Statement of

Mr. Robert E. Brunner,

Illinois Tool Works, Inc.

on behalf of the

Industrial Fasteners Institute

to the

Subcommittee on Technology, U.S. House of Representatives

October 8, 1998

Madam Chairwoman, members of the Committee, my name is Robert Brunner, vice president and general manager of the Shakeproof Automotive Division of Illinois Tool Works Inc., a diversified multinational manufacturer of industrial components and systems, including fasteners that subject to the provisions of the Act and fasteners that are not subject to the Act. I have been asked by the Industrial Fastener Institute to represent them before this committee today and to present our views on the workability of the Fastener Quality Act(FQA or the Act). Madam Chairwoman, allow me also to use this opportunity to apprise the Committee, as required by House Rules, that ITW Shakeproof does not receive any federal funding that supports the subject matter on which I am appearing today.

The Industrial Fasteners Institute (IFI) is a trade association representing the fastener manufacturing industry in North America, including Canada, Mexico, and the United States, and its suppliers of raw materials, machinery, tooling, installation equipment and engineering services from around the world. Currently, the IFI represents 148 companies that manufacture and sell about 85% of domestically produced fasteners in North America and contribute voluntarily and substantially to the technical work of the IFI. Two major IFI Divisions are those which respectively focus on the automobile industry and the aerospace industry. A third major division is focused on the needs of a broad spectrum of industrial fastener users including farm equipment, off-road machinery, electronics, appliances, marine, mining, construction, railroad and truck manufacturers. The fastener industry is highly capital intensive within continuing needs for highly skilled plant personnel.

The IFI strongly supported Congressional action in the form of PL 105-234, delaying implementation of the Fastener Quality Act (PL 101-592, as amended) so as to examine fully whether the Act is still needed. There have been significant changes in fastener manufacturing and purchasing practices since the FQA was first passed in 1990. Most notably, many fastener manufacturers have had to transition from traditional quality assurance systems based upon end-of-line detection for defects of finished fasteners to an approach to quality that is based upon continuous quality planning, process improvement, and defect prevention. Our goal is zero defects in parts, and manufacturers of automotive parts, including fasteners, are already required to institute Quality Assurance Systems(QAS) with stated goals of achieving that goal. For the domestic automotive parts supplier, this new approach to quality is embodied in QS9000, a system developed by the ABig Three@ to qualify their decreasing list of suppliers, and is being adapted by other industry segments, including aerospace and heavy equipment and machinery.

At present, only those fastener companies supplying the automotive industry must comply with QS9000. In the future, we believe most fastener manufacturers will have to comply with customer specific created/imposed QAS as more and more original equipment manufacturers (OEMs) transition to this approach in qualifying their suppliers. Within the automotive industry, with which I am most familiar, the transition to such Acontinuous quality@ systems has required years of effort and considerable outlays of dollars by fastener manufacturers. Hence, we expect other producers will either approach adoption of QAS cautiously or not at all, depending on the needs and requirements of their customers.

We believe that the study Congress directed the Department of Commerce(Agency) to perform and submit to Congress in February 1999 to identify changes that have occurred in the fastener industry changes is overdue and will demonstrate that the present FQA is both unworkable and unnecessary in today=s private sector fastener environment. We stand ready to assist the Commerce Department in assessing the changes that have occurred in the industry¹, and hope that the Department will work closely with industry in conducting the study and in drafting its Report and recommendations to Congress. We also feel it is important that Congress schedule additional hearings on the FQA once it receives the Commerce Secretary=s Report and recommendations so that Congress can have the opportunity to explore options to the Act with industry and other affected interests, both domestic and foreign, including distribution, federal agencies that procure fasteners, and federal agencies that either already have prosecutorial jurisdiction or Congress believes to have such jurisdiction, before taking action.

The Agency and its National Institute of Standards and Technology (NIST) have, we believe, worked diligently over the past eight years to resolve problems with the FQA, first by its creation and support of the Fastener Advisory Committee,² their efforts to amend the Act in 1996, and their efforts to listen to industry via workshops, written comment periods, a public work session in February, 1997,³ and the effort to promulgate amendatory rules published in April, 1998⁴ to attempt to adopt QAS as a means of compliance with the Act. During this period, NIST and the Department listened to industry about problems with the Act and attempted, within the limits imposed by law, to make it workable and cost effective. Though a rocky relationship at times, it was nonetheless a valuable lesson for us all.

Through no fault of the Department, implementation dates for the Act have come and gone on three occasions(for which we are very thankful) because there were not enough laboratories accredited to perform the required inspections under the Act. For its part, the industry has spent many millions of dollars over the past eight years to prepare for the FQA. Dozens of FQA Workshops have been held across the United States as well as in Europe and Asia and have been attended by more than 4,000 industry officials. However, in spite of all of the Agency=s efforts to implement the Act, and all of the efforts and expense incurred by the fastener industry to prepare for the Act, the IFI believes that the FQA is still not workable for the reasons cited herein.

The fastener industry has formed a coalition of interests representing fastener manufacturers, end-users, and distributors (including importers) to speak collectively on these issues. We feel this coalition will provide the Administration and Congress the best available evidence that the Act, as currently constructed, is unworkable and unnecessary in today=s fastener environment. Many of the issues to be addressed by the coalition are outlined below and will be more fully developed over the next several weeks for submission to the Agency as part of its required study under PL 105-234. However, listed below are the eight (8) fundamental reasons why IFI believes the FQA is not workable in its current form and, in our opinion, no longer needed to assure the quality of fasteners sold and used in the United States.

A. The problems originally addressed by the 1990 Fastener Quality Act no longer exist!

In passing PL 101-592 in 1990, Congress relied heavily on information contained in a Report of the House Subcommittee on Oversight and Investigations (Committee Print 100-Y),⁵ dated July 1988, entitled AThe Threat from Substandard Fasteners: Is America Losing Its Grip?@ This Report cited instances of fastener problems largely resulting from two sources.

1. Federal Procurement Practices: most problems reported by government users (military, aerospace, and nuclear) stemmed from purchasing fasteners represented as being Grade 8.0 (alloy steel), but were actually Grade 8.2 (a cheaper fastener containing boron with lesser strength characteristics than Grade 8.0). According to the Report, most of these problems were caused by fasteners imported from Japan over a ten year period from 1975 to 1985. U.S. Customs and other agencies identified the problem and the Japanese firms involved stopped the practice of mismarking Grade 8.2 fasteners as Grade 8.0 soon thereafter. We commend the Committee to call on the federal agencies identified therein and determine what changes they have made to their quality control practices. There is no reason, we believe, why they should not take on the same mantle of responsibility for quality control that industry users have adopted!

2. Greed: the Report identified several fastener companies that knowingly falsified test reports and certificates to sell lower strength fasteners as Grade 8.0 fasteners to increase profits. The federal government under existing statutes and authorities has since prosecuted these companies. In our opinion, the Fastener Quality Act will not and can not prevent someone intent upon defrauding his customers from committing such fraud. Further, there appear to be existing statutes in place to criminally prosecute those relatively few bad apples in the industry that may deliberately mislead or defraud their customers.

Further, Athen Secretary of Commerce Malcolm Baldridge maintained that the solution to the problem rested with improving quality control in the Department of Defense and the private sector@(meaning, we believe, users). Since that time, business relationships between fastener manufacturers and private sector end-users have caused quality practices in the fastener industry to improve continuously. Quality practices have evolved from detection of defects after the fact via final inspections that yielded defect rates in the tens of thousands⁶, to up front prevention of defects via advanced quality planning, implementation, and continuous process improvement that yields defect rates measured in the hundreds of PPM⁷. By doing their homework at the outset, working together with fastener manufacturers, and accepting responsibility for total product quality; private sector end users have effectively eliminated the need for an FQA. We expect these processes will continue to evolve to reach our goal of zero defects at higher production levels with high cost efficiencies.

B. The FQA exceeds Congressional intent to limit the scope of fasteners covered!

Throughout the history of the FQA, Congress made it clear that its intent was to cover the 1% of high-strength fasteners used in Acritical applications@. Senate Report 101-388, dated July 10, 1990 states: AEvery year approximately 200 billion bolts, screws, and other fasteners are sold in the United States. Of these approximately one percent are special high-strength fasteners which carry grade marks - special markings to indicate that they conform with particular fastener specifications set by voluntary standards organizations.@ Similar statements of intent were introduced in the Congressional Record of October 26, 1990 by Senators Gore (D-TN) and Burns (R-MT) in the widely quoted AGore-Burns Colloquy@.

While the Agency and NIST attempted to follow Congressional intent in terms of coverage, what has resulted is that the Act now applies to somewhere between 40% and 65% of fasteners sold in commerce - a much larger scope than the 1% intended by Congress. This expansion is due, we believe, to the rigid language contained in the Act=s definition of Afastener,@ and poor Agency and industry efforts to estimate of those fasteners meeting that definition. This problem is exacerbated further by the Agency=s decision to ask Congress to delete the provision of the Act that authorized the Secretary to identify fasteners that were not used in Acritical applications.@ This was done with support from industry after it became apparent that it was not possible to come to agreement a priori as to which fasteners were used in critical applications.

Also, as part of the 1996 amendments, the Agency agreed with industry recommendations that the term Astandards and specification@ be amended to strike the inclusion of those created by major end users. The industry was very supportive of this change because it could have resulted in reducing significantly the percentage of fasteners covered, thereby coming closer to the original Congressional intent of covering 1% of high-strength, mass produced fasteners. However, there later appeared a chasm of difference between the Agency and industry over the purpose of the change. For example, most automotive fasteners are produced to proprietary OEM standards (Ford, GM, and Chrysler) and not to consensus standards. Similarly, there are many specialty-type fasteners produced specifically to an end-user=s specifications or blueprints and not to consensus standards. However, in its implementing regulations, the Agency interpreted the change to also include fasteners Aproduced to other than consensus standards if those documents directly or indirectly reference consensus or government standards.@ By this interpretation, automotive and specialty fasteners were again subject to the requirements of the Act. Hence, the change did nothing to affect the scope of covered fasteners.

C. The FQA fails to recognize modern manufacturing methods and current statutory language does not permit the Agency the flexibility to resolve the problem!

When NIST issued implementing regulations in September 1996, following the 1996 amendments to the FQA, it became clear, as mentioned above, that both automotive and specialty fasteners produced to other than consensus standards, would be covered if such products met the definition of Afastener@ contained in the Act, and were produced to requirements which directly or indirectly reference consensus or government standards. Automotive industry fastener manufacturers approached the Commerce Department and NIST to make it clear that the 1996 amendments and implementing regulations would mean that automotive fasteners produced to QS9000, a high expectation Ford/GM/Chrysler quality assurance system, would not satisfy the requirements of the FQA. The reason that QS9000 does not satisfy the requirements of the Act is that it is based upon continuous inspection and defect prevention during the manufacturing process. The Act, instead depends upon final or end-of-line inspection/ detection of defects in a lot of fasteners after the fastener has been produced, as called out in a consensus standard referenced somewhere in a print.

Let me take a moment to discuss standards development and their life span. Throughout the history of our nation, technology always preceded the construction of standards. As products, processes, and technologies are developed, the need for a Acommon language@ in the form of standards, which, for the fastener industry, describe things like dimensions, materials, processing, performance, and inspection methods, has become necessary.

Peculiar to the United States is the fact that these standards are developed through a process that reflects consensus of opinion rather than that of a simple majority. The application of an innovation created today is unlikely to become an amendment to or a component of a standard for some years to come. With rare exception, once a change is offered to a standard, via a consensus body framework, no less than two years and in many cases up to five years pass before consensus is reached and the change is made, if at all. Hence the process controls(QAS) we speak of herein and which have been incorporated in practice for at least the last five years have yet to have even be offered for inclusion in applicable standards. By the time they are, they, in all likelihood, would have been passed by the next generation. Hence, Section 5 of the Act doomed its success from the outset.

Quality Assurance Systems, are evolutionary and, over time, require producers and users alike to expend many millions of dollars to develop and certify. It is a statistically sound approach to quality that is based upon continuous quality planning, process improvement and defect prevention. Its goal is zero defects, and automotive parts suppliers, including fastener vendors, must meet its requirements to supply parts to the ABig Three@. The Agency agreed quality assurance systems, like those referenced to earlier, are superior to traditional standards-based fault detection systems that rely upon final lot inspection and testing, and have tried to accommodate these new systems into its regulation as one means of compliance.

Subsequent to its issuance of a final rule in September, 1996, NIST and the fastener industry began serious discussions about how to accommodate quality assurance systems under the Act. Those discussions lasted more than a year and ended in NIST=s issuance of a second set of implementing regulations on April 14, 1998 (Federal Register Vol. 63, No. 71, pp. 18259-18187), specifically to resolve the QS9000 issue and including other clarifying amendments. The industry very much appreciated the work that NIST did in trying to accommodate QS9000 and similar quality assurance techniques under the Act. However, NIST believe it was so constrained by the statutory language of the Act that the solution it offered falls short of what industry needs without having to incur the redundant and unnecessary costs associated with end-of-line inspection and testing, laboratory accreditation, and record keeping requirements. Significant changes are still needed to the Act to resolve these problems.

D. The paperwork burdens imposed by the Act are overwhelming and do not recognize modern electronic commerce!

Three significant paperwork issues continue to plague the Act and render it unworkable.

First, the FQA still does not recognize the use of electronic commerce in that it does not permit electronic transmittal and storage of required laboratory testing reports. This means that persons required to maintain records under the Act must maintain original laboratory testing reports in paper format in order to have on file an Aoriginal laboratory testing report@ containing a pen and ink signature of an approved signatory. NIST has determined that only pen and ink signatures will satisfy the requirements of the Act pertaining to laboratory testing reports. This interpretation is unworkable in today=s electronic commerce. The use of digital signatures is now common place in industry, and to not recognize this under the FQA is both unworkable and a significant restraint of trade.

Second, paperwork requirements imposed upon fastener importers are significantly different from those imposed upon domestic manufacturers. This unequal and discriminatory treatment is unfair and violates the spirit if not the letter of trade agreements negotiated by the United States under the aegis of the World Trade Organization (WTO). The FQA requires fastener importers to have in their possession, prior to receipt of imported fasteners, proof that such fasteners meet the requirements of the Act in the form of an original laboratory testing report and a producer=s certificate of conformance. Domestic fastener manufacturers, on the other hand, are not required to send such paperwork with their shipments to distributors or to customers. The Act requires only that such paperwork be maintained Aon-file@. This situation is both unfair to importers and unworkable in today=s climate of global trade. Further, the Act requires an importer to have such paperwork in their possession regardless of whether the importer is bringing in a shipment of ten fasteners or ten thousand fasteners. Many original equipment manufacturers (e.g. aerospace, automotive, heavy equipment) purchase small lots of fasteners from abroad for purposes of repair and replacement of original equipment. The requirement that the fasteners must always be accompanied with original paperwork means that, very often, the cost of the paperwork will exceed the cost of the fastener.

Third, under the regulations issued by NIST on April 14, 1998, only the laboratory doing the chemical analysis of the metal used to manufacture fasteners, or the original manufacturer of the metal itself, can supply the required Aoriginal laboratory testing report@ certifying that the chemistry of the metal meets stated specifications. Industry practice calls on metal processors and distributors to issue chemistry certifications based upon clear traceability of the chemistry test results to the original heat of material as supplied by the metal manufacturer. This latter practice both preserved traceability to the original heat of material and was cost effective for fastener manufacturers and distributors since required certifications could be obtained easily and at low cost. Now, with the current regulations, the process of obtaining required certifications of the chemistry of metal used to produce fasteners will be difficult and costly for the metals producer, the metals processors and distributors, and the fastener manufacturers using the metals. This situation is once again unworkable!

E. Implementation of the FQA may result in $1 billion worth of Agrandfathered@ fasteners becoming unsaleable!

Under the FQA, only fasteners produced after the implementation date of the Act are required to meet the provisions of the Act. This is consistent with Congressional intent that fasteners already Ain-inventory@ or Awith the trade@ not be covered and it allows for a smooth market transition in that customers still can obtain fasteners (those Agrandfathered@ under the Act), while inventories of FQA compliant fasteners are being produced. The fastener industry estimates that some $1 billion of grandfathered fasteners will be in-inventory at the time the Act is ultimately implemented. At issue is whether this inventory will still be saleable, or possibly saleable only at discounted prices. The fastener industry has spent considerable time and energy to alert its members to this issue and to suggest that they work with their customers to make them aware that grandfathered fasteners are quality fasteners produced and certified to the same rigorous standards and specifications as those required under the FQA. However, there is evidence to suggest that fastener users and customers perceive a quality difference between AFQA Compliant@ fasteners and AGrandfathered@ fasteners. There have also been instances where fastener purchasers, particularly larger original equipment manufacturers, have made it clear that once the Act is in effect they will only accept AFQA Compliant@ fasteners. The industry has suggested several ways out of this issue to the Agency. One is to allow AGrandfathered@ fasteners to be simply and legally declared as AFQA Compliant@ because the Act states that they can be legally sold after implementation of the Act. Another is to allow AGrandfathered@ fasteners to be retested and certified as being AFQA Compliant.@ However, no satisfactory solution has been found and thus will result in a staggering burden to the fastener industry.

F. The FQA requirements for implementing the Act, based upon attaining sufficient numbers of accredited laboratories, are unworkable!

Congress intended, and the Act specifically states, that it shall not be placed into effect until a sufficient number of fastener testing laboratories are accredited to perform the required testing.

Authority is provided to the Commerce Secretary to delay implementation of the Act if it is determined that a sufficient number of laboratories has not been attained. Indeed, implementation of the Act has been delayed by the Secretary, three times since issuing its final rule in September 1996: April 1997 for one year; April 1998 for 2 months; June 1998 for 3 months; and now the Congress, under PL 105-234, has delayed implementation for another seven months until June, 1999.

NIST estimates that some 450 accredited laboratories will be needed worldwide to implement the Act. The Industrial Fasteners Institute (IFI), representing fastener manufacturers, estimates that some 550 accredited laboratories will be needed just in the United States to handle the required testing under the current law. As of September 25, 1998, NIST reports that some 351 laboratories are accredited under the Act, still far short of either estimate. Further, industry has challenged the Agency=s lab count on the basis that it has been unable to demonstrate that even the 351 labs accredited to date are fully accredited to carry out all the tests called out by the standards to which the Act requires us to prove compliance. We do not believe each of these labs are accredited to perform tests for chemistry, dimensional, and those for many other fastener characteristics. Instead, we believe their list falls far short of the required number.

As the world moves toward a AGlobal@ economy, United States industries, including the fastener industry have benchmarked foreign competition, and have adopted and/or adapted many of their Abest practices@ in order to remain competitive. One of these Abest practices@ is known as Just-In-Time (JIT) inventory management. In this JIT world, it is imperative that all elements of the supply chain are functioning in an uninterrupted, synchronous fashion. Fundamental to the success of JIT, is insuring that sufficient capacity exists throughout the process flow for each and every component in the end product, whatever that might be. Failure to do so results in interruption in the entire system of supply, as evidenced by the closure of a single automotive parts plant earlier this year. The FQA, in effect, adds an additional step in the process flow for covered fasteners. This is done by adding the requirement that redundant end-of-line final inspection be performed by government accredited laboratories. Thus, if there is insufficient accredited laboratory capacity to do all the required testing, fastener supply interruption ensues. The problem here, is that no one knows for sure how many accredited laboratories will be needed worldwide to conduct the required testing without interrupting the supply of fasteners to end-users. That number will not become apparent until the Act is actually implemented, which will be far too late to avoid compromising fastener supply in the United States. This situation is unworkable.

G. The FQA is perceived in Europe and elsewhere as an impediment to trade!

The European Union (EU) has been very vocal about the FQA being an impediment to trade and has lodged formal complaints with the U.S. Special Trade Representative (USTR), and with the International Trade Administration (ITA) of the Commerce Department. The Act is also a current topic within the Trans Atlantic Business Dialogue (TABD), the industry-government coordinating committee on trade issues. The position of the EU is that the Act should be harmonized with a much simpler European approach, as already adopted in France and Italy, of manufacturer self-certification and registration under one of the ISO 9000 family of quality system standards. While IFI is not in a position to comment at this time on the advantages or disadvantages of the European approach, we feel that Congress needs to consider the implications of this perceived impediment to trade and the issues identified for importers under item 4 of these comments in deciding upon an appropriate course of action relative to the FQA.

H. Lot traceability is a fallacy!

One of the fundamental elements of a sound fastener quality assurance system is strict lot control. From the Amother earth@ constituent material elements through all manufacturing processes to finished product, lot control allows fastener manufacturers to document all that goes into the creation of a mass produced lot of fasteners. Yet the vast majority of end users fail to maintain the chain of traceability once they receive fasteners from their suppliers, in part, because of the faith they place in the QAS adopted by their suppliers. Thus, the notion that enforcement can be performed based upon the identification of substandard fasteners and traced back to a given manufacturers lot is a fallacy. For this and the other reasons stated above, quality assurance based upon prevention rather than detection is the only practical and effective means to achieve the original intent of Congress.

The Fastener Quality Act will Injure the United States Economy.

Beyond the eight (8) fundamental issues that make the FQA unworkable, is the larger concern that the FQA creates a competitive advantage for foreign fastener manufacturers and their customers! The FQA as currently written embodies an unfair trade practice aimed at more than just U.S. fastener manufacturers.

Currently, fasteners imported into the U.S. as part of subassemblies or assemblies(i.e., transmissions) are not Afasteners@ within the meaning of the Act and regulations. These fasteners are therefore exempt from the costly testing, certification, and paperwork provisions of the Act. The result is that the Act encourages the importation of subassemblies by end users which will include billions of fasteners that are not required to comply with the law and which will replace fasteners now being manufactured in the United States which are required to comply. This competitive disadvantage will likely result in thousands of lost jobs for U.S. component manufacturers, sub-assemblers and their U.S. fastener suppliers. The member companies of the IFI urge Congress to include this issue in its review and discussion about the continued need for the Act. The IFI strongly believes that if the Act remains unchanged, fasteners contained in assemblies imported into this country should meet the same requirements as domestically produced fasteners that fall under the Act and its regulations.

Summary

For the reasons cited above, the IFI believes that the Fastener Quality Act is not workable in its current form and that it is no longer necessary. In March 1989, Mr. Raymond Kammer, then Acting Director of NIST, testified on behalf of the Administration that the FQA was not needed and that the Administration believed that the objectives of the Act could be better achieved through reliance on private sector programs with the assistance of NIST=s laboratory accreditation program. Congress did not follow that advice and created the Fastener Quality Act in 1990. Since then, the Commerce Department and NIST have worked diligently and, where appropriate, cooperatively with industry, and in the public interest, to achieve a workable and cost effective law. Nonetheless, these efforts, in retrospect, were wasted since the Act has proven, time and time again, to be unworkable!

How to make the Fastener Quality Act Workable

Today, we are again at a crossroads with the FQA. The Commerce Department and NIST have done everything they can legally do to make it work, and yet it does not work for the reasons cited above. Over the next several months IFI, and others who comprise the industry coalition working on this issue, will document in considerable detail all that is wrong with this Act. We hope that out of this effort will come the realization that the current Act is unworkable, and that a much simpler approach based upon proactive private sector initiative is preferable.