[Senate Hearing 109-206]
[From the U.S. Government Publishing Office]
S. Hrg. 109-206
U.S.-E.U. REGULATORY COOPERATION ON EMERGING TECHNOLOGIES
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HEARING
BEFORE THE
SUBCOMMITTEE ON EUROPEAN AFFAIRS
OF THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
MAY 11, 2005
__________
Printed for the use of the Committee on Foreign Relations
Available via the World Wide Web: http://www.access.gpo.gov/congress/
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COMMITTEE ON FOREIGN RELATIONS
RICHARD G. LUGAR, Indiana, Chairman
CHUCK HAGEL, Nebraska JOSEPH R. BIDEN, Jr., Delaware
LINCOLN CHAFEE, Rhode Island PAUL S. SARBANES, Maryland
GEORGE ALLEN, Virginia CHRISTOPHER J. DODD, Connecticut
NORM COLEMAN, Minnesota JOHN F. KERRY, Massachusetts
GEORGE V. VOINOVICH, Ohio RUSSELL D. FEINGOLD, Wisconsin
LAMAR ALEXANDER, Tennessee BARBARA BOXER, California
JOHN E. SUNUNU, New Hampshire BILL NELSON, Florida
LISA MURKOWSKI, Alaska BARACK OBAMA, Illinois
MEL MARTINEZ, Florida
Kenneth A. Myers, Jr., Staff Director
Antony J. Blinken, Democratic Staff Director
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SUBCOMMITTEE ON EUROPEAN AFFAIRS
GEORGE ALLEN, Virginia, Chairman
GEORGE V. VOINOVICH, Ohio JOSEPH R. BIDEN, Jr., Delaware
LISA MURKOWSKI, Alaska PAUL S. SARBANES, Maryland
CHUCK HAGEL, Nebraska CHRISTOPHER J. DODD, Connecticut
LINCOLN CHAFEE, Rhode Island RUSSELL D. FEINGOLD, Wisconsin
(ii)
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C O N T E N T S
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Page
Allen, Hon. George, U.S. Senator from Virginia................... 1
Duffy, Joseph E., vice president, SAP Public Services, Inc.,
Washington, D.C................................................ 51
Prepared statement........................................... 53
Harper, Stephen F., director, environmental, health and safety
policy, Intel Corporation, Washington, D.C..................... 34
Prepared statement........................................... 37
Hassell, John D., director, federal and state government affairs,
Hewlett-Packard Company, Washington, D.C....................... 28
Prepared statement........................................... 30
Klaessig, Dr. Frederick C., technology director, Aerosil and
Silanes Business Unit, Degussa Corporation, Piscataway, New
Jersey......................................................... 41
Prepared statement........................................... 42
Miller, Harris, president, Information Technology Association of
America........................................................ 4
Prepared statement........................................... 7
Patton, Thomas B., vice president, government relations, Philips
Electronics North America, Washington, D.C..................... 21
Prepared statement........................................... 24
West, Frances W., worldwide director of Accessibility Center, IBM
Corporation, Cambridge, Massachusetts.......................... 45
Prepared statement........................................... 47
(iii)
U.S.-E.U. REGULATORY COOPERATION ON EMERGING TECHNOLOGIES
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Wednesday, May 11, 2005
United States Senate,
Subcommittee on European Affairs,
Committee on Foreign Relations,
Washington, D.C.
The subcommittee met at 2:43 p.m., in room SD-419, Dirksen
Senate Office Building, Hon. George Allen, chairman of the
subcommittee, presiding.
Present: Senator Allen.
OPENING STATEMENT OF HON. GEORGE ALLEN, U.S. SENATOR FROM
VIRGINIA
Senator Allen. Good afternoon to everyone. Welcome. I am
sorry we are a bit late. We had a vote on the Senate floor. It
is actually fortuitous it was at the beginning of the hearing
as opposed to in the middle of it. I thank all of our witnesses
for appearing this afternoon.
I am calling this hearing of the Foreign Relations
Subcommittee on European Affairs to order.
We will be examining this afternoon how the United States
and the European Union are regulating emerging technologies.
Today we will be examining how the United States and the
European Union can work together--where we are, and where we
may not be working together. We need to cooperate to ensure
that future advancements and innovations and technology are not
stifled by overzealous or unnecessary government regulations,
whether European or American.
The United States and the European Union have the largest
bilateral trade relationship in the world, accounting for about
37 percent of the value of global trade in goods and about 45
percent of the world trade in services. It is unique not only
because of its size and complexity, but also because it is one
of the very few where both sides benefit immensely from this
trade relationship. Making the effort to consult with each
other prior to any new regulations becoming law, I believe, is
a key element in keeping this trade and investment relationship
beneficial and productive. Both the U.S. and European economies
are so dynamic, so fast-moving, that changes enacted to
either's regulatory system without prior consultation could
hinder future commerce, investment, and job creation.
I will give you another example, not in commerce but in law
enforcement. We had a hearing this morning in the Commerce
Committee on the issue of spyware and combating illegal spyware
applications, which hinder and impede the enjoyment of the
Internet and computers, whether at home or in businesses. To
the extent that we are going to be able to combat this illegal
burden of spyware, it cannot just be the United States. We need
our friends in Europe to be close partners in this effort, as
much as we are close partners in combating international
terrorism.
Now, nowhere is this close and consistent cooperation more
important than when we are advancing, addressing, and actually
embracing new technologies that emerge seemingly every month.
Innovation and technology development have been a large part of
both the United States' and the European Union's economic
success. In fact, a 2003 U.S. Department of Commerce digital
economy study found that frequent users of information
technology and the Internet are growing the gross domestic
product at almost double the rate of less frequent users.
Without a supportive climate or conditions that foster
breakthrough research and technologies, neither the European
Union nor the United States would be able to compete so
effectively in the global economy.
To ensure that U.S. and European companies are at the
forefront of innovation and cutting-edge technologies, both the
U.S. Government and the European Commission must work together
to create a fair and free regulatory environment in which the
technology community can continue to compete, succeed, and
innovate.
For example, nanotechnology is one of the areas where I
believe government must tread carefully. I have made, along
with a partner of mine, Ron Wyden, nanotechnology one of our
priorities, and I want to make sure the United States is in the
lead in nanotechnology. I recognize also that the Europeans are
making a concerted effort in nanotechnology, as are Asian
countries as well. Ron Wyden and I held the first hearing on
nanotechnology, on this emerging science, which I think is
going to forever change the way we approach scientific and
engineering challenges. We created the first bipartisan,
bicameral Congressional Nanotechnology Caucus. We authored the
21st Century Nanotechnology Research and Development Act, which
authorized appropriations for long-term investment in the
multifaceted fields of nanotechnology. I know we have a witness
from Hewlett-Packard who is very strong in nanotechnology, as
are other companies, as well as colleges and universities.
Now, this field of science, nanotechnology, is quickly
transforming almost every aspect of our world and is already
significantly improving our quality of life. That is why it is
important that we have cooperation with our international
partners in this field as it continues to develop. It is my
hope that United States and European regulators can work
cooperatively to provide the needed safeguards and parameters
of nanotechnology research without burdening scientists with
needless bureaucratic constraints nor limiting innovation.
In copyright areas, we need to be working with our European
friends to make sure traditional safeguards are still relevant
to new products and technologies. The emergence of multi-media
products has brought into question the role of Europe's so-
called collection societies. These powerful groups are
authorized by law in most European countries to assign a tax or
levy to equipment that can be used to copy commercial products
like compact disks or movies. The revenue raised by collecting
these taxes or levies is used to compensate copyright holders
for the unauthorized copy of their work. The development of
levies on digital media and equipment has resulted in a
significant increase in the levies collected by European
countries. The Business Software Alliance has found that
increases in levies, coupled with a wider range of products
subject to these charges, will result in a three-fold increase
by 2006, compared to the levies collected in 2002.
The fact is there are more choices available to consumers
in terms of how they access media content and information than
any other time in our history. The ability to get media
products directly from rights holders make collection of levies
unnecessary and amount to double taxation. The United States
needs to engage our European partners and question the
legitimacy of these levies, given the uniqueness of today's
media products.
Finally, the U.S. and the Europeans must begin to harmonize
the regulation of IT (Information Technology) accessibility for
the disabled. I know one of our witnesses will testify on this
matter. Suffice it to say that we do need to reach a consensus
with Europe, and that will go a long way to establishing a
global IT accessibility standard and would allow companies to
focus on developing their products rather than retrofitting to
a multitude of accessibility standards.
Let me close by saying this, I want this country to lead in
innovation, and I think the Europeans want to lead in
innovation as well. Advancements in technology have
beneficially changed our lives and the way we live our lives.
We have more access to information, entertainment, commerce,
and the sharing of ideas than ever before. It is vital that our
Government work with the governments of Europe to make sure
that regulatory demands do not stifle future innovation. We can
be free in this country, keeping what I like to call
Jeffersonian principles, which may not necessarily be shared by
our European friends. But at least for commerce and jobs, it
ought to be understood by our friends in Europe that having
less regulation is actually beneficial for more creativity,
more innovation, and ultimately, of course, better for the
people whether they are in France, Germany, the Netherlands, or
anywhere else in Europe. We do need to keep in close contact
with our trade and investment partners to keep these regulatory
guidelines reasonable and consistent.
I thank all of our witnesses for being here with us today.
I look forward to hearing your testimony.
We have two panels, Harris Miller gets a panel of his own.
So we will first hear from Harris. I will introduce the second
panel after Mr. Miller's testimony.
Mr. Harris Miller is the president of the Information
Technology Association of America. In addition to his work at
ITAA, Mr. Miller serves as the president of the World
Technology and Services Alliance. He is perfect to be
testifying here today. He created the first international
conference on global IT public policy held in Buenos Aires, and
he also conceived the global information security summit, one
of the leaders from that, to bring together the private sector
of industry and government from around the world to discuss
information sharing in the global security arena.
Last month, Mr. Miller represented ITAA at the
Transatlantic High Tech Business Initiative meeting in London
where many IT policy issues of major concern to both the U.S.
and the E.U. comprised the agenda.
He has served up here. He worked for former Senator John
Durkin from New Hampshire and certainly is well qualified and
conversant on the issues that we are facing and will share with
us his views.
Mr. Miller, welcome, and we look forward to hearing your
insight and commentary for our policies on this very important
issue.
STATEMENT OF HARRIS MILLER, PRESIDENT, INFORMATION TECHNOLOGY
ASSOCIATION OF AMERICA
Mr. Miller. Well, thank you very much, Mr. Chairman. We in
the IT community are very fortunate to have you holding this
hearing today. Certainly your knowledge of IT issues is
unrivaled in the U.S. Senate, both from your tenure as Governor
of my home State of Virginia, which is one of the leading IT
States in this country, and of course, your service here in the
Senate where you have been a constant leader on all these IT
issues. So I commend you for holding this hearing on this
important topic.
Also, there is such a thing as personal privilege. I would
like to take one minute to recognize one of the staff of the
committee, my friend, Dr. Mike Haltzel. I understand this is
his last hearing after 11 years on the committee. Our wives
went to college together. They were sorority sisters many, many
years ago. And I understand Mike, after many years of service
on the committee, is moving to the private sector, and I want
to note that we have really appreciated working with him all
these many years and look forward to working with him when he
joins the private sector. So I would like to mention that.
Senator Allen. Well, I am sorry to hear that bad news. He
is Democratic counsel, but we work very well together. He has
always been a gentleman, straight shooter, and we work well
together on the many issues that we actually all agree on,
although no one focuses on those.
They are just not as interesting.
Mr. Miller. Tech Daily will.
Today's hearing, Mr. Chairman, comes at a particularly
opportune time because, as you know, President Bush will host
European Council President Juncker and European Commission
President Barroso at the annual U.S.-E.U. summit here in
Washington, D.C. on June 20th. It is very much the hope of the
high tech community that during the summit, they will make
these topics of ICT (Information Communication Technology) one
of the areas they will focus on.
Mr. Chairman, in my perspective, there are a lot of these
issues of conflict which you identified between the U.S. and
E.U. that make us almost like children on a beach fighting over
small castles in the sand, utterly focused on issues which seem
very important at the time, but what we cannot see is that the
economic tide is rising. In the 21st century, the rising tide
represents the developing markets, particularly China, India,
Brazil. So here they are coming in, joining the global
information technology community, and really posing a major
challenge to the leadership that the U.S. and Europe and Japan
have had during the first 60 years of the computer revolution,
and we are not focusing on that challenge but instead fighting
a lot of old battles.
What is at stake? Total ICT spending is expected to grow to
more than $3.2 trillion just 2 years from now, from just $2.4
trillion 2 years ago. In other words, it is going to grow by
over 30 percent in a 4-year period according to our annual
study, Digital Planet. Asia, and China in particular, are the
fastest growing portions of that span. In fact, China is
growing faster than any other nation among the top 10 spenders
on ICT.
With this bigger challenge in mind, we were very pleased
and privileged to work with our sister association in the UK
called Intellect and the European-American Business Council to
host a conference in London last month, including high level
officials from the U.S. Government led by Ambassador David
Gross, senior officials from the European Union and high tech
companies from both sides of the Atlantic, to focus on how we
resolve some of these common issues and barriers that are
hindering both the U.S. and Europe to be more successful in
this new age of global competition.
What I want to emphasize, however, is that while the
meeting went very well, I was very troubled by how long the
list is of continued disagreements that exists between the
sides of the Atlantic. Let me just focus on some of them.
Technology trade--we are in the midst of a very difficult
and contentious global round of negotiations generally referred
to as Doha. There are major differences of opinion between the
so-called developed economies and developing economies. Yet,
even here the U.S. and Europe continue to disagree on some
important technical, but yet very, very substantive issues such
as classification of software, the status of downloadable
products, how to best define telecommunications services. If we
are going to really move ahead in the Doha round to break down
some of the global barriers to global ICT trade, the U.S. and
Europe need to get on the same page and they need to get on the
same page quickly.
Another topic, Internet governance. As you know, Mr.
Chairman, this November in Tunis we are going to have the
second meeting of the World Summit on Information Society,
sponsored by the United Nations. We in the U.S., ITAA, and many
of our members both in the U.S. and global operations, are
somewhat concerned about the tenor of the discussions leading
up to those. There clearly are people in the world who believe
that the best way to run the Internet and to forward
information technology is to have bureaucrats in Geneva making
decisions about how to govern the Internet. I think that given
that I believe about 45 percent of all Internet traffic passes
through our home State of Virginia, you and I probably do not
think that is a really great idea. Unfortunately, there have
been some musings by some European Union officials which seem
to indicate that they have at least sympathy for that argument,
and we very much are encouraging our European colleagues and
the European government officials with whom they deal to
understand that the global growth of ICT is the fastest growth
of any technology in the history of humankind. Most of that
growth is already occurring in developing countries, and we do
not need governments to tell us how to do it better.
A third topic, which you mentioned in your opening
comments, is this issue of device accessibility. The U.S. got a
little bit out in front of the European Union on these issues.
The disabilities community, the U.S. Government, people from
the House and the Senate, and people from industry worked very
hard to come up with an approach which focuses on outcomes to
make sure that people with disabilities have access to
information technology. We have come up with an approach that
we think makes sense. We agreed not to focus on trying to
dictate technologies. That is the wrong way to go.
Right now, however, the European Union has come to look at
these issues, and frankly, as you will hear in more detail from
some of the other witnesses, we are concerned about some of the
directions the Europeans seem to be headed. The most important
outcome, however, is that we cannot end up with two sets of
standards. We cannot do this again, particularly in the context
of this global competition.
The next area you also mentioned where you and Senator
Wyden have played such a great leadership role is
nanotechnology. We have a chance for incredible collaboration
in this area. Also, we have a chance to avoid getting involved
in making bad regulatory decisions that are not necessary or
appropriate. But again, European and U.S. leaders must work
together to avoid those kind of restrictions that could occur
through overregulation and come up with useful ways of
collaborating.
The next area is information security. The U.S. and Europe
have more at stake than any other region in the world in terms
of information security simply because we are the largest users
of information security. But we need to collaborate even more
in this area. Information security, cyber security, is the sine
qua non of the information technology revolution. So we look
forward to more close collaboration between the European Union
and the U.S. to make this a higher priority.
Math and science education. Again, Senator Allen, you are
one of the leaders on this issue. I am also very pleased to see
that your colleague, Congressman Frank Wolf, has taken some
very dramatic steps in the last few weeks in this area. But you
know very well that our performance here in the U.S.
unfortunately, as is the performance of many European
countries, is quickly falling behind what is going on in China,
India, and other developing countries. In 2001, for example, 39
percent of all undergraduate degrees in China went to
engineers. In the U.S., 5 percent of undergraduates got
engineering degrees.
So the U.S. and Europe again need to think about working
together on collaborative efforts to increase student interest
in the basic so-called STEM field, science, technology,
engineering, and mathematics. We need to take advantage of our
great educational systems and make sure that we turn out enough
people to fuel the basic information technology revolution.
People are the iron ore of this revolution. If we do not have
skilled people, we cannot last on the battlefield.
The next topic is telecommunications reform. Next year the
E.U. will consider its telecommunications framework and the
implementation of some of its 2001 directives. Similarly you
here in the Congress have begun to assess possible reforms of
the 1996 Telecommunications Act. We hope that you and your
colleagues in the Congress will keep in touch with your
colleagues in the European Parliament and the regulators here
in the U.S. will work with the European Regulators Group. We
must figure out ways to collaborate on moving forward to next
generation networks, getting beyond where we are now and make
sure that all steps are taken to promote next generation
networks, rather than getting involved in a heavy regulatory
model, which unfortunately has held back telecommunications
for, lo, these many years.
In conclusion, Mr. Chairman, we often hear China referred
to as a waking giant. I would argue that we in the West perhaps
are the slumbering giants. Perhaps we have been lulled into
complacency by 60 years of unprecedented scientific and
technological success. My simple message is we must stop
arguing about how to build a better sand castle and focus on
the economic tsunami headed our way from Asia, from Brazil, and
other parts of the world which are now part of this information
technology revolution.
While the challenges I outlined today are important, we
dwell on them at a price. The leaders of the E.U. and the U.S.
must lead the way over these obstacles and assure that all
western firms have access to the world's fastest growing
technology markets.
Thank you very much, and I would be glad to answer any
questions you might have.
[The prepared statement of Mr. Miller follows:]
Prepared Statement of Harris Miller
INTRODUCTION
Chairman Allen, Senator Biden and other esteemed Subcommittee
Members, I appreciate your taking time from your very busy schedules to
hold this hearing today on the challenges facing the critical
relationship between the United States and the European Union as it
impacts emerging technologies, the global information economy,
technology trade, and the overall regulatory environment for
information technology.
I am Harris N. Miller, president of the Information Technology
Association of America (ITAA), representing over 380 member companies
in the information technology (IT) industry--the enablers of the
information economy. Our members are located in every state in the
United States, and range from the smallest IT start-ups to industry
leaders in the software, services, systems integration,
telecommunications, Internet, and computer consulting fields. These
firms are listed on the ITAA website at www.itaa.org. Many of them
operate on a truly global basis with offices, operations, and clients
throughout the world, including Europe.
ITAA is also the secretariat for the world Information Technology
and Services Alliance (WITSA), a consortium of information technology
(IT) industry associations from 67 economies around the world,
representing over 90 percent of the world's IT market. As the global
voice of the IT industry, WITSA is dedicated to advocating policies
that advance industry growth and development; facilitating
international trade and investment in IT products and services;
strengthening WITSA's national industry associations; providing members
with a broad network of contacts; and overseeing the world Congress on
Information Technology, the premier industry-sponsored global IT policy
event, that will be held in May, 2006, in Austin, Texas.
Before I address the specific issues at hand, it is important to
put them into context. The E.U. and the U.S. have become like children
on a beach fighting over castles in the sand. We are so utterly focused
on control over our own little sand castles that we cannot see that the
tide is rising. Unless we can refocus on our common interests and flee
to higher ground, our sand castles, along with our future economic
prospects in high technology, will be washed away in the surf.
In the 21st century, the rising tide represents the developing
economies, primarily in Asia and Eastern Europe, and especially China
and India. While the U.S. and Europe, along with Japan, represent the
leading nations in today's global Information and Communications
Technology (ICT) market, China and India are gaining market share
rapidly. These nations represent two of the fastest growing information
economies in the world today.
The primary reason for this rapid accession into IT global
leadership is that unlike traditional industries, there is a relatively
low cost of entry into the global ICT market. Along with the implicit
efficiency and productivity afforded by technologies such as IP
networking and high volume data storage, a commitment to leadership in
ICT is nearly all that it takes for an emerging economy to rival
established powers, as long as they prepare their workforce, the ``iron
ore'' of the IT revolution.
Despite our differences, the U.S. and E.U. are bound by a common
heritage and common values. We believe in the democratic process, in
freedom of expression, and in free market economies. We also share
common interests. We represent much of the developed world. We both
currently spend more on ICT than any other global region. We depend
more on information technology to ``grease the gears'' of every day
life. We are first to enjoy the productivity benefits of automation and
the value this productivity creates for customers and shareholders.
Similarly, the U.S. and the E.U. face many of the same challenges
to our global leadership in information and communication technology.
Our ICT markets are developed, and while they will continue to grow
steadily, our companies must look to other geographies for rapid growth
opportunities. Our comparative advantage in terms of technical know-how
and quality performance is challenged by the developing economies cited
above, which are anxious to use their rapidly expanding expertise in
computers, software and networks to build larger and more sustainable
middle class societies.
Our common trans-Atlantic dilemma is determining how to build these
distant markets without tearing down our own. And our shared commitment
to democracy and a civil society constantly pushes us to seek public
policy solutions that balance the need to protect profits and privacy,
national security and commercial practice, including, most often,
keeping government out of the way.
Meanwhile some countries--and China, unfortunately, continues to be
a prime example--seek to protect their domestic markets from potential
trading partners and focus primarily on gaining access to other
people's markets with little reciprocation. With that in mind the U.S.
and the E.U. must resolve our minor differences--quickly.
What's at stake? Total ICT spending is expected to grow to more
than $3.2 trillion by 2007, from $2.4 trillion in 2003, according to
the latest study on global ICT spending published by WITSA, Digital
Planet 2004. Asia, and China, in particular, represent a growing
portion of that spend. Among the top ten nations in ICT spending, China
is projected to be the fastest growing, with a compound annual growth
rate of 13.9 percent during the years 2003 through 2007. They will be
6th fastest among all nations, including many in the developing world
that are starting from near zero. India, meanwhile, ranks tenth in
growth overall at 13.44 percent.
For the U.S., overall exports to China have increased dramatically
since China joined the WTO in 2001.\1\ U.S. exports to China totaled
$35 billion in 2004, close to double the total for 2001. In fact, from
2001 to 2004, U.S. exports to China increased nearly 8 times faster
than U.S. exports to the rest of the world. As a result, China rose
from our ninth largest export market in 2001 to our fifth largest
export market in 2004.
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\1\ Statement of Charles W. Freeman III Assistant U.S. Trade
Representative of China Affairs, Office of the U.S. Trade
Representative, Committee on House Ways and Means, April 14, 2005.
---------------------------------------------------------------------------
While the opportunity within Chinese borders is clear, it is hardly
free to all corners. To put it succinctly, China is not playing by the
rules of global trade, and in fact, may be trying to change the game
entirely. For example, China's implementation of its WTO commitments
has lagged in areas in which the U.S. and Europe have competitive
advantage, particularly where innovation or technology plays a key
role. Their recent proposal to have a ``buy China'' policy for software
purchased by the Chinese government is one extremely unfortunate
example.
With so much in common, the U.S. and must work together through our
respective governments and industries to address what are--in the
greater context--small problems. To that end ITAA, and its sister
association in the United Kingdom, Intellect, along with the European
American Business Council, recently hosted a conference in London
between high-level industry and government officials. Ambassador David
Gross led the U.S. government delegation and did an excellent job
explaining the challenges and opportunities from the U.S. government
perspective. Officials from the European Union and from the U.K.
government joined us.
Our objective was to discuss ways to advance our common interests
and further what must be our common purpose: the delivery of
information technology to solve the world's most pressing problems in
security, healthcare, education, environmental protection, law
enforcement, and economic development. At the end of those talks, we
committed to continued cooperation in a public declaration, which I
have attached to my statement. We will continue to work together and
with our respective governments to contribute to resolving these
issues. However, I would like to emphasize that, from industry's
perspective, the list of troubling issues was much too long for
comfort. Too many obstacles exist between the E.U. and U.S. to permit
the full achievements possible.
Today's hearing comes at a particularly opportune time. President
Bush will host European Council President Jean-Claude Juncker and
European Commission President Jose Manuel Barroso at the annual U.S.-
E.U. summit in Washington on June 20th. Among the many other important
issues that they discussed that day, it is my hope that these
challenges related to ICT will be discussed with timely resolutions in
mind.
Now I would like to discuss several of the issues over which we can
either continue to fuss and feud or form a more perfect foundation for
global trade in information and communication technology.
TRADE
Technology trade is one area where the U.S. and the E.U. have much
at stake. Though fundamentally allies, there are a number of vexing
issues where we are at odds with one another to the detriment of
advancing what should be our common interests. Various bilateral trade
differences continue to hinder trade between the two economic powers
and the liberalization of ICT services in other countries.
Aggressive efforts to resolve these differences in a timely manner
would spur economic activity in both the U.S. and E.U., and in the rest
of the world for E.U. and U.S. companies, Yet instead of joining forces
and securing improved commitments from more countries, we are engaged
in bilateral squabbling over a number of specifics.
For example, the Doha round of World Trade Organization
negotiations appear to be poised to move forward, particularly in
services. However, we disagree on the classification of software, the
status of downloadable products, and how best to define
telecommunication services. Movement of highly skilled people between
the U.S. and E.U. remains difficult. And various labor laws frequently
found in European countries--though not all member countries--continue
to be major inhibitors to U.S. services companies expanding their
operations in Europe.
INTERNET GOVERNANCE
Internet governance is an area of particular frustration, as the
E.U. seems to support the hasty installation of an international
governing body for the Internet, an ill-conceived idea, if ever I have
heard one. The issues potentially in play represent international
regulation of the Internet in areas that extend far beyond the
technical coordination currently exerted by the Internet Corporation
for Assigned Names and Numbers (ICANN). Mr. Chairman, given that so
much Internet traffic travels through your home state, you know better
than most what a truly bad idea it would be for regulators in Geneva or
any other location to decide the future of one of the greatest
inventions of humankind.
The Working Group on Internet Governance is currently considering
recommendations for the second phase of the World Summit on the
Information Society to be held in Tunis this November. In the Summit,
the U.S. and the E.U. have adopted a common agenda to promote freedom
of information internationally. But they should also jointly oppose
efforts to move control of the Internet to government regulation from
the global, collaborative, private sector-led approach that currently
works so well.
However, the E.U. appears focused on the internationalization of
Internet governance, calling it one of the core topics besides the
``organization and administration of naming and numbering, including
the operation of the root server system'' and ``the stability,
dependability and robustness of the Internet, including the impact of
spam.''
Through this process, we should also agree to take steps to
encourage the widespread deployment of broadband, RFID (radio frequency
identification), and other innovative technologies to extend the
economic and security benefits of ICT, again, without heavy handed and
unnecessary government interference. Instead, the E.U. has initiated a
privacy review of RFID that, by its very nature, creates uncertainty
and dampens the widespread adoption of this critical technology.
Finally, we should redouble our efforts to promote telecommunications
liberalization, which continues to produce positive results in
countries that adopt it.
NANOTECHNOLOGY
Common technology policy interests and objectives are difficult
enough to establish between global regions when technologies are well
understood and their applications accepted. In many technical areas,
however, we stand at the threshold. The possibilities are vast and the
outcomes unknowable. Nanotechnology is one such area. Even as we
struggle to understand the broad outlines of what this field entails,
countries are rushing to claim leadership in nanotechnology expertise.
The Organization for Economic Cooperation and Development (OECD)
estimates that over 30 nations have funded nanotechnology research
programs. The OECD goes on to report that between 1997 and 2000,
nanotech research and development (R&D) funding jumped from
approximately $114 million to over $210 million in the E.U., $102
million to $293 million in this country, and from $93.5 million to $189
million in Japan.\2\
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\2\ OECD Science, Technology and Industry Scoreboard 2003--Towards
a knowledge-based economy.
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If we compare the relative positions of the U.S. and E.U. in
nanotechnology with other regions of the world, the advantages of the
West are enormous. We are the first movers in the marketplace. We are
performing the bulk of the research. We have the history of productive
collaboration between government agencies and research universities. We
have the culture of risk capital and entrepreneur-driven innovation. We
have the twin traditions of public domain knowledge and intellectual
property protection. Nanotechnology is an interdisciplinary science,
most prominently affecting industries like aerospace, biotechnology,
defense, electronics, energy and other high tech fields. As home to
many of the world-class corporations in these industries, the U.S. and
E.U. have the critical mass of private sector firms with the ability
and incentive to support both nanotechnology research and to provide
investment capital.\3\
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\3\ J.S.A. Bhat, ``Concerns of New Technology Based Industries--the
Case of Nanotechnology,'' Technovation, 2005.
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What is critical, again, is collaboration, particularly among
leading researchers in academic institutions and laboratories, without
unjustified interference from well-intentioned but ultimately
interfering public officials.
INFORMATION SECURITY
The U.S. and E.U. share common concerns about information security.
If we look across the globe, we quickly see that our respective regions
represent the most mature ICT markets. We are, therefore, the most
reliant on their unimpeded performance. Given this reliance,
information security means national economic security. And in an era of
global terrorism and the possibility of cyber warfare, information
security may mean national security itself.
As a result, we share a common goal of protecting our information
infrastructures from attack. This commonality of purpose entails best
practice approaches to vulnerability assessment and intrusion
detection, attack prevention and cyber hygiene, incident investigation
and computer forensics and cybercrime prosecution. We advocate
additional collaboration by U.S. and E.U. government agencies to
achieve these goals, a process that should at a minimum incorporate law
enforcement, intelligence, harmonized regulatory approaches, education,
investment and appropriate statutory frameworks.
Encouraging people to keep their cyber doors locked remains one of
our largest common challenges, whether at home or on the job. If it is
impractical to export cyber security awareness campaigns, certainly we
can share the good ideas, lessons learned and insights into what works
can be pooled and exploited for the benefit of both societies.
Because the nature of the cyber threat is constantly changing,
additional information security R&D by experts in both the U.S. and
E.U. should be encouraged, funded and, where appropriate, shared.
And I must not miss this occasion to once again encourage this
committee and the Senate to take favorable action at the earliest
possible moment to ratify the Council of Europe Convention on
Cybercrime that sets a solid framework for all countries around the
world to fight cybercrime.
RESEARCH & DEVELOPMENT
Information security is not the only arena for enhanced cooperation
in research and development. In the U.S., federal government support
for research and development has slipped substantially. In the
aftermath of the Soviet Union's Sputnik launch, federal R&D funding of
basic research swelled to 75 percent of all such spending. Seventy
cents of every R&D dollar now comes from the private sector.\4\ Federal
R&D spending creates jobs for scientists and engineers directly and for
professionals in business, law, accounting and many other fields
indirectly. This support also underwrites the development of valuable
intellectual property that, through a process of technology transfer
from the public domain to the private sector, forms the basis of still
more capital investment, job creation and wealth creation.
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\4\ John A. Douglass, R&D and the U.S. Economy: A Sputnik
Reflection, University of California, Berkeley.
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Federal funding for leading science and technology government
agencies has also slipped. Increases in the federal R&D budget will
fail to keep pace with inflation for the first time in ten years, up in
FY 2006 a barely perceptible 0.1 percent. Most non-defense agencies
performing R&D will see their budgets decline. National Science
Foundation research grants will be reduced for the second consecutive
year.\5\
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\5\ American Association for the Advancement of Science, AAAS
Analysis of R&D in the FY 2006 Budget, March 9, 2005.
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To turn a blind eye to R&D is to turn a blind eye to the future.
Less government R&D means less basic research; less basic research
means a society with less potential for innovation, inspiration and
commercial success. Less potential translates to fewer career
opportunities for individuals to make a difference in science and
technology. And fewer individuals striving for breakthroughs in fields
like aerospace, energy, the environment, healthcare, nanotechnology,
optics, robotics and more means fewer such breakthroughs are likely. We
will not know what we do not know--and we will not even be asking the
questions.
MATH AND SCIENCE EDUCATION
Cutbacks in R&D may already be having an impact on the science,
technology, engineering and math education pipeline. While the number
of undergraduate degrees awarded in the U.S. is rising, the number of
degrees awarded to science and engineering students is falling. Between
1985 and 2000, bachelor's degrees awarded in engineering, math,
computer sciences, physical sciences and geological sciences fell 18.6
percent.\6\ Comparing the graduate enrollments of U.S. citizens and
permanent residents in 1983 and 2001, totals have dropped in physical
sciences; earth, atmospheric and ocean sciences; agricultural sciences;
mathematics and engineering.
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\6\ Ibid, page 16.
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In China, the situation is just the reverse. In 2001, 39 percent of
all undergraduate degrees awarded in China went to engineers; in the
U.S., that percentage was five percent. Almost 220,000 Chinese students
received engineering degrees in 2001, compared to just under 60,000 in
the U.S.\7\ India and China produce 125,000 computer science graduates
annually, twice the number of the European Union.\8\
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\7\ President's Council of Advisers on Science and Technology,
``Maintaining the Strength of Our Science & Engineering Capabilities,''
June 2004.
\8\ Lachlan Carmichael, ``Blair pledges to boost Britons' skills to
compete with China, India,'' Agence France Presse, April 28, 2005.
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Collaborative efforts to increase student interest in the basic
STEM fields--science, technology, engineering, and mathematics--is
certainly a worthy topic of discussion between the U.S. and the E.U.
TELECOMMUNICATIONS REFORM
Both the U.S. and the E.U. find themselves at a fork in the road in
terms of their overall telecommunications regulatory environment. Next
year, the E.U. will consider its telecommunications framework and the
implementation of the 2001 directives. Similarly, Congress has begun to
assess the 1996 Telecommunications Act and consider possible revisions.
We call on the Federal Communications Commission and the European
Regulators Group to initiate a collaborative dialogue and work towards
``light touch'' regulatory approaches that emphasize competition,
innovation, capital investment and market demand.
Sadly, instead of making common cause, the U.S. and E.U. appear to
be at loggerheads over fine-grained aspects of telecommunications trade
policy. The WTO Doha negotiations, particularly in the area of
services, appear to be poised to move forward. Yet instead of joining
forces and securing improved commitments from more countries, we are
engaged in bilateral squabbling over a number of specifics. For
example, the E.U. has proposed a new definition of telecommunications
that many companies feel will allow countries to slide on previous
commitments. Rather than introducing new, controversial mechanisms, the
E.U. and the U.S. should jointly encourage new and better commitments
from all countries.
DEVICE ACCESSIBILITY
If we are truly committed to building ICT markets that promote
values like competition, innovation, and capital investment, the U.S.
and E.U. should likewise avoid implementing disparate standards,
particularly in the area of device accessibility. Technology should be
used aggressively to help seniors and those with disabilities live
fuller, richer lives. Government mandated technical specifications for
device accessibility create rather than eliminate barriers to swift
deployment.
ITAA is proud to have played a major role in the formation of the
provisions incorporated in the ``Electronic and Information Technology
Accessibility Standards'' in the U.S. Some of ITAA's member companies
were represented on the Access Board's Electronic and Information
Technology Accessibility Advisory Committee that formulated the
standard that underlies section 508. ITAA consulted with members,
drafted and submitted industry comments on the regulation during its
development, and facilitated alignment between the positions of the
government, industry, and the stakeholder organizations in the
community of people with disabilities. We consider this alignment
between the parties concerned with ICT accessibility to be of
significant value. We hope that as Europe looks at the topic of ICT
accessibility, they will consider the principles underlying the
approach taken in the U.S. standard.
Unfortunately, however, they seem to be heading in a different
direction, a direction that will end up with companies having to face
two different worlds--one in the U.S. and one in Europe--and that will
ultimately lessen the ability of companies to improve accessibility for
individuals with disabilities.
We are pleased that the U.S. Commerce Department is currently
participating in the U.S.-E.C. ICT Standards Dialogue in an effort to
steer clear of mandated technical specifications. When governmental
bodies adopt accessibility requirements for government ICT purchases,
these requirements should strike an appropriate balance between
encouraging the design, development, and provision of products and
services that address accessibility on one hand, while ensuring that
accessibility requirements do not impede the rapid advancement of
information technology.
Thus, ITAA is a champion of performance-based, open standards
intended to facilitate innovation and desired outcomes. We believe that
the U.S. and E.U. must work towards a single, global standard that
reflects these values and gives all users of information and
communications technology the ability to enjoy its maximum benefits.
CONCLUSION: FROM COMMON GOALS TO COLLABORATIVE ACTION
We often hear China referred to as a waking giant. The commitment
of the Chinese government to a national technology policy and to
leverage comparative advantage in science and technology for global
competitive advantage strongly suggests that the giant is not only
awake but on the move. I would argue that we in the west are the
slumbering giants, perhaps lulled into complacency by 60 years of
unprecedented scientific and technological success.
The U.S. and E.U. need to assess systematically those aspects of
their public policy that have nurtured high tech innovation and
investment, and those which have lost effectiveness in light of the new
competitive reality.
Instead of looking for areas to regulate, I strongly encourage
governments on both sides of the Atlantic to look to areas to
deregulate, to remove barriers to ICT growth.
With this knowledge, we must form a persistent collaboration
dedicated to removing regulatory barriers, facilitating competition,
promoting technology convergence and, through this process,
accentuating the comparative advantages of the world's most developed
ICT markets.
Most of all, we must stop arguing about how to build a better sand
castle and set our collective sights on the economic tsunami headed in
this direction. In recent times, the U.S. and E.U. countries have
disagreed on privacy rights, the value added tax, the definition of
telecommunications, how to classify software, the status of
downloadable products and other issues. We have done a terrific job
understanding individual trees; we have done a terrible job standing
back and viewing the global forest.
The Information Technology Association of America is committed to
working with counterpart organizations in the E.U. to achieve policies
that foster growth, innovation and security. ITAA believes that U.S.
and E.U. officials should develop a dialogue on high tech policy issues
in keeping with these goals.
______
Attachment
conclusions of the transatlantic high-tech business initiative--
governments listening to business held on monday, april 11, 2005 at
intellect's offices in london.
There needs to be persistent collaboration between the E.U. and the
U.S. on ICT issues. The meeting noted that the TABD (Trans Atlantic
Business Dialogue) does not currently address ICT issues in sufficient
detail. It was proposed that the group assembled by EABC, ITAA and
Intellect should fulfill the function of a TABD for ICT issues (whether
informal, or formally recognized). It was agreed that future meetings
should be held alternately in Brussels and Washington. They must be
held every six months if the goal of persistent collaboration is to be
achieved. ITAA, Intellect and EABC will plan the next meeting for
October 2005.
We seek to have included in the forthcoming E.U.-U.S. summit a
declaration on Information and Communications Technology. A proposed
draft is shown below.
Proposed Draft Declaration on ICT for the E.U./U.S. Summit.
The E.U./U.S. relationship on technology is a critical area of
mutual importance that impacts economic security, national security and
the interdependency of all critical sectors. U.S. and E.U. ICT policies
must:
stimulate investment and growth in the availability of the
products and services of the ICT sectors;
support the innovations that advance these technologies;
seek commonality in their regulatory regimes;
assure a secure environment for their use, and
assure continued private sector leadership of the technical
components of the Internet.
To achieve this ITAA and EABC will work through Ambassador David
Gross and Intellect will work through Fabio Nasarre de Letosa, EICTA
and the UK Government's DTI.
Further background on the above draft is contained in the sections
below.
Telecommunications--The Infrastructure for a Knowledge Economy
There is a unique opportunity to bring together the overall
regulatory climate in the E.U. and U.S. In 2006 the E.U. will be
reviewing the telecommunications framework and the implementation of
the 2001 directives. Concurrently the U.S. will be drafting new
telecommunication legislation to account for new technologies. An over
riding principle must be the need to stimulate investment and
innovation.
Persistent co-operation is required between the U.S. and the
Commission. The FCC and the ERG (European Regulators Group) need to
link their work. There is a need for more formal and more frequent
issue based communication. We need to decouple social and regulatory
issues.
The meeting was concerned at the current state of VoIP regulation
in the E.U. Maximum possible regulatory convergence between the E.U.
and U.S. should be a goal. One specific example is the need for a
common mobile handset conformance testing regime. (This can be treated
as a trade or telecoms issue).
Information Technology (IT): Enabling the Innovation Ecosystem
The information technology environment:
needs to have policy addressed on an urgent basis;
is global in nature, with emerging new significant policy
voices (China/India);
depends on public-private collaboration;
must focus on the role/impact on citizens/customers/
consumers of IT services;
is characterized by rapid commoditisation of its
technologies, and
needs to enhance role of sector as an effective employer.
Trade in ICT Goods and Services
The ICT Trade environment needs to:
Resolve bilateral differences on telecommunications
definition, software classification, inclusion of internet
services, and status of downloadable products;
Promote ICT services WTO commitments aggressively, and
Address China and India trade issues uniformly as a single
entity.
Further Background
Growth:
Government must become educated on technology;
Regulators should commence a deregulatory review and impact
analysis, forbear from regulation unless clear need emerges,
assure multilateral consistency in any regulatory measures;
Non-tariff trade barriers (NTTBs) must be dismantled, and
Government's role in affirmatively fostering technology
innovation and investment must be expressed through tax policy,
intellectual property protection, h/r policies that promote
skilled worker mobility, role of government as customer, and
adherence to industry led oversight of the technical co-
ordination of the Internet.
Technology
Emergence of Next Generation Networks (NGNs) as primary
artifact (includes edge/access/mobile networks);
Intellectual property (IP) protections must be maintained
and consistent, and
Research (R&D) is the source of innovation; investment in
research must grow.
Security
The sine qua non of the networked ecosystem;
Law enforcement's role in maintaining security must be
supported with education, investment and statutory frameworks
that empower effective prosecution;
Multilateral cooperation;
Research investment for security must be encouraged,
collaborative and supported by government investment (7th
Framework Programme/U.S. R&D institutions), and
Security education and awareness of all stakeholders must
expand.
Senator Allen. Mr. Miller, thank you so much for your
testimony. I am going to put your entire statement in the
record. I know you summarized it. I would say this to all the
witnesses. Your entire statement will be put in the record, if
you so desire. I suspect you would not have spent time
composing it if you did not want it as part of the record.
Thank you for this. There are so many things that you
brought up, and I am, as you might guess, in complete agreement
with you.
The education issue. Today there has been a strand of
continuity, but just earlier today, sometime in the morning, we
received a petition from 6,000 women concerned about the lack
of women involved in science, engineering, and technology. It
is just in the single digits really, maybe a little bit over 10
percent. And then you add to the concern as to African
Americans and Latino citizens, one of the fastest growing part
of our work force and will be 35 percent of the workforce in
the next 15 to 20 years. You think, well, if we are not
recruiting or encouraging women to get involved, that is half
of our population. If Latinos and African Americans, for
whatever reason--and a lot of it has to do with the Hispanic-
serving institutions and historically black colleges and
universities not having the technology infrastructure to get
the faculty to impart the knowledge and skills to those
students. Then they are not able to apply for and get the 60
percent of the jobs out there which require technological
proficiency.
Meanwhile, our engineering schools--and thank you for these
figures here--I understand in this country we are behind one-
fourth to one-sixth of what India or China, respectively, are
matriculating. And then about 40 percent of those students in
our universities in these graduate studies in technology and
science and engineering are from overseas, which is fine. I
want this country--I have said this many times--to be a magnet
for the best minds in the future. You are exactly correct. This
is what is going to help us compete and lead in innovation in
the future.
I want to work with you. Please, if there are any specific
ideas that you have that you can share with us in this
committee here this afternoon. Ideas on encouraging all
Americans, regardless of their gender, their race, or their
ethnicity, to get more involved, to get encouraged, to get into
science and technology and engineering, please share them with
us here or please stay in contact with me. I think this is one
of the most absolutely essential challenges facing this country
and our ability to compete and succeed in the future. I forgot
what you called it. The gold mine?
Mr. Miller. The iron ore.
Senator Allen. The iron ore. Well, I do not care to call
humans anything but gold and diamonds. Regardless, the strength
of our country is our people and their capability. They are the
best asset of this country and we need to make sure they have
that ability.
Do you have any specific ideas of what we can do to
encourage young people in this country to engage in these key
sciences of the future?
Mr. Miller. Well, I certainly agree with the analysis of
the current situation, Senator Allen. In fact, we did a study
in 1997, before the Internet boom really took off, of women and
minorities in the computer science field. We repeated that
study in 2003, hoping that perhaps we would see some
improvement, at least among women and minorities, in terms of
percentages in the computer science field and in the profession
of computer science. Unfortunately, there had been almost no
change between 1997 and 2003. We are expecting to do that
survey again either late this year or early next year. But the
numbers are not good.
Since you opened the door, let me make a modest proposal,
and I will tell you where the modest proposal came from. When I
was in India last October for a cyber security conference, I
was invited by the chief minister of Andhra Pradesh, the
equivalent of a governor as you were, to meet with him. I
thought it was a typical kind of meet and greet. Here is the
U.S. IT guy coming to meet the chief minister. He was just
newly elected. This is a gentleman named Dr. Reddi. He is a
medical doctor. Well, it was more than just a meet and greet.
He actually wanted to talk for over half an hour about this
issue of how he increased his work force.
Now, in Andhra Pradesh is the City of Hyderabad, which is
probably the second IT center in India after Bangalore. It is
not quite as well known, but believe me, it is a huge and
growing center.
All he wanted to talk about was the shortage. So the half
hour was up, and I figured, well, now he is going to get rid of
me. That is enough. He said, come with me to my next meeting. I
said, where are we going, Chief Minister? He was going to meet
with all the vice chancellors of all the universities in Andhra
Pradesh, which are like the presidents of our universities, the
equivalent under the British or Indian system. I said, well,
why do you want me to come along. He said, well, I am going to
tell them that they have got to turn out more engineers and
mathematicians and scientists, and I will fund every one of
them. I said, why do you want me to come along? He said,
because I want you to say the same thing, and they will believe
you. They will not believe me.
He sees his competition in Shanghai and Beijing and
Brasilia and places that have not taken off yet, Karachi and
Manila and other places. So even though we may sit here saying
how far the Indians are ahead of us, he is sitting there as a
political leader saying, I am afraid of the future and falling
behind. So I am going to invest even more. He said to the vice
chancellors of the universities, for every student you enroll
in the sciences and math, I will pay for it.
So I began to think. I said, now, we used to have a time
like that in this country. It was called Sputnik in 1957. When
the Soviets sent that little missile up into outer space, the
country went into a full-fledged panic. It was part of the big
Cold War attack, very unsettling to the American people, and we
passed the National Higher Education Defense Act and basically
said if you want to study science or math, the U.S. Government
will pay for it. Many would argue that that really helped to
grow the United States dramatically as we entered the
engineering age, followed by the information technology age.
But we have had nothing like that since. We had that one brief
burst where the government stepped in and basically said we
will educate everybody in science and math.
Well, my modest proposal, to be somewhat ironic about it,
is we should do it again. We really need to think about
something that dramatic. Now, your colleague, Congressman Wolf,
has gone part of the way with his ideas of a loan forgiveness
program, but I would be even more radical. I would say that we
should have a goal of doubling the number of STEM graduates in
this country within a 5-year period, and we as a government--I
know this is tough in tough budget times, and I know you face
these issues every day as a Senator making allocations--we
should say we will fund anybody who will go into science and
math in undergraduate education.
If my kids wanted to go school and one is studying English
and one is studying music right now, it is on my nickel or they
have to go get student loans or find some other way to pay for
school. But if that student, no matter what socioeconomic
income, no matter what race, whichever gender, wants to study
science and math, the U.S. Government will pay for it.
We estimate the cost at probably a couple billion dollars a
year, so it is not chicken feed. On the other hand, think about
the return on the investment in terms of new products, new
revenue, because these people will become higher wage earners.
We have all the research that shows that. More research in
universities.
The other thing I think that would happen, Senator--I know
you come from a sports background, your father is a famous
coach--is maybe the parent who is now spending all their time
coaching their kids to play football or soccer or something
else, because they hope they get a college scholarship in that
area, will say, maybe I ought to coach Johnnie and Susie in
math or science, and maybe instead of sending them to summer
basketball camp, I ought to send them to summer science camp.
The secondary effects would be remarkable.
So that is my modest proposal. We are still working on
trying to put it into more concrete terms, but I think we have
to do something dramatic. There is no Sputnik right now, Mr.
Chairman. There is no dramatic thing. Instead, we are kind of
like the frog sitting in the boiling water. It is getting
hotter and hotter, and before we know it, we are going to be
dinner because these other countries, like the chief minister
of Andhra Pradesh, are making those investments today. On a per
capita basis, China is turning out two and a half times more
engineers, not in absolute numbers, on a per capita basis.
Within 3 years, they will be turning out three and a half times
more engineers than we are in this country. We cannot compete
with that kind of disadvantage in the global marketplace.
Senator Allen. Understood. The innovations of the future,
the intellectual property, the inventions will come from many
of those engineers. It makes it very difficult.
I do think kids like to be outside in the summer, though.
Kids are kids.
There is a measure I am working with some of my colleagues
on the Senate side on providing scholarship approaches in
technology and science. I do think it is important that we give
scholarships. Of course, they are funded in athletics, which is
fine, and the universities make a ton of money off all the TV
contracts.
Unfortunately, this country is reducing our R&D funding in
aeronautics. The Europeans, our friends, whom we are talking
about here, have a strategic plan to dominate the world by 2020
in aeronautics. They are on the way to doing it because last
year they sold more aircraft than the United States. The
funding proposals are to keep cutting on the next generation or
new vehicle systems, hypersonic flight, and all the rest.
We do need to invest, and we do have to find ways to
encourage students. Scholarships may very well be, the sort of
incentive grants we need. It's the best way to go, and I
appreciate your comments.
Let me ask you one other question here. The Europeans
generally seem to have a more active regulatory instinct than
the U.S. I know you are generally in the other party than I am,
but we both seem to have this libertarian streak to leave free
people and free enterprise minimally limited. I hate
restrictions and limits unless they are harming someone else.
The Europeans seem to be more restrictive. Even the concept
of the Internet is being somehow governed by the United
Nations. To me this is just an abhorrent idea. This is not
something for the United Nations or folks in Geneva need to be
worrying about. Let individuals make those decisions. I think
the Internet is the greatest invention since the Gutenberg
press for the dissemination of information and ideas, and the
last thing we need is regulatory reform.
You can take the example of Martin Luther in Germany, the
Church at Wittenberg, where he nailed his 95 theses. People
would not have read those but for the Gutenberg press getting
it disseminated. So that is another reason, just historically,
you do not want government regulations.
Some have viewed the European Commission position--and it
ends up depending on the industry to thinking that the
government is the best capable of setting parameters and
standards. My general view is that I would like to have the
industry, the people in the private sector, saying here is our
standard. This applies not just to the U.S. and E.U. It ends up
with China as well because if China comes up a different
standard, that fouls all of us up.
How does the industry look at this approach, or the
propensity of the Europeans to be looking at government setting
standards, as opposed to those in private industry? Is that a
legitimate concern?
Mr. Miller. It is. While I think there are many people in
the European Union who do understand the value of having the
marketplace make these decisions, there are others in the
European Union and some of the European Union member states
which still do have a very regulatory approach. The
implications for Europe are fairly clear.
When I was in London recently, for the meeting I mentioned,
there was also a meeting hosted by my good friend, Mike
Maibach, the head of the European-American Business Council. He
brought in a research firm who had been studying the impact of
the European approach versus the U.S. approach in terms of ICT,
a firm called Indepen. They gave a report to the group at an
event that he hosted. It showed that the European Union--this
is counting the original 15 member states, before the accession
of the additional 10--that ICT was only 5.8 percent of GDP,
whereas in the U.S. it is 6.3 percent of GDP.
Senator Allen. Say that again. What are you measuring here?
Mr. Miller. Gross domestic product. In the U.S., IT is 6.3
percent of GDP. It is 5.8 percent in Europe, half of a full
percentage point, which is a huge amount.
In another metric, the ICT investment in terms of all
investment in Europe is only 18 percent; whereas, in the U.S.,
it was 29 percent. So there is a lot more investment by
customers of IT in the U.S. as opposed to what is going on in
Europe.
And in terms of perhaps the most important economic factor
that economists look at over time, which is labor productivity
growth, because at the end of the day, you cannot grow an
economy unless you get productivity growth, ICT contributed 42
percent of labor productivity growth in Europe during the last
half of the last decade, while it contributed 80 percent of
labor productivity growth in the U.S.
So, the short answer to your question is the European Union
attitude is not just sometimes creating difficulties between
Europe and the U.S.; it is actually, I would argue, even
hurting Europe itself.
I will tell you, this is not a European policy, but some
nation states in the European Union, as you know, have very,
very restrictive labor mobility laws. It is very difficult to
dismiss someone, to use the nice terminology, to downsize, to
right size, whatever the terminology is. Well, the implication
of that is if you are an IT services firm--and you have many of
them headquartered with very, very significant operations in
northern Virginia, and you know them all very well, and some
will be testifying on the next panel--you basically have to be
out of your mind to open a facility in some of those countries
in Europe because your whole business model is that when things
are going well, you hire more people, and when things are not
going quite so well, you have to have the flexibility to lay
some people off. That is your whole business model. Your assets
are those people. Sometimes business is good, sometimes
business is not so good.
Another event I attended while I was in London, at an event
hosted by our sister association, Intellect--I was very busy in
London--was a presentation by a research group called Ovum. One
of the speakers noted that he had clients in one particular
country, France, where they were having to accept clients
paying only 30 percent of their normal labor fee because they
had to get some cash in the door because they could not fire
these people. They could not lay them off. They could not do
normal kind of business activity. Those clients, of course,
were very seriously looking at pulling out of that country.
Now, that does not help the workers in that country. It
does not help the users of IT in the country. It does not help
the French economy to have leading IT companies, whether they
are European or U.S., saying I do not want to do business here
because of bad, restrictive, unnecessary labor mobility laws.
We understand the need to protect the rights of workers. That
is not the issue, but the issue is in a services economy, the
IT economy, you have to have flexibility.
So having said all that, I would still say the European
Union officials here in the U.S. and Europe are always willing
to meet with us. We do have a lot of dialogue going on,
Senator. So I do not want to claim that there is no dialogue
going on, but I think we still have a long way to go to get on
the same page.
Senator Allen. Let me finish with this question. We have to
finish with something positive. Can you give me an example of
where this cooperation has actually been beneficial? Every once
in a while, if you find those sort of approaches, that can be
the model for future discussions and cooperation.
Mr. Miller. I think there are a lot of very positive
conversations going on in the research and development area in
various areas of IT between the U.S. and Europe, and more and
more joint research projects are being set up. I think that has
been an area that has been very, very positive and is moving
forward.
Senator Allen. How about on standards?
Mr. Miller. On standards we are making some progress, but
again, the Europeans still tend to bend a little bit toward
government knows best or locking in technologies as opposed to
locking in outcomes and letting the industry come up with them.
Yes, there is some good dialogue going on. After all, the
telecommunications system does work between here and Europe.
Europe has, to a large extent, deregulated its
telecommunications market, in some ways better than we have in
some areas. They have moved ahead with some technology even
faster than we have in some areas, but I still think there is a
long way for us to go in partnership to do a lot more.
Senator Allen. Well, Mr. Miller, I very much appreciate you
appearing, your insight, and I look forward to working with you
in the years to come on these shared interests and ideas for
the future of our country--working with the Europeans, but also
making sure this country is competing and succeeding as well.
Mr. Miller. Thank you very much, Senator.
Senator Allen. Thank you so much.
We are having votes this afternoon, and some members may
not get here. Some may want to pose some questions in writing,
and hopefully you will be willing, as always, to answer those
questions.
Mr. Miller. Absolutely.
Senator Allen. Thank you, Mr. Miller.
I would like to call forward now our second panel, if you
would all approach.
Well, I want to thank our second panel for being here. We
have Mr. Patton and Mr. Hassell to talk about the European
collection. Correct?
Mr. Hassell. Yes, Senator.
Senator Allen. All right, on nanotechnology we have Mr.
Harper and Mr. Klaessig, and then on IT access we have Ms. West
and Mr. Duffy.
What I would like to do is have everyone shift. We have not
hiked the ball, so everyone still can shift so we have at least
a coherence of going from nanotech, to IT, to Euro, then back
to nanotech.
Let me briefly introduce our second panel. I am going to
stick with this order; it will be close enough.
First, Mr. Harper. Steve Harper is the director of
Environmental, Health and Safety Policy for Intel Corporation.
Prior to being at Intel, he directed Amoco Petroleum's Fuel
Regulatory Service Group and was a senior policy analyst at the
United States EPA. Prior to his work at EPA, he was vice
president in the consulting firm, ICF Consulting. Mr. Harper
has an MBA from the University of Chicago and an MPA from
Princeton. Welcome, Mr. Harper.
Dr. Klaessig is the technical director of Aerosil and
Silanes Business Unit of Degussa Corporation, which is
headquartered in Germany. Pertinent to his testimony is his
work on fumed metal oxide powders, silica, titanium oxide,
alumina, and others which are high surface area powders
supplied by Degussa for more than 60 years. Though not fitting
the dominant definition of nanoparticles, these materials have
many attributes associated with nanomaterials. Prior to working
at Degussa, Dr. Klaessig led the research department at Betz
Laboratories. He has a Ph.D. from Rensselaer Polytechnic
Institute and a bachelors of science from the University of
California at Berkeley.
Thomas Patton is the vice president of government relations
for Philips Electronics North America Corporation, Philips a
Dutch company. He joined Philips in 1986 to open its first
Washington office on federal government relations. He was
elected vice president and corporate officer in January of 1989
for government relations for the NAFTA region and is a member
of the Philips global government relations team. He had
previously worked for the U.S. electronics industry and trade
organizations and was a policy analyst for the Office of the
Secretary of the U.S. Department of Health and Human Services.
Mr. Patton received his masters in public administration from
American University in 1978 and his B.A. in political science
from Stetson University in 1976.
John Hassell is the director of federal and state
government affairs for Hewlett-Packard Company based in
Washington, D.C. In the U.S., he helps lead the public policy
and public sector business development at the federal and state
government agency level. Hewlett-Packard is a wonderful
international company, great technology company, and Mr.
Hassell joined in January of 2000. He is a native of Newport
News, Virginia, is a graduate of the College of William and
Mary, and now reportedly lives in Washington, D.C. Is that
correct?
Mr. Hassell. My dad still lives in Richmond.
Senator Allen. All right. Well, you ought to get on the
other side of the bridge.
At any rate, Ms. Frances West. Ms. West is the director of
the Worldwide Accessibility Center at IBM. She is charged with
the responsibility of establishing IBM's leadership and
accessibility by promoting IBM technology through thought
leadership, products, and solutions on a worldwide basis. Her
team is based in the IBM research area but works across all
divisions of IBM. She attended universities in Hong Kong and
the United States, and earned her bachelors degree in
marketing. Welcome, Ms. West.
Finally, Joseph Duffy. Mr. Duffy is the vice president of
SAP Public Services, where he has responsibility for a number
of key strategic initiatives and customer relationships. Mr.
Duffy is the spokesperson for SAP's efforts in accessibility
and the executive sponsor of numerous customer relationships in
federal, state, and local government and utilities as well.
Prior to joining SAP, he spent 17 years at their rival, Oracle,
in a variety of executive and sales management positions. He
received his bachelors degree from the University of Maryland
and he has attended numerous business and trade education
forums. He is a member of the board of directors of Plato
Learning, which is the NASDAQ symbol TUTR, if you want to check
it out. He resides with his family in Potomac, Maryland.
Welcome to you all. I thank you all for coming. What I
would suggest we do--I assume you all have this agenda--Mr.
Patton and Mr. Hassell will talk on the European collection.
Then if we could have Mr. Harper and Mr. Klaessig talk about
nanotechnology, and then Ms. West and Mr. Duffy on IT access.
If there is no objection, I would like to proceed that way. We
would like to hear first from Mr. Patton.
STATEMENT OF THOMAS B. PATTON, VICE PRESIDENT, GOVERNMENT
RELATIONS, PHILIPS ELECTRONICS NORTH AMERICA, WASHINGTON, D.C.
Mr. Patton. Thank you very much, Chairman Allen.
First, a couple of very quick reactions to the excellent
testimony of Mr. Miller. If being a Virginian gets you your own
panel, I deserve one too. I was born in Winchester, Virginia.
Senator Allen. Oh, great. Did you go to Apple Blossom last
weekend?
Mr. Patton. I did not get out there. Others in my family
were there, though. I do reside in the District.
Senator Allen. Are you related to General Patton?
Mr. Patton. No, sir.
Senator Allen. He went to VMI, you know.
Mr. Patton. Yes, and my dad did as well.
Senator Allen. Great.
Mr. Patton. Secondly, my son takes off for 6 weeks for
biology camp this summer in Sanibel Island in the Keys. It is
all outdoors, and it should be a lot of fun.
Senator Allen. See, that is the way to do it: incent it so
it is fun.
Mr. Patton. And thirdly, if you have to run for President
to launch a bold initiative in the math and science area, there
would be a few that would support that idea.
Senator Allen. All right. We have got to stay to relevant
subjects here.
Mr. Patton. Thank you for this opportunity. I appreciate
being here. My name is Tom Patton, vice president for
government relations with Philips Electronics North America
Corporation, a subsidiary of Royal Philips Electronics.
As a health care, lifestyle, and technology company,
Philips is a world leading manufacturer of medical devices,
lighting products, consumer electronics, semiconductors, and
domestic appliances. We employ more than 160,000 people
worldwide, more than 30,000 in the United States. It invests
more than $1 billion annually in research and development and
we are proud to hold more than 115,000 patents.
I am testifying on behalf of Philips, of course, as well as
the European-American Business Council, which is committed to
fortifying U.S.-E.U. economic integration, growth and
competitiveness by establishing an open transatlantic market
that stimulates innovation, investment, economic growth, and
job creation.
My testimony today addresses a matter of serious
consequence for the transatlantic relationship and, indeed, to
global economic growth and the future of technological
innovation, especially innovation in digital content protection
technologies, an area of great importance in the new digital
era. Specifically, I speak of the urgent need to harmonize,
rationalize, and modernize Europe's myriad national copyright
levy regimes. These levies, which are administered on a
country-by-country basis throughout the E.U. by national
entities known as collecting societies, are remnants of a
bygone era of the analog time and are, indeed, intended to
provide remuneration to authors, artists, and other
intellectual property rights holders for certain uses of
copyrighted works. As these levies are being imposed in today's
digital world, however, they threaten to stifle otherwise
robust consumer demand for new digital products and services
and perversely undermine innovation in technologies that
promise to provide genuine intellectual property rights
protection.
Absent swift and sweeping reform, technology companies such
as Philips face an unacceptable array of risks and potential
liability, all of which deter investment in new digital rights
management and other advanced digital content protection
systems needed to prevent mass, indiscriminate, unauthorized
redistribution of digital video and audio content over the
Internet. The amount of levies imposed upon new high tech
products, often based upon storage capacity, creates a lack of
predictability and may artificially constrain consumer
functionality because the levies militate against incorporating
greater storage capacity.
Today a company seeking to introduce a new digital device
or media to European consumers, including PC hard drives, MP3
players, DVD players and recorders, blank DVD's and CD's, faces
a gauntlet of as many as 20 different national copyright levy
regimes, all of which vary considerably in terms of the rate,
the scope, complexity, structure, and payment processes.
For example, in France, levies imposed by that country's
collecting society, SACEM, on blank DVD's now represent more
than 47 percent of the final price for the consumer. In
Germany, where their levy is on PC hard drives, as disk drive
sizes expand to terabytes in notebooks and petabytes in home
DVR's, the tax will far outweigh not just the cost of the
drive, but the cost of the entire device. In Austria, the
exorbitant levy imposed upon MP3 players has caused Philips to
delay introduction of its Jukebox product in that country.
This creates nothing less than a toxic environment for
investment and stands in marked contrast to that of the United
States which has chosen, quite wisely--and thanks in large part
to your leadership, Senator Allen--to promote innovation and
economic growth in Internet-based services by shielding them
from these very types of redundant and excessive taxes.
Philips suggests that there are three areas most in need of
reform. The first is harmonization. Despite the continued best
efforts of the European Commission to foster a uniform,
rational European system of copyright levies, uneven and
incomplete implementation of these objectives has,
unfortunately, resulted in a patchwork quilt of outmoded,
inefficient, and excessive levies, dramatically increasing the
final sales price to consumers of many products or impeding
their market introduction altogether. Potential reforms in this
area might include standardized levies on agreed-upon products
throughout Europe or eliminating the individual levies
collected directly by collecting societies in favor of a
payment of a fixed amount from a VAT tax.
The second area is better governance and increased
transparency. There is a need to address the severe lack of
basic good governance, transparency, and accountability in the
way that national collecting societies operate. In particular,
the arbitrary and discriminatory manner in which these levies
are enforced is a major problem and has resulted in
competitively disadvantaging the larger leading manufacturing
companies, the ones most engaged in innovation, while virtually
ignoring smaller competitors.
Philips supports efforts being undertaken by the EC to
impose good governance rules on collecting societies and agrees
that such rules are crucial. In particular, processes should be
open, transparent, and nondiscriminatory, both to the
manufacturers paying in and the rights owners being
compensated.
Finally is the area of modernization. Technology companies
such as Philips and major copyright owners agree that levies-
based copyright protection systems are nothing less than
archaic in light of the digital technology alternatives.
Technology-based solutions make it easier for content owners to
identify authors and articulate terms of usage, to establish
prices and collect payment, and to determine, among other
things, how content is delivered, accessed, and copied. As
these technologies evolve, content providers are discovering
new ways to use them, developing exciting new business models
that allow them to better satisfy a broad spectrum of user
requirements. The ultimate beneficiaries of these developments,
of course, are consumers who can enjoy greater and more user-
friendly opportunities to access and interact with digitally
distributed content.
In this new digital environment, it is more important than
ever that intellectual property laws and regulations strike an
appropriate balance between a consumer's right to copy for
personal and noncommercial use and content owners' right to
protect their works from unauthorized redistribution,
especially over the Internet.
In light of this need for a modern and balanced approach,
Philips is particularly disturbed by the finding of a French
court that recently ruled that DRM-based security features on
DVD's are actually illegal, as they violate that country's
private copying right. By outlawing DRM solutions for DVD's,
the French court's decision does not appear to recognize or
respect the need for such a balance, and unless overturned,
that decision could harm innovation and uptake of similar
technology solutions that offer much needed relief from that
and other E.U. countries' oppressive system of levies.
In conclusion, Senator Allen, the current system of
balkanized, excessive, and secretive national copyright levies
in Europe is so flawed and so potentially harmful to global
economic growth and technological innovation that it demands
immediate, high level transatlantic cooperation. It would be
most productive if this topic and the reforms we suggest could
be given high priority at the United States-European Union
summit next month.
Again, I thank you for the opportunity to appear before
this subcommittee and would be pleased to answer any questions.
Thank you.
[The prepared statement of Mr. Patton follows:]
Prepared Statement of Thomas B. Patton
Thank you, Chairman Allen, ranking member Biden and members of the
subcommittee. My name is Tom Patton, and I am Vice President for
Government Relations with Philips Electronics North America
Corporation, a subsidiary of Royal Philips Electronics headquartered in
Amsterdam, The Netherlands. On behalf of the European-American Business
Council, Philips welcomes the opportunity to participate in this
subcommittee's hearing on U.S. and European regulations affecting
emerging technologies.
Philips is a diversified global technology company employing more
than 160,000 employees in over 60 countries worldwide, roughly 30,000
of whom work in the United States. Philips is a company focused on the
physical and emotional well-being of its customers, manufacturing
products as varied as defibrillators and medical diagnostic equipment,
electric toothbrushes, electric shavers, and a full range of video and
audio entertainment products from digital televisions to the Jukebox
MP3 player. Philips is currently number 1 in the global markets for
lighting, electric shavers, and DVD recorders, and we're number 2 in
medical diagnostic imaging worldwide. Philips Consumer Electronics is
the third largest consumer electronics company in the world and the
largest in Europe. Together with Sony, Philips invented the technology
that enabled the development of the CD and DVD industries. Our company
invests more than a billion dollars annually in research and
development and holds more than 115,000 patents.
The transatlantic economic relationship is one of most important in
the world. Bilateral trade and investment are powerful forces that have
fostered prosperity and stability between the U.S. and Europe, as well
as much of the world. In 2003, total transatlantic commercial exchanges
reached $2.5 trillion, generating $77.1 billion in earnings for U.S.
affiliates in Europe and $46.4 billion for European affiliates in the
U.S. In that same period, total U.S. investment in Europe was $800
billion and total European investment in the U.S. was more than $1
trillion. Not surprisingly, this investment is a major engine for job
growth, with 4.2 million people employed in the U.S. by European
affiliates and 3.2 million people employed in the E.U. by U.S.
affiliates. With eleven percent of the world's population and forty
percent of its GDP, the U.S. and E.U. together are both an engine for
global growth and leaders in standards-setting for the world. The
European-American Business Council is committed to fortifying U.S.-E.U.
economic integration, growth and competitiveness through regulatory
convergence and free exchange of goods, services and capital. EABC
pursues mutually beneficial solutions to U.S-E.U. trade barriers
through enhanced government-to-industry dialogue across the Atlantic.
THE NATIONAL COPYRIGHT LEVY SYSTEM IN EUROPE IS BROKEN
My testimony today addresses a matter of real consequence to global
economic growth and future technological innovation, and in particular,
to the development and introduction of new and effective digital
content protection technologies, exciting consumer digital
entertainment devices and IT services. There is an urgent need to
harmonize, rationalize, and modernize the laws and regulations that
govern how intellectual property rights are protected and compensated
in the European market.
Currently, throughout Europe, there exists a system of copyright
levies, collected and distributed on a country-by-country basis
throughout the E.U. by national entities known as ``collecting
societies.'' The purpose of these levies, which originated in the
analog era, is to provide remuneration to authors, artists, and other
intellectual property rights holders for certain uses of copyrighted
works, some of which, such as certain home copying, are not subject to
copyright control in the U.S. As these levies are being imposed in
today's digital world, however, they are causing serious market
distortions, threaten to stifle otherwise robust consumer demand for
new digital products and services, and perversely undermine the very
intellectual property rights protection that they are intended to
promote.
Absent swift and sweeping reform of the myriad national copyright
levy regimes operating in Europe, technology companies such as Philips
face an unacceptable array of risks and potential liability, all of
which deter investment in new digital rights management and other
advanced digital content protection systems needed to prevent mass,
indiscriminate, unauthorized redistribution of digital video and audio
content over the Internet. The amount of levies imposed upon new high-
tech products, often based upon storage capacity, creates a lack of
predictability and may artificially constrain consumer functionality
because the levies militate against incorporating greater storage
capacity. The balance of trade deficit for the United States will
worsen because both the American entertainment and high-tech industries
stand to lose significant revenues under the current levy system.
The negative consequences of this increasingly out-of-control
system of levies on global economic growth and technological innovation
are so serious and immediate that reform of the system should be
accorded real priority in next month's U.S.-E.U. summit.
Of particular concern to Philips is the evolution of these
copyright levies--functionally consumer taxes--on the sale of virtually
anything capable of storing or recording digital data. Today, a company
seeking to introduce a new digital device or media to European
consumers, including PC hard drives, MP3 players, DVD player/recorders,
blank DVDs, and CDs, faces a gauntlet of as many as 20 different
national copyright levy regimes, all of which vary considerably in
terms of rate (as well as the metrics used to assess that rate), scope,
complexity, structure, and payment processes.
For example, in France, levies imposed by SACEM on blank DVDs now
represent more than 47 percent of the final price for the consumer. In
Germany, where there is a levy on PC hard drives, as disk drive sizes
expands to terabytes in notebooks and petabytes in home DVRs, the tax
will far outweigh not just the cost of the drive, but the cost of the
entire device! In Spain, a multi-function copier/fax/printer costs
around =79 (approx. $102) (including 16% VAT). Spain's collecting
society, SGAE, imposes a levy on that device of slightly more than =45,
which is also subject to a 16% VAT, thus increasing the final price to
the consumer by 66 percent, to =131 (approx. $170). In Austria, the
exorbitant levy imposed upon MP3 players has caused Philips to delay
introduction of its ``Jukebox'' product in that country.
The trend line is clear. Ever-increasing levy rates are being
exacted by national collecting societies across Europe without any
semblance of uniformity on an ever-increasing number of digital
consumer electronics devices and blank media. To make matters worse,
the irregular manner in which these levies are imposed and enforced
disproportionately harms the most innovative technology companies,
often ignoring entirely lesser-known ``copy-cat'' manufacturers.
Indeed, in a perverse twist, the more modern the product, the more
cutting-edge the technology, and the earlier its introduction to the
market, the greater is the risk. In short, the national levy system in
Europe turns all of the fundamental laws of capitalism on their heads.
The net effect of these disparate, unevenly enforced and
unreasonably high copyright levies is nothing less than a toxic
investment environment for U.S. and European companies, including
Philips, that are at the forefront of digital technology innovation.
How can technology companies justify the enormous initial investments
required for innovation, including innovation in the very types of
technologies that offer a better solution to protecting digital
content, if they cannot even plan new products because of the
unpredictable effect of ever-increasing and redundant copyright levies?
The answer is they cannot.
It's important to point out that the current approach in many E.U.
Member Countries to tax emerging technologies as much as possible
stands in marked contrast to that of the U.S., particularly this
country's decision--thanks in large part to your leadership, Mr.
Chairman--to promote innovation and economic growth in Internet-based
services by shielding them from these very types of redundant and
excessive taxes. Thank you. We hope you will agree that, for the sake
of preserving and promoting a vibrant and healthy transatlantic
economy, and the enormous benefits that clearly flow from that, a
similar approach is desperately needed in Europe.
NEEDED REFORMS
There are three distinct areas of reform that need to be undertaken
immediately: harmonization, vastly increased transparency, and, most
importantly, a fundamental re-examination leading to modernization.
1. Harmonization
Despite the continued best efforts of the European Commission
(initially through its adoption its 2001 Copyright Directive
(implementing its obligations under the WIPO Treaty) and today in its
pending review of Member Countries' implementation of that Directive)
to attempt to foster a more harmonized and rational system of laws to
protect intellectual property and preserve and promote technology
innovation and competition, uneven and incomplete implementation of
these objectives by E.U. Member Countries has unfortunately resulted in
a patchwork quilt of outmoded, inefficient and excessive levies--either
increasing the final sales price to consumers of many products or
impeding their introduction into the market altogether. This maze of
disparate copyright levies distorts cross-border trade and creates
massive inefficiencies and costly administrative burdens. It
competitively disadvantages leading manufacturing companies which bear
the brunt of the levies. Potential reforms in this area might include
standardized levies on agreed upon products throughout Europe or
eliminating the individual levies collected directly by collecting
societies in favor of payment of a fixed amount from a VAT tax.
2. Governance and transparency
There also is a need to address the severe lack of basic ``good
governance,'' transparency and accountability in the way that national
collecting societies operate. Incredibly, the manner in which these
quasi-governmental, quasi-private entities operate and set levies is
closed to public scrutiny with little meaningful opportunity for
stakeholders to participate in the levy-setting or distribution
processes or to object to these levies once established. The arbitrary
and discriminatory manner in which these levies are enforced is
contrary to every basic tenet of fairness. Moreover, even most of the
largest and most creative content owners, whose intellectual property
rights these levies are supposed to protect, strongly oppose the
current system because it does not serve the core purpose of protecting
their digital content; instead it simply favors a select group of
domestic rights holders or other pet parochial projects.
Philips supports efforts being undertaken by the E.C. to impose
``good governance'' rules on collecting societies, and agrees that such
rules are crucial. In particular, processes should be open, transparent
and nondiscriminatory. Stakeholders should be able to contest tariffs
through efficient, open and cost-effective procedures conducted by an
independent third party, with appeal to the E.U. as necessary and
appropriate. Similarly, collection societies should be required to
publish detailed information on the amounts they collect and the
distributions they make.
3. Modernization that emphasizes digital content protection technology
solutions
The problems with the national system of copyright levies are so
acute today that these first two major areas of reforms must be
implemented right away. They are not, however, substitutes for a
fundamental re-examination of the levy system and development of a
modernized system that reflects the realities--and responds to the
imperatives--of the digital era in which we now live.
Technology companies such as Philips and major copyright owners
such as U.S. motion picture studios and record companies stand united
in the belief that the advent of digital technology demands a new
paradigm in which digital content protection technologies and digital
rights management systems--not taxes--play a paramount role in ensuring
that rights owners are appropriately and adequately compensated for
their works and that those works are better protected from
indiscriminate, unauthorized redistribution.
In fact, levies-based copyright protection systems are nothing less
than archaic in light of the digital technology alternatives.
Technology-based solutions make it easier for content owners to
identify authors and articulate terms of usage, to establish prices and
collect payment, and to determine, among other things, how content is
delivered, accessed and copied. As these technologies evolve, content
providers are discovering new ways to use them, developing exciting new
business models that allow them to better satisfy a broad spectrum of
user requirements. The ultimate beneficiaries of these developments, of
course, are consumers, who can enjoy greater and more user-friendly
opportunities to access and interact with digitally-distributed
content.
It is no wonder that the content industry prefers DRM-based
solutions over private copy levies. As one major content industry
association executive recently stated, ``Private copy levies impose a
cost on all consumers, whether or not they copy, and distribute the
proceeds imprecisely and with high overhead.''
For these reasons, Philips and the EABC agree with the European
Commission that DRM solutions represent ``. . . an important, if not
the most important, tool for rights management in the [European] market
of the new digital services.'' Indeed, we urge that copyright regimes
must be modernized not only to reflect the availability and
effectiveness of these technologies, but to promote their development
and use.
The outlook for technology alternatives in the European context,
however, is not particularly good. Just last month, a French court,
reversing a lower court ruling in the Que Choisir case, ruled that DRM-
based security features on DVDs are actually illegal, as they violate
that country's private copying right. In this new digital environment,
it is more important than ever that intellectual property laws and
regulations strike an appropriate balance between a consumer's right to
copy for personal and non-commercial use, and content owners' right to
protect their works from unauthorized redistribution especially over
the Internet. By outlawing DRM solutions for DVDs, the French court's
decision does not appear to recognize or respect the need for such a
balance, and, unless overturned, that decision could harm innovation
and uptake of similar technologies solutions that offer much needed
relief from that and other E.U. countries' oppressive system of levies.
CONCLUSION
The current system of balkanized, excessive and secretive national
copyright levies in Europe is so flawed and so potentially harmful to
global economic growth and technological innovation that it demands
immediate, high level transatlantic cooperation. It would be most
productive if this topic could be given high priority at the United
States-European Union Summit next month.
Again, I thank you for the opportunity to appear before this
subcommittee and would be pleased to answer any questions.
Senator Allen. Thank you for your testimony, Mr. Patton.
I want to actually ask questions at the end, but there are
some that just hit me. With these balkanized approaches, what
people do in this country is they just trade over the borders.
If certain things are cheaper on one side of the border in
different States, they go over there and buy it. Does, say, a
French person--or whatever that was that cost so much there--go
over to Switzerland or to Germany or Belgium and buy it, or
does somebody from Germany go to Austria. Or does somebody from
Austria where you were not putting in the MP3, I think you were
saying, just go to Hungary or to Germany and buy them there
where the levies are less?
Mr. Patton. Yes, Senator. It is hard to know what exact
numbers to attribute to that kind of reaction by the consumer
in the marketplace. Because the marketplace is so distorted by
these various collecting societies and the levies that they
produce, it is not clear where one would go to avoid these. But
it is definitely changing the consumers' behavior in these
markets.
The distortion leads to a variety of other problems as
well. A great market for products that are not paying the
levies is a very lucrative market for these products. It is
changing the business behavior. You would think that you would
come to the point where you might ignore these arbitrary and
discriminatory kinds of programs, but then you find yourself at
the place such as in the French courts where your DRM
solutions, for example, are deemed illegal. So it is a system
in much need of repair.
Senator Allen. Thank you, Mr. Patton. And it should be made
a priority. That is one of the reasons we held this hearing at
this time before that meeting. Thank you.
Mr. Hassell.
STATEMENT OF JOHN D. HASSELL, DIRECTOR OF FEDERAL AND STATE
GOVERNMENT AFFAIRS, HEWLETT-PACKARD COMPANY, WASHINGTON, D.C.
Mr. Hassell. Good afternoon, Senator Allen. Thank you. My
name is John Hassell. I am director of federal and state
government affairs for Hewlett-Packard Company. I thank you,
Mr. Chairman, and the committee for hosting this hearing on
several issues of importance to HP.
Senator Allen. By the way, let me interrupt briefly. Your
entire testimony, just for time--and I do not know when we are
going to get another vote. If you could summarize your
statements and your key points, that would be appreciated. Your
whole statement will be made a part of the record. I just do
not want folks getting cut off. So if each of you all could
summarize your statement in 5 to 7 minutes, that might be
helpful just in the caution of votes and time. Excuse me, Mr.
Hassell.
Mr. Hassell. Thank you. I will be brief.
As you are well aware, the world is experiencing a digital
entertainment revolution where the consumer is in charge. Using
new technologies, consumers are now able to have a digital
mobile, virtual, and personal experience with content in ways
never before imagined. As the largest consumer IT company, HP
stands firmly at the center of this revolution. We are striving
to build every one of our consumer devices to ensure an
exciting and rewarding experience for consumers, while at the
same time respecting and supporting intellectual property.
HP is committed to three principles to support digital
rights management: one, to emphasize the consumer experience;
two, to build reasonable content protection solutions; and
three, to respect intellectual property and copyright.
Unfortunately, our efforts and the efforts of others in the
tech industry to give consumers these exciting opportunities
are being undermined by private copyright levies. Tax-like
levies were developed almost 50 years ago at a time when it was
impossible to ensure that authors received fair compensation
for uses of their works. Today, however, technologies like
digital rights management systems make it possible for
consumers to fully enjoy works while preventing unauthorized
uses.
While DRM's are complex in their workings, what they mean
at a practical level is that content creators, the right
holders, are able to control how their works are enjoyed and to
set license fees accordingly. At the same time, DRM's enhance
the consumer experience as well by offering new and simpler
ways for users to enjoy copyrighted works.
HP is active in this space. One of our products includes
the HP DVD movie writer, the first system in the industry to
respect digital rights, informing the consumer only when
content cannot be legally copied.
Despite the development of tools like this one, we continue
to see the virtual unfettered expansion of tax-like levy
regimes throughout Europe. HP is currently paying levies on CD
and DVD burners, as well as multi-functional devices such as
copies and scanners. In Germany, a recent court judgment now
under appeal upheld the extension of levies to PC's. HP is
engaged in separate litigation regarding the application of
these levies to printers. In some instances, proposed levies
have even exceeded the cost of the product being levied. In
others, competing collecting societies are seeking levies on
the same products.
We seek the subcommittee's support to address the
challenges brought on by copyright levies. At the outset, I
want to stress the E.U.'s constructive role in this issue. It
is important to note that the expansion of levies, without
regard to DRM's, is happening in spite of E.U. law to the
contrary. Indeed, the E.U. has worked closely with HP and other
companies in an effort to ensure these limitations are
respected in practice. For this, we are grateful.
We ask you to do two things, Mr. Chairman. We respectfully
urge the subcommittee to express its support to the E.U. in
these efforts. As the E.U. currently considers broad-based
legislation on collective rights management, the IT industry
has called upon it to take this opportunity to review the
functioning of national levies regimes. We ask the E.U. to
impose clear parameters to limit efforts to expand those
regimes into the digital arena. Specifically, Mr. Chairman, we
request that you communicate support for this position to
Commissioner McGreevy, the commissioner for internal market and
services, and other counterparts in Europe.
At the same time, secondly, countries outside of Europe are
studying whether they should expand levies regimes to cover
digital products. We believe U.S. free trade agreements should
include language opposing the establishment of new levy systems
and calling for the phase-out of existing levies. We ask for
your support in this effort as well.
Thank you again for your leadership on this issue and for
holding this hearing. I stand ready to answer any questions you
may have.
[The prepared statement of Mr. Hassell follows:]
Prepared Statement of John Hassell
Good afternoon. My name is John Hassell. I am the Director for
Federal and State Government Affairs for the Hewlett-Packard Company.
HP is a technology solutions provider to consumers, businesses and
institutions globally. The company's offerings span IT infrastructure,
global services, business and home computing, and imaging and printing,
with annual revenue exceeding $81 billion.
I thank the committee for hosting this hearing and for giving me
the opportunity to testify today. We applaud that you have chosen for
consideration three issues of critical importance to HP. In my
testimony, intend to address the increasingly important issue of
European ``private copy levies.''
As my testimony will demonstrate, levies are now outdated and pose
a significant threat to the interests of authors, consumers and
technology developers. They were developed almost 50 years ago, at a
time when it was impossible to ensure that authors received fair
compensation for uses of their music or movies. Today, technologies
like digital rights management make it possible for both the consumer
to fully enjoy the work while preventing unauthorized uses. The tax-
like levy raises costs to all, and creates the misimpression that
piracy is sanctioned. This was never the goal of levies, and it
constitutes bad public policy.
We believe that circumstances have evolved to the point where the
rough justice that justified levies in the first place is no longer
good policy. E.U. law recognizes this change. But many European
countries persist not only in maintaining their levies regimes, but in
expanding them to new areas. The net result is increased costs to
consumers, who end up paying two or three times for the music and
movies they acquire.
We seek your support in addressing this challenge. More
specifically, we ask that the subcommittee support the E.U.'s efforts
to address national levies regimes through its upcoming directive on
collective rights management. We also recommend that U.S. trade
agreements include language opposing the establishment of new levy
systems and calling for the phase-out of existing levies.
ORIGIN OF COPYRIGHT-RELATED LEVIES
I would like to start my testimony by offering a brief explanation
of the origins of the levy system in Europe for those of you unfamiliar
with this system.
Many European Union member states have what is known as a ``private
copy exception'' in their copyright laws. This exception permits users
in certain situations to reproduce copyrighted works such as music and
movies for personal use. (Notably, there is no private copy exception
for software).
This exception raised a problem of remuneration for authors,
however. In the days of analog works, it was extremely difficult for
authors and right holders to monitor or administer the private copy
exception. There was no effective way for right holders to control how
and when private copies of their copyrighted works were made.
Similarly, there was no effective way for them to track the number of
private copies being made or to be remunerated directly for those
copies.
The levies system emerged in the 1960s as a response to those
challenges. In essence, a levy is similar to a tax added to the
purchase price of blank media and recording and reproduction devices.
Many European states now have legislation that allows national
``collecting societies'' (independent and quasi-governmental
associations responsible for administering levies regimes) to set the
amount of the levy, determine the media and devices that would be
covered by the levy and handle distribution of the funds collected. As
a general matter, a percentage of the levy collected is distributed to
authors and right holders; a percentage is used for the cost of
administering the levy; and, in some instances, an amount is also set
aside to support national cultural funds or projects.
Although so-called ``private copy'' levies have never been able to
accurately reflect the actual value and use of any particular work,
they were deemed to be the only practical method to compensate right
holders for private copy exceptions in the analog era. In short, levies
reflected a compromise solution in a world where the technology did not
exist to manage particular uses of works.
LEVIES TODAY: THE DIGITAL DIMENSION
In today's digital world, the fundamental premise that underlies
levy regimes--the author's inability to control private uses of his or
her work--has been eroded dramatically. Indeed, technology now enables
right holders to exercise far greater control over the use of their
works and to be compensated accurately for such uses.
These technologies are commonly referred to as ``digital rights
management'' technologies or ``DRMs.'' DRMs are among the most
important and most exciting emerging technologies. While these
technologies are complex in their workings, what they mean at a
practical level is that authors and right holders are able to control
how their works are enjoyed and to set license fees accordingly.
Authors, composers, recording companies and even collecting societies
are now using DRM systems to identify content and authors, to set forth
acceptable uses, to establish prices and to grant licenses directly and
automatically to individual users. At the same time, DRMs enhance the
consumer experience as well, by offering new and simpler ways for users
to enjoy copyrighted works.
HP is very active in the DRM space. Our activities in this area,
which are focused on enhancing the consumer experience, building
reasonable solutions for respecting creative content, and respecting
copyright, include the following:
HP created HP DVD Movie Writer, the first system in the
industry to respect digital rights, informing the consumer only
when content cannot be legally copied;
HP allied with Apple on iTunes and iPod to deliver the best
music experience possible;
HP developed VCPS with Philips, and licensed other industry
leading DRM technologies;
HP collaborates with numerous standards bodies and industry
consortia to further next generation technologies, such as the
Advanced Access Copyright System, Open Mobile Alliance DRM,
Content Management Licensing Administrator, and DVD Copy
Control Association;
HP is a founding member of the Coral Consortium, a cross-
industry group to promote interoperability between DRM
technologies used in the consumer media market.
The above are only a few examples of HP's commitment to ensuring a
simple, affordable and enjoyable entertainment experience that is
supported by a fair business model for content providers.
Tools like the ones described above are enabling right holders to
manage their works directly and thus are eliminating the need for
traditional levies. In light of these developments, one would
anticipate that levies would be scaled back. This has not been the
case, however. Instead, we have consistently seen the expansion of
levies regimes throughout Europe--including the systematic extension of
levies to digital media and equipment and an ongoing increase in the
amount of levies demanded by collecting societies.
It is important to note that the expansion of levies is happening
despite a 200 law adopted by the European Union that instructs Member
States to the contrary. The ``Copyright Directive''--which brings
European copyright law into the digital age--makes clear that levy
regimes must be adjusted to reflect the application of DRMs. The
majority of Member States and national collecting societies have yet to
implement this obligation in practice, however.
Instead, despite the increasing usage of DRMs, national collecting
societies are applying levies to an expanded universe of products.
Depending on national legislation, levies are being extended to digital
equipment such as PCs, printers, mobile-phones, personal video
recorders and portable music players, fax machines, copiers, scanners
as well as to a wide variety of media (hard disks, memory cards, CM,
DVD-R). In some Member States, proposed levies have exceeded the cost
of the product being levied. In others, competing collecting societies
are seeking levies on the same products.
To take just one example of particular significance to HP, in
Germany, a high-profile case brought by the collecting society VG Wort
against Fujitsu Siemens has extended the levies regime to PCs,
notebooks and servers. After unsuccessful negotiations with industry,
VG Wort chose to bring a test case against Fujitsu Siemens, arguing
that its products could be used for copying and therefore should be
subject to levies. Earlier this year, its claim was successful and in
fact, the court initially declared that the levy should be applied
retroactively to include all machines sold since 2001, when the claim
was first made. (The court did rule, however, that the levy should be
12 Euros for each new PC sold rather than 30 Euros as originally sought
by the collecting society.) Fujitsu Siemens was supported during the
proceedings by other hardware manufacturers, including HP, and has
filed an appeal against the decision. The ultimate decision will apply
to other manufacturers as well.
The German levy would be in spite of the fact that PCs are used for
many other purposes than making private copies of copyrighted works.
(As noted, there is no private copy exception for software and thus no
levy applicable to software reproductions). Similar litigation is under
way between VG Wort and HP and Lexmark, concerning attempted levies
sought on printers. Applying levies to multi-functional products
necessarily opens the door to the application of levies to all sorts of
other hardware equipped with memory chips: radio and television sets,
digital cameras, digital video units, telephones, car stereos,
automobile information systems, watches--the possibilities are endless.
If this path is followed, an increasingly large number of users will
end up subsidizing the activities of a small group of private copiers.
THE IMPACT OF LEVIES ON DIGITAL PRODUCTS
Before reviewing the broad and often detrimental effects of digital
private copy levies, let me begin by saying that HP is committed to
fair and full remuneration for rights owners for the use of their
products. What we question is whether levies are the best way to attain
this end--especially in light of digital developments which call into
question the necessity of levies. HP hopes to partner with interested
stakeholders in the transition away from a levies-based system to a
world of reasonable, consumer-friendly solutions for respecting
creative content.
The Impact on Consumers
Levies as a general rule are paid by IT product manufacturers and
importers. Ultimately, however, the consumer shares this burden.
Where DRMs are in place, a levy on digital products means a
consumer may pay two or more times for private copies. For example,
when a consumer purchases her favorite song through a DRM-enabled on-
line music store for use on her MP3 player, the artist receives a
direct payment for her use of the song and for a specified number of
``private'' copies. If collecting societies have their way, that
consumer will also pay a levy on the device. If she stores the song in
her PC, she might pay a levy on the PC, on the CD-burner embedded in
the PC and on the blank CD used to hold the song.
The increasing popularity of on-line music and movies services that
employ DRM technologies and the increasing number of digital devices
covered by the levy system can only mean that more and more consumers
will be charged multiple times for the right to make a copy. This
decreases consumer enthusiasm for DRMs. It also means right holders
have little incentive to apply DRMs to their works.
At a more general level, levies are a tax on digital products. As
such they raise the cost of technology to a country's citizens. When a
collecting society establishes a levy on a new product or raises the
price of a levy on an existing product, the increased price necessarily
results in a lower demand for such products. The result of this ``tax''
is that fewer people possess the newest technological products, slowing
the uptake of new technologies and widening the digital divide.This tax
also suppresses sales by U.S. information and communication technology
(ICT) companies in Europe and reduces investment in, and the
development of, DRM-enabled businesses like those that have flourished
in the United States.
Impact on Industry
Two major studies have been conducted to calculate the significant
costs to industry that levies impose. The first study, undertaken by
Rightscom and commissioned by the Business Software Alliance in
September 2003,\1\ examined the impact of levies in France, Germany,
Italy, the Netherlands and Spain. The study predicted. that between
2002 and 2006 the total amounts of levies collected in these five
countries would increase by threefold--from $380 million in 2003 to
over one billion U.S. dollars in 2006. This analysis was based on the
fact that levies now cover more products and that levy rates are
increasing. If proposed levies on additional products, such as the
German levy on PCs, continue to be enforced, the study estimated that
the total amount collected in 2006 could increase to over $1.5 billion.
---------------------------------------------------------------------------
\1\ http://www.bsa.org
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A second study sought to assess lost sales (of PCs, portable music
players, and printers) as a result of increased prices brought-about by
the private copy levies. This study from Nathan Associates,\2\
concludes that the cost of levies to the technology industry, depending
on the elasticity of the price of the product, could range from $808
million to $8.8 billion per year.
---------------------------------------------------------------------------
\2\ Presentation delivered in Maryland, USA ``Impact of Content
Rights Compensation Levies: Lost Sales Revenue Worldwide.'' April 28,
2003, Robert Damuth, Vice President Nathan Associates,
www.nathaninc.com
---------------------------------------------------------------------------
These costs are staggering. Few but the largest technology
providers can bear them. And faced with demands that can be both
arbitrary and unpredictable and that differ from one Member State to
another, levies also impair industry's ability to develop coherent,
E.U.-wide business strategies. Add to this the fact that levies on
digital products suppress demand for those products and hinder the
roll-out of DRM-enabled content delivery systems and the reason for the
concern of the technology industries becomes evident.
Impact on Authors and Right Holders
Even authors and right holders--the intended beneficiaries of levy
systems--have significant concerns with how these systems are operated.
Many of these revolve around the transparency of the system and the way
in which levies are distributed. At present, it can be difficult for
authors (and consumers and manufacturers as well) to understand how
levy rates are assessed, on what products they apply and how they are
distributed.
In a number of countries, for example, an artist will only receive
compensation if he or she is a member of a particular collecting
society--leaving non-members with little recourse. Because a portion of
the funds collected are used to pay the collecting societies'
administrative expenses, right holders often receive distributions that
represent only a fraction of what they would receive if they were
compensated directly.
Contribution to Piracy
As this Committee knows well, right holders suffer significant harm
as a result of copyright piracy. Users of digital audio and audio-
visual works can and do mistake private copy levies--which are intended
to compensate right holders for lawful private copying only--for an
``open-license'' to copy content freely. Levies quickly become a
``license to pirate.'' At the same time, the presence of levies in a
market can also hamper or undermine investment in DRM-enabled products
and services that would seem to offer the best avenue for curtailing
rampant illegal file-sharing.
Recommendations to the Subcommittee
Before making any recommendations, I want to stress the E.U.'s
constructive role on this issue. As I noted above, European law
includes many important safeguards to avoid the unfettered expansion of
levies regimes. The ELI has worked closely with HP and other companies
in an effort to ensure these limitations are respected in practice. For
this, we are grateful.
I also want to reiterate HP's commitment to DRM technologies and to
ensuring regulatory systems that enable, rather than obstruct, these
technologies. It is part of HP's core mission to ensure and advance the
consumer's ability to easily enjoy entertainment on any device, in any
format, while making new business models possible. Levies, improperly
considered, can and do stand in the way of this mission.
This is why HP and other technology providers have been extremely
active on the levies issue in Europe both independently and through
trade associations including the Business Software Alliance and EICTA,
the European ICT industry association.
We respectfully request the committee's support in our efforts:
First, we urge the committee to express its support for E.U.
efforts to rationalize national levies regimes. Led by its
Directorate on the Internal Market, the E.U. is currently
considering broad-based legislation on collective rights
management. The ICT industry in Europe has called upon the E.U.
to take this opportunity to review the functioning of national
levies regimes and impose clear parameters on national efforts
to expand those regimes into the digital arena. We ask that you
communicate support for our request to your counterparts in
Europe. We understand that there is an E.U.-U.S. Ministerial
Summit scheduled for June 2005. This might be an appropriate
opportunity to express the U.S. Government's interest and
concerns surrounding this issue.
At the same time, countries outside of Europe are studying
whether they should expand levies regimes to cover digital
products. We believe U.S. trade agreements should include
language opposing the establishment of new levy systems and
calling for the phase-out of existing levies. We ask for your
support in this effort.
I thank you for your time today and stand ready to answer any
questions you may have.
Senator Allen. Thank you, Mr. Hassell. As I stated to all
of you all here, one of the reasons we are having this hearing
is the timeliness of it. To the extent we get your information,
it is actually great to get it from a U.S. company, as well as
a Dutch company, that does business not just in Europe and the
U.S. but throughout the world. We thank you for your testimony.
We will act on that.
Now I would like to shift to our two panelists concerning
nanotechnology. We will first hear from Mr. Harper.
STATEMENT OF STEPHEN F. HARPER, DIRECTOR, ENVIRONMENTAL, HEALTH
AND SAFETY POLICY, INTEL CORPORATION, WASHINGTON, D.C.
Mr. Harper. Thank you, Senator. I direct Intel's global
environmental, health, and safety policy activity and
nanotechnology, in part, falls underneath that umbrella.
I want to express our appreciation, as was mentioned
earlier, for your leadership in establishing the congressional
Nanotechnology Caucus, which we think is a great development.
I am here representing Intel and EABC. Tom Patton already
introduced EABC. Hopefully you are familiar with Intel.
I think the critical data point here is that we are a
global company with operations throughout the world. We have
very significant manufacturing and other operations in Europe,
as well as the United States and Asia. I am going to really
basically focus on one key issue with several different
dimensions of it. That issue is the need for cooperation in
addition to competition between the United States and Europe
with respect both to the science of nanotechnology but also
with respect to the environmental, health, and safety
regulation of nanotechnology moving forward.
Intel's interest in nanotechnology is multifaceted. In the
immediate term, we are today creating devices that feature
transistors that are smaller than 100 nanometers in width. That
is the classic definition of nanotechnology. These nano
features are the reason why our current Pentium IV processors
have more than 100 million transistors on them and why we just
prototyped a new Itanium II processor that has 17 billion
transistors in it. We cannot do that without the small feature
of the nanotechnology.
In terms of dollar value of product, advanced
semiconductors currently represent by far the biggest slice of
the current nanotechnology marketplace.
The size of our current transistors and circuits are so
small that they are difficult to fathom, at least for this
political scientist, as opposed to a physical scientist. The
best way to appreciate their size is in relation to more
familiar objects. Later this year, we are going to introduce
chips that have transistor gates that measure less than 35
nanometers across. At that size, approximately 100 of these
transistor gates--and that is the switch that flips the
transistor on and off--can fit within the diameter of a human
red blood cell.
For the foreseeable future, semiconductors will continue to
rely on traditional silicon-based technology, what we have used
for many years. But perhaps approaching around 2020, we
anticipate running up against physical limitations that will
hamper the ability to continue to use silicon-based approaches.
At that point chip manufacturing may rely on new nanomaterials
such as carbon nanotubes and nanowires to continue along the
progress of Moore's Law.
The year 2020 sounds like a long time away, but because of
the complexity of the technical work that must be done to
invent and implement the nanotechnology future, Intel and the
semiconductor industry have begun investing in a major way in
the research and development to bridge to that future. Much of
this work takes place in the context of what is called the
International Technology Roadmap for Semiconductors, or ITRS.
The ITRS lays out the priority scientific and environmental
challenges that must be met in order to continue progress along
the trajectory of Moore's Law. It is important to emphasize
that the ITRS and much of the current nanotechnology research
and development work being done in our industry is viewed as
pre-competitive. Companies from across the industry from around
the world are pursuing a common basic research agenda, working
through cooperative institutions like Sematech and the
Semiconductor Research Corporation to solve some of the
important physical issues associated with continuing along
Moore's Law.
I have referred now several times to Moore's Law. It is the
40th anniversary of Moore's Law last month and hopefully most
people have at least heard of it. But why care? Why does
Moore's Law matter?
Forty years ago Gordon Moore, one of the founders of Intel,
predicted that the number of transistors and integrated
circuits would double every year. That was later extended to
every 2 years. Moore's observation--it really is an observation
rather than a law--really focuses on two phenomena: increasing
density of transistors on semiconductors and a radical decrease
in the cost per transistor. Although it is not a law--it is an
observation--it has functioned as a law in our industry because
it has driven the pace of innovation, research, and
development.
So who cares about Moore's Law? Maybe that is something
interesting to semiconductor geeks or IT technologists only,
but progress along the trajectory of Moore's Law has translated
into cost decreases for a wide range of products that depend on
semiconductors: computers, telecommunications equipment,
automobiles, scientific equipment, and the like. Falling prices
for information technology products have driven the rapid
proliferation of IT throughout the world's economy, and the
diffusion of IT has been the biggest single reason for the
recent historic acceleration of U.S. economic productivity
growth which, as Harris Miller pointed out at the beginning of
the hearing, is key to the advancement and improvement of our
standard of living.
Pre-competitive research and development in our industry
has been essential to continuing along Moore's Law. We believe
it will be even more important as we continue further into the
realm of nanomaterials. This cooperation needs to be
international in scope, combining the best research minds in
the industry and government, as well as university labs, no
matter where those best minds are. This is somewhat at odds
with the spirit of numerous government reports and
communications on nanotechnology from the U.S. Government, from
Europe and Japan that portray nanotechnology as the next space
race, as the proverbial goose that may lay the golden economic
egg down the road.
My message today is we need a balance, a balance of
competition and cooperation, when it comes to the applications
of nanotechnology. International cooperation is also critical
in the realm of the implications of nanotechnology, especially
the environmental, health, and safety implications of this new
magic. Research initiatives launched pursuant to the National
Nanotechnology Initiative need to be undertaken in cognizance
of and, where appropriate, in cooperation with parallel
activities in Europe and elsewhere.
At this point I want to stress the value we place in the
NNI, and your nanotechnology bill of 2003 was critical in
helping to establish a statutory basis for that program, and we
appreciate that. In a very short period of time, the NNI staff,
with support from the agencies that participate in the NNI and
support from Congress, have developed a very robust program of
activities. In the semiconductor industry, we are active in a
series of NNI/Semiconductor Research Corporation, or SRC, joint
work groups focusing on a variety of nanotechnology technical
issues, including environmental, health, and safety.
The NNI/SRC focus on the EHS dimensions of nanotechnology
is part of a broader trend of NNI focusing on the implications
of this technology. We support these activities. Indeed, we
believe more attention and resources need to be devoted to this
important task of identifying and reducing the EHS risks of
nanotechnology.
Intel's own EHS management activities in the nanotechnology
realm have two primary focal points. In the immediate term, we
are committed to ensuring the safety of our own workers in the
research and development operations where we work with
nanomaterials. Longer-term we have an interest in the
responsible development and deployment of nanotechnology,
ensuring that attention is paid to the implications, as well as
the applications. What we want to avoid is for the trajectory
of nanotechnology to follow that of genetically-modified
organisms, or GMO's. In the case of GMO's, which has been a hot
button issue between the U.S. and the E.U., in our view the
deployment of the applications outpaced attention to the
environmental, health, and safety implications of the
technology. Public concerns that arose because of this
phenomenon have significantly retarded the realization of GMO's
great commercial potential.
Finally, I want to focus on the issue of government
regulation of the EHS aspects of nanotechnology. Drawing
lessons once again from the precedent of GMO's, government
regulation of nanotechnology may be essential to long-term
public acceptance of new technologies like nano. This probably
is especially true in the European Union where the
precautionary approach underlies their basic approach to these
issues. But I want to caution--and this is the difficult aspect
of the issue--that while we think governmental oversight of
this new technology is important to public acceptance, we very
much want to avoid overregulation that does have the potential,
as you alluded to in the previous context, of killing this
golden goose.
While the two governments, U.S. and E.U., are beginning to
sort out how they want to regulate nano, there is need for
cooperation across the Atlantic. Because progress on the
scientific aspects of nanotechnology will depend in part on
international cooperation, there is a parallel need for
cooperation in assessing and addressing the environmental
implications. The emergence of significant differences in the
regulatory approaches across the Atlantic does have the
potential in the future to undercut the cooperation on the
science. So the two are interrelated.
Specifically what is called for is open cooperation and
sharing in the generation of data concerning the risks, as well
as the benefits, of nanotechnology. Sensible regulations need
to be based on good science and accumulating data from credible
scientific studies. We need an international research strategy
focused on the potential environmental, health, and safety
risks of nanotechnology, as well as the benefits, with a very
broad sharing of research results and coordination of research
efforts.
With that I will end and be glad to answer any questions.
Thank you.
[The prepared statement of Mr. Harper follows:]
Prepared Statement of Stephen Harper
Thank you, Senator Allen and committee members, for this
opportunity to discuss an important topic--nanotechnology in the
context of U.S.-European relations. I am Stephen Harper, director of
environmental, health and safety policy at Intel Corporation. I am here
representing Intel as well as the European-American Business Council
(EABC).
EABC is a trans-Atlantic, trans-sectoral alliance network of 43
U.S.- and European-based global companies. EABC's mission is to enhance
U.S. and European economic competitiveness through government-to-
government and government-to-industry policy collaboration. The EABC
believes that smart trans-Atlantic regulatory alignment can truly add
to productivity gains. Today I want to emphasize several key themes:
First, innovation in the semiconductor industry has been a
principal driver of recent U.S. gains in economic productivity
and significant improvements in health care and other fields
benefiting humanity.
Second, looking into the not-too-distant future, continued
progress in the semiconductor industry will depend on progress
in the development of nanotechnology. Just as semiconductor
technology is the competitive edge of the Information Age, so
nanotechnology will be the competitive edge of semiconductor
technology in the future.
Third, continued progress in the development of
nanotechnology depends in significant measure on international
cooperation in key areas of research and development. The
opportunities and challenges simply are too great for one
nation, or a national industry, to try to tackle them in
isolation.
Fourth, the evolution of an appropriate environmental,
health, and safety (EHS) regulatory framework for addressing
potential nanotechnology risks will be critical to the ultimate
public acceptance of this new technology. International
cooperation, especially between the U.S. and Europe, will be
key here as well.
The U.S. government, focused through the National
Nanotechnology Initiative, can help ensure international
cooperation regarding EHS regulation of nanotechnology.
Before I delve into each of these themes, let me first focus on
Intel--who we are and why we care about nanotechnology.
Intel, as you know, is the largest and leading semiconductor
company in the world. Founded in 1968, Intel today employs 87,000
employees worldwide, with 2004 revenue of approximately $34 billion.
Although known primarily for our Pentium and Centrino products, Intel
markets over 450 products and services.
Intel also is a global company, with 294 offices and facilities in
48 countries. Intel has a major manufacturing presence in the United
States, with 49,000 U.S.-based employees and major production
facilities in Oregon, Arizona, New Mexico, Colorado, Washington, and
Massachusetts. We continue to have major research, design, and other
facilities in California, in addition to our corporate headquarters.
Importantly in the context of today's hearing, Intel also has a
major investment in Europe. Leixlip, Ireland, in the suburbs of Dublin,
is home to two Intel factories or ``fabs,'' employing 3,300. In
addition to Ireland, we have significant design and research facilities
in the UK, Denmark, and Germany. Specifically focused on
nanotechnology, we participate in the Irish Nanotechnology Research
Center as well as a research center in Belgium. Reflecting our
production, design, and research investments in the European Union, we
also participate in a number of industry trade associations and
coalitions, including the European-American Business Council. The
important thing to stress is that our facilities in the U.S. and
Europe, and in Asia for that matter, are all part of an integrated
enterprise. The success of each is important to the success of the
overall company.
Intel's interest in nanotechnology is multi-faceted. In the
immediate term, Intel today is creating devices that feature
transistors that are smaller than 100 nanometers wide. These nano-sized
features are why Intel's current Pentium 4 processors are packed with
more than 100 million transistors and our Itanium 2 server processor
family includes a recently-prototyped chip that includes more than 17
billion transistors, a product we expect to launch commercially early
next year. In terms of dollar value of product, advanced semiconductors
represent the biggest slice of the current nanotechnology marketplace.
We refer to our current nanotechnology as ``nano-electronics.''
The width of our current transistors and circuits is so small they
are difficult to fathom. The best way to appreciate their size is in
relation to more familiar objects. Later this year, Intel will
introduce chips that have 65 nanometer-sized transistors. The gates of
the transistors--the switch that turns them on and off--measure only 35
nanometers across. At this size, approximately 100 of these transistor
gates could fit inside the diameter of a human red blood cell. Another
comparison: approximately 10 million of these transistors could fit in
the area of the tip of a ball-point pen.
Looking ahead we believe that we can continue to evolve and improve
current materials and technologies to drive transistor sizes down to
approximately the 10 nanometer size range. For the foreseeable future,
semiconductors will continue to rely on traditional silicon-based
technology. But perhaps approaching 2020, we anticipate running up
against the physical limitations of silicon-based approaches. At that
point, chip manufacturing may rely on new nanomaterials such as carbon
nanotubes and nanowires to continue progress in accordance with Moore's
Law.
The year 2020 sounds like a long time away. But because of the
complexity of the technical work that must be done to invent and
implement the nanomaterial future, Intel and the semiconductor industry
have begun investing in significant research and development to bridge
to the nanomaterial future. Much of this work takes place within the
context of the International Technology Roadmap for Semiconductors
(ITRS). The ITRS lays out the key scientific and environmental
challenges that must be met in order to continue progress along the
path predicted by Moore's Law. It is important to emphasize that the
ITRS, and much of the current nanotechnology R&D being undertaken in
the semiconductor industry, is viewed as ``pre-competitive''--companies
from across the industry, from around the world, are pursuing a common
basic research agenda, working through cooperative institutions like
Sematech and the Semiconductor Research Corporation. The economic
promise and technical challenges of nanotechnology require effective
international collaboration.
Within Europe, Intel has been active in the Belgium-based
Interuniversity MicroElectronics Center (IMEC), the European
Nanoelectronics Initiative Advisory Council (ENIAC), and other
industry-government cooperative ventures. We will also play a major
role in the upcoming First International Nanotechnology Conference on
Communication and Cooperation, scheduled for early June in San
Francisco.
I have referred several times to ``Moore's Law.'' What is Moore's
Law and why does it matter? Forty years ago, Gordon Moore, one of the
founders of Intel, predicted in an industry magazine that the number of
transistors in integrated circuits would double every year. Moore later
updated his projection to a doubling every two years, accounting for
the increased complexity of semiconductors. Moore's observation really
focuses on two phenomena--increasing density of transistors on
semiconductors and radically decreasing cost per transistor. It
describes the phenomenon in our industry whereby we etch ever smaller-
sized features in silicon. Moore's Law was a prediction based on an
observation, not a true ``law.'' But it has functioned as a law in the
sense that it has driven the pace of change and innovation in our
industry, as we seek to continue the trend of past advances.
So who cares? As described, Moore's Law perhaps is something
interesting to semiconductor industry technologists only. But progress
along the trajectory of Moore's Law has translated into cost decreases
for a wide range of products that depend on semiconductors--computers,
telecommunications equipment, automobiles, scientific equipment, and
many other devices. Falling prices for information technology products
have driven the rapid proliferation of information technology. The
diffusion of information technology has been the biggest reason for the
recent, historic acceleration of U.S. economic productivity growth. And
productivity growth is the secret to improving our standard of living.
In the words of Harvard Economics Professor Dale W. Jorgenson, ``A
consensus has emerged that the development and deployment of
information technology (IT) is the foundation of the American growth
resurgence. The mantra of the `new economy'--faster, better, cheaper--
characterizes the speed of technological change and product improvement
in semiconductors, the key enabling technology,'' (2005 Semiconductor
Industry Association Annual Report).
Pre-competitive R&D cooperation has been central to keeping up with
Moore's Law in the past. We believe it will continue to be critical as
we move further into the realm of nanomaterials. And this cooperation
needs to be international in scope, combining the best research minds
in the industry, and in government and university labs, wherever they
are located. This is somewhat at odds with the spirit of numerous
governmental reports and communications--from the U.S., Europe, and
Japan--that portray nanotechnology as the next ``space race,'' as the
proverbial ``goose'' that will lay the future economic ``golden egg.''
Clearly, governments in many geographies view nanotechnology as a
foundation of future economic growth.
My message today is that what we need is a balance of competition
and cooperation. And international cooperation is critical in areas
such as semiconductors, where the challenges are great and the cost of
meeting those challenges is excessive. International cooperation is
also critical in the realm of the implications of nanotechnology--
especially the environmental, health, and safety (EHS) implications of
this new ``magic.'' Research initiatives launched pursuant to the
National Nanotechnology Initiative (NM) need to be undertaken in
cognizance of and, where appropriate, in cooperation with parallel
activities in Europe and elsewhere.
At this point I want to stress the value we place on the activities
of the NNI. In a very short period of time, the NNI, with support from
participating agencies and funding from the Congress, has developed a
very robust program of activities. And we are confident that the
ongoing National Academy of Sciences review, mandated by Congress, will
confirm this and make suggestions for the continued success of the NNI.
In the semiconductor industry, we are participating in a series of
joint NNI/Semiconductor Research Cooperation (SRC) workgroups under the
auspices of the NNI's Consultative Board on Advancing Nanotechnology
(CBAN). These issues range from meeting priority technology challenges
to identifying and addressing environmental, health, and safety (EHS)
research needs related to semiconductor applications of nanotechnology.
NNI funding related to semiconductor nanotechnology research goes to
many universities in numerous states across the U.S.
The NNI/SRC focus on the EHS dimensions of nanotechnology is part
of a broader NNI trend of focusing on the ``implications'' of
nanotechnology, not just ``applications.'' We support those activities;
indeed, we believe that more attention and resources need to be devoted
to identifying and reducing the EHS risks of nanotechnology.
Intel has proud record of accomplishment in our own EHS programs
and activities. Our guiding EHS management principles commit us to
preventing all injuries in the workplace, being an EHS leader in our
industry and our communities, and reducing the environmental
``footprint'' of our products, processes, and operations. But ``talk is
cheap''; we have translated these principles into a world-class record
of performance. Our worker safety record is among the best of any
company in any industry. Across both safety and environmental realms,
Intel has earned dozens of awards for leadership in the U.S., Israel,
the Philippines, and many other geographies. Within the industry, Intel
has been a leader in the development of the EHS element of the
International Technology Roadmap for Semiconductors.
Intel's EHS management activities in the nanotechnology realm have
two primary focal points. In the immediate term, we are committed to
ensuring the safety of our own employees as they work with innovative
nanomaterials in our research labs. Longer-term, we have an interest in
the responsible development and deployment of nanotechnology, ensuring
that attention is paid to the ``implications'' as well as the
``applications.'' What we want to avoid is for the trajectory of
nanotechnology to follow that of genetically-modified organisms (GMOs),
the most recent ``magic'' technology. In the case of GMOs, in our view,
deployment of applications outpaced attention to the environmental,
health, and safety implications of the technology. Public concerns that
arose because of this have significantly retarded the realization of
GMO's great commercial potential.
With this concern in mind, Intel has been an active participant in
the CBAN NNUSRC Workgroup 5 activities, focused on EHS research. Intel
also has assumed a role in a nascent activity under the auspices of the
International Standardization Organization (ISO) focused on developing
international standards related to the EHS aspects of nanotech. We also
are one of the founding supporters of the International Council on
Nanotechnology (ICON), a multi-stakeholder initiative of Rice
University's Center for Biological and Environmental Nanotechnology
(CBEN). ICON is focused on advancing and coordinating nanotechnology
ENS research. In addition, we are engaged in formal ``benchmarking''
activities with other companies to identify ``best known methods'' in
the measurement and safe handling of nanomaterials in the research
laboratory environment.
As a result of our engagement in these nanotechnology EHS
initiatives, we believe there are two broad categories of research
needs. First, much more needs to be known about the toxicity of
nanomaterials. Second, there is a need for the development of
standardized meterology techniques and EHS controls for application in
both the laboratory and production environments. These needs are not
unique to the semiconductor industry--they are common to a broad range
of industries with an interest in the responsible deployment of
nanotechnology.
Finally, I want to focus on governmental regulation of the EHS
aspects of nanotechnology. Drawing lessons once again from the
precedent of CMOs, governmental regulation of nanotechnology may be
essential to the long-term public acceptance of new technologies like
nano. This probably is especially true in the European Union, where the
``precautionary approach'' increasingly defines the governmental, and
societal, approach to new technologies.
Here in the U.S., the Environmental Protection Agency is in the
early stages of wrestling with some difficult questions concerning the
applicability to nanotechnology of their regulatory authority under the
Toxic Substances Control Act (TSCA). We understand that the Agency
intends to convene a public workshop on this issue later this year.
In the European Union, we anticipate that regulation of
nanotechnology will proceed under the broad umbrella of the REACH
Directive. REACH is a fundamental revision of the E.U.'s approach to
regulating new and existing chemicals. Because the REACH Directive is
still in the legislative process, it is not entirely clear what the new
chemical regulatory regime will look like, much less how it will
address nanotechnology.
While the two governments--U.S. and E.U.--are beginning to sort out
how they want to regulate nanotechnology, there is a need for
cooperation across the Atlantic. Because progress on the scientific
aspects of nanotechnology--at least in the semiconductor industry--will
depend in part on international cooperation, there is a parallel need
for cooperation in assessing and addressing the EHS implications of
nanotechnology. The emergence of significant differences in regulatory
approaches across the Atlantic could undercut cooperation on the
science.
Specifically what is called for is open cooperation and sharing in
the generation of data concerning the risks as well as the benefits of
nanotechnology. Sensible regulations need to be based on good science
and accumulating data from credible scientific studies. We need an
international research strategy focused on the potential EHS risks of
nanotechnology, with broad sharing of research results and the
coordination of future efforts. The U.S. Government can provide a
significant service in this regard. The NNI, working with CBEN, ICON,
and others, should clearly identify all past, current, and proposed
nanotechnology research focused on human health risks and safety
issues. Overtures should be made to the Europeans and Japanese to
encourage them to add to this database. A collective, international
effort of this kind will help to identify key research gaps and spur
the development of an international EHS research strategy for
nanotechnology. Execution of this strategy will inform responsible
regulation of nanotechnology and, in our view, increase the prospects
of public acceptance and commercial realization of nanotechnology's
great promise.
Thank you again for this opportunity to testify. I will be happy to
answer any questions.
Senator Allen. Thank you, Mr. Harper, for your insight.
Part of what you were saying about the concerns about GMO's and
others is exactly one of the salient reasons why Senator Wyden
and I have created the Nanotech Caucus. I would venture to say
there are not many Senators who understand this subject. And if
people are not knowledgeable, if there are charges or
frightening unknowns brought forward, the reactions can be
exaggerated and then be harmful. But on the other hand, there
should be certain standards that will help that credibility
whether here or in Europe, in fact, an international standard.
But I thank you for your insight on this.
Now we would like to hear from Mr. Klaessig.
STATEMENT OF DR. FREDERICK C. KLAESSIG, TECHNOLOGY DIRECTOR,
AEROSIL AND SILANES BUSINESS UNIT, DEGUSSA CORPORATION,
PISCATAWAY, NEW JERSEY
Dr. Klaessig. Good afternoon, Senator.
Senator Allen. Good afternoon.
Dr. Klaessig. I appreciate very much the opportunity from
you and your subcommittee to appear today on a very important
topic for Degussa.
I represent the Degussa Corporation, plus a number of
chemical firms in the United States and in Europe that have
organized under the American Chemistry Council to come together
and bring industry's view to the regulatory agencies and also
the counterparts of the American Chemistry Council over in
Europe, the CEFIC, VCI, and similar organizations.
I am the technology director for a product that comes under
the definition of nanotechnology. My responsibilities are
customer support, introduce new products, and liaison between
our research department in Germany, as well as with emerging
American marketplace opportunities.
The material that we do manufacture, as you mentioned
earlier, is a fumed metal oxide. It does not fit the standard
definition of nanotechnology, but that is one of the issues
that we do deal with, that there is no definition of
nanotechnology. Steve just referred to the classical
definition, but there are a number of definitions. Each agency
seems to have a definition that is associated with its mission
statement. Therefore, we accept that our knowledge of the
chemistry of our materials, other chemistry that people are
discussing in the nanotechnology area--and in some applications
our materials are found in the nano size of 100 nanometers that
Steve mentioned.
We have been manufacturing those materials for about 60
years. In fact, our materials have been in commerce longer than
the word ``nano'' has been in the English language, if you
believe the Oxford English Dictionary. So we have a rather
historical perspective, shall we say. We are bemused sometimes
with the scientific facts that others find surprising in
physical chemistry, but they are learning what we have known
for a while, and there are new innovations definitely there
too.
We are concerned about the different definitions that are
occurring and feel that there may be shifting burdens, but as a
supplier of existing materials, we are prepared for that. That
is also the reason that we are working with other firms.
We have a higher concern when the issue comes to that of a
finding of safety. There are many new novel materials being
introduced or being examined. All materials, to get into
commerce, have to go through the regulatory review. In this
area, concerns about public safety or public confidence in
safety may arise.
The last area of our concern, but one that is less that we
can influence and one of the reasons that I am here today, is
the issue that others have mentioned, harmonization, avoiding
patchwork quilts of regulations around the world. Here we have
less immediate influence, but we are trying to be participatory
and ask for help there.
We have three essential items that we would like to bring
your attention to. One is that nanotechnology is real and here
today. You change the definitions, you just change the volumes
of what you are quoting in terms of what is in commerce.
Steve mentioned the Moore's Law. One of the enabling
technologies for semiconductor chip manufacture involves silica
particles and a water slurry being used to planerize the chips.
That is an example of something that has been around and is
contributing to innovation in other fields.
We also have examples in inkjet paper where the coating for
glossy inkjet paper often has nanomaterials or materials that
can become nano under processing conditions.
So it is here. It is real, and we believe that the
regulatory TSCA procedures by the EPA are robust enough to
incorporate them because they have been incorporating them for
some time if ongoing science is introduced into the process.
Our second point is that I have mentioned science and we
have had a number of mentions here today about science. This
topic is a global science topic with a global opportunity, and
the area of environmental, health, and safety, the level of
effort, the priority in the nano initiative has not been as
prominent either here or in Europe or other locations, and it
does go to public trust. That will extend itself into other
areas such as customs duties and identification of materials.
It will also go into other areas such as FDA. But since every
firm has to go through this process, we need the best
evaluatory tools in order to proceed.
The last item is the harmonization item. This topic is
emerging. It is becoming more prominent. There will be meetings
here by the EPA on June 23rd, a public meeting. There will be a
meeting by the OECD on June 7th on the same topic. As this
rises in priority or in visibility to the governments, the
strong voice that both groups or of all groups respond to the
science in their way but to have a harmonized version would be
appreciated.
The final comment is for those who do not know. Degussa is
a multinational firm based in Germany, about 6,000 employees in
the United States with major facilities in Alabama, Virginia,
New Jersey, and other States. We appreciate very much the
opportunity to speak to you. Thank you.
[The prepared statement of Dr. Klaessig follows:]
Prepared Statement of Frederick C. Klaessig
Thank you, Senator Allen and committee members and staff, for the
opportunity to address nanotechnology and regulatory issues from the
standpoints of U.S. and European firms. I am Dr. Frederick C. Klaessig,
technology director for the Aerosil & Silanes Business Unit of Degussa
Corporation. I am here representing Degussa plus several U.S. and
European member firms of the American Chemistry Council (ACC) that are
actively involved with nanotechnology issues. Some of these firms are
also active in the ACC's European and German counterparts, CEFIC and
VCI, respectively.
If I am effective in my testimony today, I will be leaving you with
three concepts:
1. The existing regulatory frameworks in Europe and the U.S.
are robust enough to evaluate newer nanomaterials if on-going
scientific advances are taken into consideration;
Congressional support would be most effective in encouraging
global coordination and harmonization of regulatory activities,
so that newer materials do not face a patchwork of regulations;
and
3. Congressional support is also crucial in encouraging
federal agencies to increase funds for environmental, health
and safety (EHS) research.
Degussa Corporation is a wholly-owned subsidiary of Degussa AG, the
third largest German chemical firm, based in Duesseldorf, Germany.
Degussa AG's roots go back to the mid-nineteenth century and we are
presently the world's largest specialty chemical firm with revenues of
=13 billion, employing 45,000 people globally. In the United States,
Degussa employs 6,000 workers at over 60 manufacturing sites, with
major facilities in Alabama, Virginia, New jersey, New York, Ohio,
Georgia, and Texas.
Nanotechnology is regarded as one of the key technologies of the
21st century, Degussa regards this new technology as an opportunity to
help develop new products and efficient scientific and technological
solutions, and so make essential contributions towards environmental
protection, health, and product quality. The company's responsible
approach to nanotechnology is described in the policies recently
approved by Degussa's Management Board; according to these policies,
Degussa produces and markets nanomaterials only if, according to the
latest available research, they can be manufactured and applied in a
safe and environmentally compatible manner.
Degussa specializes in manufacturing fine scale powders. During
these manufacturing processes, intermediates form that are nanoscale in
part, which are smaller than one ten-thousandth of a millimeter and
which immediately coalesce into much larger, micron-sized agglomerates.
For special applications, formulations such as dispersions are
selectively manufactured that contain these nanomaterials. In the
research, production, and application of nanomaterials, Degussa is
guided by informed prudent practices and the findings of scientific
studies on hazard and risk assessment. These findings determine the
measures necessary to protect employees, customers, and consumers when
manufacturing and using nanoscale materials. Degussa works closely with
leading European and U.S. research institutes for this purpose.
Moreover, Degussa explicitly supports the establishment of new research
methods, specially tailored to the specific effects of nanoscale
materials, which permit refinement of risk assessment.
Unlike other ``new'' technologies, there is a long history of
nanomaterials being safely used in commerce when following good
industrial hygiene practice. As a manufacturer for more than 60 years
of products that have nano-scaled features, we are in a position to
bring an historical perspective to the current R&D initiatives taking
place in the U.S., Europe, and Japan. We have actively participated in
the general trend of utilizing finer and finer materials (smaller and
smaller features) and narrower and narrower particle size
distributions, which taken together are termed the top down avenue to
nanotechnology. The decades long trend to smaller particles has led to
a dramatic improvement in physical properties in such applications as
reinforcement of silicone rubber, paint theology control, fillers in
general, glossy inkjet paper coatings and chemical mechanical
planarization of semiconductor wafers.
From the broader historical perspective, we note the following
tipping points when viewing the current nanotechnology initiative in
the United States (expressed in the traditional stasis categories):
Comment on Current Situation
Fact.--Traditional concepts of surface and bulk chemistry are
being confused when physical and life science disciplines
participate in the dialog.
Definition.--There are a multitude of definitions for
materials that have been in commerce safely for decades, while
there is a lack of definition for newer materials and novel
functionality.
Quality.--The safety of existing materials, as well as future
innovative substances, is put into question when there are gaps
in scientific knowledge and toxicity test methodology that are
being actively pursued.
Venue.--The science and uses of nanotechnology are global in
nature, but the research initiatives and regulatory schemes are
potentially regional.
Overall.--The various branches of technology development are
operating at different speeds, causing confusion regarding the
science, safety, and utilization of nano-scaled materials.
For those firms having existing nano-scaled products, like Degussa,
there is a concern that new, naive definitions will undermine existing
patents, trade secrets, and TSCA registrations. The same would be true
for our customers who have relied on our technology in developing their
own products. For those firms that are contemplating entering the field
of nanomaterials with new ``engineered'' substances with novel
functionality, there is uncertainty regarding evolving definitions that
do not capture the essence of their innovative concepts in
manufacturing, characterizing, and evaluating these materials. For some
firms, especially those that are small, innovative and inexperienced,
there is the greater likelihood that they are unaware of the regulatory
issues they must address in order to achieve a finding of safety for
their product(s). All categories of firms, no matter size or resources,
will encounter the same regulatory issues during the commercialization
process, However, it is not clear that regulatory agencies are viewing
the development of nanotechnology with the same priority or
coordinating with each other. Placing these concerns under the common
heading of ``regulatory risk,'' all categories of firms must now add an
additional risk to the standard business risk of the marketplace.
Several member firms of the American Chemistry Council have
established working groups with the purposes of coordinating a
collective response to our concerns about both existing materials and
those in the R&D pipeline.
It is our firm belief that the current regulatory frameworks in the
U.S. and Europe are capable of addressing the development of new
nanomaterials, if scientific results are taken into consideration as
they arise. Certainly, emerging scientific results will need to be
taken into consideration as they arise, but the regulatory frameworks
are in place to deal with them. The firms participating in the ACC
forums are committed to Responsible Care principles and are prepared
to respond to new and on-going EHS studies. The same is true for
industrial hygiene issues, where an industry consortium is already
planning efficacy evaluations of face mask, gloves, and other materials
when exposed to nanoparticles.
Governmental initiatives in both the U.S. and Europe are to be
congratulated in fostering the development of applications in
nanotechnology. As society has experienced in other emerging fields,
meshing science, technology, funding, and patents does not guarantee
success in the global marketplace with new products. We (Degussa and
the like-minded firms at ACC, CEFIC, etc.) are most concerned with EHS
issues, and we would ask the Senator and his colleagues to consider
this issue in their future deliberations.
All new substances require EPA review before being introduced to
the commercial market, yet to date, the global initiatives for
nanotechnology have not emphasized EHS in their priority programs.
Generating the body of knowledge needed to make findings of safety, the
process inherent to being TSCA listed, are considered to be the domain
of the commercial firm and not of the academic laboratory. Yet, too,
the new nanomaterials can exhibit unique properties in both their
physical performance as well as in their toxicological, environmental
attributes. The novel materials are challenging to the field of
toxicology as they are unique in their performance. A gap is forming
where we as a society are generating nanotechnology more rapidly than
we are creating the tools to measure the EHS impact of this same
technology. We understand that public confidence in both the safety of
the novel products of nanotechnology and in the methods and processes
used to assess them are essential; both must be vigorously pursued.
Existing materials may point the way to both health concerns and the
product stewardship practices needed to eliminate those concerns.
The unknown, especially the unseen material with an uncertain
toxicity, can lead to a sudden loss in public confidence about safety.
Our concern, being global companies, regarding the developing gap
between generating nanotechnology and evaluating its EHS attributes, is
that it may lead the different regions of the world to have separate
and restrictive EHS regulations. If a competitive race between regions
in generating nanotechnology should lead to a commensurate race in
regulating these same materials, then our common desire for benefiting
from nanotechnology will be undermined.
It is our firm belief at Degussa that nanotechnology is a global
opportunity to be based on a global reservoir of scientific facts. We
would urge the Congress to encourage the U.S. agencies to work
cooperatively with their European and Japanese counterparts. For
example, we commend the Environmental Protection Agency's staff for
their active involvement with the upcoming OECD meeting on 7 June. The
public meetings the EPA plans in the U.S. will parallel the public
meetings to be held by the OECD in 2006. Efforts such as these should
be encouraged.
It would help the research innovation cycle greatly if the Congress
would encourage the funding agencies involved with the NNI to redirect
money from the fundamental research of nanomaterials to the fundamental
research for potential toxicity of nanomaterials, as well as their
relevant exposure scenarios. It is currently assumed that industry
should be responsible for generating the database needed to gain a TSCA
listing, but the newer nanomaterials pose a challenge to existing
testing methodology. However, test methodologies, structure activity
relationships, and analytical techniques are not standardized in this
field, and federal funding here would guide the regulatory agencies and
responsible firms towards proper testing and evaluation of new
materials. Industry and the EPA will look for some guidance to
federally funded academic studies, which is preferable to case-by-case
studies protected by trade secret status.
Many states have nanotechnology initiatives, which is true in
Europe as well. These efforts are closely tied to job creation and
often use local university and college resources in these efforts.
Successful, state-funded firms will encounter EHS hurdles when
commercializing their products at the point of regulatory review at the
EPA level or when exporting to Europe or Asia. In fact, there is a
range of trade-related issues, such as customs duties, that are similar
to EHS concerns and are susceptible to confusing, isolated
interpretations when viewed on the global perspective. Again, global
coordination of Federal agency activities and research funding of EHS-
related evaluation techniques are areas where Congressional
encouragement would be most helpful.
I wish to join my other colleagues from industry in expressing our
appreciation of the time you are giving to this topic.
Senator Allen. Thank you, Dr. Klaessig, for your testimony
and insight from a company that has been involved for a long
time.
Generally you say 100 nanometers and all that. Of course,
it is so small no one understands it. I always explain it as
one one-hundredth of the width of the human hair, if you would
agree with that definition. You have got to scale it to
something people could understand. Obviously, one one-hundredth
of the width of the human hair is microscopic. That is at least
one way I try to explain it.
It is profoundly changing the way that we do a lot of
things. Microelectronics is one that is fully understood. The
materials engineering I think will have the earlier
applications, and ultimately some of those in the life
sciences, health sciences, and energy have great potential as
well.
I appreciate your comments.
We would now like to hear from Ms. West and then Mr. Duffy.
Ms. West.
STATEMENT OF FRANCES W. WEST, WORLDWIDE DIRECTOR OF
ACCESSIBILITY CENTER, IBM CORPORATION, CAMBRIDGE, MASSACHUSETTS
Ms. West. Thank you. Before I start my formal testimony, I
would like to follow Mr. Patton's example to make a Virginia
connection. The first school I attended in the United States
was Washington Lee University.
Senator Allen. Oh, great.
Ms. West. And my son is a sophomore at the University of
Virginia. So I feel like I am half Virginian too.
Senator Allen. Certainly paying tuition.
Ms. West. That is right.
So let me start. Thank you, Senator Allen. I appreciate the
opportunity to share with you the importance of furthering the
development of IT accessibility. I thank you for your work on
this subject and for recognizing the importance of this topic
and your willingness to take a leadership position in this
area.
You have my written testimony that I submitted for the
record, and I would like to highlight what I think are the most
relevant and important concepts in my oral remarks.
My name is Frances West, and I am the worldwide director of
IBM's Accessibility Center. I have been with IBM for 25 years
and have been the director of the center for the past two
years.
Accessibility has traditionally been viewed as a people
with disabilities issue. It is not. It is really every man's
and woman's issue because we are all aging. According to recent
AARP statistics, one in every four people will acquire a
functional disability by age 50; one in two people by age 65.
So the topic of accessibility is not really about them. It is
about all of us.
Given that accessibility is an emerging technology, we do
need government policies that raise the awareness and set in
motion actions that can be taken by industry. For example, IBM
has always viewed accessibility as a key part of our work force
core values, and we hired the first disabled employee in 1914,
some 76 years before the Americans with Disabilities Act.
In 1999, section 508 was passed into law which was the
impetus for corporate action. IBM set up its Accessibility
Center in the year 2000 and issued internal corporate
instruction 162 on this topic, which is an example of how
Government policy can be a catalyst for institutional changes
in a private enterprise.
Section 508 promoted focus and growth, but if there are too
many competing standards, it could cause corporations to spend
precious resources not on innovation but on compliance-related
decisions or actions.
We see accessibility product compliance as an initial
building block on a journey towards usable access and societal
access. What do I mean by that? Let me explain.
Usable access is about not just enabling a person to have
access but to have the access in a meaningful way. For example,
a web page can be accessible to a blind person, but it may take
20 minutes for a screen reader to read through all the
information on the screen. Or you can build in navigational
tools to skip around so that the blind user can accomplish the
same task in 5 minutes. That is the difference between
compliant access and usable access.
Societal access is about integrating private and
governmental infrastructure to provide citizens of all
capabilities with seamless support. For example, a returning
soldier from Iraq with a disability or a hard-of-hearing
grandmother can have all their transportation, medical, and
financial services coordinated in such a way that it is
efficient, effective, and personalized to their needs. The
benefit of such an environment is a more citizen-centric
government and a much better allocation of both governmental
and private resources.
To achieve this desired state, much innovation is needed.
Industry resources should be focused on innovation to solve
these complex issues and technical challenges instead of
diverting these resources to support enforcement proposals such
as third party certification or mark and labeling.
The European Union just issued a procurement directive for
information technology, and this is very exciting. We see this
as a potential next step in extending what section 508 has
started. We would like the opportunity to collaborate with the
E.U. government and other stakeholders in the development of
the next generation of accessibility policies so that we can
continue to promote innovative products, best practices, and
new approaches.
With strong endorsement from government leaders such as
yourself and supporting policies from the E.U. and the U.S.,
private enterprises like IBM will embrace the challenge to
deliver innovative solutions to people at large and especially
to people with disabilities.
We in IBM truly believe in a vision and environment in
which all people can fulfill their highest capacity regardless
of their ability or disability. Currently all lines of the
business within IBM are involved in inventing and developing
technologies, products, services, and solutions that will
benefit people with diverse capabilities. We are engaged with
governments and the private sector in first-of-a-kind
enterprise transformation initiatives that will result in a
more inclusive society, a society where human and societal
potential can be optimized. In essence, we are striving to
deliver not just innovation, but innovation that matters to the
world, a corporate core value of IBM, and we think that
enhancing human capacity through accessible technology and
solutions is an innovation that matters.
But this vision can only be achieved through active
collaboration between industry, government, and the citizenry.
We therefore appreciate opportunities, such as today's hearing,
for advancing this dialogue.
I thank you very much for your time and your interest in
this topic.
[The prepared statement of Ms. West follows:]
Prepared Statement of Frances West
Good afternoon. I am Frances west with the IBM Corporation. It is
my pleasure to appear today before you on behalf of the European-
American Business Council (EABC) and the Information Technology
Industry Council (ITI), two organizations with whom IBM has a
longstanding relationship.
We appreciate the opportunity to speak to the Senate European
Affairs Subcommittee on the topic of accessibility--a subject we
believe is strongly tied to enhancing human capacity in the
transatlantic region. Specifically, we will share our views on the
impact information technology (IT) accessibility policy can have on the
transatlantic market, how certification and labeling proposals can
negatively impact the current growth and development of accessibility
initiatives, and our recommendations for the U.S. government to work
with the European Union towards the same goal of a global accessibility
standard for technology.
INTRODUCTION
IT Accessibility, until recently seen as an emerging market and
technology issue, is going mainstream, fueled by powerful demographic
and social trends.
Between 750 million and one billion of the world's six billion
people have a speech, vision, mobility, hearing or cognitive
impairment, according to the World Health Organization. And accessible
information technology is one solution to assist all these people in
connecting to the world around them.
In the U.S., more than 54 million people have disabilities. These
numbers are increasing, in part, because while people are living longer
and health care is continually improving, this has not fully
ameliorated the incidence of acquired disabilities as a natural part of
the aging process. According to AARP, one in every four people will
acquire a functional disability by age 50, one in two people by age 65.
According to the Center for Strategic and International Studies in
a 2003 report, the rapid aging of the populations of developed
countries poses major challenges for global prosperity and stability
during first half of the 21st century. In countries like Italy, Spain
and Japan, by year 2040, 45% of the population will be over the age of
60. This changing demographic further elevates the importance of
accessibility.
The impact of accessibility affects society as whole, As this
emerging trend continues, society and industry can realize economic
returns if individuals are allowed to benefit from product, services
and solution innovation and if this innovation is enabled by
governmental policies.
IBM, for example, is taking a holistic approach to accessibility.
Our focus on accessibility encompasses our roles as a developer and
manufacture of IT products, a service provider in the IT industry, a
buyer of components, products and services and an employer of over
330,000 people worldwide, looking to attract and retain the best talent
in a competitive industry. To each of these roles, we bring a
philosophy that strives to enhance human capacity by enabling and
easing information access for the largest number of people--especially
those whose disabilities restrict direct access. Frequently, this
involves the creation of special products or modifications of the
products that we design and manufacture. But, to achieve the greatest
benefit requires more than just products.
We believe that making technology accessible to all is a need that
is best met by technologies and solutions that are committed to
interoperability based on open standards, and have been developed via
collaborative processes. Accessibility is enhanced by open standards
that permit the free exchange of information, encourage innovation and
give businesses, governments, schools and social agencies more
flexibility to customize solutions and meet their own individual
requirements.
IBM workforce diversity is a core commitment and we have long
viewed accessibility as part of this corporate belief. For example, IBM
hired its first disabled employee in 1914, fully 76 years before the
ADA was enacted. We accelerated accessibility related investments,
however, when the U.S. government took a leadership role in
establishing section 508. We believe that section 508 is a
comprehensive and meaningful framework to support the industry's work
in this area. We, along with ITI, EABC and our industry colleagues like
SAP applaud the U.S. Government's foresight in this issue.
BACKGROUND
The need for accessible information technology is acute across the
globe. The global number of people with disabilities is expected to
grow as the population ages. In response to this reality, the U.S. led
the world in developing a policy for IT accessibility when it passed
section 508 of the Rehabilitation Act in 1998, a procurement law
mandating that all IT purchased by the federal government be
accessible. This law, with technical specifications defined within it,
has had an impact far beyond the U.S. federal government and in fact,
has global reach.
However, we have a concern that the positive impact of section 508
may be disrupted or side tracked. Governments in Europe are currently
exploring or actually establishing national or regional, IT
accessibility policies. Some of these policies are similar to section
508, but many of them are different. These governments are considering
procurement policy now to help develop accessible e-government systems.
This is good for the technology sector, for the people who need
accessibility and for the marketplace. But without a harmonized
approach to accessible IT procurement, each government could decide to
adopt a different technical standard, thereby fragmenting markets,
limiting accessible choices, reducing incentive for research and
innovation by companies, but most importantly, undercutting the very
real contributions we need persons with disabilities to make.
Section 508 has been important not only to those requiring
accessibility but to the whole technology sector. Since the passing of
section 508 into law, the technology industry has invested significant
technical and human resources in bringing products into compliance.
IBM, for example, has made significant investments in our internal
infrastructure as well as our design and testing processes.
We have developed an extensive set of techniques that guide
our development teams in implementing section 508 requirements
and our test teams in validating that the requirements have
been properly met.
We have integrated accessibility tasks into all phases of
our mainstream development processes. Accessibility
requirements are considered from the very beginning during the
concept phase of product development.
We have developed an extensive reporting and tracking system
for the accessibility of all our products. Once a product is
ready for announcement, a section 508 Voluntary Product
Accessibility Template (VPAT) is created.
Fulfilling the true mandate of section 508 is not easily
accomplished--it takes systematic and corporate wide effort in order to
be realized. Industry has made much progress but there is more to do.
Given the broad implications accessibility has on society and the
population in general, industry is looking to move beyond compliance
and bring innovative solutions to the marketplace. This is where we can
use your help.
U.S.-E.U. REGULATORY HARMONIZATION IS NEEDED
If you are blind and use a screen reader to surf the Web, it should
read sites from the U.S. government as easily as it reads ones posted
by the government of Sweden. This can only be done if there is
agreement among governments on the policy for accessibility.
Without transatlantic harmonization of global IT accessibility
approaches in policy and standards, all consumers--or more importantly
the people who need the technology most--lose. If differing regional or
country technical requirements are mandated, industry is forced to
focus on multiple compliance developments rather than pushing beyond
and investing in new technologies and solutions.
Take just Web site accessibility and compliance as an example. IBM
has approximately 5 million internal and external Web pages. If it had
to bring all of its Web pages into compliance with multiple
accessibility mandates, it would be economically and practically
impossible.
If different standards are enforced, as one can see in the example
just cited, the cost of implementation would be astronomical. Companies
would be forced to choose whether they have the resources to develop
unique products and services to meet varying specifications. Or, more
likely, they might choose not compete in certain markets at all. If, on
the other hand, the European technical specifications for accessibility
are harmonized with those globally, it would more than double the
market for conforming IT products and would create an even greater
incentive for manufacturers to compete on the basis of accessibility.
Ultimately, society will reap the greatest benefits in the form of more
involved citizens, more contributing workers and more enabled
individuals.
What the technology sector seeks is for the U.S. government to work
with the European Commission to ensure that any new accessibility
policy removes existing barriers and does not create any new barriers
to the accessibility market.
THIRD PARTY TESTING OR CERTIFICATION
The European Commission will publish its Communication on e-
Accessibility in the autumn of this year; it is expected to discuss the
introduction of accessibility compliance testing or certification by a
third party. Based on the technology sector's experience with third
party testing over the years in other venues, and given the resources
involved in accessible product design, development, marketing, and
support, third party certifications present significant problems and
draw backs:
Third party certification tends to freeze innovation by
driving manufacturers to focus their attention and resources on
passing certification tests rather than on new research and
development that can lead to new and innovative ways to
incorporate accessibility features into IT.
Only the manufacturer has the flexibility to test and
evaluate components as they are developed in-cycle, whereas
third-party testing is usually performed at the end of the
development cycle, thereby increasing the costs of product
modifications or redesigns. External certification increases
manufacturing costs considerably; it would lengthen the product
development cycle; and can not only delay the introduction of
new products into the market, but also potentially slow the
procurement process. This benefits no one, especially the end
user.
Third-party testing across the range of accessibility
products is impractical due to the inherent subjectivity,
ambiguities, and complexity of the technical accessibility
standards. In some cases it is technically infeasible, like
trying to measure ``equivalent facilitation'' or difficult to
be objective when determining if a web page uses simple
language to convey a concept.
This method of testing demands that a certifying
organization rely on open, transparent and recognized objective
technical criteria and testing protocols, yet these criteria
and protocols do not exist. For example, there are no
established section 508 objective conformance criteria, and it
is highly unlikely that they could be developed in light of the
broad range and multifaceted functionality of IT products
currently in the marketplace.
An additional complexity is that third party testing
organizations, in using any such objective conformance criteria
and testing protocols required for IT products, would also have
to account for IT interoperability with assistive technologies.
The assistive technology issue is particularly problematic, as
there are many different assistive technology products, and
they are not all designed to work on all systems.
Another problem with this approach is the scope and depth of
technical expertise that would be needed by external testing
organizations.
In light of the significant technological and operational
complexity in this area, and the negative impact it would have
ultimately on the user, third party testing is not an approach that
will increase IT accessibility or add value to products or services.
For whether or not a testing organization successfully evaluates a
product's accessibility, the manufacturer in either case remains
responsible and liable for the accessibility of the product.
We do support, however, a voluntary system of self certification
that strengthens the incentive to address accessibility early in the
product design phase, and enables innovative products to be brought to
the marketplace more quickly. Evaluation of products in-house
encourages interoperability and collaborative problem solving between
hardware, software, and assistive technology vendors, and also
reinforces a corporate commitment to accessibility. This self-
declaration approach has been implemented successfully in Europe and
elsewhere on such critical matters as product safety and environmental
attributes (e.g. electrical shock, flammability standards). In the
U.S., the Voluntary Product Accessibility Template or VPAT has been a
successful part of the procurement process to report compliance with
the technical requirements of section 508.
PRODUCT LABELING
There is discussion in the E.U. about developing a quality mark or
labeling for accessibility on IT products and services. We have
concerns regarding potential requirements for accessibility labeling or
an accessibility mark and the effect it will have on the development of
IT products.
Given the enormous range of functional limitations that exist, even
within a single disability or impairment type, it would be nearly
impossible to create a label or mark that could provide sufficient
information to buyers regarding a product's conformance with evolving
accessibility technical and procurement standards. Indeed, it could
raise false expectations for consumers and thereby generate significant
legal and practical concerns for manufacturers. We see labeling as
having the following drawbacks:
Consumers and users can misperceive labeling proposals as a
simplistic and complete solution to a complicated technology
issue that only due diligence by the developers can resolve. A
quality mark can never replace the in-depth work that site
developers and owners should be doing in their creation of
pages.
Labeling proposals would not provide sufficient information
regarding conformance with developing accessibility standards
given the various differences among disabilities and even
within a single disability or impairment.
Labeling proposals run the risk of setting false
expectations for consumers. For example, with websites, most
consumers do not recognize that an accessible web page is only
part of a comprehensive solution to deliver an accessible
experience to the end-user. Support is also needed in the web
browser and the assistive technology. Labeling a web page as
accessible may not give the consumer accessibility if the
assistive technology does not perform as expected. False
expectations from labels may give rise to significant legal and
practical concerns for manufacturers and employers.
Labeling proposals would be difficult to organize and
implement for most products, but especially for web pages that
are updated frequently--some as often as many times an hour.
Finally, product labeling is expensive. If a government entity were
to embrace unique accessibility labeling requirements for products sold
in a specific marketplace, the business case for selling in that
marketplace would be lessened, reducing competition and consumer
choice. And again, the people most in need of this technology would
lose.
CONCLUSION
IBM, on behalf of the IT industry, requests the assistance of this
committee in ensuring that all who need accessible technology get the
best our industry has to offer. We have three specific requests:
First, given the broad reach of the technology and potential
impact on all citizens, IT accessibility policy demands
attention from the highest levels of government. We hope that
the profile and importance of IT accessibility can be raised
whenever there are discussions between U.S. andleaders.
Second, we suggest establishing an early warning process
where Congressional and Parliament members can work in tandem
to examine regulatory convergence issues such as IT
accessibility. We believe that with increased attention from
the leadership and proper oversight, transatlantic agency
activities with regard to accessibility standardization can be
accelerated.
And third, we request that the U.S. government work with the
European Commission to continue the pursuit of a harmonized
approach to accessibility.
In closing, IBM shares the belief with EABC and ITI that IT
accessibility is a topic that touches not just people with
disabilities, but increasingly the population at large, as we all will
experience some type of disability the older we get and the longer we
live. We therefore need to work towards a global standard that is open,
harmonized to existing approaches, and promotes an IT environment that
enables interoperability. This would foster innovation, unite the
market place, and create a border free and barrier free information
society.
Finally, at IBM, we envision an environment in which all people can
fulfill their highest capacity, regardless of ability or disability.
Currently, all lines of business within IBM are involved in inventing
and developing technologies, products, services, solutions that will
benefit people with diverse capabilities. We are engaged with
governments and the private sector in first-of-a-kind enterprise
transformation initiatives that will result in a more inclusive
society; a society where human and societal potential can be optimized.
In essence, we are striving to deliver ``innovation that matters to the
world,'' a corporate wide value. And we think enhancing human capacity
through accessible technology and solutions is an innovation that
matters.
But, this vision can only be achieved through active collaboration
between industry, government and the citizenry. We therefore appreciate
opportunities such as today's hearing for advancing this dialogue.
Thank you for your attention and I look forward to answering your
questions.
Senator Allen. Thank you, Ms. West, for your testimony and
insight.
Now we would like to hear from Mr. Duffy.
STATEMENT OF JOSEPH E. DUFFY, VICE PRESIDENT, SAP PUBLIC
SERVICES, INC., WASHINGTON, D.C.
Mr. Duffy. Thank you very much, Mr. Chairman, and thank you
for the opportunity to testify before you today.
We appreciate the role that Congress has played in creating
a favorable policy environment for accessible information
technologies. We commend you today for seeking to encourage
greater harmony on this issue between the United States and
Europe because only harmonized international accessibility
standards will produce the best results for the disabled
community.
For background, SAP is the world's leading provider of
business applications software. More than 26,000 companies and
government agencies run on SAP business software, and an
estimated 12 million individuals who work for these
organizations are SAP users. SAP has a strong presence in the
U.S., employing more than 5,500 people in 18 locations. SAP
America has enjoyed substantial growth in the last 2 years, and
we anticipate growing further this year. Our CEO, Bill
McDermott, recently stated that SAP created 1,500 new jobs in
the United States in the last 18 months. In addition, SAP
provides more than 50,000 U.S.-based students with SAP training
at 115 universities across the Nation.
At SAP we feel strongly that barriers faced by individuals
with disabilities in the work place must be eliminated. We
support policies that protect a person with disabilities' right
to participate in the work force, including section 508.
Through our Accessibility Competence Center and our
industry-leading research and development, we are working to
make sure that our software solutions are accessible and meet
the needs of people with disabilities around the globe. Today
we are implementing a very detailed program with specific goals
and milestones to meet the needs of the disabled community. Our
plan is designed to address sensory and motor-skill
disabilities and to focus on the needs of end users first,
making accessible software available to the largest number of
users as rapidly as possible.
Making information technology, or IT, more accessible to
people with disabilities is not an easy task. First, there are
many kinds of physical disabilities. Each type poses unique
challenges to IT product developers. Second, the degree of IT
accessibility depends on the complex interaction of multiple
technologies produced by multiple vendors, including operating
systems, keyboards, terminal screens, mouse pointers, and
business applications. On top of this, people with disabilities
usually use a combination of assistive technologies such as
screen readers, Braille displays, and mouse alternatives. As
you can imagine, designing and producing accessible products is
an ongoing and complex challenge for all IT providers, while
the very definition of accessibility is a moving target.
To put this into context, one of our products, mySAP ERP,
contains more than 150,000 screen views. Updating each one of
them with accessibility features is really a daunting task.
As we pursue this mission, we strongly support efforts to
achieve harmonized global accessibility standards. Simply put,
accessibility standards are specifications that product
manufacturers must meet to serve the needs of the disabled
user. International standards development organizations, or
SDO's, are one source of such standards, but government
entities in the U.S. and Europe also provide such
specifications. If we get into a situation where there are
multiple standards for a given technology, then IT developers
must either choose one set of standards and forego certain
markets or go to the trouble of implementing multiple standards
and hope they do not come into conflict with each other. As you
can imagine, the difficulty of avoiding such conflicts
increases as more and more standards are created.
Before moving on to solutions, let us just take a moment to
examine how fragmented accessibility standards can negatively
impact people with disabilities.
To cite the most obvious effect, fragmented standards
impose extra cost and delay on technology providers which has a
spill-over effect on consumers. This extra effort delays the
availability of new technologies, and even worse, it raises the
price of such products for consumers, imposing additional
burdens on the very people we are trying to help, many of whom
are financially disadvantaged.
Another impact of fragmented standards is to recreate the
geographic barriers that IT otherwise does so much to remove.
Imagine the frustration of a disabled consumer who cannot
access a web site because the designed lived in another country
and followed a different accessibility standard. In short, the
needs of disabled consumers are essentially identical whether
they live in the United States or Europe and we should not
impose new barriers based on fragmented standards.
Lastly, it must be noted that fragmented information
technology accessibility standards also create trade barriers
and discourage global competition. The negative impact is
particularly damaging to small companies which can ill-afford
the smaller markets and extra development costs of complying
with divergent standards.
With regard to ongoing work to establish accessibility
standards in Europe, the IT industry encourages policy makers
there to consider the flexible, market-oriented approach taken
in the United States under section 508 of the Rehabilitation
Act. The applicable requirements have already been incorporated
into the product development process at SAP and many other
companies. As a result, section 508 has already generated
significant innovation and benefits all disabled users in the
public and private sectors all over the world.
As the U.S. Access Board is now considering an update to
section 508, we see this as a great opportunity for
transatlantic cooperation. Ideally we would like to see a
single set of rules governing the accessibility requirements in
both regions and have them be performance- and outcome-
oriented. The specific technical requirements should be
generated and managed by SDO's.
As a company with a strong presence in Europe, we have
committed to supporting and working closely with our U.S.-based
peers, including IBM, Microsoft, Oracle, HP, and others to
promote global harmonized standards within the European
Commission. We all believe that only harmonized international
accessibility standards can produce the best results for the
disabled community, businesses, and the economy.
We would like to thank ITI and EABC for their support to
industry and thank you for the opportunity to submit these
comments. We look forward to further discussion, and I will be
happy to answer any questions.
[The prepared statement of Mr. Duffy follows:]
Prepared Statement of Joseph Duffy
Mr. Chairman, Senator Allen, and members of the subcommittee, thank
you for the invitation to be with you today for this important
discussion. I know I speak for many in our industry when I say we
appreciate the role that Congress has played in creating a favorable
policy environment for accessible information technologies (IT). We
applaud you again today for seeking to encourage greater harmony on
this issue between the United States and Europe, because only
harmonized international accessibility standards will produce the best
results for consumers, businesses and the economy.
Mr. Chairman, my company, SAP, is the world's leading provider of
business application software. Our products and services are relied
upon by more than 12 million users at 26,000 companies and public
sector agencies to manage such crucial functions as financials,
operations, supply chains, and human resources. We are a global company
with a strong presence in the United States, employing more than 5,500
people in 18 U.S. offices and labs. We are also an active partner of
many Federal and state agencies, which use our software to improve
efficiency and accountability in agencies like the departments of
Defense, Homeland Security, Treasury, Interior and Energy, and GSA.
SAP also donates more than $60 million a year to help improve math,
science and engineering curriculum in U.S. secondary and post-secondary
educational institutions. Over the last few years, we have provided
almost half a million dollars to schools and programs in the U.S. that
serve thousands of disabled adults and children.
Mr. Chairman, our commitment to serving our customers and
communities includes making our products accessible to users with
physical disabilities. We are doing this not only because it's the
right thing to do, but also because there is a strong and growing
market for it. According to the U.S. Census Bureau, the United States
is home to about 30 million working-age people with disabilities,\1\
while the European Commission estimates an additional 17 to 24 million
live in the European Union.\2\ The World Health Organization estimates
about 600 million people of all ages live with disabilities
worldwide.\3\ Obviously, there are large markets to be addressed and
many social and economic benefits to be gained by working together to
make IT products more accessible.
---------------------------------------------------------------------------
\1\ U.S. Census Bureau, fact sheet dated 12 July 2002 and posted at
http://www.census.gov/Press-Release/www/2002/cb02ffl.html.
\2\ European Commission Directorate-General for Employment and
Social Affairs, report entitled ``Active Labour Market Programmes for
People with Disabilities,'' dated August 2002 and posted at http://
europa.eu.int/comm/employment_social/index/active_labour_market.
\3\ World Health Organization, fact sheet dated 3 December 2003 and
posted at http://who.int/ncd/disability/index.htm.
---------------------------------------------------------------------------
Making IT more accessible to people with disabilities is not an
easy task. First, there are many kinds of physical disabilities, and
each type poses unique challenges to IT product developers. Second, the
degree of IT accessibility depends on the complex interaction of
multiple technologies produced by multiple vendors: operating systems,
keyboards, terminal screens, mouse pointers, business applications, and
so forth. On top of this, people with disabilities usually use a
combination of assistive technologies such as screen readers, Braille
display, and mouse alternatives. As you can imagine, designing and
producing accessible products is an ongoing and complex challenge for
all IT providers, and the very definition of accessibility is a moving
target.
At SAP, through our Accessibility Competence Center and our
industry-leading research and development, we are working to make our
software solutions more accessible. Accessibility requirements are
incorporated into our product design, development, and quality control
processes. We are taking additional steps to add accessibility features
into existing products. For example, one of our products, mySAP ERP,
contains more than 150,000 screen views, and updating them is a serious
undertaking. In addition, our partners and customers can also take
advantage of our technology advancement to enhance the accessibility of
their software applications. Indeed, we are implementing a very
detailed program with specific goals and milestones to meet the needs
of the disabled community. Our plan is designed to address sensory and
motor skill disabilities and to focus on the needs of end users first,
making accessible software available to the largest number of users as
rapidly as possible.
As we pursue this mission, we strongly support efforts to achieve
harmonized global accessibility standards.
Simply put, accessibility standards are specifications that product
manufacturers must meet to serve the needs of disabled users.
International standards development organizations are one source of
such standards, but government entities in the U.S. and Europe also
provide such specifications. If we get into a situation where there are
multiple standards for a given technology, then IT developers must
either choose one set of standards and forgo certain markets, or go to
the trouble of implementing multiple standards and hope they do not
come into conflict with each other. As you can imagine, the difficulty
of avoiding such conflicts increases as more and more standards are
created.
Before moving on to solutions, let's take a moment to examine how
fragmented accessibility standards can negatively impact people with
disabilities.
To cite the most obvious effect, fragmented standards impose extra
costs and delays on technology providers, which then have spill-over
impacts on consumers. In the best-case scenario, divergent standards do
not create irreconcilable conflicts but merely require extra time and
expense to design, development, test, and deploy. This extra effort
delays the introduction of new technologies. Even worse, it raises the
prices of such products for consumers, imposing additional burdens on
the very people we are trying to help, many of whom are financially
disadvantaged.
Another impact of fragmented standards is to re-create the
geographic barriers that IT otherwise does so much to remove.
Overcoming such barriers is particularly relevant to those with
physical disabilities because they have greater difficulties in
traveling. Imagine the frustration of a disabled consumer who might be
unable to access an important web site because the site designer lived
in another country and followed a different standard. In short, the
needs of disabled consumers are essentially identical whether they live
in United States or Europe, and we shouldn't impose new barriers based
on fragmented standards.
Lastly, it must be noted that fragmented information technology
accessibility standards also creates trade barriers and discourage
global competition. The negative impact is particular damaging to small
companies, which can ill-afford the extra development cost of complying
with divergent standards.
For all of the forgoing reasons, SAP strongly supports efforts to
achieve harmonized global IT accessibility standards. Harmonized
standards offer the greatest opportunities for consumers, business, and
society by reducing costs, improving time to market, widening the
availability of accessible products, and increasing the quality of life
of people with disabilities. So how can we achieve harmonized
standards?
Global standards development organizations (SDOs) are in the best
position to maintain global standards and resolve conflicts among
competing standards. Let's face it, the pace of technological
innovation is so fast that even SDOs have a hard time keeping up. But
writing technical standards into law or regulation makes the problem
even worse. Typical lawmaking processes cannot keep up with the speed
of information technology advancements.
We encourage legislators and regulators in the United States and
abroad to reference the work of international SDOs in domestic
regulations instead of trying to fine-tune those standards and set them
in law in their own countries. If specific requirements must be written
into law, we encourage the lawmakers to specify the requirements based
on outcome and performance instead of technical methods. Methods often
change due to technological advances.
With regard to ongoing work to establish accessibility standards in
Europe, the IT industry encourages policy makers there to consider the
flexible, market-oriented approach taken in the United States under
section 508 of the Federal Rehabilitation Act. Section 508 requires the
U.S. Government to purchase the most accessible products on the market.
Because the U.S. Government is the leading purchaser of IT in the
world, section 508 has spurred extraordinary cooperation among public
sector buyers, industry and consumers to meet that demand, which in
turn has led to rapid progress in the development of accessible
products.
The applicable requirements of section 508 have already been
incorporated into the product-development process at SAP and many other
companies. As a result, section 508 has already generated significant
innovation and benefits for all disabled users in the public and
private sectors all over the world.
Depending on how the rules are implemented by the European
Commission and Member States, addressing accessibility through global
SDOs and a public procurement approach could provide many advantages
for European consumers. For example, if European requirements are
harmonized with those of the United States, it would more than double
the market for conforming IT products and create an even greater
incentive for manufacturers to develop accessible products. Consumers
will reap the ultimate benefits in the form of lower costs, greater
choices, and better quality of life--and it will all occur sooner
rather than later.
As the U.S. Access Board is now considering an update of section
508, we see this as a great opportunity for trans-Atlantic cooperation.
Ideally, we would like to see a single set of rules governing the
accessibility requirements in both regions. We would also prefer to see
that specific requirements refer to designated SDOs' work or that the
requirements be performance and outcome-oriented.
This does not mean ignoring difference of language and culture;
these are important and must be addressed in standards-setting
processes. As global standards are adopted, they must be published and
promoted in multiple languages to facilitate adoption by local
authorities and to avoid misinterpretations. But language and cultural
differences affect all people regardless of disabilities. Thus, there
is no need to create additional international trade barriers for the
alleged benefit of accessibility. Instead, global SDOs should obtain
inputs from regional experts and create standards that are applicable
in all geographic locations. This is of particular importance when we
examine the complexity involved in Asian languages.
Mr. Chairman, I am pleased to report that early efforts to
harmonize global accessibility standards are promising. The Special
Working Group on Accessibility of the Joint Technical Committee 1 (JTC
1) of the International Organization for Standardization (ISO) and the
International Electrotechnical Commission (IEC) have already begun the
work of gathering user requirements, taking inventory of existing
standards, and tracking laws and policy. Section 508 will be
influential in that process. SAP, IBM, many of our peer companies, and
the U.S. Access Board are supporting the working group's efforts. We
are eagerly anticipating the positive results that it promises to
deliver.
Within Europe, the European Commission has issued a Communication
on ``e-Accessibility'' that recognizes the risk of a fragmented
disability market and cites as its ``main'' objective ``to promote
harmonization on a voluntary basis and to help self-regulation.''
Industry applauds this emphasis and urges deference to the
international, consensus-based standards development process, which
will be the most efficient and effective way to advance IT
accessibility.
Mr. Chairman, to summarize, developing harmonized global standards
through SDOs and cooperative inter-governmental initiatives will enable
IT vendors to focus on innovating and competing in the global market,
rather than on responding to a patchwork quilt of redundant and
contradictory requirements. Close cooperation between the United State
and Europe is essential to making progress on this topic. Failure to
achieve cooperation would cause significant harm to the IT industry,
the economy, and, most importantly, people with disabilities.
Thank you for the opportunity to submit these comments. We look
forward to further discussion and would be happy to answer any
questions.
Senator Allen. Thank you, Mr. Duffy and Ms. West. Thank you
to both of you all on the IT accessibility issue. Let me first
start with you all to try to get a gist of what we can do here.
When you all are developing the IT accessibility products,
services, clearly that is a smaller market. It is not a larger
market. I do not know if your companies, IBM or SAP, actually
make any money. Do you even make money? I do not want to get
into proprietary information.
The reason I am asking this question is to the extent you
end up with a fragmented market, it makes it all the more
costly as an investment for IBM or SAP, wonderful companies
that want to be making sure people with a variety of different
disabilities have access to technology and information. If you
do not make any profit off of it, if you are doing this as a
service or as a cost of doing business, how would this
fragmentation and regulations that are unnecessarily burdensome
affect the ability of folks with a variety of disabilities to
actually have access to your programs, so to speak?
Either one of you all or both can speak to that. If somehow
this is a violation of Sarbanes-Oxley to answer this question,
you can cite that as a reason for not answering it.
Mr. Duffy. I will take a shot at it, sir. I do not believe
we do not track down to that level whether we make money or
not. But clearly we invest a tremendous amount of money to
serve that community, and we think it is good corporate citizen
policy, in fact, to do so.
But if we do have to get into many, many different
fragmented regulations, it really just kind of spreads the
peanut butter a little too far. When you want to go out and you
want to get products to market quicker and you want to give
availability to folks with disabilities, because a computer is
the lifeblood to a lot of folks with disabilities, the more we
can concentrate on a standard set of standards, the more we can
focus those resources on that.
Senator Allen. Ms. West.
Ms. West. From IBM's standpoint, we actually started
looking at this market, and we actually foresee a tremendous
business advantage of addressing accessibility. Like I
mentioned earlier, the aging trend is becoming a global issue.
We already have seen industries like the retail industry and
the banking industry viewing people with disabilities and the
aging population as the target market. So there is actually
money to be had or business to be made in that under-served
market segment.
Secondly, with a self-declaration kind of a process that
section 508 has introduced, it really helped IBM to focus
building accessibility requirements into the front end of our
products. This is not actually a very difficult thing to solve
if you think about it ahead of time. So by engaging our
development team at the concept stage of development, the cost
of production actually has gone down significantly. And then
the application of that accessible solution can be broad-based
to everybody who is experiencing aging. So then again, the
average return on the investment actually is quite substantial.
So this is not an issue in our view of just kind of a social
responsibility issue. We actually view it as a tremendous
economic benefit.
Senator Allen. Well, thanks for that insight.
Now, both your companies have invested a great deal since
508 was adopted and enforced on companies. Obviously both you
have invested heavily, and maybe it is a good market share,
maybe it is good corporate citizenship to make your products
accessible to meet the 508 requirements. Briefly, if each of
you could share with me and obviously the committee--and, Ms.
West, I just want to close the loop on this. You in your
testimony talked about if the E.U. decides to adopt an
accessibility standard which deviates from 508--and it may
actually be a better standard. I do not know if it is better or
worse. But regardless, I was trying to follow that. What impact
would that have, for example, on IBM to meet a different
standard or a different set of requirements?
Ms. West. The section 508--I think from the accessibility
standards standpoint, there actually has been very good
dialogue between the U.S. committee and also the European Union
community. We actually applaud the E.U. looking at 508 as a
base because this is a new area and many extensions should be
had. As long as the E.U. does not go down a path that
completely deviates from the section 508 base, then I think it
is definitely a very good scenario because we too would like to
participate in that second generation of defining the
accessibility standards. We just do not want to start having
differing standards, for example, by countries or by regions.
That will create a problem for us.
Senator Allen. Thank you, Ms. West.
Mr. Duffy, do you have anything you want to add to it? I
just wanted to clarify something in Ms. West's testimony in
that regard.
Mr. Duffy. That is fine.
Senator Allen. Thank you.
Let me talk to our nanotechnologists here and ask you some
questions. As far as the regulatory agencies, whether they are
here in the U.S. or in the European Union, do you feel in
either area, whether it is U.S. or the E.U., that any of them
headed in the wrong direction in the development of
regulations, environmental regulations, for example, for
nanotechnology? If so, let us know how.
Mr. Harper. Yes, Senator. I think it is a somewhat
asymmetric situation. Governments on both sides are just
beginning to look. Agencies are just beginning to look at how
to regulate nanotechnology. U.S. EPA I think has taken a very
good first step in the right direction. They are holding a
meeting in late June where they are bringing in stakeholders
from all sides to look at developing a pilot program for how
you apply the Toxic Substances Control Act, the primary
chemical regulatory authority that Congress has provided EPA,
to nanotechnology. Fred had alluded to that earlier.
We think that the tools of TSCA and the authorities of TSCA
can be made to apply quite well to nanotechnology, but there
are some unique issues and there are some unique science, and
we think that the pilot project approach is a good way for the
agency and everyone else to work their way through that
process. I think there is a good deal of goodwill on all sides,
including industry and the environmental community, to try and
make this work.
In Europe, it is a very different situation. They are even
earlier in their stage of looking at nanotechnology, and I
think it will be a longer time before they get around to it
simply because they are in the midst of rewriting their entire
chemical regulatory legislative framework. They have something
called the REACH regulation which is working its way through
parliament, as we speak. I think it is clear that
nanotechnology will be handled under the umbrella of the REACH
regulation. How that will occur I think is still very much up
in the air because a lot of the details of the REACH regulation
are still very much up in the air.
But right now, at least in the United States, we think
things are headed in the right direction. EPA in our view has
shown the right amount of attention to this, and the jury is
still out on how it is going to turn out, as it is in Europe as
well. But because both sides are in the early stages of looking
at this issue and how to apply their existing or future tools
in the case of Europe, we think there is great opportunity for
the two sides to collaborate and share their thoughts to
maximize the chances that the two regulatory regimes will be
very similar going forward in time.
I do not know what Fred thinks.
Dr. Klaessig. I agree with Steve. Overall, the issue I
think that will come up in terms of the science, both groups
have the goodwill to use the best science and global science.
When there are difficulties, especially with the newer and more
novel materials that are being generated in the laboratories
today, I think the issue will come up of evaluation tools,
toxicity mechanisms, the type of issues that normally are
assumed to be carried by industry when it has a product in hand
and a market to go after. But when you do not know what the
right test is or if the definition of the material does not
cause you to go to the EPA or other agency for proper review,
that will be the area where I think--call it a gap, call it a
developing issue might arise. And then, of course, individual
groups will start having definitions of what precaution really
means.
I agree with Steve on the issue of the E.U.. The group that
seems to becoming prominent on this topic is OECD, which I do
not know how to rank it in all the different discussions here,
but the OECD is working on this. They do get involved with
standardized tests and test methodologies. So what may happen
in this case is the United States EPA takes the lead. The OECD
takes the energy and the effort over in Europe, while the E.U.
is involved with Project REACH. So it may be a plight of the
Parisian OECD.
Senator Allen. Thank you.
Let me ask you this one last question on nanotechnology.
Are there any types of commercial products that are currently
in use and in what way? And are there any differences that you
foresee at this time between the U.S. and Europe marketplaces,
if there are any of these differences?
Dr. Klaessig. From existing materials, the marketplaces are
very similar. From future marketplaces, I think the main issue
for me would be that the United States has been more
encouraging of smaller firms, start-up firms, university type
of offshoots, and no matter what size a firm is, you have to go
through this regulatory stage to commercialize your product. So
I would think that just as the EPA has taken the lead on trying
to incorporate these issues into their TSCA scheme, we will
also be the first that will be involved with a start-up firm
not being aware of the topic, and just when they want to go to
commercialization and when their investors are insisting on
quick commercialization, finding out that they did not even
know they had to register, did not even take the underlying
tests, and had difficulty finding out what the right test
methodologies were. So I think that sort of an issue will also
arise here in the United States first.
Mr. Harper. Yes. I would just like to add to that. The uses
for the nanomaterials that are now out on the marketplace, sun
block, nanomaterials that harden tennis balls, harden tennis
rackets--I mean, there are a number of applications. The real
interesting areas of exploration are still, by and large, in
the R&D labs.
While the U.S. and the E.U. governments are trying to
figure out how to make their existing or, in the case of
Europe, new regulatory regimes apply to nano, a lot of folks in
industry, including Fred's company and my own, are active in
industry and in some cases industry and environmental group
collaborations and academic collaborations to try and develop,
for lack of a better term, best known methods for handling
these materials in our facilities so that we make sure that
issues do not arise between now and when EPA has fully figured
out, for example, how to regulate nanotechnology in the
workplace or the marketplace.
One of the concerns I think Fred and I both share is that a
lot of this work is being done in start-up companies that do
not have environmental management teams like Intel or Degussa
has or academic research labs. One of the challenges for
companies like ours is in the development of these approaches
in the labs particularly but also in the manufacturing
environment, that we share those approaches with these smaller
companies and with these academic research institutions that,
as I say, do not have the capability to develop these
approaches themselves. We are working on that. That is really
an obligation I think on industry's end.
Senator Allen. What is your motivation to do that? You do
not want to have some small company cause some problem and have
an overreaction?
Mr. Harper. I will speak for Intel. In our case, there is a
long tradition in our company of not making environmental,
health, and safety practices a competitive issue. So we will
share our environmental, health, and safety practices, which
have been widely recognized as leadership practices, with
anybody, including our fiercest competitors. We feel like that
is the right thing to do.
In addition, through one of our subsidiaries, Intel
Capital, we have venture capital investments in several of the
principal start-up companies that are developing these new
applications. We feel a stewardship responsibility there
because we are part owner of that enterprise.
Then I think, finally, you touched on the other aspect that
I mentioned in my testimony. If these materials are deployed in
the wrong way, even if it is only in the research and
development environment, there is a possibility that these
technologies--and it is plural, not singular--could get held up
in regulation or in public oversight or public lack of
acceptance, much like in the GMO environment, and we want to
avoid that.
Dr. Klaessig. Yes. Loss of public confidence in both the
materials and also the system by which we make findings of
safety, leading to a chilling effect on innovation even by
those who are following responsible procedures. Again, if there
is an incident or something that causes great public alarm,
then the precautionary principle, which is more resident in
Europe than it is here in the United States, will be used
everywhere as opposed to in a reasonable and consistent
fashion.
Senator Allen. Thank you, Dr. Klaessig. Thank you both,
gentlemen.
Finally, on the European collection societies, Mr. Patton
and Mr. Hassell, you are talking about our approach versus the
Europeans. The Europeans have multiple, apparently redundant,
often extremely excessive levels of levies and taxation;
whereas, as far as we are concerned in this country, I have
always felt like it's better to leave it free. Let innovation
go forward and let the consumers, the marketplace make a
decision, particularly on not taxing Internet services.
Clearly, I assume you all, regardless of Europe or the
U.S., feel the U.S. approach, keeping Internet services free of
taxation and regulation is a preferable approach for consumers,
not just for businesses. Would you agree with that assertion or
statement?
Mr. Hassell. Yes, Mr. Chairman, we would. I think the
United States' approach is we trust the market. We trust the
market to help solve this problem. I think there are lots of
companies that are producing great technologies to balance the
need to protect intellectual property. We want to protect our
intellectual property at HP. We are against stealing. However,
we do not think having this tax-like levy system is going to
encourage any solution to this problem.
So we appreciate your leadership. You, I think, understand
in your gut that you do not tax the Internet, and we have had
one of the biggest economic booms in our country's history. So
we certainly support that position.
Mr. Patton. I think it is fair to ask whether an ebay or a
Google or an iTune service could have really flourished if we
had a practice here in the United States to go after it and tax
it because it is an available and growing source of revenue.
The way the European collecting societies focus on
innovation I think has an absolutely detrimental effect on
innovation, and it stifles it. It works this way: If there is
an innovation of a new category of products, such as there is
beginning to be in Europe in flash memory devices and personal
digital systems and PC's and everything else in the digital
age, these collection societies are viewing those as sources of
revenue. They are developing these excessive levels of levies.
You do not know, as they meet to determine what level of tax
they are going to put on, what that is going to be.
We currently are reserving about $8 for a DVD recorder in
Spain for putting in reserve to wait to find out what the levy
is going to be. It may be $8; it may be $10; it may be $15; it
could be $20. When they finally decide what to apply to this
DVD recorder in Spain, we could find that we have been selling
it in the market for 9 months, 12 months, 18 months, 2 years at
a loss, and we will not know it until it is applied.
This is not a way to enter a market. We can deal with
normal market conditions and market forces. We can deal with
regulations when they are appropriate. We can deal with all of
the legal framework for what you sell in a marketplace, but you
cannot enter a market that is so intensively competitive around
the globe, as it is today in the new digital era, and wait to
find out what kind of margin you might be able to squeak out
based on the excessiveness of the tax.
Senator Allen. Well, it strikes me in that market--you were
mentioning Austria--in a market like that, if you had a world
market like that--if the United States was like that and Europe
is the way they are, as you describe it--it would strike me
that you would reduce research and development into some of
these new innovations with that uncertainty. You would not even
know what your market would be. You would expect out of
European countries that share much of our heritage and similar
values that they would understand these just basic economic
principles of predictability. If you are going to go in a
market, you need to know what your risks are, what your costs
are.
I would hope that as we have this meeting, conference,
summit, whatever you want to call it, next month, that just
these basic things--you are Philips, of course, a Dutch
company, and hopefully they will listen to you. They ought to
listen, of course, to Hewlett-Packard and IBM and Intel. But it
would seem to me that the European companies, in particular,
might have the greatest influence on our partners or potential
partners in Europe on such matters. It just does not make sense
to have to face that sort of a situation or to try to get in
the market and, therefore, harm those consumers' ability to
have the most advanced technologies, whether it is for
commerce, whether it is for information, or whether it is for
entertainment.
Mr. Patton. It is an appropriate moment to suggest that our
voices in unison perhaps are more powerful than us speaking
singularly, and we had the opportunity with HP to collaborate
on lots of exciting and innovative new technologies.
But it is also important to point out that we do commend
the European Commission for trying to push member states to
implement the E.U. copyright directive in ways that do
recognize the new reality of the digital era in the marketplace
in Europe. They have certainly made great strides since the
introduction of the single market, and it is a single market
that consumers are benefiting from.
Your first question about looking around for other places
to buy a product so that they do not have to pay the excessive
taxes is absolutely spot-on in terms of one of the distortions.
Never underestimate the consumers' ability to go find a better
deal. And Europe will make strides, I am sure.
Mr. Hassell. If I may, Mr. Chairman. I just want to
emphasize that the E.U. is very receptive to our position. We
have been working together with other companies, and I think
they share our position that we need to somehow address the
spread of levies. So they are receptive at the E.U. level. We
just need to apply that directive and make sure it is enforced.
Senator Allen. Thank you both.
There was a reason that you all were selected here on these
three large topics, whether it is accessibility, whether it is
the technology standards, or whether it was the taxes, levies,
or nanotechnology and one from a European company and a U.S.
company. There was a group made up of business leaders on both
sides of the Atlantic--and it is still in existence--called The
Atlantik Bruecke (The Atlantic Bridge). I find that the
business leaders from European companies and U.S. companies
have much more compatibility, on a one-on-one basis. As far as
governmental officials, we do not have good personality
agreements and friendliness, but sometimes the governments need
to listen. I think it makes a great deal of sense to listen to
people in the free enterprise system, listen to the innovators,
the inventors as we are making policy so we are making the
right policy. And all of your companies are international in
scope. But to the extent you find U.S.- and E.U.-based
businesses and business leaders saying the same thing, that
does have an influence on us, and I think it would also have a
positive influence on the representative democracies of Europe
as well.
So I thank you all for taking time from your busy
schedules, sharing with us your insight on these important
subjects. As this meeting takes place next month, there will be
certain things as you requested. We will follow up on it. So I
thank everyone here, Mr. Harper, Dr. Klaessig, Ms. West, Mr.
Duffy, Mr. Patton, a good Virginian, Mr. Hassell, a wayward
Virginian who I know will come back before too long.
Thank you all so much, and we will keep innovating and we
will keep leading. Thank you all so much.
Hearing adjourned.
[Whereupon, at 4:45 p.m., the subcommittee was adjourned.]