Secretary for Manufacturing and Services, U.S. Department of Commerce; John D. Graham, Ph.D., Administrator, Office

of Information and Regulatory Affairs, Office of Management and

Budget; and Governor John Engler, president, National Association

of Manufacturers ........................................................................................... 11

Engler, Governor John .............................................................................. 27

Frink, Al ..................................................................................................... 11

Graham, John, Ph.D. ................................................................................ 22

Letters, statements, etc., submitted for the record by:

Duesterberg, Thomas, president and CEO, Manufacturers Alliance/MAPI,

prepared statement of ................................................................................... 58

Engler, Governor John, president, National Association of Manufacturers,

prepared statement of ................................................................................... 29

Frink, Al, Assistant Secretary for Manufacturing and Services, U.S. Department of Commerce, prepared statement of .......................................... 13

Graham, John D., Ph.D., Administrator, Office of Information and Regulatory Affairs, Office of Management and Budget, prepared statement

of ..................................................................................................................... 24

Luchak, Lori, vice president and marketing director, Miles Fiberglass

& Composites, on behalf of the American Composites Manufacturers

Association, prepared statement of ............................................................. 76

Miller, Hon. Candice S., a Representative in Congress from the State

of Michigan, prepared statement of ............................................................. 4

Shapiro, Sidney, University distinguished Chair in law, Wake Forest

University, on behalf of Center for Progressive Regulation, prepared

statement of ................................................................................................... 86

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THE IMPACT OF REGULATION ON U.S.

MANUFACTURING

TUESDAY, APRIL 12, 2005

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON REGULATORY AFFAIRS, COMMITTEE ON GOVERNMENT REFORM, Washington, DC.

The subcommittee met, pursuant to notice, at 10:05 a.m., in room

2154, Rayburn House Office Building, Hon. Candice S. Miller

(chairwoman of the subcommittee) presiding.

Present: Representatives Miller, Brown-Waite, Cannon, Westmoreland, and Lynch.

Staff present: Ed Schrock, staff director; Rosario Palmieri, deputy staff director; Erik Glavich and Dena Kozanas, professional

staff members; Lauren Jacobs, clerk; Krista Boyd, minority counsel; and Cecelia Morton, minority office manager.

Mrs. MILLER. Good morning.

Welcome to our hearing this morning. Our great Nation has just

in a few short centuries developed into a society and a culture that

is envied by people around the entire globe. They see an America

that beat all the odds. They see the American people who have

been able to excel because we truly have been the land of opportunity, a place where individuals can reach their highest potential

in many cases just by using their creativity and because of a desire

to simply work hard. And that ingenuity and work has manifested

itself in our ability to build things, things that other people want

to buy, commonly called manufacturing. And for many years, it has

been widely acknowledged that the manufacturing industry has

been a critical component of the backbone of America. And for the

most part, government has understood that it does not create jobs.

The private sector creates jobs, but the government can help to provide an environment that attracts business investment and encourages job creation.

But unfortunately today, the American manufacturing industry

is under attack, and there are a number of dynamics involved in

this. And we hear stories each and every day about good-paying

manufacturing jobs that leave America for other countries. And we

see our trading partners in other countries taking advantage of

American generosity in some of our trade agreements. We see nations that live under the blanket of freedom and democracy paid

for by American dollars and in some cases by American blood.

Today, some of those nations subsidize their own manufacturing industries to the disadvantage of ours. Some of these nations are

clearly manipulating their currency, again to the disadvantage of

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America. And many of these countries compete against our products by producing similar products in sweat shops or by a wage

rate that is so low that we cannot compete with that here in our

country. And for these reasons and many more, manufacturing has

had a really tough go of it lately, and the statistics clearly show

that.

Our manufacturing industry is responsible for 14 million jobs, 14

percent of the GDP, over 60 percent of all exports and over 60 percent of all research and development spending. And yet, in just the

past few years, the manufacturing sector has lost several million

jobs, both union jobs and non-union jobs, jobs that have provided

a high quality of life for so many Americans; that have contributed

to raising the standard of living for millions of Americans. And unfortunately, we find that oftentimes it’s our very own government,

perhaps with the very best of intentions, who has become an unwitting partner in assisting other countries to import not just American products but American jobs. And why? Because of the onerous

burden of excessive regulations.

Let’s consider a few sobering statistics: The Small Business Administration has estimated that the cost of compliance of government-imposed regulations costs small businesses as much as

$7,000 per employee. The National Association of Manufacturers

has estimated that the structural costs of American products compared with any of our foreign competitors is 22 to 23 percent higher because of government-imposed regulatory burdens.

And guess what? These regulations and rules were not imposed

by countries likes China or Japan. We have done it to ourselves,

and the time is long overdue for us to do a cost-benefit analysis of

many of these regulations.

Some will say that any attempts to reform these many regulations, even just a handful of the tens of thousands of them that

exist today, will begin a decline of our standard of living; that we

in America need to set the global standard; that even if we continue to bleed manufacturing jobs, that even if we lose our ability

to compete in the global marketplace, it is all for the betterment

of mankind and incumbent on America to continue to shoulder the

burden.

I am a defender of regulations that protect worker health and

safety. I’ve spent almost three decades in public office as a principal advocate of our environment, and I think of myself as an environmentalist. I think of myself as green. But I must also say that

I would like to have a little green in our wallets. And I think that

the common standard must always be what is reasonable, what is

rational. And that is why we are having this hearing today.

We have an outstanding lineup of panelists today, and I feel certain they will give us excellent ideas for improving the Federal

Government’s approach to regulations that are in place for the benefit of all Americans. And I know that working together, we can do

the right thing for workers and for the environment while leveling

the playing field and improving the competitiveness of American

manufacturers. I look forward to hearing from all of our witnesses

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today.

And at this time, I would like to recognize the ranking member,

Mr. Lynch, for his opening comments.

[The prepared statement of Hon. Candice S. Miller follows:]

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Mr. LYNCH. Thank you, Madam Chairwoman. It’s an honor for

me. This being the first subcommittee hearing, I want to say how

honored I am to serve with you. I want to thank you for holding

this hearing. And I want to pledge my willingness to work with my

Republican colleagues and all the members of this committee.

Just as a matter of my own full disclosure about my own background, especially as it relates to the manufacturing industry, in

my prior life before coming to Congress, I actually worked for about

20 years as an iron worker and mostly in steel erection, which has

the dubious distinction of being perhaps one of the most dangerous

occupations, at least peacetime occupations, in this country and results in more deaths and on-the-job disabilities than almost any

other peacetime occupation. In my capacity as an iron worker, I

had a chance to work at a number of manufacturing facilities, including the General Motors plant in Framingham, MA, as an iron

worker and as a foreman. That was before GM shifted a lot of work

into Mexico. I also worked at the General Dynamics shipyard in

Quincy, MA, as a welder. I worked as an iron worker at the Boise

Cascade Paper Mill in Rumford, ME. I worked as an iron worker

at the Shell Oil Refinery in Louisiana and also worked at U.S.

Steel in Gary, IN, and worked as an iron worker as well at the Inland Steel Plant in East Chicago, IN.

I must say that, as a iron worker and as a shop steward, I had

far too many occasions to attend the wakes and funerals of my fellow workers. And there is no more grim responsibility than reporting to a family that their dad, their father who went out to work

that morning was not coming home because he was killed on the

job. So I probably have a different perspective about some regulations that affect workers in this country. And there are industries

that actually need them and I think work to the betterment of not

only workers but also their employers.

I do have a deep appreciation for having had the opportunity to

raise a family and earn a decent living working at manufacturing

facilities. And I understand we are under a lot of threat, a lot of

pressure from foreign competition. And I look forward to strengthening the industry and helping it grow. And I look forward to

eliminating unnecessary burdens through regulations that are

placed on our manufacturers as well, but we need to do it carefully

and thoughtfully. Manufacturing has a major impact on the U.S.

economy, providing jobs to over 14 million workers. The focus of today’s hearing is on the effect of regulations on the manufacturing

industry.

However, this hearing is also an important focus, I think, on the

role that regulations play in protecting public health, safety and

the environment. And there are countless examples of what can go

wrong in the absence of strong regulatory protections. The California energy crisis is one example. Lax regulation allowed rampant

market manipulation by Enron and other energy companies that

cost California over $9 billion. Enron traders were caught on tape

laughing about lying and cheating from grandmothers.

Another example is drug safety. After evidence emerged in the

drug Vioxx, that the drug Vioxx was associated with heart attacks

and strokes in the year 2000, the FDA could not require that the

company immediately conduct a safety study nor could the agency

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demand specific changes to information for doctors and patients.

And as a result, months and years went by before key label

changes were made and more detailed information on safety became available and, finally, the drug was withdrawn from the market in September 2004, 4 years later.

The abusive trading practices of mutual fund companies is another example of what can happen without strong regulatory protections. For years, mutual fund companies were engaged in such

practices, such as late trading, where certain investors made transactions after the markets had closed for the day at that day’s prices

and this allowed traders to make transactions and reactions to new

announcements that were released after the market closed and

that might affect the next day’s closing price. These late traders

made profits at the expense of long-term investors. Stronger consumer protections would have prevented this abuse of millions of

Americans who rely on long-term mutual investments for their retirement.

A particularly egregious example came in the Massachusetts Department of Health where we conducted an investigation that revealed, from 1969 to 1978 in my own State, an unusual number of

children in Woburn, MA, were diagnosed with cancer, and the

cause was two companies who were dumping chemicals in ways

that were in violation of certain regulations and circumvented others. And they allowed those compounds to reach Woburn’s drinking

water.

These are just a few examples of why we need regulatory protections. OMB should be evaluating where existing regulations are not

providing enough protection for consumers, and instead, unfortunately today, most of these proposals are on OMB’s regulatory hit

list, and they recommend weakening or gutting existing protections.

For example, OMB includes proposals to reduce the amount of

information that the public has and companies have to report

under the Toxic Release Inventory. And we will hear today about

how such regulations like Toxic Release Inventory cost the industry. But rather, I think we might be focusing on the cost of regulations as well to the public who are damaged by the lack of proper

controls. I think it’s important to look at the benefits as well. The

Toxic Relief Inventory provides an enormous benefit to the public

by making information available to them about toxic chemical releases.

I want to thank the Chair for her kindness in inviting me here

today, and I want thank the witnesses for appearing here today

and offering your help to this committee. Thank you.

Mrs. MILLER. Other opening statements?

I turn now to our vice chair, Representative Brown-Waite.

Ms. BROWN-WAITE. Thank you very much Madam Chairwoman.

She needs to be commended for having this hearing today to assess the impact of regulation on U.S. manufacturing. Certainly the

burden of excessive and unnecessary regulation is a hidden tax.

That is really what it is. It is a weight that drags down our Nation’s economic potential. I’m eager to hear the opinions of today’s

expert panelists so we can properly assess the burden of regulation

on the economy and formulate ways that Congress can help.

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Ronald Regan understood the importance of regulatory reform.

In his first inauguration speech on January 20, 1981, he expressly

stated that government is not a solution to our problem. Government is the problem. Too often in our Nation’s past, we have looked

to the government to legislate or regulate around a problem. However, this is not always the most efficient solution. There are always unintended side effects that arise whenever government meddles in the workplace.

Sometimes government intervention is merited generally when

the benefits to society outweigh the cost of the implementation.

However, there are many regulations in effect today that never underwent a cost-benefit analysis before going into effect. As legislators and policymakers, we should never lose sight of the consequences of our actions. Last year, the 2005 House Budget Resolution, there actually was a recognition of the significance of regulatory reform, and let me just quote from that language: It is the

sense of this House that Congress should establish a mechanism

for reviewing Federal agencies and their regulations with the expressed purpose of making recommendations to Congress when

agencies prove to be ineffective, duplicative, outdated, irrelevant or

failed to accomplish their intended purpose.

There is a bill in Congress for regulatory reform because the

need is just so obvious. We know that excessive paperwork and

burdensome regulations thwart the U.S. economy and our global

competitiveness. It has been estimated that Americans pay more

than $700 billion a year to comply with regulatory burdens. That

equals to about $8,000 per household according to a recent survey.

Unnecessary and ineffective regulations crowd out capital investment by American businesses large and small.

On the issue of regulatory reform, the States have actually led

the way. When I served as a Senator in Florida, I had the privilege

of serving on the Joint Legislative Committee on Administrative

Procedures [JCAP]. In Florida, it is a bipartisan committee made

up of House and Senate members charged with the responsibility

and also the authority of reviewing agency rules. I think that some

people at JCAP could serve as a great model for Federal reforms.

After all, article 1, section 1, of the Constitution delegated all legislative authority to Congress and not to administrative agencies.

Therefore, I believe that Congress, the elected representatives of

the people, should lessen the regulatory burden by taking back

some of its authority that it actually has ceded over the years to

agencies. And I think we need to do that by exercising proper oversight.

With these guiding principals, I look forward to today’s discussion and look forward to hearing from some people who have great

recommendations. Thank you, Madam Chairwoman. I yield back

the balance of my time.

Mrs. MILLER. Opening statement from Representative Westmoreland.

Mr. WESTMORELAND. Thank you, Madam Chairwoman, and I

want to thank you for holding these hearings.

And I want to thank the witnesses for taking the time to come

testify. And Madam Chairwoman, I’m very surprised, with this

subject that we are talking about today, that this room isn’t

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packed, and there aren’t people standing out in the hallway waiting to come in here and hear this testimony and hear what we on

the committee have to say, because maybe they don’t think we are

serious about doing anything about this or I promise you there

would be a lot more people in this meeting today, because this is

a very serious problem we have.

And I think investigating how various regulations harm the

manufacturing industry, especially in relation to employees and the

threat to making the industry less competitive, is very fitting to

this subcommittee’s first hearing, and I hope it won’t be a continuation of several hearings, but we will hopefully take some action

on this problem that we have all identified here today.

It’s no secret that the domestic manufacturing industry has

steadily lost jobs over the past few years, and we should be quite

concerned about that because we have lost approximately 2.8 million jobs. That’s a problem, and it’s a problem due to our own making in the regulations that we have put on manufacturing. After

reading the Manufacturing Institute’s report and seeing that the

cost to do business in the United States has increased 22 percent

because of regulations and restrictions on all levels of government,

these things such as corporate taxation, increasing health care and

pension benefit costs, tort litigation, rising energy costs and the

costs of regulatory compliance, we need to act and need to act now.

Furthermore, the report estimates total regulatory compliance costs for U.S. manufacturers to be $160 billion per year. I’m anxious to hear how we are going to solve these problems, because

these are problems that you understand that we have built on our

own manufacturing due to the fact that we continue to give agencies, government agencies, more and more power to shepherd or

over-regulate the businesses in this country that have made our industry so great here.

I mean, come on, this is equivalent to 12 percent excise tax on

manufacturing. I’m anxious to hear what this panel has to say and

very interested in what we can do to ease these burdens on our domestic manufacturing industry. After all, the manufacturing sector

of this country is an engine, if not the engine, of our economy.

Thank you, Madam Chairwoman.

Mrs. MILLER. Thank you.

Before we begin receiving testimony from the witnesses, I want

to remind everyone that we would like you to keep your verbal testimony to 5 minutes if you could. And in front of you on the table,

you are going to see a little box there that will let you know when

your time is up. When it lights up yellow, you have 1 minute remaining. And when 5 minutes have expired, the red light will appear, and we would like you to wrap up your testimony when you

see the red light come on. It is the custom of this committee to

swear in all of our witnesses, so if you could please rise and raise

your right hands.

[Witnesses sworn.]

Mrs. MILLER. Our first witness that the subcommittee will hear

from is Mr. Al Frink. He is the Assistant Secretary for Manufacturing and Services within the Department of Commerce. Assistant

Secretary Frink was confirmed in September 2004. Prior to coming

to Washington, Mr. Frink co-founded the carpet manufacturer

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Fabrica in 1974 with $100,000 from the Small Business Administration. He has been a member of several boards and committees

and has been particularly active in the Hispanic and Native American communities. In 2004, he was inducted into the prestigious

Small Business Administration Hall of Fame.

Assistant Secretary Frink, thank you for being here.

STATEMENTS OF AL FRINK, ASSISTANT SECRETARY FOR MANUFACTURING AND SERVICES, U.S. DEPARTMENT OF COMMERCE; JOHN D. GRAHAM, PH.D., ADMINISTRATOR, OFFICE

OF INFORMATION AND REGULATORY AFFAIRS, OFFICE OF

MANAGEMENT AND BUDGET; AND GOVERNOR JOHN

ENGLER, PRESIDENT, NATIONAL ASSOCIATION OF MANUFACTURERS

STATEMENT OF AL FRINK

Mr. FRINK. I’m watching this clock. Good morning to you, Madam

Chairwoman and Ranking Member Lynch and all the other members of the subcommittee. I respectfully ask that my written statement be accepted into the record.

Mrs. MILLER. Without objection.

Mr. FRINK. I would like to thank you for inviting me here today

to discuss manufacturing and update you on the Department of

Commerce’s progress on implementing recommendations from the

Manufacturing in America Report, including regulatory reform efforts.

Two years ago, President Bush and former Secretary Donald

Evans focused directly on the issues affecting U.S. manufacturing

and competitiveness at home and abroad. Under their leadership,

27 roundtables took place across the country which included companies small, medium and large in various industry sectors. The

purpose of those were to solicit input directly from a variety of

manufacturers.

The results of these discussions were compiled and published in

a book called Manufacturing in America. That report was released

early last year, and it includes 57 recommendations that are intended to foster conditions that enable manufacturers to compete

in this competitive global economy. Some of the recommendations

have already been implemented, and some of these include the following: creating the first ever manufacturing council to represent

the interests of manufacturing; taking significant steps to protect

intellectual property rights; and of course, the newly created position of assistant secretary of commerce for manufacturing services.

I certainly want to thank the President for granting me this

honor and opportunity to be of service. Secretary Gutierrez and

myself have a profound appreciation for living the American dream

and considerable respect for manufacturing. We are both immigrants and have come from humble beginnings and directed successful manufacturing enterprises, of course with my company

being much smaller than the great Kellogg’s Corp., together—I try

to avoid the great—we bring the value of dual perspectives. We understand as you do that the manufacturing sector is crucial to the

overall U.S. economy and its importance in creating good jobs.

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Manufacturing is often referred to as the engine that drives the

economy, as the Congressman mentioned. As such, it should be

mentioned that while the manufacturing report reflects my marching orders, you cannot learn everything from reading a book.

Therefore, I believe it was crucial in my early stages to go on a listening and learning tour across America to speak with manufacturers on a one-to-one basis and understand their concerns firsthand.

To date, I have personally visited and addressed over 13,000

manufacturers. From these travels, one common concern was expressed. There is a need for regulatory reform. I have seen both the

positive and negative impacts of regulations in my own business

and the businesses throughout the United States. Well-thought-out

regulations can be enacted, and many are, that minimize the cost

burdens for manufacturers while still achieving improvements to

the quality of our lives.

I have also found that a vast majority of manufacturers are very

environmentally conscious. They recognize that they also have to

live in the environment they create. For example, in my carpet

company, we used to, as a matter of practice, be the biggest user

of water in the city of Santa Anna, CA, and the water we used was

all reclaimed. And yet the processes we put into place produced

water that was actually better than what went into our facility. We

used to take a little liberty and say that it was near drinkable

quality. We are very concerned about the environment, and I found

surprisingly so many companies in my travels feel the same way.

Therefore, we are committed to working with OMB, SBA and other

Federal agencies to improve the regulatory process for business

and for the quality of life, speaking to Congressman Lynch’s concerns.

To assist in this effort, we have established an Office of Industry

Analysis to provide additional analytical capacity through a regulatory process, and we appointed a new deputy assistant secretary

to lead that effort. In addition, Secretary Gutierrez will soon be

asking fellow Cabinet secretaries to name a manufacturing liaison

from their departments to serve on an interagency task force on

manufacturing. This task force will facilitate and coordinate a Federal approach to the challenges facing the manufacturing sector, including the regulatory issues.

I will close by saying, we are continuing to address the issues affecting manufacturing and look forward to working with you and

the subcommittee to help manufacturers unleash the creativity,

hard work, and innovation that are the engine of the American

dream. Thank you.

[The prepared statement of Mr. Frink follows:]

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Mrs. MILLER. Thank you very much.

Our next witness this morning is Dr. John Graham, who is the

Administrator of OMB’s Office of Information and Regulatory Affairs. He was born and raised in Pittsburgh. Dr. Graham founded

and led the Harvard Center for Risk Analysis from 1990 to 2001.

Confirmed in July 2001, Dr. Graham is on leave from the faculty

at Harvard’s School of Public Health, where he taught graduate

students the methods of risk analysis and cost-benefit analysis.

Dr. Graham, good morning, appreciate your time.

STATEMENT OF JOHN GRAHAM, PH.D.

Mr. GRAHAM. Good morning, Madam Chairwoman, members of

the subcommittee, I appreciate the opportunity to testify this morning on the subject of regulation of the manufacturing sector. There

is, in fact, a sea of existing Federal regulations. Let me give you

some ballpark figures. Since OMB began to keep records in 1981,

Federal agencies have adopted over 115,000 new Federal regulations. Of those, we at OMB reviewed and cleared 20,000 of them.

And of those, over 1,100 were estimated to cost the economy $100

million or more when they were issued.

Sad as it is to say, I have to confess that most of these regulations have never been reexamined to determine whether they accomplish their purpose, how much did they really cost and what

were the benefits. I should also say that not all sectors of the economy are equally impacted by this growth of Federal regulation. We

all know, for example, that in the health care industry, physicians

and nurses are heavily impacted by Federal regulation and paperwork. But it turns out that economic studies have shown that the

sector that is most affected, when you compare it on the measure

of burden per employee, is the manufacturing sector of the U.S.

economy.

And as you said, Madam Chairwoman, these manufacturing

firms are now competing in an increasingly global economy. So

when we add additional regulatory burden that is without justification, we are placing these companies and we are placing jobs at

risk. In the Bush administration, we have taken modest steps to

address this area. In February 2004, we announced an open opportunity for the public to suggest reform of manufacturing regulations. The focus in particular was on ways to help small, mediumsized or any manufacturing firm compete in a global economy without compromising the benefits of Federal regulation, whether those

benefits be safety, health, environment or homeland security or

otherwise. The result of that initiative is that we received at OMB,

189 suggestions from 41 commentors. We then took those suggestions and we instituted a process of analysis and deliberation, both

at the Federal agencies and at OMB. And I’m particularly pleased

to report, this morning, I received technical assistance evaluating

these nominations from both the advocacy office of the Small Business Administration and our colleagues who are here this morning

from the Department of Commerce. The result is the administration has identified 76 of these reform ideas as worthy of further examination and action.

Now I would like to report to you this morning that the mere

designation of these 76 priorities means that they will get done.

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But I have been in Washington for enough years now to confess to

you with some humility that we have a long way to go to get these

76 reforms done. And let me explain to you why that is. First of

all, we have found through experience that regulators find it more

interesting and more exciting, if you will, to craft new regulatory

programs than to go into the existing regulations and modernize

them or streamline them. And there can be lots of psychological

reasons for why that’s the case. And in fact, many cases, the people

that need to do this work were involved in crafting those regulations in the first place. The whole task we are talking about engaging in is not one that is the natural inclination of a Federal bureaucracy.

Second, there is no real course to the commentors who suggested

these reforms if the agency does not get it done. These are discretionary actions that the agencies may take, but it is not backed up

with the threat of litigation which often exists for a new regulation

where an agency may be obliged by an act of Congress to do a new

regulation or face legal threat in the Federal courts. And then you

might ask, why isn’t OMB there to make sure the agencies do their

work? And I’m here to assure you that we are here, but we are a

modest organization. And recently, as you know, cuts in staffing as

a result of our last budget, sharing in some of the downsizing that

a lot of the American economy is experiencing and our staffing resources are modest to oversee an effort of this magnitude.

I want to conclude on a note of optimism. The 76 ideas are modest; they are practical. They do not threaten the health, safety and

environment of our country. They do not require congressional action, but we do however want your support. And the agencies have

committed to deadlines and milestones for making decisions in

these areas. Thank you very much for your interest in this issue,

and we look forward to working with you.

[The prepared statement of Mr. Graham follows:]

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Mrs. MILLER. Thank you, Dr. Graham.

Our next witness that the subcommittee will hear from is a

former Michigan Governor John Engler. Governor Engler is the

president of the National Association of Manufacturers, a post he

assumed on October 1, 2004. He certainly is a well respected public

official in his own right. Governor Engler served three terms as

Michigan Governor from 1991 to 2002, years I remember very, very

well. He also served 20 years in the State legislature, including 7

years as the majority leader of the State Senate. He was the

youngest person ever elected to the Michigan House of Representatives.

Governor Engler, we are proud to have you here this morning

and look forward to your testimony, sir.

STATEMENT OF GOVERNOR JOHN ENGLER

Mr. ENGLER. Madam Chairwoman, members of the committee

and your very able committee staff, I’m delighted to be here and

thank you for the opportunity to address the subcommittee about

the regulatory burden on America’s manufacturers.

You have limited to me to 5 minutes in my oral representation.

I need not tell you that sort of represents cruel and inhumane punishment for someone who has been in public office as long as I

have. We have much to say about Federal regulation and its impact on manufacturing and changes that we believe are needed.

I’m delighted to be with my colleagues this morning on this

panel, Mr. Frink and Dr. Graham. I, too, will submit for the record.

Let me make a couple of points though in the limited time.

Manufacturers in the United States today are caught up in the

most competitive marketplace the world has ever seen. Because

manufacturing products are easily transported, we must compete

with manufacturers all around the world. One result is the relentless downward pressure on prices. As a practical matter, our members have very little pricing power. While they can’t raise prices on

their products, they have to contend with steadily rising costs of

production. These are not just the basic costs of doing business—

labor, capital investment—but also include the subject of today’s

session, external costs associated with taxes, health care, regulations, litigation, energy.

You mentioned it, Madam Chairwoman, in your opening comments. The NAM study issued last year documented some 22.4 percent a year labor costs in manufacturing higher in the United

States compared to nine major trading partners. And Tom

Dueseterberg, his people worked directly on that study as a partner

with the NAM, and there is more detail in his written testimony.

Government regulations hit the manufacturing sector harder than

any other sector, probably due to the nature of manufacturing that

Ranking Member Lynch mentioned. It is complicated and can be

dangerous. There are environmental and safety issues. In at least

one study, and I cite that in my written testimony, about 30 percent of the total costs of environmental, economic and tax regulations fall on manufacturers. Now, again, there is a recognition,

some of this is probably inevitable given the nature of manufacturing, but our members encounter daily regulatory burdens that simply make no sense and serve no purpose or are unnecessary. I’m

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going to use three examples to make the point and talk about the

categories.

Old regulations not updated, Madam Chairwoman, I know you

are a boater and you are very good at this, so this one was picked

for you. Years ago, our—and this has been for years, we have an

affiliate, the National Marine Manufacturers Association. They

have been pleading with OSHA to update its rules for spray finishing flammable and combustible materials that govern application of

resins that are in gel coats on new boats. Technical but that is

what manufacturing is, very high tech. The rule now in effect dates

back to 1969; conspicuously out of date. And technically, what this

means, every boat maker using modern methods could be considered in violation of the rule, thus subject to sanctions and fines.

And in today’s liability environment, that could be an issue. Despite that, OSHA fails to update this important regulation.

A new regulation but implemented in a questionable fashion, the

Family Medical Leave Act, which many of us supported, but it has

become a headache for some of our members because of the abuses.

One company—Ohio-based, 840 employees—reported to us in 2004

that 221 of its employees or 26 percent claimed a total of 4,100

workdays missed under the Family Medical Leave Act. It is not so

much the Family Leave Act, not the birth of a child, but the medical leave portion of this, which was, as you recall, almost an afterthought in the legislation. Family leave is where we were headed

with this originally. That same company reported 20 employees did

not return to work after exhausting their medical leave of 1,200

days. And yet another 10 incidents of people allegedly on leave

were found to be actually physically employed doing other work.

Conflicts, and this is conflicts here at home, sometimes among

different regions of the same agency, but this is a conflict that

deals with international conflicts. Small manufacturers of heatsealing equipment report to us that they make equipment to meet

specifications of the U.S. market and specifications with the Canadian market. Despite that commitment to compliance, when that

equipment goes to Canada, there is a physical reinspection that

takes place that adds several hundred dollars to the costs.

These are just a couple of other examples that our members have

to deal with. We can’t afford to keep wasting resources in this fashion, and I think Congress could do something about it. And I’ll

close with just a final point. Sarbanes-Oxley, NAM supported passage, and it was a way to safeguard investors and restore confidence, but now the compliance costs have risen to the point and

studies show that nearly 6 percent of net income before taxes is

taken up by compliance. If you take 6 percent off the bottom line,

we would like to work with the policymakers and Congress, regulatory agencies to reduce the compliance costs there. Thank you,

Madam Chairwoman. My time has expired.

[The prepared statement of Mr. Engler follows:]

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Mrs. MILLER. Thank you for your insight and thoughtfulness on

this very important subject, and I might start the questioning here

if I might.

Governor, I thought it was interesting, you used a boat manufacturing analogy. The Federal Government has been after boat manufacturing for some reason when they passed the luxury tax in the

late 1980’s, ostensibly to get at the rich. They almost put the entire

American boat manufacturers out of business because, of course,

those that could afford a luxury boat went to a different country

and purchased one and documented it somewhere else and brought

it here. So it is not surprising that they continue on that. And

that’s an excellent suggestion that you have made or brought to

light there.

Also in your written testimony, Governor, you suggested that the

role of the Department of Commerce and regulatory review would

be made in statute; actually, that it be made statutory. I’m just

wondering, if the mechanics of the process, particularly of small

manufacturers as to how they deal with the Federal regulatory

agencies, can be made a little bit more customer-friendly or oriented? Do you have any ideas on that?

Mr. ENGLER. I think with Dr. Graham and Secretary Frink, we

have two leaders—I know Dr. Graham has been terrific. I think the

Commerce Department effort pursuant to the legislation passed

after the Department came out with a report about manufacturing

in America is designed to help get at that question you’re asking,

and Secretary Gutierrez and Secretary Frink are making it clear.

This is something they want to do. It is going to be a bit of a listing

post, and we are excited about being able to talk to commerce, have

commerce actually working with us to go to OIRA or go to Dr.

Graham.

But I think where it gets hard after that is to get the agencies

tagged, and that is where it comes back to the Congress, because

so often in the bureaucracy, it is a sense we can wait it out; this,

too, shall pass. And in the case of the boat regulation, it has been

since 1969 that OSHA has been asked to deal with that. They are

going ahead, but why do we have them at risk, and why do we

have obsolete rules? I have seen this in air quality with EPA,

where in the competition for a manufacturing plant expansion, one

region of the country this year went through this where a region

in one part where the costs were lower, the rate of ionization was

lesser. They also found themselves with a more favorable air quality decision out of the Federal region than was the case back up

in Michigan where I happened to be Governor at the time. And we

said look, it’s a Federal law. Which region is controlling this decision? And today, that’s often a problem, too. And when it means

dislocation of jobs or General Motors moves from Massachusetts to

someplace else, because the northeast’s interpretation is different

than the southeast’s interpretation, that’s unfair as well.

Mrs. MILLER. It’s true. We do see States sort of cannibalizing one

another, and the Federal Government sort of a handmaiden to all

of that, probably with the best intentions, but that is the reality

of the impact of that.

Dr. Graham, I thought it was interesting that it was

counterintuitive to you for some of the regulators to ever really go

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back and look at what they have on their hands there in the practical application of some of these things. You said it might go

against the very nature. But how can Congress incentivize some of

these different regulators to have an annual review process? You

mentioned the 76 different priority reforms, which do not require

legislation. They are in the rule promulgation stages, I suppose.

What can we do to incentivize these different agencies to have an

annual review to see whether or not the cost-benefit analysis

makes sense, if it’s rational or reasonable?

Mr. GRAHAM. The fact that you are chairing this hearing and

having this hearing today on this topic and you are expressing interest in the administration’s initiative on these 76 manufacturing

regulations, that is a very significant boost to myself and the two

dozen staff members at OIRA who are working on a day-to-day

basis to make sure the agencies make progress in these areas. I

want to start with the most basic answer to you, which is, thank

you for expressing interest in having this hearing.

Looking down the road in terms of how you can further contribute to this, we have worked out with agencies, some would say negotiated with agencies, deadlines that are in that list of 76 for

when they would take specified actions. I encourage you and your

staff to track those, to see if we continue to make progress on those

and to make it clear that members of this subcommittee care about

whether these deadlines are met and provide explanations if some

of these are not being met. These are very practical but very real

things that need to happen. And we need your assistance to make

sure we are making progress.

Mrs. MILLER. A final question for Mr. Frink. You mentioned that

you had already visited or had contact with 13,000 different manufacturers and a common element theme that you found in your discussions was a need to reform from all these different manufacturers. Was there a common problem? Was there one or two things

you really found that the manufacturers kept coming back to that

just leaped off the page at you, a regulation that they found onerous and burdensome?

Mr. FRINK. Sarbanes-Oxley, Sarbanes-Oxley, Sarbanes-Oxley.

That was the most resounding plea for assistance from all levels

of manufacturing, large, medium and small. It is especially impacting the smaller companies that don’t have the resources to comply

with the requirements of Sarbanes. Everybody agrees that the legislation/regulation has positive aspects to it. There are just some

attachments to it that have created a burden that makes it probably almost so significant. And I think around tax time, it has been

especially resounding that it has dwarfed any other regulatory

issues in my recent visits in the last 3 months. So I would have

to say that one is clearly at the top of the concern level. I think,

beyond Sarbanes, I didn’t get specifics that I could share, just a

general concern that regulations, in many cases, as they vary within the sectors, have tremendous impact on their ability to remain

competitive per what Governor Engler mentioned with regard to

the varying costs of doing business in this country and that they

look at that as one of their main areas of costs that they would like

assistance on in terms of reform.

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Mrs. MILLER. Thank you. I turn the floor over to the ranking

member, Representative Lynch.

Mr. LYNCH. Thank you, Madam Chairwoman.

I want to thank you for appearing before the committee.

Dr. Graham, I actually had sent a letter over to you and I’m

hearing now that you are short on staff and that may be the reason

for it. I know that Ranking Member Waxman and I sent a letter

over requesting information regarding the whole process that you

have embarked upon in terms of all these folks that you have met

with the idea of engaging in regulatory reform, and this committee

is going to be handling a lot of that based on what Chairman Davis

has said.

And we are a bit concerned if we’re going to get a picture, a

snapshot of what’s going on. We want to make sure that group is

as wide as possible and reflects, not just one viewpoint, but might

be reflective of a broader spectrum so that, I mean, let’s face it, the

work of this committee is sometimes, well, all the time affected by

the information we get. We want it to be accurate. We want it to

be representative of the entire spectrum of people who are affected

out there. And I guess what I would like to know is, how are we

doing with the responses to that letter that I did send you?

Mr. GRAHAM. We have received the letter. This is the March 24

letter? We are working on it. And we had hoped to get you a response before the hearing and didn’t quite make it. We are still

working on it, and just to give people in the room a sense of why

we might not have it yet, let me read item four from the letter:

Please provide all documents, including e-mails, exchanges between

on OIRA staff and any non-Federal employee since January 1,

2003, related to the regulatory process. Obviously, this has taken

us awhile to figure out exactly how we are supposed to deal with

it.

Mr. LYNCH. It would have been nice if you said, we got your letter and call us up and say, we are having a problem with one of

your inquiries. We got silence. I thought maybe it got lost in the

mail.

Mr. GRAHAM. We tried to call you Friday, but we are working on

it. But I want people to get a feel of the kind of thing we are talking about here.

Mr. LYNCH. You can look at the other questions, too, if we are

going to go over that. We would like to know basically the groups

you met with this is an initiative to change the regulatory process.

And we understand that the administration is very committed to

this, and we would like to make sure that it’s a forthright process,

and there is full disclosure and everyone gets to offer their concerns and comments regarding this process, and it shouldn’t be just

slanted to one group, as important as that group might be.

Mr. GRAHAM. You raise an excellent point. Just to keep in mind,

the process on the manufacturing initiative, this was a public nomination process where any group could submit comments if they

wanted to, and all the comments we have received are posted on

the OMB Web site. And our policy at OMB is to have an open door

policy for visitors from any of the groups, including labor groups,

public interest groups, environmental groups. They certainly have

an opportunity to participate. And let me assure you, they do.

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Mr. LYNCH. In this round of solicitation and comment, 97 percent

of the responses have been from manufacturers and 3 percent have

been from everyone else.

Mr. GRAHAM. Given who is incurring the burdens of these regulations, you would expect the business community to be the dominant

participants. Let me assure you on your interest that you mentioned in your opening statement on the development of new regulations to protect public health, safety and the environment, we do

meet with frequency the groups you are talking about on their

ideas for new regulations. And they are very aggressive and persuasive in making their case.

Mr. LYNCH. We will be getting that information. And we can talk

about the feasibility of getting the information there. We can talk

about what we are looking for. Obviously, staff was, I think, trying

to cover everything that we might possibly need in response to

those efforts. Let me ask as well, the information that we get here,

we would like it to be as accurate as possible. And I know a lot

of folks come before this committee and others citing certain studies and some reports that say—I’ve heard various estimates already here of costs of regulation. And I’m one of those folks that

likes to look at the underlying documents that generate that number, because in a lot of cases, what I’ve found, these are guesses.

These are largely guesses, and a lot of them are based upon information that was just like some of these regulations, actually, that

were gleaned back in the 1960’s. I know that the Crane and Hopkins study actually uses data that was gathered back from the

1960’s at the same time these regulations came in. So when people

offer that information and there is a certain amount of inaccuracy

in it, it’s just difficult for us to make the quality of our response

as accurate as we would like it, because we are working with very,

very dated information and, also, some information that is unsound

in terms of the process that goes through to reach the conclusion

that the report cites.

So I’m sure you are going to be a frequent flyer to this committee; I get the sense. And I want you to know, we are going to look

at the underlying studies and reports and the whole analysis to

make sure we’re basing our collective decisions on accurate information.

And last, if I could—and I don’t want to take too much time

here—but I was a little surprised that last year, 2004, the administration actually listed some of its accomplishments, one being the

listeria rule, which it cited as being one of its accomplishments, albeit a very modest rule, a very weak rule in a lot of peoples’ estimates, regarding one of the most poisonous compounds that are out

there. I mean, 20 percent of those infected with listeria, based on

some studies, those are fatal. And there is tremendous danger in

listeria contained in ready-to-eat meat products and poultry that

they are extremely dangerous to pregnant women and their unborn

children. So I was a little surprised to see it on the hit list. Last

year, it was on the accomplishments list, and now it is on the hit

list with an attempt to weaken it even further. And I was a little

puzzled by that.

Mr. GRAHAM. You can be assured, sir, that we are not talking

about eliminating this regulation. The suggestion is ways to reduce

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the compliance costs of the regulation without reducing the protection to the consumer in terms of food safety. If you read the comments from the affected industry that indicated that the compliance costs have proven to be much more substantial than was projected before the regulation was adopted.

Mr. LYNCH. Let me get this right. Last year, it was an accomplishment?

Mr. GRAHAM. The regulation as a whole was an accomplishment,

but there are ways in which you can refine and fine tune the regulation to achieve the same level of protection for the consumer but

at lower costs to the industry.

Mr. LYNCH. I yield back.

Mrs. MILLER. Thank you.

The Chair recognizes the vice chair, Representative BrownWaite, for her questions.

Ms. BROWN-WAITE. Thank you very much. My first question is

for Governor Engler. Obviously, in order to reduce the regulatory

burden on businesses, we have to get rid of some old inefficient

rules and maybe some rules that bureaucrats sort of snuck in

there. I think that was the case when we did the regulatory reform

in Florida. I believe that Michigan has something very similar to

what I described before as a Joint Administrative Procedures Committee. And if you could briefly describe that and the success or

lack of success. But I heard it was very successful. If you could just

share that with the committee, I would appreciate it.

Mr. ENGLER. During my tenure as Governor, Congresswoman, we

established an Office of Regulatory Reform. And part of the challenge we had was that agencies, in some cases, refused to promulgate rules that they were required to promulgate. And so when the

legislature would have fixed the statute, that wasn’t followed

through in other cases. As has been described here, sometimes it’s

easier to do something new rather than go back and clean up what

is. We required that a central point exists where all agencies had

to bring the rules in and you could harmonize them to make sure

that they were internally consistent; that a new rule being promulgated in one agency wasn’t in conflict with an existing rule over in

another agency or in conflict with a pre-existing rule of the same

agency.

At the same time, we said, if you are promulgating a rule in

maybe a health standard, if you’re in an area of the administrative

code, then while you’re there, clean up the obsolete references, the

old language. The net of this was to reduce by more than a third

the administrative code of the State of Michigan, while I think

strengthening compliance and reducing compliance costs. All in all,

it proved to be a very effective way to get at this problem. We

didn’t always have the ability to—if there were pre-existing problems to faithfully implement the statute, we would say to the legislature, you know, that cannot be changed by the agency, you have

to go back and change the underlying statute. And so there is a

mixture of these, and that is why the work of the committee is so

important because there is this delineation and the classification of

what are we dealing with, because they are going to differ from

agency to agency and department to department.

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The one thing that I would add, it is sort of the environment that

we are in, because this was out of today’s paper—and it’s a challenge for the committee that goes right to your mission—a little article, Business Looks to the Panel’s New Leader for Relief, entitled,

The Regulators. The Chair of the committee suggests that the problem is cost regulation where some rules have outlived their usefulness and cost-effectiveness.

The Chair of the committee suggests the problem is with cost

regulation where some rules outlived their usefulness, cost-effectiveness. ‘‘My approach is the largest room is the room for improvement, particularly when it comes to regulation.’’

In the same article, something described as a public interest

community, which I think I am part of the public interest community because we want to put good manufacturing products out

there.

The public interest community views the Miller regulatory agenda as extreme. Now, I don’t think it’s extreme to say room for improvement, but that’s the environment—and cautions it’s mobilizing to fight business-backed initiatives that would limit health and

safety regulations or create procedural roadblocks to regulations

like sunset reviews. Now, sunset review, if I understand that right,

that terminates something—it isn’t a roadblock to enacting it. It

merely says we ought to take a look at it.

Ms. BROWN-WAITE. Right.

Mr. ENGLER. But that’s how dug in—and so when Dr. Graham

puts out a call and comes in for 97 percent of the manufacturers,

that is because the status quo has 97 percent of the rules in place,

and they are happy with this bureaucracy, but they are not trying

to make a profit in today’s world. So what you are doing is real important.

Ms. BROWN-WAITE. Well, certainly the chairwoman and I come

from the States that, you know, took this issue on, and I think it’s

our goal to make sure that the Federal Government does that also;

that we look at overlapping and duplicative regulations that do

nothing for public safety, that do nothing for the good of the business community or even the environment, but rather are just duplicative and outdated. I appreciate your response. Hopefully we can

accomplish the same thing at the Federal level.

I wanted to just ask Mr. Frink one question, and that was on

Sarbanes-Oxley. I serve in the Financial Services Committee, and

I, too, have heard from small businesses about their audit that’s

necessary for compliance with Sarbanes-Oxley. I was wondering if

you had come up with some suggestions to make it a little easier

for small businesses so that the accountants and auditors don’t

overcomply and, therefore, drive up the cost. That’s what I am

hearing from small businesses.

Mr. FRINK. Congresswoman, I think that’s a good question, and

it’s the same question that I have posed to people that have

brought that concern to me. I felt they were in the best position

to be able to provide advice. I also recommended that they put together a legitimate case to quantify what their actual costs are so

that we could bring back legitimate information that would substantiate what everybody is saying. Because I think that, speaking

to Congressman Lynch, is concern for quantification, accuracy of

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quantification. I wanted to have that kind of information available

so that I could come back and then present it in a manner that

would have some teeth.

So what I would like to do is to allow me to pursue that information gathering and report to you subsequent to this hearing with

what I think you are asking for.

Ms. BROWN-WAITE. May I followup? Did you give the small businesses a timeframe to get back to you with these suggestions? Because one of the things that I found is that in Congress the ‘‘we

will get back to you’’ becomes years. Not only—this is only my 3rd

year here.

Mr. FRINK. You know, in the spirit of the meetings I had, there

was a sense of urgency. But, you know, to answer your question

honestly, no. But I will do that subsequent to this meeting. I think

it’s—I have experienced the same thing. So I will get back to those

individuals and tell them, look, I think we have a chance to really

try to get some value to addressing of your concern, I need it by

this time.

Ms. BROWN-WAITE. Thank you, Madam Chairwoman. I yield

back the balance of my time.

Mrs. MILLER. The Chair recognizes Representative Westmoreland for questions.

Mr. WESTMORELAND. Thank you, Madam Chairwoman.

Governor Engler, let me thank you for bringing recommendations

to this committee for things that we can do right now to help with

our manufacturing, and I want to thank you for doing that.

Dr. Graham, in your testimony you said that since 1981, there

have been 115,996 final rules published in the Federal Register by

Federal agencies. It says that the office looked at a little over

19,000 of those.

When government agencies—and I apologize for my ignorance—

but when government agencies do new rules and regulations, what

process do they go through before they actually go into the Federal

Register?

Mr. GRAHAM. Yes, sir. An agency typically will draft a regulation,

submit it to OMB and other interested agencies for review. Then

once there is a decision made to go forward with that proposal,

there is then a period of public comment.

Mr. WESTMORELAND. Who makes the decision to go forward? Do

you have any authority to stop any regulation put forth by an

agency?

Mr. GRAHAM. Well, as you know, the executive branch is all one

big family, and we work together on these issues, but we do have

authority in the Presidential Executive order to ask an agency to

reconsider a proposal.

Mr. WESTMORELAND. But do you have the ability.

Mr. GRAHAM. That’s the authority that I have through Executive

order.

Mr. WESTMORELAND. Just to ask them to review it.

Mr. GRAHAM. To reconsider.

Mr. WESTMORELAND. To reconsider it.

Mr. GRAHAM. Yes.

Mr. WESTMORELAND. If they choose not to reconsider it, then

they can do it regardless of what you say.

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Mr. GRAHAM. Well, if they disagree with Dr. Graham, then they

can appeal that decision to my boss Mr. Bolten, the OMB Director.

And as the Executive order indicates, if there is still a disagreement, that can go the Chief of Staff, to the Vice President or to the

President himself. But everyone in the executive branch is working

for the President, and in the final analysis, all resolutions, if necessary, go to the President.

Mr. WESTMORELAND. But they—but the only thing you can do is

ask them to reconsider it. Who is the person that can tell them, no,

you are not going to implement that rule?

Mr. GRAHAM. Well, I can be, as a starting point, by asking them

to think about it some more. But if they feel strongly about it, and

they want to continue to push it, they can appeal that and elevate

that decision above my level into the White House.

Mr. WESTMORELAND. OK. I don’t know if I don’t understand what

you are saying or if you don’t understand what I am saying.

Mr. GRAHAM. In the final analysis it will still be the President’s

decision, the final say.

Mr. WESTMORELAND. OK. So he says, yes, you can, or, no, you

can’t. If you ask him to reconsider it—and that is basically you are

telling them, please don’t do this.

Mr. GRAHAM. I am the person representing the President on regulatory matters.

Mr. WESTMORELAND. OK.

Mr. GRAHAM. If they don’t want to deal with Dr. Graham, then

they need to get their Cabinet officer, whatever, to call the President or the Vice President or Andy Card and work it out.

Mr. WESTMORELAND. So, of these that were put on the final registry at some point in time, the President had to say, this is OK.

Mr. GRAHAM. We, as OMB, and the Executive Office of the President cleared over 20,000 of those regulations.

Mr. WESTMORELAND. OK. That had a cost of a little over—or a

potential cost of a little over $100 million a year.

Mr. GRAHAM. 1,100 of them——

Mr. WESTMORELAND. Right.

Mr. GRAHAM [continuing]. Had estimated costs of over $100 million a year.

Mr. WESTMORELAND. Do you know what the cost of the other

18,000 or so were, or were they just——

Mr. GRAHAM. Fabulous question. I don’t think anybody, frankly,

really knows the answer, because the way the Executive order is

designed is it focuses the cost estimates on the most expensive of

the regulations. But there are a large number of less expensive regulations that aren’t analyzed as seriously, so the cumulative burden of those other regulations is, of course, an unknown.

Mr. WESTMORELAND. Mr. Frink, one question for you. On page 3

of what I have in your testimony, it says you talk about the manufacturers’ report. With 18 specific recommendations completed in

less than 1 year, the Department of Commerce will continue making progress on these recommendations and other efforts to ensure

the competitiveness of all U.S. manufacturing businesses.

Of the 18 specific recommendations that have been completed in

less than a year, what were the total number of recommendations—maybe I have missed it somewhere—in here?

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Mr. FRINK. The total are 57 initiatives from the book of Manufacturing America, of which, when I came on board in September, I

believe there was about seven to eight of those accomplished. So in

the last 6 months there’s been an additional 10, making 18, and

we have another 4 close to completion, another 17 that are further

out.

Mr. WESTMORELAND. Are these recommendations doing away

with some of the regulations that is only manufacturing, or regulations—I mean, what are these recommendations?

Mr. FRINK. Well, none of them would be the Office of Industry

Analysis. That is a newly formed industry or sector within our department. That individual is a new DAS, and as a new DAS for Industry Analysis is going to be working very close with OMB and

SBA on their regulatory process to help assist with the information

gathering, the evaluation, hopefully the impact of regulations. So

I think in that regard, some of our best work is ahead of us.

So that signal area is probably the one that is most focused on

getting results in achieving reform with regard to the regulatory

process.

Mr. WESTMORELAND. But really nothing has changed as far as

the regulations on manufacturing. We have just—you have come

up with some ideas about how to judge what those regulations really do, because I think we already know what they do.

Mr. FRINK. Correct.

Mr. WESTMORELAND. I mean, I know that this other agency is

probably helpful, but the last thing I think we need in government

is another agency.

Mr. FRINK. Well, actually I think that in this case we do. The

need for focus on regulations has not, to my knowledge, been in

place specific to manufacturing. And we have needed a sector in

the manufacturing focus that is clearly looking at the regulatory

process, and not just looking at the results, but perhaps analyzing

the process to see how we can affect regulations, even perhaps before they become official.

So to have that focus, I don’t know of any other agency or service

within government that was doing that besides OMB. So we are

adding our efforts to theirs and that of SBA. It’s such a daunting

task, I think it needs as much attention as can be given to it.

Mr. GRAHAM. Yes, sir.

Just a quick condition, if I may, on that question.

Mr. WESTMORELAND. Yes.

Mr. GRAHAM. Keep in mind that at large regulatory agencies,

like Department of Transportation, the Labor Department, the Environmental Protection Agency, they have hundreds, sometimes

even thousands, of people who are available to work on regulatory

proposals. We at OMB have two dozen for the entire Federal Government. The prospect of an analytic unit at the Commerce Department that would have a couple dozen additional analysts working

on these regulations, that makes people in OMB very optimistic

about the prospects for further progress.

Mr. WESTMORELAND. Good. Do you think there’s a possibility

that we could get a list of those 57 recommendations and the ones

that’s been checked off and how many more are to go?

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Mr. FRINK. It would be my pleasure. I will make sure you get followup information on that.

Mr. WESTMORELAND. Thank you, sir.

Mrs. MILLER. In the interest of time, I will forego the second

round of questions, but I would like to recognize the ranking member, Representative Lynch.

Mr. LYNCH. Thank you, Madam Chairwoman.

Mr. Graham, if I could just come back with you a little bit. In

your statement, at least initially, from what I heard today was that

there is an attempt to draw a direct link between the recession and

job losses and the existence of certain regulations. I am really concerned that what OMB has done here is create a hit list somewhat

of environmental health and safety protections that industry would

like to see weakened or eliminated.

Now, what I don’t understand is how OMB is making the connection between job losses that we have seen in the last 4 years and

the list of regulations that OMB is now supporting for reform. For

example, though we started seeing major job losses in 2001, many

of the regulations that I see on OMB’s hit list have been around

for much, much, much longer than that, and actually during periods of high job growth for that matter. For example, the toxic release inventory and cleanup requirements for PCBs, a very dangerous substance in our—especially in industrial sites, and Title 5

of the Clean Air Act around permitting, they have all been around

for many, many years, and yet these important environmental protections are all targeted on OMB’s hit list.

It just seems to me, now I have grappled with this for some time,

the job loss issue, and it seems to me—I mean, I visited China,

Shanghai, not long ago and talked to some manufacturing workers

in the Otis Elevator plant there in Shanghai. I asked the technician there what he was making, what he was earning, and he told

me he gets paid about $25 a month. And I know that my elevator

constructors and the folks in that industry are probably paid $25

an hour, at least.

I mean, let’s just set aside for the moment the fact that the Chinese worker has no freedom of expression, can’t own a home, has

no solid health care, has no freedom of religion or expression, or

the right to join a union. Let’s set that aside for a moment. But

given the economic reality, the labor costs, the difference between

one worker making $25 a month, our workers making $25 an hour,

shouldn’t we be looking at our trade policies and labor policies and

the incentives that some companies are given right here today in

the United States to locate jobs overseas to take advantage of that

much, much cheaper labor market?

Mr. GRAHAM. I agree that it requires a broad-based examination,

not just regulation, but liability reform; certainly we need to look

at trade policy, and we are doing that. There are a range of issues

that need to be looked at. But let’s not deflect from the importance

of just the regulatory burden on the long-term competitiveness of

American businesses in the world economy. It may not solve the

next recession, but it helps them compete in the global economy

when they don’t have unnecessary cost burdens imposed on them.

Mr. LYNCH. OK. Thank you.

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The other thing, I just wanted to go back to that Listeria. I was

reading my notes on the way in on the plane that actually OMB’s

recommendation was to rescind the rule, was because it was OMB’s

position that the benefits of the Listeria rule were overstated. So

it wasn’t just—wasn’t just around costs, but that the benefits of

this rule were overstated. That’s in your own report here.

Mr. GRAHAM. Yes, page 66 of the report, the summary. There is

a summary of what the commenter suggested. There is not an

OMB recommendation.

Mr. LYNCH. OK. All right. So you don’t think it’s——

Mr. GRAHAM. And what the commenter has said is that—both

that the costs are more costly than USDA estimated, that’s line 3;

and you are correct, they also say that the benefits were overestimated.

Mr. LYNCH. Right. The benefits——

Mr. GRAHAM. So you are actually making both arguments.

Mr. LYNCH. Yes. So you don’t believe——

Mr. GRAHAM. The USDA is now in the process of reexamining

those in light of the comments made on the interim final rule.

Mr. LYNCH. OK. But is that your, OMB’s, position——

Mr. GRAHAM. No. In fact, I think I was clarifying for you is that

language on page 66 is the language of the commenter, not the language of OMB.

Mr. LYNCH. OK. I want to be certain.

Mr. Frink, Graham and Engler, I want to thank you both as

well. Although I haven’t really bothered you as much as well, I

want you to know I really do appreciate your working on this issue,

and we will have to grapple if we are going to solidify, stabilize the

manufacturing industry in this country, and I appreciate all of your

work on that effort.

Thank you. I yield back.

Mrs. MILLER. Thank you very much. I certainly sincerely as well

thank all of our witnesses, our panelists, for being here today. It’s

been very interesting for us.

This is a committee that does look to improvement, certainly. I

don’t think that’s a radical agenda. In fact, something that might

be a radical example of Federal Government regulations, this

morning we are talking about manufacturing, and sometimes we

think of heavy industry or what have you in manufacturing. But

other things are being manufactured, like bread. And it’s interesting, talking to the American Bakers Association, that the Federal

Government has regulated breadmaking to the extent that they

think that the smell of fresh-baked bread is smell pollution, and it

has to be regulated out of existence. So you can’t have that fresh

smell any more.

But I think that might be a little extreme agenda, but we do, as

I say, want to continue to examine or explore, do what is right for

all of the workers of America, and our environment as well. I certainly think that we can do so working together.

Governor Engler, do you have a final comment, sir?

Mr. ENGLER. One last thing, Madam Chairwoman, to submit for

the record that addresses something that Ranking Member Lynch

mentioned earlier in terms of the freshness of studies. This is a

2003 study. A reference has been made to it in your comments and

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some of my testimony, about how structural costs imposed on U.S.

workers can harm workers’ competitiveness. A lot of the source documents are in here with the graphs and the attributions so that

you can go right to the source and go through that to seek verification of the data. And it’s a wonderful study and quite authoritative,

I think, that gets to the work of the committee.

Thank you for your time.

Mrs. MILLER. Thank you all very much. At this point we will just

take a few minutes recess for this panel to take their spots. Thank

you again.

[Recess.]

Mrs. MILLER. I will call the meeting back to order here. I am interested to hear from our next panel of witnesses. Again, it is the

committee’s desire that we swear you all in. So if you could all

raise your right hands, please.

[Witnesses sworn.]

Mrs. MILLER. Thank you very much. We appreciate that.

Our next witness the subcommittee will now hear from is Dr.

Thomas Duesterberg. Dr. Duesterberg is president and CEO of the

Manufacturers Alliance. The alliance has more than 425 corporate

members engaged in manufacturing and business services, and

conducts economic and policy research relevant to its membership.

Doctor.

STATEMENTS OF THOMAS DUESTERBERG, PRESIDENT AND

CEO, MANUFACTURERS ALLIANCE/MAPI; LORI LUCHAK,

VICE PRESIDENT AND MARKETING DIRECTOR, MILES FIBERGLASS & COMPOSITES, ON BEHALF OF THE AMERICAN

COMPOSITES MANUFACTURERS ASSOCIATION; AND SIDNEY

SHAPIRO, UNIVERSITY DISTINGUISHED CHAIR IN LAW,

WAKE FOREST UNIVERSITY, ON BEHALF OF CENTER FOR

PROGRESSIVE REGULATION

STATEMENT OF THOMAS DUESTERBERG

Mr. DUESTERBERG. Madam Chairwoman, thank you for having

me here today. I want to commend you and Mr. Lynch for holding

this hearing on regulation on U.S. manufacturing.

As you mentioned, I represent the Manufacturers Alliance, which

is a 501(c)(6) organization devoted to economic research and executive development.

My remarks draw on a number of our studies issued in the last

few years, and I want to try to do something a little bit different

today, which is to do basically two things: To put into context the

competitive situation of the manufacturers, especially with regard

to the international competition and the cost pressures that affect

manufacturers, and to address a few of the larger issues of regulation, which sometimes are forgotten in the effort to deal with these

100-and-some thousand regulations that Mr. Graham mentioned

earlier this morning.

I have a few charts and graphs that I will—your staff is going

to help me with as I go through this. But what I wanted to do

today is first call attention to a gradual decline in the performance

of the manufacturing industry, starting somewhere in the late

1990’s.

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First, we note that, if we could put the first chart up, there had

been a certain consistency in plant openings and closings in the

manufacturing sector dating back about 40 years, and our research,

drawing on the Commerce Department, indicates that there was a

break in this.

This is the—can’t see it very well, but the bottom line, bottom

two lines, show that the number of plant closings has remained

steady over time, but the number of plant openings started to trend

downward in the late 1990’s. About 10,000 plants each year that

would have been opened were not opened. If you look at hiring and

firing in the manufacturing industry, that trend is the same. So

there’s been a trend downward in the annual spurts of entrepreneurship, if you will, affecting all manufacturing.

Second, and if we could go to the second slide, this is also reflected in the profit margin, this is—especially of durable goods

manufacturers. Again, these profits have been highly cyclical, but

durable goods tended to run a little bit less than the nondurable

goods manufacturers for a number of years. But in the late 1990’s

and in this decade, they have trended downward again and have

not recovered to the extent they should have at this point in the

recovery.

The third thing I would mention is that everyone is familiar with

the trade numbers—and again, we had numbers come out again

this morning—which were the worst trade deficits in U.S. history.

And it affects especially the goods-producing sector, whether—it’s

between $600 billion and $700 billion in deficit each year.

Again, if we could go to the next slide, this shows the percent of

domestic output that goes to exports, which is the bolder blue, and

the lighter blue is the percent represented by imports, and the import number keeps going up and up. It is now 35 percent of domestic consumption, pardon me, and as our exports have trended

downward since about 1997.

So how to explain this. The growth in international competition

is certainly a major explanation of this, but the role of cost pressures, which Governor Engler mentioned, which Madam Chairwoman mentioned in your opening statement, also is important.

And if we could go to my final chart, which is really a summary

of our costs study, which we did a couple of years ago, it indicates

that if you take unit labor costs, which are adjusted for productivity, compare it with our nine leading trading partners, everyone

from the advanced countries like Germany and France to China

and Mexico, there’s about a $5-an-hour wage differential. And,

again, this is corrected for productivity and for capital inputs.

U.S. productivity has been so good that over the last 12 years

unit labor costs have actually declined in the United States, but

nonetheless, we have been unable to keep pace. Part of reason for

this we think is the structurally imposed costs.

We were able to calculate on a comparative basis corporate taxes,

employee benefits, tort, natural gas costs and pollution abatement

costs. When all of these are averaged out for our nine leading trading partners, it shows that this subtracts about $3 an hour from

their costs. And so this averages out to a 22 percent increase in the

cost of domestic production.

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I focused them on four separate areas of regulation which I think

merit the attention of this committee. Energy, especially natural

gas, where, for the last decade or so, we have encouraged consumption and discouraged production. We believe that easing up on the

ability to import LNG is a near-term solution to this problem which

has affected especially the chemicals and fertilizer industry. We

have lost 100,000 jobs in the chemicals industry, partly as a result

of our higher prices.

I focus on the telecom industry, where even though we have—the

language of deregulation has been used, we have—the regulatory

bar in Washington, DC, has grown by 73 percent since the deregulation bill. Again, the industry has declined by a third in terms of

employment because of—partly because of overregulation. They

think we need to pay attention to that.

The third thing I have mentioned in the testimony is the costs

of Sarbanes-Oxley. We have done a number of studies of our membership, the most recent of which was a survey of CFOs of our

member companies. We found that the costs, all end costs of Sarbanes-Oxley Section 404 compliance, total almost 6 percent of net

income before taxes. And this excludes companies that are not

making money, so it’s probably an understatement. We think that

is probably an example where we can do better in terms of our regulation, and we offer a number of constructive suggestions for improving the way Sarbanes-Oxley is implemented.

Finally, I wanted to call attention to the new phenomenon of regulation through litigation. The practice involves the employment of

private trial lawyers by State and local governments who conduct

a coordinated litigation effort against an entire industry purportedly for the purpose of attacking serious public health and safety

problems.

We think that regulation should be accomplished, as our Constitution indicates, by the Congress of the United States or by

State legislatures, not by the judicial branch. This problem could

rise to more importance as the targets of the litigation go from politically disadvantaged industries like tobacco and firearms to the

auto industry, the pharmaceutical industry and the food industry.

So all in all, Madam Chairwoman, we think that we need to pay

attention to the regulatory costs in this increasingly competitive

global environment, because it impairs the ability of American

firms to compete against the Chinas, the Indias and even the Mexicos and Canadas of this world.

Mrs. MILLER. Thank you very much.

[The prepared statement of Mr. Duesterberg follows:]

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Mrs. MILLER. Our next witness this morning is Lori Luchak. She

is the vice president and marketing director for Miles Fiberglass &

Composites in Portland, OR. Mrs. Luchak is testifying on behalf of

the American Composites Manufacturing Association, which is the

world’s largest trade association representing the composites industry.

Miles Fiberglass & Composites is a family owned corporation

founded in 1963 with plants in Portland and Oregon City. In 2003,

Oregon Business Magazine scored Miles Fiberglass one of the top

100 best companies to work for.

Mrs. Luchak, we certainly want to thank you for making the trip

to Washington, DC, this morning. The committee welcomes you

and looks forward to your testimony.

STATEMENT OF LORI LUCHAK

Ms. LUCHAK. Madam Chairwoman and members of the committee, thank you for the opportunity to testify today.

Miles Fiberglass & Composite employs 60 employees in our two

plants located in Oregon. Our company manufacturers component

parts for the RV and light rail train industry. I am here representing the 1,000 member companies of the American Composites Manufacturers Association.

Our industry supported the recent OMB initiatives to identify

specific regulations needing reform to lessen unnecessary burdens

on manufacturers. Of the 76 regulations identified by OMB and

Federal agencies as justifying reform measures, several directly or

indirectly impact the composite industry.

Beyond these targeted efforts, we would like to suggest some

general principles for rulemaking that the committee might consider in its oversight of their regulatory process. These general

principles are drawn from our efforts over the years to work in

partnership with the government agencies to protect the health of

our workers and neighbors.

First, industry and other stakeholders should be given a seat at

the table very early in the development of any regulation, policy or

determination. Stakeholders often have data on feasibility, health

impacts, control options, energy use, cost and other factors, or can

readily develop such information that can play a key role in shaping the early development of rules, policy, or determinations. But

too often we find that agencies are already well along the way before they sit down with us and start accepting our input. At this

point, agencies have spent months or years developing narrow approaches based on lesser-quality data, analyses, viewpoints and assumptions.

Our information, if brought into the development process from

the start, can result in better decisionmaking and more efficient

regulatory development. When stakeholders are brought in only

late in the development process, we run the risk that the agency

will argue that it is not able to consider our suggested alternative

approaches because their regulatory schedule does not allow them

to back up and collect the necessary data or do the needed analysis

in time for the required decision.

Second, development of rules, policy, guidance or determination

should be managed transparently. By this we mean that all the

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data and analyses that may be relied on by an agency should be

made available for stakeholders’ review as early as reasonably possible. Further, all decisionmakers and peer reviewers who may be

involved should be identified and stakeholders allowed a reasonable opportunity to present data analysis and other information to

these decisionmakers and reviewers. There should be no black

boxes; that is, no data or decisionmaking processes that are not

open to at least some level of reasonable stakeholder input.

Agencies often argue that the integrity of the system requires

them to keep stakeholders less involved; however, we believe the

opposite is true. Without the opportunity for a meaningful and

open stakeholder involvement, the integrity of the decisionmaking

process is often compromised.

Third, regulatory agencies should embrace the use of best quality

data at every stage of developing rules, determinations or policies.

This should include internal checks on data quality as well as timely opportunities for stakeholders to informally appeal quality decisions before poor quality data is used to prepare and justify preliminary or draft agency decisions. Finally, agencies should be

more willing to take responsibility for full economic and societal

impacts of regulatory actions and determinations.

Efforts by regulators and government health scientists to consider the economic, competitive and other broad impacts of proposed rules, policies or determinations are often precluded by narrow program objectives, or are no more than meaningless ‘‘check

the box’’ responses to OMB or congressional directives completed

after the key decisions have been made. These impact assessments

can be difficult and time-consuming, but actions promulgated without considering these impacts can needlessly result in severe damage to our ability to make products and provide employment.

To summarize, our experience has shown that adoption of the following principles would result in a more effective partnership of

government and industry to protect the public health: A seat for

stakeholders at the table early in the regulatory process; a transparent development process, with stakeholders given a reasonable

opportunity to present data and discuss regulatory options; a clear

commitment to using the best available science and making decisions with an opportunity for stakeholders to point out where they

believe the commitment is not being fulfilled; a meaningful commitment to understand the economic and societal impacts of all decisions before decisions are made to pursue them; and improvements

in the openness of the scientific health assessment processes of the

Federal agencies, and efforts to coordinate their reviews and avoid

overlap and duplication.

These are the principles that in our small way we are attempting

to express and promote in our interactions with these regulatory

agencies in the context of specific ongoing assessments and regulations about which we are concerned. However, we hope that because these principles are of a wider scope, they may be helpful to

the committee in framing its oversight and any possible legislation

or guidance to the regulatory agencies and the administration as

a whole.

Our industry is proud of our record of working both independently and in partnership with regulatory agencies to protect the

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health of our workers and neighbors. Our industry sponsored a

thorough review of health risks by the Harvard School of Public

Health in 2002, and we comply with the recommendations made by

the Harvard panel. Our industry also voluntarily negotiated with

OSHA to establish a recommended occupational exposure limit well

below the official OSHA limit. And we continue a 15-year, $15 million history of conducting state-of-the-art research to make sure we

fully understand the health risks that may result from our operations.

I appreciate the opportunity to deliver these comments to you

today, and we would welcome any requests by this committee for

assistance in helping to improve the regulatory climate for manufacturers in America while still protecting the health of our employees and neighbors.

Thank you very much.

Mrs. MILLER. Thank you so much.

[The prepared statement of Ms. Luchak follows:]

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Mrs. MILLER. And our last witness today is Sidney Shapiro, distinguished Chair in law at Wake Forest University. Mr. Shapiro is

testifying on behalf of the Center for Progressive Regulation, which

is an organization for which he is a member of the board.

The Center for Progressive Regulation is a nonprofit research

and educational organization of university-affiliated academics

with expertise in the legal, economic and scientific issues related

to regulation of health, safety and environment.

Mr. Shapiro.

STATEMENT OF SIDNEY SHAPIRO

Mr. SHAPIRO. Thank you, Madam Chairwoman. Many Shapiros,

but I am a Shapiro.

For the last several years, OMB has invited nominations of regulations that should be reformed. Lately it sought to justify this

process on the ground that regulation makes U.S. business less

competitive. The scholarly literature, however, provides little or no

support for the conclusion that such a tradeoff exists.

Academic scholarship has focused on the impact of environmental regulations on plant location decisions and on trade flows.

Neither type of study supports a link between regulation and competitiveness. The leading study in the field states that there is

‘‘overall, relatively little evidence to support the hypothesis that environmental regulations have had a large adverse effect on competitiveness, however that term is defined.’’

This result should not be surprising for two reasons. First, compliance costs are only a very small percentage of the total value of

shipments made by manufacturers. Pollution abatement costs, for

example, average less than 1 percent of the total value of manufactured goods in the United States. Industry sectors with high abatement costs pay less than 11⁄2 percent of the value of shipments.

Second, many claims about regulatory costs are suspicious because

they rely on cost estimates that come from industry sources that

have an incentive to overstate the costs for regulatory and public

relations purposes. OSHA itself, in its latest report, admits that existing economic studies do not establish a competitiveness regulatory tradeoff. Its response is that manufacturing industries have

disproportionately higher regulatory costs than other industries.

But manufacturers are also responsible for a larger portion of the

environmental and occupational safety and health problems in the

country.

The government should look back at existing regulations, but

this should be done as part of an overall priority-setting process

that includes an evaluation of when and whether additional regulation is also necessary and appropriate. Instead, OMB’s process

unbalances how regulatory priorities are set in the Federal Government in favor of the pet projects of certain industries.

While 85 percent of the reform nominations were made by industry, as we have heard, 15 percent were submitted by public interest

groups. But on the final list approved by OMB, 97 percent of the

reforms were industry-sponsored, and a paltry 3 percent were from

the public interest community.

Instead of an ad hoc process, OMB should require agencies to

consider regulatory reform requests in the context of an agency’s

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annual regulatory plan. This plan gives an agency the opportunity

to place such requests to modifying regulations within the hierarchy of all agency business and give appropriate priorities to all

agency business.

OMB also seeks to justify its nomination process as necessary to

protect the small business community. While the small business

community is deserving of special consideration from regulators, it

already receives such consideration through existing exemptions

and protections. More importantly, perhaps, very few of the final

OMB hit list recommendations appear to address small business

concerns. Of the 71 final reforms, only 11 purport to focus at all

or in part on small business.

Finally, no one should object to an effort to make it less costly

to meet existing levels of regulation, assuming that the changes

lead to the same level of regulatory protection. Some of the nominations address this objective. Many of the nominations, however,

seek to reduce the level of regulatory protection of people and the

environment.

At the same time, OMB has almost entirely disregarded the

nominations and ways to improve such protections as I have stated

earlier.

I thank you for the opportunity to testify.

Mrs. MILLER. Thank you very much.

[The prepared statement of Mr. Shapiro follows:]

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Mrs. MILLER. I have a question for Ms. Luchak, if I might. I was

interested to hear you speak for the need for transparency from

some of the agencies as they are going through their process there.

And I thought you were sort of indicating that some of these decisions are essentially being made almost behind closed doors, I suppose, when they are bringing forth all the different information

gathering. It certainly creates uncertainty, I would imagine, for

your industries and others.

Do you think that the process negatively impacts your ability as

an industry to be creative—I am sure you are always very innovative and looking for new processes and new types of products within your industry. Does rulemaking impact that negatively by not

having transparency about the kinds of things they are looking for?

Ms. LUCHAK. Yes. I believe that we know our industry is the

best, and there may be input that we could provide before they get

well along the way that could, you know, be very helpful in, you

know, making up a rule. I know with Title 5, you know, the first

thing they thought of was putting after-burners on, but within our

industry, we knew there was a lot of other things that could be

done, like low styrene resin is possible, which did come about. Controlled spray really reduces emissions. There are a vast amount of

things that you can do that—you know, just by not being in the industry you would be unaware of.

Mrs. MILLER. Thank you.

Dr. Duesterberg, if I could, and as we talked in this subcommittee hearing today, we keep going back to the 22 or 23 percent of

the structural costs for the manufacturing industry in America,

and a lot of different dynamics, as you mentioned, are in that

study, certainly, besides regulation. And you mentioned here that

regulation by litigation is sort of a creeping phenomena, and I

think you said that you have had some experience, I guess what

I am asking, if you could cite examples, are there some States that

there are locals, municipalities, that are actually hiring these trial

attorneys to try to rulemake themselves in this way? That’s the

first time I have really heard of this phenomena, as you say, regulation by litigation. So I am interested to know what you mean by

that.

Mr. DUESTERBERG. Well, the gun industry is the current target.

There have also been cases with regard to the food processing industry, which you mentioned. There have been cases with regard

to the pharmaceutical industry as well.

The point that we would like to make is simply that this bears

a lot of scrutiny on the part of the Congress. None of the gun industry suits so far, as far as I know, have succeeded. None of the

fast-food industry cases, as far as I know, have succeeded. But

there’s a lot of money on the part of the trial bar to invest in cases

like that, and they are so investing.

So I think it just bears watching on the part of the Congress, especially since I believe it involves the jurisdictional issue, if you

will, that you should be aware of.

Mrs. MILLER. I appreciate that. Actually the House did pass

some legislation in regards to the gun industry, as you were speaking of that. And in regards to the food industry, I think we call it

the cheeseburger bill, where you had a—we had quite a bit of conVerDate 11-MAY-2000 11:52 Sep 29, 2005 Jkt 000000 PO 00000 Frm 00104 Fmt 6633 Sfmt 6633 D:\DOCS\21943.TXT HGOVREF1 PsN: HGOVREF1
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sternation, certainly expressed on behalf of the restaurant association.

You also mentioned different regulatory costs associated with

several key elements. You mentioned energy, telecommunications,

corporate governance. I am just wondering, of the three, do you

have any idea of or observation of which of them you think might

present the greatest challenge to the manufacturing industry?

Mr. DUESTERBERG. Well, Assistant Secretary Frink mentioned

Sarbanes-Oxley. That’s certainly on the radar screen of almost

every senior management executive today, because they are having

to come into compliance, and it’s taken a good deal more of their

effort and time than they had anticipated, as well as money. And

also the guidance given by the PCAOB and the Big Four audit

firms has been internally inconsistent, and so they frequently will

have problems knowing exactly what the standard is that they are

supposed to meet.

But that being said, I think the other major issue is natural gas

costs. We have tripled natural gas costs in this country since the

late 1990’s. Again, it’s partly because of the increase in demand,

but demand use in natural gas was favored for a number of regulatory actions; production was constrained.

There are certain industries, chemicals, plastics, glass, paper,

fertilizer industry, which have been severely hit because they use

some gas as a heat source, but also as a feedstock in many cases.

This is an issue that I think can be addressed, and there are ways

to meet the increased demand. There could be substitution, for instance, of other energy resources for electricity production, because

one of the major areas of increase for natural gas use has been in

the production of electricity. So if we could figure out ways to move

electricity into other sources, both traditional like nuclear and coal,

but nontraditional wind energy, for instance, as well, then that

would be very helpful to this case. And I mentioned the regulation

of the siting of LNG import facilities is something we think could

be of immediate assistance.

Mrs. MILLER. Well, the energy bill, as you know, will be coming

to the floor of the House, I think, next week, perhaps, I am not

quite sure, but soon, and it’s interesting, as you mentioned—I know

we are talking about regulation today, but in my State of Michigan,

I don’t think we have had a new electrical grid built there for over

20 years because of some of the different situations that we have

had.

In fact, again, I know we are talking about regulation, but my

final question would be to you, you did mention about a lot of the

different challenges from some of the other countries, China, India,

some of these emerging nations, with their manufacturing sector.

In Michigan, actually, our largest trading partner is Canada. It’s

our largest trading partner. We have a lot of consternation about

how NAFTA is being enforced.

I just wonder as an association whether or not you have any observations about some of the trade agreements that we have, how

that might impact some of the regulatory burdens that we have, or

if you have taken any positions on some of the upcoming trade

agreements, or generally are we enforcing our trade agreements as

we should be?

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Mr. DUESTERBERG. Well, we are generally in favor of trade-opening measures. That being said, it is important for our trading partners to enforce the obligations which they take on in joining these

agreements. That has not always been the case. We focused a lot

on China because it’s the growing source of competition, and there

are clear examples which the Trade Representative chronicles each

year; it took 60 pages, I think, to go over China in their annual

report to the Congress. They haven’t enforced their intellectual

property rights, some of the rights of companies to set up operations, distribution operations and the like.

With regard to Canada, I don’t have any specific examples where

I think there is a major issue there. There are irritants of all sorts,

but these are being litigated through the NAFTA dispute settlement procedures and sometimes the WTO. So I think we are addressing those issues that we had with Canada. We should probably be doing more to address issues with China and some of the

other trading partners.

Mrs. MILLER. Thank you.

I will recognize the ranking member, Representative Lynch.

Mr. LYNCH. Thank you, Madam Chairwoman. I just want to

thank each of you for your testimony here this morning.

Dr. Duesterberg, actually, I am right in the middle of a process

now trying to get an LNG facility, an offshore facility, approximate

to Boston Harbor, which I represent, so I can certainly understand

and agree with your assessment of that whole process. It’s been

painful.

Ms. Luchak, I think you have come up with some very solid,

rather straightforward proposals in terms of having a seat at the

table early on, and having a transparent process, and having accurate information, things that I believe could really help this process, and I want to thank you for taking your time to testify today,

and I think you added a lot to the hearing.

Mr. Shapiro, I do want to ask you a couple of questions. As someone who worked, has worked, for 20 years in the manufacturing industry, isn’t there a reason that I heard a lot of complaints today,

or concerns today, about the heavy level of regulation in manufacturing? But considering my surroundings, when I worked at U.S.

Steel and Inland Steel, and working at blast furnaces, and even

working at, you know, a General Motors facility, isn’t there a reason that, you know, the regulations regarding worker safety and

environmental impact are targeted in some respects more to manufacturing than to clerical or any other industries?

Mr. SHAPIRO. Certainly, Congressman, it is among our most dangerous industries in terms of occupational health and safety, along

with logging and construction. And that’s actually part of a more

general problem.

Certainly these cost figures are overwhelming. They are staggering, indeed, when you look at the amount of cost of some regulations, and that should give us pause. And if we can find cheaper

ways to do things, by all means we ought to do it. But under an

economic methodology, one would also have to look at the benefits

which are generated by these regulations, and that’s the trouble

with these figures about how much money the manufacturing inVerDate 11-MAY-2000 11:52 Sep 29, 2005 Jkt 000000 PO 00000 Frm 00106 Fmt 6633 Sfmt 6633 D:\DOCS\21943.TXT HGOVREF1 PsN: HGOVREF1
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dustry is paying in terms of regulatory costs. You also have to compare that to the regulatory benefits.

Now, OMB, in its draft 2005 report to Congress, totals up aggregate benefits of all regulation and aggregate costs. And aggregate

benefits, OMB says, are somewhere between $12.6 and $108 billion

as against the regulatory costs of $3.8 to $4 billion. So there’s enormous aggregate benefit that the American public and the environment get from these regulations. Now, that doesn’t mean that individual regulations are necessarily reasonable or sensible. We do

need to look at individual regulations. But over all, we get enormous benefit for these many, many dollars that we also have to

pay.

Mr. LYNCH. Thank you.

The last question, actually, follows up on that. We are responsible here with trying to assess what the costs and benefits are,

and a lot of the information that we get in terms of studies and

reports are somewhat outdated, and I spoke of that with the earlier

panel. This Crane and Hopkins study, I am not sure if you are familiar with that.

Mr. SHAPIRO. Yes.

Mr. LYNCH. It is one of the older ones. Do you agree because they

are the ones you speak of who make this aggregate cost estimate,

do you see underlying problems with that particular study?

Mr. SHAPIRO. This is very hard to do. OMB itself does a Herculean task to try to report to the Congress each year its own costs

and benefits, and in the course of doing that, they explain time and

time again the difficulty of coming up with these figures.

Professor Hopkins’ figures have been around for a long time, and

OMB has already said that it basically can’t use them when it

itself tries to attempt to collect these costs and benefits, because

they are drawn from various sources, and they are very general.

The other problem with them is there is a group of figures dealing with paperwork costs, dealing with tax compliance costs, dealing with regulatory costs, even dealing with transfer costs, like

farm subsidies. So it’s very hard to pick out of these figures, for

purposes of blaming one thing, which of these various sources are

feeding into that. So I think they have tried to do their best, but

this is at best a guess, I think, by them as to these totals.

Mr. LYNCH. OK. Thank you, Mr. Shapiro.

Mrs. MILLER. Thank you very much.

I certainly again want to thank all the witnesses for their wonderful testimony and their input. It is a very complicated issue, and

certainly as the committee and the Congress struggles forward,

tries to move forward positively, we want to continue to create an

environment where we can have—incentivize business to invest

and to create new jobs, etc., here in the American manufacturing

industry, and we look at how these regulations certainly impact

manufacturers, both positively and negatively.

So again we thank you very, very much for your testimony, and

with that, we will adjourn the meeting.

[Whereupon, at 12:06 p.m., the subcommittee was adjourned.]

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