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



 
                      U.S. CUSTOMS SERVICE ISSUES

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON TRADE

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED FIFTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 30, 1998

                               __________

                             Serial 105-64

                               __________

         Printed for the use of the Committee on Ways and Means


                                


                      U.S. GOVERNMENT PRINTING OFFICE
 54-189 CC                   WASHINGTON : 1998
------------------------------------------------------------------------------
                   For sale by the U.S. Government Printing Office
 Superintendent of Documents, Congressional Sales Office, Washington, DC 20402



                      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 April 21, 1998, announcing the hearing...............     2

                               WITNESSES

U.S. Customs Service, Samuel H. Banks, Acting Commissioner; 
  Accompanied by Bob Trotter, Assistant Commissioner, Field 
  Operations; and Chuck Winwood, Assistant Commissioner, 
  Strategic Trade................................................     9
U.S. Department of the Treasury, Dennis Schindel, Assistant 
  Inspector General for Audit, Office of Inspector General; 
  Accompanied by Roberta Rickey, Regional Inspector General for 
  Audit, Chicago, IL; and Benny Lee, Regional Inspector General 
  for Audit, San Francisco, CA...................................    74

                                 ______

Air Courier Conference of America, James A. Rogers...............    45
Air Transport Association of America, Carol Hallett..............    26
American Association of Exporters and Importers, Barry H. Nemmers    29
American Automobile Manufacturers Association, Jeffrey Bobeck....    36
Border Trade Alliance, William Stephenson........................    69
Caterpillar Inc., Ronald D. Schoof...............................    40
Industry Functional Advisory Committee on Customs, and JBC 
  International, James B. Clawson................................    54
Joint Industry Group, Ronald D. Schoof...........................    40
Levi Strauss & Co., Darcy A. Davidson............................    65
National Association of Foreign-Trade Zones, Karen Sager.........    59
National Treasury Employees Union, Robert M. Tobias..............    81

                       SUBMISSIONS FOR THE RECORD

Brother International Corporation, Bridgewater, NJ, statement....    87
General Motors Corporation, Detroit, MI, statement...............    88
JCPenney Purchasing Corporation, Inc., Dallas, TX, Peter M. 
  McGrath, letter................................................    89
National Customs Brokers & Forwarders Association of America, 
  Peter H. Powell, Sr., letter...................................    90
Robert Bosch Corporation, Carol Stream, IL, Karl J. Riedl, letter    91
United States Association of Importers of Textiles and Apparel, 
  New York, NY, statement........................................    92
Volvo Cars of North America, Inc., Rockleigh, NJ, Timothy J. 
  Upton, letter..................................................    94



                      U.S. CUSTOMS SERVICE ISSUES

                              ----------                              


                        THURSDAY, APRIL 30, 1998

                  House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 11:02 a.m., in 
room 1100, Longworth House Office Building, Hon. Philip M. 
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
April 21, 1998
No. TR-24

                       Crane Announces Hearing on

                      U.S. Customs Service Issues

     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 a variety of issues relating to the 
U.S. Customs Service, including drug interdiction and passenger and 
merchandise processing issues. The hearing will take place on Thursday, 
April 30, 1998, in the main Committee hearing room, 1100 Longworth 
House Office Building, beginning at 11:00 a.m.
     Oral testimony will be from both invited and public witnesses. 
Invited witnesses will include Sam Banks, Acting Commissioner of the 
U.S. Customs Service. Also, 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:

      
     Customs Drug Interdiction and Enforcement Efforts--Operation Hard 
Line and Brass Ring: Operation Hard Line, initiated in February 1995, 
is the response of the Customs Service to problems of violence and drug 
smuggling along the Southern border of the United States. Hard Line 
emphasizes enhanced primary inspections, increased secondary 
inspections, more intensive cargo searches, installation of concrete 
barriers to manage traffic flow, and an increase in investigative 
support. Hard Line was designed to promote ``strategic problem 
solving'' by relying on experts at each port to develop and test 
creative new ways to prevent drug smuggling.
      
     According to the U.S. Customs Service, their seizure amounts for 
cocaine have decreased by 12 percent overall during the past year. 
Operation Brass Ring is intended to reverse this trend. Established on 
February 1, 1998, Brass Ring is a multi-functional operation, designed 
to be an aggressive and unpredictable operation with the goal of 
dramatically and immediately increasing the amount of narcotics seized 
by the U.S. Customs Service. In addition, the Subcommittee is 
interested in receiving other legislative or administrative proposals 
from the Customs Service for improving their interdiction and 
enforcement efforts.
      
     Fiscal Year 1999 Budget Request: The President's request for the 
U.S. Customs Service included $1,283 million for Commercial Operations 
and $733 million for drug and other enforcement activities. In 
addition, the Customs Air and Marine Interdiction Program requested 
$102 million in budget obligations.
      
     Merchandise Processing Fees: Customs assesses a user fee known as 
the Merchandise Processing Fee (MPF) in the amount of 0.21 percent ad 
valorem for the processing of merchandise that is formally entered or 
released. The fee, set at a minimum of $21 and a maximum of $485 per 
entry, is intended to offset the salaries and expenses that will likely 
be incurred by the Customs Service in the processing of such entries 
and releases during the fiscal year in which the fee is collected. The 
President has proposed in the fiscal year 1999 budget to increase the 
fee to an ad valorem rate of 0.25 percent (not to exceed $575) for 
necessary expenses incurred by Customs for modernization of the 
automated commercial operations.
      
     Redesigning and Modernizing the Merchandise Processing System: The 
Customs Modernization Act (Mod Act) was enacted as part of the North 
American Free Trade Agreement implementing legislation in December 
1993. Through passage of this Act, the Congress provided the Customs 
Service with the necessary legal authorities to redesign its 
merchandise processing systems for the twenty first century. 
Specifically, the Act required Customs to develop a fully-automated 
commercial environment to replace the current Automated Commercial 
System. Customs now states that the development and implementation of 
this new system, the Automated Commercial Environment, and the 
infrastructure needed to run this system will cost approximately $797 
million over the next seven years.
      
     Another major feature of Customs' efforts to implement the Mod Act 
has been the recent redesign of the process of inspecting and 
controlling outbound cargo. Customs currently inspects less than one 
percent of all U.S. exports. The agency has recently sought to increase 
its effectiveness in interdicting illegal shipments of outbound 
currency, munitions, dual-use goods, chemical and hazardous materials, 
and stolen vehicles. The cornerstone of Customs' effort to redesign the 
outbound cargo process has been the development of an Automated Export 
System (AES).
      
     Customs COBRA User Fees: The Consolidated Omnibus Budget 
Reconciliation Act of 1985 (COBRA) (P.L. 99-272) established a schedule 
of seven passenger-related and conveyance user fees. The Tax Reform Act 
of 1986 (P.L. 99-514) added to this schedule, fees for processing 
barges and bulk carriers from Canada and Mexico. Under COBRA, user fee 
revenues pay for all Customs inspection overtime and all pre-clearance 
costs for which reimbursement was not required and excess pre-clearance 
costs. The Customs and Trade Act of 1990 (P.L. 101-382) amended COBRA: 
(1) to allow Customs to use any surplus revenues, after overtime and 
pre-clearance were funded, to hire inspectors, purchase equipment, and 
fund items related to inspection; (2) to distribute revenues in 
proportion to the amount contributed by each user fee category; and (3) 
to require that surplus-funded Customs inspectional positions 
facilitate passenger and conveyance processing and be used to enhance 
inspection services already provided.
      
     The North American Free Trade Agreement Implementation Act (P.L. 
103-182) increased the air- and sea-passenger processing fee from $5 to 
$6.50 for fiscal years 1994 through 1997 and removed the prior air- and 
sea-passenger processing user fee exemption for passengers arriving 
from Canada, Mexico, and the Caribbean. The fee was reverted to $5 and 
the exemption expired on September 30, 1997. With this increased 
funding provision, Customs filled an additional 77 positions to perform 
preclearance inspections and to inspect cruise vessels from these 
countries. Customs notified the Committee in October 1997 that it would 
have to phase out these positions and discontinue preclearance 
inspection services in the absence of new legislative funding 
authority. Public Law 105-150, enacted on December 16, 1997, authorized 
the use of customs user fees to maintain up to 50 inspectors through 
September 30, 1998, in Florida to process passengers aboard commercial 
vessels. On April 1, 1998, Chairman Crane introduced H.R. 3644, a bill 
to authorize the use of customs user fees to maintain up to 50 
positions plus equipment to provide preclearance services at 11 
locations in foreign countries.
      
     Compensation System for Customs Officers: COBRA fees fund overtime 
and premium pay for Customs officers. The original overtime pay system 
for Customs inspectors was created by the Act of February 13, 1911, 
known as the ``1911 Act.'' Section 13811 of the Omnibus Budget 
Reconciliation Act of 1993 (P.L. 103-66), known as the Customs Officer 
Pay Reform amendments, amended the 1911 Act in an attempt to eliminate 
abuses and mismanagement of the prior system. The reforms were intended 
to limit overtime and premium pay for Customs inspectors and canine 
officers to hours of work actually performed. In order to ``make 
inspectors whole,'' the law also allowed overtime compensation to be 
counted as part of the basic pay for the Civil Service Retirement 
System up to 50 percent at the $30,000 statutory overtime cap, or 
$15,000.
      
     Due to recent arbitration decisions, Customs must now pay overtime 
plus interest to Customs officers: (1) for hours not actually worked by 
officers who were denied overtime assignments because they have reached 
a dollar limit set by port directors; and, (2) who were inadvertently 
passed over for a specific overtime assignment. Due to another 
arbitration decision, Customs is required to pay overtime for hours not 
actually worked to officers whose overtime is inappropriately assigned 
to part time employees.
      
     On July 25, 1997, Chairman Crane introduced H.R. 2262, a bill 
which addresses a number of reforms to the overtime and premium pay 
compensation system for Customs officers.
      

FOCUS OF THE HEARING:

      
     The hearing will focus on: the effectiveness of interdiction 
efforts and their impact on trade; Customs automation and modernization 
efforts and the mechanisms needed to fund these efforts; and the use of 
Customs user fees and the compensation system for Customs officers.
      

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, Monday, April 27, 1998. 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 Trade 
Subcommittee 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 an IBM compatible 3.5-inch diskette in 
ASCII DOS Text or WordPerfect 5.1 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 close 
of business on April 28, 1998. 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) 
single-space legal-size copies of their statement, along with an IBM 
compatible 3.5-inch diskette in ASCII DOS Text or WordPerfect 5.1 
format only, with their name, address, and hearing date noted on a 
label, by the close of business, Thursday, May 14, 1998, 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 an IBM compatible 3.5-inch diskette in ASCII DOS 
Text or WordPerfect 5.1 format. Witnesses are advised that the 
Committee will rely on electronic submissions for printing the official 
hearing record.
      
     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 [presiding]. Folks, if you will please be 
seated now, we will begin today's hearing. You can let the dog 
roam, but all the two-legged folks, take seats please.
    Good morning, this is a hearing of the Ways and Means Trade 
Subcommittee to consider the variety of issues related to the 
U.S. Customs Service, including drug interdiction and passenger 
and merchandise processing fees. In addition, I hope to hear 
some discussion on two bills related to the Customs Service, 
first a bill that Mr. Ramstad and I introduced, H.R. 3644, 
which allows continued Customs preclearance inspectional 
services in Canada, and second, a bill which I introduced in 
July which will amend COPRA, the Customs Officer Pay Reform 
Amendments.
    As my colleagues know, drug use among teenagers is 
skyrocketing. The President's Office of National Drug Control 
Policy reports that heroin is being sold by a wider range of 
dealers who are likely also to sell cocaine. In short, heroin 
has made a comeback almost everywhere and it is no longer 
confined to older addicts from another generation of drug 
users, nor has there been a noticeable reduction in cocaine and 
crack use even though prices for both cocaine and crack appear 
to be stable or declining.
    Further, many drug users do not even consider marijuana a 
drug. Its use is widespread and it is a constant where other 
illicit drugs are being consumed. While the administration 
speaks of reducing the flow of illegal drugs into the United 
States, it has not provided the needed increases to the Customs 
Service's budget designed to stop the flow of drugs into the 
United States. To address this problem I'm introducing a bill 
today which increases Customs authorization to provide for a 
net increase of 1,705 inspectors, canine special agents, and 
other personnel dedicated to reinforcing drug interdiction 
operations along the borders between the United States and 
Canada and Mexico, Florida and gulf coast seaports, and in 
major metropolitan narcotics distribution and money-laundering 
locations, such as Chicago, Los Angeles, and New York.
    The 27-percent increase of $202 million over the 
administration's proposed levels will also ensure additional 
resources necessary to purchase high-technology equipment such 
as busters and truck x rays which will significantly aid 
Customs in its abilities to combat drug smuggling.
    I'm looking forward to hearing Customs discuss its two 
initiatives, Operation Hard Line and Operation Brass Ring, 
designed to combat drug smuggling. I also want to recognize 
senior Customs Inspector Alfredo Morales, an inspector with 
Operation Brass Ring, for his heroic efforts in saving a 
child's life last week at the border between San Diego and 
Mexico. His efforts reflect the best qualities of the U.S. 
Customs Service. In fact, would you stand and be recognized? 
[Applause.]
    I saw it on television and your performance was inspiring. 
Keep up the good work.
    I'm also interested in the testimony from our other 
witnesses as well. Today's discussions will focus on issues 
related to the Customs Modernization Act, including the 
automated systems needed to ensure that Customs meets the Mod 
Act goals, proposals to fund automation, issues related to user 
fees, and how these funds pay for inspectional services, 
including Customs officers' overtime and night pay.
    Our first witness today is Acting Customs Commissioner Sam 
Banks, who will be followed by two panels of private-sector 
witnesses, the Treasury Inspector General, and finally, the 
president of the National Treasury Employees Union.
    [The opening statement follows:]

Opening Statement of Hon. Philip M. Crane, a Representative in Congress 
from the State of Illinois

    Good Morning. This is a hearing of the Ways and Means Trade 
Subcommittee to consider the variety of issues relating to the 
U.S. Customs Service, including drug interdiction, passenger 
and merchandise processing fees. In addition, I hope to hear 
some discussion on two bills related to the Customs Service, 
first, a bill that Mr. Ramstad and I introduced, H.R. 3644, 
which allows continued Customs pre-clearance inspectional 
services in Canada and secondly, a bill which I introduced in 
July which will amend the Customs Overtime Pay Reform Act.
    As my colleagues know, drug use among teenagers is 
skyrocketing. The President's Office of National Drug Control 
Policy reports that heroin is being sold by a wider range of 
dealers who are likely to also sell cocaine. In short, heroin 
has made a comeback almost everywhere, and it is no longer 
confined to older addicts from another generation of drug 
users. Nor has there been a noticeable reduction in cocaine and 
crack use even though prices for both cocaine and crack appear 
to be stable or declining. Further, many drug users do not even 
consider marijuana a drug--its use is widespread, and it is a 
constant where other illicit drugs are being consumed.
    While the Administration speaks of reducing the flow of 
illegal drugs into the United States, it has not provided the 
needed increases to the Custom Service's budget designed to 
stop the flow of drugs into the United States. To address this 
problem, I am introducing a bill today which increases Customs 
authorization to provide for a net increase of 1,705 
inspectors, K-9, special agents, and other personnel dedicated 
to reinforcing drug interdiction operations along the borders 
between the U.S. and Canada and Mexico, Florida and Gulf Coast 
Seaports, and in major metropolitan narcotics distribution and 
money-laundering locations such as Chicago, Los Angeles, and 
New York. The 27 percent increase of $202 million over the 
Administration's proposed levels will also ensure additional 
high technology equipment such as busters and truck x-rays 
which will significantly aid Customs in its ability to combat 
drug smuggling.
    I am looking forward to hearing Customs discuss its two 
initiatives--Operation Hard Line and Operation Brass Ring--
designed to combat drug smuggling. I also want to recognize 
Senior Customs Inspector Alfredo Morales, an inspector with 
Operation Brass Ring, for his heroic efforts in saving a 
child's life last week at the border between San Diego and 
Mexico. His efforts reflect the best qualities of the United 
States Customs Service.
    I am also interested in the testimony from our other 
witnesses as well. Today's discussions will focus on issues 
related to the Customs Modernization Act, including the 
automated systems needed to ensure that Customs meets the Mod 
Act goals; proposals to fund automation; and issues related to 
user fees and how these fees pay for inspectional services 
including Customs officers overtime and night pay.
    Our first witness today is Acting Customs Commissioner 
Samuel Banks, who will be followed by two panels of private 
sector witnesses, the Treasury Inspector General, and finally 
the President of the National Treasury Employees Union.
      

                                


    I would now to like to yield to my distinguished colleague, 
Mr. McDermott. Mr. Matsui, unfortunately, was planning to be 
here, but had a problem develop. He may get here some time 
later today in our hearing, but in the interim he will be 
represented by Mr. McDermott.
     Mr. McDermott. Thank you, Mr. Chairman. As somebody who 
represents, maybe not the largest port on the West Coast, but 
close to it, we have an interest in how the Customs Department 
can do its job as efficiently and effectively as possible. So I 
am here, really, to listen. I would ask unanimous consent to 
enter Mr. Matsui's remarks into the record.
    Chairman Crane. Without objection, so ordered.
    [The opening statements follow:]

Opening Statement of Hon. Robert T. Matsui, a Representative in 
Congress from the State of California

    Mr. Chairman, I welcome this hearing today as an 
opportunity to review the operations of the U.S. Customs 
Service and to discuss a number of pending Customs issues, some 
of which are controversial and involve legislation before this 
Subcommittee.
    The Committee on Ways and Means authorizes appropriations 
for the Customs Service--one of the nation's oldest agencies, 
created in 1789--and has jurisdiction over the trade laws which 
it administers. Traditionally, this Committee has given strong 
bipartisan support to the operations of the Customs Service and 
granted the authority needed to accomplish its mandates for 
administering and enforcing the trade laws, border enforcement 
against drugs and other illegal activities, processing 
merchandise and passengers through United States ports, and 
assessing and collecting customs revenues.
    The Congress granted authority under the Customs 
Modernization Act to enable the Service to redesign and 
modernize its automated systems for processing merchandise in 
order to meet the increased demands and workloads of the 21st 
century. The President's budget submission for fiscal year 1999 
includes a legislative proposal to increase merchandise 
processing user fees to cover costs for implementing these 
automated systems.
    Temporary additional user fees authorized by the NAFTA 
Implementation Act enabled Customs to provide passenger 
preclearance services in foreign locations. Since the NAFTA 
authority expired last September, the Committee will consider 
new legislative authority to cover costs to maintain these 
services. The system of overtime and premium pay for Customs 
inspectors remains an issue as a result of recent arbitration 
decisions and the Committee will consider possible legislative 
reforms.
    Customs has undertaken a number of initiatives--most 
recently Operations Hard Line, Gateway, and Brass Ring--to 
increase drug interdiction and seizures and other border 
enforcement. The fight against illegal narcotics trade must 
remain a major focus of the Customs Service and we need to 
ensure that adequate resources are devoted to this ongoing 
effort. At the same time, enforcement activities must be 
balanced with the commercial operations of the Service and the 
need to minimize unnecessary burdens and delay for entry of 
legitimate commerce.
    I welcome Acting Commissioner Sam Banks back to the 
Subcommittee. I look forward to hearing your assessment of the 
operations and needs of the Customs Service to meet its various 
missions as we enter the 21st century. I also look forward to 
hearing the views and proposals of our private sector witnesses 
today on these various Customs issues.
    In addition, I wish to draw special attention to senior 
Customs inspector Alfredo Morales, who is present here today, 
and commend him for his heroism. The entire nation watched 
transfixed as Inspector Morales rescued an infant at the San 
Ysidro border crossing, after a 150-mile chase, from an armed 
and dangerous felon.
      

                                


Opening Statement of Hon. Jim Ramstad, a Representative in Congress 
from the State of Minnesota

    Mr. Chairman, thank you for calling today's hearing to 
discuss U.S. Customs Service Issues.
    The importance of the work of the U.S. Customs Service 
cannot be overstated. It is not only involved in the important 
import/export industry, which employs millions of Americans 
with solid, high-paying jobs, but also interdicts the flow of 
illegal products, especially drugs, in and out of our country.
    The committee will be reviewing ways today to enhance the 
services Customs provides to process the massive amounts of 
products entering and exiting our country. I look forward to 
reviewing legislation that might help facilitate these 
transactions, especially H.R. 3644, the legislation Chairman 
Crane and I have introduced to allow the Customs Service to 
access funds in the User Fee Accounts and enhance inspector 
staffing and equipment at preclearance services in foreign 
countries.
    In addition, Customs' duty of interdicting drugs is 
certainly not an easy job. Millions of Americans rely upon 
their efforts to stem the supply of drugs in our nation. I 
applaud efforts to design new and effective programs, like 
Operation Brass Ring, to seize even more illegal drugs entering 
the US, and to protect our children from these life-threatening 
chemicals.
    Thank you again, Mr. Chairman, for calling this hearing. I 
look forward to hearing from today's witnesses about ways in 
which to improve the operations of the US Customs Service.
      

                                


    Mr. McDermott. Thank you.
    Chairman Crane. All right. Fine.
    With that, we'll proceed. Mr. Banks. I never thought Mr. 
McDermott would have control of the time without speaking. Mr. 
Banks.

STATEMENT OF SAMUEL H. BANKS, ACTING COMMISSIONER, U.S. CUSTOMS 
 SERVICE; ACCOMPANIED BY BOB TROTTER, ASSISTANT COMMISSIONER, 
 FIELD OPERATIONS, AND CHUCK WINWOOD, ASSISTANT COMMISSIONER, 
                        STRATEGIC TRADE

    Mr. Banks. Mr. Chairman, good morning. Members of the 
Subcommittee, it is always a pleasure to appear before you 
today to review some of the successes of the U.S. Customs 
Service and the challenges we face in fulfilling our commitment 
to insure safe borders for the American people.
    With your permission, I would like to introduce my formal 
statement for the record and just abbreviate my comments.
    Chairman Crane. Without objection, so ordered.
    Mr. Banks. Thank you, sir. Accompanying me today, on my 
left is Bob Trotter, who is our Assistant Commissioner for 
Field Operations. He's the one that really is in charge of all 
of the ports of entry around the country. And to my right is 
Chuck Winwood who is with our Office of Strategic Trade and has 
been instrumental in redesigning our commercial processing for 
the future.
    Everything I would like to discuss today stems from our 
strategic plan that we have tried to conscientiously develop in 
concert with this Subcommittee, with our employees, with 
members of the U.S. business community, and a host of other 
interested parties. The success of this plan, and what's going 
to weave through some of my discussion, is dependent on three 
critical factors: One, a quality work force; two, modern 
technological solutions; and three, strategic partnerships.
    We have adopted a business approach to our work, trying to 
continually improve upon our processing of people and goods 
crossing our borders and by fundamentally redesigning our 
operations to meet the future needs of the American people and 
the American economy. However, first, and foremost, we are a 
law enforcement agency. Narcotics enforcement is at the top of 
our law enforcement priorities.
    Earlier this year we launched a narcotics enforcement 
operation entitled Brass Ring. Even though U.S. Customs seized, 
for the second year in a row, almost 1 million pounds of 
narcotics, more than all other Federal agencies combined, our 
analysis of threat estimates versus the seizures we were 
making, indicated certain vulnerabilities which led us to 
initiating Brass Ring. The amount of narcotics we have seized 
under Brass Ring is up 30 percent over the comparable period of 
1997. Our currency seizures have almost doubled. Our controlled 
deliveries, which is our mechanism to working our way up the 
chain to find the people involved in the distribution networks 
of these narcotics organizations, have also doubled.
    We are not even attempting to proclaim any kind of success. 
We have a long ways to go, but I have to tell you that the 
renewed commitment, the energy, and the creativity of our 
fieldpeople in attacking the drug problem is at an all-time 
high in this organization. This operation has been conducted 
with what we think is a minimal adverse impact on the flow of 
commerce and trade. In fact, if anything, we are building 
extensive partnerships with industry to engage them in the 
effort to secure their shipments and their conveyances against 
narcotics.
    We'd rather prevent the narcotics from ever entering in the 
first place rather than seizing it.
    It is our intention to build on this momentum in our 
interdiction and investigative operations. The fiscal year 1999 
budget request will further our narcotics enforcement efforts 
in part by adding $54 million in new nonintrusive inspection 
technologies, large-scale x rays, gamma rays, and so forth, 
along the Southwest border and in south Florida.
    The authorizing bill that you mentioned today and the 
authorizing bill from Senator Gramm on the Senate side, holds 
the potential to dramatically improve both our border 
enforcement capabilities, especially against narcotics, and 
simultaneously expedite the movement of legitimate trade and 
travelers and for that, we thank you very much, Mr. Chairman.
    U.S. Customs is committed to the most cost effective use of 
our resources, and to be held accountable under the Results 
Act. We have received our second consecutive clean, unqualified 
opinion on our financial statement. Our performance plans, our 
measures that we use, have been used by the Congressional 
Institute as a best-practice example. We are also doing our 
utmost to fulfill the requirements of the Clinger-Cohen Act 
because information technology, because automation is so 
absolutely critical to our future. I would like to announce 
that next Monday, Woody Hall, who is currently the Deputy 
Assistant Secretary for Information Management and also the 
Chief Information Officer for the Department of Energy, the 
entire Department, and who is widely respected for his 
strategic vision in building a strategic information technology 
organization, is joining us to lead our Office of Information 
and Technology.
    As you know, we have embarked on a major redesign of our 
commercial automation. Actually this effort began with the 
Modernization Act which was crafted under the leadership of 
this Committee. It has fundamentally changed our legislative 
underpinnings, and allowed us to engage with industry in 
completely redesigning how we process the $845 billion in 
imports and still ensure compliance with all U.S. laws.
    I am pleased to inform you that most of the Modernization 
Act regulations are complete and, if we haven't automated, 
we've at least initiated pilots for most of the automation 
features of the Modernization Act.
    But in order to fully capitalize on the Modernization Act 
and implement this new business plan, we need a major revision 
to our information technology system. The current system, the 
Automated Commercial System, ACS, has served the government and 
the trade community very well for 14 years. But it was designed 
for business practices of the eighties, and for the legal 
requirements that existed before the Modernization Act.
    Today it is operating virtually at maximum capacity and we 
are experiencing some degradation in response times. Three 
years ago we began development of a new system, the Automated 
Commercial Environment, ACE, which is designed to meet modern 
business needs, to employ advanced technologies that are 
demanded by industry, and to really build upon the 
Modernization Act and bring its full benefits for industry and 
for the government.
    I would like to announce that this past Monday we 
implemented the very first component of ACE that interfaces 
with industry and it goes live on May 4, next week, in Detroit, 
Laredo, and Port Huron with five major importers.
    It took us 14 years and millions of dollars to build ACS, 
the current system, and we anticipate it is going to take 6 
years, and millions of dollars, to fully deploy all of the 
required automation architecture in the field and to complete 
all of the new features of ACE.
    Probably the most important vulnerability, the most 
important thing that we need, is to have a reliable, 
predictable source of funding to build this automation system. 
Even our industry partners demand this of us because for their 
own long-term planning and for their efforts to build their 
business plans in conjunction with ours. They need to know that 
we are going to continue to progressively roll out this 
automated system.
    In formulating our budget request for fiscal year 1999, the 
administration determined that $8 million could come from 
appropriated resources. The remaining $46 million should be 
funded by users of the system through an increase in the 
merchandise processing fee that would be dedicated to building 
this automation.
    Although the funding proposal is understandably 
controversial and is meeting with resistance from industry, I 
believe you are going to find that most of the trade community, 
and the trade community you are going to hear from today 
believes and supports the idea and the need for building a new 
automated system that will provide an efficient international 
trade system in the future.
    Another issue this Committee asked Customs to address is 
the use of a COBRA user fee, to support our preclearance 
operations in Canada and the Bahamas and our inspection 
operations for cruise ships in south Florida.
    The authority to collect user fees for these activities 
expired last September and accordingly we began withdrawing our 
inspectional resources that were providing these services. 
Although a temporary remedy was provided for cruise ships in 
Florida, this authority will also expire on October 1, 1998.
    We are sincerely appreciative of the efforts of this 
Committee's to attempt to resolve this issue and we are now 
withholding any further reductions in staffing from the 
Canadian preclearance operations in order to be cooperative 
with the Committee. We are hopeful that the authority to fund 
these positions can be instituted by the beginning of next year 
so we can continue to avoid having to reduce staff.
    The final topic I'd like to mention concerns inspectional 
overtime. Customs operates, 24 hours a day, 365 days of the 
year, just like our customers do and overtime is an integral 
part of maximizing our staffing while providing cost-effective 
service.
    Four years ago Congress revised our legislation on how we 
compensate our inspectional personnel for working outside 
normal hours. There is now a recognized need to modify that law 
to ensure that we are only paying officers for time actually 
worked and to ensure that management has the flexibility to 
align staffing to the workload and to the enforcement threat.
    And, again, we look forward to working with this Committee 
to accomplish these changes in the best interest of the 
American taxpayer.
    In closing, Mr. Chairman, I'd also like to thank you very 
much for introducing Al Morales, the supervisory Customs 
Inspector who saved that infant's life in San Ysidro. He really 
does represent some of the finest in Customs. Two weeks ago I 
mentioned to you we had another officer in El Paso, Tony Perez, 
who actually performed the Heimlich maneuver on a young child, 
a baby coming in. The mother carried the baby forward and it 
wasn't breathing, and he saved that baby's life. Every day 
these officers are out there, protecting our borders and 
protecting the American public. I am incredibly proud of 
Inspector Morales and all of the people that he represents. I 
thank you very much for the opportunity to be here, Mr. 
Chairman, and I'd be happy to answer any questions.
    [The prepared statement follows:]

Statement of Samuel H. Banks, Acting Commissioner, U.S. Customs Service

    Good morning, Mr. Chairman and Members of the Subcommittee. 
I am pleased to be here today and present to you Customs 
successes from the past year, the current strategies we are 
undertaking to accomplish our multi-faceted mission, and our 
Fiscal Year (FY) 1999 budget request. It is our goal over the 
next year to continue to build upon the excellent working 
relationship we have with this Committee. Your strong support 
of the Customs Service has been vital to our success as one of 
the Nation's primary border interdiction agencies.
    While much of our past year's success is the direct result 
of the ingenuity, dedication and hard work of Customs 
employees, we have also enjoyed many successes working 
cooperatively with other Federal, state, and local law 
enforcement agencies, the trade community, and foreign 
governments. We will look to strengthen these important 
partnerships further in the future.

                         Narcotics Enforcement

    Similar to past years, Customs remains in the forefront of 
our Nation's narcotics interdiction and investigative efforts. 
Our foremost priority continues to be narcotics interdiction. 
In FY 1997, Customs nearly matched its all time high seizure 
record set in FY 1996, by seizing 982,815 pounds of narcotics.
    In order to meet the challenge of policing the Nation's 
borders against drugs, Customs has continued to develop and wed 
new technologies with conventional inspectional and 
investigative techniques. Last fiscal year, over 118 million 
automobiles, 9.3 million trucks, 321,000 railcars, and 4.5 
million sea containers entered the United States creating an 
enormous window of opportunity for drug smugglers and a massive 
drug enforcement dilemma for Customs. Each year, drug smugglers 
probe for and exploit weaknesses in Customs enforcement shield 
in, around, over and under our air, land, and sea ports of 
entry. Drug Smuggling Organizations continue to diversify their 
smuggling routes and have increased the sophistication of their 
smuggling techniques. They have established elaborate front 
companies, both foreign and domestic, to facilitate the 
movement of illicit drugs; conspired with dock workers and 
baggage handlers to form internal conspiracies to circumvent 
the Customs inspection process; deployed stealth boats and 
sophisticated air drop procedures to go around established 
ports of entry; and established sizable spotter networks in and 
around our ports of entry to ``pick and choose'' smuggling 
times and routes.
    In FY 1997, Customs continued its efforts to fight 
smuggling along the Southern Tier of the U.S., including Puerto 
Rico and the Virgin Islands. Through Operations HARD LINE and 
GATEWAY, we have hired, trained, and placed 677 new employees 
along the Southern border and Caribbean Basin.
    In FY 1997, Southwest border seizures under Operation HARD 
LINE were 33,106 pounds of cocaine, 602,549 pounds of 
marijuana, and 197 pounds of heroin. Operation GATEWAY, the 
multi-staged operation designed to address the air and maritime 
threat in Puerto Rico, the Virgin Islands, and their 
surrounding waters, also continued to show positive results. 
Since the start of the second year of operation, March 1, 1997, 
through January 31, 1998, GATEWAY has resulted in the seizure 
of $3.4 million in currency, 16,693 pounds of cocaine, 376 
pounds of marijuana, and 92 pounds of heroin.
    Customs has developed an investigative strategy that 
focuses activity and resources in those areas where it is 
estimated the majority of the illegal drugs enter the U.S. The 
strategy also targets those areas where our intelligence 
indicates Drug Smuggling Organizations' ``command and control'' 
structures are centered. The approach is designed to enhance 
both internal and external cooperation and intelligence 
sharing, while maximizing the unique investigative and 
interdiction capabilities of Customs.

Industry partnerships

    To assist in deterring narcotics smuggling, Customs 
developed and deployed a number of innovative programs and 
detection technologies that act as force multipliers to meet 
our enforcement goals. Customs continues to expand its Carrier 
Initiative Program (CIP) with the truck industry and with 
Southwest border railroads as well. This program is a joint 
effort by Customs and the transportation industry to reduce 
smuggling in commercial conveyances. Presently, 3,900 carriers 
(875 land, 110 air, and 2,915 sea) have signed agreements with 
Customs. Building on the CIP, Customs established the Business 
Anti-Smuggling Coalition (BASC) with Southwest border 
importers. In FY 1997, information from these two programs 
resulted in 74 seizures totaling 12,700 pounds of narcotics. We 
believe these partnerships play an important role in combating 
narcotics smuggling. Last year alone, 43 percent of the cocaine 
seizures that were made by Customs as a result of prior 
intelligence, came from information that was provided to 
Customs by the trade community.
    Building on the success of these programs, Customs has 
developed the Americas Counter Smuggling Initiative (ACSI), 
which will expand our anti-narcotics security programs with 
industry and government throughout Central and South America. 
This initiative is designed to: strengthen cooperative efforts 
with legitimate businesses involved in international trade; 
increase actionable intelligence on narcotics and contraband 
interdiction; increase participation in CIP and BASC; prevent 
narcotics from entering the U.S. via commercial cargo and 
conveyances; increase narcotics seizures throughout the region; 
disrupt smuggling by an aggressive attack on internal 
conspiracies; and force smugglers to use riskier methods such 
as air drops and speed boats. Beginning in January 1998, the 
Offices of Field Operations, Investigations, International 
Affairs, and Intelligence began detailing Customs officers to 
South America to assist exporters, carriers, manufacturers, and 
other businesses. These employees will perform security site 
surveys, develop and implement security programs, conduct post-
seizure analyses, foster information exchange and follow up 
activities, and provide guidance on technology deployment and 
application to safeguard legitimate trade from being used to 
smuggle narcotics. Target countries include Venezuela, 
Colombia, Peru, Ecuador, Panama, Costa Rica, and Mexico.

                          Operation Brass Ring

    Although Customs consistently, year after year, seizes more 
drugs than any other Federal Agency, and in fact more than most 
combined, we have become concerned that the quantity of drugs 
seized may be decreasing. We therefore launched on February 1, 
1998 Operation Brass Ring. It will continue until July 31, 
1998. Its objective is clearly stated as ``To immediately and 
dramatically increase the amount of narcotics seized.'' In 
terms of the sum total of amounts of narcotics seized, that 
objective was met in the first two months of Brass Ring. 
Comparing fiscal years to date for 1997 to 1998, the total 
amount of narcotics seized has increased by 13 percent and for 
the time period February 1-March 31 of 1997 and 1998, the 
amount of currency seized increased 89 percent.
    Brass Ring is generating a number of other substantial 
benefits including a significant increase in investigations, 
multi-functional teams within Customs and with other agencies, 
expanded use of Strategic Problem Solving, mobility and 
unpredictability, improved enforcement in processing cargo and 
passengers, effective use of technology, etc. We have already 
begun planning for ``after Brass Ring, now what?'' to build 
upon this momentum and to institutionalize what works, honoring 
our negotiation commitment to the National Treasury Employees 
Union (NTEU) as we proceed.
    And Customs has done all of this without adversely 
affecting the flow of legitimate commerce and travel into this 
country.

Technology

    Technology plays an important role in all Customs 
counterdrug activities. It provides new capabilities to allow 
inspections to keep up with changing smuggling techniques, acts 
as a force multiplier, increases enforcement effectiveness and 
efficiency and allows us to cope with growing trade and 
traffic.
    With the support of the Administration, Customs has 
developed a comprehensive and structured 5-year plan to deploy 
counterdrug technology to the ports of entry, subject to budget 
resources, to significantly increase the smugglers' risk of 
detection along the entire Southern Tier of the U.S. This 
technology includes: non-intrusive technologies (e.g., fixed 
and mobile truck x-ray systems, gamma-ray inspection systems 
for trucks and railcars, and higher energy heavy pallet x-ray 
systems) to counter the entry of narcotics along the Southern 
Tier; technology for outbound currency and weapons at ports 
along the Southern tier; dedicated commuter lanes which depend 
on technologies such as voice recognition, biometric 
identification, ``smart cards'' (a chip on a credit card-sized 
card which stores information about the individual), and 
vehicle movement control technologies along the Southwest 
border; investigative, intelligence, and encrypted, digital, 
voice communications technology; and automated targeting 
systems. In addition, over the next five years, we intend to 
deploy similar non-intrusive inspection technology to high-risk 
airports and seaports which are not located along the Southern 
Tier, such as John F. Kennedy International Airport in New York 
and the Newark Seaport in New Jersey. Recent accomplishments in 
the development of new and larger-scale non-intrusive 
inspection systems will provide Customs with the opportunity 
for unprecedented improvement in the intensity and quantity of 
inbound inspections of cargo and conveyances.
    Customs currently operates four truck x-ray systems in El 
Paso and Pharr, Texas and Otay Mesa and Calexico, California. 
In addition, one prototype mobile truck x-ray system and one 
prototype gamma-ray system are in place at Laredo and El Paso, 
Texas, respectively. The prototype gamma-ray system uses gamma-
ray radiation to penetrate the structure of heavier-bodied 
trucks, such as propane tankers, to allow Customs to examine 
both the conveyance and some cargoes for the presence of 
contraband. Since the first truck x-ray system became 
operational in August 1995, this system, and the three others 
that have become operational since March 1997, have been 
involved in 150 drug seizures totaling over 38,000 pounds of 
narcotics. By December of 1998, Customs will have four 
additional fixed site truck x-ray systems operational in El 
Paso, Laredo, and Brownsville, Texas; and Nogales, Arizona.
    We believe this type of technology is invaluable in 
enhancing Customs narcotics enforcement capabilities without 
impeding the flow of legitimate commercial traffic. The fixed 
site truck x-ray and mobile truck x-ray systems can inspect 
approximately eight full size tractor-trailer trucks per hour. 
The gamma-ray system can inspect 12-15 tractor-trailer trucks 
per hour. Both of these systems can inspect any vehicle that is 
legal for operation on public roadways.

Air and Marine Programs

    In FY 1997, the Customs Air Program contributed to the 
seizure of 51,908 pounds of cocaine, 64,595 pounds of marijuana 
and 50 pounds of heroin. It also continued assistance to Mexico 
in the air transit zone and to South American countries in the 
narcotics source zone.
    Since the implementation of HARD LINE and the strengthening 
of the ports of entry, the marine threat has risen dramatically 
from its previous levels. Over the past few years, the Marine 
Program has been scaled back to focus Customs efforts on other 
methods of deterring narcotics smuggling. In FY 1997, the 
Customs Marine Program contributed to the seizure of 31,538 
pounds of cocaine, 25,040 pounds of marijuana, and 39 pounds of 
heroin. It is imperative to sustain this successful program.
    The Customs National Marine Strategy places an emphasis on 
intelligence-driven interdiction operations and investigations. 
Smuggling methods have changed from the very simplistic (boats 
with bulk marijuana thrown on the decks or in cabins) to the 
very sophisticated (cleverly engineered hidden compartments, as 
well as air drops). The contraband has also changed from large, 
easily detectable cargoes of marijuana to smaller loads of 
cocaine. Customs future air and marine interdiction successes 
will be based on a flexible response in meeting new external 
challenges like those mentioned above.

Railroad inspections

    In FY 1997, Customs processed more than 320,000 rail cars 
at eight major crossings along the Southwest border--Laredo, 
Brownsville, Eagle Pass, Presidio and El Paso, Texas; Nogales, 
Arizona; and Calexico and San Ysidro, California. Approximately 
half this volume crossed at Laredo, Texas. In response to the 
emerging threat of narcotics smuggling via rail, Customs is 
increasing its intensive inspections of railroad equipment and 
is testing non-intrusive technology on railcars. Customs 
recently completed successful tests of the Vessel and Container 
Inspection System (VACIS), a gamma-ray imaging system that has 
been modified for use in the rail environment. Customs also 
plans to deploy 47 positions to increase rail inspections by 
Contraband Enforcement Teams, add rail inspection training to 
its existing Southern Border Interdiction Training course, and 
perform joint operations with other agencies.
    Recently, Customs and Border Patrol officials met to 
coordinate joint inspection operations on Southwest border 
railcars. Since the summer of 1997, joint operations have been 
held at each of the eight major rail crossings with successful 
results. To date, these efforts have produced several marijuana 
seizures totaling more than 700 pounds as well as the discovery 
of 17 railcars with false compartments. These seizures are in 
addition to Customs own rail operations which have resulted in 
the seizure of approximately 10,000 pounds of marijuana and 
2,200 pounds of cocaine. Customs is also an active participant 
in a multi-agency working group formed by Attorney General Reno 
to address the threat of narcotics smuggling via rail.

                            Money Laundering

    FY 1997 was one of dynamic change in the investigative 
approach taken in the area of money laundering investigations 
and initiatives. As a result of the programs implemented in FY 
1997, Customs money laundering strategy is now more focused on 
the disruption and incapacitation of the two key business 
functions that are the lifeblood of most sophisticated 
international criminal organizations: laundering and investing 
the proceeds and profits of their criminal activity. Asset 
Removal Teams, undercover operations, training foreign 
counterparts, and the establishment of the Money Laundering 
Coordination Center, discussed below, have all contributed to 
improving our money laundering strategy.
    In FY 1997, our money laundering efforts resulted in 
seizures of $257 million in monetary instruments, most of which 
were related to narcotics trafficking. The Customs-led El 
Dorado Task Force in New York met with tremendous results in 
disrupting money laundering in the wire remitter industry. 
Using a combination of undercover operations and regulatory 
interventions, such as Geographic Targeting Orders (GTOs), the 
task force targeted 12 remitters that sent over $1.2 billion a 
year to South America--$800 million of it to Colombia. Their 
efforts have reduced the amounts remitted to Colombia by over 
30 percent, driving the drug proceeds out of this system and 
contributing to the overall rise in the cost of laundering drug 
money.
    On legislative and regulatory matters, Customs worked 
closely with the Department of Treasury and the Financial 
Crimes Enforcement Network, which resulted in several notices 
of proposed rule making for enhanced reporting for money 
services businesses, wire transfer record keeping requirements, 
and currency and monetary instruments reporting on foreign bank 
drafts.
    For FY 1998, our money laundering strategy will build upon 
the successes from the previous year. Our Money Laundering 
Coordination Center will become operational in FY 1998 and will 
coordinate Customs nationwide undercover money laundering 
operations and follow-up investigations. Customs also plans to 
expand the use of covert undercover money laundering operations 
and continue to increase the use of non-traditional law 
enforcement methods, such as GTOs, in coordination with the 
Internal Revenue Service, the Department of Justice, the 
Financial Crimes Enforcement Network, and state and local law 
enforcement.

                               Integrity

    While there is no systemic problem of corruption at 
Customs, it is necessary to develop a strong integrity 
assurance program to counter perceived and potential threats of 
corruption. In FY 1997, Customs began an enhanced integrity 
program to address these issues and redirected resources to 
strengthen the Office of Internal Affairs (IA). Of the 45 
positions identified for this critical program, 42 have been 
filled or selections made. These employees will be devoted to 
the new Computer Analysis Division (which will perform 
forensics, analysis, and assessments of the integrity of 
automated systems), special operations, inspection and audit, 
and other similar functions. Activities, such as inspections 
and audits, will also increase current employee awareness of 
integrity issues.
    Pending funding availability requested for FY 1999, IA will 
also develop ways to complete background investigations more 
quickly with a higher degree of reliability, expand its own 
polygraph capability to address internal investigations of 
alleged misconduct, and acquire the specialized hardware and 
software to accommodate the FBI's change to electronic 
fingerprint technology. Working in concert with the State 
Department, IA plans to continue to accommodate other 
countries' requests for integrity and internal investigative 
training. This effort fosters better coordination with other 
countries' customs services, and the development of initiatives 
of mutual benefit in thwarting international corruption of law 
enforcement personnel. Customs is exploring changes to its 
hiring mechanisms to ensure that the highest level of integrity 
in its workforce is maintained.

                               Automation

    Customs has embarked on an aggressive strategy to improve 
its management of information technology in response to 
legislative mandates, such as the Clinger-Cohen Act and 
Government Performance and Results Act, the Federal Acquisition 
Streamlining Act, and guidance from OMB and GAO. Over the past 
year, Customs has developed an investment management process 
that considers the risks, costs and benefits associated with 
potential information technology (IT) investments. This 
provides a systematic process within which Customs Investment 
Review Board (IRB) can make funding decisions and exercise 
oversight of Customs IT projects. The process instills 
discipline by making the business sponsors responsible for IT 
projects, by integrating business and technical risk 
considerations, and by ensuring adherence to Customs systems 
development guidelines.
    In addition, major Customs IT projects are under ongoing 
review by the Treasury IRB in order to ensure that these 
investments meet the criteria of the Clinger-Cohen Act and the 
goals and strategies of the Treasury Department. One such 
project, the Automated Commercial Environment (ACE) is reviewed 
by the Treasury IRB every month. The Treasury IRB evaluates the 
project's progress against established milestones and 
performance measures, reviews and approves Customs IRB's ACE 
funding release requests, approves every status report that is 
sent to GAO and Congress, and ensures that ACE, as well as 
Customs enterprise architecture follows GAO's best practices.
    ACE represents the automation support necessary for Customs 
to implement the trade compliance redesign. This redesign 
emerged from the business process re-engineering efforts that 
Customs initiated in 1994. Working with the trade community and 
other government agencies, Customs spent more than three years 
conducting a top-to-bottom review and redesign of import 
processes and laying out the requirements for a new computer 
system. Once implemented, ACE will support the goals of the 
redesigned trade compliance process--increasing compliance with 
laws and regulations governing imports, decreasing costs of 
complying with these laws, streamlining import-related 
processes, and improving customer service.
    Also during the past year, Customs has undertaken an 
extensive self-examination of how its IT operations support 
business needs. This effort has enabled Customs to establish 
the foundation for developing both an enterprise architecture, 
which defines how information systems and applications support 
business needs, as well as a technical architecture describing 
the components of the IT infrastructure. As a result of this 
effort, Customs has strengthened its ability to develop 
comprehensive and integrated IT infrastructure assessments and 
budget proposals. Further, Customs is proceeding with an effort 
to more fully develop an enterprise architecture and a process 
for renewing that architecture in conformance with Treasury 
guidelines and industry best practices.
    Finally, Customs is intensively attacking the problem of 
Year 2000 compliance. Customs recognizes the gravity of the 
situation of our automated trade and enforcement systems, on 
which the trade and other law enforcement agencies depend, if 
our systems are not ready for the Year 2000. Customs is 
devoting considerable attention and has shifted resources to 
support the necessary renovation and testing of IT systems; the 
replacement of IT software, hardware and telecommunications 
that are not capable of operating in the Year 2000; and in 
addressing Year 2000 problems in such non-IT areas as 
laboratory equipment, x-ray machines, and building 
infrastructure.
    While much work needs to be done and many problems can be 
anticipated, the Year 2000 conversion effort is meeting with 
some success. As of April, Customs is slightly ahead of 
schedule for ensuring that mainframe mission critical trade, 
enforcement and administrative systems are renovated and tested 
by October 1998. Further, these efforts are currently within 
budget, although Customs remains concerned about the rising 
costs of IT professionals in the current tight labor market.

                            Trade Compliance

    Through a complete redesign of the trade process and a 
focus on key industries and importers, Customs has made good 
progress toward attaining its goal of 90 percent overall 
compliance and 95 percent compliance for Primary Focus 
Industries (PFI). PFIs are industries which are of sufficient 
trade sensitivity to warrant a heightened degree of attention 
by Customs with respect to imported goods. The agency also has 
been able to sustain a close to 99 percent duty collection 
rate.
    However, with the substantial growth in world trade, 
coupled with limited resources, it is becoming clear that 
Customs ability to meet or sustain all of the goals for trade 
compliance is increasingly challenged. Customs is continuing to 
move forward by constantly refocusing its resources on the 
vital industries and imports, but has adjusted its performance 
targets to reflect limited resources.
    For FY 1998, Customs has set forth an ambitious agenda. In 
the trade compliance area, Customs will initiate a number of 
positive initiatives. Included are: an initial prototype of 
elements of the modernization of Customs automated commercial 
operations at three land border ports; finalizing and 
implementing new drawback regulations to tighten control over 
this program (which was previously identified as a Federal 
Managers Financial Integrity Act weakness); instituting multi-
port compliance efforts focused on three compliance areas 
(bearings, production equipment, and gloves) to see if greater 
organizational focus will result in higher levels of compliance 
sooner; continuing the informed compliance program with more 
focus on high impact areas; and continuing efforts to improve 
Customs compliance measurement program. Trade Compliance also 
plans to expand the account based-approach to 150 accounts; 
initiate over 100 compliance assessments of companies; develop 
a similar compliance approach for Mexican and Canadian NAFTA 
goods; increase focus on our international cooperation efforts 
with other countries, the World Trade Organization, and the 
World Customs Organization; and finally continue improvement of 
our commercial financial systems to improve compliance with the 
Chief Financial Officers (CFO) Act. The $11 million 
appropriated to the Department of Treasury's Automation 
Enhancement account in FY 1998, and subsequently transferred to 
Customs, will continue efforts to modernize Customs automated 
commercial operations.

Account Management

    Customs has prototyped the concept of Account Management. 
The Account Manager is assigned an account (importer) or group 
of accounts and is responsible for overseeing the efficient 
application of Customs processes to the account(s). By viewing 
import practices from a corporate or account level, Customs can 
craft strategies to maximize compliance which are reflective of 
developing business practices. The importer benefits by having 
a single point of contact within Customs.
    In FY 1997, Customs had 25 full-time National Account 
Managers in place and a growing list of accounts participating 
in the program. In addition, the prototype of Port Account 
Management was implemented. The Port Account concept also 
focuses on major accounts--importers with annual trade value in 
excess of $10 million. Successful prototyping has led to a 
January 1998 expansion of the program which now numbers 350 
accounts, and further expansion is planned for later in 1998. 
The Account Management approach, as exemplified by these 
programs, is the cornerstone for the future of the trade 
compliance process. While analysis of trade patterns and 
determination of compliance levels for industries and countries 
of origin will remain critical for effective operations, an 
account focus is the means for implementing strategies 
resulting from such analysis. Customs believes that the vast 
majority of companies who import goods wish to do so in 
compliance with laws, rules, and regulations. The Account 
approach enables Customs to assist compliant companies to 
maintain compliance, while better using its resources and 
processes to focus on non-compliant activities. Such a focus 
will enable Customs to maximize the enforcement of laws and 
further develop risk management.

                               Passenger

    In FY 1997, the performance target of 60 percent of the 
arriving flights providing Customs advance passenger 
information was met, and Customs continued to attain a 5 minute 
or less processing rate for 95 percent of arriving air 
passengers. Informed compliance projects continued with the 
establishment of 17 additional self-service informational 
kiosks at 16 airport departure lounges, production of brief 
television public service announcements for 8 airport 
television networks, and AM radio loops at the land borders.
    Passenger targeting and identification were enhanced 
through continued airport analytical unit training, additional 
automation improvements to the Advance Passenger Information 
System (APIS), and improvements to APIS primary processing 
screens. Port Quality Improvement Committees (PQICs), which are 
multi-agency, empowered teams established to increase 
coordination on local passenger processing issues, are in place 
at numerous land border ports and airports, and are used to 
coordinate operations between government agencies and industry.
    Over the next year, improvements will be made to the 
passenger compliance measurement program in the commercial air 
program area. Customs will continue efforts to obtain advance 
passenger information for 65 percent of all international 
flights. This will be accomplished by working with various 
airlines and the Immigration and Naturalization Service.
    Customs will also continue to expand automated targeting 
capabilities; test or install several new technologies, such as 
automated license plate readers, at the land borders; and 
continue efforts to increase the compliance levels of non-
willful violators. Most arriving persons choose to be compliant 
when information for compliance is easily available. If the 
number of inadvertent violations can be significantly reduced, 
inspectional resources can focus more fully on serious 
violators.

                                Outbound

    In FY 1997, the Outbound Process made significant outbound 
interdictions of currency, stolen vehicles, and Exodus 
violations. Outbound seized more than $55 million in undeclared 
outbound currency. The majority of undeclared currency going 
out of the U.S. involved proceeds from illicit activities, with 
the majority being proceeds from narcotics smuggling into the 
U.S. Outbound also recovered 2,119 stolen vehicles worth an 
estimated $35.3 million. In FY 1997, Customs Exodus Program, an 
intensified enforcement program intended to intercept illegal 
exportation of strategic technology and data, interdicted 1,034 
shipments of weapons, munitions, and critical technology 
illegally leaving the United States, valued at more than $59 
million.
    Customs will continue to enforce a wide range of 
international laws related to illegal trafficking in materials 
and technologies which threaten U.S. national and economic 
security and impact on U.S. foreign policy.
    Customs determined through compliance measurement that 
there was an extremely low compliance rate for exports. As a 
result of a vessel compliance program initiated last year, the 
bill of lading compliance rate has increased from 63 percent to 
93 percent, Shipper's Export Declaration (SED) filing has 
increased from 70 percent to 94 percent and manifest timeliness 
has increased from 90 percent to 94 percent. Customs will 
continue to use the compliance measurement program to address 
the air and land environments. In addition Customs will: test 
the concept of Account Management; continue to work with all 
segments of the trade community to ensure that the Automated 
Export System (AES) captures all export information to meet the 
needs of both the Government and the trade; continue to work 
with the other government agencies to incorporate their export 
requirements in AES; standardize used car export procedures; 
and further a number of initiatives to deal with willful 
violators (e.g., test new outbound examination facilities 
funded by appropriations). Outbound will also evaluate new 
technologies; support Department of Defense and Department of 
Energy foreign export control programs; evaluate a stolen 
vehicle initiative started in the Port of Miami; and work with 
our intelligence units to improve outbound currency 
interdictions.

Antiterrorism

    In FY 1997, Customs received $62.3 million for 
antiterrorism initiatives to be used to meet the 
recommendations issued by the White House Commission on 
Aviation Safety and Security. Customs has filled all 140 
positions (100 inspectors, 33 agents, 6 intelligence analysts, 
and 1 technical support position) authorized under the 
antiterrorism legislation. One hundred inspectors and 10 
special agent positions have been assigned to 14 of the largest 
international airports. In addition, 20 special agents and the 
intelligence research specialists are working jointly with the 
Federal Bureau of Investigation and the Central Intelligence 
Agency at both field and Headquarters locations.
    To support efforts to screen baggage and cargo at 
international airports, $35 million was specifically authorized 
to purchase equipment under this appropriation. Of this amount, 
$26.4 million has been designated to purchase joint-use 
equipment that can be shared with airports, airlines and cargo 
authorities. Equipment procurement will be accomplished over a 
three year period. Planned use of the funding includes the 
acquisition of: mobile x-ray vans with explosive and radiation 
detection technology; tool trucks; mail x-ray systems; 
explosive particle detectors; and radiation detection pagers. 
Also, for joint-use with airport entities, the heavy cargo 
pallet x-ray will be tested in July 1998 in Miami, Florida.
    In addition, funding is available to further develop the 
Automated Targeting System (ATS) to identify cargo shipments 
that may pose terrorist threats. A prototype test of this 
system is scheduled to take place at New York's JFK Airport in 
June 1998.
    Since October 1, 1997, Customs made many significant 
interdictions that support aviation safety and security at 17 
international airports that have received resources under this 
initiative. Customs has assisted in three terrorist related 
arrests, made 65 firearm seizures in baggage and cargo, and 
made 56 seizures of violative shipments of hazardous materials 
and dangerous goods that would have been placed on aircraft.

                         FY 1999 Budget Request

    Customs proposed appropriation for FY 1999 totals 
$1,804,025,000 and 16,766 Full Time Equivalent (FTE) positions.

Budget Highlights

     Our Narcotics and Money Laundering Strategy will 
provide essential resources which will enhance our 
investigative and intelligence capabilities while enabling 
Customs to better anticipate and respond to changes in drug 
smuggling behavior. The $5 million and 27 FTE (54 positions) 
requested will provide us with additional personnel and 
investigative assets needed to exploit seizures made at the 
border and effectively identify and disrupt the transportation 
and distribution cells of Drug Smuggling Organizations (DSOs) 
within the U.S.
     The Customs Integrity Assurance Program (CIAP) 
Initiative of $6 million requested for FY 1999 will allow 
Customs to conduct more special operations in partnership with 
other Federal agencies, place a much stronger emphasis on 
intelligence and the analysis of investigative data, and 
increase contract and computer fraud investigations. In 
addition, Customs will change the process for hiring law 
enforcement officers by requiring increased emphasis on pre-
employment screening.
    The quality recruitment component of the initiative will 
insure that applicants of the highest quality and integrity are 
hired by using written tests, suitability assessments, 
structured interviews, and the redesigned pre-employment 
process. Customs will use the requested funds to develop ways 
to expedite background investigations with a higher degree of 
reliability, expand polygraph capability in order to address 
internal investigations of alleged misconduct, and acquire 
specialized hardware and software to accommodate the FBI's 
change to electronic fingerprint technology.
     In order to fully implement an effective child 
labor enforcement plan, Customs is requesting $3 million and 4 
FTE (7 positions) to fund the three main components of the 
Child Labor Enforcement Initiative:
    The first component is the establishment of the Forced 
Child Labor Command Center which will be located at Customs 
headquarters and staffed by two special agents and two 
intelligence research specialists. The Command Center will act 
as a clearinghouse for information and will provide 24 hour 
``hotline'' telephone service to a wide variety of audiences in 
order to provide a venue for allegations about prohibited 
importations. The second component is the increase in crucial 
foreign staffing by assigning three additional special agents 
to areas where forced child labor is the most common. The third 
component is Customs engagement in outreach programs with the 
trade, government, and non-government organizations, taken in 
concert with in-house programs, to achieve successful 
enforcement of the Sanders amendment to Customs FY 1998 
appropriations act (PL. 105-61, 111 Stat. 1316).
     Our FY 1999 budget request also includes a $54 
million Non-Intrusive Inspection Technology Initiative for land 
and sea ports. As growth in trade and traffic volumes 
increases, tools to rapidly screen and comprehensively inspect 
arriving conveyances and cargo must be deployed. This 
technology will allow Customs to effectively target and detect 
high-risk traffic without impeding the flow of legitimate 
commercial traffic. This funding will allow Customs to acquire 
two higher energy container inspection systems for sea-going 
containers ($10 million), 12 automated targeting systems for 
Land and Sea Ports ($3.4 million), and multiple technologies 
for the Southern land border ($40.6 million). This investment 
in proven technologies is essential and critical for enabling 
Customs to blend state-of-the-art equipment with law 
enforcement intelligence, thereby enhancing counter-narcotics 
capability.
     Congress' FY 1998 enactment of $9.5 million for 
the Land Border Automation Initiative is recurred in this 
budget. This will have the ancillary benefit of improving 
targeting of arriving vehicles for enforcement purposes. This 
is the second phase of a joint initiative with INS which began 
in FY 1998. The automated targeting systems, license plate 
readers, and Treasury Enforcement Communications System 
replacement program, will free up inspectors to do more careful 
visual screening and questioning of vehicle occupants for 
enforcement purposes, thereby resulting in increases in 
detections of violations and subsequent seizures and arrests.
     In addition, Customs is requesting $7.252 million 
and 80 FTE as part of base resources in response to several 
mandates. The National Performance Review (NPR) goal to clear 
most travelers on the southern border in 30 minutes or less and 
on the northern border in 20 minutes or less by the year 2000 
for land border travelers by vehicle, and the legislative 
mandate contained in the Illegal Immigration Reform and 
Immigrant Responsibility Act (IIRIRA) of 1996 account for 
$4.185 million and 46 FTE. The NPR customer service goal is a 
joint initiative with the Immigration and Naturalization 
Service (INS) and the Department of Agriculture. The 
Immigration law authorizes Customs and INS to cover all primary 
lanes during peak processing hours and in equal numbers. This 
staffing and the staffing requested for the new border 
crossings, ($2.706 million/30 FTE) will help to support both 
requirements. Finally, the adjustments reflect the completion 
of resource levels for the requirement to staff an additional 
dedicated commuter lane in El Paso, Texas ($0.361 million/4 
FTE).
     Finally, Customs is requesting an increase in the 
Merchandise Processing Fee. This increase would provide Customs 
with a funding source to fund our Information Technology 
infrastructure and modernize our commercial processes. The fee 
would be used to develop automated capabilities to respond to 
the trade's interest in account management, periodic payment, 
and capabilities envisioned in the Modernization Act.
    While we have much to be proud of, Customs is still keenly 
aware of the importance of continuing to explore new and 
innovative strategies for improving its performance in 
protecting our Nation's borders. This concludes my statement 
for the record. Thank you again for this opportunity to appear 
before the Committee.
      

                                


    Chairman Crane. Thank you, Mr. Banks, and let me say that 
the entire Nation is very proud of the distinguished service of 
these people.
    Back in 1993, with the passage of the Customs Mod Act, 
Congress allowed weekly consolidated entry filings for foreign 
trade zones. Today Customs has prevented firms operating in 
nonmanufacturing foreign trade zones from enjoying this benefit 
that Congress authorized and I am curious as to whether you 
could explain Customs rationale behind that.
    Mr. Banks. Well, there is no question that the 
Modernization Act provided the authority to do even monthly 
filing of entries in order to see if we couldn't streamline the 
administrative burden of filing information with the government 
and the pilot that we kicked off was with foreign trade zones, 
doing it on a weekly basis.
    One of the unintended consequences of that had to do with 
the collection of the merchandise processing fee. The way that 
we ended up structuring this in the pilot reduced the 
collections of the fees and actually created a disparity 
between the fees that foreign trade zones were paying versus 
other customers. We don't feel that we can go forward allowing 
this disparity.
    Two things will happen: One is we're allowing treatment 
that is unfair and unequal within the trade community; two is 
that it provides kind of an artificial incentive for people to 
set up their operations in a foreign trade zone and even pay 
the expense.
    What we are actually trying to do is work with the foreign 
trade zones, their national association, to see if we can't 
continue to allow the administrative simplicity of an aggregate 
entry filing, but to still continue with some kind of fee 
structure.
    We would like to continue with the administrative 
simplicity but we believe that it is not our prerogative to set 
up an artificial advantage where someone does not pay their 
fair fee.
    Chairman Crane. Why did Customs choose not to fund 
continued preclearance activities in Canada and inspectors to 
process cruise ship passengers, especially in Florida?
    Mr. Banks. This was a very difficult issue for us. When we 
lost the authority to fund those positions out of the user 
fees, when they expired as provided for by NAFTA, there were 77 
inspector positions covered by the fees. The option was to 
reduce service or to remove inspectors from some other location 
in order to maintain those operations in Canada and on the 
cruise lines.
    To be candid with you, we would like to continue to provide 
those services, we don't want to damage the smooth flow of 
either cruise ship operations or of Canadian preclearance, but 
the difficulty was, if you look at it, that they are much lower 
enforcement risks than the areas from which we would have had 
to pull those inspectors.
    That was unacceptable to us. I did not feel I would be 
doing the right thing for the American Government in taking 
that approach, so we did, indeed, begin to withdraw those 
resources from Canadian preclearance and from the cruise ship 
operations.
    Chairman Crane. What alternatives to an increase in the 
merchandise processing fee are available to Customs to help pay 
for needed automation projects?
    Mr. Banks. When the administration was considering how to 
pay for this automation, and it's a very expensive proposition, 
we talked to them and a decision was made that those who 
benefited from the automation should pay for it, and thereby 
was structured this increase in the merchandise processing fee. 
That is the administration position in the budget. I will say 
that there are possibly other options that could be pursued and 
I think the administration would be open to considering other 
alternatives.
    Some of the things that have been mentioned by people 
within the trade community you are going to hear today, I 
think. Some people say take the money out of the current 
collections of the merchandise processing fee. Some people 
support taking 1996 or 1997 as a base and any normal increases 
in collections of the processing fee because of increased 
imports should be dedicated to automation. So I think there is 
a variety of options and actually we have expressed our 
willingness to work with the industry associations to see if we 
couldn't construct other acceptable alternatives.
    Chairman Crane. And, finally, when may we expect that 
Customs will have an accurate cost accounting system that will 
allow Congress to know exactly how much it costs to process 
cargo, passengers, trucks, autos, and ships.
    Mr. Banks. I wish I could give you an actual date. I cannot 
not at this point. I will say that we have built a cost 
accounting system, a cost management information system. We are 
prototyping it right now on passenger processing in order to 
try to get those numbers down. The numbers that we have come up 
with the testing have not been entirely accurate, we are not 
satisfied with the system, and we won't bring the system online 
until we believe it accurately reflects what our costs are.
    I will commit to you, Mr. Chairman, that we are working 
that issue as hard as we can. I will try to get you a date for 
the record.
    [The following was subsequently received:]

    Chairman Crane, Customs has implemented a Cost Management 
Information System (CMIS) for FY 1997 financial data that 
covers the work performed by Customs top ports and all CMCs. It 
is expected that further deployment of CMIS will be completed 
by the end of FY 1999. CMIS data is compiled using surveys to 
capture labor distribution information, and additional 
information is taken from several existing financial and 
workload data systems. Analysis performed on the results of the 
FY 1997 cost model have shown that certain adjustments/
corrections are needed both to the cost model as well as the 
feeder systems. Procedures have been built into CMIS to 
reconcile the financial information with Customs annual 
financial statements, which are audited in accordance with the 
Chief Financial Officers Act. To ensure the data integrity of 
the workload system, a group has been established and tasked 
with validating the accuracy of the data input at field 
offices. It is hoped that the efforts undertaken will provide 
CMIS with better workload data and continued improvements in 
the survey process will result in more accurate unit cost 
calculations. The more accurate the feeder systems are, the 
more accurate CMIS data will be. Customs sees the adjustments 
and corrections to the feeder systems as a continual process.
      

                                


    Chairman. Crane. Thank you, Mr. Banks.
    Mr. Neal.
    Mr. Neal. Thank you, Mr. Chairman. I have a technical 
question that I would like to ask Commissioner Banks. 
Commissioner, one of the areas that Operation Hard Line 
strongly emphasizes is the need for more intensive cargo 
searches. For instance some 300,000 railcars enter the United 
States from Mexico each year at 8 border crossings. Customs has 
asked from input from industry regarding how best to inspect 
fully laden railcars. I understand that only higher energy 
systems, such as the ones operational overseas in China and 
elsewhere, are capable of inspecting a fully laden railcar. 
Since rail crossing inspections are the only areas in which 
100-percent inspection interdiction is possible, it would seem 
logical that the most powerful type of system available for 
this application would need to be deployed.
    What is Customs current position with respect to utilizing 
high-energy systems in this capacity?
    Mr. Banks. Congressman Neal, we are working with the 
Department of Defense to help construct the right technology to 
bring to bear on trucks, on railcars, even on shipping 
containers. The current technology we are experimenting with 
and we actually have a prototype out there, is a gamma ray 
imaging device that has the capability to look through things 
like double-walled propane tankers railcars. Our initial tests 
have been successful.
    The Department of Defense is helping us develop an improved 
model that will be tested this summer in south Florida on 
oceangoing containers. A slightly different version is being 
developed to use on railcars.
    We're open to any technology. Our goal is getting the job 
done, not who is supplying the technology or what type of 
technology it is. We have a research and development staff to 
consider what is the right technology.
    That satisfies my inquiry, Mr. Chairman, thank you.
    Chairman Crane. Mr. Ramstad. Mr. Camp.
    Mr. Camp. Thank you, Mr. Chairman. Obviously our commerce 
with Canada is very important to Michigan, which is where I'm 
from, and I have a question and particularly for the sort of 
just-in-time inventory that you see many of the industries 
employing.
    I have a question regarding the automatic or automated or 
key or card entry system that is possibly going to be in place 
as a result of legislation that has passed the Congress and I 
know that Customs is developing. And there are some concerns 
with matching this to a list and how entry will occur and, 
obviously with Canada, we've not had to have documented entry. 
Can you comment on that and what progress you've made on that 
and where that is?
    Mr. Banks. Congressman Camp, I believe what you may be 
referring to is a requirement passed for the Immigration 
Service on passengers who enter our country. They want to keep 
track of those who come in the country and then whether or not, 
indeed, these people leave.
    We do provide the automation system for the border 
crossing. Immigration uses the U.S. Customs system and we do 
key in at least license plate numbers of all cars crossing our 
land border into the United States. We don't typically input 
people's names, although we have the technological capability 
to do so. Immigration is in the process now of issuing new 
border crossing cards. I believe their primary focus is on the 
Southwest border. The Immigration Service has told their 
congressional committees that they anticipate real difficulty 
implementing this matching system within the timeframe that the 
legislation requires and I believe there is some activity by 
Congress to modify that legislative requirement.
    Mr. Camp. Yes, I was asking you because I knew that Customs 
would be charged with implementing this system and last year we 
passed a 1-year delay and I know there is some move to deal 
with this issue in the Senate particularly. But I wondered as a 
practical matter how this border crossing card would be used 
because literally the person would be stopped at the border 
while this check was going on. I can see tremendous delays in 
border crossing, particularly, not just tourists or people who 
are traveling back and forth, but obviously the commerce that 
goes on between countries as well. I wanted to hear your 
comments on the implementation of it and what concerns you may 
see from that system.
    Mr. Banks. Well, 442 million people entered this country 
this past year, that's what, one and a half times the U.S. 
population? Are we concerned? Absolutely, we're concerned. To 
be able to do that efficiently and effectively is going to be a 
real challenge. If we are going to engage in this at least it 
would be our recommendation, in working with the Immigration 
Service, that perhaps there could be some kind of reader set up 
in advance of crossing. Perhaps if we could really do it 
correctly, we could expedite the movement of passengers.
    I think at this particular point Immigration does have the 
lead on the issuance of the cards and even on the schedule for 
implementation but I guarantee we are going to support them and 
we are also going to be very vocal if it is going to damage the 
smooth transport of people across our borders.
    Mr. Camp. Thank you very much. Thank you, Mr. Chairman.
    Chairman Crane. Mr. Shaw.
    Mr. Shaw. Thank you, Mr. Chairman. Mr. Banks and I were 
talking during the dog show and I have to say despite all of 
this impressive equipment I think the dog is everybody's 
favorite. I want to compliment your agency and the good men and 
women that you've got down there in south Florida. You have 
really done, just as my kids would say, an awesome job, in 
pointing out the problems we've had in the port, we have in the 
ports, plural.
    The Port of Miami has come light years, I think, in doing 
the work that desperately needs to be done in security, doing 
some background checks, or at least putting the legislation, 
the local legislation, in place to do that.
    We are following suit at Port Everglades. In my district, 
I've got the Port of Miami at the southern border, and then 
I've got the Port Everglades in the middle, and the Port of 
Palm Beach at the north. Quite obviously as the Port of Miami 
became more and more secure, the port of least resistance 
became Port Everglades. We have got the county commission down 
there doing quite a bit in order to secure that port and 
following, I think, in large part the recommendations of the 
Customs Service.
    I will be filing, in the next week or so, a bill that will 
make it easier to get background checks. A spot check of the 
workers in Port Everglades, which my office did in cooperation 
with Customs, disclosed that roughly half the employees working 
the docks, the employees that were out there, the ones that 
could create the problems, the ones that could grab the 
contraband out of containers, the ones that could get it off 
the ships and everything else, over half of them had criminal 
records and most were drug related.
    Now it doesn't take a whiz kid to figure out that you don't 
put people in a position where they can easily get these drugs, 
illegal drugs, into this country if they have a background in 
that and even make it worse, they were parking their vans, most 
of them had vans which should turn a light bulb on in 
somebody's head also, right there near the containers, so they 
didn't even have to carry it a long distance.
    The whole thing was crazy and the internal conspiracy there 
and the work that the Customs has done is really, really 
magnificent. And, as I said, next week, or the next couple of 
weeks, I'll be filing legislation to make it easier to get 
those background checks because there is some problems in that 
has been pointed out to me.
    Down in Miami, you have a system called the STAR system. I 
have two questions with regard to that. That would relate to 
the stolen auto and getting the recovery. As you know we have 
problems with that up in the Dania-Port Everglades and around 
in there. How is that system working and what are the chances 
of getting that up in Port Everglades?
    Mr. Banks. First, Congressman Shaw, I want to thank you 
very much for your support on the port security issues. It 
really makes a significant difference, it really helps us in 
our whole effort. As you know, we arrested 22 dockworkers 
within the last 30 days that were involved in drug smuggling. 
We've got videotapes. It takes them 7 seconds to break into a 
container, pull duffle bags out, and be gone. That is our 
window of opportunity to do that enforcement effort.
    Mr. Shaw. And sitting on top of the duffel bag, is a new, 
what do you call the tab that shows that no one got into the 
container, so they have a brandnew one to put on there so the 
guy coming up there, it appears like no one ever got into the 
container.
    Mr. Banks. A brandnew seal, counterfeit seal, so we 
sincerely appreciate that support. On the stolen vehicles, that 
is a priority issue, especially in south Florida, but 
nationwide as well. We've gotten tremendous support from a 
variety of different sources, including the Miami Dade County 
Police. The STAR system, which has the capability to use the 
gamma ray imager through the containers enabling it to spot 
vehicles that are concealed inside those containers is 
fabulous. We're working with LoJack and with a variety of other 
groups in order to try to bring more technology to bear on that 
problem. I think we'd be extremely happy to transport that 
technology to Port Everglades to continue to deal with this 
serious problem.
    We seized about 2,100 stolen cars last year. We're just 
scratching the surface, so we'd be very happy to work with you 
on that problem.
    Mr. Shaw. Well, consider this a formal request because we 
really need some more help up there at Port Everglades. I'll be 
at Port Everglades speaking tomorrow and I'll be at the Port of 
Miami on Monday.
    Mr. Banks. I don't know if I can have it there tomorrow, 
but I'll do my best.
    Mr. Shaw. Thank you. Thank you, Mr. Banks, and 
congratulations on your job.
    Chairman Crane. Mr. Ramstad.
    Mr. Ramstad. Thank you, Mr. Chairman.
    Commissioner Banks, thank you for doing a tough job well as 
Acting Commissioner.
    Let me ask you just two questions. As a followup to the 
Chairman's line of inquiry, like my colleague Mr. Camp, I 
represent a State that borders Canada, namely Minnesota. Last 
year, 15 million air passengers traveled back and forth between 
the United States and Canada. Chairman Crane mentioned a bill 
that he and I have introduced, H.R. 3644, to allow Customs to 
access funds in the user fee account to enhance your inspector 
staffing at preclearance airports in Canada. Does the 
administration support our bill?
    Mr. Banks. Yes, sir. I believe they do.
    Mr. Ramstad. I appreciate knowing that and hopefully that 
will help us hasten its passage. The second I have----
    Mr. Banks. I'd like to be able to go back and absolutely 
confirm that for you in writing, but I believe so.
    Mr. Ramstad. I take you at your word, sir.
    Mr. Banks. We're thrilled with it.
    Mr. Ramstad. Let me ask you a second question and we have 
to go for a vote, as the lights indicate.
    In reference to the ACE business plan as its called, is 
Customs in a position to share that ACE business plan with the 
airline industry and identify how ACE will be implemented?
    Mr. Banks. Yes, sir. Immediately. We'll be happy to sit 
down, we will show you how we crafted our business plan first. 
We went out and did customer survey needs. We mapped it, in 
order to satisfy those customer needs, we mapped what products 
they needed. What processes needed to be to deliver those 
products, and then the information and the information 
technology necessary to deliver those processes.
    Mr. Ramstad. As well as the itemized costs?
    Mr. Banks. As well as the costs.
    Mr. Ramstad. Thank you, I appreciate hearing that. That's 
refreshing to hear that you are working together with the 
private sector in that way to implement this plan.
    That's all I've got, Mr. Chairman. Thank you again, 
Commissioner.
    Mr. Banks. Thank you, sir.
    Chairman Crane. And we want to express great appreciation 
to you, Sam, and we look forward to working with you and with 
that the Subcommittee will stand in recess subject to the call 
of the Chair. We'll get over to this vote and come right back 
with our next panel. Thank you.
    [Recess.]
    Chairman Crane. The Subcommittee will resume and we shall 
resume with a panel and first on that panel will be Carol 
Hallett. I want to welcome all of our witnesses, but provide 
especially a warm welcome to Hon. Carol Hallett, former 
Commissioner of Customs Service, who is joining us today.
    So if you will all take seats and your written statements 
will be made a part of the permanent record, so if you can, 
please try and keep your oral presentations to 5 minutes or 
less.
    Thank you so much. And with that, Carol, we shall start 
with you. Ladies first.

   STATEMENT OF CAROL HALLETT, PRESIDENT AND CHIEF EXECUTIVE 
         OFFICER, AIR TRANSPORT ASSOCIATION OF AMERICA

    Ms. Hallett. Thank you very much, Mr. Chairman, and to the 
Members of the Subcommittee. I am very pleased to be here with 
you today. I am Carol Hallett, the president and chief 
executive officer of the Air Transport Association of America 
or ATA. As you know, in my previous role as the Commissioner of 
Customs, I frequently had the opportunity to testify before 
this Subcommittee and today I would like to discuss many of the 
same issues, from a different perspective, however, a 
perspective of a Customs Service customer, the airline 
industry.
    First, on behalf of our industry, I want to thank you, Mr. 
Chairman, and I want to also thank Mr. Ramstad, for your 
diligent work on H.R. 3644 authorizing the use of Customs user 
fees to maintain the critical equipment and positions required 
to provide preclearance services in key foreign locations. I 
also want to extend the industry's appreciation for your 
decision to allow the sunset of the temporary NAFTA surcharges 
on Canada, Mexico, and Caribbean passengers, as well as the 
additional $1.50 on all international passengers.
    Clearly, the historical charge of $5 on passengers is more 
than sufficient to cover the cost of routine processing of air 
and sea traffic by U.S. Customs. In fact, Customs has 
determined that the entire cost for processing air and sea 
passengers is, on average, approximately $3.25. And so we are 
very pleased that H.R. 3644 provides continued authority to 
expand the fees, or extend the fees, collected from air 
passengers on preclearance operations in both Canada as well as 
the Caribbean.
    In addition, passengers originating outside of Canada, 
Mexico, or the Caribbean transiting those locations also pay 
the fee.
    It is important to remember that our country has a 
bilateral agreement with Canada to provide sufficient staff and 
service, as it does at the designated preclearance locations. 
And H.R. 3644 is going to provide the authority necessary to 
ensure that we can and will meet our commitment by eliminating 
existing limitations on the spending authority.
    It does so, Mr. Chairman, by expressly providing that user 
fee proceeds can fund the preclearance positions, even though 
no fees are collected on traffic originating in Canada.
    Mr. Chairman, another issue being deliberated here today, 
the merchandise processing fee, is also of concern to the 
airline industry. During the last decade, air carriers have 
worked cooperatively with the Customs Service on design and 
implementation of several systems that have been developed to 
automate merchandise processing. Under the umbrella of the 
Customs Automated Commercial Environment, ACE, an initiative to 
redesign Customs legacy systems, work is underway to develop 
the Automated Export System. Unfortunately, after more than 2 
years of operational modification, the Automated Export System 
has had very limited success and active industry participation 
remains light.
    In fact, it is not working satisfactorily for either the 
trade or for enforcement purposes.
    ATA and our member airlines want to make clear that we 
believe, as does Customs, that the export process is far too 
paper intensive and in dire need of automation. Yet, the 
foundation for automation cannot be built on the premise that 
automating the existing manual process will address our mutual 
concerns.
    Clearly we need to embark on the path of innovation that 
will allow for creative approaches to export automation. 
Therefore, it would be premature at this time, for the ATA 
members are all in agreement on this, we simply do not believe 
it is appropriate at this time to increase the merchandise 
processing fee earmarked for ACE automated initiatives.
    And finally, Mr. Chairman, in closing, I want to say that 
we are in strong support of continuing the efforts by the 
Customs Service to interdict drugs flowing into the United 
States. Interdiction is a critical task and Customs is ever 
mindful of its interdiction mission in dealing with every 
shipment that it handles. However, we believe that such an 
important mission must be adequately funded. Customs should not 
be required to strip away resources from other high priority 
responsibilities to pay for operations on the Southwest border 
or other high drug risk locations.
    And so, Mr. Chairman, I want to thank you for the 
opportunity to appear before you today. It is indeed a pleasure 
to be back. Thank you.
    [The prepared statement follows:]

Statement of Carol Hallett, President and Chief Executive Officer, Air 
Transport Association of America

    Thank you Mr. Chairman, and members of the subcommittee. I 
am Carol Hallett, President and Chief Executive Officer of the 
Air Transport Association of America (ATA). As you know, in my 
previous role as Commissioner of Customs, I frequently 
testified before this subcommittee and always found the 
experience to be both pleasant and productive. Today, I would 
like to discuss many of the same issues--but from the 
perspective of a Customs Service customer--the airline 
industry.
    ATA represents the major commercial passenger and cargo air 
carriers in the United States.\1\ Collectively, our members 
account for over 95 percent of all revenue passenger and cargo 
ton-miles that scheduled air carriers operate in this country. 
I am pleased to have this opportunity to present the industry's 
views on the issues before you here today.
---------------------------------------------------------------------------
    \1\ U.S. flag members are: Alaska Airlines, Aloha Airlines, 
American Airlines, American Trans Air, America West Airlines, Atlas 
Airlines, Continental Airlines, Delta Air Lines, DHL Airways, Emery 
Worldwide, Evergreen International Airlines, Federal Express, Hawaiian 
Airlines, Midwest Express, Northwest Airlines, Polar Air Cargo, Reeve 
Aleutian Airways, Southwest Airlines, Trans World Airlines, United 
Airlines, United Parcel Service, and US Airways. Our foreign flag 
technical members include: Aeromexico, Air Canada, Canadian Airlines 
International, KLM-Royal Dutch Airlines and Mexicana.
---------------------------------------------------------------------------
    First, on behalf of the industry, I want to thank both you, 
Mr. Chairman, and Mr. Ramstad for your diligent work on H.R. 
3644, authorizing the use of customs user fees to maintain 
critical equipment and positions required to provide 
preclearance services at critical foreign locations. I also 
want to extend the industry's appreciation for the decision to 
allow the sunset of the temporary NAFTA surcharges on Canadian, 
Mexican and Caribbean passengers, and the additional $1.50 
charge on all international passengers.
    We are pleased that H.R. 3644 provides continued authority 
to expend fees collected from air passengers on preclearance 
operations in both Canada and the Caribbean. In addition, 
passengers originating outside Canada, Mexico or the Caribbean 
transiting through those locations continue to pay the fee.
    It is important to remember that our country has a 
bilateral agreement with Canada, to provide sufficient staff 
and service at designated preclearance locations. H.R. 3644 
will provide the authority necessary to ensure that we can and 
will meet our commitment by eliminating existing limitations on 
spending authority. It does so by expressly providing that user 
fee proceeds can fund the preclearance positions at issue even 
though no user fees are collected on traffic originating in 
Canada. Clearly the historical charge of $5 on passengers is 
more than sufficient to cover the cost of routine processing of 
air and sea traffic by the Customs Service. In fact Customs has 
determined that the entire cost for processing an air or sea 
passenger is--on average--approximately $3.25.
    Customs user fees, collected from air passengers, are used 
for purposes beyond air passenger processing such as land 
border inspectional overtime. In that the money is not 
segregated exclusively for the use of those paying the fee, 
industry participation through an advisory committee as H.R. 
3644 provides, is instrumental in the appropriate and efficient 
use of these resources.
    Another issue being deliberated here today--merchandise 
processing fees--is also of concern to the airline industry. 
During the last decade air carriers have worked cooperatively 
with the Customs Service on the design and implementation of 
several systems developed to automate merchandise processing. 
Under the umbrella of the Customs Automated Commercial 
Environment (ACE), an initiative to redesign Customs' legacy 
systems, work is underway to develop the Automated Export 
System (AES).
    Unfortunately, after more than 2 years of operational 
modification, AES has had very limited success, and active 
industry participation remains light. In fact, at the moment, 
AES is not working satisfactorily for either trade or 
enforcement purposes. In general, it can be said that there is 
widespread concern over AES throughout the transportation 
industry.
    ATA members are unified in their view that AES, in its 
current design, is unacceptable. It represents a 180-degree 
departure from common trade-favorable practices, as well as 
Customs requirements over the last half-century.
    Mr. Chairman, the problem has not been unwillingness on the 
part of Customs to automate. Rather with the Customs Service 
dual mission of trade facilitation and enforcement, it is not 
particularly helpful or productive on those occassions when 
Customs attempts to define--or redefine--the global business 
process to fit into its own proprietary automation needs. Such 
an approach is destined to fail.
    ATA and our airline members want to make clear that we 
believe--as does Customs--that the export process is far too 
paper intensive and in dire need of automation. Yet, the 
foundation for automation can not be built on the premise that 
automating the existing manual process will address our mutual 
concerns. Clearly, we need to embark on a path of innovation 
that will allow for creative approaches to export automation. 
Therefore, it would be premature at this time for ATA member 
carriers to support an increase in the merchandise-processing 
fee (MPF) earmarked for ACE automation initiatives.
    Finally, in closing, I want to say that we are in strong 
support of the continuing efforts by the Customs Service to 
interdict drugs flowing into this country. Interdiction is a 
critical task, and Customs is ever mindful of its interdiction 
mission in dealing with every shipment it handles. However, we 
believe that such an important mission must be adequately 
funded. Customs should not be required to strip away resources 
from other high priority responsibilities to pay for operations 
on the southwest border and other high risk drug locations.
    Once again, Mr. Chairman, I want to express my 
appreciation, and that of ATA, to you and the members of the 
subcommittee for the opportunity to appear here today. Thank 
you.
      

                                


    Chairman Crane. Thank you, Carol.
    Mr. Nemmers.

  STATEMENT OF BARRY H. NEMMERS, CHAIRMAN, CUSTOMS COMMITTEE, 
AMERICAN ASSOCIATION OF EXPORTERS AND IMPORTERS; ACCOMPANIED BY 
     JACK PARTILLA, OLYMPUS CORP.; AND CHAIRMAN, AMERICAN 
             ASSOCIATION OF EXPORTERS AND IMPORTERS

    Mr. Nemmers. Mr. Chairman, my name is Barry Nemmers. I am 
here testifying on behalf of the American Association of 
Exporters and Importers. Accompanying me on my left is Jack 
Partilla, of Olympus Corp. and chairman of AAEI.
    We're here before you today to express our views regarding 
the funding of the redesign of Customs computer systems. We can 
be brief for our only real point of disagreement with Customs 
is how that redesign is to be funded.
    Customs and the trade community have been working together 
very closely in common cause, first to draft and then to 
implement the Mod Act. Customs was asked by this Subcommittee 
in particular to bring the trade community into the regulatory 
making process. They have done so with enthusiasm, with 
creativity, and, with the adoption of current management 
concepts. All of this shows in the results.
    A prerequisite for the Mod Act implementation was the 
design and acquisition and implementation of a sophisticated 
computer system to replace the aging ACS. From 1994 until late 
last year, Customs continued to say that ACE was in development 
for rollout in the late nineties. In our many meetings on the 
Mod Act provisions, they gave us no indication that they were 
behind schedule and that there was no funding.
    This year they've said they have no money for ACE, they 
need $850 million, and another 6 years. Yet the administration 
has requested only minimal appropriations for ACE and Customs 
wants to increase the user fee to pay for ACE.
    You can imagine our surprise.
    But the implications of this situation are sobering. First, 
a modern computer system at Customs is important to the private 
sector's own implementation of new hardware and software 
systems on which Fortune 500 companies, midlevel companies are 
spending hundreds of millions of dollars to automate their 
supply chains from manufacturer to customer.
    Until it has ACE, Customs will be standing squarely in the 
middle of those supply chains, with an eighties computer system 
and thirties procedures. It will be a limitation on the growth 
potential of all companies in each supply chain, not just 
importers.
    Second, the need to rely on an antiquated and failing ACS 
for another 6 years is dismaying. The independent Gartner 
Group's January 1998 assessment of ACS leaves no room for doubt 
on this. Furthermore, it is now essential if we're to have ACS 
for 6 more years, that Customs and the trade community ensure 
that their year 2000 fixes are both sufficient and compatible.
    The situation is critical. ACS may soon begin to experience 
noticeable slowdowns and processing degradation. These 
processing failures will impact Customs enforcement capability 
as well as its commercial processing effort because Customs 
runs only one computer system.
    We have stated in our written statement that we need to see 
a business plan from Customs that sets forth in some detail the 
kinds of things we have to justify in the business community 
when we ask for expenditures from upper management. What's 
needed, why it's needed, when it's needed, what it will cost, 
and where the money will come from.
    Yesterday we received from Customs a stack of documents 
that appear to contain all of the elements of a business plan, 
but not presented as such in such a way that we can really 
track that. But we do believe that there is sufficient basis 
there for Customs to put together a credible appropriation 
request. The issue that is remaining, of course, is where the 
money is to come from.
    We are adamantly opposed to this financing through a user 
fee. We've made the arguments before about user fees and we 
need only to summarize them here as to where they particularly 
apply to computer systems.
    First of all, Customs computer costs are not generated by a 
service provided to importers. Customs is a service the 
importers would be happy to do without. They do add--there are 
certain functions of any governmental agency that are core 
functions of the Government of the United States and benefit 
the people at large. We believe this is one, as much as rent 
and salaries. Customs computers benefit many other national 
interests, other agencies, statistics; it's unfair to ask 
importers to finance those uses.
    The cost of a distributed computer system can't be 
allocated between enforcement, commercial processing, and 
support for other agency requirements. User fees are now of 
questionable legality. The decision of the Supreme Court in 
U.S. Shoe is encouraging lawyers to take another look at the 
merchandising processing fee and other user fees of this type.
    A user fee would be vulnerable to challenge in the World 
Trade Organization.
    And finally we feel that use of a user fee for this purpose 
will have a boomerang effect on exports as other countries copy 
a U.S. user fee and if it's not challenged in world forums.
    AAEI has been a strong and vocal supporter of Customs 
automation and we have confidence in Customs design. We believe 
they can put together a system that will work for us into the 
next century. We believe that the cost is a responsible 
investment for the United States.
    We appreciate your interest in this subject and we'll try 
to answer questions and help as we can. Thank you.
    [The prepared statement follows:]

Statement of Barry H. Nemmers, Chairman, Customs Committee, American 
Association of Exporters and Importers

    Good Afternoon, Chairman Crane and members of the Trade 
Subcommittee. I am Barry Nemmers, partner at the law firm of 
Chadbourne & Parke. I am testifying today in my role as 
Chairman of the Customs Committee of the American Association 
of Exporters and Importers (AAEI). With me to answer questions 
is AAEI's Chairman, John Partilla, Vice President, Logistics 
for Olympus America, Inc. AAEI is a national organization of 
approximately 1000 firms involved in every facet of 
international trade. AAEI is the largest association 
concentrating 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 industries which serve the trade 
community such as customs brokers, freight forwarders, banks, 
attorneys, accountants and insurance carriers.
    We are pleased to have this opportunity to address issues 
concerning 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.
    As you know, the funding of the redesign of Customs 
computer systems has emerged as a critical and time-sensitive 
problem. We are here before you today to express our concern 
and frustration on this matter.
    AAEI's position can be summarized as follows:
     Customs and the trade community worked together 
and continues to work together in common cause to draft and 
implement the Mod Act.
     A pre-requisite for the implementation of the Mod 
Act was the design, acquisition and implementation of a 
sophisticated computer system to replace the aging Automated 
Commercial System (ACS).
     From 1994 until January of this year, Customs 
continued to say that the Automated Commercial Environment 
(ACE) was in development and in our many meetings on the Mod 
Act provisions gave us no indication that it was behind 
schedule and that there was no funding.
     Only this year did Customs announce that it has no 
money for ACE, that it needed $850 million and another six 
years to develop ACE, that the Administration had requested 
only minimal appropriations for ACE and that Customs was 
proposing an increase in its Merchandise Processing Fee 
(``MPF'') to pay for all or part of ACE.
     AAEI continues to support ACE and Customs 
automation. We continue to believe that Customs is competent to 
design and build the appropriate computer system.
     We are disturbed to learn only now that there has 
been a funding problem for years and that the trade community 
was allowed to continue to believe that ACE would be ready in 
1998-99.
     We are adamantly opposed to the use of a user fee 
to pay for this core cost of the U.S. Customs Service.
    In 1993 Congress enacted the Customs Modernization Act, 
legislation which had been sought jointly by Customs and the 
trade community authorizing Customs to automate virtually all 
of its commercial operations. Customs then embarked upon an 
ambitious program to rewrite its regulations while 
simultaneously developing and building the computer system on 
which the Mod Act was premised. At the same time, Customs was 
faced with implementing both NAFTA and an agency-wide 
reorganization. The success of each of these programs was 
dependent on the timely implementation of this new computer 
system, a system that we knew at the time would be complex and 
expensive. Adding further to Customs burden were the demands of 
maintaining the aging and increasingly unstable existing ACS 
and carrying out its Year 2000 project with its inflexible 
deadline.
    Because many of our larger corporate members also were 
experiencing a similar disruption as their corporate 
organization and workflow were re-engineered and their data and 
information management systems were converted from mainframe-
centered computer systems to distributed systems, we were 
sympathetic with the immense tasks facing Customs. We commended 
Customs for its ambitious undertakings.
    Four years later most of the major automation programs in 
the 1994 Customs Modernization Act remain in development and 
the decentralized computer system on which these programs 
depend does not yet exist. The aging Automated Commercial 
System is said to be reaching its limits; Customs has said that 
it is no longer developing new functionality for it, and there 
is no question of burdening ACS with the multiple new tasks 
contemplated in the 1994 Mod Act.
    In the Mod Act, Customs was charged with developing its 
substantive policies and regulations under the Act by reaching 
out to and involving the trade community. Customs has more than 
met both the letter and spirit of that mandate. Customs took 
the lead and since 1993 the trade community has attended 
numerous meetings, participated in focus groups, and read and 
responded to innumerable concept papers, outlines and drafts. 
Customs accepted the `partnership' approach with enthusiasm and 
creativity, and the results reflect the high quality of the 
process. While we wish everything was closer to completion, we 
recognize that our involvement necessarily caused delay.
    The trade community was not involved in the same way in the 
planning and design of the underlying computer system. In 1995 
Customs did create an informal discussion group with 
representatives from the trade community that it called the 
``Trade Support Network.'' However, the level of involvement of 
this group was not the same as the trade community's 
participation in the development of the substantive policies 
and regulations and the group was not asked to participate in 
the design of the actual computer hardware and software system. 
The group was deeply involved in such matters as what types of 
accounts should be established and what needs should they 
serve; what data should be on entry declarations and on account 
statements; the interfaces with other government agencies. 
These were valuable and necessary discussions, but they did not 
bring us into systems design.
    To our knowledge, the Trade Support Network only met 
infrequently, three times for a total of six days in 1995, once 
for five days in 1996 and once for two days in 1997. It has not 
yet met in 1998. During that same time and in the years 
preceding 1995, the trade community and Customs met in many 
separate groups focused on individual subject areas of the Mod 
Act. In between those meetings numerous documents were 
exchanged, very often by publication on the Customs Electronic 
Bulletin Board and later on Customs' web site.
    The lengthy reports of those meetings (prepared by Customs) 
show that there was virtually no discussion of the technology, 
software or hardware, under consideration. There was virtually 
no discussion of the system's structure. Most relevant for us 
today, the reports show only two references to cost, both brief 
and largely meaningless, with no context provided. There are no 
references to actual hardware and software implementation 
schedules or milestones and no references to appropriation 
requests.
    Perhaps we should have asked for more information, but 
Customs frequently referred to its ``ACE development'' efforts. 
We had confidence (and still have that confidence) that Customs 
was more than competent to develop the system it would need to 
implement all the programs we were discussing. After all, ACS 
has been successful. While it may not be the most elegant 
system ever developed, it has been robust and scalable and has 
gone down relatively infrequently given its scope and size and 
the demands imposed upon it.
    For four years, we have assumed that Customs was busily 
implementing ACE. Since 1994 we have heard 1998 (and more 
recently 1999) as the implementation date. Suddenly, three 
months ago, we were told that ACE is six years away. We are 
told that Customs has none of the hardware and software it 
needs for ACE and that not only is there no money appropriated, 
none has been requested. We are told that to implement ACE, 
Customs will need $850 million over the next six years. And 
Customs tells us that it now expects the trade community to pay 
for all this.
    You can imagine our reaction. Our members were preparing 
for the imminent implementation of ACE. They have been 
anticipating the productivity gains from the 1994 Mod Act. 
Instead they hear that in order to have ACE and the most 
meaningful of the Mod Act reforms in six years, they must pay a 
user fee.
    The implications of this situation are sobering.
    First, a modern computer system at Customs is important to 
the private sector's implementation of enterprise resource 
planning software. The private sector is in the midst of a 
complex, expensive change in the way it does business. 
Virtually every Fortune 1000 company and most mid-size and many 
small businesses are implementing new software and hardware 
systems to fully automate and integrate their supply chains, 
from manufacturer to customer. The integration is critically 
dependent on just-in-time, available-to-promise concepts. The 
idea is to be able to provide a customer with a customized 
order in the shortest possible time. Until it has ACE, U.S. 
Customs, however, will stand squarely in the middle of those 
supply chains with a 1980's computer system and 1930's 
procedures. It will be a limitation on the growth potential of 
all companies in each supply chain with an import and export 
element, not just on the importers and exporters.
    Second, the need to rely on an antiquated and failing ACS 
for another six years is dismaying. The independent Gartner 
Group's January 1998 assessment of ACS leaves no room for doubt 
on this. Customs will be forced to carry out commercial 
processing, drug and other enforcement, and passenger 
processing on a computer system designed and built before most 
of us had our first PC.
    Third, not only will we not have the productivity gains we 
expected from the Mod Act, we have to consider whether these 
programs any longer make sense if they will not be fully 
implemented for six years. The initial planning for the Mod Act 
began ten years ago and was not based on the business practices 
and sophisticated software that is now coming into use. We made 
assumptions about how far we could go in modernizing antiquated 
Customs commercial procedures that today appear tentative and 
compromised. For example, in a series of meetings last fall, 
Customs and the trade community agreed that, without 
compromising and probably improving Customs inspection and 
interdiction functions, Customs entry and liquidation system 
should be scrapped in favor of a post-importation, account-
based system that could interface with modern business and 
financial practices. Such a system would be of great benefit 
both to Customs and the private sector, but the Mod Act did not 
go this far and new legislation would be required.
    We do not understand why Customs is only now presenting 
this problem to the trade community. Customs has been exemplary 
in its outreach to the trade community as it developed the Mod 
Act regulatory structure, NAFTA, and even its own 
reorganization, but Customs and the Administration have not 
enlisted private sector resources in a comparable way regarding 
ACE.
    The situation is critical. ACS itself may soon begin to 
experience noticeable slowdowns and processing degradation as 
its databases approach capacity. We are told that ACS cannot 
absorb the processing demands of the Mod Act initiatives. 
System overloads are certain; significant data loss and 
processing errors are likely beginning this year. These 
processing failures will impact Customs' enforcement capability 
as well as its commercial processing efforts--Customs runs only 
one computer system.

             The Need for a Detailed Business Plan for ACE

    Clearly, it is in the interest of all parties in both the 
public and private sector that moneys be made available to 
Customs on an urgent basis. There is no obvious source for such 
large amounts of money to be made available in a short time. 
Congress has made clear its reluctance to fund ACE unless and 
until Customs produces a detailed business plan for the design, 
procurement, and implementation of the system.
    We now share Congress' frustration over the lack of a 
detailed business plan for the development and rollout of ACE. 
We fear that unless a detailed business plan is developed this 
year, there may never be an ACE. Certainly, we no longer feel 
we can support Customs funding requests until we have seen a 
business plan. At this point, it is clear that an ACE business 
plan will have to provide a significant level of detail.
    Surprisingly, there seems to be serious misunderstanding as 
to what a business plan should include. When large expenditures 
are believed to be needed within businesses, senior management 
is presented with proposals that include in detail:
     what is needed (stated both in general terms and 
then in significant detail)
     why it is needed (in the context of the company's 
overall business plan)
     when it is needed (with implementation milestones)
     what it will cost (in as much detail as is then 
known).
    The minutes of the Trade Support Network Meeting of May 31, 
1995, prepared by Customs, contain the following as the first 
in a list of 14 ``TSN Consensus Items'':
    1. Customs business plan Needed--The TSN would like to see 
a ``business plan'' defining where Customs is going, before 
agreeing to systems issues related to ACE. The plan should 
include the results of the Trade Compliance process 
reengineering, the various Mod Act changes, and other related 
initiatives, and how these are integrated. The plan is needed 
to address the myriad of trade meetings dealing with Trade 
Compliance issues (in-bond, line release, NAFTA prototype, 
etc.) and the various interim activities that seem to be moving 
in different directions, and consuming the time and attention 
of the trade participants.
    To our knowledge no such document has been prepared by 
Customs for ACE implementation. While we would be happy to work 
with Customs to develop such a plan, we believe that the time 
is too short and that it would be much more productive to have 
a neutral expert such as the Gartner Group (which already has 
some familiarity with Customs systems) or another similar group 
provide the basic functional, time and cost analysis. We could 
then be more helpful by assisting such a group as requested by 
it or by Customs and then by meeting with Customs regarding the 
findings.

                Financing through an Increased User Fee

    Customs has proposed that its existing user fee, the 
``Merchandise Processing Fee'' be increased from 0.21% to 0.25% 
and with increasing caps to pay for ACE. It is AAEI's position 
that a user fee for this purpose is inappropriate and 
potentially illegal. This is not a new position for us. In 
testimony before you last year, Mr. Partilla stated our 
opposition to the use of a user fee to finance functions 
established to benefit the general welfare. He specifically 
cited the purchase and maintenance of computer systems as one 
part of those functions.
    Customs has said that it needs funding for this computer 
system that is ``predictable and reliable.'' We wholeheartedly 
agree. We do not agree that an increase in the MPF will provide 
either given the unpredictable shifts in trade and the 
questionable legality of such use of a user fee.
    The arguments against the inappropriate use of user fees 
have been made on the record many times before and we need only 
summarize those most relevant here:
    Customs computer costs are not generated by a service 
provided to importers. Certain functions of any government 
agency are core functions of government. Not everything done by 
an agency can be characterized as benefiting a limited group of 
users of a service. Certain core functions are necessary to the 
agency's existence; the continued existence of the agency 
presumes that it will exist for the benefit of the nation as a 
whole. The essential costs of the agency thus are borne 
appropriately by all citizens. The cost of office space and 
essential facilities, salaries of core employees, furniture, 
telephones, even pens and paper are core costs. Today, the cost 
of computer systems undeniably are among these core costs and 
should be borne by the nation as a whole as the price of having 
that agency.
    Customs computer costs benefit many other national 
interests. Customs computer system is used for many purposes. 
In addition to the clearance of commercial import shipments, 
drug enforcement, export shipments, health and safety 
regulations, and processing of data for other federal agencies 
rely on that system. Importers cannot fairly, or legally, be 
asked to finance those uses.
    The costs of the system cannot be ``allocated'' between 
enforcement, commercial processing, and support for other 
agency requirements. We do not believe that the use of the 
system can be accurately ``allocated'' so that importers ``bear 
their share,'' however that ``share'' might be defined. We 
question whether it is even possible to determine accurately 
the amount of an MPF increase that would be required to meet 
system costs. It has been suggested that the existing fee of 
0.21 percent be increased to 0.25 percent. However, there are 
inconsistencies in the amounts Customs says it needs and the 
amounts such an increase would bring. There seems to be no 
meaningful study or analysis.
    The MPF goes into the general revenues, not to Customs. The 
current user fee is not returned to Customs but is left in the 
general revenues. We question whether its increase will go to 
Customs for this purpose.
    User fees for this purpose are of questionable legality. 
User fees that are not assessed equally on all parties who 
benefit from or are required to use the service to be financed 
by the fee have met disfavor in the courts. It would be truly 
unfortunate if Customs were to rely on the user fee to finance 
the computer system only to have the fee later found illegal 
and subject to refund.
    A user fee would be vulnerable to challenge in the World 
Trade Organization. A surcharge on user fee paid by importers 
to finance a computer system used by exporters and by Customs 
for non-commercial purposes would be inherently discriminatory 
and subject to challenge by nations exporting to the United 
States.
    AAEI requests a review be conducted by an unbiased 
government agency, such as the ITC or USTR to assess the 
compatibility of the proposed new automation MPF with the rules 
of the World Trade Organization. We also ask Congress to join 
AAEI in its efforts to obtain from Customs, OMB and/or Treasury 
any analysis or review they have already conducted with regard 
to WTO compatibility and information relating to when this 
review of the automation user fee concept was first 
commissioned and completed as well as information on financial 
methodology employed.
    Use of user fees to finance computer systems will have a 
boomerang effect on exports. If the United States implements a 
user fee for the computerization of customs clearance functions 
for imports, we can expect other countries very quickly to do 
the same, imposing additional costs and competitive burdens on 
US exports.
    The MPF is not the right mechanism for funding a general 
purpose computer system unless Customs is willing to be 
accountable to those paying the fee, as well as to the 
Congress, through experts of the importers' choice. Rare are 
examples of user fees in which the parties paying the fee 
participate in any oversight of how the fee is spent. The user 
fee proposed by Customs for ACE funding is no exception. 
Existing advisory committees would not be appropriate review 
bodies since (i) they are composed in large part of parties who 
would not be paying the user fee and (ii) they do not have the 
requisite technical expertise to make valid judgments or to 
provide meaningful advice on this subject.

                       Customs Year 2000 Efforts

    We have not previously seen a need to be involved in 
Customs' Year 2000 remediation efforts. However, because we now 
know that we must rely solely on ACS through the Year 2000, not 
only is Customs successful completion of its Year 2000 plan 
even more important, it is critical that Customs' and the 
private sector's manners of fixing these software errors be 
compatible. It is now essential that there be a close and 
continuing dialogue between Customs and all elements of the 
trade community on this subject.
    Business publications and technical publications for 
information technology professionals are unanimous in saying 
that regular discussions between companies in each supply chain 
are essential, not just to ensure that each company is properly 
addressing its Year 2000 problems but to ensure that the 
solutions are compatible. It would be folly for the trade 
community to ignore Customs' position in a multitude of 
American supply chains and it could be disastrous for many 
companies if Customs or individual companies were to withhold 
information needed by the Year 2000 technology professionals 
within Customs and these companies.
    Customs and the trade community also must reach a common 
understanding about the legal implications of non-compliant 
data passed to and from each other. Under current law, 
importers who submit date-contaminated data to Customs would be 
subject to very severe penalties. If it becomes necessary to 
legally prove or disprove the claimed culpability level in each 
case, Customs and the Customs Courts will be overwhelmed with 
Year 2000 cases for many years. Computer professionals assure 
us that despite the best Year 2000 repair and testing programs, 
there will almost certainly be many Year 2000 errors, because 
the problem is so detailed and has never before been 
experienced. Assurances that a Year 2000 program will be 
completed may be sincere and accurate, but they will not assure 
freedom from errors.

                               Conclusion

    AAEI, as well as the National Customs Brokers and 
Forwarders Association, has been a strong and vocal supporter 
of Customs automation efforts from their inception. We believe 
that the cost of implementing and maintaining a modern computer 
system in Customs is a responsible investment. We look forward 
to working with Customs and with the Congress to find an 
equitable and effective means to promptly fund, through 
Congressional appropriations, Customs' need for the right 
computer systems.
    AAEI appreciates this Committee's interest in this subject. 
We will try to answer any questions you may have.
      

                                


    Chairman Crane. Thank you, Mr. Nemmers.
    Mr. Bobeck.

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

    Mr. Bobeck. Thank you, Mr. Chairman. I'm Jeffrey Bobeck. 
I'm here on behalf of the American Automobile Manufacturers 
Association, a trade association consisting of Chrysler Corp., 
Ford Motor Co., and General Motors Corp.
    And, on a personal note, it's a particular honor to be 
here, having served as staff to a Member of the Committee, Mrs. 
Johnson from Connecticut. I'm still not sure which is the most 
difficult side of the table to sit on. I think I'll learn.
    AAMA's three member companies account for more trade over 
the land borders than any other domestic manufacturing 
industry. Vehicle trade alone, not including the substantial 
volume of parts trade, accounts for 14 percent of all U.S. 
merchandise trade over the NAFTA borders. In the 5 years since 
the negotiation of NAFTA, cross-border trade has increased for 
our members by an average of 10 percent each year. Modern, 
just-in-time delivery schedules means that a component may be 
produced in one country in the morning and assembled into a 
vehicle in another country later that same day.
    A delayed delivery may shut down an assembly plant and an 
idle assembly plant may cost from $\1/2\ million to as much as 
$1 million per hour.
    Hence AAMA's members have a critical interest in the 
practices and procedures in the U.S. Customs Service on the 
land borders. Our companies have invested millions of dollars 
in their individual Customs automation systems to handle the 
increased volume and to adapt to future Customs modernization 
activities.
    We are sensitive to the dual roles that Customs must serve 
as both the facilitator of trade and the enforcer of the law at 
the border. AAMA believes that while these two roles sometimes 
may be in conflict, it is critical that they not become 
mutually exclusive.
    Please allow me to address a number of issues that we 
believe must be of continuing focus and attention. AAMA and its 
member companies work very closely with this Committee and with 
the Customs Service to help draft key provisions of the 1993 
Mod Act. We are now poised to be a partner in their 
implementation. The Mod Act provided for the development of 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 
reconciliation were first proposed by AAMA's members. During 
the past 2 years our members and Customs officials have worked 
closely on the program, meeting together approximately twice 
each month to develop the Customs Electronic Cargo Release 
Program and the NCAP prototype or NCAP/P.
    Some of these meetings, in fact, were weeklong sessions. We 
feel that Customs has worked very hard to communicate with the 
trade community and to listen to our views.
    Both the trade community and Customs, in fact, have worked 
to develop the prototype's treatment of account structure, data 
elements, process flow, and other related areas. With this came 
the implementation of the account management feature, with a 
Customs representative assigned to most of the large importers.
    And we want to emphasize that this is a very important 
relationship and we hope that Customs will give the 
representative adequate authority.
    NCAP/P is a foundation, and let me mention one of the 
building blocks of that foundation just to put this in some 
context. A fundamental feature of NCAP/P is the establishment 
of the account-based processing which will provide a single 
account number for each trade party, a means for recording 
business relationships among trade parties, and a system for 
aggregating transactions by account.
    Now, again, to put this in context, imagine if the credit 
card companies sent you a separate bill for each and every 
transaction. This is effectively the way Customs works today 
and we hope that soon, with the implementation of an account-
based processing system, that will no longer be.
    No matter how successful the effort to automate Customs 
procedures proves to be, goods must still be physically moved 
across the border. Nothing hinders cross-border trade as 
directly as long lines of trucks waiting to cross the border.
    Our member companies support Customs increased enforcement 
activities. However, the current practices and limited 
resources of both the United States and Mexico Customs agencies 
serve to hinder traffic flow.
    The worst example of this is the impact of the currently 
limited crossing hours at the southern border. While crossing 
points on the border with Canada operate 24 hours a day, 7 days 
a week, three key Mexican crossing bridges operate only part 
time. This is very difficult for us and it is our understanding 
that the Mexican Government may need to be persuaded that 24-
hour border operations are critical.
    Briefly, let me also say that we share Congressman Camp's 
concerns about the implementation of section 110 of the 
Immigration Act and we hope this Committee will work with the 
Judiciary Committee on resolving that problem.
    Finally, let me turn to the issue of resources. We wish to 
express our support for consistent and predictable funding of 
Customs modernization efforts. Last year movement to cut off 
appropriations and development of the ACE Program, and thus, 
NCAP, nearly halted the entire program, while congressional 
staff debated program priorities with Customs officials, 
programmers responsible for the actual development of ACE went 
unpaid and, in some cases, found other employment.
    This is certainly not the best way to get this program 
done.
    Regarding how the funding is to be provided, we believe 
that additional funding to complete ACE development should be 
appropriated from general revenues. AAMA believes that the 
development of ACE provides a basis for automation of Customs 
entire operations, not just narrowly defined commercial 
interests.
    Mr. Chairman, I thank you very much again for the 
opportunity to testify and I'd be happy to answer any 
questions.
    [The prepared statement follows:]

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

                            General Comments

    Mr. Chairman, the American Automobile Manufacturers 
Association (AAMA) is pleased for the opportunity to offer 
testimony today to the Subcommittee. AAMA is the trade 
association comprised of Chrysler Corporation, Ford Motor 
Company, and General Motors Corporation.
    Trade with our NAFTA partners, Canada and Mexico, 
represents a significant portion of our industry's overall 
output, and is an important component of our contribution to 
the U.S. economy. In fact, AAMA's three member companies 
account for more trade over the land borders than any other 
domestic manufacturing industry. Vehicle trade alone--not 
including the substantial volume of parts trade--accounts for 
14 percent of all U.S. merchandise trade over the NAFTA 
borders.
    In the five years since the negotiation of the North 
American Free Trade Agreement (NAFTA), cross-border trade has 
increased an average of 10 percent each year. The continued 
integration of North American automotive manufacturing 
facilities, along with the increasing reliance on just-in-time 
delivery schedules, means that a component may be produced in 
one country in the morning and assembled into a vehicle in 
another country later the same day. A delay at the border may 
create enormous costs and missed trade opportunities further 
down the line. A delayed delivery may shut down an assembly 
plant; an idle assembly plant may cost from $500,000 to $1 
million per hour.
    Hence, AAMA's members have a critical interest in the 
practices and procedures of the U.S. Customs Service on the 
land borders. Our companies have invested millions of dollars 
in their individual customs automation systems to handle the 
increased volume and to adapt to future Customs modernization 
activities. We are sensitive to the dual roles that Customs 
must serve as both the facilitator of trade and the enforcer of 
the law at the border. AAMA believes that, while these two 
roles sometimes may be in conflict, it is critical that they 
not become mutually exclusive.
    As the volume and importance of cross-border trade continue 
to increase, Congress must do all it can to provide the Customs 
Service with the resources and the guidance to fulfill its dual 
functions. Allow me to raise a number of issues that we believe 
must be a focus of continuing attention if Customs is to 
fulfill these mandates.

               1. The National Customs Automation Program

    Major recent legislation, including the 1993 Customs 
Modernization Act, has been 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 to help draft key 
provisions of the Mod Act and now are poised to be a partner in 
their implementation.
    The Mod Act provided for the development of 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. The NCAP 
prototype, or NCAP/P, 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.
    During the past two years, AAMA's members and Customs 
officials have worked closely on this program, meeting together 
approximately twice each month to develop the Customs 
electronic cargo release program and NCAP/P. Some of these 
meetings were week-long sessions involving the actual system 
designers and programmers.
    Both the trade community and the Customs have worked to 
develop the prototype's treatment of account structure, data 
elements, process flow and other related areas. With this came 
the implementation of the account management feature, with a 
Customs representative assigned to most of the large importers. 
The trade community also has participated over the last year in 
a series of discussions in relation to the reconciliation 
feature of the Mod Act.
    We appreciate the efforts of Customs and believe that the 
long-term benefits of an effective NCAP/P will be enormous. We 
also appreciate this committee's longstanding support for 
Customs automation and hope it will continue.

                       2. Border Crossing Issues

    No matter how successful the effort to automate Customs 
procedures proves to be, goods still must physically move 
across the border. Nothing hinders cross-border trade as 
directly as a long line of trucks waiting to cross the border.
    Our member companies support Customs' increased enforcement 
activities and are willing to provide the necessary support and 
cooperation to ensure effective enforcement while expediting 
cargo movement across the border. However, the current 
practices and limited resources of both the U.S. and Mexico 
Customs agencies serves to hinder traffic flow.
    The worst example of this is the impact of the currently 
limited crossing hours at the southern border. While crossing 
points on the border with Canada operate 24 hours a day, seven 
days a week, three key Mexican crossing bridges operate only 
part-time. Going to a 24 hour/seven day schedule might allow 
Customs actually to reduce the number of inspectors needed 
since the traffic flow would be more even. It is our 
understanding that the Mexican government may need to be 
persuaded that 24-hour border operations are critical. AAMA 
hopes the Committee will support U.S. officials in making the 
case with the Mexican government.
    A new source of delay will take place this fall when the 
U.S. Immigration and Naturalization Service is required to 
begin implementing an automated entry and exit system for 
aliens under Section 110 of the Illegal Immigration Reform Act 
of 1996. While this issue is subject to the jurisdiction of 
another committee, AAMA believes its potential for border 
disruption is so significant as to merit discussion here in the 
context of this hearing.
    The automated system envisioned by Section 110 was intended 
to improve accounting for entries and exits by U.S. visa 
holders. This has little value on the land borders, especially 
the northern border, which thousands of Americans and Canadians 
cross each day. Applying new controls under Section 110 would 
repudiate the traditional open border policy that the U.S. and 
its border neighbors long have recognized.
    Moreover, implementing Section 110 would precipitate 
significant border congestion at key ports of entry and act as 
a significant obstacle to trade. This is of particular concern 
to the automotive industries in the U.S. and Canada, which have 
been integrated since the U.S.-Canada Auto Pact was negotiated 
in 1965.
    H.R. 2481, introduced by Mr. LaFalce, would require a 
feasibility study of creating a workable land border entry-and-
exit system, while preventing the U.S. from wasting millions of 
dollars attempting to rush a system into operation. Again, 
while this matter is not before this committee, AAMA urges 
Members to cosponsor the bill. All the best efforts of this 
committee and the Customs Service to improve border operations 
may be derailed by new programs such as Section 110.

                     3. Account Managers' Authority

    The critical point of contact within the Customs Service 
for members of the trade community is the Customs Account 
Manager. As new programs such as reconciliation develop, the 
Account Manager's role is becoming more critical.
    However, AAMA's members are concerned that the Account 
Manager's authority actually is eroding. Customs interferes 
with a critical relationship when it does not provide the 
individual in this position with adequate authority to make 
decisions.
    Importers understand that the assigned Customs 
representative is first and foremost a representative of the 
U.S. government. However, Customs must empower Account Managers 
if these officials are to be fully utilized and effective in 
carrying out the mission of the Customs Service.

                           4. Resource Issues

    Finally, AAMA wishes to express its support for consistent 
and predictable funding for Customs modernization efforts. Last 
year, a movement to cut off appropriations for development of 
the Automated Commercial Environment (ACE), and thus NCAP, 
nearly halted the entire program. While Congressional staff 
debated program priorities with Customs officials, programmers 
responsible for the actual development of ACE went unpaid. AAMA 
was concerned that this needless funding battle proved to be a 
greater threat than benefit to the program.
    AAMA recognizes the need for Congress to conduct oversight 
of this program to ensure that it is meeting the original 
objectives of the Mod Act in a timely and cost-effective 
manner. That is why we are here today. However, AAMA hopes this 
committee will work with the appropriators to ensure that 
Customs is assured of adequate resources to finish the job.
    Regarding how that funding is to be provided, it is 
difficult to assess whether revenues currently generated by the 
merchandise processing fee (mpf), which is designated to fund 
commercial operations, corresponds to actual spending on these 
functions. Moreover, AAMA believes that the development of ACE 
provides a basis for automation of Customs' entire operations, 
not just narrow commercial interests. Therefore, we believe 
that additional funding to complete ACE development should be 
appropriated from general revenues.
    Again, Mr. Chairman, AAMA wishes to express its gratitude 
to you for your strong leadership in modernizing Customs 
activities and in promoting free trade generally. We stand 
ready to respond to any questions the committee may have.
      

                                


    Chairman Crane. Thank you, Mr. Bobeck, and next, Mr. 
Schoof.

   STATEMENT OF RONALD D. SCHOOF, CATERPILLAR INC., PEORIA, 
       ILLINOIS; AND VICE CHAIRMAN, JOINT INDUSTRY GROUP

    Mr. Schoof. Thank you, Mr. Chairman. I am Ron Schoof, the 
traffic administrator responsible for Customs compliance at 
Caterpillar Inc. in Peoria, Illinois, in the great State of 
Illinois.
    I'm also vice chairman of the Joint Industry Group, a 
coalition of 130 Fortune 500 companies, trade associations, and 
individuals actively engaged in international trade.
    The Joint Industry Group enjoys a close and cooperative 
relationship to the U.S. Customs Service and frequently engages 
Customs in trade-related issues.
    I've been asked to relate to you today the position of the 
Joint Industry Group regarding the issues before this 
Subcommittee.
    First I'd like to talk about Operation Brass Ring. The 
Joint Industry Group actively supports Customs dual mission of 
promoting cross-border trade facilitation while at the same 
time preventing the entrance of illegal individuals and goods 
into this country.
    Several of our member companies have commented that their 
shipments have not faced burdensome and costly delays at the 
border due to Operation Brass Ring. I recently visited the 
Columbia Bridge crossing in Laredo which is a modern facility 
with the new technologies installed and saw that the freight 
moves at a steady pace through this facility.
    So we support this Subcommittee in funding for these types 
of technologies and agree with Sam that through partnership 
with the trade and with Customs that we can make a difference 
in the drug trade.
    Second is the merchandise processing fee increase for 
Customs automation. With over $800 million per year already 
being collected from us to process our merchandise, we are 
opposed to any increase. The Joint Industry Group has been an 
ardent supporter of the Customs automation efforts, and was a 
major force behind the drafting and congressional approval of 
the Customs Mod Act in 1993, which ushered in a new era of 
shared responsibility between government and business. In 
return for industry to accept more responsibility in ensuring 
that imports and exports comply with Customs regulations, 
Customs promised that trade facilitation and enforcement would 
be enhanced due to creation of an automated system.
    While industry is keeping its part of the deal, Customs has 
been slow in establishing an automated system that is 
compatible with the needs of industry. Now the administration 
wants industry to continue to fund its failure to conform to 
the Mod Act stipulation by increasing the merchandise 
processing fee.
    Customs estimates that it needs nearly $1 billion over the 
next 5 years to develop and implement an automated system. 
However, budget requests in this administration we've seen in 
the last 4 years have been less than $50 million and this 
year's request of $8 million drives home this point.
    Even if we add the estimated $50 million increase in the 
MPF will generate, it will take over 20 years to fund the 
system and this system is 14 years old and already antiquated.
    The merchandise processing is considered by all to be a 
user fee. It is our opinion, however, that it is merely a tax 
on imports, and that it distorts the true value of goods and 
imposes additional costs to the consumer.
    One example to support our views is the scheduled 
elimination of the fee for processing transactions within 
NAFTA. To be a true user fee, the MPF should be designated for 
the purpose it should serve, that of processing merchandise 
efficiently. Thus, it is the recommendation of the Joint 
Industry Group that a portion of the existing fee be allocated 
to the automation enhancement. The amount for fiscal year 1999 
should be at least $50 million, with increases each year for 
the following 4 years to provide the estimated $1 billion 
needed.
    Such funding should come with ropes and cables attached, 
not just strings. Congress should be fully satisfied that any 
Treasury-Customs architectural plan for the new electronic 
system will meet the needs of both government and industry for 
the 21st century.
    Until now, industry has had little input into Customs 
automation development. To ensure that these automation 
programs work for both Customs and business, industry must be 
afforded the opportunity to help design a system that will work 
in an era of electronic commerce.
    To support this request, the Joint Industry Group 
automation Committee is actively working with Customs to that 
end. Attached to my statement is a letter to Acting 
Commissioner Sam Banks outlining our automation position and 
the points that we support the system.
    In conclusion, Mr. Chairman, the members of the Joint 
Industry Group, we continue to support the Subcommittee's 
funding for technologies such as Operation Brass Ring that is 
used at the ports and two, we do not support additional fees on 
our merchandising processing fee increase to fund automation; 
and three, we support taking the existing merchandise 
processing fee and allocating a portion of that for automation.
    Thank you for allowing me to be here today and represent 
the Joint Industry Group. Thank you.
    [The prepared statement and attachment follow:]

Statement of Ronald D. Schoof, Caterpillar Inc., Peoria, Illinois; and 
Vice Chairman, Joint Industry Group

                              Introduction

    Mr. Chairman and distinguished Members of the Subcommittee 
on Trade of the Committee on Ways and Means. My name is Ronald 
Schoof and I am Traffic Administrator responsible for customs 
compliance at Caterpillar Inc., in Peoria, Illinois. I am also 
Vice-Chairman of the Joint Industry Group, a coalition of one 
hundred thirty Fortune 500 companies, trade associations, and 
individuals actively engaged in international trade. The Joint 
Industry Group enjoys a close and cooperative relationship with 
the US Customs Service and frequently engages Customs on trade-
related issues that affect the growth and strength of American 
imports and exports.
    I have been asked today to relate to you the position of 
the Joint Industry Group regarding several Customs' oversight 
issues that have already been raised today. My comments will 
focus on the effects that Customs' drug enforcement efforts 
impose upon industry, the prospect of increasing the 
Merchandise Processing Fee (MPF), and the use of this 
additional revenue to fund Customs automation programs.

                          Operation Brass Ring

    The Joint Industry Group actively supports Customs' dual 
mission of promoting cross-border trade facilitation while at 
the same time preventing the entrance of illegal individuals 
and goods into this country. Recently, the Customs Service 
beefed up its drug interdiction efforts with the establishment 
of Operation Brass Ring. After nearly three months, drug-
related seizures and arrests have increased with few negative 
or costly effects to trade and America's global economic 
strength. Several of our member companies have commented that 
their cross-border shipments have not faced burdensome and 
costly delays at the border due to Operation Brass Ring.
    I recently visited the Columbia Bridge border checkpoint at 
Laredo and observed that the amount of commercial traffic had 
increased in the eighteen months since I last visited. I 
discussed drug seizures with the import specialists and learned 
that drugs are found mainly in small quantities that commercial 
drivers transport. I also learned that commercial truck traffic 
is not responsible for moving large quantities of drugs from 
Mexico into the United States.
    The members of the Joint Industry Group fully support US 
Customs and the other agencies dedicated to protecting our 
borders from illegal imports. We applaud the continued use of 
new and innovative technologies to perform this responsibility. 
On behalf of our group, we request that the Committee fully 
support funding for the use of this technology. By working in 
partnership, Customs and the private sector can make a 
difference.

                       Merchandise Processing Fee

    In the President's fiscal year 1999 budget, the 
Administration requested an increase in the Merchandise 
Processing Fee (MPF) as the means to offset the costs of 
modernizing the Customs Service automated commercial 
operations. This proposal would increase the ad valorem rate 
paid by importers on formal entries into the United States from 
the current .21 percent up to a maximum of .25 percent plus 
increase the maximum per transaction. With over $800 million 
per year already being collected from us to process our 
merchandise, we are opposed to any increase.
    The Joint Industry Group has been an ardent supporter of 
Customs automation efforts. JIG was a major force behind the 
drafting and congressional approval of the Customs 
Modernization Act (Mod Act) in 1993. The Mod Act ushered in a 
new era of shared responsibility between government and 
business. In return for industry to accept more responsibility 
in ensuring that imports and exports comply with customs 
regulations, Customs promised that trade facilitation and 
enforcement would be enhanced through the creation of automated 
systems.
    While industry has kept its part of the deal by working 
with Customs on improving company compliance rates and reducing 
the number of violations, Customs has been slow to reciprocate 
by establishing an automation system that is compatible with 
the needs of industry. Now, the Administration wants industry 
to continue to fund its failure to conform to Mod Act 
stipulations by increasing the Merchandise Processing Fee and 
promising industry that these funds will be used to fund 
Customs automation programs. The Joint Industry Group and its 
members seriously doubt whether these promises will indeed be 
carried through any more than they were over the past four 
years. A better approach at this late date in Mod Act 
implementation would be to allocate a portion of the existing 
$800 million in revenues to improving the process through 
automation.
    Customs estimates that it will need nearly $1 billion over 
the next five years to develop and implement an automation 
system that will move from the laborious and time-consuming 
entry-by-entry process to an account-based, remote system of 
filing customs entries. Budget requests from this 
Administration over the past four years of less than $50 
million to meet this demand indicate that the Administration is 
not serious about meeting its Mod Act responsibilities. This 
year's request of $8 million drives home this point. Even 
adding the estimated $50 million the increase in the MPF will 
generate, it will take over 20 years to fund this system. The 
current system is 14 years old and is already antiquated.
    The MPF is considered a ``user-fee.'' It is, in our 
opinion, merely another tax on imports that distorts the true 
value of goods and imposes additional costs to the consumer. 
One example to support our view is the elimination of the fee 
for processing transactions within NAFTA. Revenues received 
through the MPF in fact go into the general fund of the 
Treasury with some of it designated to pay for Customs 
inspectors' overtime and premium pay. To be a true user fee, 
the MPF should be designated for the purpose it should serve, 
that of processing merchandise, which will only be accomplished 
when Customs fully automates its operations and activities.
    It is the recommendation of the Joint Industry Group that a 
portion of the existing fee be allocated to automation 
enhancement. The amount for Fiscal Year 1999 should be at least 
$50 million with increases each year for the following four 
years to provide the $1 billion needed. Such funding should 
come with ``ropes or cables'' attached, not just strings. 
Congress must be fully satisfied that any Treasury/Customs 
architecture plan for the new electronic system will meet the 
needs of both government and industry for the 21st century.
    Until now, industry has had little input into Customs' 
automation developments. To ensure that these automation 
programs work for both Customs and business, industry must be 
afforded the opportunity to help design a system that will work 
in the era of electronic commerce. The Administration is 
leading efforts for global electronic commerce. That commerce 
will not be as effective as possible unless the customs 
processes are part of the global effort. Customs' current 
automation efforts, even if they are ever implemented, will be 
obsolete and inefficient. Industry should be more directly 
involved as to how these automation programs are developed.
    To support this request, the Joint Industry Group 
Automation Committee is actively working with Customs to that 
end. We have met with past and current Customs officials on 
numerous occasions since passage of the Mod Act to lend support 
and advice on how these automation systems must be designed and 
implemented to satisfy the needs of Customs and industry. 
Attached to my statement is a letter to Acting Commissioner Sam 
Banks outlining our automation position. The Joint Industry 
Group supports the continued development and full funding of 
the following automation systems:
     The Automated Commercial Environment (ACE);
     The Automated Export System (AES);
     The International Trade Data System;
     The North American Trade Automation Prototype 
(NATAP); and,
     The US/UK Prototype.
    These systems are vital to the continued leadership of the 
United States in automating the trade process worldwide.

                               Conclusion

    Mr. Chairman and Members of the Committee, while the US 
Customs Service has achieved a level of success in controlling 
the flow of illegal goods and individuals entering our nation, 
it has, however, seriously fallen behind in automating its 
outdated and antiquated trade processing systems. An increase 
in the Merchandise Processing Fee will not guarantee that these 
revenues will be designated for automation purposes. It will, 
however, continue to mask Customs' structural inefficiencies 
and failures at the expense of American businesses and 
consumers. Rather than punish industry and the American people, 
the Administration and the US Customs Service need to re-
evaluate their automation goals and the necessary steps 
required to achieve them. Failure to do so will damage the 
ability of US industry to compete in the global economy and 
lessen this country's influence in global economic and 
political affairs.
      

                                


                                       Joint Industry Group
                                                     March 17, 1998

Mr. Samuel H. Banks
Acting Commissioner
US Customs Service
1300 Pennsylvania Avenue, NW
Washington, DC 20229

    Dear Acting Commissioner Banks:

    The Joint Industry Group (JIG) Automation Committee was established 
one year ago under the principles outlined in the attached paper. The 
first meeting of our Automation Committee was attended by Commissioner 
George Weise, who agreed to cooperate with us in the development of 
Customs automation initiatives and outlined Customs ambitious plans for 
future automation. JIG remains committed to building ``a coalition of 
its members and other industry groups concerned with automation'' and 
``to utilize this coalition to provide a uniform industry position on 
trade needs and priorities for an automated import, export and trade 
compliance process.''
    For more than a decade, Customs has been a leader in developing 
automated systems to streamline the trade process. As the world's 
largest trader, it is imperative that the United States remain a leader 
in trade automation and set the standard for trade automation 
worldwide. It is through automation and common international business 
practices that barriers to trade will be reduced and many inefficient 
and costly business practices eliminated. The biggest beneficiary of 
this streamlined international system of free trade is the United 
States. A standardized, streamlined, automated international trade 
process is the rising tide that lifts all boats and will be to the 
economic benefit of all governments and industries that choose to 
participate in the program. The JIG vision of this automated world is 
outlined in the attached paper (attachment) and briefing charts 
(attachment). For the reasons outlined above, JIG is in support of 
Customs and Treasury continued design and development and full funding 
of the following trade related systems provided that Customs and 
Treasury cooperate fully with industry in this endeavor:
     The International Trade Data System (ITDS);
     The North American Trade Automation Prototype (NATAP);
     The US/UK Prototype;
     The Automated Export System (AES); and,
     The Automated Commercial Environment (ACE).
    ITDS, NATAP, the US/UK Prototype, and AES are the key to continued 
and future leadership by the United States in automating the trade 
process worldwide. These systems provide the foundation and framework 
for integrating the export and import process into a seamless 
international system of trade and represent the long-term needs for 
trade automation. In spite of our inability to achieve Fast Track 
negotiating authority, the US remains the leader in global customs and 
trade issues and the development of these systems is an essential part 
of that leadership. The ACE system is essential as the logical 
extension of the highly successful Automated Commercial System upon 
which the United States system of trade is so dependent. In view of the 
importance of the Year 2000 conversion, it will be the subject of a 
separate letter. In regard to ACE, the JIG Automation Committee 
recommends full implementation of the entire system with emphasis for 
early implementation of the following modules:
     NCBFAA recommendations for Enhanced Electronic Entry 
Program (EEEP);
     Completion of Truck Pre-Arrival Processing System 
(formerly known as Buffalo Pilot);
     AMS;
     Remote Location Filing;
     NCAP (Track 4 Processing, Reconciliation, Monthly Entry);
     Periodic Payment; and,
     Surety Interface.
    By ``early implementation'' we mean that those projects should be 
implemented on a phased basis by the end of 1998. Design and 
implementation should be the responsibility of joint teams consisting 
of Customs personnel and exporters and importers and their agents with 
a stake in implementation. We would like to explore the possibility of 
establishing such joint teams for each of the projects outlined above 
as a partnership between key trade groups and Customs. This approach 
would incorporate mutual commitments and public accountability using 
established techniques for documentation and dialogue.
    In all systems development efforts it is essential that the system 
that Customs develops represents the interests and needs of all Federal 
agencies. Any system that does not is a step backwards. Of course, this 
common system will require that other agencies adopt risk management, 
selectivity, post/pre-audit, and compliance measurement standards.
    We believe that Customs and Treasury are on the right path in 
pursuing these various automation initiatives, however, we have not 
been pleased with the pace of implementation and the extent to which 
many of the projects reflect the concerns of the trade. We are also 
concerned that the early implementation initiatives have been slow in 
materializing. JIG will make every effort to build the industry 
coalition to ensure that Customs is adequately funded to achieve the 
goals summarized above provided that we can agree upon priorities and 
an implementation schedule with you. In view of the fact that industry 
is paying the Merchandise Processing Fee, the Harbor Maintenance Fee, 
Air Passenger Fees, border truck fees, and the importance of these 
systems to continued prosperity of our economy, it is essential that 
funding be provided to support these vital national and international 
systems development efforts. The JIG supports bold and expeditious 
development of these initiatives and will work cooperatively with you 
to secure early and sufficient funding for implementation.
    These systems are of major importance to industry and the early 
workable implementation of these projects is long overdue. Perfect 
implementation is a time consuming illusion. Industry and Customs must 
jointly assume reasonable risks and proceed to implement.
    Please give this matter your consideration and let me know how we 
can work together on these issues.

            Sincerely,
                                            Michael H. Lane
                                 Chairman, JIG Automation Committee
      

                                


    Chairman Crane. Well, thank you, Mr. Schoof.
    And, finally, Mr. Rogers.

     STATEMENT OF JAMES A. ROGERS, CHAIRMAN, INTERNATIONAL 
 COMMITTEE, AIR COURIER CONFERENCE OF AMERICA; ACCOMPANIED BY 
NORM SCHENK, CHAIRMAN, CUSTOMS SUBCOMMITTEE, ACCA; SUE PRESTI, 
EXECUTIVE DIRECTOR, INTERNATIONAL COMMITTEE, ACCA; AND KIRSTEN 
     ENVALL, PUBLIC AFFAIRS MANAGER, UNITED PARCEL SERVICE

    Mr. Rogers. Thank you, Mr. Chairman. It is a pleasure to 
appear before you today. My name is Jim Rogers and I am the 
chairman of the International Committee of the Air Courier 
Conference of America, known as ACCA.
    Before I recently retired, I was vice president, government 
relations, of United Parcel Service, one of ACCA's members. I 
am accompanied today by Norm Schenk, chairman of the ACCA 
Customs Subcommittee; Sue Presti, the executive director of the 
International Committee; and Kirsten Envall of United Parcel 
Service.
    ACCA is the trade association representing the express 
consignment industry. In addition to UPS, our members include 
other large firms with global delivery networks, such as DHL, 
Federal Express, and TNT, and also smaller businesses with 
strong regional delivery networks including Global Mail, 
Midnite Express, and Quick International. Together our members 
employ approximately 415,000 American workers and earn global 
revenues in excess of $50 billion.
    I am very pleased to be able to discuss issues regarding 
U.S. Customs today. To give you a sense of the size of our 
industry in U.S. trade, and as a customer to U.S. Customs, the 
express industry accounts for roughly 25 percent of all Customs 
formal and informal entries.
    In addition, express operators enter more than 6.5 million 
other manifest entries on low-value shipments, plus millions of 
clearances on letters and documents.
    In short, we are a major part of the U.S. export-import 
community. I would like to focus my comments on two of the 
issues being examined today by the Subcommittee: Customs 
Automation Program and Customs user fees.
    Good automation systems can enable Customs to improve 
enforcement standards while moving goods more efficiently, 
thereby enhancing both of Customs core missions.
    However, notwithstanding investments in the tens of 
millions of dollars, our industry has thus far had 
disappointing experiences with Customs automation systems. One 
example of this is remote entry filing. While ACCA strongly 
supported the concept of remote filing when initially proposed 
in the Customs Modernization Act, unfortunately, our industry's 
unique characteristics were not taken into account by Customs 
in implementing the system.
    As a result, we can only use remote filing for a very small 
portion of the total entries we make.
    We've also experienced frustrations relating to the 
development of the Automated Export System, AES, for air 
shipments which we have been working on with Customs and Census 
for more than 2 years.
    We are concerned that Customs is attempting to expand AES 
coverage to the air mode without first addressing the problems 
encountered by the current AES users. We have repeatedly 
communicated to Customs and Census that we cannot switch to AES 
unless it is modified not only to address existing glitches but 
also to eliminate the current requirements that all data be 
provided to Customs prior to the aircraft's departure.
    Providing all data predeparture is contrary to current 
practice and would cripple the export operations of the express 
industry and the thousands of American businesses who rely on 
us daily to deliver their products to overseas markets.
    Since we cannot use AES under its current structure, our 
only alternative if AERP, the Automated Export Reporting 
Program, is eliminated as scheduled at the end of 1999, will 
apparently be to file paper SEDs, shipper's export 
declarations. This would be a significant burden on the 
industry, but it would actually be far harder on Customs and 
Census.
    The express industry alone would file hundreds of thousands 
of SEDs each month, overwhelming Customs and Census ability to 
process the data. If the current problems with AES cannot be 
fixed before December 31, 1999, we believe either of two 
options would be far superior to inundating Customs with paper 
SEDs: AERP could be extended beyond 1999 or Customs could 
develop an interface between AERP and AES.
    To invest almost $10 million, as this industry has, in 
Automated Manifest Systems, AMS, and get so little from it, is 
very troubling to ACCA members. We cannot afford to reap such a 
poor return on investment--nor can Customs--in future 
automation projects such as AES and ACE, which is why we 
believe greater oversight controls need to be imposed on 
Customs automation efforts. Specifically we suggest the 
following guidelines for Customs Automation Programs: Before 
implementing a new slate of automation programs, including ACE, 
Customs should first fix existing systems, such as AMS; Customs 
should develop a careful, comprehensive automation workplan 
with specific deliverables and a sound, detailed budget; 
Customs should maintain meaningful, frequent consultations with 
industry at every step of automation development to avoid 
future glitches when you implement the system; and, finally, 
Customs should incorporate new technologies such as the 
Internet in its designs.
    Regarding the administration's proposal to increase the 
merchandise processing fee and to dedicate the increased funds 
to modernization of Customs automated commercial operations, 
including ACE, we cannot support this proposal at this time, 
given the absence of a coordinated workplan and budget for 
Customs Automation Program.
    Let me emphasize that ACCA is fully committed to working 
with Customs to develop automated systems that enhance Customs 
enforcement abilities while facilitating the flow of trade. We 
simply hope that Customs will alter its past approach to this 
issue.
    Turning now to user fees, our industry is in a unique 
situation. In order to obtain inspectional services when needed 
at our express facilities, our industry agreed 11 years ago to 
pay reimbursable fees to Customs. These fees are supposed to 
cover the cost to Customs of providing inspectors when needed.
    However, in recent years, the cost of reimbursables has 
escalated well beyond what we envisioned, to the point where 
they have become a serious burden on the express industry.
    I am pleased to report that we have opened a dialog with 
Customs to explore the inadequacies with the current 
reimbursable system. We thank Customs for its willingness to 
discuss alternatives and we look forward to reaching a mutually 
agreeable solution. Ultimately a resolution to this issue may 
require legislative action.
    In closing, I want to thank the Subcommittee for holding 
this hearing on a subject of great importance to American 
business. Mr. Chairman, thank you again for this opportunity to 
comment on the operations of the U.S. Customs Service and their 
impact on the express industry.
    [The prepared statement follows:]

Statement of James A. Rogers, Chairman, International Committee, Air 
Courier Conference of America

    Thank you, Mr. Chairman; it is a pleasure to appear before 
you today. My name is Jim Rogers, and I am the chairman of the 
International Committee of the Air Courier Conference of 
America (``ACCA''). Formerly, I was vice president, government 
relations, of United Parcel Service, one of ACCA's members. 
ACCA is the trade association representing the express 
consignment industry. In addition to UPS, our members include 
other large firms with global delivery networks, such as DHL, 
Federal Express, and TNT, as well as smaller businesses with 
strong regional delivery networks, including Global Mail, 
Midnite Express and Quick International. Together, our members 
employ approximately 415,000 American workers and earn global 
revenues in excess of $50 billion.
    The express transportation industry specializes in time-
definite, reliable transportation services for documents, 
packages and freight. We are a relatively new and rapidly 
expanding industry, having evolved during the past two decades 
in response to the needs of global international commerce. 
Express delivery has grown increasingly important to businesses 
needing to use ``just-in-time'' manufacturing techniques and 
supply-chain logistics in order to remain internationally 
competitive. The express industry has revolutionized the way 
companies do business worldwide and has given a broad-based 
application to the just-in-time concept. Producers using 
supplies from overseas no longer need to maintain costly 
inventories, nor do business persons need to wait extended 
periods of time for important documents. In addition, consumers 
now have the option of receiving international shipments on an 
expedited basis. Increased reliance on express shipments has 
propelled the industry to average annual growth rates of 20 
percent for the past two decades.
    I am very pleased to be able to discuss issues regarding 
U.S. Customs today, because customs administrations play a 
critical role in ensuring expeditious movement of goods across 
borders and consequently are critical to our industry's ability 
to deliver express international service. To give you a sense 
of the size of our industry in U.S. trade--and as a customer of 
U.S. Customs--the express industry accounts for roughly 25 
percent of all Customs formal and informal entries. In 
addition, express operators enter more than 6.5 million other 
manifest entries on low-value shipments, plus millions of 
clearances on letters and documents. In short, we are a major 
part of the U.S. importing community.
    I would like to focus my comments on two of the issues 
being examined today by the Subcommittee: Customs automation 
programs and the funding mechanisms for these efforts, and 
Customs' user fees.

Customs' automation efforts have not adequately accommodated the needs 
      of the express industry and the rest of the trade community

    We recognize that enforcement is a critical mission of 
Customs, but insist that the agency's other critical mission--
trade facilitation--cannot be ignored. This is why automation 
is so important: good, functional automation systems will 
enable Customs to improve enforcement standards while moving 
goods more efficiently. ACCA commends Customs for its 
recognition that automation is essential to its future and for 
its willingness to undertake automation initiatives.
    However, Customs' automation initiatives do not appear to 
be coordinated with any commercial prioritization. In addition, 
there appears to be no management structure capable of 
integrating business concepts into systems design and of 
delivering a functional product within a reasonable timeframe. 
We are concerned that Customs' various automation programs are 
not being adequately managed to avoid duplication and 
inconsistency, or to ensure connectivity and timely delivery. 
These inadequacies are costly to both our companies and 
government. Customs should develop a careful, comprehensive 
automation program with specific deliverables and a sound, 
detailed budget. It is also imperative that Customs be held to 
the deadlines established in its workplan. We urge the 
Subcommittee to use its oversight authority to guide Customs in 
this direction.
    The express industry has invested tens of millions of 
dollars in automated systems designed to expedite shipment and 
delivery of goods within an express timeframe. For our industry 
to survive and expand, automation is critical and we have been 
at the forefront of efforts to work with Customs. 
Unfortunately, these efforts have thus far yielded 
disappointing results.
    An example of our frustration relates to remote entry 
filing. While ACCA strongly supported the concept of remote 
filing as an important advance, our industry's unique 
characteristics were unfortunately not taken into account by 
Customs in programming the system. We can only use remote 
filing for a very small portion of the total entries we make 
because many of our customs entries occur under a procedure 
unique to the express industry, called consolidated informal 
entries, and the remote entry system is not programmed to 
accept consolidated informals. Again, let me remind the 
Subcommittee that our industry accounts for more than 25 
percent of all entries into the United States--and yet a 
substantial portion of our trade is effectively ineligible for 
this important automation innovation.
    We have also experienced frustrations relating to the 
development of the Automated Export System (AES) for air 
shipments, which we have been working on with Customs and 
Census for more than two years. We are concerned that Customs 
is attempting to expand AES' coverage to the air mode without 
first addressing the problems encountered by the current AES 
users. Customs' haste is propelled in part by the imminent 
demise of the existing system for reporting exports 
electronically, the Automated Export Reporting Program (AERP). 
Customs and Census have not allocated programming resources to 
extend AERP's lifespan beyond December 31, 1999 and they seem 
to assume that air carriers will switch to AES of necessity by 
that date. In fact, in a letter dated April 17, 1998, the chief 
of Census' foreign trade division informed our members that we 
will only have two alternatives from January 1, 2000 onward: 
use AES or file paper SEDs.
    We have repeatedly communicated to Customs and Census that 
we cannot switch to AES unless it is modified not only to 
address existing glitches but also to eliminate the current 
requirement that all data be provided to Customs prior to the 
aircraft's departure. Providing all data pre-departure is 
contrary to current practice, under which express air carriers 
supply most data after the aircraft has departed. We have 
informed Customs that providing full data pre-departure is 
impossible in an express module, which requires turnaround 
times of only a few hours. That is, within hours of arriving at 
one of our express hubs in the United States, a shipment 
destined for a foreign market has been sorted, loaded in a 
container along with hundreds of other shipments, and laden 
onto a plane. Also within that timeframe, the plane has 
departed for its foreign destination. If Customs retains the 
pre-departure requirement, it would cripple the export 
operations of the express industry and the thousands of 
American businesses who rely on us to deliver their products to 
overseas markets.
    Since we cannot use AES under its current structure, our 
only alternative is apparently to file paper SEDs. This would 
be a significant burden to the express industry, but it would 
actually be far more detrimental to Customs and Census. The 
express industry alone would file hundreds of thousands SEDs 
each month, overwhelming Customs' and Census' ability to 
process this information.
    If the current problems with AES cannot be fixed before 
December 31, 1999, we believe either of two options would be 
far superior to inundating Customs with paper SEDs: AERP could 
be extended beyond 1999, or Customs could develop an interface 
between AERP and AES. Under the latter approach, Customs would 
develop a translator that would incorporate into AES the data 
elements currently provided through AERP. In effect, this would 
enable the trade community to continue exporting under today's 
requirements. We urge Congress to direct Customs to take one of 
these two steps, rather than imposing a choice between AES and 
paper SEDs.
    Our experience with the Automated Manifest System (AMS) and 
Automated Manifest System Express Module (AMS-X) further 
illustrates our disappointment with Customs' automation 
efforts. Notwithstanding the fact that our members have 
invested almost $10 million in development of AMS over the past 
eight years, we are still unable to make widespread use of AMS. 
The system has difficulty reconciling trade data with 
transportation data, it cannot handle split manifest reporting 
(a frequent occurrence in our industry), and it is rejected by 
many USDA officials, who refuse to use it and thereby thwart 
the achievement of a paperless entry. In fact, AMS has done 
little to eliminate paperwork--as noted by the Air Transport 
Association, only one port currently allows paperless 
processing. In addition, AMS-X has been fraught with problems 
such as processing time and inexplicable data rejection.
    To invest as much money as we have in AMS and get so little 
from it is very troubling to ACCA members. We cannot afford to 
reap such a poor return--nor can Customs--from investments in 
other automation programs such as AES and ACE, which is why we 
believe greater oversight controls need to be imposed on 
Customs' automation efforts.
    Again, we believe that, before implementing a new slate of 
automation programs, including ACE, it is imperative that USCS 
first fix existing systems such as AMS-X. The Subcommittee's 
advisory for this hearing noted that ``Customs now states that 
the development and implementation of this new system, the 
Automated Commercial Environment, and the infrastructure needed 
to run this system will cost approximately $797 million over 
the next seven years.'' As we have not seen a business plan or 
itemized costs for ACE, we are unsure of how Customs arrived at 
this estimate.
    However, speaking on behalf of an industry that has 
invested millions of dollars in automation, I will say that 
this cost seems extraordinarily high. As for the 
Administration's proposal to increase the merchandise 
processing fee (MPF) and to dedicate the increased funds to 
modernization of Customs' automated commercial operations, 
including ACE: we cannot support this proposal at this time, 
given the absence of a coordinated workplan and budget for 
Customs' automation programs. Our experience in the private 
sector indicates that automation programs should be conducted 
under a fixed budget, with established milestones and careful 
oversight. We believe that Customs should be held to a more 
rigorous standard that will deliver usable automation programs 
within a reasonable time period. In addition, there must be 
meaningful industry input at every step of automation 
development. Once Customs issues a detailed workplan for its 
automation programs, the express industry will be happy to 
develop a position on the Administration's proposal.
    We would like to emphasize our belief that, in developing 
its workplan for ACE, Customs should be more innovative than in 
its previous automation endeavors. Customs needs to utilize 
technology that exists today and anticipate the key 
technological innovations of tomorrow, rather than relying on 
the now obsolete technology that existed when Customs first 
began developing ACE. In particular, Customs should not 
continue operating in a proprietary environment when 
appropriate use of the Internet could significantly reduce the 
cost of many automation programs to both Customs and the trade 
community.
    Let me emphasize that ACCA is fully committed to working 
with Customs to develop automated systems that enhance Customs' 
enforcement abilities while facilitating the flow of trade. We 
simply hope that Customs will alter its past approach to this 
issue and adopt a coherent, disciplined workplan for developing 
its automation programs that includes meaningful and frequent 
consultation with industry.

 The cost of reimbursables to the express industry has grown beyond a 
                            reasonable level

    Turning now to the issue of user fees, our industry is in a 
unique situation because we pay for dedicated Customs resources 
at our facilities. In order to obtain inspectional services 
whenever needed at our hub and express consignment facilities, 
the express industry agreed 11 years ago to pay 
``reimbursables'' to Customs. These fees are supposed to cover 
the costs to Customs of providing inspectors when needed. 
However, in recent years the cost of reimbursables has 
escalated well beyond what we envisioned, to the point where 
reimbursables have become a serious burden on the express 
industry. In fact, the industry has grown so much in the past 
11 years that today collections under the MPF from this 
industry would more than cover the cost of providing 
inspectional services when needed to the express operators. We 
should note, by the way, that the express industry's principal 
competitor, the U.S. Postal Service, pays no reimbursables.
    I am pleased to report that we have opened a dialogue with 
Customs to explore the inadequacies of the current 
reimbursables system. We thank Customs for its willingness to 
discuss alternatives, and we look forward to reaching a 
mutually agreeable solution. Ultimately, a resolution to this 
issue may require legislative action.
    In closing, I want to thank the Subcommittee for holding 
this hearing on a subject of great importance to American 
business. Mr. Chairman, thank you again for this opportunity to 
comment on the operations of the U.S. Customs Service and their 
impact on the express industry.
      

                                


    Chairman Crane. Thank you, Jim.
    Carol, why is an Industry Advisory Council needed for 
Customs COBRA user fees?
    Ms. Hallett. Mr. Chairman, we believe that the ability to 
work together with Customs has always been very good. However, 
the formation of an advisory committee and council is what will 
drive some of these problems forward expeditiously. I 
congratulate you for doing this. We believe that it is long 
overdue and that is why we are very optimistic that this will 
bring about some changes that are necessary. Some of the 
comments that we have heard this morning relating to the 
Internet, that is an example of an issue that could be 
discussed in this Subcommittee, along with the problem of 
finding support for keeping those inspectors in Canada.
    And so, this is something that we really congratulate you 
and Mr. Ramstad for bringing forth and we are most optimistic 
that this will become a reality.
    Chairman Crane. Thank you. What are your recommendations 
for the Automated Export System?
    Ms. Hallett. Well, as far as the whole AES issue is 
concerned, I would like to just go back to 1993 very briefly 
when the Mod Act passed for the second time because it was at 
that time that the Internet was really little known. Obviously 
now it is very popular with the trade. The Internet can and 
will have profound benefit on the impact and the way in which 
the cargo industry does business and, yet, we don't see any 
indication from Customs that the Internet will become a part of 
this system.
    We, the airline industry, have communicated forcefully that 
we believe the Internet should be a part of this system and it 
is important not only because of the link between hardware and 
software, but also the immediate access that it provides for 
information, not only to the trade, but to Customs as well. 
And, so, until that becomes a part of the current AES 
blueprint, I think that blueprint is flawed.
    The only other comment I would make is that the regulations 
under AES say that no export declaration is normally going to 
be required on any exports under $2,500. Now that means that 
Customs is going to depend on carriers for manifest data that 
they need for enforcement. But the problem with that is that 
most export data is actually captured after departure and so a 
compliance check is impractical under the system that they are 
currently doing and I think particularly that's the case in the 
express market field. So export reporting really does belong 
with the exporter and not with the air carrier. While some of 
my colleagues may not agree with that, I think it is very 
important to make that distinguishing point.
    And, Mr. Chairman, a lot of good work is being done, but 
until issues like the Internet are brought forth and made a 
part of this program, I do not believe it can be effective and 
it certainly is not going to be cost beneficial.
    Chairman Crane. And, finally, what additional activities or 
procedures should Customs take to facilitate traffic, both in 
U.S. airports and at preclearance locations without degrading 
its enforcement mission or placing the public at risk.
    Ms. Hallett. Well, there are two very exciting programs 
that are underway right now. One is being done in Los Angeles 
and it is a test that is called the Targeted Baggage Program. 
It is a law enforcement program in that it allows the same kind 
of profiling that is currently used for law enforcement 
purposes at Customs of people to be done with baggage. It will 
free up the Customs Service to actually devote their attention 
to certain bags, allowing the rest of them to go through coming 
in from the foreign port and ultimately going directly to the 
domestic port where the passenger will end his or her flight.
    That is a key enforcement as well as, obviously, a 
facilitation move that we are very supportive of. The other one 
is something similar that is being tested in Vancouver. Where, 
when a passenger comes in from an international port, they will 
actually not have to go through Customs in Canada, but will go 
through U.S. Customs. In other words, Canadian Customs would 
not have anything to do with that passenger who is going 
directly on to the United States and staying in a sterile area.
    We think this is, again, another example of good work that 
Customs is doing to provide more effective enforcement but also 
improve facilitation.
    Chairman Crane. Thank you. Mr. Nemmers, what do you think 
Customs needs to do to ensure that ACE is implemented on time 
and within budget?
    Mr. Nemmers. I think we're past implementing it on time. We 
expected it to be implemented this year or next. Now timing is 
as fast as possible. We believe Customs has the people and the 
knowledge and the capability to put together a good system. ACS 
was a good system, it wasn't elegant, but it worked. It has 
lasted for a long time, but it's aged and it is coming apart. 
What they need now are the resources to acquire the hardware, 
acquire the software, and the network that will connect this 
distributed environment. They need it quickly. They need the 
time to install, test, and operate before they open it up fully 
to the public.
    It is a discouraging situation. They need a great deal of 
money, according to their own documents, although we've never 
been able to get a good handle on what the numbers are. And 
there's no money in the pipeline so somewhere we need to get 
money that they can use to implement it.
    Chairman Crane. Mr. Bobeck, you indicated that sometimes 
Customs dual roles of trade facilitator and law enforcer can be 
in conflict. In what ways can Customs better integrate these 
roles?
    Mr. Bobeck. Again, Mr. Chairman, there are problems at the 
border today. In Canada you can cross the border 24 hours a day 
and with respect to my friends in the banking industry, 
essentially bankers' hours are observed at crossing points on 
the Mexican border. So if you are going to increase the efforts 
to enforce at the southern border, you need to increase the 
amount of time that trade can occur across that border. And, in 
fact, we think there possibly could be a savings to Customs if 
they did that because they would need fewer inspectors to 
handle the long, long lines because there wouldn't be long, 
long lines.
    We could better schedule how our shipments are made to 
account for the longer hours and, certainly, you would be able 
to handle the immigration issues better.
    Chairman Crane. Given the volume of business your members 
do across borders, you must be exposed to the whole range of 
Customs operations and from that perspective, what is your view 
of the overall strengths and weaknesses of Customs service 
performance for the NAFTA borders?
    Mr. Bobeck. It has improved greatly, but, again, trade has 
exploded on both borders, certainly for our industry. As I 
said, trade has increased by approximately 10 percent per year 
for our members, and for that rate of increase to be sustained 
certainly there have to be increases in the efficiency of 
Customs efforts at the border.
    And, let me say that the ACE funding question is so 
important to us because so much is tied to automating these 
processes and will create the kind of efficiencies we are 
talking about.
    There are really three things that are important for us to 
see long-term benefits from NCAP and from ACE. First of all, 
I'd like to say that we are very appreciative of the attention 
the previous Commissioner, Mr. Weiss, devoted to this issue, 
and we need to see that the interest is maintained at a very 
high level in Customs in terms of implementing this program.
    Second, as I said, our industry has had a very, very good 
dialog at the staff level, at the operations level, and at the 
implementation level to develop the NCAP prototype and, 
ultimately, the ACE system. That needs to continue. Again, we 
need to keep our eye on the ball and keep Customs eye on the 
ball.
    Finally, in terms of funding, we do not support an increase 
in the MPF because we do not believe that it is either 
appropriate or necessary. However, it is important that the 
funding stream continue. As we look down the road, this is a 
four-phase prototype that we expect to see the greatest benefit 
from toward the end of that phase. That may be, in fact, 1999, 
or even the year 2000. For us to even see that benefit, we need 
to keep this effort moving.
    Chairman Crane. Thank you. And, Mr. Schoof, do you live in 
Peoria?
    Mr. Schoof. Yes, I do. A lifelong resident.
    Chairman Crane. Lifelong?
    Mr. Schoof. Yes.
    Chairman Crane. All right, because I moved to Peoria in 
1963 and taught at Bradley until 1967 and, let's see, three of 
our eight children were born in Peoria.
    Mr. Schoof. Is that right?
    Chairman Crane. And we had a total of seven girls and one 
boy, who was a Peoria boy, which proves it plays in Peoria.
    Mr. Schoof. Right, it does. And it's still quite active, 
that's right.
    Chairman Crane. You indicated that industry has had little 
input into Customs automation developments. What would you 
specifically like to see in this regard and do you have any 
suggestions as to what Customs should do to facilitate industry 
involvement?
    Mr. Schoof. You know, I think Customs should be applauded 
for their efforts in their rewriting of the regulations and 
coming to the industry on compliance issues. They have been 
very vocal and very good and very open on that. But they have 
not been on the automation process and what they are writing 
it. We have a major concern of what they are doing is not, as 
we said, with the Internet, with what is going on today. You 
know, the computer systems, the systems today are so fast-
changing that even in industry, we have a hard time keeping up.
    And I think it should be a joint effort with Customs and 
industry to ensure that what they come up with and what they 
have is compatible with what is going on in industry. We've 
offered that to the Joint Industry Group on our automation 
Committee to sit down and review those options and be a partner 
in doing it. In the very same way that it was done in the past 
for the statute rewrite regulations--be an open forum and a 
partnership with industry.
    Chairman Crane. Let me ask you one final, personal, 
question. That is, does Caterpillar still take August off for 
vacation?
    Mr. Schoof. No.
    Chairman Crane. Oh.
    Mr. Schoof. It's still this year is the last year. It's 
July, the last 2 weeks in July, which the town shuts down.
    Chairman Crane. OK. Because I was going to say the whole 
town literally shuts down.
    Mr. Schoof. With our new union contract, that was left open 
and now the business units which we were organized into, say 
you're free to do it, we don't ever shut down. Believe, the 
town is empty the last 2 weeks in July.
    Chairman Crane. I should say so. Now, finally, Mr. Rogers, 
why is the issue of predeparture information in AES so 
important to your members?
    Mr. Rogers. We consolidate thousands of shipments daily in 
a very short timeframe, 1 to 3 hours, to load into large 
aircraft to go abroad. We cannot get all the data that you need 
for predeparture. We can get you the data after departure, we 
can return the merchandise before it leaves our custody at 
destination, but to try and give it to you before departure, 
strip that airplane, get into the container that has the 
package that you want to check, and then reload the airplane, 
creates real problems for a system that is trying to give just-
in-time delivery to points all over the world.
    Chairman Crane. How much money have ACCA members invested 
in automation related to Customs programs?
    Mr. Rogers. We have invested about $10 million in AMS in 
the last few years. Overall we have spent more than $30 million 
in the various Customs efforts.
    Chairman Crane. Well, folks, I want to thank you for your 
participation and, hopefully, the issues and the concerns that 
you referred to are ones that we can address with mutual 
cooperation between us and you and Customs, of course. And with 
that, I want to conclude this panel and invite our next panel 
to join us.
    Mr. Rogers. Thank you, Mr. Chairman.
    Chairman Crane. You're more than welcome, guys.
    Next panel, James Clawson, Karen Sager, Darcy Davidson, and 
William Stephenson. And if you folks will take seats, we will 
proceed in the order that I introduced you.
    We will start with Mr. Clawson.

  STATEMENT OF JAMES B. CLAWSON, CHIEF EXECUTIVE OFFICER, JBC 
   INTERNATIONAL; AND CHAIRMAN, INDUSTRY FUNCTIONAL ADVISORY 
                      COMMITTEE ON CUSTOMS

    Mr. Clawson. Thank you, Mr. Chairman, and once again it is 
a pleasure to be here. I want to start by asking that my 
written testimony be submitted for the record.
    Chairman Crane. Oh, yes, all of your written statements 
will be made a part of the permanent record and, if you can, 
please try to keep your oral presentation to 5 minutes.
    Mr. Clawson. Absolutely, and, in fact, I am going to 
deviate significantly from it here because what I want to start 
with is to thank you very much and the Subcommittee for your 
continued involvement, not only in having this hearing, but you 
and your staff for continuing to have the interest in Customs. 
I have been doing Customs issues for 25 years, and it is 
refreshing to see the kinds of involvement that you have and 
the interest that you are taking. It makes a difference.
    Chairman Crane. Thank you.
    Mr. Clawson. And particularly as tariffs are reducing, the 
nontariff barriers, the Customs kind of issues become real 
critical internationally. Most of what I do is exports and 
foreign Customs tariffs, but what U.S. Customs does leads the 
way for the world and this is of great interest to us.
    On that regard, I fully support your Crane-Ramstad 
initiative with regard to new positions in technology. I think 
that is exactly what's called for, innovative ways to use 
technology. We fully support your initiative and hope that it's 
successful and we'll do what we can to assist you in that.
    Customs has been doing a great job. You've been hearing 
mixed reviews, I think lots of good things are said. And I'm 
here to say that even though our testimony is critical in many 
areas, Customs is doing a great job. There's no question. In 
today's environment, with all of the problems that we have, 
they received in the Results Act, very high remarks. They have 
a good business plan and I would like to go on record to say 
that under the current circumstances, with all that they have 
to do, Customs is doing a very good job. Our biggest concern, 
Mr. Chairman, is what's going to happen in the future.
    And I think, for Customs to maintain this, they need the 
resources, they need the technology and, particularly, this 
automation plan that you've heard a lot about here today. The 
Mod Act was this Subcommittee's child, with a lot of effort 
from others. It isn't being implemented the way it should 
because the NCAP, the automation, is the key to it. A lot of 
other good things are there, but they are so reliant on that.
    Mr. Camp's discussion about the immigration. You heard 
Customs Sam Banks say that system is going to run on the same 
computer system. You know, how can they do that? How can we run 
everything on the same system? The AES Program is running on 
the same system. This system, in fact, will collapse unless 
something is done about it.
    And so, in a nutshell, my concern is that we address that 
need. Customs made some initiative, I was glad to hear the 
announcement today of a new head for the automation program. 
It's badly needed. They need a good plan and they need to be 
funded and it is our strong recommendation that that funding 
not come from an increase in the merchandise processing fee. We 
are opposed to that. I think what needs to happen is that the 
existing merchandise processing fee be earmarked for this need 
for whatever is required, the first $50 to $80 million in the 
first year, and then whatever it needs afterward to get this 
job done.
    The money is there. I realize it is being used for other 
kinds of things, but the money is there, from the users who are 
paying it. It is my view that to have an increase in taxes at 
this time doesn't make any sense at all. We just need a 
reallocation to a higher priority that is going to make the 
rest of this work. And if we don't do that, we're in for some 
real difficult problems over the next few years.
    Thank you. I'm happy to answer any questions that you may 
have.
    [The prepared statement follows:]

Statement of James B. Clawson, Chief Executive Officer, JBC 
International; and Chairman, Industry Functional Advisory Committee on 
Customs

    It is a pleasure to be here today and to have the 
opportunity to testify before the Subcommittee on Trade of the 
Committee on Ways and Means on issues relating to the US 
Customs Service. As CEO of JBC International and Chairman of 
the Industry Functional Advisory Committee on Customs, I 
closely monitor the activities of the US Customs Service.
    The Customs Service is the thin blue line protecting the 
world's largest economy from fraudulent and illegal imports and 
exports. It can also be the largest non-tariff trade barrier. 
Because of decreasing duty rates, Customs must accept the 
reality that it will never again collect more revenue than it 
will in 1998. Customs must therefore stop spending dollars to 
chase pennies and embrace a future in which the activities of 
interdicting illegal imports and facilitating legitimate 
imports complement one another. The only way Customs can 
achieve this goal is through increased automation and 
innovative use of technology.
    Mr. Chairman, we must remember that the preamble to the Mod 
Act trade facilitation provisions is the National Customs 
Automation Program, or N-CAP. The language, structure, and the 
spirit of the Mod Act follow upon the N-CAP. Yet, Mod Act 
implementation has failed because the automated engine on which 
it must run has failed in the design phase. N-CAP should not be 
built on a faulty design. Allow me to express the view that 
raising the merchandise processing fee to fund Customs 
automation, as with other funding sources, is not the key 
problem here. The real problems include a lack of commitment on 
the part of the Administration to Customs' automation, which 
has led to a lack of managerial commitment from Customs. The 
surplus of budgetary fallacies forthcoming from the 
Administration about how to finance Customs automation is 
matched by the dearth of ideas from Customs about how to design 
and implement modern automated systems.
    The Mod Act can not be implemented without the engine of 
the National Customs Automation Program. As my testimony will 
make clear, we have a solution: Customs should abandon its 
attempts to develop a monolithic mainframe automated system and 
run it instead on the Internet.

            Implementation of the Customs Modernization Act

    When the US Customs Service and US industry worked together 
with this Committee and Congress to pass the Customs 
Modernization Act (Mod Act), it ushered in a new partnership of 
shared responsibility between government and industry. The Mod 
Act represented significant milestones for both government and 
industry, including the end of centuries of Customs trying to 
``catch'' industry and industry fearing Customs. It was 
intended to create this era of shared compliance, with industry 
agreeing to a measure of responsibility for developing 
corporate controls to ensure compliance with Customs 
regulations. Customs agreed to modernize the methods by which 
it conducted business, and to move from a transaction by 
transaction method of merchandise clearance to a seamless 
automated system of account management.
    Customs and industry entered this era with high hopes for 
improving international trade flows and setting new records for 
enforcement compliance. Industry has accepted the 
responsibility for compliance by investing in new global 
automation systems. Major efforts are being made to keep 
informed about Customs rules and to ensure that those rules and 
regulations are followed. Many companies have participated in 
Customs compliance assessment audits including opening their 
systems and records for review and approval by Customs audit 
teams. The private sector is keeping up its end of the 
partnership agreement.
    On the other hand, we expected that the Mod Act would 
enable Customs to have the necessary automated systems to move 
from a transaction-by-transaction process to an account based, 
national remote entry system. The legal authority is in place 
but there is no such automated system. By Customs own 
estimation, it may be possible to implement such a system by 
the year 2004, at a cost of almost $1 billion. Customs' current 
automation system is over 14 years old--an antique by computer 
standards. By comparison, I am on my 5th computer system in 
that same time period, just to keep current in my business. By 
all accounts, the Customs system will begin to fail this year. 
With the Year 2000 problem, insufficient technical experts, 
insufficient planning and insufficient funding, I believe we 
are facing a crisis of epic proportions if we do not act 
quickly. In addition to no new automation, many of the 
regulatory changes necessary for Mod Act implementation are yet 
to be finalized. For example, the increase in the informal 
entry level directed by this Committee is still not 
implemented. Also, Customs has yet to implement a system for 
processing multiple entry changes. Each change must be directly 
related to the specific entry, a costly and unnecessary process 
for the government.
    In some areas, Customs has performed remarkably. It has 
implemented NAFTA and the most ambitious re-organization in 
Customs' history. It has embarked on an effort to keep the 
private sector informed of regulatory changes. The Mod Act 
brought about the most open and cooperative discussions about 
regulatory process in history. Management at senior levels is 
committed to this new Customs organization and process. 
Unfortunately, it seems that the National Treasury Employees 
Union and its members who provide the backbone for 
implementation of a re-engineered Customs Service are not 
similarly committed. Continuing transaction by transaction 
processing, maintaining outdated beliefs about company 
compliance, and refusing to accept new techniques for risk 
management continue to prevail.
    Customs enforcement at the borders for import and export 
can only improve by using high technology tools. Automation 
will free the customs inspector from his traditional role of 
examining import forms and documents for each and every 
shipment and provide that inspector more time to ``inspect.'' 
If we are to make any dent in the level of drugs and other 
contraband entering our country, we must free our agents and 
inspectors from routine administrative duties that can be 
performed by technology. By using risk assessment techniques, 
true random sampling, and efficient post-audit processes, the 
government can assure proper collection of revenues and 
statistics.

                        Customs Automation Plan

    The Customs Service is on a collision course with the 
Information Age. Customs, which is a critical part of the 
trading system, is not evolving along with its customers. 
Instead, it is tied to a traditional, proprietary, closed 
system that does not run on the Internet, has tightly 
circumscribed, dedicated links to other systems, and applies 
only to the US side of the transaction. The problem is not an 
unwillingness to change on the part of Customs. On the 
contrary, Customs management has repeatedly expressed the 
administration's determination to automate the customs process. 
The problem is that Customs cannot move fast enough to keep up 
with the evolution of electronic commerce technology in the 
private sector, much less close the gap that already exists 
between the two.
    In the private sector, trade information systems are 
evolving rapidly toward a unified, integrated, open-
architecture system in which data is exchanged on a common, 
Internet-based platform. This evolution will make it possible 
to move toward a new structure under which the Customs-trader 
interface is not managed by Customs, but is instead just 
another part of the larger, private information system. Under 
this structure, Customs would continue to define what data it 
needs, when it needs them, and how the data, once in Customs' 
hands, are to be used by the government to perform the critical 
governance functions of trade monitoring, revenue collection, 
enforcement, trade flow analysis, and so on. The International 
Trade Data System (ITDS) and G-7 efforts will help overcome the 
obstacle of defining the necessary data elements for trade-
related transactions. Customs would not dictate how the 
required data are to be generated and transmitted to it by the 
trade community. Instead, data formats and procedures would be 
set by the trade and electronic commerce community as just 
another part of trade data system development.
    By removing the requirement for Customs to manage primary 
data collection, reinvention of the Customs-user interface 
would enable Customs to expand and strengthen its other 
functions, including compliance monitoring, data analysis, and 
enforcement. Ultimately, Customs would begin to receive data on 
an upcoming shipment as soon as it enters the transportation 
system, whether from the manufacturer, the shipper, the 
forwarder, or an overseas customs system. The earlier 
availability of transaction data would enable Customs to 
improve targeting of potential contraband shipments, for 
example, and make it much harder for non-compliant shippers to 
submit different data to different users.
    The ``privatization'' of the Customs-user interface would 
result in a greatly reduced cost to the Government. Under the 
reinvented system, all commercially-available electronic 
commerce systems would be required to be ``Customs compliant,'' 
that is, to collect the data required by Customs and other 
federal agencies and to generate reports directly to these 
agencies in a standard format. The cost of Customs compliance 
would be built into the cost of the total system, and would 
therefore be included in the cost charged to the users by the 
software providers or other systems providers, rather than 
being borne by Customs. Customs would be required to 
reconfigure its systems to compile the data provided by the 
commercial systems into the form needed by Customs and its 
client agencies (e.g., Census for trade data), but the cost of 
doing so should be much less than the cost of keeping the whole 
system in-house.
    The shift to a systems user strategy offers a means of 
achieving immediate improvements in Customs support to the 
trade community, a way out of a potentially disastrous 
situation, and a path toward a much more cost-effective and 
powerful system for the future. True partnership with the 
private sector is the only way to build a Customs system that 
can keep up with the explosion of U.S. trade. Industry groups 
such as the International Electronic Trade Steering Committee 
stand ready to work with Treasury and Customs to achieve this 
vitally important goal.

           International Electronic Trade Steering Committee

    One year ago when it became apparent that Congress would 
not fund Customs' new automation requirements because of the 
lack of a detailed and acceptable plan, a segment of the US 
industry began to get impatient. Customs was unable to develop 
and articulate a plan, industry was bickering over automation 
priorities, and Congress halted appropriations for all new 
Customs automation programs. As a result, various industry 
representatives dedicated to automating trade transactions came 
together to form the International Electronic Trade Steering 
Committee.
    The original mission of the Steering Committee was to 
identify potentially successful electronic trade procedures 
currently used around the world. Based on the information 
gathered, an automation model acceptable to both industry and 
US government was identified. As the ideas of the Committee 
developed, the group began to realize that the focus of the 
group should be on solutions to the automation problems that so 
many other private sector automation committees had already 
expressed.
    The companies participating in this group are dedicating 
their time and money to automating trade transactions. The 
Committee believes the solution to the current automation 
problems begins with the development of a small part of the 
trade transaction documentation process as a demonstration of 
what will work. By creating a system with minimal features at 
the outset, testing and development can continue until it works 
comprehensively. Additionally, the Committee believes that the 
Internet is central to any automation effort. This 
Administration, the US Congress and US industry are committed 
to electronic commerce, as embodied in the Internet.
    Customs is proficient in collecting data from large 
companies, but has been unsuccessful in its search for an 
effective means of collecting that same information from small 
and medium sized enterprises (SMEs). Because of the low cost 
and easy access of the Internet platform, Customs will be able 
to reach SMEs without creating new programs specifically for 
SME use. All of this can be achieved using existing technology, 
including hardware, software, and security programs. The key 
technical challenge is the creation of a stable and secure 
integrator to connect private sector and government functions. 
Steering Committee members are dedicating resources (personnel, 
time and money) to solve this problem. We are still in the 
early stages but believe this will work.

                                Funding

    Obviously any enhanced electronic customs process requires 
significant funding. The current merchandise-processing fee 
(MPF) collects in excess of $800 million per year, more than 
enough to fund computer enhancements. The passage of the MPF 
was supported as a user fee, with the private sector importers 
and exporters as the ``users.'' There are a couple of points 
that I need to make about the failure of this tax to continue 
to be a ``user fee.''
     Under the terms of the NAFTA, that fee is to be 
eliminated for all NAFTA border transactions by next year. With 
Canada being our largest trading partner and Mexico right 
behind, a major portion of transactions will no longer be 
covered.
     The fee is collected ``by transaction'' therefore 
guaranteeing a disincentive to move to an account basis. A true 
``user fee'' would be used to improve efficiencies for the 
user, not protect inefficient systems and processes.
     By government cost accounting methods, the 
inspectors looking for drugs and contraband are included in the 
definition of ``commercial operations'' that are funded by the 
MPF.
    It is not my intention to debate the continued existence of 
the MPF. More importantly I wish to point out that the $800 
million is more than enough to cover the ``commercial 
transactions'' for which it is intended. That amount will cover 
funding of Customs automation into the 21st Century but it 
should be earmarked for the purpose for which it is paid--
merchandise processing. It is my recommendation that this 
Committee authorizes and directs that existing MPF revenues be 
earmarked and allocated as follows:
     $80 million beginning in FY 1999 each year for two 
years; and
     $250 million each year for the following three 
years to fund the necessary improvements to the Customs 
automated import and export systems.
    That funding authorization should be contingent on US 
Treasury and US Customs developing and articulating a plan for 
the approval of Congress and acceptance by the private sector. 
It should be pointed out that the current plan as developed by 
Customs with assistance from Cambridge Associates is 
inadequate.

              Shippers Export Declaration Penalties/Fines

    With the development of the Automated Export System and 
elimination of the Commerce Department Automated Export 
Reporting Program (AERP), US Customs has increased enforcement 
of the administration of collecting export statistical 
declarations. Department of Commerce regulations for Shipper's 
Export Declaration (SED) requirements (15CFR30.95) provide for 
a late or incorrect filing penalty of $1000 assessed on the 
shipper for each violation. The US Code (Title 13, Chapter 9, 
Section 305) further specifies that the Department of the 
Treasury (Customs Service) is responsible for collecting a 
penalty fee, also $1,000, from any ``carrier'' that does not 
provide the necessary carrier information on the SED. An 
extremely unfair situation has developed as a result of these 
regulations and their administration by the Commerce and 
Treasury Departments.
    The carriers must rely on the shipper/exporter to provide 
the merchandise information for the SEDs on time. If that 
information is incorrect, the Commerce Department is supposed 
to take action to collect the fine against the shipper. Because 
the system requires Commerce to request the Justice Department 
to file a civil penalty case against the shipper for the 
$1,000, only one case has been filed in many years. We are told 
that Justice has too many other ``more important'' issues than 
to go after companies for failure to provide accurate and 
timely statistical information.
    Customs on the other hand has authority to collect civil 
penalties without court action, but only from carriers who are 
bonded with customs. As a result of this situation, the 
Commerce Department has requested that Customs use its 
authority with the carriers to enforce collection of 
information from the shippers. Essentially, the burden is being 
shifted from the exporters to the carriers. Customs is 
currently assessing fines on carriers in the hundreds of 
thousands of dollars for non-compliance with the data 
requirements that are not the responsibility of the carriers. 
The regulations need to be changed. As part of the development 
of the Automated Export System we would like to work with this 
Committee to ensure that accurate statistical information is 
collected but that the party who is the source of that 
information is held responsible for its accurate and timely 
filing.

                               Conclusion

    While Customs is doing an adequate job--revenue and 
statistics are being collected, goods are being cleared, and 
contraband is being interdicted--much more can be done. Today's 
business technology requires Customs personnel to think 
``outside the box'' to process goods to meet ever-decreasing 
cycle times. Today, smugglers using that same technology 
require Customs personnel to think more inventively about 
effective ways to combat those smugglers. Senior management at 
Customs knows this but needs the tools to make it work. 
Bureaucratic and antiquated management systems, including union 
demands on coverage and levels of inspection operations, are 
thinking ``inside'' the box. Automation of the commercial 
merchandise transaction into periodic account based processing 
will alleviate many of these problems.
    Customs should be directed to develop a new automated 
commercial environment plan for the 21st Century. Based upon 
approval of that plan, this Committee should earmark $910 
million of the merchandise processing fee over the next five 
years to fund the necessary electronic commerce tools that will 
allow US business and industry to compete in our global 
economy.
      

                                


    Chairman Crane. Thank you, Mr. Clawson.
    Ms. Sager.

 STATEMENT OF KAREN SAGER, PRESIDENT, NATIONAL ASSOCIATION OF 
                      FOREIGN-TRADE ZONES

    Ms. Sager. Thank you, Mr. Chairman. On behalf of the 
National Association of Foreign-Trade Zones, thank you for the 
opportunity to present this statement. My name is Karen Sager. 
I am currently the president of the NAFTZ.
    The NAFTZ is a nonprofit trade association representing 
over 650 members. Today there are more than 200 approved zone 
projects located in 50 States and Puerto Rico. Zones are used 
by over 3,600 firms who employ more than 350,000 people. The 
total value of merchandise processed through foreign trade 
zones is approximately $200 billion annually.
    The NAFTZ publicly supported the Customs Mod Act in the 
firm belief that increased automation, reduction of repetitive 
paperwork, and the focus of Customs resources on informed 
compliance would result in a more effective Customs Service.
    We still believe this to be true. However, to date our 
expectations have not been fully realized. There are several 
issues relating to the Customs Service that are of vital 
concern to our members. My oral testimony will focus on one 
issue and briefly summarize two others.
    First, since 1990, the NAFTZ has sought extension of the 
foreign trade zone weekly entry procedure to nonmanufacturing 
zones. Section 637 of the Customs Mod Act amended 19 U.S.C. 
1484 to provide statutory support for expanding the weekly 
entry procedure.
    This procedure will allow all foreign trade zone users, 
meeting specific criteria set by Customs, to file one entry 
covering a 7-day consecutive period, instead of filing multiple 
Customs entries per day or per week for the same types of 
merchandise. In 1995, the NAFTZ filed written testimony with 
this Committee expressing our anticipation that the weekly 
entry procedure would be implemented in final form in the near 
future.
    Proposed regulations were finally published on March 14, 
1997, following the completion of a highly successful pilot 
program. Customs endorsed the procedure, stating that its 
principal purpose was to reduce the number of entries from 
zones and to expedite the processing of such entries. No 
negative comments were received.
    Port directors encouraged zones to apply for this procedure 
to alleviate the strain on Customs inspection resources.
    The NAFTZ once again felt confident that final regulations 
would be published in the near future. However, in October 1997 
the NAFTZ received a letter from the Acting Commissioner of 
Customs stating that substantial changes to the procedures were 
being considered by Customs because as currently structured 
there would be a potential loss in the collection of the 
merchandise processing fee due to the reduction in the number 
of entries processed.
    Given Customs own statement that this procedure is intended 
to reduce the number of entries from zones, it would seem 
logical that any reduction in MPF collected from zones would be 
accompanied by a reduction in Customs resources required to 
process these entries.
    We have been told that Customs cannot voluntarily process 
fewer entries if it means they will collect less revenue in the 
form of the MPF. In short, it seems that Customs believes they 
must retain operational inefficiencies for the sake of a user 
fee. Customs refuses to finalize this procedure as currently 
proposed and has stated that the highly successful pilot 
program in place since 1994 may be rescinded if the MPF issue 
is not resolved.
    It is unconscionable that a field-tested and proven 
effective procedure that would enhance a trade program designed 
to attract and retain jobs and investment in the United States 
and was provided for in the Mod Act is being held hostage by 
Customs concern with the collection of user fees.
    We need your help to encourage Customs to finalize proposed 
regulations as published in the Federal Register on March 14, 
1997.
    Second issue: The NAFTZ has been pursuing automation of the 
FTZ admission process since the early eighties. Last year, 
Congress directed Customs to automate this process. We are 
still waiting. Automation of the zone admission process will 
allow Customs inspectors to spend more time enforcing our trade 
laws and protecting our borders instead of acting as data entry 
clerks. Customs inspectors and other government agencies, such 
as the Census Bureau and the FDA, who rely on zone admission 
data, need and deserve this tool.
    Finally, there is some good news. Under the reorganization 
of the U.S. Customs Service, port directors were assigned the 
responsibility for all FTZ functions previously carried out by 
district directors. At that time, there was no adequate 
training for the port directors, until this year.
    A training program was developed and is taught jointly by 
the U.S. Customs Service and the NAFTZ, at our own expense. It 
has been well received and there is currently a waiting list of 
over 100 Customs employees who want this training. The 
partnership that led to this successful training program 
embodies the essence of informed compliance in the Mod Act. 
Customs is to be congratulated for their effort. We hope that 
you, Congress, recognize the importance of the continued 
funding of this, and other, important Customs training 
programs.
    In summary, we believe that expanded weekly entry, 
automation of the zone admission process, and continued Customs 
training embody the intent of the Mod Act and will contribute 
to the efficient commercial operations of Customs. Efficient 
commercial operations are vital if Customs is to effectively 
enforce our trade laws and protect our borders.
    Thank you for the opportunity to speak today. This is just 
a summary of our written testimony which has been submitted for 
the record. And I am also happy to answer any questions.
    [The prepared statement follows:]

Statement of Karen Sager, President, National Association of Foreign-
Trade Zones

    Mr. Chairman and Members of the Subcommittee:
    On behalf of the National Association of Foreign-Trade 
Zones (NAFTZ), thank you forthe opportunity to present this 
statement before the Subcommittee hearing on U.S. Customs 
Service issues. My name is Karen Sager. I am the President of 
the NAFTZ.
    The NAFTZ is a nonprofit trade association representing 
over 650 members, including grantees, operators, users and 
service providers of U.S. foreign-trade zones. Today there are 
more than 200 approved zone projects located in 50 states and 
Puerto Rico. The total value of merchandise received at 
foreign-trade zones annually is approximately $200 billion. The 
total value of merchandise exported from foreign-trade zones is 
over $17 billion. More than 3,600 firms utilize foreign-trade 
zones and employment at facilities operating under FTZ status 
exceeds 350,000. The NAFTZ provides education and leadership in 
the use of the FTZ program to generate U.S.-based economic 
activity by enhancing global competitiveness.
    In 1992, the NAFTZ publicly supported the passage of the 
Customs Modernization and Informed Compliance Act (``the Mod 
Act'') in the firm belief that increased automation, improved 
operational efficiencies through the reduction of repetitive 
paperwork and the focusing of Customs' resources on informed 
compliance, would result in a more effective Customs Service 
that could better serve the dual goals of facilitation of trade 
and improvement of interdiction and enforcement efforts. We 
still believe this to be true. However, to date, implementation 
of the provisions envisioned in the Mod Act have not met the 
expectations that were the basis for our support of the Act.
    There are three specific issues relating to the U.S. 
Customs Service that highlight our current dissatisfaction with 
the implementation of the Mod Act. They are of vital concern to 
our members and have a direct bearing on the subjects that are 
the focus of this hearing. The issues are:
    (1) Expanded Customs Weekly Entry Procedure for non-
manufacturing zones;
    (2) Automation of the FTZ admission process; and
    (3) Training of Customs personnel in FTZ procedures;

              (1) Expanded Customs Weekly Entry Procedure

    The NAFTZ has been pursuing U.S. Customs Service 
implementation of an extension of the weekly entry foreign-
trade zone procedure for non-manufacturing operations since 
1990. Title VI of the North American Free Trade Agreement 
Implementation Act (P.L. 103-182, 107 State. 2057), included 
the Customs Modernization Act, and was enacted on December 8, 
1993. Section 637 of the Customs Modernization Act amended 19 
U.S.C. 1484 concerning the entry of merchandise, by providing 
statutory support for expanding the weekly entry procedure.
    The implementation of this proposed revision in the current 
Customs regulations would extend the weekly entry procedure 
currently in effect for manufacturing zones to all zones 
including those which admit merchandise to a foreign-trade zone 
solely for the purpose of warehouse and distribution, providing 
they meet certain criteria established by the U.S. Customs 
Service.
    The criteria established by the U.S. Customs Service in the 
proposed regulations requires foreign-trade zone users to 
employ electronic entry filing and excludes weekly entry of 
restricted or quota status merchandise. In order to qualify, 
the particular zone operation must be fairly predictable, 
continuing and repetitive, and relatively fixed in variety by 
the type of merchandise and the nature of the business 
conducted at the site. The Port Director is provided discretion 
to utilize the weekly entry procedure in approving the 
application. Once approved, instead of filing multiple Customs 
entries per day or per week, this procedure allows foreign-
trade zone users to file one entry to cover a period of seven 
consecutive days. This procedure reduces paperwork and document 
processing by the U.S. Customs Service, minimizes the redundant 
use of the limited inspection resources for merchandise at 
Customs, and facilitates the movement of cargo through zones.
    In 1995, the NAFTZ filed written testimony with this 
Subcommittee expressing our anticipation that a long awaited 
weekly entry procedure would be implemented in final form in 
the near future. This assumption was based on initial reports 
that a pilot program extending weekly entry procedures to 
select non-manufacturing zones was an unqualified success--so 
much so that additional participants were being added upon 
request while proposed regulations to implement the procedure 
were prepared.
    Proposed regulations were finally published in the Federal 
Register on March 14, 1997. In the Background Information 
section of the proposed regulations, Customs made the following 
comments:
    ``Since its inception, there have been no major problems 
associated with the use of weekly entry. To this end, Customs 
believes it desirable to expand the use of the procedure by 
adding a weekly entry procedure to cover merchandise involved 
in activities other than manufacturing operations.''
    ``The principal purpose of the proposed weekly entry 
procedures, like the current weekly manufacturing entry 
procedure, as conducted in a fully paperless environment, is to 
reduce the number of entries from zones and further expedite 
the processing of such entries, with the added benefit that 
zone users would not have to delay their operations pending the 
acceptance of an entry and Customs examination of the subjects' 
merchandise.''
    ``A pilot program, implemented in September 1994, to test 
such an expanded weekly entry procedure at a selected number of 
zones/subzones has since been evaluated as a success.''
    Given the endorsement of the procedure in the proposed 
regulations by Customs itself, the fact that no negative 
comments pertinent to the procedure were received, and the fact 
that local Port Directors were encouraging zones to apply for 
this procedure to alleviate the strain on their inspection 
resources, the NAFTZ once again felt confident that final 
regulations would be published ``in the near future.'' However, 
in October 1997, rather than the publication of the final 
regulations, the NAFTZ received a letter from Acting 
Commissioner Sam Banks stating that Customs was considering 
significant changes to the procedure because, as currently 
structured with one Customs entry and one Customs release per 
seven day period, there would be a significant impact on the 
collection of the merchandise processing fee due to the 
reduction of the number of entries processed.
    It is our understanding that the merchandise processing fee 
is a fee that is based on service provided and is used to 
offset Customs' costs for commercial processing. Given Customs' 
own statement that this procedure would reduce the number of 
entries from zones and expedite the processing of such entries, 
it would seem logical that the reduction in the number of 
entries processed and the reduction of inspection resources 
dedicated to zones would justify any reduction in merchandise 
processing fees collected from zones. We have had several 
meetings with Customs and Treasury in an attempt to understand 
what facts or accounting data Customs is using to project the 
loss of revenue that might occur as a result of extending this 
procedure. We have been told that in fact there is no cost 
accounting system in place that could document that weekly 
entries from zones cost more to process than normal entries 
processed on a per shipment basis, and that Customs' 
estimations are based strictly on the fact that if they 
voluntarily collect fewer entries due to operational 
efficiencies, they will in turn collect less revenue in the 
form of the merchandise processing fee. We have also been told 
that unless we can identify a way to ensure that the amount of 
merchandise processing fee collected is not adversely affected 
by the reduction in the number of entries resulting from this 
procedure, that the extension of this procedure to non-
manufacturing zones cannot go forth and in fact may be 
rescinded for those who have been participating in the pilot 
program since 1994.
    We sympathize with Customs in so far as the merchandise 
processing fee, as currently structured, is a dis-incentive to 
their efforts to develop operational efficiencies through the 
reduction of the amount of paperwork processed in commercial 
operations. We firmly believe that a properly funded Customs 
Service is in the best interest of the communities where our 
zones are located and that we, as importers, should pay a 
reasonable fee based on service that is assessed across the 
importing community as a whole. However, we find it 
unconscionable that implementation of a field tested procedure 
which has proven to be effective and would enhance a trade 
program designed to attract and retain jobs and investment in 
the U.S., is being held hostage while Customs addresses its 
revenue collection concerns.
    The National Association of Foreign-Trade Zones seeks 
Congressional assistance in resolving this impasse so that 
final regulations and general implementation of this procedure 
can be achieved sometime sooner than the ``near future.''

              (2) Automation of the FTZ Admission Process

    The NAFTZ has been pursuing Customs automation of the FTZ 
admission process since the early 1980s. Today, the Customs 
Form (CF) 214 is the only Customs paper document used 
nationwide in large quantity, on a daily basis, that cannot be 
transmitted to Customs electronically.
    Because the CF 214 is a paper document, Customs personnel 
use valuable time acting as data entry clerks, manually typing 
all FTZ admission data into the Automated Commercial System 
(ACS). The entry of this FTZ admission information is critical 
in Customs' determination that merchandise is no longer moving 
in-bond under a carrier's liability and has arrived at the 
zone, thereby transferring the liability to the foreign-trade 
zone operator's bond. In reality, because the manual entry of 
data is not a priority in light of Customs' other enforcement 
or trade facilitation efforts, it is often delayed or 
forgotten, causing carriers and zone operators to appear out of 
compliance simply because Customs transactions have not been 
completed by Customs personnel. If the FTZ admission process 
were automated, all of this data could be transmitted 
electronically, eliminating Customs' manual entry requirements. 
In an environment of significant increases in international 
trade, coupled with a shrinking pool of resources, U.S. Customs 
Service personnel can and should be better utilized.
    Beyond the obvious operational inefficiencies this process 
engenders, other governmental agencies depend on the U.S. 
Customs Service for data collection relative to the admission 
of merchandise to zones. Principal among these is the U.S. 
Census Bureau which has encountered specific problems and 
voiced ongoing concerns associated with Customs' manual 
collection of FTZ admission data. In many instances, the U.S. 
Census Bureau is not receiving the timely and accurate data it 
needs from the Customs Service to fulfill its reporting 
responsibilities. The Food and Drug Administration (FDA) has 
also indicated a need for admission data to be transmitted 
electronically. Currently, FDA notification is tied to Customs 
entry which occurs when merchandise is removed from the zone. 
The FDA has been unable to link its notification requirement to 
the admission of FTZ merchandise because Customs has not been 
able to find the resources to automate this process.
    The National Association of Foreign-Trade Zones has 
requested the immediate automation of the FTZ admission process 
as part of the existing Automated Commercial System (ACS), or 
as an initial priority under the new Customs Automated 
Commercial Environment (ACE) system. As of December 1996, 
Customs projected that the automation of the FTZ admission 
procedure would be part of the fifth and final phase of ACE 
implementation. Customs' delay in automating the FTZ admission 
process is particularly disturbing in light of the fact that in 
each application for a new zone since the mid-1980s, Customs 
has required that zone applicants sign a statement committing 
the applicant to the electronic transmittal of data to the U.S. 
Customs Service once an interface has been developed by 
Customs. Under Customs' own implementation schedule, it is 
unlikely that the admission process, which involved $42.94 
billion in foreign status merchandise in Fiscal Year '96, will 
be automated in the next seven years. The NAFTZ supports 
legislation that was adopted by the Ways and Means Committee on 
October 9, 1997, the Miscellaneous Trade and Technical 
Corrections Act of 1997 (H.R. 2622), which would require U.S. 
Customs to automate the CF 214 by January 1, 1999. The 
Association urges Congress to enact this legislation.

          (3) Training of Customs Personnel in FTZ Procedures

    Under the reorganization of the U.S. Customs Service, Port 
Directors were given responsibility for all of the foreign-
trade zone functions formerly carried out by the District 
Directors of Customs. Port Directors have been facing these 
additional responsibilities with little or no training on 
specific trade programs, including the FTZ Program. At the same 
time that Port Directors are being challenged to make decisions 
without adequate training, Customs Headquarters staff has been 
reduced by one-third, with possible further reductions ahead in 
the future. This sequence of events has made it difficult, if 
not impossible, for Port Directors to receive timely responses 
to requests for internal advice on foreign-trade zone issues. 
As a result, foreign-trade zone users have experienced ad hoc 
decisionmaking by Customs personnel on a port-by-port basis. 
The effect of this decisionmaking is a lack of uniformity in 
Customs' administration of the foreign-trade zones program.
    To respond to this problem, the NAFTZ actively participated 
in a joint steering committee with Customs to develop training 
for Port personnel on FTZ issues. As a result of the efforts of 
the combined Customs and NAFTZ steering committee, two FTZ 
training modules have been developed which include lesson 
plans, overheads and practical training exercises to address 
the questions and concerns expressed by Customs' officers in a 
survey circulated in Spring 1997. These modules are presented 
jointly by Customs personnel and trade representatives over a 
three day period. This unique approach was implemented because 
one of the strongest enforcement tools available to local 
Customs officers is a thorough understanding of: 1) what is 
being done in the zones in their area; 2) who is responsible 
for that activity; and 3) how well does the zone operator 
understand his/her responsibility to be fully compliant with 
U.S. Customs regulations. This is our understanding of informed 
compliance as described in the Mod Act. The trade instructors 
provide a description of the business environment frequently 
found in zone operations and how Customs regulations are 
followed in that environment. Customs personnel detail what the 
Customs regulations are and how Customs regulations can be 
enforced within this environment in an effective way while 
still allowing the zone to achieve the economic goals of the 
FTZ program.
    This partnership approach has proven very effective in the 
three classes held to date in Ocala, FL; Houston, TX; and at 
the Customs Training Academy housed at the Federal Law 
Enforcement Training Center in Brunswick, GA. Three additional 
training sessions are scheduled for Champlain, NY; Norfolk, VA; 
and a second session at the Customs Training Academy. The 
``traveling training sessions,'' taught by a core group of 
instructors, were developed to provide access to the training 
for a wider range of Customs Port personnel at a minimal cost 
to the government. Due to the high demand for this training, 
eight additional training sessions have been scheduled for 
Fiscal Year '99.
    Training such as this is an important element for the 
improvement of any organization's operational efficiency. 
Training becomes particularly critical when an agency is 
undergoing a massive transition such as that being experienced 
by the U.S. Customs Service. We also know that, historically, 
training budgets are a prime target for reductions and 
elimination. The NAFTZ believes that the continued investment 
in staff training constitutes the only way the U.S. Customs 
Service will emerge from this transition as an agency that can 
perform all of its responsibilities effectively. The need for 
training will become increasingly important as a number of 
Customs officers with a long history of experience retire from 
the Customs Service.
    In order to ensure that this critical need is met, the 
NAFTZ urges Congress to appropriate adequate funds for the 
training of Customs personnel. It is only through the presence 
of well-trained, knowledgeable Customs officers, that the 
reorganization of the Customs Service to its full potential, as 
envisioned in the Mod Act, will be realized and the dual goals 
of trade facilitation and improvement of interdiction and 
enforcement efforts will be successfully achieved.
    Thank you for your consideration of these issues. I will be 
happy to answer any questions.
      

                                


    Chairman Crane. Thank you, Ms. Sager.
    Ms. Davidson.

  STATEMENT OF DARCY A. DAVIDSON, CUSTOMS COMPLIANCE MANAGER, 
                       LEVI STRAUSS & CO.

    Ms. Davidson. Thank you, Mr. Chairman. Levi Strauss & Co. 
appreciates the opportunity to express its views on Customs 
automation efforts and the need to fund the Automated 
Commercial Environment.
    My name is Darcy Davidson and I am Levi's customs 
compliance manager. Today I would like to briefly summarize the 
key points of our written statement which we have submitted to 
the Subcommittee for the record.
    Levi Strauss & Co. is the world's largest manufacturer of 
branded apparel, with $7 billion in annual sales from over 60 
countries. We are also the fourth largest importer of wearing 
apparel and textiles in the United States. With 30,000 
employees in our global operations, Levi Strauss is truly a 
major player in the international arena.
    Competition within that arena is increasingly favoring 
companies that can successfully depend on the quick and 
accurate sharing of information within their global supply 
chain.
    The U.S. Customs Service plays an integral role in our 
supply chain and the agency's efforts to modernize their own 
processes and systems will become important in our ability to 
remain competitive. The dual mission of the Customs Service, to 
simultaneously enforce and facilitate trade may seem 
dichotomous at first. It is our strongly held belief, however, 
that facilitation and enforcement are complimentary. That the 
effective facilitation of compliant trade is necessary to have 
effective enforcement of noncompliant trade.
    We at Levi's want to see the Customs Service facilitate 
imports like ours, which have been tested and proven compliant. 
Then we want them to leave us to our legal obligation under the 
Mod Act of maintaining that compliance, while they devote their 
energies to seeking out and punishing those importers who 
violate the laws.
    But if Customs facilitation processes falter, then our 
shipments are held unnecessarily, we face costly delays, which 
prevent us from filling our orders, and, ultimately, providing 
consumers with the products that they are looking for.
    If Customs enforcement processes falter, and commercial 
fraud and other violations are left undiscovered, then the 
investment that we have made to ensure that our own practices 
are compliant will not be transformed into any tangible 
benefit.
    The Customs Modernization Act was designed and supported by 
the trade to enable the agency to conduct that difficult act of 
balancing enforcement and facilitation. And the Mod Act was 
passed with the understanding that any efforts to modernize the 
U.S. Customs Service must rely on a comprehensive system of 
automated support. Without automation, very few, if any, of the 
new processes that the Mod Act mandates, can be supported.
    This is particularly distressing to Levi Strauss & Co., 
because we have used the Mod Act as a blueprint for the 
redesign of our own Customs compliance department and its 
automated support systems. Our import processes, and our 
accompanying automation, are based in large part on what we 
felt Customs would do in implementing the Mod Act.
    We believe that Customs has made a concerted effort to keep 
the trade informed of their actions and plans. ACE is being 
built with an already established understanding of the needs of 
the trade. Levi Strauss & Co. has made it a particular priority 
to stay involved in these discussions because the partnership 
between our company and U.S. Customs is very real and very 
important.
    Now, however, we find ourselves in a situation where the 
advancements which are possible within that partnership and 
upon which we have been planning are threatened. Without access 
to a regular source of funding, it will be impossible for 
Customs to plan for and to finalize the construction of ACE. 
Without ACE, the Mod Act and the important changes mandated by 
it become impossible to support. Without those changes, the 
competitiveness of Levi Strauss and other compliant companies 
like it could be eroded. We do not believe compliance and 
competitiveness should be mutually exclusive.
    With that in mind, we urge you to find a way to ensure that 
the important work Customs has done so far in designing and 
developing comprehensive automated support for the Mod Act does 
not have to be abandoned.
    Mr. Chairman, I would like to thank you again for allowing 
me the opportunity to speak before you. This is an important 
issue for Levi Strauss and for the importing community as a 
whole. We are confident that you will recognize that continued 
and consistent funding of the ACE project is essential and we 
look forward to continuing our partnership with the Customs 
Service so that we can have an end product that meets the need 
of the trade and the government as well.
    Thank you very much and I am happy to make myself available 
for questions.
    [The prepared statement follows:]

Statement of Darcy A. Davidson, Customs Compliance Manager, Levi 
Strauss & Co.

    My name is Darcy Davidson. I am the Customs Compliance 
Manager for Levi Strauss & Co. Thank you for the opportunity to 
appear before the Subcommittee in support of continuing to fund 
Customs' automation efforts.
    Levi Strauss & Co. is the world's largest manufacturer of 
branded apparel, with 7 billion dollars in annual sales from 
over 60 countries. We are also the fourth largest importer of 
wearing apparel and textiles in the United States. With 30,000 
employees in our global operations, Levi Strauss & Co. is truly 
a ``major player'' in the international trade arena.
    Competition within that arena is increasingly favoring 
companies that can successfully adapt to an ever-changing 
marketplace, yet still plan operations around reliable 
forecasts. This requires the ability to depend on the quick and 
accurate sharing of information within their global supply 
chains. Communication between planners, producers, shippers, 
and sales forces must be regular and instantaneous. At Levi 
Strauss & Co., we are addressing that challenge by automating 
as much of that communication as possible.

                  Both roles of Customs are important

    The dual mission of the U.S. Customs Service, to 
simultaneously enforce and facilitate trade, may seem 
dichotomous at first. Yet both facilitation and enforcement of 
laws and regulations to protect fair and compliant import 
practices are critical to our bottom line. It is our strongly 
held belief, in fact, that facilitation and enforcement are 
complimentary; that the effective facilitation of compliant 
trade is necessary to have effective enforcement of non-
compliant trade. If Customs cannot accomplish either part of 
its mission, that ineffectiveness damages the industry.
    Customs plays an integral role in our supply chain, and the 
agency's efforts to modernize their own processes and systems 
will become important in our ability to maintain competitive 
advantage. The import practices of Levi Strauss & Co. have been 
tested by Customs and proven to be compliant. We want to see 
the agency facilitate our imports by populating an ``account'' 
structure with information about us and our processes. Then we 
want them to leave us to our legal obligation of maintaining 
those compliant practices, while they devote their energies to 
seeking out and punishing those importers who violate our 
trademarks and commit the commercial fraud which damages our 
competitive position.
    If Customs' facilitation processes falter, our shipments 
are held unnecessarily, and we face costly delays which prevent 
us from filling our orders and ultimately providing the 
consumer with the product they are looking for. If Customs' 
enforcement processes falter and commercial fraud or other 
violations are left undiscovered, then the investment that Levi 
Strauss & Co. has made to ensure that our own practices are 
compliant, will not be transformed into any tangible benefit.

                 Successful automated systems are vital

    The Customs Modernization Act was designed, and supported 
by the trade, to enable the agency to conduct that difficult 
act of balancing enforcement and facilitation. And the Mod Act 
was passed with the understanding that any effort to modernize 
the U.S. Customs Service must rely on a comprehensive system of 
automated support. Without automation, very few (if any) of the 
innovative new processes that the Mod Act promises can be 
supported.
    This is particularly distressing to Levi Strauss & Co., 
because we used the Mod Act as a blue print for the redesign of 
our Customs Compliance Department and its support systems. We 
availed ourselves of every opportunity to work with Customs on 
their proposed direction. Our import processes, and our 
accompanying automation efforts, are based in large part on 
what we felt Customs would do in implementing the Mod Act. 
Account-based processing, paperless entries, annual activity 
statements and reconciliations, periodic duty payments, etc., 
are all processes which we have designed our systems to adapt 
to, and which the Mod Act puts forward as the only viable way 
for Customs to effectively maintain its position as the 
administrating agency for import and export laws and 
activities.

                      The trade has been consulted

    The extent to which Customs worked with its partners in the 
importing community to re-design its business processes is well 
known. What is not so well-known is that those business 
processes, based on the stated and confirmed needs of all of 
Customs' customers, actually form the structure which the 
agency's automated efforts are designed to support. The 
Automated Commercial Environment (ACE) is being built with an 
already established understanding of the needs of the trade.
    We believe that Customs has made a concerted effort to keep 
the trade informed of their actions and plans. For example, 
Customs holds several regular meetings to discuss technical 
details and to give progress reports on the status of ACE and 
the important issues associated with it. The Trade Support 
Network is one such meeting, where Customs gathers a 
representative group from the trade (over 50 members of the 
importing community) to share information and gather feedback. 
Another more direct example, is the monthly NCAP participant 
meetings, where Customs managers and employees of the companies 
participating in the NCAP Prototype meet on a monthly basis and 
discuss technical design issues, sometimes down to a level of 
detail which includes negotiations on message formats for EDI 
transmissions. Finally, Customs holds public meetings where 
many of the Mod Act driven processes and their supporting 
automated systems are discussed.
    Levi Strauss and Co. has made it a priority to stay 
involved in these types of discussions because the partnership 
between our company and U.S. Customs is another area where we 
can realize competitive advantage. We see this partnership as a 
real opportunity to understand and influence the processes and 
policies that effect our shipment and delivery schedules, our 
trademark protection efforts, and finally the actual cost of 
importing via special trade programs such as 9802 (807). 
Customs has made these opportunities available to most 
companies that are interested.

                    The necessity of regular funding

    Now, however, we find ourselves in a situation where the 
advancements which are possible within that partnership, and 
upon which we have been planning, are threatened. Without 
access to a regular source of funding, it will be impossible 
for Customs to plan for and finalize the construction of the 
Automated Commercial Environment. Without ACE, the Mod Act and 
the important changes mandated by it become impossible to 
support. Without those changes, the competitiveness of Levi 
Strauss and other compliant companies like it could be eroded. 
We do not believe that compliance and competitiveness should be 
mutually exclusive.
    We urge you to find a way to ensure that the important work 
Customs has done so far in designing and developing 
comprehensive automated support for the Mod Act does not have 
to be abandoned. Customs' current computer system is over 10 
years old, and the probability that it will collapse under the 
weight of increased international trade is very nearly a 
certainty. The agency simply must be allowed to complete and 
implement this entire project.
    Mr. Chairman, I would like to thank you again for allowing 
me the opportunity to speak before your Committee. This is an 
important issue for Levi Strauss and Co., and for the importing 
community as a whole. We are confident that you will recognize 
that continued and consistent funding of the ACE project is 
essential, and we look forward to continuing our partnership 
with the Customs Service so that we can have an end product 
that meets the needs of the trade and the government as well.
    Thank You.
      

                                


    Chairman Crane. Thank you, Ms. Davidson.
    Mr. Stephenson, are you a native of Phoenix?
    Mr. Stephenson. That's correct, sir.
    Chairman Crane. You've always lived there.
    Mr. Stephenson. No, I've lived everywhere; my dad was in 
the Air Force.
    Chairman Crane. Oh, OK, because we have a daughter who has 
been down in Scottsdale since last year and she said they call 
Scottsdale ``Little Chicago.'' I also was surprised to learn 
that a suburb of Phoenix is Peoria.
    Mr. Stephenson. That is correct.
    Chairman Crane. And I check the obituary page every day and 
out of 50, you can find maybe 4 or 5 native Arizonians.
    Mr. Stephenson. There are very few left. I'm knocking on 
wood here.
    Chairman Crane. A lovely area, though. You may proceed, 
sir.

 STATEMENT OF WILLIAM STEPHENSON, MEMBER, BOARD OF DIRECTORS, 
 BORDER TRADE ALLIANCE; ACCOMPANIED BY STEPHEN GIBSON, MEMBER, 
     BOARD OF DIRECTORS AND CHAIR, INFRASTRUCTURE COMMITTEE

    Mr. Stephenson. Thank you, sir. Mr. Chairman, I'm Bill 
Stephenson, past chair and board member of the Border Trade 
Alliance. I'm accompanied by Stephen Gibson, who is also on our 
board and chairman of the infrastructure Committee of the BTA.
    The Border Trade Alliance is a grassroots organization 
which was founded in 1986 as a group of individuals, entities, 
and businesses which conduct legitimate cross-border business. 
As such, we have a unique perspective on North America 
relations. We thank the Subcommittee for the opportunity to 
again appear before it and testify about issues with which we 
deal each and every day.
    Our members want to see the scourge of drugs stopped. It is 
destroying our neighborhoods throughout the country. We, 
perhaps more so than others, appreciate how difficult a problem 
drugs have become for this country. However, when issues 
surround stopping the flow of drugs arise, it is important not 
to forget that efforts are also needed to enhance our 
educational systems and to promote strong social foundations 
which will decrease the demand for illegal narcotics.
    The BTA is an active participant with the U.S. Customs 
Service and the U.S.-Mexico Chamber of Commerce in the Business 
Anti-Smuggling Coalition, BASC, a private sector driven 
initiative to help stem the flow of drugs. Permit us to comment 
on some current Customs interdiction programs. Operation Brass 
Ring has caused some disruption to trade along the Southwest 
border, but has not severely interrupted trade. Nonetheless, 
our concern is that the focus of Brass Ring has been on 
commercial vehicles. Our experience tells us that a vast 
majority of the drugs coming into the United States do so not 
in commercial vehicles but rather in passenger vehicles, 
through the air, and seaports between the ports of entry. 
Therefore, we applaud Customs efforts to expand Operation Brass 
Ring to such nonborder ports as New York, Miami, and Los 
Angeles.
    An additional effort that could improve interdiction and 
inspection efforts is uniformity of inspection rates. We were 
surprised to learn of the wide disparity in inspection rates 
along the border ports. In 1997 at Brownsville, Texas, nearly 8 
percent of the loaded containers were examined, but in Roma, 
Texas, the rate was 75 percent. In El Paso, Texas, the rate of 
inspection was almost 21 percent, but in Otay Mesa, California, 
the rate was only 3.92 percent. It was 8 percent in Nogales, 
Arizona; 14 percent in Del Rio, Texas; 10.75 percent in Eagle 
Pass, Texas; but only 1.5 percent in Calexico, California.
    In our opinion, the biggest asset Customs has is 
unpredictability. If the inspection rates differ so markedly 
from one port to another, such a practice invites port 
shopping. It simply allows dishonest traders to lower the 
likelihood of inspection by picking a port where the inspection 
rates are lowest.
    Another step we think would enhance interdiction efforts 
would be uniformity of staffing. By this we mean that similarly 
situated ports--that is, size, layout, types, and volumes of 
cargo--should have similar rules about hours of operation and 
number of inspectors required to open and staff a lane. We 
recognize such a goal requires national standards in the labor 
contract between Customs and the National Treasury Employees 
Union. We urge Customs management to seek such standards.
    Likewise, port shopping is encouraged by the absence of 
uniform program development and management. For example, there 
is the disparity in application and use of line release and 
border cargo selectivity. Line release has become the subject 
of much derision. It was originally intended to allow the quick 
release of high-volume, low-risk cargo. However, at certain 
points along the border, the Border Cargo Selectivity Program 
has not developed as quickly nor is it as accessible as line 
release. Therefore, one program is favored at one section of 
the border and the other program is favored elsewhere. We think 
programs should be equally available and accessible at each 
port of entry.
    We also recommend that Customs develop baseline staffing 
levels. As Members of the Subcommittee know all too well, what 
often happens is additional staffing is allotted to a port but, 
in reality, those additional positions simply fill ones vacated 
by retirements or relocation and, thus, the net gain in staff 
is lower than intended.
    We think additional positions should provide just that--
additional people filling new positions.
    We also actively support Senator Gramm's proposals 
regarding an increase in funding for staffing and equipment for 
Customs and INS with a goal of no more than a 20-minute wait at 
a border crossing.
    And we have just reviewed your proposal, Mr. Chairman, and 
want to go on record in full support of it also.
    In the end, we recognize that good law enforcement comes 
from the cop on the beat who relates to his community and its 
needs. Therefore, we urge that this Subcommittee continue to 
seek ways to eliminate or, at least, minimize needless 
competition between agencies which seems more budget driven 
than mission driven.
    Thank you, sir.
    [The prepared statement follows:]

Statement of William Stephenson, Member, Board of Directors, Border 
Trade Alliance

    The Border Trade Alliance (BTA) is a grass-roots 
organization which was founded in 1986 as a group of 
individuals, entities and businesses which conduct legitimate 
cross-border business. As such, we have a unique perspective on 
North America relations. We thank the Committee for the 
opportunity to again appear before it and testify about issues 
with which we deal each and every day.
    Our members want to see the scourge of drugs stopped. It is 
destroying our neighborhoods throughout the country. We, 
perhaps more so than others, appreciate how difficult a problem 
drugs have become for this country. However, when issues 
surrounding stopping the flow of drugs arise, it is important 
not to forget that efforts are also needed to enhance our 
educational system and to promote strong social foundations, 
which will help decrease the demand for illegal narcotics.
    The BTA is an active participant with the U.S. Customs 
Service in the Business Anti-Smuggling Coalition (BASC), a 
private sector driven initiative to help stem the flow of 
drugs. Permit us to comment on some current customs 
interdiction programs. Operation Brass Ring has caused some 
disruption to trade along the Southwest border, but has not 
severely interrupted trade. Nonetheless, our concern is that 
the focus of Brass Ring has been on commercial vehicles. Our 
experience tells us that a vast majority of the drugs coming 
into the U.S. do so not in commercial vehicles but rather in 
passenger vehicles, through the air and seaports and between 
the ports of entry. Therefore, we applaud Customs' efforts to 
expand Operation Brass Ring to such non-border ports as New 
York, Miami and Los Angeles.
    An additional effort that could improve interdiction and 
inspection efforts is uniformity of inspection rates. We were 
surprised to learn of the wide disparity in inspection rates 
among the border ports. In 1997 at Brownsville, Texas 7.8% of 
the loaded containers were examined but in Roma, Texas, the 
rate was 75.61%. In El Paso, Texas the rate of inspection was 
20.89% but in Otay Mesa, California the rate was only 3.92%. It 
was 7.95% in Nogales, Arizona, 14.35% in Del Rio, Texas, 10.75% 
in Eagle Pass, Texas but only 1.54% in Calexico, California. In 
our opinion the biggest asset Customs has is unpredictability. 
If the inspection rates differ so markedly from one port to 
another, such a practice invites port shopping. It simply 
allows dishonest traders to lower the likelihood of inspection 
by picking a port where the inspection rates are lowest.
    Another step we think would enhance interdiction efforts 
would be uniformity of staffing. By this we mean that similarly 
situated ports (e.g.: size, layout and types and volumes of 
cargo, etc.) should have similar rules about hours of operation 
and number of inspectors required to open and staff a lane. We 
recognize such a goal requires national standards in the labor 
contract between Customs and the National Treasury Employees 
Union. We urge Customs' management to seek such standards.
    Likewise, port shopping is encouraged by the absence of 
uniform program development and management. For example, there 
is the disparity in application and use of line release and 
Border Cargo Selectivity. Line release has become the subject 
of much derision. It was originally intended to allow the quick 
release of high-volume, low-risk cargo. However, at certain 
points along the border, the Border Cargo Selectivity Program 
has not developed as quickly nor is it as accessible as line 
release. Therefore, one program is favored at one section of 
the border and another program is favored elsewhere. We think 
programs should be equally available and accessible at each 
port of entry.
    We also recommend that Customs develop baseline-staffing 
levels. As Members of this Committee know all to well, what 
often happens is additional staffing is allotted to a port but, 
in reality, those additional positions simply fill ones vacated 
by retirements or relocation and thus the net gain in staff is 
lower than intended. We think additional positions should 
provide just that--additional people filling new positions.
    We also actively support Senator Gramm's proposls regarding 
an increase in funding for staffing and equipment for Customs 
and INS with the goal of no more than a 20-minute wait at a 
border crossing.
    In the end, we recognize that good law enforcement comes 
from the cop on the beat who relates to his community and its 
needs. Therefore, we urge that this Committee continue to seek 
ways to eliminate or, at least minimize needless competition 
between agencies which seems more budget driven than mission 
driven. Our members do not want their cargo and people at risk 
from the drug cartels. To that end, we held our quarterly 
meeting in D.C. earlier this week and included a presentation 
by a panel of federal government experts informing our members 
about how to avoid having their goods and people being dragged 
into illegal activity.
    Finally, we would reiterate an obvious point--drug 
interdiction is an issue at both the Northern and Southern 
borders. The recent statistics coming from the U.S.-Canada 
border regarding marijuana seizures are alarming. Therefore, we 
must ensure that the dialogue continues between the business 
sector and the federal agencies charged with interdiction at 
all ports of entry in the U.S.
    Thank you for allowing us to make these comments and would 
be happy to answer any questions you may have.
    Again, thanks.
      

                                


    Chairman Crane. Mr. Clawson, it's encouraging to see 
private-sector initiatives like the International Electronic 
Trade Steering Committee. What suggestions and advice has this 
group submitted to Customs?
    Mr. Clawson. Thank you very much. Yes, this is an 
interesting one, because it follows with what former 
Commissioner Hallett was talking about. What we are doing has 
the blessing of Customs in a sense--they can't endorse it 
because they don't yet know all the details. We are trying to 
develop an Internet-based integrator that the private sector 
would use that, in fact, would create the ability to migrate 
the required information from the private sector anywhere, 
small, medium-sized, large companies, to Customs as needed.
    So, instead of the large monolithic communications computer 
system that Customs would need to require everybody to hook up 
to, you would use the Internet as the integrator to provide the 
information to and from the Customs Service internationally. 
It's not just the United States, it would be done 
internationally.
    So that is our vision. We actually have a proposal in the 
works that we are developing as an innovative technology 
initiative. There are a lot of issues such as encryption that 
we are trying to deal with, but we've been trying to use a lot 
of off-the-shelf products so it won't be real expensive and it 
will be in the public domain. So, it's a private-sector answer 
to what has been a thorny problem for the Customs Service.
    Chairman Crane. Indeed. Well, keep up the good work.
    Ms. Sager, with regard to the processing of weekly entries, 
what do you see as the biggest obstacle to Customs being able 
to implement this for all FTZs?
    Ms. Sager. Their belief that zones who process one entry, 
with one release requiring only one inspection, if any, needs 
to collect revenue as if five separate entries were being 
processed. That, quite frankly, is their entire opposition to 
this procedure; they are for it operationally, procedurally, 
but they cannot get past the fact that for a single entry, they 
feel they should collect five times the amount due.
    Chairman Crane. And, Ms. Davidson, what specific 
suggestions do you have for improving the implementation of the 
Mod Act and what roles do you see for Customs, this 
Subcommittee, and the private sector?
    Ms. Davidson. Well, in terms of suggestions for 
implementing the Mod Act, I personally believe that Customs 
has, in fact, done quite a bit more of the actual design work 
than maybe everyone else is aware and I think they just need to 
be left to get on to implement it.
    In terms of cooperation between the trade and this 
Subcommittee and the Customs Service, I think the biggest 
hurdle again is to ensure predictable funding, so not only can 
they plan out through the year 2005, but then they can each 
year go ahead and implement each stage of the Automated 
Commercial Environment.
    Chairman Crane. And Mr. Stephenson, you stated that 
Operation Brass Ring was focused on commercial vehicles, 
whereas your experience suggests that most drugs are actually 
smuggled in other ways.
    Do you think Operation Brass Ring should be modified in 
this regard and what other ways could Customs improve its 
interdiction efforts?
    Mr. Stephenson. I think it's a matter of implementation, 
sir. I think that more emphasis needs to be placed uniformly 
along the border to interdict more private vehicles, to look at 
them harder, and maybe less attention paid to the commercial 
vehicles, and also, in between the ports as Customs is doing, 
and that should be increased also. And, at major ports, not 
along the border; as I mentioned, New York, and Miami, and 
other ports like that.
    Chairman Crane. Well, you recited those particular 
percentages in various ports of inspection, doesn't that 
conform to your recommendation for unpredictability?
    Mr. Stephenson. Yes, it does, very much so.
    Chairman Crane. Unless they monitor it all and know that 
1.6 percent----
    Mr. Stephenson. Got to try and keep one step ahead, I 
think.
    Chairman Crane. What could Customs do to enhance the 
unpredictability of its inspector activities?
    Mr. Stephenson. Well, I think if the person who is trying 
to do something illegal, looks and knows that there is 
uniformity, that the likelihood of inspection is just as great 
in Brownsville as it is in Nogales, it will make it much more 
difficult for them to shop, and I think, then, they are going 
to try other ways instead of trying to go through the borders 
that have the least amount of inspections or the least amount 
of hard looks. They may want to try to figure other ways to do 
it.
    Steve, do you have anything to add to that?
    Mr. Gibson. I think, Mr. Chairman, the Border Trade 
Alliance supports Customs idea of occasional blitzes along the 
border which are truly unpredictable and that has been part of 
Operation Brass Ring and I think is a very successful 
implementation of the concept of unpredictability. Our position 
is, as Mr. Stephenson stated, that we would like to see Brass 
Ring expanded to other areas, other ports of entry, as well as 
enhancing the work of the Border Patrol and other organizations 
between the ports of entry.
    But unpredictability in the sense of a blitz technology is 
a very effective way of coming in and interrupting the flow, 
not just of narcotics, but of other illegal and illicit 
substances.
    Chairman Crane. Well, we appreciate your input always and 
look forward to a continuing relationship with all of you. 
Please, keep the input flowing here because it's a major 
problem and, we're all working together. God willing, we shall 
prevail in reining in many of these problems that, thus far, 
have been virtually impossible to control.
    And with that, I will let you folks be released for lunch, 
and our next witness is Dennis Schindel, Assistant Inspector 
General for Audit, U.S. Department of the Treasury.
    Mr. Schindel, your written statement will be made a part of 
the permanent record and if you can, please try and compress 
your oral presentation in the neighborhood of 5 minutes.

 STATEMENT OF DENNIS SCHINDEL, ASSISTANT INSPECTOR GENERAL FOR 
  AUDIT, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF THE 
  TREASURY; ACCOMPANIED BY ROBERTA RICKEY, REGIONAL INSPECTOR 
 GENERAL FOR AUDIT, CHICAGO, ILLINOIS; AND BENNY LEE, REGIONAL 
     INSPECTOR GENERAL FOR AUDIT, SAN FRANCISCO, CALIFORNIA

    Mr. Schindel. Thank you, sir.
    Chairman Crane. Thank you.
    Mr. Schindel. Mr. Chairman, I am pleased to appear before 
you today to discuss an audit that we conducted of the U.S. 
Customs Officer Pay Reform Amendments, which I'll refer to as 
COPRA. With me today are Roberta Rickey, who is setting up the 
charts, our Regional Inspector General for Audit in our Chicago 
office, whose staff conducted this audit, and, to my right, 
Benny Lee who is the Regional Inspector General in our San 
Francisco office, whose staff has performed a number of audits 
on other Customs issues that have been the topics of discussion 
today.
    COPRA was passed as part of the Omnibus Budget 
Reconciliation Act of 1993. It took effect January 1, 1994. 
This act created a new and exclusive overtime compensation and 
premium pay system for Customs officers performing inspectional 
services. The intent behind COPRA legislation was to more 
closely match earnings to hours worked. House Report 103-111, 
which was dated May 23, 1993, estimated that COPRA changes 
would result in overtime savings of $12 million, both in fiscal 
years 1994 and 1995, with total savings through fiscal year 
1998 of $52 million.
    After we initiated our audit, what we found when we got 
behind the numbers was that the premium pay expenses for 
Customs, specifically the night work differential pay, had 
substantially increased, so much so that, instead of a 
significant reduction in Customs overtime costs as COPRA was 
anticipated to provide, costs increased when both overtime and 
premium pay were added up.
    Clearly, this was not the expected result when COPRA was 
passed in 1993. The first chart we have up there shows some of 
the detailed numbers of what we found.
    [The chart follows:]
    [GRAPHIC] [TIFF OMITTED] T4189.001
    
      

                                


    Mr. Schindel. On the left bar, you see that in fiscal year 
1993, which was the last full year under the prior pay 
legislation, which is commonly known as the 1911 Act, overtime, 
Customs overtime costs, including shift differentials, was 
$99.2 million. Of this, $51,000 was due to night shift 
differentials.
    Looking at fiscal year 1995, the middle bar, the first full 
year under COPRA, we found that total overtime costs increased 
to approximately $106.1 million; of this $8.9 million was 
specifically attributable to night shift differential.
    As you can see COPRA substantially increased Customs costs 
for night differential pay from $51,000 to $8.9 million.
    The latest figures that Customs has available, which are 
for fiscal year 1997, show that the night differential payments 
continue to be substantially higher than prior to COPRA at $9.3 
million and total overtime, including premium pay, has 
increased to $126.8 million.
    Once we pinpointed where the increased costs were coming 
from, the next logical question to be answered is why? Clearly, 
one of the major reasons was that the enactment of COPRA 
greatly increased the number of available hours in which a 
Customs officer could earn night differential. Also COPRA 
increased the 10-percent night differential premium to 15 and 
20 percent, depending on the time of day.
    Now I have another chart that I'll ask Ms. Rickey to help 
me with that will attempt to illustrate perhaps some of the 
impacts of these provisions.
    [The chart follows:]
    [GRAPHIC] [TIFF OMITTED] T4189.002
    
      

                                


    Mr. Schindel. First, let me point out that this is a 24-
hour clock, so you need to change your orientation a little bit 
in terms of what you are looking at. At the top--you'll see the 
top represents 12 midnight and at the bottom we have 12 noon. 
Now the outer ring of that clock is broken up into a black and 
yellow band which shows the time of day that falls into the 
night differential period under COPRA. The black ring 
represents the period of time in which night differential pay 
can be earned. It covers a period from 3 p.m. to 8 a.m., or 17 
hours out of the 24 hours in the day. The yellow piece just 
represents the remaining 7 hours that fall outside of the night 
differential period. Now prior to COBRA, that black ring would 
have only covered the top half of the clock, the period from 6 
p.m. to 6 a.m., or 12 hours of the day. So, COPRA increased the 
number of hours in the day that qualified for night 
differential premium pay from 12 hours to 17 hours.
    Also, prior to COPRA, all 12 of those hours were paid at 
the 10-percent premium. COPRA increased the premiums to 15 and 
20 percent and which are represented by the thin blue hours on 
the outside. The period from 3 p.m. to 12 a.m. qualifies for 
the 15-percent premium, and the period from 11 p.m. to 8 a.m. 
at the 20-percent premium.
    So, so far we see we've had a substantial increase in the 
hours that qualify for night differential pay and a substantial 
increase in the premium. Now, another important provision of 
COPRA provided that if the majority of a shift falls within a 
night differential period, then the entire shift qualifies for 
night differential premium. This is otherwise referred to as 
the majority of hours rule.
    And let me try to illustrate what this can result in by 
showing a couple of different work shifts. The first shift 
begins at 12 noon, represented by that blue band, begins at 12 
noon and ends at 8 p.m. Now, a Customs officer working this 
shift would earn 8 hours of night differential pay at the 15-
percent premium because 5 of those 8 hours fall in the night 
differential period. The majority of hours rule would provide 
that all 8 hours qualified for night differential.
    Now, a second shift, which we'll illustrate, is a 9-hour 
shift, represented by the green band, this runs from 3 a.m. to 
12 noon. Now again, because of the majority of hours rule, a 
Customs officer would earn 9 hours of night differential pay, 
this time at the 20-percent premium, since 5 of those 9 hours 
fall within the night differential period. And, again, the 
majority rule would apply.
    The final shift on the chart shows that--covers another 8-
hour shift from 8 p.m. to 4 a.m. Now because all 8 hours fall 
within the night differential period, this shift would also 
earn 8 hours of night differential pay and this would also be 
at the 20-percent premium.
    Now, what does all of this mean?
    Essentially it means that all 24 hours of the day can 
qualify for night differential premium pay and a tour of duty 
such as 12 noon to 8 p.m., which most of us would consider 
primarily daytime hours, qualifies for 8 hours of night 
differential premium.
    Another factor increasing Customs costs for night 
differential was an arbitration ruling which was issued at the 
conclusion of our audit. In December 1995, a panel arbitrator 
ruled in favor of the National Treasury Employees Union which 
protested the Custom Services' refusal to pay night 
differential to Customs officers who were on leave for periods 
of 8 hours or longer.
    The ruling essentially required Customs Service to pay 
officers COPRA night differential even when they are on leave, 
if those leave days would normally qualify for night 
differential had the officers been at work. This created a 
situation where officers got night differential premium even if 
they were on vacation.
    While this situation was addressed in fiscal year 1997, and 
again, partly in 1998, through language in the Customs 
appropriation, it makes sense to correct this situation 
permanently through a revision to the COPRA pay legislation.
    The bottom line is that the overall cost to Customs for 
overtime has increased, not decreased. I stated earlier 
overtime and premium pay costs went from $99 million prior to 
COPRA in 1993 to $106 million in the first full year after 
COPRA and the latest figures, again, show that this increased 
to $126.8 million. This is clearly not the expected outcome. As 
a result, we recommended that Customs seek legislation that 
would lessen the impact of the COPRA provisions that have 
significantly increased the cost of night differential 
payments.
    These changes would create a night differential payment 
package that would more accurately reimburse Customs officers 
for hours actually worked at night, as done previously under 
the Federal Employees Pay Act, FEPA.
    Mr. Chairman, this concludes my remarks regarding our COPRA 
audit. Before answering any questions that you might have, I'd 
like to mention that our office has several other ongoing, 
planned, and some recently completed audits that may also be of 
interest to the Subcommittee and we'd be happy to share those 
with you as they are completed with this Committee.
    [The prepared statement follows:]

Statement of Dennis Schindel, Assistant Inspector General for Audit, 
Office of Inspector General, U.S. Department of the Treasury

    Mr. Chairman, members of the Subcommittee, I am pleased to 
appear before you to discuss the results of an audit we 
conducted on the impact of the U.S. Customs Service Officers 
Pay Reform Amendments (COPRA). With me today are Roberta 
Rickey, the Regional Inspector General for Audit in our Chicago 
office and Benny Lee, the Regional Inspector General for Audit 
in San Francisco.
    COPRA was passed as part of the Omnibus Budget 
Reconciliation Act of 1993. It took effect January 1, 1994. 
This act created a new and exclusive overtime compensation and 
premium pay system for Customs officers performing inspectional 
services. The intent behind the COPRA legislation was to more 
closely match earnings to hours worked. House Report 103-111, 
dated May 25, 1993, estimated that COPRA changes would result 
in overtime savings of $12 million in both Fiscal Year (FY) 
1994 and 1995 with total savings through FY 1998 of $52 
million.
    After we initiated our audit, what we found when we got 
behind the numbers was that premium pay expenses for Customs, 
specifically, the night work differential substantially 
increased, so much so that instead of a significant reduction 
in Customs overtime costs as COPRA was anticipated to provide, 
costs increased when both overtime and premium pay were added 
up. Clearly, this was not the expected result when COPRA was 
passed in 1993.
    Using the best available data from Customs budget account 
summaries, we determined that in FY 1993, the last full year 
under the prior pay legislation, commonly known as ``1911 Act 
overtime,'' Customs total overtime costs including shift 
differentials was $99.2 million. Of this, $51,000 was due to 
night shift differentials. Looking at FY 1995, the first full 
year under COPRA, we found that total overtime costs increased 
to approximately $106.1 million. Of this, $8.9 million was 
specifically attributable to night shift differential. As you 
can see, COPRA substantially increased Customs cost for night 
differential pay from $51,000 in 1993 to $8.9 million in 1995. 
The latest figures Customs has available, which are for FY 
1997, show that night differential payments continue to be 
substantially higher than prior to COPRA at $9.3 million, and 
total overtime, including all premium pay, increased to $126.8 
million.
    Once we pinpointed where the increased costs were coming 
from, the next logical question to be answered was why. 
Clearly, one of the major reasons is that the enactment of 
COPRA greatly increased the number of available hours in which 
a Customs Officer could earn night differential. Also, COPRA 
increased the 10 percent night differential to 15 percent and 
20 percent depending on the time of day.
    Specifically, the time period that qualifies for night 
differential premium pay extends from 3 p.m. to 8 a.m. or 17 
out of the twenty four hours in the day. The period from 3 p.m. 
to 12 a.m. qualifies for the 15 percent differential and the 
period from 11 p.m. to 8 a.m. qualifies for the 20 percent 
differential. The night differential provision in the COPRA 
legislation also provides that if the majority of a shift falls 
within the night differential period, then the entire shift 
qualifies for the night differential premium. For example, a 
Customs officer can earn a 15 percent night differential for 
the entire eight hours of a shift that starts at 12 noon and 
ends at 8 p.m. In addition, that officer can earn a 20 percent 
night differential for an entire 9 hour shift that starts at 3 
a.m. and continues through 12 noon. Likewise, a shift that runs 
from 8:00 p.m. until 4:00 a.m. would also qualify for night 
differential pay, at the 20 percent rate.
    What this all means is that essentially, all twenty-four 
hours of the day can qualify for night differential premium pay 
and a tour of duty such as 12 noon to 8 p.m., which most of us 
would consider primarily daytime hours, qualifies for eight 
hours of night differential premium.
    Another factor increasing Customs night differential 
expenses was an arbitration ruling which was issued toward the 
conclusion of our audit. On December 9, 1995, a panel 
arbitrator ruled in favor of the National Treasury Employees 
Union which protested the U.S. Customs refusal to pay night 
differential to Customs officers who were on leave for periods 
of 8 hours or longer. The ruling essentially required the U.S. 
Customs Service to pay officers COPRA night differential even 
when they are on leave, if those leave days would normally 
qualify for night differential had the officers been at work. 
This created a situation where officers got night differential 
premium even if they were on vacation. While this situation was 
addressed in FY 1997 and again partly in FY 1998 through 
language in the Customs appropriation, it makes sense to 
correct this situation permanently through a revision to the 
COPRA pay legislation.
    The bottom line is that the overall cost to Customs for 
overtime has increased not decreased. As stated earlier, 
overtime and premium pay costs went from $99.2 million in 1993, 
prior to COPRA to $106.1 million in 1995, the first full year 
under COPRA. The latest figures for FY 1997 show a further 
increase to $126.8 million. Clearly not the expected outcome. 
As a result, we recommended that Customs seek legislation that 
would lessen the impact of the COPRA provisions that have 
significantly increased the cost of night differential 
payments. These changes would create a night differential 
payment package that would more accurately reimburse Customs 
officers for hours actually worked at night, as was done 
previously on the Federal Employees Pay Act (FEPA).
    Mr. Chairman, this concludes my remarks regarding our COPRA 
audit. Before answering any questions you or other subcommittee 
members might have, I would like to mention that our office has 
several ongoing, planned or just recently completed audits that 
may also be of interest to the subcommittee. The focus of these 
audits cover various aspects of Customs' drug interdiction 
efforts, user fees, and Customs Modernization Act and NAFTA 
implementation. We would be happy to provide additional 
information to the Subcommittee on any of this work.
      

                                


    Chairman Crane. Well, we appreciate that very much, Mr. 
Schindel. I didn't realize what a ripoff this is, and I'm 
curious why Congress, if it has this kind of creative talent, 
didn't guarantee that we got this kind of extra pay for putting 
in hours past 4 p.m. I remember when I first came down here, 
and that was almost 30 years ago, we were legislating during 
that guns and butter era many nights well past midnight and so, 
gee, we could have lined our pockets if we'd been more 
creative.
    Why has the Customs Officer Pay Reform Amendments not 
resulted in reducing Customs overtime expenditures as 
originally estimated?
    Mr. Schindel. Mister Chairman, I think that when those 
estimates were put together, I think the focus was primarily on 
the impact that COPRA would have on the straight overtime pay 
and dealing with some of the egregious situations that existed 
under 1911 Act overtime. And, in fact, that straight overtime 
pay did decrease, I think it went down from about $99 million 
in 1993 prior to COPRA to $91 million in the first full year 
after COPRA.
    However, again, I think that it was not anticipated, some 
of these unintended impacts of the night differential 
provisions that were put in there and that cost so dramatically 
increased, as we showed, that it more than offset the savings 
that was occurring in the regular overtime and, as a result, 
costs overall have gone up rather than down.
    Chairman Crane. You mentioned that you currently have two 
ongoing user fee audits. Could you provide any preliminary 
observations?
    Mr. Schindel. We've looked at Customs COBRA user fees from 
two different aspects, one is their ability to collect the user 
fees that are due and owing to Customs and we've also looked at 
it from the other end, how they manage the use of those COBRA 
user fees.
    Now, I think that we feel that we've identified some 
opportunities for Customs to maximize their collection of the 
fees that are due and owing to them and, also, to get a greater 
return of their investment of their audit resources that they 
use to audit the industry to determine whether they are getting 
paid all the dues that are due, and also to reduce the burden 
on the industry a little bit. There are two other agencies that 
are involved in collecting air passenger user fees, the 
Agriculture Department, the Animal Plant and Health Inspection 
Service of Agriculture, APHIS, and also, INS.
    Now, all three of those agencies independently audit the 
carriers to try to identify whether all of the fees have been 
remitted. They look at pretty much the same records and it 
really is a duplication of effort and we've found also that one 
of the agencies seems to have a better audit approach and get 
much better results from their audit effort in terms of 
identifying additional fees that are due and so we are about to 
recommend to Customs that they get together with the other two 
agencies and work on a coordinated approach and, in fact, 
Customs has been very responsive in reacting to our findings. 
They've already put in place a memorandum of understanding and 
they've got a coordinated effort underway and we estimate that, 
just for Customs alone, that that would result in an additional 
$23 million in collected fees from a better audit approach.
    On the other end, on how they use the fees, we also do have 
some concerns about how they manage the use of those fees. Some 
of this gets back to a question that was asked earlier about 
when are they going to have a cost-accounting system and that's 
one of the problems they have in being able to effectively 
account for how those fees are used, and whether they are 
effectively managing the use of the fees and following the 
legislation that provides how those fees should be used. So we 
will be making some recommendations in that area also.
    Chairman Crane. When you did your audit, did you find that 
Customs needed to do a better job of managing overtime and that 
this has, in part, resulted in overtime going up instead of 
down as was expected with the passage of COPRA?
    Mr. Schindel. I think there probably are opportunities for 
Customs to better manage the overtime. I think that they need 
the tools to do that. I understand that they are developing a 
new Customs officer pay system, known as COPS and that, 
perhaps, will provide the managers with a better system for 
being able to manage and distribute the use of overtime. What 
we found in our audit was really that their focus was not so 
much on managing overtime in general, but try to manage the pay 
cap.
    Now, notwithstanding that, in some of the limited work 
that--we looked at certain port schedules, it didn't appear to 
us that those schedules had changed from what they were prior 
to COPRA, so that there was any shift that was trying to take 
advantage of the COPRA pay legislation provisions.
    For example, at Chicago's O'Hare Airport, there is a 12 
p.m. to 8 p.m. shift, which is a regular shift, and it pretty 
much matches up with the air traffic patterns that O'Hare has, 
so it is a shift that is necessary, yet under COPRA, now, that 
shift earns, the entire 8 hours earn night differential at the 
15 percent. Under the prior pay legislation, only 2 hours of 
those 8 hours would have earned night differential and only 10-
percent premium rate.
    Chairman Crane. Well, sir, we thank you for your input and 
we also look forward to a continuing working relationship with 
you to get further information. Some of these problems, we, I 
feel confident, can start addressing, but it is a source of 
concern and we thank you very much.
    Mr. Schindel. Thank you, sir.
    Chairman Crane. And, with that, we will call our last 
witness, Mr. Tobias, president of the National Treasury 
Employees Union. And, Mr. Tobias, if you can try to keep your 
oral testimony to 5 minutes, it would be appreciated and all 
written testimony will be made a part of the permanent record.

  STATEMENT OF ROBERT M. TOBIAS, NATIONAL PRESIDENT, NATIONAL 
                    TREASURY EMPLOYEES UNION

    Mr. Tobias. Thank you very much, Mr. Chairman, and thanks 
for providing NTEU an opportunity to testify today. First, I'm 
extremely proud to report that the Customs Service-NTEU labor 
management partnership effort has been able to produce, through 
its collaborative effort, a significant increase in the bottom 
line results of an important Customs mission, and that is 
increasing the amount of narcotics seized. There have been many 
critics of the partnership effort sponsored by President 
Clinton and Vice President Gore but in this case the critics 
are wrong.
    We created Operation Brass Ring in 2 months and in the 
first 2 months of its operation, we've increased drugs seized 
by 29 percent. The Customs Service is doing good work in this 
arena because it is working with, and listening to, the people 
who do the work.
    Second, Mr. Chairman, I'd like to add my voice in support 
of the President's fiscal year 1999 budget request. There are 
more passengers, more air cargo, more truck cargo, more boat 
cargo, more discrepancies of inbound cargo, more drug seizures, 
more currency seizures, more examinations in bonded warehouses, 
and more examinations of outbound cargo. In short, more law 
enforcement effort.
    More work and more achievement, I believe, is a 
justification for more funding.
    Third, NTEU supports the increased merchandise processing 
fee to fund the needed Customs technology. If Customs is ever 
going to realize the potential for increased efficiency 
envisioned by Congress when it enacted the Customs 
Modernization Act, it must have additional technology.
    The Customs technology will not only help the Customs 
Service, but also the brokers and importers. The MPF fee can 
fund what is extremely important to a Customs Service of the 
21st century.
    Fourth, with respect to H.R. 2262, there are some 
provisions we support and others we believe are 
counterproductive to an effective Customs Service. One, we 
believe the overtime cap should remain at $30,000 because it 
allows the Customs Service to more effectively manage the 
allocation of its resources. Two, NTEU also supports the 
provision which would allow for the payment of one assignment 
beyond the pay cap. This provision, plus the automatic tracking 
system, will eliminate the high administrative costs incurred 
to ensure persons don't go over the cap in violation of the 
Anti-Deficiency Act which provides criminal penalties for 
violations.
    Three, NTEU strongly opposes the provision which has the 
effect of prohibiting arbitrators, the Equal Employment 
Opportunity Commission, the Merit Systems Protection Board, the 
Federal Labor Relations Authority, or courts, from providing a 
remedy to a violation of law, regulation, or collective 
bargaining agreement.
    I believe that Congress should leave the task of providing 
an appropriate remedy to the appropriate adjudicatory body. 
There is no logical reason to treat Customs officers any 
differently than other public- or private-sector employees when 
it comes to making them whole for wrongful acts of their 
employer. With all due respect, Congress cannot anticipate, nor 
should it try to anticipate, all of the possible violations 
which might occur.
    Remedies should be left to adjudicators who are in the 
position to fashion an appropriate remedy based on the facts 
and circumstances as they are presented.
    Finally, the proposal to change the premium pay provisions 
would significantly undermine the total package of overtime pay 
which was enacted by Congress in 1994 to replace the 1911 
overtime pay package. This package was put together with the 
goal in mind of what is needed to effectively manage the 
Customs work force.
    In addition, Congress promised to Customs employees that it 
would not come back at a later time and undo pieces of the 
package. I hope that Congress would stay true to its promise 
and maintain the COPRA package of overtime pay.
    Thank you, very much, Mr. Chairman.
    [The prepared statement follows:]

Statement of Robert M. Tobias, National President, National Treasury 
Employees Union

    Chairman Crane, Members of the Subcommittee, I am pleased 
to be here today to discuss issues affecting the U.S. Customs 
Service. The National Treasury Employees Union, of which I am 
National President, represents approximately 150,000 federal 
employees, including all eligible bargaining unit employees at 
the Customs Service. Your hearing today is concerned with 
several important issues currently facing the Customs Service 
and I would like to comment on several of them.

                          Operation Brass Ring

    Last fall NTEU enthusiastically joined with Customs 
management to come up with new and effective ways of increasing 
drug seizures. On October 22nd, 1997, the Customs-NTEU National 
Partnership Council decided to work in ``partnership'' to 
address the issue of narcotics interdiction and the recent 
decrease in the weight of narcotics seizures at ports of entry 
nationwide. On December 8th, 1997, a memorandum was sent to all 
NTEU local chapter presidents, under my signature, that stated: 
``Local NTEU chapters are to immediately begin working with 
local managers to develop and implement, in partnership, 
innovative, flexible and unpredictable narcotics enforcement 
operations.''
    Many of the principles that are common in labor-management 
partnerships, as opposed to traditional adversarial labor-
management postures, have been successfully adopted in 
Operation Brass Ring. They include keeping formal bargaining to 
a minimum and acting in consensus whenever possible, also 
replacing positional bargaining with interest based bargaining. 
Providing that changes would not be considered precential has 
made risk taking, which is necessary in order to find 
innovative solutions, but always difficult in large 
organizations like Customs, more palatable. Other partnership 
principles that are successfully being followed in Operation 
Brass Ring include leaving other issues aside, not bringing old 
baggage to the table and urging that as many issues as possible 
be solved at the local level, but providing for rapid response 
facilitators when problems do arise.
    Comparing drug seizure levels since Operation Brass Ring 
began on February 1, 1998, through March 31, 1998 to the same 
time period in 1997, the total amount of narcotics seized has 
risen from 167,396 pounds to 216,003 pounds, an increase of 
29%. NTEU is proud to have been a part of this successful 
effort and we pledge to continue our support and involvement in 
the critical work of increasing illegal drug seizures.

                         Customs FY 1999 Budget

    Mr. Chairman, the President's FY 1999 budget request 
provides $1.7 billion and 16,655 FTE for Salaries and Expenses 
for the U.S. Customs Service, an increase of $117.8 million and 
111 FTE over the FY 1998 enacted levels. In addition, the 
President has submitted a legislative proposal for $48 million 
to increase of the Merchandise Processing Fee (MPF) to offset 
the costs of modernizing Customs commercial operations.
    NTEU believes this request is the bare minimum to meet 
Customs' responsibilities to interdict illegal drugs and 
perform its many other responsibilities, including the 
inspection of high-risk shipments to assure proper manifest 
recording and duty payment; resolution of discrepancies related 
to inbound shipments; trade enforcement at bonded warehouses 
and foreign trade zones; non-proliferation related export 
enforcement; anti-money laundering enforcement, and the 
protection of domestic intellectual property rights. The new 
positions requested for FY 1999 will be used to strengthen 
Customs' ability to disrupt normal smuggling channels, enhance 
investigative and intelligence capabilities and improve the 
child labor enforcement program.
    In FY 1999, Customs estimates it will process 379.4 million 
land border passenger arrivals, 81.5 million air passenger 
arrivals and 10 million sea passenger arrivals. Customs 
estimates that 122 million vehicles, 136,000 aircraft, and 
225,000 vessels will enter our ports during the current fiscal 
year. Most significantly, Customs expects an increase of 13.5 
percent in the number of railcars coming into the U.S. and an 
increase of 9 percent in the number of commercial aircraft 
arrivals (420,000 railcars and 850,000 commercial aircraft).
    In FY 1999, Customs estimates it will seize more than 160 
thousand pounds of cocaine (2500 seizures), 780 thousand pounds 
of marijuana (13,000 seizures) and 3 thousands pounds of heroin 
(1,250 seizures). In contrast, Customs in FY 1995 seized 158.3 
pounds of cocaine (2,228 seizures), 658.6 pounds of marijuana 
(10,221 seizures) and only 2.2 thousands pounds of heroin (928 
seizures).
    Despite the record of achievement in so many law 
enforcement areas, the vast majority of Customs employees still 
do not qualify for law enforcement status. As in past years, 
NTEU will continue its efforts to enact legislation to end this 
disparity in this Congress. While we appreciate the significant 
budget implications, we believe that denying the brave men and 
women of the Customs Service the same employment rights of 
other federal employees who risk their lives every day to 
combat the trafficking of drugs and other dangerous illegal 
import activity is unjust.

                  Preclearance Services and H.R. 3644

    On September 30, 1997, provisions of the North American 
Free Trade Agreement that authorized funding for preclearance 
services in Florida and 11 locations in foreign countries 
expired. Legislation was enacted in December of 1997, which 
authorizes that customs user fees can be used to provide 
preclearance services in Florida through September 30, 1998. 
H.R. 3644, authored by Chairman Crane, would authorize the use 
of customs user fees to maintain up to 50 positions to provide 
preclearance services at 11 foreign locations. NTEU supports 
H.R. 3644 and efforts to permanently maintain both the Florida 
and foreign preclearance services on a permanent basis.
    H.R. 3644 provides for an advisory committee to be 
established, which would advise the Commissioner of Customs on 
issues related to the performance of inspectional services, 
time periods during which inspectional services should be 
performed, the proper number and deployment of inspectors and 
other matters. NTEU would support the inclusion of an employee 
representative on this advisory board. I believe the input of 
frontline employees would be of great benefit to the other 
members of the committee and to the Customs Commissioner.

         Compensation System for Customs Officers and H.R. 2262

    In 1993 this Committee rewrote the law that provides for 
Customs officers compensation. The Customs Officer Pay Reform 
Amendments of 1993 (COPRA) instituted significant changes in 
the Customs overtime system that had been in place since 1911. 
Chairman Crane's bill, H.R. 2262, would make further changes to 
that system. As introduced, the bill would cap Customs 
inspectors' overtime pay at $25,000 per year. The FY 1998 
Treasury Appropriations bill raised the Customs overtime cap 
from $25,000 to $30,000 effective October 1997. NTEU believes 
that any annual cap must be at least $30,000 and should be 
allowed to rise to reflect increases in inflation. The cap on a 
similar overtime compensation system for the Immigration and 
Naturalization System was raised from $25,000 to $30,000 in 
1996. The Customs Service has found it difficult to administer 
staff assignments under the restraints imposed by a $25,000 cap 
and I believe it would be extremely difficult to revert to that 
level since the $30,000 limit has now been in effect for 
approximately six months. Discussions with Committee staff have 
indicated that there may be an interest in changing the cap 
amount from the $25,000 in the original version of H.R. 2262 to 
reflect the $30,000 in current law. NTEU would support such a 
change.
    NTEU also supports the provision in H.R. 2262, which would 
allow the Customs Service to pay customs officers for one work 
assignment over the cap once the Commissioner has certified 
that there is a system in place that provides accurate and 
reliable data on the overtime and premium pay that is being 
paid to individual employees. This approach would make it 
easier for Customs to administer an overtime cap. It is my 
understanding that a reliable overtime tracking system is on 
the verge of being operational at this time.
    NTEU strongly opposes provisions in section 2 and 3 of H.R. 
2262 that provide that overtime pay (section 2) and premium pay 
(section 3) ``shall not be paid to any customs officer unless 
such officer actually performed work during the time 
corresponding to such overtime pay.'' Two clear examples of 
legitimate payment of premium or overtime pay when an 
individual has not performed work are paid leave and back pay 
awards. With regard to paid leave situations, section 5545(a) 
of Title 5, which applies to the vase majority of federal 
employees, but not Customs employees, provides that premium pay 
is allowed for 1) periods of absence with pay during these 
hours due to holidays; and 2) periods of leave with pay during 
these hours if the periods of leave with pay during a pay 
period total less than 8 hours. NTEU would support having 
section 5545(a) apply, rather than a blanket denial as in 
section 3 of H.R. 2262.
    Of even more concern to NTEU, than being denied premium pay 
for legitimate paid leave situations, is that the language of 
sections 2 and 3 would prohibit the payment of overtime or 
premium pay in a back pay award rendered by an arbitrator or 
other adjudicative body. The reasons for such back pay awards 
include the intentional or unintentional violation of a 
collective bargaining agreement, which could include having 
supervisors performing non-supervisory work when non-
supervisory employees are available, bypassing one employee in 
order to give a management favorite a ``plum'' assignment or 
bypassing an employee due to anti-union animus. Back pay 
awards, which might include overtime, are also common for 
violations of statute, such as wrongful suspensions or removals 
under the Title 5 civil service provisions or Title 7 
discrimination provisions. In fact, a recent ruling of the 
Equal Employment Opportunity Commission, issued on September 
18, 1997 (EEOC No. 04960030), specifically held that a victim 
of discrimination on the basis of disability was ``entitled to 
the overtime pay she would have received if she had been 
hired'' and ordered the U.S. Postal Service to include such 
overtime in a backpay award.
    The press advisory issued by the Committee with regard to 
this hearing points to arbitration decisions that required the 
Customs Service to pay overtime as part of a back pay remedy 
for violations of the NTEU/Customs collective bargaining 
agreements. I would first like to point out, as stated above, 
that the language of H.R. 2262 with regard to limitations on 
overtime and premium pay, goes well beyond the specific cases 
cited in the advisory. In addition, it is important to keep in 
mind that disallowing the inclusion of overtime or premium pay 
in back pay awards takes away any incentive for an employer to 
comply with statutory rules or collective bargaining 
agreements. It is conventional legal wisdom in employment law 
that if the remedy does not cost the employer more than the 
illegal action, the employer can flout the law at no economic 
risk. Certainly the arbitrators in the cases cited could have 
ruled that the appropriate remedy would have been to give the 
wronged employee the opportunity to work another overtime 
assignment and the Committee may disagree with the arbitrators' 
decisions in these cases, but the provisions of H.R. 2262 would 
legislate away not only an arbitrator's ability to include 
overtime or premium pay in a back pay award no matter how 
egregious, but would prevent other adjudicative bodies such as 
courts from doing so as well. NTEU opposes these provisions.
    NTEU also opposes the proposed changes to the night work 
pay differentials in H.R. 2262. Customs inspectors were led to 
believe that the major revisions to the Customs overtime pay 
system that were made in 1993 were a long term, comprehensive 
package. Many aspects of the system were changed to provide 
less overtime pay. I believe that the night differential hours 
set in the 1993 bill are fair and should not be changed at this 
time.
    Thank you for this opportunity to appear before this 
Committee and to comment on these issues that are so important 
to the Customs employees NTEU represents. I would be happy to 
answer any questions you may have.
      

                                


    Chairman Crane. Thank you, Mr. Tobias. Can you tell this 
Subcommittee why you defended and effectively were instrumental 
in reinstating an admitted cocaine and marijuana user back into 
the U.S. Customs Service employment in New York? I say that 
because it is a little troubling, given that narcotics 
enforcement is such a high priority.
    Mr. Tobias. Well, I--could you tell me a little bit more 
about the person that you have in mind, Mr. Chairman.
    Chairman Crane. Well, I don't have the name of the 
individual in front of me, but he worked as a Customs Inspector 
up there. You're not familiar with the case?
    Mr. Tobias. No, I'm not familiar with the case.
    Chairman Crane. We can get you more information.
    Mr. Tobias. I'll be happy to answer the question and I'd be 
happy to provide the rationale why we supported, if we did 
support the reinstatement of any person that we defended.
    [The information was not available at the time of 
printing.]
    Chairman Crane. We understand that the U.S. Customs Service 
has tried repeatedly to align the staff with the workload. 
Additionally they are under increasing pressure to focus more 
effectively on narcotics interdiction. Can you articulate why 
your officers are picketing in Miami and refusing to implement 
the strategic problem-solving initiatives like primary lane 
denial in El Paso and refusing to implement revised shifts at 
JFK in New York?
    Mr. Tobias. Well, I can speak to why people are picketing 
in Miami and it has nothing to do with shifts. It is very clear 
that shifts are currently an impasse and the Federal services 
impasses panel is going to render a decision about what the 
appropriate shift ought be in Miami, but picketing in Miami has 
to do with a series of working problems and the working 
conditions in the Miami airport. I was in Miami on Monday. I am 
hopeful that the problems are going to be addressed in a timely 
and an appropriate manner. And I think that it is important to 
remember what the Inspector General said in the prior testimony 
when he said that the work is properly aligned and that this 
issue of whether or not work is properly aligned is an 
important issue, and he said that, based on his study and his 
analysis, the work is properly aligned.
    Chairman Crane. Could you please describe some of the labor 
management partnership's principles that have been successfully 
adopted for Operation Brass Ring?
    Mr. Tobias. Well I think that the key--there are several 
things that are key. First, in the past, when presented with a 
problem, I think the Customs Service would have reacted by 
creating a solution at the national level and then directing 
that it be implemented locally.
    In this case, what we did was task the local partnership 
councils with the responsibility for coming up with their own 
plans and figuring out how best to create a less predictable 
system to assist in drug interdiction, but also to listen to 
employees who have ideas about how to increase enforcement 
efforts and to implement them and to implement them timely. And 
I think that is what has happened across the country in the 
ports where we are operating Operation Brass Ring.
    Chairman Crane. Mr. Schindel's presentation just before 
you, as to what constitutes night shift, was interesting and a 
little revealing. I'm curious if you believe that a person 
working noon to 8 p.m. should be paid night pay.
    Mr. Tobias. Yes, I do. And I think that the reason that 
Congress enacted that provision was for two reasons, one to 
more effectively manage the Customs Service. These are folks 
who are constantly changing shifts, they are moving from one 
shift to another. It isn't like someone has a constant 12 to 8 
shift or a 1 to 9 shift or a 2 to 10 shift. These folks are 
constantly moving from shift to shift as the workload changes 
in these various ports, as planes change their arrival 
schedule, as cargo changes its arrival schedule.
    So the Customs Service, in conjunction with Congress, said 
we need to more closely link overtime payment with overtime 
worked and, as the Inspector General testified, that is exactly 
what has occurred. But there was also a recognition that in 
enacting this legislation, that it was going to result in a 
significant decrease in the pay of the people who were doing 
the work.
    So in order to make the total package available to these 
Customs inspectors relatively the same, and to encourage these 
folks to continue to work on ever more complex rotating shifts, 
this premium pay system was put into place and, in fact, I 
think it has achieved its exact purpose and that is to reduce 
the number of overtime shifts to allow for the alignment of 
work and to compensate people at a premium pay level rather 
than an overtime level for the amount of time they work.
    Chairman Crane. In the schedules, are there any 8-hour 
shifts that are not night time, that are not getting the 
premium pay? I mean in the course of the day?
    Mr. Tobias. I think there could be. It depends on when they 
start and when they stop, and whether or not people are on 
overtime or not. I mean, it's not an easy system to keep track 
of. I mean if I have already worked 5 days and I come to work 
on a Thursday and I'm working from 1 p.m. to 9 p.m.----
    Chairman Crane. That's night pay.
    Mr. Tobias [continuing]. It would be an overtime shift, so 
there are few times, Mr. Chairman, when someone is not 
receiving either the 15- or the 20-percent differential.
    Chairman Crane. OK. It's an interesting concept.
    Well, I want to thank you for your presentation and we look 
forward to working with you on an ongoing basis, Mr. Tobias, 
and the people that you represent in the employees union.
    Mr. Tobias. Thank you very much, Mr. Chairman.
    Chairman Crane. And with that, our hearing is finished for 
today and we thank all of the witnesses and we stand adjourned.
    [Whereupon, at 1:38 p.m., the hearing was adjourned subject 
to the call of the Chair.]
    [Submissions for the record follow:]

Statement of Brother International Corporation, Bridgewater, NJ

    This statement is submitted on behalf of Brother 
International Corporation (``BIC''), an importer, distributor 
and exporter of business machines, home office machines, sewing 
machines and related parts and accessories. BIC is currently in 
the process of constructing a one million-square-foot, state-
of-the-art distribution facility in Bartlett, Tennessee. The 
company's headquarters is located at 100 Somerset Corporate 
Boulevard, Bridgewater, New Jersey. Approximately 800 people 
are employed in the United States by BIC. The new Bartlett 
facility is expected to employ 270 people in Tennessee alone.
    Among the considerations in BIC's decision to build this 
new facility was the availability of foreign trade subzone 
benefits which, under Customs Service policy, would allow those 
who wish to enter merchandise from the subzone whether a 
manufacturing or storage subzone into the customs territory of 
the United States, to file a formal entry (CF7501) on a weekly 
basis, rather than for every physical removal of the 
merchandise from the subzone. This practice benefits Customs by 
reducing the amount of processing activity it must undertake, 
and benefits the company operating in the subzone by reducing 
both its paperwork and the total customs merchandise processing 
fees (MPF) it must pay, which are otherwise assessed on each 
transaction. In the case of BIC, which normally files in excess 
of 3,000 entries per year, the benefits that can be realized in 
savings of MPF and reduced administrative burden are 
significant.
    The Customs Service is currently considering withdrawing 
the privilege of filing weekly CF7501's by non-manufacturing 
subzones, so as to be able to collect MPF on each release of 
merchandise from subzone. In the interim, Customs apparently 
issued an internal directive late in 1997, instructing the 
customs ports not to permit any more non-manufacturing foreign 
trade subzones to commence weekly entry filing, pending a 
decision on whether to continue or withdraw the benefit 
entirely. The major impetus for this proposed change of policy 
is the anticipated loss of total customs revenue that 
presumably results from allowing non-manufacturing subzones to 
file entries only once per week. Alternatively, the Customs 
Service is considering allowing non-manufacturing subzones to 
continue to file weekly entries on merchandise leaving the 
zone, but collecting MPF on each release of merchandise from 
the zone.
    To the best of our knowledge there has been no calculation 
of the customs revenue impact if the current Customs policy is 
continued.
    The proposed changes in policy would be improper for the 
following reasons:
      It would be discriminatory and contrary to the 
foreign trade zone laws to treat entries from manufacturing and 
non-manufacturing subzones in a different manner, with 
significant cost consequences to the subzone operator;
      The act of increasing total Customs income from a 
transactional user fee (which is designed to offset only 
Customs transactional processing costs) by increasing the 
number of required entry transactions, is a transparent 
bureaucratic absurdity, which suggests that Customs calculates 
the fee to more than offset its actual transactional processing 
costs. It suggests that the fee is relied upon by Customs to 
help fund its overall operational responsibilities, which 
should be covered by the agency's annual budget appropriation;
      A policy change which would allow all subzones to 
continue to file weekly CF7501's but would collect MPF on each 
release from a non-manufacturing subzone is discriminatory and 
legally deficient as well:
    --(1) The foreign trade zones law is designed to enhance 
U.S competitiveness in world markets. It does not distinguish 
between manufacturing and non-manufacturing zones in this 
regard, nor should it.
    --(2) The assessment of MPF is only permissible within the 
strictures of the World Trade Organization Agreement and the 
predecessor GATT, as clarified by previous successful foreign 
challenges to the U.S. customs user fee. The fee is permissible 
only if it is reasonably calculated to cover the actual cost of 
services; excessive fees constitute an illegal deviation from 
U.S. tariff bindings under successive GATT and WTO multilateral 
agreements. The importer pays the MPF to compensate Customs for 
actual costs of the entry processing. If the Customs Service is 
allowed to collect MPF on some other basis, such as releases 
from the subzone, which involve no Customs ``service'' or 
processing, the fee becomes disassociated from entry processing 
and impermissible for the same reasons found by a GATT panel in 
1992, when the MPF was assessed purely on an ad valorem basis 
without a cap. The only proper basis for collection of MPF is 
the filing of a Customs entry, and the number of such filings 
cannot be artificially set by administrative policy solely to 
boost aggregate agency income.
    The Customs Service is currently seeking support from the 
Committee for implementation of an increase in the overall 
level of the MPF, primarily for the purpose of funding 
automation improvements, Y2K modifications, and similar general 
operational needs. BIC supports the comments of the National 
Foreign Trade Zones Association and others, in opposition to 
such an increase. In addition, BIC and similarly situated 
foreign trade subzone operators urge the Committee:
    (1) To direct Customs to withdraw the policy directive 
prohibiting additional non-manufacturing FTZ subzones from 
filing weekly entries, and
    (2) Not to legislate or otherwise endorse any such efforts 
to increase the MPF, in light of the agency's apparent 
willingness to take actions which are contrary to both the Mod 
Act and the FTZ Act, by intentionally increasing, or preventing 
a decrease in, the number of transactions on which they can 
collect a ``user'' fee. Any additional funding needs should be 
addressed in general appropriations, and not through the 
imposition of fees and taxes which defeat the objectives of the 
FTZ program in the first place.
      

                                


Statement of General Motors Corporation, Detroit, Michigan

    General Motors Corporation (GM) is pleased to have the 
opportunity to submit this written statement for the record. 
This statement relates to the hearing held on April 30, 1998 
regarding U.S. Customs Service issues. During this hearing the 
American Automobile Manufacturers Association (AAMA), of which 
GM is a member, gave testimony related to the National Customs 
Automation Program (NCAP) being undertaken by the Customs 
Service.
    GM has for more than two years been working in partnership 
with the Customs Service to develop a prototype release and 
entry system which is a fundamental part of the Customs 
Services Automated Commercial Environment (ACE). The prototype 
on which GM has been working went into operation on May 4, 1998 
in the Ports of Detroit and Port Huron, Michigan and Laredo, 
Texas.
    GM is pleased with the progress the Customs Service has 
made on the ACE system as it was designed to support modern 
business practices which are needed in the global economy in 
which we compete. The system which has been developed will 
ultimately include the release, entry, periodic payment, remote 
entry filing and reconciliation processes envisioned in the 
Customs Modernization Act. The ACE system emphasizes pre-
importation review, account management and post entry 
verification processes that are critical to the effective and 
cost efficient management of international trade.
    While GM is pleased that significant progress has been made 
on ACE by the Customs Service, GM is concerned about the level 
of funding support the project has received. To ensure that ACE 
is completed in a timely and effective manner, the Customs 
Service needs a consistent funding source. In addition, it is 
important that Congress provide the funds necessary to keep the 
Customs Services current Automated Commercial System (ACS) 
operating at full capacity.
    GM appreciates the attention the subcommittee has given 
this important issue. Again thank you for the opportunity to 
provide these comments.
      

                                


                  JCPenney Purchasing Corporation, Inc.    
                                                 Dallas, TX
                                                       May 14, 1998

The Honorable Philip M. Crane
Subcommittee Chairman
House Ways and Means Subcommittee on Trade
1104 Longworth House Office Building
Washington, DC 20515

    Dear Chairman Crane,

    These comments are being submitted by JCPenney Purchasing 
Corporation, Inc. (JCPPC) in response to the request for public 
comments regarding various United States Customs Service issues as 
published in TR-24, dated April 21, 1998.
    JCPPC would like to specifically address the proposal to increase 
the Merchandise Processing Fee to cover expenses to develop, program 
and implement the Automated Commercial Environment system, commonly 
referred to as ACE.
    JCPPC is in complete support of the US Customs Services attempt to 
automate however, JCPPC strongly opposes an increase in a user fee to 
cover the development of the ACE program. The development of a system 
that is designed to automate a branch of the government that is cross 
functional and one that supports a diverse user base should not be 
borne by only a portion of the users.
    As no technical development plan has been submitted, it is 
difficult for JCPPC to endorse an increase in the user fee to develop a 
system that may not allow for automation within a good portion of the 
areas it does business. As an importer of retail type merchandise, the 
merchandise itself is varied and the sourcing vast. The import 
requirements vary by merchandise and country of origin. Some types of 
merchandise lend themselves to easy automation within the import 
environment. Restricted (quota class) merchandise, however is very 
paper intensive and requires a substantial amount of verification for 
accuracy by the importer and US Customs. Quota class merchandise is 
therefore very difficult to bring into an automated environment. 
Although the US has made some progress in automating the transmission 
of visa information via a government to government database known as 
ELVIS, great strides will still be required to eliminate or automate 
information contained in a variety of other paper documents required 
for textile and apparel imports. Additionally, such programs as 
paperless entry and releases, remote entry filing and electronic 
transmission of commercial data will need to be available to importers 
of quota class merchandise. As quota class merchandise is a good 
portion of a department stores merchandise mix the ability to automate 
the majority of its business becomes minimal under current plans for 
automation in this area of trade. Under these conditions, it is unfair 
to expect importers of quota class merchandise to pay for a system that 
will be of little benefit to them.
    Importers are required to pay the merchandise-processing fee when 
merchandise is entered into the United States. To increase a user fee 
that applies to importers to help fund a system that benefits only a 
portion of the users is inappropriate. Because of diverse 
functionality, all US Customs transactions are not specifically 
importer related, therefore increasing the user fee to cover funding 
for automation could be subject to judicial review and WTO scrutiny
    If it is decided that importers will pay for the development of 
ACE, via an increase in the user fee, it should be mandated that US 
Customs work with representatives from all areas of trade to develop 
innovative programs that facilitate compliance and clearance within all 
trade groups. This should include importers whose main business is 
quota class type merchandise. Additionally, US Customs should be 
required to provide a detailed business plan for the development and 
implementation of ACE with oversight by another government entity or an 
industry trade committee to monitor incremental progress for the 
duration set forth in the business plan.
    JCPPC would like to see Congress find the necessary funds through 
congressional means to allow US Customs to complete and implement a 
system that supports and benefits all import industries. The US Customs 
Services collects a large portion of revenues generated for the US 
Department of Treasury, therefore, it is reasonable to expect funds for 
automation to be available through Congressional appropriations.
    JCPPC is appreciative for the opportunity to express their concerns 
regarding the issue of increasing the merchandise-processing fee to pay 
for US Customs automation. Thank you.

            Sincerely,
                                           Peter M. McGrath
                                                     Vice President
                                     Director of Quality & Sourcing
      

                                


                             National Customs Brokers &    
                          Forwarders Association of America
                                                        May 7, 1998

The Honorable Philip M. Crane
Chairman
Committee on Ways and Means
U.S. House of Representatives
1104 Longworth House Office Building
Washington, D.C. 22515

SUBJECT: Customs Automation and the Merchandise Processing Fee

    Dear Chairman Crane:

    The dual and sometimes conflicting roles of Enforcement and 
Facilitation which are at the core of the Customs Service's mission are 
made all the more difficult by today's growing volumes of trade. 
Coupled with limited increases in staffing levels, the role of 
Automation in helping the Service to carry out its mission grows ever 
more crucial. It is the critical state of Customs Automation, and 
specifically it is the Automated Commercial System (ACS) that I wish to 
bring to your attention.
    The Automated Commercial System is the information management 
backbone of today's Customs trade processing operations. The system has 
been evolving over the last decade, adding new modules and complexity 
as it has had to deal with the growing volumes of trade reaching our 
shores. While far from a perfect system, ACS has been doing a yeoman-
like job in the face of these surging numbers.
    With the hope of correcting the deficiencies in its ACS system and 
as a means of implementing the vision which is embodied in Title VI of 
NAFTA, the Customs Service has been striving to develop a new 
information management architecture, the Automated Commercial 
Environment (ACE). Nearly four years of concentrated effort have hit a 
wall in the form of Congress' reluctance to fund ACE development in 
light of GAO's rather damning report of the ACE system and its 
uncertain deliverables. In this roadblock lies the crux of the dilemma 
facing both the Service and the international trading community today--
specifically, that while focusing all its efforts and funding on ACE, 
the ACS system is in danger of collapse due to a consequent lack of 
attention. I do not believe that I would be exaggerating to state that 
such a crash would be nothing short of catastrophic for the world's 
trading systems, given the United States pivotal role.
    In light of the circumstances which I have outlined above, I would 
like to propose the following options for consideration. Working 
closely together, the Service and the international trading community 
should strive to identify and implement those modifications which 
could:
     strengthen the ACS system immediately for its handling of 
current and near-term demands;
     use those elements and modules of the ACS system which 
would be employed to help the Service move towards obtaining and 
delivering the parts of its ``Mod Act'' vision that might be obtainable 
in the near-term without having to wait on the radical redesign 
proposed by the ACE project; and,
     create a ``modified'' ACE system for the 21st Century that 
would assure all parties (Congress, Customs and the Trade) of its 
abilities to deliver reliably the mission-critical visions found in 
Title VI of NAFTA.
    I of course understand that all of the steps which I am proposing 
for your consideration require increased funding levels from Congress. 
I believe that these funds should come from the regular appropriations 
process and not from an increase in the Merchandise Processing Fund 
(MPF) as is currently being proposed in the President's Budget Proposal 
for FY99.
    Listening to our members and their importer clients proves them to 
be very leery of seeking any increase in the MPF. We need only to look 
at the strong opposition expressed by the American Association of 
Exporters and Importers to understand how our clients feel about the 
matter. Given these facts, I feel that there is no support for 
increasing the MPF as a funding vehicle.
    I hope that you can support the steps which I have outlined in this 
letter. I believe that they offer the best solutions available at this 
time to correcting the automation troubles found in the Customs 
Service's current management information systems. They also provide us 
with a strong base for working together to develop and implement the 
automation program that our nation will require in the future.
    Finally, on another note, let me advise the Committee of NCBFAA's 
continued support for the Automated Export System (AES). Recognizing 
that there can be improvements to Customs' plan that can evolve through 
the negotiation process that is presently underway, we urge the 
Committee to keep an open mind about a system that may be immensely 
valuable to Customs and the private sector alike. Automation of our 
export flow can facilitate rather than impede U.S. trade, a result we 
can all support.
    Thank you for your kind attention and consideration of any 
suggestions and concerns.

            Sincerely,
                                       Peter H. Powell, Sr.
                                                          President
      

                                


                               Robert Bosch Corporation    
                                           Carol Stream, IL
                                                       May 12, 1998

Mr. 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

    Dear Mr. Singleton,

    The Robert Bosch Corporation wishes to provide written testimony 
relating to your current hearings on the U.S. Customs Service, notably 
on the ACE Development program.
    Bosch is a $5 Billion U.S. subsidiary of Robert Bosch, GmbH, with 
manufacturing and administrative locations in Illinois, North and South 
Carolina, Georgia, Wisconsin, Texas, Michigan, Connecticut, Indiana, 
Tennessee, and several other states. Our dollar volume of imports also 
puts us in the top 100 importers in the United States. Over the last 
four years Bosch has made significant investment in compliance 
procedures relating to the U.S. Customs Modernization Act. We have 
created a corporate level International Trade Department staffed by 
highly trained individuals and have invested heavily in automation 
software in order to meet our compliance requirements. Bosch is 
committed to bringing our import/export procedures well into the 21st 
century and therefore is extremely dependent on having the Customs 
Service being able to meet us there.
    While the current ACS environment may have gotten international 
trade into the computer era, it does not have the level of 
sophistication and functionality needed to handle global business 
requirements beyond the year 2000. The only hope lies with a 
successfully implemented ACE system, as detailed in the Customs 
Modernization Act. While I do understand that Congress has had some 
questions relating to Customs' development of this system, that does 
not remove the need for this program. The importing community has 
committed far too many resources at this stage to be left with nothing 
to connect to. ACE can work. ACE must work. What it requires, more than 
anything else, is a predicable and consistent source of funding in 
order to reach its completion. Congress has to understand that this is 
a long term, complicated development process that can not be undertaken 
effectively if Customs has to consistently wonder whether it will be 
able to pay and retain it's contracted programmers.
    Bosch is just one of a number of major importers that have 
established a close working relationship with the Customs Service in 
order to mutually improve the way business is conducted. It is the goal 
of both sides to automate as many functions as possible, thereby 
reducing costs and expediting the movement of cargo. Through monthly 
management meetings, Customs and the trade community have worked in 
partnership to design an improved import process. For example, Bosch is 
one of five participants of the NCAP prototype (highly ACE dependent). 
While this program is mostly driven by the ``Big Three'' automakers, 
Bosch does continue to be an active participant in the management 
meetings. We anticipate that, as the program is expanded to ports where 
Bosch has higher volumes, our input will have a greater role in the 
development of this program. As it stands right now we feel that our 
input has been highly regarded by Customs.
    There are numerous other initiatives that we have become a major 
player in, among which are Remote Location Filing, National 
Reconciliation, Compliance Assessment Review (CAT), Biweekly Statement 
Processing, Account Management, Paperless Entry Processing, and 
Violation Billing.
    The redesigned import process supports modern business practices in 
a global economy. This process will do away with antiquated practices 
of entry pre-files, which require handling of paper and the physical 
presence of a Customhouse broker at the port. Cargo-laden trucks can 
now head directly for U.S. Customs clearance upon release from Mexican 
Customs. This can save up to several hours in redundant communications 
between U.S. and Mexican brokers.
    The biweekly statement-processing component also enhances the 
modernization of the clearance process. The trade community, as well as 
Customs, benefits from this as it removes the entry-by-entry focus to 
the process and becomes more of an account management process, with all 
of the inherent efficiencies associated with it. For example, we need 
only make one financial disbursement every two weeks rather than 
several individual payments.
    Paperless entry processing, coupled with the ability to file all of 
our entry documents at one port, will allow Bosch to reduce transit and 
clearance time on air shipments by nearly one third. In a tight 
manufacturing environment, where the concept of ``just-in-time'' is a 
religion, this is of utmost importance.
    All of the above programs can not function outside of the ACE 
environment. Therefore it is imperative that Congress actively support 
this initiative. The international trade activities of U.S. 
corporations will only become more complex over future years and 
Customs must have an electronic infrastructure that can function in 
conjunction with those of the private sector. I urge your committee to 
give Customs the tools that it needs without further delay.

            Sincerely,
                                              Karl J. Riedl
                                 Manager, International Trade Dept.
      

                                


Statement of United States Association of Importers of Textiles and 
Apparel, New York, NY

    This is the written statement of the United States 
Association of Importers and Textiles and Apparel (``USA-
ITA'').
    USA-ITA is a voluntary association of 200 importers and 
retailers of textiles and apparel products as well as related 
service industries and transportation concerns. The importer 
and retailer members of USA-ITA import textiles and apparel 
with a first cost in excess of $44 billion. USA-ITA appreciates 
the opportunity to submit a statement on U.S. Customs Service 
issues. This is a topic of great significance to the members of 
USA-ITA.
    The particular issue of concern to USA-ITA is the proposed 
increase in the merchandise processing fee (the ``MPF'') to 
0.025 percent with a new cap of $575 from $485. Customs 
indicates that these increases are necessary to cover the 
expenses associated with the modernization of the automated 
commercial operations.
    Imports of textiles and apparel account for as much as 20 
percent of all entries and, since the applicable duties are 
among the highest imposed by the United States, represent a 
substantial percentage of revenues collected. Clearly, imports 
of textiles and apparel are an important segment of United 
States trade and of the national economy.
    USA-ITA supports modernization. Unfortunately, the Customs 
Service, for reasons which are explained below, has not 
extended to importers of textiles and apparel the benefits of 
modernization and automated commercial processing.
    USA-ITA objects to any increase in the MPF. If the members 
of USA-ITA are to be excluded from the benefits of 
modernization, they should not be required to pay for it in the 
form of an increased MPF.
    The members of USA-ITA recognize that because much of what 
they import is subject to quantitative restrictions, there will 
be some variance from normal entry procedures. However, the 
procedures currently in place are far more restrictive than is 
reasonable and necessary.
    The Customs Service operates two distinct sets of entry 
procedures, one for all importers, another for textile and 
apparel importers. The first set of rules is forward looking, 
technologically advanced, and characterized by cooperation with 
commercial interests. These procedures incorporate the benefits 
of modernization and automated commercial processing. On the 
other hand, the procedures applicable to importers of textiles 
and apparel are much the same that were in effect at the turn 
of the century. Much of this is an unnecessary burden on the 
Customs Service and the import community.
    Textile and apparel imports are subject to the entry/entry 
summary procedure. This means that goods are not released into 
commerce until responsible Customs officials have reviewed 
various paper documents. This is in contrast to what is now the 
normal procedure for other commodities. Imported merchandise is 
released frequently without examination, without the filing of 
paper documents, and in many cases before the merchandise 
actually reaches this country. Also, importers of other 
commodities have 10 days after release to complete the filing. 
Although the Customs Service has devised procedures for 
paperless entry, and a large percentage of imports are entered 
under these procedures, importers of textiles and apparel are 
denied access to this benefit on the basis only of the 
commodity imported and not because they, as importers, would 
not otherwise qualify for the program. This discrimination 
applies to importers of textiles and apparel alone. No other 
commodity, regardless of how sensitive, is subject to the same 
set of restrictions. The consequences of these procedures is 
increased delay and increased expense.
    The Customs Service understandably is moving away from 
reliance on paper filings. This is viewed as a way to cope with 
an ever-increasing level of entries. Nevertheless, importers of 
textiles and apparel are being saddled with additional 
documentary requirements.
    At present, importers of textiles and apparel must file the 
following documents with each commercial invoice included in an 
entry: 1) origin statement; 2) export license; and 3) quota 
statement. These documents are unique to textile and apparel 
entries and are in addition to the documents such as invoice 
and packing lists filed with all entries. These are paper 
documents, with a few exceptions, and must be presented to and 
reviewed by Customs prior to release of the merchandise. No 
other commodity is subject to these restrictions.
    To make matters worse, additional documentation is required 
in some shipments from Hong Kong and Macau and we understand 
that the requirements will be extended to Jamaica. All this 
makes it more unlikely that importers of textiles and apparel 
will enjoy the benefits of modernization.
    Importers of textiles and apparels now pay among the 
highest duties assessed by the United States. They also are 
required to pay the same MPF fee as other importers.
    The Customs Service has requested an increase in the MPF 
for the extensible purpose of funding modernization. It is 
unjust to require that importers of textiles and apparel pay an 
additional fee for modernization when they are not eligible for 
the benefits of modernization. If the purpose of the MPF is to 
fund modernization, importers of textiles and apparel should be 
exempted from paying the fee at all.
    The Customs Service has an annual budget of approximately 
$1.6 billion. We calculate that the duties paid on imports of 
textiles and apparel at approximately $6 billion. The duties 
paid by importers of textiles and apparel exceed the Customs 
budget by over $4 billion. Importers of textiles and apparel 
pay sufficient duties. They should not be required to pay the 
MPF and, in any event, should not have to pay an increased MPF. 
It would be quite another story, if importers of textiles and 
apparel were eligible for the benefits of modernization. Since 
they are not, USA-ITA opposes any effort to require that 
importers of textile and apparel be required to finance it.
    It would be quite another matter if the Customs Service had 
developed a plan to integrate imports of textiles and apparel 
into the modernized systems. It has not. Congress should 
require that the Customs Service develop a plan to integrate 
textiles and apparel fully before it authorizes additional 
funding for modernization. It makes no sense for Customs to 
work on a system from which approximately 20 percent of imports 
are excluded for dubious policy reasons.
    Funding to complete automation should come from general 
revenues, to which importers contribute over $19 billion in 
duties annually. Automation of Customs' operations will benefit 
the revenue, trade programs and other national interests. The 
private sector is not the only, or even the principal, 
beneficiary. In fact, as noted above, an important segment of 
the private sector will derive little or no benefit from 
automation. For these reasons, USA-ITA opposes any increase in 
the MPF.
    USA-ITA and its members appreciate the opportunity to 
comment on this important topic.
      

                                


                       Volvo Cars of North America, Inc    
                                              Rockleigh, NJ
                                                       May 11, 1998

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

Regarding: U.S. Customs Service automation and modernization efforts 
        and the mechanisms needed to fund those efforts

    Gentlemen,

    We offer this statement in support of the United States Customs 
Services' efforts to improve and modernize the commercial processing of 
legitimate cargo interests through the replacement of the Automated 
Commercial System (ACS) with an appropriate information architecture 
that supports the requirements of legitimate business interests.
    Since the enactment of the Customs Modernization Act as part of the 
North American Free Trade Agreement in 1993 we have seen a shift in the 
manner in which importers are treated by the Service. We have seen a 
shift towards ``account'' management principles and away from a 
transaction based processing environment. Legitimate importers welcome 
these new directions and an opportunity to work together, with the 
Customs Service, towards common goals. Those goals include a minimum 
amount of information at time of entry, a rapid release of cargo and a 
confidence of fair and equitable treatment. They also include a 
commitment by legitimate interests in maintaining a high level of 
compliance with US import regulations as evidenced through Customs 
programs such as Compliance Assessment Audits and Stratified Compliance 
Examinations.
    Importers who have established a confidence level that meets or 
exceed ambitious targets established by the Customs Service should 
expect to receive a minimum of governmental intrusion and a rapid 
release of cargo, while those who fail to commit resources in this area 
should expect a higher level of examinations and resultant delays in 
securing release of merchandise.
    We applaud the measures that the Service has implemented to 
maintain the current systems enabling rapid releases. We, however, are 
concerned that the current system is outdated and is rapidly 
approaching obsolescence. We are aware that the administration is 
proposing an increase of the Merchandise Processing Fees as part of the 
1999 budget to a level of 0.25 percent of value from 0.21 with a cap of 
575 dollars per entry from a present level of 485 dollars. We ask that 
any increase in the Merchandise Processing Fees that may be approved be 
segregated and released to the Customs Service for the sole purpose of 
funding the replacement commercial system.

            Respectfully submitted,
                                           Timothy J. Upton
                                      International Traffic Manager

                                  
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