Madame Chairman, I am Dr. Richard L. Klimisch, and I serve as Vice President for Engineering Affairs for the American Automobile Manufacturers Association (AAMA). AAMA is the trade association whose members are Chrysler Corporation, Ford Motor Company, and General Motors Corporation.

The domestic automotive industry is the largest consumer of industrial fasteners in the U.S. economy and thus has an important interest in the Fastener Quality Act (FQA) of 1990. A typical passenger motor vehicle contains hundreds of fasteners with a per-vehicle value of about $325. In all, more than 45 billion fasteners are used in North American-built vehicles each year, at an estimated cost of $5 billion. We take seriously the performance of each of those fasteners.

Although we do not purport to represent the views of all industrial fastener users, we believe the entire universe of industrial fastener users would agree that the Fastener Quality Act, in its present form, is unworkable and would cause great disruption to the U.S. economy without providing any significant public safety benefit. The FQA was enacted more than eight years ago, yet the dedicated cooperative efforts of the Congress and key federal agencies, working with fastener manufacturers and users, have yet to discover how the current law can be implemented.

On the basis of that conclusion, AAMA and its member companies recommend that the current law be replaced and that Congress and the Secretary of Commerce, as directed by PL 105-234, approach the matter of whether and how industrial fasteners should be regulated with a "clean sheet of paper."

The history of the Fastener Quality Act began with a series of hearings held during the 100th and 101st Congresses regarding concerns caused by the mismarked and counterfeit fasteners entering commerce. Many of the incidents described during the hearings involved fasteners used by the federal government and its suppliers.

The FQA was signed into law by President Bush on November 16, 1990 as PL 101-592. It required that manufacturers of certain fasteners provide written certification to their customers that those fasteners were manufactured as part of a lot that was tested in an accredited laboratory and found to conform to the standards to which they were represented to have been made. It also established a system of laboratory accreditation, recordkeeping requirements, and requirements for distributors, importers, and alterers. Based on their understanding of the intended scope of the law, automobile manufacturers and many industry groups supported it.

Although the FQA’s perceived goal appeared to be simple and clear, efforts to issue regulations to implement it provided many unpleasant surprises. While Congress intended that the law would cover about one percent of all fasteners, the law's ambiguity allowed the National Institute of Standards and Technology (NIST), the agency charged with implementing the law, to issue rules that covered more than seventy percent of all fasteners. Although Congress intended that the law apply to only fasteners with a "critical application," NIST and others were unable to agree on the meaning of the term.

Pursuant to Section 14 of the FQA, the Department of Commerce established a Fastener Advisory Committee (FAC), consisting of 15 representatives of manufacturers, importers, distributors, end-users, and laboratories to advise the Secretary on implementing the law. The FAC originally was chartered for two years beginning in February 1991, but was renewed for two years in 1993 and again in 1995.

The FAC identified a number of problems and questions regarding the implementation of the FQA. When FQA regulations first were issued for public review in August 1992, NIST received more than 400 comments, many of them highlighting previously unforeseen costs that could arise from implementing the FQA. As a result of those comments, NIST concluded that the law could not be implemented without amendments and set aside its rulemaking until Congress could revise the law.

One of the most disturbing findings of the FAC was that the annual cost to the U.S. economy of full implementation of the FQA, if it were not amended, might exceed

$1.5 billion. Even after Congress amended the law in 1996, the domestic auto industry found that compliance with the law would cost the U.S. economy as much as

$300 million for this industry alone.

Congress did, in fact, amend the law in 1996 (PL 104-113) to address a number of the issues identified by the FAC. One issue was the revision of the definition of "fastener" to exclude those fasteners made to the specification of "major end-users." The 1990 law had been written to cover fasteners made to the standards and specifications of three types of organizations: 1) consensus standards organizations, 2) government agencies, and 3) major end users. The 1996 amendments, which were enacted expressly to reduce the burdens imposed by the FQA, deleted the reference to major end-users, apparently excluding from coverage by the amended FQA those fasteners made to the specifications of such entities.

Automakers were among those who believed that this change in the law removed most of the fasteners they purchase from coverage by the FQA, thereby relieving them of the law’s redundant testing requirements. However, when NIST published its final rule to implement the FQA in May 1996, the public learned that the agency’s interpretation of the law nonetheless sought to cover the millions of fasteners that automakers and their fastener suppliers believed had been excluded from the law’s coverage by Congress. NIST asserted that any fastener made to a unique major end-user specification was nonetheless covered by the law if that specification referenced a consensus standard in any way. Regulators also rejected industry protests that the true costs of compliance had not been considered, despite the detailed cost analysis presented by industry.

As the NIST rules were finalized, the auto industry and its fastener suppliers identified, many problems:

• Fastener suppliers were uncertain which fasteners were covered. NIST's interpretations were long delayed and, when finally issued, did not resolve much of the uncertainty.

• Fastener suppliers informed the auto industry that the Act's testing and documentation requirements could delay just-in-time shipments of production parts and of prototype parts used in vehicle development and validation. This raised the specter of plant shutdowns and of higher costs for extra inventory to prevent them.

• Fastener suppliers informed the auto industry that there was a substantial lag in obtaining accreditation for their laboratories and that their suppliers of material, heat-treating, and finishing were also experiencing delays. NIST responded by delaying the implementation date.

• Inquiries to foreign fastener suppliers indicated that many were lagging behind domestic suppliers in obtaining laboratory accreditation.

• Because of the high cost of obtaining laboratory accreditation and complying with the documentation requirements of the FQA, some foreign suppliers of proprietary fasteners that are imported only for service parts stated they would cease supplying fasteners when the FQA took effect. Others indicated that the cost of small quantities of service parts would increase dramatically. If the price of genuine service parts increases dramatically, customers will be tempted to substitute generic fasteners. That could lead to safety problems of the very type the FQA is intended to prevent.

• The responsibility of importers to check for and retain certificates and original laboratory test reports created a logistical nightmare for automakers. Sorting through the immense volume of parts shipments that vehicle assembly plants receive to find the small percentage of shipments that would have these documents would require substantial effort. These same problems would exist for the automakers' warehouses that handle hundreds of thousands of service parts, including many thousands of fasteners.

• In 1990, Congress recognized that sales of service parts from original equipment manufacturers to authorized dealers did not involve the same risks as other fastener sales and so it exempted those sales from the prohibition on commingling. FQA Section 7(e)(2). But in the 1996 amendment of the Act, that exemption disappeared without explanation, creating yet another difficulty and cost for automakers who try to satisfy their customers’ need for OEM service parts for imported cars and trucks.

This history is recounted in detail here to demonstrate how this law, which appeared simple in concept, proved difficult to implement in practice. Issues that appeared to have been resolved by clear Congressional intent are still the subject of debate today. While the public took seriously the oft-repeated statement that the law was meant to cover only one percent of all fasteners, the regulating agency ignored it, mandating coverage of about 70 percent of all fasteners. When industry demonstrated that compliance with the broadly-interpreted law would cost the U.S. economy significantly more than originally estimated, the government simply disagreed. While manufacturers continued to improve quality processes and reduce defect rates far beyond those that were contemplated by Congress in 1990, the government could find no way to consider these advancements to be in compliance with the law. Meanwhile, although the law’s requirements were subject to interpretation, one of the FQA’s provisions was not: the criminal penalty for violating it.

Despite the gulf of disagreement that sometimes has separated industry and FQA regulators in recent years over interpretation of this law, we believe that much progress has been made toward mutual understanding of how the law’s most basic objective -- public safety -- can be achieved. On behalf of fasteners users, we assert that the best way to reduce the law’s ambiguity would be to rely more on industry’s own quality assurance processes to achieve the goals of quality and safety.

To meet customer expectations for high quality in a fiercely competitive market, domestic car makers have over time required substantial improvements in quality from all suppliers, including fastener suppliers. Thus, while the FQA has never been implemented, the quality of fasteners, and thus the public’s assurance of safety, has continued to improve.

In the late 1970s, end-of-line testing -- which the current FQA mandates -- was the predominant method for assessing part quality. As a result, fastener defect rates for all reasons typically were in the range of 65,000 parts per million (ppm). In recent years, as the focus has shifted from after-the-fact detection of errors to prevention of errors, the industry has seen defect rates fall to less than 100 ppm. This significant improvement in quality is due to the utilization of improved technology, manufacturing processes, and quality management techniques.

Some of the industry-wide changes that have been implemented to improve fastener quality include:

One of the most significant changes that has occurred in fastener quality engineering is the widespread employment of quality assurance systems (QAS) in the production of fasteners. Under a QAS, a control plan developed by the fastener manufacturer, often with strong input from its end-user customers, provides quality control at every step of the manufacturing process. As a result, where modern statistical process controls (SPC) are utilized in conjunction with a QAS control plan, end-of-line testing of a particular fastener may be redundant.

The use of comprehensive QAS control plans was virtually unknown during the time the current FQA was being drafted. QAS guidelines for suppliers to the domestic auto industry were instituted in 1994 as QS 9000, which comprises common quality requirements for suppliers to domestic automakers. QS 9000 is based on ISO 9000, the set of internationally recognized quality management principles, but it includes additional, far more demanding requirements. QS 9000 defines the fundamental quality system expectations of the manufacturers that subscribe to it, which include Chrysler, Ford, General Motors, truck manufacturers, and others.

The goal of QS 9000 is to provide for continuous improvement, emphasizing defect prevention and the reduction of variation and waste. It applies to both domestic and international suppliers of production materials, production or service parts, and suppliers who provide heat-treating and finishing services directly.

Automotive fastener suppliers have implemented the quality procedures in QS 9000, including the recent requirement (1998 update) for lab accreditation per ISO guide 25. Auto companies have observed a demonstrated improvement in quality exhibited by fastener suppliers that have adopted QS 9000. In conjunction with QS 9000, Chrysler, Ford and General Motors have implemented on-line systems to monitor source quality. This data is accessible to automotive purchasing agents and affected fastener suppliers, thereby providing up-to-date information and rapid response to any issues. QS 9000 has been proven to be an effective means to assure highest possible fastener quality without the requirement for duplicative testing and laboratory certification required in the FQA and the regulations.

Because they purchase large quantities of fasteners made to their unique specifications, automakers have long had stringent procurement requirements for fasteners and established systems to evaluate both fasteners and their suppliers before purchase commitments are made. Unlike other fastener purchasers, such as military, government, or low-volume purchasers, domestic automakers always have purchased directly from fastener manufacturers or others with whom automakers have a familiar relationship. Automotive purchase agreements have always included purchaser assessment of part quality, audits, and the option of termination in the event of quality irregularities. Because of this, automakers have purchased billions of fasteners for vehicle production without experiencing the counterfeit fastener problem experienced by the government and others purchasers of fasteners.

In the spirit of continuous improvement, automobile manufacturers have implemented significant changes to their procurement practices to emphasize part quality, delivery, and engineering capabilities, as well as the traditional cost assessment. Domestic auto companies have programs for advanced quality planning, early source evaluation, and assistance for sources that have quality concerns. Long-term procurement relationships have been formed between some auto companies and fastener suppliers to further business and quality initiatives between customer and supplier.

The 1990s has been a period of consolidation for the domestic fastener industry. Some fastener producers have combined to form more diversified manufacturing concerns whose greater resources typically provide better-equipped laboratories, more professional quality engineers, and more modern quality practices. Improved manufacturing and procurement practices, coupled with quality systems such as the auto industry’s QS 9000 program, provide a "closed loop" between fastener manufacturers and their customers that achieves outstanding -- and continually improving -- fastener quality. As a result, the FQA’s additional testing burden, laboratory certification, and record-keeping are unnecessary and redundant.

Many industrial fastener users, including automakers, set their own unique engineering specifications for fasteners. These specifications pre-dated many industry consensus standards that, in fact, evolved from original auto specifications. Since the early 1980s, automakers and their suppliers have worked together to develop new industry standards that reflect latest technology and quality tools. For example, the auto industry has moved to the exclusive use of metric fasteners.

The cooperative efforts in developing engineering standards for fasteners between major end users and fastener suppliers has helped assure fastener quality by a mutual understanding of requirements. The continuing development of standards assures that they reflect the latest available technology.

In recent years, the fastener industry has made substantial changes to the manufacturing tools that help to control fastener quality. Use of pressure sensors, counters, vision systems, and computer controls all have helped improve product consistency and reduce defect rates. Furthermore, one fastener equipment manufacturer has introduced an entirely new concept in bolt-making equipment that promotes more precise tool set-up. These manufacturing improvements have been coupled with many changes in quality practices since the 1980s.

Public Law 105-234 directs the Secretary of Commerce to report to Congress on "a comparison of the Fastener Quality Act to other regulatory programs that regulate the various categories of fasteners, and an analysis of any duplication that exists among programs . . ."

AAMA has identified the following departments and agencies that administer other laws, some general and some for specific industries or applications, that affect the manufacture and sale of fasteners.

• A distributor of aircraft fasteners and its chief executive officer pled guilty to conspiracy and mail fraud and were ordered to pay one million dollars in restitution for misrepresenting reprocessed aviation fasteners as new and supplying false certifications.

• A distributor-importer pled guilty to removing country of origin marks on bolts imported to and distributed in the U.S., in violation of 19 U.S.C. §1304(h).

• An individual and his company were indicted for mail fraud in connection with a scheme involving supplying commercial rather than military grade fasteners and making false certifications and responses to quality assurance surveys.

• A company and its owner pled guilty to mail fraud for falsely certifying that commercial grade fasteners sold to military contractors complied with military specifications.

• An individual pled guilty to multiple counts, including mail fraud, submitting false claims, and counterfeiting a Defense Department seal. His distribution company represented that ordinary fasteners met military specifications and used a counterfeit quality inspection stamp and forged signatures to complete phony Defense Department quality inspection forms.

• 18 U.S.C. §371, which imposes up to five years imprisonment and fines on persons who conspire to commit any offense against the United States or to defraud the United States.

• 18 U.S.C. §1001, which imposes up to five years imprisonment and fines on persons who make a materially false or fraudulent statement to the federal government.

• 18 U.S.C. §1341, which imposes up to five years imprisonment and fines on persons who use the mail or other interstate carrier as part of a scheme to defraud or to sell counterfeit articles.

• 19 U.S.C. §1304, which requires that articles of foreign origin or their containers imported into the United states be marked with the name of the country of origin and which provides for additional duties for unmarked articles.

In 1988, a House Report said there were 26 open investigations of fastener fraud by the Defense Criminal Investigative Service and Customs Service as of 1987. As described above, prosecution is continuing of distributors for misrepresenting fasteners sold to military contractors. Because this type of fraud can include forgery of certificates and government approval stamps and signatures, there are no substitutes for vigilant buyers and emphasis on investigating and prosecuting those engaged in fraud and other crimes. The Secretary should consider whether further resources are needed for enforcement and what, if any, additional laws would substantially aid enforcement efforts.

This review also shows that manufacturers in key industries -- motor vehicles, aviation, and consumer products -- and their fastener suppliers are closely regulated. Systems that include fasteners have to meet specific performance requirements. For instance, motor vehicle manufacturers have an obligation to inform the government, dealers, and customers if there is a safety-related defect or a non-compliance with government requirements and an obligation to provide a remedy. The regulatory agencies set standards, investigate potential problems, and order recalls. The Secretary should consider whether these industries are affected by fraudulent fasteners, the success of the existing laws and regulations in avoiding fastener fraud or quality issues, and if additional laws would substantially improve fasteners in these industries.

The report to Congress required by PL 105-234 may provide a blueprint for new legislation to replace the current FQA. We are hopeful that the Secretary will consider the issue using the "clean sheet of paper" that has been suggested by many diverse sectors of industry.

We believe the Secretary should begin first by investigating and defining what specific fastener quality problems exist today. Are those problems so narrow in scope as to lend themselves to a solution more narrow than the current FQA? For instance, we note that many of the fastener problems identified by Congress in the legislative history of the original FQA were related to government procurement. If the Secretary finds that similarly narrow issues exist today, it would suggest a legislative solution that is narrower in scope that the current FQA.

As the Department of Commerce is only now beginning its review of the public’s interest in assuring fastener quality, it is premature for us to offer to the Committee a legislative proposal for replacing the FQA. However, we wish to put forth today a number of principles that we believe any replacement law should meet:

In closing, let me emphasize again that automobile manufacturers and other users of fasteners, working with our suppliers, have the greatest interest in the safety and quality of these vital components. While we subject the fasteners we use to many stringent tests, there is no test more demanding than the one our products face in the marketplace. In short, our reputation is on the line with every one of the hundreds of fasteners that can be found in each of the nearly 10 million motor vehicles our member companies sold in the U.S. market each year.

Madame Chairman, we hope that, in developing new legislation to replace the FQA, Congress will take seriously our commitment to, and our record for, quality and safety. The problems with the current law are well-documented and we believe that attempting to implement it in its present form would be unrealistic. We look forward to working with the Secretary, your Committee, and others Congressional committees of jurisdiction in developing replacement legislation that recognizes our collective commitment to protect the public’s interest in the safety of fasteners.

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