[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]



 
                 OVERSIGHT OF THE U.S. CUSTOMS SERVICE

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON TRADE

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 15, 1997

                               __________

                             Serial 105-18

                               __________

         Printed for the use of the Committee on Ways and Means


                               


                    U.S. GOVERNMENT PRINTING OFFICE
 47-360 CC                 WASHINGTON : 1998



                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky                WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                         Subcommittee on Trade

                  PHILIP M. CRANE, Illinois, Chairman

BILL THOMAS, California              ROBERT T. MATSUI, California
E. CLAY SHAW, Jr., Florida           CHARLES B. RANGEL, New York
AMO HOUGHTON, New York               RICHARD E. NEAL, Massachusetts
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
WALLY HERGER, California
JIM NUSSLE, Iowa


Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of May 1, 1997, announcing the hearing..................     2

                               WITNESSES

U.S. Customs Service, Hon. George J. Weise, Commissioner.........     7
U.S. General Accounting Office, Norman J. Rabkin, Director, 
  Administration of Justice Issues, General Government Division; 
  accompanied by Walter Raheb, Los Angeles Office................    33
U.S. General Accounting Office, Linda D. Koontz, Associate 
  Director, Information Resources, Management/General Government 
  Issues, Accounting and Information Management Division; 
  accompanied by Mark Byrd, Senior Information Systems Analyst...    39

                                 ______

Ambrose, Hon. Myles J., Ross & Hardies...........................    26
American Association of Exporters and Importers, John Partilla...    50
American Automobile Manufacturers Association, Jeffrey Bobeck....    64
Border Trade Alliance, Susan Kohn Ross...........................    72
Federal Law Enforcement Officers Association, Andrew R. Rakowsky.    87
Industry Functional Advisory Committee I, Selig S. Merber........    45
National Customs Brokers & Forwarders Association of America, 
  Inc., Harold G. Brauner........................................    77
Olympus America, Inc., John Partilla.............................    50
United Parcel Service Airlines, and U.S. Transportation Coalition 
  for an Effective U.S. Customs Service, Philip W. Hughes........    68

                       SUBMISSIONS FOR THE RECORD

American Frozen Food Institute, McLean, VA, Steven C. Anderson, 
  letter.........................................................    92
American Iron and Steel Institute, statement.....................    94
Joint Industry Group, statement..................................    96
National Council on International Trade Development, Jason 
  Clawson, statement.............................................    97
National Treasury Employees Union, Robert M. Tobias, statement...   100
Ramstad, Hon. Jim, a Representative in Congress from the State of 
  Minnesota, statement...........................................   102



                 OVERSIGHT OF THE U.S. CUSTOMS SERVICE

                              ----------                              


                         THURSDAY, MAY 15, 1997

                  House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:05 p.m., in 
room B-318, Rayburn House Office Building, Hon. Philip Crane 
(Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON TRADE

FOR IMMEDIATE RELEASE                         CONTACT: (202) 225-1721
May 1, 1997
No. TR-6

                       Crane Announces Hearing on

                 Oversight of the U.S. Customs Service

      
    Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade 
of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on oversight of the U.S. Customs 
Service. The hearing will take place on Thursday, May 15, 1997, in room 
B-318 Rayburn House Office Building, beginning at 2:00 p.m.
      
    Oral testimony at this hearing will be from both invited and public 
witnesses. Any individual or organization not scheduled for an oral 
appearance may submit a written statement for consideration by the 
Committee or for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    The Customs Modernization Act was enacted as part of the North 
American Free Trade Agreement implementing legislation in December 1993 
(P.L. 103-182). Through passage of this Act, the Committee provided the 
Customs Service with the necessary tools to successfully redesign its 
processes for the 21st Century. Specifically, the Act allowed Customs 
to develop a fully-automated commercial environment, redesign and 
restructure its core business-related activities, and reevaluate the 
culture and work practices of its employees.
      
    Pursuant to this legislation, the Customs Service announced a major 
reorganization and modernization plan in September 1994. The original 
goals stated by Customs for its reorganization effort were to make the 
agency more effective, improve management practices, and secure more 
stable sources of funding such as user fees. The plan itself included 
initiatives to concentrate services at ports of entry, restructure and 
reduce staffing at headquarters, eliminate regional and district 
offices, establish Customs Management Centers to manage field 
operations, and establish regional Strategic Trade Centers to target 
trade-enforcement efforts.
      
    The Subcommittee held hearings on the progress of the Customs 
Service reorganization and modernization efforts in January 1995. 
Extensive legislative and oversight review by the Subcommittee 
eventually led to passage of the Miscellaneous Trade and Technical 
Corrections Act of 1996 (P.L. 104-295) , which was signed by the 
President on October 11, 1996. This Act made several important 
corrections to the Customs Modernization Act by improving Customs' 
ability to facilitate trade.
      
    On March 11, 1997, the Subcommittee held a hearing on the Budget 
Authorizations for fiscal years 1998 and 1999 for the U.S. Customs 
Service, as well as the Office of the U.S. Trade Representative, and 
the International Trade Commission. The Subcommittee received testimony 
from representatives from the business and trade community. Much of the 
testimony concerned the operations of the Customs Service.
      
    Customs continues to work on the detailed regulatory and 
operational efforts required to implement the massive organizational 
change required by the Customs Modernization Act.
      
    In announcing the hearing, Chairman Crane stated: ``I applaud 
Commissioner Weise's work in implementing the Customs Modernization Act 
so that Customs is prepared to address trade and enforcement issues in 
the coming century. This hearing will allow the Subcommittee to assess 
how well Customs has reallocated its resources. I am also interested in 
the status of the various regulatory packages which Customs has 
rewritten pursuant to the Customs Modernization Act. It is imperative 
that the Subcommittee work with Customs to reduce the burden of Customs 
regulations not only on legitimate imports, but also on our strong and 
growing export sector.''
      

FOCUS OF THE HEARING:

      
    The hearing will provide both Customs and the trade community with 
an opportunity to identify for the Subcommittee the status, progress, 
and concerns related to the changes Customs has made pursuant to the 
Customs Modernization Act and the reorganization. Other areas of 
inquiry may include Customs Officers Pay Reform Act, user fees, and the 
allocation of inspectors, Special Agents, and other personnel 
resources. In addition, the Subcommittee is interested in Customs' role 
in interdicting illegal narcotics, as well as its anti-money laundering 
activities. Specifically, the Subcommittee is concerned about Customs 
methods for measuring the effectiveness of its efforts in the drug war.
      

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:

      
    Requests to be heard at the hearing must be made by telephone to 
Traci Altman or Bradley Schreiber at (202) 225-1721 no later than the 
close of business, Wednesday, May 7, 1997. The telephone request should 
be followed by a formal written request to A.L. Singleton, Chief of 
Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 
Longworth House Office Building, Washington, D.C. 20515. The staff of 
the Subcommittee on Trade will notify by telephone those scheduled to 
appear as soon as possible after the filing deadline. Any questions 
concerning a scheduled appearance should be directed to the 
Subcommittee on Trade staff at (202) 225-6649.
      
    In view of the limited time available to hear witnesses, the 
Subcommittee may not be able to accommodate all requests to be heard. 
Those persons and organizations not scheduled for an oral appearance 
are encouraged to submit written statements for the record of the 
hearing. All persons requesting to be heard, whether they are scheduled 
for oral testimony or not, will be notified as soon as possible after 
the filing deadline.
      
    Witnesses scheduled to present oral testimony are required to 
summarize briefly their written statements in no more than five 
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full 
written statement of each witness will be included in the printed 
record, in accordance with House Rules.
      
    In order to assure the most productive use of the limited amount of 
time available to question witnesses, all witnesses scheduled to appear 
before the Subcommittee are required to submit 200 copies of their 
prepared statement and a 3.5-inch diskette in WordPerfect or ASCII 
format, for review by Members prior to the hearing. Testimony should 
arrive at the Subcommittee on Trade office, room 1104 Longworth House 
Office Building, no later than Monday, May 12, 1997. Failure to do so 
may result in the witness being denied the opportunity to testify in 
person.
      

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit at least six (6) 
copies of their statement and a 3.5-inch diskette in WordPerfect or 
ASCII format, with their address and date of hearing noted, by the 
close of business, Thursday, May 29, 1997, to A.L. Singleton, Chief of 
Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 
Longworth House Office Building, Washington, D.C. 20515. If those 
filing written statements wish to have their statements distributed to 
the press and interested public at the hearing, they may deliver 200 
additional copies for this purpose to the Subcommittee on Trade office, 
room 1104 Longworth House Office Building, at least one hour before the 
hearing begins.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be typed in single space on legal-size paper and may not exceed a total 
of 10 pages including attachments. At the same time written statements 
are submitted to the Committee, witnesses are now requested to submit 
their statements on a 3.5-inch diskette in WordPerfect or ASCII format.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, full address, a telephone number where the witness or the 
designated representative may be reached and a topical outline or 
summary of the comments and recommendations in the full statement. This 
supplemental sheet will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press 
and the public during the course of a public hearing may be submitted 
in other forms.
      

    Note: All Committee advisories and news releases are available on 
the World Wide Web at `http://www.house.gov/ways__means/'.
      

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      

                                

    Chairman Crane. The Subcommittee will come to order.
    Welcome to the Trade Subcommittee's hearing on oversight of 
the U.S. Customs Service. The history of the Customs Service is 
closely intertwined with that of the Ways and Means Committee. 
While Customs revenue are no longer the primary source of 
revenues for our Nation, we rely on Customs to interdict 
illegal narcotics and enforce our trade laws at the border.
    In keeping with the traditionally close relationship 
between the Committee and the Customs Service, we have worked 
with Commissioner Weise over the past several years on many of 
the same issues in the Customs area. First, we have sought to 
reduce the burden on American business and industry of the 
regulations being promulgated by the Customs Office of Rules 
and Regulations pursuant to the Customs Modernization Act.
    One of best ways to reduce this regulatory burden is for 
Customs to computerize its import-export processes. 
Computerization will also improve Customs' ability to target 
and interdict fraudulent imports. We must get a handle on the 
problem of the transshipment of counterfeit products which 
threaten the health and safety of the American people, and we 
must protect America's children from drug smugglers by taking 
the profit out of their business.
    The Ways and Means Committee has already acted through the 
authorization process to increase the number of Customs special 
agents, particularly those dedicated to antimoney laundering 
activities. Protecting our children from the threat of drugs 
means properly staffing and compensating the men and women who 
protect our borders.
    In 1993, the Trade Subcommittee helped pass the Customs 
Officer Pay Reform Act, which sought to eliminate longstanding 
waste and abuse of overtime. Yet it still provided Customs 
inspectors with the most generous overall compensation package 
of employees in the Federal Government. Unfortunately, the 
practical outcome of certain labor arbitration decisions 
governing the application of the act are unconscionable. For 
example, Customs inspectors may be paid premium pay and 
overtime pay for hours scheduled but not worked due to annual 
leave or sick leave. I firmly believe, as does the 
administration, that the law requires Customs inspectors to 
actually work for any premium pay earned. I also believe the 
Customs and National Treasury Employees Union should undertake 
a comprehensive review of the partnership agreement and share 
that information with this Subcommittee.
    I would now like to recognize our distinguished Ranking 
Member, Mr. Matsui, for any statement he would like to make.
    Mr. Matsui. Thank you very much, Mr. Chairman.
    I would like to join you in welcoming Commissioner Weise 
and other witnesses to the hearing on the oversight of the U.S. 
Customs Service. This will probably be the final appearance of 
Commissioner Weise before this Subcommittee. As we all know, 
Commissioner Weise has announced his retirement effective some 
time this summer.
    As Chairman Archer, Chairman Crane, Ranking Member Rangel 
and I wrote in a recent letter to Mr. Weise, he has been one of 
the finest commissioners in the long history of the Customs 
Service. His leadership and professional integrity have set the 
standards for the Customs Service for years to come. After 25 
years of public service, of which some was on this Ways and 
Means Committee's Trade Subcommittee, he can leave his official 
duties in the knowledge that he has earned the respect and 
admiration of this Committee and the public at large.
    Mr. Chairman, I would like to enter a copy of our letter to 
Commissioner Weise in the record of this hearing.
    Chairman Crane. Without objection.
    Mr. Matsui. Thank you.
    [The information follows:]

    [GRAPHIC] [TIFF OMITTED] T7360.001
    
      

                                

    Mr. Matsui. As we all know, the Customs Service and its 
over 18,000 employees perform a variety of tasks that are 
essential to the economic health of this country. Its diverse 
mission includes collecting duties, taxes and fees on imports, 
enforcing laws intended to prevent unfair trade practices, and 
protecting public health by interdicting narcotics and other 
hazardous goods before they enter into the country.
    Customs is the source for trade statistics on imports used 
in monitoring and formulating trade and public policy, which is 
the primary responsibility of this Subcommittee. In recent 
years, much has been done both legislatively and 
administratively to prepare the Customs Service for the 
challenges of the 21st century. Most notably, the Congress 
passed the Customs Modernization Act as part of the North 
American Free Trade Agreement, NAFTA. This act was drafted by 
this Subcommittee.
    Administratively, the Customs Service under Commissioner 
Weise's bold leadership has formulated and implemented a 
comprehensive reorganization plan. Most recently, Customs has 
taken new initiatives to improve its drug enforcement and 
antimoney laundering capacities. I look forward to hearing the 
testimony in this hearing of Commissioner Weise, and other 
witnesses, on these and other issues today.
    Mr. Chairman, I believe this hearing is important and 
timely of the Customs operations, and I look forward to working 
with you on the Subcommittee on the legislative matters and 
oversight recommendations that might result from this hearing. 
And again, I would like to thank Commissioner Weise for all his 
work over the years, 25 years of public service, and certainly 
we wish him well and congratulate him.
    Chairman Crane. Today, we will hear from a number of 
distinguished witnesses, but our first witness, of course, will 
be George, and George recently did announce that he is retiring 
at an early age after nearly two decades of service with the 
Federal Government. Your leadership on Customs is going to be 
sorely missed, and welcome back to the Subcommittee.

 STATEMENT OF HON. GEORGE J. WEISE, COMMISSIONER, U.S. CUSTOMS 
                            SERVICE

    Mr. Weise. Thank you, Mr. Chairman, and I wish it were a 
real retirement. It is kind of a change of careers. It is an 
official retirement from the government's standpoint, but I am 
going to need another career before I can really retire.
    Thank you so much for those kind words. Clearly, whenever I 
return to this room and return to appear before this 
distinguished Subcommittee, having spent a substantial portion 
of that 25 years on the other side of this dais, it always 
gives me a great sense of feeling at home, and I have learned 
so much from the Members of this Subcommittee and very much 
about the importance of public service and trying to do the 
best you can with the resources that you are given, to give the 
American people back what they deserve.
    I know you have a number of witnesses today. I have a 
detailed statement that I would ask to be included for the 
record. I would like to make some brief remarks and as quickly 
as possible, get into a dialog and discussion with you and 
Members of the Subcommittee on issues that are of concern to 
you.
    Chairman Crane. Without objection, so ordered.
    Mr. Weise. Thank you.
    I guess I could say that I do sit before you having looked 
back at the last 25 years, but in particular the last 4 years, 
with a great sense of what the people of the Customs Service 
have been able to accomplish with the assistance and support 
all the way of this Subcommittee.
    This Subcommittee, as you said, has had a long association 
with the Customs Service. Throughout my career I have seen that 
you have led by example, you have attempted to provide the 
tools necessary to get the job done and clear guidance on how 
we could better serve the American people. When I look back and 
see where we were 4 years ago and where we have come, I have a 
great deal of pride, not so much in my accomplishments, but of 
the fine men and women of Customs who have been able to work 
with the tools you have provided them through the Customs 
Modernization Act, which was absolutely essential.
    But second, if you recall 4 years ago when I took this 
position, the Customs Service, in my judgment, was in need of 
tremendous restructuring. It had been more than 30 years since 
the last restructuring. We were so much distrusted in the 
Congress, not in this Subcommittee, but our annual 
appropriation bill forbade us not only from reorganizing and 
restructuring, but forbade us from spending one nickel of our 
appropriations on even studying whether we needed to 
reorganize.
    Frankly, we have, with your help, been able to remove that 
impediment and restructured the Customs Service. We have 
eliminated district offices. We have reduced the size of our 
headquarters, we have tried to do everything in our power. We 
called it ``People, Processes and Partnership,'' a look at not 
only the way we are structured, but the way we do our work and 
tried to identify what our core process and core missions were 
and how we could work together in business community and the 
people who count on us to do our jobs better. I think if you 
look at what we were able to achieve in the course of this 4 
years, you also would be proud of where we have come.
    There are witnesses that will appear later that have some 
concerns about the timeliness and whether certain things have 
come far enough fast enough. I think those are important issues 
for discussion, and I think that that is something that we do 
need to recommit ourselves to: to coming through on some 
additional provisions. But we have come a long, long way.
    Another area that needs to be looked at in terms of what we 
have accomplished in the last 4 years is our own financial 
house. This was in such disarray that when we had our first 
audit in 1993 by the General Accounting Office, our books and 
records were in such bad shape that they couldn't even audit 
them. They basically gave us a disclaimer under the Chief 
Financial Officers Act. That means we can't even give you an 
opinion, the books are in such bad shape.
    Now, that doesn't say much for the second largest revenue-
generating agency in the government that requires others to 
have their books and records in fine order, that our books and 
records were in such bad shape that we couldn't be audited. We 
have come a long way.
    Last year we achieved a qualified opinion, which is the 
next step to having an unqualified opinion, which means without 
qualification they can say that your records are in good shape. 
This year we achieved the unqualified opinion under the Chief 
Financial Officers Act. We have achieved a great deal in that 
area as well.
    I would venture to say, Mr. Chairman, that in the proud 
208-year history of this organization, the oldest organization 
in the whole Federal Government, if you take this 4-year period 
and stack it against any other 4-year period in that history 
you would see we have embarked on the most change and most 
positive, constructive change. We are not there yet. We are in 
the process of changing a culture as well as organizational 
charts. But we have laid a solid foundation.
    The thing I am particularly proud of, even though we are 
going on through this period of change trying to improve the 
way we do business, are the results we have been able to 
achieve. We have not been getting a lot of additional dollars--
the Vice President talks about making a government work better 
and cost less. I would venture to say if you look at the 
results we have achieved over the last 4 years we have an 
organization that today works better and costs less. Over the 
last 4 years, our budget has increased by 2 percent, and in 
real terms when you compare it to inflation, our base resources 
have been reduced by $100 million. But in that timeframe, in 
that 4 years, with the commercial responsibilities that we 
have, now for the first time in the history over the last 3 or 
4 years we have a measurement system that can tell you, Mr. 
Chairman, what the compliance rate is for commercial 
transactions coming into this country. And we have improved 
over the last 2 years from a rate of about 80 percent to a rate 
in this past year of 82 percent. That leaves an 18-percent gap. 
But the most important figure, if you look at it in terms of 
revenue, we are today collecting 99 percent of the revenue that 
is owed the Government. There is a 1-percent revenue gap, and 
we have been able to achieve those improved enforcement results 
while at the same time having record seizures as far as 
narcotics are concerned.
    I have stated on many occasions both to the Congress and 
the public, there is no mission more important that we have to 
the American people than keeping drugs from crossing our 
borders. I am the parent of two teenage daughters, my 
background is in the commercial arena, but no mission has been 
more important in the last 4 years than keeping drugs out of 
this country.
    We have not solved the drug problem in the United States. 
At Customs, through Operation Hard Line and Operation Gateway, 
seizures have increased each year, and last year we seized more 
than 1 million pounds of narcotics. That is good news and bad 
news. It is good news in that we are trying to do our job; the 
bad news is in how serious the problem is. And I am not going 
to sit here and pretend that we have accomplished everything we 
need to. But I do think we have laid the foundation for a 
successful future.
    I also hope that as the Congress looks at balancing this 
budget in the next 6 years that they look at the challenges the 
Customs Service is facing. The workload is going up and up and 
up, and no matter how you measure, in terms of number of 
passengers, number of entries, number of people crossing the 
borders, or if you measure it in terms of the threat of 
narcotics, while our budget has remained relatively static, 
other organizations. For example, Immigration and 
Naturalization who works side by side with us, their budgets 
have grown. Ours has not kept pace.
    We have tried to work as efficiently and effectively as we 
can. We have tried to streamline everything we can. We have 
tightened our belts and we have acted responsibly to put our 
resources where the threats are. And we have. Over the course 
of the last 4 years, the Southwest border has been a primary 
area of threat, as well as, Mr. Shaw knows, southeastern 
Florida. We have had a tremendous threat over many years. We 
have tightened our belts in many other areas.
    The final comment I would make before turning it over to 
the Members for questions and answers, is that I am very 
frustrated by the media attacks that this organization has 
taken over the past several years and particularly the past 
several weeks. If you didn't have a chance to see the ``60 
Minutes'' piece on the Customs Service, I will tell you I think 
that piece was terribly unfair. There was an allegation that 
relates to corruption back in 1990 that was fully investigated 
on three occasions, but the FBI came in and took a new look at 
it. Eighteen months before the grand jury, 80 witnesses were 
called, and at the conclusion of that grand jury no indictments 
were issued. I think that says something for the integrity of 
the Customs workforce. We take it seriously and pursue 
vigorously any instances of corruption.
    Second, the implication was given that we are more 
concerned about facilitating the movement of trucks across that 
border to the detriment of the law enforcement mission. In that 
piece it was alleged that a memorandum was written that asked 
for expedited treatment of a trucking company that, based on 
what our own intelligence analysis showed, had a connection to 
drug smugglers.
    I want the Subcommittee to understand that the memorandum 
was a fabrication. That memorandum was never generated by the 
individual who allegedly sent it. It was never received by the 
people who allegedly received it, and we have done everything 
we could to make sure that trucking company is given the 
intense examination they deserve.
    I would now be happy to answer any questions that you or 
any of the Members may have.
    [The prepared statement follows:]

Statement of Hon. George J. Weise, Commissioner, U.S. Customs Service

    Mr. Chairman and Members of the Committee, it is, as 
always, a pleasure to appear before this Committee to discuss 
the activities of the Customs Service. During the authorization 
hearing on March 11th, I had the opportunity to present a broad 
overview of the many challenges currently being faced by 
Customs and the strategies that are being used to meet those 
challenges. In my opening statement, and during our 
discussions, a number of important issues were touched on, 
including our number one operational priority: the interdiction 
of drugs and the disruption and dismantling of drug smuggling 
organizations. These and other important issues deserve further 
attention. I look forward to discussing some of them with you 
today.

                                Workload

    The U.S. Customs Service is responsible for the screening 
of all merchandise moving across our borders by commercial or 
noncommercial means. Last year, the Customs Service collected 
about $22 billion in revenue for the United States in the form 
of duties, taxes, and fees and seized over one million pounds 
of narcotics. It did this while processing over 16 million 
commercial import entries worth approximately $775 billion and 
over 440 million arriving travelers. It also took on an 
increased responsibility of screening passengers and cargo to 
prevent anti-terrorism attacks.
    The Customs Service applied hundreds of laws and 
regulations concerning tariff and trade and performed the 
initial checks, processes, and enforcement functions for over 
40 federal agencies. Customs performs these tasks by covering 
over 7,000 miles of land border and staffing over 300 ports of 
entry.
    Customs will have to address increasing workload 
requirements as international trade and travel arriving and 
departing our land borders or entering through our airports and 
seaports grows. In FY 1997, it is estimated that Customs will 
process 17.2 million commercial import entries valued at 
approximately $790 billon and 372 million land border passenger 
arrivals, 71 million air passenger arrivals, and 8 million sea 
passenger arrivals.

         Resource Allocation as a Result of the Reorganization

    As you know, in October 1993, I called together a Customs 
Reorganization Study Team and asked its members to develop the 
best approach to enable Customs and its employees to make their 
maximum contribution to the Nation. Being fully aware that 
demands for service from its customers will continue to 
increase despite a tight fiscal climate, the study team sought 
ways to best use its resources.
    In September 1994, they produced a report, People, 
Processes, and Partnerships which recommended new management 
approaches and an organizational structure that will enable 
Customs to meet the challenges of the 21st Century as a more 
efficient, effective, and adaptable organization. The new 
management approaches included adopting a process management 
approach, which requires the identification of core processes, 
performance measures, and partnerships with customers to 
improve Customs operations. The new organizational structure 
would be built from the ground up, with a foundation based on 
the ports. Central to the plan for the new structure was the 
concept of reinvestment of the resources freed up by the 
restructuring of operations. After coordinating with 
Administration officials and key Congressional leaders, Customs 
began implementing these changes in late 1994. The 
organizational change was completed in September 1995, but the 
fundamental management changes will continue over a long 
period.
    The goal to reduce Headquarters staffing by approximately 
one-third was also part of the reorganization strategy, and was 
based on the premise that Headquarters should be focused on 
policy formulation and oversight, and not deeply involved in 
day-to-day operational issues. The bulk of the Headquarters 
reduction will be completed by the end of FY 1997, with the 
last major component accomplished at the beginning of FY 1998.
    Many of the resources freed up by this restructuring have 
been, and are being, reinvested at the ports and in priority 
areas such as strategic trade and information technology.

                     The Customs Modernization Act

    The Mod Act promotes and encourages an atmosphere of open 
communication and cooperation between the U.S. Customs Service 
and the trade community. In a sense, the Mod Act stresses the 
significance of the Customs/Trade partnership, when it 
introduces the philosophies of ``informed compliance'' and 
``shared responsibility.'' We no longer subscribe to the ``just 
do it'' approach. Instead, we have made it a practice to 
establish new partnership approaches for developing and 
changing regulations, processes and systems. These approaches 
emphasize LISTENING to our partners. We solicit input and we 
listen. To gather input, we conduct public meetings; we attend 
trade association meetings; and we make drafts of significant 
system, procedural and regulatory documents available for 
comment prior to formalizing them. In fact, the National 
Customs Automation Program (NCAP) of the Mod Act, mandates that 
for each electronic component, Customs must consult with its 
trade partners.
    The proposed drawback regulations published in the Federal 
Register this past January represent a major Customs/Trade 
partnership accomplishment. In a radical departure from the way 
Customs has traditionally worked with the trade, a team 
composed of Customs drawback experts, a representative from the 
Inspector General's Office at Treasury, 11 representatives from 
several major trade associations (AAEI, the NCBFAA, the API, 
and the NCITD), and a professional facilitator worked together 
over an extended period to develop regulations covering the 
most technical of Customs programs. During this developmental 
period, the team conducted more than 10 public seminars around 
the country presenting some 1250 members of the trade community 
with an opportunity to dialogue with the team. In addition, 
three drafts of the proposed regulations were made available to 
the public through Customs Automated Broker Interface and the 
Customs Electronic Bulletin Board. Copies were also sent out to 
interested persons upon request. Further, since 1992, Customs 
met 42 times with various groups representing drawback 
claimants, exporters, brokers, attorneys and consultants to 
explain and discuss its proposals.
    In view of Customs extensive consultation with groups of 
interested persons, Customs published the Notice of Proposed 
Rulemaking (NPRM) on drawback on January 21, 1997, with a 60-
day comment period. After a request for extension of the 
comment period by the AAEI, Customs granted an additional 30-
days for the comment period. The comment period has now 
expired, but Customs received further requests for extension of 
the comment period from API, NCBFAA, and NCITD. Customs is now 
reviewing the comments. Clearly, the process of formulating 
regulatory packages with meaningful input from the trade takes 
time.
    As of May 6, 1997, to implement provisions of the Mod Act, 
Customs has published 7 final rules and 1 interim rule in the 
Federal Register and currently has pending 5 NPRMs published in 
the Federal Register; 6 NPRMs in review at Customs or Treasury; 
and 4 draft NPRMs posted on Customs Electronic Bulletin Board. 
In addition, Customs has published seven notices in the Federal 
Register announcing various National Customs Automation Program 
tests.

                               Automation

    The General Accounting Office (GAO) May 1996 report on 
Customs modernization efforts raised a number of concerns 
regarding our efforts to redesign and replace the outdated 
Automated Commercial System (ACS) with a new, more 
sophisticated system called the Automated Commercial 
Environment (ACE). Customs has addressed the GAO's findings and 
feels confident in proceeding with the ACE project.
     Customs has established a management oversight 
structure that assigns clear accountability for Customs 
Modernization Act implementation and the development of ACE.
     Customs has awarded a contract for definition of a 
Customs-wide technical architecture that will produce, by June 
1997, a comprehensive set of deliverables based on requirements 
from all Customs processes.
     Customs has established an Investment Review Board 
and is on schedule with producing an investment review process 
for use by the board beginning in July 1997.
     Customs is ensuring that the ACE project strictly 
conforms to the Customs Systems Development Life Cycle (SDLC) 
standard, including the production of SDLC required 
deliverables such as a security plan, completed in July 1996; a 
short-term project plan which was completed in April 1997; and 
a comprehensive ACE project plan to be completed by November 
1997 and, after approval by senior Customs and Treasury 
management, made available to committees in February 1998.
    We believe these actions not only respond to GAO's 
recommendations, but also demonstrate our continuing commitment 
to a productive, well-managed automation program in Customs. 
GAO's positive findings in their recent follow-up review of 
their May 1996 report confirm this commitment.
    The primary focus of the ACE project in FY 1997--and the 
first operational demonstration of ACE--will be implementation 
of the National Customs Automation Program (NCAP) prototype. 
Extensive preparatory work has been done at prototype field 
locations and with the likely trade participants, including the 
three major U.S. automobile companies. These companies have 
been partnering with Customs on a number of joint working 
groups to define prototype procedures. A Federal Register 
notice was published March 27, 1997, officially announcing the 
NCAP prototype, describing the requirements for participation, 
and seeking members of the trade community to participate in 
the initial test. In response, we have received applications 
from five major importers.
    The prototype will include only a slice of the intended 
full set of ACE features and will involve a small subset of 
Customs locations and trade community entities. However, 
because this prototype will be fully operational (i.e., it will 
not require parallel entries in the current system) and will 
handle a relatively high volume of transactions at the involved 
ports, it will support a meaningful evaluation of the intended 
benefits of ACE and the underlying trade compliance process. It 
will allow Customs, Congress, and the trade community to 
evaluate, in a real-world setting, the potential benefits of 
ACE within the framework of Customs redesigned trade compliance 
process.
    The NCAP prototype is critical to the future progress with 
ACE. Only with an operational system can we properly evaluate 
our development approach and the underlying trade compliance 
process concepts. Completing the prototype will also give us an 
excellent yardstick for accurately measuring the time and 
resources needed to deliver a set of ACE features. This will be 
invaluable for validating our project planning assumptions. 
Finally, and most importantly, completing the prototype in a 
timely fashion will demonstrate the progress toward 
implementing the Modernization Act which is so urgently desired 
by Congress and the trade community, as well as Customs.
    The hallmark of ACE is that it moves from a transaction-
based approach to an account-based system founded on compliance 
measurement and predicated on reengineered ways of doing 
business. Companies cooperating with Customs achieve mutually 
beneficial outcomes, including raised compliance, minimized 
data requirements at time of release, and the ability to make 
payments on a periodic basis. As compliance increases, the cost 
to Customs and to trade will decrease. The benefits of this 
approach will include uniform treatment, shorter processing 
time, more efficient information collection and dissemination, 
and greater opportunities to fulfill our enforcement mission.

                       Labor-Management Relations

    Just a few days before my last appearance here before this 
Committee, the GAO released its report on Customs partnership 
efforts with the National Treasury Employees Union (NTEU), 
``Varied Reaction to the Labor-Management Partnership Concept'' 
(GAO/T-GGD-97-54). I have looked closely at the report and have 
found many constructive points which will receive close 
attention.
    GAO's findings were generally supportive of our partnership 
efforts. Its one recommendation was to develop a formal plan 
for the evaluation of progress and improvements in 
organizational performance resulting from the labor-management 
partnership. Customs has taken numerous steps in the past to 
evaluate and monitor the effects of the partnership. However, 
as a result of the GAO findings Customs has begun, and will 
continue in the future, to pursue a more formal evaluation of 
partnership.
    Another issue has been the payment of premium pay for non-
work periods. The current Treasury-Postal Appropriation Act 
temporarily bars payment of Sunday, premium pay or night 
differential pay for non-work periods such as leave, for 
employees of the Customs Service and other agencies under the 
Treasury-Postal Act. We support this provision, and we support 
making it permanent for all Federal agencies.

                        Drug Enforcement Efforts

    Customs number one operational priority is the interdiction 
of drugs and the disruption and dismantling of drug smuggling 
organizations. As part of an overall narcotics strategy, 
Customs has developed four objectives, the purpose of which is 
to provide to Customs enforcement officers the tools and 
systems they need to improve their ability to interdict 
narcotics and to investigate smuggling and money laundering 
organizations.
    Customs first objective is to develop, collect, analyze and 
disseminate actionable intelligence to all levels of federal, 
state, and local narcotics enforcement agencies. Customs has 
been at the forefront in developing more useful intelligence, 
especially as it relates to the Southwest border.
    A second objective is to develop and provide information 
and training to trade and carrier communities to prevent the 
use of cargo containers and conveyances by smuggling 
organizations. Programs which are helping Customs meet this 
objective are the Business Anti-Smuggling Coalition (BASC), the 
Carrier Initiative Program, and the Land Border Carrier 
Initiative Program. The BASC is a business-led Customs-
supported alliance created to eliminate the use of legitimate 
business shipments by narcotics traffickers to smuggle illicit 
drugs. The Carrier initiative programs encourage air, sea, and 
land border carriers to improve their security practices to 
prevent narcotics from being placed onboard their conveyances 
or smuggled in cargo.
    Customs third narcotics strategy objective is the 
development and introduction of technologies to identify 
concealed smuggled narcotics. Customs recognizes that 
technology plays a significant role in our ability to remain 
effective at ports of entry and to thwart smuggling efforts 
between ports by aircraft and boats. Customs employs a wide 
range of technological tools to protect our borders, including 
new and emerging technologies, such as truck x-ray systems, 
license plate readers, and automated targeting systems.
    Customs fourth objective is the implementation of 
aggressive covert and overt narcotics investigative programs. 
Customs involvement in various multi-agency operations, such as 
ONDCP's High Intensity Drug Trafficking Areas (HIDTA) and the 
Department of Justice's Organized Crime Drug Enforcement Task 
Force (OCDETF), has helped us maximize our narcotics 
interdiction results. Customs is also increasing its 
investigative emphasis in staging and distribution cities. 
Choosing to emphasize investigations in these cities will add 
to our body of knowledge, allowing Customs to interdict more at 
the border based on prior information. This full circle 
approach is what we call the ``Investigative Bridge'' and it 
goes beyond border interdiction and capitalizes on the 
intelligence and information developed through investigations 
of smuggling organizations.
    It is clear that Customs is making progress in its efforts 
to combat the illegal flow of drugs. In FY 1996, Customs seized 
or participated in the seizure of a record 1,000,000 pounds of 
drugs. This total represents approximately 80% of the heroin, 
70% of the cocaine, and 65% of the marijuanca seized or 
discovered by all Federal law enforcement agencies.
    As a result of Operation Hard Line, narcotics seizures on 
the Southwest border increased 29 percent by total number of 
incidents (6,956 seizures) and 24 percent by total weight 
(545,922 pounds of marijuana, 33,308 pounds of cocaine, and 459 
pounds of heroin) when compared to FY 1995 totals. The total 
weight of narcotics seized in commercial cargo on the U.S.-
Mexico border in FY 1996 increased 153 percent (56 seizures 
totaling 39,741 pounds) over FY 1995. Operation Hard Line also 
checked the dangerous trend of ``port running,'' in which 
narcotics-laden vehicles were recklessly crashing through 
Customs checkpoints in order to enter the U.S. without 
inspection, posing great danger to border officers and innocent 
civilians.
    Following the success of Operation Hard Line on the 
Southwest border, Customs initiated Operation Gateway to 
achieve a complete and unified securing of Puerto Rico, the 
U.S. Virgin Islands, and their surrounding waters and airspace 
from narcotic smugglers. The Puerto Rico area, according to 
Customs intelligence reports, has the highest rate of non-
commercial maritime and airdrop smuggling activity of any 
Customs area. Operation Gateway is a cooperative plan that 
commits a sizable investment of funds, personnel, and equipment 
by Customs, with support from the Government of Puerto Rico. It 
is part of Customs overall plan to secure the southern tier of 
the U.S., from San Juan to San Diego. Since the initiation of 
Operation Gateway, Customs narcotic enforcement activities in 
Puerto Rico have increased dramatically. In comparing March 1 
through the end of December 1996, to the same nine months in 
1995, cocaine seizures have risen 44 percent.

                   Measuring Drug Enforcement Success

    Customs recognizes the difficulty in quantifying the effect 
of its enforcement activities. Traditionally, we have relied on 
seizures to tell the story. But year-to-year seizure statistics 
alone are an imperfect measure of Customs performance in 
countering the inflow of narcotics into the U.S.
    If, for example, Customs were able to harden the ports of 
entry to make it virtually impossible to smuggle through a port 
of entry, our seizure numbers would go down to zero. Based on a 
traditional measure of success, it could appear that Customs 
was performing miserably, while in fact it was having its 
greatest success. Seizure statistics will continue to be an 
imperfect measure until such time as we can accurately estimate 
the total amount of narcotics being smuggled into the country.
    For our trade and passenger processing operations, Customs 
has developed estimates of ``compliance,'' that is, statistical 
projections of the total number of imports or arriving 
passengers that are in compliance (or, conversely, out of 
compliance) with the law. These estimates are based on large 
random samples of imports and passengers. They provide an 
objective measure of how our outreach, education and 
enforcement activities together move the trade and traveling 
community into compliance with the law.
    In contrast, the incidence of narcotics smuggling is not 
predictable or sufficiently frequent to permit the use of 
random sampling to estimate the total number of possible 
narcotics smuggling incidents. Customs is working with the 
Office of National Drug Control Policy to identify different 
measurement approaches to the interdiction of narcotics and the 
disruption and dismantling of narcotics smuggling 
organizations. ONDCP has expressed interest in exploring ways 
to show that Customs efforts, in such operations as Hard Line 
and Gateway, are causing displacement in smuggling efforts.
    Customs is also exploring the development of measures that 
can provide an overall picture of its ``impact'' on smuggling 
organizations. Conceptually, this means combining intelligence 
feedback from all agencies, with seizure data, displacement 
data (air, marine, and at ports of entry), investigative data 
(narcotics and related money laundering), and other law 
enforcement agency assessments.
    Since 1982, Customs Air Program has been using an ``Air 
Threat Index'' to gauge its effectiveness in deterring the use 
of general aviation aircraft for smuggling drugs across the 
border. This index, which was designed by Stanford Research 
Institute, is a composite measure of various indicators of 
general aviation smuggling activity. Annually, these indicators 
are tallied, weighted according to their reliability in 
indicating general aviation smuggling activity, and compared to 
the baseline 1982 level.
    As you can see we are looking at a number of alternatives 
to more effectively measure enforcement effectiveness. We look 
forward to resolving the measurement issue through further 
consultations on our strategic plan required by the Results 
Act. These consultations, begun last year, with Congress, other 
federal agencies, and interested parties need to result in a 
set of organizational measures that are acceptable to the 
Congress, the Administration, and to external parties 
interested in the Customs Service's enforcement performance.

                    Anti-Money Laundering Activities

    While the interdiction of drugs and the disruption and 
dismantling of drug smuggling organizations remains our highest 
priority, Customs also focuses on the most significant 
international criminal organizations whose corrupt influence 
impacts global trade, economic and financial systems. Our 
efforts are not limited to drug-related money laundering but 
the financial proceeds of all crime.
    Customs has implemented an aggressive strategy to combat 
money laundering. Customs money laundering investigations 
yielded $258 million in currency seizures in FY 1996. Customs 
also made the largest cash seizure to date at the U.S. border--
$15 million in Miami, Florida.
    Through our strategy, we will continue to enhance our asset 
identification and forfeiture capabilities with advanced 
training and the use of more sophisticated computer software 
for analytical purposes. Customs will also continue to develop 
information through interaction and training with foreign law 
enforcement personnel, prosecutors, judges, and legislators 
through domestic and international anti-money laundering 
awareness seminars. Finally, Customs will proceed to develop 
information on international money laundering organizations by 
participating in long-term advisor programs and cross-border 
reporting and information exchange programs pertaining to the 
movement of monetary instruments. Again, the focus will be on 
detecting the movement of all illicit proceeds, not just 
narcotic proceeds.
    In addition, Customs is currently working with the 
Financial Crimes Enforcement Network on a regulatory initiative 
to make foreign bank drafts reportable. This would curtail a 
frequently used money laundering technique and help 
investigators trace criminal proceeds that have been reinvested 
or repatriated back to the U.S.
    This concludes my statement for the record. Thank you again 
for this opportunity to appear before the Committee. Mr. 
Chairman, we would be happy to answer any questions you may 
have.
      

                                

    Chairman Crane. Thank you very much, George.
    Let me ask first about the National Treasury Employees 
Union's recommendations that the overtime cap be raised from 
$25,000 to $30,000. What are your thoughts on that?
    Mr. Weise. Mr. Chairman, as you know, this Subcommittee 
worked for quite a long time in putting together the Customs 
Officers Pay Reform Amendment, COPRA, legislation that allows 
for the funding of the Customs inspectors' overtime. An awful 
lot of work went into that and we have had limited experience. 
It has only been in effect 2 years now.
    I believe that if given the opportunity to work, it is a 
very equitable program. We ought to give it an opportunity to 
work, and then look at the whole program before we go making 
individual changes. Obviously, the inspectors who work side-by-
side with the Immigration and Naturalization Service, INS, 
inspectors are concerned about parity and know the INS 
inspectors have a $30,000 overtime cap. They feel they are 
getting discriminate treatment. But the INS inspectors do not 
have the same benefits of the COPRA bill, and I think we ought 
to be concerned about parity and equity between the inspectors. 
I am proud of the work the Customs inspectors do.
    But my response is we oughtn't take a piecemeal approach. 
If we want to look at the payment of inspectors, we ought to 
look at the overtime cap in a comprehensive way, at the whole 
program.
    Chairman Crane. How about the issue that I touched upon in 
my opening statement, relating to Customs employees that are on 
annual leave or sick leave being eligible for overtime pay? Do 
you think Congress should do something about that?
    Mr. Weise. Mr. Chairman, I don't believe that any 
individual ought to be paid a premium pay for not working. I 
think that is a basic premise. As much as I support the workers 
in the Customs Service, I don't support that.
    Chairman Crane. Mr. Matsui.
    Mr. Matsui. Thank you, Mr. Chairman.
    George, you have issued, what, six or seven regulations on 
the Customs Modernization Act. Could you tell me when the 
implementation of all those will occur, and then, second, 
whether the importers have any concerns and what kind of 
concerns they may have about each of those six or seven--what 
is it, seven?
    Mr. Weise. What I would like to do is supply for the record 
where we stand with respect to each element of the 
Modernization Act and speak in more general terms, if I may.
    I share your frustration and the frustration of the 
business community. When I took this position 4 years ago, I 
wanted everything to be finished within the 4 years before I 
left. I have been frustrated that it has taken us a little 
longer, but I want to give the Subcommittee some of the 
perspective as to some of the reasons that it has taken us 
longer than expected.
    First of all, having served in the capacity I did sitting 
behind the Members of this respected Subcommittee, one of the 
things I recall is the business community coming in under prior 
administrations, talking to us about how often the Customs 
Service seemed to move too quickly, too hastily, implementing 
new systems, particularly in the automation arena, that didn't 
have compatibility with the domestic companies' systems. So to 
one extent we have perhaps erred on the opposite side.
    We have, with respect to all the provisions of the 
Modernization Act, reached out with a true partnership request 
to the business community that would have to live with these 
provisions, to make sure we were taking their needs into 
account. As a matter of fact, before we issue a proposed 
regulation of rulemaking, we are putting out on an informal 
basis a draft that is seeking input so we can take that input 
into account before we actually move to implementation.
    The second thing that has complicated and delayed some of 
our moving forward as swiftly as I would like is that, as I 
indicated before, we have been completely redesigning the basic 
processes of how we do our work, and we are doing that again in 
close consultation and partnership with the business community. 
In doing so, it, for example, has slowed up our progress in 
implementing the ACE, the automated commercial environment, 
because we had the old, automated commercial system, which 
basically automated a manual system. What we want to make sure 
is when we get ACE into effect, we are redesigning a system 
from the ground up and moving to more of an account-based 
system than a transaction-based system. We need to have that 
developed and designed before we can automate it. We are 
designing it together. So this is taking longer than we would 
have liked.
    As I said before, if you compare this 4 years of change to 
any other 4 years, you will see it is rather dramatic. We have 
changed to the point where one of my senior managers described 
it as trying to change a tire on an automobile going 60 miles 
an hour, and we had to consolidate to a certain degree.
    There is only so much change one can handle at once. I 
think we have laid the foundation and we are going to see with 
this schedule that I will provide to you that we are more 
likely to get modernization implemented.
    [The following was subsequently received:]

    [GRAPHIC] [TIFF OMITTED] T7360.005
    
      

                                

    Mr. Matsui. Thank you.
    I have no further questions.
    Chairman Crane. Mr. Shaw.
    Mr. Shaw. Thank you. You looked good sitting behind the 
Subcommittee and look even better where you are.
    I congratulate you on your position and we are certainly 
glad to have had you there as long as we have.
    I want to talk about several issues. One, as I understand 
it, and I am in total agreement with you about the funding 
level for Customs, and I do know that your resources are spread 
thin and I hope that is something we will address. As you know, 
in south Florida, I have great concern about the loss of some 
of our marine facilities for Customs, and I understand that is 
being taken care of and we will have them back to the water.
    Also, I am going to ask some questions in the area of 
pleasure boating and switch to the problems we have in some of 
our ports down there.
    For a number of years now, there has been virtually no 
Customs inspection of boats returning from the Caribbean into 
south Florida. That perhaps is true from other parts of the 
country. What do you see that we can do about that, because as 
I understand it, from talking to some of your people in the 
field, that the boaters are sort of getting the feeling there 
is no sense in even calling in to tell them you are back 
because they never called in to tell you they were leaving? And 
that seems, it is sort of a shrug of the shoulder and doesn't 
seem to accomplish much but saying we are back. What do you 
say?
    Mr. Weise. There is no question that what you have 
identified is a tremendous challenge for us.
    I recall in 1993, the first year I was Commissioner, during 
the first budget cycle, I was facing a prospect that people 
within the administration--this was an OMB process initially--
but we had a real fight on our hands in the Congress as well 
basically we were suggesting the complete elimination of not 
only our marine program, getting rid of all of our boats, but 
getting rid of our air program as well. The reason was our 
seizures in recent years had not been what they had been, 
because we had been successful in shutting down that area of 
smuggling. We, in effect, became a victim of our success. We 
considered it a success at the end of that budget cycle that we 
were able to maintain only a 25-percent reduction in our air 
program but we took a 50-percent reduction in our marine 
program. We went from about 150 to 75 boats.
    One of the things, as I said, is the fear once you take the 
boats out of the water, the threat is going to recur. I know 
you are seeing it in your part of the country, in Puerto Rico, 
in California as well as we have tightened San Diego and the 
land border. We are seeing more boats come around us, in 
Brownsville, Texas, too, and the Gulf. We are trying to get 
more dollars and more boats in the water, but we need to work 
smarter than just having boats out there trying to randomly 
pick up smugglers. We need to work more closely with the DEA 
and others and try to get the best intelligence we can.
    I hate to say this on the public record, but I don't know 
how we can ever have the kind of resources in this environment 
that really deal with the sheer volume of pleasure boaters we 
have in an effective way, but we have to have enough of a 
presence to be a deterrence, to give people a long pause before 
they attempt to smuggle. We have to catch enough of them to 
discourage that type of smuggling.
    Mr. Shaw. I would submit that we are not at that level.
    Mr. Weise. I agree with you.
    Mr. Shaw. And I think we need to go and actually have some 
check-in requirement at the ports around the country, and 
always do some intelligence over in the island to see who is 
there and see if they do report back in. And if there is some 
random check-in as to what boats are in Bimini or Nassau and 
they have--somebody receives a letter that says, I hear you are 
back, why didn't you call us, that might give us some teeth.
    I also heard, and I am not going to affirm the validity of 
the source, but I understand we are going to start doing that 
same thing with airplanes coming into this country. Is there 
any thought to----
    Mr. Weise. I think you may be referring to what we have on 
the northern border, where the risk is significantly less than 
it is on the southern border. We have a telephonic reporting 
program on noncommercial aircraft. It is basically in a 
prototype status. It has been in effect a little under a year 
and the experience has been good.
    Because the history has been in the prior year before we 
implemented that, my numbers may be a bit off, but it 
approximated only 300,000 or 400,000 arrivals and found only 6 
instances of wrongdoing. Of those six, only two related to 
smuggling of narcotics. They were more technical violations.
    We face this challenge on the southern border and at other 
parts of the country. Our resources are not going up, so we 
have to constantly investigate where we can get the best return 
for those resources. With the northern border and the threat 
being rather low we have looked for ways we can create 
efficiencies there and invest those resources in other areas of 
the country where the threat is higher.
    Mr. Shaw. Well, that seems to make a certain amount of 
sense, but isn't it true that the importation of heroin is 
coming in heavily across the Canadian border?
    Mr. Weise. I guess I would quarrel a little bit about 
whether I would describe it as heavily, but most of the threat 
on that border is drugs heading north rather than south.
    Mr. Shaw. Canada is having a problem with us?
    Mr. Weise. Indeed, there are some problems there.
    Mr. Shaw. All right. I want to talk to you now and if I 
could move into the area of what is going on in some of our 
ports. I understand that the term of art to use is internal 
conspiracy to smuggle. And this is about people who work at the 
ports at various levels. The amount of drugs coming in to the 
Port of Miami and Port of Everglades is escalating and is a 
terrible problem.
    We have looked into the background and records and the 
Customs has done a sample at my request of just picking 50 
Miami longshoremen. Out of the 50, 36 of them have arrest 
records. Of these 36 persons, they have had a total of 213 
arrests, including 68 drug arrests.
    At the Port of Everglades, a sample of 36 longshoremen, 19 
had arrest records. Of these 19 persons, 73 arrests including 
14 drug arrests. And these are serious.
    Let me tell you, give you one of the subjects from Miami. 
Arrested for robbery, assault and battery, carrying a concealed 
weapon, possession of a firearm by a convicted felon, 
aggravated assault, possession of heroin with intent to 
distribute, possession of cocaine with intent to sell, 
possession of heroin with intent to sell, grand theft, petty 
theft, uttering a forged instrument, forgery of a U.S. Treasury 
check, possession of cocaine, simple battery, aggravated 
battery, petty theft. This is one person. I don't see how he 
has had enough time in his life to have done that.
    I have got a list, one of them from Port Everglades in Fort 
Lauderdale, arrested for arm robbery, assault with intent to 
commit murder, breaking and entering, disorderly conduct, 
shoplifting, burglary, dealing with stolen property, possession 
of cocaine, of course sale of cocaine, and also a case of 
domestic violence.
    Now, I understand in New York that there is a licensing 
procedure that goes through that actually looks at the 
background of these people. Are you familiar with that and can 
you enlighten the Subcommittee on the problem that Customs has 
with the internal cooperation?
    I know from talking to some of your people in south Florida 
that although you have surveillance cameras within the port, it 
is easy to stack up freight or containers to block the view 
long enough for the grab to be made of the illegal contraband 
coming into the country.
    What can you tell us about background checks and things 
that might help us down in south Florida deal with this? And 
also enlighten us to arrest backgrounds, felony backgrounds of 
dock workers throughout the country. I don't think this is just 
a Florida problem.
    Mr. Weise. Again, you have hit on an extremely serious 
problem, particularly in your part of the country. We are 
finding a much higher percentage than not of the smuggling 
attempts that we are able to successfully apprehend. There are 
internal conspiracies which means we have to get there and get 
there quickly. Because the way the internal conspiracies work, 
often the narcotics are put on the shipment, unbeknownst to the 
legitimate shippers, and taken off by the individuals, the 
kinds of individuals you have alluded to, before the 
merchandise actually leaves the docks.
    We have a number of procedures to put in place like making 
sure the inspectors are not waiting for the luggage to come 
actually into the terminal, but make sure our people are at 
plane side and go up into the cargo immediately upon arrival of 
the plane.
    Certainly, there is no question that we have tried hard in 
our discussions with the airport authority and the airlines to 
encourage them to do more background checks of the employees. 
We have what I believe is a very successful program where the 
airlines have worked with us to ensure that they are minimizing 
the risk----
    Mr. Shaw. As I recall, you grabbed a couple of planes and 
got their attention?
    Mr. Weise. Yes, and soon after that we got their 
cooperation.
    I am not really aware of the licensing program that you 
alluded to in New York, but I would certainly be more than 
happy to work with you and the Subcommittee. We need to find a 
solution to this. It is a serious problem that needs to be 
addressed.
    Mr. Shaw. The licensing provision, as it was given to me by 
my staff, it says the port of New Jersey and New York, the New 
York Waterfront Commission licenses dock workers. The 
commission was established in 1953 in order to break the Cosa 
Nostra's stranglehold on the New York and New Jersey harbor.
    Many of the Mafia controlled dock workers who were excluded 
from working on docks after the establishment of the 
commission. A lot of them traveled south to Florida, and I 
think perhaps that is a problem that we need to investigate 
down in our area.
    I would suggest, too, that all of the ports that find that 
they have this problem, you certainly should be doing 
background checks of people who are in such a position that 
they can really, almost with absolute safety, go in and grab 
contraband and just disappear with it before your guys even get 
in.
    Mr. Weise. Absolutely. We would very much appreciate your 
assistance in helping to convince some of the other players in 
this game to work with us, and if we could do something 
legislatively----
    Mr. Shaw. Mr. Chairman, there is a rather extensive 
investigative article in the Miami Herald to this and I would 
ask unanimous consent----
    Chairman Crane. Without objection.
    Mr. Shaw [continuing]. To place that in the record of this 
hearing.
    [The information follows:]

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    Chairman Crane. We want to wish you the best in your new 
life and we appreciate the opportunity we have had to work with 
you both on the Subcommittee and in your present capacity, and 
bon voyage.
    With that, the Subcommittee will stand in recess until we 
finish voting. I think we have about 7 minutes left.
    [Brief recess.]
    Chairman Crane. The Subcommittee will come back to order.
    We want to welcome our next witness, Myles Ambrose, former 
Commissioner of the U.S. Customs Service.
    Welcome, Myles.

  STATEMENT OF HON. MYLES J. AMBROSE, ROSS & HARDIES (FORMER 
              COMMISSIONER, U.S. CUSTOMS SERVICE)

    Mr. Ambrose. Thank you very much, Mr. Chairman. I will 
summarize my prepared statement. I think it has been furnished 
to the Subcommittee.
    As the former Commissioner of Customs, I am especially 
pleased to appear before you. As a former Treasury and Justice 
official, and practicing lawyer, I have had the unique 
opportunity to observe the work of the Customs Service. It 
should be noted and clearly stated on the record that despite 
some recent adverse and unfair publicity, the Service has never 
been in better hands than those of George Weise. Not only those 
of us who deal with the Customs Service will miss him, but so 
will the Nation to which he has devoted 25 years of his life. 
The appointment of his successor will be a most difficult task.
    We have heard much recently about Customs and narcotics, 
the Mexican border and, indeed, the Mexican Government in its 
role in stemming the flow of heroin from Mexico. It has 
required the attention of both Presidents. It has been the 
subject of much attention by Congress, the press, and the 
private sector.
    I have over the past 40 years been deeply involved in 
Mexican-American bilateral efforts to increase and improve and 
reduce the influx of narcotics. My initial efforts in 1959, 
with former Congressman James Roosevelt, was cochairing a 
series of bilateral meetings between Mexico and United States 
officials. These efforts were followed by many meetings over 
the years, too numerous to enumerate.
    All these efforts resulted in only promises to improve 
cooperation between the two countries, to improve enforcement, 
and to address the heart of the problem, corruption. Yet we 
have had few results. The extent of corruption in Mexico is 
mind-boggling. The profits and sums of money available to 
traffickers is almost infinite. Unfortunately, the demand for 
drugs in this country is insatiable.
    We need a new approach, one that takes these factors into 
account and is based on full knowledge of all facets of the 
problem. The solution must take cognizance of limitations of 
the government agencies, the complexity of border operations, 
and the necessity for involvement of the private sector.
    Let me state what I think can and should be done. We need 
to establish standards by which both the United States and 
Mexican law enforcement efforts can be objectively measured. We 
also need to establish procedures that shippers must follow in 
order to reduce the opportunities for drug smuggling. This will 
enable us to manage resources and reduce corruption.
    We can only succeed if business and government act in 
partnership. Business must be given incentives to assist 
government efforts to address the drug problem. In this area of 
just-in-time inventory, the carrot for business is expedited 
Customs clearance. This privilege should only be earned by 
companies that implement the procedures that reduce the 
possibilities for drug smuggling.
    This expedited clearance plan will require careful 
monitoring on both sides of the border. After all, a 
substantial portion of the cross-border traffic is from one 
company to its branch in the other country. Mexican exporters 
who seek a form of expedited clearance must also subscribe to 
and implement safeguards which must be rigorously enforced. 
Both countries should monitor these operations. Mexican 
exporters who do not have approved established procedures in 
place must be required to have their goods inspected by Mexican 
Customs officials with joint U.S. participation prior to 
crossing the border.
    Procedures should also be required to establish advanced 
information about shipments thereby permitting prescreening for 
inspection. It will require substantial compliance analysis.
    We should also be considering other available technologies 
such as giant x-ray equipment. With prescreening, we can be 
much more selective about when and where to employ these 
devices. With today's volume of trade, the use of risk analysis 
is absolutely essential.
    We should demand a memorandum of understanding with the 
Mexicans addressing the specific standards expected of the two 
countries' law enforcement efforts and the procedural 
safeguards required. If Mexico is serious about getting at this 
problem, here is a measurable way of judging their cooperation 
and law enforcement performance. It forces companies on both 
sides of the border to adopt procedures that reduce the risk of 
abuse by drug smugglers. It enables the Customs administration 
to narrow their focus of inspection to high-risk shipments.
    The governments must also have a considerable amount of 
prior intelligence available so that interdiction efforts can 
be directed to the most likely areas of exposure. Intelligence 
gathering should be a primary focus of DEA agents working 
jointly where necessary with Customs agents and of course the 
Mexicans. Such overlapping jurisdiction will help reduce the 
corruption problem. Both countries need more resources to 
handle both the commercial trade and the narcotics interdiction 
efforts.
    Nothing that I have said is particularly new, but 
implementation will require resolve and determination. We have 
all considered various aspects of these proposals at various 
times, but due to political or financial constraints, we have 
never implemented such a coordinated plan. Now is the time to 
do so. We can no longer just pour money into joint enforcement 
efforts and receive little in return.
    Congress and the administration may wish to review our 
entire border enforcement mechanism. In the reorganization of 
narcotics enforcement creating the Drug Enforcement 
Administration in 1973, we also recommended that there be one 
border control agency under the Customs umbrella. It may be 
time to revisit this concept.
    Now, a few other points in closing. Phil Hughes of UPS will 
be testifying for the Transportation Coalition and I highly 
endorse his remarks. Customs has not moved as quickly as it 
should have to implement the Mod Act. After 3\1/2\ years we are 
still waiting for the raised dollar limit informal entry 
processing. Other important issues that have not been addressed 
include manifesting of letters, documents, and the $20 duty 
waiver for de minimis shipments. Customs recordkeeping 
requirements must also be finely tuned and tailored to the 
particular party and type of shipment.
    The regulatory audit process is still much too slow and 
burdensome. The ruling process must be improved and expedited 
in order to be useful.
    Last but not least, the administration should move quickly 
to fill the enormous void being left by George Weise's 
departure. We need someone devoted to improving our narcotic 
interdiction efforts but who is also thoroughly familiar with 
the complexities of international trade. The next Commissioner 
must recognize the necessity for a joint partnership with the 
business community for law enforcement and commercial reasons. 
When properly done, Customs will be able to apply its resources 
to the problem areas more effectively.
    Thank you for giving me the opportunity to appear before 
you. As always, it is an honor and pleasure, and I will be glad 
to answer any questions that you might have.
    [The prepared statement follows:]

Statement of Hon. Myles J. Ambrose, Ross & Hardies (Former 
Commissioner, U.S. Customs)

    Mr. Chairman, Members of the Committee:
    As a former Commissioner of Customs, I am especially 
pleased to appear before you. As a former Treasury and Justice 
official and prosecutor, and as a practicing lawyer for the 
past 25 years, I have had the unique opportunity to observe 
firsthand the work of this extraordinary agency, the United 
States Customs Service. It should also be noted here and 
clearly stated on the record, that despite some recent adverse 
and unfair publicity, the Service has never been in better 
hands than those of George Weise. Not only those of us who deal 
with the Customs Service will miss him but so will the nation 
to which he devoted 25 years of his life. The appointment of 
his successor will be a most difficult task about which I'll 
say more later. As the Chairman and Mr. Rangel know, I have 
somewhat of a personal interest in this matter. Despite this, I 
believe I can be reasonably objective because of my long 
association and knowledge of the needs of this agency.
    We have heard much recently about Customs and narcotics, 
the Mexican border and indeed the Mexican Government and its 
role in stemming the flood of cocaine and heroin from Mexico. 
It has required the attention of our President and theirs and 
certainly it has been the subject of much attention by 
Congress, the press and certainly by those in the private 
sector.
    I have over the past 40 years been deeply involved in 
Mexican-American bilateral efforts to increase and improve 
enforcement and reduce the flow of narcotics from that country 
to ours. My initial efforts in 1959, with former Congressman 
James Roosevelt, was co-chairing a series of bilateral meetings 
between Mexican and U.S. officials. These efforts were followed 
by many meetings over the years--too numerous to enumerate.
    All these efforts resulted in only promises--to improve 
cooperation between the two countries, to improve enforcement 
and to address the heart of the problem--corruption. Yet, we 
have had few results. The extent of corruption in Mexico is 
mind-boggling--the profits and sums of money available to 
traffickers are almost infinite. Unfortunately, the demand for 
drugs in this country is insatiable.
    We need a new approach--one that takes these factors into 
account and one that is based on full knowledge of all facets 
of the problem. The solution must take cognizance of the 
limitations of the governmental agencies involved, the enormous 
complexity of border operations and the necessity for absolute 
involvement of all segments of the private sector.
    Let me briefly state what I think can and should be done.
    We need to establish standards by which both U.S. and 
Mexican law enforcement efforts can be objectively measured. We 
also need to establish procedures that shippers must follow in 
order to reduce the opportunities for drug smuggling. This will 
enable us to manage resources to reduce the potential for 
corruption.
    We can only succeed if business and government act in 
partnership. But how will we involve business? Business must be 
given incentives to assist governmental efforts to address the 
drug problem. In this era of just-in-time inventory, the carrot 
for business is expedited customs clearance. This privilege can 
only be earned by companies that implement procedures that 
reduce the possibilities for drug smuggling and assist 
governmental efforts. This expedited clearance plan will 
require careful monitoring of the companies receiving the 
benefits. It should also be applied on both sides of the 
border. After all, a substantial portion of the cross-border 
traffic is from one company to its branch in the other country. 
Mexican exporters who seek a form of expedited clearance must 
also subscribe to and implement procedural safeguards which 
must be vigorously enforced and continually audited. Both 
countries should jointly monitor these operations. Mexican 
exporters who do not have approved established procedures in 
place should be required to have their goods inspected by 
Mexican customs officials with joint U.S. participation prior 
to crossing the border.
    Procedures should also be established to require, where 
possible, advance information about shipments, thereby 
permitting prescreening for inspection. It will require 
substantial compliance analysis. We also should be considering 
other available technology such as giant x-ray equipment. When 
you have a prescreening program, you can be much more selective 
about when and where to employ these devices. With today's 
volume of trade, the use of risk analysis is absolutely 
essential to effective enforcement. There must be swift and 
certain punishment for violators.
    We should demand a memorandum of understanding with the 
Mexicans addressing the specific standards expected of the two 
countries' law enforcement efforts and the procedural 
safeguards required of the countries' companies. If Mexico is 
serious about getting at this problem, here is a measurable way 
of judging their cooperation and law enforcement performance. 
It also forces companies on both sides of the border to adopt 
procedures that reduce the risk of abuse by drug smugglers. 
This will enable the respective customs administrations to 
narrow their focus of inspection on high risk shipments, which 
is absolutely necessary given the enormity of cross-border 
traffic. Again, this plan can only be effective when the 
participating companies are carefully monitored by established 
audit procedures.
    The governments must also have a considerable amount of 
prior intelligence available so that interdiction efforts can 
be directed to the most likely areas of exposure. Intelligence 
gathering should be a primary focus of Drug Enforcement 
Administration agents in Mexico working jointly, where 
necessary, with U.S. Customs agents and, of course, the Mexican 
officials. Such overlapping jurisdiction will help reduce 
(unfortunately--not necessarily resolve) the corruption 
problem. Both countries need more resources to handle both the 
commercial trade and narcotics interdiction efforts. It will 
require the full support and partnership of the private sector 
on both sides of the border.
    Nothing that I have said is particularly new but 
implementation will require resolve and determination. We have 
all considered various aspects of these proposals at various 
times but due to political or financial constraints, we have 
never implemented such a coordinated plan. Now is the time to 
do so. We can no longer just pour money into joint enforcement 
efforts and receive little in return.
    Congress and the Administration may wish to review our 
entire border enforcement mechanism. In the reorganization of 
narcotics enforcement creating the Drug Enforcement 
Administration in 1973, we also recommended that there be one 
border control agency under the Customs umbrella. It may be 
time to revisit this concept.
    Now a few other points in closing. Phil Hughes of UPS will 
be testifying for the Transportation Coalition, and I heartily 
endorse his remarks. Customs has not proceeded as quickly as it 
should have to implement the Mod Act. For example, after 3\1/2\ 
years we are still waiting for the raised dollar limit informal 
entry processing. This would be an enormous benefit to both 
commerce and government. Other simple but important provisions 
that have not yet been addressed include summary manifesting of 
letters and documents and the $20 duty waiver for de minimis 
shipments. Customs recordkeeping must also be fine tuned and 
tailored to the particular party, the type of shipment and take 
into account automation and electronic storage.
    The regulatory audit process is still much too slow and 
burdensome. It must be improved. The ruling process must be 
improved and expedited in order to be useful. I understand that 
Assistant Commissioner Seidel outlined proposals to you in 
March. Hopefully, they can be adopted quickly.
    Last, but certainly not least, the Administration should 
move quickly to fill the enormous void being left by George 
Weise's departure. We need someone devoted to improving our 
narcotics interdiction efforts but who is also thoroughly 
familiar with the complexities of international trade. The next 
Commissioner must also recognize the necessity for a joint 
partnership with the business community for both law 
enforcement and commercial reasons. When this is properly done, 
Customs will be able to apply its resources to the problem 
areas more effectively.
    Thank you for giving me this opportunity to appear before 
you. As always, it is an honor and a pleasure. I will be glad 
to answer any questions you might have.
      

                                

    Chairman Crane. Thank you so much, Myles.
    You touched upon that Customs regulatory audit process. How 
would you improve and expedite it?
    Mr. Ambrose. Well, the same way I have recommended in the 
past, they improve on the criminal investigators. Set time 
limits on reports to the supervisors, whether it should be done 
by regulation between the agency or administrative procedures, 
but you can't let them go on forever.
    And supervisors have to have responsibilities. A report, a 
preliminary audit report should be set out, say, 30 or 45 days 
after the commencement of the audit. Forty-five days after that 
there should be an analysis of where they are going and so 
forth. So there are standards that have to be met and, 
unfortunately, that is not the case. We are in the audit now 
for a client. I think we are in the fifth year of an audit. 
That makes no sense.
    Chairman Crane. Something I meant to ask George and maybe 
you can tell me about, do you know anything about the 
strategies and discussions of interdicting small aircraft that 
are taking money out of the country involved in the drug 
trafficking?
    Mr. Ambrose. With all due deference, yes, I know something 
about it, but 20 years ago, not now.
    Chairman Crane. I was just wondering what the dollar 
figures were.
    Mr. Ambrose. I wouldn't want to comment on it at this 
point.
    Chairman Crane. Is that money divided between Customs and 
the General Treasury, the money that is seized by Customs?
    Mr. Ambrose. It goes into the General Treasury.
    Chairman Crane. All of it?
    Mr. Ambrose. All of it, unless it has changed.
    Mr. Shaw. Would the Chairman yield on that?
    Chairman Crane. Sure.
    Mr. Shaw. I heard you mention that a few minutes ago to 
George. I think that under the RICO, that a lot of police 
departments, allow you money to stay with the department, and I 
think this might be a very nice incentive for Customs and it 
might also be a source of some very badly needed resources to 
beef up the--I would suggest it is something we might want to 
look into.
    Chairman Crane. Well, that thought crossed my mind, and I 
was flying out the door when I was kidding George about putting 
it all inside Customs' revenues, including, possibly, special 
bonuses for those participants in the Customs Service who make 
the apprehensions.
    Mr. Ambrose. I am sure the Customs Service would enjoy that 
suggestion.
    Chairman Crane. Well, I will happily yield to you, Clay.
    Mr. Shaw. Thank you, Mr. Chairman.
    I would like to question you following up on the question I 
had with the Commissioner, and that is in your experience as 
the Executive Director of Waterfront in New York Harbor, I made 
reference to some of the screening that was going on up there 
and licensing. Could you tell me a little bit about how that 
works----
    Mr. Ambrose. Well, I haven't looked at that in a few years. 
It is a contact between the State of New York and New Jersey. 
It licenses companies, as such. They must meet certain 
standards of character, integrity, financial ability, and so 
forth. Then it licenses checkers.
    Checkers are the ones responsible for ascertaining the 
validity of the cargoes and registers longshoremen. Checkers 
who have felony convictions cannot be checkers; it is as simple 
as that. Longshoremen, if they can demonstrate the fact that 
they have cleaned up their act, in effect, can be registered as 
longshoremen. It has had remarkable success.
    As you know, I don't think New York has been used as a 
major entrance point for narcotics in 30 years, obviously. I 
mean, obviously, some comes through but it doesn't come through 
in any degree, and the waterfront is pretty well controlled.
    Now, the airports, at one point there was an attempt by the 
New York legislature to extend this to the airports but it went 
down the drain. I do not know what the current status is. I 
would suggest if you are having that kind of a problem, the 
people you mentioned before in that criminal record department 
could never work on the New York waterfront.
    Mr. Shaw. Yes, they shouldn't work in Florida, either.
    Mr. Ambrose. I don't doubt it.
    Mr. Shaw. Was this done by the legislature?
    Mr. Ambrose. It was passed by both legislatures and had to 
be approved by Congress.
    Mr. Shaw. We wouldn't have that problem in Florida, not by 
State contact.
    Mr. Ambrose. You could do it by legislative fiat.
    Mr. Shaw. I wonder if it could be done at the local level, 
by whomever runs the port?
    Mr. Ambrose. I guess it could. Virtually every aspect of 
this licensing program has been challenged and I think three 
cases went to the Supreme Court of the United States when I was 
Director, and I don't think there are any prohibitions left 
that you would have to worry about, given the type of situation 
that was there. I don't know who owns Port Everglades, for 
example.
    Mr. Shaw. Broward County does.
    Mr. Ambrose. Well, then I think Broward County could 
implement a system.
    Chairman Crane. Mr. Neal.
    Mr. Neal. Mr. Ambrose, I thought in your comments that you 
framed the dilemma pretty well, even in one instance when 
inadvertently you mentioned drug demand and spoke of the limits 
of government action. When we talk about interdiction, it seems 
to me we miss the aspect of demand here in the United States.
    What kind of incentives do you think we might provide to 
businesspeople to do a better job in assisting us?
    Mr. Ambrose. You mean to reduce demand?
    Mr. Neal. Well, certainly to reduce supply, but if you want 
to offer something on demand I would entertain that as well.
    Mr. Ambrose. It has always been a conundrum. You don't have 
users without the supply of narcotics; you don't have the 
expansion of the narcotic-using population without substantial 
narcotics. We have never, to my knowledge, come up with a 
panacea for restricting the demand of narcotics. It is mostly a 
family situation, it is mostly the way children are raised, and 
so forth.
    I do think, however, that business can be very much 
involved in the interdiction effort, which is what I have 
suggested, and we have lots of small programs that are 
starting.
    I am suggesting that the program that I put in here about a 
mandated program from the President of the United States right 
on down where certain standards under a memorandum has to be 
matched or have to be met so we can say to the Mexicans, you no 
longer can give us all this boloney about all the work you have 
been doing when we know damned well you are not, and we have 
known they have not for so many years now that we ought to stop 
it and stop listening to pious platitudes and do something.
    Mr. Neal. Do you think that ought to be a reasonable demand 
in free trade discussions?
    Mr. Ambrose. You are asking for a political question and I 
will give you a political answer, yes.
    Mr. Neal. Those of us who opposed NAFTA, part of the 
opposition that we offered is that somehow the Mexicans were 
not taking our argument very seriously. Mr. Rangel has done a 
great job over many years of that issue of drug interdiction 
and demand as well.
    Mr. Ambrose. I know he has been Chairman of the Committee, 
and Congressman Ben Gilman.
    First of all, I am not opposed to NAFTA. I think it was a 
good step forward, but be that as it may, I still think that 
the idea of them meeting objective standards to stop the flow 
of narcotics, to do something about stopping corruption within 
their own society and their own government, can be done and can 
be one of our demands--just as we are demanding with the 
Chinese on human rights.
    Our DEA would suggest that about 70 percent of illicit drug 
trafficking that occurs in America comes through Mexico. I 
talked to a former DEA official this morning and he thinks it 
is going to 90 percent. Mexico is now the prime source of 
heroin. Heroin is shooting up again as it did in the early 
sixties, and we have a lot to do that we are not doing.
    Chairman Crane. Thank you.
    Mr. Shaw. Mr. Chairman, could I ask one thing. This Mexico 
thing really fascinates me. I have seen in visiting other 
countries and discussing with several administrations, not just 
this administration, it is my opinion that one of the biggest 
problems we have in dealing with these countries that are 
supplying the narcotics that are used as transshipment areas 
into the United States is our own State Department. You go to 
these countries and everybody seems to be--wants to keep 
everybody else happy--and nobody is hitting on those hard 
issues that you are talking about, and that is that we want 
performance, we demand performance. And I think that it is time 
to take off the gloves and it sounds from your remarks that you 
are pretty much in agreement with me. There has to be 
performance standards that are met if you want normalized 
relations, particularly favored relations as we have NAFTA.
    I also supported NAFTA but I have begun to have second 
thoughts, but that is neither here nor there.
    Mr. Ambrose. I tend to agree. This is an awful conundrum.
    Let me say, when I was commissioner at Customs, they never 
threw out any red carpets to welcome me to the State 
Department.
    Chairman Crane. Thank you very much, Myles.
    I would now like to introduce our next panel of witnesses 
from the U.S. General Accounting Office, the first being Norm 
Rabkin, the Director of the GAO, and Linda Koontz, Associate 
Director of the Information Resources Management Division. In 
the interest of time, I would ask that you try and keep your 
oral testimony to 5 minutes, but we will include all printed 
matter in the statements into the record.

  STATEMENT OF NORMAN J. RABKIN, DIRECTOR, ADMINISTRATION OF 
   JUSTICE ISSUES, GENERAL GOVERNMENT DIVISION, U.S. GENERAL 
  ACCOUNTING OFFICE; ACCOMPANIED BY WALTER RAHEB, LOS ANGELES 
                             OFFICE

    Mr. Rabkin. Thank you, Mr. Chairman. With me on my right is 
Walter Raheb from our Los Angeles office who has assisted me in 
carrying out a lot of work we have done for this Subcommittee 
on the Customs Service.
    I am pleased to be here this afternoon to discuss work we 
have done for the Subcommittee addressing Customs' drug 
interdiction efforts, labor-management partnership concepts, 
and issues related to inspectional overtime. My testimony is 
based primarily on products we have issued on each of these 
subjects since 1991.
    Our September 1996 report on Customs' drug interdiction 
efforts identify and describe the key elements, resources, 
costs, and performance measures of Customs' national drug 
interdiction program. It also focused on the drug activities at 
the investigative offices and selectedports in the Miami and 
San Diego areas.
    Among other things, we pointed out that Customs had about 
11,000 inspectors, special agents, and other staff involved in 
its drug interdiction program, that its drug interdiction and 
investigations budget has averaged about $575 million a year 
since fiscal year 1990, that its Operation Hard Line was a 
special effort to address drug smuggling first along the 
Southwest border and then the whole southern tier of the 
country, and we pointed out that Customs relied on traditional 
measures such as the number of seizures and number of arrests 
to gauge the success of its program, and it was trying to 
develop some nontraditional measures to more appropriately 
reflect the success that it was having.
    Our report also discussed the challenges that Customs was 
facing in its drug interdiction mission. For example, we 
pointed out that Customs' major challenge was to carry out its 
drug interdiction and trade enforcement missions while 
facilitating the flow of persons and cargo across the border.
    In March 1997 testimony before this Subcommittee, we 
discussed labor-management issues within Customs, as you 
recall. In June 1994 Customs and the National Treasury 
Employees Union entered into a partnership agreement that 
established 19 goals, set up a National Partnership Council, 
and stated that the union will participate in agency meetings 
that affect the workforce.
    To assess how this concept was being implemented, we 
conducted work at headquarters, five Customs management 
centers, 11 ports of entry around the country, NTEU's national 
office, and seven local union chapters. Most of Customs' 
managers and union chapter presidents we interviewed 
characterized their relationship under the partnership concept 
as better, while first-line supervisors' views were more evenly 
distributed between much better and much worse.
    Customs managers and supervisors as well as union 
representatives provided similar comments about the advantages 
of the partnership concept, citing faster problem resolution, 
improved communications, and mutual involvement in decisions. 
However, comments on the disadvantages of the partnership 
concept revealed no clearly shared views. For example, managers 
and supervisors generally stated that they felt all issues must 
be bargained with the union before any action could be taken, 
and union officials generally indicated that managers wanted to 
choose when they included the union in decisions and when they 
did not.
    Customs didn't have any formal plans to evaluate the impact 
of this partnership concept on its mission, and we concluded 
that since partnership was about 3 years old at that time, it 
was appropriate for Customs to start plans to more formally 
evaluate it.
    On the subject of inspectional overtime, in 1991, we 
reported that overtime pay to Customs inspectors had increased 
from about $57 million in fiscal year 1985 to about $103 
million in fiscal year 1990, and we pointed out one cause of 
this growth was Customs' focus on ensuring that inspectors did 
not exceed the $25,000 pay cap that was instituted by Congress 
in 1983, and Customs' disregard of the individual overtime 
assignments that build to the cap. We pointed out that many 
Customs inspectors were receiving overtime payments for work 
they did not perform because of the way the system was 
designed.
    Customs' overtime system was based on conditions existing 
in 1911, when the Act was originally passed. Then, it was not 
typical for ports to operate outside their regular hours, 
especially on Sundays and holidays, and we recommended that 
legislation be amended so the overtime pay would more directly 
be linked to the actual hours worked.
    In 1993, the Customs Officers Pay Reform amendments was 
Congress' response to our recommendations. They were intended 
to more closely match earnings to hours worked. However, the 
Treasury Inspector General reported in September 1996 that 
although COPRA reduced direct spending associated with overtime 
pay, it caused a significant increase in the costs associated 
with night differential pay in fiscal years 1995 and 1996.
    Congress dealt with that problem by including restrictive 
language in Customs' appropriations for fiscal year 1997, and 
the administration has introduced similar language in the 
budget request for fiscal year 1998.
    Mr. Chairman, this completes my statement, and I will be 
happy to answer questions at your leisure.
    [The prepared statement follows:]

Statement of Norman J. Rabkin, Director, Administration of Justice 
Issues, General Government Division, U.S. General Accounting Office

    Mr. Chairman and Members of the Subcommittee:
    I am pleased to be here today at this Customs oversight 
hearing to discuss work we have done for this Subcommittee 
addressing Customs' drug interdiction efforts, labor-management 
partnership concept, and issues related to inspectional 
overtime. Our testimony is based primarily on products we have 
issued on each of these subjects since 1991.
    Created in 1789, the U.S. Customs Service is one of the 
federal government's oldest agencies. Although its original 
mission was to collect revenue, Customs' mission has expanded 
to include ensuring that all goods and persons entering and 
exiting the United States do so in accordance with all U.S. 
laws and regulations. Moreover, a major goal of Customs is to 
prevent the smuggling of drugs into the country by creating an 
effective drug interdiction, intelligence, and investigation 
capability that disrupts and dismantles smuggling 
organizations.
    As of January 1997, Customs performed its mission with a 
workforce of about 19,500 personnel at its headquarters, 20 
Customs Management Centers, 20 Special Agent-in-Charge (SAC) 
offices, and 301 ports of entry around the country. Customs 
collects revenues in excess of $23 billion annually while 
processing the estimated 14 million import entries and 450 
million people who enter the country each year.

                           Drug Interdiction

    In September 1996, we issued a report to this Subcommittee 
on the drug interdiction efforts of the Customs Service.\1\ As 
one of the more than 50 federal agencies involved in the War on 
Drugs, Customs is responsible for stopping the flow of illegal 
drugs across the nation's borders. In addition to routine 
inspections to search passengers, cargo, and conveyances for 
illegal drugs moving through U.S. ports, Customs' drug 
interdiction program includes investigations and other 
activities unique to specific ports.
---------------------------------------------------------------------------
    \1\ Customs Service: Drug Interdiction Efforts (GAO/GGD-96-189BR, 
Sept. 26, 1996). The data in this section were current as of September 
1996, unless otherwise indicated.
---------------------------------------------------------------------------
    Our report identified and described the key elements, 
resources, costs, and performance measures of Customs' national 
drug interdiction program, as well as those of its 
investigative offices and selected ports in the Miami and San 
Diego areas.
    Customs has two key organizational elements in its drug 
interdiction program. First, the Office of Field Operations has 
over 6,600 inspectors and 527 canine enforcement officers who 
perform inspections at the 301 air, land, and sea ports around 
the country. Inspectors use an array of technology in their 
search for drugs, such as an X-ray system for trucks and 
trailers, X-ray machines for containerized cargo, and fiber-
optic scopes to examine gas tanks and other enclosed spaces. 
Inspectors also target persons, cargo, and conveyances for 
examination using manifest reviews and databases such as the 
Treasury Enforcement Communications System, which contains 
information on suspected smugglers.
    Second, the Office of Investigations has about 2,500 
special agents, about half of whom are authorized to react to 
and investigate drug seizures at ports and develop cases that 
implicate drug smuggling operations. Investigations also is 
responsible for about 1,100 personnel in aviation, marine, and 
intelligence units, which support the drug interdiction 
mission. The aviation unit supports foreign interdiction 
operations, interdicts and apprehends air smugglers, and 
supports other Customs and federal, state, and local law 
enforcement efforts. Marine units interdict, investigate, and 
apprehend violators that smuggle drugs into the United States 
via commercial and pleasure vessels. To assist in performing 
these missions, the aviation and marine units have 78 vessels, 
77 airplanes, and 39 helicopters. The intelligence unit 
supports Customs' management and all field elements; this 
involves developing assessments of drug smuggling threats for 
various parts of the country. For example, threat assessments 
of the Southwest border led, in part, to the Customs 
Commissioner's support for creating a major national 
initiative, Operation Hard Line,\2\ for the Southwest border.
---------------------------------------------------------------------------
    \2\ First implemented on the Southwest border, Operation Hard Line 
emphasizes intensified inspections, improved facilities, and the use of 
technology to detect drug smuggling. It has been expanded beyond the 
Southwest border to the southern tier of the United States, including 
the Caribbean and Puerto Rico, with enhanced air and marine 
enforcement.
---------------------------------------------------------------------------
    Customs reported to the Office of National Drug Control 
Policy that its combined budget for drug interdiction and 
investigations averaged about $575 million for fiscal years 
1990 to 1996. In fiscal year 1995, its drug interdiction budget 
was about 38 percent and its drug investigations budget was 
about 3 percent of the federal drug control budget.
    Customs has traditionally measured the output from its drug 
interdiction effort by the resulting number of seizures, 
arrests, indictments, and convictions. For example, in fiscal 
year 1995, Customs reported about 2,200 cocaine seizures, about 
900 heroin seizures, and about 10,000 marijuana seizures--these 
seizures accounted for over 50 percent of all drugs seized by 
federal agencies. It also reported participating in the seizure 
of an additional 13 percent of the total drugs seized.
    These traditional measures, however, track activity, not 
outcome or effectiveness. Customs has sought to develop 
nontraditional measures for use in assessing the effectiveness 
of its drug strategy initiative. For example, Customs is 
testing a program designed to estimate the number of drug 
smugglers entering the ports, thus providing it with a baseline 
from which to measure how effective its inspectors have been at 
targeting drug smugglers at the ports. At the time of our 
report, the program was implemented at major air and land 
border ports.
    Our September 1996 report also described drug interdiction 
activities at major ports in the Miami and San Diego areas. It 
provided information on the ports, estimates of the resources 
Customs had invested in drug interdiction and investigation 
activities there, and traditional measures of its success. In 
addition, we described a special cargo entry program at the 
Otay Mesa, California cargo port. The program, called Line 
Release, was designed to expedite the release and tracking of 
low-risk, high-volume shipments. Under the Line Release 
program, Customs is to prescreen manufacturers, importers, 
brokers, and shippers in an attempt to ensure they are low risk 
for drug smuggling; Line Release participants are required to 
pass five intensive examinations and meet a minimum requirement 
of 50 shipments per year. Although the program has been 
criticized for allowing trucks to enter the United States from 
Mexico without inspection, our work showed that vehicles 
participating in the Line Release program were subject to the 
same special enforcement operations as non-Line Release 
vehicles, and were inspected more frequently through these 
operations than were non-Line Release vehicles.
    Finally, our report discussed the challenges Customs was 
facing in its drug interdiction mission. First, we pointed out 
that Customs' major challenge was to effectively carry out its 
drug interdiction and trade enforcement missions while 
facilitating the flow of persons and cargo across the borders. 
Customs has to perform these missions despite continuous and 
extensive threats from drug smugglers along the border.
    Second, because its financial information systems are not 
designed to account for costs by mission component, Customs has 
to estimate the amount it is spending for drug interdiction 
overall. This reduces Customs' ability to determine whether 
allocation of additional resources at specific ports or in a 
specific region has produced commensurate benefits. Customs 
officials told us that they were developing mission-and 
performance-based budgets, in accordance with Department of the 
Treasury directives, that would enable them to determine with 
greater reliability the costs of drug interdiction activities 
throughout Customs.
    Third, Customs--like other law enforcement agencies engaged 
in the fight against drug smuggling--has attempted to develop 
performance measures. Traditional output measures do not allow 
officials to gauge the effectiveness of drug interdiction 
activities. Even the new, nontraditional measures being 
developed may not allow Customs to assess, over time, whether 
increased efforts are producing better outcomes. 

                  Labor-Management Partnership Concept

    In March 1997, I testified before this Subcommittee on 
labor-management activities within Customs.\3\ The Subcommittee 
had asked us to review, among other topics, the history of 
union activity at Customs and the effect that the partnership 
agreement between Customs and the National Treasury Employees 
Union (NTEU), the exclusive representative of Customs' 
bargaining unit employees,\4\ had on Customs' ability to 
establish and achieve its mission-related goals. At the time of 
that hearing, we had performed preliminary work at Customs 
headquarters, 5 Customs Management Centers, 11 ports of entry 
around the country, the NTEU national office, and 7 local NTEU 
chapters.\5\
---------------------------------------------------------------------------
    \3\ U.S. Customs Service: Varied Reaction to the Labor-Management 
Partnership Concept (GAO/T-GGD-97-54, Mar. 11, 1997).
    \4\ As of January 1997, approximately 11,200 of the 19,500 Customs 
personnel were eligible to join NTEU, and about 7,200 had done so.
    \5\ Because the testimony satisfied the Subcommittee's interests at 
that time, we have not conducted further work on this issue.
---------------------------------------------------------------------------
    Executive Order 12871, October 1, 1993, required the head 
of each federal agency to create labor-management councils to 
help involve employees and their unions as full partners. These 
partnership councils are to identify problems and craft 
solutions to better serve the agency's customers and accomplish 
its mission. In June 1994, the Customs Service and NTEU entered 
into a partnership agreement that established 19 goals, set up 
a National Partnership Council, and stated that NTEU will 
participate in agency operational meetings that affect the 
workforce. In February 1997, Customs and NTEU implemented a new 
national contract.
    Our limited work revealed a variety of opinions regarding 
Customs-NTEU relations since the implementation of the 
executive order. Most of the Customs managers we interviewed 
characterized their relationship with NTEU chapters as better. 
Most of the NTEU chapter presidents we spoke with also said the 
relationship was better. The views of the Customs first-line 
supervisors we interviewed were more evenly distributed from 
``much better'' to ``much worse.''
    Customs managers and supervisors and NTEU representatives 
provided similar comments about the advantages of the 
partnership concept, citing faster problem resolution, improved 
communications, and mutual involvement in decisions. However, 
comments on disadvantages revealed no clearly shared views. For 
example, managers and supervisors generally stated that all 
issues must be bargained with the union before any action can 
be taken, while NTEU officials generally indicated that 
managers want to choose when they include NTEU in making 
decisions and when they do not.
    Customs' partnership agreement with NTEU and Executive 
Order 12871 call for evaluating the progress of and 
improvements in the agency's performance resulting from the 
partnership concept. To a limited extent, Customs had begun 
that effort. However, at the time of our testimony, these 
efforts had not set the groundwork for the kind of 
comprehensive evaluation envisioned by the Executive Order and 
partnership agreement. In our work at Customs' headquarters and 
several field locations, we did not see any plans for an 
evaluation of the impact of the partnership approach on 
Customs' mission.
    We pointed out in our testimony that cultural changes such 
as those promised by the partnership concept do not occur 
quickly. The Commissioner of Customs told us that he expected 
it to take at least 5 years for the new relationship to become 
Customs' normal operating environment. Nevertheless, given that 
Customs and NTEU had been in this new relationship for almost 3 
years, we concluded that it was not too soon for Customs to 
develop a formal plan for the evaluation of progress and 
improvements in organizational performance resulting from this 
labor-management partnership.

Overtime Issues

    In the Act of February 13, 1911, Congress enacted overtime 
pay provisions for Customs inspectors. Sunday work was to be 
compensated at the rate of 2 days' regular pay; on holidays, 
the rate was to be the total of 2 days' pay plus the hourly 
rate for the period of time worked on the holiday. No minimum 
period of work was required to qualify for the premium--
overtime--pay. Thus, inspectors could have worked as little as 
1 minute and received 2 days' pay for Sunday work. For overtime 
work at other times during a week, the minimum compensation was 
4 to 12 hours' pay, depending on whether the inspector worked 
late, came in early, or was called back to work. In 1983, 
Congress set a cap of $25,000 on the amount of individual 
overtime earnings. With the enactment of the Consolidated 
Omnibus Budget Reconciliation Act of 1985, Customs began 
charging user fees for processing passengers and cargo; the 
revenue from these fees paid for Customs' overtime and premium 
pay.
    In 1991,\6\ we reported to this Subcommittee that overtime 
pay to Customs inspectors had increased from about $57 million 
in fiscal year 1985 to about $103 million in fiscal year 1990. 
We concluded that an important contributing cause of this 
growth was Customs' focus on ensuring that inspectors did not 
exceed the $25,000 cap and its disregard of the individual 
overtime assignments that build to the cap. We found internal 
control weaknesses that resulted in errors in preparing 
overtime documentation, certifying payments, and entering data 
in the overtime system. We also concluded that the 1911 Act 
provisions hindered the efficient management of overtime and 
that the special payments were premised on conditions that no 
longer existed. Although we believed that inspectors should be 
paid extra for working overtime, we recommended that (1) the 
1911 Act be amended so that inspector overtime pay would be 
more directly linked to actual hours worked and (2) Customs 
management focus on achieving a more efficient use of overtime.
---------------------------------------------------------------------------
    \6\ Customs Service: 1911 Act Governing Overtime Is Outdated (GAO/
GGD-91-96, June 14, 1991).
---------------------------------------------------------------------------
    Based in part on our findings, the Customs Officers Pay 
Reform Amendments (COPRA), Section 13811 of the Omnibus Budget 
Reconciliation Act of 1993, established the overtime and 
premium pay system for Customs officers performing inspectional 
services. The intent behind changing the 1911 Act was to more 
closely match earnings to hours worked, thereby reducing 
overtime costs. It was expected that the changes made by COPRA 
would result in overtime savings of $12 million in both fiscal 
years 1994 and 1995, and a total of $52 million for the 5-year 
period ending with fiscal year 1998.\7\ However, in September 
1996 the Treasury Inspector General (IG) reported that although 
COPRA reduced direct spending associated with Customs officers' 
overtime pay, it caused a significant increase in the costs 
associated with night differential pay.\8\ The IG reported a 
net increase in overtime pay of $8.9 million in fiscal year 
1995.\9\
---------------------------------------------------------------------------
    \7\ See House Report 103-111, May 25, 1993.
    \8\ Night differential pay depends on the regularly scheduled hours 
of the Customs officer. If the majority of the officer's hours are 
between 3 p.m. and midnight, compensation equals the basic hourly rate 
plus premium pay of 15 percent of the hourly rate. If the majority of 
the hours are between 11 p.m. and 8 a.m., compensation equals the basic 
hourly rate plus premium pay of 20 percent of the hourly rate.
    \9\ Customs Officer Pay Reform Amendments (COPRA), Office of 
Inspector General, Department of the Treasury, OIG-96-094 (Sept. 13, 
1996). Customs reported that this amount increased to $9.5 million in 
fiscal year 1996.
---------------------------------------------------------------------------
    Further, the IG pointed out that future night differential 
pay to Custom officers will be even higher. On December 9, 
1995, an arbitrator ruled favorably on a grievance filed by 
NTEU that protested Customs' refusal to pay night differential 
to Customs officers who were on sick or annual leave for 8 
hours or longer. The ruling required Customs to pay employees 
who would ordinarily receive COPRA night differential when at 
work but who did not receive it when on leave since January 1, 
1994. Customs estimated that it paid over $1 million in premium 
pay for work not performed as a result of that ruling. Customs' 
appropriation act for fiscal year 1997 prohibits this practice 
for that fiscal year, but this prohibition expires at the end 
of fiscal year 1997.
    The IG report also pointed out that the pay cap has caused 
additional increases in administrative costs for Customs. 
Annually, inspectors (and canine enforcement officers) file 
grievances because they are not allowed to work overtime 
assignments if they are close to the $25,000 cap. According to 
a Customs official, most port management stop those Customs 
officers who are approaching the cap (usually those who had 
earned about $24,500) from working any more overtime. This work 
was performed by other Customs officers who were not at the 
cap. The IG reported that in fiscal year 1994 over $100,000 in 
settlements were paid as a result of these overtime cap 
grievances.
    Mr. Chairman, this completes my statement. I would be 
pleased to answer any questions.
      

                                

    Chairman Crane. Thank you.
    Ms. Koontz.

 STATEMENT OF LINDA D. KOONTZ, ASSOCIATE DIRECTOR, INFORMATION 
RESOURCES, MANAGEMENT/GENERAL GOVERNMENT ISSUES, ACCOUNTING AND 
   INFORMATION MANAGEMENT DIVISION, U.S. GENERAL ACCOUNTING 
   OFFICE;  ACCOMPANIED  BY  MARK  BYRD, SENIOR INFORMATION  
                        SYSTEMS  ANALYST

    Ms. Koontz. Good afternoon. With me today is Mark Byrd. He 
is a senior information systems analyst and he was involved 
with our ongoing Customs work. I am pleased to be here today to 
discuss the U.S. Customs Service modernization. My remarks will 
focus on the progress that Customs has made in addressing the 
recommendations we made in our May 1996 report to this 
Subcommittee and the challenges that Customs faces as it plans 
and develops an Automated Commercial Environment, ACE, the 
automated system designed to support Customs' newly redesigned 
trade process and provide the capabilities the Congress called 
for in establishing the National Customs Automation Program, 
NCAP.
    In our report last year we stated that Customs was ill-
prepared to develop ACE because the agency was not effectively 
applying critical management practices that help organizations 
mitigate the risks associated with modernizing automated 
systems.
    Consequently, we believed that efforts to develop ACE were 
vulnerable to failure. Our report noted that clear 
accountability and responsibility for meeting the requirements 
was lacking and as such recommended that Customs assign such 
responsibility.
    In response, Customs moved quickly to assign responsibility 
for NCAP implementation to the Trade Compliance Board of 
Directors. Our remaining three recommendations required that 
Customs take substantive action to develop and implement 
improved information technology practices over a long term.
    While Customs has initiated a variety of actions and made 
progress toward each situation, it is too early to determine 
whether Customs will successfully implement each 
recommendation. First, we recommended that Customs identify and 
analyze how it will conduct business in the future before 
selecting an architecture.
    An architecture is a blueprint or framework for guiding 
development and evolution of all Customs automated information 
systems, including ACE, and is a critical component of any 
modernization effort. In response to this recommendation, 
Customs has hired a contractor to conduct analyses of business 
requirements and recommend a process for selecting an 
architecture by June 1997.
    Second, we recommended that Customs institute an investment 
review process to involve senior management in applying a 
disciplined process for selecting, controlling and evaluating 
major information systems projects. In February 1996, even 
before our report was issued, Customs designated an investment 
review board with the Deputy Commissioner as Chair. The board 
meets monthly and thus far has discussed issues relating to its 
scope and operation. However, Customs has not yet established 
policies and procedures or implemented an investment review 
process. Customs has also hired a contractor to assist them and 
expects this process to be in place by July 1997.
    Finally, we recommended that Customs ensure that the ACE 
project comply with its own systems development policies that 
require extensive project planning and top level management 
reviews.
    As of early May 1997, Customs had revised the ACE project 
plan and believes that the revisions now bring the plan into 
compliance. The management practices I have described, if 
successfully implemented will help reduce the risk inherent in 
a major information system project such as ACE. However, 
Customs also faces a number of challenges in planning and 
implementing the ACE project itself.
    For example, Customs cannot say how much ACE will cost. 
While Customs estimates ACE will cost $150 million to develop 
in a 10-year period, the agency does not have an estimate for 
the total cost of ACE that includes operation and maintenance 
costs. In addition, this development estimate is not based on 
the projected size of the system or level of effort expected 
for development. Instead, it is based on the level of funding 
Customs has historically received for ACE.
    Customs has not determined when ACE will be completed. The 
agency lacks an overall schedule for the project. It does have 
a schedule for the first phase of ACE, which is the NCAP 
prototype which will have certain functions required by NCAP, 
but has had difficulty adhering to its schedule. The 
implementation of the prototype has slipped from January to 
August 1997, and again to a series of four releases beginning 
in October 1997, with the fourth stage starting in June 1998.
    We have discussed these issues with Customs and they are 
receptive to the need to better identify the ACE cost schedule 
and goals, and they plan to produce a comprehensive plan by 
February 1998. Customs faces some very significant challenges 
as they move forward. To ensure their efforts are successful, 
they will need to sustain their commitment and attention 
through the more difficult phases of the modernization that are 
yet to come.
    In addition, we plan to continue monitoring their efforts 
and to look at such basic questions about ACE as cost, schedule 
and performance. That concludes my statement and I would be 
happy to answer any questions you may have.
    [The prepared statement follows:]

Statement of Linda D. Koontz, Associate Director, Information 
Resources, Management/General Government Issues, Accounting and 
Information Management Division, U.S. General Accounting Office

    I am pleased to be here today to discuss issues related to 
the U. S. Customs Service systems modernization. My remarks 
will focus primarily on Customs' efforts to address risks 
associated with the agency's modernization of its automated 
systems. We made recommendations to help Customs address these 
risks in our May 1996 report \1\ to this Subcommittee. I will 
also identify challenges Customs faces as it plans and develops 
the Automated Commercial Environment or ACE--which is critical 
because this system is planned to support improvements to 
Customs' trade compliance (import) process through greater use 
of information technology.
---------------------------------------------------------------------------
    \1\ Customs Service Modernization: Strategic Information Management 
Must Be Improved for National Automation Program To Succeed (GAO/AIMD-
96-57, May 9, 1996).
---------------------------------------------------------------------------

                   Trade Compliance Process Redesign

    One of Customs' primary responsibilities is to assess and 
collect duties, taxes, and fees on imported merchandise. Today, 
this is accomplished with a variety of processes for handling, 
inspecting, and accounting for imports that have grown paper 
intensive, inefficient, and ineffective. Customs is acutely 
aware that its ability to process the growing volume of imports 
while improving compliance with trade laws depends heavily on 
successfully modernizing its trade compliance process and its 
supporting automated systems. In recognizing this need to 
modernize, Customs undertook a major initiative to redesign the 
trade compliance process. Also, the Congress enacted 
legislation in 1993 that enabled Customs to streamline trade 
compliance processing through automation by establishing the 
National Customs Automation Program (NCAP). The legislation 
eliminated certain mandated paper requirements and specified 
critical functions that NCAP must provide, including the 
ability for members of the trade community to electronically 
file import entries at remote locations and for Customs to 
electronically process ``drawback'' claims, which are refunds 
of duties and taxes paid on imported goods that are 
subsequently exported or destroyed.
    In 1994, Customs began the ACE project that is planned to 
replace the Automated Commercial System--Customs' existing 
automated import system--with an integrated, automated 
information system for collecting, disseminating, and analyzing 
import data and ensuring the proper collection and allocation 
of revenue. The NCAP prototype, intended as the first 
operational demonstration of ACE, is planned to implement 
selected features of the NCAP legislation beginning in October 
1997. Customs is also undergoing a separate but related 
project, called Customs Distributed Computing 2000 (CDC-2000), 
to select an information systems ``architecture.'' This 
architecture is essentially a blueprint or framework for 
guiding the development and evolution of all Customs' automated 
information systems, including ACE and, as I will highlight in 
my testimony today, is a key component in successfully 
developing automated systems.

                    Follow-Up On GAO Recommendations

    The framework for GAO's 1996 review of Customs' automation 
was research we previously conducted across a variety of public 
and private sector organizations to identify ``best practices'' 
that help these organizations consistently apply information 
technology to improve mission performance. The Paperwork 
Reduction Act and the Clinger-Cohen Act, which establish 
responsibilities for effective information technology 
management, embrace these practices. These important 
legislative requirements include implementation of an 
information technology architecture, establishment of a 
disciplined process to evaluate information technology 
investments, and measurement of how well information technology 
supports agency programs.
    In our May 1996 report to this Subcommittee, we stated that 
Customs was ill-prepared to develop ACE because the agency was 
not effectively applying critical management practices that 
help organizations mitigate the risks associated with 
modernizing automated systems and better position themselves to 
achieve success. Specifically, we found that Customs (1) lacked 
clear accountability for ensuring successful implementation of 
NCAP requirements, (2) selected an information systems 
architecture without first analyzing its business requirements, 
(3) lacked policies and procedures to manage ACE and other 
systems as investments, and (4) did not ensure that systems 
under development adhere to Customs' own systems development 
policies. Consequently, efforts to successfully develop ACE 
were vulnerable to failure. The following is a brief summary of 
our May 1996 recommendations, each of which Customs agreed 
with, and the actions the agency has taken in response.
    Assigning clear accountability and responsibility for 
information management decisions and results is an important 
practice identified by successful organizations. Because we 
found that clear accountability for meeting NCAP requirements 
was lacking, we recommended that Customs assign such 
responsibility. In response, Customs acted quickly by assigning 
overall, policy-level responsibility for implementing NCAP to 
the Trade Compliance Board of Directors, which is headed by the 
Assistant Commissioner, Office of Strategic Trade. Day-to-day 
responsibility for implementing NCAP is assigned to the 
Assistant Commissioner, Office of Information and Technology, 
who is also the Chief Information Officer.
    The remaining three recommendations each required that 
Customs take substantive action to develop and implement 
improved information technology management practices over a 
long term. Because these recommendations call for significant 
changes in long-standing management practices, they will 
require sustained commitment and focus on the part of Customs' 
leadership. While Customs has initiated a variety of actions 
and made progress toward addressing each situation, it is too 
early to determine whether Customs will successfully implement 
each recommendation.
    First, we recommended that Customs identify and analyze how 
it will conduct its business in the future before selecting the 
information systems architecture for the whole of Customs and 
on which ACE will run. Failure to base selection of the 
architecture on such business requirements could result in the 
development of systems that do not function well or cannot be 
readily integrated with other systems. In response, in October 
1996 Customs reconsidered its approach to selecting the 
architecture. Customs changed the CDC-2000 project--which had 
entailed acquiring hardware, software, and telecommunications 
for ACE--to emphasize conducting analyses of business 
requirements prior to selecting an architecture. As part of the 
refocused CDC-2000 project, Customs hired a contractor in 
January 1997 that is expected to conduct these analyses and 
recommend a process for selecting an architecture in June 1997. 
As of early May 1997, Customs officials stated that the 
contractor is on schedule to complete its work in mid-June 
1997.
    Second, we recommended that Customs manage information 
technology systems as investments. Doing so involves senior 
management applying a disciplined process for selecting, 
controlling, and evaluating major information technology 
projects. As a result, the Customs investment review board 
(IRB) was designated in February 1996. The Deputy Commissioner 
is chair of the IRB. Other high-level Customs officials and 
representatives from other Customs offices and the Department 
of the Treasury constitute the membership. The IRB meets 
monthly and has primarily discussed issues related to the 
purpose, organization, operation, and scope of the board. 
Customs has not yet established policies and procedures or 
implemented an investment review process that the IRB will 
implement. In November 1996, Customs hired a contractor to 
develop a plan to help bring the agency into compliance with 
the Clinger-Cohen Act. In April 1997, Customs specifically 
tasked the contractor to assist with the development, 
implementation, and institutionalization of a complete 
information technology investment management process. As of 
early May 1997, Customs officials told us that the contractor's 
work will be complete and the investment process will be in 
place in July 1997.
    Third, we recommended that Customs ensure that the agency 
adhere to its own policies for developing information systems. 
Customs has such policies to provide a standard approach to 
developing systems and to help ensure the delivery of accurate, 
effective, and efficient information systems. In October 1996, 
Customs updated these policies to include new provisions on 
software project planning and project management. The policy 
specifies that extensive project planning, including estimating 
the size of software products and estimating resource needs, 
should occur in initiating a project of the magnitude of ACE. 
Also, the policy requires that project plans include top-level 
management reviews and decisions at various stages and between 
various phases of development. Such reviews are important 
because they provide higher management with a basis for 
deciding whether the expenditure of resources for the next 
phase is justified.
    As of early May 1997, Customs had revised the ACE project 
plan and Customs officials told us that the revised project 
plan complies with their system development policies. Also, in 
January 1997, the Assistant Commissioner, Office of Information 
and Technology, assigned responsibility for system development 
policy enforcement to his information resources management 
division. This division established a schedule for compliance 
reviews, with ACE scheduled for review in October 1997. These 
reviews are intended to promote compliance with the software 
development process and provide management visibility into the 
development process.

                   Ace Project Poses Many Challenges

    The management practices described above, if successfully 
implemented by Customs, will help reduce the risk inherent in a 
major information system project such as ACE. However, Customs 
also faces a number of challenges in planning and implementing 
the ACE project itself that will require additional effort to 
resolve. These challenges relate to the cost and schedule for 
ACE and include, for example:
     Customs cannot say how much ACE will cost. While 
Customs estimates ACE will cost $150 million to develop over a 
10-year period, the agency does not have an estimate for the 
total cost of ACE that includes system operation and 
maintenance. Customs did not base this estimate for development 
on the projected size of the system or level of effort expected 
for development. Instead, it is based on the level of funding 
Customs has historically obtained for ACE.
     Customs has not determined when ACE will be 
completed. Assessing Customs' progress in developing ACE is 
difficult because the agency lacks an overall schedule for the 
project. Customs does, however, have a schedule for the first 
phase of ACE--the NCAP prototype--although the agency has had 
difficulty adhering to this schedule. Specifically, 
implementation of the NCAP prototype has slipped from January 
1997 to August 1997 and again to a series of four releases 
beginning in October 1997 with the fourth stage starting in 
June 1998.
    We have discussed these issues with Customs' Assistant 
Commissioner, Office of Information and Technology, and the 
Assistant Commissioner, Office of Strategic Trade, and they are 
receptive to the need to better identify the ACE cost and 
schedule. Currently, Customs' plan is to produce a 
comprehensive project plan that includes cost and schedule 
information in February 1998.
    In conclusion, Customs faces some very significant 
challenges as it develops ACE and attempts to address broader 
information technology management issues. To ensure that the 
initial steps succeed in implementing effective information 
technology management, Customs will have to sustain its 
commitment and attention through the more difficult phases of 
the modernization effort which are yet to come. We plan to 
continue monitoring implementation of our May 1996 
recommendations as well as the additional issues I have 
highlighted today. In this regard, we will review the revised 
ACE project plan and the results of the contractors that are 
helping Customs determine its information system architecture 
and establish an investment review process. Additionally, we 
have an ongoing review that is designed to help Customs answer 
basic questions about ACE with regard to cost, schedule, and 
performance.
    Mr. Chairman, this concludes my statement. I would be 
pleased to address any questions you or the other members may 
have.
      

                                

    Chairman Crane. Thank you very much. For both of you, 
pursuant to your recommendations in your reports, Customs 
intends to undertake an evaluation of the progress of the 
partnership agreement between Customs and NTEU. Could you 
comment on the difficulties your team identified with their 
ability to track the cost and amount of official time and the 
number of grievances.
    Mr. Rabkin. Mr. Chairman, up until 1992, Customs didn't 
really have an item that recorded those records, and since then 
when we went around and asked what the official time was being 
charged to the union activities, we got some information from 
Customs, but not what we considered to be very reliable. They 
have put out instructions and guidance to the staff to help 
them more accurately record that. And we reported to you in 
March some of these figures. For example, our data show, or 
Customs' data shows in fiscal year 1995, over 62,000 hours of 
Customs' employees' time was charged to union activity, and 
that was the high point of the 5 years that we looked at.
    But we don't put a lot of confidence in those numbers. For 
example, we were out at the ports and found what time will be 
charged to various ports and Calexico in California had no time 
at all claimed until 1996 and yet we know they had spent time 
on union activities.
    So that is the kind of problems with the data that leads us 
to hesitate to say anything about how much time has been 
charged because we don't know and we don't think that Customs 
knows either.
    Chairman Crane. Do you have any input, Ms. Koontz?
    Ms. Koontz. No, sir.
    Chairman Crane. You mentioned measurements of 
effectiveness. What is Customs doing to help measure how well 
they are doing?
    Mr. Rabkin. Well, their traditional measures deal with 
arrests and seizures, and as Mr. Weise talked about earlier 
today, they record how much they have seized. The real question 
is how much are they missing and that will give them an idea of 
the effectiveness of their efforts, and it is almost impossible 
to determine that.
    We have looked at and are in the process, when we were 
doing our work of establishing other measures of performance or 
nontraditional measures to give them an idea of how well they 
were doing in activities. They had a problem with port runners, 
people who would pull up to the gate and then zoom right 
through the gate and take off into California.
    Customs was measuring how well they were solving that 
problem. They took some steps, they put in K-rails to prevent 
cars from going straight through and the problem significantly 
decreased, and that is one way to measure the effectiveness of 
specific efforts.
    On a broader scale, Customs is one player in a broad 
Federal effort in solving this problem with drugs and, to a 
certain extent, their efforts have to be taken into 
consideration with all the other agencies that are involved in 
reducing the supply of drugs. The Office of National Drug 
Control Policy, ONDCP, is working with these agencies to come 
up with sets of measures that will more appropriately deal with 
the outcomes of their efforts rather than just a level of 
activity. So I think it remains to be seen what kind of 
measures they will develop.
    Chairman Crane. Do you have any idea, and this goes back to 
the question I forgot to ask George, what the dollar amounts 
are of money confiscated, not just from small planes, but from 
people trying to cross the border with suitcases of contraband 
money?
    Mr. Rabkin. I don't have any information about the amounts 
of the money, no.
    Chairman Crane. I had heard of a single case, and this was 
up in a port in New Jersey, of one man that had a quarter of a 
million bucks in his suitcase. But I was thinking there might 
be a way to help reimburse Customs for their performance in 
this area.
    Mr. Rabkin. Well, I think you were right in some of your 
earlier comments, that the funds that were confiscated go in an 
asset forfeiture fund that is shared with State and local law 
enforcement agencies and there is distribution made of that 
every year.
    Chairman Crane. In absence of legislative action, Customs 
will again need to pay hundreds of thousands of dollars in 
premium pay to inspectors on vacation or on sick leave. Does 
this practice make sense to you?
    Mr. Rabkin. In our 1991 report, we took the position that 
Customs' inspectors should get paid for work they actually do, 
and that seems to make sense. And if they are not working, if 
they are working overtime or if they are working on premium or 
night deferential or working on Sundays, holidays, they should 
get paid for the extra inconvenience that that causes. But if 
they are not working, if they are on leave, it seems to me that 
it makes more sense to have them paid at their regular rate.
    Chairman Crane. I quite agree.
    Mr. Neal.
    Mr. Neal. I have no questions, Mr. Chairman.
    Chairman Crane. Then I thank you both for your testimony 
and appreciate your spending the time with us today.
    Mr. Rabkin. Thank you, Mr. Chairman.
    Chairman Crane. And I next would like to recognize Sandy 
Merber with the Counsel for International Trade Relations and 
Sourcing for the IFAC, and John Partilla, vice president for 
logistics for Olympus America on behalf of the American 
Association of Exporters and Importers.
    And, again, if you could try and confine your oral 
presentations to approximately 5 minutes, your printed 
statements will be a matter, part of the permanent record. 
Proceed when ready, Mr. Merber.

 STATEMENT OF SELIG S. MERBER, COUNSEL FOR INTERNATIONAL TRADE 
    REGULATIONS AND SOURCING, INDUSTRY FUNCTIONAL ADVISORY 
                          COMMITTEE I

    Mr. Merber. Thank you, Mr. Chairman, Members of the 
Subcommittee, I would like to thank you for the opportunity to 
present views on behalf of the Customs IFAC on this important 
topic. I think it is a particularly important time for us to be 
discussing Customs oversight, given the circumstance previously 
mentioned, Commissioner Weise's retirement after 4 years of 
very distinguished service, Commissioner Weise's retirement 
comes also at a time when implementation of the Customs 
Modernization Act is in progress, and I think therefore puts us 
at a very important crossroads for the Customs Service.
    In preparing for this testimony, members of the IFAC, which 
is the industry's functional advisory committee on Customs 
matters, raised a number of specific issues that they would 
like the Committee to be aware of, notably, and I think this 
has been mentioned, the amount of time that it takes for the 
Office of Regulations and Rulings to give decisions on ruling 
requests which are very important to importers, and also the 
implementation of the Automated Export System, particularly 
that a cost-benefit analysis be made before changes are made; 
that the new system be practical for all modes of 
transportation, ocean, air and land, and finally that it 
accommodate the interests of large businesses and small 
businesses alike.
    But rather than focus on specific issues related to the 
implementation of the Customs Modernization Act, in light of, 
as I said, my belief that this is an important crossroads, I 
wanted to focus on three themes: The importance of the Customs 
Service and the work it does as an export promotion agency, 
because Customs isn't often thought of as an export promotion 
agency; the fact that the goals of trade facilitation and law 
enforcement are complementary goals rather than competing 
goals; and finally, the importance of the Office of 
International Affairs to U.S. companies.
    These three themes are tied together by a common thread, 
which is its thread of the important cultural changes going on 
in Customs as an organization. On the first point, Customs as 
an export promotion agency. As I said, I don't think it is 
often thought of as an export promotion agency, but in a very 
real and important sense it is. The ability of U.S. firms to 
compete in a world market depends on their ability to lower 
costs and have access to world class suppliers.
    That, in turn, depends on having a Customs Service that is 
able to process cargo in keeping with the demands of modern 
manufacturing techniques such as just in time inventories and 
other cost-reducing methods. In providing a Customs Service 
that gives good service, that gives fast turnaround, the U.S. 
Customs Service, I think, provides a competitive advantage for 
American firms.
    U.S. companies, for example, have manufacturing facilities 
overseas. They face many problems with local Customs 
administrations. They are forced to carry larger inventories, 
to have safety stocks. This raises the costs of production, and 
makes those locations less attractive. In the U.S. we have a 
good situation. We are talking about issues at the margins, but 
when we look at the performance of the U.S. Customs Service 
with respect to others in the world, I think we see a high 
level of performance.
    Second, the question of trade facilitation as a complement 
to rather than a competitor with enforcement activities. And, 
again, this is a question that I think involves culture, 
because it is something that comes about because of a change in 
culture in the Customs Service that is going on.
    Trade facilitation happens when you can differentiate 
between cargoes that are troublesome and cargoes that are not 
troublesome, and at the same time that process enables 
enforcement efforts to focus where they ought to be, to 
eliminate the need to use too many resources for cargo 
inspection, for cargoes that are not troublesome, and therefore 
free up resources for enforcement and other related activities.
    Finally, and perhaps importantly, because I don't think 
this is addressed elsewhere, I would like to say a few words 
about the Office of International Affairs. There has been a 
tremendous amount of trade liberalization in the recent past 
and over the history of the General Agreement on Tariffs and 
Trade, GATT. Trade liberalization, however, is more than just 
nominal tariff reduction. Trade liberalization also depends on 
the ability to get goods across the border in a timely way.
    A low tariff doesn't do you any good if you can't move the 
goods. So by using a relatively small resource within the 
Customs Service to project the norms that our Customs Service 
develops across the world where American firms are looking to 
export, is I think a tremendous synergy and creates tremendous 
leverage for the money spent on the Office of International 
Affairs, and I think that we ought to give attention to 
supporting that office at a higher level. Thank you.
    [The prepared statement follows:]

Statement of Selig S. Merber, Counsel for International Trade 
Regulations and Sourcing, Industry Functional Advisory Committee I

    Mr. Chairman, members of the committee, I would like to 
express my appreciation for this opportunity to provide the 
perspective of IFAC I on current issues affecting the 
performance of the United States Customs Service. IFAC I--the 
Industry Functional Advisory Committee for Customs Matters--
consists of 27 members, each with experience in international 
customs issues and representing backgrounds in virtually every 
sector of the economy.
    This hearing is being held as a part of the important 
responsibility of the Subcommittee on Trade to provide 
oversight of the U.S. Customs Service. The primary focus of 
IFAC I is to provide advice on that part of Customs mission 
that relates to commercial trade, and I will direct my 
observations this morning primarily toward the need to maintain 
Customs' current emphasis on obtaining greater and greater 
levels of trade compliance through a program that emphasizes 
cooperation and trade facilitation. At the same time, it is 
neither prudent nor practical to view Customs' commercial 
operations wholly in isolation from the critical role Customs 
plays in protecting our borders from the attack of drugs and 
other contraband, and the important role Customs plays in 
protecting our national security by enforcing safeguards 
against the proliferation of weapons of mass destruction.
    Mr. Chairman, as you know, George Weise recently announced 
his retirement after four years as Commissioner of Customs. 
Commissioner Weise's retirement comes at a time when the 
Customs Service is undergoing many important changes, 
engendered both by passage of the Customs Modernization Act and 
by its internal realization that a change in attitude from 
confrontation to cooperation would best serve its twin missions 
of trade compliance and law enforcement. At this critical 
juncture the most important question facing the Customs Service 
and this Committee in its oversight role is whether Customs 
will continue its momentum toward enhanced compliance through 
``informed compliance.'' For this reason, my testimony will 
focus on the broad issues surrounding Customs' new philosophy 
rather than on the details of Customs' implementation of the 
Customs Modernization Act.
    Given these considerations, I would like this morning to 
develop three principal themes. First, to emphasize the role 
that Customs plays in export promotion. The work of the Customs 
Service must be viewed in a broader perspective than as a 
domestic gatekeeper, enforcing laws and regulations relating 
only to revenue collection, protection of domestic industries 
and safeguarding domestic health and safety. There is no doubt 
that these are important functions, but we must also recognize 
the key role Customs plays in enhancing the competitiveness of 
the United States in attracting manufacturing jobs and in 
enhancing export growth. Second, and this is vital, it is 
important to understand that the goals of trade facilitation 
and enforcement are complementary, not competing. Third, 
Customs' role in the formulation and implementation of 
international trade policy, through its Office of International 
Affairs, is a critical function that deserves increased levels 
of support. Through the Office of International Affairs, 
Customs projects worldwide the important lessons it has learned 
domestically, thereby significantly enhancing the trade climate 
for U.S. exporters.

             Trade Facilitation as a Competitive Advantage

    Customs is not often thought of as an export promotion 
agency, but in fact it is just that in a very real and 
important sense. Trade facilitation is important not only to 
consumers of imported goods, but also to domestic manufacturers 
who need access to imported inputs to compete in the world 
economy. There is no doubt that an efficient, effective, 
customs service, with a culture of trade compliance through 
facilitation, provides a competitive advantage for its country 
in attracting and maintaining manufacturing facilities and 
manufacturing jobs.
    Any world-class manufacturing facility must have access to 
worldwide sources of raw materials and components. Certainly, 
many inputs will be available locally in quantities and quality 
that support world-class manufacturing. However, even in a 
developed market such as the United States, a complex 
manufacturing operation will be competitive globally only if it 
has access to worldwide competition to provide the highest 
quality and lowest cost inputs. Consequently, access to 
imported raw materials and components is an important 
consideration in plant siting, and customs administration is 
critically important to this process by determining the amount 
of time imports will be delayed in customs clearance, and by 
determining the predictability of the duty cost of imported 
inputs.
    The productivity and profitability of a manufacturing plant 
depends in large part on cycle time--that is, its ability to 
process inputs into outputs as quickly as possible. Decreased 
cycle time leads to lower inventories, with correspondingly 
lower inventory costs and need for working capital, and 
increased customer responsiveness. In order to support world-
class manufacturing, customs clearance time must be measured 
not in weeks, or even days, but in hours. Predictability is as 
important as speed. Input flows need to be planned carefully, 
and reliability of delivery is key. Delayed delivery of a 
needed input can shut down an entire manufacturing line, at 
enormous cost. Alternatively, unpredictable delivery due to 
customs administration can require the maintenance of 
excessively large ``safety stock,'' with unacceptable inventory 
carrying costs.
    Customs' efforts to enhance trade facilitation thus 
contribute directly to the competitiveness of U.S. 
manufacturing and thereby promotes exports. By providing 
reliable, timely customs clearance, including immediate release 
based on pre-clearance, and by providing predictable, 
consistent treatment to imports, the United States Customs 
Service creates an enormous competitive advantage for our 
country in attracting and maintaining our manufacturing base. 
Customs' efforts to provide greater service and trade 
facilitation should be viewed in the context of this important 
contribution to our domestic economy.

       Trade Facilitation and Enforcement are Complementary Goals

    Customs has two principal missions: to administer U.S. 
trade policy through the collection of tariffs, and to protect 
health, safety, and national security through enforcement of 
criminal laws prohibiting trade in dangerous drugs, other 
contraband, and weapons of mass destruction. When Customs 
develops programs to facilitate trade in carrying out its 
commercial mission, it often is criticized for neglecting or 
even undermining its enforcement mission. This is a false 
dichotomy. Intelligently applied trade facilitation measures 
complement vigorous law enforcement.
    In recent years, particularly under the leadership of 
Commissioner George Weise, the Customs Service has radically 
changed the orientation of its commercial operations mission 
from one of conflict and confrontation with international 
traders to one of cooperation to achieve what is correctly 
perceived as a mutual objective of increased compliance with 
the laws and regulations governing imports. We have gone from a 
philosophy of inspect and suspect to one of respect, to the 
advantage of all concerned. The important changes embodied in 
the Customs Modernization Act have been translated into 
improved service for the importing community and improved 
compliance, as Customs has implemented ``informed compliance'' 
and importers have embraced their new responsibilities under 
the standard of ``reasonable care.''
    The benefits have been tangible. Statistical measurements 
performed by Customs indicate that overall commercial 
compliance rates are high and increasing and, most 
significantly, that revenue collection exceeds 99% of all 
duties due. Customs' ambitious program of CAT audits is 
targeted at large importers and sensitive industries, and is 
well designed to achieve even better levels of voluntary 
compliance, primarily through enhanced understanding on the 
part of importers, and ultimately, therefore with less demand 
on Customs' resources, rather than more.
    Despite this progress, much remains to be done. Many of the 
advances envisioned by the Customs Modernization Act have yet 
to be realized. For example, periodic entry reconciliation is 
not a practical reality. Testing and implementation of this and 
other programs made possible by the CMA are proceeding at a 
pace that is, I am sure, as frustrating for Customs as it is 
for importers.
    It is important to recognize, however, that the most 
important change implemented by the Customs Service, beginning 
with the administration of Commissioner Hallett, and continuing 
at an accelerated pace under Commissioner Weise's leadership, 
is not in the systems and programs employed by Customs to 
process entries, but in the attitudes of the women and men of 
the Customs Service who implement those systems and programs. 
One of the most difficult tasks of any organization is to 
manage change in its internal culture. The Customs 
Modernization Act gave Customs the tools to enable a change in 
attitude from confrontation to cooperation, and to do so in a 
way that enhances rather than undercuts compliance. Customs has 
embraced the opportunity to change its internal culture in a 
way that support both its mission and American importers. No 
institution the size of the Customs Service can transform its 
philosophy overnight, and the change in attitude has not yet 
been accepted universally, but the process of change is in 
place, supported by consistent leadership.
    Too often it is assumed that Customs' efforts to enhance 
trade facilitation and to forge a more cooperative relationship 
with importers must come at the expense of Customs' enforcement 
mission. In fact, the opposite is true--efforts at trade 
facilitation are complementary to Customs' enforcement 
activities.
    Among the most potent tools of trade facilitation are 
measures that are designed to differentiate intelligently 
between those cargoes that carry an enforcement risk and those 
that do not. When Customs can identify with confidence those 
imports that pose little enforcement risk, it can then 
institute programs to facilitate the clearance of those cargoes 
with as little delay and expense to Customs and to the importer 
as is warranted by the reduced risk. Post audit measures are 
used to ensure that compliance obligations are understood by 
the importer, and thus to protect the revenue. This is at the 
heart of trade facilitation.
    At the same time that such measures identify low-risk 
imports they of course serve to identify those imports that 
carry a high enforcement risk, and allow Customs to focus 
enforcement resources where they are most needed. Because they 
reduce the need for Customs to allocate resources to low-risk 
imports and at the same time focus enforcement resources on 
high-risk imports, trade facilitation measures enhance both 
commercial operations and Customs' enforcement mission. Greater 
voluntary compliance on the commercial side, reduced demand for 
resources for commercial operations, and enforcement resources 
better targeted at high-risk imports result in more effective 
enforcement as well as in trade facilitation.
    I emphasize these points because Customs now stands at an 
important crossroads. Commissioner Weise has announced his 
resignation after four years of an administration that embraced 
the reforms of the Customs Modernization Act and, most 
importantly, continued to manage the change of Customs' basic 
philosophy and attitude from confrontation with legitimate 
traders to cooperation toward a shared goal of increased 
commercial compliance. In order for an organization the size of 
the Customs Service to achieve in a meaningful and lasting way 
such an important change in its internal culture, there must be 
consistency of leadership and unwavering commitment. 
Consequently, it is critical that the new Commissioner of 
Customs understand the complementary nature of enforcement and 
trade facilitation and fully embrace the emerging new culture 
of the Customs Service, which serves both goals well.

                Customs' International Affairs Function

    Just as the efficiency of customs administration at home 
plays an important role in enhancing our country's competitive 
advantage, the Customs Service plays an important role in 
facilitating market access for U.S. products and U.S. investors 
abroad. Important market access agreements such as the Uruguay 
Round and the Information Technology Agreement have 
progressively lowered foreign tariffs on U.S. products. Further 
trade liberalization through the APEC process and negotiation 
of a Free Trade Area of the Americas promise additional tariff 
reductions.
    But true trade liberalization is a function of more than 
nominal tariff rates. Because customs administration can be an 
important barrier to trade, mutual assurances of customs 
efficiency are necessary if trading partners are to have the 
confidence they need to achieve greater and greater levels of 
market opening. Absent a uniformly high standard of customs 
efficiency, the benefits of market opening are unfairly denied 
those parties to an agreement for whom the benefits of trade 
liberalization are attenuated by continuing difficulties of 
customs administration. Thus, raising customs efficiency to a 
uniform, high standard is a prerequisite to achieving for the 
United States the full benefit of trade liberalizing 
agreements.
    The Customs Service Office of International Affairs plays 
an important role in working to reduce the barriers to trade 
reflected by the failure of customs administrations around the 
world to modernize and reform their processes and priorities. 
One important example of this work is the role that the U.S. 
Customs Service plays in customs improvement through the APEC 
process.
    Perhaps the most tangible evidence of APEC's effectiveness 
in liberalizing trade and investment in the Asia Pacific region 
is in the work of the Sub Committee on Customs Procedures 
(SCCP) of the Committee on Trade and Investment. The SCCP, 
which evolved in 1994 from the APEC Customs Procedures Working 
Group, reached a consensus in Sapporo Japan, in June of 1995 on 
a vision statement, a guiding framework and principles, a 
common action plan, individual action plans, and statements on 
technical assistance. At Cebu, Philippines, in May 1996, the 
member economies of APEC agreed on an implementation program 
for the 9 elements of the Common Action Plan. These elements, 
which include standardized implementation of the WTO Valuation 
Agreement, support for a standard electronic messaging format, 
protection of intellectual property rights, provisions for 
temporary importation, and transparency of customs procedures 
and laws, comprise precisely those measures that are important 
to U.S. exporters to ensure fair access to export markets. 
Implementation of this program will be a significant benefit.
    The United States Customs Service, principally through the 
Office of International Affairs, played an important role in 
developing the Common Action Plan, and is playing an important 
role in delivering the training needed by developing economy 
customs services to make it a reality. U.S. Customs has the 
lead in training for enforcement of intellectual property 
rights and temporary importation procedures, and shares 
responsibility with Canada for training on the WTO Valuation 
Agreement. The importance of these efforts and implementation 
of the Common Action Plan to U.S. exporters cannot be 
overemphasized.
    There is one way in which the training component of the 
Common Action Plan could be improved materially. As discussed 
previously, changing the internal culture and attitudes of a 
customs service from one of distrust and confrontation to one 
of cooperation and trade facilitation is both the most 
difficult reform to implement, and the most important. At a 
recent conference on customs reform and modernization sponsored 
by the World Customs Organization there was a consensus that 
personnel and organizational change was the most difficult 
aspect of reform to manage. However, none of the elements of 
the training and implementation program of the Common Action 
Plan is designed to assist developing country services in 
managing the change process. One industry recommendation for 
the SCCP that emerged from the APEC Customs Symposium held last 
week in Montreal was to develop a tenth training module focused 
directly on the management of change, and I urge the U.S. 
Customs Service to support this proposal and to work to develop 
the new training module based on its experiences and the 
experiences of U.S. industry in managing change.
    APEC is only one example of the important work of the 
Office of International Affairs. The office provides important 
training not only in the Asia Pacific region, and not only in 
commercial operations. Its range is worldwide, and its scope 
includes training in counterproliferation measures, drug 
interdiction, and arms transfer and export controls. It also 
assists U.S. exporters with specific issues and problems 
encountered with customs services abroad. Much of the budget of 
the Office of International Affairs is funded through 
reimbursable agreements to support its overseas training and 
technical assistance programs, both with other federal agencies 
and with host country governments. Given the direct and 
substantial benefits of these efforts to U.S. exporters, 
increased direct funding of the Office of International Affairs 
to provide added scope and flexibility to its training function 
would be a worthwhile allocation of resources.

                               Conclusion

    The role of the Customs Service in trade facilitation 
supports the U.S. economy by creating a competitive advantage 
for U.S. manufacturers, thus promoting U.S. exports and 
encouraging the establishment and maintenance of manufacturing 
jobs in the United States. The Office of International Affairs 
complements this effort abroad by working to ensure that 
foreign customs administrations have the training and will to 
provide the efficient service that is needed for U.S. companies 
to achieve the full benefits of trade liberalizing agreements 
negotiated with other countries. By targeting high-risk imports 
and reducing the resource demands of commercial operations, 
trade facilitation efforts complement the important 
responsibilities of the Customs Service in the areas of drug 
interdiction and national security law enforcement. With the 
resignation of Commissioner Weise, it is important to ensure 
that the Customs Service maintains clear leadership toward 
increased compliance levels through cooperation and informed 
compliance, rather than reverting to an attitude of 
confrontation with legitimate importers that would impede, 
rather than enhance, enforcement objectives.
      

                                

    Chairman Crane. Thank you.
    Mr. Partilla.

STATEMENT OF JOHN PARTILLA, VICE PRESIDENT, LOGISTICS, OLYMPUS 
 AMERICA, INC., LONG ISLAND, NEW YORK; AND CHAIRMAN, AMERICAN 
            ASSOCIATION OF EXPORTERS  AND  IMPORTERS

    Mr. Partilla. Mr. Chairman, Members of the Trade 
Subcommittee. I am John Partilla.
    Chairman Crane. Excuse me for mispronouncing your name.
    Mr. Partilla. It is OK. That is common. I am vice president 
of logistics for Olympus America, and I am currently the 
chairman of the American Association of Importers, commonly 
known as AAEI. AAEI is a national organization of approximately 
1,000 firms involved in every facet of international trade. It 
is actually the largest membership organization concentrating 
the majority of its efforts on the issues directly related to 
Customs' policies and procedures.
    The members of this association empathize with Customs' 
tremendous responsibility to both facilitate commercial trade 
as well as enforce laws at the border. AAEI also sympathizes 
with Customs ever-present budgetary hurdle. In spite of the 
increased demand for drug interdiction, commercial enforcement 
and the increasing number of import and export entries to 
process, the Customs Service and the trade community 
continually have to fight for increased staffing.
    As Commissioner Weise indicated in his statements earlier, 
the Customs Service in effect has actually reduced their 
funding over the past several years. No matter how talented the 
Customs workforce, the Agency will require staffing and budget 
increases if it is to meet the tremendous demands of the 
burgeoning international trade.
    Now, Customs realizes that the overall theme of the Mod Act 
was to utilize the unique partnership that it created between 
Customs and the trade, to work together to redesign a more 
efficient and effective, yet less intrusive, Customs Service 
based on electronic processing and modern business practices. 
While the process of promulgating the new regulations has been 
more lengthy than we anticipated, we are certainly pleased with 
the unprecedented opportunity that AAEI has had or has been 
granted to impact the final product. The AAEI membership in the 
trade community places a high value on this unparalleled 
process and commends Commissioner Weise for his dedication to 
building this partnership.
    As an example, the AAEI has a few major conferences each 
year in conjunction with the U.S. Customs Service. We have one 
in June coming up and another major one in Chicago in the fall. 
These are the type things that are building a partnership that 
has been very, very beneficial to the trade community as well 
as the Customs Service in understanding the needs and 
requirements of the trade community.
    Customs sees its current automation overhaul as an 
essential means to its goal, in achieving these goals. 
Unfortunately, the time-consuming development of the Customs 
new automated commercial environment, ACE, has delayed the 
completion of the periodic entry summary program. The business 
community desperately needs this tool to keep the flow of 
international trade or keep pace with the flow. The move away 
from the entry-by-entry processing is a critical element of 
Customs and the trade community's ability to handle more 
transactions with static resources.
    The mechanics of interest collection and the requirements 
set forth in 19 U.S.C. 1505 is the central roadblock to the 
successful implementation of this program. We request that this 
Subcommittee staff work with Customs to review this issue and 
recommend any legislative changes to eliminate this roadblock.
    Now, this issue is extremely important to Customs and the 
trade community in that the entry process is currently labor 
intensive. The periodic entry summary program would facilitate 
a significant reduction in the millions of entries that are now 
required to be prepared by the importers and reviewed by 
Customs. It would also facilitate Customs and the trade 
community moving forward together in an automated business 
environment.
    AAEI would also like to commend Commissioner Weise and his 
staff for maintaining an effective balance between enforcement 
and trade facilitation. Through such innovative programs as 
Operation Hardline and Gateway, as the Commissioner mentioned, 
and his staff, Customs has significantly increased the amount 
of narcotics seizures at the border with record levels in this 
past year. Additionally, the Business Anti-Smuggling Coalition, 
a cooperative effort between the business community and Customs 
to step up drug interdiction, was initiated under Mr. Weise's 
administration.
    While Customs has made a tremendous contribution to the war 
on drugs, it is a war that cannot be fought alone. Customs must 
be sufficiently funded to be able to deal with this problem 
adequately as well as to continue to provide the first-rate 
services of trade facilitation that the honest customers use 
dealing in commercial trade, pay for, and deserve.
    Recently Commissioner Weise announced his plans to retire 
from government service. AAEI urges Congress to confirm a 
successor who will carry on Mr. Weise's legacy of maintaining 
an effective balance between Customs enforcement, function, and 
the role that it plays in facilitation of legitimate 
international trade, which is crucial to the Nation as a whole 
and every State in the Union. This is even more significant as 
Customs increasingly takes on an increasing leadership role in 
export facilitation.
    AAEI always stands ready to work with this Subcommittee and 
the Ways and Means Committee and the U.S. Customs Service to 
improve Customs commercial operations and continue to build a 
growing partnership that has now been established between the 
Customs Service and the international trade community.
    Thank you for the opportunity to present our views to you.
    [The prepared statement follows:]

Statement of John Partilla, Vice President, Logistics, Olympus America, 
Inc., Long Island, New York; and Chairman, American Association of 
Exporters and Importers

    Good Afternoon, Chairman Crane and members of the Trade 
Subcommittee. I am John Partilla, Vice President Logistics for 
Olympus America, Inc. I am currently the Chairman of the 
American Association of Exporters and Importers (AAEI). AAEI is 
a national organization of approximately 1000 firms involved in 
every facet of international trade. AAEI concentrates on 
policies and practices of the U.S. Customs Service. Our members 
are active in importing and exporting a broad range of products 
including, chemicals, machinery, electronics, textiles and 
apparel, footwear, foodstuffs, household consumer goods, toys 
and automobiles. AAEI members are also involved in the service 
industries which serve the trade community such as customs 
brokers, freight forwarders, banks, attorneys, Good Afternoon, 
Chairman Crane and members of the Trade Subcommittee. I am John 
accountants and insurance carriers.
    We are pleased to have this opportunity to address the 
operations of the U.S. Customs Service. The management and 
oversight of Customs commercial operations are of great concern 
to AAEI, as our members interact with the agency on a daily 
basis.
    AAEI and Customs have always dealt with each other in a 
direct, honest, usually harmonious, and always mutually 
respectful, manner. Due to this long-standing relationship, 
AAEI does not hesitate to point out problems to or ask 
questions of Customs. We believe both sides, as well as the 
public, greatly benefit from this exchange and we are pleased 
to say that, through discussion, many specific problems are 
resolved. AAEI understands that Customs role in drug 
enforcement is of paramount importance. However, the agency 
must continuously work to effectively balance this role with 
its equally demanding trade facilitation responsibilities.
    AAEI sympathizes with Customs ever-present budgetary 
hurdle. In spite of increased demands for drug interdiction, 
increased emphasis on commercial enforcement and more and more 
entries to process, the Customs Service and the trade community 
continually have to fight for increased staffing.
    Importers, exporters and other members of the trade 
community appreciate the difficulties facing the Customs 
Service and are anxious to work with Customs to improve its 
efficiency. AAEI consistently asks Customs what it is planning 
and how AAEI can help it to reach its goals. Through this 
continuous dialogue, AAEI is closely exposed to the best and 
worst of commercial operations. Today, AAEI hopes to emphasize 
that the successful programs Customs has developed and 
implemented in recent years should set the standard for all of 
its programs. Efficient and quick commercial trade processing, 
minimal cost to the exporter or importer and a respect for the 
legal rights of U.S. persons should be the rule--not the 
exception--of Customs commercial operations.

                             Customs Budget

    Over the past twenty years, Customs has experienced 
dramatic increases in its workload due to rapidly expanding 
international trade. In the past decade alone, Customs workload 
has more than doubled. Responding to mounting workload 
requirements, Customs is automating its processing, and 
introducing new compliance measurement systems and other 
innovative technology and procedures. Customs estimates that by 
fiscal year 1998, it will be tasked with processing 18.4 
million entry summaries and collecting approximately $20.3 
billion in duties. This is an estimated increase of 1.2 million 
entry summaries and $600 million in duties collected over FY 
1997 estimates. U.S. Customs is a revenue generating agency. In 
FY 1998 Customs expects to collect $23 billion, $20.3 billion 
of which is attributed to commercial operations. AAEI urges 
this Subcommittee to ensure that the trade community receives 
adequate services for which it pays so dearly.
    For example, in one way or another, almost all of AAEIs 
members are directly impacted by U.S. Customs Office of 
Regulations and Rulings, ORR. This office affects the entry of 
goods into the U.S., valued at over $800 billion in 1996, by 
(1) drafting regulations implementing U.S. trade laws; (2) 
issuing rulings on the proper classification, valuation, 
country of origin and marking of imported goods; and (3) 
providing guidance to the trade community and other Customs 
units on their compliance responsibilities under Customs 
regulations and related laws.
    Recently, AAEI offered its assistance to the U.S. General 
Accounting Office in its study of the overall effectiveness and 
efficiency of ORR. GAOs report indicates that the trade 
community is generally pleased with the quality of services 
provided by ORR. It was noted that ORR rulings provide 
important analysis and information about the duties importers 
should pay and furthermore, are considered vital to their 
ability to make reasoned business decisions and comply with 
Customs regulations. The only concern cited was the timeliness 
of ORRs decisions, including rulings and decisions regarding 
protests and penalties.
    An important 1989 Customs Directive requires that certain 
legal decisions or rulings, that deal with the classification 
of merchandise, be issued within 120 days of receipt by 
Customs. The GAO study reports that Customs did not meet the 
120 day requirement for 53 percent of the cases closed in 1996 
that GAO reviewed. AAEI understands that such delays can be 
directly attributed to budget cuts and inadequate staffing. 
ORRs staff of 248 consists mainly of attorneys and specialists 
in commodity classification. For fiscal year 1997, out of 
Customs total budget of $1.6 billion, ORRs budget is only 
$16.38 million, of which $15.2 million is for salaries.
    AAEI applauds Customs on its commitment to maintaining such 
a talented work force in the face of continuous budgetary 
constraints. Customs is increasingly forced to stretch its 
limited resources to facilitate trade that is growing at an 
exponential rate. However, no matter how skilled the work 
force, without increased staffing there will come a point when 
the rubber band will snap. Ultimately, Customs will require 
staffing and budget increases if it is to meet the demands of 
burgeoning international trade.
    In FY 1997, Customs Service appropriations total 
$1,638,354,000 and 16,992 full-time equivalent positions (FTE). 
For FY 1998 Customs proposes appropriations of $1,690,602,000 
and 17,193 FTE, including $20,100,000 from the Violent Crime 
Reduction Trust Fund. This level represents an overall increase 
of $52,248,000 and 201 FTE from the FY 1997 operating level.
    We urge Congress to allocate the funds necessary for 
Customs to continue its important role as the Nations primary 
border agency, interdicting drugs and ensuring that all goods 
and persons entering and exiting the United States do so in 
compliance with all United States laws and regulations.

                               User Fees

    Although AAEI supports an increase in the Customs budget 
for FY 1998, we are opposed to the utilization of user fees for 
this purpose. To continue to impose a Customs user fee for the 
privilege of paying mandatory Customs duties as a condition to 
entry of imported merchandise into the United States is 
analogous to charging a taxpayer a fee for filing an income tax 
return and paying income taxes. The functions of the Customs 
Service are required by law, and are carried out for the 
general welfare. As such, the cost of Customs operations should 
be borne by general revenue and not through the imposition of 
user fees.
    Continuation of the Customs user fee over the opposition of 
the U.S. business community is bad fiscal and trade policy. The 
costs of the fee itself, collection of the fee, and 
recordkeeping requirements for the fee are enormous. We believe 
the combined cost of the fee to U.S. business and the U.S. 
government more than offset the revenues collected.
    Furthermore, the user fee is not necessary to increase the 
budget of the Customs Service since the agency collects far 
more than the funds appropriated to it. The surplus generated 
by the user fee (the amount collected over and above the cost 
of Customs commercial operations budget) is close to $1 
billion. This surplus can and should be used to alleviate 
budgetary pressures with regard to Customs commercial 
operations. Ultimately, it should be relied upon to phase out 
the user fee altogether.
    AAEI understands political realities must override 
principle on occasion. The need to reduce the U.S. budget 
deficit without raising taxes may place undue pressures on the 
government to adopt unnecessary measures for raising revenue. 
The Customs user fee, without regard to inconsistencies with 
the World Trade Organization, was imposed in such a climate. 
Political pressures, however, should not supersede U.S. 
international obligations or notions of fundamental fairness.
    The members of AAEI are sensitive to budgetary pressures, 
but on balance, urge the Trade Subcommittee to use its Customs 
oversight authority to mandate the expiration of the Customs 
user fee. The Association is ready and willing to assist the 
Subcommittee in its endeavors to this end.

                         Customs Reorganization

    The reorganization of the U.S. Customs Service, spearheaded 
by Commissioner George Weise, was implemented in October of 
1995. AAEI supported the overall concept and objectives of the 
plan and is pleased with the smooth, largely transparent 
implementation. Customs efforts to make the agency more 
effective and responsive to its customers, the international 
trade community, is laudable. Also commendable is the 
partnership Customs has fostered with industry in developing a 
plan that will optimally serve the agency and its customers. 
Based on the Associations many years of interaction and 
meaningful dialogue with Customs, we are confident that the 
agency will hold true to its stated intentions as it continues 
to settle into its new environment.
    As AAEI told the Subcommittee prior to implementation, it 
is pleased that Customs has established a mechanism whereby 
determinations made at the port level are and will continue to 
be appealable to Headquarters. To ensure that the benefits of 
this process are preserved over time, AAEI recommends that it 
be codified. Codification of this important appeals mechanism 
will guarantee consistency and stability through future changes 
in personnel and administrations.
    One of the most significant changes implemented under the 
reorganization was the establishment of Strategic Trade Centers 
(STC), which focus on enforcement issues such as 
transshipments, smuggling, intellectual property rights and 
quota. We fully expect that Customs, in its enforcement 
operations, will continue to be mindful of its mission to 
ensure the smooth flow of merchandise through the agency with 
minimal effect on the nations commerce. While enforcement 
measures are a fundamental aspect of the Customs Service, they 
should not be carried out to the detriment of its other 
fundamental function, the facilitation of global trade. The 
current commissioner as well as the immediate past commissioner 
have recognized the weight of Customs commercial function. We 
fully anticipate that this climate will be maintained with the 
increasing role of STCs.
    The Association understands that Customs management Centers 
(CMC) were established for the sole internal use of Customs to 
ensure the overall uniformity of the organization. Monitoring 
uniformity is as much operational as it is an internal 
administrative task. Hence, it is the importer who is in the 
best position to detect a breakdown in uniformity with respect 
to the implementation of Customs procedures. AAEI therefore 
suggests that members of the trade community be permitted the 
option of accessing CMCs for the effective and expedient 
resolution of uniformity discrepancies.
    AAEI has always enjoyed access to Customs top policy 
makers. The AAEI Customs Liaison Committee meets regularly with 
high-level Customs officials at Headquarters to discuss pending 
issues. We believe forums such as this are beneficial, if not 
necessary to Customs officials in keeping in tune with the 
dynamic needs of the trade community. This type of outreach 
furthers the spirit of partnership legislated in the Mod Act.

                   Customs Modernization Regulations

    Even before enactment of the Customs Mod Act in 1993, the 
Customs Service has been committed to developing a partnership 
with the trade community to formulate regulations which first 
allow all parties to meet their obligations. Over the past 
three and a half years, Customs has met frequently with 
representatives from various trade groups to discuss proposed 
concepts and regulations. Customs has been responsive to 
comments submitted and has modified several of its original 
proposals to reflect the input of industry. While the process 
of promulgating the new regulations has been more lengthy than 
we had anticipated, we are certainly pleased with the 
unprecedented opportunity we have been granted to impact the 
final product. The trade community places high value on this 
unparalleled process and commends Commissioner Weise for his 
dedication in building the partnership.
    A prime example of the partnership at work is the duty 
drawback regulations. Customs recognizes the importance of the 
duty drawback program as a significant export incentive. AAEIs 
key concern was that the new regulations should in no way 
undermine this program as it permits many U.S. companies to 
compete on a global scale. However, during the drafting 
process, there came a point where many difficult drawback 
issues remained unresolved.
    It was at the AAEI Annual Convention where industry 
representatives and Customs officials came together to figure 
out how to overcome the impasse. Respecting the value of the 
drawback program to the enhancement of U.S. exports, Customs 
hired an independent facilitator to work with Customs and the 
trade community to arrive at mutually agreeable terms. The 
technique applied, known as Interest Based Problem Solving, was 
at times painstakingly slow, but in the end produced fruitful 
results. The drawback team, comprised of participants from the 
government and the business community was recently awarded the 
Vice Presidents Hammer Award for its accomplishments in this 
process. This is a special award under the Vice Presidents 
National Performance Review given to people who have 
participated in a team effort that has contributed dramatically 
to improving the way government works. The Vice President 
bestows the award to recognize special achievements in at least 
one of the four principals of reinventing government -putting 
customers first, cutting red tape, empowering employees to get 
results, or cutting back to basics. AAEI is proud to have been 
involved in this endeavor and congratulates Customs leadership 
for taking the lead and fostering a breeding ground for 
productive results.

                           Customs Automation

    Since 1984, when Customs implemented its first 
comprehensive automation system (ACS), the agency has made 
continuous strides in implementing technology to help it meet 
the demands of burgeoning international trade. Within the 
government, Customs has clearly assumed a lead role in 
developing and implementing efficient automated systems. Fully 
mindful of the difficulty of the task, Customs has not tried to 
develop its systems in a vacuum. It studies the experiences, 
both positive and negative of other government agencies. It 
looked to the business community for guidance, particularly for 
the process it should adopt for evaluating and selecting 
systems design.
    The Mod Act has created a unique partnership between 
Congress, Customs and the trade community. Customs realizes 
that the overall theme of the Mod Act is to utilize this 
partnership to work together to redesign a much more efficient 
and effective, yet less intrusive, Customs Service based on 
modern business practices, including electronic processing. 
Inherent in this approach, is the adoption and reinforcement by 
Customs of an institutional philosophy that its goal is 
compliance. Number of seizures, penalty cases or agent 
investigations ultimately does not achieve Customs mandate. 
Customs sees its current automation overhaul as an essential 
means to its goals.
    ACS, based on electronic interfaces with customs brokers, 
importers, carriers, and others, provides Customs with 
automated import data. When implemented in 1984, there were no 
trade interfaces. Today, over 2000 trade participants and other 
government agencies interface electronically with Customs. Ten 
years after ACS was implemented, 96% of 14.3 million entries 
were processed electronically at least at the first stages. The 
current redesign of ACS will enable Customs to utilize new 
technology, implement Mod Act automation features, and correct 
processing deficiencies identified by various oversight groups. 
The new system (ACE) is targeted for completion in FY 1999.
    While ACS has widely been heralded as one of the most 
successful automation endeavors of the federal government, it 
has been showing its age for a number of years now. Internal 
and external system users demand more functionality and 
processing capacity from ACS than its outdated mainframe 
architecture and data structure can support. Making 
enhancements to the current system is becoming increasingly 
more difficult and expensive. Additionally, desirable new 
technology is often incompatible with the existing hardware and 
software. Most importantly, the business of Customs commercial 
processing has significantly evolved since ACS was first 
designed. Todays applications for handling entries, entry 
summaries, and manifests simply will not support the business 
changes demanded by an increasingly complex new trade 
environment.
    Since the implementation of the Mod Act, Customs has made 
considerable progress in building its new Automated Commercial 
Environment (ACE), a system which will encompass the agencys 
many electronic systems. Most recently, Customs announced its 
plan to test the first phase of the National Customs Automation 
Program in Detroit, Port Huron, and Loredo. This prototype, 
known as NCAP/P, is the first operational demonstration of 
account-based declaration that was developed as part of the 
Trade Compliance Redesign. NCAP/P will be supported by ACE.
    The time-consuming development of ACE has delayed the 
completion of the periodic entry summary system program enabled 
by the Mod Act over three years ago. The business community 
desperately needs this tool to keep pace with the flow of 
international trade. The move away from entry-by-entry 
processing is a critical element of Customs and the trade 
communitys ability to handle more transactions with static 
resources.
    Similarly, reconciliation was a tool promised by the Mod 
Act that has also been hampered by automation delays. Moreover, 
as set out in the recent test announced for reconciliation, the 
benefits of the program are being threatened by Customs 
requirement that reconciliation be made on an entry-by-entry 
basis. This requirement does not tie in with the way the 
business community maintains its records and will greatly 
diminish the use of this tool for periodic submissions of value 
and cost data. This roadblock apparently arises out of concern 
over the mechanics of interest collection and the requirements 
of 19 U.S.C. 1505. We request and encourage the Subcommittee 
staff to meet with Customs to review this issue and recommend 
any necessary legislative changes to the interest provisions 
which would allow additional periodic payment of duty to be 
made without the need to specifically refer such payment back 
to any entry-by-entry analysis. We believe this can be 
accomplished in a revenue-neutral manner and greatly facilitate 
the intended goals of reconciliation promised by the Mod Act.
    In February, 1996, Customs launched a one year effort to 
prototype the use of an ``Account Manager'' to act as the 
primary point of contact in dealings with selected importers. 
The importers were selected based on their total entered value 
and the value of imports of commodities in Primary Focus 
Industries. Several AAEI members participated in the prototype 
and have deemed it a success. To date, 41 importers have been 
assigned Account Managers. Customs expects to have 100 accounts 
by the end of the year.
    AAEI understands that the many new initiatives and programs 
of the Customs Service are reliant on the completion and 
successful implementation of the ACE system. Automation is at 
the core of the agencys operations. While the Mod Act laid the 
groundwork for Customs automation needs, it will take continued 
support from Congress and the trade community to bring Customs 
electronic environment into the 21st century.

                         AAEI Membership Survey

    In November of 1995 AAEI approached U.S. Customs with a 
proposal to conduct a membership survey in the first quarter of 
1996, approximately six months after the implementation of the 
Customs reorganization. The intent of the survey was to 
identify membership attitudes and perceptions regarding the 
Customs Service and its operations. The Office of Planning and 
Evaluation within Customs agreed to assist in the design and 
analysis of the survey with the aim of soliciting feedback from 
the trade community and identifying areas for improved customer 
service.
    Draft versions of the questionnaire were developed using 
the Structured Group Interview technique with representatives 
from the trade community and from Customs field. After a draft 
was pilot tested at AAEI, revisions were made and a final 
version was later distributed nationwide to the entire AAEI 
membership. The questionnaire surveyed many areas including, 
Customs competencies; customer relations, procedures, rules and 
regulations and automation and technology.
    The survey, which was administered with strict 
confidentiality, yielded results that were overall positive and 
supportive of Customs people, processes and programs. The mean 
of 16 questionnaire items fell in the range between very 
satisfied and satisfied. The mean of the remaining 48 
quantitative items fell in the positive range from satisfied to 
a mixed reaction. No question averages fell in the dissatisfied 
to very dissatisfied range. Nearly 95 percent of the 
respondents indicated that they were either ``satisfied'' 
(35.5%) or ``very satisfied'' (59.4%) with the overall quality 
work provided by Customs. On the flipside, respondents 
indicated low satisfaction with the Automated Export System 
(AES); that Customs rules, regulations and procedures are 
burdensome and that Customs automation efforts have not reduced 
paperwork over the previous year. AAEI is currently working 
with Customs to draft and administer a follow-up survey.

                               Conclusion

    Mr. Chairman, members of the Subcommittee, the members of 
AAEI empathize with Customs tremendous responsibility to both 
facilitate commercial trade as well as enforce U.S. laws at the 
border. While Customs is the lead agency charged with 
processing and facilitating commercial trade, it is not the 
sole agency directed to fight the war on drugs. Customs budget 
should be allocated accordingly. While Congress has increased 
funding for the U.S. Immigration and Naturalization Service to 
enable it to significantly increase its manpower over the past 
two years, it has not similarly increased funding to help 
Customs in its anti-smuggling efforts.
    Through such innovative programs as Operation Hardline and 
Project Gateway, Commissioner George Weise and his staff at 
Customs have significantly increased the amount of narcotics 
seizures along the border, with record levels this past year 
alone. Additionally, the Business Anti-Smuggling Coalition, a 
cooperative effort between the business community and Customs 
to step-up drug interdiction, was initiated under Weises 
administration. While Customs has made a tremendous 
contribution in the war on drugs, it is a war that cannot be 
fought alone. Customs must be sufficiently funded to be able to 
deal with this problem adequately as well as continue to 
provide the first-rate services and trade facilitation that its 
honest customers dealing in commercial trade pay for and 
deserve.
    Recently, Commissioner Weise announced his plans to retire 
after 25 years of government service. In a letter to President 
Clinton announcing his resignation he characterized his tenure 
as Commissioner as ``the greatest years of my life;'' however, 
he felt it was time to put his family first. Upon receiving 
Commissioner Weises letter of resignation, Treasury Secretary 
Rubin expressed regret and praised Weise for his ``tremendous 
contribution as Commissioner toward strengthening our borders 
and protecting our citizens against illicit drug smuggling.'' 
AAEI urges Congress to confirm a successor who will carry on 
Mr. Weises legacy of maintaining an effective balance between 
Customs enforcement function and the role it plays in 
facilitation of legitimate international trade; which is 
crucial to the nation as a whole and every state in the Union.
    AAEI always stands ready to work with this Subcommittee, 
the Ways & Means Committee and the U.S. Customs Service to 
improve Customs commercial operations and continue to build the 
growing partnership between the Customs Service and the 
international trade community. Thank you for the opportunity to 
present our views today.
      

                                

    Chairman Crane. Thank you, Mr. Partilla.
    Mr. Merber, do you have any recommendations for improving 
the performance of the Office of Rules and Regulations, OR&R?
    Mr. Merber. This goes to my theme of changing culture of 
organizations. OR&R is an organization that consists primarily 
of lawyers. I am a lawyer myself, so I know how much the 
temptation is for lawyers to say, well, these management 
techniques, they don't apply to us. What we do is different, 
what we do is special. It doesn't really work here.
    In fact, I think that management techniques do work with 
lawyers and do work with the kind of work that lawyers do, and 
I think that the sort of discipline of having good measurements 
in place, using those measurements to analyze what the root 
causes are of deficiencies that are identified by the 
measurements, will allow you then to work on focused projects 
to improve the performance, and then to put in processes to 
control them. I think that is a well-understood management 
technique of dealing with a system that is broken, and I think 
that despite this being a group of lawyers and a culture of 
lawyers, that it can work there. So I think it is a question of 
applying well-known rigorous management techniques, and I think 
that could be done.
    Chairman Crane. Mr. Partilla, last year your organization 
did a membership survey of Customs operations, and apparently 
that survey indicated low satisfaction with the Automated 
Export System, AES. I was wondering if you could elaborate on 
the specific complaints your members have with AES, and would 
you be willing to share the results of that survey with this 
Subcommittee?
    Mr. Partilla. Essentially our membership's dissatisfaction 
with AES is the lack of information as to what we are going to 
get in return, what the members and what the companies that are 
involved will get in return for the tremendous investment that 
is required. However, conceptually we are not opposed to this 
at all. In fact, we are in favor of it. In fact, the 
association would like to see support and funding for increased 
automation as far as the customer service activities, because 
we feel this is the trend, and this is the way our industries 
are going, and in order for Customs to be able to facilitate 
trade, they are going to have to be operating in an automated 
environment as the industries that they are dealing with are.
    Chairman Crane. Under the Customs regulations, importers 
can file a protest for up to 90 days after the date of 
liquidation, but Customs, on the other hand, can take up to 2 
years to respond to the protest. What time lines would you 
recommend for correcting what would appear to be a very obvious 
asymmetrical power relationship?
    Mr. Partilla. Well, our position on the protest issue is 
that we would like to see some legislative requirements enacted 
to set time lines. The actual time lines that we feel that 
would be appropriate would actually vary depending on a couple 
of situations. But we think approximately 1 year or 9 months 
would be an appropriate time.
    Chairman Crane. Very good.
    Mr. Neal.
    Mr. Neal. Thank you, Mr. Chairman.
    Mr. Merber, do you believe that Customs has found the 
correct balance of resources between law enforcement and 
commercial regulation missions?
    Mr. Merber. Mr. Neal, I have not studied the allocation of 
resources between the two. What I wanted to speak to was what I 
believe is the philosophical compatibility of the two 
functions; that is, to understand that resources that are spent 
on facilitation of trade are not resources that are wholly 
unconnected with the enforcement mission, because to 
intelligently facilitate trade, you need to differentiate 
between the high-risk imports and the low-risk imports and to 
take appropriate action with respect to each, and at the same 
time, that is the same process of intelligence, use of 
intelligence information, risk assessment, cargo selectivity, 
postaudit, that are useful in the enforcement area.
    I recognize that some of the enforcement activities are not 
related to that, the discussion earlier today about small 
pleasure craft and small aircraft, but what I am speaking to is 
the philosophy that the two functions--that the better the job 
that Customs does at trade facilitation, the better the job it 
is also doing at enforcement.
    Mr. Neal. OK. Mr. Partilla, you spoke a bit about 
interdiction. You mentioned drug interdiction in your 
testimony. Are we striking the right balance between 
interdiction and demand?
    Mr. Partilla. Well, so far under the current Customs 
administration, I think we are. However, I think that we need 
to increase this because of the increased funding that would be 
necessary to support the Customs programs that we are asking 
for in automation. But I think the funding for the drug 
interdiction is also appropriate. So I would say yes. As far as 
the current balance, I think it is.
    Mr. Neal. Do you think we can do a better job of convincing 
the Mexicans, for example, that a higher level of cooperation 
is necessary?
    Mr. Partilla. I guess we can always do a better job. In our 
association, I have some personal opinions there.
    Mr. Neal. Share them with us.
    Mr. Partilla. From our association's standpoint, I think we 
are strictly concerned with trade facilitation rather than the 
interdiction program. I mentioned the interdiction program in 
the fact that Customs was making great strides in that area, as 
well as the facilitation. But the drug interdiction is not 
strictly a Customs' problem.
    Mr. Neal. Right. Is it your impression that the Mexicans 
take us seriously on these issues?
    Mr. Partilla. I really don't have any data to support a 
position.
    Mr. Neal. How about the anecdotal evidence that you come 
across or newspaper headlines or any of those issues? Do those 
shape any of your opinions?
    Mr. Partilla. From a personal standpoint, I think we should 
be doing more in that area.
    Mr. Neal. Thank you, Mr. Chairman.
    Chairman Crane. Well, I want to thank you both for your 
thoughts on the U.S. Customs Service and what changes Congress 
can make to better facilitate trade at our borders. We look 
forward to your input any time, so please stay in 
communication.
    [The following questions were subsequently submitted by 
Chairman Crane to Mr. Partilla:]
    [The response of Mr. Partilla follows:]

    1. Under the Customs regulations, importers may file a protest up 
to 90 days after the date of liquidation. Customs, on the other hand, 
may take up to two years to respond to the protest. What time-line 
would the American Association of Exporters and Importers recommend for 
correcting this obviously asymetrical power relationship?
    AAEI agrees that there is an asymmetrical power relationship with 
regard to the time-frame in which an importer is permitted to file a 
protest (90 days) and Customs' response time (two years). We recommend 
that Customs' time-line for responding to protests be made equivalent 
to its 90 day time-line for responding to requests for rulings. Other 
than the different offices charged with handling the processes, we 
don't see any major discrepancies between the procedures for responding 
to protests and ruling requests.
    In a related matter, importers frequently encounter confusion with 
respect to Customs courtesy Notices of Liquidation and Extension and 
bills. Often, many addresses in Customs' data base are not updated in a 
timely fashion and notices don't reach the appropriate contact. We 
recommend that Customs move faster in developing a system to issue such 
notices electronically. This should alleviate much, if not all of the 
administrative confusion.
    2. Customs' Office of Rules and Regulations is in the process of 
rewriting more than 85% of the Customs Regulations. What efforts are 
being made by your organization and its members to ensure that Customs 
is adhering closely to the original statutory authority of the Customs 
Modernization Act?
    Upon implementation of the Mod Act, AAEI established a Subcommittee 
on Customs Regulations. This Subcommittee was set up to monitor the 
drafting of new regulations as well as offer the Association's input on 
how the various proposals will impact the trade community. The AAEI 
Subcommittee reviews the various proposals drafted by Customs to ensure 
that Customs is adhering closely to the original statutory authority of 
the Mod Act.
    3. Last year, your organization did a membership survey of Customs 
operations. Apparently that survey indicated low satisfaction with the 
Automated Export System (AES). Could you elaborate on the specific 
complaints your members have with AES? Could you share the results of 
that survey with this Subcommittee?
    Last year's AAEI membership survey did indeed indicate low 
satisfaction with the Automated Export System (AES). We do not see that 
the system offers any real incentives or advantages to the exporting 
community. The increased costs of complying with AES coupled with the 
transactional delays it is likely to cause outweigh any possible 
advantages. We are happy to share with you the results of our 
membership survey. Attached is a two-page executive summary. For your 
information, we are administering a follow-up survey at our upcoming 
Annual International Trade Convention and Exhibition. When available, 
we will be happy to provide you with these results as well.
[GRAPHIC] [TIFF OMITTED] T7360.006

[GRAPHIC] [TIFF OMITTED] T7360.007

    4. As part of the new culture within Customs following the Customs 
Modernization Act, ``account managers'' have been assigned to specific 
companies and large industry sectors. In theory, this allows a 
particular set of Customs employees to build a long-term understanding 
of that industry's Customs needs and problems. In your opinion, has 
this been an effective approach?
    Customs' approach of assigning ``account managers'' to specific 
companies and large industry sectors as a means to allow a particular 
set of Customs employees to build a long-term understanding of that 
industry's Customs needs and problems is a positive step. The ``account 
manager'' system is still in the early stages of prototype/development. 
So far, our members who have participated in the test programs are 
pleased with the outcome. We would like to see Customs step-up the pace 
for the program's development. Additionally, AAEI recognizes the value 
of involving brokers, attorneys and other service providers in the 
importer/account manager relationship, at the discretion of the 
importers.
    We recognize that ``account management'' is directly tied to 
development of Customs Automated Commercial Environment (ACE). AAEI is 
pleased with Customs' overall effort to overhaul its automated systems, 
but would like to see the pace of development expedited. We urge the 
Subcommittee to ensure that ACE encompass state-of-the-art technology 
at the time of implementation. Often there is a danger that new 
automated systems feature the latest technology at the time the system 
is selected or designed. Upon ultimate implementation the system is 
often outdated. While we hope to see Customs move more expeditiously in 
getting ACE up and running, we expect that it will comprise the latest, 
most efficient technology available at the time of implementation. We 
urge Congress to support Customs in this monumental endeavor.
    5. In your written testimony, you indicated that the reorganization 
of the Customs Service which occurred after the Customs Modernization 
Act should be ``codified.'' Could you elaborate on this recommendation?
    In our written testimony, we praised Customs for establishing a 
mechanism whereby determinations made at the port level are and will 
continue to be appealable to Headquarters. To ensure that the benefits 
of this process are preserved over time, we recommended that it be 
codified. This appeals mechanism was established as part of the Customs 
reorganization. AAEI favors codification of the appeals mechanism.
    6. I am concerned that the lack of uniformity of Customs 
administrative rulings is a problem that could lead to ``port 
shopping'' by importers searching for the port that offers the most 
favorable ruling for their merchandise. What do you feel Customs could 
do to ensure uniformity of binding rulings across all ports of entry?
    The lack of uniformity regarding administrative rulings is a 
declining problem. As automation advancements continue to be 
implemented, we expect to see less and less uniformity problems 
respecting rulings. Automation has made rulings more accessible by more 
parties. Also, utilization of e-mail has enabled increased and more 
effective communication amongst the various ports. However, automation 
improvements will not change archaic attitudes that still linger 
amongst various port personnel.
    We do see a problem regarding reversals, revocations and 
modifications of rulings. At times rulings are revoked, reversed or 
modified with little or no notice to importers. Also, the change in 
policy is not typically the result of a new law or recent court 
decision. This makes it quite difficult and expensive for importers to 
make informed business decisions based on rulings.
    7. Do you have any recommendations for improving the overall 
performance of the Office of Rules and Regulations?
    Our main recommendation for improving the overall performance of 
the Office of Rules and Regulations is to increase its clerical/support 
staff. OR&R should be operated like a private sector office or law 
firm. AAEI members often encounter long delays in receiving responses 
to calls. Many delays are the result of ``flex-time.'' O,R&R personnel 
are just not available during enough of the normal work-day hours.
    8. Has your organization been contacted by Customs about developing 
processes which reduce the burden of Customs regulations on business 
and industry?
    Customs frequently contacts AAEI about developing processes which 
reduce the burden of Customs regulations on business and industry. Upon 
implementation of the Mod Act, Customs established the Mod Act Task 
Force. This working group, comprised of government and industry 
representatives met on occasion to discuss various regulatory proposals 
and Customs initiatives prior to release for formal comment. Also, 
Customs engages in the regular practice of posting drafts of its 
proposals on the Customs Electronic Bulletin Board for advance comment.
      

                                

    Chairman Crane. Our next panel of witnesses are as follows: 
Susan Kohn Ross, member of the board of directors, Border Trade 
Alliance. I think she is not here yet, but en route from 
testifying before the ITC. Jeff Bobeck, senior congressional 
liaison with the American Automobile Manufacturers Association; 
Philip Hughes, vice president of the Customhouse Brokerage 
Division of the United Parcel Service, on behalf of the U.S. 
Transportation Coalition for an Effective Customs Service; and 
Harold Brauner, chairman of the board of the National Customs 
Brokers and Forwarders Association of America.
    Let's see, we will save that chair between you two 
gentlemen for Susan when she gets here. We will proceed with 
Jeff first.

  STATEMENT OF JEFFREY BOBECK, SENIOR CONGRESSIONAL LIAISON, 
         AMERICAN AUTOMOBILE MANUFACTURERS ASSOCIATION

    Mr. Bobeck. Thank you, Mr. Chairman. Thank you for holding 
this hearing. I will keep my remarks brief in the interest of 
time.
    I want to thank you for your strong leadership in 
modernizing U.S. Customs practices and procedures. I am Jeffrey 
Bobeck, senior congressional liaison for the American 
Automobile Manufacturers Association, AAMA, the trade 
association consisting of Chrysler Corp., Ford Motor Co., and 
General Motors Corp.
    On a personal note, it is an honor for me to be here today, 
having served previously as a staff member to a Member of this 
Committee, Hon. Mrs. Johnson from Connecticut.
    Mr. Chairman, America's car companies comprise the largest 
domestic manufacturing industry, directly supporting over 2 
million American jobs, and account for more international trade 
than any other manufacturing industry. As the auto industry has 
become increasingly global, and as NAFTA has phased in, the 
ability of AAMA's members to move goods through U.S. ports has 
become a critical component of our competitiveness worldwide. 
Just-in-time delivery practices mean that a component produced 
in one country may be assembled into a vehicle in another 
country on the same day; in fact, perhaps even in Belvidere, 
Illinois. A delay at the border may create enormous costs and 
missed trade opportunities further down the line.
    The number of transactions has increased rapidly. The 
complexity of those transactions has increased, and, in fact, 
the importance of completing those transactions quickly has 
increased.
    Relief is embodied in the Mod Act, the centerpiece of which 
we believe is the National Customs Automation Program, or NCAP. 
Many of the procedures now authorized by law, such as remote 
filing, periodic filing of entry summary information, and 
payment of duties and reconciliation, were first proposed by 
AAMA's members and are now coming to fruition with Customs' 
announcement of the first NCAP prototype.
    AAMA and its members are eager to participate in this 
prototype. Customs, for its part, has recognized the unique 
needs of automobile manufacturers and has responded very 
positively to our input.
    The NCAP prototype is the first true test of a fully 
electronic system encompassing remote filing, periodic entry 
and duty payment, and reconciliation of entry information. The 
results of the prototype will have a major influence on the 
final development and efficacy of these systems and how they 
will perform well into the next century.
    We generally are pleased with the details of the prototype 
Customs has been developing and grateful for their enormous 
effort. However, AAMA is concerned that Customs has proposed to 
limit the use of the reconciliation process. Specifically, 
Customs is proposing to exclude classification-related matters 
from reconciliation, except where classification disagreement 
is pending in Customs or the courts.
    A fully developed reconciliation process is very important 
to AAMA's members. Obtaining and providing precise information 
on each importation before it crosses the border, even within 
30 days after entry, often is impossible. With competitive 
global sourcing, the number of suppliers, individual products, 
and corresponding HTS numbers are already daunting and rising 
every day. The reason that reconciliation was created is that 
information required for the importation of a good often is not 
available or cannot accurately be evaluated at the time of 
importation. It is essential that this concept be tested 
through the prototype.
    There are several other issues unrelated to NCAP that we 
wish to raise today. Under the NAFTA Implementation Act, 
Congress chose not to impose Merchandise Processing Fees, MPF, 
on goods originating in NAFTA countries. To claim NAFTA 
preference, an importer must possess a valid certificate of 
origin, which in practice is not always available at the time 
of importation. Thus, importers often pay the MPF on a good 
they know is NAFTA-eligible, with the expectation that the MPF 
will be refunded later as an excess duty when NAFTA eligibility 
is proven. However, Customs has taken the position that these 
MPFs are not refundable under 19 U.S.C. 1520(d), a provision 
included in the Customs laws to deal with postimportation of 
claims for refunds.
    In short, we believe that a NAFTA good is a NAFTA good, and 
that is what Congress intended. We ask the Committee review 
this matter.
    A related issue of concern is Customs' position with 
respect to protesting NAFTA claims. Again, importers often do 
not have a certificate of origin at the time goods enter the 
country and simply file a post-entry claim when a valid 
certificate of origin is received. When the entry is liquidated 
before they receive an anticipated certificate of origin, they 
protest the liquidation under 19 U.S.C. 1514.
    However, local Customs officials around the country 
recently have been directed to deny all such protests. We ask 
again that the Committee explore Customs' position on this 
issue and, if it is warranted, amend the law to ensure that if 
an importer is entitled to the NAFTA preference, there is a 
method for obtaining the refund of duties paid at the time of 
entry.
    Finally, Mr. Chairman, Commissioner George Weise deserves 
much credit for the accomplishments to date and the spirit of 
cooperation that prevails between Customs and industry. 
Commissioner Weise's announcement that he will be leaving 
Customs' helm shortly causes us great concern. During his 
watch, Customs has committed resources to the development of 
NCAP and has worked unceasingly to carry out its part of what 
is often referred to as informed compliance, the sharing of 
responsibility between business and government, or complying 
with often complex laws and regulations.
    We ask the Subcommittee to help ensure that the cooperative 
spirit of shared responsibility is maintained and that adequate 
resources are devoted to the continued development of NCAP.
    Thank you for permitting AAMA to participate in this 
hearing. I would be happy to respond to any questions.
    Chairman Crane. Thank you for the nice compliment paid to 
George, whom we will all miss.
    [The prepared statement follows:]

Statement of Jeffrey Bobeck, Senior Congressional Liasion, American 
Automobile Manufacturers Association

    Mr. Chairman, thank you for holding this hearing and for 
your strong leadership on modernizing U.S. Customs practices 
and procedures. I am Jeffrey Bobeck, Senior Congressional 
Liaison for the American Automobile Manufacturers Association 
(AAMA), the trade association comprised of Chrysler 
Corporation, Ford Motor Company, and General Motors 
Corporation.
    AAMA's members comprise the largest domestic manufacturing 
industry, directly supporting over two million American jobs, 
and account for more international trade than any other 
manufacturing industry. As the auto industry has become 
increasingly global, the ability of AAMA's members to move 
goods through U.S. ports has become a critical component of our 
competititiveness worldwide. Just-in-time delivery practices 
mean that a component produced in one country may be assembled 
into a vehicle in another country on the same day. A delay at 
the border may create enormous costs and missed trade 
opportunities further down the line.
    As trade has increased and the electronic paperless 
environment has become common in the business world, Congress 
has responded by passing major legislation with the goal of 
improving the efficiency of the U.S. Customs Service. The most 
important initiative in this regard was the Customs 
Modernization Act (the Mod Act), which was aimed at providing 
Customs with the tools to realize the full potential of 
automating its practices. AAMA and its member companies worked 
closely with this Committee and the Customs Service in helping 
to draft key provisions of the Mod Act.

                The National Customs Automation Program

    The centerpiece of the Act was the National Customs 
Automation Program, or NCAP, the revision of laws to permit the 
full automation of Customs' commercial process. Many of the 
procedures now authorized by law, such as remote filing, 
periodic filing of entry summary information and payment of 
duties, and reconciliation, were first proposed by AAMA's 
members and are now coming to fruition with Customs's 
announcement of the first NCAP prototype, which is scheduled to 
commence this summer.
    AAMA and its members have responded enthusiastically to the 
opportunity to help develop and participate in this prototype. 
Customs, for its part, has recognized the unique needs of 
automobile manufacturers and has responded positively to our 
input. The development of the NCAP prototype reflects a strong 
partnership between industry and government aimed at improving 
procedures that have a direct impact on the cost of 
international trade, both for our members and the Customs 
Service.
    The NCAP prototype is the first true test of a fully 
electronic system encompassing remote filing, periodic entry 
and duty payment, and reconciliation of entry information. The 
results of the prototype will have a major influence on the 
final development and efficacy of these systems and how they 
will perform well into the next century.
    We generally are pleased with the details of the prototype 
Customs has been developing, and grateful for the enormous 
effort Customs has put forth in this regard. However, AAMA is 
concerned that Customs has proposed to limit the use of the 
reconciliation process. Specifically, Customs is proposing to 
exclude classification-related matters from reconciliation, 
except where a classification disagreement is pending in 
Customs or the Courts.
    A fully developed reconciliation process is important to 
AAMA's members. They recognize that, despite constant efforts 
to streamline and improve internal procedures and record 
keeping, obtaining and providing precise information on each 
importation before it crosses the border--or even within 30 
days after entry--often is impossible. With competitive global 
sourcing, the number of suppliers, individual products, and 
corresponding HTS numbers are already daunting and rising every 
day. In addition, valuation issues and potential tariff 
preferences further complicate the information involved in each 
transaction. The reason that reconciliation was created is that 
information required for the importation of a good often is not 
available, or cannot accurately be evaluated, at the time of 
importation. It is an essential element in our efforts to 
comply with the reasonable care standard.
    AAMA submits that there is no reason to restrict the use of 
reconciliation before testing it. We also are concerned that 
Customs intends to impose this restriction not only to the 
test, but to the permanent rules governing reconciliation. We 
believe the point of testing reconciliation is to learn how 
Customs and importers will handle reconciliation under actual 
conditions. We ask the Committee to insure that Customs 
conducts a full and complete test of the reconciliation 
process, including use of reconciliation to address 
classification issues.

                     Refund of MPFs for NAFTA Goods

    There are several other issues unrelated to NCAP that we 
wish to raise today.
    Under the NAFTA Implementation Act (PL 103-182), Congress 
chose not to impose merchandise processing fees (MPFs) on goods 
originating in NAFTA countries. To claim NAFTA preference, an 
importer must provide a valid certificate of origin (c/o) 
which, in practice, is not always available at the time of 
importation. Thus, importers often pay the MPF on a good they 
know is NAFTA-eligible, with the expectation that the MPF will 
be refunded later as an excess duty when NAFTA eligibility is 
proven. However, Customs has taken the position that MPFs are 
not refundable under 19 U.S.C. 1520(d), a provision included in 
the customs laws to deal with post-importation claims for 
refunds.
    AAMA submits that it was the intent of Congress that MPFs 
were not to be imposed on NAFTA-eligible goods, regardless of 
when NAFTA-eligibility is proven. In short, we believe that a 
NAFTA good is a NAFTA good, and that no legal basis exists to 
retain MFPs on such a good. We ask that the Committee review 
this matter.

                        Protesting NAFTA Claims

    A related issue of concern is Customs' position with 
respect to protesting NAFTA claims. Again, it is a violation of 
law for an importer to claim the NAFTA preference before 
receiving a valid c/o issued by the exporter. Our members often 
do not have a c/o at the time goods enter the country and 
simply file a post-entry claim when a valid c/o is received. 
When the entry is liquidated before they receive an anticipated 
c/o, they protest the liquidation under 19 U.S.C. 1514. This 
action prevents the liquidation from becoming final before the 
valid NAFTA claim.
    We have learned from local Customs officials around the 
country that they have been directed to deny all such protests. 
We understand that it is Customs' position that a claim must be 
filed under 19 U.S.C. 1520(d) within one year from the date of 
entry. That section states, ``Notwithstanding the fact that a 
valid protest was not filed, the Customs Service may . . . 
reliquidate an entry to refund any excess duties . . . .''
    This statement has been interpreted in other instances to 
mean that, if a valid protest was filed, Customs could have 
considered and allowed the importer's claim under the protest 
procedure. Sections 1520(d), like section 1520(c), is an 
extraordinary remedy that may be used when a liquidation has 
become final and the protest procedure is not available.
    We ask the Committee to explore Customs' position on this 
issue and, if it is warranted, amend the law to insure that if 
an importer is entitled to the NAFTA preference, there is 
method for obtaining a refund of the duties paid at the time of 
entry.

               Interest Payable on Refunded NAFTA Duties

    Also, AAMA asks the Committee to review last year's 
amendment to 19 U.S.C. 1505(c) to limit the interest payable on 
refunds of duty arising from NAFTA claims filed under 19 U.S.C. 
1520(d). Customs proposed this amendment that now only permits 
interest to be paid to importers from the date of filing the 
claim to the date of reliquidation. In all other refund 
situations, importers are entitled to interest for the period 
of time that the Government had use of their money--that is, 
from the date of payment to the Government to the date of 
liquidation or reliquidation. We do not believe there was a 
sound reason for Customs to ask for this change in the interest 
period or for Congress to adopt it.

                      Commissioner Weise's Legacy

    Finally, Mr. Chairman, Commissioner George Weise deserves 
much of the credit for the accomplishments to date and the 
spirit of cooperation that prevails between Customs and 
industry. As a staff member of this Committee, he offered a 
guiding hand in fashioning the monumental changes contained in 
the Mod Act, and as Commissioner of Customs he has overseen its 
implementation.
    Commissioner Weise's announcement that he will be leaving 
Customs' helm shortly causes us great concern. During his 
watch, not only has Customs committed resources to the 
development of NCAP, it has worked unceasingly too carry out 
its part of what is often referred to as ``informed 
compliance,'' the sharing of responsibility between business 
and government for complying with often complex laws and 
regulations. Our members and many other importers have 
responded positively to this emphasis on voluntary compliance 
and have devoted significant resources to reviewing and 
improving internal company procedures. Their efforts have freed 
Customs enforcement personnel to focus on illegal activities 
that threaten the health and welfare of our country.
    This sea change in attitude and development of NCAP is 
attributable to Commissioner Weise's leadership and must be 
preserved and fostered. In truth, a strong foundation has been 
laid, but much still needs to be done. We ask the Committee to 
help insure that the cooperative spirit of shared 
responsibility is maintained and that adequate resources are 
devoted to the continued development of NCAP.
    Thank you for permitting AAMA to participate in this 
hearing. I would be pleased to respond to questions from the 
Committee.
      

                                

    Chairman Crane. At this point, since we have another vote 
in progress, we will stand in recess until I get back from the 
floor. Ms. Ross hopefully will be back here, too, at the same 
time. So with that we will break.
    [Brief recess.]
    Chairman Crane. If you folks will take your seats, we shall 
resume with Mr. Hughes.

  STATEMENT OF PHILIP W. HUGHES, VICE PRESIDENT, CUSTOMHOUSE 
    BROKERAGE, UNITED PARCEL SERVICE AIRLINES, LOUISVILLE, 
KENTUCKY; ON BEHALF OF THE U.S. TRANSPORTATION  COALITION FOR  
              AN  EFFECTIVE U.S. CUSTOMS  SERVICE

    Mr. Hughes. Thank you, Mr. Chairman. It is an honor to 
address the Subcommittee today.
    I am the corporate customs manager and vice president with 
UPS, that is United Parcel Service Airlines, and I am here 
today on behalf of the Transportation Coalition. Our members 
include the Air Courier Conference of America, the Association 
of American Railroads, the Air Transport Association, the 
American Trucking Association, and U.S. flag ocean carriers.
    We want to take this opportunity to commend Commissioner 
Weise for his extraordinary contribution with regard to the 
development and implementation of the Customs Modernization 
Act, as well as his leadership and vision in directing the 
reorganization of the over 200-year-old agency. It has become 
clear that U.S. Customs modernization will serve as a model 
worldwide. Additionally, we can already see that the process 
orientation of the reorganization is a major improvement. We 
have seen good results at the port level, but the reallocation 
of resources must continue to achieve the full benefits of the 
redesign.
    It is vital to transportation and our customers that these 
modernization efforts continue without interruption. Thus, the 
next Commissioner must appreciate the complex but close 
interrelationship between enforcement and trade facilitation. 
In these days of limited resources, Customs must work smart to 
get at the contraband that harms our citizens and commercial 
fraud that injures our companies. Most international trade is 
legitimate. Freight facilitation allows Customs to focus its 
limited resources on these important enforcement matters.
    We are finally starting to realize the benefits of the Mod 
Act with regulatory packages being put forth and automation 
efforts proceeding. However, because of the magnitude and 
volume of changes, implementation of the 1993 legislation has 
been slow and somewhat painful. Neither business nor government 
can afford any further delays.
    I now would like to describe how transportation has worked 
in a partnership with Customs to improve enforcement and 
achieve high compliance levels and then recap the status of the 
various implementation items.
    Our companies have invested large sums of money to assist 
in detecting illegal contraband and to ensure proper revenue 
collection. For example, our express carrier members provide 
advance information to the invoice detail for Customs entry 
processing which allows Customs to utilize risk analysis prior 
to the arrival of the cargo. Both the express and air carrier 
members have invested in expensive, sophisticated technology, 
including x-ray machines. Our vessel members have long 
participated in carrier initiatives to address the drug 
problem. Our trucking members have security measures in place. 
Our coalition urges implementation of NAFTA's trucking 
provisions because it will improve U.S. Customs border 
operations by simplifying the crossing process and reducing 
congestion at the border. This is good for Customs and bad for 
drug smuggling.
    As to the specific implementation items, there are many 
ongoing automation initiatives. Our concern today is that the 
various programs be carefully coordinated to avoid duplication 
and inconsistency. It is also imperative that adequate funding 
be provided for operational systems. We strongly urge the 
establishment of a cargo user fee trust fund to be used for 
critical improvements such as automation programs. Currently, 
there are many issues not being adequately supported, such as 
split shipments and in-bond.
    Finally, our coalition members, along with U.S. exporters, 
have expressed concern about the Automated Export System. The 
timing and quantity of data required by AES is not feasible in 
today's environment and does not significantly improve 
enforcement, in our view.
    We are somewhat disappointed about the status of certain 
provisions. For example, Customs has yet not implemented the 
summary manifesting of letters and documents. Also, while we 
expect a notice of proposed rulemaking raising the dollar limit 
for informal entries, it has taken 3\1/2\ years to do so, and 
it will take several more months to finally implement this 
simple but cost-saving provision. Implementation of the $20 
duty waiver is still in the very early stages of consideration. 
We have difficulty comprehending why it has taken Customs so 
long to move on some of these fundamental, simple items.
    Important work on recordkeeping is also ahead of us. The 
burden of recordkeeping must be recognized, and the 
requirements must be carefully tailored to ensure that only 
essential data or records be required to be maintained. The 
costs of record retention and retrieval of excessive 
information for unnecessarily lengthy periods is astronomical. 
Statutory revisions to our recordkeeping laws may be required.
    The 1996 technical corrections bill will now allow Customs 
to provide daytime reimbursable services at express hubs, as 
was permitted at other courier facilities. In considering how 
to implement this provision, we are concerned that Customs is 
taking this as an opportunity to expand the range of services 
that are to be considered reimbursable. This must be carefully 
monitored. In fact, the entire reimbursable services program 
should be reviewed for obsolescence in light of the just-in-
time inventory practices used by business worldwide, which 
necessitates inspectional services outside normal business 
hours.
    In summary, the transportation coalition stands ready to 
work in partnership with government to make the efficiencies 
envisioned by the Mod Act and reorganization a reality. Again, 
we commend Commissioner Weise for undertaking an ambitious 
agenda over his 4-year tenure and ask the next Commissioner 
follow in his footsteps.
    Thank you, and I would be pleased to respond to any 
questions.
    [The prepared statement follows:]

Statement of Philip W. Hughes, Vice President, Customhouse Brokerage, 
United Parcel Service Airlines, Louisville, Kentucky; on Behalf of the 
U.S. Transportation Coalition for an Effective U.S. Customs Service

    Thank you, Mr. Chairman and members of the Committee for 
this opportunity. My name is Philip Hughes. I am here today for 
the U.S. Transportation Coalition for an Effective U.S. Customs 
Service. I am Vice President--Customhouse Brokerage, United 
Parcel Service Airlines. In my capacity as co-chairman with Adi 
Abel of Sea-Land Service, Inc., I am pleased to testify today 
on behalf of the Transportation Coalition on the operations of 
the U.S. Customs Service.
    Our Coalition, which represents all modes of 
transportation, includes: (1) the Air Courier Conference of 
America; (2) the Association of American Railroads; (3) the Air 
Transport Association; (4) the American Trucking Associations; 
and (5) ocean carriers.
    Our Coalition came together during legislative 
consideration of the Customs Modernization Act (the ``Mod 
Act''). We worked closely with this Committee, the Customs 
Service and the Joint Industry Group to effect this long 
overdue overhaul of U.S. Customs laws. We recognized at that 
time that customs modernization and simplification is 
imperative to both the flow of international trade and drug and 
commercial enforcement. In addition, we recognized that the 
partnership between government and the private sector 
envisioned by the Mod Act is critical to legitimate commerce in 
our global marketplace.
    We want to take this opportunity to commend Commissioner 
Weise for his extraordinary contribution first as Staff 
Director of the Trade Subcommittee helping business and 
government to achieve consensus on this important legislation 
and then as the head of Customs to implement broad new concepts 
which allow the Service to develop a fully automated commercial 
environment that will bring U.S. customs processing into the 
21st Century. It is clear that these efforts will serve as a 
model worldwide as simplification and modernization efforts are 
proceeding in various international fora such as the WCO, APEC 
and the Western Hemisphere.
    At the same time Customs was charged with the mandate to 
automate, simplify and modernize its procedures, it became 
clear that it was necessary to reorganize the over 200-year old 
agency and to redesign and restructure its core business-
related activities. Again, Commissioner Weise rose to the 
challenge and should be praised for his leadership and vision. 
The process orientation of the reorganization is a major 
improvement in customs operations. We have seen good results at 
the port level but the reallocation of resources must continue 
to see the full benefits of the redesign.
    Commissioner Weise recognized that effective enforcement 
requires sophisticated techniques such as risk analysis to 
accommodate legitimate trade vital to our economy. Customs 
administrations cannot ignore either enforcement or trade 
facilitation. In fact, to do so would be detrimental to both 
efforts. In these days of limited resources, Customs 
administrations must act ``smart'' to get at the contraband 
that harms our citizens and commercial fraud that injures our 
companies. Facilitation of legitimate trade allows Customs to 
focus its limited resources on these important issues.
    It is vital to transportation and our customers, U.S. 
business and the American public, that these modernization 
efforts continue without any further delay. Thus, the next 
Commissioner must appreciate the complex but close 
interrelationship between enforcement and trade facilitation.
    We are finally starting to realize the benefits of the Mod 
Act, with regulatory packages being put forth and automation 
efforts proceeding. However, because of the magnitude and 
volume of changes implementation of the 1993 legislation has 
been slow and somewhat painful for those who advocated customs 
reform. Thus, it is crucial that the next Commissioner continue 
Mr. Weise's good work. Delays or failure to implement the 
mandate of Congress to modernize and automate customs 
processing will cost our economy billions of dollars and will 
even hurt governmental enforcement efforts.
    I would now like to address how transportation has worked 
in partnership with the Customs Service to improve enforcement 
and achieve high compliance levels and recap the status of the 
vortation.
    Our companies have invested extraordinary sums of money to 
detect illegal contraband and to ensure proper revenue 
collection. For example, our express carrier members follow 
special procedures to provide advance information which allows 
Customs to utilize its risk analysis techniques prior to the 
arrival of cargo. Both the express and air carrier members have 
invested in expensive sophisticated technology including x-ray 
machines. Our vessel members have long participated in carrier 
initiatives to address the drug problem. Our trucking members 
have security measures in place to detect illegal drugs. Our 
Coalition urges implementation of NAFTA's trucking provisions 
because it will improve U.S. Customs border operations by 
simplifying the crossing process and reducing congestion at the 
border. This is good for Customs and bad for drug smuggling.
    While we have expressed concern in the past about the pace 
of Mod Act implementation, we recognize that the massive 
overhaul of our Customs laws together with the required 
reorganization made it difficult to implement the statutory 
revisions that we strived so hard for. But progress is now 
being made with regulations being promulgated and automation 
systems work underway. The next Commissioner must be one who 
appreciates the significance of these efforts to the operations 
of the Customs Service and to international commerce.
    As to the specific items, there are many ongoing automation 
initiatives. For many years, transportation has worked closely 
with Customs to develop these programs. Our concern today is 
that the various programs, such as ITDS, ACE, AMS, AES, be 
carefully coordinated to avoid duplication and inconsistency 
which is costly to both our companies and government. It is 
also imperative that adequate funding be provided for critical 
operational systems. We strongly urge that Customs be given 
access to the user fee trust fund for cargo facilitation 
programs such as the various automation efforts. Currently, 
there are many programs that are not being adequately 
supported, such as split shipments and in-bond. We, along with 
U.S. exporters, have expressed concern about the requirements 
of the Automated Export System (``AES''). The timing and 
quantity of data is not feasible in today's environment and 
does not improve enforcement of U.S. export control laws.
    We are somewhat disappointed, however, about the prospects 
for certain provisions of interest to transportation. For 
example, summary manifesting of letters and documents, which 
would appear to be a non-controversial issue, has not yet been 
implemented. For some inexplicable reason, the U.S. Customs 
Service views letter and document shipments as posing 
significant enforcement risks. We submit that it is time for 
Customs to implement this Congressional mandate to reduce the 
manifesting burden for these low risk shipments and turn its 
attention to the shipments that truly pose a risk to drug 
enforcement. While we expect a notice of proposed rulemaking 
raising the dollar limit for informal entry processing for low 
value shipments, it has taken Customs 3 1/2 years to do so and 
it will take several more months to finally implement this 
simple but costs savings provision. Implementation of the $20 
duty waiver for de minimis shipments is still in the very early 
stages of consideration. We have difficulty comprehending why 
it has taken Customs so long to move these items along.
    Important work on recordkeeping is also ahead of us. 
Customs just published a Notice of Proposed Rulemaking on the 
subject. The burden of recordkeeping must be recognized and the 
requirements must be carefully tailored to ensure that the 
minimum data or records be required to be maintained. The costs 
of record retention for unnecessary information for 
unnecessarily lengthy periods of time are astronomical. 
Statutory revisions to our recordkeeping laws may be required.
    The Miscellaneous Trade and Technical Corrections Act of 
1996 corrrected an anomaly in the law to allow Customs to 
provide daytime reimbursable services at courier hubs as is 
permitted at other courier facilities. Customs is now 
considering how to implement this correction. We are concerned 
that Customs is taking this technical correction as an 
opportunity to expand the range of services that are to be 
considered reimbursable. This must be carefully monitored. In 
fact, the entire reimbursable services program should be 
reviewed for obsolescence in light of just-in-time inventory 
practices used by business worldwide, which necessitates 
inspectional services outside normal business hours.
    In sum, the Transportation Coalition stands ready to work 
in partnership with this Committee and the Customs Service to 
make the efficiencies envisioned by the Mod Act and 
reorganization a reality. Again, we commend Commissioner Weise 
for undertaking an ambitious agenda over his four year tenure 
and ask that the next Commissioner follow in his footsteps.
    Thank you again Mr. Chairman for this opportunity to 
comment on the operations of the U.S. Customs Service.
      

                                

    Chairman Crane. Thank you very much.
    Ms. Ross, we understand that you were tied up testifying at 
another hearing. You were scheduled as first on our witness 
list. We will yield to you at this time.

 STATEMENT OF SUSAN KOHN ROSS, MEMBER, BOARD OF DIRECTORS AND 
  COCHAIR, CUSTOMS COMMITTEE, BORDER TRADE ALLIANCE, PHOENIX, 
                            ARIZONA

    Ms. Ross. Thank you, Mr. Chairman.
    I am here today on behalf of the Border Trade Alliance, 
BTA, which was formed in 1986 by those who live, work and/or do 
business along the southwest border for the purpose of 
addressing the issues which are unique to doing business in 
that part of the country. BTA members are legitimate people 
from both sides of the border who engage in the purchase and 
sale of legitimate goods. Because we are focused only on the 
southwest border, we have a unique perspective regarding U.S. 
Customs. It can be either a barrier to trade or a facilitator, 
and we have had experience with both.
    Our members are at the spot where many people see drug 
interdiction and cargo facilitation colliding head on. However, 
that has not necessarily been our experience.
    The BTA has been a strong supporter of U.S. Customs in 
terms of its dual mission, which is drug interdiction and trade 
facilitation. We do not believe that these missions are 
contradictory, nor do we subscribe to the idea that one should 
be focused on at the expense of the other. We find the very 
same enforcement efforts which are directed to uncovering 
commercial fraud are often the same ones that are brought to 
bear to uncover illicit shipments of contraband, including 
drugs.
    Recognizing that Customs efforts at drug interdiction will 
be enhanced if there is a public-private partnership, the BTA 
has been an early and strong supporter of the Business Anti-
Smuggling Coalition, which is a program whose goal is to 
generate proven cargo security programs, developed by the 
private sector, which can be transferred from industry to 
industry, and focuses on minimizing the likelihood of drugs or 
any other contraband or illegality from transiting with 
legitimate cargo shipments.
    We want to briefly address today, given the time 
constraints, the status of the reorganization, implementation 
of the Mod Act, outbound concerns and trade facilitation. Our 
focus is on the rapid movement of legitimate cargo and people, 
which is key to the economic well-being of the southwest border 
region.
    Cities on both sides of the border are tied together by 
many ties, including familial, cultural and social 
relationships. If goods cannot move to meet just-in-time 
inventory, or if people cannot transit the border to conduct 
legitimate business, the boom of commercial business will 
become a bust.
    In the context of Customs reorganization, we are concerned 
that the Customs Service may have gone too far in attempting to 
streamline its operations. By eliminating both the regions and 
the districts, we have a situation where the only place where 
issues of uniformity can be addressed are at headquarters, 
because in many instances the port director is not sufficiently 
trained or is unwilling or unable to make the necessary 
decisions.
    Because there is such a wide disparity in capabilities and 
decisionmaking amongst port directors, the Customs Management 
Centers, CMC, also do not operate as originally envisioned. CMC 
directors in San Francisco, San Diego, El Paso, and Laredo are 
particularly noted for their involvement with the trade. 
However, in Los Angeles the same does not occur. The CMC 
director is involved only by his attendance at industry 
functions. The fact is that the CMC directors respond to the 
needs of the trade and the capabilities of the port directors 
under their jurisdiction because headquarters is the only place 
where issues of uniformity can be resolved. We believe that the 
original idea of a point of contact for the trade at each CMC 
to deal with issues of uniformity should be revived in order to 
address this dilemma.
    We are also concerned that because of the wide disparity in 
capabilities between the various port directors, there is a 
potential for an increase in port shopping. We know the goal is 
uniformity, but in practicality we know that does not happen. 
Large importers are greatly benefited through the use of 
account managers who basically fight their battles for them 
within the agency. In the case of those who do not have account 
managers, there is an attempt and at a selection of other ports 
because those other ports are thought to be easier to deal 
with.
    Quickly, in the context of automation, our concern is that 
there are too many programs which overlap. We think Customs has 
done a good job in developing sophisticated targeting 
capabilities which allow the quicker processing of routine 
shipments, but there are too many programs. They operate 
differently in different ports.
    The example we looked to to illustrate this is line release 
versus border cargo selectivity. One is preferred over the 
other, depending on the region of the country. And then we 
overlay something like the NATP Program, the North American 
Trade Prototype, and you end up having to reinput the same data 
a second time. We think that is problematic.
    The Automated Export System creates all kinds of problems 
because of the requirement for advanced notification, which 
simply doesn't work in the border context. We are concerned 
that there are too many blitzes causing inspections of too many 
shipments without the desired result of finding violations; at 
least desired by the Customs Service.
    I want to just quickly deal with reasonable care, which is 
an area about which we are very concerned. We think in the 
absence of regulations, there is too much of an ability at the 
local level causing conflicting decisions from the same facts 
depending on the location.
    We are concerned, finally, about what will happen when 
there are regular disagreements between the trade and a given 
expert and how that will be handled.
    Finally, we want to put forth our proposal that we have 
used a number of times in the past and continue to think is a 
good option, and that is Unified Port Management. We believe 
that one organization should be in charge to control both 
personnel issues and issues of hours of operation.
    With that, I am out of time. Thank you, Mr. Chairman.
    [The prepared statement follows:]

Statement of Susan Kohn Ross, Member, Board of Directors and Cochair, 
Customs Committee, Border Trade Alliance, Phoenix, Arizona

    The Border Trade Alliance (BTA) was formed in 1986 by those 
who live, work and/or do business along the Southwest border 
for the purpose of addressing issues which are unique to doing 
business in that part of the country. BTA members are 
legitimate business people from both sides of the border who 
engage in the purchase and sale of legitimate goods. Because we 
are focused on the Southwest border, we have a unique 
perspective regarding U.S. Customs. It can be either a barrier 
to trade or a facilitator. We have had experience with both 
approaches. Our members are at the spot where many people see 
drug interdiction and cargo facilitation colliding head-on. 
That, however, is not necessarily our experience. The BTA has 
been a strong supporter of the dual missions of U.S. Customs--
drug interdiction and trade facilitation. We do not believe 
these missions are contradictory, nor do we subscribe to the 
idea that one should be focused upon at the expense of the 
other. It is our experience that the very same enforcement 
efforts which are directed to uncovering commercial fraud can, 
and often are, brought to bear to uncover illicit shipments of 
contraband, including drugs. Recognizing that Customs' efforts 
at drug interdiction will be enhanced if there is a public-
private partnership, BTA has been an early and strong supporter 
of the Business Anti-Smuggling Coalition (BASC). BASC is a 
program whose goal is to generate proven cargo security 
programs, developed by the private sector, which can be 
transferred from industry to industry, and focuses on 
minimizing the likelihood of drugs or any other contraband or 
illegality from transiting with legitimate cargo shipments. In 
terms of the focus of today's hearing, we intend to address in 
brief a number of issues: Customs reorganization, 
implementation of the Mod Act, outbound concerns and trade 
facilitation. Our focus as an organization is that rapid 
movement of legitimate cargo and people is key to the economic 
well-being of the Southwest border region. Cities on both sides 
of the border are joined together by many ties, including 
familial, cultural and social relationships. If goods cannot 
move to meet just-in-time delivery or if people cannot transit 
the border to conduct legitimate business, the boom of 
commercial business will become a bust.

                        Customs Reorganization:

    In the context of Customs' efforts to reorganize, the BTA 
believes that Customs may have gone too far in attempting to 
streamline its operations. By eliminating both the Regions and 
the Districts, Customs has created a new set of problems for 
the trade and for itself. Whereas in the past there were fifty 
nine (59) localities (the Districts and the Regions) with which 
to deal in order to resolve problems, now there are 301 ports 
plus Headquarters. Given that the staff at Headquarters has 
been reduced, an awkward situation exists in that decision 
making responsibility has been delegated to the ports, but 
often the Port Director is not sufficiently trained or is 
unwilling or unable to make the necessary decisions. For 
example, is an individual inspector being overzealous? Is the 
position of the importer or customs broker correct so that the 
involved Customs person should be overruled? If so, by and 
large, Port Directors are unwilling to take the needed steps.
    Because there is such a wide disparity in capabilities and 
decision making amongst the Port Directors, the Customs 
Management Centers (CMC) also do not operate as originally 
envisioned. Some have no interaction with the trade and some 
have nothing but interaction with the trade. To name a few, the 
CMC Directors in San Francisco, San Diego, El Paso and Laredo 
are particularly noted for their involvement with the trade. 
However, in Los Angeles, the CMC Director is involved only by 
his attendance at industry functions. We mean our comment as a 
factual statement only, because each CMC Director is responding 
to the needs of the trade and the capabilities of the Port 
Directors under his/her jurisdiction. The problem this creates 
is Customs management is becoming overwhelmed because 
Headquarters is the only place where issues of uniformity can 
be resolved. The BTA feels that the original idea of a point of 
contact for the trade at each CMC to deal with uniformity 
issues should be revived to solve this dilemma.
    Additionally, given the wide disparity in capabilities 
between the various Port Directors, the potential for an 
increase in port shopping exists. While Customs has uniformity 
as one of its goals, we know from experience it simply does not 
happen. The large importers who have been assigned Account 
Managers are delighted to have someone assigned by the agency 
to fight the uniformity battle for them. Those less fortunate 
look for other ports to ship through, because these other ports 
are perceived as easier to deal with.

                        Mod Act Implementation:

Automation:

    Turning next to implementation of the Mod Act, much can be 
said. Given limited time, we want to deal with automation and 
the status of the regulatory packages only. Many positive 
things have been accomplished as Customs has increased its 
reliance on automation. Recognizing in this era of ever-
tightening budget constraints that a significant funding 
increase for Customs is not likely, the agency has developed 
more sophisticated targeting capabilities which result in the 
allowance of quicker processing for many routine shipments. As 
previously indicated, the ability to obtain quick release of 
high volume routine shipments is important to the border 
region's economic well-being.
    There remain, however, several problem areas. One big 
concern is the number of different automation programs. For 
example, there is line release and border cargo selectivity. 
Different regions along the border prefer one program over the 
other, simply because of the processing time involved. It 
differs greatly from port to port. Of equal concern is the 
impact of then overlaying a program such as the North American 
Trade Prototype (NATAP). NATAP requires the inputting of some 
of the same data elements as either line release or border 
cargo selectivity. We would urge Customs to find ways to 
eliminate these duplicate data input situations.

                        Automated Export System:

    Also troublesome is the fact that Customs often creates 
automation programs without truly appreciating their 
consequences. The Automated Export System (AES) is just such a 
program. We applaud the goal of the program which we understand 
to be the establishment of reliable export trade statistics. 
We, in the business, know that Members of Congress, Senators 
and others in and out of the Administration are making 
decisions about our relationships with key trading partners and 
currently are forced to rely upon what we know to be wholly 
unreliable trade statistics. Where we differ with Customs, as 
does most of the rest of the trade, is in the requirement that 
a great deal of data is required well in advance of 
exportation. In formulating this program, Customs has 
apparently overlooked the reality of trading at the land 
borders. A plant on the U.S. side of the border is sometimes 
only 30 to 45 minutes away from its sister plant on the Mexican 
side of the border. To require detailed information about a 
truckload ready for export and to require that information days 
or even hours before shipment is simply an impossibility. In 
certain circumstances, the information may not be known until 
the goods are actually shipped. In those circumstances, 
providing the required data elements even minutes in advance of 
export is problematic. Other elements of the trade have weighed 
in criticizing the problems the advance notice requirement 
causes in the last minute air shipment situation or delivery 
just as receiving in the ocean context is closing. The 
potential for damage to trade across the land border by this 
advance notice requirement is simply incalculable. 
Manufacturing will come to a halt.

                                Blitzes:

    Another area of concern in the automation context is the 
number of blitzes different arms of Customs generate. Here our 
concern focuses on various programs which Customs develops that 
require goods to be inspected. We understand the need to 
periodically inspect goods. We in the trade recognize 
inspections help Customs insure that goods are legitimate. It 
also helps industry uncover internal improprieties. Where we 
have concern is the circumstance which periodically arises of 
an importer who has had a series of shipments inspected, often 
at a cost of $200 to $500 per inspection. No violations have 
been found. As a result, no further inspections are required 
for the reasons caused by the first blitz. However, a new blitz 
looking for different issues is immediately instituted, again 
driving up the cost of doing business and for no apparent 
tangible reason. Additionally, there are often times directives 
from Headquarters to inspect certain types of goods which are 
at odds with the information needed by local commercial 
personnel. The importer ends up caught in the middle, but it is 
the consumer who ends up bearing the additional cost.

                            Reasonable Care:

    Next we turn to the status of the regulations implementing 
the Mod Act. As this Committee knows all too well, the Mod Act 
was signed into law at the end of 1993. With few exceptions, no 
final regulations have yet been published. In fact, for most 
areas of reform, not even proposed regulations have been 
published. We are pleased to see that Customs has engaged the 
trade in formulating these regulations. However, it appears to 
us that a better degree of prioritization is needed.
    One overarching area of concern for us is the lack of a 
clear definition of ``reasonable care.'' Informed compliance 
requires that Customs inform the trade what is expected. 
Reasonable care requires that the trade follow that advice. 
While Customs is to be commended for the many publications 
which have been issued, one area of grave concern to all the 
trade is--when will reasonable care be defined by the agency? 
We are mindful of the proposed regulations on this topic which 
were published in January 1996. Many in the trade are aware 
that Customs continues to have internal debates about the best 
way to define reasonable care--should it be through examples? a 
definition? general principles? While we appreciate the 
difficulty encountered in addressing this issue, there is a 
vacuum in terms of what the field is to do. As a result, we see 
inconsistent action occurring. There are penalties issued to 
importers which cite a lack of reasonable care simply because 
the importer continued to rely on a long established practice 
which Customs decided was now wrong. We have seen penalties 
issued to brokers in circumstances where the behavior 
complained of had no bearing on the harm about which Customs 
complains. We have seen brokers penalized not once but twice 
over the same set of alleged improprieties, each time relying 
on different statutes. In short, without a clear definition of 
reasonable care, there is no real understanding by the trade or 
Customs of what is expected.

                            Use of Experts:

    Another open area is that of the use of experts. The Mod 
Act allows an importer to make full disclosure to his selected 
expert and then rely on that expert's advice to establish 
reasonable care. What is not clear is how Customs will respond 
if a series of importers all rely on the same expert and that 
expert habitually disagrees with Customs' point of view. We 
presume for purposes of this example that the expert is 
competent and the disagreement is legitimate. However, it is 
also unclear what will happen if the expert is incompetent. Is 
it really going to be enough to fully disclose and rely on the 
expert's opinion? At what point will Customs say the importer 
should have known the expert was wrong? In the absence of a 
clear definition by which all parties may govern themselves, it 
is only a matter of time before such a case arises because of 
the judgment call of a field officer.

                        Unified Port Management:

    As a last point, we want raise the issue of Unified Port 
Management (UPM). BTA has long been an advocate of the idea 
that for the land ports of entry to work most efficiently, one 
agency needs to be in charge for personnel purposes. Our 
concept of UPM involves leaving the agencies retaining their 
respective substantive areas of expertise. We believe, however, 
that one agency needs to be in charge to respond to staffing 
and hours of operation issues. We are aware there are pilot 
projects in Buffalo and Nogales. We know the Buffalo program by 
an INS person and the Nogales program is headed by a Customs 
person. We understand these two programs have been moderately 
successful in bringing the various agencies together to discuss 
issues of common concern, but they do not go as far as the BTA 
proposes. In both pilots, each agency retained its original 
jurisdiction, including staffing. Therefore, as we understand 
the results, no real efficiency in transit or release time was 
obtained. The BTA believes that UPM offers the government an 
opportunity to streamline operations without the need for added 
funding because it makes one agency responsible for staffing 
and hours of operation.

                              Conclusion:

    Overall, the BTA believes that Customs has been adept in 
its efforts to enter the 21st Century. The issue we find most 
troubling is that Customs has had to balance a number of 
competing requirements without any meaningful increase in its 
budget. We do not subscribe to the idea that throwing money at 
an agency solves any problem, witness our UPM proposal. We do, 
however, recognize that Customs has been given more and more 
responsibility and each additional responsibility has been 
complex in its implementation. We have mentioned several of 
those recently added responsibilities today: NATAP, 
reorganization and the Mod Act. To this list should be added 
such efforts as NAFTA and Uruguay Round implementation, along 
with new textile rules of origin and the international 
application of NATAP. It is easy to criticize any large 
organization. We think there are a number of areas in which 
Customs could improve, most notably in staffing determinations, 
the education and training of its personnel and the manner in 
which those personnel are evaluated and promoted, including 
measurement of trade facilitation in the employment evaluation 
area. Nonetheless, Customs remains near the top of the list in 
revenue collection and enforcement success. Its efforts should 
be recognized and acknowledged as suggestions are made to 
improve its operations.
      

                                

    Mr. Houghton [presiding]. I am sorry I am sort of in and 
out. This is known as the Houghton shuffle.
    Ms. Ross. That is OK. I just got here, too.
    Mr. Houghton. I understand you two gentlemen have already 
testified.
    Mr. Brauner, thank you very much.

STATEMENT OF HAROLD G. BRAUNER, CHAIRMAN OF THE BOARD, NATIONAL 
CUSTOMS BROKERS & FORWARDERS ASSOCIATION OF AMERICA, INC., NEW 
                         YORK, NEW YORK

    Mr. Brauner. Mr. Chairman, I am Harold Brauner, president 
of Brauner International Corp. of Jersey City, New Jersey. I am 
the chairman of the board of the National Customs Brokers and 
Forwarders Association of America, NCBFAA.
    This hearing has noted George Weise's impending retirement. 
No Commissioner has accomplished so much to enhance the mission 
of U.S. Customs. I would like to add the voice of the NCBFAA to 
the chorus of praise that has been heaped on Mr. Weise this 
afternoon.
    As you have heard, these are times of tumultuous change at 
Customs and in the private sector. No longer are organizations 
vertical and hierarchical; no longer is the flow of commerce 
neatly segmented, nor are roles clearly predefined; and no 
longer is the pace of business governed by the movement of 
paper, but instead it is accelerated by tools of automation and 
communication. What remains constant, however, is the 
availability of the customs broker to expedite these processes, 
wading through complexity to simplify, streamline and assure 
detailed compliance with U.S. law.
    We recognize and applaud Customs' efforts to keep pace in 
this environment. The Customs Modernization Act has given the 
Service various tools to meet these objectives. For example, 
informed compliance has fixed the responsibility on Customs to 
consult with and listen to the public before then clearly 
establishing its standards and what it expects. In all but a 
few instances, Customs has bent over backward to consult with 
the importing public before implementation of new programs. We 
acknowledge what Customs has accomplished under very 
challenging circumstances, but we are a very demanding 
constituent and partner. Customs can do better, and we will be 
the first to suggest ways that this can be accomplished.
    Customs has engaged in the restructuring to flatten its 
organization, realign its operations along functional lines, 
and empower its field organization. With 312 ports of entry, 
however, and no intermediary coordinating headquarters, greater 
independence from Washington also increases the potential for 
far less uniformity from one port to another.
    From firsthand observation, the NCBFAA must tell you that 
this experiment is failing, and that lack of uniformity is 
causing delays in the release of merchandise that has 
significant consequences to the importing public. The problem 
and solutions lie at Customs headquarters, which is, in plain 
terms, thin. Staffing at headquarters must be returned to 
fiscal year 1995 levels, and while discretion may continue to 
reside in the field, policy and implementation must be 
coordinated at the headquarters level.
    Customs is empowered by the Modernization Act to evaluate 
when the cost of collection exceeds the amount of revenue 
received and then waive that collection. Customs is presently 
considering establishing a floor that would require the Agency 
to forego collections of $20 or less, yet it has never 
conducted the analysis required to develop a cost-benefit 
ratio. In fact, that analysis would likely yield an opposite 
result. With 94 percent of all entries electronic, the cost of 
Customs in these instances is de minimis. Substantial revenues 
are being lost by this proposal.
    Customs embarked on a program in which importers in 
targeted categories were solicited to become accounts with an 
account manager assigned by Customs. The requirements are so 
onerous and the benefits so small that there were few 
volunteers. Now Customs is no longer soliciting companies. 
Rather they are telling them that they are an account and will 
hear from the assigned manager.
    We do not believe that this account system will yield any 
benefits for the Customs Service. As a matter of fact, the 
system will siphon off the best and brightest of Customs from 
the ports. The reality of commerce is importers use their 
broker to interface with Customs, and it is the broker who is 
best equipped to respond to Customs' requirements. Despite our 
repeated efforts, Customs has excluded the broker from this 
program, to the detriment of the importing public and Customs.
    NCBFAA is hearing mixed reports on the future of Customs' 
new Automated Commercial Environment, ACE. While on one hand 
sufficient appropriate funds may in doubt, there is great 
concern about Customs' own commitment. We have heard reports of 
the parallel development of competing support systems, North 
American Trade Automation Prototype, NATAP, and of the current 
Automated Broker Interface, ABI, being starved, and of 
exclusion of the Automated Export System component. We hear no 
clearly articulated vision of where Customs is going with 
development of ACE and ask that Customs report to the 
Subcommittee on automation in detail.
    While you may hear from others on this subject of Automated 
Export System, it is important, Mr. Chairman, for you to know 
of NCBFAA support for Customs' initiation of the Automated 
Export System. The current paper-oriented shippers export 
system is woefully inadequate to meet the objectives of U.S. 
law. It is incomplete, it is ignored, and it is unmanageable.
    AES provides a single point of contact in government for 
the filing of export data that will improve collections of 
revenue, export statistics and enforcement of a myriad of 
Federal export laws. We do not espouse delaying the flow of 
exports 1 minute, nor do we give carte blanche endorsement to 
every element of the Customs program. However, we are working 
closely with Customs' private sector resource group and firmly 
believe the service is on the right track. We think the 
objections can be resolved, but we also think that criticisms 
are highly overstated and that an automated system is necessary 
to bring this element of reporting into the 21st century.
    Mr. Chairman, that concludes my remarks. I am honored by 
your invitation to speak and hope that NCBFAA can continue to 
work effectively with the Subcommittee in the future.
    [The prepared statement follows:]

Statement of Harold G. Brauner, Chairman of the Board, National Customs 
Brokers & Forwarders Association of America, Inc., New York, New York

    Mr. Chairman: I am Harold Brauner, President of Brauner 
International Corporation of Jersey City, New Jersey, and 
Chairman of the Board of the National Customs Brokers and 
Forwarders Association of America. In addition to its ocean 
freight forwarder members, NCBFAA represents U.S. licensed 
customs brokers who act as an intermediary between the 
importing public and the United States Customs Service. You are 
well aware of our special relationship with the Customs 
Service: we are uniquely situated to act as an extension of the 
Service, facilitating their collection of the revenues and 
ensuring that all the laws of the United States are enforced.
    As you have heard, these are times of tumultuous change at 
Customs and in the private sector. No longer are organizations 
vertical and hierarchial; no longer is the flow of commerce 
neatly segmented, nor are roles clearly predefined; and no 
longer is the pace of business governed by the movement of 
paper but instead it is accelerated by the tools of automation 
and communication. What remains constant however is the 
availability of the customs broker to expedite these processes, 
wading through complexity to simplify, streamline and assure 
detailed compliance with U.S. law.
    We recognize and applaud Customs' efforts to keep pace in 
this environment. The Customs Modernization Act has given the 
Service various tools to meet these objectives. For example, 
``informed compliance'' has fixed the responsibility on Customs 
to inform the public of what it expects and to establish its 
standards; concurrently, it has put the responsibility squarely 
on the public's shoulders, where once informed of its 
obligations, importers and brokers must comply. In all but a 
few instances, Customs has bent over backwards to consult with 
the importing public before implementation of new programs. We 
acknowledge what Customs has accomplished under very 
challenging circumstances; however, we are a very demanding 
constituent and partner. Customs can do better and we will be 
the first to suggest ways that this can be accomplished.

                           Better Uniformity

    Customs has engaged in a restructuring to flatten its 
organization, realign its operations along functional lines and 
empower its field organization. With 312 ports of entry, 
however, and no intermediary coordinating headquarters 
(formerly the ``regions''), greater independence from 
Washington also increases the potential for far less uniformity 
from one port to another. From firsthand observation, NCBFAA 
must tell you that this experiment is failing and that lack of 
uniformity is causing delays in the release of merchandise that 
has significant consequence to the importing public. The 
problem and solutions lie at Customs Headquarters which is, in 
plain terms, ``thin.'' Staffing at Headquarters must be 
returned to FY95 levels and, while discretion may continue to 
reside in the field, policy and implementation must be 
coordinated at the headquarters level.

                          Collection of duties

    Customs is empowered by the Modernization Act to evaluate 
when the cost of collection exceeds the amount of revenue 
received, and then waive that collection. Customs is presently 
considering establishing a floor pursuant to 321(a)3 that would 
require the agency to forego collections of $20 or less. Yet it 
has never conducted the analysis required to develop a cost-
benefit ratio. In fact, that analysis would likely yield an 
opposite result: with 94% of all entries electronic, the cost 
to Customs in those instances is de minimis and substantial 
revenues will be foregone.

                           National accounts

    Customs embarked on a program in which large importers in 
targeted categories were solicited to become ``accounts'' with 
an account manager assigned by Customs. The reception was 
insufficient for Customs' purposes and, now, instead Customs is 
``telling'' importers they are an account (according to a 
Customs spokesman). We do not believe that this account system 
will yield any benefits for the Customs Service. The reality of 
commerce is that importers use their broker to interface with 
Customs. And, it is the broker who is best equipped to respond 
to Customs' requirements. Despite our repeated efforts, Customs 
has excluded the broker from this program, to the detriment of 
the importing public and Customs.

                             Broker's role

    Mr. Chairman, I appeared before you earlier this year to 
tell the committee about the resource that brokers provide the 
Customs Service. In summary, we provide a ``multiplier effect'' 
whereby a single broker with several thousand importer clients 
helps streamline interactions with the public, simplifying and 
adding to the reliability of Customs' data. We believe that 
Customs is not taking advantage of the licensed experts. Every 
broker has the authorization from the importer to act as its 
agent. We have suggested that there would be great savings in 
Customs' time, effort and efficiency by communicating 
electronically directly with the broker as the agent of the 
importer.

                          Brokers examination

    On a number of occasions we offered to prepare the 
questions for the examination, requesting only reimbursement 
for the Association's expenses, at an amount far less than is 
presently being spent by the Customs Service. Instead, the 
Office of Personnel Management was given the task of both 
preparing and administering the examination. While OPM are 
experts in administering examinations and evaluating the 
questions, they are not experts on the subject matter. We are 
prepared to carry out the preparation assignment, provided we 
receive reimbursement.
    Furthermore, Customs needs to move expeditiously in 
providing a ``make up'' examination, thereby increasing the 
availability of examination to prospective brokers.

                               Automation

    NCBFAA is hearing mixed reports on the future of Customs' 
new Automated Commercial Environment (ACE). While on the one 
hand sufficient appropriated funds may be in doubt, there is 
great concern about Customs' own commitment. We have heard 
reports of he parallel development of competing support systems 
(NATAP), of the current Automated Broker Interface (ABI) being 
starved, and of exclusion of the Automated Export System 
component. We hear no clearly articulated vision of where 
Customs is going with development of ACE and ask that Customs 
report to the Committee on automation, in detail.

                        Automated export system

    While you may hear from others on the subject, it is 
important, Mr. Chairman, for you to know of NCBFAA's support 
for Customs' initiation of the Automated Export System. The 
current, paper-oriented Shippers Export System is woefully 
inadequate to meet the objectives of U.S. law: it is 
incomplete; it is ignored; it is unmanageable.
    AES provides a single point-of-contact in the government 
for the filing of export data that will improve collections of 
revenue, export statistics, and enforcement of a myriad of 
federal export laws. We do not espouse delaying the flow of 
exports one minute. Nor, do we give a carte blanche endorsement 
to every element of Customs program; however, we are working 
closely with Customs' private sector resource group and firmly 
believe that the Service is on the right track.
    We think that objections can be resolved--but we also think 
that criticisms are highly overstated and that an automated 
system is necessary to bring this element of reporting into the 
21st Century.
    Mr. Chairman, that concludes my remarks. I am honored by 
your invitation to speak and hope that NCBFAA can continue to 
work effectively with the Committee in the future.
      

                                

    Mr. Houghton. Thank you, Mr. Brauner.
    We are honored to have you here, Mr. Hughes, Mr. Bobeck, 
Ms. Ross. I am not going to ask any questions. Do you have any 
specific statements you would like further to enter into the 
record?
    Mr. Bobeck. If I could, I would like to make one statement, 
Mr. Chairman. There are two matters that are very important to 
the automobile manufacturers on which we may seek the 
assistance of the Subcommittee with legislation. The first is 
interest payable on refunded NAFTA duties. The issue here is 
putting importers and the government back on equal footing when 
it comes to paying interest on refunded NAFTA duties. Simply 
put, importers must pay interest on underpayments of duty, and 
the government must pay interest on overpayments of duty. In 
other words, interest is payable for the period that one party 
has the use of the other's money. However, under last year's 
Miscellaneous Trade and Technical Corrections Act, Customs 
received basically a shorter interest period, so we would like 
to see that put back.
    Mr. Houghton. You feel it should be a legislative process?
    Mr. Bobeck. Yes.
    A second related issue is refund of merchandise processing 
fees for NAFTA goods, which I discussed earlier in my 
testimony.
    Mr. Houghton. I am sorry I didn't hear it. Thank you very 
much.
    Anybody else got anything?
    Ms. Ross. If I could, Mr. Chairman, the issue that the 
Border Trade Alliance will be putting forward, and I understand 
the legislative package may come through soon, is on Unified 
Port Management. Our concept of that is----
    Mr. Houghton. What is that again?
    Ms. Ross. Unified Port Management. The concept behind it is 
that each of the agencies with technical expertise will retain 
that expertise. However, we believe that one agency should be 
put in charge to deal with issues of personnel and hours of 
operation. There are currently----
    Mr. Houghton. This is in order to make the border crossing 
more efficient?
    Ms. Ross. Correct.
    There are currently a couple of pilot projects going on, 
one in Nogales and one in Buffalo, but those don't really give 
the individuals involved in running them the kind of discretion 
that we are talking about. What we find is that too often one 
agency or the other has problems staffing at the times of peak 
need. We think if there could be better coordination on that, 
it would be quite helpful.
    Mr. Houghton. OK.
    Mr. Brauner. The NCBFAA would like to enter into the record 
a written statement of some answers of questions that the 
Subcommittee proposed to us.
    Mr. Houghton. That will be perfectly possible. Thank you 
very much for taking the time to be here.
    [The following questions were subsequently submitted by 
Chairman Crane to the members of the panel:]

Responses to Chairman Crane's Questions from the National Customs 
Brokers & Forwarders Association of America

    1. What is your view on Customs' proposed regulations 
regarding record keeping requirements?
    Generally, the provisions track the statute. However, with 
regard to documents which must be kept under 19 USC 
Sec. 1509(a)(1)(A) which and subject to penalties, the 
Service's approach is much too restrictive. Under the Customs 
regulations, these documents are required to be submitted at 
the time of entry. Historically, prior to the Mod Act, 
submission of many of these documents was routinely waived by 
the Ports and often were never even obtained by the importer. 
Certainly, if they are necessary for determining the valuation, 
classification, etc., of imported merchandise, the Import 
Specialist would require they submission prior toliquidation of 
the entry.
    The record keeping regulations require that the (a)(1)(A) 
documents be maintained for five years. The failure to produce 
them upon demand during this five year period subjects the 
importer to the chilling statutory penalties. This serves no 
purpose other than to be a ``gottcha'' which can be used by the 
Customs Auditors. Customs has the authority to reduce the 
period for maintaining these records until liquidation and we 
have urged them to do so. In that Customs has not done this, we 
urge the Congress to amend the statute accordingly.
    2. How have Customs changes to the role and function of the 
Customs Management Centers (CMC's) changed the way in which 
brokers operate at the port level? Are brokers permitted to 
operate along CMC geographic lines as they were under the 
District?
    As originally conceived, the CMC's are ``transparent'' to 
the private sector. They serve the various ports in connection 
with budgets, training and management matters and do not 
interface with the public.
    At the request of the NCBFAA, Customs adopted regulations 
which keep the geographic boundaries for broker permits as they 
were prior to the Mod Act; supervision of the broker's 
activities are handled by the ``full service'' port in that 
former district.
    3. How has Customs reached out to the brokers to implement 
the provisions of the Customs Modernization Act? Is it your 
sense that Customs is trying to reduce the burden of its 
regulations on industry?
    As stated in our testimony, in connection with national 
accounts, despite our repeated requests, Customs made no effort 
to see that importers were told that they could invite their 
broker(s) to any meetings with Customs, if they chose to do so. 
In some instances we found that the policy was to see that the 
broker was excluded.
    We believe that the provisions of the Modernization Act 
require that Customs implement more, not less, regulations. For 
instance, the new provisions covering NEP, reconciliation, 
periodic payment, the (a)(1)(A) list, etc., require new 
regulations, in addition to those that already exist. This 
obviously places greater burdens on the importing public.
    4. Should Customs issue a separate for each port, or should 
there be a National Permit?
    Under the understanding we reached with the Customs 
Service, the provision in section 1641 for a ``national 
permit'' is limited to ``remote location'' filing. As stated in 
(2) above, the area boundaries for permits are maintained as 
they were before passage of the Mod Act.
    5. During the debates over the Customs Modernization Act, 
we were assured that Customs Management Centers would never be 
involved in operational dealings relative to actual Customs 
entries. Has this, in fact, occurred? How have the CMC's 
affected the role of the brokers at the ports of entry?
    Customs has remained true to its word. CMC's play no 
operational role with regard to entries. [See, also, our 
response to (2) above.]
      

                                

Responses to Chairman Crane's Questions from the U.S. Transportation 
Coalition for an Effective U.S. Customs Service

    1. It is my recollection that the Customs Modernization Act 
encouraged Customs to raise the informal entry processing limit 
for low-value shipments. It is discouraging to learn that years 
later Customs still has not implemented this provision. What 
can the Subcommittee do to expedite Customs' handling of this 
matter?
    It is our understanding that the Customs Service will 
finally be publishing its Notice of Proposed Rulemaking raising 
the informal entry limit, possibly as soon as next week. We ask 
that the Subcommittee encourage the Customs Service to consider 
any comments as expeditiously as possible given the long delay 
in implementation and because Customs has already considered 
comments submitted in response to its announcement to raise the 
informal entry limit published on the Customs Electronic 
Bulletin Board (``CEEB''). Certainly, it should not take as 
long to finalize the regulation than the last time Customs 
raised the informal entry limit, which was done without the 
benefit of a CEEB notice and took 7 months between publication 
of the Notice of Proposed Rulemaking and the final rule in the 
Federal Register.
    2. Summary Manifesting of letters and documents does appear 
to be a non-controversial issue. In your experience, do letters 
and documents pose a significant enforcement threat? How much 
would you estimate it costs the express industry each year to 
provide individual manifesting for letters and documents?
    It is ludicrous to believe that letter and document 
shipments pose a significant enforcement risk. The facts simply 
do not bear this out. Unfortunately after 5 years, we are still 
at an impasse with the Customs Service on this sensible 
procedure. The practice of summary manifesting, which had been 
utilized at some ports, was codified by the Mod Act in 1993. 
Indeed, the failure to implement this provision is also very 
disappointing. There is no excuse for Customs to refuse to 
implement. The crux of the problem stems from a belief by the 
Customs Service that letter and documents must be bagged by 
each country separately for effective enforcement. The express 
industry has explained ad nauseam to the Customs Service that 
the law provides them with every necessary control to stop all 
shipments if they want to examine shipments from a particular 
country. Thus, express companies have every incentive to 
segregate letter and document shipments from high risk 
countries from the rest of the world. However, our express 
members have also explained to the Customs Service that 
individual bagging does not work with our operations. Thus, the 
Customs Service does not need to require separate bagging by 
each country for effective enforcement. We think that Customs 
should direct its attention to higher risk issues and implement 
the will of Congress with regard to letters and documents. The 
annual costs to our industry for providing individual 
manifesting for letters and documents is approximately $5 
million.
    3. In your written testimony you also expressed concern 
about the requirements of the Automated Export System (AES). 
You state that the timing and quantity of data is not feasible 
in today's environment and does not improve enforcement of U.S. 
export-control laws. What are your industry's specific concerns 
about AES?
    First of all, we want to make it absolutely clear that our 
Coalition members heartily endorse automation for exports. We 
also fully support the goals of effective export control 
enforcement and the collection of accurate statistics. However, 
we do have problems with AES, as currently formulated by 
Customs. Consequently, our members have been working with the 
Trade Resource Group (``TRG'') to develop an alternative to 
Customs' proposal. At this time, Customs and Census wants 
information predeparture. This does not work for exporters 
because the information has not been finalized. It also does 
not work for certain modes of transportation, such as our air 
and air express members because of the time constraints of 
their service. The AES program must be developed to accommodate 
the different modes of transportation. Basically, Customs is 
trying to replicate the customs import entry process, which is 
entry specific, for exports. This simply does not work for 
exports and would have a detrimental impact on U.S. companies 
exporting goods worldwide. The vast majority of exports are 
legitimate and are not controlled. In any case, the Commerce 
Department has regulations in place to ensure full compliance. 
Therefore, a transaction by transaction approach is neither 
effective nor necessary. We would suggest that AES be modified 
to conform to the timing and data ownership of the business 
process. Any new automated reporting system should provide 
exporters with a post-departure reporting option. This would 
not compromise the accuracy of statistical data. In fact, it 
should improve accuracy since the reality of export business 
today is that the SED is not available for exporters and many 
modes of transportation prior to loading. Moreover, carriers 
should be responsible for reporting transportation data and 
exporters should be responsible reporting commodity data. 
Finally, AES should be developed to offer tangible benefits to 
the trade, such as those envisioned by the International Trade 
Data System (``ITDS'') including one-stop shopping to provide 
all data elements for all government agencies and possible use 
of data for foreign import clearance purposes.
    4. I am concerned about a statement in your written 
testimony that Customs may be making an overly broad 
interpretation of a provision which was included in the 
Miscellaneous Trade and Technical Corrections Act of 1996, 
which allows Customs to provide daytime reimbursable services 
at courier hubs. In what way is Customs using this technical 
correction as an opportunity to expand the range of services 
that are considered reimbursable?
    This technical correction of the user fee law simply 
corrected an error in the law which prevented Customs from 
providing daytime reimbursable services when requested at 
courier hubs as they do at other courier facilities. During 
legislative consideration of this technical amendment prior to 
inclusion in the 1996 Technical Corrections bill, the Customs 
Service and the industry addressed the issue of which services 
are properly reimbursable under 19 U.S.C. 58c in draft report 
language. In this regard, it was stated:
    --This amendment is intended to make a technical correction 
to existing law (19 U.S.C. 58c) to clarify that reimbursable 
services may be provided by Customs to centralized hub 
facilities during daytime hours as they are currently provided 
to express consignment carrier facilities. The amendment also 
clarifies that services related to the release determination, 
such as the costs of Customs inspectors and aids, canines and 
entry data processors, are reimbursable regardless of whether 
they are performed on site or not. In many cases these services 
are not provided at the express consignment carrier facility or 
centralized hub facility but are related to the release 
determination and, therefore, are properly reimbursable. It is 
not intended that the services subject to reimbursement 
pursuant to 19 U.S.C. 58c are to be expanded beyond those 
related to the release determination if such services are 
already covered by general user fees under 19 U.S.C. 58c(a). 
Services covered by this amendment continue to be the same 
services subject to reimbursement prior to the effective date 
of these amendments.
    While we were initially concerned that Customs was seeking 
to bill for services beyond those necessary for release, there 
are indications that Customs intends to abide with the 
understanding reflected in the draft report language. This 
should be carefully monitored. We are also concerned that 
Customs intends to bill for services retroactively to the 
effective date of the 1996 Technical Corrections bill. To our 
amazement, we believe that Customs is taking the position that 
this provision does not require implementing regulations, as it 
has required for the raised de minimis and raised informal 
entry limit.
    We also believe that the entire reimbursable program should 
be revisited. The premise for reimbursement is that Customs is 
rendering special services. In some ports, express industry 
business has risen to in excess of 50 percent of the volume. 
Thus, at some ports express business cannot be characterized as 
a special service but actually constitutes regular customs 
business subject to user fees which would more than cover the 
services provided.
    5. In your written testimony, you describe measures taken 
by the express couriers to provide advance information which 
allows Customs to utilize its risk-analysis techniques prior to 
the arrival of cargo. Could you elaborate on these carrier 
initiatives to assist Customs in its enforcement mission?
    Under the Express Consignment regulations, 19 C.F.R. Part 
128, the express industry provides manifest data prior to the 
arrival of merchandise. The industry is capable of providing 
such information at this time because of the substantial 
investments it has made in automation. This enables Customs to 
utilize enforcement techniques such as risk analysis that have 
come to be internationally recognized as necessary for the 
volume of trade as we enter the 21st Century. The industry has 
also worked closely with the Customs Service at high risk entry 
points, providing x-ray equipment for the detection of illegal 
contraband.
    6. In your written testimony, you addressed the issue of 
record keeping requirements. Given that Customs has recently 
issued new regulation which expand the record keeping 
requirements for importers and brokers, what recommendations 
can you make to this Subcommittee that would help reduce the 
required record keeping to the maximum extent possible?
    Customs has recently issued a Notice of Proposed Rulemaking 
on recordkeeping. We will be commenting on the NPRM as our 
members have done informally in the past with regard to this 
subject but we note for the record here that there will be 
issues, which may require legislative action. Recordkeeping 
requirements under the law are the same regardless of the type 
of import transactions and to our knowledge this has never been 
reviewed. We believe that some fine tuning is in order now that 
Customs is implementing the Mod Act recordkeeping requirements 
including significant penalties for failure to keep key entry 
information. Recordkeeping requirements and retention periods 
should be tailored to the type of entry and the particular 
party submitting the information. At the present time, there is 
no symmetry between the type of entry and the particular 
requirements and record retention periods. For example, the 
same recordkeeping requirements and retention periods apply to 
de-minimis shipments as those which require formal entry. There 
is no reason to require companies to keep such detailed 
information for 5 years when Custom compliance efforts will be 
done at the time of entry for these very low value shipments. 
The costs of the retention are astronomical. In addition, 
Custom recordkeeping requirements and retention should follow 
what is done in the normal course of business.
    7. Remote filing is now possible under the Mod Act, meaning 
that a customs broker does not have to physically file an entry 
at the port where the merchandise is arriving. Is there 
sufficient grounds, given the enforcement headache, to 
eliminate the in-bond program?
    The in-bond program is an important mechanism for in-
transit shipments. There is no reason to enter such shipments 
for consumption since they never the commerce of the United 
States. In-bond safeguards the revenue while obviating the need 
to go through the formalities of filing consumption entries 
with Customs.
    We hope that you find these responses helpful in your 
assessment of the operations of the Customs Service. Should the 
Subcommittee have any further questions, we would be pleased to 
address them.
      

                                

Responses to Chairman Crane's Questions from the Border Trade Alliance

    1. In your written testimony, you suggested that Customs 
may have gone too far in attempting to reorganize and 
streamline its operations. Could you elaborate on this 
criticism? Please explain, for example, what you mean by port 
directors being ``unable or unwilling to make necessary 
decisions.''
    Reorganization: Customs has empowered the ports to 
independently make decisions. As a result, there is no specific 
group or section within Customs where issues of uniformity can 
be addressed by the trade except at Headquarters. The BTA 
thinks the concept of an individual at each Customs Management 
Center (CMC) whose function it is to deal with the trade on 
such issues should be resurrected and implemented. Otherwise, 
an already streamlined Headquarters staff will become 
overburden with issues which can often be successfully resolved 
by field personnel.
    We recognize, of course, that much of how well a port is 
managed depends on the skills, temperament and cohesion of the 
staff. A key ingredient is the leadership skills of the Port 
Director and those skills vary greatly between Port Directors. 
Often times the natural rivalry between different elements of 
Customs is well-balanced by strong leadership. The lack of it 
frequently allows one element of Customs to make the key 
decisions within the port at the expense of other segments of 
Customs and/or the trade. As a result, we see big differences 
in how well ports are being managed. In some cases, the Port 
Director is more vigorous in exercising his/her management 
position. In others, the Port Director is passive and often 
unwilling to take a position which overrules any of the people 
under his/her management, even when the position involved is 
contrary to policy or otherwise obviously questionable.
    We find that the Port Directors as a group are well-meaning 
and well-intentioned Customs employees. Many are highly 
skilled, capable and effective managers. However, the biggest 
problem many of them face is a lack of training in how to 
manage. For many years the Port Directors relied on the 
District Directors who supervised them. With reorganization, it 
appears they were let lose to manage without benefit, in some 
instances, of the necessary skill sets. An example of the lack 
of necessary training is evident from the wide disparity in 
terms negotiated with the various National Treasury Employees 
Union (NTEU) locals.
    Further, a new development for Customs is the concept of 
process owners. In many situations, the process owner ``owns'' 
the process but often does not have or does not use the 
authority that goes with his/her position. As a result, 
decision making for both complicated and uncomplicated issues 
has the potential to become a major problem.
    2. I share your concern about the problem of ``port 
shopping'' by importers searching for the port that offers the 
most favorable ruling for their merchandise. Do you feel that 
the Customs reorganization has contributed to this problem? 
What do you feel Customs can do to improve the uniformity of 
decisions and operations at the ports of entry?
    Port Shopping: Customs reorganization has contributed to 
the port shopping problem to the extent that if an importer is 
unable to resolve an issue (operational or financial) at one 
port, there is a great temptation to move his transactions to 
another port.
    Uniformity of decisions and operations could be addressed 
in very practical ways. Customs could do a better job of 
providing information about policy situations on a more regular 
basis to all its personnel and the trade and then insure that 
there is compliance with that policy. We are aware that Customs 
has begun a series of port councils, i.e. meetings amongst 
selected port directors with similar problems seeking ways in 
which to resolve those problems. We see this as a positive 
step. However, the best way to insure uniformity is for Customs 
to provide more training and follow-up and include conformity 
with policy and facilitation of trade in a practial and legal 
fashion as part of its personnel evaluations.
    Related Labor Issues: Additionally, BTA would suggest that 
the national NTEU contract include uniform provisions about 
staffing at similarly situated ports. In a border environment, 
the cause of crossing delays often can be directly attributed 
to staffing levels. It appears to us that two land border ports 
of similar size should have similar staffing levels. However, 
our review of the local NTEU contracts reflects such not to be 
the case. It is important to leave individual inspectors free 
to use their intuition and expertise regarding the clearance of 
individuals or shipments. However, comparable staffing would 
address equal treatment between the ports. Uniformity of 
staffing levels for similar functions would also be helpful.
    3. What suggestions could you make on how to streamline 
Customs' facilitation of trade along the border? Do you think a 
Unified Port Management will make border crossing more 
efficient?
    Unified Port Management: The Border Trade Alliance (BTA) 
has contended for some time that Unified Port Management (UPM) 
would greatly assist trade facilitation. The BTA concept of UPM 
is that the substantive jurisdiction of each federal agency 
remains with that agency. What would change is that one agency 
would have responsibility to manage the port for administrative 
purposes, e.g. staffing, hours of operation, and the like.
    BTA believes that by streamlining administrative functions, 
the ports are in a better position to respond to peak hours of 
operation, whether the personnel involved work for Customs or 
any of the other agencies.
    Related Labor Issues: BTA wishes to reiterate here its 
concerns regarding comparability of staffing at similarly 
situated ports.
    4. What is the experience of your members with regard to 
drugs being smuggled into the U.S. through commercial cargo? 
Could you provide the Subcommittee with an assessment of the 
successes and failure of the Line-Release Program?
    Drugs: Our members have not had their legitimate shipments 
used to smuggle drugs. Despite this fact, we have discussed the 
question of drug smuggling with contacts within the law 
enforcement community. All concede there is no ``hard'' 
evidence to support the oft-quoted statement that 70% of all 
drugs entering the U.S. are smuggled through Mexico. 
Nonetheless, we recognize the perception that a large quantity 
of drugs is being imported into the U.S. through Mexico. We are 
also concerned that the discussion about drug interdiction 
seems to occur divorced from any discussions seeking to resolve 
the underlying causes giving rise to heightened domestic demand 
for illicit drugs.
    In response to the perceptions which persist, the BTA has 
taken a pro-active role and assumed a leadership position in 
the formation and expansion of the Business Anti-Smuggling 
Coalition (BASC), a public-private partnership which focuses on 
cargo and personnel security issues as a means to lessen the 
likelihood of the use of legitimate cargo to smuggle contraband 
or other illegalities into the U.S.

                             Line Release:

    Line release has had a positive affect in the facilitation 
of trade. It was originally designed to allow the expedited 
clearance of routine low-risk goods from well-established and 
pre-screened importers. The program has now been enhanced by 
the Land Border Carrier Initiative which pre-screens truckers 
and drivers. We do not think line release has been a failure, 
although its use has been expanded far beyond its original 
intention in terms of the number and scope of shipments 
approved under the program. In many border communities, Border 
Cargo Selectivity (BCS) has become more popular as a means to 
expedite the release of cargo. The advantage of BCS is that it 
includes all types of commodities and importers.
    Regardless of the program which is employed, Customs is 
faced with the daunting task of ever-increasing quantities of 
shipments without corresponding funding or personnel increases. 
As such, it must continue to develop programs which allow it to 
pre-screen companies and their goods. Risk assessment and 
targeting will greatly enhance the ability of Customs to 
perform its dual mission of trade facilitation and law 
enforcement. Line release and Border Cargo Selectively are 
simply two programs in a necessarily ever- increasing arsenal 
of tools available to Customs, any one of which in the abstract 
is susceptible to criticism.
    5. What do you see as the differences between the Customs 
Management Centers (CMCs) and the regional offices which 
existed prior to the Customs Modernization Act? Do you feel 
that ports of entry located near CMCs receive better treatment 
than ports in more remote locations?
    With the former regional offices, there was more 
interaction between its personnel and the trade in such areas 
as insuring uniformity and providing a less parochial 
operational point of view. With the CMCs, the involvement of 
the Director with the trade is wholly dependent upon the 
strength of the individual Port Directors under his/her 
jurisdiction.
    The regions also provided a means for Customs, on a broader 
scale, to come to know individuals and companies within the 
trade community so as to be able to identity the good from the 
bad actors. While Customs is still able to do so by 
communication between the ports, a great deal more effort may 
need to be expended. Additionally, the relationship developed 
between the trade and the regional personnel often allowed for 
the free-flow of ideas between equals which led to practical 
and legal problem resolution. Under the current structure, the 
port is only answerable to the CMC, which supposedly has no 
interaction with the trade, thereby putting the trade in a 
position where the only place it can turn for problem 
resolution is to Headquarters.
    We have seen nothing to suggest that one port is benefiting 
over another dependent on proximity to a given CMC.
    6. Are you concerned about the controls Customs has in 
place to protect innocent third parties under its civil asset 
forfeiture authority?
    BTA's members have not been involved with the civil asset 
forfeiture laws. However, individual attorneys have had 
experience representing clients who have suffered under this 
procedure. In the monetary seizure situation, we recommend that 
Customs develop a procedure which routinely allows simultaneous 
disposition of the civil and criminal cases with full 
disclosure to defendants of the consequences of a guilty plea.
      

                                

    Mr. Houghton. Now, Mr. Rakowsky. Please proceed, Mr. 
Rakowsky. Nice to have you here.

STATEMENT OF ANDREW R. RAKOWSKY, PRESIDENT, NATIONAL SECRETARY 
 AND CUSTOMS SERVICE AGENCY, FEDERAL LAW ENFORCEMENT OFFICERS 
           ASSOCIATION, EAST  NORTH  PORT,  NEW  YORK

    Mr. Rakowsky. Thank you sir. Thank you for having me.
    Chairman Crane, Members of the Subcommittee, ladies and 
gentlemen, my name is----
    Mr. Houghton. That is not my name.
    Mr. Rakowsky. Yes, I know, sir. Mr. Houghton. It is a 
matter of protocol.
    Mr. Houghton. That is OK. I will be Mr. Crane for the day.
    Mr. Rakowsky. My name is Andrew Rakowsky. I am presently 
employed as a special agent for the U.S. Customs Service in 
Newark, New Jersey. I have been employed by the Customs Service 
as a criminal investigator for approximately 14 years. I also 
serve as the national secretary and Customs Service Agency 
president for the Federal Law Enforcement Officers Association, 
FLEOA, which is a voluntary, nonpartisan, professional 
association representing approximately 13,000 Federal law 
enforcement officers and special agents from over 52 agencies 
of the Federal Government.
    Our members include management as well as rank and file 
from the U.S. Customs Service special agents; personnel from 
the Air and Marine Interdiction Divisions; U.S. Secret Service; 
Bureau of Alcohol, Tobacco and Firearms; Internal Revenue 
Service Criminal Investigations; Drug Enforcement 
Administration; Federal Bureau of Investigation; Immigration 
and Naturalization Service; U.S. Marshals Service; and a myriad 
of other Federal agencies, which include inspector generals 
from Interior, Justice, Labor, and Treasury.
    It is my privilege to come before this Subcommittee as a 
representative of FLEOA. I wish to compliment this Subcommittee 
on Trade, and in specific Congressman Crane and Congressman 
Shaw for authorizing appropriations for each of fiscal years 
1998 and 1999 for the U.S. Customs Service. This will allow 
$2.5 million to be spent rebuilding the U.S. Customs Service 
air and marine interdiction programs, as well as $2.5 million 
which would be dedicated to law enforcement activities and 
increasing the overall staffing levels of special agents who 
investigate counternarcotics and antimoney-laundering 
activities.
    FLEOA hopes this Subcommittee's strong message of support 
of the Customs Service is an indication of things to come.
    Also at this time we would like to publicly express our 
sincere thanks to the Commissioner George Weise for many years 
of dedicated service to the Federal Government.
    For the past several years, the Office of Investigations, 
which includes special agents, air interdiction officers, 
Customs pilots, marine enforcement officers, have been cut back 
drastically. For a variety of reasons, the Customs Service has 
allocated those positions and resources to places like the 
southwest border in support of Operation Hardline and Puerto 
Rico in support of Operation Gateway.
    FLEOA again supports and applauds the Customs Service 
commitment to those successful operations. However, we also 
believe that in light of NAFTA, the Office of Investigations 
must also expand its resources, not just to include the 
southwest border and Puerto Rico, but every inland office, 
including Florida, the New York area and California, that also 
focuses on the continued and growing threat of smuggling and 
crime being imported through our borders into the United 
States.
    The criminal investigators of the Custom Service are among 
the best in the world. Besides conducting investigations of 
major narcotics trafficking and money laundering organizations, 
they conduct criminal and civil investigations pertaining to 
child pornography, terrorism, weapons smuggling, intellectual 
property rights violations, organized crime, and a host of U.S. 
laws which Customs enforces for other Federal, State, and local 
law enforcement officers.
    Of particular concern to this Subcommittee are the fraud 
investigations which help protect the American industry and the 
consumer from illegal practices of foreign nations and 
corporations. It is important that this Congress understands 
the dedication and lifelong commitment that each law 
enforcement officer has made to the Customs Service. This is 
not just a job, it is a way of life for us.
    FLEOA believes three things must happen in order to get the 
Office of Investigations back on track. We offer these three 
suggestions for your consideration: First, Customs must hire 
agents and investigative support personnel in order to function 
with peak efficiency and to bring it back to its 1989 through 
1992 staffing levels; second, Customs must be funded 
supplementally by Congress, and it must help us repair its 
infrastructure; and third, Congress must fully fund the Office 
of the Treasury Under Secretary for Enforcement. Under 
Secretary Kelly must have the resources and staff to have 
oversight of the Office of Investigations as well as other 
Treasury agencies, such as Secret Service, ATF, and IRS, which 
make up 40 percent of Federal law enforcement.
    Constrained resources in terms of both funding and staffing 
levels must be addressed by this Congress. FLEOA believes that 
by attending hearings such as this, Congress will get a clear-
cut perspective on the needs of our personnel who wage a daily 
battle against crime.
    I thank this Subcommittee very much for inviting FLEOA to 
testify. I now look forward to answering any questions, sir.
    [The prepared statement follows:]

Statement of Andrew R. Rakowsky, President, National Secretary and 
Customs Service Agency, Federal Law Enforcement Officers Association, 
East North Port, New York

    Chairman Crane, Members of the Subcommittee, Ladies and 
Gentlemen:
    My name is Andrew Rakowsky. I am presently employed as a 
Special Agent for the United States Customs Service Office of 
Investigation in Newark, New Jersey. I have been employed by 
the Customs Service as a criminal investigator for 
approximately fourteen years. I also serve as the National 
Secretary and Customs Service Agency President for the Federal 
law Enforcement Officers Association (FLEOA), which is a 
voluntary non-partisan professional association representing 
approximately 13,000 Federal law enforcement officers and 
Special Agents from over fifty two agencies of the Federal 
Government. Our members include management as well as the rank 
and file from U.S. Customs Service Special agents and personnel 
from the Air and Marine Interdiction Division, the U.S. Secret 
Service; Bureau of Alcohol, Tobacco and Firearms; Internal 
Revenue Service--Criminal Investigations and Inspection; Drug 
Enforcement Administration; Federal Bureau of Investigation; 
Immigration and Naturalization Service; U.S. Marshals Service; 
Postal Inspection Service; Naval Criminal Investigation 
Service; the Bureau of Diplomatic Security in the State 
Department; U.S. Park Police--DOI; Bureau of Land Management--
Special Agents and Rangers; Defense Criminal Investigative 
Service and the Officers of Inspector General at the following 
departments: Agency of International Development, Agriculture, 
Commerce, Defense, Education, Energy, Environmental Protection 
Administration, Federal Aviation Administration, Federal 
Deposit Insurance Corporation, Federal Emergency Management 
Agency, General Accounting Office, General Services 
Administration, Health and Human Services, Social Security 
Administration, Housing and Urban Development, Interior, 
Justice, Labor and Treasury.
    It is a privilege for me to come before this subcommittee 
as a representative of FLEOA. I want to compliment the 
subcommittee on Trade and in specific Congressman Crane and 
Congressman Shaw for authorizing appropriations for each of 
fiscal years 1998 and 1999 for the U.S. Customs Service. This 
will allow $2.5 million to be spent rebuilding the U.S. Customs 
Service Air and Marine Interdiction programs, as well as $2.5 
million which would be dedicated to law enforcement activities 
and increasing the overall staffing level of Special Agents who 
investigate counter narcotics and anti-money laundering 
activities.
    I also wish to publicly express our sincere thanks to 
Commissioner George Weise for his continued support and 
dedication to the law enforcement mission of the Customs 
Service. FLEOA hopes that this subcommittee's strong message of 
support of the Customs Service is an indication of things to 
come.
    For the past several years, the Office of Investigations, 
which include Special Agents, Air Interdiction Officers, Pilots 
and Marine Enforcement Officers has been cut back drastically. 
For a variety of reasons the Customs Service has allocated 
those positions and resources to places like the southwest 
border in support of Operation Hardline and Puerto Rico in 
support of Operation Gateway. FLEOA supports and applauds the 
Customs Service commitment to these successful operations.
    However, we also believe that in light of NAFTA the Office 
of Investigations must also expand its resources not just at 
the southwest border and Puerto Rico but at every-in-land 
office that also focuses on the continued and growing threat of 
smuggling and crime being imported through our borders into the 
United States.
    The criminal investigators of the Customs Service are among 
the best in the world. Besides conducting investigations on 
major narcotics trafficking and money laundering organizations, 
they conduct criminal and civil investigations pertaining to 
child pornography, terrorism, weapons smuggling, intellectual 
property rights violations, organized crime and a host of 
United States laws which Customs enforces for other Federal, 
state and local law enforcement agencies. Of particular concern 
to this subcommittee are the fraud investigations which help 
protect American industry and the consumer from illegal 
practices of foreign nations and corporations.
    It is important that Congress understands the dedication 
and life-long commitment that each law enforcement officer has 
made to the Customs Service. This is not just a job, it is a 
way of life.
    FLEOA believes that three things must happen in order to 
get the Office of Investigations back on track. We offer these 
three suggestions:
    (1) Customs must hire agents, and investigative support 
personnel in order to function with peak efficiency and to 
bring it back to its 1989-1992 staffing levels;
    (2) Customs must be funded--supplementary by Congress and 
it must repair its infrastructure;
    (3) Congress must fully fund the Office of the Treasury 
Under-Secretary for Enforcement. Under Secretary Kelly must 
have the resources and staff to have oversight of the Office of 
Investigation as well as the other Treasury agencies, such as 
the Secret Service, BATF and IRS, which make up 40% of federal 
law enforcement.
    Constrained resources in terms of both funding and staffing 
levels must be addressed by this Congress. FLEOA believes that 
by attending hearings such as this, Congress will get a clear 
cut perspective on the needs of our personnel who wage a daily 
battle against crime.
    I thank you for inviting FLEOA to testify and I now look 
forward to responding to any questions you may have. Thank you.
      

                                

    Mr. Houghton [presiding]. Thank you very much, Mr. 
Rakowsky.
     You know, the Congress did allocate more funds, and we are 
in a constant bind. As you know, we are trying to balance the 
budget, and unless we really dig into the entitlements, which I 
think we are not ready to do yet, ultimately we will have to do 
that, then other people have to come to the party. There have 
got to be ways that you can do your job and we can help you to 
do your job without going all out and funding every particular 
operation in this area.
    The thing I worry about is not so much the funding, 
although I am sure that is uppermost in your mind as far as 
these three areas, but the fact that so many of the agents 
now--something like half in the next 18 months--are eligible 
for retirement.
    Mr. Rakowsky. About 60 percent, from what I am told.
    Mr. Houghton. Let's put the money aside. Is there a proper 
recruitment policy? Did you see enough going on in that area?
    Mr. Rakowsky. No, sir. In the past few years the Office of 
Investigations, which includes internal affairs agents, the 
air-marine interdiction programs, those positions when the 
agent or pilot would retire, those FTEs, full-time equivalent, 
would go to the commercial side of the house. We were never 
able to backfill those positions.
    Now we are having the crisis of many people either eligible 
for retirement or mandatory retirement, which is 57 for Federal 
law enforcement. We are going to lose a huge chunk of our 
population. We need some help, obviously, to regroup.
    Mr. Houghton. Do you see anything going on to alleviate 
that, or do you think it is something which is inevitable the 
way the process is moving?
    Mr. Rakowsky. Well, Commissioner Weise has been gracious 
enough to grant us several meetings. We have expressed our 
concerns. Now we have the new sheriff in town at Treasury, so 
to speak, the former police commissioner of New York City. He 
is very enthusiastic, he sees some of the problems, and we hope 
we can help each other solve this problem.
    Mr. Houghton. When you talk about hiring more agents, are 
you talking about a set number or a block of money? All these 
things require additional funds. What are you talking about?
    Mr. Rakowsky. The ballpark figure that our membership, 
which again includes rank and file and management, the ballpark 
figure is 500 agents, hopefully, in the next year or two.
    Mr. Houghton. This is 500 in addition to the attrition that 
you are going to get from, you say, the 60 percent?
    Mr. Rakowsky. Yes, sir. From what I understand, what we are 
led to believe, there is no contingency plan to hire agents 
that will be leaving in the next few years. You are looking at 
500, plus the agents that will be leaving.
    Mr. Houghton. I understand.
    You talk about funding supplementally. What do you mean by 
that?
    Mr. Rakowsky. Supplementally, sir, without going against 
the White House and the President's directives on spending caps 
and so on, we would like to see a supplemental gift, as it 
were, to the Office of Investigations, because if you start 
looking at our productivity, if you break it down, the Customs 
agent pound for pound, agent per agent, is probably the most 
productive Federal employee in the United States as far as 
arrests are concerned, indictments, investigations and so on.
    Mr. Houghton. How does the Agency compare to other agencies 
of other countries in terms of staffing, in terms of 
procedures, and recruitment; do you know?
    Mr. Rakowsky. Sir, I can't answer that question as far as 
other countries are concerned, but right now we have a new 
Assistant Commissioner for Investigations, who is a dynamic 
lady, very experienced, very knowledgeable. She is taking over 
the job as our Assistant Commissioner. We are looking forward 
to working with her. Again, she has the experience and the 
know-how of how to do things.
    Mr. Houghton. Well, thank you. Of course, your testimony 
will be put in the record, and if there is anything else that 
comes up after this, just let us know.
    If that is the case, the hearing is ended. Thank you very 
much.
    [Whereupon, at 4:55 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

                      American Frozen Food Institute,      
                                       McLean, Virginia    
                                                     May 29, 1997  

The Honorable Phil Crane
Chairman, Subcommittee on Trade
U.S. House of Representatives Committee on Ways and Means
1104 Longworth Office Building
Washington, D.C. 20515

    Dear Representative Crane:

    On behalf of the members of the American Frozen Food Institute 
(AFFI), I appreciate the opportunity to submit comments for the record 
regarding the House of Representatives Subcommittee on Trade's May 15, 
1997, hearing on U.S. Customs Service oversight issues. In that regard, 
AFFI would like to express its opposition to a U.S. Customs Service 
(Customs) proposal to require front panel country of origin marking for 
frozen produce with imported content. The Customs proposal arbitrarily 
singles out the frozen produce industry for regulation that does not 
apply, nor has it been proposed to apply, to any other category of 
imported products, thereby overturning more than 60 years of Customs 
Service statutory interpretation. More importantly, the Customs 
proposal will have significant ramifications on the international trade 
of frozen fruits and vegetables.
    As you may know, AFFI is the national trade association 
representing manufacturers and processors of frozen food products, as 
well as their marketers and suppliers.
    AFFI's 550 member companies account for more than 90 percent of the 
total annual production of frozen food in the United States, valued at 
approximately $60 billion. AFFI's membership includes small and large 
U.S. frozen food manufacturers and exporters that use imported 
ingredients in their products. AFFI members are directly affected by 
country of origin marking requirements and have an interest in ensuring 
that any changes in these rules do not have disruptive effects on the 
marketing of their products, either internationally or domestically, or 
impose unnecessary compliance costs and burdens on the U.S. frozen food 
industry.
    On July 23, 1996, the U.S. Customs Service published a proposed 
rule to require front panel country of origin marking for frozen fruits 
and vegetables with imported content. The comment period closed on 
September 23, 1996. More than 400 comments were submitted to Customs 
during the comment period, only one of which supported the Customs 
proposal. Despite the overwhelming opposition to the proposed rule, 
Customs has yet to withdraw it. AFFI is strongly opposed to the 
proposal and believes it should be withdrawn immediately.
    At issue in this rulemaking proceeding is whether Section 304 of 
the Tariff Act is fulfilled only if the country of origin marking is 
located on the front, or principal display, panel of frozen produce 
packages. AFFI does not believe the front panel is the only 
``conspicuous'' place on packages of imported frozen produce for 
country of origin marking purposes. AFFI believes the plain meaning of 
the relevant language in Section 304 illustrates this. Section 304 does 
not require that the country of origin must appear in the most 
conspicuous place, nor does it require that the marking be as 
conspicuous as the article or container will permit. Congress chose 
different, and less restrictive, words to express the conspicuous place 
requirement than it chose to express the other three requirements, 
i.e., the requirements that the marking be as legible, indelible, and 
permanent as the nature of the article or container will permit in such 
manner as to indicate the country of origin to the ultimate purchaser.
    AFFI is concerned about the international trade ramifications of 
the Customs proposal. The United States must ensure that country of 
origin marking requirements are not allowed to be misused as non-tariff 
barriers to trade or as anti-competitive measures. Discriminatory and 
unduly burdensome marking requirements, such as those contemplated by 
Customs, are a well-recognized non-tariff trade barrier and must be 
avoided.
    Our North American Free Trade Agreement (NAFTA) partners have 
objected to the Customs proposal on the grounds that it violates Annex 
311 of NAFTA. The objections raised by representatives of Canada and 
Mexico include the fact that Annex 311 provides that the NAFTA Parties 
``shall accept any reasonable method of marking'' for a good of another 
party; requires that each Party accept a country of origin marking that 
is ``conspicuous, legible and sufficiently permanent''; defines the 
term ``conspicuous'' as ``capable of being easily seen with normal 
handling of the good or container''; and requires that the Parties 
minimize the difficulties, costs and inconveniences that the adoption 
or application of marking measures may cause to the commerce and 
industry of the other parties. Clearly, the pending Customs proposal 
does not satisfy these requirements.
    In addition, the Uruguay Round of the General Agreement on Tariffs 
and Trade prohibits use of country of origin marking requirements as 
non-tariff barriers to trade. Imposition of the marking requirements 
contemplated in the Customs proposal could trigger retaliatory actions 
by U.S. trading partners and impede exports of U.S. agricultural 
products generally, including frozen foods.
    Moreover, the Customs proposal is inconsistent with the Clinton 
Administration's established regulatory policies because it is 
unjustified by either a compelling public need or an appropriate cost-
benefit analysis. As you know, an agency is obligated to regulate only 
when necessary and to the extent necessary to effectuate the intent of 
Congress. Consistent with established Administration policy and sound 
regulatory practice, AFFI believes this rulemaking procedure should be 
terminated immediately.
    Customs states in its notice that the proposed regulatory action is 
necessary to address that which Customs alleges constitute instances in 
which markings on frozen produce packages are not sufficiently 
conspicuous. It is important to note, however, that Customs has made no 
effort to address the alleged problem through non-regulatory 
alternatives. Customs also fails to establish that its existing 
regulatory, enforcement and administrative authority is insufficient to 
address any compliance problems which may exist. Customs should be 
encouraged to enforce the current regulation on a case-by-case basis, 
if necessary, instead of promulgating a new layer of federal 
regulation. The Customs proposal cites a proceeding under Section 516 
of the Tariff Act of 1930, as amended, as the justification for 
proceeding with a proposed rule. However, no Section 516 petition 
currently is pending before the Customs Service; therefore, there no 
longer is a basis for considering the action proposed by Customs. In 
light of this fact, AFFI questions whether pursuing such a rulemaking 
procedure is the most effective use of Customs' limited resources.
    The proposed rule is unnecessary, discriminatory, arbitrary and 
capricious. It would impose needless and substantial relabeling costs 
on the frozen produce industry without providing a corresponding 
benefit to consumers. Frozen fruits and vegetables with imported 
content already are required to be marked with their country of origin; 
this marking typically is located near the information consumers want 
most, the nutrition and ingredient information, which Congress 
determined several years ago, in the context of the Nutrition Labeling 
and Education Act (NLEA), to be of vital importance, yet it is required 
by law to appear on the back panel of packages of these products.
    As you know, as a result of the NLEA, food companies recently 
completed a total redesign of their packaging. A survey of AFFI member 
companies revealed that companies estimate compliance costs could range 
from $15,000 to more than $1 million per company for a one-year period 
for yet another change in labeling requirements.
    AFFI also commissioned a telephone survey by Opinion Research 
Corporation (ORC) which involved a national probability sample of 1014 
adults 18 years of age or older, all of whom were living in private 
U.S. households. Of the total sample, 656 indicated they had purchased 
frozen fruits and/or vegetables in the previous three months. The 
latter group of respondents were asked a variety of questions, 
including the following: ``What are the main things that influence 
which frozen fruits or frozen vegetables you purchase?'' Only one 
respondent out of the 656--less than one percent--cited the country 
where a product is from as an important factor in his or her purchasing 
decision.
    The ORC survey results reaffirm the results of a previous U.S. Food 
and Drug Administration survey with regard to the importance of country 
of origin information to consumers. In 1978, FDA sponsored a Consumer 
Food Labeling Survey. Respondents were asked, ``What information, if 
any, printed on food packages and cans do you pay particular attention 
to or find helpful in any way?'' Forty one percent of the respondents 
named ingredient information, 22 percent named nutritional information, 
and 18 percent named size/quantity information. Less than one percent 
named country of origin information.
    The frozen produce industry should not be singled out for onerous 
marking requirements not applied to any other product category either 
within or outside the food industry. The Customs proposal arbitrarily 
and capriciously discriminates against the frozen produce industry by 
imposing a new ``most conspicuous place'' requirement and a new 
``consistent place'' requirement, neither of which is provided for by 
statute, and neither of which Customs has ever imposed on any other 
class of products. The proposal would require virtually every producer 
and packer of foreign-origin produce to redesign its labels, regardless 
of the degree of conspicuousness of the country of origin marking that 
already appears on such labels.
    AFFI does not believe there are legitimate reasons to single out 
frozen produce products for additional country of origin marking 
requirements. Any such regulation would be arbitrary and capricious and 
could raise the expectation that Customs would promulgate similar 
regulations for other classes of imported goods, particularly other 
products packaged and offered to the ultimate purchaser in cardboard 
boxes and plastic bags.
    Thank you for this opportunity to express the concerns of the 
members of the American Frozen Food Institute. Please do not hesitate 
to contact me if you have any questions or if I may provide you with 
additional information.

            Sincerely,
                                         Steven C. Anderson
                              President and Chief Executive Officer
      

                                

Statement of the American Iron and Steel Institute

    The following statement on oversight of the U.S. Customs 
Service is submitted on behalf of the U.S. member companies of 
the American Iron and Steel Institute (AISI). Together, these 
companies account for approximately two-thirds of the raw steel 
produced in the United States.
    The AISI, with the support of several other steel-related 
organizations, has a long-standing partnership with the U.S. 
Customs Service. Over the past 30 years, with the guidance and 
full support of Customs Headquarters management and staff, AISI 
has provided training to Customs personnel in the areas of 
steel product identification, classification, valuation, 
antidumping/countervailing duty circumvention, fraud, rules of 
origin, NAFTA, and other areas of mutual interest and concern. 
This program has resulted in Customs Field Operations and 
Strategic Trade Center (STC) personnel who are better prepared 
to perform their professional duties. It also allows AISI to 
offer more authoritative comments on the structure and 
operation of the Customs Service.
    The Customs Modernization Act of 1994 (Mod Act) has 
generally been good for the steel importing community, the U.S. 
steel industry, the trade community (brokers and port 
operations) and the U.S. Customs Service. Customs operated 
under its old organization structure for many years, but was 
unable under that structure to keep pace with major changes in 
trade levels and trade practices. While AISI supports the Mod 
Act, the ``new'' Customs Service and most of its new structure 
and methodologies, we also have several concerns that need to 
be addressed if Customs is to meet its responsibility to 
provide full enforcement of trade laws while facilitating 
legitimate trade.
    The AISI supports initiatives for:
     the facilitation of trade for importers who, over 
an extended period of time, prove that they are in full 
compliance with all Customs laws and procedures;
     the concentration of services at the ports of 
entry;
     the reduction of staff at headquarters in 
Washington, accompanied by the transfer of many former 
headquarters personnel to the field in both Strategic Trade and 
Field Operations positions;
     the establishment of Customs Management Centers 
and the elimination of regional and district offices;
     the implementation of regional STCs to target 
trade enforcement efforts.
    Our concerns are these:
     Trade facilitation may have become a higher goal 
than enforcement. In this regard, examination/inspection rates 
are very low, and should be greatly increased, particularly for 
those importers who have compliance rates of less than 95%.
    --personnel resources, while professional and capable, are 
too low in number to service properly and enforce the ever-
increasing volume of imports. Customs' budget and staff are not 
projected to grow, which will exacerbate this situation.
    --It is dangerous, from the standpoint of enforcement, to 
continue to move to ever-higher levels of computer support in 
lieu of human resources for the identification of possible 
violations.
     Steel, as a Primary Focus Industry, has a 
compliance rate goal of 95 percent. FY1996 compliance rates for 
steel in several geographic areas and violation categories are 
unacceptably low. In particular:
    --Imports of steel through the Automated Commercial System 
Cargo Release program and classified in HTS Chapter 72 (steel 
mill products) plus rails and pipe from HTS Chapter 73 were 
only 82 percent compliant in FY1996.
    --According to the January 1997 Trade Compliance and 
Measurement Report from the Customs Service to the Congress, 
there was an estimated $8,370,000 revenue shortfall as a result 
of the 18% non-compliance in steel import entries.
    --Classification errors are the great majority of 
discrepancies, followed by marking, quantity and value.
     Compliance for steel entered by Line Release was 
just 60 percent for HTS Chapter 72 and 65 percent for Chapter 
73 in FY 1996.
    --Most errors are made by brokers at the time of entry 
release at the Customs booth, and involve truck entries along 
the northern border.
    --Brokers are clearly not performing their function well, 
and require much greater attention.
     Of the top 20 steel Service Ports by volume, only 
New Orleans, Houston, Laredo, Port Arthur, Boston and Columbia-
Snake (Portland, Oregon) are above 90 percent compliance. Among 
the worst ports, Detroit and Buffalo along the Northern border 
reflect broker-related truck entry problems under Line Release. 
Chicago's compliance is also very poor; issues there, too, must 
be addressed.
     Estimates are that one-half of the U.S. Customs 
Service's highly skilled Special Agents will retire by the end 
of 1998.
    --Of the approximately 1,000 Special Agents, roughly half 
have responsibilities for drug interdiction; the other half are 
engaged in commercial enforcement.
    --With respect to the 500 retirees, the impact is expected 
to be greater in the area of commercial enforcement, because 
the retiring Agents are reportedly concentrated in the 
commercial area.
     Customs is considering implementing a concept 
called ``self-governance'' as an optional, voluntary 
alternative to comprehensive importer audits. This program 
would allow high-compliance importers, under Customs direction, 
to conduct an ongoing internal audit as evidence of compliance 
with Customs rules, regulations and laws. Several Large 
importers, unrelated to steel, are currently participating in a 
test program. Self-governance, if successful, would remove the 
importer from the risk, burden and expense of comprehensive 
Customs audits.
    --It is imperative to examine and test very carefully this 
concept and its details prior to endorsement and 
implementation. Particular attention should be paid to sampling 
techniques, the risk of subterfuge by audited companies and the 
allocation of resources (e.g., whether Customs would be 
spending more, rather than less, time and money on audits under 
self-governance than under the current comprehensive audit 
system).
    --The importing community appears to be very receptive, 
which could indicate that they view self-governance as an easy 
way around Customs vigilance.
    Finally, AISI is also following closely possible proposals 
for reorganizing STCs. If the STC concept is indeed under 
consideration for reorganization--and if improvement in service 
of Primary Focus Industries is part of any reorganization 
effort--thought should be given to locating the STC 
responsibility for steel closer to major steel-producing 
locations and steel-consuming markets. Chicago would be an 
excellent choice. In conclusion, AISI believes that a number of 
actions are needed for the U.S. Customs Service to continue the 
improvements made possible by the Mod Act and reorganization. 
Key among these are the following:
    1. Customs, through Informed Compliance and the Automated 
Commercial Environment, should continue to develop and 
aggressively implement these programs in order to increase 
compliance rates.
    2. Line Release standards should be more stringently 
enforced, particularly along the Northern border.
    3. Sample sizes and examinations/inspections should be 
increased to improve the reliability of data and provide better 
enforcement. Improved targeting and increased document review 
are also necessary.
    4. Classification accuracy (at the 10-digit HTS level) and 
marking requirements should be enforced.
    5. Field staff, particularly Import Specialists and 
Inspectors, should be increased to handle the rapidly growing 
workload.
    6. The physical location of Customhouses should be as close 
as possible to the port. In the absence of this, a small office 
manned by Inspectors and Import Specialists should be located 
close to the port to facilitate examinations and the daily 
interface between Customs and the trade community.
    7. A phased training program should be implemented now to 
integrate replacement Agents into the system in order to avoid 
a major disruption in commercial enforcement near the end of 
1998 caused by the retirement of a large number of Special 
Agents.
    8. Customs should proceed very slowly and carefully with 
the concept of self-governance in lieu of comprehensive audits, 
and solicitation of input from all Primary Focus Industries 
should be an integral part of the evaluation.
    9. In the context of any general reorganization of the STC 
structure, consideration should be given to moving STC 
responsibility closer to major markets (e.g., in the case of 
steel responsibility, this would mean possibly moving this STC 
to Chicago).
    AISI is pleased to have this opportunity to provide 
comments to the House Ways and Means Trade Subcommittee on an 
issue of major importance to AISI's U.S. members.
      

                                

Statement of the Joint Industry Group

    The Joint Industry Group is a coalition of more than 100 
companies, trade associates, professionals and businesses 
actively involved in international trade. We both examine and 
reflect the concerns of the business community relative to 
current and proposed customs-related policies, actions, 
legislation and regulations and undertake to improve them 
through dialogue with the U.S. Customs Service, other 
government agencies and the Congress.

         Strengthening of the Office of Regulations and Rulings

    The Office of Regulations and Rulings (``OR&R'') plays a 
very key role in insuring that the Customs Service upholds its 
bargain with the importing community to ``inform'' importers, 
brokers, consultants and counsel on important issues of 
classification and valuation. While the recent GAO study goes 
to some length to suggest that the staff levels withing OR&R 
are sufficient to discharge its mission, the Joint Industry 
Group perceives that the reduction in staffing over the past 
two years has played a significant role in causing most rulings 
to issue long after the 120 day ``target'' previously announced 
as the time frame in which an importer could expect to receive 
a ruling. Performance standards and guides are definitely 
needed. These, however, must go hand-in-hand with an adequate 
professional staff. The Joint Industry Group recommends, 
therefore, that the Committee on Ways and Means receive 
periodic reports from OR&R on both the inflow of ruling 
requests the Headquarters Office as well as the number of 
rulings issued, by attorney, during the same time period. 
Differentiation should be made between rulings involving issues 
of tariff classification and those involving valuation. While 
the latter are generally more complicated, it appears that the 
time required to obtain a valuation-related ruling must be 
improved upon. The two oft used sentence ``We regret the delay 
in responding'' should no longer be the last sentence of the 
opening paragraph of a valuation ruling.
    Assistant Commissioner Stuart Seidel has advised the Joint 
Industry Group that it is one of his major goals to expedite 
and improve the ruling process. We support this effort and 
believe one of the keys will turn out to be a modest increase 
in staffing. Performance standards alone will not carry the 
day. The Joint Industry Group has pledged its support to assist 
in reaching Assistant Commissioner Seidel's sought-for goal.

          The Informed Compliance Initiative Has Lost Momentum

    The Customs Service initiated a series of ``draft'' 
programs and released them for comment on the Customs 
Electronic Bulletin Board. The Joint Industry Group and others 
provided comments. To date, few of these programs have made it 
to the Notice of Proposed Rulemaking stage, and the Joint 
Industry Group senses that this may be the result of 
unwarranted delay in moving the programs through the various 
approval stages within the Customs Service and at the Treasury 
Department. If the importing public is given 60 days in which 
to submit comments, the comments should be digested and turned 
around within the Customs Service in a like period of time. 
Those at the higher levels in the administrative review process 
have to understand that they, too, must promptly review and 
pass the program on if further review is required.

                            Regulatory Audit

    One of the major thrusts of the Joint Industry Group's 
efforts in working with the Customs Service in the drafting of 
the Customs Modernization Act was the Regulatory Audit program. 
While the Customs Service has announced an ambitious program to 
conduct audits of the 1,000 largest importers, that program has 
bogged down and woefully so. Our members report instances in 
which Customs auditors have requested 250 sets of records only 
to turn around and request another 200 sets in order to test a 
different issue. Based solely on rumor, since facts are not 
available, less than 50 audits appear to have been completed. 
At that rate, the initial round of audits for the 1,000 largest 
importers will be completed sometime in the next Millennium.
    The Joint Industry Group believes that alternative 
approaches must be considered. Is there any reason, for 
example, not to permit importers and their consultants and 
counsel to conduct independent audits testing for issues such 
as proper tariff classification, proper valuation, proper 
recordkeeping, country of origin marking, etc.? For companies 
electing to do so, the Office of Regulatory Audit could run 
tests on the methods employed and the findings. Rather than 
select 250 new entries, modest incursions into other entry file 
folders should suffice to establish that ``reasonable care'' 
has been taken in the conduct of the self-initiated audit. If 
the Customs Service does not reach out, it cannot hope to 
complete even the initial phase of its mission.

                         Concluding Observation

    The Joint Industry Group believes that the Headquarters-
initiated effort to forge a partnership between the Customs 
Service and the importing public is beginning to take effect in 
the Field. Instances have been reported by Joint Industry Group 
members where Import Specialists, Port Directors and others in 
the Field have actually looked for ways to assist importers in 
improving compliance with the diverse and sometimes arcane laws 
and regulations administered by the Customs Service. The Joint 
Industry Group thinks it is probably about time that data be 
gathered from importers, probably on an anonymous basis, in 
order that the Headquarters Office can measure how Field 
Offices are perceived by what are essentially their customers. 
As long as performance needs to be measured at Headquarters, it 
would not hurt to have some form of report card on how things 
are going in the Field.
      

                                

Statement of the National Council on International Trade Development

    The National Council on International Trade Development 
(NCITD) is an association made up of Fortune 500 companies, 
bankers, importers, exporters, trade organizations, carriers, 
forwarders, law firms and individuals who share a common goal 
in trade facilitation. Our membership represents more than $250 
billion in US trade and focuses on every aspect of 
international trade. We appreciate the opportunity to comment 
on issues which greatly affect our members.

                               Background

    The NCITD was established in 1967 as a documentation 
facilitation council. The Customs Modernization Act 
necessitated a change in scope and focus of the association, 
and initiated a process adaptation to new business trends in a 
similar manner to the adjustments and changes taking place in 
the US Customs Service. We recognize that change is sometimes a 
slow and painful process. Businesses are using faster and more 
efficient means to conduct trade. Air transportation allows for 
products to be delivered overnight. Customs' responsibility for 
the monitoring of these goods and adapting to business needs 
has increased at a tremendous rate. We applaud the work of 
Commissioner George Weise and the US Customs Service staff in 
their efforts to modernize the US Customs Service and regret 
the negative comments made on ``60 Minutes.'' It was apparent 
that a lack of understanding existed by those persons 
commenting on the program. Trade and drug interdiction are a 
serious part of Customs' daily business.

                         The US Customs Service

    Budget: The NCITD has long maintained that the Customs 
Service must have additional resources to meet the demands 
placed upon them by the US Government and industry. We are 
mindful of budgetary constraints within government. However, 
the mandates of the Administration, the Legislative Branch and 
parents across the United States to stem the flow of illegal 
drugs into the country justifies the appropriation of 
additional resources for the Custom Service. Similarly, the 
Administration's emphasis on increasing US exports further 
validates additional funding.
    Drug Interdiction: The NCITD does not believe that the 
burden of drug interdiction should be placed solely upon the US 
Customs Service. Just as industry has entered into a 
partnership with Customs on trade, we believe that industry 
should cooperate with government efforts to interdict 
narcotics. The NCITD also feels that Mexico is not living up to 
its responsibilities in drug interdiction. While we support 
NAFTA and do not believe a repeal of that trade agreement is a 
solution, we strongly believe that Mexican exporters should 
subscribe and implement procedural safeguards that must be 
enforced and audited by both US and Mexican customs officials.
    Modernization Act Implementation: Our membership shares the 
belief that Customs is moving at just the right pace with some 
of their programs, and too slowly on others. Our group agrees 
that Customs is spreading itself too thin by working on too 
many projects at one time. Too many programs remain incomplete. 
For example, industry still waits for the informal entry limit 
to be raised to $2,500, a provision of the Mod Act passed three 
years ago.

                          Informed Compliance

    The Compliance Assessment Teams (CAT's) are a sound part of 
``informed compliance.'' CAT audits are designed to measure the 
top 1000 importing companies' level of legal compliance. Before 
a CAT audit, a company receives a ``self test'' copy of the 
audit to prepare for the Customs auditing team. In this 
fashion, CAT audits seek to foster future legal compliance. 
Ironically, too often CAT auditors focus on past transactions. 
Many auditors performing the assessment tests are 
inexperienced, and frequently unable to make important 
judgements on the value and success of a company's self 
compliance review procedures. For example, a company may have a 
monthly self-audit that reveals data input, classification, or 
other errors. Many companies are having their corporate 
safeguards and systems misunderstood or ignored in the audit 
procedure, resulting in a review that suggests lower compliance 
levels. Voluntary tenders or admissions of mistakes are seen as 
a sign of a non-compliant company when, in actuality, the 
company's safeguards worked perfectly and detected the error. 
Punishing companies for voluntary tenders is a frightening step 
backwards from Customs' expectations for voluntary compliance. 
If companies are being punished for voluntarily admitting and 
correcting mistakes, the incentive to admit mistakes is 
removed. Chief Financial Officers may suggest not volunteering 
errors, since they'll be penalized anyway, and waiting instead 
to see if they're ``caught.''
    Another drawback to the CAT program lies in Customs' 
communication process. The Customs Service communicates only 
with the companies being audited and not with industry as a 
whole. This approach is highly inefficient and will make it 
difficult to educate the top 1000 importers, and impossible to 
educate the thousands of small-and medium-sized importing 
companies concerning their legal obligations.

                             Recordkeeping

    The Mod Act extended the legal obligations of companies to 
maintain accurate records detailing their transactions in 
electronic form. Customs was given authority to impose severe 
penalties on non-compliant companies. However, proposed 
recordkeeping regulations will place unnecessary financial 
burdens on industry and create new burdens for Customs 
auditors. Auditors, under the proposal, would be charged with 
reviewing individual company's alternative recordkeeping 
systems. The NCITD feels that the additional reviewing is, for 
the most part, unnecessary and a poor allocation of Customs' 
limited resources. Most companies, particularly those of our 
membership, already have corporate record retention policies 
and programs for tax and other purposes. Furthermore, Customs 
officials now have considerable power to assess penalties, deny 
tariff preferences, and otherwise take coercive action to those 
companies found to be non-compliant.

                               Automation

    The Mod Act authorized Customs to extend the automation of 
commercial transactions, and establish new procedures to 
substitute account-based processing for individual entry-by-
entry processing of Customs commercial transactions. The 
progress of implementation has been painfully slow. Generally, 
Customs' automation initiatives are more than two years behind 
schedule, and over budget. The agency has been unwilling or 
unable to commit adequate resources to automation initiatives. 
This is evident in the ``remote entry filing'' prototype 
developed in the 1980's. Since its inception, the program has 
undergone two phases that are not significantly different from 
the original.
    Prototype tests for the Mod Act-authorized reconciliation 
program have not progressed as anticipated. Account based 
processing procedures are only now getting under way, on an 
extremely limited basis, and at only a few selected ports of 
entry. The Customs' N/CAP prototype has been so long in the 
making that it can only be viewed as a disappoinment at this 
point, with only five importers certified to participate in the 
program.

                   Office of Regulations and Rulings

    Recently, the General Accounting Office (GAO) completed a 
less than flattering review of the Office of Regulations and 
Rulings (OR&R). While preparing their report, the GAO surveyed 
our Customs Committee. The NCITD firmly believes the plan 
outlined by Assistant Commissioner Stuart Seidel to the 
Subcommittee should be implemented. OR&R is one of the agency's 
traditional functionaries. The quality of its work has suffered 
with OR&R unable to meet its self-imposed 120-day deadline for 
responding to classification ruling requests, nor its 30-day 
deadline for the issuance of textile origin regulations.
    Many of these delays can result in significant cost 
increases to industry members who attempt to ``guess'' what the 
classification ruling will be so that they may continue to do 
business. In fact, delays of as much as two years in the 
issuance of rulings, requests for reconsideration of port 
rulings, internal advice rulings, and requests for further 
review of protests are not uncommon. In some cases, Customs has 
delayed rulings as long as five years in processing requests 
for rulings on valuation issues, even in cases where there was 
no pending litigation addressing the issues. Many of these 
delays result from insufficient resources in OR&R, or from the 
fact that OR&R officials are frequently reassigned to other 
duties. However, the delays are frustrating, costly, and there 
are times when Customs publishes few or no rulings for weeks on 
end.
    In addition, delays in Customs' processing of 
administrative protests have increased, a factor which can be 
particularly costly to Customs, as it is now required to pay 
interest on duty refunds issued to importers.
    The Automated Export System (AES): has recently been 
scrutinized in a letter sent to Customs by the Exporter's 
Coalition. The Coalition maintains that AES is not living up to 
its billing. Too much information is being required pre-
departure. The AES-PASS, which was designed to give 
preferential treatment to highly compliant companies and 
require less information pre-departure, has not been 
implemented as expected. While the NCITD supports the AES 
concept, it must be tailored to the air, truck, rail, and ocean 
environment. To date, AES is not seen as successful and may 
require a major overhaul or elimination. There are better ways 
to obtain statistical trade data.

                              Suggestions

    Regrettably, the Mod Act has not met expectations. Industry 
and Customs need to refine the Mod Act, with particular 
emphasis to the Automated Commercial Environment (ACE) and 
remote entry filing procedures.
    Customs should be permitted to charge other government 
agencies for services that extend beyond Customs' basic 
services. For example, Commerce and the Federal Trade 
Commission place requirements on Customs to perform inspection 
services beyond those included in the Customs charter.
    Customs must have additional resources to meet the demands 
of government and industry and to keep pace in an expanding 
global market. Customs should be congratulated on their 
accomplishments while working with a budget that has not even 
kept pace with inflation.
    There is a need for better balance between the enforcement 
and commercial trade facilitation responsibilities of the 
Customs Service. The conflicting demands for drug interdiction 
and law enforcement activities on one hand, and the promotion 
of trade and competitiveness for American business on the 
other, must be carefully monitored to preclude an adversarial 
relationship between Customs and the people they serve.

                               Conclusion

    The NCITD is pleased to have the opportunity to submit 
comments on the oversight of the US Customs Service. In 
closing, we urge the Administration to move quickly to fill the 
enormous void created by George Weise's departure. Our new 
Commissioner should be devoted to drug interdiction, and 
familiar with the complexities of international trade. The new 
Commissioner must understand the importance of continuing the 
partnership established between Customs and industry both in 
law enforcement and commerce.

            Sincerely,
                                              Jason Clawson
                                                              NCITD
      

                                

Statement of Robert M. Tobias, National Treasury Employees Union

    Chairman Crane, Ranking Member Matsui and Members of the 
Subcommittee, my name is Robert M. Tobias, and I am the 
National President of the National Treasury Employees Union 
(NTEU). Speaking for the more than 150,000 federal government 
employees represented by NTEU, I would like to thank you for 
this opportunity to submit testimony in response to some of the 
issues raised in the oversight hearing on the U.S. Customs 
Service held on May 15, 1997.
    NTEU is very appreciative for the opportunity to express 
its views regarding the payment of Sunday premium pay and night 
differential. NTEU believes that certain federal employees 
should be exempted from Section 630 of the Omnibus 
Appropriations bill for fiscal year 1997. NTEU believes that it 
is inappropriate to reduce the wages of individuals who work 
shifts on a regular or permanent basis when these individuals 
are out for military leave, jury duty, other uncontrolled leave 
or even holidays.
    NTEU asserts that reducing the wages of some workers is 
hardly just because a holiday falls on a day when they 
ordinarily would be working. Federal employees who do not 
regularly work periods for which they are paid pay a premium or 
a differential receive their normal take home wages. Yet for 
those federal workers who do work these unusual hours on a 
regular or permanent basis, application of this general 
prohibition results in a reduction in the ordinary take home 
wages.
    Nor is it fair to reduce these workers' take home pay 
because a court has summoned them for jury duty or they choose 
to participate in the National Guard or reserves. Again, 
workers that do not regularly work period for which a premium 
or differential is paid receive their normal take home wages. 
Yet for those federal workers who do work these unusual hours 
on a regular or permanent basis, application of this general 
prohibition results in a reduction in the ordinary take home 
wages.
    Lastly, reducing these workers' take home pay in instances 
when they are not able to work for reasons beyond their control 
is equally unfair. For example, if Customs orders that these 
workers remain at home during a natural disaster, Congress 
should treat them the same as any other federal worker. If 
Customs pays wages to all workers, then it is inappropriate to 
only reduce the paychecks of those who work these unusual hours 
on a regular or permanent basis and not similarly reduce wages 
of all other workers. NTEU is not suggesting that wages be so 
reduced for others, but questions whether the application of 
this general prohibition is appropriate when it has a disparate 
impact on the employees who are specifically paid a higher 
amount in order to compensate them for the hardships associated 
with working these odd shifts.
    Thus, what otherwise appears to be a simple, common sense 
approach to a perceived problem can have significant unintended 
consequences. NTEU notes that Subcommittee staff is in the 
process of drafting a permanent prohibition along the lines of 
the language included in the Omnibus Appropriations bill for FY 
1997. Therefore, NTEU requests that the Subcommittee include a 
specific exemption from the general prohibition for federal 
employees who work shifts on a regular or permanent basis for 
which a premium or differential is paid.
    NTEU also appreciates the Subcommittee's interest in the 
current $25,000 annual overtime cap for Customs inspectors and 
Canine Enforcement Officers. As the Subcommittee is aware, the 
Congress recently raised the overtime cap for INS inspectors 
from $25,000 to $30,000. Ironically, INS inspectors also 
receive overtime compensation based upon package modeled after 
the system Customs inspectors received prior to 1993.
    NTEU disagrees with Commissioner Weise's position that 
increasing the cap to $30,000 should not be done at this time 
because Customs needs more experience with the recent changes 
in the pay system. The Commissioner's remarks fail to point out 
that the current cap was not affected by the recent pay system 
changes. Instead, it has been in place as is since 1983 
(Congress first capped annual overtime compensation at $20,000 
in 1979). Using a conservative wage inflation factor of three 
percent and the simplest method of compounding wage inflation, 
today's $25,000 cap represents only 66 percent of what it would 
have been today had it been indexed for wage inflation.
    Customs inspectors and officers, especially those stationed 
at land borders, ordinarily work overtime. Overtime 
compensation often represents about 30 to 40 percent of take 
home pay; for these employees, the cap amounts to a permanent 
pay freeze despite cost of living increases in their basic pay. 
Moreover, the federal government's contribution toward 
retirement for these employees is limited to only half of the 
overtime pay earned in any year--a private employer is 
generally prohibited from limiting contributions in this 
manner.
    Besides its unfairness to Customs inspectors, officers and 
their families, the suppressed cap makes little sense from an 
administrative standpoint. The cap often increases or shifts 
costs rather than reducing them. Air carriers frequently 
experience flight delays which, in turn, cause Customs to alter 
staff scheduling. Later arrival tends to disrupt individual 
passenger planning but it is not as unsettling as Customs 
informing a carrier that it must divert traffic to another port 
because the scheduled port does not have inspectors available 
for overtime duty due to the cap. While Customs' costs are 
merely shifted to another port, the passengers and carriers 
face extraordinary transportation costs and delays. Imagine if 
you had expected to arrive at National Airport in the early 
evening and because of the cap, your late flight was diverted 
to Dulles instead. And worse, these events do not occur that 
frequently, but do occur and most often occur during peak 
holiday travel at the end of the year.
    Customs sometimes assigns inspectors from other posts of 
duty to handle the overtime inspectional duties in ports where 
the inspectors are not available to overtime duty because they 
have already reached the cap. In these instances, the cap 
actually increases costs given the added per diem and other 
travel-related costs which must be paid to the inspector(s) 
from other posts of duty.
    The cap also makes little administrative sense because it 
compromises the quality of the work performed by decreasing the 
level of experience of inspectors available for scheduling at 
any given time. As senior inspectors make more money, they 
simply cannot work as many overtime hours as those with less 
experience. The cap causes Customs to work junior inspectors 
and raw recruits more often for these overtime shifts--
efficiency and depth of inspections decline.
    The cap also disrupts delivery of services to the taxpayer. 
Some ports must greatly restrict the hours of operation to 
avoid any inspector from exceeding the cap. Even those willing 
to pay the entire cost, typically trade merchants and 
transhippers, must secure inspection services when the Service 
determines these services will be provided. Private aircraft 
owners face scheduling processing headaches; some report that 
the hours of operation on weekends and holidays vary 
significantly among the ports.
    As previously stated, the cap forces Customs to over 
utilize junior grade inspectors and raw recruits for these 
overtime shifts. Excessive overtime demands on these younger 
inspectors too often cause conflicts with family obligations. 
As a result, Customs loses many of these younger inspectors to 
other federal agencies and local law enforcement which offer 
more family-friendly working hours. Training costs rise and the 
aggregate productivity of inspectors who remain declines.
    And finally, the unreasonably low overtime cap makes little 
administrative sense since it requires an inordinate amount of 
time and resources to manage. At the local level, additional 
personnel are needed to monitor overtime usage and deal with 
the unnecessarily complex overtime scheduling duties. These 
costs go far beyond the ordinary expense of accounting to 
assure individual inspectors remain below the suppressed annual 
overtime cap.
    Before concluding, I believe it is important to note that 
only one of the witnesses testifying at the oversight hearing, 
the General Accounting Office, submitted testimony regarding 
the current overtime compensation system. NTEU notes that GAO's 
testimony amounted to a summary repetition of its own 1991 
report that evaluated an overtime compensation system that has 
since been modified.
    NTEU specifically directs the attention of the Subcommittee 
to Customs Commissioner Hallett's rebuke of GAO for its failure 
to follow ``normal and usual procedures'' in its preparation of 
the report, including ``denying the Customs Service the 
opportunity to review the report prior to its being 
finalized.'' (GAO/GGD-91-96, at p. 55). Customs disagreed with 
the unsubstantiated finding by GAO that ``the special payments 
were premised on conditions which no longer existed,'' overtime 
compensation; Customs' response states:
    --``Inspector's themselves are required, as a condition of 
employme nt, to make themselves available to meet unexpected 
service demands reagardless of weather, time of day or night, 
family or other personal considerations. The employee's 
personal life is disrupted by the demands of the service at any 
time. The employee suffers this hardship because the 
compensation is deemed adequate.
    --The service demands are often irregular and 
unpredictable. Airline and vessel arrivals are subject to 
sudden changes, requiring a rapid expansion in the assigned 
work force. We are required to provide service 24 hours a day, 
365 days a year. Clearly, the ability to utilize overtime 
enables the government to expand service to the public at the 
least cost whenever the demand arises.'' (GAO/GGD-91-96, at p. 
59).
    As you know, Mr. chairman, the Customs' overtime law, which 
has been in effect since 1911, was just changed in 1993, at the 
initiation of this Committee. NTEU worked very closely with the 
Members of this Committee and the Senate Finance Committee to 
ensire that all of the very complex issues involved were fairly 
addressed. While NTEU remains willing to work with you and 
others Members to address any concerns you may have regarding 
the new overtime system, , I would strongly urge caution 
against any changes to the system at this time given the long 
and precarious route of its enactment. Thus, I believe Congress 
should at least defer any efforts to change system until 
Customs has more experience with it.
    NTEU again thanks the Chairman for this opportunity to 
submit testimony for the hearing on the oversight of the U.S. 
Customs Service. NTEU continues to pledge to do all that it can 
to assist the Chairman and the other Members of the Committee 
in their efforts to satisfy their oversight responsibilities.
    This concludes my testimony. I would be happy to provide 
any further information the Chairman, the Ranking or any of the 
members of the Subcommittee may have.
      

                                

Statement of U.S. Rep. Jim Ramstad, a Representative in Congress from 
the State of Minnesota

    Mr. Chairman, thank you for calling this hearing today on 
oversight of the U.S. Customs Service.
    As we all know, the U.S. Customs Service plays an important 
role in ensuring that all goods and persons entering and 
exiting the U.S. do so in accordance with all our laws and 
regulations. I appreciate any steps Customs takes under the 
Customs Modernization Act to reorganize and make the agency 
more effective and efficient in their efforts to facilitate 
trade, interdict illegal narcotics and halt money laundering 
activities.
    As a Member of the Trade Subcommittee, I am particularly 
interested in the Customs Service's efforts to facilitate 
trade. When we think about trade barriers for American 
products, we often focus on the tariff and non-tariff barriers 
of our trading partners which hamper our exporters' access to 
foreign markets. Yet, we must also make sure that our own 
federal laws and regulations to do not place unnecessary 
burdens on our exports or impede the importation of legitimate, 
useful products and input parts.
    Mr. Chairman, thanks again for calling this hearing. I look 
forward to listening to the testimony of today's witnesses and 
learning more about Customs' efforts to develop a fully-
automated commercial environment to help them carry out their 
facilitation and enforcement responsibilities.