Reason - There is no longer a basis or need for the Act. NFDA agrees with the findings and conclusions reached in the survey and update prepared for the Industrial Fasteners Institute (IFI) by Mr. David Edgerly, the former NIST official that managed implementation of the Act. Mr. Edgerly’s report entitled "Is There Still A Basis For The Fastener Quality Act?" (November 1998), concludes that the major problems identified in the 1988 Congressional investigation and report have been resolved, and that there is no longer a basis for the finding that the health and safety of Americans is threatened by the widespread sale of mismarked, substandard, and counterfeit fasteners. The original problem of mismarked or counterfeit fasteners is no longer a concern. Both industry and consensus international standards require performance markings of fasteners and markings identifying the manufacturer, which have eliminated the problem of mismarked or counterfeit fasteners. Simply stated, all manufacturers, regardless of country of origin, must put their name on the product they manufacture, giving us the traceability we need. The Edgerly report also provides evidence that there are sufficient laws and government agency authorities in place to prosecute those unscrupulous few in industry who seek to defraud fastener purchasers. The report also points out that the current Act will do little to stop fraudulent practices.

Reason - The current Act fails to meet Congressional intent that only high-strength fasteners used in critical applications be subject to the Act. More than eight years of debate over which fasteners should be covered under the Act has not resolved two fundamental issues. First, there is no agreement within government or the industry about how to define a "high strength" fastener. Second, there is considerable disagreement between industry and government about including proprietary fasteners (those produced to original equipment standards and specifications) under the Act. This is a particularly serious problem in the automotive and heavy equipment industries.

Reason - The current Act has statutory language that prohibits use of modern manufacturing and record-keeping methods. NIST has done everything within its authority to propose implementing regulations that recognize modern quality assurance approaches to manufacturing such as that embodied in the auto industry standard QS9000.

Statement of Edward J. McIlhon Page 3 of 4

from the system.

A. NFDA Comments to NIST pursuant to 63 FR 194, November 1998.

B. Overhead transparencies used during oral testimony.

Testimony of Edward McIlhon

February 25, 1999

The National Fastener Distributors Association (NFDA) submits the following comments to the U.S. Department of Commerce pursuant to 63 FR 194, dated October 7, 1998, and the statutorily required study by the Secretary of Commerce on the issue of the continuing need for the Fastener Quality Act (P.L. 101-592, as amended).

The NFDA is a national trade association representing some 250 individual companies (150 distributor and 100 manufacturer, supplier, master distributor, importer and service support companies). In addition to the NFDA membership, the association is secretariat to the Fastener Industry Coalition that represents nearly 2,500 distributors, importers and manufacturers of fasteners in the United States. The majority of the $9 billion-dollar fastener commerce in this country is conducted by members of NFDA or of the Fastener Industry Coalition.

The NFDA strongly supports Congressional action in the form of PL 105-234, delaying implementation of the Fastener Quality Act (PL 101-592, as amended) to examine fully whether the Act is still needed. We believe that the study on fastener industry changes, required to be conducted by the Commerce Department and to be submitted to Congress in February 1999, is urgently needed and will demonstrate that the present FQA is both unworkable and unnecessary in today’s fastener environment. In this regard, we stand ready to assist Commerce in assessing the changes that have occurred in the industry, and hope that the Department will work closely with industry in drafting its Report and recommendations to Congress.

The Commerce Department and the National Institute of Standards and Technology (NIST) have worked diligently over the past eight years to resolve problems with the FQA, first by amending the Act in 1996, and then by subsequently issuing implementing regulations in September 1996, and in April 1998. During this period, NIST and the Department have listened to industry about problems with the Act and have attempted, within the limits imposed by law, to make it workable and cost effective. Through no fault of the Department, implementation dates for the Act have come and gone on three occasions 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 and have been attended by more than 4,000 industry officials. However, in spite of all of the Administration’s efforts to implement the Act, and all of the efforts and expense incurred by the fastener industry to prepare for the Act, NFDA believes that the FQA is still not workable for the reasons cited herein.

Listed as follows are the reasons why NFDA believes the FQA is not workable and, in our opinion, no longer needed to assure the quality of fasteners sold and used in this country. For ease of reference, our comments are divided into the five areas outlined in the October 7, 1998 Federal Register Notice. These are: 1.) basis of the Act; 2.) coverage of the Act; 3.) testing and certification; 4.) sale of fasteners; and 5.) record keeping. Items 3 through 5 are combined since we believe they are related. In addition, the NFDA is providing comments on three additional items: 6.) grandfathered fasteners; 7.) laboratory accreditation; and 8.) FQA as an impediment to trade. These additional items are important outstanding issues to our industry. Wherever possible, the sections of the FQA that are problematic to NFDA and its members are identified in the body of our comments. We have also added a Summary and Conclusions section which, in addition to summarizing our views, provides a recommended approach to resolving the outstanding issues with the FQA.

1. Basis of the Act.

In passing PL 101-592 in 1990, Congress relied heavily on information contained in the Report of the House Subcommittee on Oversight and Investigations (Committee Print 100-Y), dated July 1988, entitled "The Threat from Substandard Fasteners: Is America Losing Its Grip?". This report cited instances of fastener problems largely resulting from two sources. First, 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 less strength characteristics than Grade 8.0 fasteners). Most of these problems were caused by fasteners imported from Japan, and later from other nations, over a ten year period from 1975 to 1984. The problem was identified by U.S. Customs and other agencies and the Japanese firms involved stopped the practice of mismarking Grade 8.2 fasteners as Grade 8.0 soon thereafter. In addition, the principal government agencies involved (Defense Industrial Supply Center and several armed services) purged their inventories to remove these problem fasteners even before the FQA was signed into law in 1990. Second, the report identified several fastener companies (Metal Building Bolts of Houston, Texas; Lawrence Engineering and Supply of Burbank, California; and Reynolds Fasteners of Houston, Texas), that knowingly falsified test reports and certificates to sell lower strength fasteners as Grade 8.0 fasteners to increase profits, and that also supplied substandard F959 direct tension indicating washers (DTIs) and A325 construction bolts. These companies have since been prosecuted by the Government under existing statutes and authorities.

NFDA has also examined and agrees with the findings and conclusions reached in the survey and update prepared by Edgerly Consulting, at the request of the Industrial Fasteners Institute (IFI) and the FQA Working Group, entitled: "Is There Still A Basis For The Fastener Quality Act?", dated November 1998. Accordingly, we believe the industry has shown that the major problems identified in the 1988 Congressional investigation and report have been resolved, and we do not believe there is any longer a basis for the overall finding as stated in the FQA, namely that:

We also believe there is substantial evidence, as contained in the above mentioned 1998 survey and update, that there are sufficient laws and government agency authorities in place to prosecute those unscrupulous few in the industry who seek to defraud fastener purchasers, and that the current FQA, as written, will do little to stop such practices. NFDA also feels that it is important to point out that the Administration’s original position, as stated on March 15, 1989, by then Acting NIST Director Kammer, before the House Subcommittee on Commerce, Consumer Protection, and Competitiveness, supports industry’s views that there are laws already in place to deal with fraud and that the problems uncovered by the 1988 Congressional investigation could more effectively be dealt with through private sector (including standards community involvement) and government initiatives rather than through legislation. Accordingly, the NFDA believes that the original basis for the FQA no longer exists.

2. Coverage of the Act.

Throughout the history of the FQA, Congress made it clear that its intent was to cover the one percent of high-strength fasteners used in "critical applications". Senate Report 101-388, dated July 10, 1990 states: "Every 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, Tennessee) and Burns (D, Montana) in the widely quoted "Gore-Burns Colloquy".

The FQA has not realized Congressional intent in terms of covering "one percent of high-strength fasteners used in critical applications" for two reasons:

Also, as part of the 1996 amendments, the Commerce Department made it clear that only fasteners produced to consensus and government standards are to be covered by the Act. The industry was very supportive of this change because it could have resulted in significantly reducing the percentage of fasteners covered, thereby coming closer to the original Congressional intent of covering 1% of high-strength, mass produced fasteners. For example, most automotive fasteners are produced to 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 Commerce Department interpreted the change to also include fasteners produced to other than consensus standards if those documents directly or indirectly reference consensus or government standards (Section 280.2 - definition of "fastener"), again because such fasteners were "high strength" (e.g., grade marked or through hardened to consensus or government standards). By this interpretation, qualifying automotive and specialty fasteners were again subject to the requirements of the Act.

The fastener industry has struggled considerably over this issue in the past eight years, as has government. Unfortunately, we are not much closer to a solution because Sections 3(5) of the Act and 280.2 of the Regulations offer little room for alternatives. However, Congress’ decision to reexamine the continuing need for the FQA provides an opportunity to explore different options, and based upon what has been learned over the past eight years by both industry and government, we believe an amended or replacement FQA should strive to reach original Congressional intent that the law apply to "one percent of high-strength fasteners used in critical applications". NFDA believes this is achievable and that an amended or new FQA should include a definition of "fastener" that is based upon the following concepts:

3. Testing and Certification. 4. Sale of Fasteners. 5. Record Keeping.

The NFDA will comment on these items together since, in our view, they are closely related. The current FQA is intended to assure the quality of fasteners sold in the U.S. by requiring testing of each lot of fasteners in a laboratory accredited by NIST, or by an organization approved by NIST, and by requiring manufacturers, importers, and private label distributors to certify, based upon original "on file" records from accredited laboratories, that each lot of fasteners meets the standards and specifications to which it was manufactured. In 1988-89, when the original FQA was drafted, final or end of line inspection was the norm in the industry and the language of the 1990 Act was written to accommodate this approach to quality assurance. However, in recent years, quality assurance programs and standards such as QS9000 have emerged in certain segments of the industry (automotive and aerospace), replacing final inspection and testing with continuous monitoring of manufacturing processes to prevent defects from occurring in fasteners. The result is a much more efficient and effective means of assuring quality fasteners. Evidence of this was presented at the recent November 9-11, 1998 Fastener Workshop in Chicago, sponsored at the request of the Commerce Department by the American Society of Mechanical Engineers (ASME), and will become part of a report by ASME to Commerce. Recognizing that the original FQA did not accommodate quality assurance approaches such as QS9000, NIST worked with the affected industries over the past several years to try and resolve this issue, and much effort went into creative regulation writing by NIST to recognize new QA standards such as QS9000. However, despite a lot of work to make the FQA workable in today’s manufacturing environment, several industry witnesses at the October 8, 1998 Hearing by the House Science Subcommittee on Technology testified that the QS9000 solution offered by NIST is still largely unworkable because it is too encumbered by the original language of the FQA and still requires redundant and unnecessary testing. The NFDA supports continuing efforts to resolve this issue and believes that it can only be resolved through significant amendments to the Act. An attempt to resolve it by regulation has not been successful.

The NFDA is also keenly interested in resolving continuing problems with the Act that relate to the issuance and use of test reports and certificates of conformance. While many NFDA members are general distributors and are not required to maintain original copies of records under the Act, there are many members that are also importers of fasteners, private label distributors, and/or persons who significantly alter fasteners for sale to others. Under the provisions of the FQA, importers, private label distributors, and persons who significantly alter products are treated as manufacturers for purposes of record keeping and must meet requirements pertaining to original laboratory testing records and to certificates of conformance, as appropriate. Accordingly, there are three significant problems that still exist with the Act in terms of testing and certification records. The first is that the FQA still does not recognize the use of electronic commerce in that it does not permit, based upon interpretations rendered by NIST, electronic transmittal and storage of required laboratory testing reports. The root of the problem is the wording contained in Section 5.(c)(5) of the Act which states that the laboratory report of testing shall "bear the original signature of a laboratory employee or officer determined by the Secretary to be responsible for the accuracy of the report and of the inspection and testing to which it relates." NIST has determined that only pen and ink signatures will satisfy this requirement of the Act. 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 "original laboratory testing report" containing a pen and ink signature of an approved signatory. This interpretation is unworkable in today’s electronic commerce environment. The use of digital signatures is now common-use technology in the industry, and to not recognize this under the FQA is both unworkable and a significant restraint of trade.

The second problem that still exists with the Act in terms of testing and certification records is that 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). Section 7.(b)(1) of the Act, and interpretations issued by NIST, require 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 manufacturer’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 "on-file". This situation is both unfair to importers and unworkable in today’s climate of free trade. The NFDA questions why it is necessary for NIST to require that conformance paperwork be in the hands of importers prior to receiving shipments of fasteners. Our recommendation is that importers not be allowed to sell imported fasteners until appropriate paperwork is in their possession. It makes no sense that the paperwork has to arrive to the importer prior to the shipment of fasteners. Additionally, Section 7.(b)(2) of the Act permits that fasteners can be imported into this country with only a manufacturer’s certificate of conformance, provided the U.S. has an agreement with the country of origin by which purchasers within the U.S. can readily gain access to an original laboratory testing report for such fasteners. Most purchasers of imported fasteners already have free access to such reports if needed, and the situation is the same for fastener purchasers who buy from U.S. manufacturers in this country. We recommend that the requirements be the same for U.S. and foreign manufacturers - maintain the original laboratory testing report on file and provide copies to purchasers on an "as requested" basis.

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 (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 often the cost of the paperwork will be more that the cost of the fasteners being imported. This situation is unworkable.

The third significant paperwork burden pertains to requirements imposed upon raw material suppliers under the Act. 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 "original laboratory testing report" certifying that the chemistry of the metal meets stated specifications. Previously, industry practice was that metal processors and distributors could 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 also unworkable.

6. "Grandfathered" Fasteners.

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 "in-inventory" or "with the trade" not be covered and it allows for a smooth market transition in that customers still can obtain fasteners (those "grandfathered" under the Act), while inventories of FQA complaint fasteners are being produced. The fastener industry estimates that some $1 billion worth 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. Over the past year or so, 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 "FQA Complaint" fasteners and "Grandfathered" 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 "FQA Compliant" fasteners. The industry has suggested several ways out of this issue to Government. One is to allow "Grandfathered" fasteners to be simply and legally declared as "FQA Compliant" because the Act states that they can be legally sold after implementation of the Act. Another is to allow "Grandfathered" fasteners to be retested and certified as being "FQA Compliant". However, no satisfactory solution has been found to date and this problem continues to loom as a significant impediment to this Act.

7. Accredited Laboratories.

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 four times since September 1996 (April 1997 for one year, April 1998 for 2 months, June 1998 for 3 months, and now under PL 105-234 for another seven months). 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. As of September 25, 1998, NIST reports some 351 accredited laboratories under the Act, still far short of either estimate. The problem is that no one knows how many accredited laboratories will be needed to conduct testing worldwide. That number will not become apparent until the Act is actually implemented. This "Catch-22" situation is further complicated by the fact that the longer the Act is delayed the higher the probability that many of the 351 already accredited laboratories will decide not to remain accredited given the uncertainty that the Act will ever be implemented and given the cost of maintaining their accredited status. This situation is unworkable.

8. The FQA 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 of manufacturer self-certification and registration under one of the ISO 9000 family of quality system standards. While NFDA is not in a position to comment at this time on the advantages or disadvantages of this approach, we feel that Congress needs to consider these issues and the trade issues identified for importers under item 4 of these comments in deciding upon a course of action relative to the FQA.

The NFDA believes the industry has shown that the major problems identified in the 1988 Congressional investigation and report have been resolved, and we do not believe there is any longer a basis for the overall finding as stated in the FQA, namely that:

We also believe there is substantial evidence that there are sufficient laws and government agency authorities in place to prosecute those unscrupulous few in the industry who seek to defraud fastener purchasers, and that the current FQA, as written, is predominantly a testing law and will do little to stop deliberate fraud.

The Commerce Department and NIST have worked diligently and cooperatively with industry, and in the public interest, for more than eight years to achieve a workable and cost effective law, and yet it does not work for the reasons cited herein. Millions of dollars have been spent by both sides to make this happen and to prepare for implementation of the Act. However, the plain and simple truth is that the FQA is not workable in today’s environment and will not be an effective deterrent to deliberate fastener fraud. The NFDA also feels that it is important to point out that the Administration’s original position, as stated on March 15, 1989, by then Acting NIST Director Kammer, before the House Subcommittee on Commerce, Consumer Protection, and Competitiveness, supports industry’s views that there are laws already in place to deal with fraud and that the problems uncovered by the 1988 Congressional investigation could more effectively be dealt with through private sector (including standards community involvement) and government initiatives rather than through legislation. Accordingly, the NFDA believes that the original basis for the FQA no longer exists, and that the Secretary of Commerce should recommend in his report to Congress that the law should be repealed. It is also our recommendation that the Secretary propose to Congress that additional hearings are needed as soon as possible. These hearings, in our opinion, should focus upon steps that industry and government should take to continue to ensure the quality of fasteners sold and used in this country. The NFDA believes that every effort should be made to ensure that fasteners sold in this country conform to the standards and specifications to which they have been manufactured.

We also believe that initiatives started under the FQA should be preserved, either through the cooperative efforts of industry and government working together to establish such initiatives as standard practices, or through passage of a simpler replacement law by Congress that includes these initiatives and focuses its purpose on prevention of fastener fraud. The initiatives started by the FQA that we believe are important to preserve are as follows:

On behalf of our Association and the Fastener Industry Coalition, thank you for the opportunity to submit these comments for the record.

Richard J. Schwind

President, NFDA