[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
THE IMPACT OF REGULATION ON U.S. MANUFACTURING
=======================================================================
HEARING
before the
SUBCOMMITTEE ON REGULATORY AFFAIRS
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
APRIL 12, 2005
__________
Serial No. 109-32
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpoaccess.gov/congress/
index.html
http://www.house.gov/reform
______
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COMMITTEE ON GOVERNMENT REFORM
TOM DAVIS, Virginia, Chairman
CHRISTOPHER SHAYS, Connecticut HENRY A. WAXMAN, California
DAN BURTON, Indiana TOM LANTOS, California
ILEANA ROS-LEHTINEN, Florida MAJOR R. OWENS, New York
JOHN M. McHUGH, New York EDOLPHUS TOWNS, New York
JOHN L. MICA, Florida PAUL E. KANJORSKI, Pennsylvania
GIL GUTKNECHT, Minnesota CAROLYN B. MALONEY, New York
MARK E. SOUDER, Indiana ELIJAH E. CUMMINGS, Maryland
STEVEN C. LaTOURETTE, Ohio DENNIS J. KUCINICH, Ohio
TODD RUSSELL PLATTS, Pennsylvania DANNY K. DAVIS, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
JOHN J. DUNCAN, Jr., Tennessee DIANE E. WATSON, California
CANDICE S. MILLER, Michigan STEPHEN F. LYNCH, Massachusetts
MICHAEL R. TURNER, Ohio CHRIS VAN HOLLEN, Maryland
DARRELL E. ISSA, California LINDA T. SANCHEZ, California
GINNY BROWN-WAITE, Florida C.A. DUTCH RUPPERSBERGER, Maryland
JON C. PORTER, Nevada BRIAN HIGGINS, New York
KENNY MARCHANT, Texas ELEANOR HOLMES NORTON, District of
LYNN A. WESTMORELAND, Georgia Columbia
PATRICK T. McHENRY, North Carolina ------
CHARLES W. DENT, Pennsylvania BERNARD SANDERS, Vermont
VIRGINIA FOXX, North Carolina (Independent)
------ ------
Melissa Wojciak, Staff Director
David Marin, Deputy Staff Director/Communications Director
Rob Borden, Parliamentarian
Teresa Austin, Chief Clerk
Phil Barnett, Minority Chief of Staff/Chief Counsel
Subcommittee on Regulatory Affairs
CANDICE S. MILLER, Michigan, Chairman
GINNY BROWN-WAITE, Florida STEPHEN F. LYNCH, Massachusetts
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
MICHAEL R. TURNER, Ohio CHRIS VAN HOLLEN, Maryland
LYNN A. WESTMORELAND, Georgia
Ex Officio
TOM DAVIS, Virginia HENRY A. WAXMAN, California
Ed Schrock, Staff Director
Erik Glavich, Professional Staff Member
Lauren Jacobs, Clerk
Krista Boyd, Minority Counsel
C O N T E N T S
----------
Page
Hearing held on April 12, 2005................................... 1
Statement of:
Duesterberg, Thomas, president and CEO, Manufacturers
Alliance/MAPI; Lori Luchak, vice president and marketing
director, Miles Fiberglass & Composites, on behalf of the
American Composites Manufacturers Association; and Sidney
Shapiro, University distinguished Chair in law, Wake Forest
University, on behalf of Center for Progressive Regulation. 55
Duesterberg, Thomas...................................... 55
Luchak, Lori............................................. 73
Shapiro, Sidney.......................................... 84
Frink, Al, Assistant Secretary for Manufacturing and
Services, U.S. Department of Commerce; John D. Graham,
Ph.D., Administrator, Office of Information and Regulatory
Affairs, Office of Management and Budget; and Governor John
Engler, president, National Association of Manufacturers... 11
Engler, Governor John.................................... 27
Frink, Al................................................ 11
Graham, John, Ph.D....................................... 22
Letters, statements, etc., submitted for the record by:
Duesterberg, Thomas, president and CEO, Manufacturers
Alliance/MAPI, prepared statement of....................... 58
Engler, Governor John, president, National Association of
Manufacturers, prepared statement of....................... 29
Frink, Al, Assistant Secretary for Manufacturing and
Services, U.S. Department of Commerce, prepared statement
of......................................................... 13
Graham, John D., Ph.D., Administrator, Office of Information
and Regulatory Affairs, Office of Management and Budget,
prepared statement of...................................... 24
Luchak, Lori, vice president and marketing director, Miles
Fiberglass & Composites, on behalf of the American
Composites Manufacturers Association, prepared statement of 76
Miller, Hon. Candice S., a Representative in Congress from
the State of Michigan, prepared statement of............... 4
Shapiro, Sidney, University distinguished Chair in law, Wake
Forest University, on behalf of Center for Progressive
Regulation, prepared statement of.......................... 86
THE IMPACT OF REGULATION ON U.S. MANUFACTURING
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TUESDAY, APRIL 12, 2005
House of Representatives,
Subcommittee on Regulatory Affairs,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room 2154, Rayburn House Office Building, Hon. Candice S.
Miller (chairwoman of the subcommittee) presiding.
Present: Representatives Miller, Brown-Waite, Cannon,
Westmoreland, and Lynch.
Staff present: Ed Schrock, staff director; Rosario
Palmieri, deputy staff director; Erik Glavich and Dena Kozanas,
professional staff members; Lauren Jacobs, clerk; Krista Boyd,
minority counsel; and Cecelia Morton, minority office manager.
Mrs. Miller. Good morning.
Welcome to our hearing this morning. Our great Nation has
just in a few short centuries developed into a society and a
culture that is envied by people around the entire globe. They
see an America that beat all the odds. They see the American
people who have been able to excel because we truly have been
the land of opportunity, a place where individuals can reach
their highest potential in many cases just by using their
creativity and because of a desire to simply work hard. And
that ingenuity and work has manifested itself in our ability to
build things, things that other people want to buy, commonly
called manufacturing. And for many years, it has been widely
acknowledged that the manufacturing industry has been a
critical component of the backbone of America. And for the most
part, government has understood that it does not create jobs.
The private sector creates jobs, but the government can help to
provide an environment that attracts business investment and
encourages job creation.
But unfortunately today, the American manufacturing
industry is under attack, and there are a number of dynamics
involved in this. And we hear stories each and every day about
good-paying manufacturing jobs that leave America for other
countries. And we see our trading partners in other countries
taking advantage of American generosity in some of our trade
agreements. We see nations that live under the blanket of
freedom and democracy paid for by American dollars and in some
cases by American blood. Today, some of those nations subsidize
their own manufacturing industries to the disadvantage of ours.
Some of these nations are clearly manipulating their currency,
again to the disadvantage of America. And many of these
countries compete against our products by producing similar
products in sweat shops or by a wage rate that is so low that
we cannot compete with that here in our country. And for these
reasons and many more, manufacturing has had a really tough go
of it lately, and the statistics clearly show that.
Our manufacturing industry is responsible for 14 million
jobs, 14 percent of the GDP, over 60 percent of all exports and
over 60 percent of all research and development spending. And
yet, in just the past few years, the manufacturing sector has
lost several million jobs, both union jobs and non-union jobs,
jobs that have provided a high quality of life for so many
Americans; that have contributed to raising the standard of
living for millions of Americans. And unfortunately, we find
that oftentimes it's our very own government, perhaps with the
very best of intentions, who has become an unwitting partner in
assisting other countries to import not just American products
but American jobs. And why? Because of the onerous burden of
excessive regulations.
Let's consider a few sobering statistics: The Small
Business Administration has estimated that the cost of
compliance of government-imposed regulations costs small
businesses as much as $7,000 per employee. The National
Association of Manufacturers has estimated that the structural
costs of American products compared with any of our foreign
competitors is 22 to 23 percent higher because of government-
imposed regulatory burdens.
And guess what? These regulations and rules were not
imposed by countries likes China or Japan. We have done it to
ourselves, and the time is long overdue for us to do a cost-
benefit analysis of many of these regulations.
Some will say that any attempts to reform these many
regulations, even just a handful of the tens of thousands of
them that exist today, will begin a decline of our standard of
living; that we in America need to set the global standard;
that even if we continue to bleed manufacturing jobs, that even
if we lose our ability to compete in the global marketplace, it
is all for the betterment of mankind and incumbent on America
to continue to shoulder the burden.
I am a defender of regulations that protect worker health
and safety. I've spent almost three decades in public office as
a principal advocate of our environment, and I think of myself
as an environmentalist. I think of myself as green. But I must
also say that I would like to have a little green in our
wallets. And I think that the common standard must always be
what is reasonable, what is rational. And that is why we are
having this hearing today.
We have an outstanding lineup of panelists today, and I
feel certain they will give us excellent ideas for improving
the Federal Government's approach to regulations that are in
place for the benefit of all Americans. And I know that working
together, we can do the right thing for workers and for the
environment while leveling the playing field and improving the
competitiveness of American manufacturers. I look forward to
hearing from all of our witnesses
today.
And at this time, I would like to recognize the ranking
member, Mr. Lynch, for his opening comments.
[The prepared statement of Hon. Candice S. Miller follows:]
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Mr. Lynch. Thank you, Madam Chairwoman. It's an honor for
me. This being the first subcommittee hearing, I want to say
how honored I am to serve with you. I want to thank you for
holding this hearing. And I want to pledge my willingness to
work with my Republican colleagues and all the members of this
committee.
Just as a matter of my own full disclosure about my own
background, especially as it relates to the manufacturing
industry, in my prior life before coming to Congress, I
actually worked for about 20 years as an iron worker and mostly
in steel erection, which has the dubious distinction of being
perhaps one of the most dangerous occupations, at least
peacetime occupations, in this country and results in more
deaths and on-the-job disabilities than almost any other
peacetime occupation. In my capacity as an iron worker, I had a
chance to work at a number of manufacturing facilities,
including the General Motors plant in Framingham, MA, as an
iron worker and as a foreman. That was before GM shifted a lot
of work into Mexico. I also worked at the General Dynamics
shipyard in Quincy, MA, as a welder. I worked as an iron worker
at the Boise Cascade Paper Mill in Rumford, ME. I worked as an
iron worker at the Shell Oil Refinery in Louisiana and also
worked at U.S. Steel in Gary, IN, and worked as an iron worker
as well at the Inland Steel Plant in East Chicago, IN.
I must say that, as a iron worker and as a shop steward, I
had far too many occasions to attend the wakes and funerals of
my fellow workers. And there is no more grim responsibility
than reporting to a family that their dad, their father who
went out to work that morning was not coming home because he
was killed on the job. So I probably have a different
perspective about some regulations that affect workers in this
country. And there are industries that actually need them and I
think work to the betterment of not only workers but also their
employers.
I do have a deep appreciation for having had the
opportunity to raise a family and earn a decent living working
at manufacturing facilities. And I understand we are under a
lot of threat, a lot of pressure from foreign competition. And
I look forward to strengthening the industry and helping it
grow. And I look forward to eliminating unnecessary burdens
through regulations that are placed on our manufacturers as
well, but we need to do it carefully and thoughtfully.
Manufacturing has a major impact on the U.S. economy, providing
jobs to over 14 million workers. The focus of today's hearing
is on the effect of regulations on the manufacturing industry.
However, this hearing is also an important focus, I think,
on the role that regulations play in protecting public health,
safety and the environment. And there are countless examples of
what can go wrong in the absence of strong regulatory
protections. The California energy crisis is one example. Lax
regulation allowed rampant market manipulation by Enron and
other energy companies that cost California over $9 billion.
Enron traders were caught on tape laughing about lying and
cheating from grandmothers.
Another example is drug safety. After evidence emerged in
the drug Vioxx, that the drug Vioxx was associated with heart
attacks and strokes in the year 2000, the FDA could not require
that the company immediately conduct a safety study nor could
the agency demand specific changes to information for doctors
and patients. And as a result, months and years went by before
key label changes were made and more detailed information on
safety became available and, finally, the drug was withdrawn
from the market in September 2004, 4 years later.
The abusive trading practices of mutual fund companies is
another example of what can happen without strong regulatory
protections. For years, mutual fund companies were engaged in
such practices, such as late trading, where certain investors
made transactions after the markets had closed for the day at
that day's prices and this allowed traders to make transactions
and reactions to new announcements that were released after the
market closed and that might affect the next day's closing
price. These late traders made profits at the expense of long-
term investors. Stronger consumer protections would have
prevented this abuse of millions of Americans who rely on long-
term mutual investments for their retirement.
A particularly egregious example came in the Massachusetts
Department of Health where we conducted an investigation that
revealed, from 1969 to 1978 in my own State, an unusual number
of children in Woburn, MA, were diagnosed with cancer, and the
cause was two companies who were dumping chemicals in ways that
were in violation of certain regulations and circumvented
others. And they allowed those compounds to reach Woburn's
drinking water.
These are just a few examples of why we need regulatory
protections. OMB should be evaluating where existing
regulations are not providing enough protection for consumers,
and instead, unfortunately today, most of these proposals are
on OMB's regulatory hit list, and they recommend weakening or
gutting existing protections.
For example, OMB includes proposals to reduce the amount of
information that the public has and companies have to report
under the Toxic Release Inventory. And we will hear today about
how such regulations like Toxic Release Inventory cost the
industry. But rather, I think we might be focusing on the cost
of regulations as well to the public who are damaged by the
lack of proper controls. I think it's important to look at the
benefits as well. The Toxic Relief Inventory provides an
enormous benefit to the public by making information available
to them about toxic chemical releases.
I want to thank the Chair for her kindness in inviting me
here today, and I want thank the witnesses for appearing here
today and offering your help to this committee. Thank you.
Mrs. Miller. Other opening statements?
I turn now to our vice chair, Representative Brown-Waite.
Ms. Brown-Waite. Thank you very much Madam Chairwoman.
She needs to be commended for having this hearing today to
assess the impact of regulation on U.S. manufacturing.
Certainly the burden of excessive and unnecessary regulation is
a hidden tax. That is really what it is. It is a weight that
drags down our Nation's economic potential. I'm eager to hear
the opinions of today's expert panelists so we can properly
assess the burden of regulation on the economy and formulate
ways that Congress can help.
Ronald Regan understood the importance of regulatory
reform. In his first inauguration speech on January 20, 1981,
he expressly stated that government is not a solution to our
problem. Government is the problem. Too often in our Nation's
past, we have looked to the government to legislate or regulate
around a problem. However, this is not always the most
efficient solution. There are always unintended side effects
that arise whenever government meddles in the workplace.
Sometimes government intervention is merited generally when
the benefits to society outweigh the cost of the
implementation. However, there are many regulations in effect
today that never underwent a cost-benefit analysis before going
into effect. As legislators and policymakers, we should never
lose sight of the consequences of our actions. Last year, the
2005 House Budget Resolution, there actually was a recognition
of the significance of regulatory reform, and let me just quote
from that language: It is the sense of this House that Congress
should establish a mechanism for reviewing Federal agencies and
their regulations with the expressed purpose of making
recommendations to Congress when agencies prove to be
ineffective, duplicative, outdated, irrelevant or failed to
accomplish their intended purpose.
There is a bill in Congress for regulatory reform because
the need is just so obvious. We know that excessive paperwork
and burdensome regulations thwart the U.S. economy and our
global competitiveness. It has been estimated that Americans
pay more than $700 billion a year to comply with regulatory
burdens. That equals to about $8,000 per household according to
a recent survey. Unnecessary and ineffective regulations crowd
out capital investment by American businesses large and small.
On the issue of regulatory reform, the States have actually
led the way. When I served as a Senator in Florida, I had the
privilege of serving on the Joint Legislative Committee on
Administrative Procedures [JCAP]. In Florida, it is a
bipartisan committee made up of House and Senate members
charged with the responsibility and also the authority of
reviewing agency rules. I think that some people at JCAP could
serve as a great model for Federal reforms. After all, article
1, section 1, of the Constitution delegated all legislative
authority to Congress and not to administrative agencies.
Therefore, I believe that Congress, the elected representatives
of the people, should lessen the regulatory burden by taking
back some of its authority that it actually has ceded over the
years to agencies. And I think we need to do that by exercising
proper oversight.
With these guiding principals, I look forward to today's
discussion and look forward to hearing from some people who
have great recommendations. Thank you, Madam Chairwoman. I
yield back the balance of my time.
Mrs. Miller. Opening statement from Representative
Westmoreland.
Mr. Westmoreland. Thank you, Madam Chairwoman, and I want
to thank you for holding these hearings.
And I want to thank the witnesses for taking the time to
come testify. And Madam Chairwoman, I'm very surprised, with
this subject that we are talking about today, that this room
isn't packed, and there aren't people standing out in the
hallway waiting to come in here and hear this testimony and
hear what we on the committee have to say, because maybe they
don't think we are serious about doing anything about this or I
promise you there would be a lot more people in this meeting
today, because this is a very serious problem we have.
And I think investigating how various regulations harm the
manufacturing industry, especially in relation to employees and
the threat to making the industry less competitive, is very
fitting to this subcommittee's first hearing, and I hope it
won't be a continuation of several hearings, but we will
hopefully take some action on this problem that we have all
identified here today.
It's no secret that the domestic manufacturing industry has
steadily lost jobs over the past few years, and we should be
quite concerned about that because we have lost approximately
2.8 million jobs. That's a problem, and it's a problem due to
our own making in the regulations that we have put on
manufacturing. After reading the Manufacturing Institute's
report and seeing that the cost to do business in the United
States has increased 22 percent because of regulations and
restrictions on all levels of government, these things such as
corporate taxation, increasing health care and pension benefit
costs, tort litigation, rising energy costs and the costs of
regulatory compliance, we need to act and need to act now.
Furthermore, the report estimates total regulatory
compliance costs for U.S. manufacturers to be $160 billion per
year. I'm anxious to hear how we are going to solve these
problems, because these are problems that you understand that
we have built on our own manufacturing due to the fact that we
continue to give agencies, government agencies, more and more
power to shepherd or over-regulate the businesses in this
country that have made our industry so great here.
I mean, come on, this is equivalent to 12 percent excise
tax on manufacturing. I'm anxious to hear what this panel has
to say and very interested in what we can do to ease these
burdens on our domestic manufacturing industry. After all, the
manufacturing sector of this country is an engine, if not the
engine, of our economy. Thank you, Madam Chairwoman.
Mrs. Miller. Thank you.
Before we begin receiving testimony from the witnesses, I
want to remind everyone that we would like you to keep your
verbal testimony to 5 minutes if you could. And in front of you
on the table, you are going to see a little box there that will
let you know when your time is up. When it lights up yellow,
you have 1 minute remaining. And when 5 minutes have expired,
the red light will appear, and we would like you to wrap up
your testimony when you see the red light come on. It is the
custom of this committee to swear in all of our witnesses, so
if you could please rise and raise your right hands.
[Witnesses sworn.]
Mrs. Miller. Our first witness that the subcommittee will
hear from is Mr. Al Frink. He is the Assistant Secretary for
Manufacturing and Services within the Department of Commerce.
Assistant Secretary Frink was confirmed in September 2004.
Prior to coming to Washington, Mr. Frink co-founded the carpet
manufacturer Fabrica in 1974 with $100,000 from the Small
Business Administration. He has been a member of several boards
and committees and has been particularly active in the Hispanic
and Native American communities. In 2004, he was inducted into
the prestigious Small Business Administration Hall of Fame.
Assistant Secretary Frink, thank you for being here.
STATEMENTS OF AL FRINK, ASSISTANT SECRETARY FOR MANUFACTURING
AND SERVICES, U.S. DEPARTMENT OF COMMERCE; JOHN D. GRAHAM,
PH.D., ADMINISTRATOR, OFFICE OF INFORMATION AND REGULATORY
AFFAIRS, OFFICE OF MANAGEMENT AND BUDGET; AND GOVERNOR JOHN
ENGLER, PRESIDENT, NATIONAL ASSOCIATION OF MANUFACTURERS
STATEMENT OF AL FRINK
Mr. Frink. I'm watching this clock. Good morning to you,
Madam Chairwoman and Ranking Member Lynch and all the other
members of the subcommittee. I respectfully ask that my written
statement be accepted into the record.
Mrs. Miller. Without objection.
Mr. Frink. I would like to thank you for inviting me here
today to discuss manufacturing and update you on the Department
of Commerce's progress on implementing recommendations from the
Manufacturing in America Report, including regulatory reform
efforts.
Two years ago, President Bush and former Secretary Donald
Evans focused directly on the issues affecting U.S.
manufacturing and competitiveness at home and abroad. Under
their leadership, 27 roundtables took place across the country
which included companies small, medium and large in various
industry sectors. The purpose of those were to solicit input
directly from a variety of manufacturers.
The results of these discussions were compiled and
published in a book called Manufacturing in America. That
report was released early last year, and it includes 57
recommendations that are intended to foster conditions that
enable manufacturers to compete in this competitive global
economy. Some of the recommendations have already been
implemented, and some of these include the following: creating
the first ever manufacturing council to represent the interests
of manufacturing; taking significant steps to protect
intellectual property rights; and of course, the newly created
position of assistant secretary of commerce for manufacturing
services.
I certainly want to thank the President for granting me
this honor and opportunity to be of service. Secretary
Gutierrez and myself have a profound appreciation for living
the American dream and considerable respect for manufacturing.
We are both immigrants and have come from humble beginnings and
directed successful manufacturing enterprises, of course with
my company being much smaller than the great Kellogg's Corp.,
together--I try to avoid the great--we bring the value of dual
perspectives. We understand as you do that the manufacturing
sector is crucial to the overall U.S. economy and its
importance in creating good jobs.
Manufacturing is often referred to as the engine that
drives the economy, as the Congressman mentioned. As such, it
should be mentioned that while the manufacturing report
reflects my marching orders, you cannot learn everything from
reading a book. Therefore, I believe it was crucial in my early
stages to go on a listening and learning tour across America to
speak with manufacturers on a one-to-one basis and understand
their concerns firsthand.
To date, I have personally visited and addressed over
13,000 manufacturers. From these travels, one common concern
was expressed. There is a need for regulatory reform. I have
seen both the positive and negative impacts of regulations in
my own business and the businesses throughout the United
States. Well-thought-out regulations can be enacted, and many
are, that minimize the cost burdens for manufacturers while
still achieving improvements to the quality of our lives.
I have also found that a vast majority of manufacturers are
very environmentally conscious. They recognize that they also
have to live in the environment they create. For example, in my
carpet company, we used to, as a matter of practice, be the
biggest user of water in the city of Santa Anna, CA, and the
water we used was all reclaimed. And yet the processes we put
into place produced water that was actually better than what
went into our facility. We used to take a little liberty and
say that it was near drinkable quality. We are very concerned
about the environment, and I found surprisingly so many
companies in my travels feel the same way. Therefore, we are
committed to working with OMB, SBA and other Federal agencies
to improve the regulatory process for business and for the
quality of life, speaking to Congressman Lynch's concerns.
To assist in this effort, we have established an Office of
Industry Analysis to provide additional analytical capacity
through a regulatory process, and we appointed a new deputy
assistant secretary to lead that effort. In addition, Secretary
Gutierrez will soon be asking fellow Cabinet secretaries to
name a manufacturing liaison from their departments to serve on
an interagency task force on manufacturing. This task force
will facilitate and coordinate a Federal approach to the
challenges facing the manufacturing sector, including the
regulatory issues.
I will close by saying, we are continuing to address the
issues affecting manufacturing and look forward to working with
you and the subcommittee to help manufacturers unleash the
creativity, hard work, and innovation that are the engine of
the American dream. Thank you.
[The prepared statement of Mr. Frink follows:]
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Mrs. Miller. Thank you very much.
Our next witness this morning is Dr. John Graham, who is
the Administrator of OMB's Office of Information and Regulatory
Affairs. He was born and raised in Pittsburgh. Dr. Graham
founded and led the Harvard Center for Risk Analysis from 1990
to 2001. Confirmed in July 2001, Dr. Graham is on leave from
the faculty at Harvard's School of Public Health, where he
taught graduate students the methods of risk analysis and cost-
benefit analysis.
Dr. Graham, good morning, appreciate your time.
STATEMENT OF JOHN GRAHAM, PH.D.
Mr. Graham. Good morning, Madam Chairwoman, members of the
subcommittee, I appreciate the opportunity to testify this
morning on the subject of regulation of the manufacturing
sector. There is, in fact, a sea of existing Federal
regulations. Let me give you some ballpark figures. Since OMB
began to keep records in 1981, Federal agencies have adopted
over 115,000 new Federal regulations. Of those, we at OMB
reviewed and cleared 20,000 of them. And of those, over 1,100
were estimated to cost the economy $100 million or more when
they were issued.
Sad as it is to say, I have to confess that most of these
regulations have never been reexamined to determine whether
they accomplish their purpose, how much did they really cost
and what were the benefits. I should also say that not all
sectors of the economy are equally impacted by this growth of
Federal regulation. We all know, for example, that in the
health care industry, physicians and nurses are heavily
impacted by Federal regulation and paperwork. But it turns out
that economic studies have shown that the sector that is most
affected, when you compare it on the measure of burden per
employee, is the manufacturing sector of the U.S. economy.
And as you said, Madam Chairwoman, these manufacturing
firms are now competing in an increasingly global economy. So
when we add additional regulatory burden that is without
justification, we are placing these companies and we are
placing jobs at risk. In the Bush administration, we have taken
modest steps to address this area. In February 2004, we
announced an open opportunity for the public to suggest reform
of manufacturing regulations. The focus in particular was on
ways to help small, medium-sized or any manufacturing firm
compete in a global economy without compromising the benefits
of Federal regulation, whether those benefits be safety,
health, environment or homeland security or otherwise. The
result of that initiative is that we received at OMB, 189
suggestions from 41 commentors. We then took those suggestions
and we instituted a process of analysis and deliberation, both
at the Federal agencies and at OMB. And I'm particularly
pleased to report, this morning, I received technical
assistance evaluating these nominations from both the advocacy
office of the Small Business Administration and our colleagues
who are here this morning from the Department of Commerce. The
result is the administration has identified 76 of these reform
ideas as worthy of further examination and action.
Now I would like to report to you this morning that the
mere designation of these 76 priorities means that they will
get done. But I have been in Washington for enough years now to
confess to you with some humility that we have a long way to go
to get these 76 reforms done. And let me explain to you why
that is. First of all, we have found through experience that
regulators find it more interesting and more exciting, if you
will, to craft new regulatory programs than to go into the
existing regulations and modernize them or streamline them. And
there can be lots of psychological reasons for why that's the
case. And in fact, many cases, the people that need to do this
work were involved in crafting those regulations in the first
place. The whole task we are talking about engaging in is not
one that is the natural inclination of a Federal bureaucracy.
Second, there is no real course to the commentors who
suggested these reforms if the agency does not get it done.
These are discretionary actions that the agencies may take, but
it is not backed up with the threat of litigation which often
exists for a new regulation where an agency may be obliged by
an act of Congress to do a new regulation or face legal threat
in the Federal courts. And then you might ask, why isn't OMB
there to make sure the agencies do their work? And I'm here to
assure you that we are here, but we are a modest organization.
And recently, as you know, cuts in staffing as a result of our
last budget, sharing in some of the downsizing that a lot of
the American economy is experiencing and our staffing resources
are modest to oversee an effort of this magnitude.
I want to conclude on a note of optimism. The 76 ideas are
modest; they are practical. They do not threaten the health,
safety and environment of our country. They do not require
congressional action, but we do however want your support. And
the agencies have committed to deadlines and milestones for
making decisions in these areas. Thank you very much for your
interest in this issue, and we look forward to working with
you.
[The prepared statement of Mr. Graham follows:]
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Mrs. Miller. Thank you, Dr. Graham.
Our next witness that the subcommittee will hear from is a
former Michigan Governor John Engler. Governor Engler is the
president of the National Association of Manufacturers, a post
he assumed on October 1, 2004. He certainly is a well respected
public official in his own right. Governor Engler served three
terms as Michigan Governor from 1991 to 2002, years I remember
very, very well. He also served 20 years in the State
legislature, including 7 years as the majority leader of the
State Senate. He was the youngest person ever elected to the
Michigan House of Representatives.
Governor Engler, we are proud to have you here this morning
and look forward to your testimony, sir.
STATEMENT OF GOVERNOR JOHN ENGLER
Mr. Engler. Madam Chairwoman, members of the committee and
your very able committee staff, I'm delighted to be here and
thank you for the opportunity to address the subcommittee about
the regulatory burden on America's manufacturers.
You have limited to me to 5 minutes in my oral
representation. I need not tell you that sort of represents
cruel and inhumane punishment for someone who has been in
public office as long as I have. We have much to say about
Federal regulation and its impact on manufacturing and changes
that we believe are needed.
I'm delighted to be with my colleagues this morning on this
panel, Mr. Frink and Dr. Graham. I, too, will submit for the
record. Let me make a couple of points though in the limited
time.
Manufacturers in the United States today are caught up in
the most competitive marketplace the world has ever seen.
Because manufacturing products are easily transported, we must
compete with manufacturers all around the world. One result is
the relentless downward pressure on prices. As a practical
matter, our members have very little pricing power. While they
can't raise prices on their products, they have to contend with
steadily rising costs of production. These are not just the
basic costs of doing business--labor, capital investment--but
also include the subject of today's session, external costs
associated with taxes, health care, regulations, litigation,
energy.
You mentioned it, Madam Chairwoman, in your opening
comments. The NAM study issued last year documented some 22.4
percent a year labor costs in manufacturing higher in the
United States compared to nine major trading partners. And Tom
Dueseterberg, his people worked directly on that study as a
partner with the NAM, and there is more detail in his written
testimony. Government regulations hit the manufacturing sector
harder than any other sector, probably due to the nature of
manufacturing that Ranking Member Lynch mentioned. It is
complicated and can be dangerous. There are environmental and
safety issues. In at least one study, and I cite that in my
written testimony, about 30 percent of the total costs of
environmental, economic and tax regulations fall on
manufacturers. Now, again, there is a recognition, some of this
is probably inevitable given the nature of manufacturing, but
our members encounter daily regulatory burdens that simply make
no sense and serve no purpose or are unnecessary. I'm going to
use three examples to make the point and talk about the
categories.
Old regulations not updated, Madam Chairwoman, I know you
are a boater and you are very good at this, so this one was
picked for you. Years ago, our--and this has been for years, we
have an affiliate, the National Marine Manufacturers
Association. They have been pleading with OSHA to update its
rules for spray finishing flammable and combustible materials
that govern application of resins that are in gel coats on new
boats. Technical but that is what manufacturing is, very high
tech. The rule now in effect dates back to 1969; conspicuously
out of date. And technically, what this means, every boat maker
using modern methods could be considered in violation of the
rule, thus subject to sanctions and fines. And in today's
liability environment, that could be an issue. Despite that,
OSHA fails to update this important regulation.
A new regulation but implemented in a questionable fashion,
the Family Medical Leave Act, which many of us supported, but
it has become a headache for some of our members because of the
abuses. One company--Ohio-based, 840 employees--reported to us
in 2004 that 221 of its employees or 26 percent claimed a total
of 4,100 workdays missed under the Family Medical Leave Act. It
is not so much the Family Leave Act, not the birth of a child,
but the medical leave portion of this, which was, as you
recall, almost an afterthought in the legislation. Family leave
is where we were headed with this originally. That same company
reported 20 employees did not return to work after exhausting
their medical leave of 1,200 days. And yet another 10 incidents
of people allegedly on leave were found to be actually
physically employed doing other work.
Conflicts, and this is conflicts here at home, sometimes
among different regions of the same agency, but this is a
conflict that deals with international conflicts. Small
manufacturers of heat-sealing equipment report to us that they
make equipment to meet specifications of the U.S. market and
specifications with the Canadian market. Despite that
commitment to compliance, when that equipment goes to Canada,
there is a physical reinspection that takes place that adds
several hundred dollars to the costs.
These are just a couple of other examples that our members
have to deal with. We can't afford to keep wasting resources in
this fashion, and I think Congress could do something about it.
And I'll close with just a final point. Sarbanes-Oxley, NAM
supported passage, and it was a way to safeguard investors and
restore confidence, but now the compliance costs have risen to
the point and studies show that nearly 6 percent of net income
before taxes is taken up by compliance. If you take 6 percent
off the bottom line, we would like to work with the
policymakers and Congress, regulatory agencies to reduce the
compliance costs there. Thank you, Madam Chairwoman. My time
has expired.
[The prepared statement of Mr. Engler follows:]
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Mrs. Miller. Thank you for your insight and thoughtfulness
on this very important subject, and I might start the
questioning here if I might.
Governor, I thought it was interesting, you used a boat
manufacturing analogy. The Federal Government has been after
boat manufacturing for some reason when they passed the luxury
tax in the late 1980's, ostensibly to get at the rich. They
almost put the entire American boat manufacturers out of
business because, of course, those that could afford a luxury
boat went to a different country and purchased one and
documented it somewhere else and brought it here. So it is not
surprising that they continue on that. And that's an excellent
suggestion that you have made or brought to light there.
Also in your written testimony, Governor, you suggested
that the role of the Department of Commerce and regulatory
review would be made in statute; actually, that it be made
statutory. I'm just wondering, if the mechanics of the process,
particularly of small manufacturers as to how they deal with
the Federal regulatory agencies, can be made a little bit more
customer-friendly or oriented? Do you have any ideas on that?
Mr. Engler. I think with Dr. Graham and Secretary Frink, we
have two leaders--I know Dr. Graham has been terrific. I think
the Commerce Department effort pursuant to the legislation
passed after the Department came out with a report about
manufacturing in America is designed to help get at that
question you're asking, and Secretary Gutierrez and Secretary
Frink are making it clear. This is something they want to do.
It is going to be a bit of a listing post, and we are excited
about being able to talk to commerce, have commerce actually
working with us to go to OIRA or go to Dr. Graham.
But I think where it gets hard after that is to get the
agencies tagged, and that is where it comes back to the
Congress, because so often in the bureaucracy, it is a sense we
can wait it out; this, too, shall pass. And in the case of the
boat regulation, it has been since 1969 that OSHA has been
asked to deal with that. They are going ahead, but why do we
have them at risk, and why do we have obsolete rules? I have
seen this in air quality with EPA, where in the competition for
a manufacturing plant expansion, one region of the country this
year went through this where a region in one part where the
costs were lower, the rate of ionization was lesser. They also
found themselves with a more favorable air quality decision out
of the Federal region than was the case back up in Michigan
where I happened to be Governor at the time. And we said look,
it's a Federal law. Which region is controlling this decision?
And today, that's often a problem, too. And when it means
dislocation of jobs or General Motors moves from Massachusetts
to someplace else, because the northeast's interpretation is
different than the southeast's interpretation, that's unfair as
well.
Mrs. Miller. It's true. We do see States sort of
cannibalizing one another, and the Federal Government sort of a
handmaiden to all of that, probably with the best intentions,
but that is the reality of the impact of that.
Dr. Graham, I thought it was interesting that it was
counterintuitive to you for some of the regulators to ever
really go back and look at what they have on their hands there
in the practical application of some of these things. You said
it might go against the very nature. But how can Congress
incentivize some of these different regulators to have an
annual review process? You mentioned the 76 different priority
reforms, which do not require legislation. They are in the rule
promulgation stages, I suppose. What can we do to incentivize
these different agencies to have an annual review to see
whether or not the cost-benefit analysis makes sense, if it's
rational or reasonable?
Mr. Graham. The fact that you are chairing this hearing and
having this hearing today on this topic and you are expressing
interest in the administration's initiative on these 76
manufacturing regulations, that is a very significant boost to
myself and the two dozen staff members at OIRA who are working
on a day-to-day basis to make sure the agencies make progress
in these areas. I want to start with the most basic answer to
you, which is, thank you for expressing interest in having this
hearing.
Looking down the road in terms of how you can further
contribute to this, we have worked out with agencies, some
would say negotiated with agencies, deadlines that are in that
list of 76 for when they would take specified actions. I
encourage you and your staff to track those, to see if we
continue to make progress on those and to make it clear that
members of this subcommittee care about whether these deadlines
are met and provide explanations if some of these are not being
met. These are very practical but very real things that need to
happen. And we need your assistance to make sure we are making
progress.
Mrs. Miller. A final question for Mr. Frink. You mentioned
that you had already visited or had contact with 13,000
different manufacturers and a common element theme that you
found in your discussions was a need to reform from all these
different manufacturers. Was there a common problem? Was there
one or two things you really found that the manufacturers kept
coming back to that just leaped off the page at you, a
regulation that they found onerous and burdensome?
Mr. Frink. Sarbanes-Oxley, Sarbanes-Oxley, Sarbanes-Oxley.
That was the most resounding plea for assistance from all
levels of manufacturing, large, medium and small. It is
especially impacting the smaller companies that don't have the
resources to comply with the requirements of Sarbanes.
Everybody agrees that the legislation/regulation has positive
aspects to it. There are just some attachments to it that have
created a burden that makes it probably almost so significant.
And I think around tax time, it has been especially resounding
that it has dwarfed any other regulatory issues in my recent
visits in the last 3 months. So I would have to say that one is
clearly at the top of the concern level. I think, beyond
Sarbanes, I didn't get specifics that I could share, just a
general concern that regulations, in many cases, as they vary
within the sectors, have tremendous impact on their ability to
remain competitive per what Governor Engler mentioned with
regard to the varying costs of doing business in this country
and that they look at that as one of their main areas of costs
that they would like assistance on in terms of reform.
Mrs. Miller. Thank you. I turn the floor over to the
ranking member, Representative Lynch.
Mr. Lynch. Thank you, Madam Chairwoman.
I want to thank you for appearing before the committee.
Dr. Graham, I actually had sent a letter over to you and
I'm hearing now that you are short on staff and that may be the
reason for it. I know that Ranking Member Waxman and I sent a
letter over requesting information regarding the whole process
that you have embarked upon in terms of all these folks that
you have met with the idea of engaging in regulatory reform,
and this committee is going to be handling a lot of that based
on what Chairman Davis has said.
And we are a bit concerned if we're going to get a picture,
a snapshot of what's going on. We want to make sure that group
is as wide as possible and reflects, not just one viewpoint,
but might be reflective of a broader spectrum so that, I mean,
let's face it, the work of this committee is sometimes, well,
all the time affected by the information we get. We want it to
be accurate. We want it to be representative of the entire
spectrum of people who are affected out there. And I guess what
I would like to know is, how are we doing with the responses to
that letter that I did send you?
Mr. Graham. We have received the letter. This is the March
24 letter? We are working on it. And we had hoped to get you a
response before the hearing and didn't quite make it. We are
still working on it, and just to give people in the room a
sense of why we might not have it yet, let me read item four
from the letter: Please provide all documents, including e-
mails, exchanges between on OIRA staff and any non-Federal
employee since January 1, 2003, related to the regulatory
process. Obviously, this has taken us awhile to figure out
exactly how we are supposed to deal with it.
Mr. Lynch. It would have been nice if you said, we got your
letter and call us up and say, we are having a problem with one
of your inquiries. We got silence. I thought maybe it got lost
in the mail.
Mr. Graham. We tried to call you Friday, but we are working
on it. But I want people to get a feel of the kind of thing we
are talking about here.
Mr. Lynch. You can look at the other questions, too, if we
are going to go over that. We would like to know basically the
groups you met with this is an initiative to change the
regulatory process. And we understand that the administration
is very committed to this, and we would like to make sure that
it's a forthright process, and there is full disclosure and
everyone gets to offer their concerns and comments regarding
this process, and it shouldn't be just slanted to one group, as
important as that group might be.
Mr. Graham. You raise an excellent point. Just to keep in
mind, the process on the manufacturing initiative, this was a
public nomination process where any group could submit comments
if they wanted to, and all the comments we have received are
posted on the OMB Web site. And our policy at OMB is to have an
open door policy for visitors from any of the groups, including
labor groups, public interest groups, environmental groups.
They certainly have an opportunity to participate. And let me
assure you, they do.
Mr. Lynch. In this round of solicitation and comment, 97
percent of the responses have been from manufacturers and 3
percent have been from everyone else.
Mr. Graham. Given who is incurring the burdens of these
regulations, you would expect the business community to be the
dominant participants. Let me assure you on your interest that
you mentioned in your opening statement on the development of
new regulations to protect public health, safety and the
environment, we do meet with frequency the groups you are
talking about on their ideas for new regulations. And they are
very aggressive and persuasive in making their case.
Mr. Lynch. We will be getting that information. And we can
talk about the feasibility of getting the information there. We
can talk about what we are looking for. Obviously, staff was, I
think, trying to cover everything that we might possibly need
in response to those efforts. Let me ask as well, the
information that we get here, we would like it to be as
accurate as possible. And I know a lot of folks come before
this committee and others citing certain studies and some
reports that say--I've heard various estimates already here of
costs of regulation. And I'm one of those folks that likes to
look at the underlying documents that generate that number,
because in a lot of cases, what I've found, these are guesses.
These are largely guesses, and a lot of them are based upon
information that was just like some of these regulations,
actually, that were gleaned back in the 1960's. I know that the
Crane and Hopkins study actually uses data that was gathered
back from the 1960's at the same time these regulations came
in. So when people offer that information and there is a
certain amount of inaccuracy in it, it's just difficult for us
to make the quality of our response as accurate as we would
like it, because we are working with very, very dated
information and, also, some information that is unsound in
terms of the process that goes through to reach the conclusion
that the report cites.
So I'm sure you are going to be a frequent flyer to this
committee; I get the sense. And I want you to know, we are
going to look at the underlying studies and reports and the
whole analysis to make sure we're basing our collective
decisions on accurate information.
And last, if I could--and I don't want to take too much
time here--but I was a little surprised that last year, 2004,
the administration actually listed some of its accomplishments,
one being the listeria rule, which it cited as being one of its
accomplishments, albeit a very modest rule, a very weak rule in
a lot of peoples' estimates, regarding one of the most
poisonous compounds that are out there. I mean, 20 percent of
those infected with listeria, based on some studies, those are
fatal. And there is tremendous danger in listeria contained in
ready-to-eat meat products and poultry that they are extremely
dangerous to pregnant women and their unborn children. So I was
a little surprised to see it on the hit list. Last year, it was
on the accomplishments list, and now it is on the hit list with
an attempt to weaken it even further. And I was a little
puzzled by that.
Mr. Graham. You can be assured, sir, that we are not
talking about eliminating this regulation. The suggestion is
ways to reduce the compliance costs of the regulation without
reducing the protection to the consumer in terms of food
safety. If you read the comments from the affected industry
that indicated that the compliance costs have proven to be much
more substantial than was projected before the regulation was
adopted.
Mr. Lynch. Let me get this right. Last year, it was an
accomplishment?
Mr. Graham. The regulation as a whole was an
accomplishment, but there are ways in which you can refine and
fine tune the regulation to achieve the same level of
protection for the consumer but at lower costs to the industry.
Mr. Lynch. I yield back.
Mrs. Miller. Thank you.
The Chair recognizes the vice chair, Representative Brown-
Waite, for her questions.
Ms. Brown-Waite. Thank you very much. My first question is
for Governor Engler. Obviously, in order to reduce the
regulatory burden on businesses, we have to get rid of some old
inefficient rules and maybe some rules that bureaucrats sort of
snuck in there. I think that was the case when we did the
regulatory reform in Florida. I believe that Michigan has
something very similar to what I described before as a Joint
Administrative Procedures Committee. And if you could briefly
describe that and the success or lack of success. But I heard
it was very successful. If you could just share that with the
committee, I would appreciate it.
Mr. Engler. During my tenure as Governor, Congresswoman, we
established an Office of Regulatory Reform. And part of the
challenge we had was that agencies, in some cases, refused to
promulgate rules that they were required to promulgate. And so
when the legislature would have fixed the statute, that wasn't
followed through in other cases. As has been described here,
sometimes it's easier to do something new rather than go back
and clean up what is. We required that a central point exists
where all agencies had to bring the rules in and you could
harmonize them to make sure that they were internally
consistent; that a new rule being promulgated in one agency
wasn't in conflict with an existing rule over in another agency
or in conflict with a pre-existing rule of the same agency.
At the same time, we said, if you are promulgating a rule
in maybe a health standard, if you're in an area of the
administrative code, then while you're there, clean up the
obsolete references, the old language. The net of this was to
reduce by more than a third the administrative code of the
State of Michigan, while I think strengthening compliance and
reducing compliance costs. All in all, it proved to be a very
effective way to get at this problem. We didn't always have the
ability to--if there were pre-existing problems to faithfully
implement the statute, we would say to the legislature, you
know, that cannot be changed by the agency, you have to go back
and change the underlying statute. And so there is a mixture of
these, and that is why the work of the committee is so
important because there is this delineation and the
classification of what are we dealing with, because they are
going to differ from agency to agency and department to
department.
The one thing that I would add, it is sort of the
environment that we are in, because this was out of today's
paper--and it's a challenge for the committee that goes right
to your mission--a little article, Business Looks to the
Panel's New Leader for Relief, entitled, The Regulators. The
Chair of the committee suggests that the problem is cost
regulation where some rules have outlived their usefulness and
cost-effectiveness.
The Chair of the committee suggests the problem is with
cost regulation where some rules outlived their usefulness,
cost-effectiveness. ``My approach is the largest room is the
room for improvement, particularly when it comes to
regulation.''
In the same article, something described as a public
interest community, which I think I am part of the public
interest community because we want to put good manufacturing
products out there.
The public interest community views the Miller regulatory
agenda as extreme. Now, I don't think it's extreme to say room
for improvement, but that's the environment--and cautions it's
mobilizing to fight business-backed initiatives that would
limit health and safety regulations or create procedural
roadblocks to regulations like sunset reviews. Now, sunset
review, if I understand that right, that terminates something--
it isn't a roadblock to enacting it. It merely says we ought to
take a look at it.
Ms. Brown-Waite. Right.
Mr. Engler. But that's how dug in--and so when Dr. Graham
puts out a call and comes in for 97 percent of the
manufacturers, that is because the status quo has 97 percent of
the rules in place, and they are happy with this bureaucracy,
but they are not trying to make a profit in today's world. So
what you are doing is real important.
Ms. Brown-Waite. Well, certainly the chairwoman and I come
from the States that, you know, took this issue on, and I think
it's our goal to make sure that the Federal Government does
that also; that we look at overlapping and duplicative
regulations that do nothing for public safety, that do nothing
for the good of the business community or even the environment,
but rather are just duplicative and outdated. I appreciate your
response. Hopefully we can accomplish the same thing at the
Federal level.
I wanted to just ask Mr. Frink one question, and that was
on Sarbanes-Oxley. I serve in the Financial Services Committee,
and I, too, have heard from small businesses about their audit
that's necessary for compliance with Sarbanes-Oxley. I was
wondering if you had come up with some suggestions to make it a
little easier for small businesses so that the accountants and
auditors don't overcomply and, therefore, drive up the cost.
That's what I am hearing from small businesses.
Mr. Frink. Congresswoman, I think that's a good question,
and it's the same question that I have posed to people that
have brought that concern to me. I felt they were in the best
position to be able to provide advice. I also recommended that
they put together a legitimate case to quantify what their
actual costs are so that we could bring back legitimate
information that would substantiate what everybody is saying.
Because I think that, speaking to Congressman Lynch, is concern
for quantification, accuracy of quantification. I wanted to
have that kind of information available so that I could come
back and then present it in a manner that would have some
teeth.
So what I would like to do is to allow me to pursue that
information gathering and report to you subsequent to this
hearing with what I think you are asking for.
Ms. Brown-Waite. May I followup? Did you give the small
businesses a timeframe to get back to you with these
suggestions? Because one of the things that I found is that in
Congress the ``we will get back to you'' becomes years. Not
only--this is only my 3rd year here.
Mr. Frink. You know, in the spirit of the meetings I had,
there was a sense of urgency. But, you know, to answer your
question honestly, no. But I will do that subsequent to this
meeting. I think it's--I have experienced the same thing. So I
will get back to those individuals and tell them, look, I think
we have a chance to really try to get some value to addressing
of your concern, I need it by this time.
Ms. Brown-Waite. Thank you, Madam Chairwoman. I yield back
the balance of my time.
Mrs. Miller. The Chair recognizes Representative
Westmoreland for questions.
Mr. Westmoreland. Thank you, Madam Chairwoman.
Governor Engler, let me thank you for bringing
recommendations to this committee for things that we can do
right now to help with our manufacturing, and I want to thank
you for doing that.
Dr. Graham, in your testimony you said that since 1981,
there have been 115,996 final rules published in the Federal
Register by Federal agencies. It says that the office looked at
a little over 19,000 of those.
When government agencies--and I apologize for my
ignorance--but when government agencies do new rules and
regulations, what process do they go through before they
actually go into the Federal Register?
Mr. Graham. Yes, sir. An agency typically will draft a
regulation, submit it to OMB and other interested agencies for
review. Then once there is a decision made to go forward with
that proposal, there is then a period of public comment.
Mr. Westmoreland. Who makes the decision to go forward? Do
you have any authority to stop any regulation put forth by an
agency?
Mr. Graham. Well, as you know, the executive branch is all
one big family, and we work together on these issues, but we do
have authority in the Presidential Executive order to ask an
agency to reconsider a proposal.
Mr. Westmoreland. But do you have the ability.
Mr. Graham. That's the authority that I have through
Executive order.
Mr. Westmoreland. Just to ask them to review it.
Mr. Graham. To reconsider.
Mr. Westmoreland. To reconsider it.
Mr. Graham. Yes.
Mr. Westmoreland. If they choose not to reconsider it, then
they can do it regardless of what you say.
Mr. Graham. Well, if they disagree with Dr. Graham, then
they can appeal that decision to my boss Mr. Bolten, the OMB
Director. And as the Executive order indicates, if there is
still a disagreement, that can go the Chief of Staff, to the
Vice President or to the President himself. But everyone in the
executive branch is working for the President, and in the final
analysis, all resolutions, if necessary, go to the President.
Mr. Westmoreland. But they--but the only thing you can do
is ask them to reconsider it. Who is the person that can tell
them, no, you are not going to implement that rule?
Mr. Graham. Well, I can be, as a starting point, by asking
them to think about it some more. But if they feel strongly
about it, and they want to continue to push it, they can appeal
that and elevate that decision above my level into the White
House.
Mr. Westmoreland. OK. I don't know if I don't understand
what you are saying or if you don't understand what I am
saying.
Mr. Graham. In the final analysis it will still be the
President's decision, the final say.
Mr. Westmoreland. OK. So he says, yes, you can, or, no, you
can't. If you ask him to reconsider it--and that is basically
you are telling them, please don't do this.
Mr. Graham. I am the person representing the President on
regulatory matters.
Mr. Westmoreland. OK.
Mr. Graham. If they don't want to deal with Dr. Graham,
then they need to get their Cabinet officer, whatever, to call
the President or the Vice President or Andy Card and work it
out.
Mr. Westmoreland. So, of these that were put on the final
registry at some point in time, the President had to say, this
is OK.
Mr. Graham. We, as OMB, and the Executive Office of the
President cleared over 20,000 of those regulations.
Mr. Westmoreland. OK. That had a cost of a little over--or
a potential cost of a little over $100 million a year.
Mr. Graham. 1,100 of them----
Mr. Westmoreland. Right.
Mr. Graham [continuing]. Had estimated costs of over $100
million a year.
Mr. Westmoreland. Do you know what the cost of the other
18,000 or so were, or were they just----
Mr. Graham. Fabulous question. I don't think anybody,
frankly, really knows the answer, because the way the Executive
order is designed is it focuses the cost estimates on the most
expensive of the regulations. But there are a large number of
less expensive regulations that aren't analyzed as seriously,
so the cumulative burden of those other regulations is, of
course, an unknown.
Mr. Westmoreland. Mr. Frink, one question for you. On page
3 of what I have in your testimony, it says you talk about the
manufacturers' report. With 18 specific recommendations
completed in less than 1 year, the Department of Commerce will
continue making progress on these recommendations and other
efforts to ensure the competitiveness of all U.S. manufacturing
businesses.
Of the 18 specific recommendations that have been completed
in less than a year, what were the total number of
recommendations--maybe I have missed it somewhere--in here?
Mr. Frink. The total are 57 initiatives from the book of
Manufacturing America, of which, when I came on board in
September, I believe there was about seven to eight of those
accomplished. So in the last 6 months there's been an
additional 10, making 18, and we have another 4 close to
completion, another 17 that are further out.
Mr. Westmoreland. Are these recommendations doing away with
some of the regulations that is only manufacturing, or
regulations--I mean, what are these recommendations?
Mr. Frink. Well, none of them would be the Office of
Industry Analysis. That is a newly formed industry or sector
within our department. That individual is a new DAS, and as a
new DAS for Industry Analysis is going to be working very close
with OMB and SBA on their regulatory process to help assist
with the information gathering, the evaluation, hopefully the
impact of regulations. So I think in that regard, some of our
best work is ahead of us.
So that signal area is probably the one that is most
focused on getting results in achieving reform with regard to
the regulatory process.
Mr. Westmoreland. But really nothing has changed as far as
the regulations on manufacturing. We have just--you have come
up with some ideas about how to judge what those regulations
really do, because I think we already know what they do.
Mr. Frink. Correct.
Mr. Westmoreland. I mean, I know that this other agency is
probably helpful, but the last thing I think we need in
government is another agency.
Mr. Frink. Well, actually I think that in this case we do.
The need for focus on regulations has not, to my knowledge,
been in place specific to manufacturing. And we have needed a
sector in the manufacturing focus that is clearly looking at
the regulatory process, and not just looking at the results,
but perhaps analyzing the process to see how we can affect
regulations, even perhaps before they become official.
So to have that focus, I don't know of any other agency or
service within government that was doing that besides OMB. So
we are adding our efforts to theirs and that of SBA. It's such
a daunting task, I think it needs as much attention as can be
given to it.
Mr. Graham. Yes, sir.
Just a quick condition, if I may, on that question.
Mr. Westmoreland. Yes.
Mr. Graham. Keep in mind that at large regulatory agencies,
like Department of Transportation, the Labor Department, the
Environmental Protection Agency, they have hundreds, sometimes
even thousands, of people who are available to work on
regulatory proposals. We at OMB have two dozen for the entire
Federal Government. The prospect of an analytic unit at the
Commerce Department that would have a couple dozen additional
analysts working on these regulations, that makes people in OMB
very optimistic about the prospects for further progress.
Mr. Westmoreland. Good. Do you think there's a possibility
that we could get a list of those 57 recommendations and the
ones that's been checked off and how many more are to go?
Mr. Frink. It would be my pleasure. I will make sure you
get followup information on that.
Mr. Westmoreland. Thank you, sir.
Mrs. Miller. In the interest of time, I will forego the
second round of questions, but I would like to recognize the
ranking member, Representative Lynch.
Mr. Lynch. Thank you, Madam Chairwoman.
Mr. Graham, if I could just come back with you a little
bit. In your statement, at least initially, from what I heard
today was that there is an attempt to draw a direct link
between the recession and job losses and the existence of
certain regulations. I am really concerned that what OMB has
done here is create a hit list somewhat of environmental health
and safety protections that industry would like to see weakened
or eliminated.
Now, what I don't understand is how OMB is making the
connection between job losses that we have seen in the last 4
years and the list of regulations that OMB is now supporting
for reform. For example, though we started seeing major job
losses in 2001, many of the regulations that I see on OMB's hit
list have been around for much, much, much longer than that,
and actually during periods of high job growth for that matter.
For example, the toxic release inventory and cleanup
requirements for PCBs, a very dangerous substance in our--
especially in industrial sites, and Title 5 of the Clean Air
Act around permitting, they have all been around for many, many
years, and yet these important environmental protections are
all targeted on OMB's hit list.
It just seems to me, now I have grappled with this for some
time, the job loss issue, and it seems to me--I mean, I visited
China, Shanghai, not long ago and talked to some manufacturing
workers in the Otis Elevator plant there in Shanghai. I asked
the technician there what he was making, what he was earning,
and he told me he gets paid about $25 a month. And I know that
my elevator constructors and the folks in that industry are
probably paid $25 an hour, at least.
I mean, let's just set aside for the moment the fact that
the Chinese worker has no freedom of expression, can't own a
home, has no solid health care, has no freedom of religion or
expression, or the right to join a union. Let's set that aside
for a moment. But given the economic reality, the labor costs,
the difference between one worker making $25 a month, our
workers making $25 an hour, shouldn't we be looking at our
trade policies and labor policies and the incentives that some
companies are given right here today in the United States to
locate jobs overseas to take advantage of that much, much
cheaper labor market?
Mr. Graham. I agree that it requires a broad-based
examination, not just regulation, but liability reform;
certainly we need to look at trade policy, and we are doing
that. There are a range of issues that need to be looked at.
But let's not deflect from the importance of just the
regulatory burden on the long-term competitiveness of American
businesses in the world economy. It may not solve the next
recession, but it helps them compete in the global economy when
they don't have unnecessary cost burdens imposed on them.
Mr. Lynch. OK. Thank you.
The other thing, I just wanted to go back to that Listeria.
I was reading my notes on the way in on the plane that actually
OMB's recommendation was to rescind the rule, was because it
was OMB's position that the benefits of the Listeria rule were
overstated. So it wasn't just--wasn't just around costs, but
that the benefits of this rule were overstated. That's in your
own report here.
Mr. Graham. Yes, page 66 of the report, the summary. There
is a summary of what the commenter suggested. There is not an
OMB recommendation.
Mr. Lynch. OK. All right. So you don't think it's----
Mr. Graham. And what the commenter has said is that--both
that the costs are more costly than USDA estimated, that's line
3; and you are correct, they also say that the benefits were
overestimated.
Mr. Lynch. Right. The benefits----
Mr. Graham. So you are actually making both arguments.
Mr. Lynch. Yes. So you don't believe----
Mr. Graham. The USDA is now in the process of reexamining
those in light of the comments made on the interim final rule.
Mr. Lynch. OK. But is that your, OMB's, position----
Mr. Graham. No. In fact, I think I was clarifying for you
is that language on page 66 is the language of the commenter,
not the language of OMB.
Mr. Lynch. OK. I want to be certain.
Mr. Frink, Graham and Engler, I want to thank you both as
well. Although I haven't really bothered you as much as well, I
want you to know I really do appreciate your working on this
issue, and we will have to grapple if we are going to solidify,
stabilize the manufacturing industry in this country, and I
appreciate all of your work on that effort.
Thank you. I yield back.
Mrs. Miller. Thank you very much. I certainly sincerely as
well thank all of our witnesses, our panelists, for being here
today. It's been very interesting for us.
This is a committee that does look to improvement,
certainly. I don't think that's a radical agenda. In fact,
something that might be a radical example of Federal Government
regulations, this morning we are talking about manufacturing,
and sometimes we think of heavy industry or what have you in
manufacturing. But other things are being manufactured, like
bread. And it's interesting, talking to the American Bakers
Association, that the Federal Government has regulated
breadmaking to the extent that they think that the smell of
fresh-baked bread is smell pollution, and it has to be
regulated out of existence. So you can't have that fresh smell
any more.
But I think that might be a little extreme agenda, but we
do, as I say, want to continue to examine or explore, do what
is right for all of the workers of America, and our environment
as well. I certainly think that we can do so working together.
Governor Engler, do you have a final comment, sir?
Mr. Engler. One last thing, Madam Chairwoman, to submit for
the record that addresses something that Ranking Member Lynch
mentioned earlier in terms of the freshness of studies. This is
a 2003 study. A reference has been made to it in your comments
and some of my testimony, about how structural costs imposed on
U.S. workers can harm workers' competitiveness. A lot of the
source documents are in here with the graphs and the
attributions so that you can go right to the source and go
through that to seek verification of the data. And it's a
wonderful study and quite authoritative, I think, that gets to
the work of the committee.
Thank you for your time.
Mrs. Miller. Thank you all very much. At this point we will
just take a few minutes recess for this panel to take their
spots. Thank you again.
[Recess.]
Mrs. Miller. I will call the meeting back to order here. I
am interested to hear from our next panel of witnesses. Again,
it is the committee's desire that we swear you all in. So if
you could all raise your right hands, please.
[Witnesses sworn.]
Mrs. Miller. Thank you very much. We appreciate that.
Our next witness the subcommittee will now hear from is Dr.
Thomas Duesterberg. Dr. Duesterberg is president and CEO of the
Manufacturers Alliance. The alliance has more than 425
corporate members engaged in manufacturing and business
services, and conducts economic and policy research relevant to
its membership.
Doctor.
STATEMENTS OF THOMAS DUESTERBERG, PRESIDENT AND CEO,
MANUFACTURERS ALLIANCE/MAPI; LORI LUCHAK, VICE PRESIDENT AND
MARKETING DIRECTOR, MILES FIBERGLASS & COMPOSITES, ON BEHALF OF
THE AMERICAN COMPOSITES MANUFACTURERS ASSOCIATION; AND SIDNEY
SHAPIRO, UNIVERSITY DISTINGUISHED CHAIR IN LAW, WAKE FOREST
UNIVERSITY, ON BEHALF OF CENTER FOR PROGRESSIVE REGULATION
STATEMENT OF THOMAS DUESTERBERG
Mr. Duesterberg. Madam Chairwoman, thank you for having me
here today. I want to commend you and Mr. Lynch for holding
this hearing on regulation on U.S. manufacturing.
As you mentioned, I represent the Manufacturers Alliance,
which is a 501(c)(6) organization devoted to economic research
and executive development.
My remarks draw on a number of our studies issued in the
last few years, and I want to try to do something a little bit
different today, which is to do basically two things: To put
into context the competitive situation of the manufacturers,
especially with regard to the international competition and the
cost pressures that affect manufacturers, and to address a few
of the larger issues of regulation, which sometimes are
forgotten in the effort to deal with these 100-and-some
thousand regulations that Mr. Graham mentioned earlier this
morning.
I have a few charts and graphs that I will--your staff is
going to help me with as I go through this. But what I wanted
to do today is first call attention to a gradual decline in the
performance of the manufacturing industry, starting somewhere
in the late 1990's.
First, we note that, if we could put the first chart up,
there had been a certain consistency in plant openings and
closings in the manufacturing sector dating back about 40
years, and our research, drawing on the Commerce Department,
indicates that there was a break in this.
This is the--can't see it very well, but the bottom line,
bottom two lines, show that the number of plant closings has
remained steady over time, but the number of plant openings
started to trend downward in the late 1990's. About 10,000
plants each year that would have been opened were not opened.
If you look at hiring and firing in the manufacturing industry,
that trend is the same. So there's been a trend downward in the
annual spurts of entrepreneurship, if you will, affecting all
manufacturing.
Second, and if we could go to the second slide, this is
also reflected in the profit margin, this is--especially of
durable goods manufacturers. Again, these profits have been
highly cyclical, but durable goods tended to run a little bit
less than the nondurable goods manufacturers for a number of
years. But in the late 1990's and in this decade, they have
trended downward again and have not recovered to the extent
they should have at this point in the recovery.
The third thing I would mention is that everyone is
familiar with the trade numbers--and again, we had numbers come
out again this morning--which were the worst trade deficits in
U.S. history. And it affects especially the goods-producing
sector, whether--it's between $600 billion and $700 billion in
deficit each year.
Again, if we could go to the next slide, this shows the
percent of domestic output that goes to exports, which is the
bolder blue, and the lighter blue is the percent represented by
imports, and the import number keeps going up and up. It is now
35 percent of domestic consumption, pardon me, and as our
exports have trended downward since about 1997.
So how to explain this. The growth in international
competition is certainly a major explanation of this, but the
role of cost pressures, which Governor Engler mentioned, which
Madam Chairwoman mentioned in your opening statement, also is
important.
And if we could go to my final chart, which is really a
summary of our costs study, which we did a couple of years ago,
it indicates that if you take unit labor costs, which are
adjusted for productivity, compare it with our nine leading
trading partners, everyone from the advanced countries like
Germany and France to China and Mexico, there's about a $5-an-
hour wage differential. And, again, this is corrected for
productivity and for capital inputs.
U.S. productivity has been so good that over the last 12
years unit labor costs have actually declined in the United
States, but nonetheless, we have been unable to keep pace. Part
of reason for this we think is the structurally imposed costs.
We were able to calculate on a comparative basis corporate
taxes, employee benefits, tort, natural gas costs and pollution
abatement costs. When all of these are averaged out for our
nine leading trading partners, it shows that this subtracts
about $3 an hour from their costs. And so this averages out to
a 22 percent increase in the cost of domestic production.
I focused them on four separate areas of regulation which I
think merit the attention of this committee. Energy, especially
natural gas, where, for the last decade or so, we have
encouraged consumption and discouraged production. We believe
that easing up on the ability to import LNG is a near-term
solution to this problem which has affected especially the
chemicals and fertilizer industry. We have lost 100,000 jobs in
the chemicals industry, partly as a result of our higher
prices.
I focus on the telecom industry, where even though we
have--the language of deregulation has been used, we have--the
regulatory bar in Washington, DC, has grown by 73 percent since
the deregulation bill. Again, the industry has declined by a
third in terms of employment because of--partly because of
overregulation. They think we need to pay attention to that.
The third thing I have mentioned in the testimony is the
costs of Sarbanes-Oxley. We have done a number of studies of
our membership, the most recent of which was a survey of CFOs
of our member companies. We found that the costs, all end costs
of Sarbanes-Oxley Section 404 compliance, total almost 6
percent of net income before taxes. And this excludes companies
that are not making money, so it's probably an understatement.
We think that is probably an example where we can do better in
terms of our regulation, and we offer a number of constructive
suggestions for improving the way Sarbanes-Oxley is
implemented.
Finally, I wanted to call attention to the new phenomenon
of regulation through litigation. The practice involves the
employment of private trial lawyers by State and local
governments who conduct a coordinated litigation effort against
an entire industry purportedly for the purpose of attacking
serious public health and safety problems.
We think that regulation should be accomplished, as our
Constitution indicates, by the Congress of the United States or
by State legislatures, not by the judicial branch. This problem
could rise to more importance as the targets of the litigation
go from politically disadvantaged industries like tobacco and
firearms to the auto industry, the pharmaceutical industry and
the food industry.
So all in all, Madam Chairwoman, we think that we need to
pay attention to the regulatory costs in this increasingly
competitive global environment, because it impairs the ability
of American firms to compete against the Chinas, the Indias and
even the Mexicos and Canadas of this world.
Mrs. Miller. Thank you very much.
[The prepared statement of Mr. Duesterberg follows:]
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Mrs. Miller. Our next witness this morning is Lori Luchak.
She is the vice president and marketing director for Miles
Fiberglass & Composites in Portland, OR. Mrs. Luchak is
testifying on behalf of the American Composites Manufacturing
Association, which is the world's largest trade association
representing the composites industry.
Miles Fiberglass & Composites is a family owned corporation
founded in 1963 with plants in Portland and Oregon City. In
2003, Oregon Business Magazine scored Miles Fiberglass one of
the top 100 best companies to work for.
Mrs. Luchak, we certainly want to thank you for making the
trip to Washington, DC, this morning. The committee welcomes
you and looks forward to your testimony.
STATEMENT OF LORI LUCHAK
Ms. Luchak. Madam Chairwoman and members of the committee,
thank you for the opportunity to testify today.
Miles Fiberglass & Composite employs 60 employees in our
two plants located in Oregon. Our company manufacturers
component parts for the RV and light rail train industry. I am
here representing the 1,000 member companies of the American
Composites Manufacturers Association.
Our industry supported the recent OMB initiatives to
identify specific regulations needing reform to lessen
unnecessary burdens on manufacturers. Of the 76 regulations
identified by OMB and Federal agencies as justifying reform
measures, several directly or indirectly impact the composite
industry.
Beyond these targeted efforts, we would like to suggest
some general principles for rulemaking that the committee might
consider in its oversight of their regulatory process. These
general principles are drawn from our efforts over the years to
work in partnership with the government agencies to protect the
health of our workers and neighbors.
First, industry and other stakeholders should be given a
seat at the table very early in the development of any
regulation, policy or determination. Stakeholders often have
data on feasibility, health impacts, control options, energy
use, cost and other factors, or can readily develop such
information that can play a key role in shaping the early
development of rules, policy, or determinations. But too often
we find that agencies are already well along the way before
they sit down with us and start accepting our input. At this
point, agencies have spent months or years developing narrow
approaches based on lesser-quality data, analyses, viewpoints
and assumptions.
Our information, if brought into the development process
from the start, can result in better decisionmaking and more
efficient regulatory development. When stakeholders are brought
in only late in the development process, we run the risk that
the agency will argue that it is not able to consider our
suggested alternative approaches because their regulatory
schedule does not allow them to back up and collect the
necessary data or do the needed analysis in time for the
required decision.
Second, development of rules, policy, guidance or
determination should be managed transparently. By this we mean
that all the data and analyses that may be relied on by an
agency should be made available for stakeholders' review as
early as reasonably possible. Further, all decisionmakers and
peer reviewers who may be involved should be identified and
stakeholders allowed a reasonable opportunity to present data
analysis and other information to these decisionmakers and
reviewers. There should be no black boxes; that is, no data or
decisionmaking processes that are not open to at least some
level of reasonable stakeholder input.
Agencies often argue that the integrity of the system
requires them to keep stakeholders less involved; however, we
believe the opposite is true. Without the opportunity for a
meaningful and open stakeholder involvement, the integrity of
the decisionmaking process is often compromised.
Third, regulatory agencies should embrace the use of best
quality data at every stage of developing rules, determinations
or policies. This should include internal checks on data
quality as well as timely opportunities for stakeholders to
informally appeal quality decisions before poor quality data is
used to prepare and justify preliminary or draft agency
decisions. Finally, agencies should be more willing to take
responsibility for full economic and societal impacts of
regulatory actions and determinations.
Efforts by regulators and government health scientists to
consider the economic, competitive and other broad impacts of
proposed rules, policies or determinations are often precluded
by narrow program objectives, or are no more than meaningless
``check the box'' responses to OMB or congressional directives
completed after the key decisions have been made. These impact
assessments can be difficult and time-consuming, but actions
promulgated without considering these impacts can needlessly
result in severe damage to our ability to make products and
provide employment.
To summarize, our experience has shown that adoption of the
following principles would result in a more effective
partnership of government and industry to protect the public
health: A seat for stakeholders at the table early in the
regulatory process; a transparent development process, with
stakeholders given a reasonable opportunity to present data and
discuss regulatory options; a clear commitment to using the
best available science and making decisions with an opportunity
for stakeholders to point out where they believe the commitment
is not being fulfilled; a meaningful commitment to understand
the economic and societal impacts of all decisions before
decisions are made to pursue them; and improvements in the
openness of the scientific health assessment processes of the
Federal agencies, and efforts to coordinate their reviews and
avoid overlap and duplication.
These are the principles that in our small way we are
attempting to express and promote in our interactions with
these regulatory agencies in the context of specific ongoing
assessments and regulations about which we are concerned.
However, we hope that because these principles are of a wider
scope, they may be helpful to the committee in framing its
oversight and any possible legislation or guidance to the
regulatory agencies and the administration as a whole.
Our industry is proud of our record of working both
independently and in partnership with regulatory agencies to
protect the health of our workers and neighbors. Our industry
sponsored a thorough review of health risks by the Harvard
School of Public Health in 2002, and we comply with the
recommendations made by the Harvard panel. Our industry also
voluntarily negotiated with OSHA to establish a recommended
occupational exposure limit well below the official OSHA limit.
And we continue a 15-year, $15 million history of conducting
state-of-the-art research to make sure we fully understand the
health risks that may result from our operations.
I appreciate the opportunity to deliver these comments to
you today, and we would welcome any requests by this committee
for assistance in helping to improve the regulatory climate for
manufacturers in America while still protecting the health of
our employees and neighbors.
Thank you very much.
Mrs. Miller. Thank you so much.
[The prepared statement of Ms. Luchak follows:]
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Mrs. Miller. And our last witness today is Sidney Shapiro,
distinguished Chair in law at Wake Forest University. Mr.
Shapiro is testifying on behalf of the Center for Progressive
Regulation, which is an organization for which he is a member
of the board.
The Center for Progressive Regulation is a nonprofit
research and educational organization of university-affiliated
academics with expertise in the legal, economic and scientific
issues related to regulation of health, safety and environment.
Mr. Shapiro.
STATEMENT OF SIDNEY SHAPIRO
Mr. Shapiro. Thank you, Madam Chairwoman. Many Shapiros,
but I am a Shapiro.
For the last several years, OMB has invited nominations of
regulations that should be reformed. Lately it sought to
justify this process on the ground that regulation makes U.S.
business less competitive. The scholarly literature, however,
provides little or no support for the conclusion that such a
tradeoff exists.
Academic scholarship has focused on the impact of
environmental regulations on plant location decisions and on
trade flows. Neither type of study supports a link between
regulation and competitiveness. The leading study in the field
states that there is ``overall, relatively little evidence to
support the hypothesis that environmental regulations have had
a large adverse effect on competitiveness, however that term is
defined.''
This result should not be surprising for two reasons.
First, compliance costs are only a very small percentage of the
total value of shipments made by manufacturers. Pollution
abatement costs, for example, average less than 1 percent of
the total value of manufactured goods in the United States.
Industry sectors with high abatement costs pay less than 1\1/2\
percent of the value of shipments. Second, many claims about
regulatory costs are suspicious because they rely on cost
estimates that come from industry sources that have an
incentive to overstate the costs for regulatory and public
relations purposes. OSHA itself, in its latest report, admits
that existing economic studies do not establish a
competitiveness regulatory tradeoff. Its response is that
manufacturing industries have disproportionately higher
regulatory costs than other industries. But manufacturers are
also responsible for a larger portion of the environmental and
occupational safety and health problems in the country.
The government should look back at existing regulations,
but this should be done as part of an overall priority-setting
process that includes an evaluation of when and whether
additional regulation is also necessary and appropriate.
Instead, OMB's process unbalances how regulatory priorities are
set in the Federal Government in favor of the pet projects of
certain industries.
While 85 percent of the reform nominations were made by
industry, as we have heard, 15 percent were submitted by public
interest groups. But on the final list approved by OMB, 97
percent of the reforms were industry-sponsored, and a paltry 3
percent were from the public interest community.
Instead of an ad hoc process, OMB should require agencies
to consider regulatory reform requests in the context of an
agency's annual regulatory plan. This plan gives an agency the
opportunity to place such requests to modifying regulations
within the hierarchy of all agency business and give
appropriate priorities to all agency business.
OMB also seeks to justify its nomination process as
necessary to protect the small business community. While the
small business community is deserving of special consideration
from regulators, it already receives such consideration through
existing exemptions and protections. More importantly, perhaps,
very few of the final OMB hit list recommendations appear to
address small business concerns. Of the 71 final reforms, only
11 purport to focus at all or in part on small business.
Finally, no one should object to an effort to make it less
costly to meet existing levels of regulation, assuming that the
changes lead to the same level of regulatory protection. Some
of the nominations address this objective. Many of the
nominations, however, seek to reduce the level of regulatory
protection of people and the environment.
At the same time, OMB has almost entirely disregarded the
nominations and ways to improve such protections as I have
stated earlier.
I thank you for the opportunity to testify.
Mrs. Miller. Thank you very much.
[The prepared statement of Mr. Shapiro follows:]
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Mrs. Miller. I have a question for Ms. Luchak, if I might.
I was interested to hear you speak for the need for
transparency from some of the agencies as they are going
through their process there. And I thought you were sort of
indicating that some of these decisions are essentially being
made almost behind closed doors, I suppose, when they are
bringing forth all the different information gathering. It
certainly creates uncertainty, I would imagine, for your
industries and others.
Do you think that the process negatively impacts your
ability as an industry to be creative--I am sure you are always
very innovative and looking for new processes and new types of
products within your industry. Does rulemaking impact that
negatively by not having transparency about the kinds of things
they are looking for?
Ms. Luchak. Yes. I believe that we know our industry is the
best, and there may be input that we could provide before they
get well along the way that could, you know, be very helpful
in, you know, making up a rule. I know with Title 5, you know,
the first thing they thought of was putting after-burners on,
but within our industry, we knew there was a lot of other
things that could be done, like low styrene resin is possible,
which did come about. Controlled spray really reduces
emissions. There are a vast amount of things that you can do
that--you know, just by not being in the industry you would be
unaware of.
Mrs. Miller. Thank you.
Dr. Duesterberg, if I could, and as we talked in this
subcommittee hearing today, we keep going back to the 22 or 23
percent of the structural costs for the manufacturing industry
in America, and a lot of different dynamics, as you mentioned,
are in that study, certainly, besides regulation. And you
mentioned here that regulation by litigation is sort of a
creeping phenomena, and I think you said that you have had some
experience, I guess what I am asking, if you could cite
examples, are there some States that there are locals,
municipalities, that are actually hiring these trial attorneys
to try to rulemake themselves in this way? That's the first
time I have really heard of this phenomena, as you say,
regulation by litigation. So I am interested to know what you
mean by that.
Mr. Duesterberg. Well, the gun industry is the current
target. There have also been cases with regard to the food
processing industry, which you mentioned. There have been cases
with regard to the pharmaceutical industry as well.
The point that we would like to make is simply that this
bears a lot of scrutiny on the part of the Congress. None of
the gun industry suits so far, as far as I know, have
succeeded. None of the fast-food industry cases, as far as I
know, have succeeded. But there's a lot of money on the part of
the trial bar to invest in cases like that, and they are so
investing.
So I think it just bears watching on the part of the
Congress, especially since I believe it involves the
jurisdictional issue, if you will, that you should be aware of.
Mrs. Miller. I appreciate that. Actually the House did pass
some legislation in regards to the gun industry, as you were
speaking of that. And in regards to the food industry, I think
we call it the cheeseburger bill, where you had a--we had quite
a bit of consternation, certainly expressed on behalf of the
restaurant association.
You also mentioned different regulatory costs associated
with several key elements. You mentioned energy,
telecommunications, corporate governance. I am just wondering,
of the three, do you have any idea of or observation of which
of them you think might present the greatest challenge to the
manufacturing industry?
Mr. Duesterberg. Well, Assistant Secretary Frink mentioned
Sarbanes-Oxley. That's certainly on the radar screen of almost
every senior management executive today, because they are
having to come into compliance, and it's taken a good deal more
of their effort and time than they had anticipated, as well as
money. And also the guidance given by the PCAOB and the Big
Four audit firms has been internally inconsistent, and so they
frequently will have problems knowing exactly what the standard
is that they are supposed to meet.
But that being said, I think the other major issue is
natural gas costs. We have tripled natural gas costs in this
country since the late 1990's. Again, it's partly because of
the increase in demand, but demand use in natural gas was
favored for a number of regulatory actions; production was
constrained.
There are certain industries, chemicals, plastics, glass,
paper, fertilizer industry, which have been severely hit
because they use some gas as a heat source, but also as a
feedstock in many cases. This is an issue that I think can be
addressed, and there are ways to meet the increased demand.
There could be substitution, for instance, of other energy
resources for electricity production, because one of the major
areas of increase for natural gas use has been in the
production of electricity. So if we could figure out ways to
move electricity into other sources, both traditional like
nuclear and coal, but nontraditional wind energy, for instance,
as well, then that would be very helpful to this case. And I
mentioned the regulation of the siting of LNG import facilities
is something we think could be of immediate assistance.
Mrs. Miller. Well, the energy bill, as you know, will be
coming to the floor of the House, I think, next week, perhaps,
I am not quite sure, but soon, and it's interesting, as you
mentioned--I know we are talking about regulation today, but in
my State of Michigan, I don't think we have had a new
electrical grid built there for over 20 years because of some
of the different situations that we have had.
In fact, again, I know we are talking about regulation, but
my final question would be to you, you did mention about a lot
of the different challenges from some of the other countries,
China, India, some of these emerging nations, with their
manufacturing sector. In Michigan, actually, our largest
trading partner is Canada. It's our largest trading partner. We
have a lot of consternation about how NAFTA is being enforced.
I just wonder as an association whether or not you have any
observations about some of the trade agreements that we have,
how that might impact some of the regulatory burdens that we
have, or if you have taken any positions on some of the
upcoming trade agreements, or generally are we enforcing our
trade agreements as we should be?
Mr. Duesterberg. Well, we are generally in favor of trade-
opening measures. That being said, it is important for our
trading partners to enforce the obligations which they take on
in joining these agreements. That has not always been the case.
We focused a lot on China because it's the growing source of
competition, and there are clear examples which the Trade
Representative chronicles each year; it took 60 pages, I think,
to go over China in their annual report to the Congress. They
haven't enforced their intellectual property rights, some of
the rights of companies to set up operations, distribution
operations and the like.
With regard to Canada, I don't have any specific examples
where I think there is a major issue there. There are irritants
of all sorts, but these are being litigated through the NAFTA
dispute settlement procedures and sometimes the WTO. So I think
we are addressing those issues that we had with Canada. We
should probably be doing more to address issues with China and
some of the other trading partners.
Mrs. Miller. Thank you.
I will recognize the ranking member, Representative Lynch.
Mr. Lynch. Thank you, Madam Chairwoman. I just want to
thank each of you for your testimony here this morning.
Dr. Duesterberg, actually, I am right in the middle of a
process now trying to get an LNG facility, an offshore
facility, approximate to Boston Harbor, which I represent, so I
can certainly understand and agree with your assessment of that
whole process. It's been painful.
Ms. Luchak, I think you have come up with some very solid,
rather straightforward proposals in terms of having a seat at
the table early on, and having a transparent process, and
having accurate information, things that I believe could really
help this process, and I want to thank you for taking your time
to testify today, and I think you added a lot to the hearing.
Mr. Shapiro, I do want to ask you a couple of questions. As
someone who worked, has worked, for 20 years in the
manufacturing industry, isn't there a reason that I heard a lot
of complaints today, or concerns today, about the heavy level
of regulation in manufacturing? But considering my
surroundings, when I worked at U.S. Steel and Inland Steel, and
working at blast furnaces, and even working at, you know, a
General Motors facility, isn't there a reason that, you know,
the regulations regarding worker safety and environmental
impact are targeted in some respects more to manufacturing than
to clerical or any other industries?
Mr. Shapiro. Certainly, Congressman, it is among our most
dangerous industries in terms of occupational health and
safety, along with logging and construction. And that's
actually part of a more general problem.
Certainly these cost figures are overwhelming. They are
staggering, indeed, when you look at the amount of cost of some
regulations, and that should give us pause. And if we can find
cheaper ways to do things, by all means we ought to do it. But
under an economic methodology, one would also have to look at
the benefits which are generated by these regulations, and
that's the trouble with these figures about how much money the
manufacturing industry is paying in terms of regulatory costs.
You also have to compare that to the regulatory benefits.
Now, OMB, in its draft 2005 report to Congress, totals up
aggregate benefits of all regulation and aggregate costs. And
aggregate benefits, OMB says, are somewhere between $12.6 and
$108 billion as against the regulatory costs of $3.8 to $4
billion. So there's enormous aggregate benefit that the
American public and the environment get from these regulations.
Now, that doesn't mean that individual regulations are
necessarily reasonable or sensible. We do need to look at
individual regulations. But over all, we get enormous benefit
for these many, many dollars that we also have to pay.
Mr. Lynch. Thank you.
The last question, actually, follows up on that. We are
responsible here with trying to assess what the costs and
benefits are, and a lot of the information that we get in terms
of studies and reports are somewhat outdated, and I spoke of
that with the earlier panel. This Crane and Hopkins study, I am
not sure if you are familiar with that.
Mr. Shapiro. Yes.
Mr. Lynch. It is one of the older ones. Do you agree
because they are the ones you speak of who make this aggregate
cost estimate, do you see underlying problems with that
particular study?
Mr. Shapiro. This is very hard to do. OMB itself does a
Herculean task to try to report to the Congress each year its
own costs and benefits, and in the course of doing that, they
explain time and time again the difficulty of coming up with
these figures.
Professor Hopkins' figures have been around for a long
time, and OMB has already said that it basically can't use them
when it itself tries to attempt to collect these costs and
benefits, because they are drawn from various sources, and they
are very general.
The other problem with them is there is a group of figures
dealing with paperwork costs, dealing with tax compliance
costs, dealing with regulatory costs, even dealing with
transfer costs, like farm subsidies. So it's very hard to pick
out of these figures, for purposes of blaming one thing, which
of these various sources are feeding into that. So I think they
have tried to do their best, but this is at best a guess, I
think, by them as to these totals.
Mr. Lynch. OK. Thank you, Mr. Shapiro.
Mrs. Miller. Thank you very much.
I certainly again want to thank all the witnesses for their
wonderful testimony and their input. It is a very complicated
issue, and certainly as the committee and the Congress
struggles forward, tries to move forward positively, we want to
continue to create an environment where we can have--
incentivize business to invest and to create new jobs, etc.,
here in the American manufacturing industry, and we look at how
these regulations certainly impact manufacturers, both
positively and negatively.
So again we thank you very, very much for your testimony,
and with that, we will adjourn the meeting.
[Whereupon, at 12:06 p.m., the subcommittee was adjourned.]