[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



      TRADE AGENCY BUDGET AUTHORIZATIONS AND OTHER CUSTOMS ISSUES

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

                                HEARING

                               before the

                         SUBCOMMITTEE ON TRADE

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 17, 2001

                               __________

                           Serial No. 107-42

                               __________

         Printed for the use of the Committee on Ways and Means

                  U.S. GOVERNMENT PRINTING OFFICE
75-197                     WASHINGTON : 2001

____________________________________________________________________________
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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida           FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut        ROBERT T. MATSUI, California
AMO HOUGHTON, New York               WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota               GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa                     JOHN LEWIS, Georgia
SAM JOHNSON, Texas                   RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington            MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia                 WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio                    JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania           XAVIER BECERRA, California
WES WATKINS, Oklahoma                KAREN L. THURMAN, Florida
J.D. HAYWORTH, Arizona               LLOYD DOGGETT, Texas
JERRY WELLER, Illinois               EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin

                     Allison Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                         Subcommittee on Trade

                  PHILIP M. CRANE, Illinois, Chairman

E. CLAY SHAW, Jr., Florida           SANDER M. LEVIN, Michigan
AMO HOUGHTON, New York               CHARLES B. RANGEL, New York
DAVE CAMP, Michigan                  RICHARD E. NEAL, Massachusetts
JIM RAMSTAD, Minnesota               WILLIAM J. JEFFERSON, Louisiana
JENNIFER DUNN, Washington            XAVIER BECERRA, California
WALLY HERGER, California             JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania
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
Advisories announcing the hearing................................     2

                               WITNESSES

Office of the U.S. Trade Representative, Hon. Peter F. Allgeier, 
  Deputy United States Trade Representative......................    15
U.S. International Trade Commission, Hon. Stephen Koplan, 
  Chairman; accompanied by Steve McLaughlin, Director of 
  Administration; Rob Rogowsky, Director of Operations; Lyn 
  Schlitt, General Counsel; and Nancy Carman, Congressional 
  Relations Officer..............................................    19
U.S. Customs Service, Hon. Charles W. Winwood, Acting 
  Commissioner...................................................    26
U.S. Department of the Treasury, Dennis S. Schindel, Deputy 
  Inspector General, Office of Inspector General.................    45
U.S. General Accounting Office, Laurie E. Ekstrand, Director, 
  Justice Issues.................................................    47

                                 ______

American Association of Exporters and Importers, and Target 
  Customs Brokers, Inc., Target Corporation, Michael B. Laden....    69
Filner, Hon. Bob, a Representative in Congress from the State of 
  California.....................................................    10
Gonzalez, Hon. Charles A., a Representative in Congress from the 
  State of Texas.................................................    12
Joint Industry Group, and Caterpillar Inc., Ronald Schoof........    65
National Customs Brokers and Forwarders Association of America, 
  Inc., and F. Zuniga, Inc., Frederico C. Zuniga.................    81
National Treasury Employees Union, Colleen Kelley................    74
United States Association of Importers of Textiles and Apparel, 
  Julia K. Hughes................................................    85

                       SUBMISSIONS FOR THE RECORD

U.S. Office of Personnel Management, Donald J. Winstead, 
  questions and attachments......................................    92

                                 ______

Central American and Caribbean Textiles and Apparel Council, J. 
  Anthony Smith, statement and attachments.......................    94
International Mass Retail Association, Arlington, VA, statement..    95
U.S. Business Alliance for Customs Modernization, Jane O'Dell, 
  statement......................................................    97

 
      TRADE AGENCY BUDGET AUTHORIZATIONS AND OTHER CUSTOMS ISSUES

                              ----------                              


                         TUESDAY, JULY 17, 2001

                  House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 3:00 p.m., in 
room B-318 Rayburn House Office Building, Hon. Philip M. Crane 
(Chairman of the Subcommittee) presiding.
    [The advisory and revised advisory announcing the hearing 
follows:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON TRADE

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
July 9, 2001
No. TR-5

                       Crane Announces Hearing on

                   Trade Agency Budget Authorizations

                        and Other Customs 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 budget authorizations for fiscal 
years (FY) 2002 and 2003 for the U.S. Customs Service (Customs), U.S. 
International Trade Commission (ITC), Office of the United States Trade 
Representative (USTR), and on other Customs issues. The hearing will 
take place on Tuesday, July 17, 2001, in the main Committee hearing 
room, 1100 Longworth House Office Building, beginning at 10:00 a.m.

    Oral testimony at this hearing will be heard from both invited and 
public witnesses. Witnesses are expected to include representatives 
from Customs, ITC and USTR. However, 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:

Budget Authorizations:

    On May 9, 2001, the House passed H. Con. Res. 83 and established 
funding levels to accommodate the President's budget proposal. The 
President's budget proposal provided FY 2002 funding for ITC at $51 
million, USTR at $31 million, and Customs at $2.7 billion (of which 
$257 million is designated for Customs automation). Additional 
legislative assumptions contained in the budget are described below.

Other Customs Issues:

    Customs Automation: The current Customs automation system, the 
Automated Commercial System (ACS), is an aging 16-year-old system which 
has experienced several ``brownouts.'' ACS is operating on the average 
at 90 percent to 95 percent of its capacity, which is above its design 
specifications, creating difficulties in accommodating surges in the 
filing of Customs entry documentation that may occur daily or 
seasonally. Many observers, including Customs, have said that ACS is 
headed for a major system crash which may have an adverse impact on 
trade. It is likely that any serious failure of ACS would have 
widespread economic effects on U.S. businesses all along the supply 
chain including manufacturers, suppliers, brokers, and retailers.

    Customs plans to replace ACS with the Automated Commercial 
Environment (ACE) over the next four to seven years depending on 
funding. Some of the main differences between ACS and ACE are that ACE 
will use a single integrated system, modern standards, processes, 
techniques and language, and will be compatible with commercial 
software. By contrast, ACS does not have an integrated system, uses 
outdated techniques and languages, and cannot use commercially 
compatible software. Maintaining the adequate funding for ACE will save 
taxpayers $130 million in annual ACS life support funding and allow for 
many important system improvements that are not supportable by ACS.

    There are several issues for the Subcommittee to consider relating 
to ACE: (1) the cost of ACE, projected to be over $1 billion, (2) the 
need for additional funding for ACE in the FY 2002 budget, (3) the 
question of whether Customs' ACE design and architecture will meet 
future requirements, and (4) the role of the trade industry in building 
ACE.

    Entry Revision Process (ERP): ERP is a plan under development to 
improve the procedures for allowing goods to enter the United States 
and be processed by Customs. Since passage of the 1996 Customs 
Modernization Act, Customs and the import community have been searching 
for ways to implement the Act by making entry of goods faster, cheaper, 
and easier. Studies by industry have shown that the costs of Customs 
administration can be as high as 5 percent of the costs of the goods 
sold. Many businesses rely upon just-in-time manufacturing and have a 
need for the entry process to better reflect modern ways of doing 
business. All agree that the current transaction-based method of 
operations no longer makes sense, and we must move to a simplified, 
account-based system. Issues for the Subcommittee to address involve 
whether Customs is appropriately fashioning a revised entry process to 
take full advantage of ACE and to meet the requirements of the modern 
business environment.

    Compensation System for Customs Officers: Customs fees created by 
the Consolidated Omnibus Budget Reconciliation Act (COBRA) 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 the 106th Congress, Chairman Crane introduced H.R. 
1833, ``The Trade Agency Authorization Act,'' which included budget 
authorizations for the ITC, USTR, and Customs and made reforms to 
Customs overtime and premium pay. H.R. 1833 was approved by the House 
on May 25, 1999, by a vote of 410-2. The Senate approved a modified 
version of the trade agency authorization that did not include 
provisions on Customs overtime and premium pay. No further action was 
taken.

    In announcing the hearing, Chairman Crane stated: ``As we approach 
the next millennium, we must make sure that our trade agencies have the 
tools they need to get their job done and done right, and maintain the 
capability to vigorously enforce our anti-drug and trade laws. However, 
we must do this in the most cost-effective manner, continuing to pursue 
needed reforms at Customs and elsewhere to ensure that the taxpayers 
who pay for these services are getting their money's worth.''

FOCUS OF THE HEARING:

    The hearing will focus on budget authorizations for fiscal years 
2002 and 2003 for Customs, ITC, and USTR. In addition, the hearing will 
address other Customs issues, including: Customs automation and 
modernization efforts and the mechanisms needed to fund them, the 
progress of Customs Entry Revision Project, the progress in 
implementing the Trade and Development Act of 2000 (the Africa Growth 
and Opportunity Act and the United States-Caribbean Basin Trade 
Partnership Act), the compensation system for Customs officers, drug 
enforcement issues, and general Customs oversight issues.

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:

    Requests to be heard at the hearing must be made by telephone to 
Traci Altman or Bill Covey at (202) 225-1721 no later than the close of 
business, Wednesday July 11, 2001. The telephone request should be 
followed by a formal written request to Allison Giles, Chief of Staff, 
Committee on Ways and Means, U.S. House of Representatives, 1102 
Longworth House Office Building, Washington, D.C. 20515. The staff of 
the Subcommittee on Trade will notify by telephone those scheduled to 
appear as soon as possible after the filing deadline. Any questions 
concerning a scheduled appearance should be directed to the 
Subcommittee on Trade staff at (202) 225-6649.

    In view of the limited time available to hear witnesses, the 
Subcommittee may not be able to accommodate all requests to be heard. 
Those persons and organizations not scheduled for an oral appearance 
are encouraged to submit written statements for the record of the 
hearing. All persons requesting to be heard, whether they are scheduled 
for oral testimony or not, will be notified as soon as possible after 
the filing deadline.

    Witnesses scheduled to present oral testimony are required to 
summarize briefly their written statements in no more than five 
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full 
written statement of each witness will be included in the printed 
record, in accordance with House Rules.

    In order to assure the most productive use of the limited amount of 
time available to question witnesses, all witnesses scheduled to appear 
before the Subcommittee are required to submit 200 copies, along with 
an IBM compatible 3.5-inch diskette in WordPerfect or MS Word format, 
of their prepared statement 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 
Friday, July 13, 2001. 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 six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect or MS Word format, with their name, address, 
and hearing date noted on a label, by the close of business, Thursday, 
July 31, 2001, to Allison Giles, 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, by close of business the day before the hearing.

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 submitted on an IBM compatible 3.5-inch diskette in WordPerfect or 
MS Word format, typed in single space and may not exceed a total of 10 
pages including attachments. 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, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. 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://waysandmeans.house.gov/''.

    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.

                                


              *** NOTICE--CHANGE IN TIME AND LOCATION ***

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                         SUBCOMMITTEE ON TRADE

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
July 13, 2001
No. TR-5--Revised

             Change in Location for Subcommittee Hearing on

                    Change in Time and Location for

                  Subcommittee Hearing on Trade Agency

             Budget Authorizations and Other Customs Issues

    Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade 
of the Committee on Ways and Means, today announced that the 
Subcommittee hearing on budget authorizations for fiscal years 2002 and 
2003 for the U.S. Customs Service, U.S. International Trade Commission, 
Office of the United States Trade Representative, and on other Customs 
issues, previously scheduled for Tuesday, July 17, 2001, in the main 
Committee hearing room, 1100 Longworth House Office Building, beginning 
at 10:00 a.m., will now be held at 3:00 p.m. in room B-318 Rayburn 
House Office Building.

    All other details for the hearing remain the same. (See 
Subcommittee press release No. TR-5, dated July 9, 2001.)

                                


    Chairman Crane. If everyone will please take seats and 
discontinue conversation, we shall commence our hearing this 
afternoon.
    And welcome to the Trade Subcommittee hearing on budget 
authorizations for fiscal years 2002 and 2003 for the U.S. 
Customs Service, the U.S. International Trade Commission (ITC), 
and the Office of the U.S. Trade Representative (USTR) and 
other customs issues.
    The Office of the U.S. Trade Representative is responsible 
for developing, coordinating, and advising the President on 
U.S. international trade policy. USTR staff and consultants 
conduct our trade negotiations, seek new markets for U.S. goods 
and services, and defend our rights in the World Trade 
Organization (WTO). We should be impressed by the breadth and 
depth of USTR's work and accomplishments, especially now when 
we are asking them to undertake so many trade initiatives 
around the world.
    We would also review the Customs budget request during our 
hearing. As a multi-mission organization, Customs is expected 
to meet a variety of demands and responsibilities, some of 
which might be conflicting. Customs is expected to facilitate 
trade to meet the fast deadlines for goods and services 
delivery while playing a critical role in border inspection, 
antiterrorism, and drug interdiction, which often results in 
delays.
    Customs must recognize the need to facilitate the movement 
of legitimate commerce. This is where technology such as non-
intrusive inspection technology or automated screening systems 
can assist Customs' efforts.
    This is also where modern technology for trade data can 
also assist Customs' data processing efforts. It is essential 
to update U.S. Customs' automated systems for U.S. industry and 
the population at large.
    Any potential slowdown or brownout in Customs' electronic 
entry process system can adversely affect critical imports.
    Today we will hear views from Customs, the Treasury, the 
General Accounting Office (GAO), and the trade community about 
modernizing and funding for automation to meet the increasing 
volume of trade data. We will also hear about efforts to revise 
the process of bringing goods into the U.S. and what 
improvements are being proposed.
    One of the most important points I want to make today is 
addressed to Customs and the Treasury Department. This Congress 
passed the Africa Growth and Opportunity Act and the Caribbean 
Basin Trade Partnership Act with the intent of helping those 
regions develop. Some provisions are simply being ignored or 
given tortured meaning to render them null and void.
    Where trade has been enhanced, Customs is virtually 
strangling it with regulations. Our message to the 
administration is simple: Implement this free trade law.
    Customs faces enormous challenges, and every day Customs 
officers rise to meet these challenges. While I acknowledge the 
outstanding work of Customs officials, I remain concerned about 
the law written before Republicans took the majority that 
allows Customs officials to receive nighttime pay for working 
at noon.
    I have an open mind about this matter, and I have asked 
several witnesses to address this matter, bringing new data to 
bear. I am very willing to listen to ideas of mending an 
apparent flaw while properly compensating Customs officers for 
their actual hard work performed.
    Today, we will hear from the Office of the Inspector 
General, the General Accounting Office, and the union on these 
Customs labor issues.
    Finally, Customs must take care that its integrity is 
intact and that its internal corruption tolerance rate is zero. 
Our ability to interdict drugs at our borders depends on 
maintaining sound integrity.
    We will also receive testimony from the International Trade 
Commission. The ITC has a unique role within the Federal 
Government as an independent, nonpartisan, quasi-judicial 
agency. The ITC conducts trade investigations, provides 
Congress with technical assistance in developing trade policy, 
maintains the Harmonized Tariff Schedule, and offers technical 
advice to businesses seeking remedies under the trade laws.
    The ITC and this Subcommittee have always enjoyed a close 
and supportive relationship.
    And I would now like to recognize our distinguished Ranking 
Member, Mr. Levin, for any statement he would make.
    [The opening statement of Chairman Crane follows:]

  Opening Statement of the Hon. Philip M. Crane, a Representative in 
  Congress from the State of Illinois, and Chairman, Subcommittee on 
                                 Trade

    Welcome to the Trade Subcommittee hearing on budget authorizations 
for fiscal years 2002 and 2003 for the U.S. Customs Service, the U.S. 
International Trade Commission, and the Office of the U.S. Trade 
Representative, and on other Customs issues.
    The Office of the U.S. Trade Representative is responsible for 
developing, coordinating, and advising the President on U.S. 
international trade policy. USTR staff and consultants conduct our 
trade negotiations, seek new markets for U.S. goods and services, and 
defend our rights in the World Trade Organization. We should be 
impressed by the breadth and depth of USTR's work and accomplishments, 
especially now when we are asking them to undertake so many trade 
initiatives around the world.
    We will also review the Customs budget request during our hearing. 
As a multi-mission organization, Customs is expected to meet a variety 
of demands and responsibilities, some of which might be conflicting. 
Customs is expected to facilitate trade to meet the fast deadlines for 
goods and services delivery while playing a critical role in border 
inspection, anti-terrorism, and drug interdiction, which often results 
in delays.
    Customs must recognize the need to facilitate the movement of 
legitimate commerce. This is where technology such as non-intrusive 
inspection technology or automated screening systems can assist 
Customs' efforts. This is also where modern technology for trade data 
can also assist Customs' data processing efforts. It is essential to 
update U.S. customs automated systems for U.S. industry and the 
population at large. Any potential slow down or ``brown out'' in U.S. 
customs electronic entry process system can adversely affect critical 
imports. Today we will hear views from Customs, the Treasury, the 
General Accounting Office, and the trade community about modernizing 
and funding for automation to meet the increasing volume of trade data. 
We will also hear about efforts to revise the process of bringing goods 
into the U.S. and what improvements are being proposed.
    One of the most important points I want to make today is addressed 
to Customs and the Treasury Department. This Congress passed the Africa 
Growth and Opportunity Act and the Caribbean Basin Trade Partnership 
Act with the intent of helping those regions develop. Some provision 
are simply being ignored or given tortured meanings to render them null 
and void. Where trade has been enhanced, Customs is virtually 
strangling it with regulations. Our message to the Administration is 
simple--implement this free trade law!
    Customs faces enormous challenges, and every day Customs officers 
rise to meet these challenges. While I acknowledge the outstanding work 
of Customs officials, I remain concerned about the law written before 
Republicans took the majority that allows Customs officials to receive 
night time pay for working at noon. I to have an open mind about this 
matter, and I have asked several witnesses to address this matter 
bringing new data to bear. I am very willing to listen to ideas of 
mending an apparent flaw while properly compensating Customs officers 
for their actual hard work performed. Today, we will hear from the 
Office of the Inspector General, the General Accounting Office and the 
Union on these Customs labor issues.
    Finally, Customs must take care that its integrity is intact and 
that its internal corruption tolerance rate is zero. Our ability to 
interdict drugs at our borders depends on maintaining sound integrity.
    We will also receive testimony from the International Trade 
Commission. The ITC has a unique role within the Federal government as 
an independent, nonpartisan, quasi-judicial agency. The ITC conducts 
trade investigations, provides Congress with technical assistance in 
developing trade policy, maintains the Harmonized Tariff Schedule, and 
offers technical advice to business seeking remedies under the trade 
laws. The ITC and this Subcommittee have always enjoyed a close and 
supportive relationship.

                                


    Mr. Levin. Thank you very much, Mr. Chairman.
    I understand we are going to have quite a series of votes 
fairly soon, so let me do what I usually don't do, and that is 
submit this in the record. And I won't go over each and every 
one of these words for posterity.
    But let me say just a few words then quickly about this 
authorization for some really important agencies.
    ITC, I think we are fully aware of its significance, and 
that is today highlighted by the 201 investigation of the steel 
industry. The report is due within a few months, and it is a 
vital undertaking.
    So I would hope that we would have some questions not about 
that per se, but about the work of the ITC and then get on with 
it.
    But the same is really true of USTR. Its importance doesn't 
need to be underlined by me.
    Mr. Chairman, you and I spend a lot of time with USTR.
    I will be interested in the progress in the new positions 
that were created at USTR as part of the trade compliance 
initiative, and also the positions that were to be used to 
monitor China's accession and to make sure that it fulfills its 
commitments.
    I hope the China commission that we created as part of 
Permanent Normal Trade Relations (PNTR) will soon be in 
operation.
    As to Customs, I don't think I need to say anything at any 
length about the adjusted current earnings (ACE) program and 
how vital it is that we get on with it, among other 
improvements within Customs.
    It has been a long time since we have passed an 
authorization for these agencies. And in recent years, we have 
been stuck on issues that I don't think are particularly 
salient to the overall operations of these agencies, including 
Customs.
    I would hope, as we question, as the Chairman said, those 
who do so with an open mind, we can also remember the 
importance of looking at the larger picture and also the 
experience of officials as they operate these agencies. They 
have some wisdom, and I think we ought to listen to it.
    So in a word, Mr. Chairman, I hope that we can agree on the 
need to reassert this Subcommittee and the Committee's voice in 
the appropriations debate and pass the budget authorization 
request for these three agencies.
    And, again, I will submit my full statement for the record.
    [The opening statement of Mr. Levin follows:]

  Opening Statement of the Hon. Sander M. Levin, a Representative in 
                  Congress from the State of Michigan

    Today we are here to discuss the budget authorizations for three 
federal agencies that, I believe, are critically important to the 
expansion of the U.S. economy and the functioning of U.S. trade policy 
and law enforcement. The U.S. International Trade Commission, the 
United States Trade Representative, and the U.S. Customs Service 
promote the expansion of U.S. export markets and protect our domestic 
workers and businesses from the perils of unfair trade and sudden 
import surges. I urge the subcommittee to support the work of these 
agencies, and recognize their importance to the U.S. economy, by 
approving in full their budget requests.

ITC
    The United States International Trade Commission often stands 
between U.S. workers and the effects of unfair trade. In fact, the ITC 
is currently engaged in a number of antidumping and countervailing duty 
investigations dealing with unfairly traded steel. Additionally, the 
ITC has recently started a Section 201 investigation into the damaging 
level of steel imports in recent years. Their report is due out within 
the next few months, and represents just one example of the important 
work of the ITC.

USTR
    The importance of the United States Trade Representative is not 
lost on this Subcommittee. The role that the USTR plays in expanding 
foreign markets for U.S. exports, maintaining the integrity of our 
trade laws, and ensuring that our trade partners live up to their 
international and bilateral obligations is critical to the health of 
our economy, and must be recognized by the Congress.
    I do hope that Ambassador Allgeier will be able to provide us with 
additional information on the new positions created at USTR as part of 
the Clinton Administration's trade compliance initiative. In 
particular, I would also be interested in hearing how USTR will use the 
new positions to monitor China to ensure that it fulfills the 
commitments made as part of its WTO accession.

Customs
    Strong congressional support for Customs will increase the agency's 
efficiency and vitality, lowering transaction costs, waiting periods 
and prices for U.S. importers and consumers. That is why I am urging 
the Subcommittee to approve the budget authorization for U.S. Customs, 
to support its efforts to increase efficiency--especially through the 
ACE program--and to address the issue of compensation in a rational and 
comprehensive manner.
    The ACE program--or Automated Commercial Environment--is an effort 
to modernize the technology used by Customs officers as they monitor 
and regulate the flow of goods into our country. The current, outdated 
system is operating beyond capacity and appears to be reaching the end 
of its useful life. The pace at which the ACE upgrade may take place is 
contingent upon the level of funding provided by Congress.
    Strong fiscal support will mean a more rapid increase in the 
efficiency of the Customs Service--a result that is positive for both 
taxpayers and consumers. Taxpayers will benefit by saving $130 million 
in annual life support that the current, antiquated system demands, and 
consumers will benefit as imports enter our markets more rapidly and at 
a lower cost.
    As we consider modifying the compensation program for Customs 
officials, it is important that we address the payment system as a 
whole, avoiding the use of cosmetic measures that unfairly penalize one 
group of workers within the agency. In 1993, Congress passed 
legislation that overhauled the Customs payment program. The reforms 
reduced inefficiencies and the potential for abuse, and struck a 
balance between budget priorities and avoiding arbitrary salary cuts 
for Customs employees. Any solution to ongoing personnel issues should 
maintain the integrity of that balance by taking a comprehensive, not 
piecemeal, approach.

Conclusion
    I do not need to remind the Subcommittee that it has been over ten 
years since the last passage of authorization for trade agencies. I 
find this to be a dangerous and unsettling abdication of Congressional 
input into the way in which our trade agencies use federal funds. It is 
my hope that this year will be different, but I fear that we are 
embarking on the same familiar path of disagreement and unproductive 
stalemate. Continuing to rehash the same arguments every year 
constitutes a disservice to our trade agencies and the public.
    Once again, I would like to emphasize that piecemeal attempts to 
change the Customs payment system will create endless dissent within 
the Committee without opening the possibility for meaningful reform.
    Mr. Chairman, I sincerely hope that we can agree on the need to 
reassert this Committee's voice in the appropriations debate, and pass 
the budget authorization requests for all three agencies.
    Thank you.

                                


    Chairman Crane. Without objection, so ordered. Thank you, 
Mr. Levin.
    And today we will hear from a number of distinguished 
witnesses.
    And in the interest of time, I would ask that you try and 
keep your oral testimony to 5 minutes or less. But all written 
statements will be made a part of the permanent record.
    And we now have our first two witnesses, our distinguished 
colleagues, the Honorable Robert Filner from California and the 
Honorable Charles Gonzalez from Texas. And please proceed in 
that order.

STATEMENT OF THE HON. BOB FILNER, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF CALIFORNIA

    Mr. Filner. Thank you, Mr. Chairman.
    Good afternoon. Thank you for holding this hearing and 
thank you for allowing your colleagues who are not on this 
Committee to speak.
    I think I bring to you a very unique perspective on trade. 
As the congressman whose district sits on the Mexican-
California border and includes the busiest border crossing in 
the world at San Ysidro and one of the largest commercial 
crossings at Otay Mesa, I think I can tell about the policies 
that certainly impede trade.
    Having border crossings that are adequately staffed is a 
priority for all of us in the San Diego region. When the 
Customs inspection lanes are not open as they should be, 
waiting times increase to unacceptable levels. One hour or even 
three hour delays are not unheard of, affecting businesses 
throughout San Diego County and the livelihood of most of my 
constituents.
    Long delays at the border impede what should be a normal, 
legal flow of goods, services, and workers between the United 
States and Mexico.
    These border crossings simply are not adequately staffed. 
We have 16 lanes at Otay Mesa that Congress voted to build. We 
have 24 lanes at San Ysidro. Even at the times of greatest 
traffic, many lanes are routinely unstaffed.
    The problems of the staffing are largely a function of the 
United States' difficulty in attracting and retaining Customs 
and Immigration and Naturalization Service (INS) inspectors. 
These inspectors face incredible day-to-day rigors on their 
jobs. I have seen them personally many times, as I try to share 
in their job on the border.
    They risk encountering life-threatening interactions with 
smugglers intent to push their way into the United States at 
any cost. There have been shoot-outs at the border inspection 
stations.
    Yet these valiant inspectors are not recognized with the 
status that we call ``law enforcement status,'' which other 
Federal law enforcement officers enjoy. I continually hear 
stories in San Diego County of inspectors, who our country 
trains at our finest Federal law enforcement academies, leaving 
for other agencies, in the area that they do adequately 
recognize them for the law enforcement officers they are.
    I know that a Customs inspector, for example, Roberto 
LaBrada, who was injured during a shoot-out with a drug 
smuggler a few years ago at the Calexico border crossings, 
finds this sad truth to be incredibly ironic: Had he or his 
partner, Inspector Nicolas Lira, been killed during the shoot-
out, their names, Mr. Chairman, would have been inscribed on 
the walls of the National Law Enforcement Officers Memorial 
just a few blocks from here. Their names would have been 
inscribed on that wall. But in life, they have no such benefits 
or recognition.
    That has to affect recruitment and retention. In fact, from 
1998, when we had a peak of 701 inspectors, we are now down to 
619 Customs inspectors. The INS has had difficulty maintaining 
its peak number also, and recruitment and retention is a key 
reason. INS inspectors also lack law enforcement status.
    There is little incentive to take such dangerous jobs as 
they hold. Seventy-five Customs officers' names are inscribed 
on this memorial, the National Law Enforcement Officers 
Memorial, and each inspector knows that he or she could be 
next. It is just plain demoralizing for them to put their lives 
on the line without getting the recognition for the dangers of 
the job.
    Thus far, we in Congress have said ``no'' to these officers 
and the hardworking Customs inspectors who work in long, 
polluted lines of cars, never knowing which one may have the 
next desperate smuggler.
    They carry guns, make arrests, seize more illegal drugs 
than any other Federal group, and yet they do not have law 
enforcement officer benefits.
    I do have a bill, H.R. 1841; others will mention it today. 
This changes that situation and it says ``yes'' to ensuring a 
strong and vigorous work force necessary for our country to 
have the finest level of protection possible.
    Our country deserves no less, Mr. Chairman. And these 
valiant officers who protect us deserve no less.
    Any costs created by the change of their status is offset 
by savings in training costs and increased revenue collection. 
A 20-year retirement bill for these employees will reduce 
turnover, increase yield, decrease recruitment and development 
costs, and enhance the retention of a well-trained and 
experienced workforce.
    I hope that this Committee will consider these personnel 
and morale issues when discussing the important role that the 
Customs Service plays in our country's trade policy.
    And I thank you, Mr. Chairman, for looking at these issues 
and allowing us the opportunity to be with you today.
    [The prepared statement of Mr. Filner follows:]

Statement of the Hon. Bob Filner, a Representative in Congress from the 
                          State of California

    Good afternoon, thank you for recognizing me, Mr. Chairman, and 
providing me the opportunity to speak. I am here to offer a very unique 
perspective on trade--as the Congressman whose district includes two of 
the busiest border crossings in the world, the San Ysidro and Otay Mesa 
crossings between San Diego and Tijuana, I can tell you about policies 
that impede trade.
    Having border crossings that are adequately staffed is a priority 
for those of us in the San Diego region. When the Customs inspections 
lanes are not open as they should be, waiting times increase to 
unacceptable levels--45 minutes or even hours are not unheard of, 
affecting businesses throughout San Diego County. Long delays at the 
border impedes what should be a normal, legal flow of goods, services 
and workers between the United States and Mexico.
    The border crossings simply are not adequately staffed--many of the 
16 lanes at Otay Mesa that Congress voted to build, and the 20+ lanes 
at San Ysidro, are routinely unstaffed, even at the times of greatest 
traffic.
    The problems of staffing are largely a function at the United 
States' difficulty attracting and retaining Customs and Immigration and 
Naturalization Service inspectors. These inspectors face incredible 
day-to-day rigors on their jobs. They risk encountering life-
threatening interactions with smugglers intent to push their way in to 
the U.S. at all costs. There have been shoot outs at the border 
inspection stations, yet these valiant inspectors are not recognized 
with law enforcement status that other federal law enforcement officers 
enjoy. I continually hear stories in San Diego County of inspectors who 
the U.S. trains at our finest federal law enforcement academies leaving 
for other agencies in the area that do adequately recognize them for 
the law enforcement officers they are.
    I know that Customs Inspector Roberto LaBrada, who was injured 
during a shoot out with a drug smuggler a few years ago at the Calexico 
border crossing finds this sad truth to be incredibly ironic--had he or 
his partner, Inspector Nicolas Lira, been killed during that shoot out, 
their names would have been inscribed on the walls of the National Law 
Enforcement Officers Memorial a few blocks from the U.S. Capitol. But 
in life, they would have no such benefits nor recognition.
    How can such a sad and ironic truth NOT affect recruitment and 
retention? There are 619 Customs inspectors at our ports, down from a 
peak of 701 in 1998. The Immigration and Naturalization Service also 
has had difficulty maintaining its peak number of inspectors from 1998 
and mentions recruitment and retention of their inspectors as a key 
reason.
    Customs cannot fill these positions in many cases because there is 
little incentive to tackle such dangerous jobs. There are 75 Customs 
officers whose names are on the National Law Enforcement Officers 
Memorial--each inspector knows that he or she could be next. It is 
demoralizing for them to put their lives on the line without receiving 
appropriate recognition for the dangers of the job.
    Thus far, Congress has said ``no'' to the fallen officers, and the 
hardworking Customs inspectors who toil daily in long, polluted lines 
of cars--never knowing which car may contain the next desperate 
smuggler. Customs inspectors carry guns, make arrests and seize more 
illegal drugs than any other federal group--it is unconscionable that 
they do not have a law enforcement officer benefit!
    My Law Enforcement Officer Equity Act, LEO Equity Act, H.R. 1841, 
says ``Yes!'' to these officers. My LEO Equity Act says, ``Yes!'' to 
ensuring the safety of our country as these officers protect our 
borders and ports of entry. It says, ``Yes!'' to ensuring a strong and 
vigorous workforce necessary for our country to have the finest level 
of protection possible.
    Our country deserves no less and these valiant officers who protect 
us deserve no less. Any cost created by this act is offset by savings 
in training costs and increased revenue collection. A 20-year-
retirement bill for these employees will reduce turnover, increase 
yield, decrease recruitment and development costs, and enhance the 
retention of a well-trained and experienced workforce.
    I ask the Committee to strongly consider these personnel and morale 
issues when discussing the important role that the Customs Service 
plays in our country's trade policy. Thank you Mr. Chairman.

                                


    Chairman Crane. Thank you, Mr. Filner. Mr. Gonzalez.

STATEMENT OF THE HON. CHARLES A. GONZALEZ, A REPRESENTATIVE IN 
                CONGRESS FROM THE STATE OF TEXAS

    Mr. Gonzalez. Mr. Chairman, and Ranking Member Levin, 
again, thank you very much for the opportunity of appearing 
before you today to testify on designating the San Antonio 
International Airport as a permanent port of entry for customs 
processing.
    I know you have very weighty matters here today. This is a 
small piece of that puzzle. But it is very, very important to 
the community of San Antonio.
    As you may be aware, San Antonio is located only about 150 
miles from the Mexican border. Obviously, we have very strong 
cultural and economic ties with Mexico and have had for a 
number of years.
    But with the advent of North American Free Trade Agreement 
(NAFTA), obviously this has increased tremendously. NADBank is 
actually located and headquartered in downtown San Antonio.
    Approximately a year ago, with the help of this Committee 
and Members of this Committee, we were able to get our San 
Antonio International Airport designated as a port of entry. 
Unfortunately, this was only for a period of 2 years. And at 
the expiration of those 2 years, obviously it no longer has 
that designation, and we will run into problems.
    One barrier to our city's ability to attract international 
companies and their investment in San Antonio until last year 
was that businesses that fly private aircraft from Mexico had 
to make an interim stop to clear Customs before arriving at 
their final destination of San Antonio.
    What does this mean to the individual businessperson? It 
means that that cost--they are only 150 miles from San 
Antonio--is $1,500 to $2,000 when they stop, and they lose 1.5 
to 2 hours in time.
    As indicated, we were able to remedy this last year, but 
now we are seeking a permanent designation of the San Antonio 
International Airport as a port of entry.
    I do wish to advise Members of the Committee that I have 
personally gone out there to view the Customs operation as well 
as the Immigration operation there in the San Antonio 
International Airport, and I want to commend Mr. Gurdit 
Dhillon, the United States Customs Service director of field 
operations for South Texas, who was present there.
    They have been doing a wonderful job. This is something 
that they can easily accommodate.
    But to give you some idea of what is happening, in the 
first 6 months of the year 2000, the San Antonio airport 
accommodated 432 private aircraft on Customs processing. In the 
first 6 months of 2001, 675 private aircraft were processed. So 
as word gets out, obviously there is greater use.
    I don't see that there is going to be any complications or 
that there is going to be a tremendous demand on resources of 
Customs in this particular case. But San Antonio has maybe 
finally arrived after many, many years of being the economic 
stepchild of South Texas. And I would really appreciate your 
support in seeking the permanent designation.
    Thank you again.
    [The prepared statement of Mr. Gonzalez follows:]

Statement of the Hon. Charles A. Gonzalez, a Representative in Congress 
                        from the State of Texas

    Mr. Chairman, Ranking Member, and Members of the Committee. I thank 
you for the opportunity to testify on designating the San Antonio 
International Airport as a permanent port of entry for customs 
processing.
    The City of San Antonio, Texas is located approximately 150 miles 
from the U.S.-Mexico border. Historically, the city has had strong 
cultural and business ties with Mexico. Since NAFTA was approved in 
1993, these ties have only become stronger as we have seen the 
expansion of trade between the two countries foster economic 
development in our city. For example, the North American Development 
Bank, or NADBank, created under NAFTA, is located in downtown San 
Antonio. In addition, several of San Antonio's large corporations have 
business interests in Mexico and the City of San Antonio itself has 
instituted the CASA Program. The CASA Program complements state and 
federal export assistance programs, focusing on small and medium sized 
companies interested in conducting business in Mexico. Letters and an 
article from the San Antonio Express-News in support of this airport 
designation are attached for your review.
    Moreover, in conjunction with the Free Trade Alliance of San 
Antonio, the City of San Antonio is working to develop the city as a 
competitive International Trade Center in the Americas to attract 
foreign investment and to facilitate improvements to the trade 
infrastructure that will reduce barriers to trade.
    One barrier to our city's ability to attract international 
companies and their investment in San Antonio is that until last year, 
businesses that fly private aircraft from Mexico had to make an interim 
stop to clear customs before arriving at their final destination of San 
Antonio. Making this interim stop can cost the private aircraft owner 
$1,500 to $2,000 and a loss of 1\1/2\ to 2 hours in time. However, in 
the last session of Congress, we included a provision in the 
Miscellaneous Trade and Technical Corrections Act of 2000 to designate 
the San Antonio International Airport as an international port of 
entry. This provision allows private aircraft arriving from foreign 
destinations to fly directly into the San Antonio airport for customs 
processing.
    However, the port of entry designation is a conditional provision 
lasting only two years and expiring in 2002. I would like to make this 
designation permanent and am here today to ask that the Committee adopt 
language in the Customs Reauthorization bill making the San Antonio 
International Airport's designation as an international port of entry 
permanent.
    Private aircraft have been arriving at the San Antonio airport from 
Mexico for several months now and the program has been a resounding 
success. The travelers that have been able to fly straight into San 
Antonio, without an interim stop, have been especially pleased with the 
ease in which they can enter the U.S. to conduct their business. On a 
recent tour of the customs processing facility, I had the privilege of 
meeting and discussing the change with Mr. Gurdit Dhillon, the U.S. 
Customs Service's Director of Field Operations for South Texas. I was 
impressed by his enthusiasm and ideas for accommodating private 
aircraft landing in San Antonio and I am certain that under his 
guidance, the final, permanent implementation will be a success. I have 
also been recently informed that the airport is making enhancements by 
installing monitors and cameras in the customs and immigration area to 
improve both Customs' and INS's ability to process incoming aircraft.
    The airport designation is an extremely important component of 
economic development for the City of San Antonio. By facilitating 
customs processing for private aircraft, the ability for companies on 
both sides of the U.S.-Mexico border to conduct business is enhanced by 
saving valuable time and money. The Customs Service's ability to 
process aircraft has already proven to be a success and will continue 
should the designation as a port of entry be made permanent.
    I thank you again for this opportunity to testify before you and 
the Committee, and I look forward to working with you on policy that 
promotes trade and investment in the City of San Antonio.
    [The attachments are being retained in the Committee files.]

                                


    Chairman Crane. Thank you, Mr. Gonzalez. Do you have any 
questions, Mr. Levin?
    Mr. Levin. No, just to say, we will work on both. And we 
are glad you are here to raise these issues. So we will work on 
both.
    Mr. Gonzalez. Thank you again.
    Mr. Filner. Thank you.
    Chairman Crane. Well, thank you for your participation.
    And with that, I would now like to invite our first panel 
of witnesses, deputy U.S. Trade Representative, Peter F. 
Allgeier; acting Customs commissioner, Charles Winwood; and, 
ITC chairman, Stephen Koplan. And if you folks will please take 
seats.
    And, again, if you can keep your oral testimony to 5 
minutes or less. And that is what this little gadget in front 
here with that light is for, to go from the green light to the 
yellow light, the warning light, to the red light, which means 
stop. Please try and keep your oral testimony to 5 minutes or 
less. And any written statements, though, will be made a part 
of the permanent record.
    And with that, Mr. Allgeier, you may proceed.

 STATEMENT OF THE HON. PETER F. ALLGEIER, DEPUTY UNITED STATES 
    TRADE REPRESENTATIVE, OFFICE OF THE UNITED STATES TRADE 
                         REPRESENTATIVE

    Mr. Allgeier. Thank you, Mr. Chairman. I would like to 
thank you and Congressman Levin for holding this hearing.
    And basically, I would like to make three points. One, to 
thank this Committee for the support that is provided in the 
past. Second, to explain how we have been using the additional 
resources that you have provided in this fiscal year. And 
third, to seek your support for our future operations.
    First, we are very grateful of course for the addition to 
our budget in this current fiscal year and the additional 
staff.
    Are you going to take a break?
    Chairman Crane. No, no.
    Mr. Levin. Keep going.
    Mr. Allgeier. OK, all right.
    But particularly, we are very appreciative of the 
unwavering support for our overall mission of opening markets, 
getting rid of trade barriers, and enforcing our agreements and 
our trade laws.
    And let me just say that the support that we have had from 
the Committee and from the staff has been very welcome and very 
much appreciated. It is at least as important as the financial 
support that we have gotten from you.
    In the current fiscal year, we received an additional $4 
million in our budget and 25 additional full-time equivalent 
staff to help us deal with the growing negotiations and 
caseloads that we have.
    In terms of using or allocating the additional staff, more 
than half of the staff--13 positions--have been allocated for 
compliance and enforcement. Part of that has been to strengthen 
the general counsel's office, where the litigation in the WTO 
and NAFTA takes place, and part of it is to have compliance and 
enforcement capabilities within the functional offices and the 
geographic offices.
    We don't just exercise compliance and enforcement through 
litigation, but also through trying to negotiate differences of 
interpretation and agreements.
    Eleven of the new positions are for negotiators, and I 
think you know very well the additional negotiation burdens 
that we have. We have the ongoing negotiations in the WTO on 
agriculture and services. We are working toward launching a new 
round. But even as we do that, we have full-time negotiations 
on the Free Trade Area of the Americas and bilateral free trade 
agreements with Chile and Singapore.
    The third area in which we have used the additional 
resources and money beyond negotiators and compliance is in the 
area of upgrading our communications security. Increasingly, we 
are doing our business across the Internet and through 
electronic communications. And it is vital, actually, to our 
mission that we have good security in those communications.
    And so we have been using some of the additional financial 
resources over the last year to upgrade these aspects of our 
computer network as well as our communication with the State 
Department in transmitting electronically cables, which we will 
soon have that capability and that will increase our 
efficiency.
    That, very briefly, is how we are using the additional 
resources that we have been granted this year. And as we 
approach the new fiscal year, we are requesting a very modest 
increase of 2.2 percent in our budget. That is $645,000. We are 
not seeking any additional increases in permanent staff.
    And we will, however, use approximately $350,000 in 
carryover funds from last year, which of course will be very 
helpful as we prepare for the WTO ministerial in Doha.
    One other point on resources, we are very fortunate that 
each year we have between 30 and 35 non-reimbursable detailees 
from other departments. These have proven to be essential for 
our mission, but I think it also has been very helpful over 
time in spreading trade expertise among the other agencies as 
these detailees go back to their home agencies, and that 
strengthens the overall U.S. negotiating approach or ability.
    So in conclusion, thank you very much for the support that 
we have always had from this Committee. We look forward to 
working with you closely on these trade initiatives and trade 
promotion authority. And I would be happy to answer any 
questions that you have today. Thank you.
    [The prepared statement of Ambassador Allgeier follows:]
  Statement of the Hon. Peter F. Allgeier, Deputy United States Trade 
    Representative, Office of the United States Trade Representative
    Mr. Chairman and Members of the Committee, I welcome this 
opportunity to appear before the Subcommittee to present the budget 
request for the Office of the United States Trade Representative.
    I will keep my remarks brief and will of course be happy to respond 
to any questions the Committee may have about USTR, its budget or its 
activities.
    I want to begin by thanking the Committee for its unwavering 
support of our missions to open markets, expand trade, and enforce 
trade laws and trade agreements. We greatly value our close working 
relationship and look forward to continued constructive work on trade 
promotion authority and other trade priorities.

                   STATUS OF FISCAL YEAR 2001 FUNDING

                            25 new Positions

    We are also grateful to the Congress for its support of USTR's 
budget in FY 2001.
    This year, the Congress authorized an increase of $4 million and 25 
full time equivalent staff to help USTR manage growing responsibilities 
and rising workloads. I am pleased to report that we are using those 
funds for exactly the purposes intended by the appropriation.
    More than half of the new positions are targeted for enforcement 
and compliance. We have distributed these positions to strengthen 
litigation and legal services in our Office of General Counsel, and to 
improve our capabilities to monitor the practices of our training 
partners through staffing increases in geographic, sectoral and 
multilateral offices, such as the offices of China, Agriculture, 
Industry, and Services, Investment & Intellectual Property.
    Twelve of the new positions this year are for new negotiators. We 
have allocated these to offices that will be impacted heavily by the 
trade agenda and the burgeoning workloads that will flow from the 
launch of a new Round and from other trade initiatives vital to the 
President's trade agenda. New negotiator positions are being assigned 
to the offices of WTO and Multilateral Affairs; Agriculture; Africa; 
the Environment; Asia; the Americas; and Japan.
    Two of the 25 new positions are being assigned to USTR's Geneva 
Office, and one has been set aside for a full time Security Officer at 
USTR.
    Congressional approval of the new positions in FY 2001 allows us to 
have the new staff on board at the start of FY 2002, which will go a 
long way in our preparations to launch a new Round after the WTO 
Ministerial in Doha, Qatar in November. These new staff will also help 
as we pursue regional agreements through the Free Trade Area of the 
Americas, and in APEC, and bilateral agreements with countries like 
Chile and Singapore.
    Equally important, the new compliance positions will permit USTR to 
sustain a strong monitoring and enforcement program. In FY 2000, USTR 
brought 32 cases before the WTO, and was a third party in 26 others. 
This year, we expect to increase these numbers. The addition of 
compliance staff in our bilateral and sectoral offices will also help 
us in identifying violations and pursuing enforcement actions at an 
early stage.

                   Computer and Security Improvements

    This fiscal year, the Congress also allocated additional funding to 
strengthen computer security at USTR, and I am delighted to report that 
we are making real progress on this front. By the end of the FY 2001, 
we will have upgraded the firewall protecting USTR's computer network 
from unauthorized access via the internet.
    We will also have tightened password protections, further 
insulating USTR's network from intrusions via remote locations.
    With the additional funds provided by the Congress this year, we 
will also create the capacity to send cables to the State Department 
electronically, rather than relying on hard copy transmissions. That 
use of technology should save negotiators' time and speed the delivery 
of cables, especially classified cables, to intended recipients.
    We plan to have each of these improvements operational by the Fall.

                       SENIOR LEVEL APPOINTMENTS

    In the past six months, we have been comparatively successful in 
filling all senior level filled positions. Of the five statutory 
positions authorized in The Trade Act of 1974, as Amended, three 
officials have been confirmed: Ambassador Zoellick, Ambassador Linnet 
Deily, our Geneva Deputy, and myself as one of the two Washington 
Deputies. President Bush has nominated Jon Huntsman to be the other 
Deputy in the Washington Office, and Allen Johnson to be the Chief 
Agricultural Negotiator. We are hopeful that the Senate will act on the 
nominations of Jon Huntsman and Allen Johnson this month.

                       BUDGET REQUEST FOR FY 2002

    The President's budget includes $30.1 million and 203 Full time 
Equivalent staff for the
    Office of the U.S. Trade Representative in Fiscal Year 2002. This 
is the same staffing authorization and a $645,000 funding increase 
above the FY 2001 appropriation.
    Together with funds carried over from FY 2001, the $30.1 million 
budget request will allow us to meet anticipated employee pay raise 
cost increases next year, and satisfy other rising costs of doing 
business in FY 2002.
    In FY 2002, we will continue to use approximately 35 personnel 
detailed from other Federal agencies, such as the Departments of State 
and Agriculture. With these non-reimbursable details, the loaning 
agency pays the detail's salary and benefits, while USTR pays the cost 
of travel and office equipment and supplies. The direct salary and 
benefit value of these details is more than $3 million annually, and 
the contribution that these trade professionals make to USTR is 
incalculable.

                               CONCLUSION

    In conclusion, Mr. Chairman, USTR's budget request for FY 2002 is a 
modest one, amounting to just 2.2 percent more funds than appropriated 
by the Congress for the current year.
    Throughout its history, USTR has been a lean and effective 
organization, staffed with employees who are talented, industrious and 
dedicated. I can assure you that the current roster of USTR employees 
continues this rich tradition. You can be sure that the hard working 
staff of the agency will provide the President, the Congress, and the 
American public a great return on each dollar invested.
    I thank you for your attention and I would be pleased to respond to 
your questions.

                                


    Chairman Crane. Thank you, Ambassador Allgeier. Mr. Levin 
has a quickie.
    Mr. Levin. Right.
    The Chairman suggested, Mr. Allgeier, Ambassador, that 
maybe you don't need to wait. I am afraid that the rest of you 
will, as we go and vote. How many votes do we have?
    Chairman Crane. We have two, I think, at this time.
    Mr. Levin. So let me just say, there are lots of 
substantive issues we could discuss, but this isn't the place 
for it. So we will do that another time.
    And we are glad to hear about your use of these new 
positions, including for some important new compliance issues. 
As China ascends to the WTO, it is going to, I think, raise a 
number of continuing implementation issues, as you know so 
well.
    We are glad that the USTR carried out what was the urgent 
request if not mandate of this Congress that there be an annual 
review within the WTO. And that is going to happen the first 
decade.
    But there is a need for continuing review by USTR, 
Commerce, and State. And we are glad that you are going to use 
some of the staff to be active and vigilant. So best of luck.
    And that is all I have to say, Mr. Chairman.
    Chairman Crane. Very good. Mr. Becerra, do you have any 
comments?
    Mr. Becerra. No, Mr. Chairman.
    Thank you for being here.
    Chairman Crane. Well, with that, we are going to stand in 
recess, subject to call of the Chair, because we have to run 
over for the two votes.
    But we will let you be excused, if you don't want to hang 
out. If you want to hang out, there may be questions later 
still.
    But with that, we are in recess, subject to call of the 
Chair.
    [Recess.]
    Chairman Crane. OK, folks, we are back in business. And I 
apologize to Commissioner Winwood. He most graciously has 
relinquished his seniority in line, and I know he was hoping 
that he had already made his last trip up to the Hill to give 
testimony before we asked him to come back.
    But with that, I will now yield to our distinguished 
colleague, Mr. Koplan, and please keep your oral testimony to 5 
minutes or less. And all written testimony will be made a part 
of the permanent record.

     STATEMENT OF THE HON. STEPHEN KOPLAN, CHAIRMAN, U.S. 
     INTERNATIONAL TRADE COMMISSION; ACCOMPANIED BY STEVE 
McLAUGHLIN, DIRECTOR OF ADMINISTRATION; ROB ROGOWSKY, DIRECTOR 
OF OPERATIONS; LYN SCHLITT, GENERAL COUNSEL; AND NANCY CARMAN, 
                CONGRESSIONAL RELATIONS OFFICER

    Mr. Koplan. Thank you, Chairman Crane and Congressman 
Levin.
    On behalf of the United States International Trade 
Commission, I thank you for affording me the opportunity to 
discuss our budget request for fiscal year 2002 that is in the 
amount of $51.44 million.
    I am accompanied today by Steve McLaughlin, our Director of 
Administration; Rob Rogowsky, our Director of Operations; Lyn 
Schlitt, our General Counsel; and Nancy Carman, our 
Congressional Relations Officer.
    The Commission fiscal year 2002 budget request represents a 
6.9-percent increase as compared to the fiscal year 2001 
appropriation of $48.1 million. It has the unanimous support of 
all six Commissioners.
    At the Subcommittee's request, the Commission has estimated 
our authorization requirements for fiscal year 2003. We 
estimate the need for an authorization level of $53.45 million 
for fiscal year 2003, a 4-percent increase as compared to our 
current fiscal year 2002 request.
    I am appreciative that over the last several months, 
Subcommittee staff and personal staff of many of the Members 
took the time to meet with me, Commission vice chairman Deanna 
Tanner Okun, and certain of the agency's staff to discuss the 
Commission's justification for our fiscal year 2002 budget 
request.
    The vice chairman would have participated with me this 
afternoon except for the fact that, at my request, she remained 
behind to take over the chairing of a Title VII antidumping 
countervailing duty hot-rolled steel hearing, covering 11 
countries, that commission began at 9:30 this morning and that 
is expected to last all day.
    We are also mindful of the bipartisan support that this 
Subcommittee provided for our fiscal year 2002 budget request 
in advance of the action taken by the House Appropriations 
Committee on July 10.
    I refer specifically both to your letter, Chairman Crane, 
and to the joint letter of the ranking member of the full 
Committee, Mr. Rangel, and of the Subcommittee on Trade, Mr. 
Levin.
    I need not review the details of our statutory mission. 
They are well-known to the members of this Subcommittee. It is 
the Committee on Ways and Means that publishes the overview and 
compilation of U.S. trade statutes, a book on the required 
reading list for everyone in the trade community. Indeed, we 
already have our order in for the new edition that I understand 
awaits printing at the Government Printing Office.
    My submitted statement details the Commission's five 
operations. They are: import injury investigations; 
intellectual property-based import investigations; the research 
program; trade information services; and trade policy support. 
I will highlight some recent significant developments that we 
did not anticipate in preparing our current appropriation 
request.
    First as to Operation 1. At the written request of the 
administration on June 22, we instituted an extremely 
comprehensive section 201 safeguard investigation regarding 
certain steel products. The request covers over 600 Harmonized 
Tariff Schedule item numbers. We have assigned the equivalent 
of four separate investigative teams to handle it. We must 
complete our work on this by December 19.
    Second as to Operation 2, intellectual property-based 
import investigations. The number of new cases has increased 
from 12 newly instituted for all of fiscal year 2000 to 29 
newly instituted in just the first 10 months of fiscal year 
2001.
    Third as to Operation 5, trade policy support. As the 
number of section 201 safeguard cases has grown significantly, 
so too has the amount of time and other resources that our 
Office of General Counsel has devoted, because of experience in 
appellate practice, to assisting USTR litigation teams at the 
World Trade Organization.
    The key components of our total budget are personnel, 
approximately 72 percent; and rent, approximately 11 percent. 
This means that a significant part of our requested increase 
over last year's appropriation is necessary just to fund the 
anticipated 3.7-percent pay increase that will occur next 
January.
    The Commission will commence a number of new projects in 
fiscal year 2002. They include a means for facilitating 
electronic filing of Commission questionnaires for our import 
injury investigations, because we are required to collect and 
analyze large amounts of statistical data that are not 
available from standard sources; system enhancement to our 
online Harmonized Tariff System database, used now by both the 
government and the public for more than 200,000 research 
actions annually; and the establishment of an internal data 
warehouse for labor cost, personnel, and accounting data, to 
generate regular reports to facilitate management oversight and 
tighter control over budget execution in conformity with the 
Government Performance and Results Act.
    The Commission will also establish a new position of Chief 
Information Officer as part of our commitment to compliance 
with the Clinger-Cohen Act and the Government Paperwork 
Elimination Act.
    Mr. Chairman, I ask that the full text of my submitted 
statement be included as part of the record of this hearing and 
welcome any questions.
    Chairman Crane. Without objection, so ordered.
    [The prepared statement of Mr. Koplan follows:]

            Statement of the Hon. Stephen Koplan, Chairman,
                  U.S. International Trade Commission

INTRODUCTION
    Mr. Chairman and members of the Subcommittee, I am pleased to have 
this opportunity to discuss the budget request of the United States 
International Trade Commission for fiscal year (FY) 2002 and the 
authorization request for FY 2003. I am accompanied today by Steve 
McLaughlin (the Director of Administration), Rob Rogowsky (the Director 
of Operations), Lyn Schlitt (the General Counsel), and Nancy Carman, 
(the Congressional Relations Officer).
    The U.S. International Trade Commission is an independent, 
nonpartisan agency with a wide range of trade-related mandates. The 
trade laws administered by the Commission encompass quasi-judicial 
investigations of import injury (commonly referred to as dumping, 
countervailing duty, and safeguard investigations) and unfair practices 
in import trade relating to intellectual property; major trade studies, 
research, and economic analysis; trade monitoring, data collection; 
development of uniform statistical data; and issues concerning the 
Harmonized Tariff Schedule of the United States.

BUDGET REQUEST FOR FY 2002/2003
    The Commission's FY 2002 budget request is $51,440,000. It has the 
unanimous support of all six members of the Commission. That amount is 
necessary in order to fund existing mandated investigative activity and 
related operations, a mandatory 3.7 percent pay increase, and 
information technology (IT) projects that are designed to improve 
electronic transaction capability, provide broader public accessibility 
to public data, develop more timely and accurate trade information for 
the trade community, and improve transparency in the Commission's 
procedures and finances.
    I would like to take this opportunity to thank both the 
Subcommittee staff and the personal staff of many of the Members who 
have met on numerous occasions with Commission officials, as well as 
with Vice Chairman Deanna Tanner Okun and me, to discuss the 
Commission's budget requirements and on occasion participate in 
briefing sessions regarding certain of our fact-finding investigations.
    The FY 2002 request represents a 5.25 percent increase over our FY 
2001 funding availability of $48,800,000 and a 6.9 percent increase 
over the FY 2001 appropriation of $48,100,000.
    At the request of the Subcommittee, Commission staff estimated ours 
funding needs for FY 2003. We propose an FY 2003 authorization level of 
$53,450,000--an increase of four percent over our FY 2002 request. It 
is important to note that this figure sets the upper bound for any 
later appropriation. Our formal appropriation request for FY 2003 will 
be developed in the coming months by Commission staff and managers and 
then will be reviewed by the Commission itself before it is submitted 
to Congress in early February 2002. While it is premature to commit to 
an appropriation request for FY 2003, I am confident that we will be 
able to stay within our estimate.

COMMISSION OPERATIONS: SIGNIFICANT DEVELOPMENTS
    Pursuant to the Government Performance & Results Act (GPRA), the 
Commission formulated its first Strategic Plan in 1995. The Strategic 
Plan organizes the Commission's activities into five Operations that, 
for the most part, mirror authorizing legislation authored by this 
Committee and the Senate Committee on Finance. The five Operations are 
(1) import injury investigations, (2) intellectual property-based 
import investigations, (3) the research program, (4) trade information 
services, and (5) trade policy support.
    I need not review the details of the authorizing legislation that 
comprises our statutory mission. The specific procedural and 
substantive requirements of the antidumping and countervailing duty 
(AD/CVD) provisions, sunset review, the safeguard provisions, section 
337 intellectual property cases, section 332 trade studies, and 
production of the Harmonized Tariff Schedules are under your 
jurisdiction. Indeed, you publish the Overview and Compilation of the 
U.S. Trade Statutes, which is on the required reading list for everyone 
in the trade community. For the record, however, I will review recent 
significant developments in these statutory areas and our workload 
expectations for the future.

OPERATION 1: IMPORT INJURY INVESTIGATIONS
    The most significant development in the Commission's areas of 
responsibility in the last several years has been in import injury 
investigations (Operation 1), specifically the advent of sunset review. 
During the three year transition period (FY 1999-2001), the Commission 
conducted reviews of 309 outstanding AD/CVD orders. As this 
Subcommittee knows, this was a significant undertaking by the 
Commission and its staff and I am pleased to inform you that we 
completed the transition process four months ahead of schedule and 
without adding to our permanent staff.
    The outstanding orders were consolidated into 105 separate 
investigations. Some of these original investigations stretched back to 
the early 1970s. As a result of this transition review process, 
approximately half of the transition orders were revoked, while the 
other half remain in place and will be reviewed again during FY 2004-
2006. In addition to these transition orders, sunset review is now an 
ongoing and significant part of the Commission's annual workload. There 
will be between 5 and 10 regular sunset investigations every year.
    We appreciate the bipartisan support that this Subcommittee has 
provided to our budget requests, not only in the last several years, 
but this year as well. Without that support, we could not have 
successfully completed the mandated three year transition process. For 
FY 2002 and FY 2003, there will be no transition review cases, but we 
will still have additional workload due to sunset reviews of new orders 
put in place in FY 1997 and FY 1998. In addition, since our import 
injury caseload is somewhat counter-cyclical, we have experienced 
increases in new filings of AD/CVD petitions, as well as a revival of 
safeguard cases, as the economy has slowed. In preparing our 
appropriation request for FY 2002, we did not anticipate this economic 
downturn and the increase in filings of new import relief petitions.
    During most of the 1990s, the Commission rarely received more than 
one safeguard petition a year. For the last four years, the Commission 
has received at least three safeguard petitions each year. As you know, 
these investigations must be completed by the Commission in 180 days. 
The reasons for this increased level of activity may be the subject of 
some debate, but it is clear that substantial resource requirements are 
necessary to service this increase.
    Moreover, at the request of the Administration on June 22, we 
instituted an extremely comprehensive section 201 investigation 
regarding steel products. This investigation was instituted on a large 
number of products. As a practical matter, each individual product 
constitutes a separate investigation. The request covers over 600 
Harmonized Tariff Schedule (HTS) item numbers. We have assigned the 
equivalent of four separate investigative teams to handle this one very 
broad investigation. Thus, from a practical staffing and workload view 
point, the investigation involving steel products results in at least 
four section 201 investigations, which must all be completed by 
December 19.
    The Committee should be aware of the possibility that this 
safeguard investigation of steel products may be conducted 
simultaneously with an AD/CVD investigation of certain of the same 
products. This may occur under our statutes, but the standards for 
injury and causation vary and the scope of import coverage are 
different for these two types of import injury investigations. An AD/
CVD investigation will take approximately 12 months. For example, today 
the Commission is conducting an AD/CVD hearing on hot rolled steel 
products from 11 countries. The hearing began at 9:30 a.m. and I will 
rejoin my colleagues immediately after I conclude my budget testimony.

OPERATION 2: INTELLECTUAL PROPERTY-BASED IMPORT INVESTIGATIONS
    Fortunately, during the transition sunset period, workload in other 
Operations was relatively stable. However, that is no longer the case, 
particularly with regard to intellectual property-based investigations 
(Operation 2). Those investigations are conducted under section 337 of 
the Tariff Act of 1930. During the first six months of FY 2001, the 
number of new cases filed has increased dramatically. This increase in 
activity was not anticipated and appears to be the result of a number 
of external factors, including change in scheduling procedures in 
federal District Court for the Eastern District of Virginia (the 
alternative forum for patent infringement cases involving imported 
products).
    Through the end of this month, we will have instituted 29 new 
investigations or related proceedings in FY 2001, compared with 12 for 
all of FY 2000, and we still have two months remaining in this fiscal 
year. This increased level of activity has put a tremendous strain on 
the offices responsible for handling those cases. To assist those 
offices we have created a staff attorney position in the Office of the 
Administrative Law Judges, which presides over these cases, and granted 
overhire authority to the Office of Unfair Import Investigations, which 
represents the public interest during the proceedings. If this caseload 
trend continues and the cases go to trial, we will be forced to add a 
fourth ALJ and additional support staff to our staffing plan for FY 
2002.

OPERATION 3: THE RESEARCH PROGRAM
    While the Commission is not a policy-making entity, through 
information and analysis, the agency contributes objective trade advice 
and policy support to the Congress, the President, the U.S. Trade 
Representative, and other interagency groups. Formal research studies 
produced at the request of the House Committee on Ways & Means, the 
Senate Committee on Finance, or the President comprise our third major 
operation, the Research Program. The Research Program is the 
Commission's largest strategic operation, now that the transition 
sunset process has been completed. Workload has been relatively stable 
for the last several years, although the subject matter of the studies 
obviously changes from year to year and the time periods for completing 
studies have been increasingly compressed. In the coming years, we 
anticipate increased activity and requests regarding such matters as 
the Free Trade Area of the Americas. We also have seen eight requests 
for a new kind of study conducted under the Research Program--``short 
supply'' study requests--mandated by the African Growth and Opportunity 
Act and the United States-Caribbean Basin Trade Partnership Act. These 
are requests from the President for advice regarding whether additional 
preferential tariff treatment should be provided for apparel made in 
certain African and Caribbean nations because certain ``fabrics of 
yarn'' cannot be supplied by the domestic industry in commercial 
quantities.

OPERATION 4: TRADE INFORMATION SERVICES
    The principal activities in this Operation are the maintenance and 
publication of the Harmonized Tariff Schedules (HTS), the maintenance 
of the Commission's Tariff and Trade DataWeb (DataWeb) and other trade 
databases, providing substantive comments on miscellaneous tariff 
bills, and the maintenance of the Commission's National Library of 
International Trade. Later in my testimony, I will discuss the new 
developments in this area with respect to the IT initiatives that the 
Commission is conducting or planning. Most of them involve providing 
data and analysis to our customers, including Congress and the public 
at large. In a small agency where most of the budget reflects personnel 
costs, there is no IT capital fund, and thus new projects are reflected 
in increased costs. We ask for your continued assistance in obtaining 
the funding necessary to successfully complete these initiatives.

OPERATION 5: TRADE POLICY SUPPORT
    Trade Policy Support is the smallest operation in terms of cost and 
full-time employees, but it reflects a commitment by the Commission to 
provide direct support to trade policy makers in the Executive and 
Congressional branches when needed. This operation includes periodic, 
intermittent support as well as formal details. Most of the details of 
Commission personnel are non-reimbursable details to USTR. These 
details benefit the Commission and its staff, and obviously benefit the 
recipients. However, both the intermittent direct assistance and the 
formal details result in increased costs to the Commission, both in 
terms of full-time employees who are not available for Commission work 
and related costs, such as travel. I know that the Subcommittee is 
aware of this practice.
    One aspect of this Operation has grown significantly in recent 
years. As the number of cases litigated before the WTO has grown, so 
too has the amount of time and other resources that the Commission has 
devoted to assisting USTR litigation teams. Most of this time has been 
provided by staff attorneys in our Office of the General Counsel. That 
office has both trade expertise and experience in appellate practice 
and has provided invaluable advice and assistance to USTR in handling 
its large and growing caseload before the WTO.

COMMISSION SUCCESS IN CONTROLLING COSTS WHILE INCREASING 
        RESPONSIBILITIES
    As Chairman, I lead the Commission on administrative matters, 
including the budget, but management of the Commission's activities is 
a nonpartisan collaborative effort. As a result of this consensus 
approach, we have established a record of prudent fiscal management and 
cost control. Variability in workload has been met with flexible use of 
existing resources and a deliberate effort has been undertaken to 
better utilize resources and to limit the growth in the budget as much 
as possible.
    The Commission has streamlined its procedures and contained costs 
by reducing staffing levels, space requirements, and other non-
personnel costs in recent years. The key components of the Commission's 
total budget are personnel, approximately 72 percent, and rent, 
approximately 11 percent. Staffing levels are down 20 percent in the 
last ten years, including a 10 percent reduction-in-force in FY 1996. 
Rent costs are down over 25 percent in the last five years. 
Administrative staff support costs account for less than 10 percent of 
total labor costs and have been reduced by 45 percent since FY 1996.
    When it comes to workload, the peak of the transition sunset period 
was absorbed by existing staff efforts to a large extent, with only 
marginal increases in overall staffing levels. Resources have been 
reprogrammed and staff reassigned to meet changing requirements. 
Virtually all of the increased staff resources consisted of term 
appointments of up to three years, rather than increased permanent 
staff. Most term appointments expired as the transition sunset workload 
dissipated, reducing the funding requirement for term personnel in FY 
2001 and eliminating that cost completely in FY 2002.
    The Commission's Strategic Plan has provided a guide to the budget 
process for the last several years. The Commission continues to use 
performance management principles to inform and shape resource 
allocation. In doing so, the Commission satisfies the requirements of 
the Government Performance and Results Act (GPRA), the Clinger-Cohen 
Act, the Government Paperwork Elimination Act (GPEA), the Federal 
Activities Inventory Reform Act (the FAIR Act) and other statutes, 
Executive Orders, and related OMB circulars, even when our independent 
status exempts us from those requirements.

PUBLIC ACCESS ENHANCEMENT PROJECTS AND OTHER INFORMATION TECHNOLOGY 
        IMPROVEMENTS
    This two year period between sunset transition cycles is an ideal 
time for the Commission to implement needed systems and infrastructure 
improvements. Our FY 2002 budget request includes funding for a number 
of IT projects to improve the way we conduct investigations, provide 
greater public access to our procedures and our public data, and 
improve data collection and dissemination.
    These infrastructure improvements will have substantial public 
benefit. Our requested appropriation will allow us to continue to 
provide full free public access to our award-winning DataWeb site on 
the internet, will allow completion of the replacement for our document 
imaging system for the Commission's docket with enhanced public access 
capabilities, and will allow us to complete the replacement of our 
internal computer network, which is required due to lack of vendor 
support for the products we currently use.
    These system improvements are required, not only as a matter of 
sound infrastructure planning, but also to comply with a variety of 
statutory mandates relating to strategic planning and the development 
of e-commerce capabilities to better serve the public.
    New projects that will commence in FY 2002 include a means for 
facilitating electronic filing of Commission questionnaires, system 
enhancement to our online Harmonized Tariff System (HTS) database, the 
establishment of an internal data warehouse for labor cost, personnel 
and accounting data to generate regular reports to facilitate 
management oversight and tighter control over budget execution. We also 
will establish a new position of Chief Information Officer (CIO) to 
comply with the Clinger-Cohen Act and the strategic planning process. 
The best time to do these things is during the downturn of the sunset 
cycle, before the cycle begins again in FY 2004.
FY 2001 Projects with Recurring Costs in FY 2002
    The Commission has established an interactive Tariff and Trade 
DataWeb (DataWeb) in response to our internal needs for our 
investigations and research. Updated monthly, the DataWeb offers data 
on imports and exports; U.S. import duties, staged reductions, and 
imports for trading partners; U.S. trade by region and by partner 
country; and detailed Commission trade database tables. DataWeb gives 
the Commission's staff the ability to respond quickly and 
authoritatively to informal and formal requests for trade information 
from the Commission's clients and furthers the Commission's commitment 
to the Government Paperwork Elimination Act (GPEA). In FY 1999, the 
Commission made the DataWeb available to other agencies, and then the 
public on a trial basis. The trial was an unqualified success. The 
Commission has now made DataWeb available to the public without 
restriction by funding needed hardware improvements. The system is now 
employed in all Commission investigations and is heavily used by 
Congressional staff, other Federal agencies such as USTR and Commerce, 
educational institutions, the private sector, international 
organizations, and the general public. The additional costs to make the 
DataWeb fully open to the public included about $200,000 of hardware 
expenses in FY 2001 and recurring operational costs of about $100,000 
per year in service contracts and software licenses.
    The Commission is preparing to replace its Electronic Dockets 
Imaging System (EDIS) and its companion system EDIS On-Line (EOL). EDIS 
makes all investigative case records (including title VII, section 201, 
section 332, and section 337 investigations) available to Commission 
staff from their desktops. Its internally developed interface, EDIS On-
Line (EOL), allows parties to Commission proceedings and the public at 
large to have access to the Commission's nonconfidential records 24 
hours a day, seven days a week This helps the Commission and the 
parties who participate in its investigations to meet strict statutory 
deadlines and increases the transparency of the Commission's processes. 
Early in FY 2002, the Commission will replace EDIS/EOL with a new 
system with enhanced capabilities and system improvements, including 
the possibility of providing access to confidential materials to 
authorized parties. Regardless of when the contract for this project is 
actually awarded, it will be funded from the FY 2001 appropriation.
    By the end of this calendar year, the Commission will also replace 
the core software that runs the Commission's local-area network (ITC-
Net). At the same time, business requirements for GPEA compliance, 
electronic services delivery and improved security require significant 
replacement of network infrastructure. The proposed new local area 
network will meet these needs with a strong emphasis on using public 
standards in key areas of the network. The FY 2001 budget includes 
$200,000 for purchase and implementation of this replacement system, 
and $100,000 in FY 2002 for any remaining work on the system.

New Projects for FY 2002
    Import injury investigations are conducted within tight statutory 
deadlines. These investigations require collection and analysis of 
large amounts of statistical data that are not available from standard 
sources. Currently the Commission meets these demands through labor 
intensive processes involving the design, dissemination, collection, 
review, and analysis of customized industry questionnaires issued to 
each party to a given case. Automation of this process by means of an 
Electronic Questionnaire System would provide many benefits, including 
more efficient processing of information and more flexible service to 
questionnaire recipients. The FY 2002 budget request includes $500,000 
for the development of this system.
    The FY 2002 budget request also includes funds for modernization of 
the Harmonized Tariff Schedules of the United States. As part of its 
effort to maintain, revise, and publish the Harmonized Tariff Schedule 
of the United States Annotated, the Commission has developed and 
maintained an HTS database and certain related electronic files. The 
HTS database is used by both the government and the public for more 
than 200,000 research actions annually. The database is also used 
widely within the Commission to update and validate the underlying 
trade data for all of our investigations and the DataWeb. The HTS and 
related files need significant upgrades to improve the production, 
timeliness and quality of their performance. The estimated cost of the 
upgrades are $150,000 in FY 2002 for system design, development, and 
integration, and $75,000 in FY 2002 and subsequent years as a recurring 
cost for data conversion and verification.
    The Commission is planning to develop a Financial Data Warehouse 
that will automate a largely manual financial and budgetary process and 
provide for enhanced accountability. Such a system would provide better 
information for allocating resources and provide more timely and 
accurate budget execution and labor cost data. It would also satisfy 
requirements of the Government Performance and Results Act (GPRA), 
while facilitating the strategic planning process. The FY 2002 budget 
request includes $300,000 for design and implementation of this 
project.
    The Commission is in the process of adding a Chief Information 
Officer (CIO). Appointing a CIO is part of the Commission's commitment 
to compliance with the Clinger-Cohen Act and the Government Paperwork 
Elimination Act. The CIO will assist the Commission in its ongoing 
efforts to better align information resources with strategic 
objectives, to better serve its customers, and to improve internal 
processes and controls.

CLOSING COMMENT
    During my three years at the Commission, I have come to understand 
that this agency has repeatedly met new challenges, such as the 
transition to sunset, and done so while living within its means. In FY 
2002 and FY 2003 we face more new challenges. Regular sunset 
investigations will become part of our normal routine, we will complete 
work on the mammoth section 201 investigation of steel products, and we 
will embark on several IT projects designed to provide broader public 
access to our work product and facilitate Congressional e-commerce 
initiatives. We again ask for your support in providing the means 
necessary to meet these challenges.
    This concludes my prepared comments for today's hearing. Thank you 
again for the opportunity to present them, and I am prepared to address 
any questions or concerns you might have.

                                


    Chairman Crane. And we will go forward with any questions 
that you might have of Mr. Koplan, since he is on a time 
restraint.
    So if you have any questions, Sandy, fire away.
    Mr. Levin. I will tell you, I think, for example, we need 
to be cautious about our increase regarding cases before you. 
So I will withhold those. Everybody understands the importance 
of those matters, both the 201 and the antidumping case.
    So I think we can just wish you well.
    Mr. Koplan. Thank you, Mr. Levin.
    Chairman Crane. Mr. Camp, do you have any question?
    Mr. Camp. Thank you, Mr. Chairman.
    I think that a lot of concerns I have heard about are 
staffing levels, particularly with the increase in trade and on 
the concerns that that brings.
    Will the automated commercial environment (ACE) and the 
entry revision project help you use the staff more 
productively? And is there any comment you can make on that, 
Mr. Winwood?
    Mr. Winwood.
    Mr. Levin. He hasn't testified yet.
    Mr. Camp. Oh, we haven't heard from all three? I came late.
    Chairman Crane. No.
    Mr. Camp. OK. Why don't we wait until you finish your 
testimony, then.
    Chairman Crane. Mr. English.
    Mr. English. For Mr. Winwood, I would just----
    Chairman Crane. Oh, no. This is just for Mr. Koplan, 
because he has to leave.
    Mr. English. OK, very good.
    Mr. chairman, good to see you again, twice in 1 day. And I 
certainly appreciate the past hospitality you have shown.
    I was wondering, do you consider the sudden increase in 
filings of investigations related to section 337, intellectual 
property rights violations, to be temporary or permanent?
    Mr. Koplan. Permanent. And I say that because the U.S. 
Eastern District Court of Virginia is a place where--it's often 
referred to as a rocket docket--those cases were being filed.
    And what happened in the last year, after we submitted our 
budget authorization, is that they decided that those cases 
could be scattered throughout that District, not just heard in 
Alexandria, Virginia. And what has happened is that there has 
been an influx of cases to us, and so we are way up over the 
number of cases that we had at this time last year, and it 
looks like that will be permanent.
    And I think also that the increase in filings generally has 
been because of what has been happening with the tech industry. 
So we anticipate that this is going to continue.
    Mr. English. Thank you, Mr. Chairman. I have no further 
questions.
    Chairman Crane. Thank you.
    Well, with that then, we express appreciation to you, Mr. 
Koplan. We are sorry to both of you for the delays, and would 
now like to yield to Mr. Winwood.
    But you can depart.
    Mr. Koplan. Thank you very much, Mr. Chairman.
    Chairman Crane. You bet. Thank you.
    You may proceed when ready.

STATEMENT OF THE HON. CHARLES W. WINWOOD, ACTING COMMISSIONER, 
                      U.S. CUSTOMS SERVICE

    Mr. Winwood. Thank you, Mr. Chairman, Congressman Levin, 
and Members of the Subcommittee. And it is an honor, of course, 
to appear before you today to discuss the U.S. Customs fiscal 
year 2002 budget request.
    I have submitted a comprehensive long statement for the 
record that I will summarize briefly for you today.
    Customs' fiscal year 2002 budget request totals $2.39 
billion. This budget will support Customs ongoing mission to 
facilitate the flow of international travel and trade while 
protecting America from drug smuggling, terrorism, money 
laundering, cyber-crime, copyright fraud, and other threats.
    The rapid growth of our world economy poses key challenges 
for the Customs Service. The spiraling volume of people and 
goods crossing our borders has put immense pressure on our 
resources. At the same time, we must accommodate a steady 
increase in new trade agreements and requests for services from 
the public.
    Fortunately, Customs is supported by some of the most able, 
dedicated and best employees in the Federal government. The men 
and women of Customs continue to process passengers and trade 
in record numbers.
    Last year, the Customs Service processed over 33.5 million 
trade entries, 150-percent increase since 1990. That volume is 
expected to double by year 2006. In addition, we processed 
about.5 billion travelers at airports, seaports and land border 
crossing. And thanks to the Congress, Customs has been able to 
acquire the resources to help meet the growing demand for our 
services.
    In addition to support for Customs' annual budget request, 
the Congress established a collection of traveler and 
conveyance processing fees, otherwise known as Consolidated 
Omnibus Budget Reconciliation Act 1985 (COBRA) fees, to pay for 
enhanced inspection services.
    Currently, COBRA fees pay for approximately 1,100 inspector 
positions as well as overtime and premium pay for all 
inspectors. The fees are also used to cover pre-clearance 
inspection and other essential operating costs.
    Regrettably, the rapid growth in Customs resource needs has 
outpaced COBRA revenues. And we look forward to working with 
the Congress to address this funding shortfall to ensure that 
Customs maintains its current level of service.
    Staffing in general will continue to be a critical issue 
for our agency. With the help of a leading consultant, we built 
a resource allocation model to help us project future staffing 
needs at our Customs locations.
    The model was designed as a planning tool for management. 
It can be programmed to take into account changing scenarios 
that impact our mission, such as expanded volume of trade or a 
shift in threat.
    Customs will rely increasingly on technology to supplement 
the skills of our people. We have obtained a range of non-
intrusive inspection technology for our busy southern tier. The 
use of these tools has cut down our processing times 
significantly and enabled us to seize more illegal drugs.
    Of the many tools under development at Customs to help 
facilitate border flows, none will benefit the America public 
in more ways than our new automated system for trade. Customs' 
ability to contend with a heavy workload hinges largely on the 
development of ACE.
    Last year, we received the first appropriation for ACE in 
our 2001 budget. With part of that funding, we were able to 
select an ACE prime contractor this past April after an 
intensive bidding process.
    The e-Customs Partnership, led by IBM Corp., was chosen to 
join with Customs to modernize our automated systems. Improved 
outreach to the trade community goes hand in hand with this ACE 
effort. We are working closely with the trade community on a 
proposal to streamline the entry process. We are also 
implementing risk management strategies throughout the agency 
that will lessen the focus on compliant importers and 
concentrate our enforcement efforts where they are needed most. 
And we have assigned individual account managers to the largest 
importers, refined our audit processes, and begun to deliver on 
a range of benefits to low-risk companies.
    With the continued assistance of the Congress, we look 
forward to building upon these successes, enhancing our level 
of service to the American public.
    In that regard, I want to thank members of this 
Subcommittee for the support you provided to Customs in the 
recent markup of the 2002 Treasury budget. The additional 
funding recommended, particularly in the area of new 
automation, would enable Customs to stay on schedule with their 
ACE planning and deliver faster, safer, more efficient trade 
processing in as short of time as possible.
    And thank you again for this opportunity to testify, Mr. 
Chairman. And I will of course be willing to answer any 
questions at your leisure.
    [The prepared statement of Mr. Winwood follows:]

     Statement of the Hon. Charles W. Winwood, Acting Commissioner,
                          U.S. Customs Service

INTRODUCTION
    Good afternoon, Chairman Crane, Congressman Levin and Members of 
the Subcommittee. It is a privilege to appear before you today to 
present U.S. Customs' Fiscal Year 2002 budget request, and to share 
with you some of our recent accomplishments and ongoing activities. 
Before I begin, I would like to thank you, Mr. Chairman, and the 
Subcommittee members for your constant support of Customs and our vital 
mission.
    For over two hundred years, the U.S. Customs Service has 
facilitated the flow of our nation's commerce while protecting American 
business and consumers from contraband and other threats. Yet, the 
dramatic growth in global travel and trade over the past decade will 
continue to test our capacity to carry out our vital mission as never 
before. As the Subcommittee is aware, the United States faces a complex 
array of threats at our borders, including narcotics smuggling and 
international terrorism. It is the job of Customs to deter these 
threats while ensuring the smooth flow of people and goods into and out 
of our country. Meeting this challenge in an era of rapidly expanding 
growth for our world economy will require an effective balance of 
personnel resources, training, technology, and risk management 
strategies designed to maximize the impact of Customs operations.
    Thanks to the Congress, Customs has been able to acquire the 
resources to help meet the growing demand for our services from the 
public. In addition to support for Customs' annual budget requests, 
Congressional authorization for the collection of traveler and 
conveyance processing fees, otherwise known as COBRA fees, has enabled 
Customs to fund numerous additional positions in our core operations to 
accommodate the growth in travel and trade. Currently, COBRA fees 
support approximately 1100 inspector positions, as well as overtime and 
premium pay for all inspection personnel at airports, seaports and land 
border crossings, and other essential equipment and operational costs.
    COBRA fees are due to sunset on September 30, 2003. While the 
Administration is currently formulating views in advance of the sunset, 
we look forward to working with the Congress to address this issue.
    In addition to this critical issue, Customs has focused significant 
attention on the following key challenges:

TECHNOLOGY
The Automated Commercial Environment (ACE)
    The FY 2002 President's budget requests $130 million to continue 
work on modernizing Customs antiquated automated systems. The Automated 
Commercial Environment, otherwise known as ACE, will enable the Customs 
Service to utilize technological advances to meet the challenges of a 
rapidly growing international economy. Customs is the federal 
government's second largest source of revenue, collecting $24 billion 
in FY 2000. Every year since 1993, Customs import workload has been at 
least double that of ten years earlier, and this trend is expected to 
continue through 2007. By 2004, Customs will be processing over 30 
million commercial entries a year, a projected 30% increase over the 23 
million entries processed in FY 2000. It is essential that we modernize 
our automated systems to improve response to the explosion in 
international trade and travel.
    Customs current automated trade system is the 17-year-old Automated 
Commercial System (ACS). Until a new system is deployed, Customs will 
continue to rely on ACS. As trade volumes continue to grow dramatically 
each year, the ability of ACS to manage increased demand will decline. 
Using the $123 million in ACS ``life support'' funding provided in the 
FY 2001 appropriation, we have taken steps to improve processing time 
and storage capacity for the trade, and have improved the commercial 
interface with ACS. There is, however, more work to be done. With the 
additional $123 million requested for FY 2002, Customs will continue to 
improve the system's capacity and accessibility.
    The Customs Modernization Act of 1993 mandated new account based 
import transaction processing that cannot be accommodated through ACS. 
ACE, in contrast, will address trade compliance and Mod Act 
requirements. ACE is being developed in four increments, with each 
successive increment expected to deliver benefits to both the trade 
community and Customs operations.
    The consolidated appropriations of $130 million provided for ACE in 
FY 2001 enabled us to begin our first phase work on ACE. That work 
included award of the ACE prime contract to the ``e-Customs 
Partnership,'' led by IBM. The ``e-Customs Partnership'' is a team of 
top-notch companies and highly qualified professionals who have 
successfully executed large information systems projects similar to 
this one in the past. In addition to the IBM Corporation, key team 
members include Lockheed Martin Corporation, KPMG Consulting, Computer 
Sciences Corporation, and Sandler & Travis Trade Advisory Services. The 
team also includes BoozAllen & Hamilton, ITS Services, and over 40 
small businesses.
    The President's FY 2002 budget builds on this effort by requesting 
an additional $130 million to expand the capabilities of the ACE 
software and to deliver ACE capability to more service ports and sites. 
Specifically, with the additional FY 2002 funding, we will extend the 
capability developed with the FY 2001 funding to air, sea, and rail 
imports; build an interface to the Automated Manifest System; and 
provide the trade with a common interface to ACE. We will also refine 
ACE requirements with the assistance of our prime integration 
contractor.

Non-Intrusive Inspection Technology
    The use of non-intrusive inspection (NII) technology (e.g. truck, 
rail, sea container, vehicle, and mobile x-ray/gamma-ray systems) is 
crucial to maintaining the success of our interdiction efforts. Customs 
is in the final year of a 5-year technology plan that calls for the 
deployment of NII technology to blanket the Southern Tier and other 
high-risk locations. At the end of FY 1999, there were a total of 14 
NII systems in place. During FY 2000, 23 additional NII systems were 
deployed throughout the nation. Currently, 50 systems are in operation, 
with an additional 45 systems funded and scheduled for delivery by the 
end of FY 2002. NII systems, in many cases, give Customs the capability 
to perform thorough examinations of cargo without having to resort to 
the costly, time-consuming process of unloading cargo for manual 
searches, or intrusive examinations of conveyances by methods such as 
drilling and dismantling.
    In FY 1999, a total of 100,000 NII examinations were performed. For 
FY 2001, we have already performed over 260,000 NII examinations. These 
figures will continue to increase as Customs deploys additional 
systems.
    Since the deployment of the first truck x-ray at Otay Mesa, 
California, in 1996, these systems have contributed to over 400 
seizures totaling over 300,000 pounds of illegal drugs in commercial 
and passenger vehicles. Recently, in a single week, our NII systems 
contributed to the seizure of almost 9,000 pounds of illegal drugs.
    In addition, on April 4, 2001, a Customs canine at the Otay Mesa 
port of entry alerted to a tractor-trailer carrying televisions from 
Mexico. The vehicle was subsequently scanned by a gamma-ray imaging 
system that led to the discovery of more than 15,000 pounds of 
marijuana. This was the largest single-seizure ever made at a border 
station.
    NII technology has also benefited the passenger environment. We 
have deployed 15 body imagers at major land border crossings and 
airports to offer travelers selected for personal searches an option to 
a physical inspection. These systems are capable of detecting smuggled 
objects concealed under clothing.
    Customs has also contracted for a service at nine international 
airports that enables us to determine in approximately 30 minutes if a 
passenger is carrying drugs internally. This process used to require 
several hours and the participation of at least two Customs officers. 
The contracted service provides a mobile x-ray van and a licensed x-ray 
technician at the international arrival terminal for the screening of 
passengers suspected of concealing drugs or currency in or on their 
bodies. A trained technician performs an x-ray that is then transmitted 
digitally to a licensed radiologist for interpretation. Based on that 
determination, Customs may either release the passenger, or hold him or 
her for further investigation. Both the Body Imagers and the Mobile x-
ray service examination are only used once all the requirements of 
Customs personal search policies are met.

Laboratories and Scientific Services
    We are pleased to report that all eight laboratories of the United 
States Customs Laboratory System have received their International 
Standards Organization (ISO) Guide 25 Accreditation. The Customs Labs 
are the first Federal laboratory system to receive this professional 
accreditation.
    I am also pleased to announce that twelve of our scientists have 
received board certification in criminology from the American Board of 
Criminologists. No other crime laboratory can boast this number of 
board certified criminologists. With this certification our scientists 
can now be considered true expert witnesses for Customs and the 
American criminal justice system.
    Customs has embarked upon a laboratory construction plan that is 
scheduled to improve and update our aging laboratory facilities. The 
construction of laboratories in Los Angeles and Virginia have been 
completed. The New York Laboratory is currently under construction, and 
plans are underway to improve the facilities in New Orleans and San 
Francisco.

TRAINING AND DEVELOPMENT
    The Office of Training and Development (OTD) was established to 
ensure that Customs employees receive quality and effective training. 
During its first year, OTD has built centralized training programs and 
systems, created a direct link between training and operational 
success, enhanced career development, expanded course offerings, and 
strengthened leadership development and professionalism.
    One of the fundamental elements in Customs future training success 
was the development of The National Training Plan (NTP) which 
establishes core occupational instruction designed to keep our 
employees on the cutting edge of new skills and technologies. The NTP 
identifies the core, standardized, and recurring training requirements 
for employees at the entry, mid and advanced career levels. The NTP 
targets training areas with the greatest need to reach the maximum 
number of employees in the most cost-effective manner. Some of the key 
areas of training cover passenger and cargo drug interdiction, 
strategies targeting money laundering, stolen vehicle exporting, and 
anti-terrorism tailored to the Customs environment. Customs has 
developed training profiles for its mission-critical occupations, as 
well as rigorous training and tracking procedures. These procedures 
were designed to maximize the use of scarce training resources and 
deliver useful, real-time training to all of our employees.
    In addition to the NTP, Customs has created the Customs Tuition 
Program, which last year provided over 600 employees nationwide with 
tuition assistance for job-related courses. This program supports the 
national strategy of raising the level of professionalism and education 
in the Customs workforce.
    OTD has also played an integral role in addressing personal search 
policies and procedures, introducing change in national policy 
regarding the 24-hour carrying of firearms by Customs law enforcement 
personnel, and expanding the national strategy of risk management 
throughout all levels of Customs.
    Through centralized planning and tracking, Customs delivered a 
record 100,731 instances of training in FY 2000. Since its inception, 
OTD has developed over 20 new training courses to address mission-
critical needs. The measurement of OTD's success is seen throughout the 
Customs workforce. Customs dedicated training efforts increased morale 
and commitment to the Customs mission. Our training is continuously 
measured through an evaluation of training by students and supervisors 
to determine if students are applying newly learned classroom skills on 
the job. It is imperative that we maintain a well educated, customer-
oriented workforce, which protects our officers and enhances service to 
business and the traveling public.

RISK MANAGEMENT STRATEGIES
    As global trade has expanded, Customs' commercial workload has 
escalated dramatically. In FY 2000 the agency processed over 23 million 
trade entries--an increase of almost 10 percent from FY 1999.
    Customs strategy to ensure greater compliance among importers with 
our trade requirements is focused around a comprehensive strategy of 
risk management. At its core, risk management involves the constant 
analysis of data and information to determine how to apply resources 
most effectively.
    For the first time, that analysis is being built uniformly into the 
way Customs ports are managed. The Trade Compliance Enforcement Plan, 
which makes each Customs Management Center accountable for implementing 
Risk Management in all port operations, ensures that the relationship 
of resources to risk can be monitored on a Service-wide basis.
    In addition, we have initiated monthly Management Accountability 
Reports from the field that provide immediate feedback on the 
effectiveness of our enforcement activities.
    One of the goals of risk management is to ease the movement of 
goods for law-abiding members of the trade community. By implementing a 
data-driven focus on the most serious compliance problems, Customs will 
lessen its oversight of compliant companies. In fact, participants in 
the innovative Low Risk Importer Initiative can expect fewer cargo 
exams, document reviews and requests by Customs for more information. 
To qualify for this program, importers must undergo compliance 
assessments and pass a thorough evaluation process involving compliance 
measurement, account manager evaluations, and other reviews.
    Customs is using a systematic process to identify those importers 
whose transactions represent the highest risk of non-compliance. Again, 
Customs will use this data to make informed judgements about the best 
use of its limited resources.
    Another element in the Risk Management approach has been Customs 
increased use of account managers to focus on major importers. Since a 
relatively small number of large importers account for the majority of 
total imports, account managers provide even more leverage in elevating 
overall compliance with Customs commercial requirements.
    In FY 2000, 392 consignees were responsible for half of the total 
value of all the imports into the United States. The top 1,000 
consignees imported 61 percent, by value, of all imports. Customs has 
responded to this trend by increasing the number of managed accounts in 
FY 2001 to more than 1,100.

HUMAN RESOURCES MANAGEMENT
    As we continue to build a Customs workforce worthy of the highest 
public trust, our Human Resources Management programs have continued to 
emphasize recruitment of the most qualified candidates for employment.
    Our Quality Recruitment program has proven to be a success in 
filling our core occupations. Through this program we have hired 565 
new inspectors and canine enforcement officers, and we have 
approximately 750 candidates in our hiring pool. We believe that we 
have attracted some of our Nation's best and brightest. This has been 
evidenced by the test scores from the basic training our new recruits 
go through as well as reports of their successes on the job.
    We were pleased to obtain a new Schedule B hiring authority for 
special agents. In addition, Quality Recruitment, with its emphasis on 
testing and structured interviews, has been expanded to special agent 
positions. Through this program, we expect to build the pool of 
candidates ready to hire for our front-line occupations when they are 
needed.
    Our marketing and recruitment efforts have been a success as we 
continue to attract quality candidates. Our recent announcement for 
inspectors and canine enforcement officers was open for 5 days and 
resulted in more than 5,500 applications. More than 1,500 of those 
applicants passed the test and structured interview. In the past 3 
months 1,184 applicants have been tested for special agent positions.
    Through our National Recruitment Program we are able to emphasize 
the importance of attracting a diverse pool of highly qualified 
applicants for our frontline positions. A recruitment plan is issued 
each year to ensure a national direction, professional advertising, and 
recruitment of a diverse applicant pool. We have installed 6 kiosks in 
selected universities to provide information about Customs occupations 
and job opportunities. Local recruiters represent Customs in 
conferences, job fairs, colleges, and general applicant inquiries. Our 
Office of Investigations recruiters recently held 9 open houses for 
universities in their geographic areas. In addition, we established a 
National Intern Program last year and hired 21 interns. Other student 
programs are also used throughout Customs to provide additional 
opportunities.
    While we are actively filling our entry-level positions, we are 
also very aware of our aging workforce. Within the next 5 years 34 
percent of our current employees will be eligible for retirement. The 
retirement bubble is particularly significant for our law enforcement 
employees as they face mandatory retirement. In addition, we anticipate 
losses in our supervisory and management positions. We have 
sophisticated data systems that allow us to predict our attrition by 
occupation, grade, and geographic area. Human Resources Management and 
the Office of Training and Development are building a succession 
planning model to prepare for our future losses.
    Defending our borders presents many challenges to Customs 
employees. Through our Employee Support and Assistance Unit we have an 
immediate response for employees and their families who experience 
serious injuries, illnesses or other crises. More than 120 collateral 
duty Family Liaison Officers were recently selected. After completing 
comprehensive training they will serve as the first line of counseling 
and advisory support for employees in need.
    In addition, we have placed a heavy emphasis on our safety 
programs. We recognize that we cannot protect our employees and do our 
jobs effectively for the American public without first ensuring that we 
follow the highest safety standards in the workplace. Accordingly, 
Customs recently hired 5 additional safety and occupational health 
specialists and we are actively recruiting several others. We have also 
expanded our radiation safety program. As a result of our radiation 
safety committee's efforts, Customs has the most stringent radiation 
exposure standard of any Federal agency. We are also expanding our 
environmental management and hazardous material safety programs. In 
addition, we have placed greater emphasis on our tuberculosis, 
hepatitis B, and hearing conservation programs for our employees.

INTEGRITY
    Customs core law enforcement responsibilities demand an unyielding 
commitment to the highest standards of ethical and professional conduct 
by our employees. For the past several years, the agency has been 
instituting a comprehensive series of reforms aimed at bolstering 
integrity within the agency. These include a renewed emphasis on our 
Office of Internal Affairs (IA), the lead office for integrity at 
Customs.
    Internal Affairs has increased its focus on the Southwest Border. 
Additionally, Internal Affairs has reinvigorated its ranks by 
transferring 131 criminal investigators between Internal Affairs and 
the Office of Investigations since 1999.
    The office is presently in the process of reassigning additional 
investigators; closing smaller, dispersed offices; establishing a 
larger office in San Antonio; and expanding other offices to 
concentrate investigative resources. It has also activated a fully 
operational Special Investigations Unit comprised of senior 
investigators who conduct investigations into critical and sensitive 
incidents. In its first six months since activation, the unit completed 
21 investigations, seven of which were presented for criminal 
prosecution.
    IA recently revised and published its investigative guidebook to 
provide special agents with clear, applicable policy regarding nearly 
every aspect of investigations.
    Investigative policy is now disseminated using electronic 
publishing so as to provide instant access to updates. IA Regional 
Operations Managers and specialized experts with legal and law 
enforcement experience now provide on-call guidance to special agents. 
These personnel provide constant oversight of all aspects of 
investigations to ensure the resulting investigative reports are 
accurate, timely, and comprehensive.
    A new automated Case Management System is being developed that will 
more efficiently integrate with other Customs human resource and 
investigative systems. This system will utilize Web-based technology to 
provide Internal Affairs with accurate data capture and retrieval, 
improved accessibility, enhance overall systems durability, and lead to 
more cost-efficient maintenance. All allegations are tracked from 
initial receipt to final disposition through the Customs Service's 
allegation and intake process. This process is continually refined to 
ensure allegations are handled efficiently and correctly. The process 
features a combined effort between IA, the Office of Human Resources 
Management, and the respective Assistant Commissioners.
    In addition, Customs recently published the first annual ``Report 
on Conduct and Discipline.'' The report provides a summary and overview 
of discipline cases resolved within Customs for fiscal year 1999. The 
report emphasizes our primary goal to bring greater fairness, 
objectivity and consistency to the discipline process. It is another 
tool to keep employees informed about conduct and discipline matters. 
It also provides them with an opportunity to learn from others and to 
gain a clearer sense of what types of behavior can result in 
disciplinary action.

CUSTOMS CORE MISSION ACTIVITIES AND ACCOMPLISHMENTS
    Customs core mission has evolved significantly over its two 
hundred-year history to meet the nation's changing needs. Once 
concerned primarily with the collection of tariff duties, Customs now 
serves as one of the federal government's leading drug interdiction 
agencies. In addition, it is involved in a wide range of trade and 
enforcement activities related to the flow of people and goods across 
borders. Balancing the need for efficiency in trade facilitation with 
effective enforcement of U.S. laws is the agency's most fundamental 
challenge.
    Over the last ten years, trade entries (the number of individual 
shipments of goods processed) have more than doubled, jumping from 9.2 
million to over 23 million. By the year 2004, Customs will be 
processing over 30 million entries.
    On a typical day, Customs officers process 1.3 million passengers 
and nearly 350,000 vehicles at ports and border crossings around the 
country. They seize over 4,000 pounds of narcotics and upwards of $1 
million in monetary instruments and proceeds generated from criminal 
activities. Yet drug smuggling organizations continue to demonstrate 
flexibility in response to our interdiction efforts. We must constantly 
adapt to their changing methods.
    Customs is responsible for enforcing hundreds of Federal statutes 
for dozens of federal agencies. In addition to seizing narcotics and 
dismantling smuggling organizations, Customs enforcement actions 
protect domestic manufacturing industries from unfair foreign 
competition and help ensure the health and safety of the American 
public. Through our Strategic Investigations and Antiterrorism 
initiatives, Customs aids in the national effort to prevent rogue 
states, terrorist groups, and criminal organizations from obtaining 
sensitive and controlled commodities including weapons of mass 
destruction. Customs is also a recognized leader in the investigation 
of Internet crime, notably child pornography, as well as the smuggling 
of stolen art and artifacts and violations of intellectual property 
rights.

Narcotics Smuggling
    In FY 2000, Customs seized approximately 1.5 million pounds of 
illegal narcotics, conducted 39,000 investigations, effected more than 
24,765 arrests, and seized over $587 million in currency and ill-gotten 
assets.
    Customs approach to fighting narcotics smuggling is multifaceted. 
It includes traditional searches by our Inspectors and Canine 
Enforcement teams; partnerships with industry to prevent drugs from 
being imported in their merchandise or conveyances; air and marine 
interdiction; and the work of our Special Agents in dismantling and 
disrupting drug trafficking and money laundering organizations.
    The Southwest Border (SWB) continues to be a major crossing area 
for illegal drugs of all types, including cocaine, marijuana, heroin, 
and methamphetamine. Customs enforcement records indicate that 79 
percent of all Customs narcotics seized in FY 2000 occurred at the SWB. 
From October 2000 through May 2001, Customs made 537 seizures totaling 
$11.7 million in undeclared currency bound mostly for Mexico. In FY 
2000, approximately 293 million travelers, 89 million vehicles and 4.5 
million trucks entered the U.S. through the SWB. Also in FY 2000, 
Customs seized a total of approximately 1.1 million pounds of illegal 
narcotics including heroin, cocaine, marijuana, and methamphetamines 
along the SWB.
    In addition to the drug threats coming from our Southern 
Hemisphere, Customs has proactively redirected resources to address the 
growing threat of Ecstasy. Western Europe now serves as the main source 
for Ecstasy smuggling. In February 2000, Customs created the Ecstasy 
Task Force. The mission of the Task Force is to act as a command and 
control center to maximize the level of interdiction and case 
exploitation relative to Ecstasy investigations. Customs currently has 
approximately 240 Canine Enforcement teams trained to detect Ecstasy 
and is in the process of training additional teams. In FY 2000, Customs 
seized approximately 9.3 million Ecstasy tablets. That is a more than a 
2,300 percent increase from the 400,000 tablets seized in FY 1997.
    Customs actively participated in the recent Presidential Commission 
on Seaport Security. Customs has always recognized the threat that 
internal conspiracies pose at our land, sea, and air ports of entry. To 
combat this risk, Customs has successfully deployed several 
investigative initiatives that have had a positive impact on this 
challenge. Operation River Blue and Riversweep are among the successful 
initiatives that have targeted drug smuggling organizations operating 
in port environments in the South Florida area.
    In addition, Customs is one of the key agencies in a joint 
operation made up of federal, state, and local agencies to stop 
narcotics smuggling on the Miami River, a key drug trafficking route. 
Florida Governor Jeb Bush announced a 2-year initiative known as 
Operation River Walk on February 7, 2001, in Miami. Operation River 
Walk began on February 15, 2001. Customs plays the chief coordinating 
role for boardings and searches of vessels arriving and departing by 
the Miami River.
    At a national level, a total of 82 additional Special Agents are 
being strategically deployed at both border and inland command and 
control cities to conduct long-term, complex investigations that focus 
on the most significant drug smuggling organizations. These 
investigations are designed to increase the risk borne by drug 
traffickers and impede their smuggling operations.
    Customs Air and Marine Interdiction Division (AMID) plays an 
instrumental role in our National Drug Control Strategy. AMID's mission 
is to protect the Nation's borders and the American people from the 
smuggling of narcotics and other contraband with an integrated and 
coordinated air and marine interdiction force. This strategy impacts 
drug smuggling organizations because it denies drug traffickers the use 
of aircraft and vessels to smuggle drugs into the U.S., thus forcing 
them to choose other modes of transportation or geographic locations 
that are less profitable or riskier.
    In the arrival zone, Air and Marine assets are strategically 
located along the Southern Border of the U.S. and in Puerto Rico and 
the Virgin Islands. The primary focus of these Branches is to detect, 
sort, and intercept suspect air and marine targets. The AMID also 
provides assistance to the enforcement efforts of Customs and other 
Federal, State, and local law enforcement agencies to stop the flow of 
money and equipment to drug smuggling organizations.
    In the transit and source zones, AMID crews work in conjunction 
with the law enforcement agencies and military forces of our partner 
nations in support of counterdrug programs. AMID supports other Western 
Hemisphere nations with airborne detection and monitoring, interceptor 
support, and coordinated training with military and law enforcement 
agencies. Customs P-3 airborne early warning (AEW) aircraft provide 
radar coverage over the jungles and mountainous regions of Central and 
South America. They also patrol the international waters of the transit 
zone to monitor shipping lanes and air routes in search of smuggling 
activities.
    AMID aviation assets include jet interceptors and long-range 
trackers equipped with radar and infrared detection sensors, high 
performance helicopters, single- and multiengine support aircraft, and 
sensor-equipped marine search and detection platforms. AMID maritime 
assets include interceptor go-fast boats with a complement of utility 
and blue-water support vessels that are equipped with marine radar 
systems, radios, and other sensors.
    Coordinated air and marine interdiction operations have been highly 
successful, particularly in Southeast Florida and the Caribbean. 
Customs air and marine interdiction efforts during FY 2000 resulted in 
the seizure of more than 187,000 pounds of marijuana and close to 
44,000 pounds of cocaine. Air and marine personnel also supported law 
enforcement efforts that resulted in the seizure of over $17 million in 
narcotics proceeds and 760 arrests.
    As smugglers change their patterns of behavior, AMID must be 
flexible to meet new threats. A fleet modernization program has been 
developed by the AMID to combat the current threat and meet future 
needs. Modernization will help to reduce the strain on crew 
requirements and increase mission effectiveness, thereby saving money 
for operations and maintenance.

Cooperation with the Drug Enforcement Administration (DEA)
    Since signing the Memorandum of Understanding with the DEA in 
August 1999, Customs has been working with DEA to coordinate the 
process to place permanent intelligence teams in selected drug source 
and transit countries. Customs sent teams on two 30-day trips to 
Mexico, and one team each to Ecuador, the Netherlands, and Thailand. 
These trips were designed as surveys to determine whether a permanent 
team should be placed in each of these countries, and were found to be 
very successful. The teams gathered valuable information and made 
useful contacts. In coordination with DEA, Customs has held discussions 
with the Ambassador to Mexico and obtained his approval of the concept. 
Currently, we are proceeding with the official request to get the 
proper Department of State approvals for the placement of a permanent 
team in Mexico. Other countries being considered for placement are 
Colombia, Venezuela, Panama, Hong Kong, and Brazil.

Personal Search
    As the Committee is aware, the Customs Service has been faced in 
recent years with allegations that the agency was engaged in racial 
bias in the selection of certain members of the travelling public for 
personal searches at our nation's airports. Under no circumstance does 
Customs tolerate race-based and gender bias discriminatory treatment of 
individuals. Nonetheless, we have taken these allegations very 
seriously and implemented a series of reforms to ensure that the rights 
of the travelling public are protected.
    We appointed a Personal Search Review Commission (PSRC) in April 
1999 that reviewed the policies and procedures used by Customs to 
process passengers at our major international airports, including our 
personal search procedures. The PSRC made several recommendations. In 
order to address these recommendations, Customs convened the Assessment 
Implementation and Monitoring (AIM) Committee in July 2000. Significant 
progress has been made towards implementing actions based on the PSRC 
recommendations.
    Customs also established the Passenger Data Analysis Team (PDAT) to 
review and analyze personal search data. In addition, Customs has 
improved the personal search data collection process by making specific 
input of data mandatory. Additional data is now collected on travelers 
selected for a personal search. This data is reviewed daily by 
management.
    In November 1999, the new Personal Search Handbook was issued and 
training was provided to over 8,000 Customs Officers. In an effort to 
provide continued training, a Personal Search Computer Based Training 
course was developed. All Customs officers who perform personal 
searches are required to take this course annually.
    Additional training was provided to all Customs Inspectors and 
completed by December 31, 2001. This Inspection and Interaction Skills 
Workshop offered 16 hours of refresher training in the areas of 
interpersonal communications, cultural sensitivity, verbal judo, 
passenger enforcement selectivity and personal search.
    I am pleased to report that these combined reforms have helped 
Customs to reduce its searches of law-abiding passengers dramatically, 
while maintaining our overall levels of narcotics seizures. To provide 
you an example, Customs reduced searches from 23,108 passengers in 
fiscal year 1999 to 9,008 in fiscal year 2000. Yet our seizures of 
illegal narcotics from passengers in the air environment were 
approximately the same. That trend continues for 2001.

Combating Terrorism
    Customs' mission in combating international terrorism is two-fold: 
to protect the American public from Weapons of Mass Destruction (WMD) 
and other instruments of terror and prevent international terrorists 
from obtaining WMD materials and technologies, arms, funds, and other 
material support from U.S. and foreign sources.
    Customs plays a central role in preventing the smuggling of 
nuclear, radiological, chemical, and biological weapons, arms, and 
other instruments of terror into the U.S. for use in terrorist attacks 
against our citizens. The increasing terrorist threat has led to the 
development and implementation of an alert plan that outlines four 
alert levels, each with a very specific set of actions designed to 
ensure an appropriate response to the threat at hand, while ensuring 
minimal disruption to normal border traffic flows. Trained volunteers 
and specialized equipment are on hand to respond to a heightened state 
of alert. Customs has also established an external and internal 
antiterrorism intelligence communications infrastructure that enables 
the agency to obtain threat information on foreign terrorism and 
disseminate it to field positions.
    Customs conducts investigations into violations of U.S. laws by 
terrorist groups, and participates in interagency intelligence groups, 
and shares in joint international investigations with foreign customs 
and law enforcement counterparts through our Customs Attache offices 
abroad. Additionally, Customs is an active participant in FBI-sponsored 
Joint Terrorism Task Forces located throughout the U.S. that are 
designated to conduct investigations involving outbound counter-
terrorism.
    Public Law 106-346 and Public Law 106-554 provided additional 
resources to increase Customs counter-terrorism activities. Funding was 
provided for 48 additional Special Agents to increase Customs ability 
to counter the threat along the Northern Border and 17 additional 
Special Agents to participate in Joint Terrorism Task Forces. Resources 
were also obtained to fix and replace aging Northern Border security 
infrastructure, including NII technology, gates, signage, and video 
security systems.

CyberSmuggling Center Activities
    Customs has assumed a leading role in the fight against various 
forms of Internet crime, thanks to the funding provided for the 
agency's Cybersmuggling Center. One of the Cybersmuggling Center's most 
critical areas of activity is the investigation of the transmission of 
child pornography via the Internet. We have had numerous successes in 
this area and continue to monitor this growing enforcement concern. In 
addition, Customs has tackled other forms of Internet crime, including 
the illegal on-line sale of pharmaceuticals, controlled substances, 
pirated software, music and movies, counterfeit watches, clothing, and 
other goods. We are also actively pursuing cases involving the use of 
the Internet for financial crime and fraud. The number of ``on-line'' 
criminal cases has risen dramatically, from approximately 40 
investigations in 1999 to 190 in 2000. To date in FY 2001, Customs has 
initiated 302 Internet investigations unrelated to child pornography.

Stolen Vehicles
    Customs has expanded its partnership with the National Insurance 
Crime Bureau (NICB) in its efforts to identify possible stolen 
automobiles presented for export. NICB examiners and Customs Inspectors 
review vehicle identification numbers (VINs) and associated ownership 
documentation for authenticity at the 28 busiest vehicle export 
locations across the country. Vehicle identification data is 
transmitted via the FBI's ``VINNY'' system for query against FBI and 
NICB databases. ``VINNY'' is an electronic reporting system targeting 
possible stolen or altered vehicles. Vehicles identified as being 
stolen, salvaged, or plated with false VIN numbers are flagged for 
intensive examination and possible seizure by field personnel. Further 
investigation is conducted by Customs Special Agents working 
cooperatively with State and local law enforcement stolen vehicle task 
forces.

Forced Child Labor
    The investigation of imports alleged to have been manufactured with 
convict or indentured child labor is among the most difficult aspects 
of our mission. These investigations demand a unique balance of 
investigative and diplomatic skill due to their highly sensitive 
nature.
    As a result of funding provided by Congress in fiscal years 1999, 
2000, and 2001, Customs has begun to formulate a better understanding 
of the extent to which products manufactured or produced with some form 
of proscribed labor are imported into the U.S. Additionally, Customs 
has sought to create bilateral relationships with foreign governments' 
labor and law enforcement officials, who recognize the importance of 
working together to dismantle the organizations that recruit and 
utilize these labor tactics.
    Customs has issued 32 detention orders against foreign 
manufacturers that utilize prison/forced labor to assemble or cultivate 
their goods for export to the United States. U.S. Customs, at the 
request of the Mongolian Government, conducted an investigation and 
substantiated forced labor allegations against a Chinese-owned textile 
manufacturer in that country. The Mongolian Government requested 
Customs assistance because their labor system would not take action 
against the manufacturers unless the violators came under scrutiny by 
the importing countries.
    Customs is also in the process of opening two Foreign Attach 
Offices in the Philippines and Brazil to assist in these types of 
investigations. We anticipate opening an office in India, pending the 
authorization of the Government of India.

Tobacco Smuggling
    Customs has experienced a dramatic increase in international 
tobacco smuggling investigations in the past year. This includes 
smuggling both into and out of the U.S. In addition, Customs is 
conducting joint investigations with foreign law enforcement agencies, 
primarily in Europe, to combat international tobacco smuggling. 
International organized crime groups continue to expand their tobacco 
smuggling ventures.
    Importations of paper wrapped cigarettes reached an all time high 
in calendar year 2000, with a total value of $265 million. This figure 
surpassed the previous high of $153.7 million in 1993, which was 
predominantly comprised of Canadian brand name cigarettes imported into 
the U.S. to be smuggled back into Canada. As a result of a recent 
amendment to the Tariff Act of 1930 that became effective in December 
2000, importations of cigarettes with brand names registered by the 
U.S. Patent and Trademark Office will require the permission of the 
trademark holder to be imported into the U.S. Enforcement of this new 
statute is likely to become a considerable challenge, as smugglers may 
seek to evade the new requirement. In an effort to cope with the 
increase in international cigarette smuggling, Customs has formed a 
multi-disciplined task force to coordinate all tobacco-related 
investigations. The coordination includes intelligence collection and 
analysis, liaison with domestic and foreign law enforcement agencies, 
and liaison with tobacco manufacturers and importers.
Intellectual Property Rights
    The enforcement of Intellectual Property Rights (IPR) continues to 
be a top priority mission for Customs. In order to accomplish this 
mission, Customs concentrates its efforts in three principal areas: 
trademarks, copyrights, and patents. Customs routinely pursues 
criminal, civil, and administrative investigations of individuals, 
companies, and organizations that utilize illicit trade practices to 
circumvent and unlawfully exploit Intellectual Property. The goal of 
Customs in its IPR enforcement effort is to allow for the successful 
prosecution of violators and to diminish their economic base through 
the seizure of all prohibited items and merchandise, the assessment of 
penalties and sanctions, and the collection of lost revenue.
    Customs unique border enforcement authority places it at the 
forefront of IPR investigations. In FY 2000, Customs effected 
approximately 3,357 IPR seizures valued at an estimated $60.3 million. 
These enforcement efforts resulted in a dramatic increase in IPR and 
Internet-related investigations.
    Customs latest IPR initiative is the formulation of the National 
Intellectual Property Rights Coordination Center (IPR Center). Located 
at Customs Headquarters in Washington, D.C., the IPR Center is a joint 
Customs/FBI center responsible for the coordination of a unified 
federal response to IPR enforcement issues. Particular emphasis is 
given to investigating major criminal organizations and those utilizing 
the Internet to facilitate IPR crime. The IPR Center's positive 
influence on IPR enforcement worldwide has been widely recognized. The 
Center is currently coordinating a transnational IPR investigation 
involving specific strains of counterfeit computer software. This 
coordination involves the direct oversight and analysis of intelligence 
and information from over 80 related investigations currently being 
pursued by Customs and the FBI.

Textile Smuggling
    Customs continues to increase its efforts in combating the 
smuggling and illegal transshipment of falsely declared textiles and 
wearing apparel. Violators utilize illegal schemes to circumvent U.S. 
quota and visa restrictions to gain unfair trade advantages over U.S. 
manufacturers. It is anticipated that, with the elimination of the 
current quota system in 2005 and the implementation of a new system/
rules, illegal textile transshipments to the U.S. will increase. 
Customs has developed a strategic plan to address the issue of illegal 
textile transshipments and smuggling utilizing the coordinated efforts 
of Textile Production Verification Teams and domestic investigations.
    In FY 2000, Textile Production Verification Teams were deployed to 
7 foreign countries and conducted visits to over 450 foreign textile 
factories to verify production capabilities and identify illegal 
transshipment schemes. The Office of Investigations, through the use of 
undercover and special operations, successfully identified 
transnational criminal organizations responsible for smuggling millions 
of dollars worth of textiles and merchandise into the U.S. In one such 
investigation, Customs identified an organization responsible for 
smuggling in excess of $2.3 million of trademarked and quota/visa 
restricted merchandise into the commerce of the U.S. The head of the 
organization was convicted of smuggling and faces 20 years 
incarceration in addition to payment of criminal fines and restitution 
to Customs of approximately $700,000.

Financial Investigations
    Customs and the Department of the Treasury are leaders in the 
Federal Government's efforts to combat money laundering. Customs 
provides key support to the National Money Laundering Strategy. Customs 
has been given a broad grant of authority to conduct international 
financial crime and money laundering investigations. This authority is 
primarily derived from the Bank Secrecy Act and Money Laundering 
Control Acts of 1986 and 1988. Customs has implemented an aggressive 
strategy to combat money laundering and now dedicates in excess of 400 
full time equivalent (FTE) positions worldwide to money laundering 
investigations. These efforts against money laundering are not limited 
only to drug related money laundering, but to proceeds of all criminal 
proceeds laundered in a variety of ways. During Fiscal Years 1998, 
1999, and 2000, money laundering investigations conducted by Customs 
resulted in the arrest of over 3,100 violators and the seizure of more 
than $625 million.
    Funding was provided in FY 2001 for the creation of 
multidisciplinary teams which will give Customs the organizational 
capacity to identify important patterns of noncompliance with the Bank 
Secrecy Act, identify and establish an expertise in money laundering 
systems that impact Customs jurisdiction, and equip Customs with the 
ability to address patterns and trends effectively.

Bulk Cash Smuggling
    We have seen a growing problem in the bulk smuggling of cash. 
Because U.S. banks have become more vigilant about reporting large cash 
deposits, many traffickers opt to avoid U.S. banks altogether. They 
smuggle their drug cash out of the country and deposit it into foreign 
locations where reporting requirements are less stringent or non-
existent. U.S. Customs has permanent full-time inspectors assigned to 
outbound programs, and in part they conduct examinations to search for 
bulk cash shipments. Additionally, Customs is in the process of 
deploying new technology in an effort to conduct less intrusive and 
more effective outbound searches. Seizures of outbound currency rose 
from $49 million in FY 1996 to $62 million in FY 2000.
Intelligence Collection and Analysis Teams
    Customs has begun implementation of a plan for establishing field 
intelligence units for the collection and dissemination of tactical 
intelligence in support of the Customs mission. Two of these units, 
called Intelligence Collection Analysis Teams (ICATs), were established 
in FY 2000: one in Blaine, Washington, and one in Los Angeles, 
California. Customs has begun a programmatic review of the ICATs along 
the southern tier to ensure compliance with the national standard 
operating procedure. Any issues identified through this review are 
being immediately addressed to ensure that the ICATs continue to 
provide intelligence support in the port environment.

Tactical Communications
    Tactical communications and investigative information support is 
administered to field law enforcement staff 24 hours per day, 7 days 
per week by the Tactical Communications Division, which delivers 
services through its principal field entity, the National Law 
Enforcement Communications Center (NLECC). This activity directly 
affects officer safety and the successful accomplishment of the 
tactical enforcement operations. There are some significant challenges 
facing this program in the near term. User training on network 
capabilities and operation is an increasing requirement due to a 
dispersed user population, added network complexities, and increased 
functionality. Establishment of a tactical communications training 
element focused on delivering regular user training through various 
methods to field enforcement staff is a high priority.

Trade Outreach
    The Customs Service continues to work collaboratively with the 
trade community to achieve greater streamlining and uniformity of cargo 
entry processes. The highly successful Customs Trade Symposium 2000, an 
all-day conference hosted by Customs for business and industry, 
highlighted agency trade priorities including the Entry Revision 
Project and the Low Risk Importer Initiative.
    The Entry Revision Project is a proposal to develop consensus 
between Customs and the trade community on a legislative framework to 
extend modernization to the import entry process. This is second only 
to the Automated Commercial Environment as a top Customs trade 
priority. We have met frequently with trade consortia to help build a 
new entry system that will better meet government and business needs.
    Along with risk management and improved oversight, our efforts to 
enhance compliance have emphasized the need for uniformity. Customs 
must provide the international trade and travel communities with 
consistent handling of their transactions at all locations. To help 
ensure this, we established a new and ongoing process at Headquarters 
to identify, address and monitor uniformity problem areas. We met with 
the trade at many outreach events around the country, and used risk 
management tools to target major areas of need. We have already 
achieved notable progress with what were once viewed as intractable 
problems, and we are also giving uniformity top priority in our written 
directives. Over 5,000 Customs Management Center and port standard 
operating procedures (SOPs) have been reviewed to ensure alignment with 
national policies, and we will continue to treat uniformity as a 
minimum standard of excellence for our Service.
    In addition to day-to-day interactions, Customs has also engaged 
the trade community in numerous fora, including a series of high-level 
roundtables held around the country at which we discussed specific 
trade concerns. We have also increased our network of Customs account 
managers, whose outreach efforts identify and help resolve systemic 
issues. We are fully committed to continuing and expanding our trade 
outreach efforts to further improve all areas of our commercial 
operations.

International Affairs
    In the international arena we continue to see an expanding role for 
Customs in the trade facilitation and law enforcement areas. As the 
primary border enforcement agency for the world's largest economy, the 
Customs Service sets the global standard for effective and transparent 
customs operations. Our international efforts focus on streamlining the 
flow of global trade, increasing compliance, building effective 
alliances to combat transnational crime, reducing corruption, 
strengthening border controls, promoting the rule of law and enhancing 
economic stability throughout the world. Customs enlists the support of 
foreign governments to further those objectives and to support the 
foreign policy goals of the United States.
    Customs Attaches represent the Customs Service in foreign 
countries. They are responsible for investigations, liaison, training 
coordination, infrastructure building and regulatory and compliance 
functions. They employ an integrated strategy to deliver law 
enforcement expertise, training and technical assistance and effective 
partnerships to combat transnational crime, money laundering and trade 
fraud. This integrated strategy provides Customs with unique access and 
influence abroad, which contributes to better outcomes in foreign 
legislation, trade practices and international law enforcement.
    Customs has played a critical role in a number of important 
international investigations such as operations Blue Orchid (child 
pornography), Multi-core (illegal export of arms), and Journey (drug 
smuggling), as well as counterfeit software and tobacco smuggling 
cases. Collectively, these investigations have resulted in the seizure 
of over 2,600 videotapes containing child pornography; the indictments 
of individuals involved in the illegal export of military aircraft and 
missile parts from the U.S. to Iran; the arrest of a foreign national 
who headed a major distribution network of counterfeit software; the 
seizure of 22,489 kilograms of cocaine, 43 arrests, and multiple 
convictions.
    At the Headquarters level, we support the United States Trade 
Representative and other organizations in bilateral and multilateral 
negotiations concerning deregulation, protection of intellectual 
property rights and harmonized Customs procedures. We also service U.S. 
travelers, the international trade community and the expatriate 
community by responding to numerous inquiries regarding U.S. import and 
export laws and procedures.
    Customs has also established partnerships with the private sector 
in order to promote U.S. business interests in foreign countries. The 
business community frequently cites foreign customs procedures and 
regulations as one of the most significant obstacles to the efficient, 
cost-effective movement of goods across international borders. Through 
our global network of contacts, we provide an important entree for U.S. 
business to negotiate foreign regulations.
    Customs is proud of its work with the private sector through our 
Industry Partnership Programs (IPP). Currently, over 4,800 air, sea, 
trucking, and railroad carriers have signed Carrier Initiative 
Agreements with Customs. In FY 2000, these carriers provided 
information to Customs that resulted in 82 domestic seizures totaling 
27,014 pounds of narcotics. During the same period, these carriers 
helped intercept 44,122 pounds of narcotics from conveyances or freight 
destined for the U.S. from abroad.
    Over the last 6 fiscal years (1995-2000), participants in IPP 
programs have provided information to Customs that has resulted in 
domestic seizures totaling over 91,823 pounds of narcotics. During the 
same 6 fiscal years, IPP participants helped intercept over 195,306 
pounds of narcotics destined for the U.S. from abroad.
    In addition to our Carrier Initiative programs, Customs is actively 
working with foreign business communities through the Business Anti-
Smuggling Coalition (BASC). BASC is an industry-led, Customs supported 
program. The goal of BASC is to enhance security from the point of 
manufacture in foreign countries through the distribution chain in the 
United States. There are currently 17 BASC chapters established by 
foreign business communities and Customs throughout Colombia, Ecuador, 
Venezuela, Panama, Peru, Costa Rica, and Mexico.

FY 2002 BUDGET REQUEST
    For FY 2002, the Customs Service proposes a total program level of 
$2,385,226,000 and 17,849 Full Time Equivalents (FTEs), all of which 
will be directly appropriated. The FY 2002 budget represents an 
increase of 4.6 percent above the FY 2001 enacted level.
    The explosive growth in the volume of trade will place an even 
greater demand on Customs to address pressing trade and enforcement 
issues with limited staffing and resources. The FY 2002 budget includes 
$130 million in base funding to continue development of the Automated 
Commercial Environment (ACE). ACE is designed to replace our current 
antiquated commercial processing system, and help Customs manage its 
expanding workload.
    As part of the FY 2002 President's Budget submission, $35 million 
is requested in the Air and Marine Program to support the Western 
Hemisphere Drug Elimination Act. These funds will be used towards 
Customs interdiction efforts primarily in the source and transit zones. 
Specifically, the resources will support acquisition of maritime patrol 
aircraft; implementation of various safety enhancements for flight 
crews; replacement of aging P-3 Forward Looking Infrared sensors 
(FLIR); replacement and modernization of current marine vessels; and 
replacement of deteriorating and obsolete equipment associated with the 
Customs Air and Marine Interdiction Coordination Center.
    This concludes my statement for the record. I appreciate the 
opportunity to appear before you today. Again, I want to express my 
thanks to the Subcommittee for its tremendous support of Customs in the 
past. We look forward to your continued support as we strive to meet 
the dramatic challenges faced by the Customs Service in this dynamic 
era of global trade and enforcement.

                                


    Mr. Winwood. But I would like to make one statement. I 
didn't know that by conceding to your wishes that you would 
empty the table and leave me here by myself.
    [Laughter.]
    Chairman Crane. Well, we figured that since this was your 
last visit and you had anticipated having to come back again, 
that we should feature you solo.
    [Laughter.]
    Mr. Winwood. Well, I appreciate that.
    Chairman Crane. Well, we thank you for being here today, 
and we thank you for all the good work you have done.
    Your successor-apparent, Mr. Bonner, will soon take over 
the reins of Customs Service. And what good advice would you 
leave him with?
    Mr. Winwood. Well, Mr. Chairman, I truly believe that I am 
in no position to give a man with his distinguished career, his 
background, and his experience, coming back to the Federal 
government, any advice at all.
    I would just simply say that we look very much forward to 
Mr. Bonner's arrival to the Customs Service. I think he is 
going to bring a new era of further growth and development to 
our agency, and I think he will be a tremendous asset to the 
Federal government.
    Chairman Crane. Thank you.
    Sandy.
    Mr. Levin. You know, your testimony was 19 pages long, and 
I think it shows the breadth of the functions of your 
institution. So I am not quite sure where to start. I am sure 
my colleagues will cover different territory than I.
    Mr. Rangel was not able to be here today. And if he were 
here, he was going to ask some questions, I think perhaps you 
know--about the implementation of African Growth and 
Opportunity Act (AGOA) and Caribbean Basin Initiative (CBI).
    Is it fair for me to ask you those questions? Are you in a 
position to respond or not?
    Mr. Winwood. Well, I will try to respond to your questions, 
but if they get into a very technical area, I will be more than 
glad to supply detailed information for the record.
    Mr. Levin. OK. That is fair enough.
    And these aren't entirely new issues, as you know. Some of 
them relate to the Customs definition of words or 
implementation of certain phrases.
    And the first one relates to the phrase ``fabric cut and 
assembled.'' And the phrase has recently been defined to 
exclude knit-to-shape apparel, as you know, I think, when 
Customs has traditionally included knit-to-shape apparel within 
that definition.
    How do you explain that? Or do you want to do it for the 
record?
    Mr. Winwood. Well, that is the one I would like to do for 
the record.
    I will tell you, Congressman Levin, that is a somewhat 
technical issue, and I think it would be best-served to address 
it for the record.
    Mr. Levin. OK, you may be saved by this bell.
    [Laughter.]
    Mr. Levin. It is frustrating. We apologize to everybody.
    Chairman Crane. Oh, we are in recess----
    Mr. Levin. Are we?
    Chairman Crane. Subject to call of the Chair, apparently.
    Mr. Levin. Then you are not saved by the bell.
    Chairman Crane. Maybe we adjourned.
    [Laughter.]
    Mr. Levin. No.
    Mr. Winwood. But if I may say for the record, Congressman 
Levin, that we have instituted interim regulations that have 
been published. We have done a tremendous amount of work 
particularly with the African nations in the form of training 
help.
    We have had several of our Customs officers visit the 
continent and several countries at least four times. As a 
matter of fact, we have a couple of our Customs officers there 
right now, talking to the different nations about what they 
need to do to help them, education, awareness, the steps they 
need to take.
    And we also, when the legislation was first passed and we 
were ready to put out interim regulations, we had 90 
individuals from 24 countries brought to the United States. And 
we spent a full week with them with our Customs staff and 
representatives from other government agencies associated with 
imports and textiles, and so forth, to talk about the 
procedures and steps we take to institute this revision of law.
    Mr. Levin. All right, well, there is a similar question 
regarding the definition of fabric. I think what we will do is 
to submit these questions to you, though I think you already 
have them. And I think they will belay your testimony on it.
    But these discussions have been going on for a long time--
--
    Mr. Winwood. Yes, sir.
    Mr. Levin. To put it mildly.
    All right, let me just ask you about another controversial 
issue, and I guess we are going to be talking about the whole 
compensation issue, as you part, do you want to say anything 
about that?
    Also, you know there is the proposition to make the 
officers, the inspectors, eligible for law enforcement status. 
Would you like to comment on that?
    Mr. Winwood. Yes, sir.
    On the whole concept of compensation for what we consider 
to be law enforcement officers who conduct a very critical, 
dangerous job, I think if there is going to be any review of 
any form of compensation--it was passed by Congress in 1994--it 
should be a holistic review.
    We shouldn't be looking at one aspect first or another, 
because that package was put together as a total compensation 
package for individuals doing a very critical job.
    I am very much in favor of adequate, proper compensation, 
both in the form of pay and additional compensation and 
protection for officers who do the type of work that these 
Customs officers do in the field every day. If we are going to 
look at the compensation program, the whole program should be 
looked at.
    Mr. Levin. How long have you been with the service?
    Mr. Winwood. Pardon me, sir?
    Mr. Levin. How long have you been with them?
    Mr. Winwood. Thirty years.
    Mr. Levin. So you talk about a comprehensive look at it and 
not taking it piecemeal, you are drawing on your three decades 
of service within the service to say that? I mean, do you feel 
deeply about that?
    Mr. Winwood. Most certainly, sir. I will tell you that when 
the law was passed in 1994, from my understanding and watching 
how the Congress worked and the different pieces were brought 
together, the attempt was to take a holistic look at the entire 
compensation package prior to the new enactment of the law in 
1994.
    If there was to be a review of that, I think we should, 
again, take a look at the whole package and not divide it up 
into segments.
    Mr. Levin. Thank you.
    Mr. Winwood. Yes, sir.
    Chairman Crane. Thank you.
    Mr. Camp.
    Mr. Camp. Thank you, Mr. Chairman.
    I was interested in the staffing levels. Obviously, they 
have had a lot of demands placed on them because of increased 
trade. And I wondered what your thoughts were on that; and 
whether you thought that the ACE and entry revision project 
would allow the staff to be used more productively; and if you 
did, how you thought that would work.
    Mr. Winwood. Congressman Camp, I think that is an excellent 
question. I think the future, the next generation of what we 
need to do to further enhance the economy and world trade and 
global trade, is to make sure we have the right combination of 
well-dedicated, trained, professional staff supported by the 
proper technology and supported by automation to enable them to 
work efficiently.
    I am firmly convinced that the ACE modernization and the 
entry revision, as we continue to work with the trade to add 
that procedure to the ACE automated system, will definitely 
enhance the ability of our officers to work more efficiently. 
And it will cause us not only to work more efficiently, but be 
able to maintain some semblance of keeping up the tremendous 
growth that we know we are going to face.
    Mr. Camp. What are some of the efforts that you have on 
maintaining the integrity of the staff, given the amount of 
material that has been seized, in terms of money, drugs, 
contraband, other things? And are there any recent instances 
where there has been wrongdoing among the staff that you can 
relay to us?
    Mr. Winwood. First of all, I would like to say emphatically 
that the Customs Service and all its employees have a zero 
tolerance toward any type of violation of the integrity of the 
organization and violations of the laws which we are sworn to 
support.
    We have made major changes to our effort to help our 
officers stay with the highest level of integrity. We have new 
procedures in place.
    We have reorganized our internal affairs office, have 
special organizations set up within internal affairs to do 
certain types of investigations. We have a special intake group 
that reviews every allegation that comes into the Customs 
Service and determines at what level it should be reviewed and 
what type of investigation should be done.
    We have new procedures that we have documented, with the 
help of our employees, to make sure that people have logical, 
systematic processes that they can follow.
    We have also set up not only announced inspections with an 
inspection program, but we also have unannounced inspections to 
ensure that we are all maintaining the level of professionalism 
and integrity that we agreed to maintain.
    Now, with that being said, we do have some officers from 
time to time that cross the line. And we take it very 
seriously. We have several cases right now that we are working, 
where I think they made a major mistake by violating the law. 
We will prosecute those individuals, when they are found to 
have been guilty of violating the law, to the fullest extent 
that we can.
    Mr. Camp. All right, thank you. Thank you, Mr. Chairman.
    Chairman Crane. Mr. English.
    Mr. English. Thank you, Mr. Chairman.
    Rather than ask a question, I would simply like to extend 
my thanks to Mr. Winwood, and specifically to three Customs 
agents who assisted a community in my district, Millcreek 
Township.
    Millcreek Township participated in a joint investigation 
with Customs from June 1999 through February 2000. The joint 
investigative operation was successful in its efforts. However, 
reimbursement to the Millcreek Police Department was belated 
and entangled in red tape; I might add, not through any fault 
of Mr. Winwood's.
    There were three agents in particular who worked with my 
office and got this situation fixed, and I would like to 
acknowledge them if I could: Mr. Gary Lang, the associate 
special agent in charge of the Baltimore field office; Mr. Bill 
Reid, the assistant director for policy and planning, 
Washington, DC; Mr. David Callahan, the resident agent in 
charge of the Philadelphia field office.
    Let me say that this is a small matter in the scheme of 
things, but to me it is suggestive of an agency that is trying 
to work very closely and build a good interaction with local 
agencies to extend its reach, extend its resources, and when 
mistakes are made, address those problems.
    Mr. Winwood, I would like to commend you for the way your 
agency responded to this situation in my district.
    And, Mr. Chairman, with that, I will yield back the balance 
of my time.
    Chairman Crane. Thank you. Mr. Neal.
    Mr. Neal. Thank you, Mr. Chairman.
    I apologize for being tardy, but simultaneously we were in 
another Subcommittee, debating the issue of tax simplification.
    Chairman Crane. OK.
    [Laughter.]
    You got it simplified, I trust.
    [Laughter.]
    Mr. Neal. Well, we got it done.
    [Laughter.]
    Chairman Crane. Oh, very good.
    [Laughter.]
    Mr. Neal. I was able to rush over here, Mr. Chairman.
    Mr. Winwood, let me be specific. Mr. Camp was general in 
his questioning.
    The Port of Boston. The Coalition for New England 
Companies, they have been complaining vociferously now for a 
period of time about staffing levels in Boston. And they 
believe that trade is beginning to slow on the basis of 
staffing levels in Boston.
    I don't expect you at this session to be able to 
specifically address the question, but it really is important.
    Barney Frank wrote you, I believe on June 10, as a follow-
up to a letter that the coalition had written on March 8 of 
this year. And if your staff could let me know what their 
analysis of staffing level has done in Boston?
    As you know, the Port of Boston is very, very busy. And I 
would hope that you might be able to give us some answers in 
the near future. But it is a question now that comes up 
regularly when we discuss trade issues back in the State of 
Massachusetts, what is happening with the staffing levels at 
the Port of Boston.
    Mr. Winwood. Congressman, I assure you that I will 
personally make sure that this is looked into and that we will 
respond with an analysis of the situation in Boston and give 
you a detailed accounting.
    Mr. Neal. Thank you very much. Thank you, Mr. Chairman
    Chairman Crane. Well, we thank you, Mr. Winwood, for all of 
your stellar service. And we especially thank you for going 
through the ordeal of coming back again as a witness, and we 
look forward to working with you in your next capacity.
    Mr. Winwood. Thank you, Mr. Chairman.
    Chairman Crane. And with that, let me bring our next panel 
to the fore. And that is Dennis Schindel, deputy inspector 
general, U.S. Department of the Treasury; and Laurie Ekstrand, 
director, justice issues, U.S. General Accounting Office.
    And before we commence, let me remind you to please try and 
keep your oral testimony to 5 minutes or less. And all written 
testimony will be made a part of permanent record.
    And with that, we will proceed with Mr. Schindel.

  STATEMENT OF DENNIS S. SCHINDEL, DEPUTY INSPECTOR GENERAL, 
  OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF THE TREASURY

    Mr. Schindel. Thank you, Mr. Chairman, Members of the 
Subcommittee, I am pleased to appear before you today.
    In April 1999, I testified before the Subcommittee on the 
results of an audit that we conducted on the impact of the 
Customs Service Officers Pay Reform Act (COPRA) on Customs' 
overtime and premium pay. That audit found that while the COPRA 
legislation was expected to reduce the Customs overtime costs 
for inspectional services, it in fact increased those costs.
    COPRA became law as part of the Omnibus Budget 
Reconciliation Act 1993. It created a new and exclusive 
overtime compensation and premium pay system for Customs 
officers performing inspectional services. The intent of COPRA 
legislation was to more closely match earnings to hours worked.
    A 1993 House report estimated that COPRA changes would 
result in overtime savings of $12 million in both fiscal year 
1994 and 1995 with total savings through fiscal year 1998 of 
$52 million.
    Our audit found, however, that premium pay expenses for 
Customs, specifically, the night work differential, 
substantially increased under COPRA. Instead of the significant 
reduction in Customs overtime costs that 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.
    From the data available from Customs, we determined that in 
fiscal year 1993, the last full year under the prior pay 
legislation, commonly know as 1911 Act overtime, Customs' total 
overtime costs, including shift differentials, were $99.2 
million. Of this, approximately $51,000 was due to night 
differentials.
    Looking at fiscal year 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 differentials. Therefore, 
COPRA substantially increased Customs' costs for night 
differential pay from $51,000 in 1993 to $8.9 million in 1995.
    Customs has continued to experience higher costs each year. 
In fiscal year 1997, total overtime pay, including premium pay, 
was $126.8 million of which $9.3 million was due to night 
differentials. In fiscal year 2000, the costs were $158.9 
million and $14.4 million, respectively.
    One of the major reasons for the increase in Customs' 
premium pay costs and, more specifically, the night 
differential, 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 night 
differential amount from 10 percent of basic pay to 15 percent 
or 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 24 hours of 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 also provides 
that if the majority of a shift falls within a 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 8 hours of a shift that starts at 
12 noon and ends at 8 p.m. 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 p.m. until 4 a.m. would also qualify for night 
differential pay at the 20-percent rate.
    What this means essentially is 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 pay.
    Another factor increasing Customs night differential 
expenses was an arbitration ruling, which was issued in 1995. A 
panel arbitrator ruled in favor of the National Treasury 
Employees Union, which protested Customs' refusal to pay night 
differential to Customs officers who were on leave for periods 
of 8 hours or longer.
    The ruling required Customs 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 received 
night differential premium pay even if they were on vacation.
    In summary, the overall cost to Customs for overtime has 
shown an increase rather than a decrease after the passage of 
COPRA and has steadily increased every year since 1995.
    The night differential portion of that total cost has 
substantially increased from $51,000 in fiscal year 1993 to 
$14.4 million in fiscal year 2000. That substantial increase 
will remain a part of Customs' total overtime costs and 
continue its upward trend unless the provisions of COPRA 
outlined in this testimony are eliminated or modified through 
new legislation.
    That concludes my remarks, and I would be happy to answer 
any questions.
    [The prepared statement of Mr. Schindel follows:]

   Dennis S. Schindel, Deputy Inspector General, Office of Inspector 
                General, U.S. Department of the Treasury

    Mr. Chairman, members of the Subcommittee, I am pleased to appear 
before you today. In April of 1999, I testified on the results of an 
audit we conducted on the impact of the United States Customs Services 
Officers Pay Reform amendments (COPRA) on Customs' overtime and premium 
pay. Our audit, which was completed in September of 1996, found that 
while the COPRA legislation was expected to reduce the United States 
Customs Service (Customs) overtime costs for inspectional services, it 
in fact increased total overtime and premium pay costs.
    COPRA became law as part of the Omnibus Budget Reconciliation Act 
of 1993. It took effect January 1, 1994. COPRA created a new and 
exclusive overtime compensation and premium pay system for Customs 
officers performing inspectional services. The intent of 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.
    Our audit found that premium pay expenses for Customs, 
specifically, the night work differential, substantially increased 
under COPRA. Instead of the significant reduction in Customs overtime 
costs that COPRA was anticipated to provide, costs increased due to the 
use of both overtime and premium pay. Clearly, this was not the 
expected result when COPRA was passed in 1993.
    According to data available from Customs budget account summaries, 
we determined that in FY 1993, the last full year under the prior pay 
legislation, commonly know as ``1911 Act overtime'', Customs' total 
overtime costs including shift differentials were $99.2 million. Of 
this, approximately $51,000 was due to night 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 differentials. Therefore, COPRA 
substantially increased Customs costs for night differential pay from 
$51,000 in 1993 to $8.9 million in 1995. Customs has continued to 
experience higher costs each year. In FY 1997 total overtime pay, 
including premium pay was $126.8 million of which $9.3 million was due 
to night differentials. In FY 2000 the costs were $158.9 million and 
$14.4 million, respectively.
    One of the major reasons for the increase in Customs premium pay 
costs, and more specifically the night differential 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 night differential amount from 10 percent of basic pay to 
15 percent or 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 24 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 8 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 p.m. until 4 a.m. would also qualify for night differential pay, 
at the 20 percent rate. Essentially, 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 pay.
    Another factor increasing Customs night differential expenses was 
an arbitration ruling, which was issued on December 9, 1995. A panel 
arbitrator ruled in favor of the National Treasury Employees Union 
which protested Customs refusal to pay night differential to Customs 
officers who were on leave for periods of 8 hours or longer. The ruling 
required Customs 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 received night differential premium pay even if they 
were on vacation.
    In summary, the overall cost to Customs for overtime has shown an 
increase rather than a decrease after the passage of COPRA and has 
steadily increased every year since 1995.
    The night differential portion of that total cost has steadily 
increased from $51,000 in FY 1993 to $14.4 million in FY 2000. That 
substantial increase will remain a part of Customs' total overtime 
costs and continue its upward trend unless the provisions of COPRA 
outlined in this testimony are eliminated or modified through new 
legislation.

                                


    Chairman Crane. Thank you, Mr. Schindel. Ms. Ekstrand.

STATEMENT OF LAURIE E. EKSTRAND, DIRECTOR, JUSTICE ISSUES, U.S. 
                   GENERAL ACCOUNTING OFFICE

    Ms. Ekstrand. Thank you, Mr. Chairman.
    I am going to very briefly discuss the results of three 
recent reports that GAO has done concerning the Customs 
Service, and let me start with Customs' automated commercial 
environment, ACE.
    As you know, ACE was intended to replace Customs' current 
aging and error-prone system for import processing. Customs 
also plans to acquire a system known as the international trade 
data system (ITDS) that is to provide importers with a single 
interface with the Federal Government.
    When Congress appropriated money for ACE and ITDS, they 
also stipulated that ACE funds may not be obligated until 
Congress approves the ACE expenditure plan that meets a number 
of management and oversight requirements, including review by 
GAO.
    Customs submitted its first expenditure plan seeking the 
release of $45 million in March 2001. On April 23, 2001, we 
reported to the Customs Appropriations Subcommittee that the 
expenditure plan satisfied the appropriations act conditions 
and was consistent with our open recommendations concerning 
ACE.
    We concluded that the plan constituted a reasonable first 
step in a complex, long-term modernization program. We made 
some additional recommendations for Customs actions, and they 
have agreed to implement them.
    GAO will continue to monitor Customs' ongoing modernization 
efforts.
    Next, let me turn to some work we have recently done 
concerning Customs Office of Regulations and Rulings, known as 
OR&R. This office is very important to importers because, among 
its duties, it issues rulings on such things as proper 
classification and valuation of imported goods. And these 
rulings are very important to the business decisions importers 
make and in some cases are time critical.
    We reviewed a representative sample of headquarter's 
rulings that were requested and issued between January 1997 and 
October 1999. We found that about two-thirds were not completed 
within OR&R's 120-day benchmark for these rulings.
    Indeed, about 16 percent took longer than a year to 
process. In response to our draft report, OR&R acknowledged 
problems with the timeliness of headquarter's rulings and 
attributed the delays to staffing shortages and competing 
workload demands.
    We made a number of recommendations intended to resolve the 
problem, and Customs has indicated they will act on them. And 
we will again follow up in terms of the recommendations.
    Finally, let me turn to our recent work concerning Customs 
officers' night differential pay. Specifically, we focused on 
the potential effects of two provisions of subsection C of H.R. 
1833, which was introduced in the 106th Congress. And Mr. 
Schindel has just been over those two subsections. One deals 
with paying officers that are working night shifts for the time 
they are on annual, sick or other leave, and the other would 
change and reduce the number of hours in a day that Customs 
officers could earn night differential.
    Our analysis of Customs data show that about 6,500 officers 
received about $13.5 million in night differential pay in 
fiscal year 1999, about $11 million of this was paid for work 
on six shifts. Had sections 123(a) and 123(b) been in effect 
for these shifts, Customs officers would have earned about $5 
million less. In contrast but to a lesser extent, 122 officers 
would have received net increases of a total of $17,000 had the 
proposed changes been in effect.
    Our analysis of the potential impact of the proposed 
changes across five selected ports showed that the extent of 
the impact would vary widely, depending on the size and 
staffing patterns of each port.
    This concludes my oral statement. And of course, I would be 
happy to answer any questions you may have.
    [The prepared statement of Ms. Ekstrand follows:]

Statement of Laurie E. Ekstrand, Director, Justice Issues, U.S. General 
                           Accounting Office

    Mr. Chairman and Members of the Subcommittee:
    I am pleased to be here today to discuss (1) an update of our work 
on the Automated Commercial Environment (ACE), which is intended to be 
Customs' new import processing system, (2) findings from our report on 
the timeliness of Customs' Office of Regulations and Rulings (OR&R)\1\ 
in issuing headquarters rulings on such things as the proper 
classification and valuation of imported goods, and (3) findings from 
our recent report on the effects of proposed legislation (H.R. 1833, 
sections 123 (a) and (b), 106th Cong.) on Customs officers' night 
pay.\2\ Our report on Customs officers'\3\ night pay was requested by 
Senator Grassley as Chairman of the Senate Caucus on International 
Narcotics Control.\4\ At the close of fiscal year 2000, Customs had a 
permanent work force of about 20,000 employees, including about 8,000 
officers.
---------------------------------------------------------------------------
    \1\ U.S. Customs Service: OR&R Needs to Resolve Timeliness and Data 
Problems Involving Headquarters Rulings (GAO/GGD-00-181, Sept. 7, 
2000).
    \2\ Customs Service: Effects of Proposed Legislation on Officers' 
Pay (GAO-01-304, Jan. 2001).
    \3\ For the purposes of this testimony, when we used the term 
Customs officers, we are referring to both inspectors and canine 
enforcement officers.
    \4\ The Caucus has been concerned for some time about the manner in 
which Customs provides compensation to its officers, who are on the 
front line of the nation's drug interdiction efforts. Customs' 
responsibilities include preventing the smuggling of drugs into the 
United States.
---------------------------------------------------------------------------
    In summary, on our first issue, concerning ACE, a more capable 
import processing system designed to replace Customs' current aging and 
error-prone system, we concluded that Customs' plan constituted a 
reasonable first step on a complex, long-term modernization program. 
Pursuant to our obligation to review ACE expenditures, we plan to 
continue monitoring Customs' ongoing modernization efforts. Second, we 
found that OR&R headquarters did not issue the majority of its rulings 
in a timely manner. Third, we found that if proposed legislation on 
Customs officers' night pay had been in effect during fiscal year 1999, 
the officers would have received about $6 million in night differential 
pay--about $5 million less than what they actually received during that 
year. Further, across the five ports we reviewed, the impact on 
officers' pay varied widely because of the differences in shift 
patterns.

Customs Is Taking a Reasonable First Step on Long-Term ACE 
        Modernization Program
    Let me start by updating you on the progress of Customs' ACE. As we 
have previously testified, the need for Customs to modernize its import 
processing is undeniable.\5\ In the face of burgeoning trade workload 
forecasts, a commensurate increase in Customs' human capital resources 
is neither planned nor the appropriate solution. Moreover, Customs' 
current system for import processing, the Automated Commercial System, 
is paper-intensive, error-prone, transaction-based, and out of step 
with the just-in-time inventory practices of the trade community. To 
address this challenge, and consistent with our prior recommendations 
on ACE, Customs plans to incrementally acquire and invest in a more 
capable import processing system known as the Automated Commercial 
Environment, or ACE, and retire its existing system. Also consistent 
with our past recommendations, Customs plans to acquire on behalf of 
the many federal agencies that collect, use, and disseminate trade 
data, a system known as the International Trade Data System, or ITDS, 
that is to provide importers with a single interface into the federal 
government.
---------------------------------------------------------------------------
    \5\ U.S. Customs Service: Observations on Selected Operations and 
Program Issues (GAO/T-GGD/AIMD-00-150, Apr. 20, 2000).
---------------------------------------------------------------------------
    For fiscal year 2001, the Congress appropriated $130 million and 
$5.4 million as the first installments on the ACE and ITDS investments, 
respectively.\6\ In the act appropriating these funds, the Congress 
also stated that the ACE funds may not be obligated until Customs 
submits to the Congress for approval an ACE expenditure plan that meets 
a number of management and oversight requirements, including review by 
us.
---------------------------------------------------------------------------
    \6\ The Consolidated Appropriations Act, 2001 (P.L. 106-554, Dec. 
21, 2000).
---------------------------------------------------------------------------
    Customs submitted its first expenditure plan seeking release of $45 
million on March 26, 2001. On April 23, 2001, we provided the results 
of our review of the plan to the Customs' appropriations 
subcommittees.\7\ In sum, we reported that Customs' expenditure plan 
satisfied the appropriations act's conditions and was consistent with 
our open recommendations concerning ACE, and we thus concluded that the 
plan constituted a reasonable first step on a complex, long-term 
modernization program. However, we also reported that (1) opportunities 
for improving modernization management existed because the expenditure 
plan excluded relevant ITDS investment activities and allowed these 
activities to proceed outside of the scope of the modernization program 
without justification for doing so and (2) the plan provided for 
conflicting roles and responsibilities for the modernization program's 
independent verification and validation agent.\8\
---------------------------------------------------------------------------
    \7\ Customs Service Modernization: Results of Review of First 
Automated Commercial Environment Expenditure Plan (GAO-01-696, June 5, 
2001).
    \8\ The purpose of independent verification and validation is to 
provide an independent review of system processes and products to 
ensure that quality standards are being met. The use of independent 
verification and validation is a recognized best practice for large and 
complex system development and acquisition projects, like ACE.
---------------------------------------------------------------------------
    Accordingly, we recommended that Customs (1) transfer 
responsibility and accountability for the ITDS pilot to the ACE 
modernization program manager; (2) include further ITDS investment 
plans and supporting information in the next ACE expenditure plan; and 
(3) clarify the roles and responsibilities of the ACE modernization 
IV&V contractor to ensure independence. Customs agreed with our 
recommendations, and to date has either implemented or is in the 
process of implementing these recommendations. Currently, Customs is 
working with its recently selected modernization integration contractor 
to define the initial contract task orders, which the $45 million is to 
fund. In fall 2001, Customs plans to submit its second expenditure plan 
seeking release of funding to carry the program through its next 
increment. Pursuant to our obligation to review ACE expenditure plans, 
we are currently monitoring Customs ongoing modernization efforts.

OR&R Headquarters Did Not Issue the Majority of Its Prospective Rulings 
        Within Its Timeliness Goal
    Last year, we responded to your Committee's request that we examine 
the timeliness with which Customs' OR&R issues rulings on such things 
as the proper classification and valuation of imported goods. OR&R 
issues rulings to advise importers of Customs regulations and assist 
importers in making marketing and pricing decisions.
    We found that OR&R headquarters did not issue the majority of its 
prospective rulings--those requested by an importer on goods that are 
proposed for entry into U.S. markets--in a timely manner. Our review of 
a random sample of 70 hard-copy case files representing approximately 
610 rulings showed that about two-thirds of the rulings that were 
requested and issued between January 1, 1997, and October 26, 1999, 
were not completed within OR&R's 120-day benchmark for those rulings. 
We estimated that about 16 percent of the rulings took longer than 365 
days to process and issue.
    OR&R acknowledged problems with the timeliness of headquarters 
rulings, and attributed many of these problems to staffing shortages 
and competing workload demands. We made several recommendations 
regarding actions to address the problems and improve OR&R's 
performance. In commenting on a draft of the report, Customs officials 
discussed actions they intended to take to implement each of our 
recommendations. We concluded that while most of the actions proposed 
by Customs appeared to be steps in the right direction, they may not 
fully resolve the problems discussed in our report.

Most Customs Officers Would Receive Less Night Differential Pay Under 
        Proposed Changes
    In January 2001, we reported on the extent that Customs officers' 
night differential\9\ pay would be increased or decreased by proposed 
legislation introduced by this Subcommittee. Specifically, our report 
focused on the effects of sections 123 (a) and (b) of Subtitle C of 
H.R. 1833,\10\ introduced in the 106th Congress, which would change how 
Customs officers' night differential pay is calculated.
---------------------------------------------------------------------------
    \9\ Night differential pay for Customs officers consists of a 15--
or 20-percent differential above the basic hourly rate.
    \10\ An Act to authorize appropriation for the United States 
Customs Service, and for other purposes. In May 1999, the House of 
Representatives passed H.R. 1833 that contained amendments to change 
Customs officers' night pay. In August 1999, the Senate passed another 
version of H.R. 1833, which did not contain the pay amendments.
---------------------------------------------------------------------------
    We compared current law to proposed changes in H.R. 1833 and 
analyzed Customs data nationally and at five ports of entry.\11\ 
Section 123 (a) would have prohibited Customs officers who are 
scheduled for night shifts from receiving night differential pay when 
they take annual, sick, or other leave. Section 123 (b) would have 
changed the times and reduced the number of hours in a day that Customs 
officers could earn night differential pay. Night differential pay 
would be limited to hours worked on a midnight-to-8 a.m. shift, and for 
all other shifts, hours worked between 6 p.m. and 6 a.m. Table 1 below 
shows the decreases, and to a lesser extent increases, in the number of 
available hours that Customs officers could earn night differential pay 
for various 8-hour shifts in a day if the proposed change was enacted.
---------------------------------------------------------------------------
    \11\ We judgmentally selected, based on the number of air and land 
passengers processed, three large airports, one medium airport/seaport, 
and one large land border crossing. The ports selected were John 
Fitzgerald Kennedy International Airport (JFK), Los Angeles 
International Airport (LAX), Miami International Airport, Baltimore-
Washington International Airport and Seaport, and San Ysidro land 
border crossing near San Diego.

 
        Table 1: Comparison of the Number of Night Differential Hours Currently Available and as Proposed
----------------------------------------------------------------------------------------------------------------
                                       Night differential hours available
  8-hour shift starting and ending   --------------------------------------   Increase under     Decrease under
                time                     Current law      Proposed changes   proposed changes   proposed changes
----------------------------------------------------------------------------------------------------------------
12 noon to 8 p.m....................                 8                  2   .................                 6
1 p.m. to 9 p.m.....................                 8                  3   .................                 5
2 p.m. to 10 p.m....................                 8                  4   .................                 4
3 p.m. to 11 p.m....................                 8                  5   .................                 3
4 p.m. to 12 midnight...............                 8                  6   .................                 2
5 p.m. to 1 a.m.....................                 8                  7   .................                 1
6 p.m. to 2 a.m.....................                 8                  8   .................  .................
7 p.m. to 3 a.m.....................                 8                  8   .................  .................
8p.m. to 4 a.m......................                 8                  8   .................  .................
9 p.m. to 5 a.m.....................                 8                  8   .................  .................
10 p.m. to 6 a.m....................                 8                  8   .................  .................
11 p.m. to 7 a.m....................                 8                  7   .................                 1
12 midnight to 8 a.m................                 8                  8   .................  .................
1 a.m. to 9 a.m.....................                 8                  5   .................                 3
2 a.m. to 10 a.m....................                 8                  4   .................                 4
3 a.m. to 11 a.m....................                 8                  3   .................                 5
4 a.m. to 12 Noon...................                 0                  2                  2   .................
5 a.m. to 1 p.m.....................                 0                  1                  1   .................
6 a.m. to 2 p.m.....................                 0                  0   .................  .................
7 a.m. to 3 p.m.....................                 0                  0   .................  .................
8 a.m. to 4 p.m.....................                 0                  0   .................  .................
9 a.m. to 5 p.m.....................                 0                  0   .................  .................
10 a.m. to 6 p.m....................                 0                  0   .................  .................
11 a.m. to 7 p.m....................                 0                  1                  1   .................
----------------------------------------------------------------------------------------------------------------
Source: GAO analysis of current law--U.S.C. 267(b)(1)--and proposed changes--section 123(b) of H.R. 1833.

    Our analysis of Customs data showed the extent to which sections 
123 (a) and (b) of H.R. 1833 would affect Customs officers' pay. 
Nationwide, our analysis of the Customs data showed that 6,510 Customs 
officers received about $13.5 million in night differential pay in 
fiscal year 1999. Over 80 percent of the $13.5 million in night 
differential pay was concentrated in six shifts, which generated $11 
million in night differential pay (see table 2 below). Had sections 123 
(a) and (b) of H.R. 1833 been in effect for these six shifts during 
fiscal year 1999, Customs officers would have received about $6 million 
in night differential pay, about $5 million less than what they 
actually received that year.

 
  Table 2: Total and Average per Officer Amount of Night Differential Pay Under Current Law and Under H.R. 1833
   Sections 123 (a) and (b) for the Six Top ``Differential Earning'' Shifts Nationwide During Fiscal Year 1999
                                      Total Average per shift, per officer
----------------------------------------------------------------------------------------------------------------
                                                     Total                       Average per shift, per officer
                               ---------------------------------------------------------------------------------
          Shift hours                                                            Current
                                  Current law      Proposed       Difference       law     Proposed   Difference
                                   (actual)       (estimate)      (decrease)    (actual)  (estimate)  (decrease)
----------------------------------------------------------------------------------------------------------------
4 p.m. to 12 a.m..............      $4,087,828      $2,584,188      $1,503,640    $22.25     $16.56       $5.69
1 p.m. to 9 p.m...............       2,059,029         643,686       1,415,343     23.87       8.89       14.98
12 a.m. to 8 a.m.\a\..........       1,956,775       1,706,846         249,929     29.80      29.69        0.11
12 p.m. to 8 p.m..............       1,310,974         276,381       1,034,593     23.18       5.76       17.42
2 p.m. to 10 p.m..............         972,762         410,872         561,890     22.66      11.27       11.39
3 p.m. to 11 p.m..............         654,615         346,833         307,782     22.69      14.07        8.62
    Total.....................      11,041,983       5,968,806       5,073,177
----------------------------------------------------------------------------------------------------------------
\a\ This shift, 12 a.m. (midnight) until 8 a.m., is preserved in H.R. 1833 so that officers working this shift
  would continue to earn 8 hours of night differential. Therefore, any reduction because of the proposed
  legislation is attributable to section 123 (a) eliminating payment of night differential while officers are on
  leave.
Source: GAO analysis of Customs data.

Extent of Night Differential Pay Reductions Varied by Port
    Our analysis of the Customs data for five selected ports showed 
that nearly all (97 percent) of the 1,377 Customs officers receiving 
night differential pay at these ports would have received less night 
differential pay had the proposed changes been in effect. Customs 
officers working at ports with shifts starting in the early afternoon, 
such as those at JFK, would have had the largest pay decreases.
    The amount of pay decreases and number of Customs officers affected 
varied across the five ports we analyzed, as shown in table 3 below. 
For example, of the 464 Customs officers who received night 
differential pay at JFK, 148 (32 percent) as shown in the shaded areas 
of the table, would have had their night differential pay decreased by 
over $3,000 had the proposed changes been in effect. In contrast, the 
proposed changes would not have had as much of an impact on Customs 
officers working at the Baltimore-Washington International Airport and 
Seaport, a smaller port with fewer officers earning night differential 
pay. Of the 53 Customs officers who received night differential pay at 
the Baltimore-Washington International Airport and Seaport, 44 (83 
percent) would have had their pay decreased by $500 or less if the pay 
provisions in H.R. 1833 had been enacted. None would have had a pay 
decrease of over $3,000.

Table 3: Potential Night Differential Pay Reductions Had Sections 123 (a) and (b) of H.R. 1833 Been in Effect in
                                     Fiscal Year 1999 at Five Selected Ports
----------------------------------------------------------------------------------------------------------------
                                                                    Officers at each port
                                           ---------------------------------------------------------------------
                                                 JFK           LAX          Miami     Balto.-Wash.   San Ysidro
         Potential pay reductions          --------------------------------------------------------    border
                                                                                                   -------------
                                             No.     %     No.     %     No.     %     No.     %     No.     %
----------------------------------------------------------------------------------------------------------------
$500 or less..............................     97     21     99     42    186     51     44     83     93     43
$501 to $1,000............................     41      9     41     17     89     25      3      6     34     16
$1,001 to $2,000..........................     87     19     63     27     74     20      5      9     55     26
$2,001 to $3,000..........................     91     20     19      8     12      3      1      2     22     10
$3,001 to $4,000..........................     83     18     11      5      2      1      0      0      8      4
$4,001 to $5,000..........................     48     10      3      1      0      0      0      0      1     <1
$5,001 and over...........................     17      4      1     <1      0      0      0      0      1     <1
                                           ---------------------------------------------------------------------
    Total.................................    464  .....    237  .....    363  .....     53  .....    214  .....
----------------------------------------------------------------------------------------------------------------
Note: Percentages may not sum to 100 due to rounding.
Source: GAO analysis of Customs data.

    In contrast, but to a lesser extent, 122 officers at four of the 
five selected ports would have received net increases in night 
differential pay totaling $16,943 by the end of fiscal year 1999 had 
the proposed changes been in effect. The net increases primarily would 
have resulted from early morning shifts.
    Mr. Chairman, this concludes my prepared statement. I would be 
pleased to answer any questions you may have.
GAO Contacts
    For further information regarding this testimony, please contact 
Laurie E. Ekstrand at (202) 512-8777 or Darryl Dutton at (213) 830-
1000.

                                


    Chairman Crane. Thank you very much for your testimony.
    Let me first ask Mr. Schindel, how would the proposed 
legislation reduce the expenditures for Customs? And is this a 
sound way of trying to address some of the problems?
    Mr. Schindel. Well, clearly, it would reduce some of the 
expenses because it would cut back on the number of hours that 
available to earn night differential, instead of the 17 hours 
out of the day.
    And also, it would eliminate the majority of hours rule, so 
that the pay would more closely match the hours worked. So if 
you were in a shift that 3 or 4 of the hours qualify or fall 
into the night differential period, you only get paid for those 
3 or 4 hours at night pay and not the entire 8-hour shift.
    And of course, doing away with the provision that would pay 
for leave, sick leave or annual leave, would also address some 
of the reasons why the costs increased after COPRA.
    Chairman Crane. Ms. Ekstrand, in your experience with both 
Federal and private sector employees, is it unusual for someone 
to be paid nighttime premium pay for working in the afternoon?
    Ms. Ekstrand. There are so many different configurations of 
pay, sir, that it is hard to generalize. I don't know of other 
Federal employment situations where this is the case, but there 
certainly could be.
    Chairman Crane. There could be, but you don't know of them 
yet.
    Ms. Ekstrand. I don't know of them.
    Chairman Crane. OK.
    Ms. Ekstrand. We have not looked at them, if they are 
there.
    Chairman Crane. Under my proposal of last year, would some 
officers make more money?
    Ms. Ekstrand. A small number of officers, specifically 
those that work in early morning hours, would make a small 
amount more money.
    Chairman Crane. And the Treasury employees union states 
that it would be appropriate for Customs officials to receive 
benefits as law enforcement officers. Can you compare the pay 
and benefits of both? And under such status, state how Customs 
would improve or not improve?
    Ms. Ekstrand. Well, certainly, a big portion of the 
difference between status of law enforcement officers versus 
others relates to retirement. Law enforcement officers get a 
20-year retirement. That is an enormous part of the benefit.
    Chairman Crane. All right, Mr. Becerra.
    Mr. Becerra. Thank you, Mr. Chairman.
    I didn't hear what you said before. I know we have gone 
through this as well in the past, so let me just ask a couple 
of quick questions.
    I know that there is an issue of pay here with regard to 
what some of our Customs employees are making. And I know that 
in the Office of Inspector General report, you looked at 
absolute increases in the amount of pay.
    I am trying to figure out if you can tell me if it would be 
better to try to differentiate between the different types of 
pay that we provide to our Customs employees, in trying to 
determine the substantial increases that we have seen for 
Customs employees can be attributed to more than just one 
particular level of employee and shift.
    And I hope that made sense.
    Mr. Schindel. Of course, our work is somewhat dated now, 
but going back to looking at the initial passage of COPRA, the 
biggest increase we saw was in the night differential category. 
1993 was the last full year before COPRA came into effect, and 
the Customs accounting record showed around $51,000 for night 
differential pay. And 1995 was the first full year after COPRA 
was in effect, and that figure went to $8.9 million, so it was 
a substantial increase in that one category.
    I think, in fact, that some of the provisions of COPRA that 
were expected to reduce overtime costs in general did in fact 
general overtime a little bit, when you compare 1993 to 1995. 
But because night differential went up so substantially, total 
overtime and premium pay costs did not go down. In fact, it 
went up.
    Mr. Becerra. Ms. Ekstrand, I don't know if you want to 
answer or give us any of your thoughts right now, but I do have 
a followup.
    Ms. Ekstrand. We recently reported that certainly night 
differential provisions in COPRA have resulted in some 
increases in premium pay. In our recent report, we noted that 
the number of officers since 1995 to 1999 have increased by 
about 950 officers, and the number of hours has also increased.
    So this is part of the picture of the increase, but we 
haven't done an analysis to ferret out the different parts of 
it.
    Mr. Becerra. The 1996 report that you all did, did not tell 
us whether there were more hours worked, if there was a higher 
volume of work that was required and that was the reason you 
saw such an increase in night differential pay. It didn't 
really dissect that, did it?
    Mr. Schindel. No, sir.
    Mr. Becerra. And wouldn't it be worthwhile to know if 
indeed--I mean, I know in my Port of Los Angeles, we have seen 
a tremendous increase in work, and that could have an effect on 
how much we are paying in a lump sum, in a total amount, to 
Customs employees.
    And unless you take a look, it may give the appearance that 
night differential pay was the cause of increased costs, but 
indeed you had a high volume or an increased volume of work, 
and employees had to put in longer work hours.
    That could also explain why you saw an increase in night 
differential pay as well, couldn't it?
    Mr. Schindel. Yes. Clearly, some of the increases, when you 
compare 1995 to 1997, or 1997 to 2000, is going to result from 
the the fact that there are more inspectors on board and more 
night differential hours being worked.
    Our feeling was that when we compared 1993 to 1995, that 
there would not have been that much difference in the amount of 
officers on board in those 2 years, yet the night differential 
went up so substantially, from $51,000 to $8.9 million, that it 
was clear that some of these provisions in COPRA were having a 
direct impact on that substantial increase.
    Mr. Becerra. If some of the employees are working later 
into the night than usual, that is going to cost us more simply 
because they are working longer hours, and chances are, we are 
paying them more to do that, aren't we?
    Mr. Schindel. That is correct. The later hours in the night 
differential shift also earn the higher premium, which is 20 
percent versus the 15 percent.
    And, certainly, the COPRA legislation, part of the increase 
was also due to the fact that the premium was increased. It was 
10 percent across the board for night pay before COPRA and then 
it went 15 percent and 20 percent, depending on the different 
shifts.
    Mr. Becerra. I am sorry, Mr. Chairman, if I could just 
conclude?
    It seems to me that we have to update the report before we 
can reach and particular conclusions about what is happening 
with night pay differential and make some good, solid 
conclusions.
    Mr. Schindel. Well, again, I think that the recent GAO 
work, while it wasn't directly targeted at looking at how much 
night differential overall had been increased by some of these 
other factors, it was looking at what these provisions in the 
H.R. 1833 law would--what kind of impact they would have on the 
dollars as far as what it costs Customs for those types of 
premium pays.
    So that data is pretty fresh.
    Mr. Becerra. Mr. Chairman, I know my time has expired. 
Thank you.
    Chairman Crane. Mr. Levin.
    Mr. Levin. Mr. Becerra, I would be glad to yield to you.
    Mr. Becerra. Actually, Mr. Levin, that is fine.
    Mr. Levin. I was going to ask some of the same questions, 
and I am sorry that I had to miss some of the testimony.
    Though I must say, I am not sure there is anything new. I 
mean, how long have we been on this argument about data from 
1993, 1995, updated by GAO to some extent, challenged by the 
GAO, I think? I don't know what we are doing.
    And then I reread the letter to Mr. Rangel of January 14, 
2000, from the Treasury Department that indicated that we 
cannot separately identify the increases due to mandatory pay 
raises--that is inflation, in part, right--within grade 
increases or promotions? There has been intensified effort in 
recent years to align the staff in a port with the hours when 
most of the weekend comes in.
    I don't know what we are doing.
    Would you disagree with the suggestion of the acting 
commissioner that we ought to take a look at the whole thing 
rather than doing this piecemeal, Mr. Schindel?
    Mr. Schindel. I haven't looked at it from that perspective, 
but certainly a more comprehensive review of compensation 
probably would be more beneficial than piecemeal.
    The only point I would make is that while our work is 
somewhat dated, again, I think that the GAO review, which 
attempted to put a dollar figure on the impact of some of the 
provisions of H.R. 1833, cutting back on the number of hours 
that are available to earn night differential, doing away with 
the majority hours rule and doing away with the provision to 
pay for sick leave and annual leave, there is current data to 
show how much savings would be involved in that. So, by 
extension, it gives you an idea of how much of the night 
differential increase is due to those provisions.
    I believe that the figures were around $5 million would be 
reduced.
    Ms. Ekstrand. It would be slightly over $5 million. The 
majority of that money is saved in relation to the provisions 
of majority of hours, as opposed to paying officers who are 
scheduled to work nights but are on some type of leave.
    Mr. Levin. I would think any reasonable person listening to 
the two of you would say a comprehensive look might be in 
order. Thank you.
    Mr. Becerra. Mr. Levin, if you would yield just a second?
    Mr. Levin. I would yield.
    Mr. Becerra. I don't know if this was answered or not, but 
did you find any abuse by management in the use of night 
differential pay or in the scheduling of Customs officers?
    Mr. Schindel. We did look at that in our review, and we did 
not. The shifts that were worked continued to be the shifts 
that were normal for those ports or airports, and we didn't see 
any indication that they were trying to arrange the shifts so 
that they could get the maximum benefit of the new provisions.
    Mr. Becerra. So there is nothing to indicate that anything 
other than just a workload and volume is causing Customs to 
have its employees work these particular hours and these 
scheduled times?
    Mr. Schindel. That is correct.
    Mr. Becerra. OK, thank you.
    Chairman Crane. Mr. Houghton.
    Mr. Houghton. No, no questions.
    Chairman Crane. Well, with that, let me express 
appreciation to both of you for your testimony today, and we 
look forward to continuing to work with you.
    Mr. Schindel. Thank you.
    Ms. Ekstrand. Thank you.
    [Questions submitted from Messrs. Crane, Shaw, and Neal to 
Mr. Winwood, and his responses follow:]

                               U.S. Customs Service
                                     Washington, DC 20229  
                                                    August 27, 2001
Hon. Philip M. Crane
Chairman
Subcommittee on Trade
Committee on Ways and Means
U.S. House of Representatives
Washington, DC 20515
    Dear Mr. Chairman:
    1. What contingency plans do you have if ACS crashes for more than 
a few hours? Can you describe how you see Customs automation system 
functioning over the next several years while ACE is built?
    Customs has established a port-specific Business Continuity plan 
designed to address the contingency of an unexpected ACS outage, which 
provides for specific trade processing functions to successfully revert 
to manual operations after certain periods of time have passed.
    The Office of Information Technology has established a Disaster 
Recovery Operations Center (DROC) team that is solely focused on 
disaster recovery and continuity of operations. An engineering plan is 
being developed to use a Commercial recovery Facility (CRF) for 
contingency operations. The CRF is planned to be operational by the 
first quarter of FY 03.
    ACS will require life support and maintenance during the period 
that ACE is under development. Life support funding will be used to 
upgrade the mainframe computer and the communications network to 
maintain adequate service levels as trade growth continues and 
transaction volumes increase.
    Additional infrastructure equipment (specifically desktops, local 
area networks) will require renewal as well. Software licenses and 
software upgrades will be required to meet ongoing regulatory updates 
and changes to the law.
    ACS will continue to provide current capabilities while modernized 
trade business processes, called for by the Customs Modernization Act, 
will be delivered as ACE functionality is rolled out. ACE planning is 
staged such that as major new functional elements are deployed, 
corresponding ACS functions can be taken off line.
    2. At the current funding level, how long will it take Customs to 
build ACE and what needs to be done to accelerate this? Also, the House 
appears to be ready to approve higher funding for ACE. Assuming such 
higher funding is given every year, what is the minimum amount of time 
it will take to build ACE?
    At the current funding level, it is estimated the project will 
require 14 years to complete.
    An accelerated ACE development could be safely accomplished if the 
increased funding was manageable.
    There are limitations to the number of software developers that can 
be applied to the program to accomplish a program more quickly. Adding 
more people does not complete the project more quickly. There are 
software development modules that must be completed before others are 
started.
    In addition, Customs will need to divert a number of subject matter 
experts from day-to-day operations to support ACE software development 
teams. Adding additional development teams would severely degrade field 
operations and the accomplishment of the Customs mission.
    3. The Customs Service has been working for years to update the 
Automated Commercial System (ACS) with the Automated Commercial 
Environment (ACE). I understand that Congress has appropriated 
substantial funding this year to achieve this end. What assurances can 
you give the Committee that this money will be used to launch a version 
of ACE that reflects current technology rather than a version which 
reflects the design process Customs undertook several years ago when 
the idea was first conceived?
    Customs has hired a world-class prime contractor, the e-Customs 
Partnership (e-CP), to build ACE. The e-CP is led by IBM Services and 
includes Lockheed Martin, a CMM level five software manufacturer. The 
e-CP created the Technology Vision Council (TVC) to provide input on 
current and emerging technology and assist in the revision of the 
enterprise engineering and infrastructure planning of ACE.
    Customs and the e-CP negotiated a performance-based contract that 
will provide the e-CP with the incentive to be far reaching in its 
efforts to make ACE a world-class system. The ongoing and dynamic 
relationship between Customs and e-CP, with Customs servicing as a 
guide on a daily basis, will ensure the success of ACE.
    As part of the first three tasks with the e-CP, business process 
redesign review and validation will be conducted to ensure that design 
processes reflect current thinking and allow maximum flexibility to 
react to changing global environment.
    ACE will allow for the insertion of new technology as advances 
become more available and business needs change. Since Customs 
Modernization is considered ongoing, the systems renewal process will 
never end. The ACE system should never become obsolete.
    4. During the hearing we heard from two Members about staffing 
levels. What is Customs doing to meet increased demands created by the 
substantial growth in trade, and will ACE and the Entry Revision 
Project allow you to use current staff more productively? If so, how?
    ACE will allow Customs to distribute routine workloads evenly, 
freeing up Customs officers to concentrate their efforts on high-risk 
shipments.
    Current paperless rate is averaging 38 percent, which equaled 10.4 
million paper entries in 2000. At this rate, with our current system, 
Customs will be inundated with over 25 million paper entries by 2009. 
With ACE, paperless rates will increase, based in incremental 
deployment, to 99 percent, resulting in only 400,000 paper entries. 
This will free up our front line resources to concentrate on conducting 
enforcement actions because ACE will perform many of the clerical 
duties they are currently forced to perform.
    The two-year dialog with the trade on the Entry Revision Project 
reinforced the approach to streamline the entry process by offering an 
automated account-based system. This approach will minimize the amount 
of redundant data that is currently required and allow for periodic 
reporting of entry summary data.
    Increased targeting capabilities will result in more effective 
examinations.
    The trade community will have better access to their data. This 
increased access would allow the trade community to identify and 
correct potential compliance issues.
    5. What is the status of the implementation of Foreign Trade Zone 
data automation that was required to be implemented by January 2000? I 
am told it has not yet been implemented.
    Customs has completed the technical specifications for the 
necessary enhancements to the Automated Commercial System. The project 
is currently going through the Investment Management Process and is 
scheduled for review by the Customs Investment Review Board this 
August.
    Due to the lack of funding, the pending development of ACE and the 
related freeze on enhancements to the Automated Commercial System, the 
Investment Review Board will most likely decide not to approve the 
Foreign Trade Zone automation project for ACS. Instead, this effort 
will be deferred for inclusion in ACE. The schedule for implementing 
Foreign Trade Zone automation in ACE will be determined under ACE Task 
#3, which is expected to be completed by the end of January 2002.
    6. What is the status on the implementation of the provision in the 
Tariff Suspension and Trade Act of 2000 that allows multiple entries of 
merchandise to be listed as a single transaction? This simplification 
was intended to allow importers of large machinery and equipment to 
make one entry with one value rather than a very long list of parts and 
values.
    The law as amended deals with two distinct issues, each presenting 
unique operational problems. It was determined to address the issues 
presented in separate regulatory projects, the first dealing with 
shipments which are expected to arrive on a single conveyance but which 
are split at the initiation of the carrier (split shipments). The 
second project is directed toward the large articles which exceed the 
capacity of a single conveyance and thus must necessarily be shipped on 
multiple conveyances (large articles).
    A Notice of Proposed Rulemaking addressing the split shipments has 
been prepared and is presently in Customs review. Following this 
review, the document will undergo necessary review and approval by the 
Treasury Department prior to publication for public comment in the 
Federal Register.
    A group comprising multiple Customs disciplines has been convened 
for the purpose of addressing large articles. The work product expected 
to emerge from this group is also a Notice of Proposed Rulemaking. The 
document will undergo a similar review and approval process prior to 
publication.
    7. A large portion of the Customs budget is provided from user 
fees. Customs has difficulty providing budgetary information on whether 
fee money is being spent on commercial activity or non-commercial 
activity. I note that the Treasury Inspector General has several times 
commented on the need to improve core financial systems to provide more 
complete and accurate data. What improvements to Customs financial 
systems are needed to provide Congress with greater cost accounting 
details on where fee proceeds are being spent? How much will such a 
system cost and how long to implement?
    Customs does collect fees for providing numerous inspectional 
services including the processing of air and sea passengers, commercial 
vehicles, vessels and rail cars. These fees, known as COBRA processing 
fees are collected and used by Customs to fund enhanced inspectional 
overtime.
    Customs does have a cost management information system (CMIS) in 
place which does provide greater detail on the cost of providing 
services. Continued emphasis and training on the CMIS is a priority to 
ensure the accuracy of Customs fees and activity costing.
    Customs also collects a fee for the processing of merchandise that 
is formally and informally entered into the country. The fee, known as 
the Merchandise Processing Fee or MPF, is set legislatively and offsets 
a portion of the costs for Customs commercial operations. However, 
Customs does not have access to the MPF collections.
    In addition to the Inspector General, Customs has reported the need 
to improve deficiencies in providing complete and accurate information 
for financial reporting since 1993. Long term solutions include the 
implementation of ACE and an off the shelf enterprise resource planning 
software package called Systems Applications and Products (SAP).
    8. Seizures along the Southwest Border continue to increase. The 
Customs Service should be congratulated for these seizures. However, 
what evidence do we have that demonstrates Customs is seizing a greater 
percentage of drugs rather than finding the same percentage of a much 
larger supply?
    The Customs Service, as the nation's frontline agency in the 
counter-drug effort, seizes more drugs in each of the major drug 
categories than any other Federal agency.
    Measurement of the worldwide production of illegal drugs, however 
is very difficult due to a number of widely fluctuating variables. 
Nonetheless, the best available production estimates, compiled by law 
enforcement and intelligence community experts indicate that drug 
production, particularly opium and coca, in the major source countries 
has either remained stable or steadily increased.
    Coca production in Colombia has increased steadily over the past 2-
4 years. This increase in Colombian production has replaced the coca 
production of a number of other coca producing countries such as 
Bolivia and Peru. Opium cultivation in Colombia, by the same token, has 
also expanded over the past several years. The result of the increased 
production and the shifts in production locations, is that supplies of 
these illegal drugs remain widely available for shipment to the United 
States, as well as other areas such as Europe.
    Estimates on the percentage of the total amount of illegal drugs 
that Custom seizes are difficult to gauge with any degree of accuracy.
    Information and intelligence indicate that Customs drug seizures do 
have an impact on traffickers and their operational planning. However, 
traffickers are resilient and constantly seek opportunities to move 
drugs into the United States.
    The Customs Service continues to focus on increasing our drug 
seizures not only along the Southwest border, but also at every major 
port of entry, as well as disrupting and dismantling drug smuggling 
groups through effective and efficient investigative, intelligence and 
interdiction strategies.
    9. Drug seizures always raise questions. How can one use those 
rates to determine the success of drug interdiction efforts? For 
example, if you are successful and there are fewer drugs coming across 
the border, your seizure rates will come down. Lower rates could also 
suggest you aren't catching enough.
    While drug seizure rates do have value in determining the success 
of drug interdiction efforts, they are not in and of themselves blanket 
indicators of success or failure. Drug seizure rates are perhaps most 
useful in determining the effectiveness of operations or tactics in a 
specific area. For example, Customs air interdiction capability efforts 
have resulted in an apparent decrease of smuggling into the United 
States via small aircraft.
    Concentrated enforcement efforts along the Miami River in South 
Florida appear to have impacted the traffickers in that area as 
indicated by an apparent reduction in smuggling via Haitian coastal 
freighters. Even more to the point, a well-coordinated intelligence, 
aviation and investigative effort in the Eastern Pacific has resulted 
in multi-ton seizures of cocaine (over 100 metric tons in the past 18-
24 months). Finally, Customs ecstasy seizures have tripled in the last 
4 years, 400,000 in 1997 to well over 9 million in 2000, as we have 
moved to assertively target and interdict this drug.
    Despite the above seizures, however, Customs is not in a position 
to draw conclusions as to the long-term impact of these impressive 
statistical successes. It should be noted that there are a number of 
interagency working groups operating under the auspices of ONDCP that 
are studying the long term impact of these types of enforcement and 
interdiction efforts. In the short term, intelligence does show that 
Customs enforcement and interdiction efforts do have a significant 
impact on drug smuggling groups and their operations.
    10. Given that NAFTA prohibits the collection of user fees and 
Customs must use appropriated funds to operate the border activities, 
what cost accounting system does Customs have in place to tell Congress 
what funding is needed to process these entries and releases exempted 
by law? Is Customs subsidizing these activities at the border, which 
are exempt from user fees with the money collected elsewhere?
    The merchandise processing fee (MPF) is not collected on the value 
of merchandise arriving from Canada and Mexico. The MPF collections are 
deposited into a special fund to offset the cost of commercial 
activities in the Customs appropriation. Since Congress appropriated 
the full amount necessary for Customs activities, both NAFTA and non-
NAFTA, all Customs activities are funded through appropriated sources.
    Customs does not have a system in place to estimate the funding 
used to process NAFTA and non-NAFTA merchandise. Customs does have a 
cost accounting system (Cost Management Information System CMIS) in 
place to estimate the cost of activities related to COBRA processing 
fees on arriving passengers and commercial conveyances.
    11. Customs must perform financial audits on importers for various 
reasons. Financial auditing of many different types of businesses (of 
all sizes) obviously takes very specialized auditing skills and a need 
for keeping proprietary information strictly confidential. An 
inadequately trained auditor can miss instances of non-compliance as 
well as wrongly accuse business, which are in compliance. I have heard 
some concerns about the financial auditing skills of Customs, but I am 
not is a position to determine whether these are anecdotes or 
systematic problems. Can you describe the qualifications and auditing 
training your staff receives and whether improvements are possible?
    We believe that Customs Regulatory Auditors receive excellent 
training throughout their careers with the Service. Our training 
program is based on standards set by the General Accounting Office 
(GAO) which are comparable to those help by private sector professional 
auditors. Upon initial entry, all auditors receive at least a total of 
nine weeks of basic Regulatory Audit training broken out in three 
classes of four, three, and two weeks, which prepares them for audits 
of major companies. In addition, all auditors are given advanced 
training classes in areas such as drawback, foreign trade zones, NAFTA, 
and other specialized audit areas after the nine weeks of basic 
Regulatory Audit training is completed. Customs auditors also receive 
continual training classes for audits of major importers to ensure all 
Regulatory Auditors are updated with the latest policies and 
procedures. Customs has also committed to provide all auditors with at 
least 80 hours of continuing professional education every two years.
    12. GAO reported that rulings from Customs take a very long time. 
Since rulings are critical to importers' ability to operate, what 
improvements or increase in resources are needed for Customs to speed 
the process?
    Customs has undertaken a review of the entire Customs ruling 
process through the publication of a notice of proposed rulemaking on 
Part 177 of the Customs Regulations, which covers the binding rulings 
program. After consideration of public comments in conjunction with 
recent Supreme Court decisions such as U.S. v. Haggar and U.S. v. Mead, 
Customs will re-examine the current process requiring issuance of 
binding rulings on a per request basis and other ways to fulfill 
informed compliance under the Mod Act.
    During the past 2 years, OR&R has lost and re-hired approximately 
29 attorneys (two waiting to come on board). While the office has re-
staffed to prior levels, it has not increased its attorney staff level 
during the past six years. The OR&R has projected a need for six to 
eight attorneys to help increase the timeliness of rulings.
    The office has developed a Cross-Training Program for its attorney 
staff, not only to provide the basic training for new attorneys but 
also to increase the technical diversity of all attorney staff. This 
allows for more attorneys to be assigned a variety of cases, which 
helps cover shortfalls in certain subjects when persons resign or 
retire.
    13. COBRA fees are declining. What impact has that had on the 
reserve fund which is supposed to maintain a minimum balance? Also, has 
Customs precipitated this result by being too optimistic about expected 
fee receipts while obligating those receipts with permanent staff 
positions?
    COBRA fees have been relatively stable but have not kept pace with 
inflation. Customs is maintaining the mandatory reserve of $30 million. 
Under the COBRA legislation, we must maintain this balance in case 
there are unforeseen downturns in revenue.
    In addition to this reserve, Customs had $42 million in carryover 
funding at the start of this fiscal year. These funds, in addition to 
current year collections, estimated at $300 million, are available to 
cover specified inspectional activities.
    Customs has been tracking revenues and costs closely to ensure that 
we do not exceed the available budget. For FY2001, Customs developed a 
financial plan that keeps current year costs approximately equal with 
anticipated collection levels. Customs is managing its inspectional 
staffing levels, overtime/premium pay and related costs to this level.
    14. Customs staff handles an immense amount of seized drugs, goods, 
and money. Can you update us on ongoing efforts to ensure integrity is 
maintained among staff, and have there been any recent instances of 
wrongdoing?
    To address the issue of integrity regarding seized property, we 
have created a senior management position of Director, Narcotics and 
Currency Inspections, in the Office of Internal Affairs. The purpose of 
this position is to monitor and inspect the direction, policies and 
activities related to the control and disposition of contraband 
materials, especially narcotics and currency.
    As a result of the creation of this new position, many of the 
integrity vulnerabilities normally associated with seized contraband 
have been substantially reduced. Many policies and procedures have been 
revised to ensure that tighter controls and proper safeguarding and 
handling procedures were implemented throughout the Customs Service. In 
addition, new physical security standards were established for both 
temporary and permanent storage vaults, particularly along the 
Southwest border.
    To ensure managers throughout the agency comply with Customs policy 
and procedures, Customs has instituted the Self-Inspection Program. 
Each Customs unit conducts an inspection tailored to its own 
organization every six months, documenting areas of compliance, 
improvement and deficiency. Areas addressed involve the seizure and 
storage of narcotics and federal deposition of currency.
    Internal Affairs developed and distributed a computer-based 
integrity training program for every U.S. Customs employee, around the 
world.
    To track allegations of serious misconduct and criminal activity; 
including those involving seized contraband, Internal Affairs formed an 
Intake Review Group and developed a case tracking system. Centralized 
receipt and classification of allegations has standardized the process 
nationwide, insuring every allegation is properly tracked and addressed 
by IA.
Office of Internal Affairs Recent Reports of Wrongdoing
    On June 27, 2001, a Federal grand jury in El Paso returned a multi-
count indictment against former Customs Group Supervisor Ramon Torrez 
and a current Border Patrol agent. Torrez was charged with the 
importation of multi-ton loads of marijuana into the United States, 
accepting bribes and conspiracy to defraud the United States. The 
indictment followed a lengthy investigation by Customs Internal Affairs 
and the FBI. Torrez resigned from the Customs Service during the 
investigation.
    On July 13, 2001, U.S. Customs Special Agent Robert McNaught was 
arrested by Customs Internal Affairs and the FBI in New York. McNaught 
was charged with Federal narcotics conspiracy offences. McNaught 
allegedly offered to transport cocaine along the East Coast for a 
trafficking organization.
    On July 16, 2002, Customs Internal Affairs agents and Postal 
Inspectors arrested a U.S. Customs Mail Technician in the JFK Mail 
Facility in New York for felony violation of 18 USC 1702 (obstruction 
of mail). The technician was observed stealing items, including 
jewelry, from parcels at the mail facility between November 2000 and 
July 2001.
    15. Since the Customs Reorganization and the passage of the Mod 
Act, the Customs Service has conducted compliance audits of hundreds of 
businesses and even whole industries. What criteria are used in 
deciding which industries or particular businesses to audit? Are these 
general criteria? Why audit, say, the electronics sector and not some 
other sector?
    Since the passage of the Mod Act, Customs has utilized several 
factors in selecting businesses for audit. Customs has concentrated on 
certain industry sectors because of their size and importance to the 
U.S. economy. Customs has termed these sectors Primary Focus Industries 
(PFI's), and devoted particular attention to verifying import records 
in the industries. Within PFI's, Customs audited those businesses with 
the greatest volume of imports. Audit was concentrated on particular 
import requirements such as antidumping assessments, quotas, duty 
collections, and special duty exemption provisions.
    Based on our experience for the last 5 years, Customs has decided 
to add certain risk factors to the company selection process for audit. 
While company size will be a criterion for selection, other factors 
such as involvement of the company in certain high-risk trade issues 
will distinguish the company for the purpose of possible audit. For 
example, companies that import through several special duty exemption 
programs such as NAFTA and GSP would be selected before companies that 
import regularly under tariff provisions that do not have special 
requirements. Companies that import merchandise in a sector subject to 
antidumping assessments would be selected before companies that do not. 
Companies with documented compliance problems would be selected before 
companies whose records did not indicate patterns of non-compliance.

                    Questions from Congressman Shaw

    1. I am concerned that the explosive growth in trade through 
gateways such as south Florida is not amply accounted for in the kind 
of statistics being kept by Customs and other commerce and trade 
agencies of the U.S. Government. As tariff rates among the U.S. and our 
trading partners decline, less revenue is collected upon entry but 
volume increases. Are resource and personnel allocation formulas going 
to need to be adjusted for different factors as our trading profile 
changes? What are the most relevant factors in determining manpower and 
equipment allocations, as a function of volume, number of container/
passenger landings, or other statistics? What studies or audits, either 
government-sponsored or privately undertaken, have been produced in 
recent years to analyze the trends in imports and exports to determine 
the effect that Customs procedures, processes, and resource allocations 
have on the positive flow of trade?
    When Customs developed the Resource Allocation Model (RAM), it took 
into account the need to be flexible with workload and data drivers and 
assumptions on which the projections for personnel requirements would 
be based.
    Global workload growth rates were set using straight-line 
projections based on the past 3-5 years of performance measurement 
data, tempered with some industry data. This was calculated using a 
variety of workload drivers such as passengers processed, entry 
releases, examinations, and container sweeps, just to name a few.
    As this data changes, the output from the allocation model would 
also change.
    The most relevant factors considered to address resource allocation 
include: workload growth, border presence, and enforcement threat. For 
these factors, Customs management information systems provide numerous 
categories of data and statistics on which the RAM projections are 
based.
    In addition, Custom is engaged in in-depth discussions on the 
implication and impact of the future on Customs operations. Because 
Customs mission is so diverse and because it interfaces with such a 
variety of stakeholders, it is necessary to begin to look at the future 
and review how industry, business, national security, global economy, 
and technologies will change and how Customs must change to adapt to 
this future environment.
    We are in the process of developing a report which summarizes 
future trends, implications on Customs and professional observations 
that can assist Customs in meeting the challenges of the future. Our 
review to date has confirmed that trade volume will increase and tariff 
rates and revenue are likely to decrease especially because of the 
international free trade agreements.
    2. As the flow of agricultural products and services trade both 
increase, what new challenges does Customs foresee in how goods are 
handled, inspected, and cleared? How will this require changes in 
operating procedures, training of personnel, or upgrades in technology?
    Currently, Customs enforces over 400 laws for over 40 agencies. 
Customs enforcement efforts for other agencies range from admissibility 
concerns to data verification. Admissibility issues, such as the 
identification and detainment of shipments that may be contaminated 
with Foot and Mouth disease, pose an additional workload burden on 
Customs Inspectors. Import Specialists are required to manually verify 
Antidumping/Countervailing Duty transactions, thereby significantly 
increasing their workload.
    With the increased threat to the health and well-being of the 
American public and the economy of the Nation, Customs faces even 
greater challenges to meet the enforcement requirements of other 
agencies. To effectively meet these challenges, Customs applies and 
promotes a risk management methodology. This risk management approach 
effectively targets suspect shipments, thereby maximizing efficient use 
of Customs resources. In additional, when applicable, Customs is 
promoting a ``Pre-Approval Process'' to other agencies. This process 
places the responsibility of other agency data verification directly in 
the hands of the subject matter experts at the other agency.
    3. Are specific resource allocation formulas or differentials used 
for high intensity drug traffic areas or other areas of national 
security concern, whether that concern includes interdiction of drugs, 
firearms and other weapons, or chemical/biological agents? What 
additional resources should Congress be committing to the Customs 
Service in coming years, and is that solely in the domain of annual 
appropriations or should this Committee consider changes in current 
law?
    The threat, whether from narcotics, firearms, chemical/biological 
agents, or other types of cross-border criminal activity, is a key 
factor in determining the allocation of Customs resources nationally. 
The Resource Allocation Model took these threats into consideration in 
projecting Customs staffing needs.
    Customs receives the bulk of its funds to respond to these threats 
through annual appropriations. However, some additional funding is 
provided through accounts such at the HIDTA (High Intensity Drug 
Trafficking Area) program administered by the Office of National Drug 
Control Policy.
    4. How sustainable is a fee-for-service arrangement beyond 
immediate needs for areas with unforeseen short-term needs or growth in 
a particular area? Should Congress undertake a more comprehensive 
inspection of how our border controls are managed and how fees are 
collected and allocated before re-authorizing such a system?
    Fee-for-service arrangements have proven to be successful. Customs 
currently provides service on a fee basis to over 30 small airports, as 
authorized under the COBRA provisions (19 U.S.C. 58c). A Memorandum of 
Agreement has been developed to provide 24-hour cargo inspection on a 
fee-for-service basis at an international airport (Broward County), 
under the pilot program authorized by P.L. 106-35, Sect. 2425. We also 
developed a standard template that can be used to establish the cost of 
the service for possible future fee-for-service arrangements.
    A Customs work group is currently reviewing all existing fees and 
reimbursable services work to determine the appropriate fees to be 
charges for services.
    5. In addressing both traffic congestion issues and streamlined 
customs procedures, the fate of so-called ``reliever airports'' is 
often dependent upon our assuring responsive Customs coverage during 
peak hours and availability during non-peak, but still high-traffic 
time periods. In South Florida, where smaller, private aircraft are 
capable of making short-haul international flights and require Customs 
clearance, the limited hours of service at such airports, including 
Fort Lauderdale Executive Airport (FXE) constricts the capacity of such 
facilities to serve as relievers to the big international airports (in 
FXE's case, Ft. Lauderdale-Hollywood International (FLL) Airport), 
often requiring airplanes to land, clear customs, then take another 
short flight over congested, residential areas to return to their home 
airport. How can Customs re-arrange this system and provide the 
necessary service to ease the anxieties of the safety-conscious public 
and to mitigate the environmental hazard of additional noisy, costly 
take-offs and landings?
    In September 2000, Customs representatives from the South Florida 
CMC worked with Congressman Alcee Hastings to discuss the possibility 
of extended hours at ``reliever airports''. A study was conducted of 
aircraft arrivals at the Fort Lauderdale Executive Airport (FXE) 
between January 12, 1997 and February 25, 1998, expanding the hours of 
operation from 5:00 p.m. to 7:00 p.m. During this time, activity 
between the hours of 9:00 a.m. to 11:00 a.m. averaged 3.71 flights per 
day. During the period of 5:00 p.m. to 7:00 p.m., 2.96 flights were 
averaged per day. As a result of the test, regular hours of operation 
(9:00 a.m. to 5:00 p.m.) were reinstated with the concurrence of FXE 
officials.
    An update of the study of arrivals at FXE through June 30, 2001 was 
conducted. Arrivals from October 1, 2000 to June 30, 2001, increased by 
only 3.25% over the same time period compared to the previous fiscal 
year. The average number of arrivals remained the same as the previous 
test, 3.71 per day between 9:00 a.m. and 11:00 a.m. and 2.96 per day 
between 5:00 p.m. and 7:00 p.m.
    The Port Director presented the results of the survey to a 
representative from the FXE Airport Association, stating that the 11:00 
am to 7:00 p.m. hours could be considered, if the airport wished them. 
The representative from the FXE Airport Association stated to the Port 
Director that the hours should remain 9:00 a.m. to 5:00 p.m., since the 
corporate aircraft prefer those hours.
    Customs is continuing to monitor the activity at FXE and keep 
congressional interests aware of the status and test findings
    6. I was surprised to discover that the Customs Modernization 
process leaves south Florida not obtaining upgraded technology until 
several years down the road, even though collectively these ports and 
airports are among the fastest growing gateways to/from all parts of 
the world. I understand than land borders will be the first testing 
ground of the systems, followed by our Nation's largest ports of entry. 
I would like to know if such timetables account for only current and 
past traffic patterns or if they also take into account the projected 
growth expected over the coming decade, spurred by new trade agreements 
with partners in the Caribbean, Latin America, and worldwide?
    In 1997, Customs developed a Five-year Non-Intrusive Inspection 
Technology Plan. In FY 1999, the Five-year Plan received $134 million 
appropriated and emergency supplemental funds. Because of the high risk 
of narcotics smuggling on the southern tier of the United States, 
Customs effort in the deployment of NII technology focused initially on 
the Southern tier of the United States, including south Florida. 
Deployment and evaluation were simultaneous. There were no mobile NII 
systems acceptable for use at seaports in existence until deployment 
and testing.
    3 of the 15 seaport NII systems are installed in south Florida, 
including a Mobile Truck Gamma Ray and a Sea Container X-ray to Miami 
and a Vehicle & Cargo Inspection System, or VACIS to Port Everglades. 3 
additional Mobile Truck Gamma Ray systems (2 in Miami and 1 in Port 
Everglades) and 1 additional Sea Container X-ray system (Port 
Everglades) are scheduled for deployment to south Florida by the end of 
FY 2002.
    Review of the Five-year Non-Intrusive Inspection Technology Plan is 
scheduled during the FY 2003 budget cycle.
    7. As Social Security Subcommittee chairman, I am also concerned 
about privacy in the use of Social Security Numbers. Could you please 
describe how individual SSNs are used for tracking packages though 
Customs, how you protect SSNs from being misused, and any other 
potential privacy issues stemming from the information you gather on 
individual shippers?
    Customs requires entries to include a unique, official identifier 
for each importer or ultimate consignee. Most importers meet this 
requirement by supplying their IRS Employer Identification Number 
(EIN). Those importers without an EIN meet this requirement by 
supplying their SSN. The SSN is used by Customs to track the importer 
or ultimate consignee within the Automated Commercial System (ACS).
    The Trade Secrets Act and the Privacy Act require Customs to 
protect all of the sensitive data in its systems, including the SSN 
used for tracking entries. Customs Systems Security Policy and 
Procedures Handbook (CIS HB 1400-05A), updated this year, provides 
direction for implementing the protections required by these laws. 
These protections include:
          No Customs employees are given access to any system, 
        including ACS, until they have successfully completed a full-
        field background investigation.
          All system users must complete a mandatory training course 
        that covers protecting systems information from unauthorized 
        disclosure.
          Access to Customs systems requires a unique sign-on and 
        matching password.
          System access is controlled by ``profiles'' that limit 
        individuals to only that information which is needed to perform 
        their job. If an individual tries to access information outside 
        their authority, they are suspended from the system.
    Per Department of the Treasury security policy, trade information 
that is transmitted to or from the Customs Data Center from filers via 
the new trade interface is encrypted to ensure confidentiality.
    Finally, the Customs Computer Security Incident Response Center 
(CSIRC) monitors all external network connections for possible outside 
attacks to Customs systems or networks.
    In addition, all information that contains data that are subject to 
the protections of the Privacy Act is held within systems of records 
that have been developed in full compliance with the provisions of that 
Act.

                     Question from Congressman Neal

    1. The Coalition for New England Companies has been complaining 
vociferously now for a period of time about staffing problems in 
Boston. They believe trade is beginning to slow on the basis of 
staffing levels in Boston. Tell me what the analysis of staffing levels 
has done in Boston. What is happening with the staffing levels at the 
Port of Boston?
    Overall staffing in the Port of Boston has declined marginally from 
178 to 170 in the 5-year period from FY 1996 to FY 2001 (as of July 
14th). The number of Inspectors, Import Specialists, Customs 
Aids, and Entry/Liquidation Specialists has declined by only 1, from 
151 to 150, during the same time frame. Four additional Inspectors are 
expected to be added in the next several months.
    Customs has used its Staffing Analysis Tool (a ``zero sum'' 
analysis) to compare the Port of Boston to other ports similar in size 
and environment, such as Seattle and Houston. This analytical tool 
compares 18 performance measures, weighted to account for local 
variations in the major types of activity, across ports to show 
relative performance given their staffing levels. This analysis shows 
that the Port of Boston, like a number of other ports across the 
country, is modestly understaffed relative to current staffing at other 
ports.
    Customs Resource Allocation Model (RAM) shows that the Port of 
Boston, along with virtually all of Customs ports, could benefit from 
additional staffing. However, Customs is developing risk management 
strategies that will help to manage the increased workload and threat 
in the absence of increased staffing levels. Risk management is a 
proactive management technique that identifies processes for 
controlling risks in Customs activities and will help to enhance our 
performance while resources remain relatively static on the northern 
border and elsewhere.
    Yours Truly,
                                 Charles W. Winwood
                                                Acting Commissioner

                                


    Chairman Crane. And with that, let us then call our final 
panel, Ronald Schoof, customs and export regulation 
administrator for Caterpillar; Frederico Zuniga, vice 
president, National Customs Brokers and Forwarders Association; 
Michael Laden, chairman, American Association of Exporters and 
Importers; Colleen Kelley, national president, National 
Treasury Employees Union; and Julia Hughes, vice president for 
international trade and government relations, United States 
Association of Importers of Textiles and Apparel.
    All right, if it is not a problem for anyone, can Mr. Laden 
go first?
    Mr. Laden. Second.
    Chairman Crane. Second? Oh, OK.
    Mr. Laden. Yes, following Mr. Schoof.
    Chairman Crane. Oh, following Mr. Schoof.
    Does anyone have a problem with that?
    All right, Mr. Schoof, you kick off. And as I have 
indicated before, please try and keep your oral testimony to 5 
minutes or less. All written testimony will be made a part of 
the permanent record.

   STATEMENT OF RONALD SCHOOF, CUSTOMS AND EXPORT REGULATION 
    ADMINISTRATOR, CATERPILLAR INC., PEORIA, ILLINOIS, AND 
                 CHAIRMAN, JOINT INDUSTRY GROUP

    Mr. Schoof. Thank you, Mr. Chairman and distinguished 
Members of the House Ways and Means Subcommittee on Trade. My 
name is Ronald Schoof, and I am responsible for the import-
export and compliance operations at Caterpillar in Peoria, 
Illinois. And I am also chairman of the Joint Industry Group 
(JIG), which is a coalition of more than 160 Fortune 500 
companies, brokers, trade associations, and law firms actively 
involved in international trade.
    I have been asked today to relate to you the position of 
JIG regarding the President's fiscal year 2002 Treasury budget 
and the needed funding for automated systems.
    Customs' current system, Automated Commercial System (ACS), 
is operating at or near 95-percent capacity. And with 
projections of rapidly increasing trade, it will be unable to 
handle the workload without continuing costly life support. 
This will eventually cost more to the U.S. taxpayer than 
building a modern, efficient system.
    We were encouraged when President Bush included $257 
million for Customs modernization and earmarked $130 million 
for ACE in his fiscal year 2002 budget proposal. However, at 
this funding level, it would take over 10 years to fund the 
$1.3 billion Customs estimates that will be needed to build 
ACE.
    Last week, the House Appropriations Subcommittee increased 
this amount to $300 million. We applaud chairman Istook and his 
Subcommittee for these additional funds.
    Since the passage of the Mod Act, the trade community has 
been ready to start developing this system. However, we are, 8 
years later, still fighting for funds.
    We ask this Subcommittee to authorize the President's 
budget proposal and the additional funds the House 
Appropriations Subcommittee is prepared to appropriate to 
return ACE to its original 4-year timeframe.
    Enforcement. With increase in volume of trade, travel, and 
globalization of our economy, the responsibility of U.S. 
Customs to protect American borders from dangerous threats has 
grown dramatically.
    The ACE system will represent the nation's most effective 
and cost-efficient tool for achieving one of the government's 
highest priorities, protecting national sovereignty at our 
borders. It will add two important weapons to the arsenal of 
our national law enforcement agencies: technology and 
intelligence.
    Trade facilitation. We need to understand the new ACE is 
more than a revamped ACS. ACE will allow Customs and the 
private sector to interact in an account-based environment, 
provide efficiency, predictability, and transparency to this 
critical link in the supply chain.
    Customs and industry have already spent the past several 
months working together to redesign the import entry process. 
Today's ACE system operates the way Customs processed imports 
for the past 200 years. Customs recognized the deficiency as 
well and is committed to work with industry through the trade 
support network to design a new entry process based on 
principles agreed to by both Customs and industry.
    As we work out the specific details, we know there will be 
a need for legislative changes to allow the entry process to 
work as it was provided for under the Customs Mod Act. We will 
come back to this Subcommittee with these requests. And I think 
some later panels will have issues on that.
    Merchandise processing fee (MPF). Although the MPF should 
not be a topic of this hearing, recent legislative action in 
the Senate has forced this issue to the forefront. The MPF 
money, over $1 billion collected by Customs, however, does not 
directly fund Customs operation but instead is placed in the 
general fund.
    Last month, the Senate passed Senator John McCain's 
bipartisan patient protection act, which extended the MPF 
expiration from 2003 to 2011. We urge this Subcommittee to do 
all within its authority and jurisdiction to prevent MPF 
extension language from inclusion in any form of bipartisan 
patient protection act or other legislation.
    If the Customs Service is to continue collecting MPF, it 
must directly fund improvements to Customs' processes, 
specifically for ACE and other initiatives that are greatly 
needed to improve the trade process. Only by earmarking MPF 
funds in this manner will the potential for a WTO dispute be 
eliminated.
    In conclusion, the Joint Industry Group supports the 
President's fiscal year 2002 request for funds to develop ACE 
and chairman Istook's effort to increase the needed funding 
level to allow a 4-year ACE development cycle. We ask this 
Subcommittee to authorize these funds.
    Finally, we urge you and all Members of the House of 
Representatives to prevent an extension of the merchandise 
processing fee from inclusion in any legislation to reform 
health care in the United States.
    Thank you for your time, and I would be available to answer 
questions.
    [The prepared statement of Mr. Schoof follows:]

       Statement of Ronald Schoof, Customs and Export Regulation 
Administrator, Caterpillar Inc., Peoria, Illinois, and Chairman, Joint 
                             Industry Group

INTRODUCTION
    Mr. Chairman and distinguished Members of the House Ways & Means 
Subcommittee on Trade, my name is Ronald Schoof and I am responsible 
for customs and export regulation administration with Caterpillar Inc., 
in Peoria, Illinois. I am also Chairman of the Joint Industry Group 
(JIG), a coalition of more than one hundred and sixty members 
representing Fortune 500 companies, brokers, importers, exporters, 
trade associations, and law firms actively involved 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.
    It is my honor to appear again before this Subcommittee to express 
to you the position of the Joint Industry Group and its membership 
regarding President Bush's proposed Fiscal Year 2002 budget for the 
Customs Service, particularly as it impacts the design and 
implementation of the Automated Commercial Environment (ACE). I will 
also discuss Customs' efforts to modernize and simplify the process 
used to handle the trillions of dollars of trade that enters the United 
States every year.

FY2002 BUDGET AUTHORIZATION
    For several years we have worked with the previous Administration 
and Congress to emphasize the importance of the US Customs Service and 
its efforts to modernize its systems.
    We were encouraged when President Bush included $257 million for 
Customs modernization, and $130 million was specifically earmarked for 
ACE, in his FY2002 budget proposal. Although $130 million is a start, 
at this funding level it will take over 14 years to fund the $1.3 
billion Customs estimates will be needed to build a fully operational 
and efficient system. Last week, the House Appropriations Subcommittee 
on Treasury, Postal Service, and General Government, increased this 
amount to nearly $428 million. This increase of $170 million over the 
president's request MUST be specifically appropriated for ACE 
development. This level of funding now puts ACE development back on its 
original four-year development plan. The trade community has been ready 
since passage of the Customs Modernization Act in 1993 to begin 
developing this system. Here we are eight years later still fighting 
for funds to develop a system that Congress told the Customs Service to 
develop.
    With the current system, the Automated Commercial System (ACS), 
operating at 95 percent capacity and with projections of rapidly 
increasing trade flows, ACS will be unable to handle the workload 
without costly life support. Continued life support efforts will 
eventually cost more to US taxpayers than will building a modern and 
efficient system that not only facilitates trade, but also strengthens 
the government's ability to secure our nation's borders.
    We applaud Chairman Istook and his Subcommittee for understanding 
that ACE facilitates US exports and imports, while enhancing Customs 
ability to protect America's borders from illicit narcotics flows and 
terrorist activities. We urge the Subcommittee on Trade to authorize 
the additional funds the House Appropriations Subcommittee is already 
prepared to appropriate to return ACE to its original 4-year timeframe.

AUTOMATED COMMERCIAL ENVIRONMENT: ENFORCEMENT
    An expanding economy, globalization, and an information technology 
revolution are increasing the burden and pressure on the borders and 
enforcement resources of the United States. With this increase in 
volume of trade and travel, the responsibilities of US Customs to 
protect America's borders from dangerous threats have grown 
exponentially.
    In recognition of these many dangers facing the nation, the US 
Customs Service has relied upon technology to keep pace with the volume 
of trade and the threats posed by transnational criminal organizations. 
Unfortunately, the systems and technology that form the backbone of 
Customs enforcement efforts have aged, compromising their ability to 
handle the enforcement challenges of the new century and compete with 
the technology of the criminal element.
    This system is not a Customs' system alone but part of the nation's 
border enforcement system. It is the FBI's system, the State 
Department's system, the Food and Drug Administration's system, and the 
system of every agency of government that has a responsibility to 
protect our nation at its borders.
    For example, traditional border enforcement responsibilities in the 
areas of narcotics control and revenue protection have been expanded to 
include a multitude of new concerns including:
           Terrorism and trafficking of weapons of mass 
        destruction and chemical and biological substances;
           Threats to consumers and children from dangerous 
        imported products, such as flammable pajamas;
           Threats to health and safety of imported foods and 
        medicines;
           Child pornography;
           Money laundering;
           Trafficking in environmentally hazardous materials;
           Trade with prohibited countries such as Iraq, Iran, 
        North Korea, and Cuba;
           Goods manufactured with child and prison labor;
           Trade of endangered species;
           Protection of intellectual property; and,
           Cargo theft which is estimated at $10 billion per 
        year.
    The new ACE system will represent the nation's most effective and 
cost efficient tool for achieving one of government's highest 
priorities, protecting national sovereignty at our borders. The 
selectivity of the ACE system will allow for more efficiency in 
specifically targeting and eliminating illicit and destructive 
transactions. The new ACE system will add two important weapons to the 
arsenal of our national law enforcement agencies: technology and 
intelligence.

AUTOMATED COMMERCIAL ENVIRONMENT: TRADE FACILITATION
    ACE is the key component in allowing Customs to do business the way 
the private sector conducts business. ACE will allow Customs and the 
private sector to interact in an account-based environment, providing 
efficiency, predictability and transparency to this critical link in 
the supply chain.
    The current ACE prototype known as the National Customs Automation 
Prototype or NCAP, being tested on the northern border, uses 
transponder-based technology that allows shipments to clear Customs in 
just 15 seconds. Fifteen seconds as opposed to an average three to four 
hours under the present ACS system. That means less time for trucks to 
sit with idle engines at the port. That means less time for 
manufacturers to wait for components vital to just-in-time delivery 
systems. It ensures that the supply chain moving goods from production 
to the consumer moves quickly and uninterrupted.
    Customs and industry have already spent the past several months 
working together to redesign the import entry process. Today's ACS 
system operates, in many respects, the way Customs processed imports 
for the past 200 years. As technology and automation improved the 
trade's ability to move goods around the world, we are still faced with 
a cumbersome, out-dated import system. Customs recognized this 
deficiency as well and has committed to working with industry through 
their Trade Support Network (TSN) to design, develop, and implement a 
new entry process which can only be fully implemented within ACE.
    We encourage Congress, and specifically the House Ways & Means 
Committee, to become more involved in the ACE development process. As 
we work out the specific details, we are sure there will arise a need 
for legislative changes to allow ACE to work the way it is designed and 
provided for under the Customs Modernization Act. The trade community 
will be sure to come back to this Committee with specific requests as 
needed.

MERCHANDISE PROCESSING FEE
    Although the Merchandise Processing Fee (MPF) should not be a topic 
of this hearing, recent legislative action in the Senate has forced 
this issue to the forefront. MPF is a so-called ``user-fee'' paid by 
importers to cover the cost incurred by Customs to process imports. The 
MPF money collected by Customs, however, does not directly fund Customs 
operations. Instead it is placed in the general revenue fund where it 
is used for any number of government programs that may or may not be 
related to Customs operations.
    Last month, the Senate passed Senator John McCain's Bipartisan 
Patient Protection Act (S. 1052), which extends the MPF expiration from 
2003 to 2011. The House will probably begin considering its version of 
the Senate bill before the August recess. We urge this committee to do 
all within its authority and jurisdiction to prevent MPF extension 
language from inclusion in any form of the Bipartisan Patient 
Protection Act or other legislation.
    Every year, Customs collects over $1 billion from companies, 
including JIG members, importing goods into the United States. 
Additionally, we are burdened by administrative costs associated with 
the fee, since Customs imposes complex reporting and accounting 
requirements in the course of collecting fee payments. All this is 
occurring at a time when tariffs on products are declining and 
approaching zero.
    If the Customs Service is to continue collecting MPF, it MUST 
directly fund improvements to Customs processing, specifically for ACE 
and other initiatives that are greatly needed to improve the trade 
process. While Section 502 of S. 1052 does not earmark user fees for 
health care purposes, it does use the fee as de facto justification for 
the revenue neutrality of the bill. JIG is greatly concerned that this 
approach will prevent user fees from being applied to the commercial 
operations of the US Customs Service for which they are intended and 
needed.
    Use of the fee to offset the revenue impact of S. 1052 could also 
increase potential for a WTO dispute. In the late 1980's, a GATT panel 
found that the user fee was GATT-illegal because it was being collected 
in amounts exceeding the cost of Customs processing. While the US 
addressed that problem by placing certain caps on the fee, it was clear 
from the panel finding that linkage of the fee to the cost of Customs 
commercial operations is of significant importance to the question of 
GATT legality. If our trading partners believe Customs user fees are 
being used to fund health-care related goals, another GATT challenge is 
virtually certain to surface in the WTO and JIG would have no choice 
but to support such a challenge.

CONCLUSION
    Mr. Chairman and members of the Trade Subcommittee, the Joint 
Industry Group supports the President's FY2002 request for funds to 
develop the Automated Commercial Environment and Chairman Istook's 
efforts to increase the needed funding levels to allow a four-year ACE 
development cycle. We ask this committee to authorize the necessary 
funds to allow ACE to be fully operational in a four-year timeframe. 
Again, ACE will allow the Customs Service to better fulfill its dual 
mission of protecting America's borders from foreign threats, while 
facilitating the flow of trade through our air, sea, and land ports.
    Finally, we urge the Ways & Means Committee and all members of the 
House of Representatives to prevent an extension of the Merchandise 
Processing Fee from inclusion in any legislation to reform health care 
in the United States.
    We thank you for your time and consideration of these issues.

                                


    Mr. Houghton. [Presiding.] Thank you, Mr. Schoof, very 
much. Mr. Laden.

   STATEMENT OF MICHAEL B. LADEN, PRESIDENT, TARGET CUSTOMS 
BROKERS, INC., TARGET CORPORATION, MINNEAPOLIS, MINNESOTA, AND 
CHAIRMAN, BOARD OF DIRECTORS, AMERICAN ASSOCIATION OF EXPORTERS 
               AND IMPORTERS, NEW YORK, NEW YORK

    Mr. Laden. Mr. Chairman and Members of the Subcommittee, I 
am Michael Laden, president of Target Customs Brokers, Inc., a 
wholly owned subsidiary of Target Corporation. I am also the 
current chairman of the board of the American Association of 
Exporters and Importers (AAEI). Additionally, Target is a 
founding Member of the U.S. Business Alliance for Customs 
Modernization (BACM). And my comments here today are on behalf 
of that organization.
    Let me thank you on behalf of the Members of AAEI and 
Member companies or BACM for giving us this opportunity to 
express our views.
    Inefficient and redundant border-clearance processes 
employed by the U.S. Customs Service and other government 
agencies that regulate trade at the border impose a 
significantly greater cost on U.S. importers than do direct 
customs duties and other border taxes.
    Last year, this Subcommittee moved legislation that called 
for a study by the Treasury Department of such inefficient and 
redundant border-clearance processes, with a report due to 
Congress later this year. We are very disappointed that there 
has been no funding to hire independent, expert third parties 
to conduct this study despite the law's direction to Treasury 
to do so.
    Government and industry are attempting to complete the 
study. But without economic and ecometric assistance, it is 
difficult to develop an authoritative instruction or protocol 
for the collection, analysis, and extrapolation of data.
    It is clear that the cost of inefficient and redundant 
processes at the border reduces the competitiveness of America 
companies and results in higher costs for all consumers. 
Moreover, by reducing the profitability of American companies 
and raising the cost of living for American families, these 
inefficient border procedures reduce tax revenues for all 
levels of the government.
    There are several reasons for this current situation.
    First, the Customs Service needs to adopt modern business 
processes. There has been no fundamental change to the U.S. 
system for collecting customs duties since it was first 
established more than 200 years ago. Each release of an import 
shipment requires the filing of a complete tax return in the 
form of a customs entry summary.
    Reform legislation enacted by Congress in the late 
seventies merely change the timetable for completing various 
steps of this process. More substantial reforms enacted by 
Congress in 1993 have never been fully implemented.
    Leadership by the new Commissioner of Customs and strict 
oversight by this Subcommittee are needed to ensure that the 
reforms enacted by Congress, such as monthly summary filing of 
statistical and accounting data on imports, are implemented 
soon and with emphasis on reducing the cost and complexity of 
the import process.
    Second, Congress should eliminate or modify obsolete 
customs laws that impose significant costs on importers and 
ultimately on American manufacturers and consumers.
    For example, the country of origin marking law, originally 
enacted over a century ago, creates complexity and costs for 
importers without providing any significant benefit. Moreover, 
the multiplicity of different sets of rules of origin, each 
with different standards under various trade agreements and 
various government programs, unnecessarily adds to the 
complexity and cost to achieve compliance in this area.
    Likewise, the drawback statute, complex and obscure when it 
was originally drafted, has become even more complex and 
obscure through its interpretation and application by Customs. 
At this point, both Customs and the trade community agree on 
the need for clarification, particularly with respect to 
substitution drawback.
    Our tariff schedule has become so prolix that even the U.S. 
International Trade Commission could only provide an estimate 
when we asked them last week how many statistical items are now 
in the Harmonized Tariff Schedule of the United States. Their 
estimate is over 17,000.
    By the year 2005, when tariff reductions and elimination of 
textile quotas agreed to the Uruguay Round are fully 
implemented, there will be a large number of tariff subheadings 
under which subordinate breakouts are no longer required to 
support duty differentials or administration of textile quotas.
    Elimination of the superfluous breakouts under these 
subheadings would be one of the most useful acts that Congress 
could perform for the trade community.
    Finally, Customs needs real help from the Administration 
and the Congress in replacing obsolete automated systems. The 
Customs automated commercial system, built in the early 
eighties and operating on obsolete programming language, locks 
the entire U.S. international trade community into the archaic 
entry system that I described earlier.
    Reprogramming the Customs system to allow implementation of 
Customs reforms approved by Congress in 1993 as well as even 
more streamlined processes supported by the U.S. trade 
community requires investment in new operating applications 
system software.
    Mr. Chairman, let me again thank you and the members of the 
Subcommittee for holding this important hearing, and I shall be 
glad to join my colleagues in answering questions you may have.
    [The prepared statement of Mr. Laden follows:]

Statement of Michael B. Laden, President, Target Customs Brokers, Inc., 
  Target Corporation, Minneapolis, Minnesota, and Chairman, Board of 
 Directors, American Association of Exporters and Importers, New York, 
                                New York

    Mr. Chairman and members of the subcommittee, I am Michael Laden, 
President of Target Customs Brokers, Inc., a wholly owned subsidiary of 
Target Corporation, and I am the current Chairman of the Board of 
Directors of the American Association of Exporters and Importers. Let 
me thank you on behalf of the members of the Association for giving us 
this opportunity to express our views on the important matters that you 
have under consideration.
    It is clear from the Advisory you issued that the Subcommittee is 
interested in hearing trade community views on problems with the U.S. 
Customs Service's current automated commercial system and on how we may 
accelerate development of a replacement, and we shall be pleased to 
address that subject. However, our first concern is that we not make 
the mistake of automating obsolete business processes, and so I would 
like to address that first.
    Mr. Chairman, as a result of trade agreements such as the NAFTA and 
the Uruguay Round, which this Subcommittee has been instrumental in 
developing, U.S. duty rates have been reduced to the point at which we 
now find that inefficient and redundant border clearance processes 
employed by U.S. Customs and other government agencies that regulate 
trade at the border impose a significantly greater cost on U.S. 
companies than do direct customs duties and other border taxes. This 
cost reduces the competitiveness of American companies and results in 
higher costs for all consumers. Moreover, by reducing the profitability 
of American companies and raising the cost of living for American 
families, these inefficient border procedures reduce tax revenues for 
all levels of government.
    The primary reason for this inefficiency is well known. There has 
been no fundamental change to the U.S. system for collecting customs 
duties since it was first established over two hundred years ago. Each 
release of an import shipment requires the filing of a complete tax 
return in the form of a customs entry summary. ``Reform'' legislation 
enacted by Congress in the late 1970s merely changed the timetable for 
completing various steps of the process. More substantial reforms 
enacted by Congress in 1993, in the Customs Modernization title of the 
NAFTA implementing act, have never been fully implemented. As Congress 
oversees the development of a new automated system at Customs, it must 
ensure that Customs' business processes are streamlined to the extent 
possible. Otherwise, we shall find that we have simply automated an 
obsolete system, with minimal gains in efficiency. This is the outcome 
that information technology experts refer to as ``paving the cow 
path''.
    Several fundamental changes are needed. First, the amount of 
information that must be provided to obtain release of goods at the 
border should be reduced to the absolute minimum consistent with 
protection of public health and safety, and Customs' need to assure 
that full accounting and statistical data are filed and duties paid. 
The reason for this is simple. The procedure for release of goods at 
the border is the moment of greatest vulnerability for importers. This 
is true for all importers, all of whom want to manage their supply 
chains as efficiently as possible, but it is especially true for 
manufacturers who are using ``just-in-time'' inventory management 
practices.
    Much importing activity is redundant, that is, goods of the same 
kind are entered repetitively by the same importer, from the same 
exporter, often using the same carrier. For this situation, which is 
common, Customs should create a release procedure that allows importers 
to submit the non-variable information in advance, so that only 
variable information has to be produced at the critical point of 
release. Such a procedure would reduce the risk of delays and it would 
greatly reduce importers' costs of transmitting data to the government 
and the government's cost of processing and storing it.
    After shipments are released, importers should be able to file the 
required statistical and accounting information on a summary basis, 
rather than for each individual release as been required for the last 
two hundred years. If the tax laws required doctors to file a tax 
return and make a tax payment after they saw each patient the AMA would 
be camped on the Mall like Coxey's Army. But that is exactly the 
situation that importers face. Every individual import shipment 
requires the filing of a separate tax return. The Customs Modernization 
Act of 1993 provided for filing an Import Activity Summary Statement 
that would consolidate the filing of statistical and accounting 
information for imports released during a month. We understand that it 
would be difficult to implement that procedure in the current automated 
system, but we would be dismayed to see a new automated system 
developed at Customs without some assurance that a satisfactory 
implementation of the summary filing procedure will be an early 
component.
    Corresponding changes are needed to procedures for paying duties 
and other fees imposed on imports. Although the current transaction-by-
transaction payment system should be retained for small and occasional 
importers, an account-based system would reduce the cost of processing 
payments for larger importers and the Customs Service. The proposal we 
have made to Customs is that large importers should be allowed to make 
semi-monthly estimated payments of duties, with adjustments after the 
end of the month. The semi-monthly payments will allow Customs' to 
maintain its current cash flow position, so that no interest 
calculation will be involved unless importers fail to make payments 
according to the schedule or significantly understate the estimated 
semi-monthly payments. Periodic payment systems similar to the one we 
have proposed are already in use in Canada and Great Britain. We 
believe that U.S. Customs should adopt such a system.
    In addition to these changes, all of which related to reform of 
Customs' entry process, there are other desirable changes to the 
customs laws that we would like to call to the attention of the 
Subcommittee.
    The current drawback law, the law authorizing refunds of duties 
paid on imports under certain circumstances, was complex and obscure 
when it was originally drafted and it has become even more complex and 
obscure through its interpretation and application by Customs. The 
thorniest problem relates to what is called ``substitution drawback''. 
Sections of the drawback statute allow duty refunds in connection with 
the export of goods that are ``commercially interchangeable'' with, or 
of ``the same kind and quality'' as, imported goods on which duty was 
paid. Over the years, Customs' well-intentioned efforts to define these 
two concepts, which are highly subjective, have resulted in their 
becoming increasingly murky. At this point both importers and the 
Customs Service agree on the need for a more objective and workable 
definition of exported goods eligible for substitution drawback. We 
hope to be coming to the Subcommittee shortly with proposed legislation 
to address this problem.
    Another aspect of the customs laws that is showing signs of age is 
the country of origin marking statute. The statute requires that every 
article of foreign origin, with some exceptions, be marked ``as 
legibly, indelibly, and permanently as the nature of the article will 
permit'' to indicate the foreign country of origin to the ultimate 
consumer. Failure to mark articles with their foreign origin subjects 
importers to an additional ten percent duty.
    The marking requirement creates several problems for importers. One 
is that foreign manufacturers may produce goods for export to several 
markets, not only the United States. They are unlikely to mark the 
origin of their products because the laws of the other countries to 
which they sell don't require marking. Consequently, the U.S. importer 
has to pay a substantial premium to have goods produced for the U.S. 
marked with their origin, or arrange to apply the marking subsequent to 
manufacture. This causes delays and significant additional costs for 
importers. A second problem is in knowing what method of marking will 
be accepted by Customs as legible, indelible, and permanent. 
Frequently, Customs and importers disagree over whether a method of 
marking that Customs deems acceptable can be applied without damaging 
an article. Determining the origin of an article to decide whether and 
how it should be marked is yet another problem. Goods are often 
processed abroad in more than one country, or are imported into the 
United States for further processing before they are sold to an 
ultimate consumer. The processing in multiple foreign countries or in 
the U.S. may or may not cause the foreign origin to change, and it is 
difficult for an importer to know this without obtaining a legal 
opinion from an attorney or a ruling from the Customs Service.
    The country of origin marking requirement may have served a useful 
purpose when it was first enacted over a century ago, at a time when 
the commerce of the United States was more insular and consumer 
encounters with foreign-made goods were much more infrequent. In a 
modern global economy, where consumers understand that many of the 
goods they consume are produced abroad, and when consumers rely on 
brand names rather than country of origin as indicators of quality, the 
marking requirement is less meaningful. We believe that it is timely 
for Congress to review the marking requirement, and to consider either 
eliminating it altogether or making required marking the exception 
rather than the rule.
    Another problem with the customs laws that we recommend for 
Congressional consideration relates to tariff simplification. The 
Harmonized Tariff Schedules of the United States are enormously prolix. 
Given the dynamic nature of modern commerce, with frequent changes in 
the design and functionality of products and parts, it has become 
extremely difficult to classify imported goods correctly in the over 
17,000 statistical breakouts that exist in the current tariff. Congress 
will soon have a unique opportunity to address this problem. In the 
next few years, as a result of tariff concessions and elimination of 
textile quotas agreed to in the Uruguay Round, there will be a 
substantial number of tariff subheadings under which subordinate 
breakouts are no longer required to support duty differentials or 
administration of textile quotas. Elimination of the superfluous 
breakouts under these subheadings would be one of the most useful acts 
that the Congress could perform for the U.S. trade community.
    The reforms that I have mentioned--clarification of the drawback 
statute, elimination or modification of the country of origin marking 
requirements, and simplification of the tariff--are not dependent on 
Customs having a new automated system. Moreover, although we are keenly 
interested in Customs' effort to obtain funding for modernizing its 
automated system, and appreciative of this Subcommittee's support, we 
recognize that the chief responsibility rests with other committees of 
Congress.
    However, the reforms I mentioned fall squarely within the 
traditional jurisdiction of this Subcommittee, and are as important as 
improved automation to increasing the efficiency and reducing the cost 
of importing.
    Let me now address briefly the automation question. The U.S. 
Customs automated commercial system, built in the early 1980s and 
operating on obsolete programming language, locks the entire U.S. 
international trade community into the archaic transaction-by-
transaction entry system that I described earlier. Re-programming the 
existing customs automated commercial system to allow implementation of 
customs reforms approved by Congress in 1993 as well as even more 
streamlined processes supported by the U.S. trade community (and 
already being adopted by some of the United States' major trading 
partners) requires investment in new operating and application systems 
software. Notwithstanding the obvious harmful consequences for the U.S. 
economy of neglecting this problem, there has not been aggressive 
leadership from the Executive Branch to secure the funding required to 
implement necessary software upgrades to the Customs system.
    Although a modern automated system that allows efficient processing 
of imports and exports is obviously a national asset, it suffers from 
the same disadvantage that afflicts projects such as building a new 
national air traffic control system or the TSN project at the IRS: the 
benefits at a national level are great but they are too diffuse to 
attract the support of particular members of Congress. As long as these 
three systems can be kept from breaking down entirely, and each of them 
has come close, it is difficult to build an effective consensus for 
replacing them, notwithstanding that a replacement system would be more 
efficient and have much greater functionality.
    This is an unfortunate phenomenon of our system of government, but 
it is a reality with which we have to deal. The American Association of 
Exporters and Importers will continue to urge the Executive Branch and 
Congress to provide funding to complete development of a new automated 
system in not more than five years. However, we are extremely reluctant 
to consider new user fees to fund this project. Importers still pay a 
significant amount of customs duties, pay the merchandise processing 
user fee (none of which goes to improve the services provided to 
importers), and the so-called ``COBRA'' user fee as well as various 
other excise taxes, on much of what we import. We acknowledge that no 
taxpayer wants to pay more taxes but we believe we can make with 
particular validity the argument that we are already paying our fair 
share.
    Mr. Chairman, let me again thank you and the members of the 
Subcommittee for holding this important hearing and for giving us an 
opportunity to express our views. I shall be glad to join my colleagues 
on this panel in answering any question you may have of us.

                                


    Mr. Houghton. Well, thank you very much.
    I think, Mr. Zuniga, you are next, however, what I would 
like to do is to call on Ms. Kelley. I don't think we can have 
three men and then two women.
    [Laughter.]
    So, Ms. Kelley, would you like to go?
    And then we will get right to you.

   STATEMENT OF COLLEEN KELLEY, NATIONAL PRESIDENT, NATIONAL 
                    TREASURY EMPLOYEES UNION

    Ms. Kelley. Thank you very much, Mr. Houghton and Ranking 
Member Levin, members of the Subcommittee, my name is Colleen 
Kelley, and I am the national president of the National 
Treasury Employees Union (NTEU). And on behalf of the 150,000 
Federal employees we represent, including 13,000 Customs 
employees, I thank you very much for holding this Committee 
hearing today and for giving us the opportunity to testify, 
particularly on behalf of the issue that involves a change in 
legislation around Customs inspectors' night differential pay.
    The Customs Officer Pay Reform Act, which is known as 
COPRA, was enacted in 1994, and it governs how the Customs 
inspectional staff receives premium pay for overtime hours and 
night shift work.
    A Treasury Department inspector general's report from 
September 1996 has been cited as evidence of the need for 
changes. However, at the request of Congressman Charles Rangel, 
the Treasury Department responded to additional questions 
surrounding that report. And a closer review of the report has 
shown that it contains some inaccuracies and misleading 
information.
    NTEU believes that the original enactment of COPRA met the 
intent of Congress, and the original enactment of COPRA has not 
caused solely by itself a significant increase in the night 
differential. The need for the amendments that are proposed to 
night pay provisions are not necessary.
    The overhaul of the prior Customs inspectional overtime 
law, which was known as the 1911 Act, occurred in 1993. Its 
intent was to ensure that hours paid to Customs inspectors for 
overtime work bore a more direct relationship to hours worked 
by the inspectors. This intent has clearly been met.
    Before the enactment of COPRA, the 1911 Act system allowed 
an inspector to work only a few hours of overtime and to 
receive several days pay. That has been fixed and that is not 
the case today.
    The second intent of Congress in enacting COPRA was to 
ensure that Customs inspectors' schedules met customer demand. 
That has also happened.
    For example, 8 years ago, most inspectors worked an 8 a.m. 
to 5 p.m. shift and then routinely worked overtime in the 
evenings. Today, those officers are probably divided between an 
8 a.m. to 5 p.m. shift and a 1 p.m. to 9 p.m. shift or some 
other similar configuration.
    This reduces overtime but it increases night differential. 
Clearly, the Inspector General report was wrong to attribute 
increases in night differential payments solely to COPRA.
    The report did not factor in increases in overall Federal 
pay rates, the doubling in commercial workloads with 
commensurate increases in staffing coverage that was needed, as 
well as increases in locations and hours of service that were 
requested by the trade community and by Congress and have been 
provided.
    The recent GAO report that was requested by Senator 
Grassley for the Senate Caucus on International Narcotics 
Control focused on the impact of the proposed changes to the 
night pay provisions. And this report clearly shows the 
devastating impact that would be had if these provisions were 
enacted on Customs inspectors and if they had become law.
    Of the five major ports that were profiled in the GAO 
report--JFK airport, LAX airport, Miami International airport, 
Baltimore-Washington airport and seaport, as well as the San 
Ysidro land border crossing--97 percent of these inspectors 
would have lost night pay, ranging from between $500 to $5,000 
a year. And the report shows that the impact of H.R. 1833 would 
have been nationwide, not just as these five ports.
    The night pay changes in the bill are pay cuts, plain and 
simple. Inspectors would perform the same work within the same 
timeframes and receive less money for that work. Nothing in 
last year's bill, H.R. 1833, would provide a benefit to 
inspectors to offset this pay cut.
    Each year the Customs Service inspectional ranks have been 
asked to do more with inadequate personnel and resources. Trade 
and travel have increased at outstanding rates, yet Customs' 
inspectional ranks have not grown at the same rates.
    The Customs Service relies on overtime to cover regional 
shift work during regional hours of operation. The ever-
increasing hours of work assigned to inspectors every week is 
taking a toll on the health and the morale of the officers. 
They are faced with few days off, 16-hour days for several days 
in a row, and no end in sight to these grueling schedules.
    Telling Customs officers that in addition to their 
increased workload and expanding work schedules, they will 
receive a pay cut for the non-overtime night shift work they 
perform will have a devastating and a senseless impact.
    NTEU agrees with the Members of the Committee that the 
compensation system for Customs is not perfect. For example, we 
strongly believe that Customs inspectors and chief executive 
officers should have law enforcement status.
    So rather than enacting provisions that will definitely 
reduce current take-home pay for Customs employees, it would 
make much more sense to do a comprehensive review of the entire 
compensation package to see if there are changes that would 
make the system fairer and actually benefit Customs as well as 
the hardworking men and women of the Customs Service.
    Thank you very much, again, for the opportunity to be here 
today.
    [The prepared statement of Ms. Kelley follows:]

  Statement of Colleen Kelley, National President, National Treasury 
                            Employees Union

    Chairman Crane, Ranking Member Levin and Members of the 
Subcommittee, my name is Colleen Kelley, and I am the National 
President of the National Treasury Employees Union (NTEU). On behalf of 
more than 150,000 federal employees represented by NTEU, almost 13,000 
of whom work for the United States Customs Service, I would like to 
thank you for this opportunity to present our Union's views on an 
authorization bill for the Customs Service, especially as it relates to 
any legislation which would affect Customs Inspectors night 
differential pay.
    The Customs Service is a front line enforcement agency. Its mission 
is to ensure the public's compliance with hundreds of import laws and 
regulations while stemming the flow of illegal drugs and contraband 
into the United States. It has been nearly a decade since Congress has 
passed a Customs authorization bill. Over the last ten years, 
legitimate U.S. imports have grown at double digit rates, illegal 
narcotics smugglers have begun to exploit new and sophisticated methods 
of moving drugs into the country, and Customs employees have been 
tasked with combating international money-laundering and arms 
smuggling.
    In addition, Customs is the first line of defense against the 
illegal importation of merchandise manufactured with forced child labor 
as well as weapons of mass destruction used in terrorist threats. The 
Agency is also tasked with combating crimes in cyberspace. This type of 
crime most certainly was not envisioned back in 1789 when the Customs 
Service began as the collector of imports and duties on products 
entering the United States. Yet the Agency must keep pace with the 
criminal element that will stop at nothing to exploit children, launder 
money and violate intellectual property rights over the Internet. For 
Customs, the technology and expertise needed to combat cybercrime is as 
essential as the high tech equipment needed for processing legitimate 
cargo and passengers at the hundreds of ports of entry around the 
United States.
    In FY 2001, Customs estimates it will process over 500 million 
land, sea and air passengers. Over 150 million carriers will enter our 
ports in 2001 and over $1.3 trillion worth of merchandise will be 
processed at the borders. Notwithstanding the Customs Service's 
relatively static workforce and increasing workload over the past five 
years, this Agency continues to seize more narcotics than all other 
federal agencies combined. While we expect to keep the drug seizures 
high throughout 2001 and into the new century, additional resources, 
personnel and technology are necessary for this effort. The goal is to 
win the war on drugs without placing an undue burden on trade.

FY 2002 Budget
    The Administration has requested a funding level of $1.96 billion, 
and 17,849 FTEs for fiscal year 2002. While this figure is $98 million 
more than the budget for Fiscal Year 2001 it only includes the bare 
minimum or nothing for long term commitments such as the Automated 
Commercial Environment, new more aggressive enforcement efforts or the 
reauthorization of COBRA. Many think that Customs' funding for FY 2002 
is in jeopardy of falling far short of its needs.
    While NTEU supports increased authorization of funds for the 
Customs Service, no increase in funds will actually be available to 
Customs without increased appropriations. The discretionary spending 
caps in the House and Senate Budget Resolutions, which have recently 
passed, will make increased appropriations extremely difficult, if not 
impossible, to achieve.
Inspection Personnel
    Customs Inspectors and Canine Enforcement Officers (CEOs) at land, 
sea and air ports present the first line of defense to the illegal 
importation of drugs and contraband across our borders. They are 
literally on the front lines. They work in career ladder positions that 
begin at the GS-5 level--approximately $20,000 per year. Only after two 
years will an Inspector reach the journeyman level of his or her career 
from which there is no guaranteed promotion. This journeyman level (GS-
9) begins at $30,000 annually and is the highest grade level most 
Customs Inspectors and CEOs will attain. This level means that at the 
very height of an Inspector's career, and even after twenty-five years 
of dedication to the Customs Service, he or she will make a maximum 
base salary of about $40,000 per year.

Shifts and Irregular Hours
    Not many people recognize the concessions Inspectors and Canine 
Enforcement Officers make for the Customs Service. Their lives are 
controlled by their jobs. First, they rarely work regular 9 a.m. to 5 
p.m. schedules and, unlike hundreds of thousands of their fellow 
federal government employees, Customs inspection personnel have little 
control over the schedules they work in any given two week period.
    Cargo shipments and passengers cross our borders at all times of 
the day and night, and Customs Inspectors must be there to process 
them. It has been noted over and over again that drug smugglers rarely 
work from 9-5. Well, neither do the hard-working men and women of the 
Customs Service. Most Customs Inspectors and CEOs around the country 
are expected to work at a minimum, three different shift schedules. A 
shift one week may be as ordinary as 8 a.m. to 4 p.m., but the next 
week it may be as disruptive to the body clock and family life as 5:15 
a.m. to 1:15 p.m. or even 3 a.m. to 11:00 a.m.
    According to many Customs Inspectors around the country, the 
changing times and workdays leave little time for family life. It is a 
luxury to be at home at the same time as your children and spouse. 
Often it takes hours at home to unwind from an intense and exhausting 
day working on the border or at a port. Inspectors regularly sacrifice 
attendance at school events and teacher conferences, and they rarely 
have an opportunity to oversee daily or nightly activities at home. 
Inspectors combat the extreme cold in winter and intense heat in the 
summer, while they battle sleep problems from working one week on the 
midnight shift and the next on the early morning shift. Many people can 
handle a few weeks of this shift work, but could never survive a career 
of this lifestyle.
    In addition to rotating shifts, Inspectors and CEOs have rotating 
weekends. They basically work a seven-day workweek, and their two days 
off can fall anywhere within those seven days. The majority of 
inspection personnel work both days of the weekend as their regular 
shift. Each individual will learn about his or her shift schedule and 
days off about ten days in advance of working the schedule. Most 
official holidays will fall within their regular workweeks. There is 
never a guarantee that a holiday or weekend will be spent with family 
or friends.
Overtime
    In addition to the unpredictability of their work schedules, 
Inspectors and Canine Enforcement Officers are usually at the call of 
Customs management for orders to work overtime. The staffing levels at 
most ports are not adequate to meet the needs of the port, so 
situations occur daily that require Inspectors to come in to work on 
their days off and to stay beyond their shift for overtime assignments. 
Frequently, they must scramble to find a replacement or struggle to 
arrange childcare and juggle family commitments. Most Customs 
Inspectors and CEOs work at least 16 hours of overtime each week. That 
can mean a seven-day work week or sixteen hour days. This is not an odd 
occurrence; this is a way of life. There are grave consequences for 
refusing to come in for overtime, including termination.
COBRA
    The COBRA user fee account funds all inspectors and canine 
enforcement officers' overtime pay as well as approximately 1400 
Customs positions across the country. This account is funded with user 
fees collected from Air/Sea Passengers except from the Caribbean and 
Mexico, Commercial Vehicles, Commercial Vessels/Barges and Rail Cars. 
Customs anticipates collecting $299 million in COBRA fees during 
FY2001, well below the $305 million they now project in COBRA 
obligations during FY2001. In fact, in the beginning of FY 2001, 
Customs had originally anticipated spending approximately $350 million 
but because of the projected shortfall in the COBRA funding account, 
Customs has cut back on overtime and held off filling hundreds of 
vacant positions.
    This decrease in COBRA spending has decreased services to all 
taxpayers and exacerbated the long delays at many border crossings 
across the country. In fact, as recently as two weeks ago, Customs was 
prepared to close one of the busiest border bridges in El Paso, Texas 
on Saturday's because of the lack of COBRA funding for inspectors. Only 
after congressional and local intervention did Customs reverse its 
decision. This one example is just a preview of what will happen in the 
near future unless Congress responds by reauthorizing COBRA, which is 
set to expire in September 2003.
COPRA
    In 1911, recognizing that the type of work performed by Customs 
inspection personnel was different from that of the typical federal 
employee, Congress passed an Act that paid Customs Inspectors for 
minimum periods of overtime rather than for hours of overtime that they 
actually worked. This law was referred to as the ``1911 Act''. In 1993, 
determining that the 1911 Act left too much room for mismanagement and 
abuse of overtime, this Committee was instrumental in replacing the Act 
with the Customs Officer Pay Reform Act (COPRA). COPRA was drafted to 
ensure that hours paid to Inspectors bore a more direct relationship to 
hours worked. Since 1994, COPRA has been the exclusive pay system for 
Customs officers performing inspection duties. While eliminating the 
rare instance when a Customs officer could earn 32 hours of pay for 2 
hours of overtime work, provisions of COPRA continued to recognize that 
Customs officers deserved pay incentives and enhanced compensation for 
their arduous shift work and irregular hours.
    The pay system for Customs inspection personnel is not unique in 
the federal government. Most federal employees who perform law 
enforcement duties are paid under pay systems tailored to specifically 
compensate them for their work. This is the case for inspection 
personnel and criminal investigators of the INS, DEA, FBI, Border 
Patrol, and National Park Service. INS Inspectors are paid for minimum 
periods of time regardless of their actual hours worked. The FBI, DEA 
and other federal law enforcement agencies pay employees premium pay on 
an annual basis to compensate them for working irregular, unscheduled 
overtime duty. Sometimes this can amount to an additional 25% increase 
in their rate of pay although the officer may not work even one hour of 
overtime or at night during any given week. Other federal criminal 
investigators and Customs pilots receive a 25% pay differential 
annually. This pay incentive is known as availability pay and 
compensates these employees for being available to work outside their 
regular shifts. Like in the Customs Service, these pay systems are 
necessary to attract and retain a high quality and professional 
workforce.
    Under COPRA, a Customs Inspector is paid overtime only when he or 
she works overtime hours as scheduled. The rare instance that an 
Inspector might receive a paycheck for overtime without having worked 
the hours occurs only when there is an administrative or judicial 
proceeding in which Customs is ordered to pay back pay for an overtime 
assignment unlawfully denied to an employee. This situation is not 
governed by COPRA. Rather the remedy complies with the Back Pay Act (5 
U.S.C. 5596) that governs situations for all federal employees who are 
the subjects of improper personnel actions. This specific remedy of 
back pay has been determined by many judges and arbitrators to be the 
adequate remedy for such violations of law by managers throughout the 
federal government. According to arbitrators and judges, without a back 
pay remedy, employers do not have incentive to comply with the 
applicable law, regulations or collective bargaining agreements that 
they enter into. Other remedies would be inconsistent with the remedies 
available to every other federal employee.
    Customs recently implemented a new data system called the Customs 
Overtime Scheduling System (COSS). COSS provides overtime earning 
information for individual Inspectors and CEOs. The system tracks 
schedules and assignment data, maintains projected and actual costs, 
pay cap, equalization, staffing, budgeting, time and attendance and 
billing information. The system better enables management to monitor 
the current $30,000 overtime earnings cap. Overtime disputes have 
dramatically decreased since COSS has been in place. Statutory changes 
are not needed to redress situations that the Agency can and is 
managing now.

Premium Pay
    In addition to overtime, a second piece of this committee's reform 
of the ``1911 Act'' or COPRA governs premium pay for Customs inspection 
personnel. Premium pay is a higher rate of pay for working at night, on 
holidays or on Sundays. For night pay purposes, when a majority of 
regularly scheduled work hours occurs between 3 p.m. and 12 a.m., an 
officer receives an additional 15% of the basic pay rate added for the 
shift. When a majority of regularly scheduled work hours occurs between 
11 p.m. and 8 a.m., an officer receives an additional 20% of the basic 
rate for the entire shift. When an officer's regularly scheduled work 
occurs between 7:30 p.m. and 3:30 a.m., he or she will receive 15% 
premium pay for the hours between 7:30 p.m. to 11:30 p.m. and 20% 
premium pay for hours between 11:30 p.m. and 3:30 a.m. However, if an 
Inspector works less than a majority of hours during the night, none of 
the evening hours are paid at the premium rate. For example, none of 
the hours in the shift 4 a.m. to noon are compensated as night pay.
    The current Customs system for night pay is meant to compensate the 
inspection personnel for living with unpredictability and constant 
irregularity in their work schedules. For most Inspectors, daily shifts 
change every two weeks. That means, one week an Inspector may work the 
graveyard shift, and the next week he or she may be on from 5:15 a.m. 
to 1:15 p.m. The unpredictability of these changing work hours often 
wreaks havoc on family life. Incentive pay systems are not unique to 
the Customs Service and are in place for most law enforcement jobs 
where irregular hours and shifts exist.
    NTEU believes that the original enactment of COPRA met the intent 
of Congress and has itself not caused a significant increase in night 
differential. The need for amendments to the night pay provisions 
enacted in 1994 are unnecessary.
    Congressional intent has been satisfied by the implementation of 
COPRA. The new methodology provides overtime payments to inspectors for 
those hours that correspond to their overtime hours worked. In 
addition, the current schedules available at the ports of entry today, 
including many additional varied shifts and night shifts, correspond to 
customers' needs.

Recent Proposals to Change COPRA
    As you know, legislation has been introduced in the House in the 
105th and 106th Congresses that would change the 
night premium pay provisions of COPRA. A Treasury Department Inspector 
General's Report from September 1996 has been cited as evidence of the 
need for these changes. However, at the request of Congressman Charles 
Rangel, the Treasury Department responded to additional questions 
surrounding that report. (A copy of this response is attached to my 
testimony). A closer review of the report shows that it contained 
glaring inaccuracies and misleading information. According to Treasury, 
COPRA has successfully responded to the problems associated with the 
1911 Act compensation method. For example, 8 years ago, most officers 
worked an 8 a.m. to 5 p.m. shift and then routinely worked overtime in 
the evenings. Today, those officers are probably divided between an 8 
a.m. and 5 p.m. shift and a 1 p.m. to 9 p.m. shift, or some similar 
configuration. This would reduce overtime, but increase night 
differential. Clearly the IG Report was wrong to attribute increases in 
night differential payments to the COPRA itself. It must be mentioned 
that the report states that, ``there has been an intensified effort in 
recent years to align the staff in a port to the hours when most of the 
workload comes into a port. This has caused a significant change in the 
assignment and times of shifts in many ports.'' This point reinforces 
the fact that COPRA is satisfying congressional intent to coordinate 
Customs staff with customer needs.
    In fact, the previous Commissioner of Customs has stated that, 
``while Customs is aware of concerns raised about increases in overtime 
and premium pay costs, there are many contributing factors, other than 
night differential pay. These factors include increases in overall 
Federal pay rates, the doubling in commercial workloads with 
commensurate increases in staff, as well as increases in locations and 
hours of service requested by the trade community and Congress.'' Any 
attempt to change this part of the compensation package without 
assessing the entire field of issues is misguided and wrong.
    A recent GAO report (#01-304) (attached) requested by Senator 
Grassley for the Senate Caucus on International Narcotics Control 
focused on the impact of the night pay provisions included in the most 
recent Customs authorization bill, HR 1833. This report clearly shows 
the devastating impact HR 1833 would have had on Customs Inspectors had 
it become law.
    The most significant amendment to COPRA in HR 1833, would have 
changed the night premium pay system from a shift based system to an 
hour based system. By making this change, HR 1833 would eliminate a 
basic incentive for inspectors choosing to work the difficult late 
night shifts for the increased night differential pay.
    Proponents of HR 1833 have stated that the system proposed in their 
bill actually has three more late night shifts (enclosed), which would 
receive a night pay differential, than the current system. This is 
true, but what they fail to mention is that these shifts, on average, 
provide inspectors with an average of only $24 more a week or $4.80 
more per day, hardly enough to adequately compensate inspectors for 
choosing this difficult shifts.
    Of the five major ports profiled in the GAO report: JFK Airport in 
New York, LAX Airport in California, Miami International Airport in 
Florida, BWI Airport and Seaport in Maryland, and the San Ysidro Land 
Border Crossing in California 97% of these inspectors would have lost 
night pay ranging from $500 to over $5000 a year. The report also shows 
that the impact of HR 1833 would have been nationwide and the loss of 
night pay across the country would have been close to $5 million, 
impacting inspectors assigned to sea ports, air ports and land ports.
    The night pay changes in the bill are pay cuts--plain and simple. 
Inspectors would perform the same work, within the same time frames, 
and receive less money for that work. Nothing in last year's bill, HR 
1833, would provide a benefit to inspectors to offset this pay cut. In 
fact, the report stated that the Commissioner of Customs, along with 
supervisors and some Customs field managers generally opposed the 
section of HR 1833 which would have changed the current night pay 
system. Most felt that lowering night differential pay would lower 
morale and create problems in staffing night shifts at Customs ports.

Premium Pay While In Leave Status
    Another amendment included in HR 1833 would have prohibited Customs 
officers from receiving night differential pay when they take annual, 
sick, or other leave from regularly scheduled night differential work. 
Customs officers are by no means unique in the federal government when 
it comes to night differential pay while in leave status. Federal 
criminal investigators and other federal employees receive their annual 
overtime pay rate while they are in a leave status. Plus, all federal 
employees, including Customs Inspectors, are not compensated at a 
premium rate when they take leave on a Sunday they would normally work. 
The small incentive derived from receiving night differential while on 
leave is a form of compensation for the irregular and unusual hours 
Customs officers work all year. Their sacrifices are far greater than 
the slightly higher remuneration they receive while on leave.

Law Enforcement Officer Status
    In addition to special pay adjustments, federal employees with law 
enforcement officer status receive full retirement benefits after 20 
years of government service in law enforcement. Even Members of 
Congress have this benefit, but currently Customs Inspectors and CEOs, 
who carry guns, make arrests and seize more illegal drugs than any 
other federal group are denied this benefit. As in past years, NTEU 
will continue its efforts to enact legislation (H.R. 1841) to give 
Customs Inspectors and CEOs law enforcement officer status and end this 
disparity. But in the meantime, the current provisions of the Customs 
Officer Pay Reform Act must suffice as incentives for the sacrifices 
Customs Inspectors make to the Customs Service. NTEU believes that 
changes to this pay system are unnecessary.

Recruitment and Retention
    Factors including the uncertainty of irregular hours and the 
requirement to work overtime have contributed to a high turnover rate 
among the Customs inspection ranks. These turnover rates lead to 
increased training costsfor the Agency. After being hired by Customs, 
many young Inspectors complete the training program, gain valuable on 
the job experience, and then move to positions with the Department of 
Justice, the Secret Service, the FBI or with state or local government, 
where they are guaranteed all the benefits of being a law enforcement 
officer.

Conclusion
    Each year, the Customs Service inspectional ranks have been asked 
to do more work with fewer personnel and resources. Trade and travel 
has increased at astounding rates, yet Customs inspectional ranks have 
remained relatively static. More and more, the Customs Service relies 
on overtime pay to cover the costs of regular shift work during regular 
hours of operation. The ever increasing number of hours of work 
assigned to inspectors every week is taking a toll on the health and 
morale of the officers. They are faced with few days off, sixteen hour 
days for several days in a row and no end in sight to these grueling 
schedules. Telling Customs officers that in addition to their increased 
work load and expanding work schedules, they will receive a pay cut for 
the non-overtime night shift work they perform, will have a devastating 
impact on their sense of value to Custom's mission.
    The more than 13,000 Customs employees represented by the NTEU are 
capable and committed to the Customs mission. They are proud of their 
part in keeping our neighborhoods safe from drugs and our economy safe 
from illegal trade. These men and women are deserving of more resources 
and technology to perform their jobs better and more efficiently.
    I applaud this Subcommittee for recognizing the twenty-first 
century needs of the Customs Service. I urge each of you to visit the 
Customs ports in your home districts. Talk to the Inspectors and CEOs 
there to fully comprehend the jobs they do and what their regular work 
lives are like. Then you may understand why NTEU will support a Customs 
authorization bill, but will strongly oppose any legislation that would 
limit the pay or rights of rank and file Customs officers.
    Thank you for the opportunity to be here today on behalf of the 
Customs Service employees to discuss these very important issues.
    [The attachments are being retained in the Committee files.]

                                


    Mr. Houghton. Thanks very much, Ms. Kelley. Mr. Zuniga.

  STATEMENT OF FREDERICO C. ZUNIGA, F. ZUNIGA, INC., LAREDO, 
    TEXAS, AND VICE PRESIDENT, NATIONAL CUSTOMS BROKERS AND 
            FORWARDERS ASSOCIATION OF AMERICA, INC.

    Mr. Zuniga. Yes, Mr. Chairman, and other Members of the 
Subcommittee, I am Frederico Carlos Zuniga of Zuniga Inc., 
licensed U.S. customs broker on the southern border in Laredo, 
Texas, and vice president of the National Customs Brokers and 
Fowarders Association of America (NCBFAA).
    NCBFAA is the nation's trade organization for America's 
customs brokers, professionals who serve as the interface 
between the importing public and the United States Customs 
Service.
    Every element of our daily activity is interwoven with 
Customs, and we are uniquely suited to provide this Committee 
with a candid perspective on the performance of the agency.
    For today's hearing we wish to underscore our role on 
behalf of the nation's small- and medium-sized importers. While 
many of our clients are comparable to the large companies 
represented here on this panel, these smaller importers enter 
70 percent of the transactions.
    It is to these customers that we owe our special effort to 
ensure that the customs entry system is efficient, transparent, 
and serves them just as well as it serves large companies.
    Customs brokers and small importers need a system that is 
reliable, efficient, and that processes transactions quickly. 
The demand of just-in-time inventory are just as great for the 
small company providing parts for a domestic manufacturer as 
they are for the giant manufacturer doing the same thing. And 
in some respects, the consequences of a failure in the system 
are more severe for the small and medium companies.
    Customs must move forward with the development of ACE, and 
Congress must provide the funding for the system. Again, we 
thank you for your support of these efforts.
    With regard to reforming the entry process, for the past 2 
years, Customs Service has engaged the private sector in 
continuing discussions about how the customs entry process can 
be adapted to meet the demands of today's business environment.
    Using the existing processing model, entries are filed 
under a transaction-based system. We firmly believe that the 
fundamental element of today's processing system is sound. It 
is, in fact, the foundation, the rock, upon which an effective 
system exists for most importers today.
    As circumstances have demanded, with import by customs 
importers and brokers, this entry process has evolved over 20 
years and has adapted well to the changes that have taken place 
in world commerce. We therefore observe that this must be the 
basis for Customs operations system under ACE.
    Specific recommendations for Congress: There are issues 
still unresolved from our 2-year negotiation with Customs. 
These matters under dispute need involvement from the Congress, 
and we would like to address several matters here today.
    The first matter is the right to protest. Protest is a 
procedure by which appeals can be made by an importer against a 
Customs decision which he or she disagrees with. Based on a 
decision at the Court of International Trade, Customs has taken 
the position that if no change is made by Customs to an 
importer's final declaration, then there were no possible 
protestable issues. This effectively removes an avenue of 
appeal that has traditionally belonged to an aggrieved 
importer.
    Second, interest applied to periodic payments. Discussions 
have been ongoing about providing a separate avenue to pay 
duties and fees apart from the entry data filing process. 
Rather than burdening the entry process by requiring payment 
for each transaction, why not simply consolidate the money due 
and provide a monthly invoice, much like a credit card system?
    However, unlike the credit card system, Customs wishes to 
impose interest on transaction even though payments would be 
forthcoming and timely at the end of the month. Importers and, 
notably, those small- and medium-sized importers, who are our 
clients, cannot afford this added cost of doing business.
    Finally, with regard to corrections on entries, in the 
past, we have proposed that there be a period in which data 
that is transmitted to Customs can be corrected in the interest 
of making the filing of entry data more accurate.
    It has become clear to us that the downside to this 
proposal, which has been made in good faith, is the likelihood 
that Customs will consider errors not corrected within the 
timeframe as negligence on the part of the importer and, 
therefore, subject to penalty.
    We have, therefore, opted to employ administrative 
procedures now in place, but they must be improved 
considerably.
    We request the Committee's direct involvement here.
    Mr. Chairman, this concludes my testimony. I would be 
pleased to respond to any of your questions.
    [The prepared statement of Mr. Zuniga follows:]

 Statement of Frederico C. Zuniga, F. Zuniga, Inc., Laredo, Texas, and 
Vice President, National Customs Brokers and Forwarders Association of 
                             America, Inc.

    Mr. Chairman. I am Frederico C. Zuniga of F. Zuniga, Inc. of 
Laredo, Texas, and Vice President of the National Customs Brokers and 
Forwarders Association of America (NCBFAA).
    NCBFAA is the national trade organization for America's customs 
brokers, professionals who serve as the interface between the importing 
public and the United States Customs Service. We represent small, 
medium and large importers, preparing their entries, collecting duties 
and other revenues, and ensuring that imported merchandise complies 
with US law. In many respects, we act as a logistics manager, on an 
outsourced basis, providing businesses with the capability to keep up 
with the high-volume, fast-paced demands on their supply chain. We 
serve as an essential resource to Customs in that we are responsible 
for the accuracy, reliability and integrity of data provided by 400,000 
importers. Every element of our daily activity is inextricably 
interwoven with Customs' and we are uniquely suited to provide this 
committee with a candid and intimate perspective on the performance of 
the agency.
    For today's hearing, we wish to underscore our role on behalf of 
the nation's small- and medium-sized importers. While many of our 
clients are comparable to the large companies represented here on this 
panel--and for whom we tailor many of the concepts that you have heard 
them articulate, American customs brokers have a particularly important 
relationship with those who interact with Customs less frequently, or 
in less volume, or with lower valued transactions. This 30% of the 
value of Customs' entries being filed represents a vastly greater 
number of businesses--in fact, it represents almost 70% of the 
transactions being filed. It is here that we bring order to the 
countless and disparate transactions that Customs must handle daily. 
And, it is to these customers that we owe our special efforts to ensure 
that the Customs entry system is efficient, transparent and serves them 
just as well as it serves large companies.

The Automated Commercial Environment (ACE)
    The Automated Commercial Environment is an important step in 
modernizing the Customs Service. Designed to replace the aging and 
increasingly unreliable Automated Commercial System (ACS), a system 
designed in the 1980s and upgraded on an ad hoc basis, ACE represents 
an ability to modernize its technical automated features and provide 
versatility for new methods of doing business. The two previous 
iterations of the Customs Modernization Act in the 1990s envisioned 
profound changes in the entry system designed to help Customs manage 
the overwhelming increase in commercial transactions that is now taking 
place. Yet, without the automated tools to accomplish this, much 
remains undone.
    For customs brokers and smaller importers, the requirements for an 
automated system are reasonably fundamental. We need a system that is 
reliable, efficient, and that processes transactions quickly. The 
demands of ``just in time'' inventory are just as great for a small 
company providing parts for a domestic manufacturer as they are for a 
giant manufacturer doing the same thing. And, in some respects, the 
consequences of a failure in the Customs automated system are more 
severe. While we are told that ``brownouts'' and ``downtime'' have 
diminished lately, Customs notices of times when the system will be 
turned off are too vivid and too recent to give us much solace. Customs 
must move forward with development of ACE and Congress must provide the 
funding for the system.
    The Administration's budget request for FY2002 mirrors the funding 
provided in FY2001. The budget asks for $130M to pay for a system that 
must be deployed in four to five years at a total cost in the range of 
$1.4 billion. Simple math shows that, at this rate, it will take 14 
years to put ACE to work. Not to belabor what many others have observed 
about this funding timetable, let us simply observe that this is 
absurd. The commercial world will change many times over in this 
period. By then, the most important aspect of the entry process will be 
to ensure that goods comply with US standards, particularly health and 
safety, and the volume of merchandise will simply overrun Customs' 
ability to meet these responsibilities.
    We are heartened by reports that appropriators have recently 
proposed funding ACE at the $300M level. Congressmen Ernest Istook(R-
OK) and Steny Hoyer(D-OK), together with their subcommittee, have our 
full support. It will be of equal significance for the Ways and Means 
Committee to authorize funding at a level of $350M or more. And, we 
urge you to do so.

International Trade Data System (ITDS)
    The International Trade Data System is an effort to provide other 
federal regulatory agencies with data much earlier in the entry 
processing cycle so that they can more efficiently clear merchandise 
for entry to the US. From an enforcement perspective, earlier and more 
complete data allows these agencies to screen incoming goods more 
effectively, providing the public with more assurance that the 
requirements of health, safety and other public laws are being met. 
And, from the perspective of brokers and importers, it establishes a 
single point of entry for data.
    Over the course of time, ITDS has gravitated to becoming the 
``front end'' of the new ACE system. In other words, data communicated 
to Customs at the outset of the entry process is then passed on 
immediately to the other federal agencies with jurisdiction. 
Ultimately, they too will have fully paperless, automated processes 
that will more efficiently process information and provide approvals 
for release of merchandise.
    A pilot will soon get underway in Buffalo, NY, whereby ITDS will be 
tested and refined. From here, the pilot will move to other border 
locations and then towards universal implementation. Customs has very 
effectively managed the development of this pilot, overseen by an 
independent Board of Directors comprised of representatives of the 
other affected regulatory agencies. We believe that what we have 
witnessed thus far is a model for interagency cooperation and 
effectiveness. NCBFAA wants this process to remain in place.
    ITDS however requires your Committee's support and active 
involvement. It has enormous ramifications for the future and can help 
contribute to seamless border operations that we all demand.

Reforming the Entry Process
    For the past two years, the Customs Service has engaged the private 
sector in continuing discussions about the manner with which the 
customs entry process can be adapted to meet the demands of today's 
business environment. Our colleagues in industry, as represented on 
this panel, have observed that many of the reforms envisioned by the 
Customs Modernization Acts have not come to fruition because of archaic 
technology and processes that do not serve them well. Thus, as ACE 
begins to move forward in design, the time is now to plan for processes 
that will accommodate their vision for a more streamlined, less costly 
approach. NCBFAA supports them in achieving this goal.
    Yet, at the same time, there are 400,000 other smaller businesses 
that require our attention. Under the existing processing model, they 
file customs entries under Tracks I, II and III. Much of the debate 
between Customs and the private sector evolves around a ``Track IV''--
one which incorporates consolidation of data, periodic filing, periodic 
payment and other innovative changes. As discussions continue in 
Customs' forum, the Trade Support Network (TSN), many of these 
proposals will be adapted for Tracks I-III; however, a majority of the 
change will be reserved for Track IV which will involve a relatively 
small number of companies. NCBFAA supports that result and believes 
that as many companies that wish to enter Track IV should be permitted 
to do so.
    Having said this, we firmly believe that the fundamental elements 
of today's processing system within Tracks I, II and III are sound. It 
is in fact the foundation, the ``rock'' upon which an effective system 
exists for most importers today. As circumstances have demanded, with 
input by Customs, importers and brokers, this entry process has evolved 
over twenty years and has adapted well to the changes that have taken 
place in world commerce. We therefore observe that it is this that must 
be the basis for Customs' operating system as it transitions to ACE. It 
is this processing system that must be moved intact to ACE, as Tracks 
I-III, before innovations are incorporated. We customs brokers and our 
importer customers want to be assured of stability, consistency and 
predictability first and foremost. Improvements can and must come, but 
risk must be prudent.

Specific Recommendations for Congressional Action
    In an exchange of letters in April and May, our private sector 
coalition and the Customs Service agreed on a number of principles for 
the Entry Revision Process, leaving the more laborious task of filling 
in the details to the Trade Support Network. We are reassured now that 
the TSN can fulfill that mandate and work successfully in developing 
these new processes. To date, meetings have been constant, well-
attended and productive. NCBFAA believes that Congress will be 
satisfied with the results of this activity.
    Nonetheless, there were issues left unresolved from our two-year 
negotiation with Customs. This occurred when matters under dispute 
could not be resolved without support from the Congress. We would like 
to address several matters here today.
    Right to Protest: ``Protest'' is a procedure by which appeal can be 
made by an importer against a customs decision with which he(she) 
disagrees. There have been recent decisions at the Court of 
International Trade raising the issue of whether liquidations by 
operation of law may be protested. Customs has taken the position that, 
if no change is made by Customs to an importer's final declaration, 
then there are no protestable issues. This effectively removes an 
avenue of appeal that has traditionally belonged to an aggrieved 
importer.
    There are many situations in which entry information--
classification, value, quantity, duty, fees, etc.--filed by an importer 
is discovered after liquidation to be incorrect, and adverse to the 
importer. There is no good reason why such an entry should not be 
subject to protest so that the importer may recover an overpayment of 
duties
    Interest Applied to Periodic Payment: Discussions have been ongoing 
about providing a separate avenue to paying duties and fees, apart from 
the entry data filing process. As data is filed with Customs to provide 
for the release of imported goods into the commerce of the US, the 
importer may incur a financial liability. Rather than burden the entry 
process by requiring payment for each transaction, why not simply 
consolidate the money due and provide a monthly invoice, much like the 
credit card system? However, unlike the credit card system, Customs 
wishes to impose interest on transactions, even though payment would be 
forthcoming and timely at the end of the month.
    Importers, and notably those small- and medium-sized importers who 
are our clients, cannot afford this added cost of doing business. But 
beyond this, there is no justification for interest to be exacted when 
the benefits to the importer and to the government are mutual. The cost 
to the government of collecting funds with each transaction and the 
savings that can be accomplished by consolidating that activity need to 
be understood.
    Corrections: In the past, we have proposed that there be a period 
in which data that is transmitted to Customs can be corrected in the 
interest of making the filing of entry data more accurate. It has 
become clear to us that the downside to this proposal--which has been 
made in good faith--is the likelihood that Customs will consider errors 
not corrected within that timeframe as negligence on the part of the 
importer and therefore subject to penalty. At the same time, Customs 
has other administrative mechanisms in place, such as reconciliation, 
that essentially permit an ongoing ability for an importer to make 
corrections as required. We have therefore opted to employ these 
procedures for correction purposes, asking that they be improved 
considerably.
    We think that an ongoing, online ability to improve the reliability 
of data is advantageous to all parties and we resist the inclination at 
Customs to make this an occasion for punitive action. We ask the 
Committee's direct involvement here to help us improve the systems now 
in place.
    Mr. Chairman, this concludes my testimony. I will be pleased to 
respond to your questions. NCBFAA is grateful for the opportunity to 
share its expertise and experience on customs matters with the 
Committee.

                                


    Mr. Houghton. Find. Thanks very much. Ms. Hughes.

  STATEMENT OF JULIA K. HUGHES, VICE PRESIDENT, INTERNATIONAL 
  TRADE & GOVERNMENT RELATIONS, UNITED STATES ASSOCIATION OF 
               IMPORTERS OF TEXTILES AND APPAREL

    Ms. Hughes. Thanks for the opportunity to appear today. 
What I want to talk about is a little bit different, about the 
delays and problems with the implementation of the African 
Growth and Opportunity Act and the Caribbean Basin Trade 
Partnership Act (CBTPA).
    It has been 14 months since the Trade and Development Act 
of 2000 was signed into law. Progress toward implementation is 
limited, with many questions unanswered.
    The Customs Service issued interim regulations last 
October, after the law went into effect, but has yet to 
finalize those regulations.
    Rulings on even simple implementation questions have not 
yet been issued. At the rate we are going, it is looking 
extremely unlikely that there will be final regulations by 
October, the 1-year anniversary of laws that only have an 8-
year term.
    In the absence of certainty as to whether their investments 
will qualify for duty-free, quota-free treatment, U.S. 
importers cannot make substantial commitments to shift business 
from Asia to sub-Saharan Africa or to the CBI countries.
    Total apparel shipments from sub-Saharan Africa are 
increasing substantially, but only a small amount of these 
apparel imports actually qualify for the new AGOA benefits. The 
most recent statistics show that only $11.7 million worth of 
apparel imports qualified for the AGOA benefits.
    Similarly, for CBTPA beneficiary countries, a small 
percentage of their apparel imports qualify, only $1.4 billion. 
And even worse, we have seen their actual trade and market 
shares slow down since the passage of this legislation with 
some countries for the first time having negative growth.
    We think these statistics just highlight the fact that 
there are problems with implementation, and we want to just 
summarize the major concerns for U.S. companies.
    First, maybe most importantly, is the question of whether 
knit-to-shape garments are entitled to preferential treatment 
under AGOA. Regrettably, the specific language in the statute 
references fabrics but fails to specifically mention components 
that are formed through a knit-to-shape process.
    We believe strongly that the inclusion of knit-to-shape 
garments was the intent of Congress because all apparel is 
covered. And indeed, Members of the full Committee made this 
clear with your letter on March 6 to Treasury Secretary 
O'Neill.
    The opportunity to expand production of knit-to-shape 
sweaters in Africa is the single greatest opportunity we have 
to develop new business, and yet there is a stalemate that will 
soon lead to the cancellation of millions of dollars of orders.
    Second, there is the issue created by Senator Helms, 
whether dying and printing of U.S. formed greige goods should 
be required in the U.S. in order for apparel to receive those 
benefits.
    There is no ambiguity in the Customs regulations on this 
point. The law is clear, and the law was established under the 
Uruguay Round Agreements Act and the Breaux-Cardin rules of 
origin. That law, even as amended by the Trade and Development 
Act of 2000, says that fabric formation is either weaving or 
knitting and that such operations alone are origin conferring.
    So long as this issue is under public review, however, 
investments in finishing operations, especially in the CBI 
countries, are at risk. And even more important for our long-
term partnerships is the fact that U.S. companies cannot take 
the risk of shifting new orders when the rules may change 
overnight or even retroactively.
    This is the most important benefit for the CBI region to 
attract new business.
    Third, the Customs Service created unnecessary burdensome 
and complicated paperwork requirements. They have done nothing 
to ensure compliance with the law, but do greatly increase the 
likelihood of inadvertent and meaningless errors.
    And fourth, the Customs Service has indicated to Sub-
Saharan Africa countries that it is not sufficient for yarn and 
fabric and other inputs to originate in the region; instead 
they are requiring that all regional inputs must be produced in 
countries that also have in place formal visa system. However, 
since only five sub-Saharan Africa countries are so far 
recognized as having approved visa systems, that limits the 
opportunities for trade in the region.
    Of course, we don't place all of the blame for the lack of 
progress on Customs. Efforts to overturn or rewrite the will of 
Congress through the regulatory process are also undermining 
the success of the law.
    One additional problem that we want to mention is that 
while the law authorized funds to Customs to implement, 
Congress never actually appropriated these monies. Getting the 
necessary funding to Customs would help the beneficiary 
Caribbean and African countries understand and implement the 
law correctly. And that would give U.S. importers a greater 
comfort level in making new investments in these regions.
    Thank you for the opportunity to appear today, and we urge 
the Subcommittee to take action for Customs to finalize the 
rules quickly. Thank you.
    [The prepared statement of Ms. Hughes follows:]

  Statement of Julia K. Hughes, Vice President, International Trade & 
    Government Relations, United States Association of Importers of 
                          Textiles and Apparel

    The United States Association of Importers of Textiles and Apparel 
(USA-ITA), an association founded in 1989 with more than 200 members 
involved in the textile and apparel business, is pleased to have this 
opportunity to address the Subcommittee on progress to date in the 
implementation of the Trade and Development Act of 2000. Regrettably, 
there are many problems and delays to report with respect to the 
implementation of the African Growth and Opportunity Act and the 
Caribbean Basin Trade Partnership Act, and these problems and delays 
are hindering the accomplishments of this extremely important 
legislation.
    As this subcommittee well knows, USA-ITA was a strong supporter of 
AGOA and CBTPA, with our members recognizing the significant 
opportunities presented by duty-free, quota-free access to the U.S. 
market for apparel produced in these two regions. USA-ITA members now 
know first-hand the difficulties of doing business under the complex 
provisions of this new law. USA-ITA, as an association, sponsored 
seminars in South Africa, Mauritius and Kenya to help manufacturers and 
the governments better understand the requirements of the law and 
expectations of U.S. importers. Association members and representatives 
also participated in seminars in several CBTPA beneficiary countries.
    While it has been 14 months since the Trade and Development Act was 
signed into law in May of 2000, progress toward implementation is 
limited, with many essential questions unanswered. The U.S. Customs 
Service issued some interim regulations last October, after the law 
actually went into effect, but has yet to finalize those regulations.
    In addition, regulations governing the treatment of brassieres 
under the CBTPA still have not been issued even in interim form. 
Instead, late last month, the Customs Service posted a draft version of 
such regulations on its website, promising to issue interim regulations 
soon. At the rate we are going, it is looking extremely unlikely that 
there will be final regulations governing the specifics of new law by 
this coming October, the one-year anniversary of laws that only have an 
eight year term.
    As a consequence, U.S. importers are hesitant to make substantial 
commitments to shift business from Asia to Sub-Saharan Africa or to the 
CBI countries in the absence of certainty as to whether their 
investments will qualify for duty-free, quota-free treatment.
    Total apparel shipments from Sub-Saharan Africa are up by 33.8% 
since one year ago--but only a small amount of the apparel imports from 
SSA countries actually qualify for AGOA benefits. The most recent U.S. 
government statistics are for imports through April 2001--and they show 
that while the total value of SSA apparel shipments is $814.4 million 
dollars, only $11.7 million of imports received AGOA duty-free 
benefits. In other words, less than 1.5% of the apparel imports from 
the region are entering under AGOA.
    The trade statistics for CBTPA beneficiaries highlight a more 
troubling problem--growth from the region has slipped to only 1.8 
percent from double-digit growth during 2000. Of the total value of CBI 
apparel imports--$9.7 billion--only $1.4 billion was under the CBTPA 
benefits enhancements. So less than fifteen percent of the apparel 
imports qualify for the new benefits.
    The surprisingly low import growth for AGOA and CBTPA apparel 
shipments highlights the fact that there are numerous problems and 
questions with respect to implementation. Allow me to review some of 
these questions.
    First, there is the question of whether knit-to-shape garments are 
entitled to preferential treatment under AGOA. Regrettably, the 
specific language of statute references fabrics but fails to 
specifically include within its specific terminology components that 
are formed through a knit-to-shape process. USA-ITA believes strongly 
that the inclusion of knit-to-shape garments under AGOA was the intent 
of Congress because all apparel is covered. The Members of the full 
Committee have made this clear, as evidenced by the letter of March 6, 
2001 to Treasury Secretary O'Neill.
    In any event, many knit-to-shape components are analogous to panels 
of fabric. The opportunity to expand the production of knit-to-shape 
sweaters in SSA is the single greatest opportunity we have to develop 
new business--and yet there is a stalemate that will likely lead to the 
cancellation of millions of dollars of orders. We have been urging the 
Customs Service to ensure that its regulations comport with this 
interpretation, but thus far there is no assurance that this will be 
reflected in the final regulations.
    Second, there is the issue created by Senator Helms--whether 
printing and dyeing of greige U.S. formed fabrics should be required in 
the U.S. in order for apparel made from those fabrics to qualify for 
benefits under CBTPA and AGOA. There is no ambiguity in the Customs 
regulations on this point. The law is clear and it is the law 
established under the Uruguay Round Agreements Act, and more 
specifically, the Breaux-Cardin rules of origin. That law, even as 
amended by the Trade and Development Act of 2000, says that fabric 
formation is either weaving or knitting and that such operations alone 
are origin-conferring. Finishing operations such as printing or dyeing 
are irrelevant.
    Yet, so long as this issue is under public review, important 
investments in finishing operations that have been made in the 
Caribbean and Central American countries are at risk. And even more 
important for the long-term partnerships is the fact that U.S. 
companies cannot take the risk of shifting new orders to beneficiary 
countries when the rules may change overnight, possibly even 
retroactively.
    Third, the Customs Service has put forward unnecessarily burdensome 
and complicated paperwork requirements under AGOA and CBTPA. These 
requirements, including a multi-part certificate of origin that 
includes incredible detail, add greatly to the cost of doing business, 
undermining the economic incentive Congress intended to create. They 
add nothing to ensure compliance with the law but do greatly increase 
the likelihood of inadvertent and meaningless errors.
    Fourth, the Customs Service has indicated to Sub-Saharan countries 
that it is not sufficient that the yarn and fabric and other inputs 
originate in the region. Instead, the agency is apparently interpreting 
the law to require that all inputs be produced in countries that also 
have in place formal visa systems. The result is that with only five 
Sub-Saharan countries recognized as having approved visa systems, there 
are a limited number of sources for regional inputs. USA-ITA believes 
strongly that it was Congress' intent that the visa requirement should 
apply only to the country in which the finished garment is 
manufactured.
    Fifth, in the Caribbean, a question has arisen with respect to 
garments that are composed of both regional components and U.S. formed 
components. These so-called hybrid type garments surely should qualify 
for benefits, but so long as Customs fails to issue final clarifying 
regulations, there are no benefits being provided.
    Sixth, the Customs Service has yet to provide guidance on the 
circumstances under which the limitation on foreign findings and 
trimmings applies. For those Sub-Saharan countries eligible to use 
third-country fabrics, it makes little sense to require that the 
findings and trimmings are produced in the region or the U.S., yet we 
have been unable to obtain clarification from the Customs Service on 
this point.
    Obviously the issuance of implementing regulations is Customs' 
responsibility. But we do not place all of the blame for the lack of 
progress in implementation on Customs. Efforts to effectively overturn 
or re-write the will of the Congress through the regulatory process are 
also undermining the success of the law. Another problem is that while 
the law authorized funds to Customs to implement the new law, Congress 
never actually appropriated these monies. Getting the necessary funding 
to Customs could greatly increase the ability of the agency to ensure 
that the Caribbean and African countries entitled to benefits actually 
understand and implement the law correctly. And that would give U.S. 
importers a greater comfort level in making new investments in these 
regions.
    USA-ITA urges the Subcommittee to take action to ensure that the 
Customs Service finalizes its regulations promptly and in accord with 
Congressional intent. Thank you.

                                


    Mr. Houghton. Thanks very much, Ms. Hughes.
    What I would like to do is turn the questioning over to Mr. 
Levin.
    Mr. Levin. Thank you, Mr. Chairman.
    I just have one comment or maybe two comments.
    We, as you know, Ms. Hughes, somewhat discussed these 
issues earlier.
    Ms. Hughes. Yes.
    Mr. Levin. And the Subcommittee and the full Committee 
membership have pressed these issues with Customs and 
otherwise. So maybe we will just leave it at that.
    There may be two sides to some of these stories, but maybe 
not. And if there are, we ought to get them on the table. And I 
hope that will be done quickly.
    Ms. Hughes. Thank you.
    Mr. Levin. I just want to close by saying a word about our 
discussion over the years about pay for Customs inspectors. I 
want us to be sure that Federal law is followed and also keep 
in mind what we are paying people.
    Now, in your testimony, Ms. Kelley, you say, under 
inspection personnel, on page 2, this level means that at the 
very height of an inspector's career and even after 25 years of 
dedication to the Customs Service, he or she will make a 
maximum base salary of about $40,000 per year.
    Ms. Kelley. That is right, Mr. Levin.
    Mr. Levin. Now, this would include or not typical overtime 
pay?
    Ms. Kelley. That would not include overtime.
    Mr. Levin. And what would that be, the typical overtime 
pay, just more or less?
    Ms. Kelley. I hesitate to give you a number because the 
different locations have different hours of operation and----
    Mr. Levin. It increased, do you think, on the average, 50 
percent?
    Ms. Kelley. I think that would be a bit high, but I can get 
that for you.
    Mr. Levin. But anyway, so we might be talking about people, 
after 25 years doing this kind of work of importance and of 
some danger, receiving maybe, with everything included, before 
taxes, maybe $60,000?
    Ms. Kelley. Maybe.
    Mr. Levin. Well, maybe we do need to have a comprehensive 
look at pay.
    And I just think it is easy to lose the forest for the 
trees here. And I would be glad to join anyone in participating 
in a discussion of appropriate pay levels for the people who 
are doing this work. Well, enough said.
    Ms. Kelley. Thank you, Mr. Levin. NTEU would be pleased to 
join you in that effort also. We would be pleased to work with 
you.
    Chairman Crane. [Presiding.] Mr. Houghton?
    Mr. Houghton. Thank you. I just have one question. I have a 
lot of questions, but I won't take your time because it is 
late.
    I am very interested in the African Growth and Opportunity 
Act. So the question I have is, what should the Customs Service 
do in order to help the African nations? And also the Caribbean 
Basin Initiative?
    Ms. Hughes. Our recommendation is that they finalize the 
regulations and issue them as soon as possible. We think that 
they should follow the specific letter that they have received 
from Committee Members about the intent on the knit-to-shape 
issue, which is the major outstanding issue holding back the 
AGOA countries from implementing.
    And also, they should continue their training efforts. As 
acting commissioner Winwood said earlier, they have traveled to 
Africa and they have made efforts at training.
    But training people to take advantage of regulations that 
aren't yet finalized really doesn't help us to move things 
forward. They need to finalize the regulations now, without 
changing the dying and finishing, taking knit-to-shape as I 
think Congress certainly intended. And let's move forward with 
implementing the legislation before we hit the 1-year 
anniversary.
    Mr. Houghton. Right. OK. Thank you very much.
    Chairman Crane. Mr. Becerra.
    Mr. Becerra. Thank you, Mr. Chairman.
    Let me first say to those of you who have worked on this 
issue of the merchandise processing fee, thank you so much. We 
finally got the administration off the dime in not calling for 
a new fee to try to move forward on ACE. And we have so far--
keep your fingers crossed--a pretty good appropriations of some 
$300 million to move forward on ACE.
    So I want to thank you all of you who have been clanging 
the bell for quite some time, saying that there is a processing 
fee that you have been paying for some time, for some 15 years, 
and it should be used to help how Customs processes the 
paperwork that you all need to have done.
    And if we continue forward, maybe in the next few years, we 
will see some success with ACE, and let's say a few prayers to 
make sure ACE works a little bit better than ACS does.
    We are going to be coming up on reauthorization of that fee 
fairly soon. And I know that it is on your radar screens. I 
would urge you to continue to talk to Members of Congress about 
the possibility of dedicating some of that fee toward to the 
payment of ACE.
    I know that has been discussed in the past, and I know 
there are a number of us who would be very willing to work with 
you to make sure that that happens. So I hope that you all will 
continue to make the rounds up here in Washington, DC, because 
there are too many folks that don't recognize it.
    And quite honestly, there are probably too many folks who 
recognize it. There is a pot of money that goes into the 
general fund that has nothing to do with just general revenues. 
It has to do with the moneys that come out of people that you 
know and businesses that you are associated with.
    So if we work together, maybe we will have some success in 
getting ACE taken care of by dedicating some of that processing 
fee.
    Ms. Kelley, I wanted to ask you a question with regard to 
this whole issue of wages and the work hours. How common is it 
to have a Customs officer's scheduled work hours changed to an 
irregular or off-hour shift?
    Ms. Kelley. That can happen frequently, Mr. Becerra, 
depending on the location.
    There are some inspectors who work the same shift on 
regular basis, but there are many others who have rotating 
shifts and whose entire personal life and family life, of 
course, is flipped on its head, so to speak, because it is 
dependent upon whatever that shift is that is needed to process 
the trade as well as the passengers at their ports of entry.
    Mr. Becerra. And let me make sure: We are not talking 
about, say, just a 9 to 5 shift and perhaps and 12 p.m. to 8 
p.m. shift. We are talking about shifts that could take you 
throughout the night; part night, part wee hours of the night; 
part night, part morning.
    So it can be a shift that can be very irregular, and 
irregular is a good word to define it?
    Ms. Kelley. Irregular is a very good word to define them.
    Mr. Becerra. Is it common to have someone who has more than 
just a couple of years--in other words, is low on the totem 
pole--is it common to have someone who has some seniority to 
have to go through this irregular work shift?
    Ms. Kelley. In many locations, it is. Depending on the size 
of the port, of course, and the number of staffing, with 
seniority in some locations probably comes more stability in 
others. But as the trade and the passenger traffic increases, 
the need to have more and more inspectors available for those 
shifts to provide for the entry is required, even with 
seniority.
    Mr. Becerra. So in my city of Los Angeles, where we are 
seeing trade just balloon, which is good for America and good 
for all of us, there is a good chance that a lot of the Customs 
officers, even though they have been around for a long time and 
have a lot of seniority under their belt, are still being asked 
to work irregular work shifts.
    Ms. Kelley. Definitely.
    Mr. Becerra. And I know all of us try to set up routines 
for our families and our regular work life, and chances are, it 
makes it very difficult if you are constantly having to shift 
the times that you work.
    And I don't believe that any of our employers, including 
Customs, makes accommodations to help you with babysitting or 
anything else that may occur as a result of making you all of a 
sudden shift your hours of work.
    Ms. Kelley. That is right. That is a part of having to 
balance your family life and make many sacrifices in order to 
meet the needs of the Customs Service and to provide the 
service that the inspectors want to provide.
    Mr. Becerra. And are you all still in discussion--and by 
that I mean NTEU--are you still in discussions with Customs on 
trying to make sure that whatever we do in terms of changes to 
work shifts and hours and pay, that at least you have been able 
to provide your input so that any changes that Customs makes 
are made with your input in place?
    Ms. Kelley. Yes. We have been working together on a number 
of issues in that area and have had that opportunity. And for 
the most part, on most issues, actually, have the same 
interests and are moving in the same direction. And hopefully, 
we will be successful.
    But, yes, we have had that input. Thank you.
    Mr. Becerra. I encourage you to continue to do that. And I 
thank you for your testimony.
    And I thank all of you who have come today for your 
testimony, and we apologize for the long delays that have 
occurred as a result of our voting, but we thank you very much 
for your testimony.
    Thank you, Mr. Chairman.
    Chairman Crane. Thank you. And I will keep it brief. I just 
have a couple of questions.
    Ms. Kelley, if Congress is to make an exception for Customs 
inspectors and legislate that they be law enforcement officers, 
do they support abandoning the current tailor-made benefits 
package, which includes benefits that law enforcement officers 
don't receive?
    Ms. Kelley. Mr. Chairman, NTEU and the inspectors are 
willing to listen to and to look at any package that would be 
looking at a total compensation package, recognizing that there 
would be shifts. There would be pluses and minuses in any new 
system.
    So, we are more than willing to be in that conversation and 
to consider anything that would be put together in a total 
package.
    Chairman Crane. Ms. Hughes, could you quantify the 
financial impact on local industry in Africa, CBI and U.S. 
industry such as retailers if the Helms legislation were to 
become law?
    Ms. Hughes. We tried to come up with a credible number. 
Part of the problem is that many of the orders that would be 
placed are prospective. So a conservative estimate I would 
imagine is probably around $50 million, which I think is 
probably rather low, but that is just hearing from companies 
that today are ready to shift operations.
    What we see with the dying and finishing is that that was 
probably an unlimited opportunity to shift dying and finishing 
from Asia to closer to home.
    Chairman Crane. Well, let me apologize for the interruption 
when I had to leave during your testimony, but to express 
appreciation to all of you, and to tell you that we are all 
appreciative of your hard labors, and we look forward to 
continuing to work with you.
    And with that, the Committee stands adjourned.
    Thank you.
    [Whereupon, at 5:39 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

                        U.S. Office of Personnel Management
                                  Washington, DC 20415-0001
                                                     August 8, 2001
The Honorable Philip M. Crane
Chairman, Committee on Ways and Means
Subcommittee on Trade
233 Cannon House Office Building
Washington, DC 20515-1308
    Dear Representative Crane:
    Thank you for your letter requesting information on the pay and 
benefits of Customs inspectors. Our responses to your questions are as 
follows:
    (1) Do Custom inspectors meet the legal requirements to be 
classified as law enforcement? Why or why not?
    Sections 8331(20) and 8401(17) of title 5, United States Code, 
define the term ``law enforcement officer'' for the purpose of 
retirement under the Civil Service Retirement System. Under these 
sections, the term ``law enforcement officer'' is defined as ``an 
employee, the duties of whose position are primarily the investigation, 
apprehension, or detention of individuals suspected or convicted of 
offenses against the criminal laws of the United States.''
    Over the years, the Office of Personnel Management (and its 
predecessor agency, the Civil Service Commission) has consistently 
found that the duties of Customs Inspectors do not meet the definition 
of ``law enforcement officer.'' OPM has found that the duties of 
Customs Inspectors are primarily the inspection of merchandise and 
cargo rather than the investigation or apprehension of individuals 
suspected or convicted of offenses against the criminal laws of the 
United States.
    (2) Compare total pay and benefits for Custom inspectors with base 
Federal employee and law enforcement pay and benefits.
    On May 11, 2001, the Congressional Research Service (CRS) prepared 
a memorandum titled, ``Comparison of Compensation Received by Law 
Enforcement Officers and Customs Officers.'' We have enclosed a copy of 
this memorandum for your consideration.
    (3) Identify instances in which Customs inspectors receive more or 
less than law enforcement and base Federal employee pay and benefits. 
Use CRS report as an attachment, if appropriate.
    A June 3, 1998, CRS memorandum entitled, ``Overtime and Premium Pay 
for U.S. Customs Service Officers Compared with Immigration and 
Naturalization Service Officers,'' includes a ``Summary Comparison of 
Overtime and Premium Pay.'' (See enclosed copy.) The table summary 
lists the major provisions governing overtime and premium pay for 
customs officers, immigration officers, and Federal employees covered 
by the Federal Employees Pay Act. The table shows different provisions 
for basic overtime, callback, night, Sunday, and holiday pay for each 
of the groups of employees. The provisions are not easy to compare 
because the terms are defined differently and the minimum time periods 
counted towards overtime pay vary. Nonetheless, it is clear that the 
pay system for customs officers is more generous than the pay systems 
for most other Federal employees.
    For example, Customs officers receive a rate equal to two times 
their hourly rate of basic pay for overtime work not regularly 
scheduled. Most other Federal employees receive a rate equal to one and 
one-half times their hourly rate of basic pay. In addition, the Customs 
pay system authorizes ``callback'' compensation equal to two times the 
hourly rate of basic pay when employees are called back to work for 
unscheduled overtime. Customs officers also receive compensation for 
commuting time at three times their hourly rate of basic pay.
    For regularly scheduled night work, Customs officers receive 1.15 
or 1.2 times their hourly rate of basic pay, depending on the shift 
worked. Immigration officers and other Federal workers receive 1.1 
times their hourly rate of basic pay. For regularly scheduled work on a 
Sunday, most Federal workers receive 1.25 times their basic hourly pay 
rate, while Customs officers receive 1.5 times their basic hourly pay 
rate.
    (4) Are there any Federal, State, or local pay models that compare 
with Customs pay and benefits? Identify them and show comparison.
    Our research on Federal law enforcement pay systems has indicated 
that there is no other pay system that is directly comparable to the 
pay system of Customs officers.
    (5) Does OPM have any data to compare Customs inspectors pay and 
benefits with private sector?
    We do not have this information.
    (6) For comparable work, do Customs inspectors get more or less 
than private sector counterparts, comparing total pay and benefits?
    We do not have this information.
    (7) Specifically, does OPM have data on overtime, nighttime, 
holiday, callback, and Sunday pay situations from the privator sector?
    OPM does not have specific data on premium pay in the private 
sector. However, information available from recent non-governmental 
sources indicate that only a minority of private sector employers 
provide time and one-half overtime pay to employees who are exempt from 
the Fair Labor Standards Act (FLSA). For example, a 1999 Watson Wyatt 
Data Services ``Exhibit Book of Overtime Policies for Exempt 
Employees'' shows that 17 private sector firms out of 104 surveyed 
provided time and one-half overtime pay. Five firms provided double 
time pay, but a majority--54 firms--provided straight time pay.
    In addition, a 1996 compensation survey report of the Human 
Resource Association of the National Capital Area shows that 85 percent 
of the surveyed employers in the national capital area do not pay any 
overtime pay to their FLSA-exempt staff. Of those that do pay overtime, 
the overtime payments typically are made at the employees base rate of 
pay--not time and one-half.
    Thank you for the opportunity to respond to your questions about 
the pay and benefits of Customs inspectors.
            Sincerely,
                                         Donald J. Winstead
                                          Acting Associate Director
                                         for Workforce Compensation
                                                    and Performance
    [The attachments are being retained in the Committee files:]

                                


Statement of J. Anthony Smith, Central American and Caribbean Textiles 
                          and Apparel Council
    Founded in 1993, the Central American and Caribbean Textiles and 
Apparel Council (CACTAC) serves as the spokesman for the textile and 
apparel industry of the CBI countries which are beneficiaries of the 
Caribbean Basin Initiative (CBI) of 1983, enhanced last year through 
the Caribbean Basin Trade Partnership Act.
    CACTAC appreciates the opportunity to submit written testimony to 
this Subcommittee on the progress in implementing the Trade and 
Development Act of 2000 (hereinafter TDA) which includes the Africa 
Growth and Opportunity Act (hereinafter referred to as AGOA) and the 
United States--Caribbean Basin Trade Partnership Act (hereinafter 
referred to as CBTPA).
    CACTAC was active in the effort to obtain both AGOA and CBTPA, and 
hoped that the passage of CBTPA would allow duty-free, quota-free, 
access for apparel to the United States and thereby allow the 
industries and countries in the region to compete with Mexico and Asia. 
We believed it would allow the CBI region to expand its textile and 
apparel manufacturing industry and in the process provide improved 
working conditions and well-paid jobs in the region using U.S. fabric, 
cotton, yarn, and fiber. By integrating their production, the United 
States and the CBI region would be more competitive in the world 
market.

I. The CBI Region Since Passage of TDA:
    It has been over fourteen months since TDA was signed into law, in 
May of 2000, and the promise of TDA, and in our case specifically 
CBTPA, has not been realized. In fact, conditions have deteriorated. 
Regulations are not finalized, ambiguities exist and the efforts of 
some to rewrite the law with intentions to deprive it of key provisions 
like dyeing and finishing, have severely undermined the expected 
benefits of CBTPA. U.S. investors and the U.S. import industry, have 
been unwilling to make the shift in business from Asia to the CBI 
countries. Instead CBI opportunities are being diverted towards Asia.
    Recent figures demonstrate what is happening. The volume of 
worldwide apparel exports to the United States, according to the May, 
2001, Government statistics, has grown by approximately ten percent. 
Exports from the CBI region, however, have only grown 1.82 percent. 
Compared to the double digit increases in the 1990's and the 6.58 
percent increase in December 2000, this is losing ground.
    In fact, more than a year after passage, U.S. Customs statistics 
show that apparel imports from the Caribbean Basin have decreased and 
that imports from other areas, specifically Asia, have increased 
substantially due to the failure to implement CBTPA and the hardships 
that the Caribbean Basin's industries are suffering.
    For example, Mexico, the largest textile and apparel exporter to 
the United States, is up four percent and Bangladesh, the world's third 
largest exporter to the United States, is up 18 percent. Cambodia's 
exports to the United States are up 52 percent, and Burma's textile and 
apparel exports have increased to 83 percent. Honduras, however, the 
second largest exporter to the United States, is up only 1.3 percent. 
It is clear that Asia's share of the U.S. market is increasing 
dramatically.
    Before CBTPA, the textile and apparel industry was fleeing to Asia 
and Mexico where it did not have to use U.S. fabric, fiber, yarn or 
cotton to be competitive. In Asia, labor and raw material costs are so 
low that they can compete with Mexican or Caribbean Basin exports even 
if they pay customs duties, although the working and environmental 
conditions often do not meet U.S. standards.
    Rather than witnessing increased trade and new investment in the 
region, the reverse has happened. Honduras has had eleven plants close 
over the last few months, leaving approximately 8,000 people 
unemployed. In the Dominican Republic, it is even worse. Approximately 
18,000 jobs have been lost. U.S. companies that opened offices in the 
Dominican Republic, after the law was passed, have left. In Jamaica, 
loss of jobs and business has been gradual, but dramatic. This winter, 
the company responsible for approximately 40 percent of Jamaica's 
apparel sector exports, laid off almost half of its workers. In 
Jamaica, over the last four years, more than 20,000 workers have lost 
jobs in the textile and apparel industry.
    An example is the effort to rewrite the CBTPA to prohibit dyeing 
and finishing in the region. This will undermine economic 
opportunities. It primarily benefits Asia and Mexico. It seriously 
undermines the future investments and ability of the CBTPA countries to 
add value in their countries as it eliminates the one open-ended, 
value-added, commercial opportunity provided for in CBTPA.

II. Impacts of CBTPA Implementation Problems on the U.S. Industry:
    The negative impacts affect U.S. industries as well as the CBI 
countries. In the U.S. both the cotton and yarn industries, which 
expected significant new markets in the CBI countries, are experiencing 
a substantial 17-21 percent loss in business. The expected new markets 
for U.S. fabric, cotton, yarn and fiber just have not been allowed to 
develop primarily because the implementation problems have had a 
chilling effect on investment in plants, on sourcing decisions that 
could have resulted in increased purchases in the region, and in 
overall trade within the region.
    When Congress passed CBTPA it created a U.S. trade policy that 
should have encouraged the textile and apparel industry, that had 
already moved to Asia, to move to the Americas. Not only would this 
alleviate poverty in the region, but also the negative impacts that 
result from poverty in the region, such as migration, drug trafficking, 
organized crime, and political instability. CBTPA was also expected to 
be an opportunity for U.S. cotton farmers, yarn spinners, fabric and 
fiber makers and others to open up additional markets in these 
countries. Properly implemented, CBTPA allows sectors of the U.S. 
industry to become competitive in the world economy as we approach 
2005. None of this has happened. The situation must be changed.

III. Policy Foundations for Full CBTPA Implementation:
    There are at least six reasons why U.S. trade policy should 
encourage textile and apparel production in the CBI countries. First, 
CBI countries use their textile and apparel dollars to buy U.S. exports 
while the Asians do not. The CBI trade balance for the United States is 
$2.5 billion positive, while it is negative with the Asian countries. 
Second, under CBTPA, apparel and textile producers are required to use 
U.S. cotton, yarn, fibers and fabrics, while almost none of the fabric, 
yarn, cotton or fiber used in Asia is from the United States. Third, if 
there are no good jobs in the CBTPA countries, people migrate to the 
United States to find work. There are millions of people in the United 
States in this category right now. Fourth, the countries of the 
Americas are jointly trying to control and eradicate the scourges of 
narcotics and organized crime. The development of employment 
opportunities in the region through trade is the foundation of that 
effort. Fifth, the poverty in the CBI countries and Africa must be 
alleviated if there is to be long-term political stability and 
consolidation of fragile democracies. Sixth, and lastly, U.S. consumers 
benefit by production in the region that produces competitively priced 
apparel.

IV. Conclusion:
    CACTAC urges the Subcommittee to continue its efforts to implement 
the AGOA and CBTPA as pro-trade legislation in order to reach the goals 
that were set forth in May of 2000.
    We attach as exhibits to this testimony the numerous letters and 
position statements which have been presented to the Administration by 
the Ministers and Ambassadors of our countries urging a pro-trade 
implementation of CBTPA.
    [The attachments are being retained in the Committee files.]

                                


  Statement of the International Mass Retail Association, Arlington, 
                                Virginia

    This statement is submitted on behalf of the International Mass 
Retail Association (IMRA), the world's leading alliance of retailers 
and their product and service suppliers. IMRA is committed to bringing 
price-competitive value to the world's consumers. IMRA improves its 
members' businesses by providing industry research and education, 
government advocacy, and a unique forum for its members to establish 
relationships, solve problems, and work together for the benefit of the 
consumer and the mass retail industry. IMRA represents many of the 
best-known and most successful retailers in the world, who operate 
thousands of stores worldwide. IMRA equally values among its members 
hundreds of the world's top-tier product and service suppliers, working 
with their retailer partners to further the growth of the mass retail 
industry.
    Most of IMRA's retail members import products into the United 
States or rely upon imported products to fill out their merchandise 
assortments. Several of IMRA's retail members and many of its supplier 
members also export products from the United States. For this reason, 
IMRA has a strong interest in seeing an efficient Customs service that 
reflects the needs of businesses in the 21st Century.
    Unfortunately, the commercial operations of the U.S. Customs 
Service struggles under the weight of obsolete technology and a vision 
that IMRA strongly believes is obsolete as well. Two-hundred years ago, 
when Congress first created the Customs Service, the main goal of the 
agency was to collect revenue. Indeed, the Customs Service was the 
nation's principal revenue collector for more than a hundred years 
before the Internal Revenue Service.
    Today, Customs collects only about $20 billion in tariff revenue 
each year, and if the current Administration's goals for expanding 
world trade bi-laterally and multi-laterally come to fruition, that 
revenue is likely to decline steadily.
    More to the point, Customs' official standards were set when goods 
arrived on sailing ships and no one concerned themselves with slight 
quantity variances that don't affect revenue. Now, with the miracles of 
the electronic age, Customs has access to a level of detail never 
before available and sets standards that are unrealistic and capture 
immaterial variations. Importers often feel as if Customs' compliance 
efforts devolve into nit-picking for the sake of information that is of 
no particular consequence, even to the revenue.
    IMRA would respectfully suggest that the Customs Service's role is 
far more complex. In commercial operations, Customs is on the front 
line in enforcing consumer protection and intellectual property laws as 
well as protecting our borders.
    For these reasons, we are uncertain that the current body of U.S. 
Customs law and regulation is tailored to today's environment where 
duties average just three percent and where just-in-time delivery is 
critical.

Redefining the Mission
    IMRA believes Congress should begin an immediate and serious review 
of the U.S. Customs Service and its commercial operations with a view 
toward developing a strategic plan that will carry the agency through 
the next ten to fifteen years. As part of this plan, Congress should 
seriously re-evaluate Customs' main missions and funding for those 
missions, accordingly. While we recognize that this hearing covers only 
the next few years of funding needs, we implore the Subcommittee to 
take a longer-term look at the agency and the enforcement mechanisms 
and penalties it brings to bear on various types of infractions. Duty 
collections should be enforced post-entry. Data collection and accuracy 
standards should be reevaluated. We believe this longer-term review of 
the Customs Service is related to several issues raised at this 
hearing.

ACE is Desperately Needed
    IMRA has long supported and even led the industry efforts to fully 
fund the development of ACE over the shortest possible time frame. We 
urge the subcommittee to authorize whatever sums are necessary to keep 
this project on a four-year basis and to use its influence with House 
appropriators to fully fund ACE development. We support this step 
because the current Automated Commercial System (ACS) cannot move the 
Customs Service to an ``account based'' approach to managing import 
enforcement. Under ACS every transaction is a separate record. The 
system cannot aggregate these records. In order to move toward a new 
approach to revenue collection which places enforcement on the post-
entry phase, we must have technology that will treat importers and 
exporters--such as IMRA's members--as single entities. Without this 
technology, we cannot hope to make progress on many other issues.
    IMRA strongly encourages Congress to remain closely involved with 
the development of ACE. Indeed, it's critically important that Congress 
exercise ongoing oversight into the development of the system to ensure 
that it is scalable and is designed with a clear vision for where the 
agency is going in the next ten to fifteen years. For this reason, IMRA 
reiterates that a single authorization hearing is not sufficient to 
ensure that ACE is developed properly. On-going oversight is needed and 
a strategic plan for the future ought to be developed.

We Need More than a Revision of the Entry Process
    To take the Customs Service into the 21st Century where tariffs 
will increasingly be irrelevant, we need more than a mere ``revision'' 
of the entry process. We need some bold thinking that will allow for 
the main enforcement of revenue issues to occur post-entry. We need a 
reevaluation of the data we collect at entry and that we maintain 
through the process that addresses both the data elements and the basic 
issues of accuracy. Finally, and most important, we need a thorough 
review of Customs' auditing abilities and approaches. With enforcement 
in the commercial arena moving to the post-entry phase, auditing is a 
critical issue. Too often, importers feel as if auditors are nit-
picking on immaterial statistical issues. A thorough examination of the 
issue of data accuracy is needed. Guidelines must be set.
Congress Should Eliminate the MPF or Tie it to Customs Funding
    It is also timely to note that, while not a subject specific to 
this hearing, the Merchandise Processing Fee (MPF) is slated to expire 
in 2003. Congress will shortly have to decide if this fee should be 
extended. IMRA strongly opposes its extension unless it is specifically 
tied to commercial operations funding.
    Currently, the fee is supposed to offset the cost of commercial 
operations. However, Customs has not demonstrated this fact to the 
trade community, which pays approximately $1 billion each year in MPF 
fees. Indeed, over time the MPF could become as important as the actual 
duties. Unless these fees are tied to commercial operations they are 
potentially subject to WTO challenges. More important, it's a matter of 
fairness to companies like IMRA's members, who must pay a fee for the 
privilege of paying a tax.
    In previous years, Congress has used the MPF extension as a pay-go 
offset for a variety of programs having nothing to do with Customs 
Commercial operations. Indeed, at this writing, the Senate has 
suggested using the MPF to offset costs associated with Patients' Bill 
of Rights legislation. IMRA strongly opposes these uses of the MPF and 
urges the Subcommittee to either end the fee or create a trust fund for 
Customs Commercial Operations using MPF fees.

Customs' Interpretation of the African Growth and Opportunity Act is 
        Flawed
    On a separate, but related issue, IMRA takes strong exception to 
Customs' interpretation of the statutory language contained in the 
African Growth and Opportunity Act with respect to knit-to-shape 
garments. In its rules on this new law, Customs has chosen to interpret 
the statute to mean that no knit-to-shape garments wholly made in the 
qualifying Sub-Saharan countries are eligible for special access to the 
United States. IMRA was deeply involved in the crafting of this 
legislation, as was the Customs Service, it was well known at the time 
of the law's enactment that Congress intended to provide special duty-
free access to knit-to-shape garments made in the Sub-Saharan African 
region. We do not understand why Customs has chosen to take this 
contrary view, especially since we believe the agency is well aware of 
the legislative history. More important, there is no earthly reason to 
exclude these garments, which is why they were never subjected to the 
import cap.
    We know that members of the Trade Subcommittee have expressed their 
views to the Customs Service, but we believe that only additional 
legislation will solve this problem. We urge the Subcommittee to 
quickly move such legislation, along with other technical corrections 
to the bill. We believe that such legislation would not expand the 
scope of AGOA, as it is clear that Congress intended to provide special 
access to these types of garments.

                                


     Statement of Jane O'Dell, U.S. Business Alliance for Customs 
                             Modernization

    Chairman Crane, Ranking Member Levin and Members of the Committee--
Thank you for allowing me the opportunity to file this written 
statement in lieu of a personal appearance before the Ways and Means 
Trade Subcommittee regarding trade agency budget authorizations and 
other customs issues.
    My name is Jane O'Dell and I am the Vice President, International 
Trade & Custom Compliance for Limited Logistics Services, the supply 
chain subsidiary of The Limited, Inc. The Limited is a founding member 
of the U.S. Business Alliance for Customs Modernization (BACM), a 
coalition of 25 large U.S. companies heavily involved in importing and 
exporting. The other members of BACM are American Honda, Archer Daniels 
Midland, BP-Amoco, Caterpillar, Compaq, Daimler Chrysler, DuPont, Ford, 
General Electric, General Motors, Hewlett Packard, JC Penney, Mattel, 
Microsoft, Nissan, Nortel Networks, Pillsbury, Sara Lee, Sears, Shell, 
Sony Electronics, The Limited, Toyota and WalMart. BACM is dedicated to 
modernization of U.S. customs laws, regulations and policies to reflect 
the 21st Century business environment and facilitate trade 
to the greatest extent possible consistent with effective compliance. 
The importance of this goal to our member companies cannot be 
understated--during the year 2000, BACM companies filed approximately 2 
million customs entries valued at over $130 billion.
    BACM as well as others in the trade community have been frustrated 
by the slow pace of the effort to modernize and streamline the customs 
entry process. U.S. business has invested heavily in reengineering its 
operations to achieve efficiencies. Modern business practices of just-
in-time delivery, e-commerce, and the integrated management of the 
global supply chain are critical to U.S. competitiveness. I can tell 
you that my company has put tremendous resources into technology to 
shrink the time from order placement to delivery of product. This 
effort to remain competitive can be completely undercut by inefficient, 
redundant, and labor-intensive Customs requirements.

Unfulfilled Mod Act Commitments
    I would like to remind us all that in 1993 we in the U.S. business 
community made a deal with the government in the form of the Customs 
Modernization Act. We took on the tasks of informed compliance, 
reasonable care, new recordkeeping requirements and penalties. In 
return we were promised a more transparent, efficient process for 
releasing goods and paying duties. We were told that the agency would 
move away from transaction-based processing to an account-based system, 
more responsive to the way business is organized. We believe we have 
kept up our end of the bargain. The investments in technology I have 
mentioned have included those to enable us to meet our Mod Act 
responsibilities. Many U.S. importers also have spent millions on 
infrastructure to manage these informed compliance obligations that we 
agreed to take on. Indeed, at The Limited my position did not even 
exist a few years ago.
    But we have not seen the government deliver on its part of the 
deal. For example, one of the key programs for business in the Mod Act 
is the Importer Activity Summary Statement (IASS), a method by which 
the importer would be able to summarize and pay duties on its importing 
activity in an aggregate manner on a monthly basis. This would be 
consistent with the way many companies account for arriving 
inventories, and offer real economies to those who maintain 
transaction-by-transaction data only to satisfy the Customs accounting 
system (a hold-over from the days of sailing ships). Every time we have 
to gather and transmit data and duty payments, there is an additional 
cost for us. Customs incurs expense with every transmission it 
receives. Good government and sound fiscal management, as well as cost-
effective business practices, were recognized by the Congress as 
benefits for IASS.
    To date, IASS has not even been prototyped, never mind implemented. 
We are told that Census has concerns about its ability to meet its 
trade statistics collection and reporting obligations, and that Customs 
does not want to expend the resources to program IASS into the ACS 
system (which hopefully will be replaced with ACE). Whatever the merits 
of these excuses (and the legislation authorizing IASS is nearly 10 
years old), the point is that the trade has not been able to realize 
even this relatively modest step toward an efficient entry process.\1\
    ``Reconciliation'' is another Mod Act program that hasn't lived up 
to its billing. Reconciliation allows an importer to file updated or 
corrective information sometime after entry (up to 15 months later, 
depending on fiscal year), without the fear of fines or penalties. In 
concept, it is an attractive program, but in implementation it has 
proven to be cumbersome and of limited utility. One major limitation is 
that Customs only permits reconciliation to be used to correct a few 
issues, which represent only a fraction of the discrepancies or 
unavailable data for which the importer might need to adjust a 
declaration. Another problem is the requirement to ``flag'' entries for 
reconciliation at the original time of presentation--often the importer 
does not know at time of entry filing that the data will need to be 
reconciled. We are also learning that 15 months is not long enough for 
some businesses--it is really only 3 months after the close of the 
fiscal year, and a complex manufacturing situation may require 
additional time to be thorough and accurate. Our experience is that 9 
months after the close of the fiscal year, thus 21 months from the 
beginning of the fiscal year, is much more realistic.

Entry Revision
    In December of 1999, Customs launched its Entry Revision Project 
and engaged the trade community in a discussion of the design of the 
entry process under ACE. After extensive discussion and debate, Customs 
and a broad trade coalition recently agreed on the general principles 
and concepts that should guide the entry process redesign. Some issues 
remain unresolved and will need to be addressed later; and naturally 
details need to be worked out. The developmental work has now shifted 
to the Trade Support Network (TSN), through which the trade community 
has the opportunity to provide input to the ACE design process.
    One thing that has become perfectly clear in the ERP-TSN 
discussions is that wholesale entry reform from the current 
transaction-by-transaction system to a true account-based system is an 
evolutionary process. While some members of the trade community could 
move instantly to account-based reporting, others, and Customs itself, 
will probably need to progress in incremental stages. The fact is that 
the government as a whole is not prepared at this time to move to such 
a true account-based system without restrictive measures that would 
undermine its usefulness to business. The trade community has been 
concerned over the impact of Customs' proposals on its contingent 
liability if the finalization of an entry is extended by using an 
aggregate processing method.
    The good news is that Customs tells us that a key design element of 
ACE will be its flexibility. Theoretically, then, members of the trade 
community should be able to participate in those programs consistent 
with its business processes, rather than distorting processes to 
satisfy an archaic system. Mover, we should be able to incorporate 
design changes as consensus is reached. BACM and the rest of the trade 
community are committed to supporting and advising Customs through this 
evolutionary process.

Treasury Data Study
    Last year Congress passed the Miscellaneous Trade and Technical 
Corrections Act, section 1442 of which called for study by the Treasury 
Department of the data reporting requirements on goods entering the 
United States. The law calls for a report to Congress on ``changes that 
should be made to reduce reporting and record retention requirements 
for commercial parties.'' Specifically, the law envisages (1) the de-
linking of data reporting for release purposes from data reporting for 
revenue and statistical purposes; (2) the reduction to a minimum of 
data required for admissibility purposes; and (3) the elimination or 
more efficient collection of data that is unnecessary, overly 
burdensome, or redundant. BACM applauded this step, as it reflected the 
recognition of the Congress that inefficient Customs processes are non-
competitive, and hold U.S. companies back from achieving their highest 
efficiency. The aim of the study was to determine how to make the 
process more effective by focusing on the information critical to the 
national interest (admissibility), and to statistics and revenue 
protection as a business processes, not border operations.
    Since early this year, this Treasury study has been underway. 
Through the Commercial Operations Advisory Committee (COAC), the 
business community has cooperated in this study. In particular, COAC 
members have, working with Treasury, devised a survey which has been 
widely distributed to the importing community, the responses to which 
are being received, reviewed, and summarized by COAC. In short, the 
trade community is doing its best to provide meaningful input to the 
Treasury.
    As the proponent of the legislation calling for the data study, 
BACM must, however, express its deep disappointment over the lack of 
funding for the study. Section 1442 expressly directed the Secretary to 
include ``independent third parties selected by the Secretary for the 
purpose of conducting such review.'' This language was intended to 
enable the use of econometric experts in order to ensure a thorough, 
valid analysis. But no such experts were ever utilized, because we were 
told there were no funds available for that purpose. The lack of that 
expert resource has delayed the study, and made it much more difficult 
for industry to provide meaningful input.
    BACM believes that this type of study is a critical foundation for 
building government processes consistent with a 21st century economy. 
It is a pity that funding problems have made it much more difficult to 
be able to provide to the Congress the factual analysis it needs in 
order to effectuate true entry reform.
Other Legislative Changes
    Section 1442 of the Miscellaneous Trade Bill of 2000 was part of 
the original BACM bill to amend the laws in entry procedures, H.R. 
4337. Certain other parts of H.R. 4337 did not make it into the 
miscellaneous bill, primarily because there was not enough time left in 
the session to reach agreement between the government and the trade on 
acceptable language. BACM believes it is time to revisit some of those 
key provisions left over from H.R. 4337. In addition, we have 
identified other legislative changes that will contribute to the 
broader entry reform and Customs modernization effort. I would like to 
take a moment to briefly mention the more important of those changes:
           Netting of Over-Declarations against Under 
        Declarations: In audits, Customs should be given the authority 
        to offset instances in which the importer has overpaid duty or 
        overstated value or quantity against those instances of 
        underpayment or understatement. Customs has expressed the 
        willingness to do such nettings in the audit context, but 
        insists that current law precluded it from doing so. The law 
        should be changed to allow this common-sense approach.
           Restore Equilibrium Between Revenue-Loss and Non-
        Revenue Loss Penalties. When Section 592 of the Tariff Act was 
        revised in 1978, there was

        an attempt to approximate the level of monetary penalties 
        applicable in cases involving no duty loss to the government to 
        those involving a duty loss. As a result of the gradual 
        reduction in duty rates through multilateral negotiations, the 
        equilibrium between the two types of cases has been upset, with 
        non-revenue loss cases generally being subject to much higher 
        penalty levels than those cases where the government actually 
        has been deprived of revenue. Particularly because non-revenue 
        loss cases (e.g., incorrect statistical reporting at the last 2 
        digits of the tariff schedule) can often be less serious than 
        revenue-loss cases, this anomaly should be eliminated by 
        adjusting the statutory non-revenue loss penalties to be in 
        line with the revenue-loss penalties.
           Clarify that ``No Change'' and ``Deemed'' 
        Liquidations are Protestable. For decades, importers have had 
        the right to file protests at the time of liquidation of an 
        entry in all cases. A recent ruling by Customs Headquarters and 
        public pronouncements by Customs have suggested that in many 
        situations, importers may not be able to file protests. Customs 
        theorizes that in most ``no change'' or ``deemed'' 
        liquidations, which are the vast majority of liquidations, 
        there is really no Customs ``decision'' to protest, because the 
        entry liquidates in the same way the importer made entry. The 
        statutory right to protest, Section 516 of the Tariff Act, 
        should be clarified to remove any ambiguity and to confirm the 
        right to protest any and all liquidations.
           Improve Reconciliation. For the reasons I have 
        already stated, this program is in drastic need of improvement. 
        Clarifying that all issues can be reconciled, making 
        ``flagging'' easier, extending the time period to 21 months, 
        and generally making the reconciliation process less cumbersome 
        would make it much more attractive and useful to the majority 
        of importers.

Simplification
    Finally, I would like to address a growing problem that those of us 
on the ``front lines'' of trade encounter on a day-to-day basis--the 
ever-increasing complexity of the rules affecting trade. Of course, in 
the age of globalization where new markets and sources continuously 
become available to traders, there is bound to be a certain level of 
complexity that is a given. We in industry accept and can deal with 
that. But when additional layers of complexity are imposed by law or 
regulation, often needlessly or for questionable reasons, it poses a 
terrific, and I would argue undue, burden on those of us trying our 
best to do the right thing. Let me give you one or two examples of what 
I mean. The tariff schedule is the code under which all imports must be 
classified in order to determine their duty rates and whether other 
import requirements apply. Due to special interests, outdated 
terminology, ``statistics creep,'' and other reasons, the tariff 
schedule has expanded in an unabated fashion to number about ten 
thousand line items in its present form. It is incredibly challenging 
to determine the most appropriate tariff line item in every case. Yet, 
the Mod Act concept of ``reasonable care,'' as interpreted by Customs, 
means that we have to make the correct determination 100 percent of the 
time, at the risk of penalties if we do not. In an era in which many 
products are free of duty anyway, or the differences between duty rates 
are minor, the burden and cost to business of an overly-complex tariff 
schedule cannot be overemphasized.
    Another area of concern is the proliferation of rules or origin. It 
seems that each new trade agreement, or government program, imposes a 
set of origin rules. They tend to be highly technical and cumbersome--
but worst of all each set of rules differs from the others. For 
example, the country of origin marking rules for NAFTA are different 
than the general marking rules. The preferential rules of origin are 
different in each of the following programs: Generalized System of 
Preferences (GSP), NAFTA, and the U.S.-Israel Free Trade Agreement. 
Further, rules of origin for textiles are subject to special rules, 
again not always consistent under different trade agreements or 
programs. As the U.S. attempts to move forward with additional 
bilateral or regional trade agreements, there is a danger of yet other 
layers of origin rules. The multiplicity of these rules of origin makes 
it extremely difficult for anyone to fully understand and comprehend 
them all. In truth, their complexity makes it hard to even know what 
the rules are.
    BACM believes that, in addition to automation and modernization, 
simplification of the importing process is overdue. The layers of 
complexity that I have described are unnecessary--removing them would 
in itself streamline the entry process for both business and 
government.
    On behalf of BACM, I thank the Committee for the opportunity to 
present this written submission in lieu of a personal appearance.

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