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i 

64–860 2011

[H.A.S.C. No. 112–4] 

HEARING 

ON

NATIONAL DEFENSE AUTHORIZATION ACT 

FOR FISCAL YEAR 2012 

AND

OVERSIGHT OF PREVIOUSLY AUTHORIZED 

PROGRAMS 

BEFORE THE

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

FIRST SESSION 

SUBCOMMITTEE ON MILITARY PERSONNEL HEARING 

ON

MILITARY RESALE PROGRAMS OVERVIEW 

HEARING HELD 

FEBRUARY 10, 2011 
(II) 

SUBCOMMITTEE ON MILITARY PERSONNEL 

JOE WILSON, South Carolina, Chairman 

WALTER B. JONES, North Carolina 

MIKE COFFMAN, Colorado 

TOM ROONEY, Florida 

JOE HECK, Nevada 

ALLEN B. WEST, Florida 

AUSTIN SCOTT, Georgia 

VICKY HARTZLER, Missouri 

SUSAN A. DAVIS, California 

ROBERT A. BRADY, Pennsylvania 

MADELEINE Z. BORDALLO, Guam 

DAVE LOEBSACK, Iowa 

NIKI TSONGAS, Massachusetts 

CHELLIE PINGREE, Maine 

MICHAEL HIGGINS, Professional Staff Member 

DEBRA WADA, Professional Staff Member 

JAMES WEISS, Staff Assistant 
(III) 

C O N T E N T S 

CHRONOLOGICAL LIST OF HEARINGS 

2011 

Page 

HEARING: 

Thursday, February 10, 2011, Military Resale Programs Overview ................... 1 

APPENDIX: 

Thursday, February 10, 2011 ................................................................................. 25 

THURSDAY, FEBRUARY 10, 2011 

MILITARY RESALE PROGRAMS OVERVIEW 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

Davis, Hon. Susan A., a Representative from California, Ranking Member, 

Subcommittee on Military Personnel ................................................................. 2 

Wilson, Hon. Joe, a Representative from South Carolina, Chairman, Subcommittee on Military Personnel ........................................................................ 1 

WITNESSES 

Casella, MG Bruce A., USAR, Commander, Army and Air Force Exchange 

Service ................................................................................................................... 5 

Gordon, Robert L., III, Deputy Assistant Secretary of Defense, Military Community and Family Policy, Office of Under Secretary of Defense for Personnel and Readinesss ......................................................................................... 4 

Gordy, Thomas T., President, Armed Forces Marketing Council ........................ 8 

Jeu, Joseph H., Director and Chief Executive Officer, Defense Commissary 

Agency ................................................................................................................... 6 

Larsen, Timothy R., Director, Personal and Family Readiness Division, Manpower and Reserve Affairs Department, Headquarters, U.S. Marine Corps .. 7 

Nixon, Patrick B., President, American Logistics Association ............................. 8 

Robillard, RADM (Select) Glenn C., USN, Commander, Navy Exchange Service Command ........................................................................................................ 5 

APPENDIX 

PREPARED STATEMENTS: 

Casella, MG Bruce A. ....................................................................................... 59 

Davis, Hon. Susan A. ....................................................................................... 30 

Gordon, Robert L., III ....................................................................................... 32 

Gordy, Thomas T. ............................................................................................. 151 

Jeu, Joseph H. .................................................................................................. 93 

Larsen, Timothy R. ........................................................................................... 107 

Nixon, Patrick B. .............................................................................................. 124 

Robillard, RADM (Select) Glenn C. ................................................................. 79 

Wilson, Hon. Joe ............................................................................................... 29 
Page

IV 

DOCUMENTS SUBMITTED FOR THE RECORD: 

[There were no Documents submitted.] 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

[There were no Questions submitted during the hearing.] 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

Mr. Wilson ......................................................................................................... 177 
(1) 

MILITARY RESALE PROGRAMS OVERVIEW 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, SUBCOMMITTEE ON MILITARY PERSONNEL, Washington, DC, Thursday, February 10, 2011. 

The subcommittee met, pursuant to call, at 2:05 p.m., in Room 

2212, Rayburn House Office Building, Hon. Joe Wilson [chairman 

of the subcommittee] presiding. 

OPENING STATEMENT OF HON. JOE WILSON, A REPRESENTATIVE FROM SOUTH CAROLINA, CHAIRMAN, SUBCOMMITTEE 

ON MILITARY PERSONNEL 

Mr. WILSON. Ladies and gentlemen, I would like to welcome everyone to the second meeting of the 112th Congress of the Military 

Personnel Subcommittee. In particular, I am so grateful that we 

have our freshman Representative here, Congressman Austin 

Scott, and then yesterday of course he participated, and I am very 

grateful today that we have Congressman Mike Coffman, himself 

a veteran and has served in Iraq, and I am so grateful for his service. And thank you, Congressman, for being here today. 

And then Congresswoman Chellie Pingree from the great State 

of Maine, who has family in South Carolina. So we are very grateful to have you here. And of course we couldn’t meet if Congresswoman Bordallo wasn’t back and to be here with Congresswoman 

Davis. But I would like to thank everyone for being here today. 

And today the Subcommittee on Military Personnel will conduct 

its second hearing on nonappropriated fund activities and will turn 

its attention to commissaries and exchanges, the Department of 

Defense’s [DOD] military resale operations. 

And even as we begin, I want to indicate that I was really hopeful that the votes that we will have today would have been prior 

to the beginning of this hearing, but they could be any moment. 

And then if we appear startled and run out the door, it is because 

we are trying to live within the time frame of the vote. But the 

good news it won’t be that extended and so then we shall return, 

and you can even figure out when we are coming back now, which 

is a novelty. 

I believe that the commissaries and exchanges are an essential 

part of the health of the military community in combat capability, 

as morale, welfare, and recreation [MWR] programs that this subcommittee examined during yesterday’s hearing. Similarly, we also 

expect the exchange and commissary systems to pursue efficiency 

during this era of increased budget austerity, because we want 

these operations to provide the best service and value to the service 

members and their families. 
2 

However, it must be recognized that the exchanges are not big 

consumers of appropriated dollars and calls for the exchanges to 

save appropriated dollars should be answered with factual justifications. There are analysts who are calling for more reductions in appropriated funding from the commissary system or have questioned 

the need for the military to operate the commissaries at all. 

I believe that the Defense Commissary Agency is a model of efficiency in our government with a budget that is less than what it 

was 10 years ago when inflation is considered. Service member surveys consistently rate it as one of the most highly valued benefits 

offered by the military that delivers over 30 percent in grocery savings to families, service members, and veterans. 

I believe if the Defense Commissary Agency were eliminated that 

we would have to invent another benefit of equal impact on retention and the chances are it would not be as effective or as efficient. 

In addition to learning more about the value of the exchanges 

and commissaries and the need to prove they are factually justified, the resale community has other challenges that we also hope 

to learn more about today. 

We intend to explore continuing concerns about, first, the adequacy of funding for recapitalization; second, renewed interest in 

pursuing exchange consolidation; and third, the negative impact on 

vendors of the 3 percent tax withholding imposed by the Tax Increase Prevention and Reconciliation Act of 2005. 

Representative Davis, do you have any opening remarks? 

[The prepared statement of Mr. Wilson can be found in the Appendix on page 29.] 

STATEMENT OF HON. SUSAN A. DAVIS, A REPRESENTATIVE 

FROM CALIFORNIA, RANKING MEMBER, SUBCOMMITTEE ON 

MILITARY PERSONNEL 

Mrs. DAVIS. Thank you, Mr. Chairman, and I am delighted to be 

with you again today, and I want to welcome our witnesses here 

as well. We know that Mr. Gordon and Mr. Larsen joined us yesterday, and thank you for being here once again. We appreciate 

your willingness to do that, to come back a second day. And General Casella, and Admiral Robillard, and Mr. Jeu, Mr. Nixon, and 

Mr. Gordy, welcome to you as well. 

Yesterday, as the chairman noticed, we mentioned we focused on 

morale, welfare, and recreation programs, and today we will look 

at the military resale community. 

In thinking about our hearing yesterday, we talked about military resale in the context of the support programs that are provided to our men and women and their families in uniform. And 

we talked about how important, how critical those were for a variety of reasons, and I think that that was outlined really quite well 

in that hearing. So we share concern that the future of commissaries and exchanges may be being discussed in some significant way and some changes, and we want to be part of that conversation of course, but we also have to state very strongly how important the nonappropriated funding [NAF] that goes to our support services is. 

Over the past several years the commissary and exchanges have 

faced a number of significant challenges and you have all been 
3 

aware of them, including the transformation of services, the personnel drawdowns, base closure and realignments, and force structure changes and movements. And sometimes we overlook those decisions about those functions really can impact our men and women 

in a large variety of ways and certainly impact our commissaries 

and exchanges as well. So we want to be very mindful of that as 

we move forward. 

Our military personnel and their families as well as our MWR 

programs have relied on the accomplishments of the commissary 

and exchanges. So we appreciate your leadership and your partnership with our private sector partners to ensure that we provide the 

best programs and the best products for our men and women in 

uniform. 

Thank you for supporting our service members. I know when I 

have had a chance over the last few years to address your organization I know how dedicated people are to being certain that our 

men and women are well cared for, and I appreciate that very 

much. 

So with you, Mr. Chairman, I look forward to the hearing and 

look forward to the remarks of our witnesses. Thank you. 

[The prepared statement of Mrs. Davis can be found in the Appendix on page 30.] 

Mr. WILSON. Thank you very much. And we are grateful to have 

an excellent panel of witnesses today. Mr. Robert L. Gordon, the 

Deputy Assistant Secretary of Defense, Military Community and 

Family Policy Office of the Under Secretary of Defense for Personnel Readiness. 

Major General Bruce A. Casella, USAR, Commander of the Army 

and Air Force Exchange Service. And General, the subcommittee is 

sadly aware of the recent passing of your wife Cathie. And on behalf of the subcommittee members and staff please accept our 

heartfelt condolences on your loss. 

We are grateful to have Rear Admiral (Select) Glenn C. 

Robillard, U.S. Navy, Commander, Navy Exchange Service Command [NEXCOM]. And I appreciate last week the opportunity of 

touring the command and seeing the first class professionals who 

work there. 

Mr. Joseph Jeu, the Director and Chief Executive Officer, the Defense Commissary Agency. 

Mr. Timothy R. Larsen, Director, Personal and Family Readiness 

Division, Manpower and Reserve Affairs Department, Headquarters, United States Marine Corps. 

Mr. Patrick B. Nixon, President of the American Logistics Association. 

And also Mr. Thomas T. Gordy, who is the President of the 

Armed Forces Marketing Council. And we welcome Tom back to 

Capitol Hill. He had a distinguished record of service here on Capitol Hill, and then I personally was very grateful for his Navy Reserve service in Iraq. And he was my host when I was there and 

made sure that we got to meet as many troops as possible and 

thank them for their service, and we thank you for your service in 

Iraq. 

As was the case yesterday, many of our witnesses are appearing 

before the subcommittee for the first time. General Casella, Admi-
4 

ral Robillard, Mr. Jeu, Mr. Gordy. Welcome. Mr. Nixon, you have 

testified before the subcommittee many times in the past but not 

in your current role at the American Logistics Association, and 

again you were previously director of the Defense Commissary 

Agency. And as we hear good things about that, we give you a lot 

of credit. 

I want to welcome to the hearing at some time the gentleman 

from California, Congressman Wally Herger, to the hearing. Mr. 

Herger has asked to participate in the hearing, and I would ask 

unanimous consent that he be permitted to do so following the 

members of the subcommittee. 

Without objection, so ordered. 

And so we will begin right away with Mr. Robert L. Gordon. 

STATEMENT OF ROBERT L. GORDON III, DEPUTY ASSISTANT 

SECRETARY OF DEFENSE, MILITARY COMMUNITY AND FAMILY POLICY, OFFICE OF UNDER SECRETARY OF DEFENSE 

FOR PERSONNEL AND READINESS 

Mr. GORDON. Thank you, Chairman Wilson and members of the 

subcommittee. I am delighted to testify before you again today. As 

with MWR, I am grateful for this committee’s support for the Department’s resale activities. Our industry partners here today also 

play a key role in preserving the valuable exchange and commissary benefit. 

As the Exchange and DeCA [Defense Commissary Agency] commanders will tell you, the state of military resale is healthy. 

Through cooperative and independent efforts we are improving the 

availability of services and lowering out-of-pocket expenses for 

service members and taxpayers. Customer satisfaction and customer savings are also healthy. In addition to internal customer 

satisfaction surveys, external surveys are conducted by the American Customer Satisfaction Index, or ACSI. DeCA’s 2010 score of 80 

exceeded the ACSI commercial supermarket industry average of 

75. 

Commissary savings on patrons’ overall purchases is 31.5 percent. Exchange savings average 26 to 28 percent with tax savings. 

The 2010 Exchange ACSI scores finished at or slightly below the 

department and discount store industry average of 76, with Marine 

Corps Exchange [MCX] at 75, Navy Exchange Service Command at 

75, and Army and Air Force Exchange Service at 73. Each of the 

exchange services also conduct internal surveys to evaluate and improve customer satisfaction. 

The Department of Defense leadership is fully engaged in the 

oversight of these important benefits. The Executive Resale Board, 

with many of its members also serving on the DeCA and Exchange 

boards is taking an active role to ensure complimentary approaches 

where there are mutual interests. 

My written testimony outlines our ongoing work in greater detail. I look forward to working with this committee, and I thank 

you for your support and look forward to your questions. 

[The prepared statement of Mr. Gordon can be found in the Appendix on page 32.] 

Mr. WILSON. Thank you very much. 

General Casella. 
5 

STATEMENT OF MG BRUCE A. CASELLA, USAR, COMMANDER, 

ARMY AND AIR FORCE EXCHANGE SERVICE 

General CASELLA. Mr. Chairman, members of the subcommittee, 

I want to thank you for this opportunity to testify today. I am 

eager to share with you how the Army and Air Force Exchange 

Service [AAFES] is providing the exchange benefit to members of 

the armed services and their families. First, I would like to express 

my sincere gratitude for your commitment and our dedication to 

protecting and enhancing this important benefit. I would also be 

remiss if I did not thank the committee staff for their professionalism and counsel. It is a credit this committee. 

I am here today to report to you that AAFES, Army and Air 

Force Exchange Service, continues to succeed in a challenging economy. As part of our strategic plan we have focused on customer 

service, business and process efficiencies, and investing in capital 

improvements. Despite the recession we were able to generate over 

$8 billion in 2009 sales, and increased sales by 1 percent over plan 

for 2010, coupled with over $260 million of dividends returned to 

our MWR programs for 2009 and 2010. 

What I am most proud of is the 4,500 volunteer AAFES associates who have deployed in Southwest Asia since early 2000. Today 

we have an average of 400 associates deployed in Southwest Asia 

who provide a touch of home to our service members in harm’s 

way. I am also proud of the support we provide the military community to new facilities. In Germany, Kaiserslautern Military Community Center opened in late 2009 and achieved more than a $1.2 

million in sales on opening day. In Japan, Kadena Air Force Base 

main store became our largest exchange in the Pacific. At Fort 

Bliss, Texas, the 52 acre recently opened Freedom Crossing lifestyle center, it supports over 120,000 soldiers, families, and local 

retirees. 

With these and other efforts discussed in the testimony I have 

provided for the record, I believe AAFES is on the right course to 

maintain a viable force in the lives of our customers and the military community we serve. 

Again, I want to thank this committee for its support of AAFES 

and the entire military resale community as a whole, and most importantly the brave men and women of our Armed Forces we support. And I look forward to your questions. 

[The prepared statement of General Casella can be found in the 

Appendix on page 59.] 

Mr. WILSON. Thank you very much. And it is interesting to me 

as we serve on the committee to find out that shopping centers 

have been superseded by lifestyle centers, but that is really reflecting serving our families. 

Admiral Robillard. 

STATEMENT OF RADM (SELECT) GLENN C. ROBILLARD, USN, 

COMMANDER, NAVY EXCHANGE SERVICE COMMAND 

Admiral ROBILLARD. Chairman Wilson, Ranking Member Davis, 

distinguished members of panel, thank you for the opportunity to 

appear before you today. It is my privilege to represent Navy Exchange Service Command and our 14,000 associates worldwide. 
6 

Navy is committed to military and family readiness, and the 

Navy exchange programs are an important part of that commitment. Everything we do is focused on our sailors and their families. 

It starts with employing family members. Twenty-six percent of our 

associates are military family members. And we listen to our family members. Through surveys and focus groups we have learned 

what is important to them. We interact through social media, including Facebook and Twitter. We have also developed customer 

segmentation to focus on the differences of our shoppers, allowing 

us to target merchandise assortments at each location. 

Our military families see the Navy exchanges as more than just 

a store. It is a place where they go for that sense of military community, particularly for those families whose sailor is deployed or 

those families serving overseas. We provide the services they need, 

whether it is affordable lodging when they transfer, telecommunications to keep in touch when deployed, ship stores when they are 

at sea, barbershops, gas stations, dry cleaning, and much more. 

I would like to take this opportunity to thank our industry partners who help us provide not only value and savings to our families, but they support the many events that let the family know 

how special they are. I would also like to thank the other members 

of the military resale community here today. We are committed to 

working together to improving the military family’s quality of life. 

In closing, I would like to say how proud I am of the Navy sailors 

who serve our country around the world every day. I am also proud 

of our Navy exchange team who is dedicated to taking care of sailors. Together with our industry and government partners and the 

support of this subcommittee, we are able to do more for the deserving families. On our sailors’ behalf, I thank you. 

[The prepared statement of Admiral Robillard can be found in 

the Appendix on page 79.] 

Mr. WILSON. Admiral, thank you. We have been joined by Congressman Brady, thank you for being here, from the Commonwealth of Pennsylvania. 

Mr. BRADY. Thank you. 

Mr. WILSON. Mr. Jeu. 

STATEMENT OF JOSEPH H. JEU, DIRECTOR AND CHIEF 

EXECUTIVE OFFICER, DEFENSE COMMISSARY AGENCY 

Mr. JEU. Mr. Chairman and members of the subcommittee, it is 

my distinct honor to have been chosen to serve military families 

and who continue to rate the commissary as one of their most valued benefits. I would like to talk about the value of commissary 

benefit. 

Too frequently we have limited our definition to patron savings, 

currently 31.5 percent. While savings are at the heart of the benefit, there are many other factors that define as real value. There 

are three facets that comprise the commissary benefit—quality of 

life, military readiness, and cost avoidance. The quality of life is 

most definitely measured by the patron savings, which can generate $4,400 annually for a family of four, which system-wide totaled $2.69 billion last year. 

Additionally, there are ancillary benefits provided by our indus- try. They contributed $244 million last year to military scholar-
7 

ships, commissary specific coupons and promotions, and installation support programs. 

I am pleased that 63 percent of DeCA’s workforce is from our 

military family. 

The readiness facet allows our service members to concentrate on 

their mission rather than wondering about the well-being of their 

families. 

The cost avoidance facet describes what the Department saves in 

other areas such as reduced cost of living allowance, or COLA 

rates, better shipping rates for overseas transportation. These factors combined provide exceptional value and added to the Nation’s 

return on investment from the commissary system. 

In closing, I want to thank you for your steadfast support of our 

military members and their families and the Defense Commissary 

Agency. Thank you, sir. 

[The prepared statement of Mr. Jeu can be found in the Appendix on page 93.] 

Mr. WILSON. Thank you very much. And Mr. Timothy R. Larsen. 

STATEMENT OF TIMOTHY R. LARSEN, DIRECTOR, PERSONAL 

AND FAMILY READINESS DIVISION, MANPOWER AND RESERVE AFFAIRS DEPARTMENT, HEADQUARTERS, U.S. MARINE CORPS 

Mr. LARSEN. Chairman Wilson, Ranking Member Davis, distinguished members of the subcommittee, thank you once again for 

the opportunity to represent the Marine Corps and provide a report 

on Marine Corps Exchange and Retail Programs. I thank the Congress, especially this subcommittee, for your continued support. 

During 2009, we experienced one of the toughest retail economic 

climates in recent history, yet we exceeded all established performance measures. We are completing system-wide initiatives that 

began about 5 years ago to centralize buying, recapitalize our 

stores, and implement branding standards. 

As part of our daily operations we constantly pursue program efficiencies through cooperative efforts and partnerships with our sister services. We will be focused on improving our supply chain and 

management over the next several years. 

Without question, the Marine Corps Exchange is linked to our 

mission of taking care of Marines and families. Our operational 

success is measured on the program’s value and contribution to 

readiness and retention and our ability to provide a high quality 

customer service, premier facilities, and value goods and services at 

a savings. 

On behalf of Marines and families, I thank you for your oversight 

and continued support of these critical pieces of the military and 

family community support system. I look forward to your questions. 

Thank you. 

[The prepared statement of Mr. Larsen can be found in the Appendix on page 107.] 

Mr. WILSON. Thank you very much. And Mr. Patrick B. Nixon. 
8 

STATEMENT OF PATRICK B. NIXON, PRESIDENT, AMERICAN 

LOGISTICS ASSOCIATION 

Mr. NIXON. Thank you, Mr. Chairman. It is once again an honor 

to appear before this subcommittee representing the members and 

board of directors of the American Logistics Association. I want to 

take this opportunity to recognize the leadership of the chairman 

and the distinguished ranking member over the course of the last 

several years, in particular your support for these vital benefits we 

will discuss today. 

We have outlined our legislative agenda and issues in the prepared statement provided to the committee. Major issues where we 

seek the committee’s support are: Full funding of commissaries, exchanges, and MWR programs on quality of life and retention and 

readiness grounds; relief from the 3 percent withholding requirements of section 511 of the Tax Increase Prevention and Reconciliation Act of 2005 in the form of full repeal or exemption of MWR 

and resale programs when it affects prices to our men and women 

in uniform and their families; and finally a secure, affordable and 

expedient method of providing access to installations and facilities 

for industry personnel. 

I look forward to our discussions and I return the remainder of 

my time for Mr. Gordy. 

[The prepared statement of Mr. Nixon can be found in the Appendix on page 124.] 

Mr. WILSON. My goodness. 

Mr. GORDY. I will take it. 

Mr. WILSON. This is startling. 

Mr. Thomas T. Gordy. 

STATEMENT OF THOMAS T. GORDY, PRESIDENT, ARMED 

FORCES MARKETING COUNCIL 

Mr. GORDY. Good afternoon, Chairman Wilson. Thank you for 

your kind comments earlier. It was certainly a pleasure to host you 

over in Iraq as well as Mr. Coffman when you came over and Ms. 

Bordallo when you came over, especially with the troops from 

Guam, and we had a wonderful meal, didn’t we, ma’am? 

Ms. BORDALLO. Yes, we did. 

Mr. GORDY. Thank you for inviting me to be with you today to 

offer comments on behalf of the Armed Forces Marketing Council 

regarding the military resale services and the vital role they serve 

in supporting the quality of life of service members and their families. 

As we begin the hearing today there are a few facts that I believe 

should we noted first and kept in mind throughout our discussion. 

DeCA continues to receive clean audit opinions, demonstrating responsible stewardship of taxpayer dollars. All systems continue to 

maintain or improve their customer satisfaction index scores, showing that they are more in step with customer needs. All systems 

continue to provide double digit savings for military families. The 

exchanges continue to post strong dividends in support of military 

quality of life programs. All systems continue to recapitalize their 

stores and modernize their systems, seeking to always provide military families with a quality shopping environment and experience 

while driving efficiencies whenever and wherever possible. 
9 

The military resale systems also provide expeditionary support to 

the warfighter, particularly AAFES and MCX which supports the 

needs of our warfighters on the front lines in Iraq and Afghanistan, 

while NEXCOM supports our service members in places like Guantanamo Bay and Djibouti. And all rapidly deployed to support 

troops mobilized to respond to natural disasters such as the devastating earthquake that struck Haiti last year. The civilian employees of the exchanges who deploy in support of contingencies are 

to be commended for their commitment and dedication to serve our 

warfighters in these difficult environments. 

As our economy has struggled to regain momentum, we have 

seen the value of food stamp usage among commissary patrons triple since 2007. Thus, the benefit is as important as ever in supporting the financial readiness and the health and well-being of our 

service members and their families. 

The view of the Armed Forces Marketing Council is that the 

military resale benefit continues to work well. It is honest, it is efficient, and it is responsive. Its success derives from the unfailing 

commitment that the systems have made to the customer service, 

patron savings and to continued process improvements and efficiencies to keep costs and thus prices low. 

However, as we look to the future there are policies, practices 

and proposals that we believe warrant Congress’s attention and action in order to prevent them from adversely impacting the resale 

benefit. 

And I will look forward to answering your questions regarding 

these and other issues. Thank you. 

[The prepared statement of Mr. Gordy can be found in the Appendix on page 151.] 

Mr. WILSON. Thank you very much. It is anticipated that we will 

have three votes, one 15, two 5-minute, between 2:30 and 2:45, but 

we will proceed. But we will recess and proceed quickly and come 

back. 

At this time, again I would like to thank all of you for being here 

today, and for Mr. Gordon a question I have, we all understand 

more than ever base security is more important than ever and the 

vulnerability of our bases. The Department of Defense does not operate a uniform process for acquiring base access credentials for 

employees of the companies that deliver goods and services to the 

network of exchanges and commissions. What is your perspective 

of government and private sector efforts to provide vendors and 

brokers base access cards, and what is the status of the Department of Defense’s efforts to address this problem? 

Mr. GORDON. Thank you, Mr. Chairman. We did meet recently, 

a month ago, about this very issue. It is very important of course 

just in terms of both efficiency and effectiveness to determine ways 

that we get our vendors on our posts and bases across the world. 

And it is an issue because of course it bumps up against the security requirements for our installations within the wake of a new 

era where we have to pay attention to security in much more important and measured ways. But we are committed to finding an 

alternative and a solution. It is not just about the Department of 

Defense, though. This is a whole of government approach, whether 

we are talking about our other agencies in terms of access to our 
10 

facilities and our installations. Yet at the same time we are committed to finding a solution. We met recently about it. We are looking at ways where we can bring together both the commercial sector and our partners and our department and a whole of government approach to making sure that vendors have some sort of identification that they can get onto our facilities. So we will continue 

to work it, and I would love to keep you up to date on it. 

Mr. WILSON. Well, that is so important. In fact, Mr. Nixon and 

Mr. Gordy actually brought it up. And both of you, Mr. Nixon and 

Mr. Gordy, can you tell us about the secure vendor identification 

system that has already been developed by the private sector but 

hadn’t been adopted, sadly, by DOD? 

Mr. NIXON. Yes. Mr. Chairman, first of all I would like to compliment Secretary Gordon for his transparency on this issue. He 

has met with us as well as meeting with the Armed Forces Marketing Council and Coalition of Military Distributors to discuss this 

issue and have a better understanding of the impact on industry. 

We have been working this issue for 6 years now, and it seems 

like it is one step forward and two steps backwards. We have 

worked closely with the Department on a federated solution that 

was actually initiated by the Department, and while that appears 

to meet all the requirements of HSPD–12, which is a controlling directive, the Department didn’t recognize it as a solution. In fact 

there are some folks within the Department said a federated solution is not what they are looking for. 

An alternative, we have a company who is a member of the association, Eid Passport, has developed a system called RAPIDgate 

that has been adopted by the Navy and the continental United 

States for access to vendors. In a meeting with the Department 

they told us that RAPIDgate did not comply with the purported solution as well. So it appeared we ended up somehow stuck between 

the Department arm wrestling with itself on what is between the 

policy and the practices of what the right answer is going to be. 

In our written testimony is a little more gloom and doom than 

I think actuality now. February 3rd, the White House has issued 

a directive that all Federal agencies will comply with HSPD–12 

this year, and our goal is a single solution that industry can use 

for all activities, and this appears to be what we are looking for. 

Now, there is a deadline of a date in March when the policies 

and procedures for each agency must be submitted to the OMB [Office of Management and Budget] and be certified that they are 

going to comply. If not, it is OMB’s intention to withhold funding 

from agencies that do not comply with it. So we are going to go to 

both of our credential providers, have them certify that they meet 

these criteria, send that certification to the Department, make sure 

it is validated. And if this is in fact implemented as the White 

House says, then we expect a solution to take place this year. 

Mr. WILSON. Thank you. And Mr. Gordy. 

Mr. GORDY. First of all, I just want to commend Mr. Nixon. He 

has been really the champion on this issue for the industry and he 

has been our subject matter expert. And I really don’t have anything to add to what he said other than from the Armed Forces 

Marketing Council’s perspective, what we are concerned about is 

the interoperability of systems. As Mr. Nixon pointed out there, 
11 

having one system would work best, but if the Army brings on one 

system, the Navy brings on another, and the other services yet go 

to different agencies or have different systems, it could mean that 

a vendor, one of the employees of the vendors, has to have four different CAC [common access] cards in order to access the different 

bases. That could lead to potential fraud. It also is very expensive. 

In order to get one of those cards then would you have to have a 

background check for each one of those cards. So this becomes very 

expensive for the vendor community, and we would hope that 

whatever systems are adopted that they are interoperable so that 

the vendor could have one card that would work at each base regardless of which service operates that base. 

Mr. WILSON. Well, thank you all. And thank you, Mr. Gordon, for 

helping to spearhead. Ms. Davis. 

Mrs. DAVIS. Thank you. Thank you, Mr. Chairman and again for 

all of you being here. 

We addressed this a little bit I think yesterday just in talking 

about some concerns that we might have about the exchange and 

commissary systems throughout our bases and our communities. I 

wonder, Mr. Gordon, if you could address for us whether there are 

any rumors, particularly as they would address the consolidation of 

the exchange consolidation, that would be helpful for people to 

hear. We know that there were several years there between I think 

2000 and 2006 where that was a major area of discussion, and I 

was wondering if we have a chance to examine that today. 

Mr. GORDON. Thanks very much. I am not aware of any at this 

point discussions in terms of considering a study once again to consolidate our exchanges. You know, as we all know, this has been 

studied many times, about six times, in the past 42 years. What 

I am really excited about is the kind of efficiencies first of all that 

the leaders have found working together really in partnership because our services are different. They are the same but different. 

They are the same in terms of defending this country, but they 

have different slices of that sort of defense. So if you take the demographics of our services, they cater to those sorts of demographics. 

It is interesting, I think, when you visit the headquarters of our 

various resale activities how they have been very thoughtful about 

the demographics and how they outreach basically to their communities to provide the best benefit, but also the best value. 

I just want to note what Mr. Jeu said about the $244 million that 

our commercial partners offer in terms of corporate social responsibility, you know, from scholarships to coupons. That sort of innovation I believe occurs because we have got different sorts of exchanges who participate with collaborative programs, and we have 

done that, who think very innovatively about how to outreach to 

their communities. So the good news story is you continue to see 

both the benefit and value go up with this system that we currently have, and the kinds of innovation and creatively can continue to occur with the kind of system we have. 

Mrs. DAVIS. Thank you. Mr. Nixon or Mr. Gordy, would you care 

to comments on that at all? 

Mr. NIXON. I would just mirror the Secretary’s comments that 

this has been studied. If you were to look at the numerous effi-
12 

ciencies that have been garnered by the exchanges’ cooperations to 

date, clearly they have partnered in many initiatives, supply chain 

efficiencies, and I think to undertake another study would be 

throwing good money after bad. It has been looked at and it just 

doesn’t work. 

Mr. GORDY. Exactly. I mean I showed Mr. Wilson last week a 

stack of studies that were this tall of all the studies that have been 

done on exchange consolidation. And we know about the $17 million that have gone behind this. Millions and millions of dollars 

that have studied this and to go, you know, to any discussion that 

could be put forward. And we are thankful that it is not coming 

from the Department, but we are hearing it more from outside the 

Department where people think that this is a solution, but yet it 

is one of those items that it sounds good, it looks wonderful on a 

PowerPoint presentation, it briefs well, but when you start doing 

the studies and the analysis you realize it does not deliver the efficiencies or the savings that they promise. 

Mrs. DAVIS. I wonder if General Casella, or Admiral Robillard, 

or Mr. Larsen, what immediate challenges do you see facing the exchange system as we look at that today, aside from the fact that 

we are not perhaps looking at the consolidation, but what challenges do you see? 

General CASELLA. Great question. I think from our perspective at 

AAFES some of the challenges that we see today is probably trying 

to keep pace and be in a very competitive mode with our counterparts on the commercial side of the house. 

Today we are really getting into social media and to try to work 

that. We are working our dot.com sites. The paradigms in our community have changed over the years. We used to have 70 percent 

of our folks living on base and 30 percent off base. And now that 

has flipped. So there is only 30 percent living on base and 70 percent living off base. And then a lot of those Guard, Reserve, and 

retirees are in the community not even near a local base or garrison out there to receive those benefits. 

So one of our challenges is how do we tap those and let them tap 

into this benefit resource and take care for their families and save 

money. 

A couple of things that are a challenge for us is where we have 

enhanced our dot.com sites to allow them to shop online and get 

the same savings with free shipping for certain costs you pay for 

certain goods. It is an excellent approach. It allows us to tap into 

a whole host of commodities. 

Our biggest store has 250,000 unique items in it, if you went to 

a store. Online we have 18 million. So if you do the math, you find 

out that if you want to tap into all the products and resources out 

there, you want to touch your community on the dot.com side. 

We are also getting into innovations too with smartphones. A lot 

of folks now are doing consumer shopping and comparison shopping 

with their smartphones. And we are developing that technology 

along with the other folks on the panel here to help leverage that 

to provide our families and our warfighters out there with those opportunities. So that is a challenge for us. 

I think another challenge for us is the Army is in huge transformation. The Air Force on our side of the house is fairly stable, 
13 

but the Army is in huge transformation. We have large numbers 

of brigade combat teams consisting of 4,000 or more folks each and 

large shuffling going on with BRAC [base realignment and closure] 

moves, transformation, et cetera. With that comes a lot of movement, change, construction, a lot of effort that we have to be focused on. We are, we have a great plan for that, but it is a lot of 

big muscle movements for us. 

And I think, thirdly, for us is probably the OND [Operation New 

Dawn], OEF [Operation Enduring Freedom] support that we do 

overseas. We have got a great handle on that, a great process, and 

we are trying to work that transformation as well in terms of 

downsizing in OND and taking care of the requirements in Afghanistan. 

Mrs. DAVIS. Thank you. 

Mr. WILSON. Thank you very much and we have been joined by 

Congresswoman Hartzler of Missouri and Congressman Rooney of 

Florida. 

Our next question would be from Congressman Mike Coffman of 

Colorado. 

Mr. COFFMAN. Thank you, Mr. Chairman. I am not sure who 

would answer this question, but I believe that in South Korea 

where we currently have 28,500 military personnel and that now 

there is a movement afoot to take that from an unaccompanied 

tour to an accompanied tour, and to bring the dependents forward, 

and that we have to develop the infrastructure for that. 

Do you have any idea of what the costs will be relative to developing the exchange and commissary capability there to support 

those dependents? And where would that money come from? 

General CASELLA. Well, Congressman, now I guess my challenge 

is—I am not sure I have the exact figures for you for the cost data, 

but I will tell you that we are working in consolidation with the 

folks here on the panel to come up with a consolidated solutions 

at Camp Humphreys. Camp Humphreys actually is the center of 

gravity for the transformation off the DMZ [demilitarized zone]. 

And we figure about 40 percent of our population will be collocated 

at Humphreys once that installation is complete. 

One of the things the Army and Air Force exchange system is 

doing is we have already negotiated and already got the agreement 

through the folks in Korea to do a new main exchange at Camp 

Humphreys along with a relocation of the commissary as well, the 

commissary can talk about that as well, to provide a great resource 

for those families that are coming over. 

The budget for this, the dollars that are associated with this are 

in our program. We have programmed those, they are part of our 

master planning process. We have gone through several iterations 

of design to make sure we are on track. In terms of what we have 

to put up to make this appropriate and the Korean Government 

itself is also paying for certain funds to allow this to take place, 

too. 

Mr. COFFMAN. Do we already have the contracts in place in 

terms of building those facilities or have they yet to be put out? 

General CASELLA. I think as we speak today those contracts will 

have to be put out but they are part of our master plan. We are 

in the design phase right now, requirements and design phase. But 
14 

it is definitely on the agenda to do. We have got the milestone set. 

I don’t see any—our biggest hurdle was to get the final agreement, 

it just happened last month, to get the final agreement of where 

we are going to put the facilities. For us there is a little more challenge, because we also have to consider our warehousing operations 

and our bakery, it is also in the community. But those will come 

with a master plan so I think we are on track and right now we 

are in a design phase. 

Mr. COFFMAN. Okay. 

Mr. Nixon and Mr. Gordy, what would be the effect of a cut in 

funding of 5 or 10 percent relative to commissary funding? 

Mr. NIXON. Devastating, in a single word. The principal use for 

the appropriation for commissaries is personnel. And probably the 

next largest group is transportation. So any cut of that magnitude 

would immediately evolve into either reduction in days and hours 

of operation or closures of commissaries which would simply just 

begin to spiral to devalue the benefit. 

The one thing that I think that the message that we industry 

members like to pass is that savings is built into the DNA of these 

organizations, these resale commands up here. Because of the partnership with industry, every decision they make is either about increasing savings to the patron or savings to the patron or delivering dividends back to the installations. And so they have been involved in savings for a long time now. Defense Commissary Agency 

consolidation was based on savings. And it saved over a billion dollars from that consolidation in taking out cost of supply chain and 

construction and other associated costs. So any reduction, 5 percent, 10 percent, immediately goes to personnel and immediately 

reduces the benefit. 

Mr. GORDY. I would add that if you take a look at DeCA’s budget 

even from last year, it has already been cut by $40 million and now 

we are looking at potential cuts again this year. DeCA has been for 

the past decade trying to become as an efficient organization as it 

can be. So if you look at DeCA in context of what you have you 

done for me in the last year, that is too short term of a view. You 

really have to look back over the last 10 years and to see what 

DeCA has done to reduce its costs in order to make this benefit as 

efficient and effective as it possibly can be. Granted, are there 

areas for more efficiency at DeCA? Potentially, yes. But when you 

start talking about cuts at the level of 5 percent or above, now you 

start talking about going beyond just efficiencies at the headquarters level to actually reducing store personnel. If you start reducing store personnel, you start having to reduce hours, you start 

having to shutter stores. And when you get to that point the military patron loses their benefit. 

So our concern is that any of these cuts that go beyond just 

achieving efficiencies at the headquarters level that actually go towards reducing the benefit or going to cut store hours or close 

stores, that starts effecting the military patron and that is something that we are very concerned about. 

Mr. COFFMAN. Thank you. 

Mr. WILSON. Thank you very much. Congresswoman Madeleine 

Bordallo of Guam. 
15 

Ms. BORDALLO. Thank you very much, Mr. Chairman. I do have 

a couple of questions here. And first of all, I want to thank all of 

our witnesses and of course Mr. Gordon and Mr. Larsen back 

again. Thank you for appearing today and providing us with your 

testimonies. I do promise, gentlemen, to stay away from the ever 

contentious issue of alcoholic beverage resale on Guam. But just a 

reminder it is still on my future agenda. 

The first question I have is for Secretary Gordon. In last year’s 

House passed defense authorization bill there is a reporting requirement that I requested from the Department of Defense on its 

efforts to locally procure fresh meat, poultry, seafood, fish, and 

produce for commissary and exchange stores. Now that report was 

due on May 1st, 2011. Can I get a commitment that the Department will make every effort to get us that report on time? And I 

think, Mr. Gordon, you would be the one to answer that. 

Mr. GORDON. I will definitely look into it and expedite it. 

Ms. BORDALLO. Okay. May 1st. 

Mr. GORDON. May 1st. 

Ms. BORDALLO. 2011. 

Mr. GORDON. I hear you. 

Ms. BORDALLO. I firmly believe in sustainability practices when 

it comes to our commissaries and exchanges, and here in the House 

we begin the greening of the Capitol initiative which has led to 

fresher food products in the meals that we eat. There are many 

benefits, including environmental cost savings, and improved 

health quality which improves the health wellness in the readiness 

of our men and women in uniform. So I would like to hear, I guess 

first from you, Secretary Gordon, to what extent is each of services 

and the Department as a whole looking at sustainability practices 

for our commissaries and exchanges? 

Mr. GORDON. I think we look at that very much in terms of sustainability. I think it is aligned also with once again this notion of 

innovation because, as we know, in an austere, fiscally austere environment you have to bring in partners to ensure that sustainability of both the benefit and values. It is not just about the benefit because the benefit as we know is a value in terms of recruitment and retention and readiness. But it is also the value proposition of what would bring a service member and their family to 

our commissaries and exchanges. 

Some of that sustainability comes with systems, and I think you 

would be very impressed if you go to the headquarters of these facilities and see the kind of information technology that they have 

now. Also the returns to scale by combining certain sorts of operations, our military STAR Card is an example of that. That begs 

the sustainability as well as we try to streamline efforts to ensure 

that each service complements one another in terms of finding 

ways of combining their efforts to ensure a long-term benefit in 

value. 

With that, let me turn it over to the AAFES Commander. 

Ms. BORDALLO. General Casella. 

General CASELLA. Well, that is an excellent question for the 

AAFES because we are heavily engaged with sustainability and all 

the initiatives that go with that. 
16 

Specifically, we have kind of embedded this whole approach in 

everything we do today. We have just been recognized I think earlier this year from Department of Energy for some of the great 

work we have been doing in water management, water and energy 

conservation, and fleet management, because we actually have our 

own fleet of vehicles as well. And that includes consumption, gasoline consumption and how we do more efficiently and operate on 

the highways. So we did get an award there, that is a start for us, 

but it is not the end. 

We also are involved in several LEED [leadership in environmental and energy design] silver projects in terms of what we do. 

And these LEED silver projects were already introduced at Randolph Air Force Base, Fort Polk, Fort Bragg, and Fort Bliss as well. 

And if you went to our new lifestyle center in Fort Bliss, Texas, you 

would see that we have many enhancements that we put not only 

there but in also our stores. Some include energy saving lighting 

systems where if you walk up to the counter they will turn on and 

if you leave they turn off and save energy. We have 30 and 40 percent reductions in basically water consumption for our bathrooms 

and some of the things that we use for water consumption. Air conditioning, we are using better air conditioning materials now. So in 

effect we save energy there too as well as for some of the insulation 

that we are using. 

Flooring, flooring that we use in our facilities is huge. We now 

have a flooring solution we use which allows us to give a high polished approach to concrete and saves maintenance costs tremendously. And we also use recyclable materials for building our new 

facilities, which is a huge effort in terms of our reusing those materials. 

So we are incorporating that not only in our lifestyles, but all of 

our image upgrades, too, that we are doing across our infrastructure, and that is where the bulk of our efforts are going to be. 

Ms. BORDALLO. Thank you, General. It sounds very good and of 

course we will have to hear here from the Admiral now. 

Admiral ROBILLARD. Yes, ma’am. I just want to talk a little bit 

about sustainability. One of the issues to be sustainable you have 

to be relevant. So one of the issues we deal with significantly is 

how do we deal with a new generation of demographics and how 

are we going to continue to make sure that they shop our exchanges and recognize the benefit we bring to them. So the entire 

effort that we do with segmentation is really about sustainability, 

to make sure we are relevant to our future sailors. 

When it comes to energy we do many of the same things as General Casella. We partner and we actually use best practices. I go 

to many of his stores as he does with ours to get an idea of some 

of the things that we do. But LEED silver, any new projects that 

we do today are built to a LEED silver standard. In fact, Bethesda, 

which is being planned over the next year, will be built to a green 

gold—LEED gold standard, and it will have the first green roof. So 

when you go there you will see you could actually put cows on the 

roof up there if it could hold it. 

When it comes to energy reductions, again that is significant not 

only for us but our entire department. So wherever there is a requirement for energy reduction we are really leading that, because 
17 

we do a lot of renovations. So wherever we renovate we adhere to 

the latest energy savings as possible. 

Ms. BORDALLO. Very good. Mr. Jeu, yes. 

Mr. JEU. Defense Commissary Agency is also committed to sustainability. In fact, every major decision we make relating to a facility we are always thinking about how can we conserve our energy and environmental. And in fact we have created environmental management system where all our major decisions are processed through it. And some of the things we are doing, the same 

thing as what AAFES and NEXCOM are working on. 

As you know, when you look in grocery store we have all these 

refrigeration units. They are heavy users of energy. So now we go 

into all the refrigeration units with the doors so that they will not 

lose energy efficiency. We are also into recycling all the cardboard 

boxes, as a grocery store we generate quite a bit of those, tons. And 

so just about everything we do we think about sustainability. 

Ms. BORDALLO. Thank you. And just one last comment, Mr. Larsen. 

Mr. LARSEN. Thank you, just one point that is just a little different tack. I think we all do very similar things in most of those 

areas, but one additional point is I think we need to take a balanced approach. And there is a connection here to exactly the question that Congresswoman Davis asked a few minutes ago, and that 

is about the threat. And I think one of the things we need to look 

at is the balance of appropriated and nonappropriated funds. Those 

areas that are appropriate appropriated fund requirements need to 

be funded. Because when we don’t then we take and we use NAF 

money to pay for those expenses. We then either have to do two 

things, diminish the dividend or we have to increase the prices. 

And when you do that, that becomes a threat to the sustainment 

of all of our facilities. 

So just a little different slant on the issue. 

Ms. BORDALLO. Thank you. Thank you, Mr. Larsen. And I am 

going to look forward to visiting some of these facilities very soon. 

Thank you, Mr. Chairman, and I yield back. 

Mr. WILSON. Thank you, all. We will recess and return after the 

vote. 

[Recess.] 

Mr. WILSON. Ladies and gentlemen, thank you for returning. 

And we are delighted to proceed with the hearing. Congresswoman 

Pingree. 

Ms. PINGREE. Thank you, Mr. Chair. I appreciate being welcomed 

onto the committee. Thank you for that. And thank you all of you 

for your testimony. I learned a lot today. And I am glad to be here 

with all of you. 

I have a couple of questions that are very specific to Maine, so 

I hope you will indulge me. The first one is for Mr. Gordon. Thank 

you for all of the testimony that you provided us today. I imagine 

that you may know that the Brunswick Naval Air Station, which 

is in my district, was selected for closure in 2005 during the BRAC 

process. And with it, the Navy has decided to close both the commissary and exchange at the base, a decision I must say I wholeheartedly disagree with. This decision will negatively affect the 

military population that should continue to be able to use these fa-
18 

cilities, including a significant population of retirees. There is a 

very large Active Duty population in the immediate area, starting 

with the Supervisor of Shipbuilding, part of NAVSEA [Naval Sea 

Systems Command] that is stationed at BIW [Bath Iron Works], a 

mere 6 miles away from the stores. There is also a Marine Corps 

Reserve battalion and an Army National Guard unit that are moving onto main side in the coming months. Construction is already 

underway. So I believe these sailors, soldiers, and marines are entitled to the savings and quality of life that you have all described 

so very well today. 

I realize the decision to close those stores is because the Navy 

decided to close Brunswick. But the Active Duty and Reserve population I have just described have a mission unrelated to the Brunswick Naval Air Station, and their mission continues today. 

So my question, you can imagine, is given the significant Active 

Duty, Reserve, and retiree population that continues to serve and 

reside in the mid-coast Maine area, is the Navy’s decision to close 

these stores consistent with DOD guidelines? 

Mr. GORDON. Well, what we are trying to do is determine the degree to which—and we haven’t done this yet, of course, because we 

are waiting for a GAO [Government Accountability Office] review. 

Ms. PINGREE. Right. 

Mr. GORDON. And once we are able to get that review, we are 

going to take a very close look at it and determine the way ahead. 

But we think it is important for the process to let itself out in 

terms of review. And we are anticipating that as a result of that, 

we will take a look at all the issues and make a decision. 

Ms. PINGREE. Great. I appreciate your saying that. I know we are 

all waiting for the GAO study. 

Mr. GORDON. Yes. 

Ms. PINGREE. But we do believe that there is significant business 

that would be done there. 

Mr. GORDON. Yes. 

Ms. PINGREE. And for the many families who have served our 

country and the many Active Duty personnel who are there, as you 

have all said so well today, it is a very important resource. 

Mr. GORDON. Yes, it is. 

Ms. PINGREE. Particularly to an area that is being BRAC’d and 

losing a lot of resources at the same time. 

Mr. GORDON. Yes. I understand. 

Ms. PINGREE. Well, thank you. And thank you for your work. 

Mr. GORDON. Thank you. 

Ms. PINGREE. I have one other Maine-specific question for General Casella. And thank you, General, for your testimony today and 

for your service. You probably know that the Maine Air National 

Guard in my home State of Maine operates out of the Bangor Air 

Force Base. The 101st Air Refueling Wing has been running 24– 

7 operations since 9/11. Because of the increased operations tempo, 

the Army and Air Force Exchange Service—I guess you call it 

AAFES, I am trying to get those things right—the AAFES BX 

[base exchange] has performed very well. But as I am sure you 

know, Air National Guard exchanges do not currently receive dividends from store profits like their Active Duty Air Force counterparts. I understand Active Duty stores send their dividends back 
19 

to the MWR programs, and the Air National Guard does not have 

MWR programs. However, there are family readiness and support 

programs that could benefit from these dividends. 

Given the increased usage at the Air National Guard exchanges 

like this one in Bangor, would you consider being supportive of Air 

Force policy being changed to allow AAFES dividends to be distributed to Air National Guard bases that have exchanges that earn 

a profit? These dividends certainly could really help the family 

readiness programs that our Reserve Component relies on. 

General CASELLA. That is a great question because you know, 

dividends is very important to what we do. And we want to make 

sure that all the families and warfighters out there are supported. 

It turns out that we actually do give dividends to Guard members. 

If you looked at our overall structure of dividends, we give primarily to the Army. The Army gets the bulk of those because of 

the Active Component of the Army. Then the Air Force gets the 

bulk of those. 

But then if you look at our Reserve elements, we actually give 

to the Army National Guard, the Army Reserves, and the Air Force 

and Marines and Navy, believe it or not, because we support the 

Navy and Marines, too, in different locations. So we have dividends 

that go to all those families. 

And I have a breakout chart that I show everybody. It is a small 

figure, but you have to—basically, the way the system works is you 

can attack this two ways. One way is all those elements that legitimately follow the rules and put in for unit morale welfare funds, 

they can apply for those and set up a unit account. I think it is 

called—it is a unit account, basically. If they apply for those and 

get them, then they become an eligible member to get the dividends. That is one approach. That is a pretty small amount of 

money, but it is appropriate and they can get that. And we do give 

that to a lot of the Army units that apply for those. But you have 

to set up an account, conduct minutes, have a meeting, figure out 

what you are going to do with it, and get it authorized. And that 

is one mechanism. 

But then the other plan is actually to go back to the Air Force 

and suggest, you know, can you really look at your dividend policy? 

We don’t set that policy. That is something that we just adhere to. 

Whatever the Air Force policy is, along with the Army policy, we 

distribute the dividends based on their rules. So it is not for me 

to say, but definitely something that can be brought up in those 

service channels. 

Ms. PINGREE. Great. Well, we will certainly follow up on that and 

do that. Thank you both. 

Mr. WILSON. Thank you very much. And what a great honor for 

all of us to have you here today. And what I would like to do, with 

the consent of all members, we would like to proceed with a second 

round, but with a hard stop at 4 o’clock due to other meetings. 

And so a concern that I have, the Tax Increase Prevention Reconciliation Act of 2005, TIPRA, threatens to impose a 3 percent 

withholding tax penalty on military resale vendors. Mr. Gordon, 

General Casella, Admiral Robillard, Mr. Larsen, and Mr. Jeu, do 

you see a challenge for your organizations and your patrons with 

regard to the implementation of this law? 
20 

Mr. GORDON. I will turn this over to the resale commanders, but 

absolutely, yes. I mean, at the end of the day, you know, those increases will potentially be passed onto our consumers, our patrons. 

So it is an issue. I will again let the commanders elucidate, but we 

have literally 13,000 vendors and more, a lot of those small businesses, where that tax will come out of their bottom line up front, 

basically, and will challenge their ability to be able to continue 

their services and the products that they provide for our service 

members and their families. So at the end of the day, it is costly, 

it will affect our service members, it will affect our infrastructure, 

it will affect our partners. 

General CASELLA. From an AAFES perspective, I would like to 

address this. This is a very important issue for us, and we are very 

focused on this. We hired a consultant last year to already start 

looking at the impacts of this, because we know with the extension 

that it is going to be effective in January of 2012. And so it turns 

out that the way things are rolling now, we would have to commit 

and start actually committing money to this approach about middle 

of this year in order to be compliant, if it kept going the same path 

it is on. 

We have looked at the impact of this, and it is huge. Definitely 

it is going to have an impact on how we do business with our vendors. These 13,000-plus vendors that AAFES has, quite honestly, 

the 3 percent puts a burden on them. When I am not in an Army 

uniform, I am a small business part owner myself, because I am 

in the Reserves. But bottom line is that it puts a huge burden on 

small businesses to have that withholding, because they need that 

cash flow in order to keep going. So that is a huge thing for them. 

We anticipate they would in turn raise the cost of our products, or 

decide not to do business with us, because the same constraints 

may not be on their commercial counterparts they are working 

with. 

So it is going to be a twofold impact for us. And specifically for 

AAFES itself, for supplier cash flow, we have estimated an annual 

loss due to reduced offsets to cost of goods sold to be about $41 million because of this effort. On top of that, we estimate that our estimated annual loss to the vendor cash flow will be $125 million. Estimated annual cost increase to the Exchange will probably be $23 

million. Internally, because of the modifications that we have to 

make to account for all these changes, it is going to cost us probably around half a million dollars. And we have to probably hire 

more folks for reconciliations we have to do between the contract 

works and the resetting those. 

And also, then likewise as I said, the impact on small business. 

It is going to have a huge impact across our—in turn, all these will 

affect our dividends. 

Mr. WILSON. Well, that information needs to be shared with 

Members of Congress, and I will. 

Admiral ROBILLARD. Sir, we are certainly not as large as AAFES, 

but I would like to tell you that we have very similar concerns. 

Right now it is probably one of our number one impacts that we 

have to worry about. Very soon we have to, within again the next 

few months, we will have to start spending money to implement 

this. And we think in our estimate that it will be almost a million 
21 

dollars to implement it, and then a recurring cost of at least 

$200,000 a year just to work those reconciliations. 

Our biggest concern is really our vendors. We have a lot of small 

vendors. We have 5,000 vendors that would fall under this act. And 

a lot of those vendors, because they are already providing us what 

we think is best pricing, because of their sense of commitment to 

the military, are operating on very low cash flows. And so what 

they will have to do is borrow money, and, again if they have to 

borrow money to make themselves viable, then they will have to 

pass that cost onto us. And so really it is a reduction in benefits 

as a result of it. So again, we feel very strongly, mostly because it 

is an impact to our vendors, which again will impact our constituents as well. Thank you, sir. 

Mr. WILSON. Thank you. 

Mr. LARSEN. Mr. Chairman. 

Mr. WILSON. Yes. 

Mr. LARSEN. Yes, sir. You know, we share the same concerns 

that NEXCOM and AAFES have expressed for the Marine Corps 

Exchange System, so there will be for us an impact on labor and 

an impact on systems that we will have to cover those costs. 

We have also heard that the Senate Finance Committee may be 

considering a GAO study on this topic. And if that is the case, you 

know, that would be a step in the right direction. But our issue is 

we have to start putting things in place now if they are going to 

implement this in January. So there is a timing issue here that we 

need to get in alignment if we can. Thank you. 

Mr. WILSON. Thank you very much. And Mr. Jeu. 

Mr. JEU. Mr. Chairman, we at DeCA are also deeply concerned 

with this law. The 3 percent withdrawal requirement would adversely impact nearly all of our contractual agreements we have 

with our vendors. And from discussion with the industry members, 

this withholding cost will be passed on to our customers. And in 

fact, one of our largest brokers estimated that they would have to 

increase our cost of goods by between 4 to 5 percent, and that will 

be obviously passed onto customers. So we are deeply concerned 

with the potential price increase. Additionally, there will be significant administrative and system costs, as others have mentioned. 

Mr. WILSON. Well, I want to thank all of you. This is somewhat 

startling to hear people who represent government entities concerned about patrons and small businesses. This is very refreshing. 

I now refer to Mrs. Davis. 

Mrs. DAVIS. Thank you, Mr. Chairman. As you all know, second 

destination transportation [SDT] funding is used to subsidize the 

cost of goods sold overseas in exchanges and commissaries to ensure that our service members, of course, and their families are not 

penalized with those higher prices than members who are serving 

here in the United States. 

Mr. Gordon, could you share with us, does the Department share 

the subcommittee’s views that this funding is well justified? 

Mr. GORDON. Yes, it is. And we want to make sure, under the 

auspices of fairness, that all of our service members and families, 

regardless of where they are in the world, are treated fairly, have 

the same access to goods and services. So I would love for actually 

the services to elucidate on that, please. 
22 

Mrs. DAVIS. Okay. Fine. And then also, Mr. Nixon and Mr. 

Gordy, if you could give us your perspectives on that. 

Mr. NIXON. Yes, ma’am; absolutely this is a very significant appropriation. And there have been efforts along the way in past 

years to take runs at this for other purposes and think it is an easy 

target. Fortunately, this committee has stepped in on several occasions and made that much more difficult to do. As the Secretary 

said, this is an extremely important additive that allows the price 

of goods overseas to be sold at the same price as those in the continental United States. It is a very important element. We should 

make sure that it is protected at all costs. 

Mr. GORDY. I come at this issue a little bit from more of a personal perspective. Serving in Iraq it was great to be able to go to 

Camp Liberty or to Camp Victory to the PX there on base and be 

able to get a tube of toothpaste for $2 and change. If the costs had 

to have been borne by AAFES in order to put that toothpaste in 

there, and that cost would have been passed on to me, there is no 

telling how much that toothpaste would have cost. Or if my wife 

would have had to put it in a box and mail it to me, we would have 

had the $10 cost of shipping and it would have taken 2 weeks to 

get to where I was. 

You think about that in terms of the amount of money that we 

spend on SDT, the hundreds of millions, $200 million that we 

spend. If that cost had to be borne by military families, that means 

military families would be paying hundreds of millions of dollars 

more for the products that they purchase. And so to me, SDT is 

very important to help support the financial readiness of our families, particularly those overseas. 

Mrs. DAVIS. Anything else to add? General. 

General CASELLA. Yes, Congresswoman. Three things. We are 

good stewards of the money, too. I mean, we do understand the 

need, and we do need to have that equity in our costs. We are good 

stewards, though. We have used cube-container stacking processes 

to save money and reduce containers that go over in order to keep 

those moneys as low as possible. 

Along with that, we have container stuffing costs that we actu- ally have a cost avoidance of $9.2 million just because of the way 

we are handling our containers, and being able to stack and rack 

and stack those for shipment. So we are saving $9.2 million there 

instead of just doing it on the cuff. 

Likewise, for commercial air usage, we have actually had a cost avoidance there of $27 million. So I think we are doing our best 

at our level to take those funds that are given to us and use them 

very wisely so we can have them go further for us. 

Mrs. DAVIS. Thank you. 

And Admiral, I know that I was going to come back to you on 

the other question earlier about the consolidation, the challenges 

with the exchanges. And if you want to just comment on that briefly, and Mr. Larsen as well, quickly on this and the other one. 

Admiral ROBILLARD. On this topic, I just wanted to mention that 

we really do believe in equity of service overseas. In many areas 

that we operate, and it is critical, and sometimes it is not that perspective taken. In Gitmo [Guantanamo Bay, Cuba] or Djibouti 

there really are no other alternatives. There is no outside-the-gate 
23 

shopping at all. So we are the only source for that family or that 

sailor or that military member. And the only way we can be competitive is to have that offset. So thank you. 

Mrs. DAVIS. Mr. Larsen. 

Mr. LARSEN. Yes, ma’am. The point on that is the same point. 

And that is, there is a direct relationship with reduction in appropriated costs and the impact on the dividend. And that is also an 

issue that is closely linked to consolidation. That is the way we all 

do business and our business models, our service cultures. And how 

we approach providing the services and the programs for marines 

and families and other service members and families, that is directly impacted. It has a direct impact and connection to our ability 

to provide those programs that have—and they have a direct impact on retention and readiness. 

And so consolidation I think over time would have a huge impact 

as you go from service to service on the types of family programs 

and the services that are provided. So, you know, we see that as 

a potential risk or challenge that we face. And that is if we decide 

that we are going to again explore consolidation, and we go down 

that road, there will be an impact for a number of years significantly on the dividend and on how we provide those programs to 

the service members and their families. 

Mrs. DAVIS. All right. Thank you. Thank you, Mr. Chairman. 

Mr. WILSON. Thank you, Mrs. Davis. And thank you for asking 

the questions about overseas availability. 

And I share the same personal view of Mr. Gordy. And I have 

had two sons serve in Iraq, another served in Egypt, and I have 

a fourth that will be deployed one day. And so I know how reassuring it is to our service members to be able to buy a product 

without there being an excessive charge. 

And so I want to thank all of you for being here today on behalf 

of military service members, military families, veterans, widows. 

And in particular as I think of the services you provide, we know 

firsthand. And so thank you very much for all of you being here 

today. And we are adjourned. 

[Whereupon, at 3:54 p.m., the subcommittee was adjourned.] 

A P P E N D I X 

FEBRUARY 10, 2011 

PREPARED STATEMENTS SUBMITTED FOR THE RECORD 

FEBRUARY 10, 2011 

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QUESTIONS SUBMITTED BY MEMBERS POST HEARING 

FEBRUARY 10, 2011 

(177) 

QUESTIONS SUBMITTED BY MR. WILSON 

Mr. WILSON. Currently, Armed Services Exchange Regulations authorize service 

members to purchase cars from exchanges overseas when the car is U.S. name-plated manufactured in the United States or foreign name-plated with at least 75 percent U.S. or Canadian content. Advocates for an expanded policy that eliminates or 

reduces the 75 percent content requirement argue that the international nature of 

the car industry and its parts suppliers and the impact of trade agreements such 

as the North American Trade Agreement have confused the manufacturing environment. Such advocates contend that the confusion has made the car content argument and the 75 percent content rule outdated and irrelevant in the context of the 

original objective to promote American products. 

Mr. Gordon, how valuable is this overseas car purchase benefit and is DOD inclined to seek Congressional approval to change the eligibility rules? 

Mr. GORDON. The Exchange New Car Sales Program (ENCS) dates to 1961, when 

Congress recognized the need for Service Members and their families to be able to 

purchase American made automobiles while on overseas assignments. It is a valued 

program designed to enhance the quality of life of our Service Members serving 

overseas. In consultation with the congressional oversight committees, the current 

policy in DoD Instruction 1330.21, ‘‘Armed Services Exchange Regulations,’’ states 

that ‘‘orders may be taken for U.S.-made automobiles, foreign name-plated vehicles 

with at least 75 percent U.S. or Canadian content, and motorcycles.’’ DoD is considering clarifications to the ENCS policy. Should the review determine that modifications to the content requirement are necessary, we would consult with the Committee. 

Mr. WILSON. A simple review of the math suggests that the 5 percent surcharge 

may not generate sufficient cash to support a facility recapitalization program for 

the Defense Commissary Agency. Mr. Gordon, what is the DOD perspective on the 

need to increase the surcharge? 

Mr. GORDON. While the surcharge has been 5 percent since 1983, the Department 

does not believe an increase in the rate is appropriate at this time. As such, there 

are no plans to request an increase to the surcharge rate above the 5 percent currently paid by commissary customers. 

Mr. WILSON. Are the services stepping up to pay for commissary new construction 

and expansion when justified by base realignment and closure or force restationing 

decisions? 

Mr. GORDON. Yes, generally, the Services have been very supportive in making 

BRAC and MILCON dollars available for commissary construction. However, with 

the competition for these resources, they are challenged in prioritizing funding requirements. 

Mr. WILSON. The Subcommittee received complaints that MWR activities were inappropriately engaged in providing personal information services to service members when private sector vendors were available to provide the services. Congress 

became aware of the issue when the problem surfaced as a point of friction between 

the Army and Air Force Exchange Service and Army MWR. Although Congress subsequently placed restrictions on the ability of government agencies to provide the 

services, the friction between the exchange and Army MWR continued. 

General Casella, we understand that the differences between Army MWR and 

Army and Air Force Exchange Service over unofficial information services has been 

resolved—are you satisfied with the results? Have you agreed to a schedule to transfer contracts to AAFES and establish a profit sharing plan? 

General CASELLA. AAFES and FMWRC signed a Memorandum of Understanding 

to create a telecom partnership on 23 Feb 2009, and the partnership was activated 

in Apr 2009. The partnership creates a non-competitive environment to provide common levels of Personal Information Services (PIS), and allows us to grow the business opportunity. These ‘‘unofficial’’ telecom services include for-fee Internet, TV and 

Telephone. The partnership is managed by AAFES with participation by and in coordination with FMWRC. This means AAFES will manage the providers of for-fee 

Internet, TV and Telephone services on Army installations worldwide, and continue 
178 

to deliver these services through contractual agreements with commercial providers 

consistent with current regulations and legislative guidance. 

We are pleased with how the partnership has progressed. The initial action was 

the transfer of existing CONUS Army Recreation Machine Program for-fee Internet 

locations to a contracted provider, which was completed ahead of schedule prior to 

31 December 2010. A European PIS support model is currently being developed. 

AAFES has also assumed responsibility for managing the Franchise Agreement 

process for the provision of cable TV services on post. 

Income from the partnership is distributed in accordance with the current telecom 

dividend agreement; that is, 80% to the garrison, 10% to Army MWR and 10% used 

to fund operations. 

Mr. WILSON. General Casella, it appears that after the opening of the Lifestyle 

Center at Ft Bliss that only 34 percent of the third party floor space has been occupied. What is the status of the lifestyle center at Fort Bliss and is AAFES moving 

forward with lifestyle center options at other locations? 

General CASELLA. It’s important to remember that AAFES activities occupy 62% 

of the Lifestyle Center’s available space. This mitigates risk for the project. AAFES 

activities and the leased third party space brings the overall centers occupancy to 

73%. We are on track to have the third party space 50% leased by this summer 

(81% of the overall center). We are on a leasing glide path consistent with commercial industry in today’s market. Tenants in the Lifestyle Center are performing well. 

Even more encouraging is the success we are seeing with the Lifestyle Center being 

the social gathering place for the Ft. Bliss Community. The amenities and offerings 

have created a sense of place that is positively impacting quality of life. 

We are moving forward with design of our Lifestyle Centers at JBLM and JBSA. 

JBLM is next in the queue and our intent is to seek approval to proceed on that 

project later this summer. 

Mr. WILSON. Currently, Armed Services Exchange Regulations authorize service 

members to purchase cars from exchanges overseas when the car is U.S. name-plated manufactured in the United States or foreign name-plated with at least 75 percent U.S. or Canadian content. Advocates for an expanded policy that eliminates or 

reduces the 75 percent content requirement argue that the international nature of 

the car industry and its parts suppliers and the impact of trade agreements such 

as the North American Trade Agreement have confused the manufacturing environment. Such advocates contend that the confusion has made the car content argument and the 75 percent content rule outdated and irrelevant in the context of the 

original objective to promote American products. 

General Casella, what is your perspective on this issue? 

General CASELLA. Army and Air Force Exchange Service agrees that the car content of 75 percent is outdated and irrelevant based on the globalization of the current automobile manufacturing environment. In November 2010, we forwarded a request to change DoD policy to permit AAFES to sell any automobile assembled in 

North America to authorized patrons who are stationed or assigned overseas for 30 

consecutive days or more. 

With globalization, the long standing terms U.S. name-plated, and foreign nameplated, are less clear given the Committee focus on American jobs. The current policy favored Canadian as well as U.S. industry and their workers in its part content 

standard for ‘‘foreign name-plated vehicles’’; and, the exchanges have been selling 

Canadian made automobiles for decades. Thus, AAFES believes Canadian assembly 

of automobiles, as well as Canadian assembly of parts, to be well within the Committee’s intent. In the past few years, final assembly of some traditional U.S. brands 

has drifted to Mexico. Many of the most popular models of U.S. specification automobiles that the Exchange patrons want to buy are currently assembled in Canada 

and Mexico. Without adjustment to policy wording, the Exchange New Car Sales 

Program could not offer its patrons the following models: the Ford Edge and Flex, 

the Lincoln MKX, and the Chrysler 300 and Challenger, which are assembled in 

Canada, and the Ford Fusion and Fiesta, the Lincoln MKZ, and the Chrysler Journey, which are assembled in Mexico. In addition, many foreign plated brands have 

entered the U.S. market with manufacturing plants creating jobs for the American 

workforce and we are currently restricted by the part content from offering these 

vehicle models to our patrons overseas. Our current contractors tell us that, if they 

cannot offer our overseas patrons all of the popular models of U.S. specification 

automobiles, the Exchange New Car Sales program will likely lose financial viability. 

In short, the program may collapse and the Exchange could no longer provide its 

authorized patrons overseas the opportunity to purchase quality automobiles with 

U.S. specifications at competitive prices. Therefore, if the exchanges are to continue 

to provide this valuable service to our service members and their families overseas, 
179 

it is essential that the program include all automobiles assembled in North America—to include Canada, Mexico and the U.S. 

Mr. WILSON. Currently, Armed Services Exchange Regulations authorize service 

members to purchase cars from exchanges overseas when the car is U.S. name-plated manufactured in the United States or foreign name-plated with at least 75 percent U.S. or Canadian content. Advocates for an expanded policy that eliminates or 

reduces the 75 percent content requirement argue that the international nature of 

the car industry and its parts suppliers and the impact of trade agreements such 

as the North American Trade Agreement have confused the manufacturing environment. Such advocates contend that the confusion has made the car content argument and the 75 percent content rule outdated and irrelevant in the context of the 

original objective to promote American products. 

Admiral Robillard what is your perspective on this issue? 

Admiral ROBILLARD. NEXCOM supports expanding the program, as this change 

would be beneficial to military members. The overseas car purchase program is a 

good benefit for military members and their families offered through our overseas 

Navy Exchanges and Ships Stores. 

Mr. WILSON. Mr. Jeu, a simple review of the math suggests that the 5 percent 

surcharge may not generate sufficient cash to support a facility recapitalization program for the Defense Commissary Agency. 

Mr. JEU. While the surcharge has been 5 percent since 1983, I do not believe an 

increase in the rate is appropriate at this time. With our Service Members and their 

families being asked to sacrifice so much, the stress of which has been further adversely impacted by today’s economy, I fear the additional burden caused by even 

a slight increase in the surcharge rate would send the wrong message as to the 

value we place on their service. While the ten-year projection of surcharge backlog 

was reported to be $549 million in 2008, a number of economic and policy decisions 

have caused us to revise the estimated commissary surcharge funding shortfall 

downward to $148 million. In my opinion, that shortfall is manageable and I would 

not recommend an increase in the commissary surcharge. 

Mr. WILSON. Mr. Jeu, have we reached a point where we now can see that the 

5 percent surcharge on purchases will have to be increased to ensure high quality 

stores? 

Mr. JEU. I do not believe so. While we have not eliminated the surcharge shortfall, we are able to maintain a healthy surcharge construction program. This is principally due to three factors. 

• The re-emphasis on the funding policy which called for the use of appropriated 

funds to build the first commissary on an installation and those that require 

the construction of new store or significant expansion of an existing store because of BRAC or global re-stationing decisions. 

• The change in scope of an information technology project which made the appropriate source of funding the defense working capital fund, rather than surcharge; and 

• In this economy, bids for new projects are showing reduced construction costs. 

Mr. WILSON. A recent review of products sold in commissaries revealed that some 

brand name products are only sold in commissaries and currently fail to meet the 

requirement to sell the same brand name in the private sector. The Defense Commissary Agency (DeCA) has taken action to have the vendors in question demonstrate that they meet the requirements of the DeCA brand name rules. While 

most vendors are complying with the DeCA rules, at least one has challenged the 

requirement. DeCA fears that a break with the brand name standard will threaten 

some of the advantages of a brand name system, to include: a single pricing system 

throughout the world, a simplified low cost acquisition system, and the popularity 

of brand name products with military patrons. 

Mr. JEU. We are pleased that the vendor who ‘‘challenged’’ the requirement was 

able to demonstrate that their products are carried in the commercial market place. 

Consequently, their products continue to qualify for sale in commissaries. 

Mr. WILSON. Mr. Jeu, the subcommittee understands that there is a challenge to 

the DeCA rule and the underlying law about only selling brand name products that 

are also sold under that brand in private sector markets. What is the status of negotiations with vendors that are not inclined to comply with DeCA rules? 

Mr. JEU. All products currently carried in the commissary system are in compliance with the special rule for brand name commercial items contained in 10 U.S.C. 

§ 2484(f). We determined that there were a total of 641 line items within DeCA’s 

stock assortment for which we could not positively determine that the items met the 

Title 10 requirements. In May of 2010, DeCA published a notice to industry—complete with a list of the 641 items in question—requiring manufacturers to dem-
180 

onstrate that their product were fully compliant with the statutory requirements. 

We validated that 537 of the original 641 items are fully compliant or the vendor 

requested the item to be phased out. The vendors for the 104 items that were 

phased-out on March 21, 2011, did not address the appropriateness of their product 

remaining in the commissary system. There are no outstanding issues regarding 

compliance with the statutory requirements. 

Mr. WILSON. Currently, Armed Services Exchange Regulations authorize service 

members to purchase cars from exchanges overseas when the car is U.S. name-plated manufactured in the United States or foreign name-plated with at least 75 percent U.S. or Canadian content. Advocates for an expanded policy that eliminates or 

reduces the 75 percent content requirement argue that the international nature of 

the car industry and its parts suppliers and the impact of trade agreements such 

as the North American Trade Agreement have confused the manufacturing environment. Such advocates contend that the confusion has made the car content argument and the 75 percent content rule outdated and irrelevant in the context of the 

original objective to promote American products. 

Mr. Larsen, what is your perspective on this issue? 

Mr. LARSEN. The Marine Corps supports eliminating the 75% content requirement 

and a change to the policy that would delete ‘‘U.S.-made’’ and substitute ‘‘North 

American-manufactured U.S. nameplate automobiles.’’ 

Æ