Remarks as Delivered to the U.S. Chamber of Commerce Roundtable

Tom, thank you. [Tom Donohue, President & Chief Executive Officer, U.S. Chamber Of Commerce] It’s a pleasure to be at the Chamber, as always.

Issues like import safety tend to mature and to ripen over time. Generally there is a flashpoint issue that creates a symbol of something that’s underlying and bigger. When the flashpoint occurs, it highlights it for everyone and a policy response is then necessary. That’s a pattern that you see. And what drives it is the need for change. When things change, ultimately policies have to change, systems have to change. Oftentimes there’s a lag in the change and the response and these flashpoint issues tend to be warning signs to us.

I would like to suggest that when it comes to import safety the United States has a good system to assure safety, but it is not adequate for the future. And the incidents that we have seen over the course of the last several months have been a warning sign that it’s time for us to respond.

Now, I want to also emphasize this is not unique to the United States. Now, I had the health ministers from the G8 plus the European Union as a group here in the United States for meetings about a month ago. This subject dominated that conversation, because the flashpoint issues have occurred in virtually every industrialized nation in the world. It’s very clear to them this is a policy response that is now necessary and we’ve begun to work together. But it is not unique to the United States. I think it was Tom Friedman who wrote the book The World Is Flat. What I’ve concluded is that we are seeing the natural maturation of the global economy. And this issue is a result of that development. It is inevitable that it happened, and it is a warning sign we need a response.

As Tom [Donohue] indicated, wisely, I believe, the President saw those warning signs and responded. He did so by appointing a working group that he asked me to chair. The working group is a very high-level group in our government. It includes 12 different departments — or rather 10 departments and two agencies. I’ll just quickly enumerate them: Obviously HHS. (I serve as chair.) The Department of State. (By the way, I think this list is a good indication of how broad this issue is and the reason it requires such a coordinated effort.) Department of Treasury, Department of Justice, Department of Agriculture, Department of Commerce, Department of Transportation, Department of Homeland Security, Office of Management and Budget, the Trade Rep, the EPA, and the Consumer Products Safety Commission. That’s a very large piece of the United States Government that all has to come to bear on this issue of how we keep products safe.

As Chairman I chose to break our task into two different parts. The first was to deploy a team of people into each of those affected or relevant agencies and departments to begin to ask the same questions that you would ask. What are the current authorities that we have? Are they adequate? What changes are happening that we need to respond to? What are the limitations that we have? What are our resources? Are they adequate? What do we need to do this job?

The second part was then to fan out over the country and to break our group into various teams. And I personally went to well over 25 different locations. Now, I saw seaports, I saw border crossings, I saw truck stops, I saw post offices, I saw freight hubs, I saw retail, wholesale and processing of food and drugs. I personally inspected everything from tire irons to gingerbread houses. And what struck me about this is how massive it is. The average American could have no way to know how much it takes to fill up the American pantry and empty it out every day. We get imports from 825,000 different sources. They are imported into our country from over 300 points of entry. This is a very large, very complex sector of our economy. $2 trillion this year will be imported into the United States. Just to give you a sense of perspective, that’s about twice the size of the entire Brazilian economy. And it’s growing. There’re some estimates that would suggest that by 2015 we’ll see three times the amount of imports. There’s an old saying in the hockey world that you want to skate where the puck’s going to be, not where it is today. And so it became very evident to us that we need to be developing an import safety system for the 21^st century, not just for where we are today.

Well, there are a couple of things I’d like to report to you. The good news is that two parts of our effort began to have the same themes bubble up. It was evident when we went to the field that we saw the same things as when we took the deep look into our authorities. I remember standing next to a FDA inspector in a blue uniform who said to me, “Mr. Secretary, our job is like hunting for a needle in a haystack. Now, our first job is we’ve got to shrink the haystack.” I thought that was a very good summary of our task. It is not possible nor should we try to inspect our way to import safety. Everything needs to be safe, but our strategy has to change. Now, this report essentially represents a fundamental and basic change in our import strategy. In the past we have stood at the borders to intervene when things came through that were unsafe. The massive amount of it makes clear that we’ve got to continue to do that, but we need to roll the borders back and begin to build quality into every step of the process. So that before things come to our borders we have confidence that quality has been built in and not simply dependent upon us standing at the border to catch them as they do.

Now, there are 50 different recommendations and 14 different categories, all based on that fundamental strategic change. I’d like to summarize if I could with eight of them, and then I’d like very much to get your thoughts and reactions. I would also, before we’re finished, like to tell you about the agreements that we’re reaching with the Chinese, because I think that is indicative of how this report can, in fact, in the future be implemented.

Again I want to underline the importance of this strategic change. All of this about building quality in at every step of the way as opposed to just catching them at the border.

Let’s start with number one, a stronger certification process, the authority to require high-risk products to be certified before they come into the United States. Every product that comes into the United States, particularly in those areas of high risk, should be certified. Now, what do I mean by certified. Simply means that someone we trust has verified and validated that quality is being built in at every step of the process. I bumped into the manager of a processing plant for lettuce and he said to me our motto is “know your grower.” What do you mean? I said. “I want to not only know where this was grown, I want to know who planted it, I want to know the nutrients that were fed to it, I want to know the quality of the water, I want to know who picked it, I want to know what they did after they picked it, I want to know who shipped it. In other words, I want to know that quality was built in very step of the way. So that when it gets to the shelf of a retailer it was not dependent simply on some border protection person checking it as it comes through. It has quality built in every step of the way.”

Now, does that mean that the federal government should have someone to certify every one of those 825,000 import sources? No. But it means that someone should certify them, and it should be someone we trust. Now, frankly, we have all become aware over years of the process of certification. There are some brand names we all know and have come to accept. One, for example, is the Good Housekeeping Seal of Approval. Now, I'm not representing them to be the certifier of all products. I'm using it as an example of an independent certification that we’ve come to know and that we can trust it. Underwriters Laboratory is another one for certain devices. We’ve come to know that if they inspect it and give it their brand, we’re prepared to accept it as a quality process. There are others. How do we know if we trust it? Well, in time the government needs to become the accreditor of certifiers but not necessarily the certifier of every shipper.

So the first point then is making certain that every high-risk producer gives us certification that best practices have been used before it gets to the border of the United States. It’s back to shrink the haystack so we can find the needle that represents a high-risk product.

Second. Promoting good import practices. How do we promote good import practices? Well, when you talk to folks on the border, people in the blue uniforms who day after day after day look at millions and millions of different shipments coming in, who have to find that needle in the haystack, what they’ll tell you is we get to know these shippers, and the ones that we have a problem with we routinely have a problem with and the ones that are good we know they’re good and we tend to reward good behavior and we tend to focus on the bad behaviors. Well, that’s a good practice. Once we have information about what good behavior is, we need to reward it and let people get their products into the United States more quickly in a more expedited fashion. Those who are bad actors, who don't follow the rules, need to be the first of our regulatory process because that’s where the risk actually lies. So promoting good import practices. Now, what constitutes a good import practice? You know, obviously that’s what we all need to define, and it will be in some cases different from one industry to the next.

Third. I’d like to talk about greater transparency. People deserve to know those who import safely and those who chronically don’t. Transparency is a wonderful enforcer. I cannot tell you the number of times over the course the last five months when I’ve had a retailer, a wholesaler, or a manufacturer say to me, “I’m telling my producers, I’m telling my suppliers that if they want to do business with me, I need to have safe and quality products, because it’s my brand that goes on that product the minute it hits my shelf.” People need to know who the good actors are and who the chronically bad actors are, and not only regulators but consumers need to know. And when they do, people will respond.

Number four. Increasing our presence overseas. Now, again I want to emphasize that it’s not logical for the government to try to stand at every one of those 300 import places with all of those who are exporting to us and to inspect everything. But we can in fact help them know what our standards are, and we can in fact help them know how to meet them. We need to send a very clear, unequivocal message that if you want to supply goods to American consumers you need to meet American standards of quality and American standards of safety. We’ll help you know how to meet them, we’ll work with you to develop a regulatory system that will qualify your goods, and we’ll send more of our American government representative into foreign markets to accomplish that. We’ll do that in three ways. First, we’ll build it into our trade agreements. Second, we’ll increase training on U.S. requirements. And, third, we’ll have physical inspection abroad to make certain that we’re validating that they’re meeting our requirements.

Fifth. Let me talk about enhanced standard. In order to have a certification there needs to be a set of standards that are uniformly adopted by those who would produce products in that category. The report asks Congress to give agencies the ability to strengthen standards where they are necessary. It also asks for new authorities to leverage best practices that have already been adopted by industry. And let me give you an example, not a specific one but in general. There are many organizations of vendors, for example, who desire to create a standard. We did this in lettuce recently. Everyone in the grocery business, everyone in the produce business is hurt when one producer of lettuce has a problem. So the produce business got together and said, “There are no standards or best practices; let’s create them.” They came up with a rigorous standard. Why? Because it’s just as hurtful to them when their competitor violates best practices, because lettuce is lettuce and if people stop buying it you don’t have the advantage of their business. The FDA reviewed their standards and concluded that they had come up with a rigorous standard. Now, there were some tweaks here and there, but we’re suggesting that we can develop standards faster and better if we can inform that standard-making process with what industry is already doing.

Next area would be stronger penalties. The report calls for a cap to be increased on the penalties. Currently the cap is $1.8 million. We’re proposing that the cap go to $10 million. In some cases we’re proposing that we raise the bond requirements for those that are currently shipping. When you go to the ports and you talk to the inspectors, you’ll see, again, they’re moving such inconceivable amounts, millions of different shipments every day. Relationships begin to develop between not just the importer but the processors and the brokers. And in order to ensure that there is adequate incentive for good behavior, they provide a bond. And if there’s a problem, then that bond is drawn upon. There’s a view that we raise the bond requirement to ensure that the stakes are adequately high for those who would monitor and process imports. Asset forfeiture is another area in terms of strong enforcement.

The seventh category I’ll talk about are interoperable systems so that everybody has better information. Now, I’ve spent a lot of time on electronic medical records, and I’ve talked with many of you about that. May I just tell you that I see so many characteristics of this problem identical to that dilemma. It starts with the fact that you have so many diverse and different people who are playing and need to provide information that it benefits everyone to have, and yet the systems are not compatible. A guy from Customs and Border Protection said to me, “I have to remember seven passwords because there are seven parts of my agency system that I need to call on in order to get different pieces of information.” The FDA said to me, “There are five different passwords in our system.” Well, the Agriculture Department doesn’t have access to all the information that they have. In other words, the idea of having interoperable systems — a one-screen approach where everything we have coming into this country can be transparently viewed by those who are required to secure our borders for both terrorism and for safety of product imports — is a critical step. Now, the president recently issued an executive order accelerating the federal response to this particular matter. But this isn’t just a matter of having the government agencies refine their systems. Because the systems won’t be truly interoperable until they're interoperable with the importers and the exporters, and we all have the capacity to interrelate. And once again the 21^st century begins to define how we can create systems that operate interoperably.

Now, again, this one becomes more complicated because if you are producing in some country and you want to ship to the United States and Europe, it’s a bad idea to have two different standards. So, again, this comes back to the maturity of a global marketplace. These are new problems that we haven’t had to contemplate before, but we now need to have a policy response that allows that to occur.

Well, let me just acknowledge one other, and that is the need for tools of faster response. All of this does provide us with the ability to respond rapidly. I’ve been in many retailers and drilled down on what happens here when there’s a product recall. Well, frankly, it’s impressive. Once a major retailer or a significant retailer has information that a product needs to be off the shelf, it happens most cases in about an hour. Now, they can re-program their cash registers to make certain that if a particular item comes to the cash register, they can’t sell it. We need to expand that, make it even faster. But we also need to find systems of getting out to the consumer. I was in a large grocer who described for me the process they go through. I said, “How do you notify the consumer?” Well, they said, “We put out a press release, we issue the information publicly, we take it off our shelves, we post things at the counters, and so forth.” I said, “Incidentally, I notice that you have a value card that people give you to get a discount. I assume that has some information about what they bought. If I had one of those and I wanted you to give me information if a product was recalled, could you do that?” “Interesting idea,” they said. And when I went back again to a different store a couple of months later, they said to me, “We have actually begun to implement that system. If there’s a recall on a particular canned item and we know that you, Mr. Leavitt, bought that during the period of interest, in the course of just minutes we can send you an e-mail or make a phone call to you, if you ask us to tell you about that product.” Now, that’s the kind of system I think happens for the 21^st century. It provides us with interoperable systems that provide not only prevention but also intervention and response.

Now, a logical question is how much is this going to cost. Well, it is evident to me and to the makers of this report that this costs money. But given the fact that we’re dealing with 12 departments or major agencies of the federal government, trying to cost this out as a budget would essentially replicate the entire federal budget process. So we chose in the report to simply acknowledge that this is the master plan and it will require investment over a period of this year, the next year, the year after that. We’ll have to invest in this. And I think you'll see it reflected in this budget and future budgets as well. But we now have a master plan that would allow us to begin to build a coherent system.

Now, before I close let me just talk a little bit about China. It’s important that I emphasize that this report is not about China or any other particular country, because we need to have this kind of relationship with all of our trading partners. China is a growing and important part of the market. Some of the warning signs I referred to earlier were a result of trade we were doing with China. We have engaged over the last nearly six months now in rigorous conversations with the Chinese. And as Tom [Donohue] indicated, early next week we hope to sign binding memorandums of understanding in the areas of food and feed and devices and drugs. The agreements will be very similar in principle to this report. It will demonstrate a need for us to work together to ensure that any country who desires to produce goods for American consumers needs to produce them in accordance with American standards — American standards of quality, American standards of safety.

Now, there’s a lot of change here. A lot of change. It won’t happen overnight. But I think it is clear that this is the most in-depth look at the safety of imports that has ever been undertaken in this country and lays out a master plan to follow to ensure that we have safe products for consumers in this country. But change is hard. There are three ways you can handle change in a global market. First is, you can fight it and fail. The second is, you can accept it and survive. Or third, you can lead it and prosper. This country has always prospered because we have led. We are among the most important economic markets in the history of mankind. We’re an important leader in the future. This is an important policy response to make certain that not only are we keeping our markets safe but we are continuing to lead economically.

Last revised: March 13, 2008